G.R. No.
70926 January 31, 1989 to the effect that they were both present when the receipt (Exhibit "A") was signed by
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate
Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First
Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria
and ordering the petitioner to pay to the private respondent his share in the annual
profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then Court
of First Instance of Manila, Branch II to recover the sum equivalent to twenty-two
percent (22%) of the annual profits derived from the operation of Sun Wah Panciteria
since October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz,
Manila, was established sometime in October, 1955. It was registered as a single
proprietorship and its licenses and permits were issued to and in favor of petitioner Dan
Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the
trial of the case to show that Sun Wah Panciteria was actually a partnership and that he
was one of the partners having contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private
respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a
receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of
the P4,000.00 by affixing his signature thereto. The receipt was written in Chinese
characters so that the trial court commissioned an interpreter in the person of Ms.
Florence Yap to translate its contents into English. Florence Yap issued a certification
and testified that the translation to the best of her knowledge and belief was correct. The
private respondent identified the signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in his (private respondents') presence.
Witnesses So Sia and Antonio Ah Heng corroborated the private respondents testimony
the petitioner. So Sia further testified that he himself received from the petitioner a
similar receipt (Exhibit D) evidencing delivery of his own investment in another amount
of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of the
trial court granting the private respondents motion for examination of certain
documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the
signature of the petitioner appearing in the pay envelopes of employees of the
restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of
P12,000.00 covered by the latter's Equitable Banking Corporation Check No. 13389470-
B from the profits of the operation of the restaurant for the year 1974. Witness Teodulo
Diaz, Chief of the Savings Department of the China Banking Corporation testified that
said check (Exhibit B) was deposited by and duly credited to the private respondents
savings account with the bank after it was cleared by the drawee bank, the Equitable
Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation
testified that the check in question was in fact and in truth drawn by the petitioner and
debited against his own account in said bank. This fact was clearly shown and indicated
in the petitioner's statement of account after the check (Exhibit B) was duly cleared.
Rana further testified that upon clearance of the check and pursuant to normal banking
procedure, said check was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His
evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah
Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in
Clark Field and later as waiter at the Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he
was the sole owner of the restaurant, the petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied
having issued to the private respondent the receipt (Exhibit G) and the Equitable
Banking Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to that of
the plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive
portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
and against the defendant, ordering the latter to deliver and pay to the
former, the sum equivalent to 22% of the annual profit derived from
the operation of Sun Wah Panciteria from October, 1955, until fully
1
 paid, and attorney's fees in the amount of P5,000.00 and cost of suit.
(p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the nature of a
motion for new trial and, as supplement to the said motion, he requested that the
decision rendered should include the net profit of the Sun Wah Panciteria which was not
specified in the decision, and allow private respondent to adduce evidence so that the
said decision will be comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the trial
court rendered an amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted earlier by the
Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of
said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff
(sic) and against the defendant, ordering the latter to pay the former
the sum equivalent to 22% of the net profit of P8,000.00 per day from
the time of judicial demand, until fully paid, plus the sum of P5,000.00
as and for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate
Appellate Court. The questioned decision was further modified by the appellate court.
The dispositive portion of the appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive
portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net profit of P2,000.00 a day from judicial
demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a
day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net
profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all
other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower
court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the
court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay to the former the sum
equivalent to 22% of the net profit of P8,000.00 per day from the time
of judicial demand, until fully paid, plus the sum of P5,000.00 as and
for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial
demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found that the private respondent is a
partner of the petitioner in the setting up and operations of the panciteria. While the
dispositive portions merely ordered the payment of the respondents share, there is no
question from the factual findings that the respondent invested in the business as a
partner. Hence, the two courts declared that the private petitioner is entitled to a share
of the annual profits of the restaurant. The petitioner, however, claims that this factual
finding is erroneous. Thus, the petitioner argues: "The complaint avers that private
respondent extended 'financial assistance' to herein petitioner at the time of the
establishment of the Sun Wah Panciteria, in return of which private respondent allegedly
will receive a share in the profits of the restaurant. The same complaint did not claim
that private respondent is a partner of the business. It was, therefore, a serious error for
the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for
by the complaint. It was also error for the Hon. Intermediate Appellate Court to interpret
or construe 'financial assistance' to mean the contribution of capital by a partner to a
partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant
sought the financial assistance of plaintiff in operating the defendant's
eatery known as Sun Wah Panciteria, located in the given address of
defendant; as a return for such financial assistance. plaintiff would be
entitled to twenty-two percentum (22%) of the annual profit derived
from the operation of the said panciteria;
2
 3. That on October 1, 1955, plaintiff delivered to the defendant the
sum of four thousand pesos (P4,000.00), Philippine Currency, of
which copy for the receipt of such amount, duly acknowledged by the
defendant is attached hereto as Annex "A", and form an integral part
hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that he would be
entitled to twenty-two percent (22%) of the annual profit derived from the operation of
the said panciteria. These allegations, which were proved, make the private respondent
and the petitioner partners in the establishment of Sun Wah Panciteria because Article
1767 of the Civil Code provides that "By the contract of partnership two or more persons
bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the
private respondent asserted his rights as partner of the petitioner in the establishment of
the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein.
We agree with the appellate court's observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of money to another without the
expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of
someone driven into a state of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo) The
complaint explicitly stated that "as a return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum (22%) of the annual profit
derived from the operation of the said panciteria.' (p. 107, Rollo) The well-settled
doctrine is that the '"... nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine
Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135
SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was
whether or not the private respondent is a partner of the petitioner in the establishment
of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative
value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged
standards or specimens used by the PC Crime Laboratory in arriving at the conclusion
were never testified to by any witness nor has any witness identified the handwriting in
the standards or specimens belonging to the petitioner. The supposed standards or
specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as
evidence for the private respondent over the vigorous objection of the petitioner's
counsel.
The records show that the PC Crime Laboratory upon orders of the lower court
examined the signatures in the two receipts issued separately by the petitioner to the
private respondent and So Sia (Exhibits "A" and "D") and compared the signatures on
them with the signatures of the petitioner on the various pay envelopes (Exhibits "H",
"H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the restaurant. After
the usual examination conducted on the questioned documents, the PC Crime Laboratory
submitted its findings (Exhibit J) attesting that the signatures appearing in both receipts
(Exhibits "A" and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were
presented by the private respondent for marking as exhibits, the petitioner did not
interpose any objection. Neither did the petitioner file an opposition to the motion of the
private respondent to have these exhibits together with the two receipts examined by
the PC Crime Laboratory despite due notice to him. Likewise, no explanation has been
offered for his silence nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or
ignored. The records sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent
Intermediate Appellate Court gravely erred in not resolving the issue of prescription in
favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was
filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months
and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were
ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years
from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are
filed before the court, when there is a written extra-judicial demand
by the creditor, and when there is any written acknowledgment of the
debt by the debtor.'
The argument is not well-taken.
3
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The cashier's box, of the money, being the cashier, is
requisites of a partnership which are — 1) two or more persons bind themselves to that correct?
contribute money, property, or industry to a common fund; and 2) intention on the part
of the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v. A Yes, sir.
Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated by the respondent, a
partner shares not only in profits but also in the losses of the firm. If excellent relations
exist among the partners at the start of business and all the partners are more interested Q So that every time there is a customer who pays,
in seeing the firm grow rather than get immediate returns, a deferment of sharing in the you were the one who accepted the money and you
profits is perfectly plausible. It would be incorrect to state that if a partner does not gave the change, if any, is that correct?
assert his rights anytime within ten years from the start of operations, such rights are
irretrievably lost. The private respondent's cause of action is premised upon the failure A Yes.
of the petitioner to give him the agreed profits in the operation of Sun Wah Panciteria. In
effect the private respondent was asking for an accounting of his interests in the Q Now, after 11:30 (P.M.) which is the closing time
partnership. as you said, what do you do with the money?

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is A We balance it with the manager, Mr. Dan Fue
applicable. Article 1842 states: Leung.

The right to an account of his interest shall accrue to any partner, or ATTY. HIPOLITO:
his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence or any agreement I see.
to the contrary.
Q So, in other words, after your job, you huddle or
Regarding the prescriptive period within which the private respondent may demand an confer together?
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting
exists as long as the partnership exists. Prescription begins to run only upon the A Yes, count it all. I total it. We sum it up.
dissolution of the partnership when the final accounting is done.
Q Now, Mrs. Witness, in an average day, more or
Finally, the petitioner assails the appellate court's monetary awards in favor of the less, will you please tell us, how much is the gross
private respondent for being excessive and unconscionable and above the claim of income of the restaurant?
private respondent as embodied in his complaint and testimonial evidence presented by
said private respondent to support his claim in the complaint. A For regular days, I received around P7,000.00 a
day during my shift alone and during pay days I
Apart from his own testimony and allegations, the private respondent presented the receive more than P10,000.00. That is excluding
cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the catering outside the place.
the restaurant.
Q What about the catering service, will you please
Mrs. Licup stated: tell the Honorable Court how many times a week
were there catering services?
ATTY. HIPOLITO (direct examination to Mrs.
Licup). A Sometimes three times a month; sometimes two
times a month or more.
Q Mrs. Witness, you stated that among your duties
was that you were in charge of the custody of the xxx xxx xxx

4
 Q Now more or less, do you know the cost of the
catering service?
A Yes, because I am the one who receives the
payment also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand
pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift
alone in a single day from 3:30 P.M. to 11:30 P.M. in
the evening the restaurant grosses an income of
P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65,
November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel
waive the cross-examination on the matter of income but he failed to comply with his
promise to produce pertinent records. When a subpoenaduces tecum was issued to the
petitioner for the production of their records of sale, his counsel voluntarily offered to
bring them to court. He asked for sufficient time prompting the court to cancel all
hearings for January, 1981 and reset them to the later part of the following month. The
petitioner's counsel never produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and
for this purpose, employed a bookkeeper. This inspired the Court to
ask counsel for the defendant to bring said records and counsel for the
defendant promised to bring those that were available. Seemingly,
that was the reason why this case dragged for quite sometime. To
bemuddle the issue, defendant instead of presenting the books where
the same, etc. were recorded, presented witnesses who claimed to
have supplied chicken, meat, shrimps, egg and other poultry products
which, however, did not show the gross sales nor does it prove that
the same is the best evidence. This Court gave warning to the
defendant's counsel that if he failed to produce the books, the same
will be considered a waiver on the part of the defendant to produce
the said books inimitably showing decisive records on the income of
the eatery pursuant to the Rules of Court (Sec. 5(e) Rule 131).
"Evidence willfully suppressed would be adverse if produced." (Rollo,
p. 145)
The records show that the trial court went out of its way to accord due process to the
petitioner.
The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness.
Notably there were several postponement asked by counsel for the
defendant and the last one was on October 1, 1981 when he asked
that this case be postponed for 45 days because said defendant was
then in Hongkong and he (defendant) will be back after said period.
The Court acting with great concern and understanding reset the
hearing to November 17, 1981. On said date, the counsel for the
defendant who again failed to present the defendant asked for
another postponement, this time to November 24, 1981 in order to
give said defendant another judicial magnanimity and substantial due
process. It was however a condition in the order granting the
postponement to said date that if the defendant cannot be presented,
counsel is deemed to have waived the presentation of said witness
and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila
said date was declared a partial non-working holiday, so much so, the
hearing was reset to December 7 and 22, 1981. On December 7, 1981,
on motion of defendant's counsel, the same was again reset to
5
 December 22, 1981 as previously scheduled which hearing was relating to the partnership business that it is not reasonably
understood as intransferable in character. Again on December 22, practicable to carry on the business in partnership with him;
1981, the defendant's counsel asked for postponement on the ground
that the defendant was sick. the Court, after much tolerance and xxx xxx xxx
judicial magnanimity, denied said motion and ordered that the case be
submitted for resolution based on the evidence on record and gave
the parties 30 days from December 23, 1981, within which to file their (6) Other circumstances render a dissolution equitable.
simultaneous memoranda. (Rollo, pp. 148-150)
There shall be a liquidation and winding up of partnership affairs, return of capital, and
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the other incidents of dissolution because the continuation of the partnership has become
Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the inequitable.
trial court, it is in the heart of Chinatown where people who buy and sell jewelries,
businessmen, brokers, manager, bank employees, and people from all walks of life WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision
converge and patronize Sun Wah. of the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved.
There is more than substantial evidence to support the factual findings of the trial court
and the appellate court. If the respondent court awarded damages only from judicial SO ORDERED.
demand in 1978 and not from the opening of the restaurant in 1955, it is because of the
petitioner's contentions that all profits were being plowed back into the expansion of the Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
business. There is no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify the factual
findings of both the trial court and the appellate court, it cannot refer to any portion of
the records for such modification. There is no basis in the records for this Court to
change or set aside the factual findings of the trial court and the appellate court. The
petitioner was given every opportunity to refute or rebut the respondent's submissions
but, after promising to do so, it deliberately failed to present its books and other
evidence.

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

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

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

dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect

prejudicially the carrying on of the business;

