Bus. Org.
"I trust that the accountants will be instructed to make the proper
1-12
1. Ortega vs. CA, 245 SCRA 529 (1995)
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN
T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION
and JOAQUIN L. MISA, respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the
Court of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638
and No. 24648 affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent
Commission and quoted at length by the appellate court in its
decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and
reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several
subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO,
BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on
19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and
Mariano M. Lozada associated themselves together, as senior
partners with respondents-appellees Gregorio F. Ortega, Tomas O.
del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-
appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada,
effective at the end of this month.
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees
another letter stating:
"Further to my letter to you today, I would like to have a meeting with
all of you with regard to the mechanics of liquidation, and more
particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-
appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of
the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level of
the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to
the employees, even attorneys, are dressed down publicly in a loud
voice in a manner that deprived them of their self-respect. The result
of such policies is the formation of the union, including the assistant
attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for
dissolution and liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's
share in the partnership assets plus the profits, rent or interest
attributable to the use of his right in the assets of the dissolved
partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa
& Lozada in any of their correspondence, checks and pleadings and to
pay petitioners damages for the use thereof despite the dissolution
of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just and
equitable under the premises but in no case less than ten (10%) per
cent of the value of the shares of petitioner or P100,000.00;
1|Page
"5. Order the respondents to pay petitioner moral damages
with the amount of P500,000.00 and exemplary damages in the
amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the
petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
not dissolve the said law partnership. Accordingly, the petitioner and
respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership
interest."1
On appeal, the SEC en banc reversed the decision of the Hearing
Officer and held that the withdrawal of Attorney Joaquin L. Misa had
dissolved the partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm could be dissolved
by any partner at anytime, such as by his withdrawal therefrom,
regardless of good faith or bad faith, since no partner can be forced
to continue in the partnership against his will. In its decision, dated 17
January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March
1989 is hereby REVERSED insofar as it concludes that the partnership
of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective
rights and obligations of the parties.2
The parties sought a reconsideration of the above decision. Attorney
Misa, in addition, asked for an appointment of a receiver to take over
the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an
order denying reconsideration, as well as rejecting the petition for
receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed
CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney
Jesus Bito and Attorney Mariano Lozada both died on, respectively,
05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm
prompted Attorney Misa to renew his application for receivership (in
CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners
opposed the prayer.
The Court of Appeals, finding no reversible error on the part of
respondent Commission, AFFIRMED in toto the SEC decision and
order appealed from. In fine, the appellate court held, per its decision
of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably
caused the dissolution of the partnership; (b) that such withdrawal
was not in bad faith; (c) that the liquidation should be to the extent
of Attorney Misa's interest or participation in the partnership which
could be computed and paid in the manner stipulated in the
partnership agreement; (d) that the case should be remanded to the
SEC Hearing Officer for the corresponding determination of the value
of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had
been shown to indicate that the partnership assets were in any such
danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court,
petitioners confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding
that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega
& Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding
that the withdrawal of private respondent dissolved the partnership
regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding
that private respondent's demand for the dissolution of the
partnership so that he can get a physical partition of partnership was
not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That
the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and
Castillo," is indeed such a partnership need not be unduly belabored.
We quote, with approval, like did the appellate court, the findings and
disquisition of respondent SEC on this matter; viz:
2|Page
The partnership agreement (amended articles of 19 August 1948)
does not provide for a specified period or undertaking. The
"DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal incapacity of one of
the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a
specific undertaking and hence not a partnership at will, citing
paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed,
is to act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and
entities with respect to their legal and other affairs; and to appear for
and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and
elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide
for articles on partnership at will as none would so exist. Apparently
what the law contemplates, is a specific undertaking or "project"
which has a definite or definable period of completion.3
The birth and life of a partnership at will is predicated on the mutual
desire and consent of the partners. The right to choose with whom a
person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on
the constancy of that mutual resolve, along with each partner's
capability to give it, and the absence of a cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership4 but that it can result in a
liability for damages.5
In passing, neither would the presence of a period for its specific
duration or the statement of a particular purpose for its creation
prevent the dissolution of any partnership by an act or will of a
partner.6 Among partners,7 mutual agency arises and the doctrine of
delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for
damages.
The dissolution of a partnership is the change in the relation of the
parties caused by any partner ceasing to be associated in the carrying
on, as might be distinguished from the winding up of, the business.8
Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business
culminating in its termination.9
The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil Code; 10
however, an agreement of the partners, like any other contract, is
binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of
paragraph 8 of the "Amendment to Articles of Partnership" reading
thusly:
. . . In the event of the death or retirement of any partner, his interest
in the partnership shall be liquidated and paid in accordance with the
existing agreements and his partnership participation shall revert to
the Senior Partners for allocation as the Senior Partners may
determine; provided, however, that with respect to the two (2) floors
of office condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value
at the time of such death or retirement shall be determined by two
(2) independent appraisers, one to be appointed (by the partnership
and the other by the) retiring partner or the heirs of a deceased
partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by
them whose decision shall be final. The share of the retiring or
deceased partner in the aforementioned two (2) floor office
condominium shall be determined upon the basis of the valuation
above mentioned which shall be paid monthly within the first ten (10)
days of every month in installments of not less than P20,000.00 for
the Senior Partners, P10,000.00 in the case of two (2) existing Junior
Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so
hold, in a generic sense to mean the dissociation by a partner,
inclusive of resignation or withdrawal, from the partnership that
thereby dissolves it.
On the third and final issue, we accord due respect to the appellate
court and respondent Commission on their common factual finding,
i.e., that Attorney Misa did not act in bad faith. Public respondents
viewed his withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we agree, to let
any of the partners remain in the partnership under such an
atmosphere of animosity; certainly, not against their will. 12 Indeed,
for as long as the reason for withdrawal of a partner is not contrary to
the dictates of justice and fairness, nor for the purpose of unduly
visiting harm and damage upon the partnership, bad faith cannot be
said to characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity.
3|Page
 respective partners. But if dissolution is caused by expulsion of a
partner, bona fide under the partnership agreement and if the
WHEREFORE, the decision appealed from is AFFIRMED. No expelled partner is discharged from all partnership liabilities, either
pronouncement on costs. by payment or agreement under the second paragraph of article
1835, he shall receive in cash only the net amount due him from the
partnership."
SO ORDERED.

11 Rollo, pp. 69-70.

Feliciano, Romero, Melo and Francisco, JJ., concur.

12 Rojas v. Maglana, supra.

Footnotes

1 Rollo, pp. 53-56.

2 Rollo, p. 122.

3 Rollo, pp. 119-120.

4 Art. 1830 (1) (b), Civil Code.

5 See Art. 19, Civil Code.

6 Art. 1830 (2), Civil Code; see also Rojas vs. Maglana, 192
SCRA 110.

7 As general, as distinguished from limited partners.

8 Art. 1828, Civil Code.

9 Art. 1829, Civil Code.

10 For instance, Art. 1837 of the Civil Code provides:

"Art. 1837. When dissolution is caused in any way, except in

contravention of the partnership agreement, each partner, as against
his co-partners and all persons claiming through them in respect of
their interests in the partnership, unless otherwise agreed, may have
the partnership property applied to discharge its liabilities, and the
surplus applied to pay in cash the net amount owning to the

4|Page
 2. Santos vs. Reyes, 368 SCRA 262 (2001)
G.R. No. 135813 October 25, 2001
FERNANDO SANTOS, petitioner,
vs.
SPOUSES ARSENIO and NIEVES REYES, respondents.
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming
those of the trial court are binding on the Supreme Court. However,
there are several exceptions to this principle. In the present case, we
find occasion to apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November
28, 1997 Decision,1 as well as the August 17, 1998 and the October 9,
1998 Resolutions,2 issued by the Court of Appeals (CA) in CA-GR CV
No. 34742. The Assailed Decision disposed as follows:
"WHEREFORE, the decision appealed from is AFFIRMED save as for
the counterclaim which is hereby DISMISSED. Costs against
[petitioner]."3
Resolving respondent's Motion for Reconsideration, the August 17,
1998 Resolution ruled as follows:
"WHEREFORE, [respondents'] motion for reconsideration is
GRANTED. Accordingly, the court's decision dated November 28, 1997
is hereby MODIFIED in that the decision appealed from is AFFIRMED
in toto, with costs against [petitioner]."4
The October 9, 1998 Resolution denied "for lack of merit" petitioner's
Motion for Reconsideration of the August 17, 1998 Resolution.5
The Facts
The events that led to this case are summarized by the CA as follows:
"Sometime in June, 1986, [Petitioner] Fernando Santos and
[Respondent] Nieves Reyes were introduced to each other by one
Meliton Zabat regarding a lending business venture proposed by
Nieves. It was verbally agreed that [petitioner would] act as financier
while [Nieves] and Zabat [would] take charge of solicitation of
members and collection of loan payments. The venture was launched
on June 13, 1986, with the understanding that [petitioner] would
receive 70% of the profits while x x x Nieves and Zabat would earn
15% each.
"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner].
Gragera, as chairman of the Monte Maria Development Corporation6
(Monte Maria, for brevity), sought short-term loans for members of
the corporation. [Petitioner] and Gragera executed an agreement
providing funds for Monte Maria's members. Under the agreement,
Monte Maria, represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner] (Exh. 'A')x x x .
Nieves kept the books as representative of [petitioner] while
[Respondent] Arsenio, husband of Nieves, acted as credit
investigator.
"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed
the 'Article of Agreement' which formalized their earlier verbal
arrangement.
"[Petitioner] and [Nieves] later discovered that their partner Zabat
engaged in the same lending business in competition with their
partnership[.] Zabat was thereby expelled from the partnership. The
operations with Monte Maria continued.
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of
money and damages. [Petitioner] charged [respondents], allegedly in
their capacities as employees of [petitioner], with having
misappropriated funds intended for Gragera for the period July 8,
1986 up to March 31, 1987. Upon Gragera's complaint that his
commissions were inadequately remitted, [petitioner] entrusted
P200,000.00 to x x x Nieves to be given to Gragerax x x . Nieves
allegedly failed to account for the amount. [Petitioner] asserted that
after examination of the records, he found that of the total amount
of P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was
remitted to Gragera, thereby leaving the balance of P1,555,065.70
unaccounted for.
"In their answer, [respondents] asserted that they were partners and
not mere employees of [petitioner]. The complaint, they alleged, was
filed to preempt and prevent them from claiming their rightful share
to the profits of the partnership.
"x x x Arsenio alleged that he was enticed by [petitioner] to take the
place of Zabat after [petitioner] learned of Zabat's activities. Arsenio
resigned from his job at the Asian Development Bank to join the
partnership.
5|Page
"For her part, x x x Nieves claimed that she participated in the 39.1.
business as a partner, as the lending activity with Monte Maria
originated from her initiative. Except for the limited period of July 8,
1986 through August 20, 1986, she did not handle sums intended for THE SECOND AMENDED COMPLAINT dated July 26, 1989 is
Gragera. Collections were turned over to Gragera because he DISMISSED.
guaranteed 100% payment of all sums loaned by Monte Maria.
Entries she made on worksheets were based on this assumptive 100%
collection of all loans. The loan releases were made less Gragera's
agreed commission. Because of this arrangement, she neither 39.2.
received payments from borrowers nor remitted any amount to
Gragera. Her job was merely to make worksheets (Exhs. '15' to '15-
DDDDDDDDDD') to convey to [petitioner] how much he would earn if The [Petitioner] FERNANDO J. SANTOS is ordered to pay the
all the sums guaranteed by Gragera were collected. [Respondent] NIEVES S. REYES, the following:

"[Petitioner] on the other hand insisted that [respondents] were his 39.2.1.
mere employees and not partners with respect to the agreement with
Gragera. He claimed that after he discovered Zabat's activities, he
ceased infusing funds, thereby causing the extinguishment of the
P3,064,428.00
partnership. The agreement with Gragera was a distinct partnership
[from] that of [respondent] and Zabat. [Petitioner] asserted that
[respondents] were hired as salaried employees with respect to the
partnership between [petitioner] and Gragera. - The 15 percent share of the [respondent] NIEVES S. REYES in the
profits of her joint venture with the [petitioner].

"[Petitioner] further asserted that in Nieves' capacity as bookkeeper,

she received all payments from which Nieves deducted Gragera's 39.2.2.
commission. The commission would then be remitted to Gragera. She
likewise determined loan releases.
Six(6) percent of P3,064,428.00

"During the pre-trial, the parties narrowed the issues to the following
points: whether [respondents] were employees or partners of - As damages from August 3, 1987 until the P3,064,428.00 is fully paid.
[petitioner], whether [petitioner] entrusted money to [respondents]
for delivery to Gragera, whether the P1,555,068.70 claimed under the
complaint was actually remitted to Gragera and whether
39.2.3.
[respondents] were entitled to their counterclaim for share in the
profits."7

P50,000.00

Ruling of the Trial Court

- As moral damages

In its August 13, 1991 Decision, the trial court held that respondents
were partners, not mere employees, of petitioner. It further ruled
that Gragera was only a commission agent of petitioner, not his 39.2.4.
partner. Petitioner moreover failed to prove that he had entrusted
any money to Nieves. Thus, respondents' counterclaim for their share
in the partnership and for damages was granted. The trial court P10,000.00
disposed as follows:

- As exemplary damages
"39.

39.3.
WHEREFORE, the Court hereby renders judgment as follows:

6|Page
The [petitioner] FERNANDO J. SANTOS is ordered to pay the - As attorney's fees; and
[respondent] ARSENIO REYES, the following:

39.4.2.
39.3.1.

The cost of the suit."8

P2,899,739.50

Ruling of the Court of Appeals

- The balance of the 15 percent share of the [respondent] ARSENIO
REYES in the profits of his joint venture with the [petitioner].
39.3.2.
Six(6) percent of P2,899,739.50
On appeal, the Decision of the trial court was upheld, and the
counterclaim of respondents was dismissed. Upon the latter's Motion
for Reconsideration, however, the trial court's Decision was
reinstated in toto. Subsequently, petitioner's own Motion for
Reconsideration was denied in the CA Resolution of October 9, 1998.

The CA ruled that the following circumstances indicated the existence

- As damages from August 3, 1987 until the P2,899,739.50 is fully paid. of a partnership among the parties: (1) it was Nieves who broached
to petitioner the idea of starting a money-lending business and
introduced him to Gragera; (2) Arsenio received "dividends" or
"profit-shares" covering the period July 15 to August 7, 1986 (Exh.
39.3.3. "6"); and (3) the partnership contract was executed after the
Agreement with Gragera and petitioner and thus showed the parties'
intention to consider it as a transaction of the partnership. In their
P25,000.00 common venture, petitioner invested capital while respondents
contributed industry or services, with the intention of sharing in the
profits of the business.
- As moral damages

The CA disbelieved petitioner's claim that Nieves had

misappropriated a total of P200,000 which was supposed to be
39.3.4.
delivered to Gragera to cover unpaid commissions. It was his task to
collect the amounts due, while hers was merely to prepare the daily
cash flow reports (Exhs. "15-15DDDDDDDDDD") to keep track of his
P10,000.00 collections.

- As exemplary damages Hence, this Petition.9

39.4. Issue

The [petitioner] FERNANDO J. SANTOS is ordered to pay the Petitioner asks this Court to rule on the following issues:10
[respondents]:

"Whether or not Respondent Court of Appeals acted with grave abuse

39.4.1. of discretion tantamount to excess or lack of jurisdiction in:

P50,000.00 1. Holding that private respondents were partners/joint

venturers and not employees of Santos in connection with the
agreement between Santos and Monte Maria/Gragera;

7|Page

2. Affirming the findings of the trial court that the phrase
'Received by' on documents signed by Nieves Reyes signified receipt
of copies of the documents and not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit 'E'
was a forgery;
4. Finding that Exhibit 'H' [did] not establish receipt by Nieves
Reyes of P200,000.00 for delivery to Gragera;
5 Affirming the dismissal of Santos' [Second] Amended
Complaint;
6. Affirming the decision of the trial court, upholding private
respondents' counterclaim;
7. Denying Santos' motion for reconsideration dated
September 11, 1998."
Succinctly put, the following were the issues raised by petitioner: (1)
whether the parties' relationship was one of partnership or of
employer employee; (2) whether Nieves misappropriated the sums of
money allegedly entrusted to her for delivery to Gragera as his
commissions; and (3) whether respondents were entitled to the
partnership profits as determined by the trial court.
The Court's Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent
spouses in the money-lending venture with Gragera, with Nieves as
bookkeeper and Arsenio as credit investigator. That Nieves
introduced Gragera to Santos did not make her a partner. She was
only a witness to the Agreement between the two. Separate from the
partnership between petitioner and Gragera was that which existed
among petitioner, Nieves and Zabat, a partnership that was dissolved
when Zabat was expelled.
On the other hand, both the CA and the trial court rejected
petitioner's contentions and ruled that the business relationship was
one of partnership. We quote from the CA Decision, as follows:
"[Respondents] were industrial partners of [petitioner]x x x . Nieves
herself provided the initiative in the lending activities with Monte
Maria. In consonance with the agreement between appellant, Nieves
and Zabat (later replaced by Arsenio), [respondents] contributed
industry to the common fund with the intention of sharing in the
profits of the partnership. [Respondents] provided services without
which the partnership would not have [had] the wherewithal to carry
on the purpose for which it was organized and as such [were]
considered industrial partners (Evangelista v. Abad Santos, 51 SCRA
416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and
Zabat was technically dissolved by the expulsion of Zabat therefrom,
the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution.
Instead, they invited Arsenio to participate as a partner in their
operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and
Arsenio simply took over and continued the business of the former
partnership with Zabat, one of the incidents of which was the lending
operations with Monte Maria.
xxx xxx xxx
"Gragera and [petitioner] were not partners. The money-lending
activities undertaken with Monte Maria was done in pursuit of the
business for which the partnership between [petitioner], Nieves and
Zabat (later Arsenio) was organized. Gragera who represented Monte
Maria was merely paid commissions in exchange for the collection of
loans. The commissions were fixed on gross returns, regardless of the
expenses incurred in the operation of the business. The sharing of
gross returns does not in itself establish a partnership."11
We agree with both courts on this point. 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.12 The "Articles of Agreement"
stipulated that the signatories shall share the profits of the business
in a 70-15-15 manner, with petitioner getting the lion's share.13 This
stipulation clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the
partnership continued lending money to the members of the Monte
Maria Community Development Group, Inc., which later on changed
its business name to Private Association for Community
Development, Inc. (PACDI). Nieves was not merely petitioner's
employee. She discharged her bookkeeping duties in accordance with
paragraphs 2 and 3 of the Agreement, which states as follows:
8|Page

"2. That the SECOND PARTY and THIRD PARTY shall handle the
solicitation and screening of prospective borrowers, and shall x x x
each be responsible in handling the collection of the loan payments
of the borrowers that they each solicited.
"3. That the bookkeeping and daily balancing of account of the
business operation shall be handled by the SECOND PARTY."14
The "Second Party" named in the Agreement was none other than
Nieves Reyes. On the other hand, Arsenio's duties as credit
investigator are subsumed under the phrase "screening of
prospective borrowers." Because of this Agreement and the
disbursement of monthly "allowances" and "profit shares" or
"dividends" (Exh. "6") to Arsenio, we uphold the factual finding of
both courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-
lending business, despite the fact that it was formalized only after the
Memorandum of Agreement had been signed by petitioner and
Gragera. Contrary to petitioner's contention, there is no evidence to
show that a different business venture is referred to in this
Agreement, which was executed on August 6, 1986, or about a month
after the Memorandum had been signed by petitioner and Gragera
on July 14, 1986. The Agreement itself attests to this fact:
"WHEREAS, the parties have decided to formalize the terms of their
business relationship in order that their respective interests may be
properly defined and established for their mutual benefit and
understanding."15
Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate
money intended for Gragera's commission. According to him, Gragera
remitted his daily collection to Nieves. This is shown by Exhibit "B."
(the "Schedule of Daily Payments"), which bears her signature under
the words "received by." For the period July 1986 to March 1987,
Gragera should have earned a total commission of P4,282,429.30.
However, only P3,068,133.20 was received by him. Thus, petitioner
infers that she misappropriated the difference of P1,214,296.10,
which represented the unpaid commissions. Exhibit "H." is an untitled
tabulation which, according to him, shows that Gragera was also
entitled to a commission of P200,000, an amount that was never
delivered by Nieves.16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not
show that Nieves received for delivery to Gragera any amount from
which the P1,214,296.10 unpaid commission was supposed to come,
and that such exhibits were insufficient proof that she had embezzled
P200,000. Said the CA:
"The presentation of Exhibit "D" vaguely denominated as 'members
ledger' does not clearly establish that Nieves received amounts from
Monte Maria's members. The document does not clearly state what
amounts the entries thereon represent. More importantly, Nieves
made the entries for the limited period of January 11, 1987 to
February 17, 1987 only while the rest were made by Gragera's own
staff.
"Neither can we give probative value to Exhibit 'E' which allegedly
shows acknowledgment of the remittance of commissions to Verona
Gonzales. The document is a private one and its due execution and
authenticity have not been duly proved as required in [S]ection 20,
Rule 132 of the Rules of Court which states:
'SECTION 20. Proof of Private Document — Before any private
document offered as authentic is received in evidence, its due
execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
'Any other private document need only be identified as that which it
is claimed to be.'
"The court a quo even ruled that the signature thereon was a forgery,
as it found that:
'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed
that it is a forgery. The initial stroke of Exh. E-1 starts from up and
goes downward. The initial stroke of the genuine signatures of NIEVES
(Exhs. A-3, B-1, F-1, among others) starts from below and goes
upward. This difference in the start of the initial stroke of the
signatures Exhs. E-1 and of the genuine signatures lends credence to
Nieves' claim that the signature Exh. E-1 is a forgery.'
xxx xxx xxx
"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and
'F') were based on the predetermined 100% collection as guaranteed
by Gragera is credible and clearly in accord with the evidence. A
perusal of Exhs. "B" and "F" as well as Exhs. '15' to 15-DDDDDDDDDD'
reveal that the entries were indeed based on the 100% assumptive
9|Page
collection guaranteed by Gragera. Thus, the total amount recorded
on Exh. 'B' is exactly the number of borrowers multiplied by the
projected collection of P150.00 per borrower. This holds true for Exh.
'F.'
"Corollarily, Nieves' explanation that the documents were pro forma
and that she signed them not to signify that she collected the amounts
but that she received the documents themselves is more believable
than [petitioner's] assertion that she actually handled the amounts.
"Contrary to [petitioner's] assertion, Exhibit 'H' does not
unequivocally establish that x x x Nieves received P200,000.00 as
commission for Gragera. As correctly stated by the court a quo, the
document showed a liquidation of P240.000 00 and not P200,000.00.
"Accordingly, we find Nieves' testimony that after August 20, 1986, all
collections were made by Gragera believable and worthy of credence.
Since Gragera guaranteed a daily 100% payment of the loans, he took
charge of the collections. As [petitioner's] representative,
Nieves merely prepared the daily cash flow reports (Exh. '15' to '15
DDDDDDDDDD') to enable [petitioner] to keep track of Gragera's
operations. Gragera on the other hand devised the schedule of daily
payment (Exhs. 'B' and 'F') to record the projected gross daily
collections.
"As aptly observed by the court a quo:
'26.1. As between the versions of SANTOS and NIEVES on how the
commissions of GRAGERA [were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more believable. SANTOS' version
would have given rise to this improbable situation: GRAGERA would
collect the daily amortizations and then give them to NIEVES; NIEVES
would get GRAGERA's commissions from the amortizations and then
give such commission to GRAGERA."'17
These findings are in harmony with the trial court's ruling, which we
quote below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the
latter received P200,000.00 for delivery to GRAGERA. Exh. H shows
under its sixth column 'ADDITIONAL CASH' that the additional cash
was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as
alleged by SANTOS, then his claim is not true. This is so because it is a
liquidation of the sum of P240,000.00.
"21.1. SANTOS claimed that he learned of NIEVES' failure to give
the P200,000.00 to GRAGERA when he received the latter's letter
complaining of its delayed release. Assuming as true SANTOS' claim
that he gave P200,000.00 to GRAGERA, there is no competent
evidence that NIEVES did not give it to GRAGERA. The only proof that
NIEVES did not give it is the letter. But SANTOS did not even present
the letter in evidence. He did not explain why he did not.
"21.2. The evidence shows that all money transactions of the
money-lending business of SANTOS were covered by petty cash
vouchers. It is therefore strange why SANTOS did not present any
voucher or receipt covering the P200,000.00."18
In sum, the lower courts found it unbelievable that Nieves had
embezzled P1,555,068.70 from the partnership. She did not remit
P1,214,296.10 to Gragera, because he had deducted his commissions
before remitting his collections. Exhibits "B" and "F" are merely
computations of what Gragera should collect for the day; they do not
show that Nieves received the amounts stated therein. Neither is
there sufficient proof that she misappropriated P200,000, because
Exhibit "H." does not indicate that such amount was received by her;
in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these
factual findings is warranted. Well-entrenched is the basic rule that
factual findings of the Court of Appeals affirming those of the trial
court are binding and conclusive on the Supreme Court.19 Although
there are exceptions to this rule, petitioner has not satisfactorily
shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents' claims on the profits
of the partnership. He maintains that "both business propositions
were flops," as his investments were "consumed and eaten up by the
commissions orchestrated to be due Gragera" — a situation that
"could not have been rendered possible without complicity between
Nieves and Gragera."
Respondent spouses, on the other hand, postulate that petitioner
instituted the action below to avoid payment of the demands of
Nieves, because sometime in March 1987, she "signified to petitioner
that it was about time to get her share of the profits which had
already accumulated to some P3 million." Respondents add that while
the partnership has not declared dividends or liquidated its earnings,
the profits are already reflected on paper. To prove the counterclaim
of Nieves, the spouses show that from June 13, 1986 up to April 19,
1987, the profit totaled P20,429,520 (Exhs. "10" et seq. and "15" et
seq.). Based on that income, her 15 percent share under the joint
venture amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's,
P2,026,000 minus the P30,000 which was already advanced to him
(Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").
10 | P a g e

The CA originally held that respondents' counterclaim was premature,
pending an accounting of the partnership. However, in its assailed
Resolution of August 17, 1998, it turned volte face. Affirming the trial
court's ruling on the counterclaim, it held as follows:
"We earlier ruled that there is still need for an accounting of the
profits and losses of the partnership before we can rule with certainty
as to the respective shares of the partners. Upon a further review of
the records of this case, however, there appears to be sufficient basis
to determine the amount of shares of the parties and damages
incurred by [respondents]. The fact is that the court a quo already
made such a determination [in its] decision dated August 13, 1991 on
the basis of the facts on record."20
The trial court's ruling alluded to above is quoted below:
"27. The defendants' counterclaim for the payment of their
share in the profits of their joint venture with SANTOS is supported by
the evidence.
"27.1. NIEVES testified that: Her claim to a share in the profits is
based on the agreement (Exhs. 5, 5-A and 5-B). The profits are shown
in the working papers (Exhs. 10 to 10-I, inclusive) which she prepared.
Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports
of which Exh. 3 is a sample. The originals of the daily cash flow reports
(Exhs. 3 and 15 to 15-D(10) were given to SANTOS. The joint venture
had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations
from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of
P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about P2,926,000.00, in the
profits.
"27.1.1 SANTOS never denied NIEVES' testimony that the money-
lending business he was engaged in netted a profit and that the
originals of the daily case flow reports were furnished to him. SANTOS
however alleged that the money-lending operation of his joint
venture with NIEVES and ZABAT resulted in a loss of about half a
million pesos to him. But such loss, even if true, does not negate
NIEVES' claim that overall, the joint venture among them — SANTOS,
NIEVES and ARSENIO — netted a profit. There is no reason for the
Court to doubt the veracity of [the testimony of] NIEVES.
"27.2 The P26,260.50 which ARSENIO received as part of his share
in the profits (Exhs. 6, 6-A and 6-B) should be deducted from his total
share."21
After a close examination of respondents' exhibits, we find reason to
disagree with the CA. Exhibit "10-I"22 shows that the partnership
earned a "total income" of P20,429,520 for the period June 13, 1986
until April 19, 1987. This entry is derived from the sum of the amounts
under the following column headings: "2-Day Advance Collection,"
"Service Fee," "Notarial Fee," "Application Fee," "Net Interest
Income" and "Interest Income on Investment." Such entries represent
the collections of the money-lending business or its gross income.
The "total income" shown on Exhibit "10-I" did not consider the
expenses sustained by the partnership. For instance, it did not factor
in the "gross loan releases" representing the money loaned to clients.
Since the business is money-lending, such releases are comparable
with the inventory or supplies in other business enterprises.
Noticeably missing from the computation of the "total income" is the
deduction of the weekly allowance disbursed to respondents. Exhibits
"I" et seq. and "J" et seq.23 show that Arsenio received allowances
from July 19, 1986 to March 27, 1987 in the aggregate amount of
P25,500; and Nieves, from July 12, 1986 to March 27, 1987, in the
total amount of P25,600. These allowances are different from the
profit already received by Arsenio. They represent expenses that
should have been deducted from the business profits. The point is
that all expenses incurred by the money-lending enterprise of the
parties must first be deducted from the "total income" in order to
arrive at the "net profit" of the partnership. The share of each one of
them should be based on this "net profit" and not from the "gross
income" or "total income" reflected in Exhibit "10-I," which the two
courts invariably referred to as "cash flow" sheets.
Similarly, Exhibits "15" et seq.,24 which are the "Daily Cashflow
Reports," do not reflect the business expenses incurred by the parties,
because they show only the daily cash collections. Contrary to the
rulings of both the trial and the appellate courts, respondents'
exhibits do not reflect the complete financial condition of the money-
lending business. The lower courts obviously labored over a mistaken
notion that Exhibit " 10-I-1" represented the "net profits" earned by
the partnership.
For the purpose of determining the profit that should go to an
industrial partner (who shares in the profits but is not liable for the
losses), the gross income from all the transactions carried on by the
firm must be added together, and from this sum must be subtracted
the expenses or the losses sustained in the business. Only in the
difference representing the net profits does the industrial partner
share. But if, on the contrary, the losses exceed the income, the
industrial partner does not share in the losses.25
When the judgment of the CA is premised on a misapprehension of
facts or a failure to notice certain relevant facts that would otherwise
justify a different conclusion, as in this particular issue, a review of its
factual findings may be conducted, as an exception to the general rule
applied to the first two issues.26
The trial court has the advantage of observing the witnesses while
they are testifying, an opportunity not available to appellate courts.
11 | P a g e
Thus, its assessment of the credibility of witnesses and their
testimonies are accorded great weight, even finality, when supported
by substantial evidence; more so when such assessment is affirmed
by the CA. But when the issue involves the evaluation of exhibits or
documents that are attached to the case records, as in the third issue,
the rule may be relaxed. Under that situation, this Court has a similar
opportunity to inspect, examine and evaluate those records,
independently of the lower courts. Hence, we deem the award of the
partnership share, as computed by the trial court and adopted by the
CA, to be incomplete and not binding on this Court.

WHEREFORE, the Petition is partly GRANTED. The assailed November

28, 1997 Decision is AFFIRMED, but the challenged Resolutions dated
August 17, 1998 and October 9, 1998 are REVERSED and SET ASIDE.
No costs.

SO ORDERED.

Melo, and Sandoval-Gutierrez, JJ., concur.

Vitug, J., on official leave.

12 | P a g e
 3. Tocao vs. CA, 365 SCRA 463 (2001)
G.R. No. 127405 October 4, 2000
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in
CA-G.R. CV No. 41616,1 affirming the Decision of the Regional Trial
Court of Makati, Branch 140, in Civil Case No. 88-509.2
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William
T. Belo, then the vice-president for operations of Ultra Clean Water
Purifier, through her former employer in Bangkok. Belo introduced
Anay to petitioner Marjorie Tocao, who conveyed her desire to enter
into a joint venture with her for the importation and local distribution
of kitchen cookwares. Belo volunteered to finance the joint venture
and assigned to Anay the job of marketing the product considering
her experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin, U.S.A.
Under the joint venture, Belo acted as capitalist, Tocao as president
and general manager, and Anay as head of the marketing department
and later, vice-president for sales. Anay organized the administrative
staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and
assigned them to different branches. The parties agreed that Belo’s
name should not appear in any documents relating to their
transactions with West Bend Company. Instead, they agreed to use
Anay’s name in securing distributorship of cookware from that
company. The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business; (2)
overriding commission of six percent (6%) of the overall weekly
production; (3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement
was not reduced to writing on the strength of Belo’s assurances that
he was sincere, dependable and honest when it came to financial
commitments.
Anay having secured the distributorship of cookware products from
the West Bend Company and organized the administrative staff and
the sales force, the cookware business took off successfully. They
operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocao’s name, with office at 712
Rufino Building, Ayala Avenue, Makati City. Belo made good his
monetary commitments to Anay. Thereafter, Roger Muencheberg of
West Bend Company invited Anay to the distributor/dealer meeting
in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach, California, U.S.A.,
from July 25-26, 1987. Anay accepted the invitation with the consent
of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the
U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting
West Bend Co. for twenty (20) years now, acquired the distributorship
of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will
attend in response to the invitation." (Italics supplied.)3
Anay arrived from the U.S.A. in mid-August 1987, and immediately
undertook the task of saving the business on account of the
unsatisfactory sales record in the Makati and Cubao offices. On
August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao4 for her
excellent job performance. On October 7, 1987, in the presence of
Anay, Belo signed a memo5 entitling her to a thirty-seven percent
(37%) commission for her personal sales "up Dec 31/87." Belo
explained to her that said commission was apart from her ten percent
(10%) share in the profits. On October 9, 1987, Anay learned that
Marjorie Tocao had signed a letter6 addressed to the Cubao sales
office to the effect that she was no longer the vice-president of
Geminesse Enterprise. The following day, October 10, she received a
note from Lina T. Cruz, marketing manager, that Marjorie Tocao had
barred her from holding office and conducting demonstrations in
both Makati and Cubao offices.7 Anay attempted to contact Belo. She
wrote him twice to demand her overriding commission for the period
of January 8, 1988 to February 5, 1988 and the audit of the company
to determine her share in the net profits. When her letters were not
answered, Anay consulted her lawyer, who, in turn, wrote Belo a
letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the
same commission although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a
complaint for sum of money with damages8 against Marjorie D. Tocao
and William Belo before the Regional Trial Court of Makati, Branch
140.
In her complaint, Anay prayed that defendants be ordered to pay her,
jointly and severally, the following: (1) P32,00.00 as unpaid overriding
commission from January 8, 1988 to February 5, 1988; (2)
P100,000.00 as moral damages, and (3) P100,000.00 as exemplary
damages. The plaintiff also prayed for an audit of the finances of
Geminesse Enterprise from the inception of its business operation
until she was "illegally dismissed" to determine her ten percent (10%)
share in the net profits. She further prayed that she be paid the five
13 | P a g e
percent (5%) "overriding commission" on the remaining 150 West Anay as her "co-equal," Marjorie received the same amounts of
Bend cookware sets before her "dismissal." commissions as her. However, Anay failed to account for stocks
valued at P200,000.00.

In their answer,9 Marjorie Tocao and Belo asserted that the "alleged
agreement" with Anay that was "neither reduced in writing, nor On April 22, 1993, the trial court rendered a decision the dispositive
ratified," was "either unenforceable or void or inexistent." As far as part of which is as follows:
Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay
herself admitted, Geminesse Enterprise was the sole proprietorship "WHEREFORE, in view of the foregoing, judgment is hereby rendered:
of Marjorie Tocao. Because Anay merely acted as marketing
demonstrator of Geminesse Enterprise for an agreed remuneration,
and her complaint referred to either her compensation or dismissal,
such complaint should have been lodged with the Department of 1. Ordering defendants to submit to the Court a formal account as to
Labor and not with the regular court. the partnership affairs for the years 1987 and 1988 pursuant to Art.
1809 of the Civil Code in order to determine the ten percent (10%)
share of plaintiff in the net profits of the cookware business;

Petitioners (defendants therein) further alleged that Anay filed the

complaint on account of "ill-will and resentment" because Marjorie
Tocao did not allow her to "lord it over in the Geminesse Enterprise."
Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who
suffered actual damages "including unreturned and unaccounted
stocks of Geminesse Enterprise," and "serious anxiety, besmirched
reputation in the business world, and various damages not less than
P500,000.00." They also alleged that, to "vindicate their names," they
had to hire counsel for a fee of P23,000.00.
2. Ordering defendants to pay five percent (5%) overriding
commission for the one hundred and fifty (150) cookware sets
available for disposition when plaintiff was wrongfully excluded from
the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the
total production which for the period covering January 8, 1988 to
February 5, 1988 amounted to P32,000.00;

At the pre-trial conference, the issues were limited to: (a) whether or
not the plaintiff was an employee or partner of Marjorie Tocao and 4. Ordering defendants to pay P100,000.00 as moral damages and
Belo, and (b) whether or not the parties are entitled to damages.10 P100,000.00 as exemplary damages, and

In their defense, Belo denied that Anay was supposed to receive a 5. Ordering defendants to pay P50,000.00 as attorney’s fees and
share in the profit of the business. He, however, admitted that the P20,000.00 as costs of suit.
two had agreed that Anay would receive a three to four percent (3-
4%) share in the gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as he merely
SO ORDERED."
served as a guarantor of Marjorie Tocao, who was new in the
business. He attended and/or presided over business meetings of the
venture in his capacity as a guarantor but he never participated in
decision-making. He claimed that he wrote the memo granting the The trial court held that there was indeed an "oral partnership
plaintiff thirty-seven percent (37%) commission upon her dismissal agreement between the plaintiff and the defendants," based on the
from the business venture at the request of Tocao, because Anay had following: (a) there was an intention to create a partnership; (b) a
no other income. common fund was established through contributions consisting of
money and industry, and (c) there was a joint interest in the profits.
The testimony of Elizabeth Bantilan, Anay’s cousin and the
administrative officer of Geminesse Enterprise from August 21, 1986
For her part, Marjorie Tocao denied having entered into an oral
until it was absorbed by Royal International, Inc., buttressed the fact
partnership agreement with Anay. However, she admitted that Anay
that a partnership existed between the parties. The letter of Roger
was an expert in the cookware business and hence, they agreed to
Muencheberg of West Bend Company stating that he awarded the
grant her the following commissions: thirty-seven percent (37%) on
distributorship to Anay and Marjorie Tocao because he was convinced
personal sales; five percent (5%) on gross sales; two percent (2%) on
that with Marjorie’s financial contribution and Anay’s experience, the
product demonstrations, and two percent (2%) for recruitment of
combination of the two would be invaluable to the partnership, also
personnel. Marjorie denied that they agreed on a ten percent (10%)
supported that conclusion. Belo’s claim that he was merely a
commission on the net profits. Marjorie claimed that she got the
"guarantor" has no basis since there was no written evidence thereof
capital for the business out of the sale of the sewing machines used
as required by Article 2055 of the Civil Code. Moreover, his acts of
in her garments business and from Peter Lo, a Singaporean friend-
attending and/or presiding over meetings of Geminesse Enterprise
financier who loaned her the funds with interest. Because she treated

14 | P a g e
plus his issuance of a memo giving Anay 37% commission on personal
sales belied this. On the contrary, it demonstrated his involvement as
a partner in the business.
The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice
is often resorted to in business circles as an impetus to bigger sales
volume. It did not matter that the agreement was not in writing
because Article 1771 of the Civil Code provides that a partnership may
be "constituted in any form." The fact that Geminesse Enterprise was
registered in Marjorie Tocao’s name is not determinative of whether
or not the business was managed and operated by a sole proprietor
or a partnership. What was registered with the Bureau of Domestic
Trade was merely the business name or style of Geminesse
Enterprise.
The trial court finally held that a partner who is excluded wrongfully
from a partnership is an innocent partner. Hence, the guilty partner
must give him his due upon the dissolution of the partnership as well
as damages or share in the profits "realized from the appropriation of
the partnership business and goodwill." An innocent partner thus
possesses "pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and assets at
the time he was wrongfully expelled."
Petitioners’ appeal to the Court of Appeals11 was dismissed, but the
amount of damages awarded by the trial court were reduced to
P50,000.00 for moral damages and P50,000.00 as exemplary
damages. Their Motion for Reconsideration was denied by the Court
of Appeals for lack of merit.12 Petitioners Belo and Marjorie Tocao
are now before this Court on a petition for review on certiorari,
asserting that there was no business partnership between them and
herein private respondent Nenita A. Anay who is, therefore, not
entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals
erroneously held that a partnership existed between them and
private respondent Anay because Geminesse Enterprise "came into
being" exactly a year before the "alleged partnership" was formed,
and that it was very unlikely that petitioner Belo would invest the sum
of P2,500,000.00 with petitioner Tocao contributing nothing, without
any "memorandum whatsoever regarding the alleged
partnership."13
The issue of whether or not a partnership exists is a factual matter
which are within the exclusive domain of both the trial and appellate
courts. This Court cannot set aside factual findings of such courts
absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.14 In this case, both the trial
court and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This Court
finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill
these requisites: (1) two or more persons bind themselves to
contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among
themselves.15 It may be constituted in any form; a public instrument
is necessary only where immovable property or real rights are
contributed thereto.16 This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good
as a written one. Where no immovable property or real rights are
involved, what matters is that the parties have complied with the
requisites of a partnership. The fact that there appears to be no
record in the Securities and Exchange Commission of a public
instrument embodying the partnership agreement pursuant to Article
1772 of the Civil Code17 did not cause the nullification of the
partnership. The pertinent provision of the Civil Code on the matter
states:
Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage
in the business of distributorship of cookware. Private respondent
contributed such expertise to the partnership and hence, under the
law, she was the industrial or managing partner. It was through her
reputation with the West Bend Company that the partnership was
able to open the business of distributorship of that company’s
cookware products; it was through the same efforts that the business
was propelled to financial success. Petitioner Tocao herself admitted
private respondent’s indispensable role in putting up the business
when, upon being asked if private respondent held the positions of
marketing manager and vice-president for sales, she testified thus:
"A: No, sir at the start she was the marketing manager because there
were no one to sell yet, it’s only me there then her and then two (2)
people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given the
designation of marketing managers of which definitely Nita as
superior to them would be the Vice President."18
By the set-up of the business, third persons were made to believe that
a partnership had indeed been forged between petitioners and
private respondents. Thus, the communication dated June 4, 1986 of
Missy Jagler of West Bend Company to Roger Muencheberg of the
same company states:
"Marge Tocao is president of Geminesse Enterprises. Geminesse will
finance the operations. Marge does not have cookware experience.
Nita Anay has started to gather former managers, Lina Torda and Dory
Vista. She has also gathered former demonstrators, Betty Bantilan,
Eloisa Lamela, Menchu Javier. They will continue to gather other key
people and build up the organization. All they need is the finance and
the products to sell."19
15 | P a g e
 came across this document and know of your own knowledge the
amount ---
On the other hand, petitioner Belo’s denial that he financed the
partnership rings hollow in the face of the established fact that he
presided over meetings regarding matters affecting the operation of
the business. Moreover, his having authorized in writing on October A: Yes, sir this is what I am talking about earlier. That’s the one I am
7, 1987, on a stationery of his own business firm, Wilcon Builders telling you earlier a certain percentage for promotions, advertising,
Supply, that private respondent should receive thirty-seven (37%) of incentive.
the proceeds of her personal sales, could not be interpreted
otherwise than that he had a proprietary interest in the business. His
claim that he was merely a guarantor is belied by that personal act of Q: I see. Now, this promotion, advertising, incentive, there is a figure
proprietorship in the business. Moreover, if he was indeed a here and words which I quote: ‘Overrides Marjorie Ann Tocao
guarantor of future debts of petitioner Tocao under Article 2053 of P21,410.50’ this means that you have received this amount?
the Civil Code,20 he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that
guaranty must be "express," Article 1403, the Statute of Frauds, A: Oh yes, sir.
requires that "a special promise to answer for the debt, default or
miscarriage of another" be in writing.21

Q: I see. And, by way of amplification this is what you are saying as

one representing commission, representation, advertising and
Petitioner Tocao, a former ramp model,22 was also a capitalist in the promotion?
partnership. She claimed that she herself financed the business. Her
and petitioner Belo’s roles as both capitalists to the partnership with
private respondent are buttressed by petitioner Tocao’s admissions
that petitioner Belo was her boyfriend and that the partnership was A: Yes, sir.
not their only business venture together. They also established a firm
that they called "Wiji," the combination of petitioner Belo’s first
name, William, and her nickname, Jiji.23 The special relationship Q: I see. Below your name is the words and figure and I quote ‘Nita D.
between them dovetails with petitioner Belo’s claim that he was Anay P21,410.50’, what is this?
acting in behalf of petitioner Tocao. Significantly, in the early stage of
the business operation, petitioners requested West Bend Company to
allow them to "utilize their banking and trading facilities in Singapore"
A: That’s her overriding commission.
in the matter of importation and payment of the cookware
products.24 The inevitable conclusion, therefore, was that petitioners
merged their respective capital and infused the amount into the
partnership of distributing cookware with private respondent as the Q: Overriding commission, I see. Of course, you are telling this
managing partner. Honorable Court that there being the same P21,410.50 is merely by
coincidence?

The business venture operated under Geminesse Enterprise did not

result in an employer-employee relationship between petitioners and A: No, sir, I made it a point that we were equal because the way I look
private respondent. While it is true that the receipt of a percentage at her kasi, you know in a sense because of her expertise in the
of net profits constitutes only prima facie evidence that the recipient business she is vital to my business. So, as part of the incentive I offer
is a partner in the business,25 the evidence in the case at bar her the same thing.
controverts an employer-employee relationship between the parties.
In the first place, private respondent had a voice in the management
of the affairs of the cookware distributorship,26 including selection of Q: So, in short you are saying that this you have shared together, I
people who would constitute the administrative staff and the sales mean having gotten from the company P21,140.50 is your way of
force. Secondly, petitioner Tocao’s admissions militate against an indicating that you were treating her as an equal?
employer-employee relationship. She admitted that, like her who
owned Geminesse Enterprise,27 private respondent received only
commissions and transportation and representation allowances28
A: As an equal.
and not a fixed salary.29 Petitioner Tocao testified:

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

"Q: Of course. Now, I am showing to you certain documents already
marked as Exhs. ‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is denominated
`Cubao overrides’ 8-21-87 with ending August 21, 1987, will you
please go over this and tell the Honorable Court whether you ever A: Yes, sir.

16 | P a g e

Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the
other one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure ‘Overrides Marjorie Ann
Tocao P15,314.25’ the amount there you will acknowledge you have
received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that
is also an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that
these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Italics supplied.)30
If indeed petitioner Tocao was private respondent’s employer, it is
difficult to believe that they shall receive the same income in the
business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be
liable for the losses.31 As an industrial partner, private respondent
had the right to demand for a formal accounting of the business and
to receive her share in the net profit.32
The fact that the cookware distributorship was operated under the
name of Geminesse Enterprise, a sole proprietorship, is of no
moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise.33 While it
is true that in her undated application for renewal of registration of
that firm name, petitioner Tocao indicated that it would be engaged
in retail of "kitchenwares, cookwares, utensils, skillet,"34 she also
admitted that the enterprise was only "60% to 70% for the cookware
business," while 20% to 30% of its business activity was devoted to
the sale of water sterilizer or purifier.35 Indubitably then, the
business name Geminesse Enterprise was used only for practical
reasons - it was utilized as the common name for petitioner Tocao’s
various business activities, which included the distributorship of
cookware.
Petitioners underscore the fact that the Court of Appeals did not
return the "unaccounted and unremitted stocks of Geminesse
Enterprise amounting to P208,250.00."36 Obviously a ploy to offset
the damages awarded to private respondent, that claim, more than
anything else, proves the existence of a partnership between them.
In Idos v. Court of Appeals, this Court said:
"The best evidence of the existence of the partnership, which was not
yet terminated (though in the winding up stage), were the unsold
goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner
and private complainant remained as co-partners. x x x."37
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she
still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private
respondent from the partnership to reap for herself and/or for
petitioner Belo financial gains resulting from private respondent’s
efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert
herself to the extent that she would even shout at private respondent
in front of other people.38 Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the
business operation,39 and resulted in a falling out between the two.
However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization.40 The
partnership exists until dissolved under the law. Since the partnership
created by petitioners and private respondent has no fixed term and
is therefore a partnership at will predicated on their mutual desire
and consent, it may be dissolved by the will of a partner. Thus:
"x x x. The right to choose with whom a person wishes to associate
himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner’s capability to give it, and the
absence of cause for dissolution provided by the law itself. Verily, any
one of the partners may, at his sole pleasure, dictate a dissolution of
the partnership at will. He must, however, act in good faith, not that
17 | P a g e
the attendance of bad faith can prevent the dissolution of the private respondent’s ten percent (10%) share in the net profits of the
partnership but that it can result in a liability for damages."41 partnership;

An unjustified dissolution by a partner can subject him to action for
damages because by the mutual agency that arises in a partnership,
the doctrine of delectus personae allows the partners to have the
power, although not necessarily the right to dissolve the
partnership.42
2. Petitioners are ordered, jointly and severally, to pay private
respondent five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition since
the time private respondent was wrongfully excluded from the
partnership by petitioners;

In this case, petitioner Tocao’s unilateral exclusion of private
respondent from the partnership is shown by her memo to the Cubao
office plainly stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of Geminesse
Enterprise.43 By that memo, petitioner Tocao effected her own
withdrawal from the partnership and considered herself as having
ceased to be associated with the partnership in the carrying on of the
business. Nevertheless, the partnership was not terminated thereby;
it continues until the winding up of the business.44
3. Petitioners are ordered, jointly and severally, to pay private
respondent overriding commission on the total production which, for
the period covering January 8, 1988 to February 5, 1988, amounted
to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private
respondent moral damages in the amount of P50,000.00, exemplary
damages in the amount of P50,000.00 and attorney’s fees in the
amount of P25,000.00.

The winding up of partnership affairs has not yet been undertaken by

the partnership.1âwphi1 This is manifest in petitioners’ claim for SO ORDERED.
stocks that had been entrusted to private respondent in the pursuit
of the partnership business.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

The determination of the amount of damages commensurate with

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

WHEREFORE, the instant petition for review on certiorari is DENIED.

The partnership among petitioners and private respondent is ordered
dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of
the Civil Code. This case is remanded to the Regional Trial Court for
proper proceedings relative to said dissolution. The appealed
decisions of the Regional Trial Court and the Court of Appeals are
AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a

formal account of the partnership affairs for the years 1987 and 1988,
pursuant to Article 1809 of the Civil Code, in order to determine

18 | P a g e
 4. Moran, Jr. vs. CA, 133 SCRA 88 (1984)

G.R. No. L-59956 October 31, 1984 From the evidence presented it is clear in the mind of the court that
by virtue of the partnership agreement entered into by the parties-
plaintiff and defendant the plaintiff did contribute P10,000.00, and
ISABELO MORAN, JR., petitioner, another sum of P7,000.00 for the Voice of the Veteran or Delegate
Magazine. Of the expected 95,000 copies of the posters, the
vs. defendant was able to print 2,000 copies only authorized of which,
however, were sold at P5.00 each. Nothing more was done after this
THE HON. COURT OF APPEALS and MARIANO E. PECSON, and it can be said that the venture did not really get off the ground.
respondents. On the other hand, the plaintiff failed to give his full contribution of
P15,000.00. Thus, each party is entitled to rescind the contract which
right is implied in reciprocal obligations under Article 1385 of the Civil
Code whereunder 'rescission creates the obligation to return the
things which were the object of the contract ...
GUTIERREZ, JR., J.:ñé+.£ªwph!1

WHEREFORE, the court hereby renders judgment ordering defendant

This is a petition for review on certiorari of the decision of the Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum
respondent Court of Appeals which ordered petitioner Isabelo Moran, of P17,000.00, with interest at the legal rate from the filing of the
Jr. to pay damages to respondent Mariano E, Pecson. complaint on June 19, 1972, and the costs of the suit.

As found by the respondent Court of Appeals, the undisputed facts For insufficiency of evidence, the counterclaim is hereby dismissed.
indicate that: têñ.£îhqwâ£

From this decision, both parties appealed to the respondent Court of

xxx xxx xxx Appeals. The latter likewise rendered a decision against the
petitioner. The dispositive portion of the decision reads: têñ.£îhqwâ£

... on February 22, 1971 Pecson and Moran entered into an

agreement whereby both would contribute P15,000 each for the PREMISES CONSIDERED, the decision appealed from is hereby SET
purpose of printing 95,000 posters (featuring the delegates to the ASIDE, and a new one is hereby rendered, ordering defendant-
1971 Constitutional Convention), with Moran actually supervising the appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E.
work; that Pecson would receive a commission of P l,000 a month Pecson:
starting on April 15, 1971 up to December 15, 1971; that on December
15, 1971, a liquidation of the accounts in the distribution and printing
of the 95,000 posters would be made, that Pecson gave Moran
P10,000 for which the latter issued a receipt; that only a few posters (a) Forty-seven thousand five hundred (P47,500) (the amount that
were printed; that on or about May 28, 1971, Moran executed in favor could have accrued to Pecson under their agreement);
of Pecson a promissory note in the amount of P20,000 payable in two
equal installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum (b) Eight thousand (P8,000), (the commission for eight months);
becoming due upon default in the payment of the first installment on
the date due, complete with the costs of collection.
(c) Seven thousand (P7,000) (as a return of Pecson's investment for
the Veteran's Project);
Private respondent Pecson filed with the Court of First Instance of
Manila an action for the recovery of a sum of money and alleged in
his complaint three (3) causes of action, namely: (1) on the alleged (d) Legal interest on (a), (b) and (c) from the date the complaint was
partnership agreement, the return of his contribution of P10,000.00, filed (up to the time payment is made)
payment of his share in the profits that the partnership would have
earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral
and exemplary damages and attorney's fees. The petitioner contends that the respondent Court of Appeals
decided questions of substance in a way not in accord with law and
with Supreme Court decisions when it committed the following
errors:
After the trial, the Court of First Instance held that: têñ.£îhqwâ£

19 | P a g e
I There is no dispute over the nature of the agreement between the
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE
SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF
PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE
FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT
EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM
MORAN.
V SCRA 598), which interpreted Art. 2200 of the Civil Code of the
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT
GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR
DAMAGES.
The first question raised in this petition refers to the award of
P47,500.00 as the private respondent's share in the unrealized profits
of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did
not take into account the great risks involved in the business
undertaking.
We agree with the petitioner that the award of speculative damages
has no basis in fact and law.
petitioner and the private respondent. It is a contract of partnership.
The latter in his complaint alleged that he was induced by the
petitioner to enter into a partnership with him under the following
terms and conditions: têñ.£îhqwâ£
1. That the partnership will print colored posters of the delegates to
the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos
(P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of
the said posters;
4. That plaintiff will receive a commission of One Thousand Pesos
(P1,000.00) a month starting April 15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15,
1971, a liquidation of the account pertaining to the distribution and
printing of the said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence
of the partnership.
The rule is, when a partner who has undertaken to contribute a sum
of money fails to do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute (Art. 1786, Civil Code)
and for interests and damages from the time he should have complied
with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79
Philippines, we allowed a total of P200,000.00 compensatory
damages in favor of the appellee because the appellant therein was
remiss in his obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a
particular set of facts. We awarded compensatory damages in the Uy
case because there was a finding that the constructing business is a
profitable one and that the UP construction company derived some
profits from its contractors in the construction of roads and bridges
despite its deficient capital." Besides, there was evidence to show that
the partnership made some profits during the periods from July 2,
1956 to December 31, 1957 and from January 1, 1958 up to
September 30, 1959. The profits on two government contracts worth
P2,327,335.76 were not speculative. In the instant case, there is no
evidence whatsoever that the partnership between the petitioner
and the private respondent would have been a profitable venture. In
fact, it was a failure doomed from the start. There is therefore no
basis for the award of speculative damages in favor of the private
respondent.
20 | P a g e
Furthermore, in the Uy case, only Puzon failed to give his full
contribution while Uy contributed much more than what was
expected of him. In this case, however, there was mutual breach.
Private respondent failed to give his entire contribution in the amount
of P15,000.00. He contributed only P10,000.00. The petitioner
likewise failed to give any of the amount expected of him. He further
failed to comply with the agreement to print 95,000 copies of the
posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: têñ.£îhqwâ£
The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same
proportion.
Being a contract of partnership, each partner must share in the profits
and losses of the venture. That is the essence of a partnership. And
even with an assurance made by one of the partners that they would
earn a huge amount of profits, in the absence of fraud, the other
partner cannot claim a right to recover the highly speculative profits.
It is a rare business venture guaranteed to give 100% profits. In this
case, on an investment of P15,000.00, the respondent was supposed
to earn a guaranteed P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which
were sold at P5.00 each. The fantastic nature of expected profits is
obvious. We have to take various factors into account. The failure of
the Commission on Elections to proclaim all the 320 candidates of the
Constitutional Convention on time was a major factor. The petitioner
undesirable his best business judgment and felt that it would be a
losing venture to go on with the printing of the agreed 95,000 copies
of the posters. Hidden risks in any business venture have to be
considered.
It does not follow however that the private respondent is not entitled
to recover any amount from the petitioner. The records show that the
private respondent gave P10,000.00 to the petitioner. The latter used
this amount for the printing of 2,000 posters at a cost of P2.00 per
poster or a total printing cost of P4,000.00. The records further show
that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00
from the gross income of P10,000.00 and with no evidence on the cost
of distribution, the net profits amount to only P6,000.00. This net
profit of P6,000.00 should be divided between the petitioner and the
private respondent. And since only P4,000.00 was undesirable by the
petitioner in printing the 2,000 copies, the remaining P6,000.00
should therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner submits that the
award of P8,000.00 as Pecson's supposed commission has no
justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give
the private respondent a monthly commission of Pl,000.00 from April
15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the
commission. The payment of the commission could only have been
predicated on relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of loss or failure of
the venture. Since the venture was a failure, the private respondent
is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the
respondent Court of Appeals erred in holding him liable to the private
respondent in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed
return of investment in the "Voice of the Veterans" magazine venture,
the respondent court ruled that: têñ.£îhqwâ£
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000 in favor
of Pecson. Moran does not question the due execution of said note.
Must Moran therefore pay the amount of P20,000? The evidence
indicates that the P20,000 was assigned by Moran to cover the
following: têñ.£îhqwâ£
(a) P 7,000 — the amount of the PNB check given by Pecson to Moran
representing Pecson's investment in Moran's other project (the
publication and printing of the 'Voice of the Veterans');
(b) P10,000 — to cover the return of Pecson's contribution in the
project of the Posters;
(c) P3,000 — representing Pecson's commission for three months
(April, May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's
investment for the Veterans' project, for this project never left the
ground) ...
As a rule, the findings of facts of the Court of Appeals are final and
conclusive and cannot be reviewed on appeal to this Court (Amigo v.
Teves, 96 Phil. 252), provided they are borne out by the record or are
based on substantial evidence (Alsua-Betts v. Court of Appeals, 92
21 | P a g e
SCRA 332). However, this rule admits of certain exceptions. Thus, in
Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA
734), we held that this Court retains the power to review and rectify
the findings of fact of the Court of Appeals when (1) the conclusion is
a finding grounded entirely on speculation, surmises and conjectures;
(2) when the inference made is manifestly mistaken absurd and
impossible; (3) where there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; and (5) when the
court, in making its findings, went beyond the issues of the case and
the same are contrary to the admissions of both the appellant and the
appellee.
In this case, there is misapprehension of facts. The evidence of the
private respondent himself shows that his investment in the "Voice of
Veterans" project amounted to only P3,000.00. The remaining
P4,000.00 was the amount of profit that the private respondent
expected to receive.
The records show the following exhibits- têñ.£îhqwâ£
E — Xerox copy of PNB Manager's Check No. 234265 dated March 22,
1971 in favor of defendant. Defendant admitted the authenticity of
this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4,
Nov. 29, 1972). This exhibit is being offered for the purpose of
showing plaintiff's capital investment in the printing of the "Voice of
the Veterans" for which he was promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit of P8,000 are
covered by defendant's promissory note for P14,000 dated March 31,
1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29,
1972), and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000
(capital) and P4,000 (promised profit), defendant signed and
executed the promissory note for P7,000 marked Exhibit 3 for the
defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid
P4,000 representing full return of the capital investment and P1,000
partial payment of the promised profit. The P3,000 balance of the
promised profit was made part consideration of the P20,000
promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore,
being presented to show the consideration for the P20,000
promissory note.
F — Xerox copy of PNB Manager's check dated May 29, 1971 for
P7,000 in favor of defendant. The authenticity of the check and his
receipt of the proceeds thereof were admitted by the defendant
(t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and
in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972),
and it is being presented to show the consideration for the P20,000
note and the existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered for the
purpose of showing the subject matter of the other partnership
agreement and in which plaintiff invested the P6,000 (Exhibit E)
which, together with the promised profit of P8,000 made up for the
consideration of the P14,000 promissory note (Exhibit 2; Exhibit P). As
explained in connection with Exhibit E. the P3,000 balance of the
promised profit was later made part consideration of the P20,000
promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also
defendant's Exhibit E. This document is being offered for the purpose
of further showing the transaction as explained in connection with
Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his
P3,000 out of his capital investment of P6,000 (Exh. E) in the P14,000
promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This
document is being offered in support of plaintiff's explanation in
connection with Exhibits E, L, and M to show the transaction
mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It
is being offered for the purpose of showing the transaction as
explained in connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified
that: têñ.£îhqwâ£
Q During the pre-trial of this case, Mr. Pecson, the defendant
presented a promissory note in the amount of P14,000.00 which has
been marked as Exhibit 2. Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with your
transaction with the defendant?
A This promissory note is for the printing of the "Voice of the
Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.têñ.£îhqwâ£
22 | P a g e

(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00 indicated in the
promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr. Moran, as
evidenced by the Philippine National Bank Manager's check and the
P8,000.00 profit assured me by Mr. Moran which I will derive from
the printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is covered by, a
Manager's check. I show you Exhibit E, is this the Manager's check that
mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00 which you
said represented P6,000.00 of your investment and P8,000.00
promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented
one-half (1/2) of the P6,000.00 capital I gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2) of
the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection
with the Balance of P3,000.00 of your capital investment and the
P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00 dated
March 30, 1971 which for purposes of Identification I request the
same to be marked as Exhibit M. . .
Court têñ.£îhqwâ£
Mark it as Exhibit M.
Q (continuing) is this the promissory note which you said was
executed by Mr. Moran in connection with your transaction regarding
the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr. Moran,
Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the
promissory note.
Q Was there a receipt issued by you covering this payment of
P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on
account of the P7,000.00 covered by the promissory note, Exhibit M.
What does this P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he has returned of
my P6,000.00 capital investment and the P1,000.00 represents partial
payment of the P4,000.00 profit that was promised to me by Mr.
Moran.
Q And what happened to the balance of P3,000.00 under the
promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied as
part of the consideration of the promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never
left the ground because the project did take place. Only it failed. It
was the private respondent himself who presented a copy of the book
entitled "Voice of the Veterans" in the lower court as Exhibit "L".
Therefore, it would be error to state that the project never took place
23 | P a g e
and on this basis decree the return of the private respondent's
investment.

As already mentioned, there are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing
partner alone, specially if the latter exercised his best business
judgment, which seems to be true in this case. In view of the
foregoing, there is no reason to pass upon the fourth and fifth
assignments of errors raised by the petitioner. We likewise find no
valid basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the

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

SO ORDERED.1äwphï1.ñët

Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ.,

concur.

De la Fuente J., took no part.

24 | P a g e
 5. Navarro vs. CA, 222 SCRA 675 (1993)
G.R. No. 121087 August 26, 1999
FELIPE NAVARRO, petitioner,
vs.
THE COURT OF APPEALS and the PEOPLE OF THE PHILIPPINES,
respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court
of Appeals, dated December 14, 1994, which affirmed the judgment
of the Regional Trial Court, Branch 5, Lucena City, dated July 27, 1992,
finding petitioner Felipe Navarro guilty beyond reasonable doubt of
homicide and sentencing him to ten (10) years of prision mayor, as
minimum, and fourteen (14) years and eight (8) months, and (1) day
of reclusion temporal, as maximum, but increased the death
indemnity awarded to the heirs of the victim, Enrique "Ike" Lingan,
from P30,000.00 to P50,000.00.
The information against petitioner alleged —
That on or about the 4th day of February, 1990, in the nighttime, in
the City of Lucena, Province of Quezon, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, being then a
member of the Lucena Integrated National Police, with intent to kill,
did then and there willfully, unlawfully and feloniously assault one Ike
Lingan inside the Lucena police headquarters, where authorities are
supposed to be engaged in the discharge of their duties, by boxing the
said Ike Lingan in the head with the butt of a gun and thereafter when
the said victim fell, by banging his head against the concrete
pavement, as a consequence of which said Ike Lingan suffered
cerebral concussion and shock which directly caused his death.
The evidence show that, at around 8:40 in the evening of February 4,
1990, Stanley Jalbuena and Enrique "Ike" Lingan, who were reporters
of the radio station DWTI in Lucena City, together with one Mario
Ilagan, went to the Entertainment City following reports that it was
showing the nude dancers. After the three had seated themselves at
a table and ordered beer, a scantily clad dancer appeared on stage
and began to perform a strip act. As she removed her brassieres,
Jalbuena brought out his camera and took a picture.2
At that point, the floor manager, Dante Liquin, with a security guard,
Alex Sioco, approached Jalbuena and demanded to know why he took
a picture.3 Jalbuena replied: "Wala kang pakialam, because this is my
job."4 Sioco pushed Jalbuena towards the table as he warned the
latter that he would kill him.5 When Jalbuena saw that Sioco was
about to pull out his gun, he ran out of the joint followed by his
companions.6
Jalbuena and his companions went to the police station to report the
matter. Three of the policeman on duty, including petitioner Navarro,
were having drinks in front of the police station, and they asked
Jalbuena and his companions to join them. Jalbuena declined and
went to the desk officer, Sgt. Añonuevo, to report the incident. In a
while, Liquin and Sioco arrived on a motorcycle.7
Sioco and Liquin were met by petitioner Navarro who talked with
them in a corner for around fifteen minutes.8 Afterwards, petitioner
Navarro turned to Jalbuena and, pushing him to the wall, said to him:
"Putang ina, kinakalaban mo si Kabo Liquin, anak yan ni Kabo Liquin,
hindi mo ba kilala?"9 Petitioner Navarro then pulled out his firearm
and cocked it, and, pressing it on the face of Jalbuena, said "Ano,
uutasin na kita?"10
At this point, Lingan intervened and said to petitioner Navarro:
"Huwag namang ganyan pumarito kami para magpa-blotter, I am here
to mediate."11 Petitoner Navarro replied: "Walang press, press, mag-
sampu pa kayo."12 He then turned to Sgt. Añonuevo and told him to
make of record the behavior of Jalbuena and Lingan.13
This angered Lingan, who said: "O, di ilagay mo diyan"14 Petitioner
Navarro retorted: "Talagang ilalagay ko."15 The two then had a
heated exchange.16 Finally, Lingan said: "Masyado kang abusado,
alisin mo yang baril mo at magsuntukan na lang tayo."17 Petitioner
Navarro replied: "Ah, ganoon?"18
As Lingan was about turn away, petitioner Navarro hit him with the
handle of the pistol above the left eyebrow. Lingan fell on the floor,
blood flowing down his face. He tried to get up, but petitioner Navarro
gave him a fist blow on the forehead which floored him.19
Petitioner Navarro turned to Jalbuena and said: "Kita mo yan ha,
buhay kang testigo, si Ike Lingan and naghamon."20 He said to Sgt.
Añonuevo: "Ilagay mo diyan sa blotter sa harap ni Alex Sioco at Dante
Liquin, na si Ike Lingan ang naghamon."21 He then poked his gun at
the right temple of Jalbuena and made him sign his name on the
blotter.22 Jalbuena could not affix his signature. His right hand was
trembling and he simply wrote his name in print.23
Capt. Coronado, the station commander, called petitioner Navarro to
his office, while a policeman took Lingan to the Quezon Memorial
Hospital. The station manager of DWTI, Boy, Casañada, arrived and,
learning that Lingan had been taken to the hospital, proceeded there.
But Lingan died from his injuries.24
25 | P a g e
Unknown to petitioner Navarro, Jalbuena was able to record on tape
the exchange between petitioner and the deceased.25 The following
is an excerpt from the tape recording:
Lingan: Pare, you are abusing yourself.
Navarro: Who is that abusing?
Lingan: I'm here to mediate. Do not include me in the problem. I'm
out of the problem.
xxx xxx xxx
Navarro: Wala sa akin yan. Ang kaso lang . . .
Lingan: Kalaban mo ang media, pare, Ako at si Stanley, dalawa kami.
Okay. Do not fight with me. I just came here to ayusin things. Do not
say bad things against me. I'm the number one loko sa media. I'm the
best media man. . . .
Navarro: Huwag tayong mag-lokohan sa ganyan! Huwag na tayong
mag-takotan! Huwag mong sabihing loko ka!
Lingan: I'm brave also.
Navarro: Ay lalo na ako. Tahimik lang naman ako. Wala ka namang
masasabi sa akin dahil nag-tatrabaho lang ako ng ayon sa serbisyo ko.
Lingan: You are challenging me and him. . . .
Navarro: Ay walastik ka naman Ike! Pag may problema ka dito
sinasabihan kita na may balita tayong maganda. Pambihira ka Ike.
Huwag mong sabihin na . . . Parang minomonopoly mo eh.
Lingan: Pati ako kalaban ninyo.
Navarro: Talagang kalaban namin ang press. Lahat, hindi lang ikaw!
Lingan: You are wrong. Bakit kalaban nyo ang press?
Navarro: Pulis ito! Aba!
Lingan: Alisin mo ang baril mo! Alisin mo ang baril mo! Suntukan
tayo, sige.
Navarro: Mayabang ka ah!
(Sounds of a scuffle)
Navarro: Hinamon ako nyan! Pare hinamon ako nyan! Pare hinamon
ako nyan, testigo kayo. Alisin ko daw ang baril ko. Hinamon ako nyan.
Pare, ilagay mo diyan, hinamon ako sa harap ni Stanley. Testigo kayo,
hinamon ako. Pulis tayo eh. Puta, buti nga, suntok lang ang inabot
nyan. Sa harap ni Alex, ni Joe, ni Stanley, hinamon ako. Pare, hinamon
ako, kinig nyo ha. Hinamon ako nyan. Sige, dalhin nyo sa hospital yan.
Petitioner Felipe Navarro claims that it was the deceased who tried to
hit him twice, but he (petitioner) was able to duck both times, and
that Lingan was so drunk he fell on the floor twice, each time hitting
his head on the concrete.26
In giving credence to the evidence for the prosecution, the trial court
stated:
After a thorough and in-depth evaluation of the evidence adduced by
the prosecution and the defense, this court finds that the evidence
for the prosecution is the more credible, concrete and sufficient to
create that moral certainty in the mind of the court that accused
herein is criminally responsible.
The defense's evidence which consists of outright denial could not
under the circumstance overturn the strength of the prosecution's
evidence.
This court finds that the prosecution witnesses, more particularly
Stanley Jalbuena, lacked any motive to make false accusation, distort
the truth, testify falsehood or cause accusation of one who had
neither brought him harm or injury.
Going over the evidence on record, the postmortem report issued by
Dra. Eva Yamamoto confirms the detailed account given by Stanley
Jalbuena on how Lingan sustained head injuries.
Said post-mortem report together with the testimony of Jalbuena
sufficiently belie the claim of the defense that the head injuries of
26 | P a g e
deceased Lingan were caused by the latter's falling down on the
concrete pavement head first.
The Court of Appeals affirmed:
We are far from being convinced by appellant's aforesaid disquisition.
We have carefully evaluated the conflicting versions of the incident as
presented by both parties, and we find the trial court's factual
conclusions to have better and stronger evidentiary support.
In the first place, the mere fact that Jalbuena was himself a victim of
appellant's aggression does not impair the probative worth of his
positive and logical account of the incident in question. In fact, far
from proving his innocence, appellant's unwarranted assault upon
Jalbuena, which the defense has virtually admitted, clearly betrays his
violent character or disposition and his capacity to harm others.
Apparently, the same motivation that led him into assailing Jalbuena
must have provoked him into also attacking Lingan who had
interceded for Jalbuena and humiliated him and further challenged to
a fist fight.1âwphi1.nêt
xxx xxx xxx
On the other hand, appellant's explanation as how Lingan was injured
is too tenuous and illogical to be accepted. It is in fact contradicted by
the number, nature and location of Lingan's injuries as shown in the
post-mortem report (Exh. D). According to the defense, Lingan fell
two times when he was outbalanced in the course of boxing the
appellant. And yet, Lingan suffered lacerated wounds in his left
forehead, left eyebrow, between his left and right eyebrows, and
contusion in the right temporal region of the head (Exh. E.). Certainly,
these injuries could not have been resulted from Lingan's accidental
fall.
Hence, this appeal. Petitioner Navarro contends:
THE HONORABLE COURT OF APPEALS HAS DECIDED THE CASE NOT IN
ACCORD WITH LAW AND WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT. ITS CONCLUSION IS A FINDING BASED ON
SPECULATION, SURMISE OR CONJECTURE; THE INFERENCE IT MADE
IS MANIFESTLY MISTAKEN, ABSURD OR IMPOSSIBLE; IT COMMITTED
GRAVE ABUSE OF DISCRETION; ITS JUDGMENT IS BASED ON A
MISAPPREHENSION OF FACTS; ITS FINDING IS CONTRADICTED BY
EVIDENCE ON RECORD; AND ITS FINDING IS DEVOID OF SUPPORT IN
THE RECORD.
The appeal is without merit.
First. Petitioner Navarro questions the credibility of the testimony of
Jalbuena on the ground that he was a biased witness, having a grudge
against him. The testimony of a witness who has an interest in the
conviction of the accused is not, for this reason alone, unreliable.27
Trial courts, which have the opportunity observe the facial
expressions, gestures, and tones of voice of a witness while testifying,
are competent to determine whether his or her testimony should be
given credence.28 In the instant case, petitioner Navarro has not
shown that the trial court erred in according weight to the testimony
of Jalbuena.
Indeed, Jalbuena's testimony is confirmed by the voice recording had
made. It may be asked whether the tape is admissible in view of R.A.
No. 4200, which prohibits wire tapping. The answer is in the
affirmative. The law provides:
Sec. 1. It shall be unlawful for any person, not being authorized by all
the parties to any private communication or spoken word, to tap any
wire or cable, or by using any other device or arrangement, to secretly
overhear, intercept, or record such communication or spoken word
by using a device commonly known as dictaphone or dictagraph of
dectectaphone or walkie-talkie or tape-recorder, or however
otherwise described:
It shall also be unlawful for any person, be he a participant or not in
the act or acts penalized in the next preceding sentence, to knowingly
possess any tape record, wire record, disc record, or any other such
record, or copies thereof, of any communication or spoken word
secured either before or after the effective date of this Act in the
manner prohibited by this law; or to replay the same for any other
person or persons; or to communicate the contents thereof, either
verbally or in writing, or to furnish transcriptions thereof, whether
complete or partial, to any other person: Provided, That the use of
such record or any copies thereof as evidence in any civil, criminal
investigation or trial of offenses mentioned in section 3 hereof, shall
not be covered by this prohibition.
xxx xxx xxx
Sec. 4. Any communication or spoken word, or the existence,
contents, substance, purport, effect, or meaning of the same or any
part thereof, or any information therein contained obtained or
secured by any person in violation of the preceding sections of this
Act shall not be admissible in evidence in any judicial, quasi-judicial,
legislative or administrative hearing or investigation.
Thus, the law prohibits the overhearing, intercepting, or recording of
private communications.29 Since the exchange between petitioner
Navarro and Lingan was not private, its tape recording is not
prohibited.
27 | P a g e
Nor is there any question that it was duly authenticated. A voice
recording is authenticated by the testimony of a witness (1) that he
personally recorded the conversations; (2) that the tape played in the Dr. Yamamato testified:
court was the one he recorded; and (3) that the voices on the tape are
those of the persons such are claimed to belong.30 In the instant case,
Jalbuena testified that he personally made the voice recording;31 that Q Give your opinion as to what was the possible cause of this findings
the tape played in the court was the one he recorded;32 and that the number one, which is oozing of blood from the forehead?
speakers on the tape were petitioner Navarro and Lingan.33 A
sufficient foundation was thus laid for the authentication of the tape
presented by the prosecution. A It may be due to a blow on the forehead or it bumped to a hard
object, sir.

Second. The voice recording made by Jalbuena established: (1) that

there was a heated exchange between petitioner Navarro and Lingan Q Could a metal like a butt of a gun have caused this wound No. 1.?
on the placing in the police blotter of an entry against him and
Jalbuena; and (2) that some form of violence occurred involving
petitioner Navarro and Lingan, with the latter getting the worst of it.
A It is possible, sir.

Furthermore, Dr. Eva Yamamoto, who performed the autopsy on the

body of Lingan, issued the medical certificate,34 dated February 5, Q And in the alternative, could have it been caused by bumping on a
1990, containing the following findings: concrete floor?

Post Mortem Findings: A Possible, sir.

= Dried blood, forehead & face FISCAL:

= No blood oozed from the ears, nose & mouth What could have been the cause of the contusion and swelling under
your findings No. 2 doctor?

= Swelling, 3 cm x 2 cm, temporal region, head, right

WITNESS:

= Lacerated wound, 2 cm in length, 1-2 in depth, lateral eyebrow, Left

It may be caused by bumping to a hard object, sir.

= Lacerated wound, 0.5 cm in length, superficial, between the left &

right eyebrow Q Could a butt of a gun have caused it doctor?

= Lacerated wound, 2 cm in length, 1 cm in depth, forehead, Left A The swelling is big so it could have not been caused by a butt of a
gun because the butt of a gun is small, sir.

= Cyanosis of the tips of fingers & toes

Q How about this findings No. 4?

CAUSE OF DEATH:
A By a bump or contact of the body to a hard object, sir.

= CEREBRAL CONCUSSION & SHOCK

Q And findings No. 5 what could have caused it?

= BLOW ON THE HEAD

28 | P a g e
A Same cause, sir.

FISCAL:

Q This findings No. 6 what could have caused this wound?

Which of these two more likely, to cause death?

A Same thing sir.

WITNESS:

Q How about the last finding, cyanosis of tips of fingers and toes,
what could have caused it doctor?
Shock, sir.

WITNESS:
Q Please explain further the meaning of the medical term shock?

It indicates there was cardiac failure, sir.

A It is caused by peripheral circulatory failure as I have said earlier
sir.

FISCAL:

xxx xxx xxx

In this same post mortem report and under the heading cause of
death it states: Cause of Death: Cerebral concussion and Shock, will
you explain it? FISCAL:

A Cerebral concussion means in Tagalog "naalog ang utak" or jarring Could a bumping or pushing of one's head against a concrete floor
of the brain, sir. have caused shock?

Q What could have been the cause of jarring of the brain? WITNESS:

A It could have been caused by a blow of a hard object, sir. Possible, sir.

Q What about the shock, what could have caused it? How about striking with a butt of a gun, could it cause shock?

A It was due to peripheral circulatory failure, sir. A Possible, sir.35

Q Could any one of both caused the death of the victim? The above testimony clearly supports the claim of Jalbuena that
petitioner Navarro hit Lingan with the handle of his pistol above the
left eyebrow and struck him on the forehead with his fist.

A Yes, sir.

Third. It is argued that the mitigating circumstances of sufficient

provocation or threat on the part of the offended party immediately
Q Could cerebral concussion alone have caused the death of the preceding the act should have been appreciated in favor of petitioner
deceased? Navarro. Provocation is defined to be any unjust or improper conduct
or act of the offended party, capable of exciting, inciting or irritating
anyone.36 The provocation must be sufficient and should
A May be, sir. immediately precede the act.37 To be sufficient, it must be adequate
to excite a person to commit the wrong, which must accordingly be

29 | P a g e
proportionate in gravity.38 And it must immediately precede the act
so much so that there is no interval between the provocation by the
offended party and the commission of the crime by the accused.39 Bellosillo, Quisumbing and Buena, JJ., concur.

In the present case, the remarks of Lingan, which immediately

preceded the act of petitioner, constituted sufficient provocation. In
People v. Macaso,40 we appreciated this mitigating circumstance in
favor of the accused, a policeman, who shot a motorist after the latter
had repeatedly taunted him with defiant words. Hence, this
mitigating circumstance should be considered in favor of petitioner
Navarro.

Furthermore, the mitigating circumstance that the offender had no

intention to commit so grave a wrong as that committed should also
be appreciated in favor of petitioner. The frantic exclamations of
petitioner Navarro after the scuffle that it was Lingan who provoked
him shows that he had no intent to kill the latter. Thus, this mitigating
circumstance should be taken into account in determining the penalty
that should be imposed on petitioner Navarro. The allowance of this
mitigating circumstance is consistent with the rule that criminal
liability shall be incurred by any person committing a felony although
the wrongful act done be different from that which he intended.41 In
People v. Castro,42 the mitigating circumstance of lack of intent to
commit so grave a wrong as that committed was appreciated in favor
of the accused while finding him guilty of homicide.

However, the aggravating circumstance of commission of a crime in a

place where the public authorities are engaged in the discharge of
their duties should be appreciated against petitioner Navarro. The
offense in this case was committed right in the police station where
policemen were discharging their public functions.43

The crime committed as found by the trial court and the Court of
Appeals was homicide, for which the penalty under Art. 249 of the
Revised Penal Code is reclusion temporal. As there were two
mitigating circumstances and one aggravating circumstances, the
penalty should be fixed in its minimum period.44 Applying the
Indeterminate Sentence Law, petitioner Navarro should be sentenced
to an indeterminate penalty, the minimum of which is within the
range of the penalty next lower degree, i.e., prision mayor, and the
maximum of which is reclusion temporal in its minimum period.45

The indemnity as increased by the Court of Appeals from P30,000.00

to P50,000.00 is in accordance with the current jurisprudence.46

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with

the modification that petitioner Felipe Navarro is hereby SENTENCED
to suffer a prison terms of 18 years of prision mayor, as minimum, to
14 years and 8 months of reclusion temporal, as maximum.

SO ORDERED.1âwphi1.nêt

30 | P a g e
 6. Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198 original owners, the purchasers, petitioners herein, agreed to respect.
(1968) The administration of the building was entrusted to an administrator
who collected the rents; kept its books and records and rendered
G.R. Nos. L-24020-21 July 29, 1968 statements of accounts to the owners; negotiated leases; made
necessary repairs and disbursed payments, whenever necessary,
after approval by the owners; and performed such other functions
FLORENCIO REYES and ANGEL REYES, petitioners, necessary for the conservation and preservation of the building.
Petitioners divided equally the income of operation and maintenance.
vs. The gross income from rentals of the building amounted to about
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX P90,000.00 annually."5
APPEALS, respondents.

From the above facts, the respondent Court of Tax Appeals applying
Jose W. Diokno and Domingo Sandoval for petitioners. the appropriate provisions of the National Internal Revenue Code, the
first of which imposes an income tax on corporations "organized in,
Office of the Solicitor General for respondents. or existing under the laws of the Philippines, no matter how created
or organized but not including duly registered general co-partnerships
(companias colectivas), ...,"6 a term, which according to the second
provision cited, includes partnerships "no matter how created or
FERNANDO, J.:
organized, ...,"7 and applying the leading case of Evangelista v.
Collector of Internal Revenue,8 sustained the action of respondent
Commissioner of Internal Revenue, but reduced the tax liability of
Petitioners in this case were assessed by respondent Commissioner petitioners, as previously noted.
of Internal Revenue the sum of P46,647.00 as income tax, surcharge
and compromise for the years 1951 to 1954, an assessment
subsequently reduced to P37,528.00. This assessment sought to be
Petitioners maintain the view that the Evangelista ruling does not
reconsidered unsuccessfully was the subject of an appeal to
apply; for them, the situation is dissimilar.1äwphï1.ñët Consequently
respondent Court of Tax Appeals. Thereafter, another assessment
they allege that the reliance by respondent Court of Tax Appeals was
was made against petitioners, this time for back income taxes plus
unwarranted and the decision should be set aside. If their
surcharge and compromise in the total sum of P25,973.75, covering
interpretation of the authoritative doctrine therein set forth
the years 1955 and 1956. There being a failure on their part to have
commands assent, then clearly what respondent Court of Tax Appeals
such assessments reconsidered, the matter was likewise taken to the
did fails to find shelter in the law. That is the crux of the matter. A
respondent Court of Tax Appeals. The two cases1 involving as they did
perusal of the Evangelista decision is therefore unavoidable.
identical issues and ultimately traceable to facts similar in character
were heard jointly with only one decision being rendered.

As noted in the opinion of the Court, penned by the present Chief

Justice, the issue was whether petitioners are subject to the tax on
In that joint decision of respondent Court of Tax Appeals, the tax
corporations provided for in section 24 of Commonwealth Act No.
liability for the years 1951 to 1954 was reduced to P37,128.00 and for
466, otherwise known as the National Internal Revenue Code, ..."9
the years 1955 and 1956, to P20,619.00 as income tax due "from the
After referring to another section of the National Internal Revenue
partnership formed" by petitioners.2 The reduction was due to the
Code, which explicitly provides that the term corporation "includes
elimination of surcharge, the failure to file the income tax return
partnerships" and then to Article 1767 of the Civil Code of the
being accepted as due to petitioners honest belief that no such
Philippines, defining what a contract of partnership is, the opinion
liability was incurred as well as the compromise penalties for such
goes on to state that "the essential elements of a partnership are two,
failure to file.3 A reconsideration of the aforesaid decision was sought
namely: (a) an agreement to contribute money, property or industry
and denied by respondent Court of Tax Appeals. Hence this petition
to a common fund; and (b) intent to divide the profits among the
for review.
contracting parties. The first element is undoubtedly present in the
case at bar, for, admittedly, petitioners have agreed to and did,
contribute money and property to a common fund. Hence, the issue
The facts as found by respondent Court of Tax Appeals, which being narrows down to their intent in acting as they did. Upon consideration
supported by substantial evidence, must be respected4 follow: "On of all the facts and circumstances surrounding the case, we are fully
October 31, 1950, petitioners, father and son, purchased a lot and satisfied that their purpose was to engage in real estate transactions
building, known as the Gibbs Building, situated at 671 Dasmariñas for monetary gain and then divide the same among themselves, ..."10
Street, Manila, for P835,000.00, of which they paid the sum of
P375,000.00, leaving a balance of P460,000.00, representing the
mortgage obligation of the vendors with the China Banking
In support of the above conclusion, reference was made to the
Corporation, which mortgage obligations were assumed by the
following circumstances, namely, the common fund being created
vendees. The initial payment of P375,000.00 was shared equally by
purposely not something already found in existence, the investment
petitioners. At the time of the purchase, the building was leased to
of the same not merely in one transaction but in a series of
various tenants, whose rights under the lease contracts with the

31 | P a g e
transactions; the lots thus acquired not being devoted to residential
purposes or to other personal uses of petitioners in that case; such
properties having been under the management of one person with
full power to lease, to collect rents, to issue receipts, to bring suits, to
sign letters and contracts and to endorse notes and checks; the above
conditions having existed for more than 10 years since the acquisition
of the above properties; and no testimony having been introduced as
to the purpose "in creating the set up already adverted to, or on the
causes for its continued existence."11 The conclusion that emerged
had all the imprint of inevitability. Thus: "Although, taken singly, they
might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners
herein."12
It may be said that there could be a differentiation made between the
circumstances above detailed and those existing in the present case.
It does not suffice though to preclude the applicability of the
Evangelista decision. Petitioners could harp on these being only one
transaction. They could stress that an affidavit of one of them found
in the Bureau of Internal Revenue records would indicate that their
intention was to house in the building acquired by them the
respective enterprises, coupled with a plan of effecting a division in
10 years. It is a little surprising then that while the purchase was made
on October 31, 1950 and their brief as petitioners filed on October 20,
1965, almost 15 years later, there was no allegation that such division
as between them was in fact made. Moreover, the facts as found and
as submitted in the brief made clear that the building in question
continued to be leased by other parties with petitioners dividing
"equally the income ... after deducting the expenses of operation and
maintenance ..."13 Differences of such slight significance do not call
for a different ruling.
It is obvious that petitioners' effort to avoid the controlling force of
the Evangelista ruling cannot be deemed successful. Respondent
Court of Tax Appeals acted correctly. It yielded to the command of an
authoritative decision; it recognized its binding character. There is
clearly no merit to the second error assigned by petitioners, who
would deny its applicability to their situation.
The first alleged error committed by respondent Court of Tax Appeals
in holding that petitioners, in acquiring the Gibbs Building, established
a partnership subject to income tax as a corporation under the
National Internal Revenue Code is likewise untenable. In their
discussion in their brief of this alleged error, stress is laid on their
being co-owners and not partners. Such an allegation was likewise
made in the Evangelista case.
This is the way it was disposed of in the opinion of the present Chief
Justice: "This pretense was correctly rejected by the Court of Tax
Appeals."14 Then came the explanation why: "To begin with, the tax
in question is one imposed upon "corporations", which, strictly
speaking, are distinct and different from "partnerships". When our
Internal Revenue Code includes "partnerships" among the entities
subject to the tax on "corporations", said Code must allude, therefore,
to organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of said Code
exempts from the aforementioned tax "duly registered general
partnerships", which constitute precisely one of the most typical
forms of partnerships in this jurisdiction. Likewise, as defined in
section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the
usual requirements of the law on partnerships, in order that one could
be deemed constituted for purposes of the tax on corporations.
Again, pursuant to said section 84(b), the term "corporation"
includes, among others, "joint accounts, (cuentas en participacion)"
and "associations", none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could
not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as above
stated, "duly registered general copartnerships" — which are
possessed of the aforementioned personality - have been expressly
excluded by law (sections 24 and 84[b]) from the connotation of the
term "corporation"."15 The opinion went on to summarize the matter
aptly: "For purposes of the tax on corporations, our National Internal
Revenue Code, include these partnerships — with the exception only
of duly registered general co-partnerships within the purview of the
term "corporation." It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said Code is concerned, and
are subject to the income tax for corporations."16
In the light of the above, it cannot be said that the respondent Court
of Tax Appeals decided the matter incorrectly. There is no warrant for
the assertion that it failed to apply the settled law to uncontroverted
facts. Its decision cannot be successfully assailed. Moreover, an
observation made in Alhambra Cigar & Cigarette Manufacturing Co.
v. Commissioner of Internal Revenue,17 is well-worth recalling. Thus:
"Nor as a matter of principle is it advisable for this Court to set aside
the conclusion reached by an agency such as the Court of Tax Appeals
which is, by the very nature of its functions, dedicated exclusively to
the study and consideration of tax problems and has necessarily
developed an expertise on the subject, unless, as did not happen
here, there has been an abuse or improvident exercise of its
authority."
WHEREFORE, the decision of the respondent Court of Tax Appeals
ordering petitioners "to pay the sums of P37,128.00 as income tax due
from the partnership formed by herein petitioners for the years 1951
to 1954 and P20,619.00 for the years 1955 and 1956 within thirty days
from the date this decision becomes final, plus the corresponding
surcharge and interest in case of delinquency," is affirmed. With costs
against petitioners.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,
Castro and Angeles, JJ., concur.
32 | P a g e
 7. Gatchalian vs. CIR, 67 Phil 666 (1939) 4. Guillermo Tapia
...................................................................................................
G.R. No. L-45425 April 29, 1939 .13

5. Jesus Legaspi
JOSE GATCHALIAN, ET AL., plaintiffs-appellants, ......................................................................................................
.15
vs.
6. Jose Silva
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. .............................................................................................................
.07

7. Tomasa Mercado
Guillermo B. Reyes for appellants. ................................................................................................
Office of the Solicitor-General Tuason for appellee. .08

8. Julio Gatchalian
...................................................................................................
IMPERIAL, J.: .13

9. Emiliana Santiago
................................................................................................
The plaintiff brought this action to recover from the defendant .13
Collector of Internal Revenue the sum of P1,863.44, with legal interest
thereon, which they paid under protest by way of income tax. They 10. Maria C. Legaspi
appealed from the decision rendered in the case on October 23, 1936 ................................................................................................16
by the Court of First Instance of the City of Manila, which dismissed
the action with the costs against them. 11. Francisco Cabral
................................................................................................13

12. Gonzalo Javier

The case was submitted for decision upon the following stipulation of ....................................................................................................
facts: .14

13. Maria Santiago

...................................................................................................
Come now the parties to the above-mentioned case, through their .17
respective undersigned attorneys, and hereby agree to respectfully
submit to this Honorable Court the case upon the following statement 14. Buenaventura Guzman
of facts: ...................................................................................... .13

15. Mariano Santos

.................................................................................................
1. That plaintiff are all residents of the municipality of Pulilan, .14
Bulacan, and that defendant is the Collector of Internal Revenue of
the Philippines; Total
........................................................................................................

2.00
2. That prior to December 15, 1934 plaintiffs, in order to enable them
to purchase one sweepstakes ticket valued at two pesos (P2), 3. That immediately thereafter but prior to December 15, 1934,
subscribed and paid therefor the amounts as follows: plaintiffs purchased, in the ordinary course of business, from one of
the duly authorized agents of the National Charity Sweepstakes Office
one ticket bearing No. 178637 for the sum of two pesos (P2) and that
the said ticket was registered in the name of Jose Gatchalian and
1. Jose Gatchalian
Company;
....................................................................................................
P0.18

2. Gregoria Cristobal 4. That as a result of the drawing of the sweepstakes on December

................................................................................................18 15, 1934, the above-mentioned ticket bearing No. 178637 won one of
the third prizes in the amount of P50,000 and that the corresponding
3. Saturnina Silva
check covering the above-mentioned prize of P50,000 was drawn by
....................................................................................................
the National Charity Sweepstakes Office in favor of Jose Gatchalian &
.08
Company against the Philippine National Bank, which check was

33 | P a g e
cashed during the latter part of December, 1934 by Jose Gatchalian &
Company;
5. That on December 29, 1934, Jose Gatchalian was required by
income tax examiner Alfredo David to file the corresponding income
tax return covering the prize won by Jose Gatchalian & Company and
that on December 29, 1934, the said return was signed by Jose
Gatchalian, a copy of which return is enclosed as Exhibit A and made
a part hereof;
6. That on January 8, 1935, the defendant made an assessment
against Jose Gatchalian & Company requesting the payment of the
sum of P1,499.94 to the deputy provincial treasurer of Pulilan,
Bulacan, giving to said Jose Gatchalian & Company until January 20,
1935 within which to pay the said amount of P1,499.94, a copy of
which letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent
to defendant a reply, a copy of which marked Exhibit C is attached and
made a part hereof, requesting exemption from payment of the
income tax to which reply there were enclosed fifteen (15) separate
individual income tax returns filed separately by each one of the
plaintiffs, copies of which returns are attached and marked Exhibit D-
1 to D-15, respectively, in order of their names listed in the caption of
this case and made parts hereof; a statement of sale signed by Jose
Gatchalian showing the amount put up by each of the plaintiffs to
cover up the attached and marked as Exhibit E and made a part
hereof; and a copy of the affidavit signed by Jose Gatchalian dated
December 29, 1934 is attached and marked Exhibit F and made part
thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of
which marked Exhibit G is enclosed, denied plaintiffs' request of
January 20, 1935, for exemption from the payment of tax and
reiterated his demand for the payment of the sum of P1,499.94 as
income tax and gave plaintiffs until February 10, 1935 within which to
pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax
demanded by the defendant, notwithstanding subsequent demand
made by defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is enclosed,
defendant on May 13, 1935 issued a warrant of distraint and levy
against the property of the plaintiffs, a copy of which warrant marked
Exhibit I is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the
property of the plaintiffs, the said plaintiffs on June 15, 1935, through
Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under
protest the sum of P601.51 as part of the tax and penalties to the
municipal treasurer of Pulilan, Bulacan, as evidenced by official
receipt No. 7454879 which is attached and marked Exhibit J and made
a part hereof, and requested defendant that plaintiffs be allowed to
pay under protest the balance of the tax and penalties by monthly
installments;
11. That plaintiff's request to pay the balance of the tax and penalties
was granted by defendant subject to the condition that plaintiffs file
the usual bond secured by two solvent persons to guarantee prompt
payment of each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which
marked Exhibit K is enclosed and made a part hereof, to guarantee
the payment of the balance of the alleged tax liability by monthly
installments at the rate of P118.70 a month, the first payment under
protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against
the payment of the sum of P602.51, a copy of which protest is
attached and marked Exhibit L, but that defendant in his letter dated
August 1, 1935 overruled the protest and denied the request for
refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly
installments in accordance with the terms and conditions of bond
filed by them, the defendant in his letter dated July 23, 1935, copy of
which is attached and marked Exhibit M, ordered the municipal
treasurer of Pulilan, Bulacan to execute within five days the warrant
of distraint and levy issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising from
the levy of their property, the plaintiffs on August 28, 1936, through
Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano
Santiago, paid under protest to the municipal treasurer of Pulilan,
Bulacan the sum of P1,260.93 representing the unpaid balance of the
income tax and penalties demanded by defendant as evidenced by
income tax receipt No. 35811 which is attached and marked Exhibit N
and made a part hereof; and that on September 3, 1936, the plaintiffs
formally protested to the defendant against the payment of said
amount and requested the refund thereof, copy of which is attached
and marked Exhibit O and made part hereof; but that on September
4, 1936, the defendant overruled the protest and denied the refund
thereof; copy of which is attached and marked Exhibit P and made a
part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total
sum of one thousand eight hundred and sixty three pesos and forty-
four centavos (P1,863.44) paid under protest by them but that
defendant refused and still refuses to refund the said amount
notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and
additional evidence if necessary.
34 | P a g e
Exhibit E referred to in the stipulation is of the following tenor: RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR
1934 ALL DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR
OF INTERNAL REVENUE.
To whom it may concern:

Name Exhibit
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, No. Purchase
hereby certify, that on the 11th day of August, 1934, I sold parts of my
shares on ticket No. 178637 to the persons and for the amount Price Price
indicated below and the part of may share remaining is also shown to
wit: Won Expenses Net

prize

Purchaser Amount Address 1. Jose Gatchalian .......................................... D-1 P0.18

P4,425 P 480 3,945
1. Mariano Santos ........................................... P0.14 Pulilan,
Bulacan. 2. Gregoria Cristobal ...................................... D-2 .18
4,575 2,000 2,575
2. Buenaventura Guzman ............................... .13 - Do -
3. Saturnina Silva ............................................. D-3 .08
3. Maria Santiago ............................................ .17 - Do - 1,875 360 1,515

4. Gonzalo Javier .............................................. .14 - Do - 4. Guillermo Tapia .......................................... D-4 .13

3,325 360 2,965
5. Francisco Cabral .......................................... .13 - Do -
5. Jesus Legaspi by Maria Cristobal ......... D-5 .15
6. Maria C. Legaspi .......................................... .16 - Do - 3,825 720 3,105
7. Emiliana Santiago ......................................... .13 - Do - 6. Jose Silva .................................................... D-6 .08
8. Julio Gatchalian ............................................ .13 - Do - 1,875 360 1,515

9. Jose Silva ...................................................... .07 - Do - 7. Tomasa Mercado ....................................... D-7 .07

1,875 360 1,515
10. Tomasa Mercado ....................................... .08 - Do -
8. Julio Gatchalian by Beatriz Guzman ....... D-8 .13
11. Jesus Legaspi ............................................. .15 - Do - 3,150 240 2,910

12. Guillermo Tapia ........................................... .13 - Do - 9. Emiliana Santiago ...................................... D-9 .13
3,325 360 2,965
13. Saturnina Silva ............................................ .08 - Do -
10. Maria C. Legaspi ...................................... D-10 .16
14. Gregoria Cristobal ....................................... .18 - Do - 4,100 960 3,140
15. Jose Gatchalian ............................................ .18 - Do - 11. Francisco Cabral ...................................... D-11 .13
3,325 360 2,965

2.00 Total cost of said 12. Gonzalo Javier .......................................... D-12 .14
3,325 360 2,965
ticket; and that, therefore, the persons named above are entitled to
the parts of whatever prize that might be won by said ticket. 13. Maria Santiago .......................................... D-13 .17
4,350 360 3,990

14. Buenaventura Guzman ........................... D-14 .13

Pulilan, Bulacan, P.I. 3,325 360 2,965

15. Mariano Santos ........................................ D-15 .14

3,325 360 2,965
(Sgd.) JOSE GATCHALIAN

2.00
And a summary of Exhibits D-1 to D-15 is inserted in the bill of
exceptions as follows: 50,000

35 | P a g e
The legal questions raised in plaintiffs-appellants' five assigned errors
may properly be reduced to the two following: (1) Whether the
plaintiffs formed a partnership, or merely a community of property
without a personality of its own; in the first case it is admitted that
the partnership thus formed is liable for the payment of income tax,
whereas if there was merely a community of property, they are
exempt from such payment; and (2) whether they should pay the tax
collectively or whether the latter should be prorated among them and
paid individually.
The Collector of Internal Revenue collected the tax under section 10
of Act No. 2833, as last amended by section 2 of Act No. 3761, reading
as follows:
upon the organization thereof and the winning of the prize, Jose
Gatchalian personally appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as such collection the
prize, the office issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said partner, in the same capacity,
collected the said check. All these circumstances repel the idea that
the plaintiffs organized and formed a community of property only.
Having organized and constituted a partnership of a civil nature, the
said entity is the one bound to pay the income tax which the
defendant collected under the aforesaid section 10 (a) of Act No.
2833, as amended by section 2 of Act No. 3761. There is no merit in
plaintiff's contention that the tax should be prorated among them and
paid individually, resulting in their exemption from the tax.

SEC. 10. (a) There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding calendar In view of the foregoing, the appealed decision is affirmed, with the
year from all sources by every corporation, joint-stock company, costs of this instance to the plaintiffs appellants. So ordered.
partnership, joint account (cuenta en participacion), association or
insurance company, organized in the Philippine Islands, no matter
how created or organized, but not including duly registered general Avanceña, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ.,
copartnership (compañias colectivas), a tax of three per centum upon concur.
such income; and a like tax shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every
corporation, joint-stock company, partnership, joint account (cuenta
en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country,
including interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise: Provided, however,
That nothing in this section shall be construed as permitting the
taxation of the income derived from dividends or net profits on which
the normal tax has been paid.

The gain derived or loss sustained from the sale or other disposition
by a corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained in accordance
with subsections (c) and (d) of section two of Act Numbered Two
thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.