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

partnership agreement, or otherwise so conducts himself in matters
6
G.R. No. 126334 November 23, 2001
EMILIO EMNACE, petitioner,
vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE
WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO
VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents.
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a
business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986,
they decided to dissolve their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to Jacinto
Divinagracia's withdrawal from the partnership.1 Among the assets to be distributed
were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño
and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of the
Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanao's untimely
demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets
and liabilities of the partnership, and to render an accounting of the partnership's
finances. Petitioner also reneged on his promise to turn over to Tabanao's heirs the
deceased's 1/3 share in the total assets of the partnership, amounting to P30,000,000.00,
or the sum of P10,000,000.00, despite formal demand for payment thereof.2
Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for
accounting, payment of shares, division of assets and damages.3 In their complaint,
respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the assets and
liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered to
pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends,
cash, land(s), fishing vessels, trucks, motor vehicles, and other forms
and substance of treasures which belong and/or should belong, had
accrued and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral
damages;
C. Attorney's fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the
plaintiffs as entitled to plus P1,000.00 for every appearance in court.4
Petitioner filed a motion to dismiss the complaint on the grounds of improper venue,
lack of jurisdiction over the nature of the action or suit, and lack of capacity of the estate
of Tabanao to sue.5 On August 30, 1994, the trial court denied the motion to dismiss. It
held that venue was properly laid because, while realties were involved, the action was
directed against a particular person on the basis of his personal liability; hence, the
action is not only a personal action but also an action in personam. As regards
petitioner's argument of lack of jurisdiction over the action because the prescribed
docket fee was not paid considering the huge amount involved in the claim, the trial
court noted that a request for accounting was made in order that the exact value of the
partnership may be ascertained and, thus, the correct docket fee may be paid. Finally, the
trial court held that the heirs of Tabanao had aright to sue in their own names, in view of
the provision of Article 777 of the Civil Code, which states that the rights to the
succession are transmitted from the moment of the death of the decedent.6
The following day, respondents filed an amended complaint,7 incorporating the
additional prayer that petitioner be ordered to "sell all (the partnership's) assets and
thereafter pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding
share in the proceeds thereof. In due time, petitioner filed a manifestation and motion to
dismiss,8arguing that the trial court did not acquire jurisdiction over the case due to the
plaintiffs' failure to pay the proper docket fees. Further, in a supplement to his motion to
dismiss,9 petitioner also raised prescription as an additional ground warranting the
outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order,10 denying the motion to dismiss
inasmuch as the grounds raised therein were basically the same as the earlier motion to
dismiss which has been denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in the absence of a final accounting.
Moreover, an action based on a written contract prescribes in ten years from the time the
right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals,11 raising the
following issues:
I. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in taking cognizance of a case despite the failure to pay the
required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in insisting to try the case which involve (sic) a parcel of
land situated outside of its territorial jurisdiction;
7
 III. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in allowing the estate of the deceased to appear as party
plaintiff, when there is no intestate case and filed by one who was never
appointed by the court as administratrix of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in not dismissing the case on the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed decision,12 dismissing the
petition for certiorari, upon a finding that no grave abuse of discretion amounting to lack
or excess of jurisdiction was committed by the trial court in issuing the questioned
orders denying petitioner's motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same issues
resolved by the Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside
the said court's territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao;
and
IV. Prescription of the plaintiff heirs' cause of action.
It can be readily seen that respondents' primary and ultimate objective in instituting the
action below was to recover the decedent's 1/3 share in the partnership' s assets. While
they ask for an accounting of the partnership' s assets and finances, what they are
actually asking is for the trial court to compel petitioner to pay and turn over their share,
or the equivalent value thereof, from the proceeds of the sale of the partnership assets.
They also assert that until and unless a proper accounting is done, the exact value of the
partnership' s assets, as well as their corresponding share therein, cannot be ascertained.
Consequently, they feel justified in not having paid the commensurate docket fee as
required by the Rules of Court.1âwphi1.nêt
We do not agree. The trial court does not have to employ guesswork in ascertaining the
estimated value of the partnership's assets, for respondents themselves voluntarily
pegged the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is
one which is really not beyond pecuniary estimation, but rather partakes of the nature of
a simple collection case where the value of the subject assets or amount demanded is
pecuniarily determinable.13 While it is true that the exact value of the partnership's total
assets cannot be shown with certainty at the time of filing, respondents can and must
ascertain, through informed and practical estimation, the amount they expect to collect
from the partnership, particularly from petitioner, in order to determine the proper
amount of docket and other fees.14 It is thus imperative for respondents to pay the
corresponding docket fees in order that the trial court may acquire jurisdiction over the
action.15
Nevertheless, unlike in the case of Manchester Development Corp. v. Court of
Appeals,16 where there was clearly an effort to defraud the government in avoiding to
pay the correct docket fees, we see no attempt to cheat the courts on the part of
respondents. In fact, the lower courts have noted their expressed desire to remit to the
court "any payable balance or lien on whatever award which the Honorable Court may
grant them in this case should there be any deficiency in the payment of the docket fees
to be computed by the Clerk of Court."17 There is evident willingness to pay, and the fact
that the docket fee paid so far is inadequate is not an indication that they are trying to
avoid paying the required amount, but may simply be due to an inability to pay at the
time of filing. This consideration may have moved the trial court and the Court of
Appeals to declare that the unpaid docket fees shall be considered a lien on the judgment
award.
Petitioner, however, argues that the trial court and the Court of Appeals erred in
condoning the non-payment of the proper legal fees and in allowing the same to become
a lien on the monetary or property judgment that may be rendered in favor of
respondents. There is merit in petitioner's assertion. The third paragraph of Section 16,
Rule 141 of the Rules of Court states that:
The legal fees shall be a lien on the monetary or property judgment in favor of
the pauper-litigant.
Respondents cannot invoke the above provision in their favor because it specifically
applies to pauper-litigants. Nowhere in the records does it appear that respondents are
litigating as paupers, and as such are exempted from the payment of court fees.18
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court,
which defines the two kinds of claims as: (1) those which are immediately ascertainable;
and (2) those which cannot be immediately ascertained as to the exact amount. This
second class of claims, where the exact amount still has to be finally determined by the
courts based on evidence presented, falls squarely under the third paragraph of said
Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or more in
accordance with the appraisal of the court, the difference of fee shall be
refunded or paid as the case may be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,19 this Court pronounced that
the above-quoted provision "clearly contemplates an Initial payment of the filing fees
corresponding to the estimated amount of the claim subject to adjustment as to what
later may be proved."20 Moreover, we reiterated therein the principle that the payment
of filing fees cannot be made contingent or dependent on the result of the case. Thus, an
8
initial payment of the docket fees based on an estimated amount must be paid
simultaneous with the filing of the complaint. Otherwise, the court would stand to lose
the filing fees should the judgment later turn out to be adverse to any claim of the
respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees are necessary to
defray court expenses in the handling of cases. Consequently, in order to avoid
tremendous losses to the judiciary, and to the government as well, the payment of docket
fees cannot be made dependent on the outcome of the case, except when the claimant is
a pauper-litigant.
Applied to the instant case, respondents have a specific claim - 1/3 of the value of all the
partnership assets - but they did not allege a specific amount. They did, however,
estimate the partnership's total assets to be worth Thirty Million Pesos
(P30,000,000.00), in a letter21 addressed to petitioner. Respondents cannot now say that
they are unable to make an estimate, for the said letter and the admissions therein form
part of the records of this case. They cannot avoid paying the initial docket fees by
conveniently omitting the said amount in their amended complaint. This estimate can be
made the basis for the initial docket fees that respondents should pay. Even if it were
later established that the amount proved was less or more than the amount alleged or
estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that the court
may refund the 'excess or exact additional fees should the initial payment be insufficient.
It is clear that it is only the difference between the amount finally awarded and the fees
paid upon filing of this complaint that is subject to adjustment and which may be
subjected to alien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,22 this
Court held that when the specific claim "has been left for the determination by the court,
the additional filing fee therefor shall constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate
the initial payment of filing and docket fees based on the estimated claims of the plaintiff,
and it is only when there is a deficiency that a lien may be constituted on the judgment
award until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint outright
despite their failure to pay the proper docket fees. Nevertheless, as in other procedural
rules, it may be liberally construed in certain cases if only to secure a just and speedy
disposition of an action. While the rule is that the payment of the docket fee in the proper
amount should be adhered to, there are certain exceptions which must be strictly
construed.23
In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine,
allowing the plaintiff to pay the proper docket fees within a reasonable time before the
expiration of the applicable prescriptive or reglementary period.24
In the recent case of National Steel Corp. v. Court of Appeals,25 this Court held that:
The court acquires jurisdiction over the action if the filing of the initiatory
pleading is accompanied by the payment of the requisite fees, or, if the fees are
not paid at the time of the filing of the pleading, as of the time of full payment of
the fees within such reasonable time as the court may grant, unless, of course,
prescription has set in the meantime.
It does not follow, however, that the trial court should have dismissed the
complaint for failure of private respondent to pay the correct amount of docket
fees. Although the payment of the proper docket fees is a jurisdictional
requirement, the trial court may allow the plaintiff in an action to pay the same
within a reasonable time before the expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to comply within this requirement, the
defendant should timely raise the issue of jurisdiction or else he would be
considered in estoppel. In the latter case, the balance between the appropriate
docket fees and the amount actually paid by the plaintiff will be considered a
lien or any award he may obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper docket fee
based on the estimated amount that respondents seek to collect from petitioner, and
direct them to pay the same within a reasonable time, provided the applicable
prescriptive or reglementary period has not yet expired, Failure to comply therewith,
and upon motion by petitioner, the immediate dismissal of the complaint shall issue on
jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial court and the
Court of Appeals in holding that the case below is a personal action which, under the
Rules, may be commenced and tried where the defendant resides or may be found, or
where the plaintiffs reside, at the election of the latter.26
Petitioner, however, insists that venue was improperly laid since the action is a real
action involving a parcel of land that is located outside the territorial jurisdiction of the
court a quo. This contention is not well-taken. The records indubitably show that
respondents are asking that the assets of the partnership be accounted for, sold and
distributed according to the agreement of the partners. The fact that two of the assets of
the partnership are parcels of land does not materially change the nature of the action. It
is an action in personam because it is an action against a person, namely, petitioner, on
the basis of his personal liability. It is not an action in rem where the action is against the
thing itself instead of against the person.27 Furthermore, there is no showing that the
parcels of land involved in this case are being disputed. In fact, it is only incidental that
part of the assets of the partnership under liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus:
9
 The fact that plaintiff prays for the sale of the assets of the partnership,
including the fishpond in question, did not change the nature or character of
the action, such sale being merely a necessary incident of the liquidation of the
partnership, which should precede and/or is part of its process of dissolution.
The action filed by respondents not only seeks redress against petitioner. It also seeks
the enforcement of, and petitioner's compliance with, the contract that the partners
executed to formalize the partnership's dissolution, as well as to implement the
liquidation and partition of the partnership's assets. Clearly, it is a personal action that,
in effect, claims a debt from petitioner and seeks the performance of a personal duty on
his part.29 In fine, respondents' complaint seeking the liquidation and partition of the
assets of the partnership with damages is a personal action which may be filed in the
proper court where any of the parties reside.30 Besides, venue has nothing to do with
jurisdiction for venue touches more upon the substance or merits of the case.31 As it is,
venue in this case was properly laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no
legal capacity to sue since she was never appointed as administratrix or executrix of his
estate. Petitioner's objection in this regard is misplaced. The surviving spouse does not
need to be appointed as executrix or administratrix of the estate before she can file the
action. She and her children are complainants in their own right as successors of Vicente
Tabanao. From the very moment of Vicente Tabanao' s death, his rights insofar as the
partnership was concerned were transmitted to his heirs, for rights to the succession are
transmitted from the moment of death of the decedent.32
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner
were transmitted to respondents by operation of law, more particularly by succession,
which is a mode of acquisition by virtue of which the property, rights and obligations to
the extent of the value of the inheritance of a person are transmitted.33Moreover,
respondents became owners of their respective hereditary shares from the moment
Vicente Tabanao died.34
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as
executrix or administratrix, is not necessary for any of the heirs to acquire legal capacity
to sue. As successors who stepped into the shoes of their decedent upon his death, they
can commence any action originally pertaining to the decedent.35 From the moment of
his death, his rights as a partner and to demand fulfillment of petitioner's obligations as
outlined in their dissolution agreement were transmitted to respondents. They,
therefore, had the capacity to sue and seek the court's intervention to compel petitioner
to fulfill his obligations.
Finally, petitioner contends that the trial court should have dismissed the complaint on
the ground of prescription, arguing that respondents' action prescribed four (4) years
after it accrued in 1986. The trial court and the Court of Appeals gave scant
consideration to petitioner's hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3)
termination.36 The partnership, although dissolved, continues to exist and its legal
personality is retained, at which time it completes the winding up of its affairs, including
the partitioning and distribution of the net partnership assets to the partners.37 For as
long as the partnership exists, any of the partners may demand an accounting of the
partnership's business. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done.38
Contrary to petitioner's protestations that respondents' right to inquire into the business
affairs of the partnership accrued in 1986, prescribing four (4) years thereafter,
prescription had not even begun to run in the absence of a final accounting. Article 1842
of the Civil Code provides:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or
the person or partnership continuing the business, at the date of dissolution, in
the absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty to account,
the above-cited provision states that the right to demand an accounting accrues at the
date of dissolution in the absence of any agreement to the contrary. When a final
accounting is made, it is only then that prescription begins to run. In the case at bar, no
final accounting has been made, and that is precisely what respondents are seeking in
their action before the trial court, since petitioner has failed or refused to render an
accounting of the partnership's business and assets. Hence, the said action is not barred
by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied petitioner's
motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in
upholding the trial court's orders. Precious time has been lost just to settle this
preliminary issue, with petitioner resurrecting the very same arguments from the trial
court all the way up to the Supreme Court. The litigation of the merits and substantial
issues of this controversy is now long overdue and must proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of
merit, and the case isREMANDED to the Regional Trial Court of Cadiz City, Branch 60,
which is ORDERED to determine the proper docket fee based on the estimated amount
that plaintiffs therein seek to collect, and direct said plaintiffs to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary period has not yet
expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings
in Civil Case No. 416-C.
Costs against petitioner.1âwphi1.nêt
SO ORDERED. Davide, Jr., C.J., Puno, Kapunan, Pardo, JJ., concur.
10
 G.R. No. 110782. September 25, 1998]
IRMA IDOS, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
DECISION
QUISUMBING, J.:
Before this Court is the petition for review of the Decision of respondent Court of
Appeals[1] dismissing petitioners appeal in CA-G.R. CR No. 11960; and affirming her
conviction as well as the sentence imposed on her by the Regional Trial Court of Malolos,
Bulacan, in Criminal Case No. 1395-M-88[2] as follows:
WHEREFORE . . . the [c]ourt finds the accused Irma Idos guilty beyond
reasonable doubt and is hereby sentenced to suffer the penalty of
imprisonment of six (6) months and to pay a fine ofP135,000.00 and to pay
private complainant Eddie Alarilla the amount of the check in question
of P135,000.00 at 12% interest from the time of the filing of the [i]nformation
(August 10, 1988) until said amount has been fully paid.
Elevated from the Third Division[3] of this Court, the case was accepted for
resolution en banc on the initial impression that here, a constitutional question might be
involved.[4] It was opined that petitioners sentence, particularly six months
imprisonment, might be in violation of the constitutional guarantee against
imprisonment for non-payment of a debt.[5]
A careful consideration of the issues presented in the petition as well as the
comments thereon and the findings of fact by the courts below in the light of applicable
laws and precedents convinces us, however, that the constitutional dimension need not
be reached in order to resolve those issues adequately. For, as herein discussed, the
merits of the petition could be determined without delving into aspects of the cited
constitutional guarantee vis--vis provisions of the Bouncing Checks Law (Batas
Pambansa Blg. 22). There being no necessity therefor, we lay aside discussions of the
constitutional challenge to said law in deciding this petition.
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather
tanning. Her accuser for violation of B.P. 22 is her erstwhile supplier and business
partner, the complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to the
accused-appellant Irma L. Idos for use in the latters business of
manufacturing leather. In 1985, he joined the accused-appellants business
and formed with her a partnership under the style Tagumpay Manufacturing,
with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties agreed
to terminate their partnership. Upon liquidation of the business the
partnership had as of May 1986 receivables and stocks
worth P1,800,000.00. The complainants share of the assets was P900,000.00
to pay for which the accused-appellant issued the following postdated checks,
all drawn against Metrobank Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks, but
the third check (Exh. A) which is the subject of this case, was dishonored on
October 14, 1986 for insufficiency of funds.The complainant demanded
payment from the accused-appellant but the latter failed to pay. Accordingly,
on December 18, 1986, through counsel, he made a formal demand for
payment. (Exh. B) In a letter dated January 2, 1987, the accused-appellant
denied liability. She claimed that the check had been given upon demand of
complainant in May 1986 only as assurance of his share in the assets of the
partnership and that it was not supposed to be deposited until the stocks had
been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal of
Bulacan which on August 22, 1988 filed an information for violation of BP Blg.
22 against accused-appellant.
Complainant denied that the checks issued to him by accused-appellant were
subject to the disposition of the stocks and the collection of receivables of the
business. But the accused-appellant insisted that the complainant had known
that the checks were to be funded from the proceeds of the sale of the stocks
and the collection of receivables. She claimed that the complainant himself
asked for the checks because he did not want to continue in the tannery
business and had no use for a share of the stocks. (TSN, p. 7, April 14,
1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb. 14, 1990; id., p. 14,
June 4, 1990).
On February 15, 1992, the trial court rendered judgment finding the accused-
appellant guilty of the crime charged. The accused-appellants motion for
annulment of the decision and for reconsideration was denied by the trial
court in its order dated April 12, 1991.[6]
Herein respondent court thereafter affirmed on appeal the decision of the trial
court. Petitioner timely moved for a reconsideration, but this was subsequently denied
by respondent court in its Resolution[7] dated June 11, 1993. Petitioner has now appealed
to us by way of a petition for certiorari under Rule 45 of the Rules of Court.
11
 During the pendency of this petition, this Court by a resolution[8] dated August 30,
1993, took note of the compromise agreement executed between the parties, regarding
the civil aspect of the case, as manifested by petitioner in a Motion to Render Judgment
based on Compromise Agreement[9]filed on August 5, 1993. After submission of the
Comment[10] by the Solicitor General, and the Reply[11] by petitioner, this case was
deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial courts
decision, petitioner cites the following reasons to justify the review of her case:
1. The Honorable Court of Appeals has decided against the innocence of the
accused based on mere probabilities which, on the contrary, should have
warranted her acquittal on reasonable doubt. Even then, the conclusion of the
trial court is contrary to the evidence on record, including private complainants
judicial admission that there was no consideration for the check.
2. The Honorable Court of Appeals has confused and merged into one the legal
concepts of dissolution, liquidation and termination of a partnership and, on
the basis of such misconception of the law, disregarded the fact of absence of
consideration of the check and convicted the accused.
3. While this appeal was pending, the parties submitted for the approval of the
Honorable Court a compromise agreement on the civil liability. The accused
humbly submits that this supervening event, which by its terms puts to rest any
doubt the Court of Appeals had entertained against the defense of lack of
consideration, should have a legal effect favorable to the accused, considering
that the dishonored check constitutes a private transaction between partners
which does not involve the public interest, and considering further that the
offense is not one involving moral turpitude.
4. The Honorable Court of Appeals failed to appreciate the fact that the accused had
warned private complainant that the check was not sufficiently funded, which
should have exonerated the accused pursuant to the ruling in the recent case
of Magno vs. Court of Appeals, 210 SCRA 471, which calls for a more flexible
and less rigid application of the Bouncing Checks law.[12]
For a thorough consideration of the merits of petitioners appeal, we find pertinent
and decisive the following issues:
1. Whether respondent court erred in holding that the subject check was issued by
petitioner to apply on account or for value, that is, as part of the consideration of a buy-
out of said complainants interest in the partnership, and not merely as a commitment on
petitioners part to return the investment share of complainant, along with any profit
pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject
check knowing at the time of issue that she did not have sufficient funds in or credit with
the drawee bank and without communicating this fact of insufficiency of funds to the
complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in
affirming the trial courts judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally
in favor of the accused, it bears stressing that for an act to be punishable under the B.P.
22, it must come clearly within both the spirit and the letter of the statute.[13] Otherwise,
the act has to be declared outside the laws ambit and a plea of innocence by the accused
must be sustained.
The relevant provisions of B.P. 22 state that:
SECTION 1. Checks without sufficient funds. Any person who makes or draws and issues
any check to apply on account or for value, knowing at the time of issue that he does not
have sufficient funds in or credit with the drawee bank for the payment of such check in
full upon its presentment, which check is subsequently dishonored by the drawee bank
for insufficiency of funds or credit or would have been dishonored for the same reason
had not the drawer, without any valid reason, ordered the bank to stop payment, shall be
punished by imprisonment of not less than thirty days but not more than one (1) year or
by a fine of not less than but not more than double the amount of the check which fine
shall in no case exceed Two hundred thousand pesos, or both such fine and
imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who having sufficient funds in or
credit with the drawee bank when he makes or draws and issues a check, shall fail to
keep sufficient funds or to maintain a credit or to cover the full amount of the check if
presented within a period of ninety (90) days from the date appearing thereon, for which
reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons
who actually signed the check in behalf of such drawer shall be liable under this Act.
SECTION 2. Evidence of knowledge of insufficient funds. The making, drawing and
issuance of a check payment of which is refused by the drawee because of insufficient
funds in or credit with such bank, when presented within ninety (90) days from the date
of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the holder thereof the amount due thereon, or
makes arrangements for payment in full by the drawee of such check within five (5)
banking days after receiving notice that such check has not been paid by the
drawee. (Underscoring supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as
follows: (1) the making, drawing and issuance of any check to apply to account or for
12
value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of such check
in full upon its presentment; and (3) subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or dishonor for the same reason had not the
drawer, without any valid cause, ordered the bank to stop payment.[14]
In the present case, with regard to the first issue, evidence on record would show
that the subject check was to be funded from receivables to be collected and goods to be
sold by the partnership, and only when such collection and sale were realized.[15] Thus,
there is sufficient basis for the assertion that the petitioner issued the subject check
(Metrobank Check No. 103115490 dated October 30, 1986, in the amount
of P135,828.87) to evidence only complainants share or interest in the partnership, or at
best, to show her commitment that when receivables are collected and goods are sold,
she would give to private complainant the net amount due him representing his interest
in the partnership. It did not involve a debt of or any account due and payable by the
petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by
complainant; only one (the third) was not. But eventually even this one was redeemed by
petitioner. Secondly, even private complainant admitted that there was no consideration
whatsoever for the issuance of the check, whose funding was dependent on future sales
of goods and receipts of payment of account receivables.
Now, it could not be denied that though the parties petitioners and complainant
had agreed to dissolve the partnership, such agreement did not automatically put an end
to the partnership, since they still had to sell the goods on hand and collect the
receivables from debtors. In short, they were still in the process of winding up the affairs
of the partnership, when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2)
winding-up; and (3) termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of the partners caused
by any partner ceasing to be associated in the carrying on of the
business (Art. 1828). It is that point of time the partners cease to
carry on the business together. [Citation omitted]
(2) Winding Up Defined
Winding up is the process of settling business affairs after dissolution.
(NOTE: Examples of winding up: the paying of previous
obligations; the collecting of assets previously demandable; even
new business if needed to wind up, as the contracting with a
demolition company for the demolition of the garage used in a
used car partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership affairs
have been wound up.[16] [Citation omitted] (Underscoring
supplied.)
These final stages in the life of a partnership are recognized under the Civil Code
that explicitly declares that upon dissolution, the partnership is not terminated, to wit:
Art. 1828. The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished from
the winding up of the business.
Art. 1829. On dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed. (Underscoring supplied.)
The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since the partnership has not been
terminated, the petitioner and private complainant remained as co-partners. The check
was thus issued by the petitioner to complainant, as would a partner to another, and not
as payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued
merely to evidence the complainants share in the partnership property, or to assure the
latter that he would receive in time his due share therein. The alternative view that the
check was in consideration of a buy out is but a theory, favorable to the complainant, but
lacking support in the record; and must necessarily be discarded.
For there is nothing on record which even slightly suggests that petitioner ever
became interested in acquiring, much less keeping, the shares of the complainant. What
is very clear therefrom is that the petitioner exerted her best efforts to sell the remaining
goods and to collect the receivables of the partnership, in order to come up with the
amount necessary to satisfy the value of complainants interest in the partnership at the
dissolution thereof. To go by accepted custom of the trade, we are more inclined to the
view that the subject check was issued merely to evidence complainants interest in the
partnership.Thus, we are persuaded that the check was not intended to apply on account
or for value; rather it should be deemed as having been drawn without consideration at
the time of issue.
Absent the first element of the offense penalized under B.P. 22, which is the
making, drawing and issuance of any check to apply on account or for value, petitioners
issuance of the subject check was not an act contemplated in nor made punishable by
said statute.
As to the second issue, the Solicitor General contends that under the Bouncing
Checks Law, the elements of deceit and damage are not essential or required to
constitute a violation thereof. In his view, the only essential element is the knowledge on
13
the part of the maker or drawer of the check of the insufficiency of his/her funds at the
time of the issuance of said check.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a
special offense punishable by law. Malice or intent in issuing the worthless check is
immaterial, the offense beingmalum prohibitum,[17] so goes the argument for the public
respondents.
But of course this could not be an absolute proposition without descending to
absurdity. For if a check were issued by a kidnap victim to a kidnapper for ransom, it
would be absurd to hold the drawer liable under B.P. 22, if the check is dishonored and
unpaid. That would go against public policy and common sense.
Public respondents further contend that since petitioner issued the check in favor
of complainant Alarilla and when notified that it was returned for insufficiency of funds,
failed to make good the check, then petitioner is liable for violation of B.P. 22. [18] Again,
this matter could not be all that simple. For while the makers knowledge of the
insufficiency of funds is legally presumed from the dishonor of his checks for
insufficiency of funds,[19] this presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not preclude
the presentation of contrary evidence.[20] In fact, such contrary evidence on two points
could be gleaned from the record concerning (1) lack of actual knowledge of
insufficiency of funds; and (2) lack of adequate notice of dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the
drawee bank for the payment of a check upon its presentment is an essential element of
the offense.[21] It must be proved, particularly where the prima facie presumption of the
existence of this element has been rebutted. The prima facie presumption arising from
the fact of drawing, issuing or making a check, the payment of which was subsequently
refused for insufficiency of funds is, moreover, not sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals,[22] it was held that the subsequent dishonor
of the subject check issued by accused merely engendered the prima facie presumption
that she knew of the insufficiency of funds, but did not render the accused automatically
guilty under B.P. 22.[23]
The prosecution has a duty to prove all the elements of the crime, including the acts that
give rise to the prima facie presumption; petitioner, on the other hand, has a right to
rebut the prima facie presumption.Therefore, if such knowledge of insufficiency of funds
is proven to be actually absent or non-existent, the accused should not be held liable for
the offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense
charged is a malum prohibitum, the prosecution is not thereby excused from its
responsibility of proving beyond reasonable doubt all the elements of the offense, one of
which is knowledge of the insufficiency of funds.
Section 1 of B.P. 22 specifically requires that the person in making, drawing or
issuing the check, be shown that he knows at the time of issue, that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment.
In the case at bar, as earlier discussed, petitioner issued the check merely to
evidence the proportionate share of complainant in the partnership assets upon its
dissolution. Payment of that share in the partnership was conditioned on the subsequent
realization of profits from the unsold goods and collection of the receivables of the
firm. This condition must be satisfied or complied with before the complainant can
actually encash the check. The reason for the condition is that petitioner has no
independent means to satisfy or discharge the complainants share, other than by the
future sale and collection of the partnership assets. Thus, prior to the selling of the goods
and collecting of the receivables, the complainant could not, as of yet, demand his
proportionate share in the business. This situation would hold true until after the
winding up, and subsequent termination of the partnership. For only then, when the
goods were already sold and receivables paid that cash money could be availed of by the
erstwhile partners.
Complainant did not present any evidence that petitioner signed and issued four
checks actually knowing that funds therefor would be insufficient at the time
complainant would present them to the drawee bank. For it was uncertain at the time of
issuance of the checks whether the unsold goods would have been sold, or whether the
receivables would have been collected by the time the checks would be encashed. As it
turned out, three were fully funded when presented to the bank; the remaining one was
settled only later on.
Since petitioner issued these four checks without actual knowledge of the
insufficiency of funds, she could not be held liable under B.P. 22 when one was not
honored right away. For it is basic doctrine that penal statutes such as B.P. 22 must be
construed with such strictness as to carefully safeguard the rights of the defendant x x
x.[24] The element of knowledge of insufficiency of funds has to be proved by the
prosecution; absent said proof, petitioner could not be held criminally liable under that
law. Moreover, the presumption of prima facie knowledge of such insufficiency in this
case was actually rebutted by petitioners evidence.
Further, we find that the prosecution also failed to prove adequate notice of
dishonor of the subject check on petitioners part, thus precluding any finding of prima
facie evidence of knowledge of insufficiency of funds. There is no proof that notice of
dishonor was actually sent by the complainant or by the drawee bank to the
petitioner. On this point, the record is bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made good by
petitioner. In addition, the terms of the parties compromise agreement, entered into
during the pendency of this case, effectively invalidates the allegation of failure to pay or
to make arrangement for the payment of the check in full. Verily, said compromise
agreement constitutes an arrangement for the payment in full of the subject check.
The absence of notice of dishonor is crucial in the present case. As held by this
Court in prior cases:
14
Because no notice of dishonor was actually sent to and received by the petitioner,
the prima facie presumption that she knew about the insufficiency of funds cannot
apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the
mere fact of drawing, making and issuing a bum check; there must also be a showing
that, within five banking days from receipt of the notice of dishonor, such maker or
drawer failed to pay the holder of the check the amount due thereon or to make
arrangement for its payment in full by the drawee of such check.[25] [Underscoring
supplied.]
The absence of a notice of dishonor necessarily deprives an accused an opportunity to
preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that
a notice of dishonor be actually served on petitioner. Petitioner has a right to demand
and the basic postulates of fairness require that the notice of dishonor be actually sent to
and received by her to afford her the opportunity to avert prosecution under B.P. 22. [26]
Further, what militates strongly against public respondents stand is the fact that
petitioner repeatedly notified the complainant of the insufficiency of funds. Instructive is
the following pronouncement of this Court in Magno v. Court of Appeals:
Furthermore, the element of knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same reason x x x
is inversely applied in this case. From the very beginning, petitioner never hid the fact
that he did not have the funds with which to put up the warranty deposit and as a matter
of fact, he openly intimated this to the vital conduit of the transaction, Joey Gomez, to
whom petitioner was introduced by Mrs. Teng. It would have been different if this
predicament was not communicated to all the parties he dealt with regarding the lease
agreement the financing of which was covered by L.S. Finance Management.[27]
In the instant case, petitioner intimated to private complainant the possibility that
funds might be insufficient to cover the subject check, due to the fact that the
partnerships goods were yet to be sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the interest of the banking
system and the legitimate public checking account user. It did not intend to shelter or
favor nor encourage users of the system to enrich themselves through manipulations and
circumvention of the noble purpose and objective of the law. Least should it be used also
as a means of jeopardizing honest-to-goodness transactions with some color of get-rich
scheme to the prejudice of well-meaning businessmen who are the pillars of society.
xxx
Thus, it behooves upon a court of law that in applying the punishment imposed upon the
accused, the objective of retribution of a wronged society, should be directed against the
actual and potential wrongdoers. In the instant case, there is no doubt that petitioners
four (4) checks were used to collateralize an accommodation, and not to cover the
receipt of an actual account or credit for value as this was absent, and therefore
petitioner should not be punished for mere issuance of the checks in question. Following
the aforecited theory, in petitioners stead the potential wrongdoer, whose operation
could be a menace to society, should not be glorified by convicting the petitioner.[28]
Under the circumstances obtaining in this case, we find the petitioner to have
issued the check in good faith, with every intention of abiding by her commitment to
return, as soon as able, the investments of complainant in the partnership. Evidently,
petitioner issued the check with benign considerations in mind, and not for the purpose
of committing fraud, deceit, or violating public policy
To recapitulate, we find the petition impressed with merit. Petitioner may not be
held liable for violation of B.P. 22 for the following reasons: (1) the subject check was not
made, drawn and issued by petitioner in exchange for value received as to qualify it as a
check on account or for value; (2) there is no sufficient basis to conclude that petitioner,
at the time of issue of the check, had actual knowledge of the insufficiency of funds; and
(3) there was no notice of dishonor of said check actually served on petitioner, thereby
depriving her of the opportunity to pay or make arrangements for the payment of the
check, to avoid criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition
meritorious, we no longer need to pass upon the validity and legality or necessity of the
purported compromise agreement on civil liability between the petitioner and the
complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER
ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is
hereby REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-M-
88 is hereby SET ASIDE.
NO COSTS.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan,
Panganiban, Martinez, and Purisima, JJ., concur.
Mendoza, J., no part, being ponente of appealed decision.
15
G.R. No. L-27343 February 28, 1979
MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS,
BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-
appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL
SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her
husband CECILIO SALDAJENO, defendants-appellants.
FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the judgment of the Court of First Instance
of Negros Occidental in Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela
Sawmill, et al.,", the dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1)
that the contract, Appendix "F", of the Partial Stipulation of Facts, Exh.
"A", has not created a chattel mortgage lien on the machineries and
other chattels mentioned therein, all of which are property of the
defendant partnership "Isabela Sawmill", (2) that the plaintiffs, as
creditors of the defendant partnership, have a preferred right over the
assets of the said partnership and over the proceeds of their sale at
public auction, superior to the right of the defendant Margarita G.
Saldajeno, as creditor of the partners Leon Garibay and Timoteo
Tubungbanua; (3) that the defendant Isabela Sawmill' is indebted to
the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with
legal interest thereon from the filing of the complaint on June 5, 1959;
(4) that the same defendant is indebted to the plaintiff Manuel G.
Singsong in the total amount of P5,723.50, with interest thereon at the
rate of 1 % per month from May 6, 1959, (the date of the statements
of account, Exhs. "L" and "M"), and 25% of the total indebtedness at
the time of payment, for attorneys' fees, both interest and attorneys
fees being stipulated in Exhs. "I" to "17", inclusive; (5) that the same
defendant is indebted to the plaintiff Agustin E. Tonsay in the amount
of P933.73, with legal interest thereon from the filing of the complaint
on June 5, 1959; (6) that the same defendant is indebted to the
plaintiff Jose L. Espinos in the amount of P1,579.44, with legal interest
thereon from the filing of the complaint on June 5, 1959; (7) that the
same defendant is indebted to the plaintiff Bacolod Southern Lumber
Yard in the amount of Pl,048.78, with legal interest thereon from the
filing of the complaint on June 5, 1959; (8) that the same defendant is
indebted to the plaintiff Jose Belzunce in the amount of P2,052.10,
with legal interest thereon from the filing of the complaint on June 5.
1959; (9) that the defendant Margarita G. Saldajeno, having purchased
at public auction the assets of the defendant partnership over which
the plaintiffs have a preferred right, and having sold said assets for P
45,000.00, is bound to pay to each of the plaintiffs the respective
amounts for which the defendant partnership is held indebted to,
them, as above indicated and she is hereby ordered to pay the said
amounts, plus attorneys fees equivalent to 25% of the judgment in
favor of the plaintiff Manuel G. Singson, as stipulated in Exhs. "I" "to I-
17", inclusive, and 20% of the respective judgments in favor of the
other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil
Code of the Philippines; (10) The defendants Leon Garibay and
Timoteo Tibungbanua are hereby ordered to pay to the plaintiffs the
respective amounts adjudged in their favor in the event that said
plaintiffs cannot recover them from the defendant Margarita G.
Saldajeno and the surety on the bond that she has filed for the lifting
of the injunction ordered by this court upon the commencement of
this case.
The cross-claim cf the defendant Margarita G. Saldajeno against the
defendants Leon Garibay arid Timoteo Tubungbanua is hereby
discussed Margarita G. Saldajeno shall pay the costs.
SO ORDERED. 1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the
records of this case to the Supreme Court "considering that the resolution of this appeal
involves purely questions or question of law over which this Court has no jurisdiction ... 2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos,
Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first
Instance of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno
and her husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the
Provincial Sheriff of Negros Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued restraining the
defendant Provincial Sheriff of Negros Occidental from proceeding
with the sales at public auction that he advertised in two notices
issued by him on May 18, 1959 in connection with Civil Case No. 5223
of this Honorable Court, until further orders of this Court; and to make
said injunction permanent after hearing on the merits:
(2) That after hearing, the defendant partnership be ordered; to pay
to the plaintiff Manuel G. Singson the sum of P3,723.50 plus 1%
16
 monthly interest thereon and 25% attorney's fees, and costs; to pay to
the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual
interest thereon and 25% for attorney's fees, and costs;to pay to the
plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual
interest thereon and 25% attorney's fees, and costs; to pay to the
plaintiff Bacolod Southern Lumber Yard the sum of P1,048.78, plus
6% annual interest thereon and 25% attorney's fees, and costs; and to
pay to the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6%
annual interest thereon and 25% attorney's fees and costs:
(3) That the so-called Chattel Mortgage executed by the defendant
Leon Garibay and Timoteo Tubungbanua in favor of the defendant
Margarita G. Saldajeno on May 26, 1958 be declared null and void
being in fraud of creditors of the defendant partnership and without
valuable consideration insofar as the said defendant is concerned:
(4) That the Honorable Court order the sale of public auction of the
assets of the defendnat partnership in case the latter fails to pay the
judgment that the plaintiffs may recover in the action, with
instructions that the proceeds of the sale b e applied in payment of
said judgment before any part of saod proceeds is paid to the
defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and
Margarita G. Saldajeno be declared jointly liable to the plaintifs for
whatever deficiency may remain unpaid after the proceeds of the sale
of the assets of the defendnt partnership are supplied in payment of
the judgment that said plaintiffs may recover in this action;
(6) The plaintiffs further pray for all other remedies to which the
Honorable Court will find them entitled to, with costs to the
defendants.
Bacolod City, June 4, 1959. 3
The action was docketed as Civil Case No. 5343 of said court.
In their amended answer, the defendants Margarita G. Saldajeno and her husband,
Cecilio Saldajeno, alleged the following special and affirmative defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill has been dissolved by virtue of
an action entitled "In the matter of: Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al.,
Civil Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court
of First Instance of Negros Occidental in the aforesaid case, the other
defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua
became the successors-in-interest to the said defunct partnership and
have bound themselves to answere for any and all obligations of the
defunct partnership to its creditors and third persons;
4. That to secure the performance of the obligations of the other
defendants Leon Garibay and Timoteo Tubungbanua to the answering
defendant herein, the former have constituted a chattel mortgage over
the properties mentioned in the annexes to that instrument entitled
"Assignment of Rights with Chattel Mortgage" entered into on May 26,
1968 and duly registered in the Register of Deeds of Negros
Occidental on the same date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff
Oppen, Esteban, Inc. are creditors of Messrs. Leon Garibay and
Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as
such they have no cause of action against answering defendant herein
and the defendant Isabela Sawmill;
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban,
Inc. granted cash advances, gasoline, crude oil, motor oil, grease, rice
and nipa to the defendants Leon Garibay and Timoteo Tubungbanua
with the knowledge and notice that the Isabela Sawmill as a former
partnership of defendants Margarita G. Isabela Sawmill as a former
partnership of defendants Margarita G. Saldajeno, Leon Garibay and
Timoteo Tubungbanua, has already been dissolved;
7. That this Honorable Court has no jurisdictionover the claims of the
plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and
the Bacolod Southern Lumber Yard, it appearing that the amounts
sought to be recovered by them in this action is less than P2,000.00
each, exclusive of interests;
8. That in so far as the claims of these alleged creditors plaintiffs are
concerned, there is a misjoinder of parties because this is not a class
suit, and therefore this Honorable Court cannot take jurisdictionof the
claims for payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc.
go beyond the limit mentioned inthe statute of frauds, Art. 1403 of the
17
 Civil Code, and are therefor unenforceable, even assuming that there
were such credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it is
well settled in law and in jurisprudence that a court of first instance
has no power or jurisdiction to annul judgments or decrees of a
coordinate court because other function devolves upon the proper
appellate court; (Lacuna, et al. vs. Ofilada, et al., G.R. No. L-13548,
September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs.
Javellana, 49 O.G. No. 1, p.124), as it appears from the complaint in
this case to annul the decision of this same court, but of another
branch (Branch II, Judge Querubin presiding). 4
Said defendants interposed a cross-claim against the defendsants Leon Garibay and
Timoteo Tubungbanua praying "that in the event that judgment be rendered ordering
defendant cross claimant to pay to the plaintiffs the amount claimed in the latter's
complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in
accordance to the said judgment. ... 5
After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to
the Court of Appeals assigning the following errors:
I VII
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE
CASE.
II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH
REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA
SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED
THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID
PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE
WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO AS A PARTNER THEREIN DISSOLVED THE PARTNERSHIP
"ISABELA SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON
GARIBAY, TIMOTEO TUBUNGBANUA AND SAID MARGARITA G.
SALDAJENO).
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY
INJUNCTION.
V
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL
MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE
JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED
IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE
OF NEGROS OCCIDENTAL) WAS NULL AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES
ACQUIRED BY DEFENDANT-APPELLANT MARGARITA G. SALDAJENO
IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED
'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-
APPELLANT MARGARITA G. SALDAJENO BECAME PRIMARILY
LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE
MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED
IN CONNECTION WITH CIVIL CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF
MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED
BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL',
AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH
SAID MARGARITA G. SALDAJENO WAS A PARTNER.
IX
18
 THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES
FOR ATTORNEY'S FEES.
X filed by the spouses Cecilio Saldajeno and
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF
THE PLAINTIFFS-APPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST
CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA. 6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on the merits the
plaintiffs and the defendant Cecilio and Margarita g. Saldajeno
submittee a Partial Stipulation of Facts that was marked as Exh. "A".
Said stipulation reads as folows:
1. That on January 30, 1951 the defendants Leon
Garibay, Margarita G. Saldejeno, and Timoteo
Tubungbanua entered into a Contract of
Partnership under the firm name "Isabela Sawmill",
a copy of which is hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen,
Esteban, Inc. sold a Motor Truck and two Tractors
to the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purcahse price,
the said partnership agreed to make arrangements
with the International Harvester Company at
Bacolod City so that the latter would sell farm
machinery to Oppen, Esteban, Inc. with the
understanding that the price was to be paid by the
partnership. A copy of the corresponding contract
of sle is attached hereto as Appendix "B".
3. That through the method of payment stipulated
in the contract marked as Appendix "B" herein, the
International Harvester Company has been paid a
total of P19,211.11, leaving an unpaid balance of
P1,288.89 as shown in the statements hereto
attached as Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil Case No. 4797 was
Margarita G. Saldajeno against the Isabela Sawmill,
Leon Garibay, and Timoteo Tubungbanua, a copy of
which Complaint is attached as Appendix 'D'.
5. That on April 27, 1958 the defendants
LeonGaribay, Timoteo Tubungbanua and Margarita
G. Saldajeno entered into a "Memorandum
Agreement", a copy of which is hereto attached as
Appendix 'E' in Civil Case 4797 of the Court of First
Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon
Garibay, Timoteo Tubungbanua and Margarita G.
Saldajeno executed a document entitled
"Assignment of Rights with Chattel Mortgage", a
copy of which documents and its Annexes "A" to
"A-5" forming a part of the record of the above
mentioned Civil Case No. 4797, which deed was
referred to in the Decision of the Court ofFirst
Instance of Negros Occidental in Civil Case No.
4797 dated May 29, 1958, a copy of which is hereto
attached as Appendix "F" and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and
Timoteo Tubungbanua did not divide the assets
and properties of the "Isabela Sawmill" between
them, but they continued the business of said
partnership under the same firm name "Isabela
Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of
Negros Occidental published two (2) notices that