The foregoing tax rate shall apply to the net income received by every
taxable corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year
thereafter.

There is no doubt that if the plaintiffs merely formed a community of

property the latter is exempt from the payment of income tax under
the law. But according to the stipulation facts the plaintiffs organized
a partnership of a civil nature because each of them put up money to
buy a sweepstakes ticket for the sole purpose of dividing equally the
prize which they may win, as they did in fact in the amount of P50,000
(article 1665, Civil Code). The partnership was not only formed, but

36 | P a g e
 8. Ona vs. CIR, 45 SCRA 74 (1972)
G.R. No. L-19342 May 25, 1972
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B.
OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO
B. OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Orlando Velasco for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor
General Felicisimo R. Rosete, and Special Attorney Purificacion Ureta
for respondent.
BARREDO, J.:p
Petition for review of the decision of the Court of Tax Appeals in CTA
Case No. 617, similarly entitled as above, holding that petitioners
have constituted an unregistered partnership and are, therefore,
subject to the payment of the deficiency corporate income taxes
assessed against them by respondent Commissioner of Internal
Revenue for the years 1955 and 1956 in the total sum of P21,891.00,
plus 5% surcharge and 1% monthly interest from December 15, 1958,
subject to the provisions of Section 51 (e) (2) of the Internal Revenue
Code, as amended by Section 8 of Republic Act No. 2343 and the costs
of the suit,1 as well as the resolution of said court denying petitioners'
motion for reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buñales died on March 23, 1944, leaving as heirs her surviving
spouse, Lorenzo T. Oña and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First Instance of Manila for the
settlement of her estate. Later, Lorenzo T. Oña the surviving spouse
was appointed administrator of the estate of said deceased (Exhibit
3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted
the project of partition, which was approved by the Court on May 16,
1949 (See Exhibit K). Because three of the heirs, namely Luz, Virginia
and Lorenzo, Jr., all surnamed Oña, were still minors when the project
of partition was approved, Lorenzo T. Oña, their father and
administrator of the estate, filed a petition in Civil Case No. 9637 of
the Court of First Instance of Manila for appointment as guardian of
said minors. On November 14, 1949, the Court appointed him
guardian of the persons and property of the aforenamed minors (See
p. 3, BIR rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows
that the heirs have undivided one-half (1/2) interest in ten parcels of
land with a total assessed value of P87,860.00, six houses with a total
assessed value of P17,590.00 and an undetermined amount to be
collected from the War Damage Commission. Later, they received
from said Commission the amount of P50,000.00, more or less. This
amount was not divided among them but was used in the
rehabilitation of properties owned by them in common (t.s.n., p. 46).
Of the ten parcels of land aforementioned, two were acquired after
the death of the decedent with money borrowed from the Philippine
Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3,
pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally with
Lorenzo T. Oña, the administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by the latter with the
approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
Although the project of partition was approved by the Court on May
16, 1949, no attempt was made to divide the properties therein listed.
Instead, the properties remained under the management of Lorenzo
T. Oña who used said properties in business by leasing or selling them
and investing the income derived therefrom and the proceeds from
the sales thereof in real properties and securities. As a result,
petitioners' properties and investments gradually increased from
P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from
the following year-end balances:
Year
Investment
Land
Building
Account
Account
Account
37 | P a g e
1949 84,925.68

— 161,463.83

P87,860.00 1954

P17,590.00 63,623.37

1950 99,001.20

P24,657.65 167,962.04

128,566.72 1955

96,076.26 100,786.00

1951 120,249.78

51,301.31 169,262.52

120,349.28 1956

110,605.11 175,028.68

1952 135,714.68

67,927.52 169,262.52

87,065.28 (See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)

152,674.39 From said investments and properties petitioners derived such

incomes as profits from installment sales of subdivided lots, profits
from sales of stocks, dividends, rentals and interests (see p. 3 of
1953 Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are
recorded in the books of account kept by Lorenzo T. Oña where the
corresponding shares of the petitioners in the net income for the year
are also known. Every year, petitioners returned for income tax
61,258.27 purposes their shares in the net income derived from said properties
and securities and/or from transactions involving them (Exhibit 3,
supra; t.s.n., pp. 25-26). However, petitioners did not actually receive

38 | P a g e
their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100). The
income was always left in the hands of Lorenzo T. Oña who, as
heretofore pointed out, invested them in real properties and
securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).
On the basis of the foregoing facts, respondent (Commissioner of
Internal Revenue) decided that petitioners formed an unregistered
partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code.
Accordingly, he assessed against the petitioners the amounts of
P8,092.00 and P13,899.00 as corporate income taxes for 1955 and
1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and
86, BIR rec.). Petitioners protested against the assessment and asked
for reconsideration of the ruling of respondent that they have formed
an unregistered partnership. Finding no merit in petitioners' request,
respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4,
Memorandum for Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation ................ P40,209.89
Income tax due thereon ............................... 8,042.00
25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956
Net income as per investigation ................ P69,245.23
Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was
eliminated in line with the ruling of the Supreme Court in Collector v.
Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the
questioned assessment refers solely to the income tax proper for the
years 1955 and 1956 and the "Compromise for non-filing," the latter
item obviously referring to the compromise in lieu of the criminal
liability for failure of petitioners to file the corporate income tax
returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-3,
Annex C to Petition)
Petitioners have assigned the following as alleged errors of the Tax
Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE
PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED AND
(THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS
WERE LIABLE FOR CORPORATE INCOME TAXES FOR 1955 AND 1956
AS AN UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN
UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN
NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED
PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE
PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE
LOANS RECEIVED USING THE INHERITED PROPERTIES AS
COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS
INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON,
FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.
39 | P a g e

In other words, petitioners pose for our resolution the following
questions: (1) Under the facts found by the Court of Tax Appeals,
should petitioners be considered as co-owners of the properties
inherited by them from the deceased Julia Buñales and the profits
derived from transactions involving the same, or, must they be
deemed to have formed an unregistered partnership subject to tax
under Sections 24 and 84(b) of the National Internal Revenue Code?
(2) Assuming they have formed an unregistered partnership, should
this not be only in the sense that they invested as a common fund the
profits earned by the properties owned by them in common and the
loans granted to them upon the security of the said properties, with
the result that as far as their respective shares in the inheritance are
concerned, the total income thereof should be considered as that of
co-owners and not of the unregistered partnership? And (3) assuming
again that they are taxable as an unregistered partnership, should not
the various amounts already paid by them for the same years 1955
and 1956 as individual income taxes on their respective shares of the
profits accruing from the properties they owned in common be
deducted from the deficiency corporate taxes, herein involved,
assessed against such unregistered partnership by the respondent
Commissioner?
Pondering on these questions, the first thing that has struck the Court
is that whereas petitioners' predecessor in interest died way back on
March 23, 1944 and the project of partition of her estate was judicially
approved as early as May 16, 1949, and presumably petitioners have
been holding their respective shares in their inheritance since those
dates admittedly under the administration or management of the
head of the family, the widower and father Lorenzo T. Oña, the
assessment in question refers to the later years 1955 and 1956. We
believe this point to be important because, apparently, at the start,
or in the years 1944 to 1954, the respondent Commissioner of
Internal Revenue did treat petitioners as co-owners, not liable to
corporate tax, and it was only from 1955 that he considered them as
having formed an unregistered partnership. At least, there is nothing
in the record indicating that an earlier assessment had already been
made. Such being the case, and We see no reason how it could be
otherwise, it is easily understandable why petitioners' position that
they are co-owners and not unregistered co-partners, for the
purposes of the impugned assessment, cannot be upheld. Truth to
tell, petitioners should find comfort in the fact that they were not
similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of
the deceased among themselves pursuant to the project of partition
approved in 1949, "the properties remained under the management
of Lorenzo T. Oña who used said properties in business by leasing or
selling them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and securities," as a
result of which said properties and investments steadily increased
yearly from P87,860.00 in "land account" and P17,590.00 in "building
account" in 1949 to P175,028.68 in "investment account,"
P135.714.68 in "land account" and P169,262.52 in "building account"
in 1956. And all these became possible because, admittedly,
petitioners never actually received any share of the income or profits
from Lorenzo T. Oña and instead, they allowed him to continue using
said shares as part of the common fund for their ventures, even as
they paid the corresponding income taxes on the basis of their
respective shares of the profits of their common business as reported
by the said Lorenzo T. Oña.
It is thus incontrovertible that petitioners did not, contrary to their
contention, merely limit themselves to holding the properties
inherited by them. Indeed, it is admitted that during the material
years herein involved, some of the said properties were sold at
considerable profit, and that with said profit, petitioners engaged,
thru Lorenzo T. Oña, in the purchase and sale of corporate securities.
It is likewise admitted that all the profits from these ventures were
divided among petitioners proportionately in accordance with their
respective shares in the inheritance. In these circumstances, it is Our
considered view that from the moment petitioners allowed not only
the incomes from their respective shares of the inheritance but even
the inherited properties themselves to be used by Lorenzo T. Oña as
a common fund in undertaking several transactions or in business,
with the intention of deriving profit to be shared by them
proportionally, such act was tantamonut to actually contributing such
incomes to a common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the above-mentioned
provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period
when the heirs can be considered as co-owners rather than
unregistered co-partners within the contemplation of our corporate
tax laws aforementioned. Before the partition and distribution of the
estate of the deceased, all the income thereof does belong commonly
to all the heirs, obviously, without them becoming thereby
unregistered co-partners, but it does not necessarily follow that such
status as co-owners continues until the inheritance is actually and
physically distributed among the heirs, for it is easily conceivable that
after knowing their respective shares in the partition, they might
decide to continue holding said shares under the common
management of the administrator or executor or of anyone chosen by
them and engage in business on that basis. Withal, if this were to be
allowed, it would be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and 84(b) of the
National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated,
among the reasons for holding the appellants therein to be
unregistered co-partners for tax purposes, that their common fund
"was not something they found already in existence" and that "it was
not a property inherited by them pro indiviso," but it is certainly far
fetched to argue therefrom, as petitioners are doing here, that ergo,
in all instances where an inheritance is not actually divided, there can
be no unregistered co-partnership. As already indicated, for tax
purposes, the co-ownership of inherited properties is automatically
converted into an unregistered partnership the moment the said
common properties and/or the incomes derived therefrom are used
as a common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as determined
in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or
40 | P a g e
intestate proceeding. The reason for this is simple. From the moment
of such partition, the heirs are entitled already to their respective
definite shares of the estate and the incomes thereof, for each of
them to manage and dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly he becomes liable
individually for all taxes in connection therewith. If after such
partition, he allows his share to be held in common with his co-heirs
under a single management to be used with the intent of making
profit thereby in proportion to his share, there can be no doubt that,
even if no document or instrument were executed for the purpose,
for tax purposes, at least, an unregistered partnership is formed. This
is exactly what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3),
of the Civil Code, providing that: "The sharing of gross returns does
not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property
from which the returns are derived," and, for that matter, on any
other provision of said code on partnerships is unavailing. In
Evangelista, supra, this Court clearly differentiated the concept of
partnerships under the Civil Code from that of unregistered
partnerships which are considered as "corporations" under Sections
24 and 84(b) of the National Internal Revenue Code. Mr. Justice
Roberto Concepcion, now Chief Justice, elucidated on this point thus:
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and different
from "partnerships". When our Internal Revenue Code includes
"partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of the
term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships," which
constitute precisely one of the most typical forms of partnerships in
this jurisdiction. Likewise, as defined in section 84(b) of said Code,
"the term corporation includes partnerships, no matter how created
or organized." This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standard forms, or in
confirmity with the usual requirements of the law on partnerships, in
order that one could be deemed constituted for purposes of the tax
on corporation. Again, pursuant to said section 84(b),the term
"corporation" includes, among others, "joint accounts,(cuentas en
participacion)" and "associations", none of which has a legal
personality of its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded that personality
as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general co-
partnerships" — which are possessed of the aforementioned
personality — have been expressly excluded by law (sections 24 and
84[b]) from the connotation of the term "corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership. Under the term
"partnership" it includes not only a partnership as known in common
law but, as well, a syndicate, group, pool, joint venture, or other
unincorporated organization which carries on any business, financial
operation, or venture, and which is not, within the meaning of the
Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal
Income Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint
venture or other unincorporated organization, through or by means
of which any business, financial operation, or venture is carried on. ...
. (8 Merten's Law of Federal Income Taxation, p. 562 Note 63;
emphasis ours.)
For purposes of the tax on corporations, our National Internal
Revenue Code includes these partnerships — with the exception only
of duly registered general copartnerships — within the purview of the
term "corporation." It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said Code is concerned, and
are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs.
Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29,
1968, 24 SCRA 198, wherein the Court ruled against a theory of co-
ownership pursued by appellants therein.
As regards the second question raised by petitioners about the
segregation, for the purposes of the corporate taxes in question, of
their inherited properties from those acquired by them subsequently,
We consider as justified the following ratiocination of the Tax Court
in denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there was
an unregistered partnership, the holding should be limited to the
business engaged in apart from the properties inherited by
petitioners. In other words, the taxable income of the partnership
should be limited to the income derived from the acquisition and sale
of real properties and corporate securities and should not include the
income derived from the inherited properties. It is admitted that the
inherited properties and the income derived therefrom were used in
the business of buying and selling other real properties and corporate
securities. Accordingly, the partnership income must include not only
the income derived from the purchase and sale of other properties
but also the income of the inherited properties.
Besides, as already observed earlier, the income derived from
inherited properties may be considered as individual income of the
respective heirs only so long as the inheritance or estate is not
distributed or, at least, partitioned, but the moment their respective
known shares are used as part of the common assets of the heirs to
be used in making profits, it is but proper that the income of such
41 | P a g e
shares should be considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have been
adequately resolved by the Tax Court in the aforementioned
resolution denying petitioners' motion for reconsideration of the
decision of said court. Pertinently, the court ruled this wise:
corporate taxes legally due from them. In principle, it is but proper
not to allow any relaxation of the tax laws in favor of persons who are
not exactly above suspicion in their conduct vis-a-vis their tax
obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax
Appeals appealed from is affirm with costs against petitioners.

In support of the third ground, counsel for petitioners alleges: Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur.

Even if we were to yield to the decision of this Honorable Court that Reyes, J.B.L. and Teehankee, JJ., concur in the result.
the herein petitioners have formed an unregistered partnership and,
therefore, have to be taxed as such, it might be recalled that the
petitioners in their individual income tax returns reported their shares Castro, J., took no part.
of the profits of the unregistered partnership. We think it only fair and
equitable that the various amounts paid by the individual petitioners
as income tax on their respective shares of the unregistered
partnership should be deducted from the deficiency income tax found Concepcion, C.J., is on leave.
by this Honorable Court against the unregistered partnership. (page
7, Memorandum for the Petitioner in Support of Their Motion for
Reconsideration, Oct. 28, 1961.)

In other words, it is the position of petitioners that the taxable income

of the partnership must be reduced by the amounts of income tax
paid by each petitioner on his share of partnership profits. This is not
correct; rather, it should be the other way around. The partnership
profits distributable to the partners (petitioners herein) should be
reduced by the amounts of income tax assessed against the
partnership. Consequently, each of the petitioners in his individual
capacity overpaid his income tax for the years in question, but the
income tax due from the partnership has been correctly assessed.
Since the individual income tax liabilities of petitioners are not in issue
in this proceeding, it is not proper for the Court to pass upon the
same.

Petitioners insist that it was error for the Tax Court to so rule that
whatever excess they might have paid as individual income tax cannot
be credited as part payment of the taxes herein in question. It is
argued that to sanction the view of the Tax Court is to oblige
petitioners to pay double income tax on the same income, and,
worse, considering the time that has lapsed since they paid their
individual income taxes, they may already be barred by prescription
from recovering their overpayments in a separate action. We do not
agree. As We see it, the case of petitioners as regards the point under
discussion is simply that of a taxpayer who has paid the wrong tax,
assuming that the failure to pay the corporate taxes in question was
not deliberate. Of course, such taxpayer has the right to be
reimbursed what he has erroneously paid, but the law is very clear
that the claim and action for such reimbursement are subject to the
bar of prescription. And since the period for the recovery of the excess
income taxes in the case of herein petitioners has already lapsed, it
would not seem right to virtually disregard prescription merely upon
the ground that the reason for the delay is precisely because the
taxpayers failed to make the proper return and payment of the

42 | P a g e
 9. Obillos, Jr. vs. CIR, 139 SCRA 436 (1985)
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and
REMEDIOS P. OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,
respondents.
Demosthenes B. Gadioma for petitioners.
AQUINO, J.:
This case is about the income tax liability of four brothers and sisters
who sold two parcels of land which they had acquired from their
father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas &
Co., Ltd. on two lots with areas of 1,124 and 963 square meters
located at Greenhills, San Juan, Rizal. The next day he transferred his
rights to his four children, the petitioners, to enable them to build
their residences. The company sold the two lots to petitioners for
P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the
Torrens titles issued to them would show that they were co-owners
of the two lots.
In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities Corporation and
Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for each
of them. They treated the profit as a capital gain and paid an income
tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year
prescriptive period, the Commissioner of Internal Revenue required
the four petitioners to pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on their shares thereof
He assessed P37,018 as corporate income tax, P18,509 as 50% fraud
surcharge and P15,547.56 as 42% accumulated interest, or a total of
P71,074.56.
Not only that. He considered the share of the profits of each
petitioner in the sum of P33,584 as a " taxable in full (not a mere
capital gain of which ½ is taxable) and required them to pay deficiency
income taxes aggregating P56,707.20 including the 50% fraud
surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes
and penalties totalling P127,781.76 on their profit of P134,336, in
addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or joint venture within the
meaning of sections 24(a) and 84(b) of the Tax Code (Collector of
Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax
Court sustained the same. Judge Roaquin dissented. Hence, the
instant appeal.
We hold that it is error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the
same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the
dictum that the power to tax involves the power to destroy. That
eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were
co-owners pure and simple. To consider them as partners would
obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of
that isolated transaction.
Their original purpose was to divide the lots for residential purposes.
If later on they found it not feasible to build their residences on the
lots because of the high cost of construction, then they had no choice
but to resell the same to dissolve the co-ownership. The division of
the profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state. It had
to be terminated sooner or later. Castan Tobeñas says:
Como establecer el deslinde entre la comunidad ordinaria o
copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta: por
razon del origen, en que la sociedad presupone necesariamente la
convencion, mentras que la comunidad puede existir y existe
ordinariamente sin ela; y por razon del fin objecto, en que el objeto
de la sociedad es obtener lucro, mientras que el de la indivision es
solo mantener en su integridad la cosa comun y favorecer su
conservacion.
43 | P a g e

Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en
la que se dice que si en nuestro Derecho positive se ofrecen a veces
dificultades al tratar de fijar la linea divisoria entre comunidad de
bienes y contrato de sociedad, la moderna orientacion de la doctrina
cientifica señala como nota fundamental de diferenciacion aparte del
origen de fuente de que surgen, no siempre uniforme, la finalidad
perseguida por los interesados: lucro comun partible en la sociedad,
y mera conservacion y aprovechamiento en la comunidad. (Derecho
Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation. (De Leon vs. CI R, CTA
Case No. 738, September 11, 1961, cited in Arañas, 1977 Tax Code
Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA
74, where after an extrajudicial settlement the co-heirs used the
inheritance or the incomes derived therefrom as a common fund to
produce profits for themselves, it was held that they were taxable as
an unregistered partnership.

Article 1769(3) of the Civil Code provides that "the sharing of gross
returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal
Revenue, 67 Phil. 666, where 15 persons contributed small amounts
to purchase a two-peso sweepstakes ticket with the agreement that
they would divide the prize The ticket won the third prize of P50,000.
The 15 persons were held liable for income tax as an unregistered
partnership.
The instant case is distinguishable from the cases where the parties
engaged in joint ventures for profit. Thus, in Oña vs.
It is likewise different from Reyes vs. Commissioner of Internal
Revenue, 24 SCRA 198, where father and son purchased a lot and
building, entrusted the administration of the building to an
administrator and divided equally the net income, and from
Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the
three Evangelista sisters bought four pieces of real property which
they leased to various tenants and derived rentals therefrom. Clearly,
the petitioners in these two cases had formed an unregistered
partnership.
In the instant case, what the Commissioner should have investigated
was whether the father donated the two lots to the petitioners and
whether he paid the donor's tax (See Art. 1448, Civil Code). We are
not prejudging this matter. It might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside.
The assessments are cancelled. No costs.
** This view is supported by the following rulings of respondent
Commissioner:

SO ORDERED.

Co-owership distinguished from partnership.—We find that the case

at bar is fundamentally similar to the De Leon case. Thus, like the De
Leon heirs, the Longa heirs inherited the 'hacienda' in question pro- Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.
indiviso from their deceased parents; they did not contribute or invest
additional ' capital to increase or expand the inherited properties;
they merely continued dedicating the property to the use to which it Concepcion, Jr., is on leave.
had been put by their forebears; they individually reported in their tax
returns their corresponding shares in the income and expenses of the
'hacienda', and they continued for many years the status of co-
ownership in order, as conceded by respondent, 'to preserve its (the
'hacienda') value and to continue the existing contractual relations
with the Central Azucarera de Bais for milling purposes. Longa vs.
Aranas, CTA Case No. 653, July 31, 1963).

All co-ownerships are not deemed unregistered pratnership.—Co-

Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership,
or a corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all

co-ownerships of inherited properties to the tax on corporations,

inasmuch as if a property does not produce an income at all, it is not

44 | P a g e
 10. Bastida vs. Menzi & Co., 58 Phil 188 (1933)
G.R. No. L-35840 March 31, 1933
FRANCISCO BASTIDA, plaintiff-appellee,
vs.
MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
MENZI & CO., appellant.
Romualdez Brothers and Harvey and O'Brien for appellant.
Jose M. Casal, Alberto Barretto and Gibbs and McDonough for
appellee.
VICKERS, J.:
This is an appeal by Menzi & Co., Inc., one of the defendants, from a
decision of the Court of First Instance of Manila. The case was tried
on the amended complaint dated May 26, 1928 and defendants'
amended answer thereto of September 1, 1928. For the sake of
clearness, we shall incorporate herein the principal allegations of the
parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I
That the defendant J.M. Menzi, together with his wife and daughter,
owns ninety-nine per cent (99%) of the capital stock of the defendant
Menzi & Co., Inc., that the plaintiff has been informed and therefore
believes that the defendant J.M. Menzi, his wife and daughter,
together with the defendant P.C. Schlobohm and one Juan Seiboth,
constitute the board of directors of the defendant, Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi & Co., Inc. through its
president and general manager, J.M. Menzi, under the authority of
the board of directors, entered into a contract with the plaintiff to
engage in the business of exploiting prepared fertilizers, as evidenced
by the contract marked Exhibit A, attached to the original complaint
as a part thereof, and likewise made a part of the amended complaint,
as if it were here copied verbatim;
III
That in pursuance of said contract, plaintiff and defendant Menzi &
Co., Inc., began to manufacture prepared fertilizers, the former
superintending the work of actual preparation, and the latter,
through defendants J.M. Menzi and P. C. Schlobohm, managing the
business and opening an account entitled "FERTILIZERS" on the books
of the defendant Menzi & Co., Inc., where all the accounts of the
partnership business were supposed to be kept; the plaintiff had no
participation in the making of these entries, which were wholly in the
defendants' charge, under whose orders every entry was made;
IV
That according to paragraph 7 of the contract Exhibit A, the defendant
Menzi & Co., Inc., was obliged to render annual balance sheets to be
plaintiff upon the 30th day of June of each year; that the plaintiff had
no intervention in the preparation of these yearly balances, nor was
he permitted to have any access to the books of account; and when
the balance sheets were shown him, he, believing in good faith that
they contained the true statement of the partnership business, and
relying upon the good faith of the defendants, Menzi & Co., Inc., J.M.
Menzi, and P.C. Schlobohm, accepted and signed them, the last
balance sheet having been rendered in the year 1926;
V
That by reason of the foregoing facts and especially those set forth in
the preceding paragraph, the plaintiff was kept in ignorance of the
defendants' acts relating to the management of the partnership
funds, and the keeping of accounts, until he was informed and so
believes and alleges, that the defendants had conspired to conceal
from him the true status of the business, and to his damage and
prejudice made false entries in the books of account and in the yearly
balance sheets, the exact nature and amount of which it is impossible
to ascertain, even after the examination of the books of the business,
due to the defendants' refusal to furnish all the books and data
required for the purpose, and the constant obstacles they have placed
in the way of the examination of the books of account and vouchers;
VI
That when the plaintiff received the information mentioned in the
preceding paragraph, he demanded that the defendants permit him
to examine the books and vouchers of the business, which were in
their possession, in order to ascertain the truth of the alleged false
entries in the books and balance sheets submitted for his approval,
but the defendants refused, and did not consent to the examination
until after the original complaint was filed in this case; but up to this
45 | P a g e
time they have refused to furnish all the books, data, and vouchers
necessary for a complete and accurate examination of all the
partnership's accounts; and
VII
That as a result of the partial examination of the books of account of
the business, the plaintiff has, through his accountants, discovered
that the defendants, conspiring and confederating together,
presented to the plaintiff during the period covered by the
partnership contract false and incorrect accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers, salaries and wages
which should have been paid and were in fact paid by the defendant
Menzi & Co., Inc.;
(c) For having collected from the partnership the income tax which
should have been paid for its own account by Menzi & Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff,
commissions on the purchase of materials for the manufacture of
fertilizers;
(e) For having appropriated, to the damage and prejudice of the
plaintiff, the profits obtained from the sale of fertilizers belonging to
the partnership and bought with its own funds; and
(f) For having appropriated to themselves all rebates for
freight insurance, taxes, etc., upon materials for fertilizer bought
abroad, no entries of said rebates having been made on the books to
the credit of the partnership.
Upon the strength of the facts set out in this first cause of action, the
plaintiff prays the court:
1. To prohibit the defendants, each and every one of them, from
destroying and concealing the books and papers of the partnership
constituted between the defendant Menzi & Co., Inc., and the
plaintiff;
2. To summon each and every defendant to appear and give a true
account of all facts relating to the partnership between the plaintiff
and the defendant Menzi & Co., Inc., and of each and every act and
transaction connected with the business of said partnership from the
beginning to April 27, 1927, and a true statement of all merchandise
of whatever description, purchased for said partnership, and of all the
expenditures and sale of every kind, together with the true amount
thereof, besides the sums received by the partnership from every
source together with their exact nature, and a true and complete
account of the vouchers for all sums paid by the partnership, and of
the salaries paid to its employees;
3. To declare null and void the yearly balances submitted by the
defendants to the plaintiff from 1922 to 1926, both inclusive;
4. To order the defendants to give a true statement of all receipts and
disbursements of the partnership during the period of its existence,
besides granting the plaintiff any other remedy that the court may
deem just and equitable.
EXHIBIT A
CONTRATO
que se celebra entre los Sres. Menzi y Compañia, de Manila, como
Primera Parte, y D. Francisco Bastada, tambien de Manila, como
Segunda Parte, bajo las siguientes
CONDICIONES
1.ª El objeto de este contrato es la explotacion del negocio de Abonos
o Fertilizantes Preparados, para diversas aplicaciones agricolas;
2.ª La duracion de este contrato sera de cinco años, a contrar desde
la fecha de su firma;
3.ª La Primera Parte se compromete a facilitar la ayuda financiera
necesaria para el negocio;
4.ª La Segunda Parte se compromete a poner su entero tiempo y toda
su experiencia a la disposicion del negocio;
5.ª La Segunda Parte no podra, directa o indirectamente, dedicarse
por si sola ni en sociedad con otras personas, o de manera alguna que
no sea con la Primera Parte, al negecio de Abonos, simples o
preparados, o de materia alguna que se aplique comunmente a la
fertilizacion de suelos y plantas, durante la vigencia de este contrato,
46 | P a g e
a menos que obtenga autorizacion expresa de la Primera Parte para
ello;
6.ª La Primera Parte no podra dedicarse, por si sola ni en sociedad o
combinacion con otras personas o entidades, ni de otro modo que en
sociedad con la Segunda Parte, al negocio de Abonos o Fertilizantes
preparados, ya sean ellos importados, ya preparados en las Islas
Fllipinas; tampoco podra dedicarse a la venta o negocio de materias
o productos que tengan aplicacion como fertilizantes, o que se usen
en la composicion de fertilizantes o abonos, si ellos son productos de
suelo de la manufactura filipinos, pudiendo sin embargo vender o
negociar en materim fertilizantes simples importados de los Estados
Unidos o del Extranjero;
7.ª La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda
Parte el 35 por ciento (treinta y cinco por ciento) de las utilidades
netas del negocio de abonos, liquidables el 30 de junio de cada año;
8.ª La Primera Parte facilitara la Segunda, mensualmente, la cantidad
de P300 (trescientos pesos), a cuenta de su parte de beneficios.
9.ª Durante el año 1923 la Parte concedera a la Segunda permiso para
que este se ausente de Filipinas por un periodo de tiempo que no
exceda de un año, sin menoscabo para derechos de la Segunda Parte
con arreglo a este contrato.
En testimonio de lo cual firmamos el presente en la Ciudad de Manila,
I. F., a veintisiete de abril de 1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
Primera Parte
(Fdo.) F. BASTIDA
Segunda Parte
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
Defendants denied all the allegations of the amended complaint,
except the formal allegations as to the parties, and as a special
defense to the first cause of action alleged:
1. That the defendant corporation, Menzi & Co., Inc., has been
engaged in the general merchandise business in the Philippine Islands
since its organization in October, 1921, including the importation and
sale of all kinds of goods, wares, and merchandise, and especially
simple fertilizer and fertilizer ingredients, and as a part of that
business, it has been engaged since its organization in the
manufacture and sale of prepared fertilizers for agricultural purposes,
and has used for that purpose trade-marks belonging to it;
2. That on or about November, 1921, the defendant, Menzi & CO.,
Inc., made and entered into an employment agreement with the
plaintiff, who represented that he had had much experience in the
mixing of fertilizers, to superintend the mixing of the ingredients in
the manufacture of prepared fertilizers in its fertilizer department
and to obtain orders for such prepared fertilizers subject to its
approval, for a compensation of 50 per cent of the net profits which
it might derive from the sale of the fertilizers prepared by him, and
that said Francisco Bastida worked under said agreement until April
27, 1922, and received the compensation agreed upon for his
services; that on the said 27th of April, 1922, the said Menzi & Co.,
Inc., and the said Francisco Bastida made and entered into the written
agreement, which is marked Exhibit A, and made a part of the
amended complaint in this case, whereby they mutually agreed that
the employment of the said Francisco Bastida by the said Menzi & Co.,
Inc., in the capacity stated, should be for a definite period of five years
from that date and under the other terms and conditions stated
therein, but with the understanding and agreement that the said
Francisco Bastida should receive as compensation for his said services
only 35 per cent of the net profits derived from the sale of the
fertilizers prepared by him during the period of the contract instead
of 50 per cent of such profits, as provided in his former agreement;
that the said Francisco Bastida was found to be incompetent to do
anything in relation to its said fertilizer business with the exception of
over-seeing the mixing of the ingredients in the manufacture of the
same, and on or about the month of December, 1922, the defendant,
Menzi & Inc., in order to make said business successful, was obliged
to and actually did assume the full management and direction of said
business;
3. That the accounts of the business of the said fertilizer department
of Menzi & Co., Inc., were duly kept in the regular books of its general
business, in the ordinary course thereof, up to June 30, 1923, and that
after that time and during the remainder of the period of said
agreement, for the purpose of convenience in determining the
amount of compensation due to the plaintiff under his agreement,
separate books of account for its said fertilizer business were duly,
kept in the name of 'Menzi & Co., Inc., Fertilizer', and used exclusively
for that purpose and it was mutually agreed between the said
Francisco Bastida and the said Menzi & Co., Inc., that the yearly
balances for the determination of the net profits of said business due
to the said plaintiff as compensation for his services under said
agreement would be made as of December 31st, instead of June 30th,
of each year, during the period of said agreement; that the accounts
of the business of its said fertilizer department, as recorded in its said
books, and the vouchers and records supporting the same, for each
year of said business have been duly audited by Messrs. White, Page
47 | P a g e
& Co., certified public accountants, of Manila, who, shortly after the has been collecting the accounts receivable and disposing of the
close of business at the end of each year up to and including the year stocks on hand, and there is still on hand old stock of approximately
1926, have prepared therefrom a manufacturing and profit and loss P25,000, which it has been unable to dispose of up to this time; that
account and balance sheet, showing the status of said business and as soon as possible a final liquidation and amounting of the net profits
the share of the net profits pertaining to the plaintiff as his of the business covered by said agreement for the last four months
compensation under said agreement; that after the said thereof will be made and the share thereof appertaining to the
manufacturing and profit and the loss account and balance sheet for plaintiff will be paid to him; that the plaintiff has been informed from
each year of the business of its said fertilizer department up to and time to time as to the status of the disposition of such properties, and
including the year 1926, had been prepared by the said auditors and he and his auditors have fully examined the books and records of said
certified by them, they were shown to and examined by the plaintiff, business in relation thereto.
and duly accepted, and approved by him, with full knowledge of their
contents, and as evidence of such approval, he signed his name on
each of them, as shown on the copies of said manufacturing and profit SECOND CAUSE OF ACTION
and loss account and balance sheet for each year up to and including
the year 1926, which are attached to the record of this case, and
which are hereby referred to and made a part of this amended
answer, and in accordance therewith, the said plaintiff has actually As a second cause of action plaintiff alleged:
received the portion of the net profits of its said business for those
years pertaining to him for his services under said agreement; that at
no time during the course of said fertilizer business and the I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of
liquidation thereof has the plaintiff been in any way denied access to the first cause of action.
the books and records pertaining thereto, but on the contrary, said
books and records have been subject to his inspection and
examination at any time during business hours, and even since the
II. That the examination made by the plaintiff's auditors of some of
commencement of this action, the plaintiff and his accountants,
the books of the partnership that were furnished by the defendants
Messrs. Haskins & Sells, of Manila, have been going over and
disclosed the fact that said defendants had charged to "purchases" of
examining said books and records for months and the defendant,
the business, undue interest, the amount of which the plaintiff is
Menzi & Co. Inc., through its officers, have turned over to said plaintiff
unable to determine, as he has never had at his disposal the books
and his accountant the books and records of said business and even
and vouchers necessary for that purpose, and especially, owning to
furnished them suitable accommodations in its own office to examine
the fact that the partnership constituted between the plaintiff and the
the same;
defendant Menzi & Co., Inc., never kept its own cash book, but that
its funds were maliciously included in the private funds of the
defendant entity, neither was there a separate BANK ACCOUNT of the
4. That prior to the termination of the said agreement, Exhibit A, the partnership, such account being included in the defendant's bank
defendant, Menzi & Co., Inc., duly notified the plaintiff that it would account.
not under any conditions renew his said agreement or continue his
said employment with it after its expiration, and after the termination
of said agreement of April 27, 1927, the said Menzi & Co., Inc., had
III. That from the examination of the partnership books as aforesaid,
the certified public accountants, White, Page & Co., audit the
the plaintiff estimates that the partnership between himself and the
accounts of the business of its said fertilizer department for the four
defendant Menzi & Co., Inc., has been defrauded by the defendants
months of 1927 covered by plaintiff's agreement and prepare a
by way of interest in an amount of approximately P184,432.51, of
manufacturing and profit and loss account and balance sheet of said
which 35 per cent, or P64,551.38, belongs to the plaintiff exclusively.
business showing the status of said business at the termination of said
agreement, a copy of which was shown to and explained to the
plaintiff; that at that time there were accounts receivable to be
collected for business covered by said agreement of over P100,000, Wherefore, the plaintiff prays the court to render judgment ordering
and there was guano, ashes, fine tobacco and other fertilizer the defendants jointly and severally to pay him the sum of
ingredients on hand of over P75,000, which had to be disposed of by P64,551.38, or any amount which may finally appear to be due and
Menzi & Co., Inc., or valued by the parties, before the net profits of owing from the defendants to the plaintiff upon this ground, with
said business for the period of the agreement could be determined; legal interest from the filing of the original complaint until payment.
that Menzi & Co., Inc., offered to take the face value of said accounts
and the cost value of the other properties for the purpose of
determining the profits of said business for that period, and to pay to Defendants alleged:
the plaintiff at that time his proportion of such profits on that basis,
which the plaintiff refused to accept, and being disgruntled because
the said Menzi & Co., Inc., would not continue him in its service, the
1. That they repeat and make a part of this special defense paragraphs
said plaintiff commenced this action, including therein not only Menzi
1, 2, 3 and 4, of the special defense to the first cause of action in this
& Co. Inc., but also it managers J.M. Menzi and P.C. Schlobohm,
amended answer;
wherein he knowingly make various false and malicious allegations
against the defendants; that since that time the said Menzi & Co., Inc.,

48 | P a g e
2. That under the contract of employment, Exhibit A, of the amended
complaint, the defendant, Menzi & Co., Inc., only undertook and
agreed to facilitate financial aid in carrying on the said fertilizer
business, as it had been doing before the plaintiff was employed
under the said agreement; that the said defendant, Menzi & Co., Inc.,
in the course of the said business of its fertilizer department, opened
letters of credit through the banks of Manila, accepted and paid drafts
drawn upon it under said letters of credit, and obtained loans and
advances of moneys for the purchase of materials to be used in mixing
and manufacturing its fertilizers and in paying the expenses of said
business; that such drafts and loans naturally provided for interest at
the banking rate from the dates thereof until paid, as is the case in all,
such business enterprises, and that such payments of interest as were
actually made on such drafts, loans and advances during the period
of the said employment agreement constituted legitimate expenses
of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
cause of action.
II. That under the terms of the contract Exhibit A, neither the
defendants J.M. Menzi and P.C. Schlobohm, nor the defendant Menzi
& Co., Inc., had a right to collect for itself or themselves any amount
whatsoever by way of salary for services rendered to the partnership
between the plaintiff and the defendant, inasmuch as such services
were compensated with the 65% of the net profits of the business
constituting their share.
III. That the plaintiff has, on his on account and with his own money,
paid all the employees he has placed in the service of the partnership,
having expended for their account, during the period of the contract,
over P88,000, without ever having made any claim upon the
defendants for this sum because it was included in the compensation
of 35 per cent which he was to receive in accordance with the contract
Exhibit A.
IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied
with collecting undue and excessive salaries for themselves, have
made the partnership, or the fertilizer business, pay the salaries of a
number of the employees of the defendant Menzi & Co., Inc.
V. That under this item of undue salaries the defendants have
appropriated P43,920 of the partnership funds, of which 35 per cent,
or P15,372 belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render judgment ordering
the defendants to pay jointly and severally to the plaintiff the amount
of P15,372, with legal interest from the date of the filing of the
original complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4 of the special defense the first cause of action in this
amended answer;
2. That the defendant, Menzi & Co., Inc., through its manager,
exclusively managed and conducted its said fertilizer business, in
which the plaintiff was to receive 35 percent of the net profits as
compensation for this services, as hereinbefore alleged, from on or
about January 1, 1923, when its other departments had special
experienced Europeans in charge thereof, who received not only
salaries but also a percentage of the net profits of such departments;
that its said fertilizer business, after its manager took charge of it,
became very successful, and owing to the large volume of business
transacted, said business required great deal of time and attention,
and actually consumed at least one-half of the time of the manager
and certain employees of Menzi & Co., Inc., in carrying it on; that the
said Menzi & Co., furnished office space, stationery and other
incidentals, for said business, and had its employees perform the
duties of cashiers, accountants, clerks, messengers, etc., for the same,
and for that reason the said Menzi & Co., Inc., charged each year, from
and after 1922, as expenses of said business, which pertained to the
fertilizer department, as certain amount as salaries and wages to
cover the proportional part of the overhead expenses of Menzi & Co.,
Inc.; that the same method is followed in each of the several
departments of the business of Menzi & Co., Inc., that each and every
year from and after 1922, a just proportion of said overhead expenses
were charged to said fertilizer departments and entered on the books
thereof, with the knowledge and consent of the plaintiff, and included
in the auditors' reports, which were examined, accepted and
approved by him, and he is now estopped from saying that such
expenses were not legitimate and just expenses of said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I. That he hereby reproduces paragraph I, II, III, IV, and V of the first
cause of action.
II. That the defendant Menzi & Co., Inc., through the defendant J. M.
Menzi and P. C. Schlobohm, has paid, with the funds of the
partnership between the defendant entity and the plaintiff, the
income tax due from said defendant entity for the fertilizer business,
thereby defrauding the partnership in the amount of P10,361.72 of
49 | P a g e
which 35 per cent belongs exclusively to the plaintiff, amounting to
P3,626.60.
III. That the plaintiff has, during the period of the contract, paid with
his own money the income tax corresponding to his share which
consists in 35 per cent of the profits of the fertilizer business,
expending about P5,000 without ever having made any claim for
reimbursement against the partnership, inasmuch as it has always
been understood among the partners that each of them would pay
his own income tax.
Wherefore, the plaintiff prays the court to order the defendants
jointly and severally to pay the plaintiff the sum of P3,362.60, with
legal interest from the date of the filing of the original complaint until
its payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to
and did make return to the Government of the Philippine Islands each
year during the period of the agreement, Exhibit A, of the income of
its whole business, including its fertilizer department; that the
proportional share of such income taxes found to be due on the
business of the fertilizer department was charged as a proper and
legitimate expense of that department, in the same manner as was
done in the other departments of its business; that inasmuch as the
agreement with the plaintiff was an employment agreement, he was
required to make his own return under the Income Tax Law and to
pay his own income taxes, instead of having them paid at the source,
as might be done under the law, so that he would be entitled to the
personal exemptions allowed by the law; that the income taxes paid
by the said Menzi & Co., Inc., pertaining to the business, were duly
entered on the books of that department, and included in the
auditors' reports hereinbefore referred to, which reports were
examined, accepted and approved by the plaintiff, with full
knowledge of their contents, and he is now estopped from saying that
such taxes are not a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV, and V of the first
cause of action.
II. That the plaintiff has discovered that the defendants Menzi & Co.,
Inc., had been receiving, during the period of the contract Exhibit A,
from foreign firms selling fertilizing material, a secret commission
equivalent to 5 per cent of the total value of the purchases of
fertilizing material made by the partnership constituted between the
plaintiff and the defendant Menzi Co., Inc., and that said 5 per cent
commission was not entered by the defendants in the books of the
business, to the credit and benefit of the partnership constituted
between the plaintiff and the defendant, but to the credit of the
defendant Menzi Co., Inc., which appropriated it to itself.
III. That the exact amount, or even the approximate amount of the
fraud thus suffered by the plaintiff cannot be determined, because
the entries referring to these items do not appear in the partnership
books, although the plaintiff believes and alleges that they do appear
in the private books of the defendant Menzi & Co., Inc., which the
latter has refused to furnish, notwithstanding the demands made
therefore by the auditors and the lawyers of the plaintiff.
IV. That taking as basis the amount of the purchases of some fertilizing
material made by the partnership during the first four years of the
contract Exhibit A, the plaintiff estimates that this 5 per cent
commission collected by the defendant Menzi Co., Inc., to the damage
and prejudice of the plaintiff, amounts to P127,375.77 of which 35 per
cent belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants to
pay jointly and severally to the plaintiff the amount of P44,581.52, or
the exact amount owed upon this ground, after both parties have
adduced their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraph
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That the defendant, Menzi & Co., Inc., did have during the period
of said agreement, Exhibit A, and has now what is called a
"Propaganda Agency Agreement" which the Deutsches Kalesyndikat,
G.M.B., of Berlin, which is a manufacturer of potash, by virtue of
which said Menzi & Co., Inc., was to receive for its propaganda work
in advertising and bringing about sales of its potash a commission of
5 per cent on all orders of potash received by it from the Philippine
Islands; that during the period of said agreement, Exhibit A, orders
were sent to said concern for potash, through C. Andre & Co., of
Hamburg, as the agent of the said Menzi & Co., Inc., upon which the
said Menzi & Co., Inc., received a 5 per cent commission, amounting
in all to P2,222.32 for the propaganda work which it did for said firm
in the Philippine Islands; that said commissioners were not in any
sense discounts on the purchase price of said potash, and have no
relation to the fertilizer business of which the plaintiff was to receive
50 | P a g e
a share of the net profits for his services, and consequently were not
credited to that department;
3. That in going over the books of Menzi Co., Inc., it has been found
that there are only two items of commissions, which were received
from the United Supply Co., of San Francisco, in the total of sum
$66.51, which through oversight, were not credited on the books of
the fertilizer department of Menzi & Co., Inc., but due allowance has
now been given to the department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV and V, of the first
cause of action.
II. That the defendant Menzi Co., Inc., in collusion with and through
the defendants J.M. Menzi and P.C. Schlobohm and their assistants,
has tampered with the books of the business making fictitious
transfers in favor of the defendant Menzi & Co., Inc., of merchandise
belonging to the partnership, purchased with the latter's money, and
deposited in its warehouses, and then sold by Menzi & Co., Inc., to
third persons, thereby appropriating to itself the profits obtained
from such resale.
III. That it is impossible to ascertain the amount of the fraud suffered
by the plaintiff in this respect as the real amount obtained from such
sales can only be ascertained from the examination of the private
books of the defendant entity, which the latter has refused to permit
notwithstanding the demand made for the purpose by the auditors
and the lawyers of the plaintiff, and no basis of computation can be
established, even approximately, to ascertain the extent of the fraud
sustained by the plaintiff in this respect, by merely examining the
partnership books.
Wherefore, the plaintiff prays the court to order the defendants J.M.
Menzi and P.C. Schlobohm, to make a sworn statement as to all the
profits received from the sale to third persons of the fertilizers
pertaining to the partnership, and the profits they have appropriated,
ordering them jointly and severally to pay 35 per cent of the net
amount, with legal interest from the filing of the original complaint
until the payment thereof.
Defendant alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer:
2. That under the express terms of the employment agreement,
Exhibit A, the defendant, Menzi & Co., Inc., had the right to import
into the Philippine Islands in the course of its fertilizer business and
sell fro its exclusive account and benefit simple fertilizer ingredients;
that the only materials imported by it and sold during the period of
said agreement were simple fertilizer ingredients, which had nothing
whatever to do with the business of mixed fertilizers, of which the
plaintiff was to receive a share of the net profits as a part of his
compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
cause of action.
II. That during the existence of the contract Exhibit A, the defendant
Menzi & Co., Inc., for the account of the partnership constituted
between itself and the plaintiff, and with the latter's money,
purchased from a several foreign firms various simple fertilizing
material for the use of the partnership.
III. That in the paid invoices for such purchases there are charged,
besides the cost price of the merchandise, other amounts for freight,
insurance, duty, etc., some of which were not entirely thus spent and
were later credited by the selling firms to the defendant Menzi & Co.,
Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion
with the defendants J.M. Menzi and P.C. Schlobohm upon receipt of
the credit notes remitted by the selling firms of fertilizing material, for
rebates upon freight, insurance, duty, etc., charged in the invoice but
not all expended, did not enter them upon the books to the credit of
the partnership constituted between the defendant and the plaintiff,
but entered or had them entered to the credit on Menzi & Co., Inc.,
thereby defrauding the plaintiff of 35 per cent of the value of such
reductions.
V. That the total amount, or even the approximate amount of this
fraud cannot be ascertained without an examination of the private
books of Menzi & Co., Inc., which the latter has refused to permit
notwithstanding the demand to this effect made upon them by the
auditors and the lawyers of the plaintiff.
51 | P a g e
Wherefore, the plaintiff prays the court to order the defendants J.M.
Menzi and P.C. Schlobohm, to make a sworn statement as to the total
amount of such rebates, and to sentence the defendants to pay the
plaintiff jointly and severally 35 per cent of the net amount.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer:
2. That during the period of said employment agreement, Exhibit A,
the defendant, Menzi & Co., Inc., received from its agent, C. Andre &
Co., of Hamburg, certain credits pertaining to the fertilizer business in
the profits of which the plaintiff was interested, by way of refunds of
German Export Taxes, in the total sum of P1,402.54; that all of
department as received, but it has just recently been discovered that
through error an additional sum of P216.22 was credited to said
department, which does not pertain to said business in the profits of
which the plaintiff is interested.
EIGHT CAUSE OF ACTION
A eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV and V of the first
cause of action.
II. That on or about April 21, 1927, that is, before the expiration of the
contract Exhibit A of the complaint, the defendant Menzi & Co., Inc.,
acting as manager of the fertilizer business constituted between said
defendant and the plaintiff, entered into a contract with the
Compañia General de Tabacos de Filipinas for the sale of said entity
of three thousand tons of fertilizers of the trade mark "Corona No. 1",
at the rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be
delivered, as they were delivered, according to information received
by the plaintiff, during the months of November and December, 1927,
and January, February, March, and April, 1928.
III. That both the contract mentioned above and the benefits derived
therefrom, which the plaintiff estimates at P90,000, Philippine
currency, belongs to the fertilizer business constituted between the
plaintiff and the defendant, of which 35 per cent, or P31,500, belongs
to said plaintiff.
IV. That notwithstanding the expiration of the partnership contract
Exhibit A, on April 27, 1927, the defendants have not rendered a true
accounting of the profits obtained by the business during the last four
months thereof, as the purposed balance submitted to the plaintiff
was incorrect with regard to the inventory of merchandise,
transportation equipment, and the value of the trade marks, for
which reason such proposed balance did not represent the true status
of the business of the partnership on April 30, 1927.
V. That the proposed balance submitted to the plaintiff with reference
to the partnership operations during the last four months of its
existence, was likewise incorrect, inasmuch as it did not include the
profit realized or to be realized from the contract entered into with
the Compañia General de Tabacos de Filipinas, notwithstanding the
fact that this contract was negotiated during the existence of the
partnership, and while the defendant Menzi & Co., Inc., was the
manager thereof.
VI. That the defendant entity now contends that the contract entered
into with the Compañia General de Tabacos de Filipinas belongs to it
exclusively, and refuses to give the plaintiff his share consisting in 35
per cent of the profits produced thereby.
Wherefore, the plaintiff prays the honorable court to order the
defendants to render a true and detailed account of the business
during the last four months of the existence of the partnership, i. e.,
from January 1, 1927 to April 27, 1927, and to sentence them likewise
to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That the said order for 3,000 tons of mixed fertilizer, received by
Menzi & Co., Inc., from the Compañia General de Tabacos Filipinas on
April 21, 1927, was taken by it in the regular course of its fertilizer
business, and was to be manufactured and delivered in December,
1927, and up to April, 1928; that the employment agreement of the
plaintiff expired by its own terms on April 27, 1927, and he has not
been in any way in the service of the defendant, Menzi & Co., Inc.,
since that time, and he cannot possibly have any interest in the
fertilizers manufactured and delivered by the said Menzi & Co., Inc.,
after the expiration of his contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
52 | P a g e
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
cause of action.
II. That during the period of the contract Exhibit A, the partnership
constituted thereby registered in the Bureau of Commerce and
Industry the trade marks "CORONA NO. 1", CORONA NO. 2",
"ARADO", and "HOZ", the plaintiff and the defendant having by their
efforts succeeded in making them favorably known in the market.
III. That the plaintiff and the defendant, laboring jointly, have
succeeded in making the fertilizing business a prosperous concern to
such an extent that the profits obtained from the business during the
five years it has existed, amount to approximately P1,000,000,
Philippine currency.
IV. That the value of the good will and the trade marks of a business
of this nature amounts to at least P1,000,000, of which sum 35 per
cent belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of the contract Exhibit A, the
defendant entity, notwithstanding and in spite of the plaintiff's
insistent opposition, has assumed the charge of liquidating the
fertilizing business, without having rendered a monthly account of the
state of the liquidation, as required by law, thereby causing the
plaintiff damages.
VI. That the damages sustained by the plaintiff, as well as the amount
of his share in the remaining property of the plaintiff, and may only
be truly and correctly ascertained by compelling the defendants J. M.
Menzi and P. C. Schlobohm to declare under oath and explain to the
court in detail the sums obtained from the sale of the remaining
merchandise, after the expiration of the partnership contract.
VII. That after the contract Exhibit A had expired, the defendant
continued to use for its own benefit the good-will and trade marks
belonging to the partnership, as well as its transportation equipment
and other machinery, thereby indicating its intention to retain such
good-will, trade marks, transportation equipment and machinery, for
the manufacture of fertilizers, by virtue of which the defendant is
bound to pay the plaintiff 35 per cent of the value of said property.
VIII. That the true value of the transportation equipment and
machinery employed in the preparation of the fertilizers amounts of
P20,000, 35 per cent of which amount to P7,000.
IX. That the plaintiff has repeatedly demanded that the defendant
entity render a true and detailed account of the state of the
liquidation of the partnership business, but said defendants has
ignored such demands, so that the plaintiff does not, and this date,
know whether the liquidation of the business has been finished, or
what the status of it is at present.
Wherefore, the plaintiff prays the Honorable Court:
1. To order the defendants J.M. Menzi and P.C. Schlobohm to render
a true and detailed account of the status of business in liquidation,
that is, from April 28, 1927, until it is finished, ordering all the
defendants to pay the plaintiff jointly and severally 35 per cent of the
net amount.
2. To order the defendants to pay the plaintiff jointly and severally the
amount of P350,000, which is 35 per cent of the value of the goodwill
and the trade marks of the fertilizer business;
3. To order the defendants to pay the plaintiff jointly and severally the
amount of P7,000 which is 35 per cent of the value of the
transportation equipment and machinery of the business; and
4. To order the defendants to pay the costs of this trial, and further,
to grant any other remedy that this Honorable Court may deem just
and equitable.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That the good-will, if any, of said fertilizer business of the
defendant, Menzi & Co., Inc., pertains exclusively to it, and the
plaintiff can have no interest therein of any nature under his said
employment agreement; that the trade-marks mentioned by the
plaintiff in his amended complaint, as a part of such good-will,
belonged to and have been used by the said Menzi & Co., Inc., in its
fertilizer business from and since its organization, and the plaintiff can
have no rights to or interest therein under his said employment
agreement; that the transportation equipment pertains to the
fertilizer department of Menzi & Co., Inc., and whenever it has been
used by the said Menzi & Co., Inc., in its own business, due and
reasonable compensation for its use has been allowed to said
business; that the machinery pertaining to the said fertilizer business
was destroyed by fire in October, 1926, and the value thereof in the
sum of P20,000 was collected from the Insurance Company, and the
plaintiff has been given credit for 35 per cent of that amount; that the
present machinery used by Menzi & Co., Inc., was constructed by it,
and the costs thereof was not charged to the fertilizer department,
and the plaintiff has no right to have it taken into consideration in
arriving at the net profits due to him under his said employment
agreement.
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The dispositive part of the decision of the trial court is as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered into by the parties, evidenced
by Exhibit A, as a contract of general regular commercial partnership,
wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the
industrial partner;
(b) Holding the plaintiff, by the mere fact of having signed and
approved the balance sheets, Exhibits C to C-8, is not estopped from
questioning the statements of the accounts therein contained;
(c) Ordering Menzi & Co., Inc., upon the second ground of action, to
pay the plaintiff the sum of P 60,385.67 with legal interest from the
date of the filing of the original complaint until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay
the plaintiff the sum of P3,821.41, with legal interest from the date of
the filing of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of
action, to pay the plaintiff the sum of P6,578.38 with legal interest
from January 1, 1929, the date of the liquidation of the fertilizer
business, until paid;
(j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay
the plaintiff the sum of P196,709.20 with legal interest from the date
of the filing of the original complaint until paid;
(k) Ordering the said defendant corporation, in view of the plaintiff's
share of the profits of the business accruing from January 1, 1927 to
December 31, 1928, to pay the plaintiff 35 per cent of the net balance
shown in Exhibits 51 and 51-A, after deducting the item of P2,410 for
income tax, and any other sum charged for interest under the entry
"Purchases";
(l) Ordering the defendant corporation, in connection with the final
liquidation set in Exhibit 52 and 52-A, to pay the plaintiff the sum of
P17,463.54 with legal interest from January 1, 1929, until fully paid;
(m) Dismissing the case with reference to the other defendants, J. M.
Menzi and P. C. Schlobohm; and
(n) Menzi & Co., Inc., shall pay the costs of the trial.
The appellant makes the following assignment of error:
I. The trial court erred in finding and holding that the contract Exhibit
A constitutes a regular collective commercial copartnership between
the defendant corporation, Menzi & Co., Inc., and the plaintiff,
Francisco Bastida, and not a contract of employment.
II. The trial court erred in finding and holding that the defendant,
Menzi & Co., Inc., had wrongfully charged to the fertilizer business in
question the sum of P10,918.33 as income taxes partners' balances,
foreign drafts, local drafts, and on other credit balances in the sum of
P172,530.49, and that 35 per cent thereof, or the sum of P60,358.67,
with legal interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
III. The trial court erred finding and holding that the defendant, Menzi
& Co., Inc., had wrongfully charged to the fertilizer business in
question the sum of P10,918.33 as income taxes for the years 1923,
1924, 1925 and 1926, and that the plaintiff is entitled to 35 per cent
thereof, or the sum of P3,821.41, with legal interest thereon from the
date of filing his complaint, and in disallowing the item of P2,410
charged as income tax in the liquidation in Exhibits 51 and 51 A for
the period from January 1 to April 27, 1927.
IV. The trial court erred in refusing to find and hold under the
evidence in this case that the contract, Exhibit A was daring the whole
period thereof considered by the parties and performed by them as a
contract of employment in relation to the fertilizer business of the
defendant, and that the accounts of said business were kept by the
defendant, Menzi & Co., Inc., on that theory with the knowledge and
consent of the plaintiff, and that at the end of each year for five years
a balance sheet and profit and loss statement of said business were
prepared from the books of account of said business on the same
theory and submitted to the plaintiff, and that each year said balance
sheet and profit and loss statement were examined, approved and
signed by said contract in accordance therewith with full knowledge
of the manner in which said business was conducted and the charges
for interest and income taxes made against the same and that by
54 | P a g e
reason of such facts, the plaintiff is now estopped from raising any
question as to the nature of said contract or the propriety of such
charges.
V. The trial court erred in finding and holding that the plaintiff,
Francisco Bastida, is entitled to 35 per cent of the net profits in the
sum of P18,795.38 received by the defendant, Menzi & Co., Inc., from
its contract with the Compañia General de Tabacos de Filipinas, or the
sum of P6.578.38, with legal interest thereon from January 1, 1929,
the date upon which the liquidation of said business was terminated.
VI. The trial court erred in finding and holding that the value of the
good-will of the fertilizer business in question was P562,312, and that
the plaintiff, Francisco Bastida, was entitled to 35 per cent of such
valuation, or the sum of P196,709.20, with legal interest thereon from
the date of filing his complaint.
VII. The trial court erred in rendering judgment in favor of the plaintiff
and against defendant, Menzi & Co., Inc., (a) on the second cause of
action, for the sum of P60,385.67, with legal interest thereon from
the date of filing the complaint; (b) on the fourth cause of action, for
the sum of P3,821.41, with legal interest thereon from the date of
filing the complaint; (c) on the eight cause of action, for the sum of
P6,578.38, with legal interest thereon from January 1, 1929; and (d)
on the ninth cause of action, for the sum of P196,709.20, with legal
interest thereon from the date of filing the original complaint; and (e)
for the costs of the action, and in not approving the final liquidation
of said business, Exhibits 51 and 51-A and 52 and 52-A, as true and
correct, and entering judgment against said defendant only for the
amounts admitted therein as due the plaintiff with legal interest, with
the costs against the plaintiff.
VIII. The trial court erred in overruling the defendants' motion for a
new trial.
It appears from the evidence that the defendants corporation was
organized in 1921 for purpose of importing and selling general
merchandise, including fertilizers and fertilizer ingredients. It appears
through John Bordman and the Menzi-Bordman Co. the good-will,
trade-marks, business, and other assets of the old German firm of
Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks
and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on
this fertilizer business from 1910 until that firm was taken over the
Alien Property Custodian in 1917. Among the trade-marks thus
acquired by the appellant were those known as the "ARADO", "HOZ",
and "CORONA". They were registered in the Bureau of Commerce and
Industry in the name of Menzi & Co. The trade marks "ARADO" and
"HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its
mixed fertilizers, and the trade mark "CORONA" had been used in its
other business. The "HOZ" trade-mark was used by John Bordman and
the Menzi-Bordman Co. in the continuation of the fertilizer business
that had belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided into several different
departments, each of which was in charge of a manager, who received
a fixed salary and a percentage of the profits. The corporation had to
borrow money or obtain credits from time to time and to pay interest
thereon. The amount paid for interest was charged against the
department concerned, and the interest charges were taken into
account in determining the net profits of each department. The
practice of the corporation was to debit or credit each department
with interest at the bank rate on its daily balance. The fertilizer
business of Menzi & Co., Inc., was carried on in accordance with this
practice under the "Sundries Department" until July, 1923, and after
that as a separate department.
In November, 1921, the plaintiff, who had had some experience in
mixing and selling fertilizer, went to see Toehl, the manager of the
sundries department of Menzi & Co., Inc., and told him that he had a
written contract with the Philippine Sugar Centrals Agency for 1,250
tons of mixed fertilizers, and that he could obtain other contracts,
including one from the Calamba Sugar Estates for 450 tons, but the
he did not have the money to buy the ingredients to fill the order and
carry on the on the business. He offered to assign to Menzi & Co., Inc.,
his contract with the Philippine Sugar Centrals Agency and to
supervise the mixing of the fertilizer and to obtain other orders for
fifty per cent of the net profits that Menzi & Co., might derive
therefrom. J.M. Menzi, the general manager of Menzi & Co., accepted
plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his contract
with the Sugar Centrals Agency, and the defendant corporation
proceeded to fill the order. Plaintiff supervised the mixing of the
fertilizer.
On January 10, 1922 the defendant corporation at plaintiff's request
gave him the following letter, Exhibit B:
MANILA, 10 de enero de 1922
Sr. FRANCISCO BASTIDA
Manila
MUY SR. NUESTRO: Interin formalizamos el contrato que, en
principio, tenemos convenido para la explotacion del negocio de
abono y fertilizantes, por la presente venimos en confirmar su
derecho de 50 por ciento de las untilidades que se deriven del
contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250
tonel.) y del contrato con la Calamba Sugar Estates, asi como de
cuantos contratos se cierren con definitiva de nuestro contrato
mutuo, lo que formalizacion definitiva de nuestro contrato mutuo, lo
que hacemos para garantia y seguridad de Vd.
MENZI & CO.,
Por (Fdo.) W. TOEHL
55 | P a g e

Menzi & Co., Inc., continued to carry on its fertilizer business under
this arrangement with the plaintiff. It ordered ingredients from the
United States and other countries, and the interest on the drafts for
the purchase of these materials was changed to the business as a part
of the cost of the materials. The mixed fertilizers were sold by Menzi
& Co., Inc., between January 19 and April 1, 1922 under its "CORONA"
brand. Menzi & Co., Inc., had only one bank account for its whole
business. The fertilizer business had no separate capital. A fertilizer
account was opened in the general ledger, and interest at the rate
charged by the Bank of the Philippine Islands was debited or credited
to that account on the daily balances of the fertilizer business. This
was in accordance with appellant's established practice, to which the
plaintiff assented.
On or about April 24, 1922 the net profits of the business carried on
under the oral agreement were determined by Menzi & Co., Inc., after
deducting interest charges, proportional part of warehouse rent and
salaries and wages, and the other expenses of said business, and the
plaintiff was paid some twenty thousand pesos in full satisfaction of
his share of the profits.
Pursuant to the aforementioned verbal agreement, confirmed by the
letter, Exhibit B, the defendant corporation April 27, 1922 entered a
written contract with the plaintiff, marked Exhibit A, which is the basis
of the present action.
The fertilizer business was carried on by Menzi & Co., Inc., after the
execution of Exhibit A in practically the same manner as it was prior
thereto. The intervention of the plaintiff was limited to supervising
the mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were registered in
the Bureau of Commerce & Industry in the name of Menzi & Co., Inc.,
and the fees were paid by that company. They were not changed to
the fertilizer business, in which the plaintiff was interested. Only the
fees for registering the formulas in the Bureau of Science were
charged to the fertilizer business, and the total amount thereof was
credited to this business in the final liquidation on April 27, 1927.
On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc.,
to furnish it all the stems and scraps to tobacco that it might need for
its fertilizer business either in the Philippine Islands or for export to
other countries. This contract is rendered to in the record as the
"Vastago Contract". Menzi & Co., Inc., advanced the plaintiff, paying
the salaries of his employees, and other expenses in performing his
contract.
White, Page & Co., certified public accountants, audited the books of
Menzi & Co., Inc., every month, and at the end of each year they
prepared a balance sheet and a profit and loss statement of the
fertilizer business. These statements were delivered to the plaintiff
for examination, and after he had had an opportunity of verifying
them he approved them without objection and returned them to
Menzi & Co., Inc.
Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of
the net profits of the fertilizer business the following amounts:
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98
Total . . . . . . . . . . . . . . . . . . . .
P196,483.92
To this amount must be added plaintiff's share of the net profits from
January 1 to April 27, 1927, amounting to P34,766.87, making a total
of P231,250.79.
Prior to the expiration of the contract, Exhibit A, the manager of
Menzi & Co. Inc., notified the plaintiff that the contract for his services
would not be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer
department of Menzi & Co., Inc., had on hand materials and
ingredients and two Ford trucks of the book value of approximately
P75,000, and accounts receivable amounting to P103,000. There were
claims outstanding and bills to pay. Before the net profits could be
finally determined, it was necessary to dispose of the materials and
equipment, collect the outstanding accounts for Menzi & Co., Inc.,
prepared a balance sheet and a profit and loss statement for the
period from January 1 to April 27, 1927 as a basis of settlement, but
the plaintiff refused to accept it, and filed the present action.
Menzi & Co., Inc., then proceeded to liquidate fertilizer business in
question. In October, 1927 it proposed to the plaintiff that the old and
damaged stocks on hand having a book value of P40,000, which the
defendant corporation had been unable to dispose of, be sold at
public or private sale, or divided between the parties. The plaintiff
refused to agree to this. The defendant corporation then applied to
the trial court for an order for the sale of the remaining property at
public auction, but apparently the court did not act on the petition.
The old stocks were taken over by Menzi & Co., Inc., and the final
liquidation of the fertilizer business was completed in December,
1928 and a final balance sheet and a profit and loss statement were
submitted to the plaintiff during the trial. During the liquidation the
books of Menzi & Co., Inc., for the whole period of the contract in
56 | P a g e
question were reaudited by White, Page & Co.., certain errors of
bookkeeping were discovered by them. After making the corrections
they found the balance due the plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson,
to examine the books and vouchers of Menzi & Co. Thompson
assumed the plaintiff and Menzi & Co., Inc., to be partners, and that
Menzi & Co., Inc., was obliged to furnish free of charge all the capital
the partnership should need. He naturally reached very different
conclusions from those of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's assignment of error.
After considering the evidence and the arguments of counsel, we are
unanimously of the opinion that under the facts of this case the
relationship established between Menzi & Co. and by the plaintiff was
to receive 35 per cent of the net profits of the fertilizer business of
Menzi & Co., Inc., in compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions of the contract nor the
conduct of the parties prior or subsequent to its execution justified
the finding that it was a contract of copartnership. Exhibit A, as
appears from the statement of facts, was in effect a continuation of
the verbal agreement between the parties, whereby the plaintiff
worked for the defendant corporation for one-half of the net profits
derived by the corporation from certain fertilizer contracts. Plaintiff
was paid his share of the profits from those transactions after Menzi
& Co., Inc., had deducted the same items of expense which he now
protests. Plaintiff never made any objection to defendant's manner of
keeping the accounts or to the charges. The business was continued
in the same manner under the written agreement, Exhibit A, and for
four years the plaintiff never made any objection. On the contrary he
approved and signed every year the balance sheet and the profit and
loss statement. It was only when plaintiff's contract was about to
expire and the defendant corporation had notified him that it would
not renew it that the plaintiff began to make objections.
The trial court relied on article 116 of the Code of Commerce, which
provides that articles of association by which two or more persons
obligate themselves to place in a common fund any property,
industry, or any of these things, in order to obtain profit, shall be
commercial, no matter what its class may be, provided it has been
established in accordance with the provisions of this Code; but in the
case at bar there was no common fund, that is, a fund belonging to
the parties as joint owners or partners. The business belonged to
Menzi & Co., Inc. The plaintiff was working for Menzi & Co., Inc.
Instead of receiving a fixed salary or a fixed salary and a small
percentage of the net profits, he was to receive 35 per cent of the net
profits as compensation for his services. Menzi & Co., Inc., was to
advanced him P300 a month on account of his participation in the
profits. It will be noted that no provision was made for reimbursing
Menzi & Co., Inc., in case there should be no net profits at the end of
the year. It is now well settled that the old rule that sharing profits as
profits made one a partner is overthrown. (Mechem, second edition,
p. 89.)
It is nowhere stated in Exhibit A that the parties were establishing a
partnership or intended to become partners. Great stress in laid by
the trial judge and plaintiff's attorneys on the fact that in the sixth
paragraph of Exhibit A the phrase "en sociedad con" is used in
providing that defendant corporation not engage in the business of
prepared fertilizers except in association with the plaintiff (en
sociedad con). The fact is that en sociedad con as there used merely
means en reunion con or in association with, and does not carry the
meaning of "in partnership with".
The trial judge found that the defendant corporation had not always
regarded the contract in question as an employment agreement,
because in its answer to the original complaint it stated that before
the expiration of Exhibit A it notified the plaintiff that it would not
continue associated with him in said business. The trial judge
concluded that the phrase "associated with", used by the defendant
corporation, indicated that it regarded the contract, Exhibit A, as an
agreement of copartnership.
In the first place, the complaint and answer having been superseded
by the amended complaint and the answer thereto, and the answer
to the original complaint not having been presented in evidence as an
exhibit, the trial court was not authorized to take it into account.
"Where amended pleadings have been filed, allegations in the original
pleadings are held admissible, but in such case the original pleadings
can have no effect, unless formally offered in evidence." (Jones on
Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil., 148.)
In the second place, although the word "associated" may be related
etymologically to the Spanish word "socio", meaning partner, it does
not in its common acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant
corporation obligated itself to pay to the plaintiff 35 per cent of the
net profits of the fertilizer business, to advance to him P300 a month
on account of his share of the profits, and to grant him permission
during 1923 to absent himself from the Philippines for not more than
one year are utterly incompatible with the claim that it was the
intention of the parties to form a copartnership. Various other
reasons for holding that the parties were not partners are advanced
in appellant's brief. We do not deem it necessary to discuss them
here. We merely wish to add that in the Vastago contract, Exhibit A,
the plaintiff clearly recognized Menzi & Co., Inc., as the owners of the
fertilizer business in question.
As to the various items of the expense rejected by the trial judge, they
were in our opinion proper charges and erroneously disallowed, and
this would true even if the parties had been partners. Although Menzi
& Co., Inc., agreed to furnish the necessary financial aid for the
fertilizer business, it did not obligate itself to contribute any fixed sum
as capital or to defray at its own expense the cost of securing the
necessary credit. Some of the contentions of the plaintiff and his
expert witness Thompson are so obviously without merit as not to
merit serious consideration. For instance, they objected to the
57 | P a g e
interest charges on draft for materials purchased abroad. Their
contention is that the corporation should have furnished the money
to purchase these materials for cash, overlooking the fact that the
interest was added to the cost price, and that the plaintiff was not
prejudiced by the practice complained of. It was also urged, and this
seems to us the height of absurdity, that the defendant corporation
should have furnished free of charge such financial assistance as
would have made it unnecessary to discount customers' notes,
thereby enabling the business to reap the interest. In other words, the
defendant corporation should have enabled the fertilizer department
to do business on a credit instead of a cash basis.
The charges now complained of, as we have already stated, are the
same as those made under the verbal agreement, upon the
termination of which the parties made a settlement; the charges in
question were acquiesced in by the plaintiff for years, and it is now
too late for him to contest them. The decision of this court in the case
of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point. A portion
of the syllabus of that case reads as follows:
1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF
PARTIES. — Acts done by the parties to a contract in the course of its
performance are admissible in evidence upon the question of its
meaning, as being their own contemporaneous interpretation of its
terms.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. — In an action
upon a contract containing a provision a doubtful application it
appeared that under a similar prior contract the parties had, upon the
termination of said contract, adjusted their rights and made a
settlement in which the doubtful clause had been given effect in
conformity with the interpretation placed thereon by one of the
parties. Held: That this action of the parties under the prior contract
could properly be considered upon the question of the interpretation
of the same clause in the later contract.
3. ID.; ID.; ACQUIESCENCE. — Where one of the parties to a contract
acquiesces in the interpretation placed by the other upon a provision
of doubtful application, the party so acquiescing is bound by such
interpretation.
4. ID.; ID.; ILLUSTRATION. — One of the parties to a contract, being
aware at the time of the execution thereof that the other placed a
certain interpretation upon a provision of doubtful application,
nevertheless proceeded, without raising any question upon the point,
to perform the services which he was bound to render under the
contract. Upon the termination of the contract by mutual consent a
question was raised as to the proper interpretation of the doubtful
provision. Held: That the party raising such question had acquiesced
in the interpretation placed upon the contract by the other party and
was bound thereby.
The trial court held that the plaintiff was entitled to P6,578.38 or 35
per cent of the net profits derived by Menzi & Co., Inc., from its
contract for fertilizers with the Tabacalera. This finding in our opinion
is not justified by the evidence. This contract was obtained by Menzi
& Co., Inc., shortly before plaintiff's contract with the defendant
corporation expired. Plaintiff tried to get the Tabacalera contract for
himself. When this contract was filled, plaintiff had ceased to work for
Menzi & Co., Inc., and he has no right to participate in the profits
derived therefrom.
Appellant's sixth assignment of error is that the trial court erred in
finding the value of the good-will of the fertilizer business in question
to be P562,312, and that the plaintiff was entitled to 35 per cent
thereof or P196,709.20. In reaching this conclusion the trial court
unfortunately relied on the opinion of the accountant, Vernon
Thompson, who assumed, erroneously as we have seen, that the
plaintiff and Menzi & Co., Inc., were partners; but even if they had
been partners there would have been no good-will to dispose of. The
defendant corporation had a fertilizer business before it entered into
any agreement with the plaintiff; plaintiff's agreement was for a fixed
period, five years, and during that time the business was carried on in
the name of Menzi & Co., Inc., and in Menzi & Co.'s warehouses and
after the expiration of plaintiff's contract Menzi & Co., Inc., continued
its fertilizer business, as it had a perfect right to do. There was really
nothing to which any good-will could attach. Plaintiff maintains,
however, that the trade-marks used in the fertilizer business during
the time that he was connected with it acquired great value, and that
they have been appropriated by the appellant to its own use. That
seems to be the only basis of the alleged good-will, to which a
fabulous valuation was given. As we have seen, the trade- marks were
not new. They had been used by Behn, Meyer & Co. in its business for
other goods and one of them for fertilizer. They belonged to Menzi &
Co., Inc., and were registered in its name; only the expense of
registering the formulas in the Bureau of Science was charged to the
business in which the plaintiff was interested. These trade-marks
remained the exclusive property of Menzi & Co., and the plaintiff had
no interest therein on the expiration of his contract.
The balance due the plaintiff, as appears from Exhibit 52, is
P21,633.20. We are satisfied by the evidence that said balance is
correct.
For the foregoing reasons, the decision appealed from is modified and
the defendant corporation is sentenced to pay the plaintiff twenty-
one thousand, six hundred and thirty-three pesos and twenty
centavos (P21,633.20), with legal interest thereon from the date of
the filing of the complaint on June 17, 1927, without a special finding
as to costs.
Street, Villamor, and Villa-Real, JJ., concur.
Justice Hull participated in this case, but on account of his absence on
leave at the time of the promulgation of the decision he authorized
the undersigned to certify that he voted to modify the decision of the
trial court as appears in the foregoing decision of this court. —
VILLAMOR, J., Presiding.
58 | P a g e
 11. Rojas vs. Maglana, GR No. L-30616, December 10, 1990
[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).
59 | P a g e

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).
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,
60 | P a g e
considering his indebtedness to the partnership, the plaintiff is not
entitled to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant
and placed in his or in his wife's name were acquired with partnership
funds or with funds of the defendant and — the Court declares that
there is no evidence that these properties were acquired by the
partnership funds, and therefore the same should not belong to the
partnership;
"4. As to whether damages were suffered and, if so, how much, and
who caused them and who should be liable for them — the Court
declares that neither parties is entitled to damages, for as already
stated above it is not a wise policy to place a price on the right of a
person to litigate and/or to come to Court for the assertion of the
rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the
plaintiff dated February 23, 1961; did it dissolve the partnership or
not — the Court declares that the letter of the defendant to the
plaintiff dated February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs,
supplies, and other merchandise to the laborers and employees of the
Eastcoast Development Enterprises, — the COURT DECLARES THE
SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by
Pablo Angeles David — is VALID AND BINDING UPON THE PARTIES
AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn
over to the partnership the amount of P69,000.00 the profits he
received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further
sum of P85,000.00 which according to him he is still entitled to receive
from the CMS Estate, Inc. is hereby denied considering that it has not
yet been actually received, and further the receipt is merely based
upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum
of P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00
the amount he should have received as logging superintendent, and
which was not paid to him, and this should be considered as part of
Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the
plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal
relationship of the Maglana-Rojas after Pahamotang retired from the
second partnership.
The lower court is of the view that the second partnership superseded
the first, so that when the second partnership was dissolved there
was no written contract of co-partnership; there was no
reconstitution as provided for in the Maglana, Rojas and Pahamotang
partnership contract. Hence, the partnership which was carried on by
Rojas and Maglana after the dissolution of the second partnership
was a de facto partnership and at will. It was considered as a
partnership at will because there was no term, express or implied; no
period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under
the firm name of Eastcoast Development Enterprises (EDE) evidenced
by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A")
has not been novated, superseded and/or dissolved by the
unregistered articles of co-partnership among appellant Rojas,
appellee Maglana and Agustin Pahamotang, dated March 4, 1956
(Exhibit "C") and accordingly, the terms and stipulations of said
registered Articles of Co-Partnership (Exhibit "A") should govern the
relations between him and Maglana. Upon withdrawal of Agustin
Pahamotang from the unregistered partnership (Exhibit "C"), the
legally constituted partnership EDE (Exhibit "A") continues to govern
the relations between them and it was legal error to consider a de
facto partnership between said two partners or a partnership at will.
Hence, the letter of appellee Maglana dated February 23, 1961, did
not legally dissolve the registered partnership between them, being
in contravention of the partnership agreement agreed upon and
stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather,
appellant is entitled to the rights enumerated in Article 1837 of the
Civil Code and to the sharing profits between them of "share and
share alike" as stipulated in the registered Articles of Co-Partnership
(Exhibit "A").
After a careful study of the records as against the conflicting claims of
Rojas and Maglana, it appears evident that it was not the intention of
the partners to dissolve the first partnership, upon the constitution of
the second one, which they unmistakably called an "Additional
Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25).
61 | P a g e
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,
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.
62 | P a g e
 12. Pascual vs. CIR, GR No. 78133, October 18, 1988
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents
GANCAYCO, J.:
The distinction between co-ownership and an unregistered
partnership or joint venture for income tax purposes is the issue in
this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from
Santiago Bernardino, et al. and on May 28, 1966, they bought another
three (3) parcels of land from Juan Roque. The first two parcels of land
were sold by petitioners in 1968 toMarenir Development
Corporation, while the three parcels of land were sold by petitioners
to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners
realized a net profit in the sale made in 1968 in the amount of
P165,224.70, while they realized a net profit of P60,000.00 in the sale
made in 1970. The corresponding capital gains taxes were paid by
petitioners in 1973 and 1974 by availing of the tax amnesties granted
in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR
Commissioner Efren I. Plana, petitioners were assessed and required
to pay a total amount of P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979
asserting that they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed
petitioners that in the years 1968 and 1970, petitioners as co-owners
in the real estate transactions formed an unregistered partnership or
joint venture taxable as a corporation under Section 20(b) and its
income was subject to the taxes prescribed under Section 24, both of
the National Internal Revenue Code 1 that the unregistered
partnership was subject to corporate income tax as distinguished
from profits derived from the partnership by them which is subject to
individual income tax; and that the availment of tax amnesty under
P.D. No. 23, as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them from the tax
liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of
Tax Appeals docketed as CTA Case No. 3045. In due course, the
respondent court by a majority decision of March 30, 1987, 2 affirmed
the decision and action taken by respondent commissioner with costs
against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3
an unregistered partnership was in fact formed by petitioners which
like a corporation was subject to corporate income tax distinct from
that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin
stated that considering the circumstances of this case, although there
might in fact be a co-ownership between the petitioners, there was
no adequate basis for the conclusion that they thereby formed an
unregistered partnership which made "hem liable for corporate
income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the
following alleged errors of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE
DETERMINATION OF THE RESPONDENT COMMISSIONER, TO THE
EFFECT THAT PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE
BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO RESTS
UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED
SALE TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP
EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN BY LAW
THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A
PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE
EVANGELISTA CASE AND THEREFORE SHOULD BE DECIDED
ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE
PETITIONERS FROM PAYMENT OF OTHER TAXES FOR THE PERIOD
COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
63 | P a g e

The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling
of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their
father which together with their own personal funds they used in
buying several real properties. They appointed their brother to
manage their properties with full power to lease, collect, rent, issue
receipts, etc. They had the real properties rented or leased to various
tenants for several years and they gained net profits from the rental
income. Thus, the Collector of Internal Revenue demanded the
payment of income tax on a corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No.
466, otherwise known as the National Internal Revenue Code, as well
as to the residence tax for corporations and the real estate dealers'
fixed tax. With respect to the tax on corporations, the issue hinges on
the meaning of the terms corporation and partnership as used in
sections 24 and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.—There shall be levied,
assessed, collected, and paid annually upon the total net income
received in the preceding taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines,
no matter how created or organized but not including duly registered
general co-partnerships (companies collectives), a tax upon such
income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter
how created or organized, joint-stock companies, joint accounts
(cuentas en participation), associations or insurance companies, but
does not include duly registered general co-partnerships (companies
colectivas).
Article 1767 of the Civil Code of the Philippines provides:
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.
Pursuant to this article, the essential elements of a partnership are
two, namely: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, petitioners have agreed to, and did,
contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration
of all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions
for monetary gain and then divide the same among themselves,
because:
1. Said common fund was not something they found already
in existence. It was not a property inherited by them pro indiviso.
They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.
2. They invested the same, not merely in one transaction, but
in a series of transactions. On February 2, 1943, they bought a lot for
P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00.
This was soon followed, on April 23, 1944, by the acquisition of
another real estate for P108,825.00. Five (5) days later (April 28,
1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transcations undertaken, as well as the brief
interregnum between each, particularly the last three purchases, is
strongly indicative of a pattern or common design that was not
limited to the conservation and preservation of the aforementioned
common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character
of habituality peculiar to business transactions engaged in for
purposes of gain.
3. The aforesaid lots were not devoted to residential purposes
or to other personal uses, of petitioners herein. The properties were
leased separately to several persons, who, from 1945 to 1948
inclusive, paid the total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the
management of one person, namely, Simeon Evangelists, with full
power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks.
Thus, the affairs relative to said properties have been handled as if
the same belonged to a corporation or business enterprise operated
for profit.
5. The foregoing conditions have existed for more than ten
(10) years, or, to be exact, over fifteen (15) years, since the first
property was acquired, and over twelve (12) years, since Simeon
Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence,
either on their purpose in creating the set up already adverted to, or
64 | P a g e
on the causes for its continued existence. They did not even try to
offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence
of said intent in petitioners herein. Only one or two of the
aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into
an agreement to contribute money, property or industry to a
common fund, and that they intended to divide the profits among
themselves. Respondent commissioner and/ or his representative just
assumed these conditions to be present on the basis of the fact that
petitioners purchased certain parcels of land and became co-owners
thereof.
In Evangelists, there was a series of transactions where petitioners
purchased twenty-four (24) lots showing that the purpose was not
limited to the conservation or preservation of the common fund or
even the properties acquired by them. The character of habituality
peculiar to business transactions engaged in for the purpose of gain
was present.
In the instant case, petitioners bought two (2) parcels of land in 1965.
They did not sell the same nor make any improvements thereon. In
1966, they bought another three (3) parcels of land from one seller. It
was only 1968 when they sold the two (2) parcels of land after which
they did not make any additional or new purchase. The remaining
three (3) parcels were sold by them in 1970. The transactions were
isolated. The character of habituality peculiar to business transactions
for the purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several
years. The business was under the management of one of the
partners. Such condition existed for over fifteen (15) years. None of
the circumstances are present in the case at bar. The co-ownership
started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in
Evangelista he said:
I wish however to make the following observation Article 1769 of the
new Civil Code lays down the rule for determining when a transaction
should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived;
From the above it appears that the fact that those who agree to form
a co- ownership share or do not share any profits made by the use of
the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself
establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of
other elements constituting partnership is necessary, such as the
clear intent to form a partnership, the existence of a juridical
personality different from that of the individual partners, and the
freedom to transfer or assign any interest in the property by one with
the consent of the others (Padilla, Civil Code of the Philippines
Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons
contribute funds to buy certain real estate for profit in the absence of
other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise
and agree to share the gross returns of that enterprise in proportion
to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They
have no common stock or capital, and no community of interest as
principal proprietors in the business itself which the proceeds
derived. (Elements of the Law of Partnership by Flord D. Mechem 2nd
Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership
in respect thereto; nor does an agreement to share the profits and
losses on the sale of land create a partnership; the parties are only
tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L.
Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners
of a single tract of realty, holding as tenants in common, and to divide
the profits of disposing of it, the brother and the other not being
entitled to share in plaintiffs commission, no partnership existed as
between the three parties, whatever their relation may have been as
to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
65 | P a g e
In order to constitute a partnership inter sese there must be: (a) An
intent to form the same; (b) generally participating in both profits and
losses; (c) and such a community of interest, as far as third persons Narvasa, J., took no part.
are concerned as enables each party to make contract, manage the
business, and dispose of the whole property.-Municipal Paving Co. vs.
Herring 150 P. 1067, 50 III 470.)

The common ownership of property does not itself create a Footnotes

partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming partners,
agree among themselves as to the management, and use of such 1 Annex C of the Petition, citing Evangelista v. Collector, G.R.
property and the application of the proceeds therefrom. (Spurlock vs. No. 9996, Oct. 15,1957,102 Phil. 140.
Wilson, 142 S.W. 363,160 No. App. 14.) 6

2 Penned by Presiding Judge Amante Filler, concurred in by

The sharing of returns does not in itself establish a partnership Associate Judge Alex Z. Reyes, Associate Judge Roaquin dissented in a
whether or not the persons sharing therein have a joint or common separate opinion.
right or interest in the property. There must be a clear intent to form
a partnership, the existence of a juridical personality different from
the individual partners, and the freedom of each party to transfer or
assign the whole property. 3 Supra.

In the present case, there is clear evidence of co-ownership between 4 Supra.

the petitioners. There is no adequate basis to support the proposition
that they thereby formed an unregistered partnership. The two
isolated transactions whereby they purchased properties and sold the 5 Supra, pp. 144-146; italics supplied.
same a few years thereafter did not thereby make them partners.
They shared in the gross profits as co- owners and paid their capital
gains taxes on their net profits and availed of the tax amnesty
6 Supra, pp. 150-151; italics supplied.
thereby. Under the circumstances, they cannot be considered to have
formed an unregistered partnership which is thereby liable for
corporate income tax, as the respondent commissioner proposes.
7 Article 1816. All partners, including industrial ones, shall be
liable pro rata with all their property and after all the partnership
assets have been exhausted, for the contracts which may be entered
And even assuming for the sake of argument that such unregistered
into in the name and for the account of the partnership, under its
partnership appears to have been formed, since there is no such
signature and by a person authorized to act for the partnership.
existing unregistered partnership with a distinct personality nor with
However, any partner may enter into a separate obligation to perform
assets that can be held liable for said deficiency corporate income tax,
a partnership contract. (Civil Code of the Philippines)
then petitioners can be held individually liable as partners for this
unpaid obligation of the partnership p. 7 However, as petitioners have
availed of the benefits of tax amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further tax liability See also Articles 1817 and 1818, Supra.
arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the

respondent Court of Tax Appeals of March 30, 1987 is hereby
REVERSED and SET ASIDE and another decision is hereby rendered
relieving petitioners of the corporate income tax liability in this case,
without pronouncement as to costs.

SO ORDERED.

Cruz, Griño-Aquino and Medialdea, JJ., concur.

66 | P a g e
G.R. No. L-9996 October 15, 1957 9. That on 1946, they realized a gross rental income of in the sum of
P24,786.30, out of which amount was deducted in the sum of
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA P16,288.27 for expenses thereby leaving them a net rental income of
EVANGELISTA, petitioners, P7,498.13;
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX 10. That in 1948, they realized a gross rental income of P17,453.00
APPEALS, respondents. out of the which amount was deducted the sum of P4,837.65 as
expenses, thereby leaving them a net rental income of P12,615.35.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor It further appears that on September 24, 1954 respondent Collector
General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for of Internal Revenue demanded the payment of income tax on
Respondents. corporations, real estate dealer's fixed tax and corporation residence
tax for the years 1945-1949, computed, according to assessment
CONCEPCION, J.: made by said officer, as follows:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista INCOME TAXES
and Francisca Evangelista, for review of a decision of the Court of Tax
Appeals, the dispositive part of which reads: 1945 14.84

FOR ALL THE FOREGOING, we hold that the petitioners are liable for 1946 1,144.71
the income tax, real estate dealer's tax and the residence tax for the
years 1945 to 1949, inclusive, in accordance with the respondent's 1947 10.34
assessment for the same in the total amount of P6,878.34, which is
1948 1,912.30
hereby affirmed and the petition for review filed by petitioner is
hereby dismissed with costs against petitioners. 1949 1,575.90
It appears from the stipulation submitted by the parties: Total including surcharge and compromise P6,157.09
1. That the petitioners borrowed from their father the sum of REAL ESTATE DEALER'S FIXED TAX
P59,1400.00 which amount together with their personal monies was
used by them for the purpose of buying real properties,. 1946 P37.50

2. That on February 2, 1943, they bought from Mrs. Josefina 1947 150.00
Florentino a lot with an area of 3,713.40 sq. m. including
improvements thereon from the sum of P100,000.00; this property 1948 150.00
has an assessed value of P57,517.00 as of 1948;
1949 150.00
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21
Total including penalty P527.00
parcels of land with an aggregate area of 3,718.40 sq. m. including
improvements thereon for P130,000.00; this property has an RESIDENCE TAXES OF CORPORATION
assessed value of P82,255.00 as of 1948;
1945 P38.75
4. That on April 28, 1944 they purchased from the Insular Investments
Inc., a lot of 4,353 sq. m. including improvements thereon for 1946 38.75
P108,825.00. This property has an assessed value of P4,983.00 as of
1948; 1947 38.75

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot
of 8,371 sq. m. including improvements thereon for P237,234.34. This
property has an assessed value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their
brother Simeon Evangelista to 'manage their properties with full
power to lease; to collect and receive rents; to issue receipts therefor;
in default of such payment, to bring suits against the defaulting
tenants; to sign all letters, contracts, etc., for and in their behalf, and
to endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the
petitioners had the same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including December,
1945, the total amount collected as rents on their real properties was
P9,599.00 while the expenses amounted to P3,650.00 thereby leaving
them a net rental income of P5,948.33;
1948 38.75
1949 38.75
Total including surcharge P193.75
TOTAL TAXES DUE P6,878.34.
Said letter of demand and corresponding assessments were delivered
to petitioners on December 3, 1954, whereupon they instituted the
present case in the Court of Tax Appeals, with a prayer that "the
decision of the respondent contained in his letter of demand dated
September 24, 1954" be reversed, and that they be absolved from the
payment of the taxes in question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-
mentioned decision for the respondent, and a petition for
reconsideration and new trial having been subsequently denied, the
case is now before Us for review at the instance of the petitioners.

67 | P a g e
The issue in this case whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act. No.
466, otherwise known as the National Internal Revenue Code, as well
as to the residence tax for corporations and the real estate dealers
fixed tax. With respect to the tax on corporations, the issue hinges on
the meaning of the terms "corporation" and "partnership," as used in
section 24 and 84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.—There shall be levied, assessed,
collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter
how created or organized but not including duly registered general
co-partnerships (compañias colectivas), a tax upon such income equal
to the sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations or insurance companies, but
does not include duly registered general copartnerships. (compañias
colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves
to contribute money, properly, or industry to a common fund, with
the intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are
two, namely: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, petitioners have agreed to, and did,
contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration
of all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions
for monetary gain and then divide the same among themselves,
because:
1. Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso. They
created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund.
2. They invested the same, not merely not merely in one transaction,
but in a series of transactions. On February 2, 1943, they bought a lot
for P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number of
lots (24) acquired and transactions undertaken, as well as the brief
interregnum between each, particularly the last three purchases, is
strongly indicative of a pattern or common design that was not
limited to the conservation and preservation of the aforementioned
common fund or even of the property acquired by the petitioners in
February, 1943. In other words, one cannot but perceive a character
of habitually peculiar to business transactions engaged in the purpose
of gain.
3. The aforesaid lots were not devoted to residential purposes, or to
other personal uses, of petitioners herein. The properties were leased
separately to several persons, who, from 1945 to 1948 inclusive, paid
the total sum of P70,068.30 by way of rentals. Seemingly, the lots are
still being so let, for petitioners do not even suggest that there has
been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the
management of one person, namely Simeon Evangelista, with full
power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks.
Thus, the affairs relative to said properties have been handled as if
the same belonged to a corporation or business and enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years,
or, to be exact, over fifteen (15) years, since the first property was
acquired, and over twelve (12) years, since Simeon Evangelista
became the manager.
6. Petitioners have not testified or introduced any evidence, either on
their purpose in creating the set up already adverted to, or on the
causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence
of said intent in petitioners herein. Only one or two of the
aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not
copartners, for, in consequence of the acts performed by them, a legal
entity, with a personality independent of that of its members, did not
come into existence, and some of the characteristics of partnerships
are lacking in the case at bar. This pretense was correctly rejected by
the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and different
from "partnerships". When our Internal Revenue Code includes
"partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of the
term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships which
constitute precisely one of the most typical forms of partnerships in
this jurisdiction. Likewise, as defined in section 84(b) of said Code,
"the term corporation includes partnerships, no matter how created
or organized." This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on partnerships, in
order that one could be deemed constituted for purposes of the tax
on corporations. Again, pursuant to said section 84(b), the term
"corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal
personality of its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded that personality
as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general
copartnerships" — which are possessed of the aforementioned
personality — have been expressly excluded by law (sections 24 and
84 [b] from the connotation of the term "corporation" It may not be
amiss to add that petitioners' allegation to the effect that their liability
68 | P a g e
in connection with the leasing of the lots above referred to, under the
management of one person — even if true, on which we express no
opinion — tends to increase the similarity between the nature of their
venture and that corporations, and is, therefore, an additional
argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations"
are taxed differently from "partnerships". By specific provisions of
said laws, such "corporations" include "associations, joint-stock
companies and insurance companies." However, the term
"association" is not used in the aforementioned laws.
. . . in any narrow or technical sense. It includes any organization,
created for the transaction of designed affairs, or the attainment of
some object, which like a corporation, continues notwithstanding
that its members or participants change, and the affairs of which, like
corporate affairs, are conducted by a single individual, a committee,
a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a
declaration of trust, a statute, or otherwise. It includes a voluntary
association, a joint-stock corporation or company, a 'business' trusts
a 'Massachusetts' trust, a 'common law' trust, and 'investment' trust
(whether of the fixed or the management type), an interinsuarance
exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name
known) which is not, within the meaning of the Code, a trust or an
estate, or a partnership. (7A Mertens Law of Federal Income Taxation,
p. 788; emphasis supplied.).
The term 'corporation' as used in this Act includes joint-stock
company, partnership, joint account (cuentas en participacion),
association or insurance company, no matter how created or
organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to
that of section 24 and 84 (b) of our National Internal Revenue Code
(commonwealth Act No. 466), and that the latter was approved on
June 15, 1939, the day immediately after the approval of said
Commonwealth Act No. 465 (June 14, 1939), it is apparent that the
terms "corporation" and "partnership" are used in both statutes with
substantially the same meaning. Consequently, petitioners are
subject, also, to the residence tax for corporations.
Lastly, the records show that petitioners have habitually engaged in
leasing the properties above mentioned for a period of over twelve
years, and that the yearly gross rentals of said properties from June
1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject
to the tax provided in section 193 (q) of our National Internal Revenue
Code, for "real estate dealers," inasmuch as, pursuant to section 194
(s) thereof:
'Real estate dealer' includes any person engaged in the business of
buying, selling, exchanging, leasing, or renting property or his own
account as principal and holding himself out as a full or part time
dealer in real estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of three thousand
pesos or more a year. . . (emphasis supplied.)

Similarly, the American Law. Wherefore, the appealed decision of the Court of Tax appeals is
hereby affirmed with costs against the petitioners herein. It is so
. . . provides its own concept of a partnership, under the term ordered.
'partnership 'it includes not only a partnership as known at common
law but, as well, a syndicate, group, pool, joint venture or other
unincorporated organizations which carries on any business financial
operation, or venture, and which is not, within the meaning of the
Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal
Income taxation, p. 789; emphasis supplied.)

The term 'partnership' includes a syndicate, group, pool, joint venture

or other unincorporated organization, through or by means of which
any business, financial operation, or venture is carried on, . . .. ( 8
Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis
supplied.) .

For purposes of the tax on corporations, our National Internal

Revenue Code, includes these partnerships — with the exception only
of duly registered general copartnerships — within the purview of the
term "corporation." It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said Code is concerned and
are subject to the income tax for corporations.

As regards the residence of tax for corporations, section 2 of

Commonwealth Act No. 465 provides in part:

Entities liable to residence tax.-Every corporation, no matter how

created or organized, whether domestic or resident foreign, engaged
in or doing business in the Philippines shall pay an annual residence
tax of five pesos and an annual additional tax which in no case, shall
exceed one thousand pesos, in accordance with the following
schedule: . . .