he would sell at public auction on June 5, 1959 at
Isabela, Negros Occidental certain trucks, tractors,
machinery, officeequipment and other things that
were involved in Civil Case No. 5223 of the Court of
First Instance of Negros Occidental, entitled
"Margarita G. Saldajeno vs. Leon Garibay, et al." See
Appendices "G" and "G-1".
19
 9. That on October 15, 1969 the Provincial Sheriff
of Negros Occidental executed a Certificate ofSale
in favor of the defendant Margarita G. Saldajeno, as
a result of the sale conducted by him on October 14
and 15, 1959 for the enforcement of the judgment
rendered in Civil Case No. 5223 of the Court of First
Instance of Negros Occidental, a certified copy of
which certificte of sale is hereto attached as
Appendix "H".
10. That on October 20, 1959 the defendant
Margarita G. Saldajeno executed a deed of sale in
favor of the Pan Oriental Lumber Company
transfering to the latter for the sum of P45,000.00
the trucks, tractors, machinery, and other things
that she had purchashed at a public auction
referred to in the foregoing paragraph, a certified
true copy of which Deed of Sale is hereto attached
as Appendix "I".
11. The plaintiffs and the defendants Cecilio
Saldajeno and Margarita G. Saldajeno reserve the
right to present additional evidence at the hearing
of this case.
Forming parts of the above copied stipulation are documents that
were marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-
1", "G", "G-1", "H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno
presented additional evidence, mostly documentary, while the cross-
defendants did not present any evidence. The case hardly involves
quetions of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff
Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance
of an obligation of P20,500.00 contracted on February 3, 10956 is
expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A"
and its Appendices "B", "C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his
Exhs. "B" to"G" that from October 6, 1958 to November 8, 1958 he
advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'.
Agaist the said advances said defendant delivered to Tonsay
P3,266.27 worth of lumber, leavng an unpaid balance of P933.73,
which balance was confirmed on May 15, 1959 by the defendant Leon
Garibay, as Manager of the defendant partnership.
The plaintiff Manuel G. Singsong proved by his own testimony and by
his Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold
on credit to the defendnat "Isabela Sawmill" rice and bran, on account
of which business transaction there remains an unpaid balance of
P3,580.50. The same plaintiff also proved that the partnership ownes
him the sum of P143.00 for nipa shingles bought from him on credit
and unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his
witness Cayetano Palmares and his Exhs. "N" to "O-3" that he owns
the "Guia Lumber Yard", that on October 11, 1958 said lumber yard
advanced the sum of P2,500.00 to the defendant "Isabela Sawmill",
that against the said cash advance, the defendant partnership
delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an
outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the
testimony of the witness Cayetano Palmares an its Exhs. "P" to "Q-1"
that on October 11, 1958 said plaintiff advanced the sum of P1,500.00
to the defendsant 'Isabela Sawmill', that against the said cash advance,
the defendant partnership delivered to the said plaintiff on November
19, 1958 P377.72 worth of lumber, and P73.54 worth of lumber on
January 27, 1959, leaving an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon
Garibay whom he called as his witness, and through the Exhs. "R" to
"E" that from September 14, 1958 to November 27, 1958 he sold to
the defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating
oils, and that on account of said transactions, the defendant partnersip
ownes him an unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and
14, 1959 the Provincial Sheriff sold to the defendant Margrita G.
Saldajeno for P38,040.00 the assets of the defendsant "Isabela
Sawmill" which the defendants Leon G. Garibay and Timoteo
Tubungbanua had mortgaged to her, and said purchase price was
applied to the judgment that she has obtained against he said
mortgagors in Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows that on October
20, 1959 the defendant Margarita G. Saldajeno sold to the PAN
ORIENTAL LUMBER COMPANY for P45,000.00 part of the said
properties that she had bought at public aucton one week before.
20
 xxx xxx xxx 7
It is contended by the appellants that the Court of First Instance of Negros Occidental had
no jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc.,
Agustin R. Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to
collect sums of moeny, the biggest amount of which was less than P2,000.00 and,
therefore, within the jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the nullity of
the assignment of right with chattel mortgage entered into by and between Margarita G.
Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause
of action is not capable of pecuniary estimation and falls under the jurisdiction of the
Court of First Instnace. Where the basic issue is something more than the right to recover
a sum of money and where the money claim is purely incidental to or a consequence of
the principal relief sought, the action is as a case where the subject of the litigation is not
capable of pecuniary estimation and is cognizable exclusively by the Court of First
Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends
upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which
courts of first instance shall have exclusive original jurisdiction over any case the subject
matter of which is not capable of pecuniary estimation. An action for the annulment of a
judgment and an order of a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the nature
of the principal action or remedy sought. If it is primarily for the recovery of a sum of
money, the cliam is considered capable of pecuniary estimation, and whether jurisdiciton
is in the municipal courts or in the courts of first instance would depend on the amount
of the claim. However, where the basic issue is something other than the right to recover
a sum of money, where the money claim is purely incidental to, or a consequence of, the
principal relief sought, this Court has considered such actions as cases where the subject
ogf the litigation may not be estimated in terms of money, and are cognizable exclusively
by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held:
Actions for specific performance of contracts have been expressly
prounounced to be exclusively cognizable by courts of first
instance: De Jesus vs. Judge Garcia, L-26816, February 28,
1967;Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285, April
29, 1966. And no cogent reason appears, and none is here advanced
by the parties, why an actin for rescission (or resolution) should be
differently treated, a "rescission" being a counterpart, so to speak, of
"specific performance'. In both cases, the court would certainly have
to undertake an investigation into facts that would justify one act of
the other. No award for damages may be had in an action for
resicssion without first conducting an inquiry into matters which
would justify the setting aside of a contract, in the same manner that
courts of first instance would have to make findings of fact and law in
actions not capable of pecuniary estimnation espressly held to be so
by this Court, arising from issues like those arised in Arroz v. Alojado,
et al., L-22153, March 31, 1967 (the legality or illegality of the
conveyance sought for and the determination of the validity of the
money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950
(validity of a judgment); Bunayog v. Tunas, L-12707, December 23,
1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25,
1960 (the relations of the parties, the right to support created by the
relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159,
September 30, 1963 (the validity or nullity of documents upon which
claims are predicated). Issues of the same nature may be raised by a
party against whom an action for rescission has been brought, or by
the plaintiff himself. It is, therefore, difficult to see why a prayer for
damages in an action for rescission should be taken as the basis for
concluding such action for resiccison should be taken as the basis for
concluding such action as one cpable of pecuniary estimation - a
prayer which must be included in the main action if plaintiff is to be
compensated for what he may have suffered as a result of the breach
committed by defendant, and not later on precluded from recovering
damages by the rule against splitting a cause of action and
discouraging multiplicitly of suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs.
Tutaan, 10 where this Court held:
On the issue of which court has jurisdiction, the case of SENO vs.
Pastolante, et al., is in point. It was ruled therein that although the
purposes of an action is to recover an amount plus interest which
comes within the original jurisidction of the Justice of the Peace Court,
yet when said action involves the foreclosure of a chattel mortgage
covering personal properties valued at more than P2,000, (now
P10,000.00) the action should be instituted before the Court of First
Instance.
In the instanct, case, the action is to recover the amount of P1,520.00
plus interest and costs, and involves the foreclosure of a chattel
mortgage of personal properties valued at P15,340.00, so that it is
clearly within the competence of the respondent court to try and
resolve.
In the light of the foregoing recent rulings, the Court of First Instance of Negros
Occidental did no err in exercising jurisidction over Civil Case No. 5343.
21
The appellants also contend that the chattel mortgage may no longer be annulled
because it had been judicially approved in Civil Case No. 4797 of the Court of First
Instance of Negros Occidental and said chattel mortgage had been ordered foreclosed in
Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a final judgment of another court of co-
equal, concurrent and coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or decrees of a
court of concurrent or coordinate jurisdiction having equal power to
grant the relief sought by the injunction.
The various branches of the Court of First Instance of Manila are in a
sense coordinate courts and cannot be allowed to interfere with each
others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:
The rule which prohibits a Judge from intertering with the actuations
of the Judge of another branch of the same court is not infringed when
the Judge who modifies or annuls the order isued by the other Judge
acts in the same case and belongs to the same court (Eleazar vs.
Zandueta, 48 Phil. 193. But the rule is infringed when the Judge of a
branch of the court issues a writ of preliminary injunction in a case to
enjoint the sheriff from carrying out an order by execution issued in
another case by the Judge of another branch of the same court.
(Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be
annulled was rendered by the Court of First Instance of Iloilo and the action for
annullment was filed with the Court of First Instance of Antique, both courts belonging to
the same Judicial District. This Court held that:
The power to open, modify or vacant a judgment is not only possessed
by but restricted to the court in which the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment of a court of
competent jurisdiction may not be interfered with by any court
concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of
the court of First Instance belongs solely to the very same branch which rendered the
judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment case. 15
In December 1971, however, this court re-examined and reversed its earlier doctrine on
the matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice
Villamor declared:
... the underlying philosophy expressed in the Dumara-og case, the
policy of judicial stability, to the end that the judgment of a court of
competent jurisdiction may not be interfered with by any court of
concurrent jurisdiction may not be interfered with by any court of
concurrent jurisdiciton, this Court feels that this is as good an
occasion as any to re-examine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's cause of
action springs from the alleged nullity of the judgment based on one
ground or another, particularly fraud, which fact affords the plaintiff a
right to judicial interference in his behalf. In such a suit the cause of
action is entirely different from that in the actgion which grave rise to
the judgment sought to be annulled, for a direct attack against a final
and executory judgment is not a incidental to, but is the main object of
the proceeding. The cause of action in the two cases being distinct and
separate from each other, there is no plausible reason why the venue
of the action to annul the judgment should necessarily follow the
venue of the previous action ...
The present doctrine which postulate that one court or one branch of
a court may not annul the judgment of another court or branch, not
only opens the door to a violation of Section 2 of Rule 4, (of the Rules
of Court) but also limit the opportunity for the application of said rule.
Our conclusion must therefore be that a court of first instance or a
branch thereof has the authority and jurisdiction to take cognizance
of, and to act in, suit to annul final and executory judgment or order
rendered by another court of first instance or by another branch of
the same court...
In February 1974 this Court reiterated the ruling in the Dulap case. 17
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of
the Court of First Instance of Negros Occidental can take cognizance of an action to
nullify a final judgment of the other two branches of the same court.
It is true that the dissolution of a partnership is caused by any partner ceasing to be
associated in the carrying on of the business. 18 However, on dissolution, the partnershop
is not terminated but continuous until the winding up to the business. 19
22
The remaining partners did not terminate the business of the partnership "Isabela
Sawmill". Instead of winding up the business of the partnership, they continued the
business still in the name of said partnership. It is expressly stipulated in the
memorandum-agreement that the remaining partners had constituted themselves as the
partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon
Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in
the name of "Isabela Sawmill". They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon
Garibay and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The
appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because she
purchased at public auction the properties of the partnership which were mortgaged to
her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership
was published in the newspapers. The appellees and the public in general had a right to
expect that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua
doing the business in the name of the partnership "Isabela Sawmill" could be enforced
against the proeprties of said partnership. The judicial foreclosure of the chattel
mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to
the creditors of the partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not
insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon
Garibay and Timoteo Tubungbanua continue doing the business of the partnership
"Isabela Sawmill" by entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the
appellees aslo acted in good faith in extending credit to the partnership. Where one of
two innocent persons must suffer, that person who gave occasion for the damages to be
caused must bear the consequences. Had Margarita G. Saldajeno not entered into the
memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue
doing the business of the aprtnership, the applees would not have been misled into
thinking that they were still dealing with the partnership "Isabela Sawmill". Under the
facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was
dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was
not terminated and it continued doping business through the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to annul the
chattel mortgage of the propertiesof the partnership executed by Leon Garibay and
Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when
a contract prejudices the rights of a third person, he may file an action to annul the
contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily
under a contract, may exercised an action for nullity of the contract if he is prejudiced in
his rights with respect to one of the contracting parties, and can show detriment which
would positively result to him from the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel
mortgage over the properties of the partnership "Isabela Sawmill" in favopr of Margarita
G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence,
said appelees have a right to file the action to nullify the chattel mortgage in question.
The portion of the decision appealed from ordering the appellants to pay attorney's fees
to the plaintiffs-appellees cannot be sustained. There is no showing that the appellants
displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants
believed in good faith, albeit erroneously, that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall
pay the appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the
memorandum-agreement, Leon Garibay and Timoteo Tubungbaun undertook to release
Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons.22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the
portion ordering appellants to pay attorney's fees and with the modification that the
defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendants-
appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever they
shall pay to the plaintiffs-appellees, without pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio-Herrera, JJ., concur.
23
G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS
COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN
JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm name
of "Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was
originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of
China (Taiwan), as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in
Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz
spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as
Assistant General Manager with a monthly salary of P4,000.00. According to petitioner
Yu, however, he actually received only half of his stipulated monthly salary, since he had
accepted the promise of the partners that the balance would be paid when the firm shall
have secured additional operating funds from abroad. Benjamin Yu actually managed the
operations and finances of the business; he had overall supervision of the workers at the
marble quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea
Bendal and Rhodora Bendal sold and transferred their interests in the partnership to
private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the partnership to Willy Co. Between
Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk
of the partnership interest. The partnership now constituted solely by Willy Co and
Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they
moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A
Supplement to the Memorandum Agreement relating to the operation of the marble
quarry was entered into with the Cruz spouses in February of 1988. 2 The actual
operations of the business enterprise continued as before. All the employees of the
partnership continued working in the business, all, save petitioner Benjamin Yu as it
turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from
Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for
work and there met private respondent Willy Co for the first time. Petitioner was
informed by Willy Co that the latter had bought the business from the original partners
and that it was for him to decide whether or not he was responsible for the obligations of
the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not
allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries
remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery
of unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an employee by the present or new
partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and
awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of
the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29
November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and
Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new partnership
had not retained petitioner Yu in his original position as Assistant General Manager, and
that there was no law requiring the new partnership to absorb the employees of the old
partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new
partnership which had simply declined to retain him in his former managerial position
or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages
should be asserted against the original members of the preceding partnership, but these
though impleaded had, apparently, not been served with summons in the proceedings
before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to
set aside and annul the Resolution of the NLRC as a product of grave abuse of discretion
amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a
partnership has a juridical personality separate and distinct from that of each of its
members. Such independent legal personality subsists, petitioner claims,
notwithstanding changes in the identities of the partners. Consequently, the employment
contract between Benjamin Yu and the partnership Jade Mountain could not have been
affected by changes in the latter's membership. 7
24
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether xxx xxx xxx
the partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel (Emphasis supplied)
Zapanta; and (2) if indeed a new partnership had come into existence, whether
petitioner Yu could nonetheless assert his rights under his employment contract as
against the new partnership. In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the original
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the partnership interest. The acquisition of 82% of the partnership interest by new partners,
legal effect of the changes in the membership of the partnership was the dissolution of coupled with the retirement or withdrawal of the partners who had originally owned
the old partnership which had hired petitioner in 1984 and the emergence of a new firm such 82% interest, was enough to constitute a new partnership.
composed of Willy Co and Emmanuel Zapanta in 1987.
The occurrence of events which precipitate the legal consequence of dissolution of a
The applicable law in this connection — of which the NLRC seemed quite unaware — is partnership do not, however, automatically result in the termination of the legal
found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code personality of the old partnership. Article 1829 of the Civil Code states that:
provides as follows:
[o]n dissolution the partnership is not terminated, but continues until
Art. 1828. The dissolution of a partnership is the change in the the winding up of partnership affairs is completed.
relation of the partners caused by any partner ceasing to be associated
in the carrying on as distinguished from the winding up of the business.
(Emphasis supplied) In the ordinary course of events, the legal personality of the expiring partnership
persists for the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, it is important to underscore the fact that the business of
Article 1830 of the same Code must also be noted: the old partnership was simply continued by the new partners, without the old
partnership undergoing the procedures relating to dissolution and winding up of its
Art. 1830. Dissolution is caused: business affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceeding partnership, and continued using the old name of
(1) without violation of the agreement between the partners; Jade Mountain Products Company Limited, without winding up the business affairs of the
old partnership, paying off its debts, liquidating and distributing its net assets, and then
re-assembling the said assets or most of them and opening a new business enterprise.
xxx xxx xxx There were, no doubt, powerful tax considerations which underlay such an informal
approach to business on the part of the retiring and the incoming partners. It is not,
(b) by the express will of any however, necessary to inquire into such matters.
partner, who must act in good
faith, when no definite term or What is important for present purposes is that, under the above described situation, not
particular undertaking is only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
specified; continued the business of the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts
xxx xxx xxx very similar to those in the case at bar, a withdrawing partner remains liable to a third
party creditor of the old partnership. 9 The liability of the new partnership, upon the
(2) in contravention of the other hand, in the set of circumstances obtaining in the case at bar, is established in
agreement between the Article 1840 of the Civil Code which reads as follows:
partners, where the
circumstances do not permit a Art. 1840. In the following cases creditors of the dissolved partnership
dissolution under any other are also creditors of the person or partnership continuing the business:
provision of this article, by the
express will of any partner at any (1) When any new partner is admitted into an existing partnership, or
time; when any partner retires and assigns (or the representative of the
25
deceased partner assigns) his rights in partnership property to two or
more of the partners, or to one or more of the partners and one or
more third persons, if the business is continued without liquidation of
the partnership affairs;
(2) When all but one partner retire and assign (or the representative
of a deceased partner assigns) their rights in partnership property to
the remaining partner, who continues the business without liquidation
of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article, with
the consent of the retired partners or the representative of the
deceased partner, but without any assignment of his right in
partnership property;
(4) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay
the debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining
partners continue the businessunder the provisions of article 1837,
second paragraph, No. 2, either alone or with others, and without
liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue
the business either alone or with others without liquidation of the
partnership affairs;
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the
dissolved partnership shall be satisfied out of the partnership
property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the
retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or
partnership continuing the business on account of the retired or
deceased partner's interest in the dissolved partnership or on account
of any consideration promised for such interest or for his right in
partnership property.
Nothing in this article shall be held to modify any right of creditors to
set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the
new Jade Mountain which continued the business of the old one without liquidation of
the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner
Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any
claim of any retired or previous partner insofar as such retired partner's interest in the
dissolved partnership is concerned. It is not necessary for the Court to determine under
which one or mare of the above six (6) paragraphs, the case at bar would fall, if only
because the facts on record are not detailed with sufficient precision to permit such
determination. It is, however, clear to the Court that under Article 1840 above, Benjamin
Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to
his employment with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to
appoint and hire a new general or assistant general manager to run the affairs of the
business enterprise take over. An assistant general manager belongs to the most senior
ranks of management and a new partnership is entitled to appoint a top manager of its
own choice and confidence. The non-retention of Benjamin Yu as Assistant General
Manager did not therefore constitute unlawful termination, or termination without just
or authorized cause. We think that the precise authorized cause for termination in the
case at bar was redundancy. 10 The new partnership had its own new General Manager,
apparently Mr. Willy Co, the principal new owner himself, who personally ran the
business of Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus
became superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to
separation pay at the rate of one month's pay for each year of service that he had
rendered to the old partnership, a fraction of at least six (6) months being considered as
a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in
its employ, we consider that Benjamin Yu was very shabbily treated by the new
partnership. The old partnership certainly benefitted from the services of Benjamin Yu
who, as noted, previously ran the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business itself and therefore, the
new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note
that the new partnership did not try to suggest that there was any cause consisting of
some blameworthy act or omission on the part of Mr. Yu which compelled the new
partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify
him of the change in ownership of the business, the relocation of the main office of Jade
Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of
operations. The treatment (including the refusal to honor his claim for unpaid wages)
accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to
amount to arbitrary, bad faith treatment, for which the new Jade Mountain may
legitimately be required to respond by paying moral damages. This Court, exercising its
26
discretion and in view of all the circumstances of this case, believes that an indemnity for
moral damages in the amount of P20,000.00 is proper and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal

rate of six percent (6%) per annum on the amount of unpaid wages, and of his separation
pay, computed from the date of promulgation of the award of the Labor Arbiter. Finally,
because the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect
his rights in the premises, he is entitled to attorney's fees in the amount of ten percent
(10%) of the total amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE,
the Comment filed by private respondents is treated as their Answer to the Petition
for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby
NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private
respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu
the following amounts:

(a) for unpaid wages which, as found by the Labor

Arbiter, shall be computed at the rate of P2,000.00
per month multiplied by thirty-six (36) months
(November 1984 to December 1987) in the total
amount of P72,000.00;

(b) separation pay computed at the rate of

P4,000.00 monthly pay multiplied by three (3)
years of service or a total of P12,000.00;

(c) indemnity for moral damages in the amount of

P20,000.00;

(d) six percent (6%) per annum legal interest

computed on items (a) and (b) above, commencing
on 26 December 1989 and until fully paid; and

(e) ten percent (10%) attorney's fees on the total

amount due from private respondent Jade
Mountain.

Costs against private respondents.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.

27
G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.
LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T.
LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure of the Decision1of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its
Resolution2 denying petitioners’ motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic
corporation engaged in real estate development. Rafaelito W. Lopez is its President and
Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and
Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining
parcels of land, with a combined area of 30,000 square meters, located in Tagaytay City
and covered by Transfer Certificate of Title (TCT) No. T-108484 of the Register of Deeds
of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as
President, entered into a Joint Venture Agreement5 (JVA) for the development of the
aforementioned property into a residential subdivision to be known as "Tagaytay Garden
Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two
parcels of land as their share in the joint venture. For its part, Primelink undertook to
contribute money, labor, personnel, machineries, equipment, contractor’s pool,
marketing activities, managerial expertise and other needed resources to develop the
property and construct therein the units for sale to the public. Specifically, Primelink
bound itself to accomplish the following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs,
structural and architectural plans, site development plans, and such other need
plans in accordance with existing laws and the rules and regulations of
appropriate government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the
projects;
c.) Furnish all materials, equipment, labor and services for the development of
the land in preparation for the construction and sale of the different types of
units (single-detached, duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by
force majeure or fortuitous event or by competent authority, or other
unavoidable circumstances beyond the DEVELOPER’S control, not to exceed
three years from the date of the signing of this Joint Venture Agreement, except
the installation of the electrical facilities which is solely MERALCO’S
responsibility;
e.) Provide necessary manpower resources, like executive and managerial
officers, support personnel and marketing staff, to handle all services related to
land and housing development (administrative and construction) and
marketing (sales, advertising and promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the
LANDOWNER can draw allowances or make advances not exceeding a total of
twenty percent (20%) of the net revenue for that period, on the basis of sixty
percent (60%) for the DEVELOPER and forty percent (40%) for the
LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the
net revenue for the first two years, in order to have sufficient reserves or funds
to protect and/or guarantee the construction and completion of the different
types of units mentioned above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to
drawing allowances and/or advances equivalent to sixty percent (60%) and
forty percent (40%), respectively, of the total net revenue or income of the sale
of the units.7
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue
or income of the Joint Venture project, after deducting all expenses incurred in
connection with the land development (such as administrative management
and construction expenses), and marketing (such as sales, advertising and
promotions), and
28
 2. The LANDOWNERS shall be entitled to forty percent (40%) of the net C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
revenue or income of the Joint Venture project, after deducting all the above-
mentioned expenses.8 D Advertising & Promo exp. (2% of TCP) 4,624,000.00

E Building expenses for the open

Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the
spaces and Amenities (Development
project:
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00

SALES-INCOME-COST PROJECTION
TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00
lawphil.net RECONCILIATION OF INCOME VS. EXPENSES
SELLING PRICE COST PRICE DIFFERENCE INCOME
Total Projected Income (incl. income from interest earn.) P307,769,740.00
CLUSTER:

A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00 less: 132,224,000.00

TWIN: Total Expenses P175,545,740.009

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

The parties agreed that any unsettled or unresolved misunderstanding or conflicting
SINGLE: opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00 Voluntary Arbitration in accordance with the Arbitration Law.10
ROW-TYPE TOWNHOMES:
The Lazatins agreed to subject the title over the subject property to an escrow
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00 agreement. Conformably with the escrow agreement, the owner’s duplicate of the title
was deposited with the China Banking Corporation.11 However, Primelink failed to
P138,720,000.00 immediately secure a Development Permit from Tagaytay City, and applied the permit
only on August 30, 1995. On October 12, 1995, the City issued a Development Permit to
(GROSS) Total Cash Price (A1+B1+C1+D1) = P231,200,000.00 Primelink.12

Total Building Expense

= 92,480,000.00 In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that
(A2+B2+C2+D2)
Primelink comply with its obligations under the JVA, otherwise the appropriate action
COMPUTATION OF ADD’L. INCOME ON INTEREST would be filed against it to protect their rights and interests. This impelled the officers of
Primelink to meet with the Lazatins and enabled the latter to review its business
TCP x 30% records/papers. In another Letter14 dated October 22, 1997, the Lazatins informed
= P 69,360,000 P 69,360,000.00
D/P Primelink that they had decided to rescind the JVA effective upon its receipt of the said
letter. The Lazatins demanded that Primelink cease and desist from further developing
Balance = 70% = 161,840,000 the property.
x .03069 x 48 = P238,409,740 238,409,740.00
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court
Total Amount (TCP + int. earn.) P307,769,740.00 (RTC) of Tagaytay City, Branch 18, a complaint for rescission accounting and damages,
with prayer for temporary restraining order and/or preliminary injunction against
EXPENSES:
Primelink and Lopez. The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged,
less: A Building expenses P 92,480,000.00 among others, that, despite the lapse of almost four (4) years from the execution of the
JVA and the delivery of the title and possession of the land to defendants, the land
B Commission (8% of TCP) 18,496,000.00 development aspect of the project had not yet been completed, and the construction of

29
the housing units had not yet made any headway, based on the following facts, namely:
(a) of the 50 housing units programmed for Phase I, only the following types of houses
appear on the site in these condition: (aa) single detached, one completed and two units
uncompleted; (bb) cluster houses, one unit nearing completion; (cc) duplex, two units
completed and two units unfinished; and (dd) row houses, two units, completed; (b) in
Phase II thereof, all that was done by the defendants was to grade the area; the units so
far constructed had been the object of numerous complaints by their owners/purchasers
for poor workmanship and the use of sub-standard materials in their construction, thus,
undermining the project’s marketability. Plaintiffs also alleged that defendants had,
without justifiable reason, completely disregarded previously agreed accounting and
auditing procedures, checks and balances system installed for the mutual protection of
both parties, and the scheduled regular meetings were seldom held to the detriment and
disadvantage of plaintiffs. They averred that they sent a letter through counsel,
demanding compliance of what was agreed upon under the agreement but defendants
refused to heed said demand. After a succession of letters with still no action from
defendants, plaintiffs sent a letter on October 22, 1997, a letter formally rescinding the
JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by
defendants, they (plaintiffs) stood to receive the amount of P70,218,296.00 as their net
share in the joint venture project; to date, however, after almost four (4) years and
despite the undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net
revenue during the first two (2) years (on the basis of the 60%-40% sharing) and their
full 40% share thereafter, defendants had yet to deliver these shares to plaintiffs which
by conservative estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary
restraining order be forthwith issued enjoining the defendants to immediately stop their
land development, construction and marketing of the housing units in the aforesaid
project; after due proceedings, to issue a writ of preliminary injunction enjoining and
prohibiting said land development, construction and marketing of housing units, pending
the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and
the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of
land;
3. Ordering the defendants to render an accounting of all income generated as
well as expenses incurred and disbursement made in connection with the
project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the
amount Forty Million Pesos (P40,000,000.00) in actual and/or compensatory
damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the
amount of Two Million Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the
amount equivalent to ten percent (10%) of the total amount due as and for
attorney’s fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for.16
Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the ground
that plaintiffs’ complaint was premature, due to their failure to refer their complaint to a
Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No. 876
before filing their complaint in the RTC. They prayed for the dismissal of the complaint
under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the
aforecited Rules of Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the
demand to arbitrate, and then asking the parties to resolve their controversies,
pursuant to the Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion
of the arbitration, and
d) denying the plaintiffs’ prayer for the issuance of a temporary restraining
order or writ of preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for.17
In the meantime, before the expiration of the reglementary period to answer the
complaint, defendants, invoking their counsel’s heavy workload, prayed for a 15-day
extension18 within which to file their answer. The additional time prayed for was granted
by the RTC.19 However, instead of filing their answer, defendants prayed for a series of
30
15-day extensions in eight (8) successive motions for extensions on the same
justification.20 The RTC again granted the additional time prayed for, but in granting the
last extension, it warned against further extension.21 Despite the admonition, defendants
again moved for another 15-day extension,22 which, this time, the RTC denied. No answer
having been filed, plaintiffs moved to declare the defendants in default,23 which the RTC
granted in its Order24dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim
and Opposition to the Prayer for the Issuance of a Writ of Preliminary Injunction."25 On
July 8, 1998, defendants filed a Motion to Set Aside the Order of Default.26 This was
opposed by plaintiffs.27 In an Order28 dated July 14, 1998, the RTC denied defendants’
motion to set aside the order of default and ordered the reception of plaintiffs’ evidence
ex parte. Defendants filed a motion for reconsideration 29 of the July 14, 1998 Order,
which the RTC denied in its Order30dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them
in default, as well as the Order denying their motion to set aside the order of default,
alleging that these were contrary to facts of the case, the law and jurisprudence. 31 On
September 16, 1999, the appellate court issued a Resolution 32 dismissing the appeal on
the ground that the Orders appealed from were interlocutory in character and, therefore,
not appealable. No motion for reconsideration of the Order of the dismissal was filed by
defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary
evidence. On April 17, 2000, the RTC rendered a Decision, the dispositive part of which
reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing
of this complaint;
2. Ordering the defendants to return possession, including all improvements
therein, of the real estate property belonging to the plaintiffs which is described
in, and covered by Transfer Certificate of Title No. T-10848 of the Register of
Deeds of Tagaytay City, and located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that
have been executed, prepared and retained in connection with any contract to
sell or deed of sale of all lots/units sold during the effectivity of the joint
venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26
representing their share of the net income of the P2,603,810.64 as of
September 30, 1995, as stipulated in the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the amount
of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the
stipulations particularly paragraph II covering Developer’s (defendant) undertakings, as
well as paragraph III and paragraph V of the JVA. These violations are not limited to
those made against the plaintiffs alone as it appears that some of the unit buyers
themselves have their own separate gripes against the defendants as typified by the
letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs.
Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings,
pp. 60 to 62, TSN August 6, 1998) this court has observed, and is thus convinced, that a
pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
income generated from sales of housing units by defendants, has been established.
Exhibit "P-2" is explicit in declaring that, as of September 30, 1995, the joint venture
project earned a net income of aboutP2,603,810.64. This amount, however, was
drastically reduced in a subsequent financial report submitted by the defendants
to P1,954,216.39. Shortly thereafter, and to the dismay of the plaintiffs, the defendants
submitted an income statement and a balance sheet (Exhibits "R" and "R-1") indicating a
net loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have
received the sum ofP1,041,524.26 representing their 40% share under paragraph II and
V of the JVA. But this was not to be so. Even before the plaintiffs could get hold of their
share as indicated above, the defendants closed the chance altogether by declaring a net
loss. The court perceives this to be one calculated coup-de-grace that would put to thin
air plaintiffs’ hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the
defendants treated the JVA and the manner by which they handled the project itself vis-
à-vis their partners, the plaintiffs herein, there is bound to be certain conflict as the latter
repeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other
recourse but to file the present action to enforce their rights. x x x34
31
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal 35 alleging
defendants’ dilatory tactics for its allowance. This was opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of
plaintiffs.37 Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution
pending appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I On August 9, 2004, the appellate court rendered a decision affirming, with modification,
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE
COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE
MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE
AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION
V. MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN
IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE,
AND DESPITE PRIMELINK’S STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO QUASH
THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR
RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO
RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT
ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS
SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE APPELLEES’ FAILURE TO
PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO
TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE
EXISTING IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID
RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS
PROVEN DURING THE EX PARTE HEARING, AND EVEN WITHOUT ORDERING
APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE
BETWEEN THE MARKET VALUE OF APPELLEES’ RAW, UNDEVELOPED AND
UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR
LESS FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE HORIZONTAL
AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES TO
UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
the appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court
of Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is
hereby AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848 held for
safekeeping by Chinabank pursuant to the Escrow Agreement is ordered released for
return to the plaintiffs-appellees and conformably with the affirmed decision, the
cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No.
10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation,41 the appellate court ruled that, under Philippine law, a joint venture is a
form of partnership and is to be governed by the laws of partnership. The aggrieved
parties filed a motion for reconsideration,42 which the CA denied in its
Resolution43 dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND
REVERSIBLE LEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION IN
ORDERING THE RETURN TO THE RESPONDENTS OF THE PROPERTY WITH
ALL IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING THE
RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES
INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE
ORIGINAL VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS
FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE
AND UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN
RELATIONS AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON
JUDICIAL NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF
CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL
APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER?44
32
Petitioners maintain that the aforesaid portion of the decision which unconditionally
awards to respondents "all improvements" on the project without requiring them to pay
the value thereof or to reimburse Primelink for all expenses incurred therefore is
inherently and essentially illegal and confiscatory, oppressive and unconscionable,
contrary to the tenets of good human relations, and will allow respondents to unjustly
enrich themselves at Primelink’s expense. At the time respondents contributed the two
parcels of land, consisting of 30,000 square meters to the joint venture project when the
JVA was signed on March 10, 1994, the said properties were worth not more
than P500.00 per square meter, the "price tag" agreed upon the parties for the purpose
of the JVA. Moreover, before respondents rescinded the JVA sometime in
October/November 1997, the property had already been substantially developed as
improvements had already been introduced thereon; petitioners had likewise incurred
administrative and marketing expenses, among others, amounting to more or
less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be
declared the owners and entitled to the possession of the improvements made by
petitioner Primelink on the property; neither did they adduce evidence to prove their
entitlement to said improvements. It follows, petitioners argue, that respondents were
not entitled to the improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to
the extent necessary to cover the damages caused and that, under Article 1385 of the
same Code, rescission creates the obligation to return the things which were not object
of the contract, together with their fruits, and the price with its interest; consequently, it
can be effected only when respondents can return whatever they may be obliged to
return. Respondents who sought the rescission of the JVA must place petitioner
Primelink in the status quo. They insist that respondents cannot rescind and, at the same
time, retain the consideration, or part of the consideration received under the JVA. They
cannot have the benefits of rescission without assuming its burden. All parties must be
restored to their original positions as nearly as possible upon the rescission of a contract.
In the event that restoration to the status quo is impossible, rescission may be granted if
the Court can balance the equities and fashion an appropriate remedy that would be
equitable to both parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their
claim for reimbursement because "[w]hat matters is that the improvements exist and
they cannot be denied."46 Moreover, they point out, the ruling of this Court in Aurbach v.
Sanitary Wares Manufacturing Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did
not specifically pray for their takeover of the property and for the possession of the
improvements on the parcels of land, nevertheless, respondents were entitled to said
relief as a necessary consequence of the ruling of the trial court ordering the rescission of
the JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article
1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles
of partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal
with rescissible contracts. What applies is Article 1191 of the New Civil Code, which
reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because,
as found by the RTC and the CA, it was petitioner Primelink that enriched itself at the
expense of respondents. Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove
and did not pray that they are and should be entitled to take over the development of the
project, and that the improvements and existing structures which were introduced by
PRIMELINK after spending more or less Forty Million Pesos – be awarded to them. They
merely asked in the complaint that the joint venture agreement be rescinded, and that
the parcels of land they contributed to the project be returned to them.
PRIMELINK’s argument lacks merit. The order of the court for PRIMELINK to return
possession of the real estate property belonging to the LAZATINs including all
improvements thereon was not a judgment that was different in kind than what was
prayed for by the LAZATINs. The order to return the property with all the improvements
thereon is just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles
of partnership may be resorted to. In Aurbach v. Sanitary Wares Manufacturing
Corporation, the Supreme Court discussed the following points regarding joint ventures
and partnership:
33
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly
distinguishable from the partnership, since elements are similar – community of interest
in the business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley
v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited
by most opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. (Tuffs v. Mann,
116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947];
Gates v. Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and
a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that, under Philippine law, a joint venture is a form of
partnership and should thus be governed by the laws of partnership. The Supreme Court
has, however, recognized a distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership contract, it may, however,
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954];
Campos and Lopez – Campos Comments, Notes and Selected Cases, Corporation Code
1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the
words of the court a quo, was a pattern of what appears to be a scheme or plot to reduce
and eventually blot out the net incomes generated from sales of housing units by the
defendants. Under Article 1838 of the Civil Code, where the partnership contract is
rescinded on the ground of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without prejudice to any other right is entitled to
a lien on, or right of retention of, the surplus of the partnership property after satisfying
the partnership liabilities to third persons for any sum of money paid by him for the
purchase of an interest in the partnership and for any capital or advance contributed by
him. In the instant case, the joint venture still has outstanding liabilities to third parties
or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by
Chinabank for safekeeping pursuant to the Escrow Agreement executed between
Primelink Properties and Development Corporation and Ma. Clara T. Lazatin-Magat
should also be returned to the LAZATINs as a necessary consequence of the order of
rescission of contract. The reason for the existence of the Escrow Agreement has ceased
to exist when the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have
suffered. They likewise stress that they did not enrich themselves at the expense of
petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the
improvements even if their share in the P1,041,524.26 of the net income of the property
and the sale of the land were to be deducted from the value of the improvements, plus
administrative and marketing expenses in the total amount of P40,000,000.00.
Petitioners will still be entitled to an accounting from respondents. Respondents cannot
deny the existence and nature of said improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the
possession of the parcels of land covered by the JVA and the improvements thereon
introduced by petitioners as their contribution to the JVA; (2) whether petitioners are
entitled to reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in
their complaint below that possession of the improvements on the parcels of land which
they contributed to the JVA be transferred to them. Respondents made a specific prayer
in their complaint that, upon the rescission of the JVA, they be placed in possession of the
parcels of land subject of the agreement, and for other "reliefs and such other remedies
as are just and equitable in the premises." However, the trial court was not precluded
from awarding possession of the improvements on the parcels of land to respondents in
its decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall
specify the relief sought but it may add as general prayer for such further or other relief
as may be deemed just and equitable. Even without the prayer for a specific remedy,
proper relief may be granted by the court if the facts alleged in the complaint and the
evidence introduced so warrant.50 The court shall grant relief warranted by the
allegations and the proof even if no such relief is prayed for.51 The prayer in the
complaint for other reliefs equitable and just in the premises justifies the grant of a relief
not otherwise specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels
of land and the improvements on the said parcels of land. It bears stressing that the
parcels of land, as well as the improvements made thereon, were contributed by the
parties to the joint venture under the JVA, hence, formed part of the assets of the joint
venture.53 The trial court declared that respondents were entitled to the possession not
only of the parcels of land but also of the improvements thereon as a consequence of its
finding that petitioners breached their agreement and defrauded respondents of the net
income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA which, under the
Court’s ruling in Aurbach, is a form of partnership, and as such is to be governed by the
laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on
record that petitioners willfully and persistently committed a breach of the JVA, the court
thereby dissolved/cancelled the partnership.54With the rescission of the JVA on account
of petitioners’ fraudulent acts, all authority of any partner to act for the partnership is
34
terminated except so far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished.55 On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is
completed.56 Winding up means the administration of the assets of the partnership for
the purpose of terminating the business and discharging the obligations of the
partnership.
The transfer of the possession of the parcels of land and the improvements thereon to
respondents was only for a specific purpose: the winding up of partnership affairs, and
the partition and distribution of the net partnership assets as provided by law.57 After all,
Article 1836 of the New Civil Code provides that unless otherwise agreed by the parties
in their JVA, respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not insolvent, has
the right to wind up the partnership affairs, provided, however, that any partner, his
legal representative or his assignee, upon cause shown, may obtain winding up by the
court.
It must be stressed, too, that although respondents acquired possession of the lands and
the improvements thereon, the said lands and improvements remained partnership
property, subject to the rights and obligations of the parties, inter se, of the creditors and
of third parties under Articles 1837 and 1838 of the New Civil Code, and subject to the
outcome of the settlement of the accounts between the parties as provided in Article
1839 of the New Civil Code, absent any agreement of the parties in their JVA to the
contrary.58 Until the partnership accounts are determined, it cannot be ascertained how
much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified
for the value of the improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does not contain any provision
designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution
is caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution
wrongfully, to damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all
desire to continue the business in the same name either by themselves or
jointly with others, may do so, during the agreed term for the partnership and
for that purpose may possess the partnership property, provided they secure
the payment by bond approved by the court, or pay to any partner who has
caused the dissolution wrongfully, the value of his interest in the partnership at
the dissolution, less any damages recoverable under the second 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.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property
after satisfying the partnership liabilities to third persons for any sum of money
paid by him for the purchase of an interest in the partnership and for any
capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place
of the creditors of the partnership for any payments made by him in respect of
the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the
representation against all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in
Article 1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed, subject to any agreement to the contrary:
35
(1) The assets of the partnership are: (b) Those owing to partnership creditors;

(a) The partnership property, (c) Those owing to partners by way of contribution.