69 | P a g e
G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.
Y.G. Villaruz & Associates for petitioner.
Pelagio R. Lachica for private respondent.
REGALADO, J.:
The extensive discussion and exhaustive disquisition in the
decision 1 of the respondent Court 2 should have written finis to this
case without further recourse to Us. The assignment of errors and
arguments raised in the respondent Court by herein private
respondent, as the petitioner therein, having been correctly and
justifiedly sustained by said court without any reversible error in its
conclusions, the present petition must fail.
The assailed decision details the facts and proceedings which
spawned the present controversy as follows:
Petitioner brought an action in the City Court of Dipolog for collection
of a sum of P5,217.25 based on promissory notes executed by the
herein private respondent Nobio Sardane in favor of the herein
petitioner. Petitioner bases his right to collect on Exhibits B, C, D, E, F,
and G executed on different dates and signed by private respondent
Nobio Sardane. Exhibit B is a printed promissory note involving
Pl,117.25 and dated May 13, 1972. Exhibit C is likewise a printed
promissory note and denotes on its face that the sum loaned was
Pl,400.00. Exhibit D is also a printed promissory note dated May 31,
1977 involving an amount of P100.00. Exhibit E is what is commonly
known to the layman as 'vale' which reads: 'Good for: two hundred
pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the following tenor:
'Received from Mr. Romeo Acojedo the sum Pesos: Two Thousand
Two Hundred (P2,200.00) ONLY, to be paid on or before December
25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are both vales'
involving the same amount of one hundred pesos, and dated August
25, 1972 and September 12, 1972 respectively.
It has been established in the trial court that on many occasions, the
petitioner demanded the payment of the total amount of P5,217.25.
The failure of the private respondent to pay the said amount
prompted the petitioner to seek the services of lawyer who made a
letter (Exhibit 1) formally demanding the return of the sum loaned.
Because of the failure of the private respondent to heed the demands
extrajudicially made by the petitioner, the latter was constrained to
bring an action for collection of sum of money.
During the scheduled day for trial, private respondent failed to appear
and to file an answer. On motion by the petitioner, the City Court of
Dipolog issued an order dated May 18, 1976 declaring the private
respondent in default and allowed the petitioner to present his
evidence ex-parte. Based on petitioner's evidence, the City Court of
Dipolog rendered judgment by default in favor of the petitioner.
Private respondent filed a motion to lift the order of default which
was granted by the City Court in an order dated May 24, 1976, taking
into consideration that the answer was filed within two hours after
the hearing of the evidence presented ex-parte by the petitioner.
After the trial on the merits, the City Court of Dipolog rendered its
decision on September 14, 1976, the dispositive portion of which
reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of
the plaintiff and against the defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five
Thousand Two Hundred Seventeen Pesos and Twenty-five centavos
(P5,217.25) plus legal interest to commence from April 23, 1976 when
this case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as
attorney's fee and to pay the cost of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of
Zamboanga del Norte which reversed the decision of the lower court
by dismissing the complaint and ordered the plaintiff-appellee
Acojedo to pay said defendant-appellant P500.00 each for actual
damages, moral damages, exemplary damages and attorney's fees, as
well as the costs of suit. Plaintiff-appellee then sought the review of
said decision by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized
into two decisive issues, firstly, whether the oral testimony for the
therein private respondent Sardane that a partnership existed
between him and therein petitioner Acojedo are admissible to vary
the meaning of the abovementioned promissory notes; and,
secondly, whether because of the failure of therein petitioner to
cross-examine therein private respondent on his sur-rebuttal
testimony, there was a waiver of the presumption accorded in favor
of said petitioner by Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the
pleadings of the parties herein put in issue the imperfection or
ambiguity of the documents in question", hence "the appellant can
avail of the parol evidence rule to prove his side of the case, that is,
the said amount taken by him from appellee is or was not his personal
debt to appellee, but expenses of the partnership between him and
appellee."
Consequently, said trial court concluded that the promissory notes
involved were merely receipts for the contributions to said
partnership and, therefore, upheld the claim that there was ambiguity
in the promissory notes, hence parol evidence was allowable to vary
or contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.—When the terms of an
agreement have been reduced to writing, it is to be considered as
containing all such terms, and, therefore, there can be, between the
parties and their successors in interest, no evidence of the terms of
the agreement other than the contents of the writing except in the
following cases:
(a) Where a mistake or imperfection of the writing or its failure to
express the the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
70 | P a g e
As correctly pointed out by the respondent Court the exceptions to
the rule do not apply in this case as there is no ambiguity in the
writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory notes
containing a promise to pay a sum certain in money, payable on
demand and the promise to bear the costs of litigation in the event of
the private respondent's failure to pay the amount loaned when
demanded extrajudicially. Likewise, the vales denote that the private
respondent is obliged to return the sum loaned to him by the
petitioner. On their face, nothing appears to be vague or ambigous,
for the terms of the promissory notes clearly show that it was
incumbent upon the private respondent to pay the amount involved
in the promissory notes if and when the petitioner demands the
same. It was clearly the intent of the parties to enter into a contract
of loan for how could an educated man like the private respondent be
deceived to sign a promissory note yet intending to make such a
writing to be mere receipts of the petitioner's supposed contribution
to the alleged partnership existing between the parties?
It has been established in the trial court that, the private respondent
has been engaged in business for quite a long period of time--as
owner of the Sardane Trucking Service, entering into contracts with
the government for the construction of wharfs and seawall; and a
member of the City Council of Dapitan (TSN, July 20, 1976, pp. 57-
58).<äre||anº•1àw> It indeed puzzles us how the private respondent
could have been misled into signing a document containing terms
which he did not mean them to be. ...
xxx xxx xxx
The private respondent admitted during the cross-examination made
by petitioner's counsel that he was the one who was responsible for
the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How
could he purportedly rely on such a flimsy pretext that the promissory
notes were receipts of the petitioner's contribution? 4
The Court of Appeals held, and We agree, that even if
evidence aliunde other than the promissory notes may be admitted
to alter the meaning conveyed thereby, still the evidence is
insufficient to prove that a partnership existed between the private
parties hereto.
As manager of the basnig Sarcado naturally some degree of control
over the operations and maintenance thereof had to be exercised by
herein petitioner. The fact that he had received 50% of the net profits
does not conclusively establish that he was a partner of the private
respondent herein. Article 1769(4) of the Civil Code is explicit that
while the receipt by a person of a share of the profits of a business
is prima facie evidence that he is a partner in the business, no such
inference shall be drawn if such profits were received in payment as
wages of an employee. Furthermore, herein petitioner had no voice
in the management of the affairs of the basnig. Under similar facts,
this Court in the early case of Fortis vs. Gutierrez Hermanos, 5 in
denying the claim of the plaintiff therein that he was a partner in the
business of the defendant, declared:
This contention cannot be sustained. It was a mere contract of
employment. The plaintiff had no voice nor vote in the management
of the affairs of the company. The fact that the compensation
received by him was to be determined with reference to the profits
made by the defendant in their business did not in any sense make
him a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et
al. 6 which involved the same factual and legal milieu.
There are other considerations noted by respondent Court which
negate herein petitioner's pretension that he was a partner and not a
mere employee indebted to the present private respondent. Thus, in
an action for damages filed by herein private respondent against the
North Zamboanga Timber Co., Inc. arising from the operations of the
business, herein petitioner did not ask to be joined as a party plaintiff.
Also, although he contends that herein private respondent is the
treasurer of the alleged partnership, yet it is the latter who is
demanding an accounting. The advertence of the Court of First
Instance to the fact that the casco bears the name of herein petitioner
disregards the finding of the respondent Court that it was just a
concession since it was he who obtained the engine used in the
Sardaco from the Department of Local Government and Community
Development. Further, the use by the parties of the pronoun "our" in
referring to "our basnig, our catch", "our deposit", or "our boseros"
was merely indicative of the camaraderie and not evidentiary of a
partnership, between them.
The foregoing factual findings, which belie the further claim that the
aforesaid promissory notes do not express the true intent and
agreement of the parties, are binding on Us since there is no showing
that they fall within the exceptions to the rule limiting the scope of
appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in
Rule 8, for ready reference, reads:
Sec. 8. How to contest genuineness of such documents.—When an
action or defense is founded upon a written instrument, copied in or
attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall
be deemed admitted unless the adverse party, under oath,
specifically denies them, and sets forth what he claims to be the facts;
but this provision does not apply when the adverse party does not
appear to be a party to the instrument or when compliance with an
order for the inspection of the original instrument is refused.
The record shows that herein petitioner did not deny under oath in
his answer the authenticity and due execution of the promissory
notes which had been duly pleaded and attached to the complaint,
thereby admitting their genuineness and due execution. Even in the
trial court, he did not at all question the fact that he signed said
promissory notes and that the same were genuine. Instead, he
presented parol evidence to vary the import of the promissory notes
by alleging that they were mere receipts of his contribution to the
alleged partnership.
His arguments on this score reflect a misapprehension of the rule on
parol evidence as distinguished from the rule on actionable
documents. As the respondent Court correctly explained to herein
petitioner, what he presented in the trial Court was testimonial
evidence that the promissory notes were receipts of his supposed
contributions to the alleged partnership which testimony, in the light
of Section 7, Rule 130, could not be admitted to vary or alter the
explicit meaning conveyed by said promissory notes. On the other
hand, the presumed genuineness and due execution of said
promissory notes were not affected, pursuant to the provisions of
Section 8, Rule 8, since such aspects were not at all questioned but,
on the contrary, were admitted by herein petitioner.
71 | P a g e
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li court of first instance had affirmed in full that of the lower court. Said
Po, 7 which was reiterated in Central Surety & Insurance Co. vs. C. N. mode of appeal and the procedural requirements thereof governed
Hodges, et al. 8 does not sustain his thesis that the herein private the appeal taken in this case from the aforesaid Court of First Instance
respondent had "waived the mantle of protection given him by Rule to the Court of Appeals in 1977. 10 Herein petitioner's plaint on this
8, Sec. 8". It is true that such implied admission of genuineness and issue is, therefore, devoid of merit.
due execution may be waived by a party but only if he acts in a
manner indicative of either an express or tacit waiver thereof. WHEREFORE, the judgment of the respondent Court of Appeals is
Petitioner, however, either overlooked or ignored the fact that, as AFFIRMED, with costs against herein petitioner.
held in Yu Chuck, and the same is true in other cases of Identical SO ORDERED.
factual settings, such a finding of waiver is proper where a case has
been tried in complete disregard of the rule and the plaintiff having
pleaded a document by copy, presents oral evidence to prove the due
execution of the document and no objections are made to the
defendant's evidence in refutation. This situation does not obtain in
the present case hence said doctrine is obviously inapplicable.

Neither did the failure of herein private respondent to cross-examine

herein petitioner on the latter's sur-rebuttal testimony constitute a
waiver of the aforesaid implied admission. As found by the
respondent Court, said sur-rebuttal testimony consisted solely of the
denial of the testimony of herein private respondent and no new or
additional matter was introduced in that sur-rebuttal testimony to
exonerate herein petitioner from his obligations under the aforesaid
promissory notes.

On the foregoing premises and considerations, the respondent Court

correctly reversed and set aside the appealed decision of the Court of
First Instance of Zamboanga del Norte and affirmed in full the decision
of the City Court of Dipolog City in Civil Case No. A-1838, dated
September 14, 1976.

Belatedly, in his motion for reconsideration of said decision of the

respondent Court, herein petitioner, as the private respondent
therein, raised a third unresolved issue that the petition for review
therein should have been dismissed for lack of jurisdiction since the
lower Court's decision did not affirm in full the judgment of the City
Court of Dipolog, and which he claimed was a sine qua non for such a
petition under the law then in force. He raises the same point in his
present appeal and We will waive the procedural technicalities in
order to put this issue at rest.

Parenthetically, in that same motion for reconsideration he had

sought affirmative relief from the respondent Court praying that it
sustain the decision of the trial Court, thereby invoking and
submitting to its jurisdiction which he would now assail. Furthermore,
the objection that he raises is actually not one of jurisdiction but of
procedure. 9

At any rate, it will be noted that petitioner anchors his said objection
on the provisions of Section 29, Republic Act 296 as amended by
Republic Act 5433 effective September 9, 1968. Subsequently, the
procedure for appeal to the Court of Appeals from decisions of the
then courts of first instance in the exercise of their appellate
jurisdiction over cases originating from the municipal courts was
provided for by Republic Act 6031, amending Section 45 of the
Judiciary Act effective August 4, 1969. The requirement for affirmance
in full of the inferior court's decision was not adopted or reproduced
in Republic Act 6031. Also, since Republic Act 6031 failed to provide
for the procedure or mode of appeal in the cases therein
contemplated, the Court of Appeals en banc provided thereof in its
Resolution of August 12, 1971, by requiring a petition for review but
which also did not require for its availability that the judgment of the

72 | P a g e
G.R. No. L-25532 February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor
General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and
T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.,"
was formed on 30 September 1947 by herein respondent William J.
Suter as the general partner, and Julia Spirig and Gustav Carlson, as
the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1
October 1947, the limited partnership was registered with the
Securities and Exchange Commission. The firm engaged, among other
activities, in the importation, marketing, distribution and operation of
automatic phonographs, radios, television sets and amusement
machines, their parts and accessories. It had an office and held itself
out as a limited partnership, handling and carrying merchandise,
using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a
quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner
Carlson sold his share in the partnership to Suter and his wife. The
sale was duly recorded with the Securities and Exchange Commission
on 20 December 1948.
The limited partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner,
Commissioner of Internal Revenue, until in 1959 when the latter, in
an assessment, consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in
the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed
to the Court of Tax Appeals, which court, after trial, rendered a
decision, on 11 November 1965, reversing that of the Commissioner
of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of
Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:
(a) Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage
of the partners, respondent William J. Suter and Julia Spirig Suter and
the subsequent sale to them by the remaining partner, Gustav
Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is
that the marriage of Suter and Spirig and their subsequent acquisition
of the interests of remaining partner Carlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of
juridical personality of the partnership should be disregarded for
income tax purposes because the spouses have exclusive ownership
and control of the business; consequently the income tax return of
respondent Suter for the years in question should have included his
and his wife's individual incomes and that of the limited partnership,
in accordance with Section 45 (d) of the National Internal Revenue
Code, which provides as follows:
(d) Husband and wife. — In the case of married persons, whether
citizens, residents or non-residents, only one consolidated return for
the taxable year shall be filed by either spouse to cover the income of
both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the
Court of Tax Appeals held, that his marriage with limited partner
Spirig and their acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership, either in the
Code of Commerce or in the New Civil Code, and that since its juridical
personality had not been affected and since, as a limited partnership,
as contra distinguished from a duly registered general partnership, it
is taxable on its income similarly with corporations, Suter was not
bound to include in his individual return the income of the limited
partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin"
Co., Ltd., has been dissolved by operation of law because of the
marriage of the only general partner, William J. Suter to the originally
limited partner, Julia Spirig one year after the partnership was
organized is rested by the appellant upon the opinion of now Senator
Tolentino in Commentaries and Jurisprudence on Commercial Laws of
the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code, which applies
in the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from
entering into universal partnerships. (2 Echaverri 196) It follows that
the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership,
but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in force when the
subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of
the partners, as contributed by them to the common fund, or else
"all that the partners may acquire by their industry or work during the
existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William Suter and
P18,000.00 by Julia Spirig and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of
the Civil Code of 1889.
73 | P a g e
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan,
in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote
1, says with regard to the prohibition contained in the aforesaid
Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de
sociedad universal, pero o podran constituir sociedad particular?
Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya
que ningun precepto de nuestro Codigo los prohibe, y hay que estar
a la norma general segun la que toda persona es capaz para contratar
mientras no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en su
resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en
la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to
dissolve it, such marriage not being one of the causes provided for
that purpose either by the Spanish Civil Code or the Code of
Commerce.
The appellant's view, that by the marriage of both partners the
company became a single proprietorship, is equally erroneous. The
capital contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage;
and after they were joined in wedlock, such contributions remained
their respective separate property under the Spanish Civil Code
(Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter
"Morcoin" Co., Ltd. did not become common property of both after
their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does
not recognize such separate juridical personality), the bypassing of
the existence of the limited partnership as a taxpayer can only be
done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership's separate individuality
makes it impossible to equate its income with that of the component
members. True, section 24 of the Internal Revenue Code merges
registered general co-partnerships (compañias colectivas) with the
personality of the individual partners for income tax purposes. But
this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to
limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs.
University of the Visayas, L-13554, Resolution of 30 October 1964,
and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations
involved therein are not applicable to the present case. In the cited
cases, the corporations were already subject to tax when the fiction
of their corporate personality was pierced; in the present case, to do
so would exempt the limited partnership from income taxation but
would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely
served as business conduits or alter egos of the stockholders, a factor
that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited
partnership is not a mere business conduit of the partner-spouses; it
was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee's marriage, and had been
filing its own income tax returns as such independent entity. The
change in its membership, brought about by the marriage of the
partners and their subsequent acquisition of all interest therein, is no
ground for withdrawing the partnership from the coverage of Section
24 of the tax code, requiring it to pay income tax. As far as the records
show, the partners did not enter into matrimony and thereafter buy
the interests of the remaining partner with the premeditated scheme
or design to use the partnership as a business conduit to dodge the
tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its
income, to require that income to be included in the individual tax
return of respondent Suter is to overstretch the letter and intent of
the law. In fact, it would even conflict with what it specifically provides
in its Section 24: for the appellant Commissioner's stand results in
equal treatment, tax wise, of a general copartnership (compañia
colectiva) and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter on its income,
but not the former, because it is in the case of compañias
colectivas that the members, and not the firm, are taxable in their
individual capacities for any dividend or share of the profit derived
from the duly registered general partnership (Section 26, N.I.R.C.;
Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-
89).lawphi1.nêt
But it is argued that the income of the limited partnership is actually
or constructively the income of the spouses and forms part of the
conjugal partnership of gains. This is not wholly correct. As pointed
out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of
Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna
become conjugal only when no longer needed to defray the expenses
for the administration and preservation of the paraphernal capital of
the wife. Then again, the appellant's argument erroneously confines
itself to the question of the legal personality of the limited
partnership, which is not essential to the income taxability of the
partnership since the law taxes the income of even joint accounts that
have no personality of their own. 1 Appellant is, likewise, mistaken in
that it assumes that the conjugal partnership of gains is a taxable unit,
which it is not. What is taxable is the "income of both spouses"
(Section 45 [d] in their individual capacities. Though the amount of
income (income of the conjugal partnership vis-a-vis the joint income
of husband and wife) may be the same for a given taxable year, their
consequences would be different, as their contributions in the
business partnership are not the same.
The difference in tax rates between the income of the limited
partnership being consolidated with, and when split from the income
of the spouses, is not a justification for requiring consolidation; the
revenue code, as it presently stands, does not authorize it, and even
bars it by requiring the limited partnership to pay tax on its own
income.
FOR THE FOREGOING REASONS, the decision under review is hereby
affirmed. No costs.
G.R. No. L-39607 February 6, 1934
74 | P a g e
ENCARNACION MAGALONA, ET AL., plaintiffs-appellees,
vs.
JUAN PESAYCO, defendant-appellant.
Manuel Polido and Pedro V. Jimenez for appellant.
Lutero and Lutero and Ramon Maza for appellee.
GODDARD, J.:
In the month of September, 1930, the plaintiffs, Encarnacion
Magalona, Juan Sermeno, and the defendant, Juan Pesayco, formed
a partnership for the purpose of catching "semillas de bañgus o aua"
in the sea and rivers within the jurisdiction of the municipality of San
Jose, Antique Province, for the year 1931. It was agreed that the
defendant should put in a bid for this privilege and that the partners
should each supply one third of the capital in case the defendant was
awarded the desired privilege. The defendant, having had experience
in this line, was to be the manager in case his bid was accepted. The
defendant offered the sum of P5,550.09 for the year ending
December 31, 1931. As a deposit of
one-fourth of the amount of the bid was required each of the partners
put up one third of this amount. This bid, being the highest, was
accepted by the municipality and the privilege was awarded to the
defendant. The latter entered upon his duties under the contract and
gave an account of two sales of "semillas de bañgus", to Tiburcio
Lutero as representative of the plaintiff Magalona. As the defendant,
on April 21, 1931, had on hand only P410 he wired, Exhibit A, Lutero
for sufficient money to complete the payment of the first quarter
which was to be paid within the first twenty days of the second
quarter of the year 1931. This telegram reads as follows: "Hemos
conseguido plazo hasta esta tarde tenemos aqui cuatrocientos diez
gira telegraficamente restante." Lutero immediately sent P1,000 to
the municipal treasurer of San Jose, Antique (Exhibit D).
The defendant managed the business from January 1,1931, and with
the exception of the two sales above-mentioned, never gave any
account of his catches or sales to his partners, the plaintiffs. In view
of this the herein complaint was filed April 21, 1931, in which it was
prayed that a receiver be appointed by the court to take charge of the
funds of the partnership and the management of its affairs; that the
defendant be ordered to render an account of his management and
to pay to the plaintiff their participation in the profits thereof; that
the defendant be required to turn over to the receiver all of the funds
of the partnership and that the defendant be condemned to pay the
costs.
The plaintiffs put up a bond of P5,000 and a receiver was appointed
who also put up a bond for the same amount.
The receiver took over the management and took possession of all
the devices and implements used in the catching of "semillas de
bañgus".
At the trial it was proven that before April 20, 1931, the defendant
obtained and sold a total of 975,000 "semillas de bañgus" the market
value of which was P3 per thousand. The defendant made no report
of this nor did he pay the plaintiffs any part of the P2,925 realized by
him on the sales thereof. This was not denied.
In his two counter-complaints the defendant prays that he be
awarded damages in the sum of P34,700. He denies that there was a
partnership and depends principally upon the fact that the
partnership agreement was not in writing.
The partnership was conclusively proven by the oral testimony of the
plaintiffs and other witnesses, two of whom were Attorneys Lutero
and Maza. The defense made no objection to the questions asked
with regard to the forming of this partnership. This court has held that
if a party permits a contract, which the law provides shall be in
writing, to be proved, without objection as to the form of the proof,
it is just as binding as if the statute had been complied with.
However, we cannot agree with the appellant that one of the
requisites of a partnership agreement such as the one under
consideration, is that it should be in writing.
Article 1667 of the Civil Code provides that "Civil partnerships may be
established in any form whatever, unless real property or real rights
are contributed to the same, in which case a public instrument shall
be necessary."
Articles of partnership are not required to be in writing except in the
cases mentioned in article 1667, Civil Code, which controls article
1280 of the same Code. (Fernandez vs. Dela Rosa, 1 Phil., 671.)
A verbal partnership agreement is valid between the parties even
though more than 1,500 pesetas are involved and can be enforced
without bringing action under article 1279, Civil Code, to compel
execution of a written instrument. (Arts. 1261, 1278-1280, 1667, Civil
Code; arts. 116-119, 51, Code of Commerce.) Thunga Chui vs. Que
Bentec, 2 Phil., 561. (4 Phil. Digest, 3468.)
The dispositive part of the decision of the trial court reads as follows:
Habiendose probado, sin pruebas en contrario, de que el demandado
obtuvo durante su administracion de este negocio, semillas
de bañgus por valor de P2,925 que no dio cuenta ni participacion a
sus consocios los demandantes, el Juzgado declara al demandado en
deber a la sociedad, compuesta por demandantes y demandado, en
la suma de P2,925, importe de 975,000 semillas de bañgus a P3 el
millar, y ordena que entregue esta suma al depositario judicial
nombrado, como fondos de dicha sociedad.
Se sobreseen las contrademandas y se condena en costas al
demandado. Asi se ordena.
This decision is affirmed with costs in both instances against the
defendant-appellant. So ordered.
75 | P a g e
G.R. No. L-24193 June 28, 1968
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD
COMPANY, defendants-appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of
dismissal of the Court of First Instance of Davao, we are called upon
to determine the applicability of Article 1773 of our Civil Code to the
contract of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are — pursuant to a
public instrument dated August 29, 1952, copy of which is attached
to the complaint as Annex "A" — partners in a fishpond business, to
the capital of which Agad contributed P1,000, with the right to receive
50% of the profits; that from 1952 up to and including 1956, Mabato
who handled the partnership funds, had yearly rendered accounts of
the operations of the partnership; and that, despite repeated
demands, Mabato had failed and refused to render accounts for the
years 1957 to 1963, Agad prayed in his complaint against Mabato and
Mabato & Agad Company, filed on June 9, 1964, that judgment be
rendered sentencing Mabato to pay him (Agad) the sum of P14,000,
as his share in the profits of the partnership for the period from 1957
to 1963, in addition to P1,000 as attorney's fees, and ordering the
dissolution of the partnership, as well as the winding up of its affairs
by a receiver to be appointed therefor.
The issue before us hinges on whether or not "immovable property
or real rights" have been contributed to the partnership under
consideration. Mabato alleged and the lower court held that the
answer should be in the affirmative, because "it is really inconceivable
how a partnership engaged in the fishpond business could exist
without said fishpond property (being) contributed to the
partnership." It should be noted, however, that, as stated in Annex
"A" the partnership was established "to operate a fishpond", not to
"engage in a fishpond business". Moreover, none of the partners
contributed either a fishpond or a real right to any fishpond. Their
contributions were limited to the sum of P1,000 each. Indeed,
Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00)
Pesos Philippine Currency, of which One Thousand (P1,000.00) pesos
has been contributed by Severino Mabato and One Thousand
(P1,000.00) Pesos has been contributed by Mauricio Agad.
xxx xxx xxx
The operation of the fishpond mentioned in Annex "A" was the
purpose of the partnership. Neither said fishpond nor a real right
thereto was contributed to the partnership or became part of the
capital thereof, even if a fishpond or a real right thereto could become
part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in
point and that, the order appealed from should be, as it is hereby set
aside and the case remanded to the lower court for further
proceedings, with the costs of this instance against defendant-
appellee, Severino Mabato. It is so ordered.

In his answer, Mabato admitted the formal allegations of the

complaint and denied the existence of said partnership, upon the
ground that the contract therefor had not been perfected, despite the
execution of Annex "A", because Agad had allegedly failed to give his
P1,000 contribution to the partnership capital. Mabato prayed,
therefore, that the complaint be dismissed; that Annex "A" be
declared void ab initio; and that Agad be sentenced to pay actual,
moral and exemplary damages, as well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that

the complaint states no cause of action and that the lower court had
no jurisdiction over the subject matter of the case, because it involves
principally the determination of rights over public lands. After due
hearing, the court issued the order appealed from, granting the
motion to dismiss the complaint for failure to state a cause of action.
This conclusion was predicated upon the theory that the contract of
partnership, Annex "A", is null and void, pursuant to Art. 1773 of our
Civil Code, because an inventory of the fishpond referred in said
instrument had not been attached thereto. A reconsideration of this
order having been denied, Agad brought the matter to us for review
by record on appeal.

Articles 1771 and 1773 of said Code provide:

Art. 1771. A partnership may be constituted in any form, except

where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.

Art. 1773. A contract of partnership is void, whenever immovable

property is contributed thereto, if inventory of said property is not
made, signed by the parties; and attached to the public instrument.

76 | P a g e
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO
S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.
SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil
Code in this appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for
the appellees) entered into on Oct. 19, 1960 by and between Mrs.
Segundina Noguera, party of the first part; the Tourist World Service,
Inc., represented by Mr. Eliseo Canilao as party of the second part,
and hereinafter referred to as appellants, the Tourist World Service,
Inc. leased the premises belonging to the party of the first part at
Mabini St., Manila for the former-s use as a branch office. In the said
contract the party of the third part held herself solidarily liable with
the party of the part for the prompt payment of the monthly rental
agreed on. When the branch office was opened, the same was run by
the herein appellant Una 0. Sevilla payable to Tourist World Service
Inc. by any airline for any fare brought in on the efforts of Mrs. Lina
Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World
Service, Inc. appears to have been informed that Lina Sevilla was
connected with a rival firm, the Philippine Travel Bureau, and, since
the branch office was anyhow losing, the Tourist World Service
considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc.
dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office
of the manager and vice-president of the Tourist World Service, Inc.,
Ermita Branch, and the second,authorizing the corporate secretary to
receive the properties of the Tourist World Service then located at the
said branch office. It further appears that on Jan. 3, 1962, the contract
with the appellees for the use of the Branch Office premises was
terminated and while the effectivity thereof was Jan. 31, 1962, the
appellees no longer used it. As a matter of fact appellants used it since
Nov. 1961. Because of this, and to comply with the mandate of the
Tourist World Service, the corporate secretary Gabino Canilao went
over to the branch office, and, finding the premises locked, and, being
unable to contact Lina Sevilla, he padlocked the premises on June 4,
1962 to protect the interests of the Tourist World Service. When
neither the appellant Lina Sevilla nor any of her employees could
enter the locked premises, a complaint wall filed by the herein
appellants against the appellees with a prayer for the issuance of
mandatory preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein, the
trial court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order
dismissing her counterclaim which the court a quo, in an order dated
June 8, 1963, granted permitting her to present evidence in support
of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the
herein appellees and after the issues were joined, the reinstated
counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the court a
quo ordered both cases dismiss for lack of merit, on the basis of which
was elevated the instant appeal on the following assignment of
errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS.
LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD
SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE
RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT
MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A
MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD
SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD
NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A.
MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE
NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S
FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT
APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR
FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues
to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the
telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World
Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the
appellee Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness
venture was entered into by and between her and appellee TWS with
offices at the Ermita branch office and that she was not an employee
of the TWS to the end that her relationship with TWS was one of a
joint business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an
eminent eye, ear and nose specialist as well as a imediately columnist
had been in the travel business prior to the establishment of the joint
business venture with appellee Tourist World Service, Inc. and
appellee Eliseo Canilao, her compadre, she being the godmother of
one of his children, with her own clientele, coming mostly from her
own social circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19
October 1960 (Exh. 'A') covering the premises at A. Mabini St., she
expressly warranting and holding [sic] herself 'solidarily' liable with
appellee Tourist World Service, Inc. for the prompt payment of the
77 | P a g e
monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15,
tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee
Tourist World Service, Inc., which had its own, separate office located
at the Trade & Commerce Building; nor was she an employee thereof,
having no participation in nor connection with said business at the
Trade & Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own passengers,
her own bookings her own business (and not for any of the business
of appellee Tourist World Service, Inc.) obtained from the airline
companies. She shared the 7% commissions given by the airline
companies giving appellee Tourist World Service, Lic. 3% thereof aid
retaining 4% for herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of
maintaining the A. Mabini St. office, paying for the salary of an office
secretary, Miss Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some of fice furnishings
(pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in consideration for the 3%
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb.
16,1965).
6. It was the understanding between them that appellant Mrs. Sevilla
would be given the title of branch manager for appearance's sake only
(p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for
dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao
pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino
Canilao (pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was
an employee of the appellee Tourist World Service, Inc. and as such
was designated manager.1
xxx xxx xxx
The trial court2 held for the private respondent on the premise that
the private respondent, Tourist World Service, Inc., being the true
lessee, it was within its prerogative to terminate the lease and
padlock the premises. 3 It likewise found the petitioner, Lina Sevilla,
to be a mere employee of said Tourist World Service, Inc. and as such,
she was bound by the acts of her employer. 4 The respondent Court
of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining
the lower court, erred. Specifically, they state:
I questioned.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE
PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC.
WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA
SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF
HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE
APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING
INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY
OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO
PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE
THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE
TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE
RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2)
DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF
LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA
RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP
PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH
APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING
AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED
ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT
SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN
JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS
AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE
TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD
SERVICE INC.6
As a preliminary inquiry, the Court is asked to declare the true nature
of the relation between Lina Sevilla and Tourist World Service, Inc.
The respondent Court of see fit to rule on the question, the crucial
issue, in its opinion being "whether or not the padlocking of the
premises by the Tourist World Service, Inc. without the knowledge
and consent of the appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or not the evidence for the
said appellant supports the contention that the appellee Tourist
World Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita branch
office of the appellee Tourist World Service, Inc.7 Tourist World
Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere
employee, being "branch manager" of its Ermita "branch" office and
that inferentially, she had no say on the lease executed with the
private respondent, Segundina Noguera. The petitioners contend,
however, that relation between the between parties was one of joint
venture, but concede that "whatever might have been the true
relationship between Sevilla and Tourist World Service," the Rule of
Law enjoined Tourist World Service and Canilao from taking the law
into their own hands, 8 in reference to the padlocking now
The Court finds the resolution of the issue material, for if, as the
private respondent, Tourist World Service, Inc., maintains, that the
relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the
case, labor disputes being the exclusive domain of the Court of
Industrial Relations, later, the Bureau Of Labor Relations, pursuant to
statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the
evidence of an employer-employee relation. In general, we have
relied on the so-called right of control test, "where the person for
whom the services are performed reserves a right to control not only
the end to be achieved but also the means to be used in reaching such
78 | P a g e
end." 10Subsequently, however, we have considered, in addition to
the standard of right-of control, the existing economic conditions
prevailing between the parties, like the inclusion of the employee in
the payrolls, in determining the existence of an employer-employee
relationship.11
The records will show that the petitioner, Lina Sevilla, was not subject
to control by the private respondent Tourist World Service, Inc., either
as to the result of the enterprise or as to the means used in
connection therewith. In the first place, under the contract of lease
covering the Tourist Worlds Ermita office, she had bound herself
in solidum as and for rental payments, an arrangement that would be
like claims of a master-servant relationship. True the respondent
Court would later minimize her participation in the lease as one of
mere guaranty, 12 that does not make her an employee of Tourist
World, since in any case, a true employee cannot be made to part with
his own money in pursuance of his employer's business, or otherwise,
assume any liability thereof. In that event, the parties must be bound
by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the
branch office was opened, the same was run by the herein appellant
Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for
any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these
circumstances, it cannot be said that Sevilla was under the control of
Tourist World Service, Inc. "as to the means used." Sevilla in pursuing
the business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll.
For her efforts, she retained 4% in commissions from airline bookings,
the remaining 3% going to Tourist World. Unlike an employee then,
who earns a fixed salary usually, she earned compensation in
fluctuating amounts depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not
make her, ergo, Tourist World's employee. As we said, employment is
determined by the right-of-control test and certain economic
parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are
not, as a consequence, accepting Lina Sevilla's own, that is, that the
parties had embarked on a joint venture or otherwise, a partnership.
And apparently, Sevilla herself did not recognize the existence of such
a relation. In her letter of November 28, 1961, she expressly
'concedes your [Tourist World Service, Inc.'s] right to stop the
operation of your branch office 14 in effect, accepting Tourist World
Service, Inc.'s control over the manner in which the business was run.
A joint venture, including a partnership, presupposes generally a of
standing between the joint co-venturers or partners, in which each
party has an equal proprietary interest in the capital or property
contributed 15 and where each party exercises equal rights in the
conduct of the business.16 furthermore, the parties did not hold
themselves out as partners, and the building itself was embellished
with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.
It is the Court's considered opinion, that when the petitioner, Lina
Sevilla, agreed to (wo)man the private respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract that the agent
renders services "in representation or on behalf of another.18 In the
case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As compensation,
she received 4% of the proceeds in the concept of commissions. And
as we said, Sevilla herself based on her letter of November 28, 1961,
pre-assumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and
from the respondent Court's recital of facts, that the ties had
contemplated a principal agent relationship, rather than a joint
managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we
hereby declare to be compatible with the intent of the parties, cannot
be revoked at will. The reason is that it is one coupled with an interest,
the agency having been created for mutual interest, of the agent and
the principal. 19 It appears that Lina Sevilla is a bona fide travel agent
herself, and as such, she had acquired an interest in the business
entrusted to her. Moreover, she had assumed a personal obligation
for the operation thereof, holding herself solidarily liable for the
payment of rentals. She continued the business, using her own name,
after Tourist World had stopped further operations. Her interest,
obviously, is not to the commissions she earned as a result of her
business transactions, but one that extends to the very subject matter
of the power of management delegated to her. It is an agency that, as
we said, cannot be revoked at the pleasure of the principal.
Accordingly, the revocation complained of should entitle the
petitioner, Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining
itself to the telephone disconnection and padlocking incidents. Anent
the disconnection issue, it is the holding of the Court of Appeals that
there is 'no evidence showing that the Tourist World Service, Inc.
disconnected the telephone lines at the branch office. 20 Yet, what
cannot be denied is the fact that Tourist World Service, Inc. did not
take pains to have them reconnected. Assuming, therefore, that it had
no hand in the disconnection now complained of, it had clearly
condoned it, and as owner of the telephone lines, it must shoulder
responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect
to the padlocking incident. For the fact that Tourist World Service, Inc.
was the lessee named in the lease con-tract did not accord it any
authority to terminate that contract without notice to its actual
occupant, and to padlock the premises in such fashion. As this Court
has ruled, the petitioner, Lina Sevilla, had acquired a personal stake
in the business itself, and necessarily, in the equipment pertaining
thereto. Furthermore, Sevilla was not a stranger to that contract
having been explicitly named therein as a third party in charge of
rental payments (solidarily with Tourist World, Inc.). She could not be
ousted from possession as summarily as one would eject an
interloper.
The Court is satisfied that from the chronicle of events, there was
indeed some malevolent design to put the petitioner, Lina Sevilla, in
a bad light following disclosures that she had worked for a rival firm.
To be sure, the respondent court speaks of alleged business losses to
justify the closure '21 but there is no clear showing that Tourist World
Ermita Branch had in fact sustained such reverses, let alone, the fact
that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information
(that Sevilla was working for another company), Tourist World's board
of directors adopted two resolutions abolishing the office of
'manager" and authorizing the corporate secretary, the respondent
Eliseo Canilao, to effect the takeover of its branch office properties.
79 | P a g e
On January 3, 1962, the private respondents ended the lease over the exemplary damages, and the sum of P5,000.00, as and for nominal
branch office premises, incidentally, without notice to her. and/or temperate damages.

It was only on June 4, 1962, and after office hours significantly, that Costs against said private respondents.
the Ermita office was padlocked, personally by the respondent
Canilao, on the pretext that it was necessary to Protect the interests SO ORDERED.
of the Tourist World Service. " 22It is strange indeed that Tourist World
Service, Inc. did not find such a need when it cancelled the lease five
months earlier. While Tourist World Service, Inc. would not pretend
that it sought to locate Sevilla to inform her of the closure, but
surely, it was aware that after office hours, she could not have been
anywhere near the premises. Capping these series of "offensives," it
cut the office's telephone lines, paralyzing completely its business
operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a

sinister effort to punish Sevillsa it had perceived to be disloyalty on
her part. It is offensive, in any event, to elementary norms of justice
and fair play.

We rule therefore, that for its unwarranted revocation of the contract

of agency, the private respondent, Tourist World Service, Inc., should
be sentenced to pay damages. Under the Civil Code, moral damages
may be awarded for "breaches of contract where the defendant acted
... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further

damages for the moral injury done to Lina Sevilla from its brazen
conduct subsequent to the cancellation of the power of attorney
granted to her on the authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.24

ART. 2219. Moral damages25 may be recovered in the following and

analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34,
and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby

ordered to respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is

concerned, no evidence has been shown that she had connived with
Tourist World Service, Inc. in the disconnection and padlocking
incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral

damages,24 P10,000.00 as exemplary damages, 25and P5,000.00 as
nominal 26 and/or temperate27 damages, to be just, fair, and
reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well

as the Resolution issued on July 31, 1975, by the respondent Court of
Appeals is hereby REVERSED and SET ASIDE. The private respondent,
Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly
and severally to indemnify the petitioner, Lina Sevilla, the sum of
25,00.00 as and for moral damages, the sum of P10,000.00, as and for

80 | P a g e
G.R. No. 143340 August 15, 2001
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
vs.
LAMBERTO T. CHUA, respondent.
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the
Rules of Court of the Decision1 of the Court of Appeals dated January
31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth Sunga
Chan and Cecilia Sunga" and of the Resolution dated May 23, 2000
denying the motion for reconsideration of herein petitioners Lilibeth
Sunga and Cecilia Sunga (hereafter collectively referred to as
petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a
complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth)
and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife,
respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for
"Winding Up of Partnership Affairs, Accounting, Appraisal and
Recovery of Shares and Damages with Writ of Preliminary
Attachment" with the Regional Trial Court, Branch 11, Sindangan,
Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a
partnership with Jacinto in the distribution of Shellane Liquefied
Petroleum Gas (LPG) in Manila. For business convenience, respondent
and Jacinto allegedly agreed to register the business name of their
partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite),
under the name of Jacinto as a sole proprietorship. Respondent
allegedly delivered his initial capital contribution of P100,000.00 to
Jacinto while the latter in turn produced P100,000.00 as his
counterpart contribution, with the intention that the profits would be
equally divided between them. The partnership allegedly had Jacinto
as manager, assisted by Josephine Sy (hereafter Josephine), a sister of
the wife respondent, Erlinda Sy. As compensation, Jacinto would
receive a manager's fee or remuneration of 10% of the gross profit
and Josephine would receive 10% of the net profits, in addition to her
wages and other remuneration from the business.
Allegedly, from the time that Shellite opened for business on July 8,
1977, its business operation went quite and was profitable.
Respondent claimed that he could attest to success of their business
because of the volume of orders and deliveries of filled Shellane
cylinder tanks supplied by Pilipinas Shell Petroleum Corporation.
While Jacinto furnished respondent with the merchandise
inventories, balance sheets and net worth of Shellite from 1977 to
1989, respondent however suspected that the amount indicated in
these documents were understated and undervalued by Jacinto and
Josephine for their own selfish reasons and for tax avoidance.
Upon Jacinto's death in the later part of 1989, his surviving wife,
petitioner Cecilia and particularly his daughter, petitioner Lilibeth,
took over the operations, control, custody, disposition and
management of Shellite without respondent's consent. Despite
respondent's repeated demands upon petitioners for accounting,
inventory, appraisal, winding up and restitution of his net shares in
the partnership, petitioners failed to comply. Petitioner Lilibeth
allegedly continued the operations of Shellite, converting to her own
use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth
ran out the alibis and reasons to evade respondent's demands, she
disbursed out of the partnership funds the amount of P200,000.00
and partially paid the same to respondent. Petitioner Lilibeth
allegedly informed respondent that the P200,000.00 represented
partial payment of the latter's share in the partnership, with a
promise that the former would make the complete inventory and
winding up of the properties of the business establishment. Despite
such commitment, petitioners allegedly failed to comply with their
duty to account, and continued to benefit from the assets and income
of Shellite to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the
ground that the Securities and Exchange Commission (SEC) in Manila,
not the Regional Trial Court in Zamboanga del Norte had jurisdiction
over the action. Respondent opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in
from and substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory
Counter-claims, contending that they are not liable for partnership
shares, unreceived income/profits, interests, damages and attorney's
fees, that respondent does not have a cause of action against them,
and that the trial court has no jurisdiction over the nature of the
action, the SEC being the agency that has original and exclusive
jurisdiction over the case. As counterclaim, petitioner sought
attorney's fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this
time on the ground that the claim for winding up of partnership
affairs, accounting and recovery of shares in partnership affairs,
accounting and recovery of shares in partnership assets/properties
should be dismissed and prosecuted against the estate of deceased
Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial denied the second motion to dismiss for
lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari,
Prohibition and Mandamus with the Court of Appeals docketed as CA-
G.R. SP No. 32499 questioning the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion
to Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to suspend
pre-trial conference.
On November 15, 1994, the Court of Appeals denied the petition for
lack of merit.
On January 16, 1995, this Court denied the petition for review on
certiorari filed by petitioner, "as petitioners failed to show that a
reversible error was committed by the appellate court."2
On February 20, 1995, entry of judgment was made by the Clerk of
Court and the case was remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial
conference and set the hearing of the case of January 17, 1996.
Respondent presented his evidence while petitioners were
considered to have waived their right to present evidence for their
81 | P a g e
failure to attend the scheduled date for reception of evidence despite
notice.
On October 7, 1997, the trial court rendered its Decision ruling for
respondent. The dispositive of the Decision reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff
and against the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form
under accounting procedures and standards of the properties, assets,
income and profits of the Shellite Gas Appliance Center Since the time
of death of Jacinto L. Sunga, from whom they continued the business
operations including all businesses derived from Shellite Gas
Appliance Center, submit an inventory, and appraisal of all these
properties, assets, income, profits etc. to the Court and to plaintiff for
approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any and
all properties, assets, income and profits they misapplied and
converted to their own use and advantage the legally pertain to the
plaintiff and account for the properties mentioned in pars. A and B on
pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and
interest of the plaintiff in the partnership of the listed properties,
assets and good will (sic) in schedules A, B and C, on pages 4-5 of the
petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income
and profits from the partnership from 1988 to May 30, 1992, when
the plaintiff learned of the closure of the store the sum of P35,000.00
per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and
terminate its business activities pursuant to law, after delivering to
the plaintiff all the ½ interest, shares, participation and equity in the
partnership, or the value thereof in money or money's worth, if the
properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of
trust and in bad faith and hold them liable to the plaintiff the sum of
P50,000.00 as moral and exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as
attorney's (sic) and P25,000.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED."3
On October 28, 1997, petitioners filed a Notice of Appeal with the trial
court, appealing the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The
dispositive portion of the Decision reads:
"WHEREFORE, the instant appeal is dismissed. The appealed decision
is AFFIRMED in all respects."4
On May 23, 2000, the Court of Appeals denied the motion for
reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon following grounds:
"1. The Court of Appeals erred in making a legal conclusion that there
existed a partnership between respondent Lamberto T. Chua and the
late Jacinto L. Sunga upon the latter'' invitation and offer and that
upon his death the partnership assets and business were taken over
by petitioners.
2. The Court of Appeals erred in making the legal conclusion that
laches and/or prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there
was competent and credible evidence to warrant the finding of a
partnership, and assuming arguendo that indeed there was a
partnership, the finding of highly exaggerated amounts or values in
the partnership assets and profits."5
Petitioners question the correctness of the finding of the trial court
and the Court of Appeals that a partnership existed between
respondent and Jacinto from 1977 until Jacinto's death. In the
absence of any written document to show such partnership between
respondent and Jacinto, petitioners argues that these courts were
proscribes from hearing the testimonies of respondent and his
witness, Josephine, to prove the alleged partnership three years after
Jacinto's death. To support this argument, petitioners invoke the
"Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule
130 of the Rules of Court that provides:
"SEC. 23. Disqualification by reason of death or insanity of adverse
party. – Parties or assignors of parties to a case, or persons in whose
behalf a case is prosecuted, against an executor or administrator or
other representative of a deceased person, or against a person of
unsound mind, upon a claim or demand against the estate of such
deceased person, or against such person of unsound mind, cannot
testify as to any matter of fact occurring before the death of such
deceased person or before such person became of unsound mind."
Petitioners thus implore this Court to rule that the testimonies of
respondent and his alter ego, Josephine, should not have been
admitted to prove certain claims against a deceased person (Jacinto),
now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where
immovable property of real rights are contributed thereto, in which
case a public instrument shall necessary.6 Hence, based on the
intention of the parties, as gathered from the facts and ascertained
from their language and conduct, a verbal contract of partnership
may arise.7 The essential profits that must be proven to that a
partnership was agreed upon are (1) mutual contribution to a
common stock, and (2) a joint interest in the profits.8 Understandably
so, in view of the absence of the written contract of partnership
between respondent and Jacinto, respondent resorted to the
introduction of documentary and testimonial evidence to prove said
partnership. The crucial issue to settle then is to whether or not the
"Dead Man's Statute" applies to this case so as to render inadmissible
respondent's testimony and that of his witness, Josephine.
The "Dead Man's Statute" provides that if one party to the alleged
transaction is precluded from testifying by death, insanity, or other
mental disabilities, the surviving party is not entitled to the undue
advantage of giving his own uncontradicted and unexplained account
of the transaction.9 But before this rule can be successfully invoked to
bar the introduction of testimonial evidence, it is necessary that:
82 | P a g e
"1. The witness is a party or assignor of a party to case or persons in
whose behalf a case in prosecuted.
2. The action is against an executor or administrator or other
representative of a deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the
estate of such deceased person or against person of unsound mind;
4. His testimony refers to any matter of fact of which occurred before
the death of such deceased person or before such person became of
unsound mind."10
Two reasons forestall the application of the "Dead Man's Statute" to
this case.
First, petitioners filed a compulsory counterclaim11 against
respondents in their answer before the trial court, and with the filing
of their counterclaim, petitioners themselves effectively removed this
case from the ambit of the "Dead Man's Statute".12 Well entrenched
is the rule that when it is the executor or administrator or
representatives of the estates that sets up the counterclaim, the
plaintiff, herein respondent, may testify to occurrences before the
death of the deceased to defeat the counterclaim.13 Moreover, as
defendant in the counterclaim, respondent is not disqualified from
testifying as to matters of facts occurring before the death of the
deceased, said action not having been brought against but by the
estate or representatives of the deceased.14
Second, the testimony of Josephine is not covered by the "Dead Man's
Statute" for the simple reason that she is not "a party or assignor of a
party to a case or persons in whose behalf a case is prosecuted."
Records show that respondent offered the testimony of Josephine to
establish the existence of the partnership between respondent and
Jacinto. Petitioners' insistence that Josephine is the alter ego of
respondent does not make her an assignor because the term
"assignor" of a party means "assignor of a cause of action which has
arisen, and not the assignor of a right assigned before any cause of
action has arisen."15 Plainly then, Josephine is merely a witness of
respondent, the latter being the party plaintiff.
We are not convinced by petitioners' allegation that Josephine's
testimony lacks probative value because she was allegedly coerced
coerced by respondent, her brother-in-law, to testify in his favor,
Josephine merely declared in court that she was requested by
respondent to testify and that if she were not requested to do so she
would not have testified. We fail to see how we can conclude from
this candid admission that Josephine's testimony is involuntary when
she did not in any way categorically say that she was forced to be a
witness of respondent.
Also, the fact that Josephine is the sister of the wife of respondent
does not diminish the value of her testimony since relationship per se,
without more, does not affect the credibility of witnesses.16
Petitioners' reliance alone on the "Dead Man's Statute" to defeat
respondent's claim cannot prevail over the factual findings of the trial
court and the Court of Appeals that a partnership was established
between respondent and Jacinto. Based not only on the testimonial
evidence, but the documentary evidence as well, the trial court and
the Court of Appeals considered the evidence for respondent as
sufficient to prove the formation of partnership, albeit an informal
one.
Notably, petitioners did not present any evidence in their favor during
trial. By the weight of judicial precedents, a factual matter like the
finding of the existence of a partnership between respondent and
Jacinto cannot be inquired into by this Court on review.17 This Court
can no longer be tasked to go over the proofs presented by the parties
and analyze, assess and weigh them to ascertain if the trial court and
the appellate court were correct in according superior credit to this
or that piece of evidence of one party or the other.18 It must be also
pointed out that petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now turn to this Court to
question the admissibility and authenticity of the documentary
evidence of respondent when petitioners failed to object to the
admissibility of the evidence at the time that such evidence was
offered.19
With regard to petitioners' insistence that laches and/or prescription
should have extinguished respondent's claim, we agree with the trial
court and the Court of Appeals that the action for accounting filed by
respondents three (3) years after Jacinto's death was well within the
prescribed period. The Civil Code provides that an action to enforce
an oral contract prescribes in six (6) years20 while the right to demand
an accounting for a partner's interest as against the person continuing
the business accrues at the date of dissolution, in the absence of any
contrary agreement.21 Considering that the death of a partner results
in the dissolution of the partnership22 , in this case, it was Jacinto's
death that respondent as the surviving partner had the right to an
account of his interest as against petitioners. It bears stressing that
while Jacinto's death dissolved the partnership, the dissolution did
not immediately terminate the partnership. The Civil Code23 expressly
provides that upon dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business,
culminating in its termination.24
In a desperate bid to cast doubt on the validity of the oral partnership
between respondent and Jacinto, petitioners maintain that said
partnership that had initial capital of P200,000.00 should have been
registered with the Securities and Exchange Commission (SEC) since
registration is mandated by the Civil Code, True, Article 1772 of the
Civil Code requires that partnerships with a capital of P3,000.00 or
more must register with the SEC, however, this registration
requirement is not mandatory. Article 1768 of the Civil
Code25 explicitly provides that the partnership retains its juridical
personality even if it fails to register. The failure to register the
contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because
the main purpose of registration is to give notice to third parties, and
it can be assumed that the members themselves knew of the contents
of their contract.26 In the case at bar, non-compliance with this
directory provision of the law will not invalidate the partnership
considering that the totality of the evidence proves that respondent
and Jacinto indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the
appealed decision is AFFIRMED.
SO ORDERED.
83 | P a g e
J. TIOSEJO INVESTMENT CORP., Petitioner, versus SPOUSES
BENJAMIN AND ELEANOR ANG, Respondents
G.R. No. 174149 | 2010-09-08
DECISION
PEREZ, J.:
Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the
petition for review at bench seeks the reversal of the Resolutions
dated 23 May 2006 and 9 August 2006 issued by the Third Division of
the Court of Appeals (CA) in CA-G.R. SP No. 93841 which, respectively,
dismissed the petition for review of petitioner J. Tiosejo Investment
Corp. (JTIC) for having been filed out of time[1] and denied the motion
for reconsideration of said dismissal.[2]
The Facts
On 28 December 1995 petitioner entered into a Joint Venture
Agreement (JVA) with Primetown Property Group, Inc. (PPGI) for the
development of a residential condominium project to be known as
The Meditel on the former's 9,502 square meter property along
Samat St., Highway Hills, Mandaluyong City.[3] With petitioner
contributing the same property to the joint venture and PPGI
undertaking to develop the condominium, the JVA provided, among
other terms and conditions, that the developed units shall be shared
by the former and the latter at a ratio of 17%-83%, respectively.[4]
While both parties were allowed, at their own individual
responsibility, to pre-sell the units pertaining to them,[5] PPGI further
undertook to use all proceeds from the pre-selling of its saleable units
for the completion of the Condominium Project." [6]
On 17 June 1996, the Housing and Land Use Regulatory Board
(HLURB) issued License to Sell No. 96-06-2854 in favor of petitioner
and PPGI as project owners.[7] By virtue of said license, PPGI executed
Contract to Sell No. 0212 with Spouses Benjamin and Eleanor Ang on
5 February 1997, over the 35.45-square meter condominium unit
denominated as Unit A-1006, for the agreed contract price of
P52,597.88 per square meter or a total P2,077,334.25.[8] On the
same date PPGI and respondents also executed Contract to Sell No.
0214 over the 12.50 square meter parking space identified as Parking
Slot No. 0405, for the stipulated consideration of P26,400.00 square
meters or a total of P313,500.00.[9]
On 21 July 1999, respondents filed against petitioner and PPGI the
complaint for the rescission of the aforesaid Contracts to Sell
docketed before the HLURB as HLURB Case No. REM 072199-10567.
Contending that they were assured by petitioner and PPGI that the
subject condominium unit and parking space would be available for
turn-over and occupancy in December 1998, respondents averred,
among other matters, that in view of the non-completion of the
project according to said representation, respondents instructed
petitioner and PPGI to stop depositing the post-dated checks they
issued and to cancel said Contracts to Sell; and, that despite several
demands, petitioner and PPGI have failed and refused to refund the
P611,519.52 they already paid under the circumstances. Together
with the refund of said amount and interests thereon at the rate of
12% per annum, respondents prayed for the grant of their claims for
moral and exemplary damages as well as attorney's fees and the
costs.[10]
Specifically denying the material allegations of the foregoing
complaint, PPGI filed its 7 September 1999 answer alleging that the
delay in the completion of the project was attributable to the
economic crisis which affected the country at the time; that the
unexpected and unforeseen inflation as well as increase in interest
rates and cost of building materials constitute force majeure and
were beyond its control; that aware of its responsibilities, it offered
several alternatives to its buyers like respondents for a transfer of
their investment to its other feasible projects and for the amounts
they already paid to be considered as partial payment for the
replacement unit/s; and, that the complaint was prematurely filed in
view of the on-going negotiations it is undertaking with its buyers and
prospective joint venture partners. Aside from the dismissal of the
complaint, PPGI sought the readjustment of the contract price and
the grant of its counterclaims for attorney's fees and litigation
expenses.[11]
Petitioner also specifically denied the material allegations of the
complaint in separate answer dated 5 February 2002[12] which it
amended on 20 May 2002. Calling attention to the fact that its
prestation under the JVA consisted in contributing the property on
which The Meditel was to be constructed, petitioner asseverated
that, by the terms of the JVA, each party was individually responsible
for the marketing and sale of the units pertaining to its share; that not
being privy to the Contracts to Sell executed by PPGI and respondents,
it did not receive any portion of the payments made by the latter; and,
that without any contributory fault and negligence on its part, PPGI
breached its undertakings under the JVA by failing to complete the
condominium project. In addition to the dismissal of the complaint
and the grant of its counterclaims for exemplary damages, attorney's
fees, litigation expenses and the costs, petitioner interposed a cross-
claim against PPGI for full reimbursement of any sum it may be
adjudged liable to pay respondents.[13]
Acting on the position papers and draft decisions subsequently
submitted by the parties,[14] Housing and Land Use (HLU) Arbiter
Dunstan T. San Vicente went on to render the 30 July 2003 decision
declaring the subject Contracts to Sell cancelled and rescinded on
account of the non-completion of the condominium project. On the
ground that the JVA created a partnership liability on their part,
petitioner and PPGI, as co-owners of the condominium project, were
ordered to pay: (a) respondents' claim for refund of the P611,519.52
they paid, with interest at the rate of 12% per annum from 5 February
1997; (b) damages in the sum of P75,000.00; (c) attorney's fees in the
sum of P30,000.00; (d) the costs; and, (e) an administrative fine in the
sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of
Presidential Decree No. 957. [15] Elevated to the HLURB Board of
Commissioners via the petition for review filed by petitioner,[16] the
foregoing decision was modified to grant the latter's cross-claim in
the 14 September 2004 decision rendered by said administrative
body's Second Division in HLURB Case No. REM-A-031007-0240,[17]
to wit:
Wherefore, the petition for review of the respondent Corporation is
dismissed. However, the decision of the Office below dated July 30,
2003 is modified, hence, its dispositive portion shall read:
1. Declaring the contracts to sell, both dated February 5, 1997, as
cancelled and rescinded, and ordering the respondents to
84 | P a g e
immediately pay the complainants the following: pleading.[32] Although petitioner filed by registered mail a motion to
admit its attached petition for review on 19 April 2006,[33] the CA
a. The amount of P611,519.52, with interest at the legal rate reckoned issued the herein assailed 23 May 2006 resolution,[34] disposing of
from February 5, 1997 until fully paid; the former's pending motion for extension as well as the petition itself
in the following wise:
b. Damages of P75,000.00;
We resolve to DENY the second extension motion and rule to DISMISS
c. Attorney's fees equivalent to P30,000.00; and the petition for being filed late.

d. The Cost of suit;
2. Ordering respondents to pay this Office administrative fine of
P10,000.00 for violation of Section 20 in relation to Section 38 of P.D.
957; and
3. Ordering respondent Primetown to reimburse the entire amount
which the respondent Corporation will be constrained to pay the
complainants.
So ordered.[18]
With the denial of its motion for reconsideration of the foregoing
decision,[19] petitioner filed a Notice of Appeal dated 28 February
2005 which was docketed before the Office of the President (OP) as
O.P. Case No. 05-B-072.[20] On 3 March 2005, the OP issued an order
directing petitioner to submit its appeal memorandum within 15 days
from receipt thereof.[21] Acting on the motion therefor filed, the OP
also issued another order on the same date, granting petitioner a
period of 15 days from 28 February 2005 or until 15 March 2005
within which to file its appeal memorandum.[22] In view of
petitioner's filing of a second motion for extension dated 15 March
2005,[23] the OP issued the 18 March 2005 order granting the former
an additional 10 days from 15 March 2005 or until 25 March 2005
within which to file its appeal memorandum, "provided no further
extension shall be allowed."[24] Claiming to have received the
aforesaid 3 March 2005 order only on 16 March 2005, however,
petitioner filed its 31 March 2005 motion seeking yet another
extension of 10 days or until 10 April 2005 within which to file its
appeal memorandum.[25]
On 7 April 2005, respondents filed their opposition to the 31 March
2005 motion for extension of petitioner[26] which eventually filed its
appeal memorandum by registered mail on 11 April 2005 in view of
the fact that 10 April 2005 fell on a Sunday.[27] On 25 October 2005,
the OP rendered a decision dismissing petitioner's appeal on the
ground that the latter's appeal memorandum was filed out of time
and that the HLURB Board committed no grave abuse of discretion in
rendering the appealed decision.[28] Aggrieved by the denial of its
motion for reconsideration of the foregoing decision in the 3 March
2006 order issued by the OP,[29] petitioner filed before the CA its 29
March 2006 motion for an extension of 15 days from 31 March 2006
or until 15 April 2006 within which to file its petition for review.[30]
Accordingly, a non-extendible period of 15 days to file its petition for
review was granted petitioner in the 31 March 2006 resolution issued
by the CA Third Division in CA-G.R, SP No. 93841.[31]
Maintaining that 15 April 2006 fell on a Saturday and that pressures
of work prevented its counsel from finalizing its petition for review,
petitioner filed a motion on 17 April 2006, seeking for an additional
time of 10 days or until 27 April 2006 within which to file said
Settled is that heavy workload is by no means excusable (Land Bank
of the Philippines vs. Natividad, 458 SCRA 441 [2005]). If the failure of
the petitioners' counsel to cope up with heavy workload should be
considered a valid justification to sidestep the reglementary period,
there would be no end to litigations so long as counsel had not been
sufficiently diligent or experienced (LTS Philippine Corporation vs.
Maliwat, 448 SCRA 254, 259-260 [2005], citing Sublay vs. National
Labor Relations Commission, 324 SCRA 188 [2000]).
Moreover, lawyers should not assume that their motion for extension
or postponement will be granted the length of time they pray for
(Ramos vs. Dajoyag, 378 SCRA 229 [2002]).
SO ORDERED.[35]
Petitioner's motion for reconsideration of the foregoing
resolution[36] was denied for lack of merit in the CA's second assailed
9 August 2006 resolution,[37] hence, this petition.
The Issues
Petitioner seeks the reversal of the assailed resolutions on the
following grounds, to wit:
I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON
MERE TECHNICALITY;
II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE
PETITION ON THE MERITS THEREBY AFFIRMING THE OFFICE OF THE
PRESIDENT'S DECISION (A) DISMISSING JTIC'S APPEAL ON A MERE
TECHNICALITY; (B) AFFIRMING THE HLURB BOARD'S DECISION
INSOFAR AS IT FOUND JTIC SOLIDARILY LIABLE WITH PRIMETOWN TO
PAY SPOUSES ANG DAMAGES, ATTORNEY'S FEES AND THE COST OF
THE SUIT; AND (C) AFFIRMING THE HLURB BOARD'S DECISION
INSOFAR AS IT FAILED TO AWARD JITC ITS COUNTERCLAIMS AGAINST
SPOUSES ANG.[38]
The Court's Ruling
We find the petition bereft of merit.
While the dismissal of an appeal on purely technical grounds is
concededly frowned upon,[39] it bears emphasizing that the
procedural requirements of the rules on appeal are not harmless and
trivial technicalities that litigants can just discard and disregard at
will.[40] Neither being a natural right nor a part of due process, the
rule is settled that the right to appeal is merely a statutory privilege
which may be exercised only in the manner and in accordance with
the provisions of the law.[41] The perfection of an appeal in the
manner and within the period prescribed by law is, in fact, not only
mandatory but jurisdictional.[42] Considering that they are

85 | P a g e
requirements which cannot be trifled with as mere technicality to suit
the interest of a party,[43] failure to perfect an appeal in the
prescribed manner has the effect of rendering the judgment final and
executory.[44]
Fealty to the foregoing principles impels us to discount the error
petitioner imputes against the CA for denying its second motion for
extension of time for lack of merit and dismissing its petition for
review for having been filed out of time. Acting on the 29 March 2006
motion filed for the purpose, after all, the CA had already granted
petitioner an inextendible period of 15 days from 31 March 2006 or
until 15 April 2006 within which to file its petition for review. Sec. 4,
Rule 43 of the 1997 Rules of Civil Procedure provides as follows:
Sec. 4. Period of appeal. - The appeal shall be taken within fifteen (15)
days from notice of the award, judgment, final order or resolution, or
from the date of its last publication, if publication is required by law
for its effectivity, or of the denial of petitioner's motion for new trial
or reconsideration duly filed in accordance with the governing law of
the court or agency a quo. Only one (1) motion for reconsideration
shall be allowed. Upon proper motion and payment of the full amount
of the docket fee before the expiration of the reglementary period,
the Court of Appeals may grant an additional period of fifteen (15)
days only within which to file the petition for review. No further
extension shall be granted except for the most compelling reason and
in no case to exceed fifteen (15) days." (Underscoring supplied)
The record shows that, having been granted the 15-day extension
sought in its first motion, petitioner filed a second motion for
extension praying for an additional 10 days from 17 April 2006 within
which to file its petition for review, on the ground that pressures of
work and the demands posed by equally important cases prevented
its counsel from finalizing the same. As correctly ruled by the CA,
however, heavy workload cannot be considered as a valid justification
to sidestep the reglementary period[45] since to do so would only
serve to encourage needless delays and interminable litigations.
Indeed, rules prescribing the time for doing specific acts or for taking
certain proceedings are considered absolutely indispensable to
prevent needless delays and to orderly and promptly discharge
judicial business.[46] Corollary to the principle that the allowance or
denial of a motion for extension of time is addressed to the sound
discretion of the court,[47] moreover, lawyers cannot expect that
their motions for extension or postponement will be granted[48] as a
matter of course.
Although technical rules of procedure are not ends in themselves,
they are necessary for an effective and expeditious administration of
justice and cannot, for said reason, be discarded with the mere
expediency of claiming substantial merit.[49] This holds particularly
true in the case at bench where, prior to the filing of its petition for
review before the CA, petitioner's appeal before the OP was likewise
dismissed in view of its failure to file its appeal memorandum within
the extensions of time it had been granted by said office. After being
granted an initial extension of 15 days to do the same, the records
disclose that petitioner was granted by the OP a second extension of
10 days from 15 March 2005 or until 25 March 2005 within which to
file its appeal memorandum, on the condition that no further
extensions shall be allowed. Aside from not heeding said proviso,
petitioner had, consequently, no more time to extend when it filed its
31 March 2005 motion seeking yet another extension of 10 days or
until 10 April 2005 within which to file its appeal memorandum.
With the foregoing procedural antecedents, the initial 15-day
extension granted by the CA and the injunction under Sec. 4, Rule 43
of the 1997 Rules of Civil Procedure against further extensions
"except for the most compelling reason", it was clearly inexcusable
for petitioner to expediently plead its counsel's heavy workload as
ground for seeking an additional extension of 10 days within which to
file its petition for review. To our mind, petitioner would do well to
remember that, rather than the low gate to which parties are
unreasonably required to stoop, procedural rules are designed for the
orderly conduct of proceedings and expeditious settlement of cases
in the courts of law. Like all rules, they are required to be followed[50]
and utter disregard of the same cannot be expediently rationalized by
harping on the policy of liberal construction[51] which was never
intended as an unfettered license to disregard the letter of the law or,
for that matter, a convenient excuse to substitute substantial
compliance for regular adherence thereto. When it comes to
compliance with time rules, the Court cannot afford inexcusable
delay.[52]
Even prescinding from the foregoing procedural considerations, we
also find that the HLURB Arbiter and Board correctly held petitioner
liable alongside PPGI for respondents' claims and the P10,000.00
administrative fine imposed pursuant to Section 20 in relation to
Section 38 of P.D. 957. By the express terms of the JVA, it appears that
petitioner not only retained ownership of the property pending
completion of the condominium project[53] but had also bound itself
to answer liabilities proceeding from contracts entered into by PPGI
with third parties. Article VIII, Section 1 of the JVA distinctly provides
as follows:
"Sec. 1. Rescission and damages. Non-performance by either party of
its obligations under this Agreement shall be excused when the same
is due to Force Majeure. In such cases, the defaulting party must
exercise due diligence to minimize the breach and to remedy the
same at the soonest possible time. In the event that either party
defaults or breaches any of the provisions of this Agreement other
than by reason of Force Majeure, the other party shall have the right
to terminate this Agreement by giving notice to the defaulting party,
without prejudice to the filing of a civil case for damages arising from
the breach of the defaulting party.
In the event that the Developer shall be rendered unable to complete
the Condominium Project, and such failure is directly and solely
attributable to the Developer, the Owner shall send written notice to
the Developer to cause the completion of the Condominium Project.
If the developer fails to comply within One Hundred Eighty (180) days
from such notice or, within such time, indicates its incapacity to
complete the Project, the Owner shall have the right to take over the
construction and cause the completion thereof. If the Owner
exercises its right to complete the Condominium Project under these
circumstances, this Agreement shall be automatically rescinded upon
written notice to the Developer and the latter shall hold the former
free and harmless from any and all liabilities to third persons arising
from such rescission. In any case, the Owner shall respect and strictly
comply with any covenant entered into by the Developer and third
parties with respect to any of its units in the Condominium Project. To
enable the owner to comply with this contingent liability, the
Developer shall furnish the Owner with a copy of its contracts with
86 | P a g e
the said buyers on a month-to-month basis. Finally, in case the Owner
would be constrained to assume the obligations of the Developer to
its own buyers, the Developer shall lose its right to ask for indemnity
for whatever it may have spent in the Development of the Project.
Nevertheless, with respect to the buyers of the Developer for the First
Phase, the area intended for the Second Phase shall not be bound
and/or subjected to the said covenants and/or any other liability
incurred by the Developer in connection with the development of the
first phase." (Underscoring supplied)
Viewed in the light of the foregoing provision of the JVA, petitioner
cannot avoid liability by claiming that it was not in any way privy to
the Contracts to Sell executed by PPGI and respondents. As correctly
argued by the latter, moreover, a joint venture is considered in this
jurisdiction as a form of partnership and is, accordingly, governed by
the law of partnerships.[54] Under Article 1824 of the Civil Code of
the Philippines, all partners are solidarily liable with the partnership
for everything chargeable to the partnership, including loss or injury
caused to a third person or penalties incurred due to any wrongful act
or omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-
partners.[55] Whether innocent or guilty, all the partners are
solidarily liable with the partnership itself.[56]
WHEREFORE, premises considered, the petition for review is DENIED
for lack of merit. SO ORDERED.
G.R. No. 136448 November 3, 1999
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to
borrow money to pursue a business and to divide the profits or losses
that may arise therefrom, even if it is shown that they have not
contributed any capital of their own to a "common fund." Their
contribution may be in the form of credit or industry, not necessarily
cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly transacted
on its behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails
the November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed
decision, the same is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC)
ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment
issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following
amounts, subject to the modifications as hereinafter made by reason
of the special and unique facts and circumstances and the
proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing
nets covered by the Agreement plus P68,000.00 representing the
unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices
and computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for
P385,377.80 dated February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No. 14413 for
P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing
P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage
charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal
obligation or for the unpaid price of nets and floats in the amount of
P532,045.00 and P68,000.00, respectively, or for the total amount
P600,045.00, this Court noted that these items were attached to
guarantee any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which
the plaintiff was the sole and winning bidder. The proceeds of the sale
paid for by plaintiff was deposited in court. In effect, the amount of
P900,000.00 replaced the attached property as a guaranty for any
judgment that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and
delivered by the sheriff to plaintiff as the highest bidder in the public
auction sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as stipulated in
the invoices; hence, in effect, the plaintiff attached its own properties.
It [was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to defendants
to be cancelled and for the P900,000.00 cash bidded and paid for by
plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever
judgment the plaintiff may be entitled to in this case will have to be
satisfied from the amount of P900,000.00 as this amount replaced the
attached nets and floats. Considering, however, that the total
judgment obligation as computed above would amount to only
P840,216.92, it would be inequitable, unfair and unjust to award the
excess to the defendants who are not entitled to damages and who
did not put up a single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the nets and floats.
87 | P a g e
For this reason, the defendants are hereby relieved from any and all
liabilities arising from the monetary judgment obligation enumerated
above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited
by it with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing
Gear Industries, Inc. (herein respondent). They claimed that they
were engaged in a business venture with Petitioner Lim Tong Lim,
who however was not a signatory to the agreement. The total price
of the nets amounted to P532,045. Four hundred pieces of floats
worth P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. 5 On
September 20, 1990, the lower court issued a Writ of Preliminary
Attachment, which the sheriff enforced by attaching the fishing nets
on board F/B Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within which
to pay. He also turned over to respondent some of the nets which
were in his possession. Peter Yao filed an Answer, after which he was
deemed to have waived his right to cross-examine witnesses and to
present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an
Answer with Counterclaim and Crossclaim and moved for the lifting
of the Writ of Attachment. 6 The trial court maintained the Writ, and
upon motion of private respondent, ordered the sale of the fishing
nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of
P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling
that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao
existed based (1) on the testimonies of the witnesses presented and
(2) on a Compromise Agreement executed by the three 9 in Civil Case
No. 1492-MN which Chua and Yao had brought against Lim in the RTC
of Malabon, Branch 72, for (a) a declaration of nullity of commercial
documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
vessels sold in the amount of P5,750,000.00 including the fishing net.
This P5,750,000.00 shall be applied as full payment for P3,250,000.00
in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher
price than P5,750,000.00 whatever will be the excess will be divided
into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than
P5,750,000.00 whatever the deficiency shall be shouldered and paid
to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as
to the nature of their obligations, but that joint liability could be
presumed from the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated,
affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner
of Chua and Yao in a fishing business and may thus be held liable as a
such for the fishing nets and floats purchased by and for the use of
the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein
appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing . . . . Oviously, the ultimate
undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is . . . . By a
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 (Article 1767, New
Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the
assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP
AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS
ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE
BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF
APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER
LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing
nets and floats from respondent, the Court must resolve this key
issue: whether by their acts, Lim, Chua and Yao could be deemed to
have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
88 | P a g e
and Petitioner's Liability
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA finding
that a partnership existed between him, Peter Yao and Antonio Chua.
He asserts that the CA based its finding on the Compromise
Agreement alone. Furthermore, he disclaims any direct participation
in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further
argues that he was a lessor, not a partner, of Chua and Yao, for the
"Contract of Lease " dated February 1, 1990, showed that he had
merely leased to the two the main asset of the purported partnership
— the fishing boat F/B Lourdes. The lease was for six months, with a
monthly rental of P37,500 plus 25 percent of the gross catch of the
boat.
We are not persuaded by the arguments of petitioner. The facts as
found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the
Civil Code which provides:
Art. 1767 — By the contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the
three existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was
engaged in commercial fishing to join him, while Antonio Chua was
already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally
agreed to acquire two fishing boats, the FB Lourdes and the FB
Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which
executed a Deed of Sale over these two (2) boats in favor of Petitioner
Lim Tong Lim only to serve as security for the loan extended by Jesus
Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping,
repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again
extended a loan to the partnership in the amount of P1 million
secured by a check, because of which, Yao and Chua entrusted the
ownership papers of two other boats, Chua's FB Lady Anne
Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and
Antonio Chua bought nets from Respondent Philippine Fishing Gear,
in behalf of "Ocean Quest Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the
Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim
Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing
boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms of which
are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua,
Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioner's brother. In their
Compromise Agreement, they subsequently revealed their intention
to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed
money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be
an intangible like credit or industry. That the parties agreed that any
loss or profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed formed
a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat
but not in the acquisition of the aforesaid equipment, without which
the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present
case should involve only questions of law. Thus, the foregoing factual
findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present action is embraced by one of the
exceptions to the rule. 16 In assailing the factual findings of the two
lower courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming
the existence of a partnership was the Compromise Agreement. He
also claims that the settlement was entered into only to end the
dispute among them, but not to adjudicate their preexisting rights
and obligations. His arguments are baseless. The Agreement was but
an embodiment of the relationship extant among the parties prior to
its execution.
A proper adjudication of claimants' rights mandates that courts must
review and thoroughly appraise all relevant facts. Both lower courts
have done so and have found, correctly, a preexisting partnership
among the parties. In implying that the lower courts have decided on
the basis of one piece of document alone, petitioner fails to
appreciate that the CA and the RTC delved into the history of the
document and explored all the possible consequential combinations
89 | P a g e
in harmony with law, logic and fairness. Verily, the two lower courts'
factual findings mentioned above nullified petitioner's argument that
the existence of a partnership was based only on the Compromise
Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely
the lessor of the boats to Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in the Contract of Lease
and the registration papers showing that he was the owner of the
boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe
that he consented to the sale of his own boats to pay a debt of Chua
and Yao, with the excess of the proceeds to be divided among the
three of them. No lessor would do what petitioner did. Indeed, his
consent to the sale proved that there was a preexisting partnership
among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in
order to finance the acquisition and the upgrading of the vessels
which would be used in their fishing business. The sale of the boats,
as well as the division among the three of the balance remaining after
the payment of their loans, proves beyond cavil that F/B Lourdes,
though registered in his name, was not his own property but an asset
of the partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts, who
in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.
We stress that it is unreasonable — indeed, it is absurd — for
petitioner to sell his property to pay a debt he did not incur, if the
relationship among the three of them was merely that of lessor-
lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel,
liability can be imputed only to Chua and Yao, and not to him. Again,
we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons who assume to act as
a corporation knowing it to be without authority to do so shall be
liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when
any such ostensible corporation is sued on any transaction entered by
it as a corporation or on any tort committed by it as such, it shall not
be allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in
fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot create agents
or confer authority on another to act in its behalf; thus, those who act
or purport to act as its representatives or agents do so without
authority and at their own risk. And as it is an elementary principle of
law that a person who acts as an agent without authority or without
a principal is himself regarded as the principal, possessed of all the
right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts
performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of
which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence
in a suit brought against the alleged corporation. In such case, all
those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held liable
for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the nets it sold. The only question
here is whether petitioner should be held jointly 18 liable with Chua
and Yao. Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation should be held
liable. Since his name does not appear on any of the contracts and
since he never directly transacted with the respondent corporation,
ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the
nets, because the Writ has effectively stopped his use of the fishing
vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and
Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of
the corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppel. We
reiterate the ruling of the Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one, more deeply
schooled and skilled in the subtle art of movement and position,
entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue
90 | P a g e
and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that
justice be done upon the merits. Lawsuits, unlike duels, are not to be
won by a rapier's thrust. Technicality, when it deserts its proper office
as an aid to justice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts. There should be no vested
rights in technicalities.

Third Issue:

Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly

issued against the nets. We agree with the Court of Appeals that this
issue is now moot and academic. As previously discussed, F/B
Lourdes was an asset of the partnership and that it was placed in the
name of petitioner, only to assure payment of the debt he and his
partners owed. The nets and the floats were specifically
manufactured and tailor-made according to their own design, and
were bought and used in the fishing venture they agreed upon.
Hence, the issuance of the Writ to assure the payment of the price
stipulated in the invoices is proper. Besides, by specific agreement,
ownership of the nets remained with Respondent Philippine Fishing
Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision

AFFIRMED. Costs against petitioner.

SO ORDERED.

91 | P a g e
PAUL MACDONALD, ET AL., petitioners, vs. THE NATIONAL CITY "'(b) That the mortgagee may foreclose the mortgage at any time,
BANK OF NEW YORK, respondent. after breach of any condition thereof, the mortgagor waiving the 30-
day notice of foreclosure.'
G.R. No. L-7991 | 1956-05-21

DECISION
PARAS, J.:
This is an appeal by certiorari from the decision of the Court of
Appeals from which we are reproducing the following basic findings
of fact:
"STASIKINOCEY is a partnership doing business at No. 58, Aurora
Boulevard, San Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da
Costa, Jr., William Kusik and Emma Badong Gavino. This partnership
was denied registration in the Securities and Exchange Commission,
and while it is confusing to see in this case that the CARDINAL
RATTAN, sometimes called the CARDINAL RATTAN FACTORY, is
treated as a copartnership, of which defendants Gorcey and da Costa
are considered general partners, we are satisfied that, as alleged in
various instruments appearing of record, said Cardinal Rattan is
merely the business name or style used by the partnership
Stasikinocey.
"Prior to June 3, 1949, defendant Stasikinocey had an overdraft
account with The National City Bank of New York, a foreign banking
association duly licensed to do business in the Philippines. On June 3,
1949, the overdraft showed a balance of P6,134.92 against the
defendant Stasikinocey or the Cardinal Rattan (Exhibit D), which
account, due to the failure of the partnership to make the required
payment, was converted into an ordinary loan for which the
corresponding promissory 'joint note non-negotiable' was executed
on June 3, 1949, by Louis F. da Costa for and in the name of the
Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This
promissory note was secured on June 7, 1949, by a chattel mortgage
executed by Louis F. da Costa, Jr., General Partner for and in the name
of Stasikinocey, alleged to be a duly registered Philippine partnership,
doing business under the name and style of Cardinal Rattan, with
principal office at 69 Riverside, San Juan, Rizal (Exhibit A). The chattels
mortgaged were the following motor vehicles:
"(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206
and with plate No. T-7333 (1949);
"(b) Plymouth Sedan automobile motor No. T-5638876, Serial No.
11872718 and with plate No. 10372; and
"On June 7, 1949, the same day of the execution of the chattel
mortgage aforementioned, Gorcey and Da Costa executed an
agreement purporting to convey and transfer all their rights, title and
participation in defendant partnership to Shaeffer, allegedly in
consideration of the cancellation of an indebtedness of P25,000 owed
by them and defendant partnership to the latter (Exhibit J), which
transaction is said to be in violation of the Bulk Sales Law (Act No.
3952 of the Philippine Legislature).
"While the said loan was still unpaid and the chattel mortgage
subsisting, defendant partnership, through defendants Gorcey and Da
Costa transferred to defendant McDonald the Fargo truck and
Plymouth sedan on June 24, 1949 (Exhibit L). The Fargo pickup was
also sold on June 28, 1949, by William Shaeffer to Paul McDonald.
"On or about July 19, 1944, Paul Mcdonald, notwithstanding plaintiff's
existing mortgage lien, in turn transferred the Fargo truck and the
Plymouth sedan to Benjamin Gonzales."
The National City Bank of New York, respondent herein, upon learning
of the transfers made by the partnership Stasikinocey to William
Shaeffer, from the latter to Paul McDonald, and from Paul McDonald
to Benjamin Gonzales, of the vehicles previously pledged by
Stasikinocey to the respondent, filed an action against Stasikinocey
and its alleged partners Gorcey and Da Costa, as well as Paul
McDonald and Benjamin Gonzales, to recover its credit and to
foreclose the corresponding chattel mortgage. McDonald and
Gonzales were made defendants because they claimed to have a
better right over the pledged vehicle.
After trial the Court of First Instance of Manila rendered judgment in
favor of the respondent, annulling the sale of the vehicles in question
to Benjamin Gonzales; sentencing Da Costa and Gorcey to pay to the
respondent jointly and severally the sum of P6,134.92, with legal
interest from the debt of the promissory note involved; sentencing
the petitioner Gonzales to deliver the vehicles in question to the
respondent for sale at public auction if Da Costa and Gorcey should
fail to pay the money judgment; and sentencing Da Costa, Gorcey and
Shaeffers to pay to the respondent jointly and severally any deficiency
that may remain unpaid should the proceeds of the sale not be
sufficient; and sentencing Gorcey, Da Costa, McDonald and Shaeffer
to pay the costs. Only Paul McDonald and Benjamin Gonzales
appealed to the Court of Appeals which rendered a decision the
dispositive part of which reads as follows:

"( c) Fargo Pick-Up FKI-16, with motor No. T-112800032, "WHEREFORE, the decision appealed from is hereby modified,
relieving appellant William Shaeffer of the obligation of paying, jointly
Serial No. 8869225 and with plate No. T-7222 (1949). and severally, together with Alan W. Gorcey and Louis F. da Costa, Jr.,
any deficiency that may remain unpaid after applying the proceeds of
The mortgage deed was fully registered by the mortgagee on June 11, the sale of the said motor vehicles which shall be undertaken upon
1949, in the Office of the Register of Deeds for the province of Rizal, the lapse of 90 days from the date this decision becomes final, if by
at Pasig, (Exhibit A), and among other provisions it contained the then defendants Louis F. da Costa, Jr., and Alan W. Gorcey had not
following: paid the amount of the judgment debt. With this modification the
decision appealed from is in all other respects affirmed, with costs
"'(a) That the mortgagor shall not sell or otherwise dispose of the said against appellants. This decision is without prejudice to whatever
chattels without the mortgagee's written consent; and action Louis F. da Costa, Jr., and Alan W. Gorcey may take against their

92 | P a g e
co-partners in the Stasikinocey unregistered partnership."
This appeal by certiorari was taken by Paul McDonald and Benjamin
Gonzales, petitioners herein, who have assigned the following errors:
"I
"IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP
WHICH HAS NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A
'DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT
'DOMICILE' WOULD BIND THIRD PERSONS WHO ARE INNOCENT
PURCHASERS FOR VALUE.
"II
"IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE
OF THE MEMBERS OF AN UNREGISTERED COMMERCIAL CO-
PARTNERSHIP WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF
ITS MEMBERS, IT NEED NOT BE REGISTERED IN THE ACTUAL
RESIDENCE OF THE MEMBERS WHO EXECUTED SAME; AND, AS A
CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS
TO THE ACTUAL RESIDENCE OF SAID CHATTEL MORTGAGOR, DESPITE
APPELLANTS' RAISING THAT QUESTION PROPERLY BEFORE IT AND
REQUESTING A RULING THEREON.
"III
IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN
AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF
THE TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS
VOID AND THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD
PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE; AND, AS A
CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS
TO WHERE THE DEED WAS IN FACT EXECUTED, DESPITE APPELLANTS'
RAISING THAT QUESTION PROPERLY BEFORE IT AND EXPRESSLY
REQUESTING A RULING THEREON.
"IV
"IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN
UNREGISTERED COMMERCIAL CO-PARTNERSHIP 'TO MAKE ALL
OFFICIAL AND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL
CITY BANK OF NEW YORK IN ORDER TO SIMPLIFY ALL MATTERS
RELATIVE TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER BANKING
MEDIUMS,' WAS SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO
EXECUTE A CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK
SECURITY FOR A PRE-EXISTING OVERDRAFT, GRANTED WITHOUT
SECURITY. WHICH THE BANK HAD CONVERTED INTO A DEMAND
LOAN UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL
MORTGAGE WAS EXECUTED.'
This is the first question propounded by the petitioners: "Since an
unregistered commercial partnership unquestionably has no juridical
personality, can it have a domicile so that the registration of a chattel
mortgage therein is notice to the world?"
While an unregistered commercial partnership has no juridical
personality, nevertheless, where two or more persons attempt to
create a partnership failing to comply with all the legal formalities, the
law considers them as partners and the association is a partnership in
so far as it is a favorable to third persons, by reason of the equitable
principle of estoppel. In Jo Chung Chang vs. Pacific Commercial Co.,
45 Phil., 145, it was held "that although the partnership with the firm
name of 'Teck Seing and Co. Ltd.,' could not be regarded as a
partnership de jure, yet with respect to third persons it will be
considered a partnership with all the consequent obligations for the
purpose of enforcing the rights of such third persons." Da Costa and
Gorcey cannot deny that they are partners of the partnership
Stasikinocey, because in all their transactions with the respondent
they represented themselves as such. Petitioner McDonald cannot
disclaim knowledge of the partnership Stasikinocey because he dealt
with said entity in purchasing two of the vehicles in question through
Gorcey and Da Costa. As was held in Behn Meyer & Co. vs. Rosatzin, 5
Phil., 660, where a partnership not duly organized has been
recognized as such in its dealings with certain persons, it shall be
considered as "partnership by estoppel" and the persons dealing with
it are estopped from denying its partnership existence. The sale of the
vehicles in question being void as to petitioner McDonald, the
transfer from the latter to petitioner Benjamin Gonzales is also void,
as the buyer cannot have a better right than the seller.
It results that if the law recognizes a defectively organized partnership
as de facto as far as third persons are concerned, for purposes of its
de facto existence it should have such attribute of a partnership as
domicile. In Hung-Man Yoc vs. Kieng-Chiong-Seng, 6 Phil., 498, it was
held that although "it has no legal standing, it is a partnership de facto
and the general provisions of the Code applicable to all partnerships
apply to it." The registration of the chattel mortgage in question with
the Office of the Register of Deeds of Rizal, the residence or place of
business of the partnership Stasikinocey being San Juan, Rizal, was
therefore in accordance with section 4 of the Chattel Mortgage Law.
The second question propounded by the petitioners is: "If not, is a
chattel mortgage executed by only one of the 'partners' of an
unregistered commercial partnership validly registered so as to
constitute notice to the world if it is not registered at the place where
the aforesaid 'partner' actually resides but only in the place where the
deed states that he resides, which is not his real residence?" And the
third question is as follows: "If the actual residence of the chattel
mortgagor - not the residence stated in the deed of chattel mortgage
- is controlling, may the Court of Appeals refuse to make a finding of
fact as to where the mortgagor resided despite your petitioners'
having properly raised that question before it and expressly
requested a ruling thereon?"
These two questions have become academic by reason of the answer
to the first question, namely, that as a de facto partnership,
Stasikinocey had its domicile in San Juan, Rizal.
The fourth question asked by the petitioners is as follows: "Is a chattel
mortgage executed by only one of the 'partners' of an unregistered
commercial partnership valid as to third persons when that 'partner'
executed the affidavit of good faith in Quezon City before a notary
public whose appointment is only for the City of Manila? If not, may
the Court of Appeals refuse to make a finding of fact as to where the
deed was executed, despite your petitioners' having properly raised
that issue before it and expressly requested a ruling thereon?"
It is noteworthy that the chattel mortgage in question is in the form
required by law, and there is therefore the presumption of its due
93 | P a g e
execution which cannot be easily destroyed by the biased testimony
of the one who executed it. The interested version of Da Costa that
the affidavit of good faith appearing in the chattel mortgage was
executed in Quezon City before a notary public for and in the City of
Manila was correctly rejected by the trial court and the Court of
Appeals. Indeed, cumbersome legal formalities are imposed to
prevent fraud. As aptly pointed out in El Hogar Filipino vs. Olviga, 60
Phil., 17, "If the biased and interested testimony of a grantor and the
vague and uncertain testimony of his son are deemed sufficient to
overcome a public instrument drawn up with all the formalities
prescribed by the law then there will have been established a very
dangerous doctrine which would throw wide open the doors to
fraud."

The last question raised by the petitioners is as follows: "Does only

one of several 'partners' of an unregistered commercial partnership
have authority, by himself alone, to execute a valid chattel mortgage
over property owned by the unregistered commercial partnership in
order to guarantee a pre-existing overdraft previously granted,
without guaranty, by the bank?"

In view of the conclusion that Stasikinocey is a de facto partnership,

and Da Costa appears as a co-manager in the letter of Gorcey to the
respondent and in the promissory note executed by Da Costa, and
that even the partners considered him as such, as stated in the
affidavit of April 21, 1948, to the effect that "That we as the majority
partners hereby agree to appoint Louis da Costa co-managing partner
of Alan W. Gorcey, duly approved managing partner of the said firm,"
the "partner" who executed the chattel mortgage in question must be
deemed to be so fully authorized. Section 6 of the Chattel Mortgage
Law provides that when a partnership is a party to the mortgage, the
affidavit may be made and subscribed by one member thereof. In this
case the affidavit was executed and subscribed by Da Costa, not only
as a partner but as a managing partner.

There is no merit in petitioners' pretense that the motor vehicles in

question are the common property of Da Costa and Gorcey.
Petitioners invoke article 24 of the Code of Commerce in arguing that
an unregistered commercial partnership has no juridical personality
and cannot execute any act that would adversely affect innocent third
persons. Petitioners forget that the respondent is a third person with
respect to the partnership, and the chattel mortgage executed by Da
Costa cannot therefore be impugned by Gorcey on the ground that
there is no partnership between them and that the vehicles in
question belonged to them in common. As a matter of fact, the
respondent and the petitioners are all third persons as regards the
partnership Stasikinocey; and even assuming that the petitioners are
purchasers in good faith and for value, the respondent having
transacted with Stasikinocey earlier than the petitioners, it should
enjoy and be given priority.

Wherefore, the appealed decision of the Court of Appeals is affirmed

with costs against the petitioners.

94 | P a g e
G.R. No. L-35469 March 17, 1932
E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser,
deceased, defendant-appellee.
Harvey & O'Brien for appellant.
DeWitt, Perkins & Brandy for appellee.
STREET, J.:
This action was institute in the Court of First Instance of the City of
Manila, by E. S. Lyons against C. W. Rosenstock, as executor of the
estate of H. W. Elser, deceased, consequent upon the taking of an
appeal by the executor from the allowance of the claim sued upon by
the committee on claims in said estate. The purpose of the action is
to recover four hundred forty-six and two thirds shares of the stock
of J. K. Pickering & Co., Ltd., together with the sum of about P125,000,
representing the dividends which accrued on said stock prior to
October 21, 1926, with lawful interest. Upon hearing the cause the
trial court absolved the defendant executor from the complaint, and
the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a
resident of the City of Manila where he was engaged during the years
with which we are here concerned in buying, selling, and
administering real estate. In several ventures which he had made in
buying and selling property of this kind the plaintiff, E. S. Lyons, had
joined with him, the profits being shared by the two in equal parts. In
April, 1919, Lyons, whose regular vocation was that of a missionary,
or missionary agent, of the Methodist Episcopal Church, went on
leave to the United States and was gone for nearly a year and a half,
returning on September 21, 1920. On the eve of his departure Elser
made a written statements showing that Lyons was, at that time, half
owner with Elser of three particular pieces of real property.
Concurrently with this act Lyons execute in favor of Elser a general
power of attorney empowering him to manage and dispose of said
properties at will and to represent Lyons fully and amply, to the
mutual advantage of both. During the absence of Lyons two of the
pieces of property above referred to were sold by Elser, leaving in his
hands a single piece of property located at 616-618 Carried Street, in
the City of Manila, containing about 282 square meters of land, with
the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece of
land, containing about 1,500,000 square meters, near the City of
Manila, and he discerned therein a fine opportunity for the promotion
and development of a suburban improvement. This property, which
will be herein referred to as the San Juan Estate, was offered by its
owners for P570,000. To afford a little time for maturing his plans,
Elser purchased an option on this property for P5,000, and when this
option was about to expire without his having been able to raise the
necessary funds, he paid P15,000 more for an extension of the option,
with the understanding in both cases that, in case the option should
be exercised, the amounts thus paid should be credited as part of the
first payment. The amounts paid for this option and its extension were
supplied by Elser entirely from his own funds. In the end he was able
from his own means, and with the assistance which he obtained from
others, to acquire said estate. The amount required for the first
payment was P150,000, and as Elser had available only about
P120,000, including the P20,000 advanced upon the option, it was
necessary to raise the remainder by obtaining a loan for P50,000. This
amount was finally obtained from a Chinese merchant of the city
named Uy Siuliong. This loan was secured through Uy Cho Yee, a son
of the lender; and in order to get the money it was necessary for Elser
not only to give a personal note signed by himself and his two
associates in the projected enterprise, but also by the Fidelity &
Surety Company. The money thus raised was delivered to Elser by Uy
Siuliong on June 24, 1920. With this money and what he already had
in bank Elser purchased the San Juan Estate on or about June 28,
1920. For the purpose of the further development of the property a
limited partnership had, about this time, been organized by Elser and
three associates, under the name of J. K. Pickering & Company; and
when the transfer of the property was effected the deed was made
directly to this company. As Elser was the principal capitalist in the
enterprise he received by far the greater number of the shares issued,
his portion amount in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser contemplated
and hoped that Lyons might be induced to come in with him and
supply part of the means necessary to carry the enterprise through.
In this connection it appears that on May 20, 1920, Elser wrote Lyons
a letter, informing him that he had made an offer for a big subdivision
and that, if it should be acquired and Lyons would come in, the two
would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before
the first option expired, Elser cabled Lyons that he had bought the San
Juan Estate and thought it advisable for Lyons to resign (Exhibit M-
13), meaning that he should resign his position with the mission board
in New York. On the same date he wrote Lyons a letter explaining
some details of the purchase, and added "have advised in my cable
that you resign and I hope you can do so immediately and will come
and join me on the lines we have so often spoken about. . . . There is
plenty of business for us all now and I believe we have started
something that will keep us going for some time." In one or more
communications prior to this, Elser had sought to impress Lyons with
the idea that he should raise all the money he could for the purpose
of giving the necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked
degree to Lyons, and found him averse from joining in the purchase
of the San Juan Estate. In fact upon this visit of Lyons to the United
States a grave doubt had arisen as to whether he would ever return
to Manila, and it was only in the summer of 1920 that the board of
missions of his church prevailed upon him to return to Manila and
resume his position as managing treasurer and one of its trustees.
Accordingly, on June 21, 1920, Lyons wrote a letter from New York
thanking Elser for his offer to take Lyons into his new project and
adding that from the standpoint of making money, he had passed up
a good thing.
One source of embarrassment which had operated on Lyson to bring
him to the resolution to stay out of this venture, was that the board
of mission was averse to his engaging in business activities other than
those in which the church was concerned; and some of Lyons'
missionary associates had apparently been criticizing his independent
commercial activities. This fact was dwelt upon in the letter above-
mentioned. Upon receipt of this letter Elser was of course informed
that it would be out of the question to expect assistance from Lyons
in carrying out the San Juan project. No further efforts to this end
were therefore made by Elser.
When Elser was concluding the transaction for the purchase of the
San Juan Estate, his book showed that he was indebted to Lyons to
95 | P a g e
the extent of, possibly, P11,669.72, which had accrued to Lyons from
profits and earnings derived from other properties; and when the J.
K. Pickering & Company was organized and stock issued, Elser
indorsed to Lyons 200 of the shares allocated to himself, as he then
believed that Lyons would be one of his associates in the deal. It will
be noted that the par value of these 200 shares was more than P8,000
in excess of the amount which Elser in fact owed to Lyons; and when
the latter returned to the Philippine Islands, he accepted these shares
and sold them for his own benefit. It seems to be supposed in the
appellant's brief that the transfer of these shares to Lyons by Elser
supplies some sort of basis for the present action, or at least
strengthens the considerations involved in a feature of the case to be
presently explained. This view is manifestly untenable, since the
ratification of the transaction by Lyons and the appropriation by him
of the shares which were issued to him leaves no ground whatever
for treating the transaction as a source of further equitable rights in
Lyons. We should perhaps add that after Lyons' return to the
Philippine Islands he acted for a time as one of the members of the
board of directors of the J. K. Pickering & Company, his qualification
for this office being derived precisely from the ownership of these
shares.
We now turn to the incident which supplies the main basis of this
action. It will be remembered that, when Elser obtained the loan of
P50,000 to complete the amount needed for the first payment on the
San Juan Estate, the lender, Uy Siuliong, insisted that he should
procure the signature of the Fidelity & Surety Co. on the note to be
given for said loan. But before signing the note with Elser and his
associates, the Fidelity & Surety Co. insisted upon having security for
the liability thus assumed by it. To meet this requirements Elser
mortgaged to the Fidelity & Surety Co. the equity of redemption in
the property owned by himself and Lyons on Carriedo Street. This
mortgage was executed on June 30, 1920, at which time Elser
expected that Lyons would come in on the purchase of the San Juan
Estate. But when he learned from the letter from Lyons of July 21,
1920, that the latter had determined not to come into this deal, Elser
began to cast around for means to relieve the Carriedo property of
the encumbrance which he had placed upon it. For this purpose, on
September 9, 1920, he addressed a letter to the Fidelity & Surety Co.,
asking it to permit him to substitute a property owned by himself at
644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K.
Pickering & Company, in lieu of the Carriedo property, as security. The
Fidelity & Surety Co. agreed to the proposition; and on September 15,
1920, Elser executed in favor of the Fidelity & Surety Co. a new
mortgage on the M. H. del Pillar property and delivered the same,
with 1,000 shares of J. K. Pickering & Company, to said company. The
latter thereupon in turn executed a cancellation of the mortgage on
the Carriedo property and delivered it to Elser. But notwithstanding
the fact that these documents were executed and delivered, the new
mortgage and the release of the old were never registered; and on
September 25, 1920, thereafter, Elser returned the cancellation of the
mortgage on the Carriedo property and took back from the Fidelity &
Surety Co. the new mortgage on the M. H. del Pilar property, together
with the 1,000 shares of the J. K. Pickering & Company which he had
delivered to it.
The explanation of this change of purpose is undoubtedly to be found
in the fact that Lyons had arrived in Manila on September 21, 1920,
and shortly thereafter, in the course of a conversation with Elser told
him to let the Carriedo mortgage remain on the property ("Let the
Carriedo mortgage ride"). Mrs. Elser testified to the conversation in
which Lyons used the words above quoted, and as that conversation
supplies the most reasonable explanation of Elser's recession from his
purpose of relieving the Carriedo property, the trial court was, in our
opinion, well justified in accepting as a proven fact the consent of
Lyons for the mortgage to remain on the Carriedo property. This
concession was not only reasonable under the circumstances, in view
of the abundant solvency of Elser, but in view of the further fact that
Elser had given to Lyons 200 shares of the stock of the J. K. Pickering
& Co., having a value of nearly P8,000 in excess of the indebtedness
which Elser had owed to Lyons upon statement of account. The trial
court found in effect that the excess value of these shares over Elser's
actual indebtedness was conceded by Elser to Lyons in consideration
of the assistance that had been derived from the mortgage placed
upon Lyon's interest in the Carriedo property. Whether the
agreement was reached exactly upon this precise line of thought is of
little moment, but the relations of the parties had been such that it
was to be expected that Elser would be generous; and he could
scarcely have failed to take account of the use he had made of the
joint property of the two.
As the development of the San Juan Estate was a success from the
start, Elser paid the note of P50,000 to Uy Siuliong on January 18,
1921, although it was not due until more than five months later. It will
thus be seen that the mortgaging of the Carriedo property never
resulted in damage to Lyons to the extent of a single cent; and
although the court refused to allow the defendant to prove the Elser
was solvent at this time in an amount much greater than the entire
encumbrance placed upon the property, it is evident that the risk
imposed upon Lyons was negligible. It is also plain that no money
actually deriving from this mortgage was ever applied to the purchase
of the San Juan Estate. What really happened was the Elser merely
subjected the property to a contingent liability, and no actual liability
ever resulted therefrom. The financing of the purchase of the San
Juan Estate, apart from the modest financial participation of his three
associates in the San Juan deal, was the work of Elser accomplished
entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a mortgage
for P50,000 upon the equity of redemption in the Carriedo property,
Lyons, as half owner of said property, became, as it were, involuntarily
the owner of an undivided interest in the property acquired partly by
that money; and it is insisted for him that, in consideration of this fact,
he is entitled to the four hundred forty-six and two-thirds shares of J.
K. Pickering & Company, with the earnings thereon, as claimed in his
complaint.
Lyons tells us that he did not know until after Elser's death that the
money obtained from Uy Siuliong in the manner already explained
had been used to held finance the purchase of the San Juan Estate.
He seems to have supposed that the Carried property had been
mortgaged to aid in putting through another deal, namely, the
purchase of a property referred to in the correspondence as the
"Ronquillo property"; and in this connection a letter of Elser of the
latter part of May, 1920, can be quoted in which he uses this
language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo
property. Will use part of the money for Ronquillo buy (P60,000) if the
owner comes through.
Other correspondence shows that Elser had apparently been trying to
buy the Ronquillo property, and Lyons leads us to infer that he
96 | P a g e
thought that the money obtained by mortgaging the Carriedo
property had been used in the purchase of this property. It
doubtedless appeared so to him in the retrospect, but certain
consideration show that he was inattentive to the contents of the
quotation from the letter above given. He had already been informed
that, although Elser was angling for the Ronquillo property, its price
had gone up, thus introducing a doubt as to whether he could get it;
and the quotation above given shows that the intended use of the
money obtained by mortgaging the Carriedo property was that only
part of the P50,000 thus obtained would be used in this way, if the
deal went through. Naturally, upon the arrival of Lyons in September,
1920, one of his first inquiries would have been, if he did not know
before, what was the status of the proposed trade for the Ronquillo
property.
The appellee insist that the trial court committed error in admitting
the testimony of Lyons upon matters that passed between him and
Elser while the latter was still alive. While the admission of this
testimony was of questionable propriety, any error made by the trial
court on this point was error without injury, and the determination of
the question is not necessary to this decision. We therefore pass the
point without further discussion.
The judgment appealed from will be affirmed, and it is so ordered,
with costs against the appellant.

Elser's widow and one of his clerks testified that about June 15, 1920,
Elser cabled Lyons something to this effect;: "I have mortgaged the
property on Carriedo Street, secured by my personal note. You are
amply protected. I wish you to join me in the San Juan Subdivision.
Borrow all money you can." Lyons says that no such cablegram was
received by him, and we consider this point of fact of little moment,
since the proof shows that Lyons knew that the Carriedo mortgage
had been executed, and after his arrival in Manila he consented for
the mortgage to remain on the property until it was paid off, as shortly
occurred. It may well be that Lyons did not at first clearly understand
all the ramifications of the situation, but he knew enough, we think,
to apprise him of the material factors in the situation, and we concur
in the conclusion of the trial court that Elser did not act in bad faith
and was guilty of no fraud.

In the purely legal aspect of the case, the position of the appellant is,
in our opinion, untenable. If Elser had used any money actually
belonging to Lyons in this deal, he would under article 1724 of the
Civil Code and article 264 of the Code of Commerce, be obligated to
pay interest upon the money so applied to his own use. Under the law
prevailing in this jurisdiction a trust does not ordinarily attach with
respect to property acquired by a person who uses money belonging
to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer,
25 Phil., 641.). Of course, if an actual relation of partnership had
existed in the money used, the case might be difference; and much
emphasis is laid in the appellant's brief upon the relation of
partnership which, it is claimed, existed. But there was clearly no
general relation of partnership, under article 1678 of the Civil Code. It
is clear that Elser, in buying the San Juan Estate, was not acting for
any partnership composed of himself and Lyons, and the law cannot
be distorted into a proposition which would make Lyons a participant
in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in

the jurisprudence of England and the United States with reference to
trust supply a basis for this action. The doctrines referred to operate,
however, only where money belonging to one person is used by
another for the acquisition of property which should belong to both;
and it takes but little discernment to see that the situation here
involved is not one for the application of that doctrine, for no money
belonging to Lyons or any partnership composed of Elser and Lyons
was in fact used by Elser in the purchase of the San Juan Estate. Of
course, if any damage had been caused to Lyons by the placing of the
mortgage upon the equity of redemption in the Carriedo property,
Elser's estate would be liable for such damage. But it is evident that
Lyons was not prejudice by that act.