(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,
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they
conform to this Decision of the Court.
Costs against petitioners.
SO ORDERED.

(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;

36
 [G.R. No. 30616 : December 10, 1990.]
192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,Defendant-
Appellee.
DECISION
PARAS, J.:
This is a direct appeal to this Court from a decision ** of the then Court of First Instance
of Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing
appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership
(Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of them
as partners. The partnership EDE with an indefinite term of existence was duly
registered on January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber
and/or minor forests products licenses and concessions over public and/or private
forest lands and to operate, develop and promote such forests rights and concessions."
(Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a
timber concession covering the area located at Cateel and Baganga, Davao with the
Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued
and became the basis of subsequent renewals made for and in behalf of the duly
registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business
affairs of the partnership, including marketing and handling of cash and is authorized to
sign all papers and instruments relating to the partnership, while appellant Rojas shall
be the logging superintendent and shall manage the logging operations of the
partnership. It is also provided in the said articles of co-partnership that all profits and
losses of the partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of
said partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the
services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-
Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST
DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of
the second partnership which is to hold and secure renewal of timber license instead of
to secure the license as in the first partnership and the term of the second partnership is
fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1,
1956, and was able to ship logs and realize profits. An income was derived from the
proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled
"CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT
ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that Maglana and Rojas
shall purchase the interest, share and participation in the Partnership of Pahamotang
assessed in the amount of P31,501.12. It was also agreed in the said instrument that after
payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured
by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become
the owners of all equipment contributed by Pahamotang and the EASTCOAST
DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be
dissolved. Pahamotang was paid in fun on August 31, 1957. No other rights and
obligations accrued in the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and
Rojas without the benefit of any written agreement or reconstitution of their written
Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A.
947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the
newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and
was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to
contribute, either in cash or in equipment, to the capital investments of the partnership
as well as his obligation to perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply
with the promised contributions and he will not work as logging superintendent.
Maglana then told Rojas that the latter's share will just be 20% of the net profits. Such
was the sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).:
nad
Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a
letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved
the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against
Maglana for the recovery of properties, accounting, receivership and damages, docketed
as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
37
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to
examine the long and voluminous accounts of the Eastcoast Development Enterprises
(Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-
114) was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also
required the inclusion of the entire year 1961 in the report to be submitted by the
commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining
the records and supporting papers of the partnership as well as the information
furnished them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with
counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was
granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report
(Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27,
1964 approving the report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp.
446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following
issues were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after
the dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share
and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving
the partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive
portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby
rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas
after Pahamotang retired from the second partnership, that is, after August 31,
1957, when Pahamotang was finally paid his share — the partnership of the
defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of
computation, that is the ratio and proportion of their respective contributions,
or on the basis of share and share alike — this covered by actual contributions
of the plaintiff and the defendant and by their verbal agreement; that the
sharing of profits and losses is on the basis of actual contributions; that from
1957 to 1959, the sharing is on the basis of 80% for the defendant and 20% for
the plaintiff of the profits, but from 1960 to the date of dissolution, February 23,
1961, the plaintiff's share will be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the plaintiff is not entitled to
any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and
placed in his or in his wife's name were acquired with partnership funds or
with funds of the defendant and — the Court declares that there is no evidence
that these properties were acquired by the partnership funds, and therefore the
same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused
them and who should be liable for them — the Court declares that neither
parties is entitled to damages, for as already stated above it is not a wise policy
to place a price on the right of a person to litigate and/or to come to Court for
the assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated
February 23, 1961; did it dissolve the partnership or not — the Court declares
that the letter of the defendant to the plaintiff dated February 23, 1961, in effect
dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies,
and other merchandise to the laborers and employees of the Eastcoast
Development Enterprises, — the COURT DECLARES THE SAME AS NOT
BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo
Angeles David — is VALID AND BINDING UPON THE PARTIES AND SHOULD BE
CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE
PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to
the partnership the amount of P69,000.00 the profits he received from the CMS
Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of
P85,000.00 which according to him he is still entitled to receive from the CMS
Estate, Inc. is hereby denied considering that it has not yet been actually
received, and further the receipt is merely based upon an expectancy and/or
still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of
P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount
he should have received as logging superintendent, and which was not paid to
him, and this should be considered as part of Maglana's contribution likewise to
the partnership; and
38
 "12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the
Maglana-Rojas after Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that
when the second partnership was dissolved there was no written contract of co-
partnership; there was no reconstitution as provided for in the Maglana, Rojas and
Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas
and Maglana after the dissolution of the second partnership was a de facto partnership
and at will. It was considered as a partnership at will because there was no term, express
or implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of
Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership
dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved
by the unregistered articles of co-partnership among appellant Rojas, appellee Maglana
and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms
and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern
the relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from
the unregistered partnership (Exhibit "C"), the legally constituted partnership EDE
(Exhibit "A") continues to govern the relations between them and it was legal error to
consider a de facto partnership between said two partners or a partnership at will.
Hence, the letter of appellee Maglana dated February 23, 1961, did not legally dissolve
the registered partnership between them, being in contravention of the partnership
agreement agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A").
Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code
and to the sharing profits between them of "share and share alike" as stipulated in the
registered Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana,
it appears evident that it was not the intention of the partners to dissolve the first
partnership, upon the constitution of the second one, which they unmistakably called an
"Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except
for the fact that they took in one industrial partner; gave him an equal share in the
profits and fixed the term of the second partnership to thirty (30) years, everything else
was the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT
ENTERPRISES, they pursued the same purposes and the capital contributions of Rojas
and Maglana as stipulated in both partnerships call for the same amounts. Just as
important is the fact that all subsequent renewals of Timber License No. 35-36 were
secured in favor of the First Partnership, the original licensee. To all intents and
purposes therefore, the First Articles of Partnership were only amended, in the form of
Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered
(Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence of the
second partnership, all business transactions were carried out under the duly registered
articles. As found by the trial court, it is an admitted fact that even up to now, there are
still subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No
rights and obligations accrued in the name of the second partnership except in favor of
Pahamotang which was fully paid by the duly registered partnership (Decision, R.A., pp.
919-921).
On the other hand, there is no dispute that the second partnership was dissolved by
common consent. Said dissolution did not affect the first partnership which continued to
exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and
participation in the second partnership of Pahamotang and that thereafter, the two
(Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even
more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the
latter of his obligation to contribute either in cash or in equipment, to the capital
investment of the partnership as well as his obligation to perform his duties as logging
superintendent. This reminder cannot refer to any other but to the provisions of the duly
registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be
able to comply with the promised contributions and he will not work as logging
superintendent. By such statements, it is obvious that Roxas understood what Maglana
was referring to and left no room for doubt that both considered themselves governed by
the articles of the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at
Will, for as stressed, there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in
the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the
partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner
can cause its dissolution by expressly withdrawing even before the expiration of the
period, with or without justifiable cause. Of course, if the cause is not justified or no
cause was given, the withdrawing partner is liable for damages but in no case can he be
compelled to remain in the firm. With his withdrawal, the number of members is
decreased, hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be divided "share and share alike" between the
partners.
But an accounting must first be made and which in fact was ordered by the trial court
and accomplished by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the
partners from 1956-1961 are as follows: Eufracio Rojas who should have contributed
P158,158.00, contributed only P18,750.00 while Maglana who should have contributed
P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that
when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute
(Article 1786, Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals,
39
133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In
their voluminous reports which was approved by the trial court, they showed that on 50-
50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable
for P40,092.96 and finally on the basis of actual capital contribution, he will be liable for
P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of
Pahamotang which is unquestionably a continuation of the duly registered partnership
and the sharing of profits and losses which should be on the basis of share and share
alike as provided for in the duly registered Articles of Co-Partnership, no plausible
reason could be found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be
recalled that after the withdrawal of Pahamotang, Rojas entered into a management
contract with another logging enterprise, the CMS Estate, Inc., a company engaged in the
same business as the partnership. He withdrew his equipment, refused to contribute
either in cash or in equipment to the capital investment and to perform his duties as
logging superintendent, as stipulated in their partnership agreement. The records also
show that Rojas not only abandoned the partnership but also took funds in an amount
more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for
damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao,
Branch III, is hereby MODIFIED in the sense that the duly registered partnership of
Eastcoast Development Enterprises continued to exist until liquidated and that the
sharing basis of the partners should be on share and share alike as provided for in its
Articles of Partnership, in accordance with the computation of the commissioners. We
also hereby AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.
Melencio-Herrera, Sarmiento and Regalado, JJ., concur.
Padilla, J., took no part.

40
G.R. No. 17024 March 24, 1922
DOMINGO BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.
C. Lozano and Cecilio I. Lim for appellant.
Montinola, Montinola & Hontiveros for appellee.
ROMUALDEZ, J.:
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed
a partnership for the purpose of exploiting a fish pond situated in the barrio of Talisay,
municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to
contribute to the payment of the expenses of the business, which obligation she made
good, and both agreeing to divide the profits between themselves, which they had been
doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed Domingo Bearnez,
the herein plaintiff, as her heir to succeed to all her rights and interests in the fish pond
in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery
of the part of the fish pond belonging to his decedent, Perpetua, and delivery having been
refused, Domingo Bearneza brought this action to recover said part of the fish pond
belonging to his decedent, Perpetua, and delivery having been refused, Domingo
Bearneza brought this action recover said part of the fish pond and one-half of the profits
received by the defendant from the fish pond from the year 1913 to 1919, as damages
(the amended complaint was filed on April 12, 1920), amounting, according to plaintiff,
to the sum of thirteen thousand one hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the allegations of the
complaint, and alleges, as special defense, that "the formation of the supposed
partnership between the plaintiff and the defendant for the exploitation of the aforesaid
fish pond was not carried into effect, on account of the plaintiff having refused to defray
the expenses of reconstruction and exploitation of said fish pond." As another special
defense, the defendant alleges "that in the event that the court should hold the plaintiff to
be entitled to the undivided one-half of the fish pond, claimed in the complaint, the
plaintiff's action has prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered judgment, declaring
the plaintiff owner of one-half of the fish pond, which was composed of the portions
known as "Alimango" and "Dalusan," but without awarding him any of the damages
claimed by him, the same not having been proven, in the opinion of the court, and
ordering the defendant to pay the costs.
From this judgment the defendant appeals, making various assignments of error. The
plaintiff did not appeal from that part of the judgment denying his claim for damages;
hence the only question we are called upon to decide is whether or not the plaintiff has
any right to maintain an action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence
of which the proof contained in the record is conclusive and there is no dispute, was of a
civil nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it
having had for its subject-matter a specified thing, to with, the exploitation of the
aforementioned fish pond. Although, as the trial court says in its decision, the defendant,
in his letters to Perpetua or her husband, makes reference to the fish pond, calling it
"our," or "your fish pond," this reference cannot be held to include the land on which the
said fish pond was built. It has not been proven that Perpetua Bearneza participated in
the ownership of said land, and Exhibits 2 and 3 of the defendant show that he has been
paying, as exclusive owner of the fish pond, the land tax thereon, although in Exhibit X he
says that the said land belongs to the State. The conclusion, therefore, from the evidence
is that the land on which the fish pond was constructed did not constitute a part of the
subject- matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership,
and, therefore, the provisions of the Code of Commerce not being applicable thereto
(article 1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza, and
falls under the provisions of article 1700, subsection 3, of the same Code, and not under
the exception established in the last paragraph of said article 1700 of the Civil Code.
Neither can it be maintained that the partnership continued to exist after the death of
Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever been
made by her and the defendant, pursuant to the provisions of article 1704 of the Code
last cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its
subsequent legal status was that of a partnership in liquidation, and the only rights
inherited by her testamentary heir, the herein plaintiff, were those resulting from the
said liquidation in favor of the deceased partner, and nothing more. Before this
liquidation is made, which up to the present has not been effected, it is impossible to
determine what rights or interests, if any, the deceased had, the partnership bond having
been dissolved.
There is no sufficient ground for holding that a community of property existed between
the plaintiff and the defendant, it not being known whether the deceased still had any
interest in the partnership property which could have been transmitted by will to the
plaintiff. There being no community of property, article 395 of the Civil Code cited by the
plaintiff in support of his contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the
defendant. It is true that the latter's act in requiring the heirs of Perpetua to contribute to
41
the payment of the expenses of exploitation of the aforesaid fishing industry was an
attempt to continue the partnership, but it is also true that neither the said heirs
collectively, nor the plaintiff individually, took any action in response to that
requirement, nor made any promise to that effect, and therefore no new contract of
partnership existed.

We find that the plaintiff has not sufficiently shown his right of action.

The judgment appealed from is modified, the same being affirmed insofar as it denies the
plaintiff's claim for damages, and reversed insofar as it declares the said plaintiff owner
of one-half of the fish pond, "Alimango" and "Dalusan," here in dispute.

No special finding as to costs is made. So ordered.

Araullo, C.J., Malcolm, Avanceña, Villamor, Ostrand and Johns, JJ., concur.