97 | P a g e
G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and
EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of
their acts. That the terms of a contract turn out to be financially
disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso
facto release the contracting partners from their respective
obligations to each other arising from acts executed in accordance
with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5,
1998 Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No. 42378
and its June 25, 1998 Resolution denying reconsideration. The
assailed Decision affirmed the ruling of the Regional Trial Court (RTC)
of Cebu City in Civil Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding
for the defendant and against the plaintiffs, orders the dismissal of
the plaintiffs complaint. The counterclaims of the defendant are
likewise ordered dismissed. No pronouncement as to costs. 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel
Torres for the development of a parcel of land into a subdivision.
Pursuant to the contract, they executed a Deed of Sale covering the
said parcel of land in favor of respondent, who then had it registered
in his name. By mortgaging the property, respondent obtained from
Equitable Bank a loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of the
subdivision. 4 All three of them also agreed to share the proceeds
from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of "respondent's
lack of funds or means and skills." They add that respondent used the
loan not for the development of the subdivision, but in furtherance of
his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to
implement the Agreement. With the said amount, he was able to
effect the survey and the subdivision of the lots. He secured the Lapu
Lapu City Council's approval of the subdivision project which he
advertised in a local newspaper. He also caused the construction of
roads, curbs and gutters. Likewise, he entered into a contract with an
engineering firm for the building of sixty low-cost housing units and
actually even set up a model house on one of the subdivision lots. He
did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims, thereby forcing
him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted. Thereafter,
they filed the present civil case which, upon respondent's motion, was
later dismissed by the trial court in an Order dated September 6,
1982. On appeal, however, the appellate court remanded the case for
further proceedings. Thereafter, the RTC issued its assailed Decision,
which, as earlier stated, was affirmed by the CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners
and respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership
in the same proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial court's pronouncement that losses
as well as profits in a joint venture should be distributed equally, 7 the
CA invoked Article 1797 of the Civil Code which provides:
Art. 1797 — The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits
has been agreed upon, the share of each in the losses shall be in the
same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits
and losses shall be in proportion to what he may have contributed,
but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just
and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in
proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the transaction
. . . between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769,
and other related provisions of the Civil Code of the Philippines. 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of
Sale, both of which were the bases of the appellate court's finding of
a partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project.
Because the agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they pray that
98 | P a g e
respondent pay them damages equivalent to 60 percent of the value
of the property. 9
The pertinent portions of the Joint Venture Agreement read as
follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines,
this 5th day of March, 1969, by and between MR. MANUEL R. TORRES,
. . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, . . . the SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST
PARTY, this property located at Lapu-Lapu City, Island of Mactan,
under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon
the execution of this contract for the property entrusted by the
SECOND PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants
and promises herein contained the respective parties hereto do
hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale . . .
dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE
HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency,
for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50)
Philippine Currency, in favor of the FIRST PARTY, but the SECOND
PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST
PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00)
pesos, Philippine currency, for their personal obligations and this
particular amount will serve as an advance payment from the FIRST
PARTY for the property mentioned to be sub-divided and to be
deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY,
the interest and the principal amount involving the amount of
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until
the sub-division project is terminated and ready for sale to any
interested parties, and the amount of TWENTY THOUSAND
(P20,000.00) pesos, Philippine currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the
sub-division project should be paid by the FIRST PARTY, exclusively
and all the expenses will not be deducted from the sales after the
development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM
40% for the FIRST PARTY, and additional profits or whatever income
deriving from the sales will be divided equally according to the . . .
percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved
will start the work and all improvements upon the adjacent lots will
be negotiated in both parties['] favor and all sales shall [be] decided
by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get
back the property mentioned provided the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
SECOND PARTY, will be paid in full to the FIRST PARTY, including all
necessary improvements spent by the FIRST PARTY, and-the FIRST
PARTY will be given a grace period to turnover the property
mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties
who executed same freely and voluntarily for the uses and purposes
therein stated. 10
A reading of the terms embodied in the Agreement indubitably shows
the existence of a partnership pursuant to Article 1767 of the Civil
Code, which provides:
Art. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute
property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in
addition to his industry, the amount needed for general expenses and
other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership. 11
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the
name of the respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which were used for
the survey and the subdivision of the land. As noted earlier, he
developed the roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the
property.
Respondent's actions clearly belie petitioners' contention that he
made no contribution to the partnership. Under Article 1767 of the
Civil Code, a partner may contribute not only money or property, but
also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not
only to what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.
It is undisputed that petitioners are educated and are thus presumed
to have understood the terms of the contract they voluntarily signed.
If it was not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not
99 | P a g e
relieve parties thereto of their obligations. They cannot now disavow
the relationship formed from such agreement due to their supposed
misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under
Article 1773 of the Civil Code, which provides:
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
As explained by the trial court, "the land was in effect given to the
partnership as [petitioner's] participation therein. . . . There was
therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would]
get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to
pay damages equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint Venture
Agreement.

They contend that since the parties did not make, sign or attach to
the public instrument an inventory of the real property contributed,
the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771, 12 "The
execution of a public instrument would be useless if there is no
inventory of the property contributed, because without its
designation and description, they cannot be subject to inscription in
the Registry of Property, and their contribution cannot prejudice third
persons. This will result in fraud to those who contract with the
partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the
law when no such inventory is made." The case at bar does not involve
third parties who may be prejudiced.
We are not persuaded. True, the Court of Appeals held that
petitioners' acts were not the cause of the failure of the project. 16 But
it also ruled that neither was respondent responsible therefor. 17 In
imputing the blame solely to him, petitioners failed to give any reason
why we should disregard the factual findings of the appellate court
relieving him of fault. Verily, factual issues cannot be resolved in a
petition for review under Rule 45, as in this case. Petitioners have not
alleged, not to say shown, that their Petition constitutes one of the
exceptions to this doctrine. 18Accordingly, we find no reversible error
in the CA's ruling that petitioners are not entitled to damages.
WHEREFORE, the Perition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.
SO ORDERED

Second, petitioners themselves invoke the allegedly void contract as

basis for their claim that respondent should pay them 60 percent of
the value of the property. 13 They cannot in one breath deny the
contract and in another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent positions in
regard to a contract and courts will not tolerate, much less approve,
such practice.

In short, the alleged nullity of the partnership will not prevent courts
from considering the Joint Venture Agreement an ordinary contract
from which the parties' rights and obligations to each other may be
inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void

under Article 1422 14 of the Civil Code, because it is the direct result
of an earlier illegal contract, which was for the sale of the land without
valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states

that the consideration for the sale was the expectation of profits from
the subdivision project. Its first stipulation states that petitioners did
not actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated as cause,
can take different forms, such as the prestation or promise of a thing
or service by another. 15

In this case, the cause of the contract of sale consisted not in the
stated peso value of the land, but in the expectation of profits from
the subdivision project, for which the land was intended to be used.

100 | P a g e
G.R. No. 127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision 1 of the Court
of Appeals, dated November 29, 1990, which reversed the decision of
the Regional Trial Court, Branch 273, Marikina, Metro Manila, dated
April 11, 1995. The trial court dismissed the petition for declaration of
nullity of a deed of sale filed by private respondent Felicidad S. Vda.
de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership
engaged in lending activities. Private respondent and her late
husband, Ruben M. Abrogar, were the registered owners of a house
and lot, covered by Transfer Certificate of Title No. 195101, in
Marikina, Metro Manila. On April 18, 1991, private respondent, with
the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner, entered into a Memorandum of
Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the
above-described property from the FIRST PARTY [Felicidad S. Vda. de
Abrogar], and pursuant to this agreement, a Deed of Absolute Sale
shall be executed by the FIRST PARTY conveying the property to the
SECOND PARTY for and in consideration of the sum of Two Hundred
Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option
to repurchase the said property within a period of ninety (90) days
from the execution of this memorandum of agreement effective April
18, 1991, for the amount of TWO HUNDRED THIRTY THOUSAND
PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to
repurchase the said property within a period of ninety (90) days, the
FIRST PARTY is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the
expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not
to file any lis pendens or whatever claims on the property nor shall be
cause the annotation of say claim at the back of the title to the said
property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY
warrants her ownership of the property and shall defend the rights of
the SECOND PARTY against any party whom may have any interests
over the property;
(6) All expenses for documentation and other incidental expenses
shall be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the
property to the SECOND PARTY after the expiration of the 15-day
grace period given in paragraph 3 above, the FIRST PARTY shall pay an
amount equivalent to Five Percent of the principal amount of TWO
HUNDRED PESOS (P200.00) or P10,000.00 per month of delay as and
for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase
the property within ninety (90) days period above-mentioned, this
memorandum of agreement shall be deemed cancelled and the Deed
of Absolute Sale, executed by the parties shall be the final contract
considered as entered between the parties and the SECOND PARTY
shall proceed to transfer ownership of the property above described
to its name free from lines and encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed
of absolute sale, 3 dated June 11, 1991, wherein private respondent,
with the consent of her late husband, sold the subject property to A.C.
Aguila & Sons, Co., represented by petitioner, for P200,000,00. In a
special power of attorney dated the same day, April 18, 1991, private
respondent authorized petitioner to cause the cancellation of TCT No.
195101 and the issuance of a new certificate of title in the name of
A.C. Aguila and Sons, Co., in the event she failed to redeem the subject
property as provided in the Memorandum of Agreement. 4
Private respondent failed to redeem the property within the 90-day
period as provided in the Memorandum of Agreement. Hence,
pursuant to the special power of attorney mentioned above,
petitioner caused the cancellation of TCT No. 195101 and the issuance
of a new certificate of title in the name of A.C. Aguila and Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from
Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co.,
demanding that she vacate the premises within 15 days after receipt
of the letter and surrender its possession peacefully to A.C. Aguila &
Sons, Co. Otherwise, the latter would bring the appropriate action in
court. 6
Upon the refusal of private respondent to vacate the subject
premises, A.C. Aguila & Sons, Co. filed an ejectment case against her
in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila.
In a decision, dated April 3, 1992, the Metropolitan Trial Court ruled
in favor of A.C. Aguila & Sons, Co. on the ground that private
respondent did not redeem the subject property before the
expiration of the 90-day period provided in the Memorandum of
Agreement. Private respondent appealed first to the Regional Trial
Court, Branch 163, Pasig, Metro Manila, then to the Court of Appeals,
and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a
deed of sale with the Regional Trial Court, Branch 273, Marikina,
Metro Manila on December 4, 1993. She alleged that the signature of
her husband on the deed of sale was a forgery because he was already
dead when the deed was supposed to have been executed on June
11, 1991.
It appears, however, that private respondent had filed a criminal
complaint for falsification against petitioner with the Office of the
Prosecutor of Quezon City which was dismissed in a resolution, dated
February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery
because they could not personally appear before Notary Public
Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben
Abrogar, died on May 8, 1991 or one month and 2 days before the
101 | P a g e
execution of the Deed of Absolute Sale, while the plaintiff was still in
the Quezon City Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991, cannot be
sustained. The Court is convinced that the three required documents,
to wit: the Memorandum of Agreement, the Special Power of
Attorney, and the Deed of Absolute Sale were all signed by the parties
on the same date on April 18, 1991. It is a common and accepted
business practice of those engaged in money lending to prepare an
undated absolute deed of sale in loans of money secured by real
estate for various reasons, foremost of which is the evasion of taxes
and surcharges. The plaintiff never questioned receiving the sum of
P200,000.00 representing her loan from the defendant. Common
sense dictates that an established lending and realty firm like the
Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar
spouses, who are virtual strangers to it, without the simultaneous
accomplishment and signing of all the required documents, more
particularly the Deed of Absolute Sale, to protect its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption is
hereby ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-
appellant and defendant-appellee is indubitably an equitable
mortgage. Article 1602 of the New Civil Code finds strong application
in the case at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase
is unusually inadequate. The property is a two hundred forty (240) sq.
m. lot. On said lot, the residential house of plaintiff-appellant stands.
The property is inside a subdivision/village. The property is situated in
Marikina which is already part of Metro Manila. The alleged sale took
place in 1991 when the value of the land had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00
or P833.33 per square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically
provides that plaintiff-appellant is obliged to deliver peacefully the
possession of the property to the SECOND PARTY within fifteen (15)
days after the expiration of the said ninety (90) day grace period.
Otherwise stated, plaintiff-appellant is to retain physical possession
of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property "sold"
as if they were still the absolute owners. There was no provision for
maintenance or expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to
pay taxes on the property "sold". It is well-known that payment of
taxes accompanied by actual possession of the land covered by the
tax declaration, constitute evidence of great weight that a person
under whose name the real taxes were declared has a claim of right
over the land.
It is well-settled that the presence of even one of the circumstances
in Article 1602 of the New Civil Code is sufficient to declare a contract
of sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which
is unusually inadequate, has retained possession of the subject
property and has continued paying the realty taxes over the subject
property, (circumstances mentioned in par. (1) (2) and (5) of Article
1602 of the New Civil Code), it must be conclusively presumed that
the transaction the parties actually entered into is an equitable
mortgage, not a sale with right to repurchase. The factors cited are in
support to the finding that the Deed of Sale/Memorandum of
Agreement with right to repurchase is in actuality an equitable
mortgage.
Moreover, it is undisputed that the deed of sale with right of
repurchase was executed by reason of the loan extended by
defendant-appellee to plaintiff-appellant. The amount of loan being
the same with the amount of the purchase price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of debt,
now deemed to be repurchase price: the transaction shall then be
considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the
nature of a pactum commissorium which is clearly prohibited by
Article 2088 of the New Civil Code. Article 2088 of the New Civil Code
reads:
Art. 2088. The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the
contrary is null and void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or mortgage
wherein a property is pledged or mortgaged by way of security for the
payment of principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing
pledged and mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00
loan to plaintiff-appellant secured by a mortgage on the property of
plaintiff-appellant. The loan was payable within ninety (90) days, the
period within which plaintiff-appellant can repurchase the property.
Plaintiff-appellant will pay P230,000.00 and not P200,000.00, the
P30,000.00 excess is the interest for the loan extended. Failure of
plaintiff-appellee to pay the P230,000.00 within the ninety (90) days
period, the property shall automatically belong to defendant-appellee
by virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the nature
of pactum commissorium. Therefore, the deed of sale should be
declared void as we hereby so declare to be invalid, for being violative
of law.
xxx xxx xxx
WHEREFORE, foregoing considered, the appealed decision is hereby
REVERSED and SET ASIDE. The questioned Deed of Sale and the
cancellation of the TCT No. 195101 issued in favor of plaintiff-
appellant and the issuance of TCT No. 267073 issued in favor of
defendant-appellee pursuant to the questioned Deed of Sale is
hereby declared VOID and is hereby ANNULLED. Transfer Certificate
of Title No. 195101 of the Registry of Marikina is hereby ordered
REINSTATED. The loan in the amount of P230,000.00 shall be paid
within ninety (90) days from the finality of this decision. In case of
failure to pay the amount of P230,000.00 from the period therein
102 | P a g e
stated, the property shall be sold at public auction to satisfy the
mortgage debt and costs and if there is an excess, the same is to be
given to the owner.

Petitioner now contends that: (1) he is not the real party in interest
but A.C. Aguila & Co., against which this case should have been
brought; (2) the judgment in the ejectment case is a bar to the filing
of the complaint for declaration of nullity of a deed of sale in this case;
and (3) the contract between A.C. Aguila & Sons, Co. and private
respondent is a pacto de retro sale and not an equitable mortgage as
held by the appellate court.

The petition is meritorious.

Rule 3, §2 of the Rules of Court of 1964, under which the complaint in

this case was filed, provided that "every action must be prosecuted
and defended in the name of the real party in interest." A real party
in interest is one who would be benefited or injured by the judgment,
or who is entitled to the avails of the suit. 7 This ruling is now
embodied in Rule 3, §2 of the 1997 Revised Rules of Civil Procedure.
Any decision rendered against a person who is not a real party in
interest in the case cannot be executed. 8 Hence, a complaint filed
against such a person should be dismissed for failure to state a cause
of action. 9

Under Art. 1768 of the Civil Code, a partnership "has a juridical

personality separate and distinct from that of each of the partners."
The partners cannot be held liable for the obligations of the
partnership unless it is shown that the legal fiction of a different
juridical personality is being used for fraudulent, unfair, or illegal
purposes. 10 In this case, private respondent has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. and the
Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A.C. Aguila &
Sons, Co., represented by petitioner. Hence, it is the partnership, not
its officers or agents, which should be impleaded in any litigation
involving property registered in its name. A violation of this rule will
result in the dismissal of the complaint. 11 We cannot understand why
both the Regional Trial Court and the Court of Appeals sidestepped
this issue when it was squarely raised before them by petitioner.

Our conclusion that petitioner is not the real party in interest against
whom this action should be prosecuted makes it unnecessary to
discuss the other issues raised by him in this appeal.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED

and the complaint against petitioner is DISMISSED.

SO ORDERED.

103 | P a g e
G.R. No. 109289 October 3, 1994 Petitioner contends that the title of House Bill No. 34314, progenitor
of Republic Act No. 7496, is a misnomer or, at least, deficient for being
RUFINO R. TAN, petitioner, merely entitled, "Simplified Net Income Taxation Scheme for the Self-
vs. Employed
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. and Professionals Engaged in the Practice of their Profession"
ONG, as COMMISSIONER OF INTERNAL REVENUE, respondents. (Petition in G.R. No. 109289).
G.R. No. 109446 October 3, 1994 The full text of the title actually reads:
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. An Act Adopting the Simplified Net Income Taxation Scheme For The
CARAG, MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and Self-Employed and Professionals Engaged In The Practice of Their
BENJAMIN A. SOMERA, JR., petitioners, Profession, Amending Sections 21 and 29 of the National Internal
vs. Revenue Code, as Amended.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE
and JOSE U. ONG, in his capacity as COMMISSIONER OF INTERNAL The pertinent provisions of Sections 21 and 29, so referred to, of the
REVENUE, respondents. National Internal Revenue Code, as now amended, provide:

Rufino R. Tan for and in his own behalf. Sec. 21. Tax on citizens or residents. —

Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. xxx xxx xxx
109446.
(f) Simplified Net Income Tax for the Self-Employed and/or
Professionals Engaged in the Practice of Profession. — A tax is hereby
imposed upon the taxable net income as determined in Section 27
VITUG, J.: received during each taxable year from all sources, other than income
These two consolidated special civil actions for prohibition challenge, covered by paragraphs (b), (c), (d) and (e) of this section by every
in G.R. No. 109289, the constitutionality of Republic Act No. 7496, also individual whether
commonly known as the Simplified Net Income Taxation Scheme a citizen of the Philippines or an alien residing in the Philippines who
("SNIT"), amending certain provisions of the National Internal is self-employed or practices his profession herein, determined in
Revenue Code and, in accordance with the following schedule:
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2- Not over P10,000 3%
93, promulgated by public respondents pursuant to said law.
Over P10,000 P300 + 9%
Petitioners claim to be taxpayers adversely affected by the continued but not over P30,000 of excess over P10,000
implementation of the amendatory legislation.
Over P30,000 P2,100 + 15%
In G.R. No. 109289, it is asserted that the enactment of Republic Act but not over P120,00 of excess over P30,000
No. 7496 violates the following provisions of the Constitution:
Over P120,000 P15,600 + 20%
Article VI, Section 26(1) — Every bill passed by the Congress shall but not over P350,000 of excess over P120,000
embrace only one subject which shall be expressed in the title
thereof. Over P350,000 P61,600 + 30%
of excess over P350,000
Article VI, Section 28(1) — The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of taxation. Sec. 29. Deductions from gross income. — In computing taxable
income subject to tax under Sections 21(a), 24(a), (b) and (c); and 25
Article III, Section 1 — No person shall be deprived of . . . property (a)(1), there shall be allowed as deductions the items specified in
without due process of law, nor shall any person be denied the equal paragraphs (a) to (i) of this section: Provided, however, That in
protection of the laws. computing taxable income subject to tax under Section 21 (f) in the
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue case of individuals engaged in business or practice of profession, only
Regulations No. 2-93, argue that public respondents have exceeded the following direct costs shall be allowed as deductions:
their rule-making authority in applying SNIT to general professional (a) Raw materials, supplies and direct labor;
partnerships.
(b) Salaries of employees directly engaged in activities in the course
The Solicitor General espouses the position taken by public of or pursuant to the business or practice of their profession;
respondents.
(c) Telecommunications, electricity, fuel, light and water;
The Court has given due course to both petitions. The parties, in
compliance with the Court's directive, have filed their respective (d) Business rentals;
memoranda.
(e) Depreciation;
G.R. No. 109289

104 | P a g e
(f) Contributions made to the Government and accredited relief
organizations for the rehabilitation of calamity stricken areas
declared by the President; and
(g) Interest paid or accrued within a taxable year on loans contracted
from accredited financial institutions which must be proven to have
been incurred in connection with the conduct of a taxpayer's
profession, trade or business.
For individuals whose cost of goods sold and direct costs are difficult
to determine, a maximum of forty per cent (40%) of their gross
receipts shall be allowed as deductions to answer for business or
professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult to
accept petitioner's view that the amendatory law should be
considered as having now adopted a gross income, instead of as
having still retained the net income, taxation scheme. The allowance
for deductible items, it is true, may have significantly been reduced
by the questioned law in comparison with that which has prevailed
prior to the amendment; limiting, however, allowable deductions
from gross income is neither discordant with, nor opposed to, the net
income tax concept. The fact of the matter is still that various
deductions, which are by no means inconsequential, continue to be
well provided under the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as
(a) to prevent log-rolling legislation intended to unite the members of
the legislature who favor any one of unrelated subjects in support of
the whole act, (b) to avoid surprises or even fraud upon the
legislature, and (c) to fairly apprise the people, through such
publications of its proceedings as are usually made, of the subjects of
legislation.1 The above objectives of the fundamental law appear to
us to have been sufficiently met. Anything else would be to require a
virtual compendium of the law which could not have been the
intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the
constitutional requirement that taxation "shall be uniform and
equitable" in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it
imposes the tax on corporations and partnerships. The contention
clearly forgets, however, that such a system of income taxation has
long been the prevailing rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection,
merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities (Juan
Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not
forfend classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the categorization is
germane to achieve the legislative purpose, (3) the law applies, all
things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same
class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197
SCRA 52).
What may instead be perceived to be apparent from the amendatory
law is the legislative intent to increasingly shift the income tax system
towards the schedular approach2 in the income taxation of individual
taxpayers and to maintain, by and large, the present global
treatment3 on taxable corporations. We certainly do not view this
classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law,
illustrating, in the process, what he believes to be an imbalance
between the tax liabilities of those covered by the amendatory law
and those who are not. With the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent
(rate), coverage (subjects) and situs (place) of taxation. This court
cannot freely delve into those matters which, by constitutional fiat,
rightly rest on legislative judgment. Of course, where a tax measure
becomes so unconscionable and unjust as to amount to confiscation
of property, courts will not hesitate to strike it down, for, despite all
its plenitude, the power to tax cannot override constitutional
proscriptions. This stage, however, has not been demonstrated to
have been reached within any appreciable distance in this
controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the
law declared unconstitutional for being violative of due process must
perforce fail. The due process clause may correctly be invoked only
when there is a clear contravention of inherent or constitutional
limitations in the exercise of the tax power. No such transgression is
so evident to us.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the
question of whether or not public respondents have exceeded their
authority in promulgating Section 6, Revenue Regulations No. 2-93, to
carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership — The general professional
partnership (GPP) and the partners comprising the GPP are covered
by R. A. No. 7496. Thus, in determining the net profit of the
partnership, only the direct costs mentioned in said law are to be
deducted from partnership income. Also, the expenses paid or
incurred by partners in their individual capacities in the practice of
their profession which are not reimbursed or paid by the partnership
but are not considered as direct cost, are not deductible from his
gross income.
The real objection of petitioners is focused on the administrative
interpretation of public respondents that would apply SNIT to
partners in general professional partnerships. Petitioners cite the
pertinent deliberations in Congress during its enactment of Republic
Act No. 7496, also quoted by the Honorable Hernando B. Perez,
minority floor leader of the House of Representatives, in the latter's
privilege speech by way of commenting on the questioned
implementing regulation of public respondents following the
effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to get the correct
impression of this bill. Do we speak here of individuals who are
earning, I mean, who earn through business enterprises and
therefore, should file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This does not apply to
corporations. It applies only to individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.;
Emphasis ours).
Other deliberations support this position, to wit:
105 | P a g e
MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from
Batangas say that this bill is intended to increase collections as far as
individuals are concerned and to make collection of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal Tamano on the
Senate version of the SNITS, it is categorically stated, thus:
This bill, Mr. President, is not applicable to business corporations or
to partnerships; it is only with respect to individuals and
professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent
misconception that general professional partnerships are subject to
the payment of income tax or that there is a difference in the tax
treatment between individuals engaged in business or in the practice
of their respective professions and partners in general professional
partnerships. The fact of the matter is that a general professional
partnership, unlike an ordinary business partnership (which is treated
as a corporation for income tax purposes and so subject to the
corporate income tax), is not itself an income taxpayer. The income
tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity
computed on their distributive shares of partnership profits. Section
23 of the Tax Code, which has not been amended at all by Republic
Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional partnerships.
— (a) Persons exercising a common profession in general partnership
shall be liable for income tax only in their individual capacity, and the
share in the net profits of the general professional partnership to
which any taxable partner would be entitled whether distributed or
otherwise, shall be returned for taxation and the tax paid in
accordance with the provisions of this Title.
(b) In determining his distributive share in the net income of the
partnership, each partner —
(1) Shall take into account separately his distributive share of the
partnership's income, gain, loss, deduction, or credit to the extent
provided by the pertinent provisions of this Code, and
(2) Shall be deemed to have elected the itemized deductions, unless
he declares his distributive share of the gross income undiminished
by his share of the deductions.
There is, then and now, no distinction in income tax liability between
a person who practices his profession alone or individually and one
who does it through partnership (whether registered or not) with
others in the exercise of a common profession. Indeed, outside of the
gross compensation income tax and the final tax on passive
investment income, under the present income tax system all
individuals deriving income from any source whatsoever are treated
in almost invariably the same manner and under a common set of
rules.
We can well appreciate the concern taken by petitioners if perhaps
we were to consider Republic Act No. 7496 as an entirely
independent, not merely as an amendatory, piece of legislation. The
view can easily become myopic, however, when the law is
understood, as it should be, as only forming part of, and subject to,
the whole income tax concept and precepts long obtaining under the
National Internal Revenue Code. To elaborate a little, the phrase
"income taxpayers" is an all embracing term used in the Tax Code, and
it practically covers all persons who derive taxable income. The law,
in levying the tax, adopts the most comprehensive tax situs of
nationality and residence of the taxpayer (that renders citizens,
regardless of residence, and resident aliens subject to income tax
liability on their income from all sources) and of the generally
accepted and internationally recognized income taxable base (that
can subject non-resident aliens and foreign corporations to income
tax on their income from Philippine sources). In the process, the Code
classifies taxpayers into four main groups, namely: (1) Individuals, (2)
Corporations, (3) Estates under Judicial Settlement and (4)
Irrevocable Trusts (irrevocable both as to corpus and as to income).
Partnerships are, under the Code, either "taxable partnerships" or
"exempt partnerships." Ordinarily, partnerships, no matter how
created or organized, are subject to income tax (and thus alluded to
as "taxable partnerships") which, for purposes of the above
categorization, are by law assimilated to be within the context of, and
so legally contemplated as, corporations. Except for few variances,
such as in the application of the "constructive receipt rule" in the
derivation of income, the income tax approach is alike to both
juridical persons. Obviously, SNIT is not intended or envisioned, as so
correctly pointed out in the discussions in Congress during its
deliberations on Republic Act 7496, aforequoted, to cover
corporations and partnerships which are independently subject to the
payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly
identified as corporations nor even considered as independent
taxable entities for income tax purposes. A
general professional partnership is such an example.4 Here, the
partners themselves, not the partnership (although it is still obligated
to file an income tax return [mainly for administration and data]), are
liable for the payment of income tax in their individual capacity
computed on their respective and distributive shares of profits. In the
determination of the tax liability, a partner does so as an individual,
and there is no choice on the matter. In fine, under the Tax Code on
income taxation, the general professional partnership is deemed to
be no more than a mere mechanism or a flow-through entity in the
generation of income by, and the ultimate distribution of such income
to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely
confirmed, the above standing rule as now so modified by Republic
Act
No. 7496 on basically the extent of allowable deductions applicable
to all individual income taxpayers on their non-compensation
income. There is no evident intention of the law, either before or after
the amendatory legislation, to place in an unequal footing or in
significant variance the income tax treatment of professionals who
practice their respective professions individually and of those who do
it through a general professional partnership.
WHEREFORE, the petitions are DISMISSED. No special
pronouncement on costs.
SO ORDERED.
106 | P a g e
G.R. No. 159333 July 31, 2006
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION,
PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK
AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the Court of Appeals,
dated January 30, 2003 and July 30, 2003, respectively, in CA-G.R. SP
No. 71028, affirming the ruling3 of the National Labor Relations
Commission (NLRC), which in turn set aside the July 30, 2001
Decision4 of the labor arbiter. The labor arbiter declared illegal the
dismissal of petitioner from employment and awarded separation
pay, moral and exemplary damages, and attorney's fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a
corporation organized and existing under the laws of California, USA.
It is a subsidiary of Cellulose Marketing International, a corporation
duly organized under the laws of Sweden, with principal office in
Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on
Representative Office known as Pacific Forest Resources (Phils.),
Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1,
1995, "assuming that Pacfor-Phils. is already approved by the
Securities and Exchange Commission [SEC] on the said date."6 The
Side Agreement outlines the business relationship of the parties with
regard to the Philippine operations of Pacfor. Private respondent will
establish a Pacfor representative office in the Philippines, to be
known as Pacfor Phils, and petitioner ATM will be its President.
Petitioner's base salary and the overhead expenditures of the
company shall be borne by the representative office and funded by
Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by
ATM and Pacfor-usa.
On July 14, 1995, the SEC granted the application of private
respondent Pacfor for a license to transact business in the Philippines
under the name of Pacfor or Pacfor Phils.7 In its application, private
respondent Pacfor proposed to establish its representative office in
the Philippines with the purpose of monitoring and coordinating the
market activities for paper products. It also designated petitioner as
its resident agent in the Philippines, authorized to accept summons
and processes in all legal proceedings, and all notices affecting the
corporation.8
In March 1997, the Side Agreement was amended through a "Revised
Operating and Profit Sharing Agreement for the Representative Office
Known as Pacific Forest Resources (Philippines),"9 where the salary of
petitioner was increased to $78,000 per annum. Both agreements
show that the operational expenses will be borne by the
representative office and funded by all parties "as equal partners,"
while the profits and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of
Pacfor, seeking confirmation of his 50% equity of Pacfor
Phils.10 Private respondent Pacfor, through William Gleason, its
President, replied that petitioner is not a part-owner of Pacfor Phils.
because the latter is merely Pacfor-USA's representative office and
not an entity separate and distinct from Pacfor-USA. "It's simply a
'theoretical company' with the purpose of dividing the income 50-
50."11 Petitioner presumably knew of this arrangement from the start,
having been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was
in a joint venture with them. He alleged he would have been better
off remaining as an independent agent or representative of Pacfor-
USA as ATM Marketing Corp.13 Had he known that no joint venture
existed, he would not have allowed Pacfor to take the profitable
business of his own company, ATM Marketing Corp.14 Petitioner
raised other issues, such as the rentals of office furniture, salary of the
employees, company car, as well as commissions allegedly due him.
The issues were not resolved, hence, in October 2000, petitioner
wrote Pacfor-USA demanding payment of unpaid commissions and
office furniture and equipment rentals, amounting to more than one
million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel,
ordered petitioner to turn over to it all papers, documents, files,
records, and other materials in his or ATM Marketing Corporation's
possession that belong to Pacfor or Pacfor Phils.16 On December 18,
2000, private respondent Pacfor also required petitioner to remit
more than three hundred thousand-peso Christmas giveaway fund for
clients of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew
all its offers of settlement and ordered petitioner to transfer title and
turn over to it possession of the service car.18
Private respondent Pacfor likewise sent letters to its clients in the
Philippines, advising them not to deal with Pacfor Phils. In its letter to
Intercontinental Paper Industries, Inc., dated November 21, 2000,
private respondent Pacfor stated:
Until further notice, please course all inquiries and communications
for Pacific Forest Resources (Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio "Boy" T.
Mendiola or to the offices of ATM Marketing Corporation at Room
504, Concorde Building, Legaspi Village, Makati City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp.
(DAVCOR), dated December 2000, private respondent directed said
client "to please communicate directly with us on any further
questions associated with these payments or any future business. Do
not communicate with [Pacfor] and/or [ATM]."20
Petitioner construed these directives as a severance of the
"unregistered partnership" between him and Pacfor, and the
termination of his employment as resident manager of Pacfor
Phils.21 In a memorandum to the employees of Pacfor Phils., dated
January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the
turnover of all records to them effective December 19, 2000. The
107 | P a g e
company records were turned over only on January 26, 2001. This
means our jobs with Pacific Forest were terminated effective
December 19, 2000. I am concerned about your welfare. I would like
to help you by offering you to work with ATM Marketing Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and
Pacfor equally own Pacfor Phils. Thus, it follows that he and Pacfor
likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and
equipment and the service car. He also reiterated his demand for
unpaid commissions, and proposed to offset these with the remaining
Christmas giveaway fund in his possession.23 Furthermore, he did not
renew the lease contract with Pulp and Paper, Inc., the lessor of the
office premises of Pacfor Phils., wherein he was the signatory to the
lease agreement.24
On February 2, 2001, private respondent Pacfor placed petitioner on
preventive suspension and ordered him to show cause why no
disciplinary action should be taken against him. Private respondent
Pacfor charged petitioner with willful disobedience and serious
misconduct for his refusal to turn over the service car and the
Christmas giveaway fund which he applied to his alleged unpaid
commissions. Private respondent also alleged loss of confidence and
gross neglect of duty on the part of petitioner for allegedly allowing
another corporation owned by petitioner's relatives, High End
Products, Inc. (HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales and business
of private respondent for HEPI's principal, International Forest
Products, a competitor of private respondent.25
Petitioner denied the charges. He reiterated that he considered the
import of Pacfor President William Gleason's letters as a "cessation of
his position and of the existence of Pacfor Phils." He likewise informed
private respondent Pacfor that ATM Marketing Corp. now occupies
Pacfor Phils.' office premises,26 and demanded payment of his
separation pay.27 On February 15, 2001, petitioner filed his complaint
for illegal dismissal, recovery of separation pay, and payment of
attorney's fees with the NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges
against petitioner. In a memorandum dated March 5, 2001, private
respondent directed petitioner to explain why he should not be
disciplined for serious misconduct and conflict of interest. Private
respondent charged petitioner anew with serious misconduct for the
latter's alleged act of fraud and misrepresentation in authorizing the
release of an additional peso salary for himself, besides the dollar
salary agreed upon by the parties. Private respondent also accused
petitioner of disloyalty and representation of conflicting interests for
having continued using the Pacfor Phils.' office for operations of HEPI.
In addition, petitioner allegedly solicited business for HEPI from a
competitor company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was
constructive dismissal. By directing petitioner to turn over all office
records and materials, regardless of whether he may have retained
copies, private respondent Pacfor virtually deprived petitioner of his
job by the gradual diminution of his authority as resident manager.
Petitioner's position as resident manager whose duty, among others,
was to maintain the security of its business transactions and
communications was rendered meaningless. The dispositive portion
of the decision of the Labor Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering herein respondents Cellmark AB and Pacific Forest
Resources, Inc., jointly and severally to compensate complainant
Arsenio T. Mendiola separation pay equivalent to at least one month
for every year of service, whichever is higher (sic), as reinstatement is
no longer feasible by reason of the strained relations of the parties
equivalent to five (5) months in the amount of $32,000.00 plus the
sum of P250,000.00; pay complainant the sum of P500,000.00 as
moral and exemplary damages and ten percent (10%) of the amounts
awarded as and for attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its
favor. On December 20, 2001, the NLRC set aside the July 30, 2001
decision of the labor arbiter, for lack of jurisdiction and lack of
merit.31 It held there was no employer-employee relationship
between the parties. Based on the two agreements between the
parties, it concluded that petitioner is not an employee of private
respondent Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration.32
Petitioner was not successful on his appeal to the Court of Appeals.
The appellate court upheld the ruling of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court
of Appeals was denied.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed reversible error and
abused its discretion in rendering judgment against petitioner since
jurisdiction has been acquired over the subject matter of the case as
there exists employer-employee relationship between the parties.
B. The Respondent Court of Appeals committed reversible error and
abused its discretion in ruling that jurisdiction over the subject matter
cannot be waived and may be alleged even for the first time on appeal
or considered by the court motu prop[r]io.35
The first issue is whether an employer-employee relationship exists
between petitioner and private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he
formed with private respondent Pacfor, and also an employee of the
partnership. Petitioner insists that an industrial partner may at the
same time be an employee of the partnership, provided there is such
an agreement, which, in this case, is the "Side Agreement" and the
"Revised Operating and Profit Sharing Agreement." The Court of
Appeals denied the appeal of petitioner, holding that "the legal basis
of the complaint is not employment but perhaps partnership, co-
ownership, or independent contractorship." Hence, the Labor Code
cannot apply.
We hold that petitioner is an employee of private respondent Pacfor
and that no partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is
contributed to the firm capital and of all property that may be
acquired thereby and through the efforts of the members.36 The
108 | P a g e
property or stock of the partnership forms a community of goods, a
common fund, in which each party has a proprietary interest.37 In
fact, the New Civil Code regards a partner as a co-owner of specific
partnership property.38 Each partner possesses a joint interest in the
whole of partnership property. If the relation does not have this
feature, it is not one of partnership.39 This essential element, the
community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner
and private respondent Pacfor. Petitioner is not a part-owner of
Pacfor Phils. William Gleason, private respondent Pacfor's President
established this fact when he said that Pacfor Phils. is simply a
"theoretical company" for the purpose of dividing the income 50-50.
He stressed that petitioner knew of this arrangement from the very
start, having been the one to propose to private respondent Pacfor
the setting up of a representative office, and "not a branch office" in
the Philippines to save on taxes. Thus, the parties in this case, merely
shared profits. This alone does not make a partnership.40
Besides, a corporation cannot become a member of a partnership in
the absence of express authorization by statute or charter.41 This
doctrine is based on the following considerations: (1) that the mutual
agency between the partners, whereby the corporation would be
bound by the acts of persons who are not its duly appointed and
authorized agents and officers, would be inconsistent with the policy
of the law that the corporation shall manage its own affairs separately
and exclusively; and, (2) that such an arrangement would improperly
allow corporate property to become subject to risks not
contemplated by the stockholders when they originally invested in
the corporation.42No such authorization has been proved in the case
at bar.
Be that as it may, we hold that on the basis of the evidence, an
employer-employee relationship is present in the case at bar. The
elements to determine the existence of an employment relationship
are: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employer's
power to control the employee's conduct. The most important
element is the employer's control of the employee's conduct, not only
as to the result of the work to be done, but also as to the means and
methods to accomplish it.43
In the instant case, all the foregoing elements are present. First, it was
private respondent Pacfor which selected and engaged the services
of petitioner as its resident agent in the Philippines. Second, as
stipulated in their Side Agreement, private respondent Pacfor pays
petitioner his salary amounting to $65,000 per annum which was later
increased to $78,000. Third, private respondent Pacfor holds the
power of dismissal, as may be gleaned through the various
memoranda it issued against petitioner, placing the latter on
preventive suspension while charging him with various offenses,
including willful disobedience, serious misconduct, and gross neglect
of duty, and ordering him to show cause why no disciplinary action
should be taken against him.
Lastly and most important, private respondent Pacfor has the power
of control over the means and method of petitioner in accomplishing
his work.
The power of control refers merely to the existence of the power, and
not to the actual exercise thereof. The principal consideration is
whether the employer has the right to control the manner of doing
the work, and it is not the actual exercise of the right by interfering
with the work, but the right to control, which constitutes the test of
the existence of an employer-employee relationship.44 In the case at
bar, private respondent Pacfor, as employer, clearly possesses such
right of control. Petitioner, as private respondent Pacfor's resident
agent in the Philippines, is, exactly so, only an agent of the
corporation, a representative of Pacfor, who transacts business, and
accepts service on its behalf.
This right of control was exercised by private respondent Pacfor
during the period of November to December 2000, when it directed
petitioner to turn over to it all records of Pacfor Phils.; when it
ordered petitioner to remit the Christmas giveaway fund intended for
clients of Pacfor Phils.; and, when it withdrew all its offers of
settlement and ordered petitioner to transfer title and turn over to it
the possession of the service car. It was also during this period when
private respondent Pacfor sent letters to its clients in the Philippines,
particularly Intercontinental Paper Industries, Inc. and DAVCOR,
advising them not to deal with petitioner and/or Pacfor Phils. In its
letter to DAVCOR, private respondent Pacfor replied to the client's
request for an invoice payment extension, and formulated a revised
payment program for DAVCOR. This is one unmistakable proof that
private respondent Pacfor exercises control over the petitioner.
Next, we shall determine if petitioner was constructively dismissed
from employment.
The evidence shows that when petitioner insisted on his 50% equity
in Pacfor Phils., and would not quit however, private respondent
Pacfor began to systematically deprive petitioner of his duties and
benefits to make him feel that his presence in the company was no
longer wanted. First, private respondent Pacfor directed petitioner to
turn over to it all records of Pacfor Phils. This would certainly make
the work of petitioner very difficult, if not impossible. Second, private
respondent Pacfor ordered petitioner to remit the Christmas
giveaway fund intended for clients of Pacfor Phils. Then it ordered
petitioner to transfer title and turn over to it the possession of the
service car. It also advised its clients in the Philippines, particularly
Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with
petitioner and/or Pacfor Phils. Lastly, private respondent Pacfor
appointed a new resident agent for Pacfor Phils.45
Although there is no reduction of the salary of petitioner, constructive
dismissal is still present because continued employment of petitioner
is rendered, at the very least, unreasonable.46 There is an act of clear
discrimination, insensibility or disdain by the employer that continued
employment may become so unbearable on the part of the employee
so as to foreclose any choice on his part except to resign from such
employment.47
The harassing acts of the private respondent are unjustified. They
were undertaken when petitioner sought clarification from the
private respondent about his supposed 50% equity on Pacfor Phils.
Private respondent Pacfor invokes its rights as an owner. Allegedly, its
issuance of the foregoing directives against petitioner was a valid
exercise of management prerogative. We remind private respondent
Pacfor that the exercise of management prerogative is not absolute.
"By its very nature, encompassing as it could be, management
prerogative must be exercised in good faith and with due regard to
the rights of labor – verily, with the principles of fair play at heart and
justice in mind." The exercise of management prerogative cannot be
utilized as an implement to circumvent our laws and oppress
employees.48
109 | P a g e
As resident agent of private respondent corporation, petitioner
occupied a position involving trust and confidence. In the light of the
strained relations between the parties, the full restoration of an
employment relationship based on trust and confidence is no longer
possible. He should be awarded separation pay, in lieu of
reinstatement.

IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals'

January 30, 2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003
Resolution, affirming the December 20, 2001 Decision of the National
Labor Relations Commission, are ANNULED and SET ASIDE. The July
30, 2001 Decision of the Labor Arbiter is REINSTATED with
the MODIFICATION that the amount of P250,000.00 representing an
alleged increase in petitioner's salary shall be deducted from the
grant of separation pay for lack of evidence.

SO ORDERED.

110 | P a g e
G.R. No. 142612. July 29, 2005
OSCAR ANGELES and EMERITA ANGELES, Petitioners,
vs.
THE HON. SECRETARY OF JUSTICE and FELINO
MERCADO, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari1 to annul the letter-resolution2 dated 1
February 2000 of the Secretary of Justice in Resolution No. 155.3 The
Secretary of Justice affirmed the resolution4 in I.S. No. 96-939 dated
28 February 1997 rendered by the Provincial Prosecution Office of the
Department of Justice in Santa Cruz, Laguna ("Provincial Prosecution
Office"). The Provincial Prosecution Office resolved to dismiss the
complaint for estafa filed by petitioners Oscar and Emerita Angeles
("Angeles spouses") against respondent Felino Mercado ("Mercado").
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint
for estafa under Article 315 of the Revised Penal Code against
Mercado before the Provincial Prosecution Office. Mercado is the
brother-in-law of the Angeles spouses, being married to Emerita
Angeles’ sister Laura.
In their affidavits, the Angeles spouses claimed that in November
1992, Mercado convinced them to enter into a contract of
antichresis,5 colloquially known as sanglaang-perde, covering eight
parcels of land ("subject land") planted with fruit-bearing lanzones
trees located in Nagcarlan, Laguna and owned by Juana Suazo. The
contract of antichresis was to last for five years with ₱210,000 as
consideration. As the Angeles spouses stay in Manila during weekdays
and go to Laguna only on weekends, the parties agreed that Mercado
would administer the lands and complete the necessary paperwork.6
After three years, the Angeles spouses asked for an accounting from
Mercado. Mercado explained that the subject land earned ₱46,210 in
1993, which he used to buy more lanzones trees. Mercado also
reported that the trees bore no fruit in 1994. Mercado gave no
accounting for 1995. The Angeles spouses claim that only after this
demand for an accounting did they discover that Mercado had put the
contract of sanglaang-perde over the subject land under Mercado
and his spouse’s names.7 The relevant portions of the contract
of sanglaang-perde, signed by Juana Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG
PISO (₱210,000), salaping gastahin, na aking tinanggap sa mag[-
]asawa nila G. AT GNG. FELINO MERCADO, mga nasa hustong gulang,
Filipino, tumitira at may pahatirang sulat sa Bgy. Maravilla, bayan ng
Nagcarlan, lalawigan ng Laguna, ay aking ipinagbili, iniliwat at isinalin
sa naulit na halaga, sa nabanggit na mag[-] asawa nila G. AT GNG.
FELINO MERCADO[,] sa kanila ay magmamana, kahalili at ibang dapat
pagliwatan ng kanilang karapatan, ang lahat na ibubunga ng lahat na
puno ng lanzones, hindi kasama ang ibang halaman na napapalooban
nito, ng nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal,
sa takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993, at
magtatapos sa taong 1997, kaya’t pagkatapos ng lansonesan sa taong
1997, ang pamomosision at pakikinabang sa lahat na puno ng
lanzones sa nabanggit na WALONG (8) Lagay na Lupang Cocal-
Lanzonal ay manunumbalik sa akin, sa akin ay magmamana, kahalili at
ibang dapat pagliwatan ng aking karapatan na ako ay walang ibabalik
na ano pa mang halaga, sa mag[-] asawa nila G. AT GNG. FELINO
MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay
nagkasundo na ako ay bibigyan nila ng LIMA (5) na [sic] kaing na
lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng aming
kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay
nagkasundo na silang mag[-]asawa nila G. AT GNG. FELINO MERCADO
ang magpapaalis ng dapo sa puno ng lansones taon-taon [sic] sa loob
ng LIMA (5) [sic] taonng [sic] aming kasunduang ito.8
In his counter-affidavit, Mercado denied the Angeles spouses’
allegations. Mercado claimed that there exists an industrial
partnership, colloquially known as sosyo industrial, between him and
his spouse as industrial partners and the Angeles spouses as the
financiers. This industrial partnership had existed since 1991, before
the contract of antichresis over the subject land. As the years passed,
Mercado used his and his spouse’s earnings as part of the capital in
the business transactions which he entered into in behalf of the
Angeles spouses. It was their practice to enter into business
transactions with other people under the name of Mercado because
the Angeles spouses did not want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of
Emerita Angeles and contracts under his name for the Angeles
spouses. Mercado also attached the minutes of the barangay
conciliation proceedings held on 7 September 1996. During the
barangay conciliation proceedings, Oscar Angeles stated that there
was a written sosyo industrial agreement: capital would come from
the Angeles spouses while the profit would be divided evenly
between Mercado and the Angeles spouses.9
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a
resolution recommending the filing of criminal information for estafa
against Mercado. This resolution, however, was issued without
Mercado’s counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On
receiving the 3 January 1997 resolution, Mercado moved for its
reconsideration. Hence, on 26 February 1997, the Provincial
Prosecution Office issued an amended resolution dismissing the
Angeles spouses’ complaint for estafa against Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The
partnership was initially unsaddled [with] problems. Management
became the source of misunderstanding including the accounting of
profits, which led to further misunderstanding until it was revealed
that the contract with the orchard owner was only with the name of
the respondent, without the names of the complainants.
The accusation of "estafa" here lacks enough credible evidentiary
support to sustain a prima facie finding.
111 | P a g e
Premises considered, it is respectfully recommended that the
complaint for estafa be dismissed.
RESPECTFULLY SUBMITTED.10
The Angeles spouses filed a motion for reconsideration, which the
Provincial Prosecution Office denied in a resolution dated 4 August
1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses
emphasized that the document evidencing the contract of sanglaang-
perde with Juana Suazo was executed in the name of the Mercado
spouses, instead of the Angeles spouses. The Angeles spouses allege
that this document alone proves Mercado’s misappropriation of their
₱210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the
indictment of [Mercado] for the crime of estafa cannot be sustained.
[The Angeles spouses] failed to show sufficient proof that [Mercado]
deliberately deceived them in the "sanglaang perde" transaction. The
document alone, which was in the name of [Mercado and his spouse],
failed to convince us that there was deceit or false representation on
the part of [Mercado] that induced the [Angeles spouses] to part with
their money. [Mercado] satisfactorily explained that the [Angeles
spouses] do not want to be revealed as the financiers. Indeed, it is
difficult to believe that the [Angeles spouses] would readily part with
their money without holding on to some document to evidence the
receipt of money, or at least to inspect the document involved in the
said transaction. Under the circumstances, we are inclined to believe
that [the Angeles spouses] knew from the very start that the
questioned document was not really in their names.
In addition, we are convinced that a partnership truly existed
between the [Angeles spouses] and [Mercado]. The formation of a
partnership was clear from the fact that they contributed money to a
common fund and divided the profits among themselves. Records
would show that [Mercado] was able to make deposits for the
account of the [Angeles spouses]. These deposits represented their
share in the profits of their business venture. Although the [Angeles
spouses] deny the existence of a partnership, they, however, never
disputed that the deposits made by [Mercado] were indeed for their
account.
The transcript of notes on the dialogue between the [Angeles
spouses] and [Mercado] during the hearing of their barangay
conciliation case reveals that the [Angeles spouses] acknowledged
their joint business ventures with [Mercado] although they assailed
the manner by which [Mercado] conducted the business and handled
and distributed the funds. The veracity of this transcript was not
raised in issued [sic] by [the Angeles spouses]. Although the legal
formalities for the formation of a partnership were not adhered to,
the partnership relationship of the [Angeles spouses] and [Mercado]
is evident in this case. Consequently, there is no estafa where money
is delivered by a partner to his co-partner on the latter’s
representation that the amount shall be applied to the business of
their partnership. In case of misapplication or conversion of the
money received, the co-partner’s liability is civil in nature (People v.
Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.11
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of
discretion amounting to lack of jurisdiction in dismissing the appeal of
the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and
Mercado even without any documentary proof to sustain its
existence;
3. Assuming that there was a partnership, whether there was
misappropriation by Mercado of the proceeds of the lanzones after
the Angeles spouses demanded an accounting from him of the
income at the office of the barangay authorities on 7 September 1996,
and Mercado failed to do so and also failed to deliver the proceeds to
the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the
information for estafa against Mercado.12
The Ruling of the Court
The petition has no merit.
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of
discretion when the same is performed in a capricious or whimsical
exercise of judgment amounting to lack of jurisdiction. The abuse of
discretion must be so patent and gross as to amount to an evasion of
positive duty, or to a virtual refusal to perform a duty enjoined by law,
as where the power is exercised in an arbitrary and despotic manner
because of passion or personal hostility.13
The Angeles spouses fail to convince us that the Secretary of Justice
committed grave abuse of discretion when he dismissed their appeal.
Moreover, the Angeles spouses committed an error in procedure
when they failed to file a motion for reconsideration of the Secretary
of Justice’s resolution. A previous motion for reconsideration before
the filing of a petition for certiorari is necessary unless: (1) the issue
raised is one purely of law; (2) public interest is involved; (3) there is
urgency; (4) a question of jurisdiction is squarely raised before and
decided by the lower court; and (5) the order is a patent nullity.14 The
Angeles spouses failed to show that their case falls under any of the
exceptions. In fact, this present petition for certiorari is dismissible for
this reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with
Mercado. The Angeles spouses rely on Articles 1771 to 1773 of the
Civil Code, which state that:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
112 | P a g e
Art. 1772. Every contract of partnership having a capital of three WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The
thousand pesos or more, in money or property, shall appear in a present petition for certiorari is DISMISSED.
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission. SO ORDERED.

Failure to comply with the requirements of the preceding paragraph

shall not affect the liability of the partnership and the members
thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable

property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.

The Angeles spouses’ position that there is no partnership because of

the lack of a public instrument indicating the same and a lack of
registration with the Securities and Exchange Commission ("SEC")
holds no water. First, the Angeles spouses contributed money to the
partnership and not immovable property. Second, mere failure to
register the contract of partnership with the SEC does not invalidate
a contract that has the essential requisites of a partnership. The
purpose of registration of the contract of partnership is to give notice
to third parties. Failure to register the contract of partnership does
not affect the liability of the partnership and of the partners to third
persons. Neither does such failure to register affect the partnership’s
juridical personality. A partnership may exist even if the partners do
not use the words "partner" or "partnership."

Indeed, the Angeles spouses admit to facts that prove the existence
of a partnership: a contract showing a sosyo industrial or industrial
partnership, contribution of money and industry to a common fund,
and division of profits between the Angeles spouses and Mercado.

Whether there was

Misappropriation by Mercado

The Secretary of Justice adequately explained the alleged

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

Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna

which decided the civil case for damages, injunction and restraining
order filed by the Angeles spouses against Mercado and Leo
Cerayban, stated:

xxx [I]t was the practice to have all the contracts of antichresis of their
partnership secured in [Mercado’s] name as [the Angeles spouses]
are apprehensive that, if they come out into the open as financiers of
said contracts, they might be kidnapped by the New People’s Army or
their business deals be questioned by the Bureau of Internal Revenue
or worse, their assets and unexplained income be sequestered, as xxx
Oscar Angeles was then working with the government.16

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

the present case.

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

113 | P a g e
G.R. No. 126881 October 3, 2000
HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented
by its President TAN ENG LAY,respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the
reversal of the Decision1 dated March 13, 1996 of the former Fifth
Division2 of the Court of Appeals in CA-G.R. CV No. 47937, the
dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set
aside, and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde
Abubo, the common-law spouse of the decedent, joined by their
children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed
suit against the decedent's brother TAN ENG LAY on February 19,
1990. The complaint,3 docketed as Civil Case No. 1983-R in the
Regional Trial Court of Baguio City was for accounting, liquidation and
winding up of the alleged partnership formed after World War II
between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
petitioners filed an amended complaint4 impleading private
respondent herein BENGUET LUMBER COMPANY, as represented by
Tan Eng Lay. The amended complaint was admitted by the trial court
in its Order dated May 3, 1991.5
The amended complaint principally alleged that after the second
World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and
industry together, entered into a partnership engaged in the business
of selling lumber and hardware and construction supplies. They
named their enterprise "Benguet Lumber" which they jointly
managed until Tan Eng Kee's death. Petitioners herein averred that
the business prospered due to the hard work and thrift of the alleged
partners. However, they claimed that in 1981, Tan Eng Lay and his
children caused the conversion of the partnership "Benguet Lumber"
into a corporation called "Benguet Lumber Company." The
incorporation was purportedly a ruse to deprive Tan Eng Kee and his
heirs of their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division
of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered
judgment6 on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a
particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the
profits and/or losses of the business venture or particular
partnership;
c) Declaring that the assets of Benguet Lumber are the same assets
turned over to Benguet Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to
share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint
adventurer and/or as partner in a particular partnership have
descended to the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or
General Manager of Benguet Lumber Company Inc. to render an
accounting of all the assets of Benguet Lumber Company, Inc. so the
plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or
administer the assets of Benguet Lumber Company, Inc. until such
time that said corporation is finally liquidated are directed to submit
the name of any person they want to be appointed as receiver failing
in which this Court will appoint the Branch Clerk of Court or another
one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof
except the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which,
on March 13, 1996, rendered the assailed decision reversing the
judgment of the trial court. Petitioners' motion for
reconsideration7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No.
78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly
falsified documents in a judicial proceeding. Petitioners complained
that Exhibits "4" to "4-U" offered by the defendants before the trial
court, consisting of payrolls indicating that Tan Eng Kee was a mere
employee of Benguet Lumber, were fake, based on the discrepancy in
the signatures of Tan Eng Kee. They also filed Criminal Cases Nos.
78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary
and Willy, all surnamed Tan, for alleged falsification of commercial
documents by a private individual. On March 20, 1999, the Municipal
Trial Court of Baguio City, Branch 1, wherein the charges were filed,
rendered judgment9 dismissing the cases for insufficiency of
evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND
HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM
ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS
EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D)
THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E)
THERE WAS NO TIME FIXED FOR THE DURATION OF THE
PARTNERSHIP (PAGE 13, DECISION).
II
114 | P a g e
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON
THE SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT
BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN
ENG KEE WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF
BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP
JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY
RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL
LIVING AT THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING
THE EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING
THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC;
AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING
ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE
LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER
WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO
NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS
BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17,
DECISION).
V When mention is made of a joint venture, it would presuppose parity
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND
HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR
ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00
AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING
A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC
INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts
of the Court of Appeals will not be disturbed on appeal if such are
supported by the evidence.10 Our jurisdiction, it must be emphasized,
does not include review of factual issues. Thus:
Filing of petition with Supreme Court. — A party desiring to appeal by
certiorari from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a
verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth.11 [emphasis
supplied]
Admitted exceptions have been recognized, though, and when
present, may compel us to analyze the evidentiary basis on which the
lower court rendered judgment. Review of factual issues is therefore
warranted:
(1) when the factual findings of the Court of Appeals and the trial
court are contradictory;
(2) when the findings are grounded entirely on speculation, surmises,
or conjectures;
(3) when the inference made by the Court of Appeals from its findings
of fact is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of
facts;
(5) when the appellate court, in making its findings, goes beyond the
issues of the case, and such findings are contrary to the admissions of
both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts
which, if properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on
the absence of evidence but such findings are contradicted by the
evidence on record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while
the plaintiffs mentioned only the existence of a partnership, the Court
in turn went beyond that by justifying the existence of a joint venture.
of standing between the parties, equal proprietary interest and the
exercise by the parties equally of the conduct of the business, thus:
xxx xxx xxx
We have the admission that the father of the plaintiffs was not a
partner of the Benguet Lumber before the war. The appellees
however argued that (Rollo, p. 104; Brief, p. 6) this is because during
the war, the entire stocks of the pre-war Benguet Lumber were
confiscated if not burned by the Japanese. After the war, because of
the absence of capital to start a lumber and hardware business, Lay
and Kee pooled the proceeds of their individual businesses earned
from buying and selling military supplies, so that the common fund
would be enough to form a partnership, both in the lumber and
hardware business. That Lay and Kee actually established the Benguet
Lumber in Baguio City, was even testified to by witnesses. Because of
the pooling of resources, the post-war Benguet Lumber was
eventually established. That the father of the plaintiffs and Lay were
partners, is obvious from the fact that: (1) they conducted the affairs
of the business during Kee's lifetime, jointly, (2) they were the ones
giving orders to the employees, (3) they were the ones preparing
orders from the suppliers, (4) their families stayed together at the
Benguet Lumber compound, and (5) all their children were employed
in the business in different capacities.
115 | P a g e
xxx xxx xxx
It is obvious that there was no partnership whatsoever. Except for a
firm name, there was no firm account, no firm letterheads submitted
as evidence, no certificate of partnership, no agreement as to profits
and losses, and no time fixed for the duration of the partnership.
There was even no attempt to submit an accounting corresponding to
the period after the war until Kee's death in 1984. It had no business
book, no written account nor any memorandum for that matter and
no license mentioning the existence of a partnership [citation
omitted].
Also, the exhibits support the establishment of only a proprietorship.
The certification dated March 4, 1971, Exhibit "2", mentioned co-
defendant Lay as the only registered owner of the Benguet Lumber
and Hardware. His application for registration, effective 1954, in fact
mentioned that his business started in 1945 until 1985 (thereafter,
the incorporation). The deceased, Kee, on the other hand, was merely
an employee of the Benguet Lumber Company, on the basis of his SSS
coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-
U", inclusive, for the years 1982 to 1983, Kee was similarly listed only
as an employee; precisely, he was on the payroll listing. In the
Termination Notice, Exhibit "5", Lay was mentioned also as the
proprietor.
xxx xxx xxx
We would like to refer to Arts. 771 and 772, NCC, that a partner [sic]
may be constituted in any form, but when an immovable is
constituted, the execution of a public instrument becomes necessary.
This is equally true if the capitalization exceeds P3,000.00, in which
case a public instrument is also necessary, and which is to be recorded
with the Securities and Exchange Commission. In this case at bar, we
can easily assume that the business establishment, which from the
language of the appellees, prospered (pars. 5 & 9, Complaint),
definitely exceeded P3,000.00, in addition to the accumulation of real
properties and to the fact that it is now a compound. The execution
of a public instrument, on the other hand, was never established by
the appellees.
And then in 1981, the business was incorporated and the
incorporators were only Lay and the members of his family. There is
no proof either that the capital assets of the partnership, assuming
them to be in existence, were maliciously assigned or transferred by
Lay, supposedly to the corporation and since then have been treated
as a part of the latter's capital assets, contrary to the allegations in
pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store,
and then in a room in the bunk house in Trinidad, but within the
compound of the lumber establishment, as testified to by Tandoc; 2)
that both Lay and Kee were seated on a table and were "commanding
people" as testified to by the son, Elpidio Tan; 3) that both were
supervising the laborers, as testified to by Victoria Choi; and 4) that
Dionisio Peralta was supposedly being told by Kee that the proceeds
of the 80 pieces of the G.I. sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1)
a contract, either oral or written. However, if it involves real property
or where the capital is P3,000.00 or more, the execution of a contract
is necessary; 2) the capacity of the parties to execute the contract; 3)
money property or industry contribution; 4) community of funds and
interest, mentioning equality of the partners or one having a
proportionate share in the benefits; and 5) intention to divide the
profits, being the true test of the partnership. The intention to join in
the business venture for the purpose of obtaining profits thereafter
to be divided, must be established. We cannot see these elements
from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the
trial court which had adjudged that TAN ENG KEE and TAN ENG LAY
had allegedly entered into a joint venture. In this connection, we have
held that whether a partnership exists is a factual matter;
consequently, since the appeal is brought to us under Rule 45, we
cannot entertain inquiries relative to the correctness of the
assessment of the evidence by the court a quo.13 Inasmuch as the
Court of Appeals and the trial court had reached conflicting
conclusions, perforce we must examine the record to determine if the
reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay
were partners in Benguet Lumber. A contract of partnership is defined
by law as one where:
. . . two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing
the profits among themselves.
Two or more persons may also form a partnership for the exercise of
a profession.14
Thus, in order to constitute a partnership, it must be established that
(1) two or more persons bound themselves to contribute money,
property, or industry to a common fund, and (2) they intend to divide
the profits among themselves.15 The agreement need not be formally
reduced into writing, since statute allows the oral constitution of a
partnership, save in two instances: (1) when immovable property or
real rights are contributed,16 and (2) when the partnership has a
capital of three thousand pesos or more.17 In both cases, a public
instrument is required.18 An inventory to be signed by the parties and
attached to the public instrument is also indispensable to the validity
of the partnership whenever immovable property is contributed to
the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had
entered into a joint venture, which it said is akin to a particular
partnership.20 A particular partnership is distinguished from a joint
adventure, to wit:
(a) A joint adventure (an American concept similar to our joint
accounts) is a sort of informal partnership, with no firm name and no
legal personality. In a joint account, the participating merchants can
transact business under their own name, and can be individually liable
therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful
termination may continue for a number of years; a partnership
generally relates to a continuing business of various transactions of a
certain kind.21
A joint venture "presupposes generally a parity of standing between
the joint co-ventures or partners, in which each party has an equal
proprietary interest in the capital or property contributed, and where
116 | P a g e
each party exercises equal rights in the conduct of the
business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,23 we expressed the view that a
joint venture may be likened to a particular partnership, thus:
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 hardly distinguishable from the
partnership, since their 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 jurisdiction 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. (Tufts v. Mann. 116
Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71
NE 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 law of partnerships. 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. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases, Corporation Code
1981).
Undoubtedly, the best evidence would have been the contract of
partnership itself, or the articles of partnership but there is none. The
alleged partnership, though, was never formally organized. In
addition, petitioners point out that the New Civil Code was not yet in
effect when the partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing prevented the
parties from complying with the provisions of the New Civil Code
when it took effect on August 30, 1950. But all that is in the past. The
net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A review
of the record persuades us that the Court of Appeals correctly
reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a
partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he,
aside from Tan Eng Lay, could have expounded on the precise nature
of the business relationship between them. In the absence of
evidence, we cannot accept as an established fact that Tan Eng Kee
allegedly contributed his resources to a common fund for the purpose
of establishing a partnership. The testimonies to that effect of
petitioners' witnesses is directly controverted by Tan Eng Lay. It
should be noted that it is not with the number of witnesses wherein
preponderance lies;24 the quality of their testimonies is to be
considered. None of petitioners' witnesses could suitably account for
the beginnings of Benguet Lumber Company, except perhaps for
Dionisio Peralta whose deceased wife was related to Matilde
Abubo.25 He stated that when he met Tan Eng Kee after the liberation,
the latter asked the former to accompany him to get 80 pieces of G.I.
sheets supposedly owned by both brothers.26 Tan Eng Lay, however,
denied knowledge of this meeting or of the conversation between
Peralta and his brother.27 Tan Eng Lay consistently testified that he
had his business and his brother had his, that it was only later on that
his said brother, Tan Eng Kee, came to work for him. Be that as it may,
co-ownership or co-possession (specifically here, of the G.I. sheets) is
not an indicium of the existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years
the partnership was allegedly in existence, Tan Eng Kee never asked
for an accounting. The essence of a partnership is that the partners
share in the profits and losses.29 Each has the right to demand an
accounting as long as the partnership exists.30 We have allowed a
scenario wherein "[i]f excellent relations exist among the partners at
the start of the business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a deferment
of sharing in the profits is perfectly plausible."31 But in the situation in
the case at bar, the deferment, if any, had gone on too long to be
plausible. A person is presumed to take ordinary care of his
concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00
capital. In the second place, she did not furnish any help or
intervention in the management of the theatre. In the third place, it
does not appear that she has even demanded from defendant any
accounting of the expenses and earnings of the business. Were she
really a partner, her first concern should have been to find out how the
business was progressing, whether the expenses were legitimate,
whether the earnings were correct, etc. She was absolutely silent with
respect to any of the acts that a partner should have done; all that she
did was to receive her share of P3,000.00 a month, which cannot be
interpreted in any manner than a payment for the use of the premises
which she had leased from the owners. Clearly, plaintiff had always
acted in accordance with the original letter of defendant of June 17,
1945 (Exh. "A"), which shows that both parties considered this offer
as the real contract between them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a
partnership.34 During his lifetime, Tan Eng Kee appeared never to
have made any such demand for accounting from his brother, Tang
Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private
respondents, consisting of payrolls purporting to show that Tan Eng
Kee was an ordinary employee of Benguet Lumber, as it was then
called. The authenticity of these documents was questioned by
petitioners, to the extent that they filed criminal charges against Tan
Eng Lay and his wife and children. As aforesaid, the criminal cases
were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in
fact shows that Tan Eng Kee received sums as wages of an employee.
In connection therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners
as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
117 | P a g e
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property which the returns are
derived;
(4) The receipt by a person of a share of the profits of a business is
a prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan
Eng Kee was only an employee, not a partner. Even if the payrolls as
evidence were discarded, petitioners would still be back to square
one, so to speak, since they did not present and offer evidence that
would show that Tan Eng Kee received amounts of money allegedly
representing his share in the profits of the enterprise. Petitioners
failed to show how much their father, Tan Eng Kee, received, if any,
as his share in the profits of Benguet Lumber Company for any
particular period. Hence, they failed to prove that Tan Eng Kee and
Tan Eng Lay intended to divide the profits of the business between
themselves, which is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the
alleged existence of a partnership from this set of circumstances: that
Tan Eng Lay and Tan Eng Kee were commanding the employees; that
both were supervising the employees; that both were the ones who
determined the price at which the stocks were to be sold; and that
both placed orders to the suppliers of the Benguet Lumber Company.
They also point out that the families of the brothers Tan Eng Kee and
Tan Eng Lay lived at the Benguet Lumber Company compound, a
privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above
enumerated powers and privileges granted in favor of Tan Eng Kee,
were indicative of his being a partner in Benguet Lumber for the
following reasons:
(i) even a mere supervisor in a company, factory or store gives orders
and directions to his subordinates. So long, therefore, that an
employee's position is higher in rank, it is not unusual that he orders
around those lower in rank.
(ii) even a messenger or other trusted employee, over whom
confidence is reposed by the owner, can order materials from
suppliers for and in behalf of Benguet Lumber. Furthermore, even a
partner does not necessarily have to perform this particular task. It is,
thus, not an indication that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber
compound and this privilege was not accorded to other employees,
the undisputed fact remains that Tan Eng Kee is the brother of Tan
Eng Lay. Naturally, close personal relations existed between them.
Whatever privileges Tan Eng Lay gave his brother, and which were not
given the other employees, only proves the kindness and generosity
of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan
Eng Lay in connection with the pricing of stocks, this does not
adequately prove the existence of a partnership relation between
them. Even highly confidential employees and the owners of a
company sometimes argue with respect to certain matters which, in
no way indicates that they are partners as to each other.35
In the instant case, we find private respondent's arguments to be
well-taken. Where circumstances taken singly may be inadequate to
prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of
the existence of the parties' intent.36 Yet, in the case at bench, even
the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan
Eng Kee was involved in the operations of Benguet Lumber, but in
what capacity is unclear. We cannot discount the likelihood that as a
member of the family, he occupied a niche above the rank-and-file
employees. He would have enjoyed liberties otherwise unavailable
were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority
over his fellow employees, thereby entitling him to exercise powers
of supervision. It may even be that among his duties is to place orders
with suppliers. Again, the circumstances proffered by petitioners do
not provide a logical nexus to the conclusion desired; these are not
inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber
Company.
There being no partnership, it follows that there is no dissolution,
winding up or liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed
decision of the Court of Appeals is hereby AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.
118 | P a g e
G.R. NOS. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR., Petitioner,
vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS.
MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K.
LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING
CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT’L SHIPPING
CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV.
REALTY CO., INC., GLOED LAND CORP., EQUITY TRADING CO., INC.,
3D CORP., "L" DEV. CORP, LCM THEATRICAL ENTERPRISES, INC.,
LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP.,
SARATOGA REALTY, INC., ACT THEATER INC. (formerly General
Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE
THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF
PHILIPPINES),Respondents.
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court,
petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside the
Decision of the Court of Appeals (CA) dated March 31, 2004 1 in
consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No
78774 and its Resolution dated December 07, 2004,2 denying
petitioner’s motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent
Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute
between them started when, on December 4, 2002, in the Regional
Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother
Eduardo and herein respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting. In his
complaint,3 docketed as Civil Case No. 69235 and eventually raffled to
Branch 68 of the court,4 Aurelio alleged that, since June 1973, he and
Eduardo are into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation
(operator of Odeon I and II theatres), Avenue Realty, Inc., owner of
lands and buildings, among other corporations. Yang is described in
the complaint as petitioner’s and Eduardo’s partner in their Odeon
Theater investment.5 The same complaint also contained the
following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a
joint venture/partnership for the continuation of their family business
and common family funds ….
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and
other relatives. Copy of this memorandum is attached hereto and
made an integral part as Annex "A" and the portion referring to
[Aurelio] submarked as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio’s] retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and land development)
and contributing his industry to the continued operation of these
businesses, [Aurelio] will be given P1 Million or 10% equity in all these
businesses and those to be subsequently acquired by them whichever
is greater. . . .
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28
years, [Aurelio] and Eduardo had accumulated in their joint
venture/partnership various assets including but not limited to the
corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership … had also acquired
[various other assets], but Eduardo caused to be registered in the
names of other parties….
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants
consist of real properties …. A list of some of these real properties is
attached hereto and made an integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo
became sour so that [Aurelio] requested for an accounting and
liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that
Eduardo and/or the corporate defendants as well as Bobby [Yang], are
transferring . . . various real properties of the corporations belonging
to the joint venture/partnership to other parties in fraud of [Aurelio].
In consequence, [Aurelio] is therefore causing at this time the
annotation on the titles of these real properties… a notice of lis
pendens …. (Emphasis in the original; underscoring and words in
bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner
asserts to have been meant for him by his brother Eduardo,
pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. ….
I am trying my best to mold you the way I work so you can follow the
pattern …. You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this office every
time I am away. I want you to run it the way I am trying to run it
because I will be all alone and I will depend entirely to you (sic). My
sons will not be ready to help me yet until about maybe 15/20 years
from now. Whatever is left in the corporation, I will make sure that
you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%)
equity, whichever is greater. We two will gamble the whole thing of
what I have and what you are entitled to. …. It will be you and me
alone on this. If ever I pass away, I want you to take care of all of this.
You keep my share for my two sons are ready take over but give them
the chance to run the company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first
ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset,
like Lt. Artiaga so you can live better there. The rest I will give you in
form of stocks which you can keep. This stock I assure you is good and
saleable. I will also gladly give you the share of Wack-Wack …and
119 | P a g e
Valley Golf … because you have been good. The rest will be in stocks
from all the corporations which I repeat, ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as
defendants a quo, filed a joint ANSWER With Compulsory
Counterclaim denying under oath the material allegations of the
complaint, more particularly that portion thereof depicting petitioner
and Eduardo as having entered into a contract of partnership. As
affirmative defenses, Eduardo, et al., apart from raising a
jurisdictional matter, alleged that the complaint states no cause of
action, since no cause of action may be derived from the actionable
document, i.e., Annex "A-1", being void under the terms of Article
1767 in relation to Article 1773 of the Civil Code, infra. It is further
alleged that whatever undertaking Eduardo agreed to do, if any,
under Annex "A-1", are unenforceable under the provisions of the
Statute of Frauds.7
For his part, Yang - who was served with summons long after the other
defendants submitted their answer – moved to dismiss on the
ground, inter alia, that, as to him, petitioner has no cause of action
and the complaint does not state any.8 Petitioner opposed this
motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve
Affirmative Defenses.9 To this motion, petitioner interposed
an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10
Acting on the separate motions immediately adverted to above, the
trial court, in an Omnibus Order dated March 5, 2003, denied the
affirmative defenses and, except for Yang, set the case for pre-trial on
April 10, 2003.11
In another Omnibus Order of April 2, 2003, the same court denied the
motion of Eduardo, et al., for reconsideration12 and Yang’s motion to
dismiss. The following then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved
the right to seek reconsideration of the April 2, 2003 Omnibus Order
and to pursue his failed motion to dismiss13 to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus
Order of April 2, 2003, but his motion was denied in an Order of July
4, 2003.14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a
petition for certiorari under Rule 65 of the Rules of Court, docketed
as CA-G.R. SP No. 78774,15 to nullify the separate orders of the trial
court, the first denying his motion to dismiss the basic complaint and,
the second, denying his motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention
that grave abuse of discretion and injudicious haste attended the
issuance of the trial court’s aforementioned Omnibus Orders dated
March 5, and April 2, 2003, sought relief from the CA via similar
recourse. Their petition for certiorari was docketed as CA G.R. SP No.
76987.
Per its resolution dated October 2, 2003,16 the CA’s 14th Division
ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No.
76987.
Following the submission by the parties of their respective
Memoranda of Authorities, the appellate court came out with the
herein assailed Decision dated March 31, 2004, finding for Eduardo
and Yang, as lead petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of
the writ of certiorari in these consolidated cases annulling, reversing
and setting aside the assailed orders of the court a quo dated March
5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by
private respondent [now petitioner Aurelio] against all the petitioners
[now herein respondents Eduardo, et al.] with the court a quo is
hereby dismissed.
SO ORDERED.17 (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter
alia, that the alleged partnership, as evidenced by the actionable
documents, Annex "A" and "A-1" attached to the complaint, and
upon which petitioner solely predicates his right/s allegedly violated
by Eduardo, Yang and the corporate defendants a quo is "void or
legally inexistent".
In time, petitioner moved for reconsideration but his motion was
denied by the CA in its equally assailed Resolution of December 7,
2004.18 .
Hence, petitioner’s present recourse, on the contention that the CA
erred:
A. When it ruled that there was no partnership created by the
actionable document because this was not a public instrument and
immovable properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against
[respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal
when all that Petitioner had done was to support his pleaded cause
of action by another legal perspective/argument.
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion of his
complaint in the trial court, is for delivery or payment to him, as
Eduardo’s and Yang’s partner, of his partnership/joint venture share,
after an accounting has been duly conducted of what he deems to be
partnership/joint venture property.19
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with
the understanding that there shall be a proportionate sharing of the
profits and losses between them.20 A contract of partnership is
defined by the Civil Code as one where two or more persons bound
themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profits among themselves.21 A
joint venture, on the other hand, is hardly distinguishable from, and
may be likened to, a partnership since their elements are similar, i.e.,
community of interests in the business and sharing of profits and
losses. Being a form of partnership, a joint venture is generally
governed by the law on partnership.22
The underlying issue that necessarily comes to mind in this
proceedings is whether or not petitioner and respondent Eduardo are
partners in the theatre, shipping and realty business, as one claims
120 | P a g e
but which the other denies. And the issue bearing on the first assigned
error relates to the question of what legal provision is applicable
under the premises, petitioner seeking, as it were, to enforce the
actionable document - Annex "A-1" - which he depicts in his complaint
to be the contract of partnership/joint venture between himself and
Eduardo. Clearly, then, a look at the legal provisions determinative of
the existence, or defining the formal requisites, of a partnership is
indicated. Foremost of these are the following provisions of the Civil
Code:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph
shall not affect the liability of the partnership and the members
thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in
tone, but is unsigned and undated. As an unsigned document, there
can be no quibbling that Annex "A-1" does not meet the public
instrumentation requirements exacted under Article 1771 of the Civil
Code. Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or property,
Annex "A-1" cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as
called for under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes into
the matter of validity when immovable property is contributed to the
partnership, the next logical point of inquiry turns on the nature of
petitioner’s contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that
petitioner’s contribution consisted of immovables and real rights.
Wrote that court:
A further examination of the allegations in the complaint would show
that [petitioner’s] contribution to the so-called "partnership/joint
venture" was his supposed share in the family business that is
consisting of movie theaters, shipping and land development under
paragraph 3.02 of the complaint. In other words, his contribution as a
partner in the alleged partnership/joint venture consisted of
immovable properties and real rights. ….23
Significantly enough, petitioner matter-of-factly concurred with the
appellate court’s observation that, prescinding from what he himself
alleged in his basic complaint, his contribution to the partnership
consisted of his share in the Litonjua family businesses which owned
variable immovable properties. Petitioner’s assertion in his motion
for reconsideration24 of the CA’s decision, that "what was to be
contributed to the business [of the partnership] was [petitioner’s]
industry and his share in the family [theatre and land development]
business" leaves no room for speculation as to what petitioner
contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement
under Article 1773 of the Civil Code applies as long real property or
real rights are initially brought into the partnership. In short, it is really
of no moment which of the partners, or, in this case, who between
petitioner and his brother Eduardo, contributed immovables. In
context, the more important consideration is that real property was
contributed, in which case an inventory of the contributed property
duly signed by the parties should be attached to the public
instrument, else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773,
argues that the immovables in question were not contributed, but
were acquired after the formation of the supposed partnership.
Needless to stress, the Court cannot accord cogency to this specious
argument. For, as earlier stated, petitioner himself admitted
contributing his share in the supposed shipping, movie theatres and
realty development family businesses which already owned
immovables even before Annex "A-1" was allegedly executed.
Considering thus the value and nature of petitioner’s alleged
contribution to the purported partnership, the Court, even if so
disposed, cannot plausibly extend Annex "A-1" the legal effects that
petitioner so desires and pleads to be given. Annex "A-1", in fine,
cannot support the existence of the partnership sued upon and
sought to be enforced. The legal and factual milieu of the case calls
for this disposition. A partnership may be constituted in any form,
save when immovable property or real rights are contributed thereto
or when the partnership has a capital of at least ₱3,000.00, in which
case a public instrument shall be necessary.25 And if only to stress
what has repeatedly been articulated, an inventory to be signed by
the parties and attached to the public instrument is
also indispensable to the validity of the partnership whenever
immovable property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its
assailed Decision26 about the probative value and legal effect of
Annex "A-1" commends itself for concurrence:
Considering that the allegations in the complaint showed that
[petitioner] contributed immovable properties to the alleged
partnership, the "Memorandum" (Annex "A" of the complaint) which
purports to establish the said "partnership/joint venture" is NOT a
public instrument and there was NO inventory of the immovable
property duly signed by the parties. As such, the said "Memorandum"
… is null and void for purposes of establishing the existence of a valid
contract of partnership. Indeed, because of the failure to comply with
the essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no
effect whatsoever. Necessarily, a void or legally inexistent contract
cannot be the source of any contractual or legal right. Accordingly,
the allegations in the complaint, including the actionable document
attached thereto, clearly demonstrates that [petitioner] has NO valid
contractual or legal right which could be violated by the [individual
respondents] herein. As a consequence, [petitioner’s] complaint does
NOT state a valid cause of action because NOT all the essential
elements of a cause of action are present. (Underscoring and words
in bracket added.)
Likewise well-taken are the following complementary excerpts from
the CA’s equally assailed Resolution of December 7, 200427 denying
petitioner’s motion for reconsideration:
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Further, We conclude that despite glaring defects in the allegations in
the complaint as well as the actionable document attached thereto
(Rollo, p. 191), the [trial] court did not appreciate and apply the legal
provisions which were brought to its attention by herein
[respondents] in the their pleadings. In our evaluation of [petitioner’s]
complaint, the latter alleged inter alia to have contributed immovable
properties to the alleged partnership but the actionable document is
not a public document and there was no inventory of immovable
properties signed by the parties. Both the allegations in the complaint
and the actionable documents considered, it is crystal clear that
[petitioner] has no valid or legal right which could be violated by
[respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioner’s posture that Annex
"A-1", assuming its inefficacy or nullity as a partnership document,
nevertheless created demandable rights in his favor. As petitioner
succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-
quoted provisions, established an actionable contract even though it
may not be a partnership. This actionable contract is what is known
as an innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but
surely the contract does create rights and obligations of the parties
and which rights and obligations may be enforceable and
demandable. Just because the relationship created by the agreement
cannot be specifically labeled or pigeonholed into a category of
nominate contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on
this Court - and earlier on the CA after he experienced a reversal of
fortune thereat - as an afterthought. The appellate court, however,
cannot really be faulted for not yielding to petitioner’s dubious
stratagem of altering his theory of joint venture/partnership to an
innominate contract. For, at bottom, the appellate court’s certiorari
jurisdiction was circumscribed by what was alleged to have been the
order/s issued by the trial court in grave abuse of discretion. As
respondent Yang pointedly observed,28since the parties’ basic
position had been well-defined, that of petitioner being that the
actionable document established a partnership/joint venture, it is on
those positions that the appellate court exercised its certiorari
jurisdiction. Petitioner’s act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly declared, an
admission of the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of
stance, he has now contended that the actionable instrument may be
considered an innominate contract. xxx Verily, this now changes
[petitioner’s] theory of the case which is not only prohibited by the
Rules but also is an implied admission that the very theory he himself
… has adopted, filed and prosecuted before the respondent court is
erroneous.
Be that as it may . …. We hold that this new theory contravenes
[petitioner’s] theory of the actionable document being a partnership
document. If anything, it is so obvious we do have to test the
sufficiency of the cause of action on the basis of partnership law
xxx.29 (Emphasis in the original; Words in bracket added).
But even assuming in gratia argumenti that Annex "A-1" partakes of
a perfected innominate contract, petitioner’s complaint would still be
dismissible as against Eduardo and, more so, against Yang. It cannot
be over-emphasized that petitioner points to Eduardo as the author
of Annex "A-1". Withal, even on this consideration alone, petitioner’s
claim against Yang is doomed from the very start.
As it were, the only portion of Annex "A-1" which could perhaps be
remotely regarded as vesting petitioner with a right to demand from
respondent Eduardo the observance of a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers
and I will ask you to stay as I want you to run this office everytime I
am away. I want you to run it the way I am trying to run it because I
will be alone and I will depend entirely to you, My sons will not be
ready to help me yet until about maybe 15/20 years from
now. Whatever is left in the corporation, I will make sure that you get
ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity,
whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon
himself under the above passage, if he indeed wrote Annex "A-1", is
a promise which is not to be performed within one year from
"contract" execution on June 22, 1973. Accordingly, the agreement
embodied in Annex "A-1" is covered by the Statute of Frauds
and ergounenforceable for non-compliance therewith.30 By force of
the statute of frauds, an agreement that by its terms is not to be
performed within a year from the making thereof shall be
unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party
charged. Corollarily, no action can be proved unless the requirement
exacted by the statute of frauds is complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1
Million or 10% equity of the family businesses supposedly promised
by Eduardo to give in the near future. Any suggestion that the stated
amount or the equity component of the promise was intended to go
to a common fund would be to read something not written
in Annex"A-1". Thus, even this angle alone argues against the very
idea of a partnership, the creation of which requires two or more
contracting minds mutually agreeing to contribute money, property
or industry to a common fund with the intention of dividing the
profits between or among themselves.32
In sum then, the Court rules, as did the CA, that petitioner’s complaint
for specific performance anchored on an actionable document of
partnership which is legally inexistent or void or, at best,
unenforceable does not state a cause of action as against respondent
Eduardo and the corporate defendants. And if no of action can
successfully be maintained against respondent Eduardo because no
valid partnership existed between him and petitioner, the Court
cannot see its way clear on how the same action could plausibly
prosper against Yang. Surely, Yang could not have become a partner
in, or could not have had any form of business relationship with, an
inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the
logical nexus that would tie Yang to him as his partner. In fact,
attendant circumstances would indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was "for the continuation of their
family business and common family funds which were theretofore
being mainly managed by Eduardo." 33 But Yang denies kinship with
the Litonjua family and petitioner has not disputed the disclaimer.
122 | P a g e
2. In some detail, petitioner mentioned what he had contributed to
the joint venture/partnership with Eduardo and what his share in the
businesses will be. No allegation is made whatsoever about what Yang
contributed, if any, let alone his proportional share in the profits. But
such allegation cannot, however, be made because, as aptly observed
by the CA, the actionable document did not contain such provision,
let alone mention the name of Yang. How, indeed, could a person be
considered a partner when the document purporting to establish the
partnership contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and
Eduardo are business partners in the [respondent] corporations,"
while "Bobby is his and Eduardo’s partner in their Odeon Theater
investment’ (par. 2.03). This means that the partnership between
petitioner and Eduardo came first; Yang became their partner in their
Odeon Theater investment thereafter. Several paragraphs later,
however, petitioner would contradict himself by alleging that his
"investment and that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of profit income and
direct investments in several corporation including but not limited to
[six] corporate respondents" This simply means that the "Odeon
Theatre business" came before the corporate respondents.
Significantly enough, petitioner refers to the corporate respondents
as "progeny" of the Odeon Theatre business.34
Needless to stress, petitioner has not sufficiently established in his
complaint the legal vinculum whence he sourced his right to drag
Yang into the fray. The Court of Appeals, in its assailed decision,
captured and formulated the legal situation in the following wise:
[Respondent] Yang, … is impleaded because, as alleged in the
complaint, he is a "partner" of [Eduardo] and the [petitioner] in the
Odeon Theater Investment which expanded through reinvestments
of profits and direct investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioner’s] claim against … Yang arose from his alleged
partnership with petitioner and the …respondent. However, there
was NO allegation in the complaint which directly alleged how the
supposed contractual relation was created between [petitioner] and
…Yang. More importantly, however, the foregoing ruling of this Court
that the purported partnership between [Eduardo] is void and legally
inexistent directly affects said claim against …Yang. Since [petitioner]
is trying to establish his claim against … Yang by linking him to the
legally inexistent partnership . . . such attempt had become futile
because there was NOTHING that would contractually connect
[petitioner] and … Yang. To establish a valid cause of action, the
complaint should have a statement of fact upon which to connect
[respondent] Yang to the alleged partnership between [petitioner]
and respondent [Eduardo], including their alleged investment in the
Odeon Theater. A statement of facts on those matters is pivotal to the
complaint as they would constitute the ultimate facts necessary to
establish the elements of a cause of action against … Yang. 35
Pressing its point, the CA later stated in its resolution denying
petitioner’s motion for reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document
attached to the complaint that is controlling. Suffice it to state, We
have not ignored the actionable document … As a matter of fact, We
emphasized in our decision … that insofar as [Yang] is concerned, he
is not even mentioned in the said actionable document. We are
therefore puzzled how a person not mentioned in a document
purporting to establish a partnership could be considered a
partner.36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he
changed his theory of the case, as peremptorily determined by the
CA, has been discussed at length earlier and need not detain us long.
Suffice it to say that after the CA has ruled that the alleged partnership
is inexistent, petitioner took a different tack. Thus, from a joint
venture/partnership theory which he adopted and consistently
pursued in his complaint, petitioner embraced the innominate
contract theory. Illustrative of this shift is petitioner’s statement in
par. #8 of his motion for reconsideration of the CA’s decision
combined with what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership,
joint venture, or whatever, is a legal matter. What is determinative
for purposes of sufficiency of the complainant’s allegations, is
whether the actionable document bears out an actionable contract –
be it a partnership, a joint venture or whatever or some innominate
contract … It may be noted that one kind of innominate contract is
what is known as du ut facias (I give that you may do).37
43. Contrariwise, this actionable document, especially its above-
quoted provisions, established an actionable contract even though it
may not be a partnership. This actionable contract is what is known
as an innominate contract (Civil Code, Article 1307).38
Springing surprises on the opposing party is offensive to the sporting
idea of fair play, justice and due process; hence, the proscription
against a party shifting from one theory at the trial court to a new and
different theory in the appellate court.39 On the same rationale, an
issue which was neither averred in the complaint cannot be raised for
the first time on appeal.40 It is not difficult, therefore, to agree with
the CA when it made short shrift of petitioner’s innominate contract
theory on the basis of the foregoing basic reasons.
Petitioner’s protestation that his act of introducing the concept of
innominate contract was not a case of changing theories but of
supporting his pleaded cause of action – that of the existence of a
partnership - by another legal perspective/argument, strikes the
Court as a strained attempt to rationalize an untenable position.
Paragraph 12 of his motion for reconsideration of the CA’s decision
virtually relegates partnership as a fall-back theory. Two paragraphs
later, in the same notion, petitioner faults the appellate court for
reading, with myopic eyes, the actionable document solely as
establishing a partnership/joint venture. Verily, the cited paragraphs
are a study of a party hedging on whether or not to pursue the original
cause of action or altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the
actionable document attached to the complaint does not establish a
contractual relationship between [petitioner] and … Eduardo, Sr. and
Roberto T Yang simply because his document does not create a
partnership or a joint venture. This is … a myopic reading of the
actionable document.
Per the Court’s own count, petitioner used in his complaint the mixed
words "joint venture/partnership" nineteen (19) times and the term
123 | P a g e
"partner" four (4) times. He made reference to the "law of joint
venture/partnership [being applicable] to the business relationship …
between [him], Eduardo and Bobby [Yang]" and to his "rights in all
specific properties of their joint venture/partnership". Given this
consideration, petitioner’s right of action against respondents
Eduardo and Yang doubtless pivots on the existence of the
partnership between the three of them, as purportedly evidenced by
the undated and unsigned Annex "A-1". A void Annex "A-1", as an
actionable document of partnership, would strip petitioner of a cause
of action under the premises. A complaint for delivery and accounting
of partnership property based on such void or legally non-existent
actionable document is dismissible for failure to state of action. So, in
gist, said the Court of Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned

Decision and Resolution of the Court of Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.

124 | P a g e
G.R. No. L-2880 December 4, 1906
FRANK S. BOURNS, plaintiff-appellee,
vs.
D. M. CARMAN, ET AL., defendants-appellants.
W. A. Kincaid for appellants.
J. N. Wolfson for appellee.
MAPA, J.:
The plaintiff in this action seeks to recover the sum of $437.50, United
Stated currency, balance due on a contract for the sawing of lumber
for the lumber yard of Lo-Chim-Lim. the contract relating to the said
work was entered into by the said Lo-Chim-Lim, acting as in his own
name with the plaintiff, and it appears that the said Lo-Chim-Lim
personally agreed to pay for the work himself. The plaintiff, however,
has brought this action against Lo-Chim-Lim and his codefendants
jointly, alleging that, at the time the contract was made, they were
the joint proprietors and operators of the said lumber yard engaged
in the purchase and sale of lumber under the name and style of Lo-
Chim-Lim. Apparently the plaintiff tries to show by the words above
italicized that the other defendants were the partners of Lo-Chim-Lim
in the said lumber-yard business.lawphil.net
The court below dismissed the action as to the defendants D. M.
Carman and Fulgencio Tan-Tongco on the ground that they were not
the partners of Lo-Chim-Lim, and rendered judgment against the
other defendants for the amount claimed in the complaint with the
costs of proceedings. Vicente Palanca and Go-Tauco only excepted to
the said judgment, moved for a new trial, and have brought the case
to this court by bill of exceptions.
The evidence of record shows, according to the judgment of the court,
"That Lo-Chim-Lim had a certain lumber yard in Calle Lemery of the
city of Manila, and that he was the manager of the same, having
ordered the plaintiff to do some work for him at his sawmill in the city
of Manila; and that Vicente Palanca was his partner, and had an
interest in the said business as well as in the profits and losses thereof
. . .," and that Go-Tuaco received part of the earnings of the lumber
yard in the management of which he was interested.
The court below accordingly found that "Lo-Chim-Lim, Vicente
Palanca, Go-Tuaco had a lumber yard in Calle Lemmery of the city of
Manila in the year 1904, and participated in the profits and losses of
business and that Lo-Chim-Lim was managing partner of the said
lumber yard." In other words, coparticipants with the said Lo-Chim-
Lim in the business in question.
Although the evidence upon this point as stated by the by the
however, that is plainly and manifestly in conflict with the above
finding of that court. Such finding should therefore be
sustained. lawphil.net
The question thus raised is, therefore, purely one of law and reduces
itself to determining the real legal nature of the participation which
the appellants had in Lo-Chim-Lim's lumber yard, and consequently
their liability toward the plaintiff, in connection with the transaction
which gave rise to the present suit.
It seems that the alleged partnership between Lo-Chim-Lim and the
appellants was formed by verbal agreement only. At least there is no
evidence tending to show that the said agreement was reduced to
writing, or that it was ever recorded in a public instrument.
Moreover, that partnership had no corporate name. The plaintiff
himself alleges in his complaint that the partnership was engaged in
business under the name and style of Lo-Chim-Lim only, which
according to the evidence was the name of one of the defendants. On
the other hand, and this is very important, it does not appear that
there was any mutual agreement, between the parties, and if there
were any, it has not been shown what the agreement was. As far as
the evidence shows it seems that the business was conducted by Lo-
Chim-Lim in his own name, although he gave to the appellants a share
was has been shown with certainty. The contracts made with the
plaintiff were made by Lo-Chim-Lim individually in his own name, and
there is no evidence that the partnership over contracted in any other
form. Under such circumstances we find nothing upon which to
consider this partnership other than as a partnership of cuentas en
participacion. It may be that, as a matter of fact, it is something
different, but a simple business and scant evidence introduced by the
partnership We see nothing, according to the evidence, but a simple
business conducted by Lo-Chim-Lim exclusively, in his own name, the
names of other persons interested in the profits and losses of the
business nowhere appearing. A partnership constituted in such a
manner, the existence of which was only known to those who had an
interest in the same, being no mutual agreements between the
partners and without a corporate name indicating to the public in
some way that there were other people besides the one who
ostensibly managed and conducted the business, is exactly the
accidental partnership of cuentas en participacion defined in article
239 of the Code of Commerce.
Those who contract with the person under whose name the business
of such partnership of cuentas en participacion is conducted, shall
have only a right of action against such person and not against the
other persons interested, and the latter, on the other hand, shall have
no right of action against the third person who contracted with the
manager unless such manager formally transfers his right to them.
(Art 242 of the code Of Commerce.) It follows, therefore that the
plaintiff has no right to demand from the appellants the payment of
the amount claimed in the complaint, as Lo-Chim-Lim was the only
one who contracted with him. the action of the plaintiff lacks,
therefore, a legal foundation and should be accordingly dismissed.
The judgment appealed from this hereby reversed and the appellants
are absolved of the complaint without express provisions as to the
costs of both instances. After the expiration of twenty days let
judgment be entered in accordance herewith, and ten days thereafter
the cause be remanded to the court below for execution. So ordered.
125 | P a g e
G.R. No. 148187 April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000
Decision1 of the Court of Appeals in CA-G.R. SP No. 49385, which
affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No.
5200. Also assailed is the April 3, 2001 Resolution3 denying the motion
for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex
Mining), entered into an agreement4 with Baguio Gold Mining
Company ("Baguio Gold") for the former to manage and operate the
latter’s mining claim, known as the Sto. Nino mine, located in Atok
and Tublay, Benguet Province. The parties’ agreement was
denominated as "Power of Attorney" and provided for the following
terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
Gold) shall make available to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from
time to time may be required by the MANAGERS within the said 3-
year period, for use in the MANAGEMENT of the STO. NINO MINE. The
said ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for
internal audit purposes, as the owner’s account in the Sto. Nino
PROJECT. Any part of any income of the PRINCIPAL from the STO.
NINO MINE, which is left with the Sto. Nino PROJECT, shall be added
to such owner’s account.
5. Whenever the MANAGERS shall deem it necessary and convenient
in connection with the MANAGEMENT of the STO. NINO MINE, they
may transfer their own funds or property to the Sto. Nino PROJECT, in
accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall
be carried by the Sto. Nino PROJECT as a special fund to be known as
the MANAGERS’ account.
(b) The total of the MANAGERS’ account shall not exceed
P11,000,000.00, except with prior approval of the PRINCIPAL;
provided, however, that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the Sto. Nino PROJECT,
the amount not so paid in cash shall be added to the MANAGERS’
account.
(c) The cash and property shall not thereafter be withdrawn from the
Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS’ account shall not accrue interest. Since it is the
desire of the PRINCIPAL to extend to the MANAGERS the benefit of
subsequent appreciation of property, upon a projected termination
of this Agency, the ratio which the MANAGERS’ account has to the
owner’s account will be determined, and the corresponding
proportion of the entire assets of the STO. NINO MINE, excluding the
claims, shall be transferred to the MANAGERS, except that such
transferred assets shall not include mine development, roads,
buildings, and similar property which will be valueless, or of slight
value, to the MANAGERS. The MANAGERS can, on the other hand,
require at their option that property originally transferred by them to
the Sto. Nino PROJECT be re-transferred to them. Until such assets are
transferred to the MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%)
of the net profit of the Sto. Nino PROJECT before income tax. It is
understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net
profit of the Sto. Nino PROJECT after deduction therefrom of the
MANAGERS’ compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor of
the MANAGERS. This Power of Attorney has been executed as security
for the payment and satisfaction of all such obligations of the
PRINCIPAL in favor of the MANAGERS and as a means to fulfill the
same. Therefore, this Agency shall be irrevocable while any obligation
of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive
of the MANAGERS’ account. After all obligations of the PRINCIPAL in
favor of the MANAGERS have been paid and satisfied in full, this
Agency shall be revocable by the PRINCIPAL upon 36-month notice to
the MANAGERS.
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held liable to
the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d)
hereof shall be operative in case of the MANAGERS’ withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining
made advances of cash and property in accordance with paragraph 5
of the agreement. However, the mine suffered continuing losses over
the years which resulted to petitioner’s withdrawal as manager of the
mine on January 28, 1982 and in the eventual cessation of mine
operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a
"Compromise with Dation in Payment"7 wherein Baguio Gold
admitted an indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three segments by
first assigning Baguio Gold’s tangible assets to petitioner, transferring
to the latter Baguio Gold’s equitable title in its Philodrill assets and
finally settling the remaining liability through properties that Baguio
Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to
Compromise with Dation in Payment"8 where the parties determined
that Baguio Gold’s indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of Baguio Gold to
other creditors that petitioner had assumed as guarantor. These
liabilities pertained to long-term loans amounting to
US$11,000,000.00 contracted by Baguio Gold from the Bank of
America NT & SA and Citibank N.A. This time, Baguio Gold undertook
to pay petitioner in two segments by first assigning its tangible assets
126 | P a g e
for P127,838,051.00 and then transferring its equitable title in its
Philodrill assets for P16,302,426.00. The parties then ascertained that
Baguio Gold had a remaining outstanding indebtedness to petitioner
in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the
remaining outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in 1981
and P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its
gross income the amount of P112,136,000.00 as "loss on settlement
of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR)
disallowed the amount as deduction for bad debt and assessed
petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must
be allowed since all requisites for a bad debt deduction were satisfied,
to wit: (a) there was a valid and existing debt; (b) the debt was
ascertained to be worthless; and (c) it was charged off within the
taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management
contract it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Gold’s "pecuniary
obligations" to petitioner. It also included payments made by
petitioner as guarantor of Baguio Gold’s long-term loans which legally
entitled petitioner to be subrogated to the rights of the original
creditor.
Petitioner also asserted that due to Baguio Gold’s irreversible losses,
it became evident that it would not be able to recover the advances
and payments it had made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was neither required
to institute a judicial action for collection against the debtor nor to
sell or dispose of collateral assets in satisfaction of the debt. It is
enough that a taxpayer exerted diligent efforts to enforce collection
and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioner’s protest for lack of
legal and factual basis. It held that the alleged debt was not
ascertained to be worthless since Baguio Gold remained existing and
had not filed a petition for bankruptcy; and that the deduction did not
consist of a valid and subsisting debt considering that, under the
management contract, petitioner was to be paid fifty percent (50%)
of the project’s net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which
rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review
is hereby DENIED for lack of merit. The assessment in question, viz:
FAS-1-82-88-003067 for deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby
ORDERED to PAY respondent Commissioner of Internal Revenue the
amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20-day
grace period given by the respondent within which petitioner has to
pay the deficiency amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioner’s assertion that the advances it made for
the Sto. Nino mine were in the nature of a loan. It instead
characterized the advances as petitioner’s investment in a
partnership with Baguio Gold for the development and exploitation
of the Sto. Nino mine. The CTA held that the "Power of Attorney"
executed by petitioner and Baguio Gold was actually a partnership
agreement. Since the advanced amount partook of the nature of an
investment, it could not be deducted as a bad debt from petitioner’s
gross income.
The CTA likewise held that the amount paid by petitioner for the long-
term loan obligations of Baguio Gold could not be allowed as a bad
debt deduction. At the time the payments were made, Baguio Gold
was not in default since its loans were not yet due and demandable.
What petitioner did was to pre-pay the loans as evidenced by the
notice sent by Bank of America showing that it was merely demanding
payment of the installment and interests due. Moreover, Citibank
imposed and collected a "pre-termination penalty" for the pre-
payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon
denial of its motion for reconsideration,13petitioner took this recourse
under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by
Philex in the management of the Sto. Nino Mine pursuant to the
Power of Attorney partook of the nature of an investment rather than
a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the
net profits of the Sto. Nino Mine indicates that Philex is a partner of
Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex
and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney
and in completely disregarding the Compromise Agreement and the
Amended Compromise Agreement when it construed the nature of
the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the
propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its business
relationship with Baguio Gold, we should not only rely on the "Power
of Attorney", but also on the subsequent "Compromise with Dation in
Payment" and "Amended Compromise with Dation in Payment" that
the parties executed in 1982. These documents, allegedly evinced the
parties’ intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the
instrument that is material in determining the true nature of the
127 | P a g e
business relationship between petitioner and Baguio Gold. Before
resort may be had to the two compromise agreements, the parties’
contractual intent must first be discovered from the expressed
language of the primary contract under which the parties’ business
relations were founded. It should be noted that the compromise
agreements were mere collateral documents executed by the parties
pursuant to the termination of their business relationship created
under the "Power of Attorney". On the other hand, it is the latter
which established the juridical relation of the parties and defined the
parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be
considered as a subsequent or contemporaneous act that is reflective
of the parties’ true intent. The compromise agreements were
executed eleven years after the "Power of Attorney" and merely laid
out a plan or procedure by which petitioner could recover the
advances and payments it made under the "Power of Attorney". The
parties entered into the compromise agreements as a consequence
of the dissolution of their business relationship. It did not define that
relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership
or joint venture was indeed intended by the parties. Under a 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.15 While a corporation, like
petitioner, cannot generally enter into a contract of partnership
unless authorized by law or its charter, it has been held that it may
enter into a joint venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean
an organization formed for some temporary purpose. x x x It is in fact
hardly distinguishable from the partnership, since their elements are
similar – community of interest in the business, sharing of profits and
losses, and a mutual right of control. x x x 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. x x x 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. x x x It
would seem therefore that under Philippine law, a joint venture is a
form of partnership and should be governed by the law of
partnerships. 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. x x x (Citations
omitted) 16
Perusal of the agreement denominated as the "Power of Attorney"
indicates that the parties had intended to create a partnership and
establish a common fund for the purpose. They also had a joint
interest in the profits of the business as shown by a 50-50 sharing in
the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold
undertook to contribute money, property and industry to the
common fund known as the Sto. Niño mine.17 In this regard, we note
that there is a substantive equivalence in the respective contributions
of the parties to the development and operation of the mine.
Pursuant to paragraphs 4 and 5 of the agreement, petitioner and
Baguio Gold were to contribute equally to the joint venture assets
under their respective accounts. Baguio Gold would
contribute P11M under its owner’s account plus any of its income
that is left in the project, in addition to its actual mining claim.
Meanwhile, petitioner’s contribution would consist of its expertise in
the management and operation of mines, as well as the manager’s
account which is comprised of P11M in funds and property and
petitioner’s "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a
partnership agreement with Baguio Gold because it did not "bind"
itself to contribute money or property to the project; that under
paragraph 5 of the agreement, it was only optional for petitioner to
transfer funds or property to the Sto. Niño project "(w)henever the
MANAGERS shall deem it necessary and convenient in connection
with the MANAGEMENT of the STO. NIÑO MINE."18
The wording of the parties’ agreement as to petitioner’s contribution
to the common fund does not detract from the fact that petitioner
transferred its funds and property to the project as specified in
paragraph 5, thus rendering effective the other stipulations of the
contract, particularly paragraph 5(c) which prohibits petitioner from
withdrawing the advances until termination of the parties’ business
relations. As can be seen, petitioner became bound by its
contributions once the transfers were made. The contributions
acquired an obligatory nature as soon as petitioner had chosen to
exercise its option under paragraph 5.
There is no merit to petitioner’s claim that the prohibition in
paragraph 5(c) against withdrawal of advances should not be taken as
an indication that it had entered into a partnership with Baguio Gold;
that the stipulation only showed that what the parties entered into
was actually a contract of agency coupled with an interest which is
not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a third
party that depends upon it, or the mutual interest of both principal
and agent.19 In this case, the non-revocation or non-withdrawal under
paragraph 5(c) applies to the advances made by petitioner who is
supposedly the agent and not the principal under the contract. Thus,
it cannot be inferred from the stipulation that the parties’ relation
under the agreement is one of agency coupled with an interest and
not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication
that the relationship of the parties was one of agency and not a
partnership. Although the said provision states that "this Agency shall
be irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS’ account," it
does not necessarily follow that the parties entered into an agency
contract coupled with an interest that cannot be withdrawn by Baguio
Gold.
It should be stressed that the main object of the "Power of Attorney"
was not to confer a power in favor of petitioner to contract with third
persons on behalf of Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the former was to
manage and operate the latter’s mine through the parties’ mutual
contribution of material resources and industry. The essence of an
agency, even one that is coupled with interest, is the agent’s ability to
128 | P a g e
represent his principal and bring about business relations between
the latter and third persons.20 Where representation for and in behalf
of the principal is merely incidental or necessary for the proper
discharge of one’s paramount undertaking under a contract, the latter
may not necessarily be a contract of agency, but some other
agreement depending on the ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in
the parties’ agreement indubitably lead to the conclusion that a
partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally
obligated to return the advances made by petitioner under the
agreement. Paragraph 5 (d) thereof provides that upon termination
of the parties’ business relations, "the ratio which the MANAGER’S
account has to the owner’s account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE,
excluding the claims" shall be transferred to petitioner. 22 As pointed
out by the Court of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mine’s assets upon dissolution of the
parties’ business relations. There was nothing in the agreement that
would require Baguio Gold to make payments of the advances to
petitioner as would be recognized as an item of obligation or
"accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided
for a distribution of assets of the Sto. Niño mine upon termination, a
provision that is more consistent with a partnership than a creditor-
debtor relationship. It should be pointed out that in a contract of loan,
a person who receives a loan or money or any fungible thing acquires
ownership thereof and is bound to pay the creditor an equal amount
of the same kind and quality.23 In this case, however, there was no
stipulation for Baguio Gold to actually repay petitioner the cash and
property that it had advanced, but only the return of an amount
pegged at a ratio which the manager’s account had to the owner’s
account.
In this connection, we find no contractual basis for the execution of
the two compromise agreements in which Baguio Gold recognized a
debt in favor of petitioner, which supposedly arose from the
termination of their business relations over the Sto. Nino mine. The
"Power of Attorney" clearly provides that petitioner would only be
entitled to the return of a proportionate share of the mine assets to
be computed at a ratio that the manager’s account had to the owner’s
account. Except to provide a basis for claiming the advances as a bad
debt deduction, there is no reason for Baguio Gold to hold itself liable
to petitioner under the compromise agreements, for any amount over
and above the proportion agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a
business corporation to lend hundreds of millions of pesos to another
corporation with neither security, or collateral, nor a specific deed
evidencing the terms and conditions of such loans. The parties also
did not provide a specific maturity date for the advances to become
due and demandable, and the manner of payment was unclear. All
these point to the inevitable conclusion that the advances were not
loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Niño
mine is the fact that it would receive 50% of the net profits as
"compensation" under paragraph 12 of the agreement. The entirety
of the parties’ contractual stipulations simply leads to no other
conclusion than that petitioner’s "compensation" is actually its share
in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt
by a person of a share in the profits of a business is prima
facie evidence that he is a partner in the business." Petitioner asserts,
however, that no such inference can be drawn against it since its
share in the profits of the Sto Niño project was in the nature of
compensation or "wages of an employee", under the exception
provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid "wages" pursuant to an
employer-employee relationship. To begin with, petitioner was the
manager of the project and had put substantial sums into the venture
in order to ensure its viability and profitability. By pegging its
compensation to profits, petitioner also stood not to be remunerated
in case the mine had no income. It is hard to believe that petitioner
would take the risk of not being paid at all for its services, if it were
truly just an ordinary employee.
Consequently, we find that petitioner’s "compensation" under
paragraph 12 of the agreement actually constitutes its share in the
net profits of the partnership. Indeed, petitioner would not be
entitled to an equal share in the income of the mine if it were just an
employee of Baguio Gold.25 It is not surprising that petitioner was to
receive a 50% share in the net profits, considering that the "Power of
Attorney" also provided for an almost equal contribution of the
parties to the St. Nino mine. The "compensation" agreed upon only
serves to reinforce the notion that the parties’ relations were indeed
of partners and not employer-employee.
All told, the lower courts did not err in treating petitioner’s advances
as investments in a partnership known as the Sto. Nino mine. The
advances were not "debts" of Baguio Gold to petitioner inasmuch as
the latter was under no unconditional obligation to return the same
to the former under the "Power of Attorney". As for the amounts that
petitioner paid as guarantor to Baguio Gold’s creditors, we find no
reason to depart from the tax court’s factual finding that Baguio
Gold’s debts were not yet due and demandable at the time that
petitioner paid the same. Verily, petitioner pre-paid Baguio Gold’s
outstanding loans to its bank creditors and this conclusion is
supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction
from its gross income. Deductions for income tax purposes partake of
the nature of tax exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that he is entitled
to the deduction claimed.27 In this case, petitioner failed to
substantiate its assertion that the advances were subsisting debts of
Baguio Gold that could be deducted from its gross income.
Consequently, it could not claim the advances as a valid bad debt
deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed
the decision of the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to
PAY the deficiency tax on its 1982 income in the amount of
P62,811,161.31, with 20% delinquency interest computed from
February 10, 1995, which is the due date given for the payment of the
deficiency income tax, up to the actual date of payment.
SO ORDERED.
129 | P a g e
G.R. No. L-33580 February 6, 1931
MAXIMILIANO SANCHO, plaintiff-appellant,
vs.
SEVERIANO LIZARRAGA, defendant-appellee.
Jose Perez Cardenas and Jose M. Casal for appellant.
Celso B. Jamora and Antonio Gonzalez for appellee.
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership
contract between himself and the defendant, entered into on
October 15, 1920, the reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per annum form
October 15, 1920, with costs, and any other just and equitable
remedy against said defendant.
The defendant denies generally and specifically all the allegations of
the complaint which are incompatible with his special defenses, cross-
complaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager
and administrator of P500 monthly from October 15, 1920, until the
final dissolution, with interest, one-half of said amount to be charged
to the plaintiff. He also prays for any other just and equitable remedy.
a decision ordering the rendition of accounts following the dissolution
of partnership, the appeal in the instant case must be deemed
premature.
But even going into the merits of the case, the affirmation of the
judgment appealed from is inevitable. In view of the lower court's
findings referred to above, which we cannot revise because the parol
evidence has not been forwarded to this court, articles 1681 and 1682
of the Civil Code have been properly applied. Owing to the
defendant's failure to pay to the partnership the whole amount which
he bound himself to pay, he became indebted to it for the remainder,
with interest and any damages occasioned thereby, but the plaintiff
did not thereby acquire the right to demand rescission of the
partnership contract according to article 1124 of the Code. This article
cannot be applied to the case in question, because it refers to the
resolution of obligations in general, whereas article 1681 and 1682
specifically refer to the contract of partnership in particular. And it is
a well known principle that special provisions prevail over general
provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement
of costs. So ordered.

The Court of First Instance of Manila, having heard the cause, and
finding it duly proved that the defendant had not contributed all the
capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for which it was
constituted, and ordered the defendant, as managing partner, to
proceed without delay to liquidate it, submitting to the court the
result of the liquidation together with the accounts and vouchers
within the period of thirty days from receipt of notice of said
judgment, without costs.

The plaintiff appealed from said decision making the following

assignments of error:

1. In holding that the plaintiff and appellant is not entitled to the

rescission of the partnership contract, Exhibit A, and that article 1124
of the Civil Code is not applicable to the present case.

2. In failing to order the defendant to return the sum of P50,000 to

the plaintiff with interest from October 15, 1920, until fully paid.

3. In denying the motion for a new trial.

In the brief filed by counsel for the appellee, a preliminary question is

raised purporting to show that this appeal is premature and therefore
will not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts,
have not been made and submitted, the case cannot be deemed
terminated in said court and its ruling is not yet appealable. In support
of this contention counsel cites section 123 of the Code of Civil
Procedure, and the decision of this court in the case of Natividad vs.
Villarica (31 Phil., 172).

This contention is well founded. Until the accounts have been

rendered as ordered by the trial court, and until they have been either
approved or disapproved, the litigation involved in this action cannot
be considered as completely decided; and, as it was held in said case
of Natividad vs .Villarica, also with reference to an appeal taken from

130 | P a g e
G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-
appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.
CONCEPCION JR., J.:têñ.£îhqwâ£
Appeal from the decision of the Court of First Instanre of Manila,
dissolving the "U.P. Construction Company" and ordering the
defendant Bartolome Puzon to pay the plaintiff the amounts of: (1)
P115,102.13, with legal interest thereon from the date of the filing of
the complaint until fully paid; (2) P200,000.00, as plaintiffs share in
the unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with
the Republic of the Philippines for the construction of the Ganyangan
Bato Section of the Pagadian Zamboanga City Road, province of
Zamboanga del Sur 1 and of five (5) bridges in the Malangas-
Ganyangan Road. 2 Finding difficulty in accomplishing both projects,
Bartolome Puzon sought the financial assistance of the plaintiff,
William Uy. As an inducement, Puzon proposed the creation of a
partnership between them which would be the sub-contractor of the
projects and the profits to be divided equally between them. William
Uy inspected the projects in question and, expecting to derive
considerable profits therefrom, agreed to the proposition, thus
resulting in the formation of the "U.P. Construction Company" 3 which
was subsequently engaged as subcontractor of the construction
projects. 4
The partners agreed that the capital of the partnership would be
P100,000.00 of which each partner shall contribute the amount of
P50,000.00 in cash. 5 But, as heretofore stated, Puzon was short of
cash and he promised to contribute his share in the partnership
capital as soon as his application for a loan with the Philippine
National Bank in the amount of P150,000.00 shall have been
approved. However, before his loan application could be acted upon,
he had to clear his collaterals of its incumbrances first. For this
purpose, on October 24, 1956, Wilham Uy gave Bartolome Puzon the
amount of P10,000.00 as advance contribution of his share in the
partnership to be organized between them under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above will be
used by Puzon to pay his obligations with the Philippine National Bank
to effect the release of his mortgages with the said Bank. 6 On October
29, 1956, William Uy again gave Puzon the amount of P30,000.00 as
his partial contribution to the proposed partnership and which the
said Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation. 7 Puzon promised William Uy that
the amount of P150,000.00 would be given to the partnership to be
applied thusly: P40,000.00, as reimbursement of the capital
contribution of William Uy which the said Uy had advanced to clear
the title of Puzon's property; P50,000.00, as Puzon's contribution to
the partnership; and the balance of P60,000.00 as Puzon's personal
loan to the partnership. 8
Although the partnership agreement was signed by the parties on
January 18, 1957,9 work on the projects was started by the
partnership on October 1, 1956 in view of the insistence of the Bureau
of Public Highways to complete the project right away. 10 Since Puzon
was busy with his other projects, William Uy was entrusted with the
management of the projects and whatever expense the latter might
incur, would be considered as part of his contribution. 11 At the end
of December, 1957, William Uy had contributed to the partnership
the amount of P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine National Bank in
November, 1956 and he gave to William Uy the amount of
P60,000.00. Of this amount, P40,000.00 was for the reimbursement
of Uy's contribution to the partnership which was used to clear the
title to Puzon's property, and the P20,000.00 as Puzon's contribution
to the partnership capital. 13
To guarantee the repayment of the above-mentioned loan,
Bartolome Puzon, without the knowledge and consent of William
Uy, 14 assigned to the Philippine National Bank all the payments to be
received on account of the contracts with the Bureau of Public
Highways for the construction of the afore-mentioned projects. 15 By
virtue of said assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the government
projects in question to the Philippine National Bank which, in turn,
applied portions of it in payment of Puzon's loan. Of the amount of
P1,047,181.07, released by the Bureau of Public Highways in payment
of the partial work completed by the partnership on the projects, the
amount of P332,539.60 was applied in payment of Puzon's loan and
only the amount of P27,820.80 was deposited in the partnership
funds, 16 which, for all practical purposes, was also under Puzon's
account since Puzon was the custodian of the common funds.
As time passed and the financial demands of the projects increased,
William Uy, who supervised the said projects, found difficulty in
obtaining the necessary funds with which to pursue the construction
projects. William Uy correspondingly called on Bartolome Puzon to
comply with his obligations under the terms of their partnership
agreement and to place, at lest, his capital contribution at the disposal
of the partnership. Despite several promises, Puzon, however, failed
to do so. 17 Realizing that his verbal demands were to no avail, William
Uy consequently wrote Bartolome Puzon pormal letters of
demand, 18 to which Puzon replied that he is unable to put in
additional capital to continue with the projects. 19
Failing to reach an agreement with William Uy, Bartolome Puzon, as
prime contractor of the construction projects, wrote the
subcontractor, U.P. Construction Company, on November 20, 1957,
advising the partnership, of which he is also a partner, that unless they
presented an immediate solution and capacity to prosecute the work
effectively, he would be constrained to consider the sub-contract
terminated and, thereafter, to assume all responsibilities in the
construction of the projects in accordance with his original contract
with the Bureau of Public Highways. 20 On November 27, 1957,
Bartolome Puzon again wrote the U.P.Construction Company finally
terminating their subcontract agreement as of December 1, 1957. 21
Thereafter, William Uy was not allowed to hold office in the U.P.
Construction Company and his authority to deal with the Bureau of
Public Highways in behalf of the partnership was revoked by
Bartolome Puzon who continued with the construction projects
alone. 22
131 | P a g e
On May 20, 1958, William Uy, claiming that Bartolome Puzon had
violated the terms of their partnership agreement, instituted an
action in court, seeking, inter alia, the dissolution of the partnership
and payment of damages.
Answering, Bartolome Puzon denied that he violated the terms of
their agreement claiming that it was the plaintiff, William Uy, who
violated the terms thereof. He, likewise, prayed for the dissolution of
the partnership and for the payment by the plaintiff of his, share in
the losses suffered by the partnership.
After appropriate proceedings, the trial court found that the
defendant, contrary to the terms of their partnership agreement,
failed to contribute his share in the capital of the partnership applied
partnership funds to his personal use; ousted the plaintiff from the
management of the firm, and caused the failure of the partnership to
realize the expected profits of at least P400,000.00. As a
consequence, the trial court dismissed the defendant's counterclaim
and ordered the dissolution of the partnership. The trial court further
ordered the defendant to pay the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during
the pendency of the appeal before this Court, the said Bartolome
Puzon died, and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19) assignment of errors,
involving questions of fact, which relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay
the appellee is not supported by the evidence and the law.
After going over the record, we find no reason for rejecting the
findings of fact below, justifying the reversal of the decision appealed
from.
The findings of the trial court that the appellant failed to contribute
his share in the capital of the partnership is clear incontrovertible. The
record shows that after the appellant's loan the amount of
P150,000.00 was approved by the Philippin National Bank in
November, 1956, he gave the amount P60,000.00 to the appellee who
was then managing the construction projects. Of this amount,
P40,000.00 was to be applied a reimbursement of the appellee's
contribution to the partnership which was used to clear the title to
the appellant's property, and th balance of P20,000.00, as Puzon's
contribution to the partnership. 23 Thereafter, the appellant failed to
make any further contributions the partnership funds as shown in his
letters to the appellee wherein he confessed his inability to put in
additional capital to continue with the projects. 24
Parenthetically, the claim of the appellant that the appellee is equally
guilty of not contributing his share in the partnership capital inasmuch
as the amount of P40,000.00, allegedly given to him in October, 1956
as partial contribution of the appellee is merely a personal loan of the
appellant which he had paid to the appellee, is plainly untenable. The
terms of the receipts signed by the appellant are clear and
unequivocal that the sums of money given by the appellee are
appellee's partial contributions to the partnership capital. Thus, in the
receipt for P10,000.00 dated October 24, 1956, 25 the appellant
stated:ñé+.£ªwph!1
Received from Mr. William Uy the sum of TEN THOUSAND PESOS
(P10,000.00) in Check No. SC 423285 Equitable Banking Corporation,
dated October 24, 1956, as advance contribution of the share of said
William Uy in the partnership to be organized between us under the
firm name U.P. CONSTRUCTION COMPANY which amount mentioned
above will be used by the undersigned to pay his obligations with the
Philippine National Bank to effect the release of his mortgages with
the said bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29,
1956, 26 the appellant also said:ñé+.£ªwph!1
Received from William Uy the sum of THIRTY THOUSAND PESOS
(P30,000.00) in Check No. SC423287, of the Equitable Banking
Corporation, as partial contribution of the share of the said William
Uy to the U.P. CONSTRUCTION COMPANY for which the undersigned
will use the said amount in payment of his obligation to the
Rehabilitation Finance Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied
partnership funds is, likewise, sustained by competent evidence. It is
of record that the appellant assigned to the Philippine National Bank
all the payments to be received on account of the contracts with the
Bureau of Public Highways for the construction of the
aforementioned projects to guarantee the repayment of the
bank. 27 By virtue of the said appeflant's personal loan with the said
bank assignment, the Bureau of Public Highways paid the money due
on the partial accomplishments on the construction projects in
question to the Philippine National Bank who, in turn, applied
portions of it in payment of the appellant's loan. 28
The appellant claims, however, that the said assignment was made
with the consent of the appellee and that the assignment not
prejudice the partnership as it was reimbursed by the appellant.
But, the appellee categorically stated that the assignment to the
Philippine National Bank was made without his prior knowledge and
consent and that when he learned of said assignment, he cal the
attention of the appellant who assured him that the assignment was
only temporary as he would transfer the loan to the Rehabilitation
Finance Corporation within three (3) months time. 29
The question of whom to believe being a matter large dependent on
the trier's discretion, the findings of the trial court who had the better
opportunity to examine and appraise the fact issue, certainly deserve
respect.
That the assignment to the Philippine National Bank prejudicial to the
partnership cannot be denied. The record show that during the period
from March, 1957 to September, 1959, the appellant Bartolome
Puzon received from the Bureau of Public highways, in payment of the
work accomplished on the construction projects, the amount of
P1,047,181.01, which amount rightfully and legally belongs to the
partnership by virtue of the subcontract agreements between the
appellant and the U.P. Construction Company. In view of the
assignemt made by Puzon to the Philippine National Bank, the latter
withheld and applied the amount of P332,539,60 in payment of the
appellant's personal loan with the said bank. The balance was
deposited in Puzon's current account and only the amount of
P27,820.80 was deposited in the current account of the
partnership. 30 For sure, if the appellant gave to the partnership all
that were eamed and due it under the subcontract agreements, the
money would have been used as a safe reserve for the discharge of
all obligations of the firm and the partnership would have been able
to successfully and profitably prosecute the projects it subcontracted.
132 | P a g e
When did the appellant make the reimbursement claimed by him?
For the same period, the appellant actually disbursed for the
partnership, in connection with the construction projects, the amount
of P952,839.77. 31 Since the appellant received from the Bureau of
Public Highways the sum of P1,047,181.01, the appellant has a deficit
balance of P94,342.24. The appellant, therefore, did not make
complete restitution.
The findings of the trial court that the appellee has been ousted from
the management of the partnership is also based upon persuasive
evidence. The appellee testified that after he had demanded from the
appellant payment of the latter's contribution to the partnership
capital, the said appellant did not allow him to hold office in the U.P.
Construction Company and his authority to deal with the Bureau of
Public Highways was revoked by the appellant. 32
As the record stands, We cannot say, therefore, that the decis of the
trial court is not sustained by the evidence of record as warrant its
reverw.
Since the defendantappellant was at fauh, the tral court properly
ordered him to reimburse the plaintiff-appellee whatever amount
latter had invested in or spent for the partnership on account of
construction projects.
How much did the appellee spend in the construction projects
question?
It appears that although the partnership agreement stated the capital
of the partnership is P100,000.00 of which each part shall contribute
to the partnership the amount of P50,000.00 cash 33 the partners of
the U.P. Construction Company did contribute their agreed share in
the capitalization of the enterprise in lump sums of P50,000.00 each.
Aside from the initial amount P40,000.00 put up by the appellee in
October, 1956, 34 the partners' investments took, the form of cash
advances coveting expenses of the construction projects as they were
incurred. Since the determination of the amount of the
disbursements which each of them had made for the construction
projects require an examination of the books of account, the trial
court appointed two commissioners, designated by the parties, "to
examine the books of account of the defendant regarding the U.P.
Construction Company and his personal account with particular
reference to the Public Works contract for the construction of the
Ganyangan-Bato Section, Pagadian-Zamboanga City Road and five (5)
Bridges in Malangas-Ganyangan Road, including the payments
received by defendant from the Bureau of Public Highways by virtue
of the two projects above mentioned, the disbursements or
disposition made by defendant of the portion thereof released to him
by the Philippine National Bank and in whose account these funds are
deposited . 35
In due time, the loners so appointed, 36 submitted their report 37 they
indicated the items wherein they are in agreement, as well as their
points of disagreement.
In the commissioners' report, the appellant's advances are listed
under Credits; the money received from the firm, under Debits; and
the resulting monthly investment standings of the partners, under
Balances. The commissioners are agreed that at the end of December,
1957, the appellee had a balance of P8,242.39. 38 It is in their
respective adjustments of the capital account of the appellee that the
commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the
appellee with the sum of P24,239.48, representing the checks isssued
by the appellant, 39 and encashed by the appellee or his brother, Uy
Han so that the appellee would owe the partnership the amount of
P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would
credit the appellee the following additional amounts:
(1) P7,497.80 — items omitted from the books of partnership but
recognized and charged to Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 — payrolls paid by the appellee in the amount
P128,103.77 less payroll remittances from the appellant in amount of
P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction
site.
With respect to the amount of P24,239.48, claimed by appellant, we
are hereunder adopting the findings of the trial which we find to be
in accord with the evidence:
To enhance defendant's theory that he should be credited
P24,239.48, he presented checks allegedly given to plaintiff and the
latter's brother, Uy Han, marked as Exhibits 2 to 11. However,
defendant admitted that said cheeks were not entered nor record
their books of account, as expenses for and in behalf of partnership
or its affairs. On the other hand, Uy Han testified that of the cheeks
he received were exchange for cash, while other used in the purchase
of spare parts requisitioned by defendant. This testimony was not
refuted to the satisfaction of the Court, considering that Han's
explanation thereof is the more plausible because if they were
employed in the prosecution of the partners projects, the
corresponding disbursements would have certainly been recorded in
its books, which is not the case. Taking into account defendant is the
custodian of the books of account, his failure to so enter therein the
alleged disbursements, accentuates the falsity of his claim on this
point. 40
Besides, as further noted by the trial court, the report Commissioner
Ablaza is unreliable in view of his proclivity to favor the appellant and
because of the inaccurate accounting procedure adopted by him in
auditing the books of account of the partnership unlike Mr. Tayag's
report which inspires faith and credence. 41
As explained by Mr. Tayag, the amount of P7,497.80 represen
expenses paid by the appellee out of his personal funds which not
been entered in the books of the partnership but which been
recognized and conceded to by the auditor designated by the
appellant who included the said amount under Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount of
P65,103.77 is likewise clear and convincing. 43
As for the sum of of P26,027.04, the same represents the expenses
which the appelle paid in connection withe the projects and not
entered in the books of the partnership since all vouchers and receipts
were sent to the Manila office which were under the control of the
appellant. However, officer which were under the control of the
appellant. However, a list of these expenses are incorporated in
Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:
133 | P a g e
 ñé+.£ªwph!1 There is no doubt that the contracting business is a profitable one and
that the U.P. Construction Company derived some profits from' co io
Undisputed balance as of Dec. 1967 oa ects its sub ntracts in the construction of the road and bridges
projects its deficient working capital and the juggling of its funds by
Add: Items omitted from the books but P 8,242.
the appellant.
recognized and charged to Miscellaneous
Contrary to the appellant's claim, the partnership showed some
Expenses by Mr. Ablaza 7,497.80 profits during the period from July 2, 1956 to December 31, 1957. If
the Profit and Loss Statement 45 showed a net loss of P134,019.43,
Add: Payrolls paid by the P128,103.77 this was primarily due to the confusing accounting method employed
appellee by the auditor who intermixed h and accthe cas ruamethod of
accounting and the erroneous inclusion of certain items, like personal
Less: Payroll remittances 63,000.00 65,103.77 expenses of the appellant and afteged extraordinary losses due to an
received accidental plane crash, in the operating expenses of the partnership,
Corrected, the Profit and Loss Statement would indicate a net profit
Add: Other expenses incurred
of P41,611.28.
at the
For the period from January 1, 1958 to September 30, 1959, the
site (Exhs, ZZ, ZZ-1 to ZZ-4) 26,027.04
partnership admittedly made a net profit of P52,943.89. 46
TOTAL P106,871.00
Besides, as We have heretofore pointed out, the appellant received
At the trial, the appellee presented a claim for the amounts of from the Bureau of Public Highways, in payment of the zonstruction
P3,917.39 and P4,665.00 which he also advanced for the construction projects in question, the amount of P1,047,181.01 47 and disbursed
projects but which were not included in the Commissioner's Report. 44 the amount of P952,839.77, 48 leaving an unaccounted balance of
P94,342.24. Obviously, this amount is also part of the profits of the
Appellee's total investments in the partnership would, therefore, be: partnership.

Appellee's total credits
Add: unrecorded balances for the month of Dec. 1957 (Exhs. KKK,
KK-1 to KKK_19, KKK-22)
Add: Payments to Munoz, as subcontractor of five,(5) Bridges (p.
264 tsn; Exhs. KKK-20, KKK-21)
Total Investments
Regarding the award of P200,000.00 as his share in the unrealized
profits of the partnership, the appellant contends that the findings of
the trial court that the amount of P400,000.00 as reasonable profits
of the partnership venture is without any basis and is not supported
by the evidence. The appemnt maintains that the lower court, in
making its determination, did not take into consideration the great
risks involved in business operations involving as it does the
completion of the projects within a definite period of time, in the face
of adverse and often unpredictable circumstances, as well as the fact
that the appellee, who was in charge of the projects in the field,
contributed in a large measure to the failure of the partnership to
realize such profits by his field management.
During the trial of this case, it was discovered that the appellant had
P106,871.00
money and credits receivable froin the projects in question, in the
custody of the Bureau of Public Highways, in the amount of
P128,669.75, representing the 10% retention of said projects.49 After
3,917,39
the trial of this case, it was shown that the total retentions Wucted
from the appemnt amounted to P145,358.00. 50 Surely, these
retained amounts also form part of the profits of the partnership.
4,665.00
Had the appellant not been remiss in his obligations as partner and as
prime contractor of the construction projects in question as he was
bound to perform pursuant to the partnership and subcontract
agreements, and considering the fact that the total contract amount
Pl 15,453.39
of these two projects is P2,327,335.76, it is reasonable to expect that
the partnership would have earned much more than the P334,255.61
We have hereinabove indicated. The award, therefore, made by the
trial court of the amount of P200,000.00, as compensatory damages,
is not speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the said
decision is hereby affirmed with costs against the appellant, it being
understood that the liability mentioned herein shall be home by the
estate of the deceased Bartolome Puzon, represented in this instance
by the administrator thereof, Franco Puzon.
SO ORDERED.

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

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

of contract?

134 | P a g e
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E.
PECSON, respondents.
GUTIERREZ, JR., J.:ñé+.£ªwph!1
This is a petition for review on certiorari of the decision of the
respondent Court of Appeals which ordered petitioner Isabelo Moran,
Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts
indicate that: têñ.£îhqwâ£
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring the delegates to the
1971 Constitutional Convention), with Moran actually supervising the
work; that Pecson would receive a commission of P l,000 a month
starting on April 15, 1971 up to December 15, 1971; that on December
15, 1971, a liquidation of the accounts in the distribution and printing
of the 95,000 posters would be made, that Pecson gave Moran
P10,000 for which the latter issued a receipt; that only a few posters
were printed; that on or about May 28, 1971, Moran executed in favor
of Pecson a promissory note in the amount of P20,000 payable in two
equal installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first installment on
the date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of
Manila an action for the recovery of a sum of money and alleged in
his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00,
payment of his share in the profits that the partnership would have
earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral
and exemplary damages and attorney's fees.
After the trial, the Court of First Instance held that: têñ.£îhqwâ£
From the evidence presented it is clear in the mind of the court that
by virtue of the partnership agreement entered into by the parties-
plaintiff and defendant the plaintiff did contribute P10,000.00, and
another sum of P7,000.00 for the Voice of the Veteran or Delegate
Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only authorized of which,
however, were sold at P5.00 each. Nothing more was done after this
and it can be said that the venture did not really get off the ground.
On the other hand, the plaintiff failed to give his full contribution of
P15,000.00. Thus, each party is entitled to rescind the contract which
right is implied in reciprocal obligations under Article 1385 of the Civil
Code whereunder 'rescission creates the obligation to return the
things which were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering defendant
Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum
of P17,000.00, with interest at the legal rate from the filing of the
complaint on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of
Appeals. The latter likewise rendered a decision against the
petitioner. The dispositive portion of the decision reads: têñ.£îhqwâ£
PREMISES CONSIDERED, the decision appealed from is hereby SET
ASIDE, and a new one is hereby rendered, ordering defendant-
appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E.
Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount that
could have accrued to Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's investment for
the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was
filed (up to the time payment is made)
The petitioner contends that the respondent Court of Appeals
decided questions of substance in a way not in accord with law and
with Supreme Court decisions when it committed the following
errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE
SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF
PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE
FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT
EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM
MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT
GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR
DAMAGES.
135 | P a g e
The first question raised in this petition refers to the award of
P47,500.00 as the private respondent's share in the unrealized profits
of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did
not take into account the great risks involved in the business
undertaking.
We agree with the petitioner that the award of speculative damages
has no basis in fact and law.
There is no dispute over the nature of the agreement between the
petitioner and the private respondent. It is a contract of partnership.
The latter in his complaint alleged that he was induced by the
petitioner to enter into a partnership with him under the following
terms and conditions: têñ.£îhqwâ£
1. That the partnership will print colored posters of the delegates to
the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos
(P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the said
posters;
4. That plaintiff will receive a commission of One Thousand Pesos
(P1,000.00) a month starting April 15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15,
1971, a liquidation of the account pertaining to the distribution and
printing of the said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence
of the partnership.
The rule is, when a partner who has undertaken to contribute a sum
of money fails to do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute (Art. 1786, Civil Code)
and for interests and damages from the time he should have complied
with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79
SCRA 598), which interpreted Art. 2200 of the Civil Code of the
Philippines, we allowed a total of P200,000.00 compensatory
damages in favor of the appellee because the appellant therein was
remiss in his obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a
particular set of facts. We awarded compensatory damages in
the Uy case because there was a finding that the constructing
business is a profitable one and that the UP construction company
derived some profits from its contractors in the construction of roads
and bridges despite its deficient capital." Besides, there was evidence
to show that the partnership made some profits during the periods
from July 2, 1956 to December 31, 1957 and from January 1, 1958 up
to September 30, 1959. The profits on two government contracts
worth P2,327,335.76 were not speculative. In the instant case, there
is no evidence whatsoever that the partnership between the
petitioner and the private respondent would have been a profitable
venture. In fact, it was a failure doomed from the start. There is
therefore no basis for the award of speculative damages in favor of
the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full
contribution while Uy contributed much more than what was
expected of him. In this case, however, there was mutual breach.
Private respondent failed to give his entire contribution in the amount
of P15,000.00. He contributed only P10,000.00. The petitioner
likewise failed to give any of the amount expected of him. He further
failed to comply with the agreement to print 95,000 copies of the
posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: têñ.£îhqwâ£
The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same
proportion.
Being a contract of partnership, each partner must share in the profits
and losses of the venture. That is the essence of a partnership. And
even with an assurance made by one of the partners that they would
earn a huge amount of profits, in the absence of fraud, the other
partner cannot claim a right to recover the highly speculative profits.
It is a rare business venture guaranteed to give 100% profits. In this
case, on an investment of P15,000.00, the respondent was supposed
to earn a guaranteed P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which
were sold at P5.00 each. The fantastic nature of expected profits is
obvious. We have to take various factors into account. The failure of
the Commission on Elections to proclaim all the 320 candidates of the
Constitutional Convention on time was a major factor. The petitioner
undesirable his best business judgment and felt that it would be a
losing venture to go on with the printing of the agreed 95,000 copies
of the posters. Hidden risks in any business venture have to be
considered.
It does not follow however that the private respondent is not entitled
to recover any amount from the petitioner. The records show that the
private respondent gave P10,000.00 to the petitioner. The latter used
this amount for the printing of 2,000 posters at a cost of P2.00 per
poster or a total printing cost of P4,000.00. The records further show
that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00
from the gross income of P10,000.00 and with no evidence on the cost
of distribution, the net profits amount to only P6,000.00. This net
profit of P6,000.00 should be divided between the petitioner and the
private respondent. And since only P4,000.00 was undesirable by the
petitioner in printing the 2,000 copies, the remaining P6,000.00
should therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner submits that the
award of P8,000.00 as Pecson's supposed commission has no
justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give
the private respondent a monthly commission of Pl,000.00 from April
15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the
commission. The payment of the commission could only have been
predicated on relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of loss or failure of
the venture. Since the venture was a failure, the private respondent
is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the
respondent Court of Appeals erred in holding him liable to the private
136 | P a g e
respondent in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed
return of investment in the "Voice of the Veterans" magazine venture,
the respondent court ruled that: têñ.£îhqwâ£
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000 in favor
of Pecson. Moran does not question the due execution of said note.
Must Moran therefore pay the amount of P20,000? The evidence
indicates that the P20,000 was assigned by Moran to cover the
following: têñ.£îhqwâ£
(a) P 7,000 — the amount of the PNB check given by Pecson to Moran
representing Pecson's investment in Moran's other project (the
publication and printing of the 'Voice of the Veterans');
(b) P10,000 — to cover the return of Pecson's contribution in the
project of the Posters;
(c) P3,000 — representing Pecson's commission for three months
(April, May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's
investment for the Veterans' project, for this project never left the
ground) ...
As a rule, the findings of facts of the Court of Appeals are final and
conclusive and cannot be reviewed on appeal to this Court (Amigo v.
Teves, 96 Phil. 252), provided they are borne out by the record or are
based on substantial evidence (Alsua-Betts v. Court of Appeals, 92
SCRA 332). However, this rule admits of certain exceptions. Thus,
in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA
734), we held that this Court retains the power to review and rectify
the findings of fact of the Court of Appeals when (1) the conclusion is
a finding grounded entirely on speculation, surmises and conjectures;
(2) when the inference made is manifestly mistaken absurd and
impossible; (3) where there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; and (5) when the
court, in making its findings, went beyond the issues of the case and
the same are contrary to the admissions of both the appellant and the
appellee.
In this case, there is misapprehension of facts. The evidence of the
private respondent himself shows that his investment in the "Voice of
Veterans" project amounted to only P3,000.00. The remaining
P4,000.00 was the amount of profit that the private respondent
expected to receive.
The records show the following exhibits- têñ.£îhqwâ£
E — Xerox copy of PNB Manager's Check No. 234265 dated March 22,
1971 in favor of defendant. Defendant admitted the authenticity of
this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4,
Nov. 29, 1972). This exhibit is being offered for the purpose of
showing plaintiff's capital investment in the printing of the "Voice of
the Veterans" for which he was promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit of P8,000 are
covered by defendant's promissory note for P14,000 dated March 31,
1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29,
1972), and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000
(capital) and P4,000 (promised profit), defendant signed and
executed the promissory note for P7,000 marked Exhibit 3 for the
defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid
P4,000 representing full return of the capital investment and P1,000
partial payment of the promised profit. The P3,000 balance of the
promised profit was made part consideration of the P20,000
promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore,
being presented to show the consideration for the P20,000
promissory note.
F — Xerox copy of PNB Manager's check dated May 29, 1971 for
P7,000 in favor of defendant. The authenticity of the check and his
receipt of the proceeds thereof were admitted by the defendant
(t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and
in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972),
and it is being presented to show the consideration for the P20,000
note and the existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered for the
purpose of showing the subject matter of the other partnership
agreement and in which plaintiff invested the P6,000 (Exhibit E)
which, together with the promised profit of P8,000 made up for the
consideration of the P14,000 promissory note (Exhibit 2; Exhibit P). As
explained in connection with Exhibit E. the P3,000 balance of the
promised profit was later made part consideration of the P20,000
promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also
defendant's Exhibit E. This document is being offered for the purpose
of further showing the transaction as explained in connection with
Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his
P3,000 out of his capital investment of P6,000 (Exh. E) in the P14,000
promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This
document is being offered in support of plaintiff's explanation in
connection with Exhibits E, L, and M to show the transaction
mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It
is being offered for the purpose of showing the transaction as
explained in connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified
that: têñ.£îhqwâ£
Q During the pre-trial of this case, Mr. Pecson, the defendant
presented a promissory note in the amount of P14,000.00 which has
been marked as Exhibit 2. Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with your transaction
with the defendant?
A This promissory note is for the printing of the "Voice of the
Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
137 | P a g e
A It is a book.têñ.£îhqwâ£
(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00 indicated in the
promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr. Moran, as
evidenced by the Philippine National Bank Manager's check and the
P8,000.00 profit assured me by Mr. Moran which I will derive from
the printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is covered by, a
Manager's check. I show you Exhibit E, is this the Manager's check that
mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00 which you
said represented P6,000.00 of your investment and P8,000.00
promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented
one-half (1/2) of the P6,000.00 capital I gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2) of
the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection
with the Balance of P3,000.00 of your capital investment and the
P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00 dated
March 30, 1971 which for purposes of Identification I request the
same to be marked as Exhibit M. . .
Court têñ.£îhqwâ£
Mark it as Exhibit M.
Q (continuing) is this the promissory note which you said was
executed by Mr. Moran in connection with your transaction regarding
the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr. Moran,
Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the
promissory note.
Q Was there a receipt issued by you covering this payment of
P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on
account of the P7,000.00 covered by the promissory note, Exhibit M.
What does this P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he has returned of
my P6,000.00 capital investment and the P1,000.00 represents partial
payment of the P4,000.00 profit that was promised to me by Mr.
Moran.
Q And what happened to the balance of P3,000.00 under the
promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied as
part of the consideration of the promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never
left the ground because the project did take place. Only it failed. It
was the private respondent himself who presented a copy of the book
entitled "Voice of the Veterans" in the lower court as Exhibit "L".
Therefore, it would be error to state that the project never took place
and on this basis decree the return of the private respondent's
investment.
As already mentioned, there are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing
partner alone, specially if the latter exercised his best business
judgment, which seems to be true in this case. In view of the
foregoing, there is no reason to pass upon the fourth and fifth
assignments of errors raised by the petitioner. We likewise find no
valid basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the
respondent Court of Appeals (now Intermediate Appellate Court) is
hereby SET ASIDE and a new one is rendered ordering the petitioner
Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX
THOUSAND (P6,000.00) PESOS representing the amount of the
private respondent's contribution to the partnership but which
remained unused; and THREE THOUSAND (P3,000.00) PESOS
representing one half (1/2) of the net profits gained by the
partnership in the sale of the two thousand (2,000) copies of the
posters, with interests at the legal rate on both amounts from the
date the complaint was filed until full payment is made.
SO ORDERED.
138 | P a g e
G.R. No. L-13680 April 27, 1960
MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
Antonio T. Lozada for appellee.
Agustin T. Misola and Tomas D. Dominado for appellant.
LABRADOR, J.:
This is an appeal from a judgment of the Court of First Instance of
Iloilo, certified to us by the Court of Appeals, for the reason that only
questions of law are involved in said appeal.
The record discloses that on November 16, 1954 plaintiff Mauro
Lozana entered into a contract with defendant Serafin Depakakibo
wherein they established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the defendant, 40%, for
the purpose of maintaining, operating and distributing electric light
and power in the Municipality of Dumangas, Province of Iloilo, under
a franchise issued to Mrs. Piadosa Buenaflor. However, the franchise
or certificate of public necessity and convenience in favor of the said
Mrs. Piadosa Buenaflor was cancelled and revoked by the Public
Service Commission on May 15, 1955. But the decision of the Public
Service Commission was appealed to Us on October 21, 1955. A
temporary certificate of public convenience was issued in the name
of Olimpia D. Decolongon on December 22, 1955 (Exh. "B"). Evidently
because of the cancellation of the franchise in the name of Mrs.
Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a generator,
Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new
grantee Olimpia D. Decolongon, by a deed dated October 30, 1955
(Exhibit "C"). Defendant Serafin Depakakibo, on the other hand, sold
one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses
Felix Jimenea and Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action
against the defendant, alleging that he is the owner of the Generator
Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires
connecting the generator to the different houses supplied by electric
current in the Municipality of Dumangas, and that he is entitled to the
possession thereof, but that the defendant has wrongfully detained
them as a consequence of which plaintiff suffered damages. Plaintiff
prayed that said properties be delivered back to him. Three days after
the filing of the complaint, that is on November 18, 1955, Judge
Pantaleon A. Pelayo issued an order in said case authorizing the
sheriff to take possession of the generator and 70 wooden posts,
upon plaintiff's filing of a bond in the amount of P16,000 in favor of
the defendant (for subsequent delivery to the plaintiff). On December
5, 1955, defendant filed an answer, denying that the generator and
the equipment mentioned in the complaint belong to the plaintiff and
alleging that the same had been contributed by the plaintiff to the
partnership entered into between them in the same manner that
defendant had contributed equipments also, and therefore that he is
not unlawfully detaining them. By way of counterclaim, defendant
alleged that under the partnership agreement the parties were to
contribute equipments, plaintiff contributing the generator and the
defendant, the wires for the purpose of installing the main and
delivery lines; that the plaintiff sold his contribution to the
partnership, in violation of the terms of their agreement. He,
therefore, prayed that the complaint against him be dismissed; that
plaintiff be adjudged guilty of violating the partnership contract and
be ordered to pay the defendant the sum of P3,000, as actual
damages, P600.00 as attorney's fees and P2,600 annually as actual
damages; that the court order dissolution of the partnership, after the
accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare
plaintiff in default on his counterclaim, but this was denied by the
court. Hearings on the case were conducted on October 25, 1956 and
November 5, 1956, and on the latter date the judge entered a decision
declaring plaintiff owner of the equipment and entitled to the
possession thereof, with costs against defendant. It is against this
judgment that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of
facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the
aforementioned plaintiff, and the defendant entered into a contract
of Partnership, a copy of which is attached as Annex "A" of
defendant's answer and counterclaim, for the purpose set forth
therein and under the national franchise granted to Mrs. Piadosa
Buenaflor;
2. That according to the aforementioned Partnership Contract, the
plaintiff Mr. Mauro Lozana, contributed the amount of Eighteen
Thousand Pesos (P18,000.00); said contributions of both parties being
the appraised values of their respective properties brought into the
partnership;
3. That the said Certificate of Public Convenience and Necessity was
revoked and cancelled by order of the Public Service Commission
dated March 15, 1955, promulgated in case No. 58188, entitled,
"Piadosa Buenaflor, applicant", which order has been appealed to the
Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into
by him to the said partnership in favor of Olimpia Decolongon in the
amount of P10,000.00 as per Deed of Sale dated October 30, 1955
executed and ratified before Notary Public, Delfin Demaisip, in and
for the Municipality of Dumangas, Iloilo and entered in his Notarial
Registry as Doc. No. 832; Page No. 6; Book No. XIII; and Series of 1955,
a copy thereof is made as Annex "B" of defendant's answer and
counterclaim;
5. That there was no liquidation of partnership and that at the time of
said Sale on October 30, 1955, defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated
November 18, 1955, those properties sold were taken by the
Provincial Sheriff on November 20, 1955 and delivered to the plaintiff
on November 25, 1955 upon the latter posting the required bond
executed by himself and the Luzon Surety Co., dated November 17,
1955 and ratified before the Notary Public, Eleuterio del Rosario in
and for the province of Iloilo known as Doc. No. 200; Page 90; Book
No. VII; and Series of 1955; of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia
Decolongon, the purchaser, who is presently operating an electric
light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses,
Felix Jimenea and Felisa Harder contributed by him to the partnership
for P3,500.00 as per Deed of Sale executed and ratified before the
Notary Public Rodrigo J. Harder in and for the Province of Iloilo, known
139 | P a g e
as Doc. No. 76; Page 94; Book No. V; and Series of 1955, a certified
copy of which is hereto attached marked as Annex "A", and made an
integral part hereof; (pp, 27-29 ROA).

As it appears from the above stipulation of facts that the plaintiff and
the defendant entered into the contract of partnership, plaintiff
contributing the amount of P18,000, and as it is not stated therein
that there bas been a liquidation of the partnership assets at the time
plaintiff sold the Buda Diesel Engine on October 15, 1955, and since
the court below had found that the plaintiff had actually contributed
one engine and 70 posts to the partnership, it necessarily follows that
the Buda diesel engine contributed by the plaintiff had become the
property of the partnership. As properties of the partnership, the
same could not be disposed of by the party contributing the same
without the consent or approval of the partnership or of the other
partner. (Clemente vs. Galvan, 67 Phil., 565).

The lower court declared that the contract of partnership was null and
void, because by the contract of partnership, the parties thereto have
become dummies of the owner of the franchise. The reason for this
holding was the admission by defendant when being cross-examined
by the court that he and the plaintiff are dummies. We find that this
admission by the defendant is an error of law, not a statement of a
fact. The Anti-Dummy law has not been violated as parties plaintiff
and defendant are not aliens but Filipinos. The Anti-Dummy law refers
to aliens only (Commonwealth Act 108 as amended).

Upon examining the contract of partnership, especially the provision

thereon wherein the parties agreed to maintain, operate and
distribute electric light and power under the franchise belonging to
Mrs. Buenaflor, we do not find the agreement to be illegal, or contrary
to law and public policy such as to make the contract of partnership,
null and void ab initio. The agreement could have been submitted to
the Public Service Commission if the rules of the latter require them
to be so presented. But the fact of furnishing the current to the holder
of the franchise alone, without the previous approval of the Public
Service Commission, does not per se make the contract of partnership
null and void from the beginning and render the partnership entered
into by the parties for the purpose also void and non-existent. Under
the circumstances, therefore, the court erred in declaring that the
contract was illegal from the beginning and that parties to the
partnership are not bound therefor, such that the contribution of the
plaintiff to the partnership did not pass to it as its property. It also
follows that the claim of the defendant in his counterclaim that the
partnership be dissolved and its assets liquidated is the proper
remedy, not for each contributing partner to claim back what he had
contributed.

For the foregoing considerations, the judgment appealed from as well

as the order of the court for the taking of the property into custody
by the sheriff must be, as they hereby are set aside and the case
remanded to the court below for further proceedings in accordance
with law.

140 | P a g e
G.R. No. L-16318 October 21, 1921
PANG LIM and BENITO GALVEZ, plaintiffs-appellees,
vs.
LO SENG, defendant-appellant.
Cohn, Fisher and DeWitt for appellant.
No appearance for appellees.
STREET, J.:
For several years prior to June 1, 1916, two of the litigating parties
herein, namely, Lo Seng and Pang Lim, Chinese residents of the City
of Manila, were partners, under the firm name of Lo Seng and Co., in
the business of running a distillery, known as "El Progreso," in the
Municipality of Paombong, in the Province of Bulacan. The land on
which said distillery is located as well as the buildings and
improvements originally used in the business were, at the time to
which reference is now made, the property of another Chinaman,
who resides in Hongkong, named Lo Yao, who, in September, 1911,
leased the same to the firm of Lo Seng and Co. for the term of three
years.
Upon the expiration of this lease a new written contract, in the
making of which Lo Yao was represented by one Lo Shui as attorney
in fact, became effective whereby the lease was extended for fifteen
years. The reason why the contract was made for so long a period of
time appears to have been that the Bureau of Internal Revenue had
required sundry expensive improvements to be made in the distillery,
and it was agreed that these improvements should be effected at the
expense of the lessees. In conformity with this understanding many
thousands of pesos were expended by Lo Seng and Co., and later by
Lo Seng alone, in enlarging and improving the plant.
Among the provisions contained in said lease we note the following:
Know all men by these presents:
xxx xxx xxx
1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr.
Lo Yao of Hongkong, cede by way of lease for fifteen years more said
distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing
business under the firm name of Lo Seng and Co.), after the
termination of the previous contract, because of the fact that they are
required, by the Bureau of Internal Revenue, to rearrange, alter and
clean up the distillery.
2. That all the improvements and betterments which they may
introduce, such as machinery, apparatus, tanks, pumps, boilers and
buildings which the business may require, shall be, after the
termination of the fifteen years of lease, for the benefit of Mr. Lo Yao,
my principal, the buildings being considered as improvements.
3. That the monthly rent of said distillery is P200, as agreed upon in
the previous contract of September 11, 1911, acknowledged before
the notary public D. Vicente Santos; and all modifications and repairs
which may be needed shall be paid for by Messrs. Pang Lim and Lo
Seng.
We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso,"
which we are at present conducting, hereby accept this contract in
each and all its parts, said contract to be effective upon the
termination of the contract of September 11, 1911.
Neither the original contract of lease nor the agreement extending
the same was inscribed in the property registry, for the reason that
the estate which is the subject of the lease has never at any time been
so inscribed.
On June 1, 1916, Pang Lim sold all his interest in the distillery to his
partner Lo Seng, thus placing the latter in the position of sole owner;
and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo
Yao, executed and acknowledged before a notary public a deed
purporting to convey to Pang Lim and another Chinaman named
Benito Galvez, the entire distillery plant including the land used in
connection therewith. As in case of the lease this document also was
never recorded in the registry of property. Thereafter Pang Lim and
Benito Galvez demanded possession from Lo Seng, but the latter
refused to yield; and the present action of unlawful detainer was
thereupon initiated by Pang Lim and Benito Galvez in the court of the
justice of the peace of Paombong to recover possession of the
premises. From the decision of the justice of the peace the case was
appealed to the Court of First Instance, where judgment was
rendered for the plaintiffs; and the defendant thereupon appealed to
the Supreme Court.
The case for the plaintiffs is rested exclusively on the provisions of
article 1571 of the Civil Code, which reads in part as follows:
ART. 1571. The purchaser of a leased estate shall be entitled to
terminate any lease in force at the time of making the sale, unless the
contrary is stipulated, and subject to the provisions of the Mortgage
Law.
In considering this provision it may be premised that a contract of
lease is personally binding on all who participate in it regardless of
whether it is recorded or not, though of course the unrecorded lease
creates no real charge upon the land to which it relates. The Mortgage
Law was devised for the protection of third parties, or those who have
not participated in the contracts which are by that law required to be
registered; and none of its provisions with reference to leases
interpose any obstacle whatever to the giving of full effect to the
personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears
to be so understood by all commentators, there being, so far as we
are aware, no authority suggesting the contrary. Thus, in the
commentaries of the authors Galindo and Escosura, on the Mortgage
Law, we find the following pertinent observation: "The Mortgage Law
is enacted in aid of and in respect to third persons only; it does not
affect the relations between the contracting parties, nor their
capacity to contract. Any question affecting the former will be
determined by the dispositions of the special law [i.e., the Mortgage
Law], while any question affecting the latter will be determined by the
general law." (Galindo y Escosura, Comentarios a la Legislacion
Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as regards
the personal obligations expressed therein, the lease in question was
from the beginning, and has remained, binding upon all the parties
thereto — among whom is to be numbered Pang Lim, then a member
of the firm of Lo Seng and Co. — this does not really solve the problem
now before us, which is, whether the plaintiffs herein, as purchasers
141 | P a g e
of the estate, are at liberty to terminate the lease, assuming that it
was originally binding upon all parties participating in it.
Upon this point the plaintiffs are undoubtedly supported, prima facie,
by the letter of article 1571 of the Civil Code; and the position of the
defendant derives no assistance from the mere circumstance that the
lease was admittedly binding as between the parties
thereto. 1awph!l.net
The words "subject to the provisions of the Mortgage Law," contained
in article 1571, express a qualification which evidently has reference
to the familiar proposition that recorded instruments are effective
against third persons from the date of registration (Co-Tiongco vs. Co-
Guia, 1 Phil., 210); from whence it follows that a recorded lease must
be respected by any purchaser of the estate whomsoever. But there
is nothing in the Mortgage Law which, so far as we now see, would
prevent a purchaser from exercising the precise power conferred in
article 1571 of the Civil Code, namely, of terminating any lease which
is unrecorded; nothing in that law that can be considered as arresting
the force of article 1571 as applied to the lease now before us.
Article 1549 of the Civil Code has also been cited by the attorneys for
the appellant as supplying authority for the proposition that the lease
in question cannot be terminated by one who, like Pang Lim, has
taken part in the contract. That provision is practically identical in
terms with the first paragraph of article 23 of the Mortgage Law,
being to the effect that unrecorded leases shall be of no effect as
against third persons; and the same observation will suffice to dispose
of it that was made by us above in discussing the Mortgage Law,
namely, that while it recognizes the fact that an unrecorded lease is
binding on all persons who participate therein, this does not
determine the question whether, admitting the lease to be so binding,
it can be terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which arise in relation
with the Mortgage Law, as well as article 1549 of the Civil Coded —
all of which, as we have seen, are undecisive — we are brought to
consider the aspect of the case which seems to us conclusive. This is
found in the circumstance that the plaintiff Pang Lim has occupied a
double role in the transactions which gave rise to this litigation,
namely, first, as one of the lessees; and secondly, as one of the
purchasers now seeking to terminate the lease. These two positions
are essentially antagonistic and incompatible. Every competent
person is by law bond to maintain in all good faith the integrity of his
own obligations; and no less certainly is he bound to respect the rights
of any person whom he has placed in his own shoes as regards any
contract previously entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim
participated in the creation of this lease, and when he sold out his
interest in that firm to Lo Seng this operated as a transfer to Lo Seng
of Pang Lim's interest in the firm assets, including the lease; and Pang
Lim cannot now be permitted, in the guise of a purchaser of the
estate, to destroy an interest derived from himself, and for which he
has received full value.
The bad faith of the plaintiffs in seeking to deprive the defendant of
this lease is strikingly revealed in the circumstance that prior to the
acquisition of this property Pang Lim had been partner with Lo Seng
and Benito Galvez an employee. Both therefore had been in relations
of confidence with Lo Seng and in that position had acquired
knowledge of the possibilities of the property and possibly an
experience which would have enabled them, in case they had
acquired possession, to exploit the distillery with profit. On account
of his status as partner in the firm of Lo Seng and Co., Pang Lim knew
that the original lease had been extended for fifteen years; and he
knew the extent of valuable improvements that had been made
thereon. Certainly, as observed in the appellant's brief, it would be
shocking to the moral sense if the condition of the law were found to
be such that Pang Lim, after profiting by the sale of his interest in a
business, worthless without the lease, could intervene as purchaser
of the property and confiscate for his own benefit the property which
he had sold for a valuable consideration to Lo Seng. The sense of
justice recoils before the mere possibility of such eventuality.
Above all other persons in business relations, partners are required to
exhibit towards each other the highest degree of good faith. In fact
the relation between partners is essentially fiduciary, each being
considered in law, as he is in fact, the confidential agent of the other.
It is therefore accepted as fundamental in equity jurisprudence that
one partner cannot, to the detriment of another, apply exclusively to
his own benefit the results of the knowledge and information gained
in the character of partner. Thus, it has been held that if one partner
obtains in his own name and for his own benefit the renewal of a lease
on property used by the firm, to commence at a date subsequent to
the expiration of the firm's lease, the partner obtaining the renewal
is held to be a constructive trustee of the firm as to such lease. (20 R.
C. L., 878-882.) And this rule has even been applied to a renewal taken
in the name of one partner after the dissolution of the firm and
pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754;
32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep.,
252.)
An additional consideration showing that the position of the plaintiff
Pang Lim in this case is untenable is deducible from articles 1461 and
1474 of the Civil Code, which declare that every person who sells
anything is bound to deliver and warrant the subject-matter of the
sale and is responsible to the vendee for the legal and lawful
possession of the thing sold. The pertinence of these provisions to the
case now under consideration is undeniable, for among the assets of
the partnership which Pang Lim transferred to Lo Seng, upon selling
out his interest in the firm to the latter, was this very lease; and while
it cannot be supposed that the obligation to warrant recognized in the
articles cited would nullify article 1571, if the latter article had actually
conferred on the plaintiffs the right to terminate this lease,
nevertheless said articles (1461, 1474), in relation with other
considerations, reveal the basis of an estoppel which in our opinion
precludes Pang Lim from setting up his interest as purchaser of the
estate to the detriment of Lo Seng.
It will not escape observation that the doctrine thus applied is
analogous to the doctrine recognized in courts of common law under
the head of estoppel by deed, in accordance with which it is held that
if a person, having no title to land, conveys the same to another by
some one or another of the recognized modes of conveyance at
common law, any title afterwards acquired by the vendor will pass to
the purchaser; and the vendor is estopped as against such purchaser
from asserting such after-acquired title. The indenture of lease, it may
be further noted, was recognized as one of the modes of conveyance
at common law which created this estoppel. (8 R. C. L., 1058, 1059.)
From what has been said it is clear that Pang Lim, having been a
participant in the contract of lease now in question, is not in a position
to terminate it: and this is a fatal obstacle to the maintenance of the
142 | P a g e
action of unlawful detainer by him. Moreover, it is fatal to the
maintenance of the action brought jointly by Pang Lim and Benito
Galvez. The reason is that in the action of unlawful detainer, under
section 80 of the Code of Civil Procedure, the only question that can
be adjudicated is the right to possession; and in order to maintain the
action, in the form in which it is here presented, the proof must show
that occupant's possession is unlawful, i. e., that he is unlawfully
withholding possession after the determination of the right to hold
possession. In the case before us quite the contrary appears; for, even
admitting that Pang Lim and Benito Galvez have purchased the estate
from Lo Yao, the original landlord, they are, as between themselves,
in the position of tenants in common or owners pro indiviso,
according to the proportion of their respective contribution to the
purchase price. But it is well recognized that one tenant in common
cannot maintain a possessory action against his cotenant, since one is
as much entitled to have possession as the other. The remedy is
ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.)
It follows that as Lo Seng is vested with the possessory right as against
Pang Lim, he cannot be ousted either by Pang Lim or Benito Galvez.
Having lawful possession as against one cotenant, he is entitled to
retain it against both. Furthermore, it is obvious that partition
proceedings could not be maintained at the instance of Benito Galvez
as against Lo Seng, since partition can only be effected where the
partitioners are cotenants, that is, have an interest of an identical
character as among themselves. (30 Cyc., 178-180.) The practical
result is that both Pang Lim and Benito Galvez are bound to respect
Lo Seng's lease, at least in so far as the present action is concerned.

We have assumed in the course of the preceding discussion that the

deed of sale under which the plaintiffs acquired the right of Lo Yao,
the owner of the fee, is competent proof in behalf of the plaintiffs. It
is, however, earnestly insisted by the attorney for Lo Seng that this
document, having never been recorded in the property registry,
cannot under article 389 of the Mortgage Law, be used in court
against him because as to said instrument he is a third party. The
important question thus raised is not absolutely necessary to the
decision of this case, and we are inclined to pass it without decision,
not only because the question does not seem to have been ventilated
in the Court of First Instance but for the further reason that we have
not had the benefit of any written brief in this case in behalf of the
appellees.

The judgment appealed from will be reversed, and the defendant will
be absolved from the complaint. It is so ordered, without express
adjudication as to costs.

143 | P a g e
G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B.
NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of
"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was
amended as to include herein respondent, Estrella Abad Santos, as
industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Leonardo Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of
P17,500 each. The amended Articles provided, inter alia, that "the
contribution of Estrella Abad Santos consists of her industry being an
industrial partner", and that the profits and losses "shall be divided
and distributed among the partners ... in the proportion of 70% for
the first three partners, Domingo C. Evangelista, Jr., Conchita P.
Navarro and Leonardo Atienza Abad Santos to be divided among
them equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three
other partners in the Court of First Instance of Manila, alleging that
the partnership, which was also made a party-defendant, had been
paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and
continued to refuse and let her examine the partnership books or to
give her information regarding the partnership affairs to pay her any
share in the dividends declared by the partnership. She therefore
prayed that the defendants be ordered to render accounting to her of
the partnership business and to pay her corresponding share in the
partnership profits after such accounting, plus attorney's fees and
costs.
The defendants, in their answer, denied ever having declared
dividends or distributed profits of the partnership; denied likewise
that the plaintiff ever demanded that she be allowed to examine the
partnership books; and byway of affirmative defense alleged that the
amended Articles of Co-partnership did not express the true
agreement of the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute industry to the
partnership; and that her share of 30% was to be based on the profits
which might be realized by the partnership only until full payment of
the loan which it had obtained in December, 1955 from the
Rehabilitation Finance Corporation in the sum of P30,000, for which
the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.
The parties are in agreement that the main issue in this case is
"whether the plaintiff-appellee (respondent here) is an industrial
partner as claimed by her or merely a profit sharer entitled to 30% of
the net profits that may be realized by the partnership from June 7,
1955 until the mortgage loan from the Rehabilitation Finance
Corporation shall be fully paid, as claimed by appellants (herein
petitioners)." On that issue the Court of First Instance found for the
plaintiff and rendered judgement "declaring her an industrial partner
of Evangelista & Co.; ordering the defendants to render an accounting
of the business operations of the (said) partnership ... from June 7,
1955; to pay the plaintiff such amounts as may be due as her share in
the partnership profits and/or dividends after such an accounting has
been properly made; to pay plaintiff attorney's fees in the sum of
P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter
affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned the following
errors:
I. The Court of Appeals erred in the finding that the respondent is an
industrial partner of Evangelista & Co., notwithstanding the admitted
fact that since 1954 and until after promulgation of the decision of
the appellate court the said respondent was one of the judges of the
City Court of Manila, and despite its findings that respondent had
been paid for services allegedly contributed by her to the partnership.
In this connection the Court of Appeals erred:
(A) In finding that the "amended Articles of Co-partnership," Exhibit
"A" is conclusive evidence that respondent was in fact made an
industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in
the decision proves that said respondent did not bind herself to
contribute her industry, and she could not, and in fact did not,
because she was one of the judges of the City Court of Manila since
1954.
(C) In finding that respondent did not in fact contribute her industry,
despite the appellate court's own finding that she has been paid for
the services allegedly rendered by her, as well as for the loans of
money made by her to the partnership.
II. The lower court erred in not finding that in any event the
respondent was lawfully excluded from, and deprived of, her alleged
share, interests and participation, as an alleged industrial partner, in
the partnership Evangelista & Co., and its profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of the
trial court whereby respondent was declared an industrial partner of
the petitioner, and petitioners were ordered to render an accounting
of the business operation of the partnership from June 7, 1955, and
to pay the respondent her alleged share in the net profits of the
partnership plus the sum of P2,000.00 as attorney's fees and the costs
of the suit, instead of dismissing respondent's complaint, with costs,
against the respondent.
It is quite obvious that the questions raised in the first assigned errors
refer to the facts as found by the Court of Appeals. The evidence
presented by the parties as the trial in support of their respective
positions on the issue of whether or not the respondent was an
industrial partner was thoroughly analyzed by the Court of Appeals
on its decision, to the extent of reproducing verbatim therein the
lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing
errors of law that might have been commited by the lower court. It
should be observed, in this regard, that the Court of Appeals did not
hold that the Articles of Co-partnership, identified in the record as
144 | P a g e
Exhibit "A", was conclusive evidence that the respondent was an
industrial partner of the said company, but considered it together
with other factors, consisting of both testimonial and documentary
evidences, in arriving at the factual conclusion expressed in the
decision.
The findings of the Court of Appeals on the various points raised in
the first assignment of error are hereunder reproduced if only to
demonstrate that the same were made after a through analysis of
then evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under
Appellants' first assigned error, wherein it is pointed out that
"Appellee's documentary evidence does not conclusively prove that
appellee was in fact admitted by appellants as industrial partner of
Evangelista & Co." and that "The grounds relied upon by the lower
Court are untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants'
complaint being that "In finding that the appellee is an industrial
partner of appellant Evangelista & Co., herein referred to as the
partnership — the lower court relied mainly on the appellee's
documentary evidence, entirely disregarding facts and circumstances
established by appellants" evidence which contradict the said finding'
(Page 21, Appellants' Brief). The lower court could not have done
otherwise but rely on the exhibits just mentioned, first, because
appellants have admitted their genuineness and due execution,
hence they were admitted without objection by the lower court when
appellee rested her case and, secondly the said exhibits indubitably
show the appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to detract from the
probative force of the said exhibits because they all bear the imprint
of their knowledge and consent, and there is no credible showing that
they ever protested against or opposed their contents prior of the
filing of their answer to appellee's complaint. As a matter of fact, all
the appellant Evangelista, Jr., would have us believe — as against the
cumulative force of appellee's aforesaid documentary evidence — is
the appellee's Exhibit "A", as confirmed and corroborated by the
other exhibits already mentioned, does not express the true intent
and agreement of the parties thereto, the real understanding
between them being the appellee would be merely a profit sharer
entitled to 30% of the net profits that may be realized between the
partners from June 7, 1955, until the mortgage loan of P30,000.00 to
be obtained from the RFC shall have been fully paid. This version,
however, is discredited not only by the aforesaid documentary
evidence brought forward by the appellee, but also by the fact that
from June 7, 1955 up to the filing of their answer to the complaint on
February 8, 1964 — or a period of over eight (8) years — appellants
did nothing to correct the alleged false agreement of the parties
contained in Exhibit "A". It is thus reasonable to suppose that, had
appellee not filed the present action, appellants would not have
advanced this obvious afterthought that Exhibit "A" does not express
the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the
argument that 'there is an overriding fact which proves that the
parties to the Amended Articles of Partnership, Exhibit "A", did not
contemplate to make the appellee Estrella Abad Santos, an industrial
partner of Evangelista & Co. It is an admitted fact that since before
the execution of the amended articles of partnership, Exhibit "A", the
appellee Estrella Abad Santos has been, and up to the present time
still is, one of the judges of the City Court of Manila, devoting all her
time to the performance of the duties of her public office. This fact
proves beyond peradventure that it was never contemplated
between the parties, for she could not lawfully contribute her full
time and industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's
testimony on this point, quoting it in the decision, and then concluded
as follows:
One cannot read appellee's testimony just quoted without gaining the
very definite impression that, even as she was and still is a Judge of
the City Court of Manila, she has rendered services for appellants
without which they would not have had the wherewithal to operate
the business for which appellant company was organized. Article 1767
of the New Civil Code which provides that "By contract of partnership
two or more persons bind themselves, to contribute money, property,
or industry to a common fund, with the intention of dividing the
profits among themselves, 'does not specify the kind of industry that
a partner may thus contribute, hence the said services may
legitimately be considered as appellee's contribution to the common
fund. Another article of the same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so; and if
he should do so, the capitalist partners may either exclude him from
the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in
either case.'
It is not disputed that the provision against the industrial partner
engaging in business for himself seeks to prevent any conflict of
interest between the industrial partner and the partnership, and to
insure faithful compliance by said partner with this prestation. There
is no pretense, however, even on the part of the appellee is engaged
in any business antagonistic to that of appellant company, since being
a Judge of one of the branches of the City Court of Manila can hardly
be characterized as a business. That appellee has faithfully complied
with her prestation with respect to appellants is clearly shown by the
fact that it was only after filing of the complaint in this case and the
answer thereto appellants exercised their right of exclusion under the
codal art just mentioned by alleging in their Supplemental Answer
dated June 29, 1964 — or after around nine (9) years from June 7,
1955 — subsequent to the filing of defendants' answer to the
complaint, defendants reached an agreement whereby the herein
plaintiff been excluded from, and deprived of, her alleged share,
interests or participation, as an alleged industrial partner, in the
defendant partnership and/or in its net profits or income, on the
ground plaintiff has never contributed her industry to the partnership,
instead she has been and still is a judge of the City Court (formerly
Municipal Court) of the City of Manila, devoting her time to
performance of her duties as such judge and enjoying the privilege
and emoluments appertaining to the said office, aside from teaching
in law school in Manila, without the express consent of the herein
defendants' (Record On Appeal, pp. 24-25). Having always knows as a
appellee as a City judge even before she joined appellant company on
June 7, 1955 as an industrial partner, why did it take appellants many
yearn before excluding her from said company as aforequoted
allegations? And how can they reconcile such exclusive with their
main theory that appellee has never been such a partner because
"The real agreement evidenced by Exhibit "A" was to grant the
appellee a share of 30% of the net profits which the appellant
145 | P a g e
partnership may realize from June 7, 1955, until the mortgage of
P30,000.00 obtained from the Rehabilitation Finance Corporal shall
have been fully paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that
appellee is an industrial partner of appellant company, with the right
to demand for a formal accounting and to receive her share in the net
profit that may result from such an accounting, which right appellants
take exception under their second assigned error. Our said holding is
based on the following article of the New Civil Code:

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

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

possession of its property by his co-partners;

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

(3) As provided by article 1807;

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

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

The judgment appealed from is affirmed, with costs.

146 | P a g e
G.R. No. 85494 May 7, 1991 consequence, on February 4, 1971, Ishwar revoked the general power
of attorney. Choithram and Ortigas were duly notified of such
CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI revocation on April 1, 1971 and May 24, 1971, respectively.3 Said
and MOTI G. RAMNANI, petitioners, notice was also registered with the Securities and Exchange
vs. Commission on March 29, 19714 and was published in the April 2,
COURT OF APPEALS, SPOUSES ISHWAR JETHMAL RAMNANI, SONYA 1971 issue of The Manila Times for the information of the general
JETHMAL RAMNANI and OVERSEAS HOLDING CO., public.5
LTD., respondents.
Nevertheless, Choithram as such attorney-in-fact of Ishwar,
G.R. No. 85496 May 7, 1991 transferred all rights and interests of Ishwar and Sonya in favor of his
SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET daughter-in-law, Nirmla Ramnani, on February 19, 1973. Her husband
RAMNANI, petitioners, is Moti, son of Choithram. Upon complete payment of the lots, Ortigas
vs. executed the corresponding deeds of sale in favor of Nirmla.6 Transfer
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO., LTD. Certificates of Title Nos. 403150 and 403152 of the Register of Deeds
PARTNERSHIP, and OVERSEAS HOLDING CO., LTD., respondents. of Rizal were issued in her favor.

Quasha, Asperilla Ancheta, Peña and Nolasco for petitioners Ishwar
Jethmal Ramnani & Sonya Ramnani.
Salonga, Andres, Hernandez & Allado for Choithram Jethmal
Ramnani, Nirmla Ramnani & Moti Ramnani.
Rama Law Office for private respondents in collaboration with
Salonga, Andres, Hernandez & Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.
GANCAYCO, J.:
This case involves the bitter quarrel of two brothers over two (2)
parcels of land and its improvements now worth a fortune. The bone
of contention is the apparently conflicting factual findings of the trial
court and the appellate court, the resolution of which will materially
affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are
brothers of the full blood. Ishwar and his spouse Sonya had their main
business based in New York. Realizing the difficulty of managing their
investments in the Philippines they executed a general power of
attorney on January 24, 1966 appointing Navalrai and Choithram as
attorneys-in-fact, empowering them to manage and conduct their
business concern in the Philippines.1
On February 1, 1966 and on May 16, 1966, Choithram, in his capacity
as aforesaid attorney-in-fact of Ishwar, entered into two agreements
for the purchase of two parcels of land located in Barrio Ugong, Pasig,
Rizal, from Ortigas & Company, Ltd. Partnership (Ortigas for short)
with a total area of approximately 10,048 square meters. 2Per
agreement, Choithram paid the down payment and installments on
the lot with his personal checks. A building was constructed thereon
by Choithram in 1966 and this was occupied and rented by Jethmal
Industries and a wardrobe shop called Eppie's Creation. Three other
buildings were built thereon by Choithram through a loan of
P100,000.00 obtained from the Merchants Bank as well as the income
derived from the first building. The buildings were leased out by
Choithram as attorney-in-fact of Ishwar. Two of these buildings were
later burned.
Sometime in 1970 Ishwar asked Choithram to account for the income
and expenses relative to these properties during the period 1967 to
1970. Choithram failed and refused to render such accounting. As a
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short)
filed a complaint in the Court of First Instance of Rizal against
Choithram and/or spouses Nirmla and Moti (Choithram et al. for
brevity) and Ortigas for reconveyance of said properties or payment
of its value and damages. An amended complaint for damages was
thereafter filed by said spouses.
After the issues were joined and the trial on the merits, a decision was
rendered by the trial court on December 3, 1985 dismissing the
complaint and counterclaim. A motion for reconsideration thereof
filed by spouses Ishwar was denied on March 3, 1986.
An appeal therefrom was interposed by spouses Ishwar to the Court
of Appeals wherein in due course a decision was promulgated on
March 14, 1988, the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered reversing and setting
aside the appealed decision of the lower court dated December 3,
1985 and the Order dated March 3, 1986 which denied plaintiffs-
appellants' Motion for Reconsideration from aforesaid decision. A
new decision is hereby rendered sentencing defendants- appellees
Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani,
and Ortigas and Company Limited Partnership to pay, jointly and
severally, plaintiffs-appellants the following:
1. Actual or compensatory damages to the extent of the fair market
value of the properties in question and all improvements thereon
covered by Transfer Certificate of Title No. 403150 and Transfer
Certificate of Title No. 403152 of the Registry of Deeds of Rizal,
prevailing at the time of the satisfaction of the judgment but in no
case shall such damages be less than the value of said properties as
appraised by Asian Appraisal, Inc. in its Appraisal Report dated August
1985 (Exhibits T to T-14, inclusive).
2. All rental incomes paid or ought to be paid for the use and
occupancy of the properties in question and all improvements
thereon consisting of buildings, and to be computed as follows:
a) On Building C occupied by Eppie's Creation and Jethmal Industries
from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly
rentals paid by Eppie's Creation;
b) Also on Building C above, occupied by Jethmal Industries and Lavine
from 1974 to 1978, the rental incomes based on then rates prevailing
as shown under Exhibit "P"; and from 1979 to 1981, based on then
prevailing rates as indicated under Exhibit "Q";

147 | P a g e
c) On Building A occupied by Transworld Knitting Mills from 1972 to
1978, the rental incomes based upon then prevailing rates shown
under Exhibit "P", and from 1979 to 1981, based on prevailing rates
per Exhibit "Q";
d) On the two Bays Buildings occupied by Sigma-Mariwasa from 1972
to 1978, the rentals based on the Lease Contract, Exhibit "P", and
from 1979 to 1980, the rentals based on the Lease Contract, Exhibit
"Q",
and thereafter commencing 1982, to account for and turn over the
rental incomes paid or ought to be paid for the use and occupancy of
the properties and all improvements totalling 10,048 sq. m based on
the rate per square meter prevailing in 1981 as indicated annually
cumulative up to 1984. Then, commencing 1985 and up to the
satisfaction of the judgment, rentals shall be computed at ten percent
(10%) annually of the fair market values of the properties as appraised
by the Asian Appraisal, Inc. in August 1985 (Exhibits T to T-14,
inclusive.)
3. Moral damages in the sum of P200,000.00;
4. Exemplary damages in the sum of P100,000.00;
5. Attorney's fees equivalent to 10% of the award herein made;
6. Legal interest on the total amount awarded computed from first
demand in 1967 and until the full amount is paid and satisfied; and
7. The cost of suit.7
Acting on a motion for reconsideration filed by Choithram, et al. and
Ortigas, the appellate court promulgated an amended decision on
October 17, 1988 granting the motion for reconsideration of Ortigas
by affirming the dismissal of the case by the lower court as against
Ortigas but denying the motion for reconsideration of Choithram, et
al.8
Choithram, et al. thereafter filed a petition for review of said
judgment of the appellate court alleging the following grounds:
1. The Court of Appeals gravely abused its discretion in making a
factual finding not supported by and contrary, to the evidence
presented at the Trial Court.
2. The Court of Appeals acted in excess of jurisdiction in awarding
damages based on the value of the real properties in question where
the cause of action of private respondents is recovery of a sum of
money.
ARGUMENTS
I 24, 1971 (EXH. G) AND THE FILING OF THE NOTICE WITH THE
THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION
IN MAKING A FACTUAL FINDING THAT PRIVATE RESPONDENT ISHWAR
REMITTED THE AMOUNT OF US $150,000.00 TO PETITIONER
CHOITHRAM IN THE ABSENCE OF PROOF OF SUCH REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION
AND MANIFEST PARTIALITY IN DISREGARDING THE TRIAL COURTS
FINDINGS BASED ON THE DIRECT DOCUMENTARY AND TESTIMONIAL
EVIDENCE PRESENTED BY CHOITHRAM IN THE TRIAL COURT
ESTABLISHING THAT THE PROPERTIES WERE PURCHASED WITH
PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT WITH
MONEY ALLEGEDLY REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN
AWARDING DAMAGES BASED ON THE VALUE OF THE PROPERTIES
AND THE FRUITS OF THE IMPROVEMENTS THEREON.9
Similarly, spouses Ishwar filed a petition for review of said amended
decision of the appellate court exculpating Ortigas of liability based
on the following assigned errors
I
THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED
GRAVE ERROR AND HAS DECIDED A QUESTION OF SUBSTANCE NOT
IN ACCORD WITH LAW AND/OR WITH APPLICABLE DECISIONS OF THIS
HONORABLE COURT—
A) IN PROMULGATING THE QUESTIONED AMENDED DECISION
(ANNEX "A") RELIEVING RESPONDENT ORTIGAS FROM LIABILITY AND
DISMISSING PETITIONERS' AMENDED COMPLAINT IN CIVIL CASE NO.
534-P, AS AGAINST SAID RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY RATE NO
ONE EVER TESTIFIED THAT ORTIGAS WAS A SUBSCRIBER TO THE
MANILA TIMES PUBLICATION OR THAT ANY OF ITS OFFICERS READ
THE NOTICE AS PUBLISHED IN THE MANILA TIMES, THEREBY
ERRONEOUSLY CONCLUDING THAT FOR RESPONDENT ORTIGAS TO BE
CONSTRUCTIVELY BOUND BY THE PUBLISHED NOTICE OF
REVOCATION, ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A
SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS SHOULD READ THE
NOTICE AS ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS COULD
NOT BE HELD LIABLE JOINTLY AND SEVERALLY WITH THE
DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA
RAMNANI, AS ORTIGAS RELIED ON THE WORD OF CHOITHRAM THAT
ALL ALONG HE WAS ACTING FOR AND IN BEHALF OF HIS BROTHER
ISHWAR WHEN IT TRANSFERRED THE RIGHTS OF THE LATTER TO
NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY PRESENTED AND ADMITTED
DURING THE TRIAL THAT ORTIGAS WAS PROPERLY NOTIFIED OF THE
NOTICE OF REVOCATION OF THE GENERAL POWER OF ATTORNEY
GIVEN TO CHOITHRAM, EVIDENCED BY THE PUBLICATION IN THE
MANILA TIMES ISSUE OF APRIL 2, 1971 (EXH. F) WHICH CONSTITUTES
NOTICE TO THE WHOLE WORLD; THE RECEIPT OF THE NOTICE OF
SUCH REVOCATION WHICH WAS SENT TO ORTIGAS ON MAY 22, 1971
BY ATTY. MARIANO P. MARCOS AND RECEIVED BY ORTIGAS ON MAY
SECURITIES AND EXCHANGE COMMISSION ON MARCH 29,1971 (EXH.
H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS DECISION OF 14
MARCH 1988 (ANNEX B) THAT ORTIGAS WAS DULY NOTIFIED OF THE
REVOCATION OF THE POWER OF ATTORNEY OF CHOITHRAM, HENCE
ORTIGAS ACTED IN BAD FAITH IN EXECUTING THE DEED OF SALE TO
THE PROPERTIES IN QUESTION IN FAVOR OF NIRMLA V. RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS REHASHED
ARGUMENTS IN ITS MOTION FOR RECONSIDERATION THAT IT WOULD
NOT GAIN ONE CENTAVO MORE FROM CHOITHRAM FOR THE SALE OF
148 | P a g e
SAID LOTS AND THE SUBSEQUENT TRANSFER OF THE SAME TO THE
MATTER'S DAUGHTER-IN-LAW, AND THAT IT WAS IN GOOD FAITH
WHEN IT TRANSFERRED ISHWAR'S RIGHTS TO THE LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE QUESTIONED AMENDED
DECISION OF 17 NOVEMBER 1988 (ANNEX A) THAT RESPONDENT
ORTIGAS & CO., LTD., IS NOT JOINTLY AND SEVERALLY LIABLE WITH
DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI
IN SPITE OF ITS ORIGINAL DECISION OF 14 MARCH 1988 THAT
ORTIGAS WAS DULY NOTIFIED OF THE REVOCATION OF THE POWER
OF ATTORNEY OF CHOITHRAM RAMNANI.10
The center of controversy is the testimony of Ishwar that during the
latter part of 1965, he sent the amount of US $150,000.00 to
Choithram in two bank drafts of US$65,000.00 and US$85,000.00 for
the purpose of investing the same in real estate in the Philippines. The
trial court considered this lone testimony unworthy of faith and
credit. On the other hand, the appellate court found that the trial
court misapprehended the facts in complete disregard of the
evidence, documentary and testimonial.
Another crucial issue is the claim of Choithram that because he was
then a British citizen, as a temporary arrangement, he arranged the
purchase of the properties in the name of Ishwar who was an
American citizen and who was then qualified to purchase property in
the Philippines under the then Parity Amendment. The trial court
believed this account but it was debunked by the appellate court.
As to the issue of whether of not spouses Ishwar actually sent
US$150,000.00 to Choithram precisely to be used in the real estate
business, the trial court made the following disquisition —
After a careful, considered and conscientious examination of the
evidence adduced in the case at bar, plaintiff Ishwar Jethmal
Ramanani's main evidence, which centers on the alleged payment by
sending through registered mail from New York two (2) US$ drafts of
$85,000.00 and $65,000.00 in the latter part of 1965 (TSN 28 Feb.
1984, p. 10-11). The sending of these moneys were before the
execution of that General Power of Attorney, which was dated in New
York, on January 24, 1966. Because of these alleged remittances of US
$150,000.00 and the subsequent acquisition of the properties in
question, plaintiffs averred that they constituted a trust in favor of
defendant Choithram Jethmal Ramnani. This Court can be in full
agreement if the plaintiffs were only able to prove preponderantly
these remittances. The entire record of this case is bereft of even a
shred of proof to that effect. It is completely barren. His
uncorroborated testimony that he remitted these amounts in the
"later part of 1965" does not engender enough faith and credence.
Inadequacy of details of such remittance on the two (2) US dollar
drafts in such big amounts is completely not positive, credible,
probable and entirely not in accord with human experience. This is a
classic situation, plaintiffs not exhibiting any commercial document or
any document and/or paper as regard to these alleged remittances.
Plaintiff Ishwar Ramnani is not an ordinary businessman in the strict
sense of the word. Remember his main business is based in New York,
and he should know better how to send these alleged remittances.
Worst, plaintiffs did not present even a scum of proof, that defendant
Choithram Ramnani received the alleged two US dollar drafts.
Significantly, he does not know even the bank where these two (2) US
dollar drafts were purchased. Indeed, plaintiff Ishwar Ramnani's lone
testimony is unworthy of faith and credit and, therefore, deserves
scant consideration, and since the plaintiffs' theory is built or based
on such testimony, their cause of action collapses or falls with it.
Further, the rate of exchange that time in 1966 was P4.00 to $1.00.
The alleged two US dollar drafts amounted to $150,000.00 or about
P600,000.00. Assuming the cash price of the two (2) lots was only
P530,000.00 (ALTHOUGH he said: "Based on my knowledge I have no
evidence," when asked if he even knows the cash price of the two
lots). If he were really the true and bonafide investor and purchaser
for profit as he asserted, he could have paid the price in full in cash
directly and obtained the title in his name and not thru "Contracts To
Sell" in installments paying interest and thru an attorney-in fact (TSN
of May 2, 1984, pp. 10-11) and, again, plaintiff Ishwar Ramnani told
this Court that he does not know whether or not his late father-in-law
borrowed the two US dollar drafts from the Swiss Bank or whether or
not his late father-in-law had any debit memo from the Swiss
Bank (TSN of May 2, 1984, pp. 9-10).11
On the other hand, the appellate court, in giving credence to the
version of Ishwar, had this to say —
While it is true, that generally the findings of fact of the trial court are
binding upon the appellate courts, said rule admits of exceptions such
as when (1) the conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when the inferences
made is manifestly mistaken, absurd and impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts and when the court, in making its findings,
went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee (Ramos vs. Court of
Appeals, 63 SCRA 33; Philippine American Life Assurance Co. vs.
Santamaria, 31 SCRA 798; Aldaba vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t court acted under a
misapprehension of facts and the inferences made on the evidence
palpably a mistake.
The trial court's observation that "the entire records of the case is
bereft of even a shred of proof" that plaintiff-appellants have remitted
to defendant-appellee Choithram Ramnani the amount of US $
150,000.00 for investment in real estate in the Philippines, is not borne
by the evidence on record and shows the trial court's misapprehension
of the facts if not a complete disregard of the evidence, both
documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own
behalf, declared that during the latter part of 1965, he sent the
amount of US $150,000.00 to his brother Choithram in two bank
drafts of US $65,000.00 and US $85,000.00 for the purpose of
investing the same in real estate in the Philippines. His testimony is as
follows:
ATTY. MARAPAO:
Mr. Witness, you said that your attorney-in-fact paid in your behalf.
Can you tell this Honorable Court where your attorney-in-fact got the
money to pay this property?
ATTY. CRUZ:
Wait. It is now clear it becomes incompetent or hearsay.
149 | P a g e
COURT: admits to be so (tsn., p. 16, S. Oct. 13, 1985). Thus, on cross-
examination, Ishwar testified as follows:
Witness can answer.
Q How did you receive these two bank drafts from the bank the name
A I paid through my attorney-in-fact. I am the one who gave him the of which you cannot remember?
money.
A I got it from my father-in-law.
ATTY. MARAPAO:
Q From where did your father- in-law sent these two bank drafts?
Q You gave him the money?
A From Switzerland.
A That's right.
Q He was in Switzerland.
Q How much money did you give him?
A Probably, they sent out these two drafts from Switzerland.
A US $ 150,000.00.
(TSN, 7 March 1984, pp. 16-17; Emphasis supplied.)
Q How was it given then?
This positive and affirmative testimony of plaintiff-appellant that he
A Through Bank drafts. US $65,000.00 and US $85,000.00 bank drafts. sent the two (2) bank drafts totalling US $ 150,000.00 to his brother,
The total amount which is $ 150,000.00 (TSN, 28 February 1984, p. 10; is proof of said remittance. Such positive testimony has greater
Emphasis supplied.) probative force than defendant-appellee's denial of receipt of said
xxx xxx xxx bank drafts, for a witness who testifies affirmatively that something
did happen should be believed for it is unlikely that a witness will
ATTY. CRUZ: remember what never happened (Underhill's Cr. Guidance, 5th Ed.,
Vol. 1, pp. 10-11).
Q The two bank drafts which you sent I assume you bought that from
some banks in New York? That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani
executed a General Power of Attorney (Exhibit "A") dated January 24,
A No, sir. 1966 appointing his brothers, defendants-appellees Navalrai and
Q But there is no question those two bank drafts were for the purpose Choithram as attorney-in-fact empowering the latter to conduct and
of paying down payment and installment of the two parcels of land? manage plaintiffs-appellants' business affairs in the Philippines and
specifically—
A Down payment, installment and to put up the building.
No. 14. To acquire, purchase for us, real estates and improvements
Q I thought you said that the buildings were constructed . . . subject for the purpose of real estate business anywhere in the Philippines
to our continuing objection from rentals of first building? and to develop, subdivide, improve and to resell to buying public
(individual, firm or corporation); to enter in any contract of sale in oar
ATTY. MARAPAO: behalf and to enter mortgages between the vendees and the herein
grantors that may be needed to finance the real estate business being
Your Honor, that is misleading.
undertaken.
COURT;
Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram
Witness (may) answer. Jethmal Ramnani entered into Agreements (Exhibits "B' and "C") with
the other defendant. Ortigas and Company, Ltd., for the purchase of
A Yes, the first building was immediately put up after the purchase of two (2) parcels of land situated at Barrio Ugong, Pasig, Rizal, with said
the two parcels of land that was in 1966 and the finds were used for defendant-appellee signing the Agreements in his capacity as
the construction of the building from the US $150,000.00 (TSN, 7 Attorney-in-fact of Ishwar Jethmal Ramnani.
March 1984, page 14; Emphasis supplied.)
Again, on January 5, 1972, almost seven (7) years after Ishwar sent
xxx xxx xxx the US $ 150,000.00 in 1965, Choithram Ramnani, as attorney-in fact
of Ishwar entered into a Contract of Lease with Sigma-Mariwasa
Q These two bank drafts which you mentioned and the use for it you
(Exhibit "P") thereby re-affirming the ownership of Ishwar over the
sent them by registered mail, did you send them from New Your?
disputed property and the trust relationship between the latter as
A That is right. principal and Choithram as attorney-in-fact of Ishwar.