42
G.R. No. L-10040 January 31, 1916
EUGENIA LICHAUCO, ET AL., plaintiffs-appellants,
vs.
FAUSTINO LICHAUCO, defendant-appellant.
Haussermann, Cohn and Fisher for plaintiffs.
Gibbs, McDonough and Blanco for defendant.
CARSON, J.:
This action was brought by two of the partners of an enterprise of which the defendant
was manager (gestor), to secure an accounting of its affairs, and the payment to the
plaintiffs of their respective shares of capital and profits.
The defendant admitted the allegations of the complaint as to the organization of the
enterprise and the participation of the plaintiffs therein, but he contended that the
plaintiffs could not maintain this action under the terms of the written contract by virtue
of which the enterprise was organized. This contention having been overruled, an
account of the affairs of the enterprise was submitted, and the parties having been given
an opportunity to offer evidence for and against certain dispute items of the account,
judgment was rendered for the balance shown to be due the plaintiffs, after allowing
some of these disputed items and disallowing the rest. To this judgment, both plaintiffs
and defendant excepted, and the record is now before us on their respective bills of
exceptions.
In October, 1901, a notarial instrument was executed in Manila, by the terms of which a
partnership was duly organized for the purpose of carrying on a rice-cleaning business at
Dagupan, and for the purchase and sale of "palay" and rice. The articles of association,
which were not recorded in the mercantile registry, contain, among others, the following
provisions:
2. The association will be named F. Lichauco Hermanos and will be domiciled in
the center of its operations, that is, in the pueblo of Dagupan, Province of
Pangasinan.
3. The association cannot be dissolved except by the consent and agreement of
two-thirds of its partners and in the event of the death of any of the latter, the
heirs of the deceased, if they be minors or otherwise incapacitated, shall be
represented in the association by their legal representatives or if two-thirds of
the surviving partners agree thereto, the participation of the deceased partner
may be liquidated.
4. The management and direction of the association shall be in charged of Don
Faustino Lichauco y Santos, who shall be domiciled in this city of Manila, with
ample powers to direct and manage the business; to carry out all manner of
purchases and sales of "palay," rice, chattels, machinery and whatsoever may
be necessary and proper for the business of the association; to make all
contracts of every kind related to said business, either orally, in private
documents or in public instruments, as he deems fit; to appoint subordinates
and other employees such as may be necessary; and finally to perform
whatever acts and things he may deem suitable to the interest of the
association; and to appear before the courts of justice and other authorities and
public offices in such matters as may concern the association and to appoint
agents for those matters to which he cannot attend personally.
The articles disclose that the capital invested in the enterprise was fixed at P100,000, of
which amount P60,000 was contributed by the defendant and his brothers in the form of
machinery in a mill at Dagupan and the good will of the milling business formerly
conducted at the place, the balance of the capital being contributed by the plaintiffs and
others in cash, in the following proportions: Eugenia Lichauco, P13,000; Catalino
Arevalo, P8,000; Mariano Nable Jose, P5,000; Tomas Roux, P4,000; Julita Lichauco,
P10,000.
The business thus organized was carried on until May, 1904, when it was found to be
unprofitable and discontinued by the defendant manager (gestor); and thereafter, the
machinery of the rice mil was dismantled by his orders, and offered for sale. No
accounting ever was made to his associates by the defendant until this action was
instituted in October, 1912, although it appears that in the year 1905, Mariano Limjap,
one of the participants in the venture, demanded a rendition of accounts; and that
Eugenia Lichauco, one of the plaintiffs in this action, made repeated unsuccessful
demands for the return of her share of the capital invested in the enterprise. And yet it
further appears that during all that time the defendant manager of the defunct enterprise
had in his possession not less than P20,000, the cash balance on hand, over and above all
claims of indebtedness after suspending operations in 1904; and that since that time he
received or should have received substantial sums of money from the sale of the
machinery of the dismantled mill.
There is evidence in the record tending to show that the defendant informed some of his
associates, about the year 1906 or 1907, that the whole enterprise was bankrupt; and it
appears that some months prior to the institution of this action, he rendered upon
demand of counsel, a so-called account showing a balance to the credit of the enterprise
of only P643.64; although at the trial, some six months afterwards, he expressly admitted
the existence of a cash balance of some P23,131.53, and the amount by the trial judge as
due by him on account of the venture was P29,549.99. The defendant explained that the
account rendered to counsel for the plaintiffs showing a balance of P634.64 was mailed
by one of his employees without his knowledge, and that it was a stupid blunder which
he greatly regretted; and it would seem that his statement as to the bankruptcy of the
enterprise were not intended to be understood as an assertion that there was no balance
due the partners, but merely that the enterprise had not paid, and that the losses of
operation had exceeded the profits.
43
Giving the defendant the benefit of the doubt, we are inclined to accept these
explanations of these incidents, as it is hardly possible that he could have hoped to
escape indefinitely the necessity of accounting for his management of the enterprise, and
thus permanently retain in his own possession the substantial balance due to his
associates. But it is to be observed that, viewed for many standpoint, these statements,
made and rendered by the defendant as to the affairs of the association, taken together
with the other evidence in the record, leave no room for doubt that from the time he
concluded the operations of the business in 1904 until the date of the institution of this
action in 1912 he made no attempt to account to his associates or to turn over to them
the amount due them on a proper accounting.
The assignments of error made by counsel for the defendant, as appellant, are as follows:
Error No. 1. — The trial court erred in rendering judgment in favor of the
plaintiffs and against the defendant for any sum, without first decreeing a
dissolution of the association and final liquidation of its assets in accordance
with paragraph 10 of the articles of association, and because such judgment is
not within the issues joined.
Error No. 2. — The trial court erred in charging the defendant with P5,500, the
price of certain boilers and machinery sold to one Marciano Rivera by Crisanto
Lichauco, which amount never came into the possession of defendant.
Error No. 3. — The trial court erred in disallowing the credit of P60.36, taken by
defendant for that amount expended in an attempt to make good the sale and
delivery to Marciano Rivera of the boilers and machinery mentioned in the
second assignment of error.
Error No. 4. — The court erred in charging the defendant with the P1,820,
covered by stipulation of December 10, 1913, for the reason that the
defendant's liability under that stipulation can only accrue on the final
dissolution and liquidation of the association.
Error No. 5. — The court erred in rendering judgment against the defendant for
the costs of the action.
The assignments of error made by refusing to condemn the defendant to the payment of
interest at the legal rate from May 30, 1904, to date of payment.
Error No. 1 — The court erred in refusing to condemn the defendant to the
payment of interest at the legal rate of 6 per cent upon the credit balance of the
joint venture from May 30, 1904, to date of payment.
Error No. 2. — The court erred in refusing to allow interest at the legal rate of 6
per cent upon the sum of P1,147.44 from May 30, 1904, to date of payment,
said credit balance of the joint venture was unduly diminished by error in the
conversion of gold currency.
Error No. 3. — The court erred in refusing to allow the joint venture account the
sum of P17, 746, being the value of 3,736 cavanes of rice at P4.75 per cavan, for
which the defendant has wholly failed to account.
Error No. 4. — The court erred in declining to allow the joint venture account
the sum of P8,943.98 as interest upon said last-mentioned sum at the legal rate.
Error No. 5. — The court erred in declining to allow the joint venture account
the sum of P564.34, as interest at the legal rate upon the sum of P5,500, for
which the defendant has failed and refused to account.
Error No. 6. — The court erred in declining to credit the joint venture account
with the sum of P2,498.46 as the amount due said account from Mariano Nable
Jose, together with interest thereon at the legal rate, amounting to P1,259.22.
We shall first examine the contentions of counsel for the defendant in support of his
principal assignment of error, as a ruling in this regard is necessary to the proper
disposition of all the other assignments of error by both plaintiffs and defendant.
Counsel for defendant says in his brief:
It is our contention, and we believe it to be unanswerable, that the dissolution
and liquidation, either in whole or in part, of the association is absolutely
prohibited by paragraph 10 of the articles of association, except by and with the
conformity and agreement of two-thirds of the partners, and that as a
consequence thereof the court, without allegations or proof of compliance with
that paragraph and without making the other partners parties to the action,
had no power to decree a distribution either in whole or in part of the capital or
assets of the association.
It certainly cannot be seriously contended that part of the capital and assets of
this association can be lawfully returned to and distributed between the
plaintiffs who constitute one-fifth of the total number of partners, as required
by paragraph 10 of the articles of association.
It is elementary that no lawful liquidation and distribution of capital and assets
of any company or association can ever take place except upon dissolution
thereof.
These contentions of counsels for the defendant take no account of the provisions of both
the Civil and Commercial Codes for the dissolution and liquidation of the different
classes of partnerships and mercantile associations upon the occurrence of certain
44
contingencies not within the control of the partners. The provisions of paragraph 10 of
the articles of partnership prohibiting the dissolution of the association under review,
except by the consent and agreement of two-thirds of its partners, denied the right to a
less number of the partners to effect a dissolution of the partnership through judicial
intervention or otherwise; but in no wise limited or restricted the rights of the individual
partners in the event the dissolution of the association was effected, not by any act of
theirs, but by the express mandate of statutory law. It would be absurd and unreasonable
to hold that such an association could never be dissolved and liquidated without the
consent and agreement of two-thirds of its partners notwithstanding that it had lost all
its capital, or had become bankrupt, or that the enterprise for which it had been
organized had been concluded or utterly abandoned.
Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means by which
partnership (sociedades) as defined in that code, may be terminated. The first article of
that chapter is as follows:
1700. Partnership is extinguished:
(1) When the term for which it was constituted expires.
(2) When the thing is lost, or the business for which it was constituted ends.
(3) By the natural death, civil interdiction, or insolvency of any of the partners,
and in the case provided for in article 1699.
(4) By the will of any of the partners, subject to the provisions of articles 1705
and 1707.
Partnerships, to which article 1670 refers, are excepted from the provisions of
Nos. 3 and 4 of this article, in the cases in which they should exist, according to
the Code of Commerce.
1670. Civil partnerships, on account of the objects for which they are destined,
may adopt all the forms accepted by the Code of Commerce. In this case, the
provisions of the same shall be applicable, in so far as they are not in conflict
with those of the present Code.
Articles 221 and 222 of the Code of Commerce are as follows:
221. Associations of any kind whatsoever shall be completely dissolved for the
following reasons:
(1) The termination of the period fixed in the articles of association of the
conclusion of the enterprise which constitutes its purpose.
(2) The entire loss of the capital.
(3) The failure of the association.
222. General and limited copartnerships shall furthermore be totally dissolved
for the following reasons:
(1) The death of one of the general partners if the articles of copartnership do
not contain an express agreement that the heirs of deceased partner are to
continue in the copartnership, or an agreement to the effect that said
copartnership will continue between the surviving partners.
(2) The insanity of a managing partner or any other cause which renders him
incapable of administering his property.
(3) The failure of any of the general partners.
It cannot be doubted that under these provisions of law the association of which the
defendant was nominated manager (gestor) was totally dissolved in the year 1904, when
the rice mill for the operation of which it was organized was dismantled, the machinery
offered for sale and the whole enterprise concluded and abandoned.
Upon the dissolution of the association in 1904 it became the duty of the defendant to
liquidate its affairs and account to his associates for their respective shares in the capital
invested — this not merely from the very nature of his relation to the enterprise and of
his duties to those associated with him as partners, but also by the express mandate of
the law. The association having been dissolved by the termination and abandonment of
the enterprise for which it was organized, he owed this duty to liquidate and account to
all and to each of his associates, and upon his failure to perform that duty, all or any of
them had a clear legal right to compel him to fulfill it. Each of his associates had a perfect
right to demand for himself a full, complete and satisfactory accounting, and in the event
that he conceived himself aggrieved in this regard, to institute the appropriate judicial
proceedings to secure relief. Doubtless, in order to avoid a multiplicity of actions, the
defendant in such an action could require all the associates to be made parties, but the
right of an individual member of the association to recover his share in the enterprise
and to assert his individual claim for redress, wholly independent of the action or
attitudes of his associates, could be in no wise affected thereby. The other associates
would be proper, but not necessary, parties to an action of this kind; and when, as in the
case at bar, the defendant proceeds to trial without objection on the express ground that
all the associates in the enterprise have not been made parties to the action, he cannot
thereafter be heard to raise such an objection for the purpose of challenging any
judgment which may be rendered therein.
Although the enterprise was organized in the year 1901 for the purpose of conducting
mercantile operations, including the buying and selling of "palay" and rice, the articles of
partnership or association were not registered in the mercantile registry in accordance
45
with the provisions of articles 17 and 119 of the Commercial Code. It was therefore a
mere unregistered commercial partnership, and the association never became in the
legal sense a juridical person, nor did it attain the dignity, rights or privileges accorded
the different classes of compañias mercantiles (mercantile partnerships), discussed in
Title 1 of Book 2 of the Commercial Code. Still, under the provisions of the above-cited
article 1670 of the Civil Code, if it be found that the association is clothed with the forms
of any of the commercial association or partnerships recognized in the Commercial Code,
the provisions of that code, in so far as they are not in conflict with those of the Civil
Code, may be relied upon in an attempt to define the legal relations of the association
and its members. Though the unregistered articles of partnership gave the association a
form of organization closely assimilated to that of a regular "compañia en comandita," as
prescribed in the Commercial Code, except that the name designated in the articles did
not include the words "y compañia" (and company) and the additional words "sociedad
en comandita," it appears to have been organized and conducted in substantially the
manner and form prescribed for "cuentas en participacion" (joint accounts) in articles
239-243 of that Code.
The plaintiffs alleged in their complaint and the defendant admitted in his answer that
the contract was one of a "sociedad de cuentas en participacion" (joint account
partnership) of which the defendant was gestor (manager). In his brief on appeal,
however, counsel for defendant intimates that under article 241 of the Commercial Code,
the adoption in the articles of partnership of a firm name deprived the parties of the
rights and privileges secured to those interested in cuentas en participacion under the
provisions of the Commercial Code.
But whatever effect the inclusion or omission of a firm name in the articles of
partnership may have had as to third persons dealing with the partnership, we are of
opinion that as between the associates themselves, their mutual rights, duties and
obligations may properly be determined upon the authority of article 1670 of the Civil
Code by the provisions of the Commercial Code touching partnerships, the form of which
in all other respects, the partners have adopted in their articles of partnership.
The duty of the defendant to liquidate the affairs of the enterprise and to account to his
associates promptly upon the dissolution of the association in the year 1904 is expressly
prescribed in the Commercial Code, whether we regard the association, so far as it affects
the mutual rights and obligations of the partners, as clothed with the forms of a
"sociedad de cuentas en participacion" (joint account partnership) or a "sociedad en
comindata."
Article 243 of the Code of Commerce prescribes with reference to "cuentas en
participacion" (joint accounts) that:
243. The liquidation shall be effected by the manager, and after the transactions
have been concluded he shall render a proper account of its results.
Articles 229 and 230 of the same Code are as follows:
229. In general or limited copartnerships, should there be no opposition on the
part of any of the partners, the persons who managed the common funds shall
continue in charge of the liquidation; but should all the partners not agree
thereto a general meeting shall be called without delay, and the decision
adopted at the same shall be enforced with regard to the appointment of
liquidators from among the members of the association or not, as well as in all
that refers to the form and proceedings of the liquidation and the management
of the common funds.
230. Under the penalty of removal the liquidators shall —
(1) Draw up and communicate to the members, within the period of twenty
days, an inventory of the common property, with a balance of the association in
liquidation according to its books.
(2) Communicate in the same manner to the members every month the
condition of the liquidation.
We conclude that an express statutory obligation imposed upon the defendant an
imperative obligation to proceed without delay to the liquidation of the association in the
year 1904 and the further duty to account to his associates for the result of that
liquidation. While he appears to have gone forward with the liquidation far enough to
collect all the cash resources of the association into his own hands, how utterly failed
neglected to account therefor to his associates or to make any attempt so to do, and we
are of opinion that the plaintiffs were clearly entitled to bring this action to compel an
accounting, and the payment of their respective shares of the capital invested, together
with damages resulting from the failure of the defendant to perform the duty expressly
imposed upon him by statute. The damages arising from the failure to account consisted
of the loss of the use of the money to which they would have been entitled upon a proper
accounting, from the date at which it should have been turned over by the defendant
until it is actually paid by him, that is to say, interest on that amount at the rate of six per
centum per annum until paid.
What has been said disposes adversely of the contentions of the defendant in support of
his assignments of errors Nos. 1 and 5; and sustains the contentions of the plaintiffs in
their assignments of errors Nos. 1 and 2, to the extent that interest at the rate of six per
centum per annum should have been allowed upon the credit balance of the enterprise
from May 30, 1904, the date when it should have been distributed among his associates
by the defendant had he performed his statutory duty in that regard. This balance
(including the item mentioned in plaintiff's assignment of error No. 2) we fix at P23,
131.53, adopting as a basis for our finding in this regard, the findings and conclusions of
the trial judge, and disregarding the possibility that had defendant accounted promptly
to his associates, interest might not have been chargeable on some of the smaller items in
included in the account until some little time after the date just mentioned.
46
As to the other assignments of error it must suffice to say that we have carefully
examined the record and have arrived at the following conclusions:

With relation to the item of account referred to in defendant's assignment of error No. 2
and plaintiff's assignment No. 5, we hold that the defendant's account was properly
charged by the trial judge with the sum of P5,500, the purchase price of certain
machinery sold by him and for which, under all the circumstances, he must account,
together with interest at the rate of six per centum per annum from January 8, 1912, the
date of sale to Marciano Rivera.

With relation to the items mentioned in plaintiff's assignments of errors Nos. 3 and 4, we
hold that the trial judge properly declines to charge the defendant's account with the
amounts mentioned therein, the evidence of record not being sufficient to establish his
liability therefor as manager or gestor of the enterprise.

With relation to the matter referred to in plaintiff's assignment of error number 6 and
defendant's assignment No. 4, we are of opinion that the trial judge properly disposed of
the issues between the parties in this regard, as they were submitted to him and as they
are disclosed by the record brought here on appeal.

We find no merit in defendant's assignment of error numbered 3.

Twenty days hereafter let judgment be entered reversing the judgment of the lower
court, without special condemnation of the costs in this instance, and directing the return
of the record to the trial court, wherein judgment will be entered in accordance
herewith, and ten days thereafter let the record be remanded in confirmity therewith. So
ordered.

Arellano, C.J., Torres and Trent, JJ., concur.

Per MORELAND, J.:

Owing to the advisability of publishing this case as soon as possible I refrain from giving
my views at this time, reserving the right to do so later.

47