Q And the two bank drafts which were put in the registered mail, the
registered mail was addressed to whom?
A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15).
On cross-examination, the witness reiterated the remittance of the
money to his brother Choithram, which was sent to him by his father-
in-law, Rochiram L. Mulchandoni from Switzerland, a man of immense
wealth, which even defendants-appellees' witness Navalrai Ramnani
All of these facts indicate that if plaintiff-appellant Ishwar had not
earlier sent the US $ 150,000.00 to his brother, Choithram, there
would be no purpose for him to execute a power of attorney
appointing his brothers as s attorney-in-fact in buying real estate in
the Philippines.
As against Choithram's denial that he did not receive the US
$150,000.00 remitted by Ishwar and that the Power of Attorney, as
well as the Agreements entered into with Ortigas & Co., were only

150 | P a g e
temporary arrangements, Ishwar's testimony that he did send the
bank drafts to Choithram and was received by the latter, is the more
credible version since it is natural, reasonable and probable. It is in
accord with the common experience, knowledge and observation of
ordinary men (Gardner vs. Wentors 18 Iowa 533). And in determining
where the superior weight of the evidence on the issues involved lies,
the court may consider the probability or improbability of the
testimony of the witness (Sec. 1, Rule 133, Rules of Court).
Contrary, therefore, to the trial court's sweeping observation that 'the
entire records of the case is bereft of even a shred of proof that
Choithram received the alleged bank drafts amounting to US $
150,000.00, we have not only testimonial evidence but also
documentary and circumstantial evidence proving said remittance of
the money and the fiduciary relationship between the former and
Ishwar.12
The Court agrees. The environmental circumstances of this case
buttress the claim of Ishwar that he did entrust the amount of US $
150,000.00 to his brother, Choithram, which the latter invested in the
real property business subject of this litigation in his capacity as
attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession of Ishwar
to evidence the same, but it is not unusual among brothers and close
family members to entrust money and valuables to each other
without any formalities or receipt due to the special relationship of
trust between them.
And another proof thereof is the fact that Ishwar, out of frustration
when Choithram failed to account for the realty business despite his
demands, revoked the general power of attorney he extended to
Choithram and Navalrai. Thereafter, Choithram wrote a letter to
Ishwar pleading that the power of attorney be renewed or another
authority to the same effect be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately, because the case has been
postponed for two weeks. The same way as it has been send before
in favor of both names. Send it immediately otherwise everything will
be lost unnecessarily, and then it will take us in litigation. Now that
we have gone ahead with a case and would like to end it immediately
otherwise squatters will take the entire land. Therefore, send it
immediately.
(2) Ortigas also has sued us because we are holding the installments,
because they have refused to give a rebate of P5.00 per meter which
they have to give us as per contract. They have filed the law suit that
since we have not paid the installment they should get back the land.
The hearing of this case is in the month of July. Therefore, please send
the power immediately. In one case DADA (Elder Brother) will
represent and in another one, I shall.
(3) In case if you do not want to give power then make one letter in
favor of Dada and the other one in my favor showing that in any
litigation we can represent you and your wife, and whatever the court
decide it will be acceptable by me. You can ask any lawyer, he will be
able to prepare these letters. After that you can have these letters
ratify before P.I. Consulate. It should be dated April 15, 1971.
(4) Try to send the power because it will be more useful. Make it in
any manner whatever way you have confident in it. But please send it
immediately.
You have cancelled the power. Therefore, you have lost your
reputation everywhere. What can I further write you about it. I have
told everybody that due to certain reasons I have written you to do
this that is why you have done this. This way your reputation have
been kept intact. Otherwise if I want to do something about it, I can
show you that inspite of the power you have cancelled you can not do
anything. You can keep this letter because my conscience is clear. I do
not have anything in my mind.
I should not be writing you this, but because my conscience is clear do
you know that if I had predated papers what could you have done? Or
do you know that I have many paper signed by you and if had done
anything or do then what can you do about it? It is not necessary to
write further about this. It does not matter if you have cancelled the
power. At that time if I had predated and done something about it
what could you have done? You do not know me. I am not after
money. I can earn money anytime. It has been ten months since I have
not received a single penny for expenses from Dada (elder brother).
Why there are no expenses? We can not draw a single penny from
knitting (factory). Well I am not going to write you further, nor there
is any need for it. This much I am writing you because of the way you
have conducted yourself. But remember, whenever I hale the money I
will not keep it myself Right now I have not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he will discontinue
because he likes to keep his business very clean.13
The said letter was in Sindhi language. It was translated to English by
the First Secretary of the Embassy of Pakistan, which translation was
verified correct by the Chairman, Department of Sindhi, University of
Karachi.14
From the foregoing letter what could be gleaned is that—
1. Choithram asked for the issuance of another power of attorney in
their favor so they can continue to represent Ishwar as Ortigas has
sued them for unpaid installments. It also appears therefrom that
Ortigas learned of the revocation of the power of attorney so the
request to issue another.
2. Choithram reassured Ishwar to have confidence in him as he was
not after money, and that he was not interested in Ishwar's money.
3. To demonstrate that he can be relied upon, he said that he could
have ante-dated the sales agreement of the Ortigas lots before the
issuance of the powers of attorney and acquired the same in his
name, if he wanted to, but he did not do so.
4. He said he had not received a single penny for expenses from Dada
(their elder brother Navalrai). Thus, confirming that if he was not
given money by Ishwar to buy the Ortigas lots, he could not have
consummated the sale.
5. It is important to note that in said letter Choithram never claimed
ownership of the property in question. He affirmed the fact that he
bought the same as mere agent and in behalf of Ishwar. Neither did
he mention the alleged temporary arrangement whereby Ishwar,
being an American citizen, shall appear to be the buyer of the said
151 | P a g e
property, but that after Choithram acquires Philippine citizenship, its
ownership shall be transferred to Choithram.
This brings us to this temporary arrangement theory of Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the two parcels of land for
himself in 1966 but placed it in the name of his younger brother,
Ishwar, who is an American citizen, as a temporary arrangement,'
because as a British subject he is disqualified under the 1935
Constitution to acquire real property in the Philippines, which is not
so with respect to American citizens in view of the Ordinance
Appended to the Constitution granting them parity rights, there is
nothing in the records showing that Ishwar ever agreed to such a
temporary arrangement.
During the entire period from 1965, when the US $ 150,000. 00 was
transmitted to Choithram, and until Ishwar filed a complaint against
him in 1982, or over 16 years, Choithram never mentioned of a
temporary arrangement nor can he present any memorandum or
writing evidencing such temporary arrangement, prompting plaintiff-
appellant to observe:
The properties in question which are located in a prime industrial site
in Ugong, Pasig, Metro Manila have a present fair market value of no
less than P22,364,000.00 (Exhibits T to T-14, inclusive), and yet for
such valuable pieces of property, Choithram who now belatedly that
he purchased the same for himself did not document in writing or in
a memorandum the alleged temporary arrangement with Ishwar' (pp.
4-41, Appellant's Brief).
Such verbal allegation of a temporary arrangement is simply
improbable and inconsistent. It has repeatedly been held that
important contracts made without evidence are highly improbable.
The improbability of such temporary arrangement is brought to fore
when we consider that Choithram has a son (Haresh Jethmal
Ramnani) who is an American citizen under whose name the
properties in question could be registered, both during the time the
contracts to sell were executed and at the time absolute title over the
same was to be delivered. At the time the Agreements were entered
into with defendant Ortigas & Co. in 1966, Haresh, was already 18
years old and consequently, Choithram could have executed the
deeds in trust for his minor son. But, he did not do this. Three (3)
years, thereafter, or in 1968 after Haresh had attained the age of 21,
Choithram should have terminated the temporary arrangement with
Ishwar, which according to him would be effective only pending the
acquisition of citizenship papers. Again, he did not do anything.
Evidence to be believed, said Vice Chancellor Van Fleet of New Jersey,
must not only proceed from the mouth of a credible witness, but it
must be credible in itself—such as the common experience and
observation of mankind can approve as probable under the
circumstances. We have no test of the truth of human testimony,
except its conformity to our knowledge, observation and experience.
Whatever is repugnant to these belongs to the miraculous and is
outside of judicial cognizance. (Daggers vs. Van Dyek 37 M.J. Eq. 130,
132).
Another factor that can be counted against the temporary
arrangement excuse is that upon the revocation on February 4, 1971
of the Power of attorney dated January 24, 1966 in favor of Navalrai
and Choithram by Ishwar, Choithram wrote (tsn, p. 21, S. July 19,
1985) a letter dated June 25, 1971 (Exhibits R, R-1, R-2 and R-3)
imploring Ishwar to execute a new power of attorney in their favor.
That if he did not want to give power, then Ishwar could make a letter
in favor of Dada and another in his favor so that in any litigation
involving the properties in question, both of them could represent
Ishwar and his wife. Choithram tried to convince Ishwar to issue the
power of attorney in whatever manner he may want. In said letter no
mention was made at all of any temporary arrangement.
On the contrary, said letter recognize(s) the existence of principal and
attorney-in-fact relationship between Ishwar and himself. Choithram
wrote: . . . do you know that if I had predated papers what could you
have done? Or do you know that I have many papers signed by you
and if I had done anything or do then what can you do about it?'
Choithram was saying that he could have repudiated the trust and ran
away with the properties of Ishwar by predating documents and
Ishwar would be entirely helpless. He was bitter as a result of Ishwar's
revocation of the power of attorney but no mention was made of any
temporary arrangement or a claim of ownership over the properties
in question nor was he able to present any memorandum or
document to prove the existence of such temporary arrangement.
Choithram is also estopped in pais or by deed from claiming an interest
over the properties in question adverse to that of Ishwar. Section 3(a)
of Rule 131 of the Rules of Court states that whenever a party has, by
his own declaration, act, or omission intentionally and deliberately led
another to believe a particular thing true and act upon such belief, he
cannot in any litigation arising out of such declaration, act or omission
be permitted to falsify it.' While estoppel by deed is a bar which
precludes a party to a deed and his privies from asserting as against
the other and his privies any right of title in derogation of the deed,
or from denying the truth of any material fact asserted in it (31 C.J.S.
195; 19 Am. Jur. 603).
Thus, defendants-appellees are not permitted to repudiate their
admissions and representations or to assert any right or title in
derogation of the deeds or from denying the truth of any material fact
asserted in the (1) power of attorney dated January 24, 1966 (Exhibit
A); (2) the Agreements of February 1, 1966 and May 16, 1966 (Exhibits
B and C); and (3) the Contract of Lease dated January 5, 1972 (Exhibit
P).
. . . The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to forbid
one to speak against his own act, representations, or commitments
to the injury of one to whom they were directed and who reasonably
relied thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to aid the law in
the administration of justice where without its aid injustice might
result. It has been applied by court wherever and whenever special
circumstances of a case so demands' (Philippine National Bank vs.
Court of Appeals, 94 SCRA 357, 368 [1979]).
It was only after the services of counsel has been obtained that
Choithram alleged for the first time in his Answer that the General
Power of attorney (Annex A) with the Contracts to Sell (Annexes B and
C) were made only for the sole purpose of assuring defendants'
acquisition and ownership of the lots described thereon in due time
under the law; that said instruments do not reflect the true intention
of the parties (par. 2, Answer dated May 30, 1983), seventeen (17)
152 | P a g e
long years from the time he received the money transmitted to him by
his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by which he
claimed purchasing the two (2) parcels in question in 1966 and placing
them in the name of Ishwar who is an American citizen, to circumvent
the disqualification provision of aliens acquiring real properties in the
Philippines under the 1935 Philippine Constitution, as Choithram was
then a British subject, show a palpable disregard of the law of the land
and to sustain the supposed "temporary arrangement" with Ishwar
would be sanctioning the perpetration of an illegal act and culpable
violation of the Constitution.
Defendants-appellees likewise violated the Anti-Dummy Law
(Commonwealth Act 108, as amended), which provides in Section 1
thereof that:
In all cases in which any constitutional or legal provision requires
Philippine or any other specific citizenship as a requisite for the
exercise or enjoyment of a right, franchise or privilege, . . . any alien
or foreigner profiting thereby, shall be punished . . . by imprisonment
. . . and of a fine of not less than the value of the right, franchise or
privileges, which is enjoyed or acquired in violation of the provisions
hereof . . .
Having come to court with unclean hands, Choithram must not be
permitted foist his 'temporary arrangement' scheme as a defense
before this court. Being in delicto, he does not have any right
whatsoever being shielded from his own wrong-doing, which is not so
with respect to Ishwar, who was not a party to such an arrangement.
The falsity of Choithram's defense is further aggravated by the
material inconsistencies and contradictions in his testimony. While on
January 23, 1985 he testified that he purchased the land in question
on his own behalf (tsn, p. 4, S. Jan. 23, 1985), in the July 18, 1985
hearing, forgetting probably what he stated before, Choithram
testified that he was only an attorney-in-fact of Ishwar (tsn, p. 5, S.
July 18, 1985). Also in the hearing of January 23, 1985, Choithram
declared that nobody rented the building that was constructed on the
parcels of land in question (tsn, pp. 5 and 6), only to admit in the
hearing of October 30, 1985, that he was in fact renting the building
for P12,000. 00 per annum (tsn, p. 3). Again, in the hearing of July 19,
1985, Choithram testified that he had no knowledge of the revocation
of the Power of Attorney (tsn, pp. 20- 21), only to backtrack when
confronted with the letter of June 25, 1971 (Exhibits R to R-3), which
he admitted to be in "his own writing," indicating knowledge of the
revocation of the Power of Attorney.
These inconsistencies are not minor but go into the entire credibility
of the testimony of Choithram and the rule is that contradictions on a
very crucial point by a witness, renders s testimony incredible People
vs. Rafallo, 80 Phil. 22). Not only this the doctrine of falsus in uno,
falsus in omnibus is fully applicable as far as the testimony of
Choithram is concerned. The cardinal rule, which has served in all
ages, and has been applied to all conditions of men, is that a witness
willfully falsifying the truth in one particular, when upon oath, ought
never to be believed upon the strength of his own testimony,
whatever he may assert (U.S. vs. Osgood 27 Feb. Case No. 15971-a, p.
364); Gonzales vs. Mauricio, 52 Phil, 728), for what ground of judicial
relief can there be left when the party has shown such gross
insensibility to the difference between right and wrong, between
truth and falsehood? (The Santisima Trinidad, 7 Wheat, 283, 5 U.S. [L.
ed.] 454).
True, that Choithram's testimony finds corroboration from the
testimony of his brother, Navalrai, but the same would not be of much
help to Choithram. Not only is Navalrai an interested and biased
witness, having admitted his close relationship with Choithram and
that whenever he or Choithram had problems, they ran to each other
(tsn, pp. 17-18, S. Sept. 20, 1985), Navalrai has a pecuniary interest in
the success of Choithram in the case in question. Both he and
Choithram are business partners in Jethmal and Sons and/or Jethmal
Industries, wherein he owns 60% of the company and Choithram, 40%
(p. 62, Appellant's Brief). Since the acquisition of the properties in
question in 1966, Navalrai was occupying 1,200 square meters
thereof as a factory site plus the fact that his son (Navalrais) was
occupying the apartment on top of the factory with his family rent
free except the amount of P l,000.00 a month to pay for taxes on said
properties (tsn, p. 17, S. Oct. 3, 1985).
Inherent contradictions also marked Navalrai testimony. "While the
latter was very meticulous in keeping a receipt for the P 10,000.00
that he paid Ishwar as settlement in Jethmal Industries, yet in the
alleged payment of P 100,000.00 to Ishwar, no receipt or voucher was
ever issued by him (tsn, p. 17, S. Oct. 3, 1983).15
We concur.
The foregoing findings of facts of the Court of Appeals which are
supported by the evidence is conclusive on this Court. The Court finds
that Ishwar entrusted US$150,000.00 to Choithram in 1965 for
investment in the realty business. Soon thereafter, a general power
of attorney was executed by Ishwar in favor of both Navalrai and
Choithram. If it is true that the purpose only is to enable Choithram
to purchase realty temporarily in the name of Ishwar, why the
inclusion of their elder brother Navalrai as an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar, Choithram purchased two
parcels of land located in Barrio Ugong Pasig, Rizal, from Ortigas in
1966. With the balance of the money of Ishwar, Choithram erected a
building on said lot. Subsequently, with a loan obtained from a bank
and the income of the said property, Choithram constructed three
other buildings thereon. He managed the business and collected the
rentals. Due to their relationship of confidence it was only in 1970
when Ishwar demanded for an accounting from Choithram. And even
as Ishwar revoked the general power of attorney on February 4, 1971,
of which Choithram was duly notified, Choithram wrote to Ishwar on
June 25, 1971 requesting that he execute a new power of attorney in
their favor.16 When Ishwar did not respond thereto, Choithram
nevertheless proceeded as such attorney-in-fact to assign all the
rights and interest of Ishwar to his daughter-in-law Nirmla in 1973
without the knowledge and consent of Ishwar. Ortigas in turn
executed the corresponding deeds of sale in favor of Nirmla after full
payment of the purchase accomplice of the lots.
In the prefatory statement of their petition, Choithram pictured
Ishwar to be so motivated by greed and ungratefulness, who
squandered the family business in New York, who had to turn to his
wife for support, accustomed to living in ostentation and who
resorted to blackmail in filing several criminal and civil suits against
them. These statements find no support and should be stricken from
the records. Indeed, they are irrelevant to the proceeding.
153 | P a g e
Moreover, assuming Ishwar is of such a low character as Choithram
proposes to make this Court to believe, why is it that of all persons,
under his temporary arrangement theory, Choithram opted to entrust
the purchase of valuable real estate and built four buildings thereon
all in the name of Ishwar? Is it not an unconscious emergence of the
truth that this otherwise wayward brother of theirs was on the
contrary able to raise enough capital through the generosity of his
father-in-law for the purchase of the very properties in question? As
the appellate court aptly observed if truly this temporary
arrangement story is the only motivation, why Ishwar of all people?
Why not the own son of Choithram, Haresh who is also an American
citizen and who was already 18 years old at the time of purchase in
1966? The Court agrees with the observation that this theory is an
afterthought which surfaced only when Choithram, Nirmla and Moti
filed their answer.
When Ishwar asked for an accounting in 1970 and revoked the general
power of attorney in 1971, Choithram had a total change of heart. He
decided to claim the property as his. He caused the transfer of the
rights and interest of Ishwar to Nirmla. On his representation, Ortigas
executed the deeds of sale of the properties in favor of Nirmla.
Choithram obviously surmised Ishwar cannot stake a valid claim over
the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as admitted by
Choithram, was intended only to place the property in her name until
Choithram acquires Philippine citizenship.17 What appears certain is
that it appears to be a scheme of Choithram to place the property
beyond the reach of Ishwar should he successfully claim the same.
Thus, it must be struck down.
Worse still, on September 27, 1990 spouses Ishwar filed an urgent
motion for the issuance of a writ of preliminary attachment and to
require Choithram, et al. to submit certain documents, inviting the
attention of this Court to the following:
a) Donation by Choithram of his 2,500 shares of stock in General
Garments Corporation in favor of his children on December 29,
1989;18
b) Sale on August 2, 1990 by Choithram of his 100 shares in Biflex
(Phils.), Inc., in favor of his children;19 and
c) Mortgage on June 20, 1989 by Nirmla through her attorney-in-fact,
Choithram, of the properties subject of this litigation, for the amount
of $3 Million in favor of Overseas Holding, Co. Ltd., (Overseas for
brevity), a corporation which appears to be organized and existing
under and by virtue of the laws of Cayman Islands, with a capital of
only $100.00 divided into 100 shares of $1.00 each, and with address
at P.O. Box 1790, Grand Cayman, Cayman Islands.20
An opposition thereto was filed by Choithram, et al. but no
documents were produced. A manifestation and reply to the
opposition was filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be fraudulent attempts to
remove these properties to the detriment of spouses Ishwar should
the latter prevail in this litigation.
On December 10, 1990 the court issued a resolution that substantially
reads as follows:
Considering the allegations of petitioners Ishwar Jethmal Ramnani
and Sonya Ramnani that respondents Choithram Jethmal Ramnani,
Nirmla Ramnani and Moti G. Ramnani have fraudulently executed a
simulated mortgage of the properties subject of this litigation dated
June 20, 1989, in favor of Overseas Holding Co., Ltd. which appears to
be a corporation organized in Cayman Islands, for the amount of $
3,000,000.00, which is much more than the value of the properties in
litigation; that said alleged mortgagee appears to be a "shell"
corporation with a capital of only $100.00; and that this alleged
transaction appears to be intended to defraud petitioners Ishwar and
Sonya Jethmal Ramnani of any favorable judgment that this Court
may render in this case;
Wherefore the Court Resolved to issue a writ of preliminary injunction
enjoining and prohibiting said respondents Choithram Jethmal
Ramnani, Nirmla V. Ramnani, Moti G. Ramnani and the Overseas
Holding Co., Ltd. from encumbering, selling or otherwise disposing of
the properties and improvements subject of this litigation until
further orders of the Court. Petitioners Ishwar and Sonya Jethmal
Ramnani are hereby required to post a bond of P 100,000.00 to
answer for any damages d respondents may suffer by way of this
injunction if the Court finally decides the said petitioners are not
entitled thereto.
The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand
Cayman, Cayman Islands, is hereby IMPLEADED as a respondent in
these cases, and is hereby required to SUBMIT its comment on the
Urgent Motion for the Issuance of a Writ of Preliminary Attachment
and Motion for Production of Documents, the Manifestation and the
Reply to the Opposition filed by said petitioners, within Sixty (60) days
after service by publication on it in accordance with the provisions of
Section 17, Rule 14 of the Rules of Court, at the expense of petitioners
Ishwar and Sonya Jethmal Ramnani.
Let copies of this resolution be served on the Register of Deeds of
Pasig, Rizal, and the Provincial Assessor of Pasig, Rizal, both in Metro
Manila, for its annotation on the transfer Certificates of Titles Nos.
403150 and 403152 registered in the name of respondent Nirmla V.
Ramnani, and on the tax declarations of the said properties and its
improvements subject of this litigation.21
The required injunction bond in the amount of P 100,000.00 was filed
by the spouses Ishwar which was approved by the Court. The above
resolution of the Court was published in the Manila Bulletin issue of
December 17, 1990 at the expense of said spouses.22 On December
19, 1990 the said resolution and petition for review with annexes in
G.R. Nos. 85494 and 85496 were transmitted to respondent Overseas,
Grand Cayman Islands at its address c/o Cayman Overseas Trust Co.
Ltd., through the United Parcel Services Bill of Lading 23 and it was
actually delivered to said company on January 23, 1991.24
On January 22, 1991, Choithram, et al., filed a motion to dissolve the
writ of preliminary injunction alleging that there is no basis therefor
as in the amended complaint what is sought is actual damages and
not a reconveyance of the property, that there is no reason for its
issuance, and that acts already executed cannot be enjoined. They
also offered to file a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar that there
is basis for the injunction as the alleged mortgage of the property is
simulated and the other donations of the shares of Choithram to his
children are fraudulent schemes to negate any judgment the Court
may render for petitioners.
154 | P a g e
No comment or answer was filed by Overseas despite due notice, thus
it is and must be considered to be in default and to have lost the right
to contest the representations of spouses Ishwar to declare the
aforesaid alleged mortgage nun and void.
This purported mortgage of the subject properties in litigation
appears to be fraudulent and simulated. The stated amount of $3
Million for which it was mortgaged is much more than the value of
the mortgaged properties and its improvements. The alleged
mortgagee-company (Overseas) was organized only on June 26,1989
but the mortgage was executed much earlier, on June 20, 1989, that
is six (6) days before Overseas was organized. Overseas is a "shelf"
company worth only $100.00.25 In the manifestation of spouses
Ishwar dated April 1, 1991, the Court was informed that this matter
was brought to the attention of the Central Bank (CB) for
investigation, and that in a letter of March 20, 1991, the CB informed
counsel for spouses Ishwar that said alleged foreign loan of
Choithram, et al. from Overseas has not been previously
approved/registered with the CB.26
Obviously, this is another ploy of Choithram, et al. to place these
properties beyond the reach of spouses Ishwar should they obtain a
favorable judgment in this case. The Court finds and so declares that
this alleged mortgage should be as it is hereby declared null and void.
All these contemporaneous and subsequent acts of Choithram, et al.,
betray the weakness of their cause so they had to take an steps, even
as the case was already pending in Court, to render ineffective any
judgment that may be rendered against them.
The problem is compounded in that respondent Ortigas is caught in
the web of this bitter fight. It had all the time been dealing with
Choithram as attorney-in-fact of Ishwar. However, evidence had been
adduced that notice in writing had been served not only on
Choithram, but also on Ortigas, of the revocation of Choithram's
power of attorney by Ishwar's lawyer, on May 24, 1971.27 A
publication of said notice was made in the April 2, 1971 issue of The
Manila Times for the information of the general public.28 Such notice
of revocation in a newspaper of general circulation is sufficient
warning to third persons including Ortigas. 29 A notice of revocation
was also registered with the Securities and Exchange Commission on
March 29, 1 971.30
Indeed in the letter of Choithram to Ishwar of June 25, 1971,
Choithram was pleading that Ishwar execute another power of
attorney to be shown to Ortigas who apparently learned of the
revocation of Choithram's power of attorney.31 Despite said notices,
Ortigas nevertheless acceded to the representation of Choithram, as
alleged attorney-in-fact of Ishwar, to assign the rights of petitioner
Ishwar to Nirmla. While the primary blame should be laid at the
doorstep of Choithram, Ortigas is not entirely without fault. It should
have required Choithram to secure another power of attorney from
Ishwar. For recklessly believing the pretension of Choithram that his
power of attorney was still good, it must, therefore, share in the
latter's liability to Ishwar.
In the original complaint, the spouses Ishwar asked for a
reconveyance of the properties and/or payment of its present value
and damages.32 In the amended complaint they asked, among others,
for actual damages of not less than the present value of the real
properties in litigation, moral and exemplary damages, attorneys
fees, costs of the suit and further prayed for "such other reliefs as may
be deemed just and equitable in the premises .33 The amended
complaint contain the following positive allegations:
7. Defendant Choithram Ramnani, in evident bad faith and despite
due notice of the revocation of the General Power of Attorney, Annex
'D" hereof, caused the transfer of the rights over the said parcels of
land to his daughter-in-law, defendant Nirmla Ramnani in connivance
with defendant Ortigas & Co., the latter having agreed to the said
transfer despite receiving a letter from plaintiffs' lawyer informing
them of the said revocation; copy of the letter is hereto attached and
made an integral part hereof as Annex "H";
8. Defendant Nirmla Ramnani having acquired the aforesaid property
by fraud is, by force of law, considered a trustee of an implied trust for
the benefit of plaintiff and is obliged to return the same to the latter:
9. Several efforts were made to settle the matter within the family
but defendants (Choithram Ramnani, Nirmla Ramnani and Moti
Ramnani) refused and up to now fail and still refuse to cooperate and
respond to the same; thus, the present case;
10. In addition to having been deprived of their rights over the
properties (described in par. 3 hereof), plaintiffs, by reason of
defendants' fraudulent act, suffered actual damages by way of lost
rental on the property which defendants (Choithram Ramnani, Nirmla
Ramnani and Moti Ramnani have collected for themselves;34
In said amended complaint, spouses Ishwar, among others, pray for
payment of actual damages in an amount no less than the value of
the properties in litigation instead of a reconveyance as sought in the
original complaint. Apparently they opted not to insist on a
reconveyance as they are American citizens as alleged in the amended
complaint.
The allegations of the amended complaint above reproduced clearly
spelled out that the transfer of the property to Nirmla was fraudulent
and that it should be considered to be held in trust by Nirmla for
spouses Ishwar. As above-discussed, this allegation is well-taken and
the transfer of the property to Nirmla should be considered to have
created an implied trust by Nirmla as trustee of the property for the
benefit of spouses Ishwar.35
The motion to dissolve the writ of preliminary injunction filed by
Choithram, et al. should be denied. Its issuance by this Court is proper
and warranted under the circumstances of the case. Under Section
3(c) Rule 58 of the Rules of Court, a writ of preliminary injunction may
be granted at any time after commencement of the action and before
judgment when it is established:
(c) that the defendant is doing, threatens, or is about to do, or is
procuring or suffering to be done, some act probably in violation of
plaintiffs's rights respecting the subject of the action, and tending to
render the judgment ineffectual.
As above extensively discussed, Choithram, et al. have committed and
threaten to commit further acts of disposition of the properties in
litigation as well as the other assets of Choithram, apparently
designed to render ineffective any judgment the Court may render
favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary injunction is to
preserve the status quo of the things subject of the litigation and to
protect the rights of the spouses Ishwar respecting the subject of the
action during the pendency of the Suit36 and not to obstruct the
155 | P a g e
administration of justice or prejudice the adverse party.37 In this case
for damages, should Choithram, et al. continue to commit acts of
disposition of the properties subject of the litigation, an award of
damages to spouses Ishwar would thereby be rendered ineffectual
and meaningless.38
Consequently, if only to protect the interest of spouses Ishwar, the
Court hereby finds and holds that the motion for the issuance of a writ
of preliminary attachment filed by spouses Ishwar should be granted
covering the properties subject of this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the
commencement of an action or at any time thereafter, the plaintiff or
any proper party may have the property of the adverse party attached
as security for the satisfaction of any judgment that may be
recovered, in, among others, the following cases:
(d) In an action against a party who has been guilty of a fraud in
contracting the debt or incurring the obligation upon which the action
is brought, or in concealing or disposing of the property for the taking,
detention or conversion of which the action is brought;
(e) In an action against a party who has removed or disposed of his
property, or is about to do so, with intent to defraud his creditors; . .
. Ramnani and respondent Ortigas and Company, Limited Partnership
Verily, the acts of Choithram, et al. of disposing the properties subject
of the litigation disclose a scheme to defraud spouses Ishwar so they
may not be able to recover at all given a judgment in their favor, the
requiring the issuance of the writ of attachment in this instance.
Nevertheless, under the peculiar circumstances of this case and
despite the fact that Choithram, et al., have committed acts which
demonstrate their bad faith and scheme to defraud spouses Ishwar
and Sonya of their rightful share in the properties in litigation, the
Court cannot ignore the fact that Choithram must have been
motivated by a strong conviction that as the industrial partner in the
acquisition of said assets he has as much claim to said properties as
Ishwar, the capitalist partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of
$150,000.00 for the business.1âwphi1 They entrusted the money to
Choithram to invest in a profitable business venture in the Philippines.
For this purpose they appointed Choithram as their attorney-in-fact.
Choithram in turn decided to invest in the real estate business. He
bought the two (2) parcels of land in question from Ortigas as
attorney-in-fact of Ishwar- Instead of paying for the lots in cash, he
paid in installments and used the balance of the capital entrusted to
him, plus a loan, to build two buildings. Although the buildings were
burned later, Choithram was able to build two other buildings on the
property. He rented them out and collected the rentals. Through the
industry and genius of Choithram, Ishwar's property was developed
and improved into what it is now—a valuable asset worth millions of
pesos. As of the last estimate in 1985, while the case was pending
before the trial court, the market value of the properties is no less
than P22,304,000.00.39 It should be worth much more today.
We have a situation where two brothers engaged in a business
venture. One furnished the capital, the other contributed his industry
and talent. Justice and equity dictate that the two share equally the
fruit of their joint investment and efforts. Perhaps this Solomonic
solution may pave the way towards their reconciliation. Both would
stand to gain. No one would end up the loser. After all, blood is thicker
than water.
However, the Court cannot just close its eyes to the devious
machinations and schemes that Choithram employed in attempting
to dispose of, if not dissipate, the properties to deprive spouses
Ishwar of any possible means to recover any award the Court may
grant in their favor. Since Choithram, et al. acted with evident bad
faith and malice, they should pay moral and exemplary damages as
well as attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the
petition in G.R. No. 85496 is hereby given due course and GRANTED.
The judgment of the Court of Appeals dated October 18, 1988 is
hereby modified as follows:
1. Dividing equally between respondents spouses Ishwar, on the one
hand, and petitioner Choithram Ramnani, on the other, (in G.R. No.
85494) the two parcels of land subject of this litigation, including all
the improvements thereon, presently covered by transfer Certificates
of Title Nos. 403150 and 403152 of the Registry of Deeds, as well as
the rental income of the property from 1967 to the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C.
(in G.R. No. 85496) are ordered solidarily to pay in cash the value of
said one-half (1/2) share in the said land and improvements
pertaining to respondents spouses Ishwar and Sonya at their fair
market value at the time of the satisfaction of this judgment but in no
case less than their value as appraised by the Asian Appraisal, Inc. in
its Appraisal Report dated August 1985 (Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent
Ortigas & Co., Ltd. Partnership shall also be jointly and severally liable
to pay to said respondents spouses Ishwar and Sonya Ramnani one-
half (1/2) of the total rental income of said properties and
improvements from 1967 up to the date of satisfaction of the
judgment to be computed as follows:
a. On Building C occupied by Eppie's Creation and Jethmal Industries
from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly
rentals paid by Eppie's Creation;
b. Also on Building C above, occupied by Jethmal Industries and Lavine
from 1974 to 1978, the rental incomes based on then rates prevailing
as shown under Exhibit "P"; and from 1979 to 1981, based on then
prevailing rates as indicated under Exhibit "Q";
c. On Building A occupied by Transworld Knitting Mills from 1972 to
1978, the rental incomes based upon then prevailing rates shown
under Exhibit "P", and from 1979 to 1981, based on prevailing rates
per Exhibit "Q";
d. On the two Bays Buildings occupied by Sigma-Mariwasa from 1972
to 1978, the rentals based on the Lease Contract, Exhibit "P", and
from 1979 to 1980, the rentals based on the Lease Contract, Exhibit
"Q".
and thereafter commencing 1982, to account for and turn over the
rental incomes paid or ought to be paid for the use and occupancy of
the properties and all improvements totalling 10,048 sq. m., based on
the rate per square meter prevailing in 1981 as indicated annually
cumulative up to 1984. Then, commencing 1985 and up to the
satisfaction of the judgment, rentals shall be computed at ten percent
156 | P a g e
(10%) annually of the fair market values of the properties as appraised
by the Asian Appraisals, Inc. in August 1985. (Exhibits T to T-14,
inclusive.)

4. To determine the market value of the properties at the time of the

satisfaction of this judgment and the total rental incomes thereof, the
trial court is hereby directed to hold a hearing with deliberate
dispatch for this purpose only and to have the judgment immediately
executed after such determination.

5. Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are

also jointly and severally liable to pay respondents Ishwar and Sonya
Ramnani the amount of P500,000.00 as moral damages, P200,000.00
as exemplary damages and attorney's fees equal to 10% of the total
award. to said respondents spouses.

6. The motion to dissolve the writ of preliminary injunction dated

December 10, 1990 filed by petitioners Choithram, Nirmla and Moti,
all surnamed Ramnani, is hereby DENIED and the said injunction is
hereby made permanent. Let a writ of attachment be issued and
levied against the properties and improvements subject of this
litigation to secure the payment of the above awards to spouses
Ishwar and Sonya.

7. The mortgage constituted on the subject property dated June 20,

1989 by petitioners Choithram and Nirmla, both surnamed Ramnani
in favor of respondent Overseas Holding, Co. Ltd. (in G.R. No. 85496)
for the amount of $3-M is hereby declared null and void. The Register
of Deeds of Pasig, Rizal, is directed to cancel the annotation of d
mortgage on the titles of the properties in question.

8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to

Ishwar and Sonya Ramnani under this judgment, it shall be entitled to
reimbursement from petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani.

9. The above awards shag bear legal rate of interest of six percent
(6%) per annum from the time this judgment becomes final until they
are fully paid by petitioners Choithram Ramnani, Nirmla V. Ramnani,
Moti C. Ramnani and Ortigas, Co., Ltd. Partnership. Said petitioners
Choithram, et al. and respondent Ortigas shall also pay the costs.

SO ORDERED.

157 | P a g e
G.R. No. 70926 January 31, 1989
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 to the effect that they were both present when the receipt
(Exhibit "A") was signed by the petitioner. So Sia further testified that
he himself received from the petitioner a similar receipt (Exhibit D)
evidencing delivery of his own investment in another amount of
P4,000.00 An examination was conducted by the PC Crime Laboratory
on orders of the trial court granting the private respondents motion
for examination of certain documentary exhibits. The signatures in
Exhibits "A" and 'D' when compared to the signature of the petitioner
appearing in the pay envelopes of employees of the restaurant,
namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed
that the signatures in the two receipts were indeed the signatures of
the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation
of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of
the Savings Department of the China Banking Corporation testified
that said check (Exhibit B) was deposited by and duly credited to the
private respondents savings account with the bank after it was
cleared by the drawee bank, the Equitable Banking Corporation.
Another witness Elvira Rana of the Equitable Banking Corporation
testified that the check in question was in fact and in truth drawn by
the petitioner and debited against his own account in said bank. This
fact was clearly shown and indicated in the petitioner's statement of
account after the check (Exhibit B) was duly cleared. Rana further
testified that upon clearance of the check and pursuant to normal
banking procedure, said check was returned to the petitioner as the
maker thereof.
The petitioner denied having received from the private respondent
the amount of P4,000.00. He contested and impugned the
genuineness of the receipt (Exhibit D). His evidence is summarized as
follows:
The petitioner did not receive any contribution at the time he started
the Sun Wah Panciteria. He used his savings from his salaries as an
employee at Camp Stotsenberg in Clark Field and later as waiter at
the Toho Restaurant amounting to a little more than P2,000.00 as
capital in establishing Sun Wah Panciteria. To bolster his contention
that he was the sole owner of the restaurant, the petitioner presented
various government licenses and permits showing the Sun Wah
Panciteria was and still is a single proprietorship solely owned and
operated by himself alone. Fue Leung also flatly denied having issued
to the private respondent the receipt (Exhibit G) and the Equitable
Banking Corporation's Check No. 13389470 B in the amount of
P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of
the private respondent. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to deliver and pay to the
former, the sum equivalent to 22% of the annual profit derived from
the operation of Sun Wah Panciteria from October, 1955, until fully
paid, and attorney's fees in the amount of P5,000.00 and cost of suit.
(p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in
the nature of a motion for new trial and, as supplement to the said
motion, he requested that the decision rendered should include the
net profit of the Sun Wah Panciteria which was not specified in the
decision, and allow private respondent to adduce evidence so that the
said decision will be comprehensively adequate and thus put an end
to further litigation.
The motion was granted over the objections of the petitioner. After
hearing the trial court rendered an amended decision, the dispositive
portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted earlier by the
158 | P a g e
Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of
said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic)
and against the defendant, ordering the latter to pay the former the
sum equivalent to 22% of the net profit of P8,000.00 per day from the
time of judicial demand, until fully paid, plus the sum of P5,000.00 as
and for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the
then Intermediate Appellate Court. The questioned decision was
further modified by the appellate court. The dispositive portion of the
appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive
portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net profit of P2,000.00 a day from judicial
demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00
a day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net
profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all
other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and
affirmed the lower court's decision. The dispositive portion of the
resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the
court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay to the former the
sum equivalent to 22% of the net profit of P8,000.00 per day from the
time of judicial demand, until fully paid, plus the sum of P5,000.00 as
and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that
the date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by
petitioner was denied.
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and
operations of the panciteria. While the dispositive portions merely
ordered the payment of the respondents share, there is no question
from the factual findings that the respondent invested in the business
as a partner. Hence, the two courts declared that the private
petitioner is entitled to a share of the annual profits of the restaurant.
The petitioner, however, claims that this factual finding is erroneous.
Thus, the petitioner argues: "The complaint avers that private
respondent extended 'financial assistance' to herein petitioner at the
time of the establishment of the Sun Wah Panciteria, in return of
which private respondent allegedly will receive a share in the profits
of the restaurant. The same complaint did not claim that private
respondent is a partner of the business. It was, therefore, a serious
error for the lower court and the Hon. Intermediate Appellate Court
to grant a relief not called for by the complaint. It was also error for
the Hon. Intermediate Appellate Court to interpret or construe
'financial assistance' to mean the contribution of capital by a partner
to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant
sought the financial assistance of plaintiff in operating the
defendant's eatery known as Sun Wah Panciteria, located in the given
address of defendant; as a return for such financial assistance.
plaintiff would be entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the
sum of four thousand pesos (P4,000.00), Philippine Currency, of
which copy for the receipt of such amount, duly acknowledged by the
defendant is attached hereto as Annex "A", and form an integral part
hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah
Panciteria was established, he gave P4,000.00 to the petitioner with
the understanding that he would be entitled to twenty-two percent
(22%) of the annual profit derived from the operation of the said
panciteria. These allegations, which were proved, make the private
respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that
"By the contract of partnership two or more persons bind themselves
to contribute money, property or industry to a common fund, with
the intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as
one wherein the private respondent asserted his rights as partner of
the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We
agree with the appellate court's observation to the effect that "...
given its ordinary meaning, financial assistance is the giving out of
money to another without the expectation of any returns therefrom'.
It connotes an ex gratia dole out in favor of someone driven into a
state of destitution. But this circumstance under which the P4,000.00
was given to the petitioner does not obtain in this case.' (p. 99, Rollo)
The complaint explicitly stated that "as a return for such financial
assistance, plaintiff (private respondent) would be entitled to twenty-
two percentum (22%) of the annual profit derived from the operation
of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that
the '"... nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action." (De
Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger
Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the
instant case was whether or not the private respondent is a partner
of the petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred
in giving probative value to the PC Crime Laboratory Report (Exhibit
"J") on the ground that the alleged standards or specimens used by
the PC Crime Laboratory in arriving at the conclusion were
never testified to by any witness nor has any witness identified the
handwriting in the standards or specimens belonging to the
petitioner. The supposed standards or specimens of handwriting
159 | P a g e
were marked as Exhibits "H" "H-1" to "H-24" and admitted as
evidence for the private respondent over the vigorous objection of
the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the
lower court examined the signatures in the two receipts issued
separately by the petitioner to the private respondent and So Sia
(Exhibits "A" and "D") and compared the signatures on them with the
signatures of the petitioner on the various pay envelopes (Exhibits
"H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees
of the restaurant. After the usual examination conducted on the
questioned documents, the PC Crime Laboratory submitted its
findings (Exhibit J) attesting that the signatures appearing in both
receipts (Exhibits "A" and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-
1" to "H-24") were presented by the private respondent for marking
as exhibits, the petitioner did not interpose any objection. Neither did
the petitioner file an opposition to the motion of the private
respondent to have these exhibits together with the two receipts
examined by the PC Crime Laboratory despite due notice to him.
Likewise, no explanation has been offered for his silence nor was any
hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should
be rejected or ignored. The records sufficiently establish that there
was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not
resolving the issue of prescription in favor of petitioner. The alleged
receipt is dated October 1, 1955 and the complaint was filed only on
July 13, 1978 or after the lapse of twenty-two (22) years, nine (9)
months and twelve (12) days. From October 1, 1955 to July 13,
1978, no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code
which provides:
Art. 1144. The following actions must be brought within ten years
from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are
filed before the court, when there is a written extra-judicial demand
by the creditor, and when there is any written acknowledgment of the
debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah
Panciteria. The requisites of a partnership which are — 1) two or more
persons bind themselves to contribute money, property, or industry
to a common fund; and 2) intention on the part of the partners to
divide the profits among themselves (Article 1767, Civil Code; Yulo v.
Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated by
the respondent, a partner shares not only in profits but also in the
losses of the firm. If excellent relations exist among the partners at
the start of business and all the partners are more interested in seeing
the firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible. It would be incorrect to
state that if a partner does not assert his rights anytime within ten
years from the start of operations, such rights are irretrievably lost.
The private respondent's cause of action is premised upon the failure
of the petitioner to give him the agreed profits in the operation of Sun
Wah Panciteria. In effect the private respondent was asking for an
accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144
and 1155 which is applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or
his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence or any agreement
to the contrary.
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807, and
1809 show that the right to demand an accounting exists as long as
the partnership exists. Prescription begins to run only upon the
dissolution of the partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards
in favor of the private respondent for being excessive and
unconscionable and above the claim of private respondent as
embodied in his complaint and testimonial evidence presented by
said private respondent to support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L.
Licup, to testify on the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that you were
in charge of the custody of the cashier's box, of the money, being the
cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were the one
who accepted the money and you gave the change, if any, is that
correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said, what
do you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you please
tell us, how much is the gross income of the restaurant?
160 | P a g e
A For regular days, I received around P7,000.00 a day during my shift
alone and during pay days I receive more than P10,000.00. That is
excluding the catering outside the place.
Q What about the catering service, will you please tell the Honorable
Court how many times a week were there catering services?
A Sometimes three times a month; sometimes two times a month or
more.
xxx xxx xxx
Q Now more or less, do you know the cost of the catering service?
A Yes, because I am the one who receives the payment also of the
catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a single day
from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an
income of P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978).
(Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the
petitioner's counsel waive the cross-examination on the matter of
income but he failed to comply with his promise to produce pertinent
records. When a subpoena duces tecum was issued to the petitioner
for the production of their records of sale, his counsel voluntarily
offered to bring them to court. He asked for sufficient time prompting
the court to cancel all hearings for January, 1981 and reset them to
the later part of the following month. The petitioner's counsel never
produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and
for this purpose, employed a bookkeeper. This inspired the Court to
ask counsel for the defendant to bring said records and counsel for
the defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for quite
sometime. To bemuddle the issue, defendant instead of presenting
the books where the same, etc. were recorded, presented witnesses
who claimed to have supplied chicken, meat, shrimps, egg and other
poultry products which, however, did not show the gross sales nor
does it prove that the same is the best evidence. This Court gave
warning to the defendant's counsel that if he failed to produce the
books, the same will be considered a waiver on the part of the
defendant to produce the said books inimitably showing decisive
records on the income of the eatery pursuant to the Rules of Court
(Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse
if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord
due process to the petitioner.
The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness.
Notably there were several postponement asked by counsel for the
defendant and the last one was on October 1, 1981 when he asked
that this case be postponed for 45 days because said defendant was
then in Hongkong and he (defendant) will be back after said period.
The Court acting with great concern and understanding reset the
hearing to November 17, 1981. On said date, the counsel for the
defendant who again failed to present the defendant asked for
another postponement, this time to November 24, 1981 in order to
give said defendant another judicial magnanimity and substantial due
process. It was however a condition in the order granting the
postponement to said date that if the defendant cannot be
presented, counsel is deemed to have waived the presentation of said
witness and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila
said date was declared a partial non-working holiday, so much so, the
hearing was reset to December 7 and 22, 1981. On December 7, 1981,
on motion of defendant's counsel, the same was again reset to
December 22, 1981 as previously scheduled which hearing was
understood as intransferable in character. Again on December 22,
1981, the defendant's counsel asked for postponement on the ground
that the defendant was sick. the Court, after much tolerance and
judicial magnanimity, denied said motion and ordered that the case
be submitted for resolution based on the evidence on record and gave
the parties 30 days from December 23, 1981, within which to file their
simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz,
Manila in front of the Republic Supermarket. It is near the corner of
Claro M. Recto Street. According to the trial court, it is in the heart of
Chinatown where people who buy and sell jewelries, businessmen,
brokers, manager, bank employees, and people from all walks of life
converge and patronize Sun Wah.
There is more than substantial evidence to support the factual
findings of the trial court and the appellate court. If the respondent
court awarded damages only from judicial demand in 1978 and not
from the opening of the restaurant in 1955, it is because of the
petitioner's contentions that all profits were being plowed back into
the expansion of the business. There is no basis in the records to
sustain the petitioners contention that the damages awarded are
excessive. Even if the Court is minded to modify the factual findings
of both the trial court and the appellate court, it cannot refer to any
portion of the records for such modification. There is no basis in the
records for this Court to change or set aside the factual findings of the
trial court and the appellate court. The petitioner was given every
161 | P a g e
opportunity to refute or rebut the respondent's submissions but,
after promising to do so, it deliberately failed to present its books and
other evidence.

The resolution of the Intermediate Appellate Court ordering the

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

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

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

dissolution whenever:

xxx xxx xxx

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

prejudicially the carrying on of the business;

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

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

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs,

return of capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.

WHEREFORE, the petition for review is hereby DISMISSED for lack of

merit. The decision of the respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the partnership of the parties
is ordered dissolved.

SO ORDERED.

162 | P a g e
G.R. No. L-6304 December 29, 1953 recover from defendant one-half of the purchase price of lumber sold
by the partnership to the United States Army. But his complaint does
SERGIO V. SISON, plaintiff-appellant, not show why he should be entitled to the sum he claims. It does not
vs. allege that there has been a liquidation of the partnership business
HELEN J. MCQUAID, defendant-appellee. and the said sum has been found to be due him as his share of the
Manansala and Manansala for appellant. profits. The proceeds from the sale of a certain amount of lumber
J.C. Orendain for appllee. cannot be considered profits until costs and expenses have been
deducted. Moreover, the profits of the business cannot be
determined by taking into account the result of one particular
transaction instead of all the transactions had. Hence, the need for a
general liquidation before a member of a partnership may claim a
REYES, J.: specific sum as his share of the profits.
On March 28, 1951, plaintiff brought an action in the Court of First In view of the foregoing, the order of dismissal is affirmed, but on the
Instance of Manila against defendant, alleging that during the year ground that the complaint states no cause of action and without
1938 the latter borrowed from him various sums of money, prejudice to the filing of an action for accounting or liquidation should
aggregating P2,210, to enable her to pay her obligation to the Bureau that be what plaintiff really wants. Without costs in this
of Forestry and to add to her capital in her lumber business, receipt instance.1awphil.net
of the amounts advanced being acknowledged in a document, Exhibit
A, executed by her on November 10, 1938 and attached to the
complaint; that as defendant was not able to pay the loan in 1938, as
she had promised, she proposed to take in plaintiff as a partner in her
lumber business, plaintiff to contribute to the partnership the said
sum of P2,210 due him from defendant in addition to his personal
services; that plaintiff agreed to defendant's proposal and, as a result,
there was formed between them, under the provisions of the Civil
Code, a partnership in which they were to share alike in the income
or profits of the business, each to get one-half thereof; that in
accordance with said contract, plaintiff, together with defendant,
rendered services to the partnership without compensation from
June 15, 1938 to December, 1941; that before the last World War, the
partnership sold to the United States Army 230,000 board feet of
lumber for P13,800, for the collection of which sum defendant, as
manager of the partnership, filed the corresponding claim with the
said army after the war; that the claim was "finally" approved and the
full amount paid — the complaint does not say when — but defendant
has persistently refused to deliver one-half of it, or P6,900, to plaintiff
notwithstanding repeated demands, investing the whole sum of
P13,800 for her own benefit. Plaintiff, therefore, prays for judgment
declaring the existence of the alleged partnership and requiring the
defendant to pay him the said sum of P6,900, in addition to damages
and costs.

Notified of the action, defendant filed a motion to dismiss on the

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

It is not clear from the allegations of the complaint just when

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

But though the reason given for the order of dismissal be untenable,
we find that the said order should be upheld on the ground that the
complaint states no cause of action, which is also one of the grounds
on which defendant's motion to dismiss was based. Plaintiff seeks to

163 | P a g e
G.R. No. L-47823 July 26, 1943
JOSE ORNUM and EMERENCIANA ORNUM, petitioners,
vs.
MARIANO, LASALA, et al., respondent.
Marcelino Lontok for petitioners.
Duran, Lim and Bausa and Augusto Francisco for respondents.
PARAS, J.:
The following facts are practically admitted in the pleadings and briefs
of the parties: The respondents (plaintiffs below) are natives of Taal,
Batangas, and resided therein or in Manila. The petitioners
(defendants below) are also natives of Taal, but resided in the barrio
of Tan-agan, municipality of Tablas, Province of Romblon. In 1908
Pedro Lasala, father of the respondents, and Emerenciano Ornum
formed a partnership, whereby the former, as capitalist, delivered the
sum of P1,000 to the latter who, as industrial partner, was to conduct
a business at his place of residence in Romblon. In 1912, when the
assets of the partnership consisted of outstanding accounts and old
stock of merchandise, Emerenciano Ornum, following the wishes of
his wife, asked for the dissolution of the Lasala, Emerenciano Ornum
looked for some one who could take his place and he suggested the
names of the petitioners who accordingly became the new partners.
Upon joining the business, the petitioners, contributed P505.54 as
their capital, with the result that in the new partnership Pedro Lasala
had a capital of P1,000, appraised value of the assets of the former
partnership, plus the said P505.54 invested by the petitioners who, as
industrial partners, were to run the business in Romblon. After the
death of Pedro Lasala, his children (the respondents) succeeded to all
his rights and interest in the partnership. The partners never knew
each other personally. No formal partnership agreement was ever
executed. The petitioners, as managing partners, were received one-
half of the net gains, and the other half was to be divided between
them and the Lasala group in proportion to the capital put in by each
group. During the course divided, but the partners were given the
election, as evidenced by the statements of accounts referred to in
the decision of the Court of Appeals, to invest their respective shares
in such profits as additional capital. The petitioners accordingly let a
greater part of their profits as additional investment in the
partnership. After twenty years the business had grown to such an
extent that is total value, including profits, amounted to P44,618.67.
Statements of accounts were periodically prepared by the petitioners
and sent to the respondents who invariably did not make any
objection thereto. Before the last statement of accounts was made,
the respondents had received P5,387.29 by way of profits. The last
and final statement of accounts, dated May 27, 1932, and prepared
by the petitioners after the respondents had announced their desire
to dissolve the partnership, read as follows:
Ganancia total desde el ultimo balance hasta la fecha
Participacion del capital de los hermanos Lasala en la ganancia
Participacion del capital de Jose Ornum en el ganancia
Participacion de Jose Ornum como socio industrial
Participacion del capital de Emerenciana Ornum en la ganancia
Participacion de Emerenciana Ornum como socia industrial
Siendo este el balance final lo siguiente es la cantidad que debe
corresponder a cada socio:
Capital de los hermanos Lasala segun el ultimo balance
Ganancia de este capital
Pero se debe deducir la cantidad tomada por los hermanos Lasala
Cantidad nota que debe corresponder a los hermanos Lasala
Capital de Jose Ornum segun el ultimo balance
Ganancia de este capital
Participacion de Jose Ornum como socio industrial
Pero se debe deducir la cantidad tomada por Jose Ornum
Cantidad neta que debe corresponder a Jose Ornum
Capital de Emerenciana Ornum segun el ultimo balance
Ganancia de este capital
Participacion de Emerenciana Ornum como socia industrial
Pero se debe deducir la cantidad tomada por Emerenciana Ornum
Cantidad neta que debe corresponder a Emerenciana Ornum
After the receipt of the foregoing statement of accounts, Father
Mariano Lasala, spokesman for the respondents, wrote the following
letter to the petitioners on July 19, 1932:
Ya te manifestamos francamente aqui, como consocio, y te
autorizamos tambien para que lo repitas a tu hermana Mering, viuda,
que el motivo porque recogemos el capital y utilidades de nuestra
sociedad en todo nuestro negocio que esta al cuidado vosotros dos,
es que tenemos un grande compromiso que casi no podemos evitarlo.
Por esto volvemos a rogarles que por cualquier medio antes de
terminar este mes de julio, 1932, nosotros esperamos vuestra
consideracion. Gracias.
En cuanto hayamos recibido esto, entonces firmaremos el balance
que habeis hecho alli, cuya copia has dejado aqui.
P575.45
Recuerdos a todos alli y mandar.
Pursuant to the request contained P55.39
in this letter, the petitioners
remitted and paid to the respondents the total amount corresponding
to them under the above-quoted 125.79 statement of accounts which,
however, was not signed by the latter. Thereafter the complaint in
this case was filed by the respondents, praying for an accounting and
143.96
final liquidation of the assets of the partnership. The Court of First
Instance of Manila held that the last and final statement of accounts
106.54
prepared by the petitioners was tacitly approved and accepted by the
164 | P a g e
respondents who, by virtue of the above-quoted letter of Father
Mariano Lasala, lost their right to a further accounting from the
moment they received and accepted their shares as itemized in said
statement. This judgment was reversed by the Court of Appeals
principally on the ground that as the final statement of accounts
remains unsigned by the respondents, the same stands disapproved.
The decision appealed by the petitioners thus said:
To support a plea of a stated account so as to conclude the parties in
relation to all dealings between them, the accounting must be shown
to have been final. (1 Cyc. 366.) All the first nine statements which the
defendants sent the plaintiffs were partial settlements, while the last,
although intended to be final, has not been signed.
We hold that the last and final statement of accounts hereinabove
quoted, had been approved by the respondents. This approval
resulted, by virtue of the letter of Father Mariano Lasala of July 19,
1932, quoted in part in the appealed decision from the failure of the
respondents to object to the statement and from their promise to sign
the same as soon as they received their shares as shown in said
statement. After such shares had been paid by the petitioners and
accepted by the respondents without any reservation, the approval
of the statement of accounts was virtually confirmed and its signing
thereby became a mere formality to be complied with by the
respondents exclusively. Their refusal to sign, after receiving their
shares, amounted to a waiver to that formality in favor of the
petitioners who has already performed their obligation.
This approval precludes any right on the part of the respondents to a
further liquidation, unless the latter can show that there was fraud,
deceit, error or mistake in said approval. (Pastor, vs. Nicasio, 6 Phil.,
152; Aldecoa & Co., vs.Warner, Barnes & Co., 16 Phil., 423;
Gonsalez vs. Harty, 32 Phil. 328.) The Court of Appeals did not make
any findings that there was fraud, and on the matter of error or
mistake it merely said:
The question, then is, have mistakes, been committed in the
statements sent appellants? Not only do plaintiffs so allege, and not
only does not evidence so tend to prove, but the charge is seconded
by the defendants themselves when in their counterclaims they said:
"(a) Que recientemente se ha hecho una acabada revision de las
cuentas y libros del negocio, y, se ha descubierto que los demandados
cometieron un error al hacer las entregas de las varias cantidades en
efectivo a los demandantes, entregando en total mayor cantidades a
la que tenian derecho estos por su participacion y ganancias en dicho
negocio;
"(b) Que el exceso entregado a los demandantes, asciende a la suma
de quinientos setenta y cinco pesos con doce centimos (P575.12), y
que los demandados reclaman ahora de aquellos su devolucion o
pago en la presente contrademanda;"
In our opinion, the pronouncement that the evidence tends to prove
that there were mistakes in the petitioners' statements of accounts,
without specifying the mistakes, merely intimates as suspicion and is
not such a positive and unmistakable finding of fact (Cf.
Concepcion vs. People, G.R. No. 48169, promulgated December 28,
1942) as to justify a revision, especially because the Court of Appeals
has relied on the bare allegations of the parties, Even admitting that,
as alleged by the petitioners in their counterclaim, they overpaid the
respondents in the sum of P575.12, this error is essentially fatal to the
latter's theory what the statement of accounts shows, and is
therefore not the kind of error that calls for another accounting which
will serve the purpose of the respondent's suit. Moreover, as the
petitioners did not appeal from the decision of the Court abandoned
such allegation in the Court of Appeals.
If the liquidation is ordered in the absence of any particular error,
found as a fact, simply because no damage will be suffered by the
petitioners in case the latter's final statement of the accounts proves
to be correct, we shall be assuming a fundamentally inconsistent
position. If there is not mistake, the only reason for a new accounting
disappears. The petitioners may not be prejudiced in the sense that
they will be required to pay anything to the respondents, but they will
have to go to the trouble of itemizing accounts covering a period of
twenty years mostly from memory, its appearing that no regular
books of accounts were kept. Stated more emphatically, they will be
told to do what seems to be hardly possible. When it is borne in mind
that this case has been pending for nearly nine years and that, if
another accounting is ordered, a costly action or proceeding may arise
which may not be disposed of within a similar period, it is not
improbable that the intended relief may in fact be the respondents'
funeral.
We are reversing the appealed decision on the legal ground that the
petitioners' final statement of accounts had been approved by the
respondents and no justifiable reason (fraud, deceit, error or mistake)
has been positively and unmistakably found by the Court of Appeals
so as to warrant the liquidations sought by the respondents. In justice
to the petitioners, however, we may add that, considering that they
ran the business of the partnership for about twenty years at a place
far from the residence of the respondents and without the latter's
intervention; that the partners did not even know each other
personally; that no formal partnership agreement was entered into
which bound the petitioners under specific conditions; that the
petitioners could have easily and freely alleged that the business
became partial, or even a total, loss for any plausible reason which
they could have concocted, it appearing that the partnership engaged
in such uncertain ventures as agriculture, cattle raising and operation
of rice mill, and the petitioners did not keep any regular books of
accounts; that the petitioners were still frank enough to disclose that
the original capital of P1,505.54 amounted, as of the date of the
dissolution of the partnership, to P44,618.67; and that the
respondents had received a total of P8,105.76 out of their capital of
P1,000, without any effort on their part, we are reluctant even to
make the conjecture that the petitioners had ever intended to, or
actually did, take undue advantage of the absence and confidence of
the respondents. Indeed, we feel justified in stating that the
petitioners have here given a remarkable demonstration of the
legendary honesty, good faith and industry with which the natives of
Taal pursue business arrangements similar to the partnership in
question, and we would hate, in the absence of any sufficient reason,
to let such a beautiful legend have a distateful ending.
The appealed decision is hereby reversed and the petitioners
(defendants below) absolved from the complaints of the respondents
(plaintiffs below), with costs against the latter.
165 | P a g e
G.R. No. 114398 October 24, 1997
CARMEN LIWANAG, petitioner,
vs.
THE HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES,
represented by the Solicitor General, respondents.
ROMERO, J.:
Petitioner was charged with the crime of estafa before the Regional
Trial Court (RTC), Branch 93, Quezon City, in an information which
reads as follows.
That on or between the month of May 19, 1988 and August, 1988 in
Quezon City, Philippines and within the jurisdiction of this Honorable
Court, the said accused, with intent of gain, with unfaithfulness, and
abuse of confidence, did then and there, willfully, unlawfully and
feloniously defraud one ISIDORA ROSALES, in the following manner,
to wit: on the date and in the place aforementioned, said
accused received in trust from the offended party cash money
amounting to P536,650.00, Philippine Currency, with the express
obligation involving the duty to act as complainant's agent in
purchasing local cigarettes (Philip Morris and Marlboro cigarettes), to
resell them to several stores, to give her commission corresponding
to 40% of the profits; and to return the aforesaid amount of offended
party, but said accused, far from complying her aforesaid obligation,
and once in possession thereof, misapplied, misappropriated and
converted the same to her personal use and benefit, despite repeated
demands made upon her, accused failed and refused and still fails and
refuses to deliver and/or return the same to the damage and
prejudice of the said ISIDORA ROSALES, in the aforementioned
amount and in such other amount as may be awarded under the
provision of the Civil Code.
CONTRARY TO LAW.
The antecedent facts are as follows:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan
went to the house of complainant Isidora Rosales (Rosales) and asked
her to join them in the business of buying and selling cigarettes.
Convinced of the feasibility of the venture, Rosales readily agreed.
Under their agreement, Rosales would give the money needed to buy
the cigarettes while Liwanag and Tabligan would act as her agents,
with a corresponding 40% commission to her if the goods are sold;
otherwise the money would be returned to Rosales. Consequently,
Rosales gave several cash advances to Liwanag and Tabligan
amounting to P633,650.00.
During the first two months, Liwanag and Tabligan made periodic
visits to Rosales to report on the progress of the transactions. The
visits, however, suddenly stopped, and all efforts by Rosales to obtain
information regarding their business proved futile.
Alarmed by this development and believing that the amounts she
advanced were being misappropriated, Rosales filed a case of estafa
against Liwanag.
After trial on the merits, the trial court rendered a decision dated
January 9, 1991, finding Liwanag guilty as charged. The dispositive
portion of the decision reads thus:
WHEREFORE, the Court holds, that the prosecution has established
the guilt of the accused, beyond reasonable doubt, and therefore,
imposes upon the accused, Carmen Liwanag, an Indeterminate
Penalty of SIX (6) YEARS, EIGHT (8) MONTHS AND TWENTY ONE (21)
DAYS OF PRISION CORRECCIONAL TO FOURTEEN (14) YEARS AND
EIGHT (8) MONTHS OF PRISION MAYOR AS MAXIMUM, AND TO PAY
THE COSTS.
The accused is likewise ordered to reimburse the private complainant
the sum of P526,650.00, without subsidiary imprisonment, in case of
insolvency.
SO ORDERED.
Said decision was affirmed with modification by the Court of Appeals
in a decision dated November 29, 1993, the decretal portion of which
reads:
WHEREFORE, in view of the foregoing, the judgment appealed from is
hereby affirmed with the correction of the nomenclature of the
penalty which should be: SIX (6) YEARS, EIGHT (8) MONTHS and
TWENTY ONE (21) DAYS of prision mayor, as minimum, to FOURTEEN
(14) YEARS and EIGHT (8) MONTHS of reclusion temporal, as
maximum. In all other respects, the decision is AFFIRMED.
SO ORDERED.
Her motion for reconsideration having been denied in the resolution
of March 16, 1994, Liwanag filed the instant petition, submitting the
following assignment of errors:
1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN THE
AFFIRMING THE CONVICTION OF THE ACCUSED-PETITIONER FOR THE
CRIME OF ESTAFA, WHEN CLEARLY THE CONTRACT THAT EXIST (sic)
BETWEEN THE ACCUSED-PETITIONER AND COMPLAINANT IS EITHER
THAT OF A SIMPLE LOAN OR THAT OF A PARTNERSHIP OR JOINT
VENTURE HENCE THE NON RETURN OF THE MONEY OF THE
COMPLAINANT IS PURELY CIVIL IN NATURE AND NOT CRIMINAL.
2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT
ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF
REASONABLE DOUBT BY APPLYING THE "EQUIPOISE RULE".
Liwanag advances the theory that the intention of the parties was to
enter into a contract of partnership, wherein Rosales would
contribute the funds while she would buy and sell the cigarettes, and
later divide the profits between
them. 1 She also argues that the transaction can also be interpreted
as a simple loan, with Rosales lending to her the amount stated on an
installment basis.2
The Court of Appeals correctly rejected these pretenses.
While factual findings of the Court of Appeals are conclusive on the
parties and not reviewable by the Supreme Court, and carry more
weight when these affirm the factual findings of the trial court, 3 we
deem it more expedient to resolve the instant petition on its merits.
Estafa is a crime committed by a person who defrauds another
causing him to suffer damages, by means of unfaithfulness or abuse
of confidence, or of false pretenses of fraudulent acts. 4
From the foregoing, the elements of estafa are present, as follows: (1)
that the accused defrauded another by abuse of confidence or deceit;
and (2) that damage or prejudice capable of pecuniary estimation is
166 | P a g e
caused to the offended party or third party, 5 and it is essential that
there be a fiduciary relation between them either in the form of a
trust, commission or administration.6

The receipt signed by Liwanag states thus:

May 19, 1988 Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED

TWENTY SIX THOUSAND AND SIX HUNDRED FIFTY PESOS
(P526,650.00) Philippine Currency, to purchase cigarrets (sic) (Philip
& Marlboro) to be sold to customers. In the event the said cigarrets
(sic) are not sold, the proceeds of the sale or the said products (shall)
be returned to said Mrs. Isidora P. Rosales the said amount of
P526,650.00 or the said items on or before August 30, 1988.

Signed in the presence of:

(Sgd) Illegible (Sgd) Doming Z. Baligad

The language of the receipt could not be any clearer. It indicates that
the money delivered to Liwanag was for a specific purpose, that is, for
the purchase of cigarettes, and in the event the cigarettes cannot be
sold, the money must be returned to Rosales.

Thus, even assuming that a contract of partnership was indeed

entered into by and between the parties, we have ruled that when
money or property have been received by a partner for a specific
purpose (such as that obtaining
in the instant case) and he later misappropriated it, such partner is
guilty of estafa.7

Neither can the transaction be considered a loan, since in a contract

of loan once the money is received by the debtor, ownership over the
same is transferred. 8 Being the owner, the borrower can dispose of it
for whatever purpose he may deem proper.

In the instant petition, however, it is evident that Liwanag could not

dispose of the money as she pleased because it was only delivered to
her for a single purpose, namely, for the purchase of cigarettes, and
if this was not possible then to return the money to Rosales. Since in
this case there was no transfer of ownership of the money delivered,
Liwanag is liable for conversion under Art. 315, par. l(b) of the Revised
Penal Code.

WHEREFORE, in view of the foregoing, the appealed decision of the

Court of Appeals dated November 29, 1993, is AFFIRMED. Costs
against petitioner.

SO ORDERED.

167 | P a g e
G.R. No. 5840 September 17, 1910 administration or in any other character producing the obligation to
deliver or return the same," (as, for example,
THE UNITED STATES, plaintiff-appellee, in commodatum, precarium, and other unilateral contracts which
vs. require the return of the same thing received) does not include
EUSEBIO CLARIN, defendant-appellant. money received for a partnership; otherwise the result would be that,
Francisco Dominguez, for appellant. if the partnership, instead of obtaining profits, suffered losses, as it
Attorney-General Villamor, for appellee. could not be held liable civilly for the share of the capitalist partner
who reserved the ownership of the money brought in by him, it would
ARELLANO, C.J.: have to answer to the charge of estafa, for which it would be
sufficient to argue that the partnership had received the money under
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in obligation to return it.
company with Eusebio Clarin and Carlos de Guzman, might buy and
sell mangoes, and, believing that he could make some money in this We therefore freely acquit Eusebio Clarin, with the costs de oficio. The
business, the said Larin made an agreement with the three men by complaint for estafa is dismissed without prejudice to the institution
which the profits were to be divided equally between him and them. of a civil action.

Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade
in mangoes and obtained P203 from the business, but did not comply
with the terms of the contract by delivering to Larin his half of the
profits; neither did they render him any account of the capital.

Larin charged them with the crime of estafa, but the provincial fiscal
filed an information only against Eusebio Clarin in which he accused
him of appropriating to himself not only the P172 but also the share
of the profits that belonged to Larin, amounting to P15.50.

Pedro Tarug and Carlos de Guzman appeared in the case as witnesses

and assumed that the facts presented concerned the defendant and
themselves together.

The trial court, that of First Instance of Pampanga, sentenced the

defendant, Eusebio Clarin, to six months' arresto mayor, to suffer the
accessory penalties, and to return to Pedro Larin P172, besides P30.50
as his share of the profits, or to subsidiary imprisonment in case of
insolvency, and to pay the costs. The defendant appealed, and in
deciding his appeal we arrive at the following conclusions:

When two or more persons bind themselves to contribute money,

property, or industry to a common fund, with the intention of dividing
the profits among themselves, a contract is formed which is called
partnership. (Art. 1665, Civil Code.)

When Larin put the P172 into the partnership which he formed with
Tarug, Clarin, and Guzman, he invested his capital in the risks or
benefits of the business of the purchase and sale of mangoes, and,
even though he had reserved the capital and conveyed only the
usufruct of his money, it would not devolve upon of his three partners
to return his capital to him, but upon the partnership of which he
himself formed part, or if it were to be done by one of the three
specifically, it would be Tarug, who, according to the evidence, was
the person who received the money directly from Larin.

The P172 having been received by the partnership, the business

commenced and profits accrued, the action that lies with the partner
who furnished the capital for the recovery of his money is not a
criminal action for estafa, but a civil one arising from the partnership
contract for a liquidation of the partnership and a levy on its assets if
there should be any.

No. 5 of article 535 of the Penal Code, according to which those are
guilty of estafa "who, to the prejudice of another, shall appropriate or
misapply any money, goods, or any kind of personal property which
they may have received as a deposit on commission for

168 | P a g e
G.R. No. L-5236 January 10, 1910
PEDRO MARTINEZ, plaintiff-appellee,
vs.
ONG PONG CO and ONG LAY, defendants.
ONG PONG CO., appellant.
Fernando de la Cantera for appellant.
O'Brien and DeWitt for appellee.
ARELLANO, C.J.:
On the 12th of December, 1900, the plaintiff herein delivered P1,500
to the defendants who, in a private document, acknowledged that
they had received the same with the agreement, as stated by them,
"that we are to invest the amount in a store, the profits or losses of
which we are to divide with the former, in equal shares."
The plaintiff filed a complaint on April 25, 1907, in order to compel
the defendants to render him an accounting of the partnership as
agreed to, or else to refund him the P1,500 that he had given them
for the said purpose. Ong Pong Co alone appeared to answer the
complaint; he admitted the fact of the agreement and the delivery to
him and to Ong Lay of the P1,500 for the purpose aforesaid, but he
alleged that Ong Lay, who was then deceased, was the one who had
managed the business, and that nothing had resulted therefrom save
the loss of the capital of P1,500, to which loss the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila who tried
the case ordered Ong Pong Co to return to the plaintiff one-half of the
said capital of P1,500 which, together with Ong Lay, he had received
from the plaintiff, to wit, P750, plus P90 as one-half of the profits,
calculated at the rate of 12 per cent per annum for the six months
that the store was supposed to have been open, both sums in
Philippine currency, making a total of P840, with legal interest
thereon at the rate of 6 per cent per annum, from the 12th of June,
1901, when the business terminated and on which date he ought to
have returned the said amount to the plaintiff, until the full payment
thereof with costs.
From this judgment Ong Pong Co appealed to this court, and assigned
the following errors:
1. For not having taken into consideration the fact that the reason for
the closing of the store was the ejectment from the premises
occupied by it.
2. For not having considered the fact that there were losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. and 6. For holding that the capital ought to have yielded profits,
and that the latter should be calculated 12 per cent per annum; and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the store was closed
by virtue of ejectment proceedings is of no importance for the effects
of the suit. The whole action is based upon the fact that the
defendants received certain capital from the plaintiff for the purpose
of organizing a company; they, according to the agreement, were to
handle the said money and invest it in a store which was the object of
the association; they, in the absence of a special agreement vesting in
one sole person the management of the business, were the actual
administrators thereof; as such administrators they were the agent of
the company and incurred the liabilities peculiar to every agent,
among which is that of rendering account to the principal of their
transactions, and paying him everything they may have received by
virtue of the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of
them has rendered such account nor proven the losses referred to by
Ong Pong Co; they are therefore obliged to refund the money that
they received for the purpose of establishing the said store — the
object of the association. This was the principal pronouncement of
the judgment.
With regard to the second and third assignments of error, this court,
like the court below, finds no evidence that the entire capital or any
part thereof was lost. It is no evidence of such loss to aver, without
proof, that the effects of the store were ejected. Even though this
were proven, it could not be inferred therefrom that the ejectment
was due to the fact that no rents were paid, and that the rent was not
paid on account of the loss of the capital belonging to the enterprise.
With regard to the possible profits, the finding of the court below are
based on the statements of the defendant Ong Pong Co, to the effect
that "there were some profits, but not large ones." This court,
however, does not find that the amount thereof has been proven, nor
deem it possible to estimate them to be a certain sum, and for a given
period of time; hence, it can not admit the estimate, made in the
judgment, of 12 per cent per annum for the period of six months.
Inasmuch as in this case nothing appears other than the failure to
fulfill an obligation on the part of a partner who acted as agent in
receiving money for a given purpose, for which he has rendered no
accounting, such agent is responsible only for the losses which, by a
violation of the provisions of the law, he incurred. This being an
obligation to pay in cash, there are no other losses than the legal
interest, which interest is not due except from the time of the judicial
demand, or, in the present case, from the filing of the complaint.
(Arts. 1108 and 1100, Civil Code.) We do not consider that article 1688
is applicable in this case, in so far as it provides "that the partnership
is liable to every partner for the amounts he may have disbursed on
account of the same and for the proper interest," for the reason that
no other money than that contributed as is involved.
As in the partnership there were two administrators or agents liable
for the above-named amount, article 1138 of the Civil Code has been
invoked; this latter deals with debts of a partnership where the
obligation is not a joint one, as is likewise provided by article 1723 of
said code with respect to the liability of two or more agents with
respect to the return of the money that they received from their
principal. Therefore, the other errors assigned have not been
committed.
In view of the foregoing judgment appealed from is hereby affirmed,
provided, however, that the defendant Ong Pong Co shall only pay the
plaintiff the sum of P750 with the legal interest thereon at the rate of
6 per cent per annum from the time of the filing of the complaint, and
the costs, without special ruling as to the costs of this instance. So
ordered.
169 | P a g e
G.R. No. L-5953 February 24, 1912
ANTONIO M. PABALAN, plaintiff-appellant,
vs.
FELICIANO VELEZ, defendant-appellee.
Ariston Estrada for appellant.
Luciano de la Rosa for appellee.
TORRES, J.:
This case was appealed by counsel for the plaintiff, from the judgment
rendered by the Honorable Judge A. S. Crossfield.
On January 20, 1908, counsel for the plaintiff filed a written complaint
against the defendant, the administrator of the intestate estate of
Walter A. Fitton, now deceased. The said administrator was
appointed by an order issued on December 21, 1907, by the
aforementioned judge in case No. 5103, heard in the Court of First
Instance of this city.
The complaint alleged: That until June 27, 1900, the plaintiff, Antonio
M. Pabalan, was the owner in fee simple of a rural estate consisting
of an hacienda known by the name of "Pantayani," which was
devoted to agricultural purposes, situated on the roads leading from
Mariquina to Antipolo, within the pueblos of Cainta and Antipolo,
Province of Rizal, and which covered an area of 1,978,822 square
meters; also a parcel of land consisting of a building lot situated on
Calle Real, of Cainta, measuring 371.30 square meters, the metes and
bounds of which were specified in the complaint; that, on the said
date of June 27, 1900, the plaintiff, desiring to make use of the two
properties described, and lacking the required means for the purpose,
entered into an agreement with the said Walter A. Fitton whereby
they formed a regular mercantile partnership for the development of
the said properties and for the manufacture and sale of their products
and other business pertinent thereto; that the sum of 9,000 pesos
Mexican currency was fixed as the amount of the capital stock of the
partnership, of which 3,000 pesos, in cash, were to be contributed by
the plaintiff and 6,000 pesos, in real property, by the said Fitton; that,
for the purpose of obtaining the said 3,000 pesos, the plaintiff sold his
two aforementioned real properties to the said Walter A. Fitton, the
rural estate, shown in Exhibit A, for 5,900 pesos, and the urban
property, described in Exhibit B, for 100 pesos; that the plaintiff
received from the purchaser the sum of 3,000 pesos and the latter,
Walter A. Fitton, bound himself to pay into the funds of the said
partnership, as the plaintiff's capital, the remaining 3,000 pesos of the
selling price; that it was furthermore agreed that the two said real
properties should constitute the capital of Walter A. Fitton in the
partnership, which would be known by the name of "A. M. Pabalan
and Company" and should be an equivalent for the aforesaid sum of
6,000 pesos; that all the foregoing facts set forth in the complaint
were recorded in the instrument of sale and organization of the
partnership, executed on June 27, 1900, before the notary public
Rosado, a copy of which was attached to and made an integral part of
the complaint; that, from June 27, 1900, up to the date when the
partner Fitton died, the latter failed to pay into the partnership funds
the said 3,000 pesos, the remainder of the price of the properties
purchased by him, or any part thereof, and did not pay the said sum
or any part of the same to the plaintiff; that, since Fitton's death, and
up to the date of the filing of the complaint, neither the administrator
of the latter's estate nor any other person had turned into the
partnership or paid to the plaintiff the aforesaid 3,000 pesos; that,
owing to the failure of Fitton to comply with his obligation, the
properties in question had been entirely unproductive and losses and
damages had been occasioned to the plaintiff in the sum of 2,000
pesos Philippine currency. The latter, therefore, prayed for the
rescission of the contract entered into, on June 27, 1900, by himself,
the plaintiff, and Walter A. Fitton, the dissolution of the partnership
"A. M. Pabalan and Company," and the annulment of the sale of the
said properties, by returning to the defendant a sum in Philippine
currency equivalent to the 3,000 pesos in Mexican currency received
from Walter A. Fitton, and that the defendant be sentenced to pay to
the plaintiff, as losses and damages, the sum of 2,000 pesos, and to
the payment of the cost of the suit, in addition to the other remedies
sought.
The instrument attached to the complaint and executed on June 27,
1900, before the notary public Jose M.a Rosado y Calvo, by Antonio
M. Pabalan y Santos, on the one hand, and Walter A. Fitton, on the
other, contains the following clauses:
First. That Don Antonio Maria Pabalan y Santos is the sole and
exclusive owner in fee-simple of the following landed properties, to
wit: (a) A rural estate consisting of an hacienda, known as Pantayaning
or Pantaen, devoted to agricultured and situated on the roads which
lead from Mariquina to Antipolo, within the pueblos of Cainta and
Antipolo of the district of Morong, inscribed in the property registry
of this city as of the north district, with an area of 1,978,022 square
meters and bounded on the north by the land of Victor Vargas and
the Sucabin River, by a part of the Tabang River, Mount Magpatong,
the sitio of Palenque and another part of the said Tabang River, as far
as the foot of Mount Cay-Alaring, Mount Sapang, and the road leading
to the pueblo of Taytay; on the south by the summit of Mount
Matugalo, the Paglilingohan estero, the old Cainta highway, and the
land of Juan Santa Ana; and one on the west by the lands of Doña
Columba Suarez and Don Mariano Sumulong, the Bilao road, and the
lands of Perfecto Legaspi Miguel Gonzales, Zacarias Gonzales, Juan
Adriano, and that of the aforesaid Juan Santa Ana. And (b) an urban
property consisting of a building lot, with neither street nor district
number, situated on Calle Real, pueblo of Cainta, Morong District, and
in the north district division of the property registry of this city; it is
bounded on its front, which faces the south, by the aforesaid Calle
Real; on its right, upon entering, or on the east, by the lot belonging
to Don Alejandro San Diego and his wife Doña Buenaventura Santos;
on its left, or the west, by the lot of Don Pablo Ordoñez and his wife
Dionisia Salandanan; and on its rear, or the north, by the lot of Don
Florencio San Antonio, his wife and Doña Severina Santos, and has an
area of 361 square meters and 30 square centimeters. Second. That
the properties hereinbefore described belong to the aforementioned
Don Antonio Maria Pabalan y Santos, who purchased the same from
their former owner, the firm of G. Buchanan and Company, of the city
of London, represented by its agent, Herbert Heiden Todd, through a
deed, serial number 852, drawn up in this city and attested before the
former notary public of the same, Don Jose Engracio Monroy y Torres,
on the twenty-ninth of November, 1894, as shown by the notarial
instrument containing the description of the said properties, written
by the undersigned notary at the request of their owner, Sr. Pabalan,
on the twelfth of the present month of June, which certificate,
without number, on account of its notarial character, was exhibited
to me by the latter and I certify to the same. Third. That the properties
in question are free of all encumbrance, charge, and liability, and Don
Antonio Maria Pabalan y Santos and Mr. Walter A. Fitton having
agreed to sell the same and to form a regular mercantile partnership
170 | P a g e
for the purpose of their improvement and the utilization of their
products, hereby execute the present instrument, in order that all its
contents may appear in an authenticated form, and solemnly
stipulated: That Don Antonio Maria Pabalan y Santos hereby sells
absolutely and finally to Mr. Walter A. Fitton, the property which,
under the letters A and B, is mentioned and described in the first
paragraph of this instrument, together with all the rights, actions,
uses and easements thereto pertaining, for the price of 5,900 pesos,
for the property specified under letter A, and the price of 100 pesos,
for that described under letter B, that is, for the total price of 6,000
pesos, of which the vendor received in the act, in my presence and in
that of the witnesses hereunto, which I, the notary, hereby attest, and
from the hands of the vendee, the sum of 3,000 pesos in coin, counted
to his entire satisfaction, for which the said Walter A. Fitton hereby
acknowledges by a binding receipt which secures the said Antonio M.
Pabalan in all his rights and the vendor binds himself to protect and
defend the title to the properties hereby sold and guarantees them in
accordance with law; and the vendee shall retain the remaining 3,000
pesos for the purpose of bringing them, as the vendor's capital, into
the partnership which is also a subject of this public
instrument. Fourth. Walter A. Fitton, in his turn, covenants: That he
accepts this sale in the precise terms in which it is executed by
Antonio Maria Pabalan y Santos. Fifth. That, by virtue of the
preinserted stipulations, both parties to this contract, by this same
public instrument, form a regular mercantile partnership, upon the
following bases and conditions: 1. The company organized through
the present public instrument shall operate under the firm name of
"A. M. Pabalan and Company" and shall have its domicile, for all legal
purposes, in this city of Manila. 2. The object and aim of the company
is the cultivation and improvement of the two properties described
under letters A and B of the first paragraph hereof, the manufacture
and sale of their products, and the conduct of all other business
connected with, incidental or pertinent to the said lands. 3. The
management, direction and administration of the company shall be in
charge of the two partners who shall both be entitled to use the firm
name, it being thereof understood that they are authorized to carry
on, jointly or severally, all kinds of operations comprised within the
purpose of this partnership, with the sole limitation that neither of
them may make the company a surety or borrow money for the same,
without its being necessary, with respect to this latter prohibition, for
Mr. Pabalan to state that it does not suit him to increase his capital to
an amount equal to that invested by Mr. Fitton. Both partners are
likewise authorized, for the purposes of management, to appoint
general or social attorneys-in-fact to represent the company, as well
as attorneys to demand and collect such credits and bring such suits
before the courts as be proper. 4. The management of agricultural
matters pertaining to the rural and the urban property described in
the first paragraph of this instrument, shall be solely and exclusively
in charge of the partner Antonio Maria Pabalan or the person by him
designated for this purpose. 5. The capital stock is composed of the
total sum of 9,000 pesos contributed by the partners in the following
proportion and from: Antonio Maria Pabalan, 3,000 pesos in cash,
which shall be paid into the partnership fund by Walter A. Fitton, who,
for this purpose, has retained them in his possession upon his paying
the amount of the sale herein set forth; Walter A. Fitton, 6,000 pesos,
represented by the two properties described under letters A and B in
the first paragraph herein, and in which the said lands are by common
accord appraised. 6. The partners may not engage, in the Province of
Morong, in the same kinds of business engaged in by this company,
but they mutually authorize each other personally to carry on and
conduct any such business at any other place outside of the said
province. 7. Any and all rural or city properties which Mr. Pabalan may
acquire to the west of the hacienda hereinabove described under
letter A, shall necessarily form a part of the hacienda itself. 8. The
term of the existence of this partnership shall be twenty-five years,
which shall begin to run from this date and may be extended at the
will of the contracting parties. 9. In order that a regular and orderly
course be pursued in the management of the company, and the losses
and profits of the latter ascertained, an annual balance of accounts
shall be struck in the month of June of each year, in addition to such
other balances as the partners may, by mutual accord, determine. 10.
If, during the term of this contract, either of the partners should die,
the company shall not, on such account, be considered as dissolved,
but shall be continued by the surviving partner and the heirs of the
deceased partner, unless it should suit the former to be separated
from the latter, in which case he shall deliver to such heirs the part of
the capital that belonged to the deceased, together with all the
latter's vested rights. 11. The profits obtained and losses suffered by
the company shall be shared by the partners in proportion to the
capital invested by each respectively. 12. The partners may, by
agreement, change the company hereby organized into a joint stock
company, in which case they shall observe and comply with the
formalities provided and prescribed by the existing Code of
Commerce in respect to companies of this kind. 13. All questions,
controversies, doubts or differences which may arise between the
partners, by reason of this company or from any acts performed by
them on account of the same, shall be determined by the decision of
friendly arbitrators appointed one by each party, such appointees so
designated to choose a third arbitrator in case of disagreement.
The demurrer interposed to the complaint having been overruled by
an order of April 1, 1908, and exception thereto taken by the
defendant, the latter, on the 11th of the same month, filed a written
answer wherein he set forth that he admitted the allegations
contained in paragraphs 1, 2, and 4 of the complaint and denied,
generally and specifically, each and all of those contained in
paragraphs 3, 5, 6, 7, 8, and 9.
As a special defense the defendant alleged that the action prosecuted
by the plaintiff had prescribed; that the fact that the properties of the
company known as "A. M. Pabalan and Company" had been
unproductive was exclusively due to the great negligence of the
plaintiff, since he had had more than sufficient time, from June 27,
1900, to the date of the death of Fitton, to have demanded from his
copartner the sum offered by the latter and which he was to
contribute to the common assets, and that, notwithstanding all the
time that had elapsed since the execution of the articles of
partnership, up to the date of the presentation of the complaint the
plaintiff had never required his copartner to turn into the partnership
funds the capital pledged.
The defendant, in his cross-complaint and counterclaim, set forth:
That, according to the said articles of partnership, the plaintiff had the
management of agricultural matters pertaining to the properties,
rural and urban, described therein, and, consequently, was alone
responsible for the successful management of the company; that,
also, according to the articles of partnership, either of the two
partners had charge of the management, direction, and
administration of the company; that, some months after the
execution of the said instrument of partnership, Walter A. Fitton was
obliged, for reasons of health, to go abroad, where he resided until
171 | P a g e
his death, and during his absence from this city the plaintiff, Antonio
M. Pabalan, with notable negligence and abandonment of the
interests of the company, failed to attend to the administration of its
affairs and did not employ on his part any means to maintain in a
productive condition the two properties brought into the partnership
by the partner Fitton, and that, through the negligence,
abandonment, and carelessness of the plaintiff Pabalan, the
defendant suffered losses and damages in the sum of P3,000
Philippine currency; the latter, therefore, prayed that the complaint
be dismissed and that, by reason of his cross-complaint and
counterclaim, an award be made in his behalf, and against the
plaintiff, for losses and damages, in the sum of P3,000 Philippine
currency, with the costs.
By a written motion of March 19, 1909, Antonio Vasquez represented:
That, owing to the death of the plaintiff, the hearing of the case had
to be suspended until, on the 4th of March, as aforesaid, letters of
administration were issued in his behalf, relative to the estate of the
plaintiff Pabalan; and he therefore prayed that he be admitted as a
party in the capacity of administrator of the estate of the deceased
Antonio M. Pabalan.
The case having come to trial on April 29, 1909, with the introduction
of oral evidence by counsel for the plaintiff, the court, on July 9 of the
same year, pronounced judgment and found that the defendant had
not proved any of the damages alleged in his answer, and was not
entitled to any recovery therefore, nor the plaintiff for the taxes that
he had paid. The court ordered a dissolution of the partnership
formed between the plaintiff and the deceased Walter A. Fitton and
a recission of the sale and contract of partnership executed between
them on July 27, 1900, and further ordered that the defendant, as the
administrator of the estate of the said deceased Walter A. Fitton,
deliver to the plaintiff, upon the latter's paying to the defendant, out
of the property which belonged to the aforesaid deceased, the sum
of P3,000 Mexican currency, equivalent to P2,700 Philippine currency,
the following real properties:
A. A rural estate consisting of an hacienda, known as Pantayani or
Pantaen, devoted to agriculture and situated on the roads from
Mariquina to Antipolo, within the pueblos of Cainta and Antipolo of
the old district of Morong, now Province of Rizal, having an area of
1,978,822 square meters, bounded on the north by the land of Victor
Vargas and the Sucabin River; on the east by a part of the said Sucabin
River, a part of the Tabang River, Mount Nagtapong, the sitio of
Palenque, and by another part of the Tabang River toward the base
of Mount Cay-Alaring, Mount Sapang, and the road leading to the
pueblo of Taytay; on the south by the summit of Mount Matugalo, the
Paglilingohan estero, the old Cainta highway, and the land of Juan
Santa Ana; and on the east by the lands of Columba Suarez and
Mariano Sumulong, the Bulao Road, the lands of Perfecto Legaspi,
Miguel Gonzales, Zacarias Gonzales, Juan Adriano, and of the
aforementioned Juan Santa Ana.
B. An urban property consisting of a building lot, without either street
or district number, situated on Calle Real in Cainta, a municipality of
the Province of Rizal; bounded on its front, which faces the south, by
the aforesaid Calle Real; on its right, upon entering, or on the east, by
the lot belonging to Alejandro San Diego and his wife Buenaventura
Santos; on its left, or the west, by the lot of Pablo Ordoñez and his
wife Dionisia Salandanan; and on its rear, or the north, by the lot of
Florencio San Antonio and his wife Severina Santos, with an area of
361 square meters and 30 square centimeters.
This litigation concerns the dissolution of a regular mercantile
partnership and the rescission of the sale of certain real properties,
the contracts with respect to which were entered into between
Antonio M. Pabalan y Santos, on one hand, and Walter A. Fitton, on
the other, according to a notarial instrument executed by the
contracting parties on July 27, 1900.
The plaintiff's claim is founded on the alleged fact that the said Walter
A. Fitton failed to comply with his obligations as stipulated in the said
double contract, inasmuch as he did not pay into the funds of the
company entitled "A. M. Pabalan and Company," as the capital of the
partner Pabalan, the sum of P3,000, or the remainder of P6,000, the
price of the properties which he had purchased from the plaintiff, did
not pay to the latter the said amount, nor any part thereof, nor was
such payment made, after the said Fitton's death, by the
administrator of the latter's estate.
Article 1506 of the Civil Code prescribes:
The sale shall be rescinded for the same causes as all other
obligations, etc.
Article 1124 provides:
The right to rescind the obligations is considered as implied in mutual
ones, in case one of the obligated persons does not comply with what
is incumbent upon him.
The person prejudiced may choose between exacting the fulfillment
of the obligation or its rescission, with indemnity for damages and the
payment of interest in either case. He may also demand the
rescission, even after having requested its fulfillment, should the
latter appear impossible.
The court shall order the rescission demanded, unless there are
sufficient causes authorizing it to fix a period.
This is understood without prejudice to the rights of third acquirers,
in accordance with articles 1295 and 1298, and with the provisions of
the Mortgage Law.
Article 116 of the Code of Commerce prescribes:
Articles of association by which two or more persons obligate
themselves to place in a common fund any property, industry, or any
of these things, in order to obtain profit, shall be commercial, no
matter what its class may be, provided it has been established in
accordance with the provisions of this code.
After the organization of the general mercantile partnership
denominated "A. M. Pabalan and Company," through the aforesaid
instrument of June 27, 1900, the partner Fitton did not turn into the
company funds the sum of P3,000, in the name and to the credit of
Pabalan, as the latter's capital, which sum was a part of the price of
the sale of the two real properties purchased from the said Pabalan
by his partner Fitton who, in turn, brought the said two parcels of
land, as his capital, into the common fund, without having paid the
said sum up to the time when he absented himself from these Islands,
a few months after the establishment of the partnership, and died in
a foreign country.
It was duly proved at the trial of this case, that the partner Walter A.
Fitton failed to observe the stipulations of the two aforesaid
contracts; that he did not pay any part of the price of the sale of the
172 | P a g e
two parcels of land which he had purchased from his partner, Antonio
M. Pabalan, and, consequently, did not turn into the company funds,
as capital of the said Pabalan, the sum of which the said price
consisted; it is therefore unquestionable that he did not comply with
his two principal obligations, assumed in the said double contract
wherein he expressly agreed that the said P3,000, a part of the price
of the two pieces of land that he purchased from Pabalan, would be
by him turned into the fund of the general partnership which they had
formed, as capital of the partner Pabalan.
special finding as to the costs; provided, however, that the
administrator of the estate of the deceased Fitton shall deliver to the
administrator of the estate of Pabalan the two parcels of land, the
sale of which was rescinded, upon payment by the last named
administrator to that of the estate of Fitton, of the sum of P2,700,
equivalent to P3,000 Mexican pesos, the said administrator of the
Pabalan estate being entitled to deduct from the said sum that of
P348.20, which is two-thirds of the amount paid as land tax on the
properties concerned. So ordered.

In case one of the parties to a contract does not fulfill his obligation
as stipulated therein, the other contracting party, by the provisions of
the above-quoted article 1124 of the Civil Code, is entitled to demand
the rescission of the contract, as such obligations are mutual, and the
court must order the rescission demanded. The partner, Walter A.
Fitton, came within such a case, since he failed to pay any part of the
price of the two properties which he had acquired and did not turn
into the company fund, as capital of the vendor partner, the sum
representing such sale, and therefore justice requires the dissolution
of the aforementioned company and the rescission of the said sale, in
conformity with the finding contained in the judgment appealed from
the prayer rightfully and lawfully made by the partner who did not
violate his obligations as set forth in the said contract.

During the course of this suit in the Court of First Instance, the
plaintiff, Antonio M. Pabalan, also died; and if the latter, while living,
was not obliged, according to clause 10 of the articles of partnership,
to continue in the company after the decease of his copartner, and
had a right to withdraw therefrom or from the heirs of the deceased
Walter A. Fitton, after the death of the partner Pabalan, neither are
the latter's successors in interest obliged to continue in the company,
and, therefore, under this circumstance, the propriety of the
judgment appealed from is still more evident. With respect to the
interest on the capital which belonged to Pabalan, and which Fitton
failed to turn into the company fund in conformity with the
agreement made, and in regard to the amount of the losses and
damages occasioned by the noncompliance, on the part of the
partner Fitton, with the stipulated provisions, both such amounts
should be considered as the company's losses and computed pro rata,
in proportion to the extent that each partner is interested in the
company and on the same basis as the profits. (Arts. 140 and 141 of
the Code of Commerce.)

As regards the amount of the land tax, which the partner Pabalan had
to pay, amounting to P522.30, under the assessment levied upon the
two real properties owned by the company, inasmuch as the latter is
the owner of the said two parcels of land, which form the assets of
the company known as "A. M. Pabalan and Company," it is
unquestionable that this company should have paid the said tax to
the Government, and the same being paid by the partner Pabalan out
of his private funds and not of those of the company, he was solely
entitled to be reimbursed for two-thirds of the said sum paid, in
proportion to the amount of the respective capital brought in, which
two-thirds of the sum of P522.30, that is, P348.20, may be deducted
from the sum of P2,700 Philippine currency, equivalent to P3,000
Mexican currency, which the estate of Antonio M. Pabalan must
restore to the testate or intestate estate of Walter A. Fitton, upon the
defendant's returning to the plaintiff the two aforesaid parcels of
land.

For the reasons hereinbefore stated, we are of opinion that the

judgment appealed from should be and is hereby affirmed, with no

173 | P a g e
G.R. No. 30286 September 12, 1929
M. TEAGUE, plaintiff-appellant,
vs.
H. MARTIN, J. T. MADDY and L.H. GOLUCKE, defendants-appellees.
Abad Santos, Camu and Delgado, for appellant.
J.W. Ferrier for appellees.
STATEMENT
Plaintiff alleges that about December 23, 1926, he and the defendants
formed a partnership for the operation of a fish business and similar
commercial transactions, which by mutual contest was called
"Malangpaya Fish Co," with a capital of P35,000, of which plaintiff
paid P25,000, the defendant Martin P5,000, P2,500, and Golucke
P2,500. That as such partnership, they agreed to share in the profits
and losses of the business in proportion to the amount of capital
which each contributed. That the plaintiff was named the general
manager to take charge of the business, with full power to do and
perform all acts necessary to carry out of the purposes of the
partnership. That there was no agreement as to the duration of the
partnership. That plaintiff wants to dissolve it, but that the
defendants refused to do so. A statement marked Exhibit A, which
purports to be a cash book, is made a part of the complaint. That the
partnership purchased and now owns a lighter called Lapu-Lapu, and
a motorship called Barracuda, and other properties. That the lighter
and the motorship are in the possession of the defendants who are
making use of them, to the damage and prejudice of the plaintiff, for
any damage which plaintiff may sustain. That it is for the best interest
of the parties to have a receiver appointed pending this litigation, to
take possession of the properties, and he prays that the Philippine
Trust Company be appointed receiver, and for judgment dissolving
the partnership, with costs.
Each of the defendants filed a separate answer, but the same nature,
in which they admit that about December 10, 1926, the plaintiff and
the defendants formed a partnership for the purpose of the
equipment of the Manila Fish Co., Inc., and the conduct of a fish
business. That the terms of the partnership were never evidenced by
a truth and in fact, the partnership was formed under a written plan,
of which each member received a copy and to which all agreed. That
by its terms the amount of the capital was P45,000, of which the
plaintiff agreed to contribute P35,000. That P20,000 of the capital was
to be used for the purchase of the equipment of the Manila Fish Co.,
Inc. and the balance placed to the checking account o the new
company.
It is then alleged that "the new owners agree to duties as follows:
Capt. Maddy will have charger of the Barracuda and the navigating of
the same. Salary P300 per month.
Mr. Martin will have charge of the southern station, cold stores,
commissary and procuring fish. Salary P300 per month.
Mr. Teague will have charge of selling fish in Manila and purchasing
supplies. No salary until business is on paying basis, then the same as
Maddy or Martin.
The principal office shall be in Manila, each party doing any business
shall keep books showing plainly all transactions, the books shall be
available at all time for inspections of any member of the partnership.
If Mr. Martin or Mr. Maddy wishes at some future time to repurchase
a larger share in the business Teague agrees to sell part of his shares
to each on the basis double the amount originally invested by each or
ten thousand to Martin and five thousand to Maddy.
This offer will expire after two years.
That no charge was ever made in the terms of said agreement of
copartnership as set forth above except that it was later agreed
among the partners that the business of the partnership should be
conducted under the trade name "Malangpaya Fish Company."
That as shown by the foregoing quoted agreement the agreed capital
of the copartnership was P45,000 and not P35,000 as stated in the
third paragraph of plaintiff's amended complaint, and the plaintiff
herein, M. Teague, bound himself and agreed to contribute to the said
copartnership the sum of P35,000 and not the sum of P25,000 as
stated in the third paragraph of his said amended complaint.
Defendant Martin specificaly denies the "plaintiff was named general
manager of the partnership," and alleged "that all the duties and
powers of the said plaintiff were specifically set forth in the above
quoted written agreement and that no further or additional powers
were ever given the said plaintiff." But he admits the purchase of the
motorship Barracuda, by the partnership. He denies that Exhibit A is
a true or correct statement of the cash received and paid out by or on
behalf of the partnership, or that the partnership over purchased or
that it now owns the lighter Lapu-Lapu, "And/ or any other
properties" as mentioned in said ninth paragraph, except such
motorship and a smoke in the house," or that the defendants are
making use of any of the properties of the partnership, to the damage
and prejudice of the plaintiff, or that they do not have any visible
means to answer for any damages, and alleges that at the time of the
filing of the complaint, partnership in cold storage, of the value of
P6,000, for which he has never accounted on the books of the
partnership or mentioned in the complaint, and defendant prays that
plaintiff's complaint be dismissed, and that he be ordered and
required to render an accounting , and to pay to partnership the
balance of his unpaid subscription amounting to P10,000.
In his answer the defendant Maddy claimed and asserted that there
is due and owing him from the plaintiff P1,385.53, with legal interest,
and in his amended answer, the defendant Martin prays for judgment
for P615.49.
To all which the plaintiff made a general and specific denial.
Upon such issues the lower court on April 30, 1928, rendered the
following judgment:
In view of the foregoing considerations, the court decrees:
That the partnership, existing among the parties in this suit, is hereby
declared dissolved; that all the existing properties of the said
partnership are ordered to be sold at public auction; and that all the
proceeds and other unexpended funds of the partnership be used,
first, to pay he P529.48 tax to the Government of the Philippine
Islands; second, to pay debts owing to third persons; third, to
reimburse the partners for their advances and salaries due; and lastly,
to return to the partners the amounts they contributed to the capital
of the association and any other remaining such to be distributed
proportionately among them as profits:
174 | P a g e
That the plaintiff immediately render a true and proper account of all
the money due to and received by him for the partnership.
That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and
adding machine belong exclusively to the plaintiff, M. Teague, but the
said plaintiff must return to and reimburse the partnership the sum
of P14,032.26 taken from its funds for the purchase and equipment
of the said barge Lapu-Lapu; and also to return the sum of P1,230 and
P228 used for buying the Ford truck and adding machine,
respectively:
That the sum of P,1512.03 be paid to the defendant, J. T. Maddy, and
the sum of P615.49 be paid to defendant, H. Martin, for their
advances and their unpaid salaries, with legal interest from October
27, 1927, until paid; that the plaintiff pay the costs of this action.
So ordered.
May 16, 1928, plaintiff filed a motion praying for an order "directing
the court's stenographic notes taken by them of the evidence
presented in the present case, as soon as possible." This motion was
denied on May 19th, and on May 16th, the court denied the plaintiff's
motion for reconsideration. To all of which exceptions were duly
taken.
June 7, 1928, plaintiff filed a petition praying, for the reasons therein
stated, that the decision of the court in the case be set aside, and that
the parties be permitted to again present their testimony and to have
the case decided upon its merits. To which objections were duly
made, and on June 28, 1928, the court denied plaintiff's motion for a
new trial. To which exceptions were duly taken, and on July 10, 1928,
the plaintiff filed a motion in which he prayed that the period for the
appeal interposed by the plaintiff be suspended, and that the order
of June 28, 1928, be set aside, "and that another be entered ordering
the re-taking of the evidence in this case." To which objections were
also filed and later overruled, from all of which the plaintiff appealed
and assigns the following errors:
I. The trial court erred in not having confined itself, in the
determination of this case, to the question as to whether or not it is
proper to dissolve the partnership and to liquidate its assets, for all
other issues raised by appellees are incidental with the process of
liquidation provided for by law.
II. The trial court erred in not resolving the primary and most
important question at issue in his case, namely, whether or not the
appellant M. Teague was the manager of the unregistered
partnership Malangpaya Fish Company.
III. The trial court erred in holding that the appellant had no authority
to buy the Lapu-Lapu, the Ford truck and the adding machine without
the consent of his copartners, for in accordance with article 131 of the
Code of Commerce the managing partner of a partnership can make
purchases for the partnership without the knowledge and/or consent
of his copartners.
IV. The trial court erred in holding that the Lapu-Lapu, the Ford truck
and the adding machine purchased by appellant, as manager of the
Malangpaya Fish Company, for and with funds of the partnership, do
not form part of the assets of the partnership.
V. The trial court erred in requiring the appellant to pay to the
partnership the sum of P14,032.26, purchase price, cost of repairs and
equipment of the barge Lapu-Lapu; P1,230 purchase price of the
adding machine, for these properties were purchased for and they
form part of the assets of the partnership.
VI. The trial court erred in disapproving appellant's claim for salary
and expenses incurred by him for and in connection with the
partnership's business.
VII. The trial court erred in approving the claims of appellees J.T.
Maddy and H. Martin and in requiring the appellant to pay them the
sum of P1,512.03 and P615.49 respectively.
VIII. The trial court erred in not taking cognizance of appellant's claim
for reimbursement for advances made by him for the partnerships, as
shown in the statement attached to the complaint marked Exhibit A,
in which there is a balance in his favor and against the partnership
amounting to over P16,000.
X. Lastly, considering the irregularities committed, the disappearance
of the stenographic notes for a considerable length of time, during
which time changes in the testimonies of the witnesses could have
been made and the impossibility of having an accurate and complete
transcript of the stenographic notes, the trial court erred in denying
appellant's petition for the retaking of the evidence in this case.
JOHNS, J.:
By their respective pleadings, all parties agreed that there was a
partnership between them, which appears at one time to have done
a good business. In legal effect, plaintiff asked for its dissolution and
the appointment of a receiver pendente lite. The defendants did not
object to the dissolution of the partnership, but prayed for an
accounting with the plaintiff. It was upon such issues that the
evidence was taken and the case tried. Hence, there is no merit in the
first in the first assignment of error. Complaint is made that the lower
court did not specifically decide as to whether or not the plaintiff was
the manager of the unregistered partnership. But upon that question
the lower court, in legal effect, followed and approved the contention
of the defendants that the duties of each partners were specified and
defined in the "plans for formation of a limited partnership," in which
it is stated that Captain Maddy would have charge of
the Barracuda and its navigation, with a salary of P300 per month,
and that Martin would have charge of the southern station, cold
stores, commisary and procuring fish, with a salary of P300 per
month, and that the plaintiff would have charge of selling fish in
Manila and purchasing supplies, without salary until such time as the
business is placed on a paying basis, when his salary would be the
same as that of Maddy and Martin, and that the principal office of the
partnership "shall keep books showing plainly all transactions," which
shall be available at all time for inspection of any of the members.
It will thus be noted that the powers and duties of Maddy Martin, and
the plaintiff are specifically defined, and that each of them was more
or less the general manager in his particular part of the business. That
is to say, that Maddy's power and duties are confined and limited to
the charge of the Barracuda and its navigation, and Martin's to the
southern station, cold stores, commissary and procuring fish, and that
plaintiff's powers and duties are confined and limited to "selling fish
in Manila and the purchase of supplies." In the selling of fish, plaintiff
received a substantial amount of money which he deposited to the
credit of the company signed by him as manager, but it appears that
175 | P a g e
was a requirement which the bank made in the ordinary course of
business, as to who was authorized to sign checks for the partnership;
otherwise, it would not cash the checks.
In the final analysis, the important question in this case is the
ownership of the Lapu-Lapu, the Ford truck, and the adding machine.
The proof is conclusive that they were purchased by the plaintiff and
paid for him from and out of the money of the partnership. That at
the time of their purchase, the Lapu-Lapu was purchased in the name
of the plaintiff, and that he personally had it registered in the customs
house in his own name, for which he made an affidavit that he was its
owner. After the purchase, he also had the Ford truck registered in his
won name. His contention that this was done as a matter of
convenience is not tenable. The record shows that when the
partnership purchased the Barracuda, it was registered in the
customs house in the name of the partnership, and that it was a very
simple process to have it so registered.
Without making a detailed analysis of the evidence, we agree with the
trial court that the Lapu-Lapu, the Ford truck, and the adding machine
were purchased by the plaintiff and paid for out of the funds of the
partnership, and that by his own actions and conduct, and the taking
of the title in his own name, he is now estopped to claim or assert that
they are not his property or that they are the property of the
company. Again, under his powers and duties as specified in the
tentative, unsigned written agreement, his authority was confined
and limited to the "selling of fish in Manila and the purchase of
supplies." It must be conceded that, standing alone, the power to sell
fish and purchase supplies does not carry with it or imply the authority
to purchase the Lapu-Lapu, or the Ford truck, or the adding machine.
From which it must follow that he had no authority to purchase the
lighter Lapu-Lapu, the Ford truck, or the adding machine, as neither
of them can be construed as supplies for the partnership business.
While it is true that the tentative agreement was never personally
signed by any member of the firm, the trial court found as a fact, and
that finding is sustained by the evidence, that this unsigned
agreement was acted upon and accepted by all parties as the basis of
the partnership. It was upon that theory that the lower court allowed
the defendant s Maddy and Martin a salary of P300 per month and
the money which each of them paid out and advanced in the
discharged of their respective duties, and denied any salary to the
plaintiff, for the simple reason that the business was never on a
paying basis.
Much could be said about this division of powers, and that Maddy and
Martin's duties were confined and limited to the catching and
procuring of fish, which were then shipped to the plaintiff who sold
them on the Manila market and received the proceeds of the sales. In
other words, Maddy and Martin were supplying the fish to plaintiff
who sold them under an agreement that he would account for the
money.
Upon the question of accounting, his testimony as to the entries
which he made and how he kept the books of the partnership is very
interesting:
Q. Then this salary does not take into consideration the fact that
you claim the company is very badly in debt? —
A. Well, I put the salary in there.
Q. I am asking you if that is true? —
A. I do not think I will decide that, I think it will be decided by
the court.
Q. I will ask you to answer the question? —
A. You asked me my opinion and I said that I am entitled to it.
xxx xxx xxx
I am not on trial as a bookkeeper; if my lawyers won't object to the
question I will object myself; I am not on trial as a bookkeeper; I keep
my books any way I want to, put in what I want to, and I leave out
anything I don't choose to put in, —
xxx xxx xxx
Q. You have your own bookkeeping? —
A. Well, I run my business to suit myself, I put in the books what
I want to, and I leave out what I want to, and I have a quarter of a
million pesos to show for it, —
xxx xxx xxx
Q. Did you not say that you paid yourself a salary in August
because you made a profit? —
A. Yes. This profit was made counting the stock on hand and
equipment on hand, but as far as cash to pay this balance, I did not
have it. when I wanted a salary I just took it. I ran things to suit myself.
xxx xxx xxx
Q. In other words in going against these partners you are going
to tax them for the services of your attorney? —
A. You are mistaken; I am not against them. I paid this out for
filing this complaint and if the honorable court strikes it out, all right.
I think it was a just charge. When I want to sue them the Company
can pay for my suit.
Q. Would you have any objection to their asking for their
attorney's fees from the company as partners also in the business? —
A. Yes.
Q. You would object to your partners having their attorney's
fees here paid out of the copartnership like you have had yours paid?
—
A. Yes, that is the way I do my business.
To say the least, this kind of evidence does not appeal to the court.
This case has been bitterly contested, and there is much feeling
between the parties and even their respective attorneys. Be that as it
may, we are clearly of the opinion that the findings of the lower court
upon questions of fact are well sustained by the evidence. Plaintiff's
case was tried on the theory that the partnership was the owner of
the property in question, and no claim was made for the use of
the Lapu-Lapu, and it appears that P14,032.26 of the partnership
money was used in its purchase, overhauling, expenses and repairs.
That in truth and in fact the partnership had the use and benefit of
the Lapu-Lapu in its business from sometime in May until the receiver
was appointed on November 11, 1927, or a period of about six
months, and that the partnership has never paid anything for its use.
it is true that there is no testimony as to the value of such use, but the
176 | P a g e
cost of the Lapu-Lapu and the time of its use and the purpose for
which it was used, all appear in the record. For such reason, in the
interest of justice, plaintiff should be compensated for the reasonable
value of the time which the partnership made use of the Lapu-Lapu.

All things considered, we are of the opinion that P2,000 is a

reasonable, amount which the plaintiff should receive for its use.

In all things and respects, the judgment of the lower court as to the
merits is affirmed, with the modification only that P2,000 shall be
deducted from the amount of the judgment which was awarded
against the plaintiff, such deduction to be made for and on account of
such use of the Lapu-Lapu by the partnership, with costs against the
appellant. So ordered.

177 | P a g e
G.R. No. L-45624 April 25, 1939
GEORGE LITTON, petitioner-appellant,
vs.
HILL & CERON, ET AL., respondents-appellees.
George E. Reich for appellant.
Roy and De Guzman for appellees.
Espeleta, Quijano and Liwag for appellee Hill.
CONCEPCION, J.:
This is a petition to review on certiorari the decision of the Court of
Appeals in a case originating from the Court of First Instance of Manila
wherein the herein petitioner George Litton was the plaintiff and the
respondents Hill & Ceron, Robert Hill, Carlos Ceron and Visayan Surety
& Insurance Corporation were defendants.
The facts are as follows: On February 14, 1934, the plaintiff sold and
delivered to Carlos Ceron, who is one of the managing partners of Hill
& Ceron, a certain number of mining claims, and by virtue of said
transaction, the defendant Carlos Ceron delivered to the plaintiff a
document reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates Nos. 4428, 4429
and 6699 for 5,000, 5,000 and 7,000 shares respectively — total
17,000 shares of Big Wedge Mining Company, which we have sold at
P0.11 (eleven centavos) per share or P1,870.00 less 1/2 per cent
brokerage.
HILL & CERON
By: (Sgd.) CARLOS CERON
Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid
balance of P720, and unable to collect this sum either from Hill &
Ceron or from its surety Visayan Surety & Insurance Corporation,
Litton filed a complaint in the Court of First Instance of Manila against
the said defendants for the recovery of the said balance. The court,
after trial, ordered Carlos Ceron personally to pay the amount claimed
and absolved the partnership Hill & Ceron, Robert Hill and the Visayan
Surety & Insurance Corporation. On appeal to the Court of Appeals,
the latter affirmed the decision of the court on May 29, 1937, having
reached the conclusion that Ceron did not intend to represent and did
not act for the firm Hill & Ceron in the transaction involved in this
litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the
Court of Appeals as to the question of fact just mentioned, namely,
that Ceron individually entered into the transaction with the plaintiff,
but in view, however, of certain undisputed facts and of certain
regulations and provisions of the Code of Commerce, we reach the
conclusion that the transaction made by Ceron with the plaintiff
should be understood in law as effected by Hill & Ceron and binding
upon it.
In the first place, it is an admitted fact by Robert Hill when he testified
at the trial that he and Ceron, during the partnership, had the same
power to buy and sell; that in said partnership Hill as well as Ceron
made the transaction as partners in equal parts; that on the date of
the transaction, February 14, 1934, the partnership between Hill and
Ceron was in existence. After this date, or on February 19th, Hill &
Ceron sold shares of the Big Wedge; and when the transaction was
entered into with Litton, it was neither published in the newspapers
nor stated in the commercial registry that the partnership Hill & Ceron
had been dissolved.
Hill testified that a few days before February 14th he had a
conversation with the plaintiff in the course of which he advised the
latter not to deliver shares for sale or on commission to Ceron
because the partnership was about to be dissolved; but what
importance can be attached to said advice if the partnership was not
in fact dissolved on February 14th, the date when the transaction with
Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a
commercial association shall not cause any prejudice to third parties
until it has been recorded in the commercial registry. (See also
Cardell vs. Mañeru, 14 Phil., 368.) The Supreme Court of Spain held
that the dissolution of a partnership by the will of the partners which
is not registered in the commercial registry, does not prejudice third
persons. (Opinion of March 23, 1885.)
Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and
selling shares on their own account. Said order reads:
The stock and/or bond broker is, therefore, merely an agent or an
intermediary, and as such, shall not be allowed. . . .
(c) To buy or to sell shares of stock or bonds on his own account for
purposes of speculation and/or for manipulating the market,
irrespective of whether the purchase or sale is made from or to a
private individual, broker or brokerage firm.
In its decision the Court of Appeals states:
But there is a stronger objection to the plaintiff's attempt to make the
firm responsible to him. According to the articles of copartnership of
'Hill & Ceron,' filed in the Bureau of Commerce.
Sixth. That the management of the business affairs of the
copartnership shall be entrusted to both copartners who shall jointly
administer the business affairs, transactions and activities of the
copartnership, shall jointly open a current account or any other kind
of account in any bank or banks, shall jointly sign all checks for the
withdrawal of funds and shall jointly or singly sign, in the latter case,
with the consent of the other partner. . . .
Under this stipulation, a written contract of the firm can only be
signed by one of the partners if the other partner consented. Without
the consent of one partner, the other cannot bind the firm by a
written contract. Now, assuming for the moment that Ceron
attempted to represent the firm in this contract with the plaintiff (the
plaintiff conceded that the firm name was not mentioned at that
time), the latter has failed to prove that Hill had consented to such
contract.
It follows from the sixth paragraph of the articles of partnership of Hill
&n Ceron above quoted that the management of the business of the
partnership has been entrusted to both partners thereof, but we
dissent from the view of the Court of Appeals that for one of the
partners to bind the partnership the consent of the other is necessary.
Third persons, like the plaintiff, are not bound in entering into a
contract with any of the two partners, to ascertain whether or not this
178 | P a g e
partner with whom the transaction is made has the consent of the
other partner. The public need not make inquires as to the
agreements had between the partners. Its knowledge, is enough that
it is contracting with the partnership which is represented by one of
the managing partners.

There is a general presumption that each individual partner is an

authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions. (Mills vs. Riggle, 112
Pac., 617.)

The presumption is sufficient to permit third persons to hold the firm

liable on transactions entered into by one of members of the firm
acting apparently in its behalf and within the scope of his authority.
(Le Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)

The second paragraph of the articles of partnership of Hill & Ceron

reads in part:

Second: That the purpose or object for which this copartnership is

organized is to engage in the business of brokerage in general, such
as stock and bond brokers, real brokers, investment security brokers,
shipping brokers, and other activities pertaining to the business of
brokers in general.

The kind of business in which the partnership Hill & Ceron is to engage
being thus determined, none of the two partners, under article 130 of
the Code of Commerce, may legally engage in the business of
brokerage in general as stock brokers, security brokers and other
activities pertaining to the business of the partnership. Ceron,
therefore, could not have entered into the contract of sale of shares
with Litton as a private individual, but as a managing partner of Hill &
Ceron.

The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction
similar to that in which the partnership is engaged without binding
the latter, nevertheless there is no law which prohibits a partner in
the stock brokerage business for engaging in other transactions
different from those of the partnership, as it happens in the present
case, because the transaction made by Ceron is a mere personal loan,
and this argument, so it is said, is corroborated by the Court of
Appeals. We do not find this alleged corroboration because the only
finding of fact made by the Court of Appeals is to the effect that the
transaction made by Ceron with the plaintiff was in his individual
capacity.

The appealed decision is reversed and the defendants are ordered to

pay to the plaintiff, jointly and severally, the sum of P720, with legal
interest, from the date of the filing of the complaint, minus the
commission of one-half per cent (½%) from the original price of
P1,870, with the costs to the respondents. So ordered.

179 | P a g e
G.R. No. L-11624 January 21, 1918
E. M. BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Vicente Foz for appellants.
A. J. Burke for appellee.
STREET, J.:
In the year 1913, the individuals named as defendants in this action
formed a civil partnership, called "La Protectora," for the purpose of
engaging in the business of transporting passengers and freight at
Laoag, Ilocos Norte. In order to provide the enterprise with means of
transportation, Marcelo Barba, acting as manager, came to Manila
and upon June 23, 1913, negotiated the purchase of two automobile
trucks from the plaintiff, E. M. Bachrach, for the agree price of
P16,500. He paid the sum of 3,000 in cash, and for the balance
executed promissory notes representing the deferred payments.
These notes provided for the payment of interest from June 23, 1913,
the date of the notes, at the rate of 10 per cent per annum. Provision
was also made in the notes for the payment of 25 per cent of the
amount due if it should be necessary to place the notes in the hands
of an attorney for collection. Three of these notes, for the sum of
P3,375 each, have been made the subject of the present action, and
there are exhibited with the complaint in the cause. One was signed
by Marcelo Barba in the following manner:
P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
The other two notes are signed in the same way with the word "By"
omitted before the name of Marcelo Barba in the second line of the
signature. It is obvious that in thus signing the notes Marcelo Barba
intended to bind both the partnership and himself. In the body of the
note the word "I" (yo) instead of "we" (nosotros) is used before the
words "promise to pay" (prometemos) used in the printed form. It is
plain that the singular pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants Nicolas
Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano, upon
June 12, 1913, executed in due form a document in which they
declared that they were members of the firm "La Protectora" and that
they had granted to its president full authority "in the name and
representation of said partnership to contract for the purchase of two
automobiles" (en nombre y representacion de la mencionada
sociedad contratante la compra de dos automoviles). This document
was apparently executed in obedience to the requirements of
subsection 2 of article 1697 of the Civil Code, for the purpose of
evidencing the authority of Marcelo Barba to bind the partnership by
the purchase. The document in question was delivered by him to
Bachrach at the time the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba
purchased of the plaintiff various automobile effects and accessories
to be used in the business of "La Protectora." Upon May 21, 1914, the
indebtedness resulting from these additional purchases amounted to
the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he had
retained on the trucks in order to secure the purchase price. The
amount realized from this sale was P1,000. This was credited unpaid.
To recover this balance, together with the sum due for additional
purchases, the present action was instituted in the Court of First
Instance of the city of Manila, upon May 29, 1914, against "La
Protectora" and the five individuals Marcelo Barba, Nicolas Segundo,
Antonio Adiarte, Ignacio Flores, and Modesto Serrano. No question
has been made as to the propriety of impleading "La Protectora" as if
it were a legal entity. At the hearing, judgment was rendered against
all of the defendants. From this judgment no appeal was taken in
behalf either of "La Protectora" or Marcelo Barba; and their liability is
not here under consideration. The four individuals who signed the
document to which reference has been made, authorizing Barba to
purchase the two trucks have, however, appealed and assigned
errors. The question here to be determined is whether or not these
individuals are liable for the firm debts and if so to what extent.
The amount of indebtedness owing to the plaintiff is not in dispute,
as the principal of the debt is agreed to be P7,037. Of this amount it
must now be assumed, in view of the finding of the trial court, from
which no appeal has been taken by the plaintiff, that the unpaid
balance of the notes amounts to P4,121, while the remainder (P2,916)
represents the amount due for automobile supplies and accessories.
The business conducted under the name of "La Protectora" was
evidently that of a civil partnership; and the liability of the partners to
this association must be determined under the provisions of the Civil
Code. The authority of Marcelo Barba to bind the partnership, in the
purchase of the trucks, is fully established by the document executed
by the four appellants upon June 12, 1913. The transaction by which
Barba secured these trucks was in conformity with the tenor of this
document. The promissory notes constitute the obligation exclusively
of "La Protectora" and of Marcelo Barba; and they do not in any sense
constitute an obligation directly binding on the four appellants. Their
liability is based on the fact that they are members of the civil
partnership and as such are liable for its debts. It is true that article
1698 of the Civil Code declares that a member of a civil partnership is
not liable in solidum(solidariamente) with his fellows for its entire
indebtedness; but it results from this article, in connection with article
1137 of the Civil Code, that each is liable with the others
(mancomunadamente) for his aliquot part of such indebtedness. And
so it has been held by this court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.)
The Court of First Instance seems to have founded its judgment
against the appellants in part upon the idea that the document
executed by them constituted an authority for Marcelo Barba to bind
them personally, as contemplated in the second clause of article 1698
of the Civil Code. That cause says that no member of the partnership
can bind the others by a personal act if they have not given him
authority to do so. We think that the document referred to was
intended merely as an authority to enable Barba to bind the
partnership and that the parties to that instrument did not intend
thereby to confer upon Barba an authority to bind them personally. It
is obvious that the contract which Barba in fact executed in pursuance
of that authority did not by its terms profess to bind the appellants
personally at all, but only the partnership and himself. It follows that
the four appellants cannot be held to have been personally obligated
by that instrument; but, as we have already seen, their liability rests
upon the general principles underlying partnership liability.
As to so much of the indebtedness as is based upon the claim for
automobile supplies and accessories, it is obvious that the document
of June 12, 1913, affords no authority for holding the appellants liable.
180 | P a g e
Their liability upon this account is, however, no less obvious than
upon the debt incurred by the purchase of the trucks; and such
liability is derived from the fact that the debt was lawfully incurred in
the prosecution of the partnership enterprise.

There is no proof in the record showing what the agreement, if any,

was made with regard to the form of management. Under these
circumstances it is declared in article 1695 of the Civil Code that all
the partners are considered agents of the partnership. Barba
therefore must be held to have had authority to incur these expenses.
But in addition to this he is shown to have been in fact the president
or manager, and there can be no doubt that he had actual authority
to incur this obligation.

From what has been said it results that the appellants are severally
liable for their respective shares of the entire indebtedness found to
be due; and the Court of First Instance committed no error in giving
judgment against them. The amount for which judgment should be
entered is P7,037, to which shall be added (1) interest at 10 per cent
per annum from June 23, 1913, to be calculated upon the sum of
P4.121; (2) interest at 6 per cent per annum from July 21, 1915, to be
calculated upon the sum of P2,961; (3) the further sum of P1,030.25,
this being the amount stipulated to be paid by way of attorney's fees.
However, it should be noted that any property pertaining to "La
Protectora" should first be applied to this indebtedness pursuant to
the judgment already entered in this case in the court below; and
each of the four appellants shall be liable only for the one-fifth part of
the remainder unpaid.

Let judgment be entered accordingly, without any express finding of

costs of this instance. So ordered.

181 | P a g e
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and
JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO.,
INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO
MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of
the Court of Appeals in CA-G.R. CV No. 66195 which modified the
decision of the then Court of First Instance of Manila in Civil Case No.
66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against
all defendants (respondents in G.R. No. 84197) was dismissed but in
all other respects the trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim
requiring Lim to pay plaintiff the amount of P311,056.02, with interest
at the rate of 12% per annum compounded monthly; plus 15% of the
amount awarded to plaintiff as attorney's fees from July 2,1966, until
full payment is made; plus P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs incurred
additional miscellaneous expenses aside from Pl51,000.00,,making a
total of P184,878.74. Defendant Jacob S. Lim is further required to pay
cross party plaintiff, Bormaheco, the Cervanteses one-half and
Maglana the other half, the amount of Pl84,878.74 with interest from
the filing of the cross-complaints until the amount is fully paid; plus
moral and exemplary damages in the amount of P184,878.84 with
interest from the filing of the cross-complaints until the amount is
fully paid; plus moral and exemplary damages in the amount of
P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the
Cervanteses, and another P20,000.00 to Constancio B. Maglana as
attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer
against defendants Bormaheco, the Cervanteses and Constancio B.
Maglana, is dismissed. Instead, plaintiff is required to indemnify the
defendants Bormaheco and the Cervanteses the amount of
P20,000.00 as attorney's fees and the amount of P4,379.21, per year
from 1966 with legal rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana
the amount of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this
action was filed in good faith. The fact that the properties of the
Bormaheco and the Cervanteses were attached and that they were
required to file a counterbond in order to dissolve the attachment, is
not an act of bad faith. When a man tries to protect his rights, he
should not be saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for in the Rules of
Court, and it was the court that ordered it, in the exercise of its
discretion.
No damage is decided against Malayan Insurance Company, Inc., the
third-party defendant, for it only secured the attachment prayed for
by the plaintiff Pioneer. If an insurance company would be liable for
damages in performing an act which is clearly within its power and
which is the reason for its being, then nobody would engage in the
insurance business. No further claim or counter-claim for or against
anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in
the airline business as owner-operator of Southern Air Lines (SAL) a
single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and
Lim entered into and executed a sales contract (Exhibit A) for the sale
and purchase of two (2) DC-3A Type aircrafts and one (1) set of
necessary spare parts for the total agreed price of US $109,000.00 to
be paid in installments. One DC-3 Aircraft with Registry No. PIC-718,
arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer,
petitioner in G.R. No. 84197) as surety executed and issued its Surety
Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim,
for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company,
Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses)
and Constancio Maglana (respondents in both petitions) contributed
some funds used in the purchase of the above aircrafts and spare
parts. The funds were supposed to be their contributions to a new
corporation proposed by Lim to expand his airline business. They
executed two (2) separate indemnity agreements (Exhibits D-1 and D-
2) in favor of Pioneer, one signed by Maglana and the other jointly
signed by Lim for SAL, Bormaheco and the Cervanteses. The
indemnity agreements stipulated that the indemnitors principally
agree and bind themselves jointly and severally to indemnify and hold
and save harmless Pioneer from and against any/all damages, losses,
costs, damages, taxes, penalties, charges and expenses of whatever
kind and nature which Pioneer may incur in consequence of having
become surety upon the bond/note and to pay, reimburse and make
good to Pioneer, its successors and assigns, all sums and amounts of
money which it or its representatives should or may pay or cause to
be paid or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL
executed in favor of Pioneer as deed of chattel mortgage as security
for the latter's suretyship in favor of the former. It was stipulated
182 | P a g e
therein that Lim transfer and convey to the surety the two aircrafts.
The deed (Exhibit D) was duly registered with the Office of the
Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting
JDA to request payments from the surety. Pioneer paid a total sum of
P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the
said chattel mortgage before the Sheriff of Davao City. The
Cervanteses and Maglana, however, filed a third party claim alleging
that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with
an application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed
cross-claims against Lim alleging that they were not privies to the
contracts signed by Lim and, by way of counterclaim, sought for
damages for being exposed to litigation and for recovery of the sums
of money they advanced to Lim for the purchase of the aircrafts in
question.
After trial on the merits, a decision was rendered holding Lim liable to
pay Pioneer but dismissed Pioneer's complaint against all other
defendants.
As stated earlier, the appellate court modified the trial court's
decision in that the plaintiffs complaint against all the defendants was
dismissed. In all other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT
CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM
HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL
COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff
Pioneer had reinsured its risk of liability under the surety bond in
favor of JDA and subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants' alleged
obligation to Pioneer amounts to P295,000.00, hence, plaintiffs
instant action for the recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer is not the real
party in interest to institute the instant action as it does not stand to
be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to
recover the amount from defendants, hence, it instituted the action
is utterly devoid of merit. Plaintiff did not even present any evidence
that it is the attorney-in-fact of the reinsurance company, authorized
to institute an action for and in behalf of the latter. To qualify a person
to be a real party in interest in whose name an action must be
prosecuted, he must appear to be the present real owner of the right
sought to be enforced (Moran, Vol. I, Comments on the Rules of
Court, 1979 ed., p. 155). It has been held that the real party in interest
is the party who would be benefited or injured by the judgment or the
party entitled to the avails of the suit (Salonga v. Warner Barnes &
Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present
substantial interest as distinguished from a mere expectancy or a
future, contingent, subordinate or consequential interest (Garcia v.
David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d
1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City of
Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be
considered as the real party in interest as it has already been paid by
the reinsurer the sum of P295,000.00 — the bulk of defendants'
alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by
plaintiff Pioneer from its reinsurer, the former was able to foreclose
extra-judicially one of the subject airplanes and its spare engine,
realizing the total amount of P37,050.00 from the sale of the
mortgaged chattels. Adding the sum of P37,050.00, to the proceeds
of the reinsurance amounting to P295,000.00, it is patent that plaintiff
has been overpaid in the amount of P33,383.72 considering that the
total amount it had paid to JDA totals to only P298,666.28. To allow
plaintiff Pioneer to recover from defendants the amount in excess of
P298,666.28 would be tantamount to unjust enrichment as it has
already been paid by the reinsurance company of the amount plaintiff
has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's
liability to JDA. Well settled is the rule that no person should unjustly
enrich himself at the expense of another (Article 22, New Civil Code).
(Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court
based its finding that petitioner was paid by its reinsurer in the
aforesaid amount, as this matter has never been raised by any of the
parties herein both in their answers in the court below and in their
respective briefs with respondent court; (Rollo, p. 11) (2) even
assuming hypothetically that it was paid by its reinsurer, still none of
the respondents had any interest in the matter since the reinsurance
is strictly between the petitioner and the re-insurer pursuant to
section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents
Bormaheco and Maglana; and (4) the principle of unjust enrichment
is not applicable considering that whatever amount he would recover
from the co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the
reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two
of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so
much of its obligations to JDA as has been paid with reinsurance
money?
2. If the answer to the preceding question is in the negative, has
Pioneer still any claim against defendants, considering the amount it
has realized from the sale of the mortgaged properties? (Record on
Appeal, p. 359, Annex B of G.R. No. 84157).
183 | P a g e
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety
bond it had executed in favor of JDA, collected the proceeds of such
reinsurance in the sum of P295,000, and paid with the said amount
the bulk of its alleged liability to JDA under the said surety bond, it is
plain that on this score it no longer has any right to collect to the
extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic),
that is suing defendants for the amount paid to it by the reinsurers,
notwithstanding that the cause of action pertains to the latter,
Pioneer says: The reinsurers opted instead that the Pioneer Insurance
& Surety Corporation shall pursue alone the case.. . . . Pioneer
Insurance & Surety Corporation is representing the reinsurers to
recover the amount.' In other words, insofar as the amount paid to it
by the reinsurers Pioneer is suing defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the
complaint that Pioneer is suing as attorney-in- fact of the reinsurers
for any amount. Lastly, and most important of all, Pioneer has no right
to institute and maintain in its own name an action for the benefit of
the reinsurers. It is well-settled that an action brought by an attorney-
in-fact in his own name instead of that of the principal will not
prosper, and this is so even where the name of the principal is
disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every
action must be prosecuted in the name of the real party in interest.'
This provision is mandatory. The real party in interest is the party who
would be benefitted or injured by the judgment or is the party
entitled to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a
real party in interest, that there is no law permitting an action to be
brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18
Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12;
Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968,
23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer
has collected P295,000.00 from the reinsurers, the uninsured portion
of what it paid to JDA is the difference between the two amounts, or
P3,666.28. This is the amount for which Pioneer may sue defendants,
assuming that the indemnity agreement is still valid and effective. But
since the amount realized from the sale of the mortgaged chattels are
P35,000.00 for one of the airplanes and P2,050.00 for a spare engine,
or a total of P37,050.00, Pioneer is still overpaid by P33,383.72.
Therefore, Pioneer has no more claim against defendants. (Record on
Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not
disputed in the appellate court. Considering this admitted payment,
the only issue that cropped up was the effect of payment made by the
reinsurers to the petitioner. Therefore, the petitioner's argument that
the respondents had no interest in the reinsurance contract as this is
strictly between the petitioner as insured and the reinsuring company
pursuant to Section 91 (should be Section 98) of the Insurance Code
has no basis.
In general a reinsurer, on payment of a loss acquires the same rights
by subrogation as are acquired in similar cases where the original
insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A.
La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in
general applicable to actions or contracts of reinsurance. (Delaware,
Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann.
Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air
Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we
subsequently applied in Manila Mahogany Manufacturing
Corporation v. Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the
indemnity from the insurer, it is provided in said article that the
insurer is deemed subrogated to the rights of the insured against the
wrongdoer and if the amount paid by the insurer does not fully cover
the loss, then the aggrieved party is the one entitled to recover the
deficiency. Evidently, under this legal provision, the real party in
interest with regard to the portion of the indemnity paid is the insurer
and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not
as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in
dismissing the petitioner's complaint as against the respondents for
the reason that the petitioner was not the real party in interest in the
complaint and, therefore, has no cause of action against the
respondents.
Nevertheless, the petitioner argues that the appeal as regards the
counter indemnitors should not have been dismissed on the premise
that the evidence on record shows that it is entitled to recover from
the counter indemnitors. It does not, however, cite any grounds
except its allegation that respondent "Maglanas defense and
evidence are certainly incredible" (p. 12, Rollo) to back up its
contention.
On the other hand, we find the trial court's findings on the matter
replete with evidence to substantiate its finding that the counter-
indemnitors are not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement
ceased to be valid and effective after the execution of the chattel
mortgage.
Testimonies of defendants Francisco Cervantes and Modesto
Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare
parts involved, agreed to issue the bond provided that the same
would be mortgaged to it, but this was not possible because the
184 | P a g e
planes were still in Japan and could not be mortgaged here in the
Philippines. As soon as the aircrafts were brought to the Philippines,
they would be mortgaged to Pioneer Insurance to cover the bond, and
this indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the original
complaint:
The various conflicting claims over the mortgaged properties have
impaired and rendered insufficient the security under the chattel
mortgage and there is thus no other sufficient security for the claim
sought to be enforced by this action.
This is judicial admission and aside from the chattel mortgage there is
no other security for the claim sought to be enforced by this action,
which necessarily means that the indemnity agreement had ceased to
have any force and effect at the time this action was instituted. Sec 2,
Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the
chattel mortgage on the planes and spare parts, no longer has any
further action against the defendants as indemnitors to recover any
unpaid balance of the price. The indemnity agreement was ipso jure
extinguished upon the foreclosure of the chattel mortgage. These
defendants, as indemnitors, would be entitled to be subrogated to
the right of Pioneer should they make payments to the latter. Articles
2067 and 2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the
remedy of foreclosure precludes any further action to recover any
unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last
installments to JDA and Pioneer as surety having made of the
payments to JDA, the alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code, known as the Recto
Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage
both by extrajudicial foreclosure and the instant suit. Such being the
case, as provided by the aforementioned provisions, Pioneer shall
have no further action against the purchaser to recover any unpaid
balance and any agreement to the contrary is void.' Cruz, et al. v.
Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23
SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from
through the contention that Pioneer is not the vendor but JDA. The
reason is that Pioneer is actually exercising the rights of JDA as
vendor, having subrogated it in such rights. Nor may the application
of the provision be validly opposed on the ground that these
defendants and defendant Maglana are not the vendee but
indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No.
L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of
their maturity dates discharged these defendants from any liability as
alleged indemnitors. The change of the maturity dates of the
obligations of Lim, or SAL extinguish the original obligations thru
novations thus discharging the indemnitors.
The principal hereof shall be paid in eight equal successive three
months interval installments, the first of which shall be due and
payable 25 August 1965, the remainder of which ... shall be due and
payable on the 26th day x x x of each succeeding three months and
the last of which shall be due and payable 26th May 1967.
However, at the trial of this case, Pioneer produced a memorandum
executed by SAL or Lim and JDA, modifying the maturity dates of the
obligations, as follows:
The principal hereof shall be paid in eight equal successive three
month interval installments the first of which shall be due and payable
4 September 1965, the remainder of which ... shall be due and
payable on the 4th day ... of each succeeding months and the last of
which shall be due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory
notes bearing maturity dates different from that fixed in the aforesaid
memorandum; the due date of the first installment appears as
October 15, 1965, and those of the rest of the installments, the 15th
of each succeeding three months, that of the last installment being
July 15, 1967.
These restructuring of the obligations with regard to their maturity
dates, effected twice, were done without the knowledge, much less,
would have it believed that these defendants Maglana (sic). Pioneer's
official Numeriano Carbonel would have it believed that these
defendants and defendant Maglana knew of and consented to the
modification of the obligations. But if that were so, there would have
been the corresponding documents in the form of a written notice to
as well as written conformity of these defendants, and there are no
such document. The consequence of this was the extinguishment of
the obligations and of the surety bond secured by the indemnity
agreement which was thereby also extinguished. Applicable by
analogy are the rulings of the Supreme Court in the case of
Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of
Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without
the consent of the guarantor extinguishes the guaranty The mere
failure on the part of the creditor to demand payment after the debt
has become due does not of itself constitute any extension time
referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F.
Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when
Pioneer paid the same. Consequently, Pioneer has no more cause of
action to recover from these defendants, as supposed indemnitors,
what it has paid to JDA. By virtue of an express stipulation in the
surety bond, the failure of JDA to present its claim to Pioneer within
ten days from default of Lim or SAL on every installment, released
Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these
defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or became illegal.
These defendants are entitled to recover damages and attorney's fees
from Pioneer and its surety by reason of the filing of the instant case
against them and the attachment and garnishment of their
properties. The instant action is clearly unfounded insofar as plaintiff
185 | P a g e
drags these defendants and defendant Maglana.' (Record on Appeal,
pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not
meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who
failed to incorporate the entity in which they had chosen to invest?
How are the losses to be treated in situations where their
contributions to the intended 'corporation' were invested not
through the corporate form? This Petition presents these
fundamental questions which we believe were resolved erroneously
by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a
result of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or
gains of the venture in proportion to their contribution. The
petitioner, therefore, questions the appellate court's findings
ordering him to reimburse certain amounts given by the respondents
to the petitioner as their contributions to the intended corporation,
to wit:
However, defendant Lim should be held liable to pay his co-
defendants' cross-claims in the total amount of P184,878.74 as
correctly found by the trial court, with interest from the filing of the
cross-complaints until the amount is fully paid. Defendant Lim should
pay one-half of the said amount to Bormaheco and the Cervanteses
and the other one-half to defendant Maglana. It is established in the
records that defendant Lim had duly received the amount of
Pl51,000.00 from defendants Bormaheco and Maglana representing
the latter's participation in the ownership of the subject airplanes and
spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred
additional expenses, hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be
governed by the supposed charter and the laws of the state relating
thereto and not by the rules governing partners (Cannon v. Brush
Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily
held that persons who attempt, but fail, to form a corporation and
who carry on business under the corporate name occupy the position
of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann.
Cas. 1913A 1065). Thus, where persons associate themselves
together under articles to purchase property to carry on a business,
and their organization is so defective as to come short of creating a
corporation within the statute, they become in legal effect partners
inter se, and their rights as members of the company to the property
acquired by the company will be recognized (Smith v. Schoodoc Pond
Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369).
So, where certain persons associated themselves as a corporation for
the development of land for irrigation purposes, and each conveyed
land to the corporation, and two of them contracted to pay a third
the difference in the proportionate value of the land conveyed by
him, and no stock was ever issued in the corporation, it was treated
as a trustee for the associates in an action between them for an
accounting, and its capital stock was treated as partnership assets,
sold, and the proceeds distributed among them in proportion to the
value of the property contributed by each (Shorb v. Beaudry, 56 Cal.
446). However, such a relation does not necessarily exist, for ordinarily
persons cannot be made to assume the relation of partners, as
between themselves, when their purpose is that no partnership shall
exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S.
461, 472, 29 L.Ed. 688), and it should be implied only when necessary
to do justice between the parties; thus, one who takes no part except
to subscribe for stock in a proposed corporation which is never legally
formed does not become a partner with other subscribers who engage
in business under the name of the pretended corporation, so as to be
liable as such in an action for settlement of the alleged partnership
and contribution (Ward v. Brigham, 127 Mass. 24). A partnership
relation between certain stockholders and other stockholders, who
were also directors, will not be implied in the absence of an
agreement, so as to make the former liable to contribute for payment
of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210,
79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics
supplied).
In the instant case, it is to be noted that the petitioner was declared
non-suited for his failure to appear during the pretrial despite
notification. In his answer, the petitioner denied having received any
amount from respondents Bormaheco, the Cervanteses and Maglana.
The trial court and the appellate court, however, found through
Exhibit 58, that the petitioner received the amount of P151,000.00
representing the participation of Bormaheco and Atty. Constancio B.
Maglana in the ownership of the subject airplanes and spare parts.
The record shows that defendant Maglana gave P75,000.00 to
petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form
a corporation with the respondents despite his representations to
them. This gives credence to the cross-claims of the respondents to
the effect that they were induced and lured by the petitioner to make
contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement. Maglana alleged
in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco
Cervantes and Maglana to expand his airline business. Lim was to
procure two DC-3's from Japan and secure the necessary certificates
of public convenience and necessity as well as the required permits
for the operation thereof. Maglana sometime in May 1965, gave
Cervantes his share of P75,000.00 for delivery to Lim which Cervantes
did and Lim acknowledged receipt thereof. Cervantes, likewise,
delivered his share of the undertaking. Lim in an undertaking
sometime on or about August 9,1965, promised to incorporate his
airline in accordance with their agreement and proceeded to acquire
the planes on his own account. Since then up to the filing of this
answer, Lim has refused, failed and still refuses to set up the
corporation or return the money of Maglana. (Record on Appeal, pp.
337-338).
while respondents Bormaheco and the Cervanteses alleged in their
answer, counterclaim, cross-claim and third party complaint:
186 | P a g e
Sometime in April 1965, defendant Lim lured and induced the
answering defendants to purchase two airplanes and spare parts from
Japan which the latter considered as their lawful contribution and
participation in the proposed corporation to be known as SAL.
Arrangements and negotiations were undertaken by defendant Lim.
Down payments were advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the
agreement among the defendants, defendant Lim in connivance with
the plaintiff, signed and executed the alleged chattel mortgage and
surety bond agreement in his personal capacity as the alleged
proprietor of the SAL. The answering defendants learned for the first
time of this trickery and misrepresentation of the other, Jacob Lim,
when the herein plaintiff chattel mortgage (sic) allegedly executed by
defendant Lim, thereby forcing them to file an adverse claim in the
form of third party claim. Notwithstanding repeated oral demands
made by defendants Bormaheco and Cervanteses, to defendant Lim,
to surrender the possession of the two planes and their accessories
and or return the amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a statement of
accounts, the latter ignored, omitted and refused to comply with
them. (Record on Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of

the case, necessarily, no de facto partnership was created among the
parties which would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other
would-be incorporators in transacting the sale of the airplanes and
spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned

decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

187 | P a g e
G.R. No. L-45464 April 28, 1939 Having reached the conclusion that the facts alleged in the complaint
are not sufficient to constitute a cause of action on the part of plaintiff
JOSUE SONCUYA, plaintiff-appellant, as member of the partnership "Centro Escolar de Señoritas" to collect
vs. damages from defendant as managing partner thereof, without a
CARMEN DE LUNA, defendant-appellee. previous liquidation, we do not deem it necessary to discuss the
Josue Soncuya in his own behalf. remaining question of whether or not the complaint is ambiguous,
Conrado V. Sanchez and Jesus de Veyra for appellee. unintelligible and vague.

VILLA-REAL, J.:
On September 11, 1936, plaintiff Josue Soncuya filed with the Court
of First Instance of Manila and amended complaint against Carmen
de Luna in her own name and as co-administratrix of the intestate
estate, of Librada Avelino, in which, upon the facts therein alleged, he
prayed that defendant be sentenced to pay him the sum of P700,432
as damages and costs.
In view of the foregoing considerations, we are of the opinion and so
hold that for a partner to be able to claim from another partner who
manages the general copartnership, damages allegedly suffered by
him by reason of the fraudulent administration of the latter, a
previous liquidation of said partnership is necessary.
Wherefore, finding no error in the order appealed from the same is
affirmed in all its parts, with costs against the appellant. So ordered.

To the aforesaid amended complaint defendant Carmen de Luna

interposed a demurrer based on the following grounds: (1) That the
complaint does not contain facts sufficient to constitute a cause of
action; and (2) that the complaint is ambiguous, unintelligible and
vague.

Trial on the demurrer having been held and the parties heard, the
court found the same well-founded and sustained it, ordering the
plaintiff to amend his complaint within a period of ten days from
receipt of notice of the order.

Plaintiff having manifested that he would prefer not to amend his

amended complaint, the attorney for the defendant, Carmen de Luna,
filed a motion praying that the amended complaint be dismissed with
costs against the plaintiff. Said motion was granted by The Court of
First Instance of Manila which ordered the dismissal of the aforesaid
amended complaint, with costs against the plaintiff.

From this order of dismissal, the appellant took an appeal, assigning

twenty alleged errors committed by the lower court in its order
referred to.

The demurrer interposed by defendant to the amended complaint

filed by plaintiff having been sustained on the grounds that the facts
alleged in said complaint are not sufficient to constitute a cause of
action and that the complaint is ambiguous, unintelligible and vague,
the only questions which may be raised and considered in the present
appeal are those which refer to said grounds.

In the amended complaint it is prayed that defendant Carmen de Luna

be sentenced to pay plaintiff damages in the sum of P700,432 as a
result of the administration, said to be fraudulent, of he partnership,
"Centro Escolar de Señoritas", of which plaintiff, defendant and the
deceased Librada Avelino were members. For the purpose of
adjudicating to plaintiff damages which he alleges to have suffered as
a partner by reason of the supposed fraudulent management of he
partnership referred to, it is first necessary that a liquidation of the
business thereof be made to the end that the profits and losses may
be known and the causes of the latter and the responsibility of the
defendant as well as the damages which each partner may have
suffered, may be determined. It is not alleged in the complaint that
such a liquidation has been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff to institute the
action for damages which he claims from the managing partner
Carmen de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).

188 | P a g e
G.R. No. L-3745 October 26, 1907 On the theory on which the action was disposed of, the trial court
committed no error in the computation of the various
JUAN AGUSTIN, ET AL., plaintiffs; shares.chanroblesvirtualawlibrary chanrobles virtual law library
VICTOR DEL ROSARIO, appellant, vs. BARTOLOME
INOCENCIO,Defendant-Appellee. Of the four parties plaintiff, but one, Victor del Rosario, is interested
in this appeal, which has been dismissed as to the others, and as to
Salas and Soncuya, for appellant. him the judgment of the trial court must be affirmed, with costs of
Southworth and Ingersoll, for appellee. this instance. So ordered.chanroblesvirtualawlibrary chanrobles
TRACEY, J.: virtual law library

The parties to this controversy, who had been conducting a Arellano, C.J., Torres, Johnson and Willard, JJ., concur.
partnership as industrial partners without capital, contributed from
its profits the sum of P807.28 as a fund toward the construction of a
casco for use in their business, to which they added P3,500, borrowed
from Maria del Rosario, the wife of the defendant, Bartolome
Inocencio, he being the managing partner. It is admitted that this
total, a little over P4,300, was the estimated cost of the casco, but in
the progress of the work the defendant found that it called for
additional funds, which he advanced to the amount of P2,024.49. It is
satisfactorily appears from the evidence that this amount is necessary
in order to complete the work undertaken. Although it would seem
that he failed to notify his partners of the various items from time to
time going to make up this sum, it is shown that the books were at all
times open to their inspection, and that, being asked to examine
them, they omitted to do so, and that the plaintiff Juan Agustin,
representing all the partners, was also present at the construction of
the casco, in charge of the practical work and cognizant of its needs
and its progress.chanroblesvirtualawlibrary chanrobles virtual law
library

The work done in the casco having been within the scope of the
association and necessary to carry out its express object, the
borrowing of the money required to carry it on, with the acquiescence
if not with the affirmative consent of his associates, was not outside
the powers of the managing partner and constitutes a debt for which
all the associates are liable.chanroblesvirtualawlibrary chanrobles
virtual law library

The note passed into the hands of the defendant by reason of the
successive deaths of his wife and of their only child, each without
debts, and for the amount thereof he became a creditor, subject,
however, to the deduction therefrom of his proportionate part of the
indebtedness.chanroblesvirtualawlibrary chanrobles virtual law
library

The trial court treated his claim on this note, as well as the sum of
P2,024.49 furnished by him, as an addition to his capital in the firm,
rather than as a loan, and this constitutes one of the grounds of error
stated by the appellant. We do not deem it necessary to pass upon
this objection, for the reason that, considered as a loan, this sum
would place the defendant as a creditor in a stronger position as
against his associates than if regarded as a mere contribution to
capital. The error, if it be an error, is not, therefore, prejudicial to the
plaintiff, but is rather beneficial to him. The respondent did not except
to it.chanroblesvirtualawlibrary chanrobles virtual law library

Various small sums have been paid out of the profits to some of the
partners and these were properly allowed him in the
judgment.chanroblesvirtualawlibrary chanrobles virtual law library

189 | P a g e
G.R. No. L-45662 April 26, 1939
ENRIQUE CLEMENTE, Plaintiff-Appellee, vs. DIONISIO
GALVAN,Defendant-Appellee.
JOSE ECHEVARRIA, intervenor-appellant.
Engracio F. Cleme�a and Celedonio Bernardo for appellant.
Vicente Bengson for defendant-appellee.
No appearance for other party.
DIAZ, J.: chanrobles virtual law library
The intervenor Jose Echevarria having lost in the Court of First
Instance of manila which rendered judgment against him, the
pertinent portion of which reads: "and with respect to the complaint
of the intervenor, the mortgage executed in his favor by plaintiff is
declared null and void, and said complaint in intervention, as well as
the counterclaim filed by the defendant against the intervenor, is
dismissed, without pronouncement as to costs," he appealed to this
court on the ground that, according to him, the lower court
committed the errors assigned in his brief as follows:
I. The court a quo erred in finding in the appealed decision that
plaintiff was unable to take possession of the machines subject of the
deed of mortgage Exhibit B either before or after the execution
thereof.chanroblesvirtualawlibrary chanrobles virtual law library
II. The court a quo likewise erred in deciding the present case against
the intervenor-appellant, on the ground, among others, that "plaintiff
has not adduced any evidence nor has he testified to show that the
machines mortgaged by him to the intervenor have ever belonged to
him, notwithstanding that said intervenor is his close
relative.".chanroblesvirtualawlibrary chanrobles virtual law library
III. The lower court also erred in declaring null and void the mortgage
executed by plaintiff in favor of the intervenor and, thereby,
dismissing the complaint in
intervention.chanroblesvirtualawlibrary chanrobles virtual law library
IV. The lower court lastly erred in ordering the receiver J. D. Mencarini
to deliver to the defendant the aforesaid machines upon petition of
the plaintiff.
In order to have a clear idea of the question, it is proper to state the
facts bearing on the case as they appear in the decision and judgment
of the lower court and in the documents which constitute all the
evidence adduced by the parties during the
trial.chanroblesvirtualawlibrary chanrobles virtual law library
On June 6, 1931, plaintiff and defendant organized a civil partnership
which they named "Galvan y Compa�ia" to engage in the
manufacture and sale of paper and other stationery. they agreed to
invest therein a capital of P100,000, but as a matter of fact they did
not cover more than one-fifth thereof, each contributing P10,000.
Hardly a year after such organization, the plaintiff commenced the
present case in the above-mentioned court to ask for the dissolution
of the partnership and to compel defendant to whom the
management thereof was entrusted to submit an accounting of his
administration and to deliver to him his share as such partner. In his
answer defendant expressed his conformity to the dissolution of the
partnership and the liquidation of its affairs; but by way of
counterclaim he asked that, having covered a deficit incurred by the
partnership amounting to P4,000 with his own money, plaintiff
reimburse him of one-half of said sum. On petition of the plaintiff a
receiver and liquidator to take charge of the properties and business
for the partnership while the same was not yet definitely dissolved,
was appointed, the person chosen being Juan D. Mencarini. The latter
was already discharging the duties of his office when the court, by
virtue of a petition ex parte of the plaintiff, issued the order of May
24, 1933, requiring said receiver to deliver to him (plaintiff) certain
machines which were then at Nos. 705-707 Ylaya Street, Manila but
authorizing him to charge their value of P4,500 against the portion
which may eventually be due to said plaintiff. To comply with said
order, the receiver delivered to plaintiff the keys to the place where
the machines were found, which was the same place where
defendant had his home; but before he could take actual possession
of said machines, upon the strong opposition of defendant, the court,
on motion of the latter, suspended the effects of its order of May 24,
1933. In the meantime the judgments rendered in cases Nos. 42794
and 43070 entitled "Philippine Education Co., Inc. vs. Enrique
Clemente" for the recovery of a sum of money, and "Jose
Echevarria vs.Enrique Clemente", also for the recovery of a sum of
money, respectively, were made executory; and in order to avoid the
attachment and subsequent sale of the machines by the sheriff for
the satisfaction from the proceeds thereof of the judgments rendered
in the two cases aforecited, plaintiff agreed with the intervenor, who
is his nephew, to execute, as he in fact executed in favor of the latter,
a deed of mortgage Exhibit B encumbering the machines described in
said deed in which it is stated that "they are situated on Singalong
Street No. 1163", which is a place entirely different from the house
Nos. 705 and 707 on Ylaya Street hereinbefore mentioned. The one
year agreed upon in the deed of mortgage for the fulfillment by the
plaintiff of the obligation he had contracted with the intervenor,
having expired, the latter commenced case No. 49629 to collect his
mortgage credit. The intervenor, as plaintiff in the said case, obtained
judgment in his favor because the defendant did not interpose any
defense or objection, and, moreover, admitted being really indebted
to the intervenor in the amount set forth in the deed of mortgage
Exhibit B. The machines which the intervenor said were mortgaged to
him were then in fact in custodia legis, as they were under the control
of the receiver and liquidator Juan D. Mencarini. It was, therefore,
useless for the intervenor to attach the same in view of the receiver's
opposition; and the question having been brought to court, it decided
that nothing could be done because the receiver was not a party to
the case which the intervenor instituted to collect his aforesaid credit.
(Civil case No. 49629.) The question ended thus because the
intervenor did not take any other step until he thought of joining in
this case as intervenor.
1. From the foregoing facts, it is clear that plaintiff could not obtain
possession of the machines in question. The constructive possession
deducible from the fact that he had the keys to the place where the
machines were found (Ylaya Street Nos. 705-707), as they had been
delivered to him by the receiver, does not help him any because the
lower court suspended the effects of the other whereby the keys
were delivered to him a few days after its issuance; and thereafter
revoked it entirely in the appealed decision. Furthermore, when he
attempted to take actual possession of the machines, the defendant
did not allow him to do so. Consequently, if he did not have actual
possession of the machines, he could not in any manner mortgage
them, for while it is true that the oft-mentioned deed of mortgage
Exhibit B was annotated in the registry of property, it is no less true
the machines to which it refers are not the same as those in question
because the latter are on Ylaya Street Nos. 705-707 and the former
190 | P a g e
are on Singalong Street No. 1163. It can not be said that Exhibit B-1,
allegedly a supplementary contract between the plaintiff and the
intervenor, shows that the machines referred to in the deed of
mortgage are the same as those in dispute and which are found on
Ylaya Street because said exhibit being merely a private document,
the same cannot vary or alter the terms of a public document which
is Exhibit B or the deed of
mortgage.chanroblesvirtualawlibrary chanrobles virtual law library

2. The second error attributed to the lower court is baseless. The

evidence of record shows that the machines in contention originally
belonged to the defendant and from him were transferred to the
partnership Galvan y Compania. This being the case, said machines
belong to the partnership and not to him, and shall belong to it until
partition is effected according to the result thereof after the
liquidation.chanroblesvirtualawlibrary chanrobles virtual law library

3. The last two errors attributed by the appellant to the lower court
have already been disposed of by the considerations above set forth.
they are as baseless as the previous ones.

In view of all the foregoing, the judgment appealed from is affirmed,

with costs against the appellant. So ordered.

Avance�a, C. J., Villa-Real, Imperial, Laurel, Concepcion, and Moran,

JJ., concur.

191 | P a g e
G.R. No. L-5963 May 20, 1953
THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSIPetitioners,
vs. SULPICIO V. CEA, in his capacity as Judge of the Court of First
Instance of Leyte and OLEGARIO LASTRILLA,Respondents.
Filomeno Montejo for petitioners.
Sulpicio V. Cea in his own behalf.
Olegario Lastrilla in his own behalf.
BENGZON, J.:
Labaled "Certiorari and Prohibition with preliminary Injunction" this
petition prays for the additional writ of mandamus to compel the
respondent judge to give due course to petitioners' appeal from his
order taxing costs. However, inasmuch as according to the answer,
petitioners through their attorney withdrew their cash appeal bond
of P60 after the record on appeal bond of P60 after the record on
appeal had been rejected, the matter of mandamus may be
summarily be dropped without further
comment.chanroblesvirtualawlibrary chanrobles virtual law library
From the pleadings it appears that,chanrobles virtual law library
In civil case No. 193 of the Court of First Instance of Leyte, which is a
suit for damages by the Leyte-Samar Sales Co. (hereinafter called
LESSCO) and Raymond Tomassi against the Far Eastern Lumber &
Commercial Co. (unregistered commercial partnership hereinafter
called FELCO), Arnold Hall, Fred Brown and Jean Roxas, judgment
against Defendants jointly and severally for the amount of P31,589.14
plus costs was rendered on October 29, 1948. The Court of Appeals
confirmed the award in November 1950, minus P2,000 representing
attorney's fees mistakenly included. The decision having become
final, the sheriff sold at auction on June 9, 1951 to Robert Dorfe and
Pepito Asturias "all the rights, interests, titles and participation" of the
Defendants in certain buildings and properties described in the
certificate, for a total price of eight thousand and one hundred pesos.
But on June 4, 1951 Olegario Lastrilla filed in the case a motion,
wherein he claimed to be the owner by purchase on September 29,
1949, of all the "shares and interests" of defendant Fred Brown in the
FELCO, and requested "under the law of preference of credits" that
the sheriff be required to retain in his possession so much of the
deeds of the auction sale as may be necessary "to pay his right". Over
the plaintiffs' objection the judge in his order of June 13, 1951,
granted Lastrilla's motion by requiring the sheriff to retain 17 per cent
of the money "for delivery to the assignee, administrator or receiver"
of the FELCO. And on motion of Lastrilla, the court on August 14, 1951,
modified its order of delivery and merely declared that Lastrilla was
entitled to 17 per cent of the properties sold, saying in part:
. . . el Juzgado ha encontrado que no se han respetado los derechos
del Sr. Lastrilla en lo que se refiere a su adquiscicion de las acciones
de C. Arnold Hall (Fred Brown) en la Far Eastern Lumber & Lumber
Commercial C. porque la mismas han sido incluidas en la
subasta.chanroblesvirtualawlibrary chanrobles virtual law library
Es vedad que las acciones adquiridas por el Sr. Lastilla representan el
17 por ciento del capital de la sociedad "Far Eastern Lumber &
Commercial Co., Inc., et al." pero esto no quiere decir que su vlor no
esta sujeto a las fluctuaciones del negocio donde las
invirtio.chanroblesvirtualawlibrary chanrobles virtual law library
Se vendieron propiedades de la corporacion "Far Eastern Lumber &
Co. Inc.," y de la venta solamente se obtuvo la cantidad de
P8,100.chanroblesvirtualawlibrary chanrobles virtual law library
"En su virtud, se declara que el 17 por ciento de las propiedades
vendidas en publica subasta pretenece al Sr. O Lastrilla y este tiene
derecho a dicha porcion pero con la obligacion de pagar el 17 por
ciento de los gastos for la conservacion de dichas propriedades por
parte del Sheriff; . . . . (Annex K)
It is from this declaration and the subsequent orders to enforce
it 1 that the petitioners seek relief by certiorari, their position being
the such orders were null and void for lack of jurisdiction. At their
request a writ of preliminary injunction was issued
here.chanroblesvirtualawlibrary chanrobles virtual law library
The record is not very clear, but there are indications, and we shall
assume for the moment, that Fred Brown (like Arnold Hall and Jean
Roxas) was a partner of the FELCO, was defendant in Civil Case No.
193 as such partner, and that the properties sold at auction actually
belonged to the FELCO partnership and the partners. We shall also
assume that the sale made to Lastrilla on September 29, 1949, of all
the shares of Fred Brown in the FELCO was valid. (Remember that
judgment in this case was entered in the court of first instance a year
before.)chanrobles virtual law library
The result then, is that on June 9, 1951 when the sale was effected of
the properties of FELCO to Roberto Dorfe and Pepito Asturias, Lastilla
was already a partner of
FELCO.chanroblesvirtualawlibrary chanrobles virtual law library
Now, does Lastrilla have any proper claim to the proceeds of the sale?
If he was a creditor of the FELCO, perhaps or maybe. But he was no.
The partner of a partnership is not a creditor of such partnership for
the amount of his shares. That is too elementary to need
elaboration.chanroblesvirtualawlibrary chanrobles virtual law library
Lastrilla's theory, and the lower court's seems to be: inasmuch as
Lastrilla had acquired the shares of Brown is September,
1949, i.e., before the auction sale and he was not a party to the
litigation, such shares could not have been transferred to Dorfe and
Austrilla.chanroblesvirtualawlibrary chanrobles virtual law library
Granting arguendo that the auction sale and not included the interest
or portion of the FELCO properties corresponding to the shares of
Lastrilla in the same partnership (17%), the resulting situation would
be - at most - that the purchasers Dorfe and Austrias will have to
recognized dominion of Lastrillas over 17 per cent of the properties
awarded to them. 2 So Lastrilla acquired no right to demand any part
of the money paid by Dorfe and Austrias to he sheriff any part of the
money paid by Dorfe and Austrias to the sheriff for the benefit of
FELCO and Tomassi, the plaintiffs in that case, for the reason that, as
he says, his shares (acquired from Brown) could not have been and
were not auctioned off to Dorfe and
Austrias.chanroblesvirtualawlibrary chanrobles virtual law library
Supposing however that Lastrillas shares have been actually (but
unlawfully) sold by the sheriff (at the instance of plaintiffs) to Dorfe
and Austrias, what is his remedy? Section 15, Rule 39 furnishes the
answer.chanroblesvirtualawlibrarychanrobles virtual law library
Precisely, respondents argue, Lastrilla vindicated his claim by proper
action, i.e., motion in the case. We ruled once that "action" in this
192 | P a g e
section means action as defined in section 1, Rule 2. 3 Anyway his
remedy is to claim "the property", not the proceeds of the sale, which
the sheriff is directed by section 14, Rule 39 to deliver unto the
judgment creditors.chanroblesvirtualawlibrary chanrobles virtual law
library
In other words, the owner of property wrongfully sold may not
voluntarily come to court, and insist, "I approve the sale, therefore
give me the proceeds because I am the owner". The reason is that the
sale was made for the judgment creditor (who paid for the fees and
notices), and not for anybody
else.chanroblesvirtualawlibrary chanrobles virtual law library
On this score the respondent judge's action on Lastrilla's motion
should be declared as in excess of jurisdiction, which even amounted
to want of jurisdiction, which even amounted to want of jurisdiction,
considering specially that Dorfe and Austrias, and the Defendants
themselves, had undoubtedly the right to be heard-but they were not
notified. 4 chanrobles virtual law library
Why was it necessary to hear them on the merits of Lastrilla's
motion?chanrobles virtual law library
Because Dorfe and Austrillas might be unwilling to recognized the
validity of Lastrilla's purchase, or, if valid, they may want him not to
forsake the partnership that might have some obligations in
connection with the partnership properties. And what is more
important, if the motion is granted, when the time for redemptioner
seventeen per cent (178%) less than amount they had paid for the
same properties.chanroblesvirtualawlibrary chanrobles virtual law
library
The Defendants Arnold Hall and Jean Roxas, eyeing Lastrilla's financial
assets, might also oppose the substitution by Lastrilla of Fred Brown,
the judgment against them being joint and several. They might
entertain misgivings about Brown's slipping out of their common
predicament through the disposal of his
shares.chanroblesvirtualawlibrary chanrobles virtual law library
Lastly, all the Defendants would have reasonable motives to object to
the delivery of 17 per cent of the proceeds to Lustrial, because it is so
much money deducted, and for which the plaintiffs might as another
levy on their other holdings or resources. Supposing of course, there
was no fraudulent collusion among
them.chanroblesvirtualawlibrary chanrobles virtual law library
Now, these varied interest of necessity make Dorfe, Asturias and the
Defendants indispensable parties to the motion of Lastrilla - granting
it was step allowable under our regulations on execution. Yet these
parties were not notified, and obviously took no part in the
proceedings on the motion.
A valid judgment cannot be rendered where there is a want of
necessary parties, and a court cannot properly adjudicate matters
involved in a suit when necessary and indispensable parties to the
proceedings are not before it. (49 C.J.S., 67.)chanrobles virtual law
library
Indispensable parties are those without whom the action cannot be
finally determined. In a case for recovery of real property, the
defendant alleged in his answer that he was occupying the property
as a tenant of a third person. This third person is an indispensable
party, for, without him, any judgment which the plaintiff might obtain
against the tenant would have no effectiveness, for it would not be
binding upon, and cannot be executed against, the defendant's
landlord, against whom the plaintiff has to file another action if he
desires to recover the property effectively. In an action for partition
of property, each co-owner is an indispensable party. (Moran,
Comments, 1952 ed. Vol. I, p. 56.) (Emphasis supplied.)
Wherefore, the orders of the court recognizing Lastrilla's right and
ordering payment to him of a part of the proceeds were patently
erroneous, because promulgated in excess or outside of its
jurisdiction. For this reason the respondents' argument resting on
plaintiffs' failure to appeal from the orders on time, although
ordinarily decisive, carries no persuasive force in this
instance.chanroblesvirtualawlibrary chanrobles virtual law library
For as the former Chief Justice Dr. Moran has summarized in his
Comments, 1952 ed. Vol. II, p. 168 -
. . . And in those instances wherein the lower court has acted without
jurisdiction over the subject-matter, or where the order or judgment
complained of is a patent nullity, courts have gone even as far as to
disregard completely the questions of petitioner's fault, the reason
being, undoubtedly, that acts performed with absolute want of
jurisdiction over the subject-matter are void ab initio and cannot be
validated by consent, express or implied, of the parties. Thus, the
Supreme Court granted a petition for certiorari and set aside an order
reopening a cadastral case five years after the judgment rendered
therein had become final. In another case, the Court set aside an
order amending a judgment acquired a definitive character. And still
in another case, an order granting a review of a decree of registration
issued more than a year ago had been declared null void. In all these
case the existence of the right to appeal has been recitals was
rendered without any trial or hearing, and the Supreme Court, in
granting certiorari, said that the judgment was by its own recitals a
patent nullity, which should be set aside though an appeal was
available but was not availed of. . . .
Invoking our ruling in Melocotones vs. Court of First Instance, (57 Phil.,
144), wherein we applied the theory of laches to petitioners' 3-years
delay in requesting certiorari, respondents point out that whereas the
orders complained of herein were issued in June 13, 1951 and August
14, 1951 this special civil action was not filed until August 1952. It
should be observed that the order of June 13 was superseded by that
of August 14, 1951. The last order merely declared "que el 17 por
ciento de la propiedades vendidas en publica subasta pertenece at Sr.
Lastrilla y este tiene derecho a dicha porcion." This does not
necessarily mean that 17 per cent of the money had to be delivered to
him. It could mean, as hereinbefore indicated, that the purchasers of
the property (Dorfe and Asturias) had to recognize Lastrilla's
ownership. It was only on April 16, 1952 (Annex N) that the court
issued an order directing the sheriff "to tun over" to Lastrilla "17 per
cent of the total proceeds of the auction sale". There is the order that
actually prejudiced the petitioners herein, and they fought it until the
last order of July 10,. 1952 (Annex Q). Surely a month's delay may not
be regarded as laches.chanroblesvirtualawlibrary chanrobles virtual
law library
In view of the foregoing, it is our opinion, and we so hold, that all
orders of the respondents judge requiring delivery of 17 per cent of
the proceeds of the auction sale to respondent Olegario Lastrilla are
null and void; and the costs of this suit shall be taxed against the
latter. The preliminary injunction heretofore issued is made
193 | P a g e
permanent. So ordered.chanroblesvirtualawlibrary chanrobles virtual
law library

Paras, C.J., Feria, Pablo, Tuason, Montemayor, Reyes, Jugo, Bautista

Angelo and Labrador, JJ., concur.

194 | P a g e
[G.R. No. 26937. October 5, 1927.]
PHILIPPINE NATIONAL BANK, Plaintiff-Appellee, v. SEVERO
EUGENIO LO ET AL., Defendants. SEVERO EUGENIO LO, NG KHEY
LING and YEP SENG, Appellants.
Jose Lopez Vito for Appellants.
Roman Lacson for Appellee.
SYLLABUS
1. ASSOCIATIONS; GENERAL PARTNERSHIPS; LIABILITY. — The
anomalous adoption of a firm name by the defendant partners cannot
be set up by them as a defense so as to evade a liability contracted by
them, inasmuch as such anomaly does not affect the liability of the
general partners to third persons under article 127 of the Code of
Commerce. (See Hung-Man-Yoc v. Kieng- Chiong-Seng, 6 Phil., 498.)
2. ID.; ID.; ID. — The object of article 126 of the Code of Commerce in
requiring a general partnership to transact business under the name
of all its members, of several of them, or of one only, is to protect the
public from imposition and fraud. The provision of said article 126 is
for the protection of the creditors rather than of the partners
themselves. The doctrine formerly enunciated by this court is that the
law must be construed as rendering contracts made in violation of it,
unlawful and unenforceable only as between the partners and at the
instance of the infringer, but not in the sense of depriving innocent
parties of their rights, who may have dealt with the guilty parties in
ignorance of the latter’s having violated the law; and that contracts
entered into by mercantile associations defectively organized are
valid when voluntarily executed by the parties and the only question
is whether or not they complied with the agreement. (Jo Chung Cang
v. Pacific Commercial Co., 46 Phil., 142.)
3. ID.; ID.; ID. — Appellants’ contention that such parts of their
property as are not included in the partnership assets cannot be
levied upon for the payment of the partnership obligations, except
after the partnership property has been exhausted is untenable, for
the partnership property described in the mortgage no longer existed
at the time of the filing of the herein complaint, nor has its existence
been proved, nor was it offered to the plaintiff for sale. Hence article
237 of the Code of Commerce invoked by the appellants can in no way
be applicable to this case.
4. ID.; ID.; ID. — All the members of a general partnership, be they
managing partners of the same or not, shall be personally and
solidarily liable with all their property for the results of the
transactions made in the name and for the account of the
partnership, under the signature of the latter and by a person
authorized to use it. (Sec. 127, Code of Commerce.)
DECISION
VILLAMOR, J.:
On September 29, 1916, the appellants Severo Eugenio Lo and Ng
Khey Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke
Lam and Co Sieng Peng formed a commercial partnership under the
name of "Tai Sing & Co.," with a capital of P40,000 contributed by said
partners. In the articles of copartnership, Exhibit A, it appears that the
partnership was to last for five years from and after the date of its
organization, and that its purpose was to do business in the City of
Iloilo, Province of Iloilo, or in any other part of the Philippine Islands
the partners might desire, under the name of "Tai Sing & Co.," for the
purchase and sale of merchandise, goods, and native, as well as
Chinese and Japanese, products, and to carry on such business and
speculations as they might consider profitable. One of the partners, J.
A. Say Lian Ping was appointed general manager of the partnership,
with the powers specified in said articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a power
of attorney (Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act
in his stead as manager and administrator of "Tai Sing & Co." On July
26, 19~8, A. Y. Kelam, acting under such power of attorney, applied
for, and obtained a loan of P8,000 in current account from the plaintiff
bank (Exhibit C). As security for said loan, he mortgaged certain
personal property of Tai Sing & Co. (Exhibit C.)
This credit was renewed several times and on March 25, 1919, A. Y.
Kelam, as attorney-in-fact of Tai Sing & Co., executed a chattel
mortgage in favor of plaintiff bank as security for a loan of P20,000
with interest (Exhibit D). This mortgage was again renewed on April
16, 1920, and A. Y. Kelam, as attorney-in-fact of Tai Sing & Co.,
executed another chattel mortgage for the said sum of P20,000 in
favor of the plaintiff bank. (Exhibit E.) Ac- cording to this mortgage
contract, the P20,000 loan was to earn 9 per cent interest per annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng
Khey Ling, the latter represented by M. Pineda Tayenko, executed a
power of attorney in favor of Sy Tit by virtue of which Sy Tit,
representing Tai Sing & Co. obtained a credit of P20,000 from plaintiff
bank on January 7, 1921, executing a chattel mortgage on certain
personal property belonging to Tai Sing & Co.
Defendants had been using this commercial credit in a current
account with the plaintiff bank, from the year 1918 to May 22, 1921,
and the debit balance of this account, with interest to December 31,
1924, is as follows:chanrob1es virtual 1aw library
TAI SING & CO.
To your outstanding account (C. O. D.) with us on June
30, 1922 P16,518.74
Interest on same from June 30, 1922 to December 31,1924,
at 9 per cent per annum 3,720.86
_________
Total 20,239.60
195 | P a g e
========
This total is the sum claimed in the complaint, together with interest
on the P16,518.74 debt, at 9 per cent per annum from January 1, 1925
until fully paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that Tai Sing &
Co., was not a general partnership, and that the commercial credit in
current account which Tai Sing & Co. obtained from the plaintiff bank
had not been authorized by the board of directors of the company,
nor was the person who subscribed said contract authorized to make
the same, under the articles of copartnership. The other defendants,
Yap Sing and Ng Khey Ling, answered the complaint denying each and
every one of the allegations contained therein.
After the hearing, the court found:chanrob1es virtual 1aw library
(1) That defendants Severo Eugenio Lo, Ng Khey Ling and Yap Seng &
Co., Sieng Peng are indebted to plaintiff Philippine National Bank in
the sum of P22,595.26 to July 29, 1926. with a daily interest of P4.14
on the balance on account of the partnership Tai Sing & Co. for the
sum of P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to pay the
Philippine National Bank the sum of P22,727.74 up to August 31,
1926, and from that date, P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the costs of the
action.
Defendants appealed, making the following assignments of
error:jgc:chanrobles.com.ph
"I. The trial court erred in finding that article 126 of the Code of
Commerce at present in force is not mandatory.
"II. The trial court erred in finding that the partnership agreement of
Tai Sing & Co. (Exhibit A), is in accordance with the requirements of
article 125 of the Code of Commerce for the organization of a regular
partnership.
"III. The trial court erred in not admitting J. A. Sai Lian Ping’s death in
China in November, 1917, as a proven fact.
"IV. The trial court erred in finding that the death of J. A. Sai Lian Ping
cannot extinguish the defendants’ obligation to the plaintiff bank,
because the last debt incurred by the commercial partnership Tai Sing
& Co. was that evidenced by Exhibit F, signed by Sy Tit as attorney-in-
fact of the members of Tai Sing & Co., by virtue of Exhibit G.
"V. The trial court erred in not finding that plaintiff bank was not able
to collect its credit from the goods of Tai Sing & Co. given as security
therefor through its own fault and negligence; and that the action
brought by plaintiff is a manifest violation of article 237 of the present
Code of Commerce.
"VI. The trial court erred in finding that the current account of Tai Sing
& Co. with plaintiff bank shows a debit balance of P16,518.74, which
in addition to interest at 9 per cent per annum from July 29, 1926,
amounts to P16,595.26, with a daily interest of P4.14 on the sum of
P16,518.74.
"VII. The trial court erred in ordering the defendants-appellants to pay
jointly and severally to the Philippine National Bank the sum of
P22,727.74 up to August 31, 1926, and interest on P16,518.74 from
that date until fully paid, with the costs of the action.
"VIII. The trial court erred in denying the motion for a new trial filed
by defendants-appellants.’’
Appellants admit, and it appears from the context of Exhibit A, that
the defendant association formed by the defendants is a general
partnership, as defined in article 126 of the Code of Commerce. This
partnership was registered in the mercantile register of the Province
of Iloilo. The only anomaly noted in its organization is that instead of
adopting for their firm name the names of all of the partners, of
several of them, or only one of them, to be followed in the last two
cases, by the words "and company," the partners agreed upon "Tai
Sing & Co." the firm name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing v.
Kieng-Chiong-Seng (6 Phil., 498), cited by appellants, this court held
that, as the company formed by defendants had existed in fact,
though not in law due to the fact that it was not recorded in the
register, and having operated and contracted debts in favor of the
plaintiff, the same must be paid by someone. This applies more
strongly to the obligations contracted by the defendants, for they
formed a partnership which was registered in the mercantile register,
and carried on business contracting debts with the plaintiff bank. The
anomalous adoption of the firm name above noted does not affect
the liability of the general partners to third parties under article 127
of the Code of Commerce. And the Supreme Court so held in the case
of Jo Chung Cang v. Pacific Commercial Co. (45 Phil., 142), in which it
said that the object of article 126 of the Code of Commerce in
requiring a general partnership to transact business under the name
of all its members, of several of them, or of one only, is to protect the
public from imposition and fraud; and that the pro- vision of said
article 126 is for the protection of the creditors rather than of the
partners themselves. And consequently the doctrine was enunciated
that the law must be construed as rendering contracts made in
violation of it unlawful and unenforceable only as between the
partners and at the instance of the violating party, but not in the sense
of depriving innocent parties of their rights who may have dealt with
the offenders in ignorance of the latter having violated the law; and
that contracts entered into by commercial associations defectively
organized are valid when voluntarily executed by the parties, and the
only question is whether or not they complied with the agreement.
Therefore, the defendants cannot invoke in their defense the
anomaly in the firm name which they themselves adopted.
As to the alleged death of the manager of the company, Say Lian Ping,
before the attorney-in-fact Ou Yong Kelam executed Exhibits C, D and
E, the trial court did not find this fact proven at the hearing. But even
supposing that the court had erred, such an error would not justify
the reversal of the judgment, for two reasons at least: (1) Because Ou
Yong Kelam was a partner who contracted in the name of the
partnership, without any objection of the other partners; and (2)
because it appears in the record that the appellant-partners Severo
Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as manager,
and he obtained from the plaintiff bank the credit in current account,
196 | P a g e
the debit balance of which is sought to be recovered in this action.

Appellants allege that such of their property as is not included in the

partnership assets cannot-be seized for the payment of the debts
contracted by the partnership until after the partnership property has
been exhausted. The court found that the partnership property
described in the mortgage Exhibit F no longer existed at the time of
the filing of the herein complaint nor has its existence been proven,
nor was it offered to the plaintiff for sale. We find no just reason to
reverse this conclusion of the trial court, and this being so, it follows
that article 237 of the Code of Commerce, invoked by the appellants,
can in no way have any application here.

Appellants also assign error to the action of the trial court in ordering
them to pay plaintiff, jointly and severally, the sums claimed with 9
per cent interest on P16,518.74, owing from them.

The judgment against the appellants is in accordance with article 127

of the Code of Commerce which provides that all the members of a
general partnership, be they managing partners thereof or not, shall
be personally and solidarily liable with all their property, for the
results of the transactions made in the name and for the account of
the partnership, under the signature of the latter, and by a person
authorized to use it.

As to the amount of the interest suffice it to remember that the credit

in current account sued on in this case has been renewed by the
parties in such a way that while it appears in the mortgage Exhibit D
executed on March 25, 1919 by the attorney-in-fact Ou Yong Kelam,
that the P20,000 credit would earn 8 per cent interest annually, yet
from that executed on April 16, 1920, Exhibit E, it appears that the
P20,000 would earn 9 per cent interest per annum. The credit was
renewed in January, 1921, and in the deed of pledge, Exhibit F,
executed by "Tai Sing & Co." represented by the attorney-in-fact Sy
Tit, it appears that this security is for the payment of the sums
received by the partnership, not to exceed P20,000 with interest and
collection fees. There can be no doubt that the parties agreed upon
the rate of interest fixed in the document Exhibit E, namely, 9 per cent
per annum.

The judgment appealed from is in accordance with the law, and must
therefore be, as it is hereby, affirmed with costs against the
appellants. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Johns, and Romualdez, JJ.,

concur.

197 | P a g e
ISLAND SALES, INC., Plaintiff-Appellee, v. UNITED PIONEERS
GENERAL CONSTRUCTION COMPANY, ET AL, Defendants. BENJAMIN
C. DACO, Defendant-Appellant.
Grey, Buenaventura & Santiago for Plaintiff-Appellee.
Anacleto D. Badoy, Jr., for Defendant-Appellant.
SYNOPSIS
The defendant company, a general partnership, purchased from
Island Sales, Inc. a motor vehicle, executing for that purpose a
promissory note for the entire price, payable in twelve monthly
installments. Having failed to receive the third installment, Island
Sales sued the company, including its general partners as co-
defendants. On motion of plaintiff, the complaint was later dismissed
insofar as one of the partners was concerned. After trial, judgment
was entered sentencing the defendant to pay the sum due, with
interest, and expressly stating that the four of the five partners would
pay in case the company has no properties with which to satisfy
judgment. One of the partners appealed claiming that the liability of
each partner should not exceed 1/5 of the obligation due inasmuch
as there are five partners in the company.
The Supreme Court ruled that under Art. 1816 of the Civil Code, the
liability of partners shall be pro-rata; that the dismissal of the
complaint to favor one of the general partners results in the
condonation of the debt of that partner’s individual share and that
appellant’s share in the obligation shall not be increased thereby but
shall be limited to 1/5 of the obligation of defendant company.
Decision affirmed as clarified.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; LIABILITY OF GENERAL PARTNERS,
PRO-RATA; CONDONATION OF INDIVIDUAL LIABILITY DOES NOT
AFFECT THE OTHER’S SHARE IN THE OBLIGATION. — Where there was
five general partners when the promissory note in question executed
for and in behalf of the partnership, and the complaint against one of
them was dismissed upon motion of the plaintiff, the general
partner’s share in the obligation remains limited to only 1/5 of the
amount due and demandable, their liability being pro-rata.
DECISION
CONCEPCION, JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from
the decision of the Court of First Instance of Manila, Branch XVI, in
Civil Case No. 50682, the dispositive portion of which
reads:jgc:chanrobles.com.ph
"WHEREFORE, the Court sentences defendant United Pioneer
General Construction Company to pay plaintiff the sum of P7,119.07
with interest at the rate of 12% per annum until it is fully paid, plus
attorney’s fees which the Court fixes in the sum of Eight Hundred
Pesos (P800.00) and costs.
"The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and
Augusto Palisoc are sentenced to pay the plaintiff in this case with the
understanding that the judgment against these individual defendants
shall be enforced only if the defendant company has no more leviable
properties with which to satisfy the judgment against it.
"The individual defendants shall also pay the costs."cralaw virtua1aw
library
On April 22, 1961, the defendant company a general partnership duly
registered under the laws of the Philippines, purchased from the
plaintiff a motor vehicle on the installment basis and for this purpose
executed a promissory note for P9,440.00, payable in twelve (12)
equal monthly installments of P786.63, the first installment payable
on or before May 22, 1961 and the subsequent installments on the
22nd day of every month thereafter, until fully paid, with the
condition that failure to pay any of said installments as they fall due
would render the whole unpaid balance immediately due and
demandable.
Having failed to receive the installment due on July 22, 1961, the
plaintiff sued the defendant company for the unpaid balance
amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel
C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-
defendants in their capacity as general partners of the defendant
company.
Daniel A. Guizona failed to file an answer and was consequently
declared in default. 1
Subsequently, on motion of the plaintiff, the complaint was dismissed
insofar as the defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their
counsels failed to appear notwithstanding the notices sent to them.
Consequently, the trial court authorized the plaintiff to present its
evidence ex-parte 3 , after which the trial court rendered the decision
appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to
reconsider the decision claiming that since there are five (5) general
partners, the joint and subsidiary liability of each partner should not
exceed one-fifth (1/5) of the obligations of the defendant company.
But the trial court denied the said motion notwithstanding the
conformity of the plaintiff to limit the liability of the defendants Daco
and Sim to only one-fifth (1/5) of the obligations of the defendant
company 4 . Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the
complaint to favor one of the general partners of a partnership
increases the joint and subsidiary liability of each of the remaining
partners for the obligations of the partnership.
198 | P a g e
Article 1816 of the Civil Code provides:jgc:chanrobles.com.ph

"Art. 1816. All partners including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership. under its signature and
by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a partnership
contract."cralaw virtua1aw library

In the case of Co-Pitco v. Yulo (8 Phil. 544) this Court

held:jgc:chanrobles.com.ph

"The partnership of Yulo and Palacios was engaged in the operation

of a sugar estate in Negros. It was, therefore, a civil partnership as
distinguished from a mercantile partnership. Being a civil partnership,
by the express provisions of articles 1698 and 1137 of the Civil Code,
the partners are not liable each for the whole debt of the partnership.
The liability is pro rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that the other partner,
Jaime Palacios, had left the country cannot increase the liability of
Pedro Yulo."cralaw virtua1aw library

In the instant case, there were five (5) general partners when the
promissory note in question was executed for and in behalf of the
partnership. Since the liability of the partners is pro rata, the liability
of the appellant Benjamin C. Daco shall be limited to only one-fifth
(1/5) of the obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was dismissed,
upon motion of the plaintiff, does not unmake the said Lumauig as a
general partner in the defendant company. In so moving to dismiss
the complaint, the plaintiff merely condoned Lumauig’s individual
liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby

AFFIRMED, without pronouncement as to costs.

SO ORDERED.

Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ.,

concur.

199 | P a g e
G.R. No. L-3704 December 12, 1907
LA COMPAÑIA MARITIMA,Plaintiff-Appellant, vs. FRANCISCO
MUÑOZ, ET AL.,Defendants-Appellees.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Cohn and Williams, for appellees.
WILLARD, J.:
The plaintiff brought this action in the Court of First Instance of Manila
against the partnership of Franciso Muñoz & Sons, and against
Francisco Muñoz de Bustillo, Emilio Muñoz de Bustillo, and Rafael
Naval to recover the sum of P26,828.30, with interest and costs.
Judgment was rendered in the court below acquitting Emilio Muñoz
de Bustillo and Rafael Naval of the complaint, and in favor of the
plaintiff and against the defendant partnership, Francisco Muñoz &
Sons, and Francisco Muñoz de Bustillo form the sum of P26,828.30
with interest at the rate of 8 per cent per annum from the 31st day of
March, 1905, and costs. From this judgment the plaintiff
appealed.chanroblesvirtualawlibrary chanrobles virtual law library
On the 31st day of March, 1905, the defendants Francisco Muñoz,
Emilio Muñoz, and Rafael Naval formed on ordinary general
mercantile partnership under the name of Francisco Muñoz & Sons
for the purpose of carrying on the mercantile business in the Province
of Albay which had formerly been carried on by Francisco Muñoz.
Francisco Muñoz was a capitalist partner and Emilio Muñoz and Rafael
Naval were industrial partners.chanroblesvirtualawlibrary chanrobles
virtual law library
It is said in the decision of the court below that in the articles of
partnership it was called an ordinary, general mercantile partnership,
but that from the article it does not appear to be such a partnership.
In the brief of the appellees it is also claimed that it is not an ordinary,
general commercial partnership. We see nothing in the case to
support either the statement of the court below in its decision or the
claim of the appellees in their brief. In the articles of partnership
signed by the partners it is expressly stated that they have agreed to
form, and do form, an ordinary, general mercantile partnership. The
object of the partnership, as stated in the fourth paragraph of the
articles, is a purely mercantile one and all the requirements of the
Code of Commerce in reference to such partnership were complied
with. The articles of partnership were recorded in the mercantile
registry in the Province of Albay. If it should be held that the contract
made in this case did not create an ordinary, general mercantile
partnership we do not see how one could be
created.chanroblesvirtualawlibrary chanrobles virtual law library
The claim of the appellees that Emilio Muñoz contributed nothing to
the partnership, either in property, money, or industry, can not be
sustained. He contributed as much as did the other industrial partner,
Rafael Naval, the difference between the two being that Rafael Naval
was entitled by the articles of agreement to a fixed salary of P2,500
as long as he was in charge of the branch office established at Ligao.
If he had left that branch office soon after the partnership was
organized, he would have been in the same condition then that Emilio
Muñoz was from the beginning. Such a change would have deprived
him of the salary P2,500, but would not have affected in any way the
partnership nor have produced the effect of relieving him from
liability as a partner. The argument of the appellees seems to be that,
because no yearly or monthly salary was assigned to Emilio Muñoz,
he contributed nothing to the partnership and received nothing from
it. By the articles themselves he was to receive at the end of five years
one-eighth of the profits. It can not be said, therefore, that he
received nothing from the partnership. The fact that the receipt of
this money was postponed for five years is not important. If the
contention of the appellees were sound, it would result that, where
the articles of partnership provided for a distribution of profits at the
end of each year, but did not assign any specific salary to an industrial
partner during that time, he would not be a member of the
partnership. Industrial partners, by signing the articles, agree to
contribute their work to the partnership and article 138 of the Code
of Commerce prohibits them from engaging in other work except by
the express consent of the partnership. With reference to civil
partnerships, section 1683 of the Civil Code relates to the same
manner.chanroblesvirtualawlibrary chanrobles virtual law library
It is also said in the brief of the appellees that Emilio Muñoz was
entirely excluded from the management of the business. It rather
should be said that he excluded himself from such management, for
he signed the articles of partnership by the terms of which the
management was expressly conferred by him and the others upon the
persons therein named. That partners in their articles can do this,
admits of no doubt. Article 125 of the Code of Commerce requires
them to state the partners to whom the management is intrusted.
This right is recognized also in article 132. In the case of Reyes vs. The
Compania Maritima (3 Phil. Rep., 519) the articles of association
provided that the directors for the first eight years should be certain
persons named therein. This court not only held that such provision
was valid but also held that those directors could not be removed
from office during the eight years, even by a majority vote of all the
stockholders of the company.chanroblesvirtualawlibrary chanrobles
virtual law library
Emilio Muñoz was, therefore, a general partner, and the important
question in the case is whether, as such general partner, he is liable
to third persons for the obligations contracted by the partnership, or
whether he relieved from such liability, either because he is an
industrial partner or because he was so relieved by the express terms
of the articles of partnership.chanroblesvirtualawlibrary chanrobles
virtual law library
Paragraph 12 of the articles of partnership is as follows:
Twelfth. All profits arising from mercantile transactions carried on, as
well as such as may be obtained from the sale of property and other
assets which constitute the corporate capital, shall be distributed, on
completion of the term of five years agreed to for the continuation of
the partnership, in the following manner: Three-fourths thereof for
the capitalist partner Francisco Muñoz de Bustillo and one-eighth
thereof for the industrial partner Emilio Muñoz de Bustillo y Carpiso,
and the remaining one-eighth thereof for the partner Rafael Naval y
Garcia. If, in lieu of profits, losses should result in the winding up of
the partnership, the same shall be for the sole and exclusive account
of the capitalist partner Francisco Muñoz de Bustillo, without either
of the two industrial partners participating in such losses.
Articles 140 and 141 of the Code of Commerce are as follows:
ART. 140. Should there not have been stated in the articles of
copartnership the portion of the profits to be received by each
partner, said profits shall be divided pro rata, in accordance with the
interest each one has on the copartnership, partners who have not
200 | P a g e
contributed any capital, but giving their services, receiving in the
distribution the same amount as the partner who contributed the
smallest capital.chanroblesvirtualawlibrary chanrobles virtual law
library
ART. 141. Losses shall be charged in the same proportion among the
partners who have contributed capital, without including those who
have not, unless by special agreement the latter have been
constituted as participants therein.
A comparison of these articles with the twelfth paragraph above
quoted will show that the latter is simply a statement of the rule laid
down in the former. The article do not, therefore, change the rights
of the industrial partners as they are declared by the code, and the
question may be reduced to the very simple one namely, Is an
industrial partner in an ordinary, general mercantile partnership liable
to third persons for the debts and obligations contracted by the
partnership? chanrobles virtual law library
In limited partnership the Code of Commerce recognizes a difference
between general and special partners, but in a general partnership
there is no such distinction-- all the members are general partners.
The fact that some may be industrial and some capitalist partners
does not make the members of either of these classes alone such
general partners. There is nothing in the code which says that the
industrial partners shall be the only general partners, nor is there
anything which says that the capitalist partners shall be the only
general partners.chanroblesvirtualawlibrary chanrobles virtual law
library
Article 127 of the Code of Commerce is as follows:
All the members of the general copartnership, be they or be they not
managing partners of the same, are liable personally and in
solidum with all their property for the results of the transactions
made in the name and for the account of the partnership, under the
signature of the latter, and by a person authorized to make use
thereof.
Do the words "all the partners" found in this article include industrial
partners? The same expression is found in other articles of the code.
In article 129 it is said that, if the management of the partnership has
not been limited by special act to one of the partners, all shall have
the right to participate in the management. Does this mean that the
capitalist partners are the only ones who have that right, or does it
include also industrial partners? Article 132 provides that, when in the
articles of partnership the management has been intrusted to a
particular person, he can not be deprived of such management, but
that in certain cases the remaining partners may appoint a
comanager. Does the phrase "remaining partners" include industrial
partners, or is it limited to capitalist partners, and do industrial
partners have no right to participate in the selection of the
comanager? Article 133 provides that all the partners shall have the
right to examine the books of the partnership. Under this article are
the capitalist partners the only ones who have such right? Article 135
provides that the partners can not use the firm name in their private
business. Does this limitation apply only to capitalist partners or does
it extend also to industrial partners? Article 222 provides that a
general partnership shall be dissolve by the death of one of the
general partners unless it is otherwise provided in the articles. Would
such a partnership continue if all the industrial partners should die?
Article 229 provides that upon a dissolution of a general partnership
it shall be liquidated by the former managers, but, if all the partners
do not agree to this, a general meeting shall be called, which shall
determine to whom the settlement of the affairs shall be intrusted.
Does this phrase "all the partners" include industrial partners, or are
the capitalist partners the only ones who have a voice in the selection
of a manager during a period of liquidation? Article 237 provides that
the private property of the general partners shall not be taken in
payment of the obligations of the partnership until its property has
been exhausted. Does the phrase "the general partners" include
industrial partners? chanrobles virtual law library
In all of these articles the industrial partners must be included. It can
not have been intended that, in such a partnership as the one in
question, where there were two industrial and only one capitalist
partner, the industrial partners should have no voice in the
management of the business when the articles of partnership were
silent on that subject; that when the manager appointed mismanages
the business the industrial partners should have no right to appoint a
comanager; that they should have no right to examine the books; that
they might use the firm name in their private business; or that they
have no voice in the liquidation of the business after dissolution. To
give a person who contributed no more than, say, P500, these rights
and to take them away from a person who contributed his services,
worth, perhaps, infinitely more than P500, would be discriminate
unfairly against industrial
partners.chanroblesvirtualawlibrary chanrobles virtual law library
If the phrase "all the partners" as found in the articles other than
article 127 includes industrial partners, then article 127 must include
them and they are liable by the terms thereof for the debts of the
firm.chanroblesvirtualawlibrary chanrobles virtual law library
But it is said that article 141 expressly declares to the contrary. It is to
be noticed in the first place that this article does not say that they
shall not be liable for losses. Article 140 declares how the profits shall
be divided among the partners. This article simply declares how the
losses shall be divided among the partners. The use of the words se
imputaran is significant. The verb means abonar una partida a alguno
en su cuenta o deducirla de su debito. Article 141 says nothing about
third persons and nothing about the obligations of the
partnership.chanroblesvirtualawlibrary chanrobles virtual law library
While in this section the word "losses" stand's alone, yet in other
articles of the code, where it is clearly intended to impose the liability
to third persons, it is not considered sufficient, but the word
"obligations" is added. Thus article 148, in speaking of the liability of
limited partners, uses the phrase las obligaciones y perdidas. There is
the same use of the two same words in article 153, relating to
anonymous partnership. In article 237 the word "obligations" is used
and not the word "losses." chanrobles virtual law library
The claim of the appellees is that this article 141 fixes the liability of
the industrial partners to third persons for the obligations of the
company. If it does, then it also fixes the liability of the capitalist
partners to the same persons for the same obligations. If this article
says that industrial partners are not liable for the debts of the
concern, it also says that the capitalist partners shall be only liable for
such debts in proportion to the amount of the money which they have
contributed to the partnership; that is to say, that if there are only
two capitalist partners, one of whom has contributed two-thirds of
the capital and the other one-third, the latter is liable to a creditor of
the company for only one-third of the debt and the former for only
201 | P a g e
two-thirds. It is apparent that, when given this construction, article
141 is directly in conflict with article 127. It is not disputed by the
appellees that by the terms of article 127 each one of the capitalist
partners is liable for all of the debts, regardless of the amount of his
contribution, but the construction which they put upon article 141
makes such capitalist partners liable for only a proportionate part of
the debts.chanroblesvirtualawlibrary chanrobles virtual law library
There is no injustice in imposing this liability upon the industrial
partners. They have a voice in the management of the business, if no
manager has been named in the articles; they share in the profits and
as to third persons it is no more than right that they should share in
the obligations. It is admitted that if in this case there had been a
capitalist partner who had contributed only P100 he would be liable
for this entire debt of P26,000.chanroblesvirtualawlibrary chanrobles
virtual law library
Our construction of the article is that it relates exclusively to the
settlement of the partnership affairs among the partners themselves
and has nothing to do with the liability of the partners to third
persons; that each one of the industrial partners is liable to third
persons for the debts of the firm; that if he has paid such debts out of
his private property during the life of the partnership, when its affairs
are settled he is entitled to credit for the amount so paid, and if it
results that there is not enough property in the partnership to pay
him, then the capitalist partners must pay him. In this particular case
that view is strengthened by the provisions of article 12, above
quoted. There it is stated that if, when the affairs of the partnership
are liquidated - that is, at the end of five years - it turns out that there
had been losses instead of gains, then the capitalist partner, Francisco
Muñoz, shall pay such losses - that is, pay them to the industrial
partners if they have been compelled to disburse their own money in
payment of the debts of the
partnership.chanroblesvirtualawlibrary chanrobles virtual law library
While this is a commercial partnership and must be governed
therefore by the rules of the Code of Commerce, yet an examination
of the provisions of the Civil Code in reference to partnerships may
throw some light upon the question here to be resolved. Articles 1689
and 1691 contain, in substance, the provisions of articles 140 and 141
of the Code of Commerce. It is to be noticed that these articles are
found in section 1 of Chapter II [Title VIII] of Book IV. That section
treats of the obligations of the partners between themselves. The
liability of the partners as to third persons is treated in a distinct
section, namely, section 2, comprising articles from 1697 to
1699.chanroblesvirtualawlibrary chanrobles virtual law library
If industrial partners in commercial partnerships are not responsible
to third persons for the debts of the firm, then industrial partners in
civil partnerships are not. Waiving the question as to whether there
can be a commercial partnership composed entirely of industrial
partners, it seems clear that there can be such civil partnership, for
article 1678 of the Civil Code provides as follows:
A particular partnership has for its object specified things only, their
use of profits, or a specified undertaking, or the exercise of a
profession or art.
It might very easily happen, therefor, that a civil partnership could be
composed entirely of industrial partners. If it were, according to the
claim of the appellees, there would be no personal responsibility
whatever for the debts of the partnership. Creditors could rely only
upon the property which the partnership had, which in the case of a
partnership organized for the practice of any art or profession would
be practically nothing. In the case of Agustin vs. Inocencio, 1 just
decided by this court, it was alleged in the complaint, and admitted
by the answer -
That is partnership has been formed without articles of association or
capital other than the personal work of each one of the partners,
whose profits are to be equally divided among themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the partners may
acquire by their by their industry or work during the continuation of
the partnership.chanroblesvirtualawlibrary chanrobles virtual law
library
Personal or real property which each of the partners may possess at
the time of the celebration of the agreement shall continue to be their
private property, the usufruct only passing to the partnership.
It might very well happen in partnership of this kind that no one of
the partners would have any private property and that if they did the
usufruct thereof would be
inconsiderable.chanroblesvirtualawlibrary chanrobles virtual law
library
Having in mind these different cases which may arise in the practice,
that construction of the law should be avoided which would enable
two persons, each with a large amount of private property, to form
and carry on a partnership and, upon the bankruptcy of the latter, to
say to its creditors that they contributed no capital to the company
but only their services, and that their private property is not,
therefore, liable for its debts.chanroblesvirtualawlibrary chanrobles
virtual law library
But little light is thrown upon this question by the authorities. No
judgment of the supreme court of Spain has been called to our
attention, and we have been able to find none which refers in any way
to this question. There is, therefore, no authority from the tribunal for
saying that an industrial partner is not liable to third persons for the
debts of the partnership.chanroblesvirtualawlibrary chanrobles
virtual law library
In a work published by Lorenzo Benito in 1889 ( Lecciones de derecho
mercantil) it is said that industrial partners are not liable for debts.
The author, at page 127, divides general partnership into ordinary and
irregular. The irregular partnership are those which include one or
more industrial partners. It may be said in passing that his views can
not apply to this case because the articles of partnership directly state
that it is an ordinary partnership and do not state that it is an irregular
one. But his view of the law seems to be derived from something
other than the Code of Commerce now in force. He says:
. . . but it has not been very fortunate in sketching the characters of a
regular collective partnership (since it says nothing conclusive in
reference to the irregular partnership) . . . . (p. 127.)
And again:
This article would not need to be commented upon were it not
because the writer entirely overlooked the fact that there might exist
industrial partners who did not contribute with capital in money,
credits, or goods, which partners generally participate in the profits
202 | P a g e
but not in the losses, and whose position must also be determined in
the articles of copartnership. (p. 128.)
And again:
The only defect that can be pointed out in this article is the fact that
it has been forgotten that in collective partnerships there are
industrial partners who, not being jointly liable for the obligations of
the copartnership, should not include their names in that of the firm.
(p. 129.)
As a logical result of his theory he says that an industrial partner has
no right to participate in the administration of the partnership and
that his name can not appear in the firm name. In this last respect his
view is opposed to that of Manresa, who says (Commentaries on the
Spanish Civil Code, vol. 11, p. 330):
It only remains to us to state that a partner who contributes his
industry to the concern can also confer upon it the name or the
corporate name under which such industry should be carried on. In
this case, so long as the copartnership lasts, it can enjoy the credit,
reputation, and name or corporate name under which such industry
is carried on; but upon dissolution thereof the aforesaid name or
corporate name pertains to the partner who contributed the same,
and he alone is entitled to use it, because such a name or style is an
accessory to the work of industrial partner, and upon recovering his
work or his industry he also recovers his name or the style under
which he exercised his activity. It has thus been decided by the French
court of cassation in a decision dated June 6, 1859.
In speaking of limited partnerships Benito says (p. 144) that here are
found two kinds of partners, one with unlimited responsibility and the
other with limited responsibility, but adopting his view as to industrial
partners, it should be said that there are three kinds of partners, one
with unlimited responsibility, another with limited responsibility, and
the third, the industrial partner, with no responsibility at all. In
Estasen's recent publication on mercantile partnerships ( Tratado de
las Sociedades Mercantiles) he quotes from the work of Benito, but
we do not understand that he commits himself to the doctrines
therein laid down. In fact, in his former treatise, Instituciones de
Derecho Mercantil (vol. 3, pp. 1-99), we find nothing which recognizes
the existence of these irregular general partnerships, or the
exemption from the liability to third persons of the industrial
partners. He says in his latter work (p. 186) that according to Dr.
Benito the irregular general partner originated from the desire of the
partnership to associate with itself some old clerk or employee as a
reward for his services and the interest which he had shown in the
affairs of the partnership, giving him in place of a fixed salary a
proportionate part of the profits of the business. Article 269 of the
Code of Commerce of 1829 relates to this subject and apparently
provides that such partners shall not be liable for debts. If this article
was the basis for Dr. Benito's view, it can be so no longer, for it does
not appear in the present code. We held in the case of
Fortis vs. Gutirrez Hermanos (6 Phil. Rep., 100) that a mere
agreement of that kind does not make the employee a
partner.chanroblesvirtualawlibrary chanrobles virtual law library
An examination of the works of Manresa and Sanchez Roman on the
Civil Code, and of Blanco's Mercantile Law, will shows that no one of
these mentions in any way the irregular general partnership spoken
of by Dr. Benito, nor is there anything found in any one of these
commentaries which in any way indicates that an industrial partner is
not liable to third persons for the debts of the partnership. An
examination of the French law will also show that no distinction of
that kind is therein anywhere made and nothing can be found therein
which indicates that the industrial partners are not liable for the debts
of the partnership. (Fuzier-Herman, Repertoire de Droit Francais, vol.
34, pp. 256, 361, 510, and 512.) chanrobles virtual law library
Our conclusion is upon this branch of the case that neither on
principle nor on authority can the industrial partner be relieved from
liability to third persons for the debts of the
partnership.chanroblesvirtualawlibrary chanrobles virtual law library
It is apparently claimed by the appellee in his brief that one action can
not be maintained against the partnership and the individual
partners, this claim being based upon the provisions of article 237 of
the Code of Commerce which provides that the private property of
the partners shall not be taken until the partnership property has
been exhausted. But this article furnishes to argument in support of
the appellee's claim. An action can be maintained against the
partnership and partners, but the judgment should recognize the
rights of the individual partners which are secured by said article
237.chanroblesvirtualawlibrary chanrobles virtual law library
The judgment of the court below is reversed and judgment is ordered
against all of the defendants for the sum of P26,828.30, with interest
thereon at the rate of 8 per cent per annum since the 31st day of
March, 1905, and for the cost of this action. Execution of such
judgment shall not issue against the private property of the
defendants Francisco Muñoz, Emilio Muñoz, or Rafael Naval until the
property of the defendant Francisco Muñoz & Sons is exhausted. No
costs will be allowed to their party in this court. So
ordered.chanroblesvirtualawlibrary chanrobles virtual law library
Torres, Johnson and Tracey, JJ., concur. chanrobles virtual law library
chanrobles virtual law library
chanrobles virtual law library
Separate Opinionschanrobles virtual law library
ARELLANO, C. J., dissenting: chanrobles virtual law library
I consider that the judgment appealed from is entirely in accordance
with the law.chanroblesvirtualawlibrary chanrobles virtual law library
The question set up in the majority decision, "In a regular collective
commercial company, is an industrial partner liable as to third persons
by reason of the debts and obligations contracted by the
copartnership?" I decide in a negative sense; he is not; by express
provision of the law he can not be held to be liable, save, of course,
and agreement to the contrary, which in such case would be a special
law, and would set aside the general
law.chanroblesvirtualawlibrary chanrobles virtual law library
The basis for the contrary opinion and decision is article 127 of the
Code of Commerce:
All the members of the general copartnership, be they or be they not
managing partners of the same, are personally and in solidum liable
with all their property for the results of the transactions made in the
name and for the account of the partnership, under the signature of
the latter, and by a person authorized to ake use thereof.
203 | P a g e
Now, do the words "all the members" found in this article include the
industrial partners? chanrobles virtual law library
At first it would appear that they do. In order to complete such
reasoning the following premise will be sufficient: That the industrial
partners from the collective partnership; therefore the industrial
partners are personally and jointly liable with all their property for the
results of the transactions made in the name and for account of the
partnership.chanroblesvirtualawlibrary chanrobles virtual law library
But they form the collective partnership in the manner in which our
laws allows the same to be formed - that is, by contributing with their
industry, not with property.chanroblesvirtualawlibrary chanrobles
virtual law library
And the word all, in reference to property, which is common with the
three classes of partnership defined by the code, to wit, collective,
limited copartnership ( comanditaria), and corporation ( anonima),
gives the rule for such personal and joint liability, which is the purpose
of the provision in the above-quoted
article.chanroblesvirtualawlibrary chanrobles virtual law library
The above three classes of partnership agree in that property must in
each of them be contributed. "The articles of general copartnership
must state . . . the capital which each partner contributes in cash,
credits, or property, stating the value given the latter or the basis on
which their appraisal is to be made." (Art. 125.) "The same statements
shall be included in articles of limited copartnerships ( compañias en
comandita) which are required for those of general copartnerships" -
that is, among other things, the capital which each partner
contributes. (Art. 145.) "The articles of incorporation (of corporations)
must include . . . the corporate capital, stating the value at which
property, not cash, contributed has been appraised, or the basis on
which the appraisal is to be made; and the number of shares into
which the corporate capital is divided and represented." (Art.
151.) chanrobles virtual law library
Now, then, "The liability of the members of a corporation for the
obligations and losses of the same shall be limited to the funds they
contributed or bound themselves to contribute to the corporate
capital." (Art. 153.) "The liability of special partners for the obligations
and losses of the copartnership shall be limited to the funds which
they contributed or bound themselves to contribute to the limited
copartnership, with the exception of the sense mentioned in article
147" - that is, if any of them include his name or permit its conclusion
in the firm name. (Art. 148, par. 3.) However, in a collective
partnership the liability is not limited to the funds or property
contributed, but extends to all the property which partners may own
within or without the
copartnership.chanroblesvirtualawlibrary chanrobles virtual law
library
In every mercantile copartnership it is the corporate capital that
responds for the obligations of the same; this is elemental. The
members of a joint stock, a limited, or a collective company respond
with their capital for the obligations of the association; in the joint
stock concerns, with their shares; in the limited class, with the amount
contributed; in the collective, with their constituted capital. An
industrial partner, with what principal sum, share, or quota in the
corporate capital does he or can he respond for the obligations of the
collective partnership? Evidently with none
whatever.chanroblesvirtualawlibrary chanrobles virtual law library
If the capital of the association is exhausted, the extreme case
of losses incurred by the company arises, and third persons can not
recover the amount of the obligations of the company from the
corporate capital, because the latter is sufficient to recover them.
Shareholders in the case of a joint stock company, beyond the value
of their stock, have no longer to think of any ulterior subsidiary
responsibility. Neither do the partners of a limited company. In either
case the partners are only liable to the extent of their corporate
capital. Collective partners have to respond not only with their
corporate capital but also with the whole of their property outside of
the association. And it is desired that the industrial partner who, in a
collective copartnership, did not primarily respond with his corporate
capital, because he had none, shall subsidiary respond with such
property as he may have outside of the company, and with which
nobody, either within or without the copartnership, had counted
upon, since both inside and outside of the company his industry or
work only had been reckoned with. Therefore, the word all, of article
127 cited above, simply denoted the extent of the ulterior or
subsidiary responsibility, and that which does not appear, which does
not materially exist, can hardly be made to
apply.chanroblesvirtualawlibrary chanrobles virtual law library
An industrial partner can not engage in transactions of any class
whatever, otherwise he would be subject to serious consequences
(art. 138), while a capitalist partner, as a rule, may so engage without
extending profits or liabilities to the company (arts. 134 and 136); an
industrial partner, as regards profits, can only receive in the
distribution the same amount as the partner who contributed the
smallest amount of capital (art. 140); in the case at bar, one-eighth
goes to each of the two industrial partners, three-fourths being for
the capitalist, and even at the expiration of the copartnership they
run the risk of having the one-eighth of the profits earned in former
years absorbed by a total loss incurred during the last year of the
contract of copartnership; and it is claimed that such industrial
partner, so much delayed with regard to profits, who has not
the same rights, shall be under the same obligations as regards
obligations because he is a collective partner? This seems neither just
nor logical.chanroblesvirtualawlibrary chanrobles virtual law library
And it is not so. Article 141 reads: "Losses shall be charged in
the same proportion among the partners who have contributed
capital, without including" the industrial partners (since they have not
the same rights), and they should not be included therein nor in the
corporation of the partner who contributed the smallest capital,
simply for the reason that the industrial partner has nothing to lose,
he not having contributed anything which the company may lose
when the losses of the copartnership are considered, either among
the partners thereof or with regard to third
persons.chanroblesvirtualawlibrary chanrobles virtual law library
There need be no distinction made between obligations and losses.
During the existence of a company the gains or the losses are set off
the one against the other, and the difference is either in favor of or
against the concern. As to the industrial partner, in connection with
the question submitted, it is not a matter of striking a balance from
time to time, but one of the final adjustment of assets and liabilities,
because the matter under discussion refers only to his private
property, which has nothing to do with the company nor
with losses in liquidating the same. Article 127 is affected by article
237: "The private property of the general partners which is not
included in the assets of the copartnership when it is established can
204 | P a g e
not be seized for the payment of the obligations contracted by the
copartnership until after the common assets have been attached."
And such condition is stated in the majority decision. As long as there
is property belonging to the company, obligations in favor of third
persons are covered by the primary and direct responsibility of the
company; the question arises when the assets of the company are
exhausted and it becomes necessary to appeal to the ulterior or
subsidiary liability of the private property of the partners; in this case
such obligations constitute the extreme losses in the liquidation of the
company.chanroblesvirtualawlibrary chanrobles virtual law library
The case at bar could only thus be set forth: Should an industrial
partner be responsible for such losses, for such obligations in favor of
third persons? Article 141 expressly states that he shall not. In order
to state the contrary it would be necessary to appeal to
discriminations in the wording of said article; and this is neither
permitted where the law does not make them nor would they lead to
anything after all. In the aforesaid article 237 the corroboration of the
word all of article 127 may be found: "The private property of the
general partners which is not included in the assets of the
copartnership," differing from such as were included, can not seized
for the payment of obligations contracted by the copartnership, until
after the common assets have been attached; after such attachment
all the assets, according to article 127, such as were included, and
those that were not included, in this order, shall be subject to the
results of the transactions of the copartnership. An industrial partner
has not contributed any property whatever; he therefore offers no
subject for the principal and direct seizure when the assets of the
copartnership are attached. How is it possible to conceive any
ulterior, subsidiary, indirect responsibility over the property which it
was not even thought to be included, since he only contributed to the
company his industry and work, not property of any class whatever?
It seems very anomalous that one who has not obligated himself in
the least should be responsible or the greater part, that he who is not
comprehended within the explicit terms should be included by
implication, and that he who pledge nothing should be held to
respond with his property.chanroblesvirtualawlibrary chanrobles
virtual law library
As to the nature of the defendant company in this action, I take it to
be: chanrobles virtual law library
1. That the defendant company is really a collective one such as is
described in the Code of Commerce; the firm of "F. Muñoz & Sons"
and the terms of the articles of association prove it so beyond all
doubt.chanroblesvirtualawlibrary chanrobles virtual law library
2. That it is a regular collective company; the word regular means, as
employed in the Code of Commerce, that the collective company is
the rule, the standard in all commercial associations, the one
combining all the effects which are consequent upon this form of
convention; and the limited and the joint-stock companies are
the exception.chanroblesvirtualawlibrary chanrobles virtual law
library
3. That it is not irrelevant in view of the manner in which the present
Code of Commerce, like the former one of 1829, has defined the
collective company, that such a distinguished professor of law as
Doctor Lorenzo de Benito should have established in his "Lessons on
Mercantile Law" a difference between the regular collective
associations and irregular collective companies; " regular are those
wherein, as article 122 reads, all the members in a collective name
and under a firm name bind themselves to participate in the
proportion which they may establish with the same rights and
obligations." "And irregular, those wherein one or more
members who, though not contributing toward the company with
anything but their industry, participate in the profits in the manner
agreed to in the articles of association or as determined by law,
and ordinarily do not share in the losses which the copartnership may
sustain. Such members are called industrial partners, and the
collective copartnership having a member of said class is also
sometimes called an association of capital and industry.
This is what the law says (he continues), but it has not been very
fortunate in sketching the characters of a regular collective
partnership (since in conclusion it says nothing in reference to the
irregular partnership), because precisely the collective name and the
corporate name are applicable to both the collective and the limited
companies; and as to the covenant entered into by the partners to
participate in the proportion which they may establish with the same
rights and obligations, this is inherent to all partnerships without
distinction as to class. What characterizes this partnership is that all
the members, "with the exception of the industrial partners," are
jointly responsible and with all their property for the corporate
obligations.
4. That the code in force, by means of three articles, 138, 140, and
141, among those which regulate collective partnerships, has
involved this association of capital and industry; whence irregularity
necessarily arises; the irregularity of such an irregular system is that
in a collective partnership wherein, besides the element property,
common or generic to the three aforesaid classes, there appears this
one, to wit, industry, a special features only in collective partnerships,
according to the system of the
code.chanroblesvirtualawlibrary chanrobles virtual law library
Had the system adopted by the codes of Portugal, Brazil, and the
Argentine Republic been followed, a different classification would
have been made of the association of capital and industry which,
according to the last of the codes cited, is properly characterized by
means of the following articles:
435. Habilitacion or association of capital and industry is the name
given to the partnership formed on the one part by one or more
persons who furnish funds for a general business, or for some
particular commercial transaction, and on the other part by one or
more individuals who join the copartnership with their industry
alone.chanroblesvirtualawlibrary chanrobles virtual law library
438. The obligation of the partners who furnished capital is in
solidum, and extends beyond the capital contributed by them to the
concern.chanroblesvirtualawlibrary chanrobles virtual law library
439. The articles of association, besides the requirements contained
in article 395, must specify the obligations of the industrial partner or
partners and the share in the profits to which they are entitled in the
apportionment.chanroblesvirtualawlibrary chanrobles virtual law
library
In the absence of such declaration, the industrial partner shall draw
from the profits a share equal to those of the partner who furnished
the smallest capital.chanroblesvirtualawlibrary chanrobles virtual law
library
205 | P a g e
440. An industrial partner can not contract on behalf of the During almost half a century no obligation has been raised by the
partnership nor is he obligated with his own property toward the professors of law, the press, or the bar, to this doctrine regarding the
creditors of the company.chanroblesvirtualawlibrary chanrobles exemption, not merely with respect to losses but to company
virtual law library obligations of the industrial partner, on the suppositions, which I do
not admit, as already shown, that it may be possible to discriminate
Nevertheless, if besides his industry he should contribute some between losses and obligations in connection with an industrial
capital toward the company either in money or thing of value, the partner, for whom there are none but the final losses, such as absorb
association shall then be considered as a collective one, and the the assets of the company, which can not be otherwise than
industrial partner, whatever might have been stipulated, shall outstanding obligations in favor of third parties inasmuch as, so long
respond in solidum. as there are company assets, no recourse can be held to the private
In my opinion it can not be denied that there is no substantial property of any partner.
difference between the three articles of our code and those
transcribed from that of the Argentine Republic as regards the rights
and obligations of industrial partners in conjunction with partners
who furnish capital; there is no difference except in the system, the
code of the Argentine Republic dealing with this class of association
of capital and industry separately from the only three defined in our
code, all of them of capital only or essentially of partners who furnish
capital. Therefore, as said code has an article almost literally identical
with article 127 of our code, this question can not possibly arise in
that country. That code contains article 454, which reads: " All those
who form a collective commercial company, whether managing the
corporate funds or not, are obligated in solidum (with all their
property, as our code would state) for the results of the transactions
made in the name and for account of the partnership," etc. To the
question, Do the words "all the partners" found in said article include
the industrial partners? undoubtedly the answer would be
no.chanroblesvirtualawlibrary chanrobles virtual law library

And it would not suffice to say that the above article of the code of
the Argentine Republic, namely, "on collective copartnership,"
involves no section which may refer to industrial partners, and that,
therefore, there can be no question as to the words "all the
members;" it is because, by reason of the nature thereof, whether
under one system or another, the provisions and the principles being
identical, the conclusions can not otherwise than identical. In a
copartnership, and as the result of the obligations thereunder, an
industrial partner can not lose except what he has actually
contributed thereto for a limited or an unlimited purpose, subject
ultimately to company or personal obligations; this is all that law and
logic may demand of him; anything else would not come under the
law, but may be demanded of him by reason of his express covenant,
because he has consented to something beyond the character and the
effects of the contract of partnership of capital and industry entered
into by him, called collective; nothing else has been the subject of his
consent and obligation.chanroblesvirtualawlibrary chanrobles virtual
law library

Manuel Duran y Bas, a former professor of the University of

Barcelona, in his addition to the work of Marti de Eixala, which is so
generally and specially consulted in that eminently commercial and
industrial city, has offered no remarks to the original text of said work
which establish as an elemental doctrine that "When the
copartnership is purely a collective one, each of its members is jointly
obligated for the result of the transactions which should be charged
to the copartnership . . . . From the general rule which we have just
set up the industrial partners who contract no obligation to secure the
liabilities of the company should be excepted, unless there be an
express covenant to the contrary." (Art. 319 of the code of 1829,
identical with art. 141 of the code now in force.) chanrobles virtual
law library

206 | P a g e
GEORGE O. DIETRICH, Plaintiff-Appellee, vs. O.K. FREEMAN, JAMES L.
PIERCE, and BURTON WHITCOMB, defendants.
BURTON WHITCOMB, Appellant.
O'Brien and De Witt for appellant.
W. L. Wright for appellee.
TRENT, J. :chanrobles virtual law library
This action was brought against O.K. Freeman, James L. Pierce, and
Burton Whitcomb, as owners and operators of the Manila Steam
Laundry, to recover the sum of P952 alleged to be the balance due
the plaintiff for services performed during the period from January 9,
1907, to December 31, 1908. Judgment was rendered in favor of the
plaintiff and against Freeman and Whitcomb, jointly and severally, for
the sum of P752, with interest at the rate of 6 per cent per annum
from the 27th day of August, 1909, and the costs of the cause. The
complaint as to Pierce was dismissed, Whitcomb alone
appealing.chanroblesvirtualawlibrary chanrobles virtual law library
When the plaintiff was first employed on the 9th of January, 1907,
this steam laundry was owned and operated by Freeman and Pierce.
Pierce, on the 18th of January, 1907, sold all of his right, title, and
interest in the said laundry to Whitcomb, who, together with
Freeman, then became the owners of this laundry and continued to
operate the same as long as the plaintiff was
employed.chanroblesvirtualawlibrary chanrobles virtual law library
The trial court found that the balance due the plaintiff for services
performed amounted to the sum of P752. This finding is fully
supported by the evidence of
record.chanroblesvirtualawlibrary chanrobles virtual law library
Counsel for the appellant Whitcomb now insists -chanrobles virtual
law library
1. That the court erred in giving, jointly and severally, a judgment
against Freeman and Whitcomb for any sum whatever;
and chanrobles virtual law library
2. That the court erred in holding the appellant Whitcomb
liable.chanroblesvirtualawlibrary chanrobles virtual law library
It appears from the record that Whitcomb never knew the plaintiff,
never had anything to do with personally, and that the plaintiff's
contract was with Freeman, the managing partner of the laundry. It
further appears from the record that Pierce, after he sold his interest
in this laundry to Whitcomb, continued to look after Whitcomb's
interest by authority of the
latter.chanroblesvirtualawlibrary chanrobles virtual law library
Articles 17 and 119 of the Code of Commerce provide:
Art. 17. The record in the commercial registry shall be optional for
private merchants and compulsory for associations established in
accordance with this code or with special laws, and for
vessels.chanroblesvirtualawlibrary chanrobles virtual law library
Art. 119 Every commercial association before beginning business shall
be obliged to record its establishment, agreements, and conditions in
a public instrument, which shall be presented for record in the
commercial registry, in accordance with the provisions of article
17.chanroblesvirtualawlibrary chanrobles virtual law library
Additional instrument which modify or alter in any manner
whatsoever the original contracts of the association are subject to the
same formalities, in accordance with the provisions of article
25.chanroblesvirtualawlibrary chanrobles virtual law library
Partners can not make private agreements, but all must appear in the
articles of copartnership.
In the organization of this partnership by Freeman and Whitcomb the
above provisions of law were not complied with; that is, no formal
partnership was ever entered into by them, notwithstanding the fact
that they were engaged in the operation of this
laundry.chanroblesvirtualawlibrary chanrobles virtual law library
The purpose for which this partnership was entered into by Freeman
and Whitcomb show clearly that such partnership was not a
commercial one; hence the provisions of the Civil Code and not the
Code of Commerce must govern in determining the liability of the
partners. (Manresa, vol. 1, p. 184; Aramburo, Civil Capacity, 407, 432;
Prautch vs. Hernandez, 1 Phil. Rep., 705; and Co Pitco vs. Yulo, 8 Phil.
Rep., 544.) chanrobles virtual law library
In support of the second assignment of error our attention has been
called to the cases of Hung-Man-Yoc vs. Kieng-Chiong-Seng (6 Phil.
Rep., 498); Ang Quian Cieg vs. Te Chico (12 Phil. Rep., 533); Bourns vs.
Carman (7 Phil. Rep., 117). In the first of these cases the partnership
was a mercantile one, as it was engaged in the importation of goods
for sale at a profit. This was also true in the second case. In neither of
these cases were the provisions of articles 17 and 119 of the Code of
Commerce complied with. Those partnerships, although commercial,
were not organized in accordance with the provisions of the Code of
Commerce as expressed in those articles. In determining the liability
of the partners in these cases the court, after making the finding of
facts, was governed by the provisions of article 120 of the Commercial
Code. In the last case cited the partnership was one of cuentas en
participacion. "A partnership," quoting from the syllabus in this case,
"constituted in such a manner that its existence was only known to
those who had an interest in the same, there being no mutual
agreement between the partners, and without a corporate name
indicating to the public in some way that there were other people
besides the one who ostensibly managed and conducted the
business, is exactly the accidental partnership of cuentas en
participacion defined in article 239 of the Code of
Commerce."chanrobles virtual law library
In a partnership of cuentas en participacion, under the provisions of
article 242 of the Code of Commerce, those who contract with the
person in whose name the business of such a partnership was
conducted shall have only the right of action against such person and
not against other persons interested. So this case is easily
distinguished from the case at bar, in that the one did not have the
corporate name while the other was known as the Manila Steam
Laundry.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff was employed by and performed services for the Manila
Steam Laundry and was not employed by nor did he perform services
for Freeman alone. The public did not deal with Freeman and
Whitcomb personally, but with the Manila Steam Laundry. These two
partners were doing business under this name and, as we have said,
it was not a commercial partnership. Therefore, by the express
provisions of articles 1698 and 1137 of the Civil Code the partners are
not liable individually for the entire amount due the plaintiff. The
207 | P a g e
liability is pro rata and in this case the appellant is responsible to the
plaintiff for only one-half of the
debt.chanroblesvirtualawlibrarychanrobles virtual law library

For these reasons the judgment of the court below is reversed and
judgment entered in favor of the plaintiff and against the defendant
Whitcomb for the sum of P376, with interest as fixed by the court
below. No costs will be allowed either party in this
court.chanroblesvirtualawlibrary chanrobles virtual law library

A motion was filed on the 22nd of August, 1910, by O'Brien and De

Witt, asking this court to strike from the record certain allegations in
the printed brief of counsel for the appellee. These allegations are as
follows: "Does the receipt bear the earmarks of newly discovered
evidence? Or of newly manufactured evidence?" These questions
were directed against O'Brien, one of the counsel for appellant in this
case, and were intended to have the court believe that O'Brien had
manufactured the receipt referred to. There is nothing in this record
which shows that O'Brien did falsify or manufacture the receipt. These
questions are clearly impertinent. It is our duty to keep our records
clean and free from such unwarranted statements. It is, therefore,
ordered that the same be stricken from the record. So
ordered.chanroblesvirtualawlibrary chanrobles virtual law library

Arellano, C. J., Mapa, Carson and Moreland, JJ., concur.

208 | P a g e
[G.R. No. 70403. July 7, 1989.]
SANTIAGO SYJUCO, INC., Petitioner, v. HON. JOSE P. CASTRO, AS
PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF THE
NATIONAL CAPITAL JUDICIAL REGION, BRANCH LXXXV, QUEZON
CITY, THE CITY SHERIFF OF THE CITY OF MANILA, THE CITY REGISTER
OF DEEDS OF THE CITY OF MANILA, EUGENIO LIM, ARAMIS LIM,
MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/or THE
PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY PATERNO
P. CANLAS, Respondents.
Doroteo B. Daguna and Felix D. Carao for Petitioner.
Paterno Canlas for Private Respondents.
SYLLABUS
1. REMEDIAL LAW; SUPREME COURT; SANCTIONS AGAINST TRIFLING
WITH JUDICIAL PROCESSES; CASE AT BAR. — The Court cannot but
condemn in the strongest terms this trifling with the judicial process
which degrades the administration of justice, mocks, subverts and
misuses that process for purely dilatory purposes, thus tending to
bring it into disrepute, and seriously erodes public confidence in the
will and competence of the courts to dispense swift justice. The Lims
and their partnership acted in bad faith and with intent to defraud is
manifest in the record of their actuations, presenting as they did,
piecemeal and in one case after another, defenses to the foreclosure
or claims in derogation thereof that were available to them from the
very beginning — actuations that were to stave off the liquidation of
an undenied debt for more than twenty years and culminated in the
clandestine filing and prosecution of the action subject of the present
petition. The private respondents (the Lims, the Partnership of the
Heirs of Hugo Lim and Atty. Paterno R. Canlas) are sentenced, jointly
and severally, to pay the petitioner P25,000.00 as nominal damages
and P100,000.00 as exemplary damages, as well as treble costs.
2. ID.; ACTION JURIDICAL PERSONALITY; LEGAL FICTION OF SEPARATE
JURIDICAL PERSONALITY AND EXISTENCE, NOT A SHIELD FROM
KNOWLEDGE WHICH NATURALLY AND IRRESISTIBLY FLOWS FROM
UNDENIED FACTS; CASE AT BAR. — The respondent partnership is
composed exclusively of the individual Lims in whose name all the
cases herein referred to, with the sole exception of Civil Case No. Q-
36485, were brought and prosecuted, their contribution to the
partnership consisting chiefly, if not solely, of the property subject of
the Syjuco mortgage. It is also a fact that despite its having been
contributed to the partnership, allegedly on March 30, 1959, the
property was never registered with the Register of Deeds in the name
of the partnership, but to this date remains registered in the names
of the Lims as owners in common. The original mortgage deed of
November 14, 1964 was executed by the Lims as such owners, as were
all subsequent amendments of the mortgage. There can be no dispute
that in those circumstances, the respondent partnership was
chargeable with knowledge of the mortgage from the moment of its
execution. The legal fiction of a separate juridical personality and
existence will not shield it from the conclusion of having such
knowledge which naturally and irresistibly flows from the undenied
facts. It would violate all precepts of reason, ordinary experience and
common sense to propose that a partnership, as such, cannot be held
accountable with knowledge of matters commonly known to all the
partners or of acts in which all of the latter, without exception, have
taken part, where such matters or acts affect property claimed as its
own by said partnership.
3. CIVIL LAW; ESTOPPEL; FAILURE TO IMPUGN MORTGAGE FOR MORE
THAN SEVENTEEN YEARS. — If, therefore, the respondent partnership
was inescapably chargeable with knowledge of the mortgage
executed by all the partners thereof, its silence and failure to impugn
said mortgage within a reasonable time, let alone a space of more
than seventeen years, brought into play the doctrine of estoppel to
preclude any attempt to avoid the mortgage as allegedly
unauthorized.
4. ID.; ID.; ESTOPPEL BY SILENCE. —." . . an estoppel may arise from
silence as well as from words.’Estoppel by silence’ arises where a
person, who by force of circumstances is under a duty to another to
speak, refrains from doing so and thereby leads the other to believe
in the existence of a state of facts in reliance on which he acts to his
prejudice. Silence may support an estoppel whether the failure to
speak is intentional or negligent.
5. ID.; OBLIGATIONS & CONTRACTS; PARTNERSHIP; ACTS OF ALL THE
INDIVIDUAL MEMBERS ARE CONSIDERED ACTS OF THE PARTNERSHIP.
— Despite the concealment of the existence of the partnership, for all
intents and purposes and consistently with the Lims’ own theory, it
was that partnership which was the real party in interest in all the
actions; it was actually represented in said actions by all the individual
members thereof, and consequently, those members’ acts,
declarations and omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in law, those of the
partnership.
6. REMEDIAL LAW; ACTIONS; SPLITTING OF CAUSES OF ACTION;
MANIFEST IN CASE AT BAR. — What was done by the Lims — or by
the partnership of which they were the only members — was to split
their cause of action in violation of the well known rule that only one
suit may be instituted for a single cause of action. The right sought to
be enforced by them in all their actions was, at bottom, to strike down
the mortgage constituted in favor of Syjuco, a right which, in their
view, resulted from several circumstances, namely that the mortgage
was constituted over property belonging to the partnership without
the latter’s authority; that the principal obligation thereby secured
was usurious; that the publication of the notice of foreclosure sale
was fatally defective, circumstances which had already taken place at
the time of the institution of the actions. They instituted four (4)
actions for the same purpose on one ground or the other, making
each ground the subject of a separate action. Upon these premises,
application of the sanction indicated by law is called for, i.e., the
judgment on the merits in any one is available as a bar in the others.
7. ID.; ID.; RES JUDICATA; REQUISITES PRESENT IN CASE AT BAR. —
The first judgment — rendered in Civil Case No. 75180 and affirmed
by both the Court of Appeals (CA-G.R. No. 51752) and this Court (G.R.
No. L-45752) should therefore have barred all the others, all the
requisites of res judicata being present. The judgment was a final and
executory judgment; it had been rendered by a competent court; and
there was, between the first and subsequent cases, not only identity
209 | P a g e
of subject-matter and of cause of action, but also of parties.
8. ID.; ID.; ID.; JUDGMENT IN THE FIRST CASE, REGARDED AS
CONCLUSIVE IN ALL OTHER ACTIONS AS TO ANY MATTER THAT COULD
HAVE BEEN RAISED IN RELATION THERETO. — Under the doctrine of
res judicata, the judgment in the first was and should have been
regarded as conclusive in all other actions not only "with respect to
the matter directly adjudged," but also "as to any other matter that
could have been raised in relation thereto."cralaw virtua1aw library
9. ID.; ID.; SERVICE OF SUMMONS; STRICT COMPLIANCE, ENJOINED;
PURPOSE. — In the case of Delta Motor Sales Corporation v.
Mangosing 49 it was held that:" (a) strict compliance with the mode
of service is necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made must be one who
is named in the statute; otherwise the service is insufficient. "The
purpose is to render it reasonably certain that the corporation will
receive prompt and proper notice in an action against it or to insure
that the summons be served on a representative so integrated with
the corporation that such person will know what to do with the legal
papers served on him. In other words, ‘to bring home to the
corporation notice of the filing of the action’. (35 A C.J.S. 288 citing
Jenkins v. Lykes Bros. S.S. Co., 48 F. Supp. 848; MacCarthy v. Langston,
D.C. Fla., 23 F.R.D. 249).
10. ID.; EVIDENCE; BURDEN OF PROOF AND PRESUMPTIONS;
PRESUMPTION OF REGULARITY IN THE PERFORMANCE OF OFFICIAL
FUNCTIONS WILL NOT LIE WHERE THERE IS DEFECTIVE SERVICE OF
SUMMONS. — Where the sheriff’s return is defective the
presumption of regularity in the performance of official functions will
not lie.
11. ID.; ACTIONS; SERVICE OF SUMMONS; DEFECTIVE RETURN
SERVICE OF SUMMON DOES NOT VEST COURT WITH JURISDICTION;
CASE AT BAR. — The defective sheriff’s return thus being insufficient
and incompetent to prove that summons was served in the manner
prescribed for service upon corporations, there is no alternative to
affirming the petitioner’s claim that it had not been validly summoned
in Civil Case No. Q-36485. It goes without saying that lacking such
valid service, the Trial Court did not acquire jurisdiction over the
petitioner Syjuco, rendering null and void all subsequent proceedings
and issuances in the action from the order of default up to and
including the judgment by default and the order for its execution.
12. ID.; SPECIAL CIVIL ACTION; CERTIORARI; APPROPRIATE REMEDY
AGAINST JUDGMENT RENDERED WITHOUT VALID SERVICE OF
SUMMONS. — In Matanguihan v. Tengco where, by declaring that an
action for annulment of judgment is not a plain, speedy and adequate
remedy, this Court in effect affirmed that certiorari is an appropriate
remedy against judgments or proceedings alleged to have been
rendered or had without valid service of summons.
13. ID.; ID.; ID.; FAILURE TO RESOLVE ISSUE ON THE MERITS
GROUNDED ON ABSENCE OF VALID SERVICE OF SUMMONS, A GRAVE
ABUSE OF DISCRETION. — Respondent Judge Castro begged the
question when, instead of resolving on the merits the issue of the
invalidity of his default judgment and of the proceedings leading
thereto because of absence of valid service of summons on the
defendant, which had been expressly raised in the defendant’s
motion for reconsideration, he simply refused to do so on the excuse
that he had lost jurisdiction over the case. This refusal was, in the
premises, a grave abuse of judicial discretion which must be rectified.
14. ID.; ID.; MOTION TO DISMISS; ESTOPPEL BY SILENCE AND
CONVEYANCE OF PROPERTY BY THE PARTIES, GROUNDS. — Estoppel
by silence and Article 1819, last paragraph, of the Civil Code, do not
constitute grounds for motion to dismiss under Rule 16 of the Rules
of Court.
15. LEGAL ETHICS; ATTORNEY-CLIENT RELATIONSHIP; WHATEVER
STEPS A CLIENT TAKES SHOULD BE WITHIN THE KNOWLEDGE AND
RESPONSIBILITY OF COUNSEL. — In Surigao Mineral Reservation
Board v. Cloribel, it held that a party’s lawyer of record has control of
the proceedings and that" (w)hatever steps his client takes should be
within his knowledge and responsibility."
DECISION
NARVASA, J.:
This case may well serve as a textbook example of how judicial
processes, designed to promote the swift and efficient disposition of
disputes at law, can be so grossly abused and manipulated as to
produce precisely the opposite result; how they can be utilized by
parties with small scruples to forestall for an unconscionably long
time so essentially simple a matter as making the security given for a
just debt answer for its payment.
The records of the present proceedings and of two other cases
already decided by this Court expose how indeed the routine
procedure of an extrajudicial foreclosure came — by dint of brazen
forum shopping and other devious maneuvering — to grow into a
veritable thicket of litigation from which the mortgagee has been
trying to extricate itself for the last twenty years.
Back in November 1964, Eugenio Lim, for and in his own behalf and
as attorney-in-fact of his mother, the widow Maria Moreno (now
deceased) and of his brother Lorenzo, together with his other
brothers, Aramis, Mario and Paulino, and his sister, Nila, all
hereinafter collectively called the Lims, borrowed from petitioner
Santiago Syjuco, Inc. (hereinafter, Syjuco only) the sum of
P800,000.00. The loan was given on the security of a first mortgage
on property registered in the names of said borrowers as owners in
common under Transfer Certificates of Title Numbered 75413 and
75415 of the Registry of Deeds of Manila. Thereafter additional loans
on the same security were obtained by the Lims from Syjuco, so that
as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00,
exclusive of interest, and the security had been augmented by
bringing into the mortgage other property, also registered as owned
pro indiviso by the Lims under two titles: TCT Nos. 75416 and 75418
of the Manila Registry.
There is no dispute about these facts, nor about the additional
210 | P a g e
circumstance that as stipulated in the mortgage deed the obligation
matured on November 8, 1967; that the Lims failed to pay it despite
demands therefor; that Syjuco consequently caused extra-judicial
proceedings for the foreclosure of the mortgage to be commenced by
the Sheriff of Manila; and that the latter scheduled the auction sale of
the mortgaged property on December 27,1968. 1 The attempt to
foreclose triggered off a legal battle that has dragged on for more
than twenty years now, fought through five (5) cases in the trial
courts, 2 two (2) in the Court of Appeals, 3 and three (3) more in this
Court, 4 with the end only now in sight.
1. CIVIL CASE NO. 75180, CFI MANILA, BR. 5; CA-G.R. NO. 00242-R;
G.R. NO. L-34683
To stop the foreclosure, the Lims — through Atty. Marcial G.
Mendiola, who was later joined by Atty. Raul Correa — filed Civil Case
No. 75180 On December 24, 1968 in the Court of First Instance of
Manila (Branch 5). In their complaint they alleged that their mortgage
was void, being usurious for stipulating interest of 23% on top of 11%
that they had been required to pay as "kickback." An order restraining
the auction sale was issued two days later, on December 26, 1968,
premised inter alia on the Lims’ express waiver of "their rights to the
notice and re-publication of the notice of sale which may be
conducted at some future date." 5 on December 20, 1977, only to be frustrated again by another action
On November 25, 1970, the Court of First Instance (then presided
over by Judge Conrado M. Vasquez 6) rendered judgment finding that
usury tainted the mortgage without, however, rendering it void,
declaring the amount due to be only P1,136,235.00 and allowing the
foreclosure to proceed for satisfaction of the obligation reckoned at
only said amount. 7 rights to the notice and republication of the notice of sale which may
Syjuco moved for new trial to enable it to present additional evidence
to overthrow the finding of usury, and the Court ordered the case
reopened for that purpose. The Lims tried to negate that order of
reopening in the Court of Appeals, the proceedings being docketed as
CA-G.R. No. 00242-R. They failed. The Court of Appeals upheld the
Trial Court. The Lims then sought to nullify this action of the Appellate
Court; towards that end, they filed with this Court a petition
for certiorari and prohibition, docketed as G.R. No. L-34683. But here,
too, they failed; their petition was dismissed. 8
Thereafter, and on the basis of the additional evidence adduced by
Syjuco on remand of the case from this Court, the Trial Court
promulgated an amended decision on August 16, 1972, reversing its
previous holding that usury had flawed the Lims’ loan obligation. It
declared that the principal of said obligation indeed amounted to
P2,460,000.00, exclusive of interest at the rate of 12% per annum
from November 8, 1967, and, that obligation being already due, the
defendants (Syjuco and the Sheriff of Manila) could proceed with the
extrajudicial foreclosure of the mortgage given to secure its
satisfaction. 9 the same Court and in which subsequent action they asked for and
2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752; G.R. NO.
L-45752
On September 9, 1972, Atty. Paterno R. Canlas entered his
appearance in Civil Case No. 75180 as counsel for the Lims in
collaboration with Atty. Raul Correa, and on the same date appealed
to the Court of Appeals from the amended decision of August 16,
1972. 10 In that appeal, which was docketed as CA-G.R. No. 51752,
Messrs. Canlas and Correa prayed that the loans be declared usurious;
that the principal of the loans be found to be in the total amount of
P1,269,505.00 only, and the interest thereon fixed at only 6% per
annum from the filing of the complaint; and that the mortgage be also
pronounced void ab initio. 11
The appeal met with no success. In a decision promulgated on
October 25, 1976, the Court of Appeals affirmed in toto the Trial
Court’s amended decision. 12
The Lims came to this Court seeking reversal of the appellate Court’s
decision. However, their petition for review — filed in their behalf by
Canlas, and Atty. Pio R. Marcos, and docketed as G.R. No. L-45752 —
was denied for lack of merit in a minute resolution dated August 5,
1977. The Lims’ motion for reconsideration was denied and entry of
judgment was made on September 24, 1977. 13 Here the matter
should have ended; it marked only the beginning of Syjuco’s travails.
3. CIVIL CASE NO. 112762, CFI MANILA BRANCH 9
Syjuco then resumed its efforts to proceed with the foreclosure. It
caused the auction sale of the mortgaged property to be scheduled
filed by the Lims on December 19, 1977, docketed as Civil Case No.
112762 of the Court of First Instance of Manila. 14 The action sought
to stop the sale on the ground that the notice of foreclosure had not
been republished; this, notwithstanding that as earlier stressed, the
restraining order of December 26, 1968 issued in Civil Case No 75180
explicitly declared itself to be predicated on the Lims’ waiver of "their
be conducted at some future date." 15 An order restraining the sale
issued in the case, although the petition for preliminary injunction
was subsequently denied. A supplemental complaint was also filed by
the Lims seeking recovery of some P1 million in damages allegedly
suffered by reason of said lack of republication. 16
4. CIVIL CASE NO. 75180
That very same claim — that there had been no republication of the
notice of sale, which was the foundation of the Lims’ action in Civil
Case No. 112762 as aforesaid — was made by the Lims the basis of an
urgent motion filed on December 15, 1977 in Civil Case No. 75180, in
which, as earlier narrated, the judgment authorizing the foreclosure
had been affirmed by both the Court of Appeals and this Court, and
had become final and executory. And that motion sought exactly the
same remedy prayed for in Civil Case No. 112762 (filed by the Lims
four [4] days later, on December 19,1977), i.e., the prevention of the
auction sale. The Court — Branch 5, then presided over by Judge Jose
H. Tecson — granted the restraining order on December 19, 1977, 17
the very same day that the Lims commenced Civil Case No. 112762 in
obtained a similar restraining order.
The Lims’ counsel thus brought about the anomalous situation of two
(2) restraining orders directed against the same auction sale, based
on the same ground, issued by different courts having cognizance of
two (2) separate proceedings instituted for identical objectives. This
situation lasted for all of three (3) years, despite the republication of
the notice of sale caused by Syjuco in January, 1978 in an effort to end
211 | P a g e
all dispute about the matter, and despite Judge Tecson’s having been
made aware of Civil Case No. 112762. It should have been apparent
to Judge Tecson that there was nothing more to be done in Civil Case
No. 75180 except to enforce the judgment, already final and
executory, authorizing the extrajudicial foreclosure of the mortgage,
a judgment sanctioned, to repeat, by both the Court of Appeals and
the Supreme Court; that there was in truth no need for another
publication of the notice since the Lims had precisely waived such
republication, this waiver having been the condition under which they
had earlier obtained an order restraining the first scheduled sale; that,
in any event, the republication effected by Syjuco had removed the
only asserted impediment to the holding of the same; and that,
finally, the Lims were acting in bad faith: they were maintaining
proceedings in two (2) different courts for essentially the same relief.
18 Incredibly, not only did Judge Tecson refuse to allow the holding
of the auction sale, as was the only just and lawful course indicated
by the circumstances, 19 he authorized the Lims to sell the mortgaged
property in a private sale, 20 with the evident intention that the
proceeds of the sale, which he directed to be deposited in court,
would be divided between Syjuco and the Lims; this, in line with the
patently specious theory advocated by the Lims’ counsel that the
bond filed by them for the postponement of the sale, set at P6 million
by the Court (later increased by P3 million) had superseded and
caused novation of the mortgage. 21 The case lay fallow for a year,
certain other incidents arising and remaining unresolved on account
of numerous postponements.
5. G.R. No. L-56014
Finally, on January 28, 1981, Syjuco betook itself to this Court,
presumably no longer disposed to await Judge Tecson’s pleasure or
the Lims’ convenience. It filed a petition for certiorari and prohibition,
docketed as G.R. No. L-56014, alleging that in Civil Case No. 75180,
Judge Tecson had gravely abused discretion in:chanrob1es virtual
1aw library
(1) unreasonably delaying the foreclosure of the mortgage;
(2) entertaining the Lims’ motion to discharge said mortgage
grounded on the theory that it had been superseded and novated by
the Lims’ act of filing the bond required by Judge Tecson in connection
with the postponement of the foreclosure sale, and unreasonably
delaying resolution of the issue; and
(3) authorizing the Lims to negotiate and consummate the private sale
of the mortgaged property and motu proprio extending the period
granted the Lims for the purpose, in disregard of the final and
executory judgment rendered in the case.
By judgment rendered on September 21, 1982, after due proceedings,
this Court 22 issued the writ prayed for and nullified the orders and
actuations of Judge Tecson in Civil Case No. 75180. The judgment
declared that:chanrob1es virtual 1aw library
(1) the republication by Syjuco of the notice of foreclosure sale
rendered the complaint in Civil Case No. 112762 moot and academic;
hence, said case could not operate to bar the sale;
(2) the Lims’ bonds (of P6 million and P3 million), having by the terms
thereof been given to guarantee payment of damages to Syjuco and
the Sheriff of Manila resulting from the suspension of the auction sale,
could not in any sense and from any aspect have the effect of
superseding the mortgage or novating it;
(3) in fact, the bonds had become worthless when, as shown by the
record, the bondsman’s authority to transact non-life insurance
business in the Philippines was not renewed, for cause, as of July 1,
1981.
The decision consequently decreed that the Sheriff of Manila should
proceed with the mortgage sale, there being no further impediment
thereto. 23
Notice of the decision was served on the Lims, through Atty. Canlas,
on October 2, 1982. A motion for reconsideration was filed, 24 but
the same was denied with finality for lack of merit and entry of final
judgment was made on March 22, 1983.25cralaw:red
6. THE SECRET ACTION: CIVIL CASE NO. Q-36845 OF THE REGIONAL
TRIAL COURT, QUEZON CITY, JUDGE JOSE P. CASTRO, PRESIDING
Twelve (12) days after the Lims were served, as above mentioned,
with notice of this Court’s judgment in G.R. No. 56014, or on October
14, 1982, they caused the filing with the Regional Trial Court of
Quezon City of still another action, the third, also designed, like the
first two, to preclude enforcement of the mortgage held by Syjuco.
This time the complaint was presented, not in their individual names,
but in the name of a partnership of which they themselves were the
only partners: "Heirs of Hugo Lim." The complaint advocated the
theory that the mortgage which they, together with their mother, had
individually constituted (and thereafter amended during the period
from 1964 to 1967) over lands standing in their names in the Property
Registry as owners pro indiviso, in fact no longer belonged to them at
that time, having been earlier deeded over by them to the
partnership, "Heirs of Hugo Lim," more precisely, on March 30, 1959,
hence, said mortgage was void because executed by them without
authority from the partnership.
The complaint was signed by a lawyer other than Atty. Canlas, but the
records disclose that Atty. Canlas took over as counsel as of
November 4, 1982. The case, docketed as Civil Case No. Q-39295, was
assigned to Branch 35 of the Quezon City Regional Trial Court, then
presided over by Judge Jose P. Castro.
Judge Castro issued a restraining order on October 15, 1982. Then,
Sheriff Perfecto G. Dalangin submitted a return of summons to the
effect that on December 6, 1982 he —
". . . served personally and left a copy of summons together with a
copy of Complaint and its annexes . . . upon defendant’s office
formerly at 313 Quirino Ave., Parañaque, Metro-Manila and now at
407 Doña Felisa Syjuco Building, Remedios St., corner Taft Avenue,
Manila, through the Manager, a person of sufficient age and
discretion, duly authorized to receive service of such nature, but who
refused to accept service and signed receipt thereof." 26
A vaguer return will be hard to find. It is impossible to discern from it
where precisely the summons was served, whether at Quirino
Avenue, Parañaque, or Taft Avenue, Manila; and it is inexplicable that
212 | P a g e
the name of the person that the sheriff had been able to identify as
the manager is not stated, the latter being described merely as "a
person of sufficient age and discretion." In any event, as it was to
claim later, Syjuco asserts that it was never so served with summons,
or with any other notice, pleading, or motion relative to the case, for
that matter.
On February 10, 1983, Atty. Canlas filed an ex parte motion to declare
Syjuco in default. The order of default issued the next day, also
directing the plaintiff partnership to present evidence ex parte within
three (3) days. On February 22, 1983, judgment by default was
rendered, declaring void the mortgage in question because executed
by the Lims without authority from the partnership which was and
had been since March 30, 1959 the exclusive owner of the mortgaged
property, and making permanent an injunction against the
foreclosure sale that had issued on January 14, 1983. 27 Service of
notice of the default judgment was, according to the return of the
same Sheriff Perfecto Dalangin, effected on the following day,
February 23, 1983. His return is a virtual copy of his earlier one
regarding service of summons: it also states the place of service as the
defendant’s office, either at its former location, 313 Quirino Avenue,
Parañaque, or at the later address, 407 Doña Felisa, Syjuco Building,
Taft Avenue, Manila; and it also fails to identify the person on whom
service was made, describing him only as "the clerk or person in
charge" of the office. 28
Unaccountably, and contrary to what might be expected from the
rapidity with which it was decided — twelve (12) days from February
10, 1983, when the motion to declare defendant Syjuco in default was
filed — the case was afterwards allowed by Atty. Canlas to remain
dormant for seventeen (17) months. He made no effort to have the
judgment executed, or to avail of it in other actions instituted by him
against Syjuco. The judgment was not to be invoked until sometime
in or after July, 1984, again to stop the extrajudicial mortgage sale
scheduled at or about that time at the instance of Syjuco, as shall
presently be recounted.
7. Other Actions in the Interim:chanrob1es virtual 1aw library
a. CIVIL CASE NO. 83-19018, RTC MANILA
While the Lims, through their partnership ("Heirs of Hugo Lim"), were
prosecuting their action in the sala of Judge Castro, as above narrated,
Syjuco once again tried to proceed with the foreclosure after entry of
judgment had been made in G.R. No. 56014 on March 22, 1983. It
scheduled the auction sale on July 30, 1983. But once again it was
frustrated. Another obstacle was put up by the Lims and their counsel,
Atty. Canlas. This was Civil Case No. 83-19018 of the Manila Regional
Trial Court. The case was filed to stop the sale on the theory that what
was sought to be realized from the sale was much in excess of the
judgment in Civil Case No. 75180, and that there was absence of the
requisite notice. It is significant that the judgment by default rendered
by Judge Castro in Civil Case No. Q-36485 was not asserted as
additional ground to support the cause of action. Be this as it may, a
restraining order was issued on July 20,1983 in said Civil Case No. 83-
19018. 29
b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY
What the outcome of this case, No. 83-19018, is not clear. What is
certain is (1) that the auction sale was re-scheduled for September 20,
1983, (2) that it was aborted because the Lims managed to obtain still
another restraining order in another case commenced by their
lawyer, Atty. Canlas: Civil Case No. Q-32924 of the Court of First
Instance of Quezon City, grounded on the proposition that the
publication of the notice of sale was defective; and (3) that the action
was dismissed by the Regional Trial Court on February 3, 1984. 30
No other salient details about these two (2) cases are available in the
voluminous records before the Court, except that it was Atty. Canlas
who had filed them. He admits having done so unequivocally: "Thus,
the undersigned counsel filed injunction cases in Civil Case No. 83-
19018 and Civil Case No. 39294, Regional Trial Courts of Manila and
Quezon City. . ." 31
7. REACTIVATION OF CIVIL CASE NO. Q-36485, RTC, QUEZON CITY,
BRANCH XXXV
Upon the dismissal of Civil Case No. 39294, Syjuco once more
resumed its efforts to effect the mortgage sale which had already
been stymied for more than fifteen (15) years. At its instance, the
sheriff once again set a date for the auction sale. But on the date of
the sale, a letter of Atty. Canlas was handed to the sheriff drawing
attention to the permanent injunction of the sale embodied in the
judgment by default rendered by Judge Castro in Civil Case No. Q-
36485. 32 Syjuco lost no time in inquiring about Civil Case No. Q-
36485, and was very quickly made aware of the judgment by default
therein promulgated and the antecedent events leading thereto. It
was also made known that on July 9, 1984, Judge Castro had ordered
execution of the judgment; that Judge Castro had on July 16, 1984
granted Atty. Canlas’ motion to declare cancelled the titles to the
Lims’ mortgaged properties and as null and void the annotation of the
mortgage and its amendments on said titles, and to direct the Register
of Deeds of Manila to issue new titles, in lieu of the old, in the name
of the partnership, "Heirs of Hugo Lim." 33
On July 17, 1984, Syjuco filed in said Civil Case No. Q-36485 a motion
for reconsideration of the decision and for dismissal of the action,
alleging that it had never been served with summons; that granting
arguendo that service had somehow been made, it had never
received notice of the decision and therefore the same had not and
could not have become final; and that the action should be dismissed
on the ground of bar by prior judgment premised on the final
decisions of the Supreme Court in G.R. No. L-45752 and G.R. No.
56014.
Two other motions by Syjuco quickly followed. The first, dated July 20,
1984, prayed for abatement of Judge Castro’s order decreeing the
issuance of new certificates of title over the mortgaged lands in the
name of the plaintiff partnership. 34 The second, filed on July 24,
1984, was a supplement to the motion to dismiss earlier filed,
asserting another ground for the dismissal of the action, i.e., failure
to state a cause of action, it appearing that the mortgaged property
remained registered in the names of the individual members of the
Lim family notwithstanding that the property had supposedly been
conveyed to the plaintiff partnership long before the execution of the
mortgage and its amendments, — and that even assuming ownership
of the property by the partnership, the mortgage executed by all the
partners was valid and binding under Articles 1811 and 1819 of the
Civil Code. 35
213 | P a g e

The motions having been opposed in due course by the plaintiff
partnership, they remained pending until January 31, 1985 when
Syjuco moved for their immediate resolution. Syjuco now claims that
Judge Castro never acted on the motions. The latter however states
that he did issue an order on February 22, 1985 declaring that he had
lost jurisdiction to act thereon because, petitio principii, his decision
had already become final and executory.
8. G.R. NO. L-70403; THE PROCEEDING AT BAR
For the third time Syjuco is now before this Court on the same matter.
It filed on April 3, 1985 the instant petition for certiorari, prohibition
and mandamus. It prays in its petition that the default judgment
rendered against it by Judge Castro in said Civil Case No. Q-36485 be
annulled on the ground of lack of service of summons, res judicata
and laches, and failure of the complaint to state a cause of action; that
the sheriff be commanded to proceed with the foreclosure of the
mortgage on the property covered by Transfer Certificates of Title
Numbered 75413, 75415, 75416 and 75418 of the Manila Registry;
and that the respondents — the Lims, Judge Castro, the Sheriff and
the Register of Deeds of Manila, the partnership known as "Heirs of
Hugo Lim," and Atty. Paterno R. Canlas, counsel for the Lims and their
partnership — be perpetually enjoined from taking any further steps
to prevent the foreclosure.
The comment filed for the respondents by Atty. Canlas in substance
alleged that (a) Syjuco was validly served with summons in Civil Case
No. Q-36485, hence, that the decision rendered by default therein
was also valid and, having been also duly served on said petitioner,
became final by operation of law after the lapse of the reglementary
appeal period; (b) finality of said decision removed the case from the
jurisdiction of the trial court, which was powerless to entertain and
act on the motion for reconsideration and motion to dismiss; (c) the
petition was in effect an action to annul a judgment, a proceeding
within the original jurisdiction of the Court of Appeals; (d) the plea of
res judicata came too late because raised after the decision had
already become final; moreover, no identity of parties existed
between the cases invoked, on the one hand, and Civil Case No. Q-
36485, on the other, the parties in the former being the Lims in their
personal capacities and in the latter, the Lim Partnership, a separate
and distinct juridical entity; and the pleaded causes of action being
different, usury in the earlier cases and authority of the parties to
encumber partnership property in the case under review; (e) the plea
of laches also came too late, not having been invoked in the lower
court; and (f) the property involved constituted assets of the Lim
partnership, being registered as such with the Securities and
Exchange Commission. 36
On his own behalf Atty. Canlas submitted that he had no knowledge
of the institution of Civil Case No. Q-36485 (though he admitted being
collaborating counsel in said case); that he did not represent the Lims
in all their cases against Syjuco, having been counsel for the former
only since 1977, not for the last seventeen years as claimed by Syjuco;
and that he had no duty to inform opposing counsel of the pendency
of Civil Case No. Q-36485. 37
Respondent Judge Castro also filed a comment 38 disclaiming
knowledge of previous controversies regarding the mortgaged
property. He asserted that Syjuco had been properly declared in
default for having failed to answer the complaint despite service of
summons upon it, and that his decision in said case which was also
properly served on Syjuco became final when it was not timely
appealed, after which he lost jurisdiction to entertain the motion for
reconsideration and motion to dismiss. He also denied having failed
to act on said motions, adverting to an alleged order of February 22,
1985 where he declared his lack of jurisdiction to act thereon.
The respondent Register of Deeds for his part presented a comment
wherein he stated that by virtue of an order of execution in Civil Case
No. Q-36485, he had cancelled TCT’s Nos. 75413, 75415, 75416 and
75418 of his Registry and prepared new certificates of title in lieu
thereof, but that cancellation had been held in abeyance for lack of
certain registration requirements and by reason also of the motion of
Syjuco’s Atty. Formoso to hold in abeyance enforcement of the trial
court’s order of July 16, 1984 as well as of the temporary restraining
order subsequently issued by the Court. 39
It is time to write finis to this unedifying narrative which is notable
chiefly for the deception, deviousness and trickery which have
marked the private respondents’ thus far successful attempts to avoid
the payment of a just obligation. The record of the present proceeding
and the other records already referred to, which the Court has
examined at length, make it clear that the dispute should have been
laid to rest more than eleven years ago, with entry of judgment of this
Court (on September 24, 1977) in G.R. No. L-45752 sealing the fate of
the Lims’ appeal against the amended decision in Civil Case No. 75180
where they had originally questioned the validity of the mortgage and
its foreclosure. That result, the records also show, had itself been nine
(9) years in coming, Civil Case No. 75180 having been instituted in
December 1968 and, after trial and judgment, gone through the Court
of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No. 34683),
both at the instance of the Lims, on the question of reopening before
the amended decision could be issued.
Unwilling, however, to concede defeat, the Lims moved (in Civil Case
No. 75180) to stop the foreclosure sale on the ground of lack of
republication. On December 19, 1977 they obtained a restraining
order in said case, but this notwithstanding, on the very same date
they filed another action (Civil Case No. 117262) in a different branch
of the same Court of First Instance of Manila to enjoin the foreclosure
sale on the same ground of alleged lack of republication. At about this
time, Syjuco republished the notice of sale in order, as it was later to
manifest, to end all further dispute.
That move met with no success. The Lims managed to persuade the
judge in Civil Case No. 75180, notwithstanding his conviction that the
amended decision in said case had already become final, not only to
halt the foreclosure sale but also to authorize said respondents to
dispose of the mortgaged property at a private sale upon posting a
bond of P6,000,000.00 (later increased by P3,000,000.00) to
guarantee payment of Syjuco’s mortgage credit. This gave the Lims a
convenient excuse for further suspension of the foreclosure sale by
introducing a new wrinkle into their contentions - that the bond
superseded the mortgage which should, they claimed, therefore be
discharged instead of foreclosed.
Thus from the final months of 1977 until the end of 1980, a period of
three years, Syjuco found itself fighting a legal battle on two fronts: in
the already finally decided Civil Case No. 75180 and in Civil Case No.
214 | P a g e
117262, upon the single issue of alleged lack of republication, an issue
already mooted by the Lims’ earlier waiver of republication as a
condition for the issuance of the original restraining order of
December 26, 1968 in Civil Case No. 75180, not to mention the fact
that said petitioner had also tried to put an end to it by actually
republishing the notice of sale.
With the advent of 1981, its pleas for early resolution having
apparently fallen on deaf ears, Syjuco went to this Court (in G.R. No.
L-56014) from which, on September 21, 1982, it obtained the decision
already referred to holding, in fine, that there existed no further
impediment to the foreclosure sale and that the sheriff could proceed
with the same.
Said decision, instead of deterring further attempts to derail the
foreclosure, apparently gave the signal for the clandestine filing —
this time by the Partnership of the Heirs of Hugo Lim — on October
14, 1982 of Civil Case No. Q-36485, the subject of the present petition,
which for the first time asserted the claim that the mortgaged
property had been contributed to the plaintiff partnership long before
the execution of the Syjuco’s mortgage in order to defeat the
foreclosure.
Syjuco now maintains that it had no actual knowledge of the existence
and pendency of Civil Case No. Q-36485 until confronted, in the
manner already adverted to, with the fait accompli of a "final"
judgment with permanent injunction therein, and nothing in the
record disabuses the Court about the truth of this disclaimer. Indeed,
considering what had transpired up to that denouement, it becomes
quite evident that actuations of the Lims and their lawyer had been
geared to keeping Syjuco in the dark about said case. Their filing of
two other cases also seeking to enjoin the foreclosure sale (Civil Case
No. 83-19018, Regional Trial Court of Manila in July 1983, and Civil
Case No. Q-32924, Regional Trial Court of Quezon City in September
of the same year) after said sale had already been permanently
enjoined by default judgment in Civil Case No. Q-36485, appears in
retrospect to be nothing but a brace of feints calculated to keep
Syjuco in that state of ignorance and to lull any apprehensions it may
have harbored about encountering further surprises from any other
quarter.
Further credence is lent to this appraisal by the unusually rapid
movement of Civil Case No. Q-36485 itself in its earlier stages; which
saw the motion to declare Syjuco in default filed, an order of default
issued, evidence ex parte for the plaintiffs received and judgment by
default rendered, all within the brief span of twelve days, February
10-22, 1983. Notice of said judgment was "served" on February 23,
1983, the day after it was handed down, only to be followed by an
unaccountable lull of well over a year before it was ordered executed
on July 9, 1984 — unaccountable, considering that previous flurry of
activity, except in the context of a plan to rush the case to judgment
and then divert Syjuco’s attention to the Lims’ moves in other
directions so as to prevent discovery of the existence of the case until
it was too late.
The Court cannot but condemn in the strongest terms this trifling with
the judicial process which degrades the administration of justice,
mocks, subverts and misuses that process for purely dilatory
purposes, thus tending to bring it into disrepute, and seriously erodes
public confidence in the will and competence of the courts to
dispense swift justice.
Upon the facts, the only defense to the foreclosure that could possibly
have merited the full-blown trial and appeal proceedings it actually
went through was that of alleged usury pleaded in Civil Case No.
75180 and finally decided against the respondent Lims in G.R. No. L-
45752 in September 1977. The other issues of failure to republish and
discharge of mortgage by guarantee set up in succeeding actions were
sham issues, questions without substance raised only for purposes of
delay by the private respondents, in which they succeeded only too
well. The claim urged in this latest case: that the mortgaged property
had been contributed to the respondent partnership and was already
property of said partnership when the individual Lims unauthorizedly
mortgaged it to Syjuco, is of no better stripe, and this, too, is clear
from the undisputed facts and the legal conclusions to be drawn
therefrom.
The record shows that the respondent partnership is composed
exclusively of the individual Lims in whose name all the cases herein
referred to, with the sole exception of Civil Case No. Q-36485, were
brought and prosecuted, their contribution to the partnership
consisting chiefly, if not solely, of the property subject of the Syjuco
mortgage. It is also a fact that despite its having been contributed to
the partnership, allegedly on March 30, 1959, the property was never
registered with the Register of Deeds in the name of the partnership,
but to this date remains registered in the names of the Lims as owners
in common. The original mortgage deed of November 14, 1964 was
executed by the Lims as such owners, as were all subsequent
amendments of the mortgage. There can be no dispute that in those
circumstances, the respondent partnership was chargeable with
knowledge of the mortgage from the moment of its execution. The
legal fiction of a separate juridical personality and existence will not
shield it from the conclusion of having such knowledge which
naturally and irresistibly flows from the undenied facts. It would
violate all precepts of reason, ordinary experience and common sense
to propose that a partnership, as such, cannot be held accountable
with knowledge of matters commonly known to all the partners or of
acts in which all of the latter, without exception, have taken part,
where such matters or acts affect property claimed as its own by said
partnership.
If, therefore, the respondent partnership was inescapably chargeable
with knowledge of the mortgage executed by all the partners thereof,
its silence and failure to impugn said mortgage within a reasonable
time, let alone a space of more than seventeen years, brought into
play the doctrine of estoppel to preclude any attempt to avoid the
mortgage as allegedly unauthorized.
The principles of equitable estoppel, sometimes called estoppel in
pais, are made part of our law by Art. 1432 of the Civil Code. Coming
under this class is estoppel by silence, which obtains here and as to
which it has been held that:jgc:chanrobles.com.ph
". . . an estoppel may arise from silence as well as from
words.’Estoppel by silence’ arises where a person, who by force of
circumstances is under a duty to another to speak, refrains from doing
so and thereby leads the other to believe in the existence of a state
of facts in reliance on which he acts to his prejudice. Silence may
support an estoppel whether the failure to speak is intentional or
negligent.
215 | P a g e

"Inaction or silence may under some circumstances amount to a
misrepresentation and concealment of the facts, so as to raise an
equitable estoppel. When the silence is of such a character and under
such circumstances that it would become a fraud on the other party
to permit the party who has kept silent to deny what his silence has
induced the other to believe and act on, it will operate as an estoppel.
This doctrine rests on the principle that if one maintains silence, when
in conscience he ought to speak, equity will debar him from speaking
when in conscience he ought to remain silent. He who remains silent
when he ought to speak cannot be heard to speak when he should be
silent." 40
And more to the point:jgc:chanrobles.com.ph
"A property owner who knowingly permits another to sell or
encumber the property, without disclosing his title or objecting to the
transaction, is estopped to set up his title or interest as against a
person who has been thereby misled to his injury.
x x x Lims, as individuals, and the partnership itself, since the former
"An owner of real property who stands by and sees a third person
selling or mortgaging it under claim of title without asserting his own
title or giving the purchaser or mortgagee any notice thereof is
estopped, as against such purchaser or mortgagee, afterward to
assert his title; and, although title does not pass under these
circumstances, a conveyance will be decreed by a court of equity.
Especially is the rule applicable where the party against whom the
estoppel is claimed, in addition to standing by, takes part in making
the sale or mortgage." 41
"More specifically, the concept to which that species of estoppel
which results from the nondisclosure of an estate or interest in real
property has ordinarily been referred is fraud, actual or constructive .
. . Although fraud is not an essential element of the original conduct
working the estoppel, it may with perfect property be said that it
would be fraudulent for the party to repudiate his conduct, and to
assert a right or claim in contravention thereof." 42
Equally or even more preclusive of the respondent partnership’s claim
to the mortgaged property is the last paragraph of Article 1819 of the
Civil Code, which contemplates a situation duplicating the
circumstances that attended the execution of the mortgage in favor
of Syjuco and therefore applies foursquare
thereto:jgc:chanrobles.com.ph
"Where the title to real property is in the names of all the partners a
conveyance executed by all the partners passes all their rights in such
property."cralaw virtua1aw library
The term "conveyance" used in said provision, which is taken from
Section 10 of the American Uniform Partnership Act, includes a
mortgage.
"Interpreting Sec. 10 of the Uniform Partnership Act, it has been held
that the right to mortgage is included in the right to convey. This is
different from the rule in agency that a special power to sell excludes
the power to mortgage (Art. 1879)." 43
As indisputable as the propositions and principles just stated is that
the cause of action in Civil Case No. Q-36485 is barred by prior
judgment. The right subsumed in that cause is the negation of the
mortgage, postulated on the claim that the parcels of land mortgaged
by the Lims to Syjuco did not in truth belong to them but to the
partnership. Assuming this to be so, the right could have been
asserted at the time that the Lims instituted their first action on
December 24,1968 in the Manila Court of First Instance, Civil Case No.
75180, or when they filed their subsequent actions: Civil Case No.
112762, on December 19, 1977; Civil Case No. 83-19018, in 1983, and
Civil Case No. Q-39294, also in 1983. The claim could have been set
up by the Lims, as members composing the partnership, "Heirs of
Hugo Lim." It could very well have been put forth by the partnership
itself, as co-plaintiff in the corresponding complaints, considering that
the actions involved property supposedly belonging to it and were
being prosecuted by the entire membership of the partnership, and
therefore, the partnership was in actuality, the real party in interest.
In fact, consistently with the Lims’ theory, they should be regarded, in
all the actions presented by them, as having sued for vindication, not
of their individual rights over the property mortgaged, but those of
the partnership. There is thus no reason to distinguish between the
constituted the entire membership of the latter. In other words,
despite the concealment of the existence of the partnership, for all
intents and purposes and consistently with the Lims’ own theory, it
was that partnership which was the real party in interest in all the
actions; it was actually represented in said actions by all the individual
members thereof, and consequently, those members’ acts,
declarations and omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in law, those of the
partnership.
What was done by the Lims — or by the partnership of which they
were the only members — was to split their cause of action in
violation of the well known rule that only one suit may be instituted
for a single cause of action. 44 The right sought to be enforced by
them in all their actions was, at bottom, to strike down the mortgage
constituted in favor of Syjuco, a right which, in their view, resulted
from several circumstances, namely that the mortgage was
constituted over property belonging to the partnership without the
latter’s authority; that the principal obligation thereby secured was
usurious; that the publication of the notice of foreclosure sale was
fatally defective, circumstances which had already taken place at the
time of the institution of the actions. They instituted four (4) actions
for the same purpose on one ground or the other, making each
ground the subject of a separate action. Upon these premises,
application of the sanction indicated by law is called for, i.e., the
judgment on the merits in any one is available as a bar in the others.
45
The first judgment — rendered in Civil Case No. 75180 and affirmed
by both the Court of Appeals (CA-G.R. No. 51752) and this Court (G.R.
No. L-45752) should therefore have barred all the others, all the
requisites of res judicata being present. The judgment was a final and
executory judgment; it had been rendered by a competent court; and
there was, between the first and subsequent cases, not only identity
of subject-matter and of cause of action, but also of parties. As
already pointed out, the plaintiffs in the first four (4) actions, the Lims,
were representing exactly the same claims as those of the
partnership, the plaintiff in the fifth and last action, of which
partnership they were the only members, and there was hence no
216 | P a g e
substantial difference as regards the parties plaintiff in all the actions.
Under the doctrine of res judicata, the judgment in the first was and
should have been regarded as conclusive in all other actions not only
"with respect to the matter directly adjudged," but also "as to any
other matter that could have been raised in relation thereto." 46 It
being indisputable that the matter of the partnership’s being the
owner of the mortgaged properties "could have been raised in
relation" to those expressly made issuable in the first action, it follows
that matter could not be re-litigated in the last action, the fifth.
Though confronted with the facts thus precluding the respondent
partnership’s claim to the property under both the principle of
estoppel and the provisions of Article 1819, last paragraph, of the Civil
Code, as well as the familiar doctrine of res judicata, the respondent
Judge refused to act on Syjuco’s motions on the ground that he no
longer had jurisdiction to do so because they were filed after
judgment by default against Syjuco, which failed to answer the
complaint despite valid service of summons, had been rendered and
become final. The sheriff’s return, however, creates grave doubts
about the correctness of the Judge’s basic premise that summons had
been validly served on Syjuco. For one thing, the return 47 is
unspecific about where service was effected. No safe conclusion
about the place of service can be made from its reference to a former
and a present office of Syjuco in widely separate locations, with
nothing to indicate whether service was effected at one address or
the other, or even at both. A more serious defect is the failure to
name the person served who is, with equal ambiguity, identified only
as "the Manager" of the defendant corporation (petitioner herein).
Since the sheriff’s return constitutes primary evidence of the manner
and incidents of personal service of a summons, the Rules are quite
specific about what such a document should
contain:jgc:chanrobles.com.ph
"SEC. 20. Proof of service. — The proof of service of a summons shall
be made in writing by the server and shall set forth the manner, place
and date of service; shall specify any papers which have been served
with the process and the name of the person who received the same;
and shall be sworn to when made by a person other than a sheriff or
his deputy." 48
In the case of Delta Motor Sales Corporation v. Mangosing 49 it was
held that:jgc:chanrobles.com.ph
"(a) strict compliance with the mode of service is necessary to confer
jurisdiction of the court over a corporation. The officer upon whom
service is made must be one who is named in the statute; otherwise
the service is insufficient. So, where the statute requires that in the
case of a domestic corporation summons should be served on `the
president or head of the corporation, secretary, treasurer, cashier or
managing agent thereof’, service of summons on the secretary’s wife
did not confer jurisdiction over the corporation in the foreclosure
proceeding against it. Hence, the decree of foreclosure and the
deficiency judgment were void and should be vacated (Reader v.
District Court, 94 Pacific 2nd 858).
"The purpose is to render it reasonably certain that the corporation
will receive prompt and proper notice in an action against it or to
insure that the summons be served on a representative so integrated
with the corporation that such person will know what to do with the
legal papers served on him. In other words, `to bring home to the
corporation notice of the filing of the action’. (35 A C.J.S. 288 citing
Jenkins v. Lykes Bros. S.S. Co., 48 F. Supp. 848; MacCarthy v. Langston,
D.C. Fla., 23 F.R.D. 249).
"The liberal construction rule cannot be invoked and utilized as a
substitute for the plain legal requirements as to the manner in which
summons should be served on a domestic corporation (U.S. v.
Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd 260)."cralaw
virtua1aw library
The rule cannot be any less exacting as regards adherence to the
requirements of proof of service, it being usually by such proof that
sufficiency of compliance with the prescribed mode of service is
measured. Here the only proof of service of summons is the
questioned sheriff’s return which, as already pointed out, is not only
vague and unspecific as to the place of service, but also neglects to
identify by name the recipient of the summons as required by Rule
20, Section 14, of the Rules of Court. Where the sheriff’s return is
defective the presumption of regularity in the performance of official
functions will not lie. 50 The defective sheriff’s return thus being
insufficient and incompetent to prove that summons was served in
the manner prescribed for service upon corporations, there is no
alternative to affirming the petitioner’s claim that it had not been
validly summoned in Civil Case No. Q-36485. It goes without saying
that lacking such valid service, the Trial Court did not acquire
jurisdiction over the petitioner Syjuco, rendering null and void all
subsequent proceedings and issuances in the action from the order of
default up to and including the judgment by default and the order for
its execution. 51
The respondents’ contention that the petition is in effect an action to
annul a judgment which is within the exclusive original jurisdiction of
the Court of Appeals 52 has already been answered in Matanguihan
v. Tengco 53 where, by declaring that an action for annulment of
judgment is not a plain, speedy and adequate remedy, this Court in
effect affirmed that certiorari is an appropriate remedy against
judgments or proceedings alleged to have been rendered or had
without valid service of summons. 54
Respondent Judge Castro begged the question when, instead of
resolving on the merits the issue of the invalidity of his default
judgment and of the proceedings leading thereto because of absence
of valid service of summons on the defendant, which had been
expressly raised in the defendant’s motion for reconsideration, he
simply refused to do so on the excuse that he had lost jurisdiction over
the case. This refusal was, in the premises, a grave abuse of judicial
discretion which must be rectified.
What has been said makes unnecessary any further proceedings in
the Court below, which might otherwise be indicated by the
consideration that two of the postulates of petitioner’s unresolved
motions which the Court considers equally as decisive as res judicata,
to wit: estoppel by silence and Article 1819, last paragraph, of the Civil
Code, do not constitute grounds for a motion to dismiss under rule
16, of the Rules of Court. Such a step would only cause further delay.
And delay has been the bane of petitioner’s cause, defying through all
these years all its efforts to collect on a just debt.
The undenied and undisputable facts make it perfectly clear that the
claim to the mortgaged property belatedly and in apparent bad faith
217 | P a g e
pressed by the respondent partnership is foreclosed by both law and
equity. Further proceedings will not make this any clearer than it
already is. The Court is clothed with ample authority, in such a case,
to call a halt to all further proceedings and pronounce judgment on
the basis of what is already manifestly of record.
So much for the merits; the consequences that should attend the
inexcusable and indefensible conduct of the respondents Lims, the
respondent partnership and their counsel, Atty. Paterno R. Canlas,
should now be addressed. That the Lims and their partnership acted
in bad faith and with intent to defraud is manifest in the record of
their actuations, presenting as they did, piecemeal and in one case
after another, defenses to the foreclosure or claims in derogation
thereof that were available to them from the very beginning —
actuations that were to stave off the liquidation of an undenied debt
for more than twenty years and culminated in the clandestine filing
and prosecution of the action subject of the present petition.
What has happened here, it bears repeating, is nothing less than an
abuse of process, a trifling with the courts and with the rights of
access thereto, for which Atty. Canlas must share responsibility
equally with his clients. The latter could not have succeeded so well
in obstructing the course of justice without his aid and advice and his
tireless espousal of their claims and pretensions made in the various
cases chronicled here. That the cause to which he lent his advocacy
was less than just or worthy could not have escaped him, if not at the
start of his engagement, in the years that followed when with his
willing assistance, if not instigation, it was shuttled from one forum to
another after each setback. This Court merely stated what is obvious
and cannot be gainsaid when, in Surigao Mineral Reservation Board
v. Cloribel, 55 it held that a party’s lawyer of record has control of the
proceedings and that" (w)hatever steps his client takes should be
within his knowledge and responsibility."cralaw virtua1aw library
In Prudential Bank v. Castro, 56 strikingly similar actuations in a case,
which are described in the following paragraph taken from this
Court’s decision therein:jgc:chanrobles.com.ph
"Respondents’ foregoing actuations reveal an ‘unholy alliance’
between them and a clear indication of partiality for the party
represented by the other to the detriment of the objective
dispensation of justice. Writs of Attachment and Execution were
issued and implemented with lightning speed; the case itself was
railroaded to a swift conclusion through a similar judgment;
astronomical sums were awarded as damages and attorney’s fees;
and topping it all, the right to appeal was foreclosed by clever
maneuvers," and which, the Court found, followed a pattern of
conduct in other cases of which judicial notice was taken, were
deemed sufficient cause for disbarment.
Atty. Canlas even tried to mislead this Court by claiming that he
became the Lims’ lawyer only in 1977, 57 when the record indubitably
shows that he has represented them since September 9, 1972 when
he first appeared for them to prosecute their appeal in Civil Case No.
75180. 58 He has also quite impenitently disclaimed a duty to inform
opposing counsel in Civil Case No. Q-39294 of the existence of Civil
Case No. Q-36485, as plaintiffs’ counsel in both actions, even while
the former, which involved the same mortgage, was already being
litigated when the latter was filed, although in the circumstances such
disclosure was required by the ethics of his profession, if not indeed
by his lawyer’s oath.
A clear case also exists for awarding at least nominal damages to
petitioner, though damages are not expressly prayed for, under the
general prayer of the petition for "such other reliefs as may be just
and equitable under the premises," and the action being not only
of certiorari and prohibition, but also of mandamus — in which the
payment of "damages sustained by the petitioner by reason of the
wrongful acts of the defendant" is expressly authorized. 59
There is no question in the Court’s mind that such interests as may
have accumulated on the mortgage loan will not offset the prejudice
visited upon the petitioner by the excruciatingly long delay in the
satisfaction of said debt that the private respondents have
engineered and fomented.
These very same considerations dictate the imposition of exemplary
damages in accordance with Art. 2229 of the Civil Code.
WHEREFORE, so that complete justice may be dispensed here and, as
far as consistent with that end, all the matters and incidents with
which these proceedings are concerned may be brought to a swift
conclusion:chanrob1es virtual 1aw library
(1) the assailed judgment by default in Civil Case No. Q-36485, the
writ of execution and all other orders issued in implementation
thereof, and all proceedings in the case leading to said judgment after
the filing of the complaint are DECLARED null and void and are hereby
SET ASIDE; and the complaint in said case is DISMISSED for being
barred by prior judgment and estoppel, and for lack of merit;
(2) the City Sheriff of Manila is ORDERED, upon receipt of this
Decision, to schedule forthwith and thereafter conduct with all due
dispatch the sale at public auction of the mortgaged property in
question for the satisfaction of the mortgage debt of the respondents
Lims to petitioner, in the principal amount of P2,460,000.00 as found
in the amended decision in Civil Case No. 75180 of the Court of First
Instance of Manila, interests thereon at the rate of twelve (12%)
percent per annum from November 8, 1967 until the date of sale, plus
such other and additional sums for commissions, expenses, fees, etc.
as may be lawfully chargeable in extrajudicial foreclosure and sale
proceedings;
(3) the private respondents, their successors and assigns, are
PERPETUALLY ENJOINED from taking any action whatsoever to
obstruct, delay or prevent said auction sale;
(4) the private respondents (the Lims, the Partnership of the Heirs of
Hugo Lim and Atty. Paterno R. Canlas) are sentenced, jointly and
severally, to pay the petitioner P25,000.00 as nominal damages and
P100,000.00 as exemplary damages, as well as treble costs; and
(5) let this matter be referred to the Integrated Bar of the Philippines
for investigation, report, and recommendation insofar as the conduct
of Atty. Canlas as counsel in this case and in the other cases
hereinabove referred to is concerned.
SO ORDERED.
Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
218 | P a g e
BENITO LIWANAG and MARIA LIWANAG REYES, Petitioners-
Appellants, v. WORKMEN’S COMPENSATION COMMISSION, ET
AL., Respondents-Appellees.
J. de Guia for Appellants.
Estanislao R. Bayot for Appellees.
SYLLABUS
1. WORKMEN’S COMPENSATION; SOLIDARY LIABILITY OF BUSINESS
PARTNERS. — Although the Workmen’s Compensation Act does not
contain any provision expressly declaring that the obligation of
business partners arising from compensable injury or death of an
employee should be solidary, however, there are other provisions of
law from which it could be gathered that their liability must be
solidary. Arts. 1711 and 1712 of the New Civil Code and Section 2 of
the Workmen’s Compensation Act, reasonably indicate that in
compensation cases, the liability of business partners should be
solidary. If the responsibility of the partners were to be merely joint
and not solidary, and one of them happens to be insolvent, the
amount awarded to the dependent of the deceased employee would
only be partially satisfied, which is evidently contrary to the intent and
purpose of the law to give full protection to the employee.
2. STATUTORY CONSTRUCTION; LIBERAL CONSTRUCTION OF
WORKMEN’S COMPENSATION LAWS. — Workmen’s Compensation
laws should be construed fairly, reasonably and liberally in favor of
and for the benefit of the employee and his dependents. All doubts
as to right of compensation should be resolved in his favor, and the
law should be interpreted to promote its purpose.
DECISION
ENDENCIA, J.:
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of
Liwanag Auto Supply, a commercial establishment located at 349
Dimasalang, Sampaloc, Manila. They employed Roque Balderama as
security guard who, while in line of duty, was killed by criminal hands.
His widow Ciriaca vda. de Balderama and minor children Genara,
Carlos and Leogardo, all surnamed Balderama, in due time filed a
claim for compensation with the Workmen’s Compensation
Commission, which was granted in an award worded as
follows:chanrob1es virtual 1aw library
WHEREFORE, the order of the referee under consideration should be,
as it is hereby, affirmed and respondents Benito Liwanag and Maria
Liwanag Reyes, ordered:jgc:chanrobles.com.ph
"1. To pay jointly and severally the amount of Three Thousand Four
Hundred Ninety-four and 40/100 (P3,494.40) Pesos to the claimants
in lump sum; and
"To pay to the Workmen’s Compensation Funds the sum of P4.00
(including P5.00 for this review) as fees, pursuant to Section 55 of the
Act."cralaw virtua1aw library
In appealing the case to this Tribunal, appellant do not question the
right of appellees to compensation nor the amount awarded. They
only claim that, under the Workmen’s Compensation Act, the
compensation is divisible, hence the Commission erred in ordering
appellants to pay jointly and severally the amount awarded. They
argue that there is nothing int he compensation Act which provides
that the obligation of an employer arising from compensable injury or
death of an employee should be solidary; that if the legislative intent
in enacting the law is to impose solidary obligation, the same should
have been specifically provided, and that, in the absence of such clear
provision, the responsibility of appellants should not be solidary but
merely joint.
At first blush, appellants’ contention would seem to be well taken, for,
ordinarily, the liability of the partners in a partnership is not solidary;
but the law governing the liability of partners is not applicable to the
case at bar wherein a claim for compensation by dependents of an
employee who died in line of duty is involved. And although the
Workmen’s Compensation Act does not contain any provision
expressly declaring solidary obligation of business partners like the
herein appellants, there are other provisions of law from which it
could be gathered that their liability must be solidary. Arts. 1711 and
1712 of the new Civil Code provide:jgc:chanrobles.com.ph
"Art. 1711. Owners of enterprises and other employers are obliged to
pay compensation for the death of or injuries to their laborers,
workmen, mechanics or other employees, even though the event may
have been purely accidental or entirely due to a fortuitous cause, if
the death or personal injury arose out of and in the course of the
employment. . . . ."cralaw virtua1aw library
"ART. 1712. If the death or injury is due to the negligence of a fellow-
worker, the latter and the employer shall be solidarily liable for
compensation. . . . ."cralaw virtua1aw library
And Section 2 of the Workmen’s Compensation Act, as amended,
reads in part as follows:jgc:chanrobles.com.ph
". . . . The right to compensation as provided in this Act shall not be
defeated or impaired on the ground that the death, injury or disease
was due to the negligence of a fellow servant or employee, without
prejudice to the right of the employer to proceed against the
negligent party."cralaw virtua1aw library
The provisions of the new Civil Code above quoted taken together
with those of Section 2 of the Workmen’s Compensation Act,
reasonably indicate that in compensation cases, the liability of
business partners, like appellants, should be solidary; otherwise, the
right of the employee may be defeated, or at least crippled. If the
responsibility of appellants were to be merely joint and not solidary,
and one of them happens to be insolvent, the amount awarded to the
219 | P a g e
appellees would only be partially satisfied, which is evidently contrary
to the intent and purposes of the Act. In previous case we have
already held that the Workmen’s Compensation Act should be
construed fairly, reasonably and liberally in favor of and for the
benefit of the employee and his dependents; that all doubts as to
right of compensation resolved in his favor; and that it should be
interpreted to promote its purpose. Accordingly, the present
controversy should be decided in favor of the appellees.

Moreover, Art. 1207 of the new Civil Code

provides:jgc:chanrobles.com.ph

". . . . There is solidary liability only when the obligation expressly so

states, or when the law or the nature of the obligation requires
solidarity."cralaw virtua1aw library

Since the Workmen’s Compensation Act was enacted to give full

protection to the employee, reason demands that the nature of the
obligation of the employers to pay compensation to the heirs of their
employee who died in line of duty, should be solidary; otherwise, the
purpose of the law could not be attained.

Wherefore, finding no error in the award appealed from, the same is

hereby affirmed, with costs against appellants.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador

and Concepcion, JJ., concur.

Separate Opinions

REYES, A., J., dissenting:chanrob1es virtual 1aw library

Whether the defendants herein be regarded as co-partners or as

mere co-owners, their liability for the indemnity due their deceased
employee would not be solidary but only pro rata (Arts. 485 and 1815,
new Civil Code). The Workmen’s Compensation Act does not change
the nature of that liability either expressly or by intendment. To hold
that it does, is to read into the Act something that is not there. For
this Court, therefore, to declare that under the said Act the
defendants herein are liable solidarily is to play the role of legislator.

The injustice of the rule sought to be established in the majority

opinion may readily be made obvious with an example. Suppose that
one of two co-partners or co-owners owns 99 percent of the business
while his co-partner or co-owner owns only 1 percent. To hold that in
such case the latter’s liability may run up to 100 percent although his
interest is only 1 per cent would not only be illogical but also
inequitable.

For the foregoing reasons, I have no choice but to dissent.

220 | P a g e
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and
JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO.,
INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO
MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of
the Court of Appeals in CA-G.R. CV No. 66195 which modified the
decision of the then Court of First Instance of Manila in Civil Case No.
66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against
all defendants (respondents in G.R. No. 84197) was dismissed but in
all other respects the trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim
requiring Lim to pay plaintiff the amount of P311,056.02, with interest
at the rate of 12% per annum compounded monthly; plus 15% of the
amount awarded to plaintiff as attorney's fees from July 2,1966, until
full payment is made; plus P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs incurred
additional miscellaneous expenses aside from Pl51,000.00,,making a
total of P184,878.74. Defendant Jacob S. Lim is further required to pay
cross party plaintiff, Bormaheco, the Cervanteses one-half and
Maglana the other half, the amount of Pl84,878.74 with interest from
the filing of the cross-complaints until the amount is fully paid; plus
moral and exemplary damages in the amount of P184,878.84 with
interest from the filing of the cross-complaints until the amount is
fully paid; plus moral and exemplary damages in the amount of
P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the
Cervanteses, and another P20,000.00 to Constancio B. Maglana as
attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer
against defendants Bormaheco, the Cervanteses and Constancio B.
Maglana, is dismissed. Instead, plaintiff is required to indemnify the
defendants Bormaheco and the Cervanteses the amount of
P20,000.00 as attorney's fees and the amount of P4,379.21, per year
from 1966 with legal rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana
the amount of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this
action was filed in good faith. The fact that the properties of the
Bormaheco and the Cervanteses were attached and that they were
required to file a counterbond in order to dissolve the attachment, is
not an act of bad faith. When a man tries to protect his rights, he
should not be saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for in the Rules of
Court, and it was the court that ordered it, in the exercise of its
discretion.
No damage is decided against Malayan Insurance Company, Inc., the
third-party defendant, for it only secured the attachment prayed for
by the plaintiff Pioneer. If an insurance company would be liable for
damages in performing an act which is clearly within its power and
which is the reason for its being, then nobody would engage in the
insurance business. No further claim or counter-claim for or against
anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in
the airline business as owner-operator of Southern Air Lines (SAL) a
single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and
Lim entered into and executed a sales contract (Exhibit A) for the sale
and purchase of two (2) DC-3A Type aircrafts and one (1) set of
necessary spare parts for the total agreed price of US $109,000.00 to
be paid in installments. One DC-3 Aircraft with Registry No. PIC-718,
arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer,
petitioner in G.R. No. 84197) as surety executed and issued its Surety
Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim,
for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company,
Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses)
and Constancio Maglana (respondents in both petitions) contributed
some funds used in the purchase of the above aircrafts and spare
parts. The funds were supposed to be their contributions to a new
corporation proposed by Lim to expand his airline business. They
executed two (2) separate indemnity agreements (Exhibits D-1 and D-
2) in favor of Pioneer, one signed by Maglana and the other jointly
signed by Lim for SAL, Bormaheco and the Cervanteses. The
indemnity agreements stipulated that the indemnitors principally
agree and bind themselves jointly and severally to indemnify and hold
and save harmless Pioneer from and against any/all damages, losses,
costs, damages, taxes, penalties, charges and expenses of whatever
kind and nature which Pioneer may incur in consequence of having
become surety upon the bond/note and to pay, reimburse and make
good to Pioneer, its successors and assigns, all sums and amounts of
money which it or its representatives should or may pay or cause to
be paid or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL
executed in favor of Pioneer as deed of chattel mortgage as security
for the latter's suretyship in favor of the former. It was stipulated
221 | P a g e
therein that Lim transfer and convey to the surety the two aircrafts.
The deed (Exhibit D) was duly registered with the Office of the
Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting
JDA to request payments from the surety. Pioneer paid a total sum of
P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the
said chattel mortgage before the Sheriff of Davao City. The
Cervanteses and Maglana, however, filed a third party claim alleging
that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with
an application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed
cross-claims against Lim alleging that they were not privies to the
contracts signed by Lim and, by way of counterclaim, sought for
damages for being exposed to litigation and for recovery of the sums
of money they advanced to Lim for the purchase of the aircrafts in
question.
After trial on the merits, a decision was rendered holding Lim liable to
pay Pioneer but dismissed Pioneer's complaint against all other
defendants.
As stated earlier, the appellate court modified the trial court's
decision in that the plaintiffs complaint against all the defendants was
dismissed. In all other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT
CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM
HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL
COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff
Pioneer had reinsured its risk of liability under the surety bond in
favor of JDA and subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants' alleged
obligation to Pioneer amounts to P295,000.00, hence, plaintiffs
instant action for the recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer is not the real
party in interest to institute the instant action as it does not stand to
be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to
recover the amount from defendants, hence, it instituted the action
is utterly devoid of merit. Plaintiff did not even present any evidence
that it is the attorney-in-fact of the reinsurance company, authorized
to institute an action for and in behalf of the latter. To qualify a person
to be a real party in interest in whose name an action must be
prosecuted, he must appear to be the present real owner of the right
sought to be enforced (Moran, Vol. I, Comments on the Rules of
Court, 1979 ed., p. 155). It has been held that the real party in interest
is the party who would be benefited or injured by the judgment or the
party entitled to the avails of the suit (Salonga v. Warner Barnes &
Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present
substantial interest as distinguished from a mere expectancy or a
future, contingent, subordinate or consequential interest (Garcia v.
David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d
1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City of
Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be
considered as the real party in interest as it has already been paid by
the reinsurer the sum of P295,000.00 — the bulk of defendants'
alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by
plaintiff Pioneer from its reinsurer, the former was able to foreclose
extra-judicially one of the subject airplanes and its spare engine,
realizing the total amount of P37,050.00 from the sale of the
mortgaged chattels. Adding the sum of P37,050.00, to the proceeds
of the reinsurance amounting to P295,000.00, it is patent that plaintiff
has been overpaid in the amount of P33,383.72 considering that the
total amount it had paid to JDA totals to only P298,666.28. To allow
plaintiff Pioneer to recover from defendants the amount in excess of
P298,666.28 would be tantamount to unjust enrichment as it has
already been paid by the reinsurance company of the amount plaintiff
has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's
liability to JDA. Well settled is the rule that no person should unjustly
enrich himself at the expense of another (Article 22, New Civil Code).
(Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court
based its finding that petitioner was paid by its reinsurer in the
aforesaid amount, as this matter has never been raised by any of the
parties herein both in their answers in the court below and in their
respective briefs with respondent court; (Rollo, p. 11) (2) even
assuming hypothetically that it was paid by its reinsurer, still none of
the respondents had any interest in the matter since the reinsurance
is strictly between the petitioner and the re-insurer pursuant to
section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents
Bormaheco and Maglana; and (4) the principle of unjust enrichment
is not applicable considering that whatever amount he would recover
from the co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the
reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two
of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so
much of its obligations to JDA as has been paid with reinsurance
money?
2. If the answer to the preceding question is in the negative, has
Pioneer still any claim against defendants, considering the amount it
has realized from the sale of the mortgaged properties? (Record on
Appeal, p. 359, Annex B of G.R. No. 84157).
222 | P a g e
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety
bond it had executed in favor of JDA, collected the proceeds of such
reinsurance in the sum of P295,000, and paid with the said amount
the bulk of its alleged liability to JDA under the said surety bond, it is
plain that on this score it no longer has any right to collect to the
extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic),
that is suing defendants for the amount paid to it by the reinsurers,
notwithstanding that the cause of action pertains to the latter,
Pioneer says: The reinsurers opted instead that the Pioneer Insurance
& Surety Corporation shall pursue alone the case.. . . . Pioneer
Insurance & Surety Corporation is representing the reinsurers to
recover the amount.' In other words, insofar as the amount paid to it
by the reinsurers Pioneer is suing defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the
complaint that Pioneer is suing as attorney-in- fact of the reinsurers
for any amount. Lastly, and most important of all, Pioneer has no right
to institute and maintain in its own name an action for the benefit of
the reinsurers. It is well-settled that an action brought by an attorney-
in-fact in his own name instead of that of the principal will not
prosper, and this is so even where the name of the principal is
disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every
action must be prosecuted in the name of the real party in interest.'
This provision is mandatory. The real party in interest is the party who
would be benefitted or injured by the judgment or is the party
entitled to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a
real party in interest, that there is no law permitting an action to be
brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18
Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12;
Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968,
23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer
has collected P295,000.00 from the reinsurers, the uninsured portion
of what it paid to JDA is the difference between the two amounts, or
P3,666.28. This is the amount for which Pioneer may sue defendants,
assuming that the indemnity agreement is still valid and effective. But
since the amount realized from the sale of the mortgaged chattels are
P35,000.00 for one of the airplanes and P2,050.00 for a spare engine,
or a total of P37,050.00, Pioneer is still overpaid by P33,383.72.
Therefore, Pioneer has no more claim against defendants. (Record on
Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not
disputed in the appellate court. Considering this admitted payment,
the only issue that cropped up was the effect of payment made by the
reinsurers to the petitioner. Therefore, the petitioner's argument that
the respondents had no interest in the reinsurance contract as this is
strictly between the petitioner as insured and the reinsuring company
pursuant to Section 91 (should be Section 98) of the Insurance Code
has no basis.
In general a reinsurer, on payment of a loss acquires the same rights
by subrogation as are acquired in similar cases where the original
insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A.
La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in
general applicable to actions or contracts of reinsurance. (Delaware,
Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann.
Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air
Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we
subsequently applied in Manila Mahogany Manufacturing
Corporation v. Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the
indemnity from the insurer, it is provided in said article that the
insurer is deemed subrogated to the rights of the insured against the
wrongdoer and if the amount paid by the insurer does not fully cover
the loss, then the aggrieved party is the one entitled to recover the
deficiency. Evidently, under this legal provision, the real party in
interest with regard to the portion of the indemnity paid is the insurer
and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not
as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in
dismissing the petitioner's complaint as against the respondents for
the reason that the petitioner was not the real party in interest in the
complaint and, therefore, has no cause of action against the
respondents.
Nevertheless, the petitioner argues that the appeal as regards the
counter indemnitors should not have been dismissed on the premise
that the evidence on record shows that it is entitled to recover from
the counter indemnitors. It does not, however, cite any grounds
except its allegation that respondent "Maglanas defense and
evidence are certainly incredible" (p. 12, Rollo) to back up its
contention.
On the other hand, we find the trial court's findings on the matter
replete with evidence to substantiate its finding that the counter-
indemnitors are not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement
ceased to be valid and effective after the execution of the chattel
mortgage.
Testimonies of defendants Francisco Cervantes and Modesto
Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare
parts involved, agreed to issue the bond provided that the same
would be mortgaged to it, but this was not possible because the
223 | P a g e
planes were still in Japan and could not be mortgaged here in the
Philippines. As soon as the aircrafts were brought to the Philippines,
they would be mortgaged to Pioneer Insurance to cover the bond, and
this indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the original
complaint:
The various conflicting claims over the mortgaged properties have
impaired and rendered insufficient the security under the chattel
mortgage and there is thus no other sufficient security for the claim
sought to be enforced by this action.
This is judicial admission and aside from the chattel mortgage there is
no other security for the claim sought to be enforced by this action,
which necessarily means that the indemnity agreement had ceased to
have any force and effect at the time this action was instituted. Sec 2,
Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the
chattel mortgage on the planes and spare parts, no longer has any
further action against the defendants as indemnitors to recover any
unpaid balance of the price. The indemnity agreement was ipso jure
extinguished upon the foreclosure of the chattel mortgage. These
defendants, as indemnitors, would be entitled to be subrogated to
the right of Pioneer should they make payments to the latter. Articles
2067 and 2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the
remedy of foreclosure precludes any further action to recover any
unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last
installments to JDA and Pioneer as surety having made of the
payments to JDA, the alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code, known as the Recto
Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage
both by extrajudicial foreclosure and the instant suit. Such being the
case, as provided by the aforementioned provisions, Pioneer shall
have no further action against the purchaser to recover any unpaid
balance and any agreement to the contrary is void.' Cruz, et al. v.
Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23
SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from
through the contention that Pioneer is not the vendor but JDA. The
reason is that Pioneer is actually exercising the rights of JDA as
vendor, having subrogated it in such rights. Nor may the application
of the provision be validly opposed on the ground that these
defendants and defendant Maglana are not the vendee but
indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No.
L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of
their maturity dates discharged these defendants from any liability as
alleged indemnitors. The change of the maturity dates of the
obligations of Lim, or SAL extinguish the original obligations thru
novations thus discharging the indemnitors.
The principal hereof shall be paid in eight equal successive three
months interval installments, the first of which shall be due and
payable 25 August 1965, the remainder of which ... shall be due and
payable on the 26th day x x x of each succeeding three months and
the last of which shall be due and payable 26th May 1967.
However, at the trial of this case, Pioneer produced a memorandum
executed by SAL or Lim and JDA, modifying the maturity dates of the
obligations, as follows:
The principal hereof shall be paid in eight equal successive three
month interval installments the first of which shall be due and payable
4 September 1965, the remainder of which ... shall be due and
payable on the 4th day ... of each succeeding months and the last of
which shall be due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory
notes bearing maturity dates different from that fixed in the aforesaid
memorandum; the due date of the first installment appears as
October 15, 1965, and those of the rest of the installments, the 15th
of each succeeding three months, that of the last installment being
July 15, 1967.
These restructuring of the obligations with regard to their maturity
dates, effected twice, were done without the knowledge, much less,
would have it believed that these defendants Maglana (sic). Pioneer's
official Numeriano Carbonel would have it believed that these
defendants and defendant Maglana knew of and consented to the
modification of the obligations. But if that were so, there would have
been the corresponding documents in the form of a written notice to
as well as written conformity of these defendants, and there are no
such document. The consequence of this was the extinguishment of
the obligations and of the surety bond secured by the indemnity
agreement which was thereby also extinguished. Applicable by
analogy are the rulings of the Supreme Court in the case of
Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of
Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without
the consent of the guarantor extinguishes the guaranty The mere
failure on the part of the creditor to demand payment after the debt
has become due does not of itself constitute any extension time
referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F.
Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when
Pioneer paid the same. Consequently, Pioneer has no more cause of
action to recover from these defendants, as supposed indemnitors,
what it has paid to JDA. By virtue of an express stipulation in the
surety bond, the failure of JDA to present its claim to Pioneer within
ten days from default of Lim or SAL on every installment, released
Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these
defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or became illegal.
These defendants are entitled to recover damages and attorney's fees
from Pioneer and its surety by reason of the filing of the instant case
against them and the attachment and garnishment of their
properties. The instant action is clearly unfounded insofar as plaintiff
224 | P a g e
drags these defendants and defendant Maglana.' (Record on Appeal,
pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not
meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who
failed to incorporate the entity in which they had chosen to invest?
How are the losses to be treated in situations where their
contributions to the intended 'corporation' were invested not
through the corporate form? This Petition presents these
fundamental questions which we believe were resolved erroneously
by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a
result of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or
gains of the venture in proportion to their contribution. The
petitioner, therefore, questions the appellate court's findings
ordering him to reimburse certain amounts given by the respondents
to the petitioner as their contributions to the intended corporation,
to wit:
However, defendant Lim should be held liable to pay his co-
defendants' cross-claims in the total amount of P184,878.74 as
correctly found by the trial court, with interest from the filing of the
cross-complaints until the amount is fully paid. Defendant Lim should
pay one-half of the said amount to Bormaheco and the Cervanteses
and the other one-half to defendant Maglana. It is established in the
records that defendant Lim had duly received the amount of
Pl51,000.00 from defendants Bormaheco and Maglana representing
the latter's participation in the ownership of the subject airplanes and
spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred
additional expenses, hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be
governed by the supposed charter and the laws of the state relating
thereto and not by the rules governing partners (Cannon v. Brush
Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily
held that persons who attempt, but fail, to form a corporation and
who carry on business under the corporate name occupy the position
of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann.
Cas. 1913A 1065). Thus, where persons associate themselves
together under articles to purchase property to carry on a business,
and their organization is so defective as to come short of creating a
corporation within the statute, they become in legal effect partners
inter se, and their rights as members of the company to the property
acquired by the company will be recognized (Smith v. Schoodoc Pond
Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369).
So, where certain persons associated themselves as a corporation for
the development of land for irrigation purposes, and each conveyed
land to the corporation, and two of them contracted to pay a third
the difference in the proportionate value of the land conveyed by
him, and no stock was ever issued in the corporation, it was treated
as a trustee for the associates in an action between them for an
accounting, and its capital stock was treated as partnership assets,
sold, and the proceeds distributed among them in proportion to the
value of the property contributed by each (Shorb v. Beaudry, 56 Cal.
446). However, such a relation does not necessarily exist, for ordinarily
persons cannot be made to assume the relation of partners, as
between themselves, when their purpose is that no partnership shall
exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S.
461, 472, 29 L.Ed. 688), and it should be implied only when necessary
to do justice between the parties; thus, one who takes no part except
to subscribe for stock in a proposed corporation which is never legally
formed does not become a partner with other subscribers who engage
in business under the name of the pretended corporation, so as to be
liable as such in an action for settlement of the alleged partnership
and contribution (Ward v. Brigham, 127 Mass. 24). A partnership
relation between certain stockholders and other stockholders, who
were also directors, will not be implied in the absence of an
agreement, so as to make the former liable to contribute for payment
of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210,
79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics
supplied).
In the instant case, it is to be noted that the petitioner was declared
non-suited for his failure to appear during the pretrial despite
notification. In his answer, the petitioner denied having received any
amount from respondents Bormaheco, the Cervanteses and Maglana.
The trial court and the appellate court, however, found through
Exhibit 58, that the petitioner received the amount of P151,000.00
representing the participation of Bormaheco and Atty. Constancio B.
Maglana in the ownership of the subject airplanes and spare parts.
The record shows that defendant Maglana gave P75,000.00 to
petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form
a corporation with the respondents despite his representations to
them. This gives credence to the cross-claims of the respondents to
the effect that they were induced and lured by the petitioner to make
contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement. Maglana alleged
in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco
Cervantes and Maglana to expand his airline business. Lim was to
procure two DC-3's from Japan and secure the necessary certificates
of public convenience and necessity as well as the required permits
for the operation thereof. Maglana sometime in May 1965, gave
Cervantes his share of P75,000.00 for delivery to Lim which Cervantes
did and Lim acknowledged receipt thereof. Cervantes, likewise,
delivered his share of the undertaking. Lim in an undertaking
sometime on or about August 9,1965, promised to incorporate his
airline in accordance with their agreement and proceeded to acquire
the planes on his own account. Since then up to the filing of this
answer, Lim has refused, failed and still refuses to set up the
corporation or return the money of Maglana. (Record on Appeal, pp.
337-338).
while respondents Bormaheco and the Cervanteses alleged in their
answer, counterclaim, cross-claim and third party complaint:
225 | P a g e
Sometime in April 1965, defendant Lim lured and induced the
answering defendants to purchase two airplanes and spare parts from
Japan which the latter considered as their lawful contribution and
participation in the proposed corporation to be known as SAL.
Arrangements and negotiations were undertaken by defendant Lim.
Down payments were advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the
agreement among the defendants, defendant Lim in connivance with
the plaintiff, signed and executed the alleged chattel mortgage and
surety bond agreement in his personal capacity as the alleged
proprietor of the SAL. The answering defendants learned for the first
time of this trickery and misrepresentation of the other, Jacob Lim,
when the herein plaintiff chattel mortgage (sic) allegedly executed by
defendant Lim, thereby forcing them to file an adverse claim in the
form of third party claim. Notwithstanding repeated oral demands
made by defendants Bormaheco and Cervanteses, to defendant Lim,
to surrender the possession of the two planes and their accessories
and or return the amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a statement of
accounts, the latter ignored, omitted and refused to comply with
them. (Record on Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of

the case, necessarily, no de facto partnership was created among the
parties which would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other
would-be incorporators in transacting the sale of the airplanes and
spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned

decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.

226 | P a g e
G.R. No. L-29182 October 24, 1928
LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) appellee,
vs.
JOSE S. Y. PENG, assignee, appellant.
C. A. Sobral for appellant.
Amador Constantino for appellee.
OSTRAND, J.:
This is an appeal from a decision of the Court of First Instance of
Manila dismissing an insolvency proceeding.
It appears from the record that on June 13, 1925, the San Miguel
Brewery, Porta Pueco & Co., and Ruiz & Rementaria S. en C. instituted
insolvency proceedings against Leoncia Vda. de Chan Diaco (alias Lao
Liong Naw), alleged to be the owner of a grocery store on Calle Nueva,
Binondo, known as the store of "La Viuda de G. G. Chan Diaco."
In their petition for the declaration of the insolvency, the above-
mentioned firms alleged, among other things, that Leoncia was
indebted to them in the sum of P26,234.47, which debt was incurred
within thirty days prior to the filing of said petition. It further appears
that other creditors have filed claims against the estate to the amount
of P50,000.
The petition for the declaration of insolvency was set down for
hearing on June 25, 1925. Leoncia did not appear at the hearing,
notwithstanding the fact that she was duly notified, and the court
declared her insolvent and ordered the sheriff to take possession of
her property, the visible part of which at that time consisting of some
merchandise, afterwards sold at public auction for P3,300. Judge
Simplicio del Rosario, in an order dated September 12, 11925,
appointed Ricardo Summers, the clerk of the Court of First Instance
of Manila, referee, authorizing him to take further evidence in regard
to the questions of fact raised by the motions of August 5th and 19th.
After various hearings and the taking of considerable testimony, the
referee, on February 18, 1926, rendered a report to the court in which
he made the following recommendations:
That the insolvent deliver to the assignee:
(a) The sum of P56,000 more or less that the "encargado" of the
insolvent's business, Chan Chiao Wa, had delivered to her on the 18th
of April, 1925, which amount was in fact, on the 19th day of April,
1925, about P56,102.65.
(b) The accounts receivable as of June 19, 1925, or that is to say, two
months after the insolvent took charge of her store, amounting to
P40,000.
(c) The amount taken for her own use and out of the business on June
8, 1925, to wit, P2,000.
(d) Another P2,000 that on June 5, 1925, and being already insolvent,
the widow of Chan Diaco had taken from the China Banking
corporation for her personal use.
(e) The following account books: 1awph!l.net
Libros de Acreedores Extranjeros.
Libros de Acreedores Chinos.
Libros de Deudores de Manila.
Libros de Deudores de Provincias.
Libros de Entrada y salida de efectos y mercancias para Manila y
Provincias. Libro Diario de Caja.
Libro de Sueldos de Empleados.
Libros de Balances e Inventarios.
Libro mayor de 1924 y 1925.
The report was approved by Judge del Rosario on April 14, 1926, and
the merchants Cua Ico, Chan Keep, and Simon A. Chan Bona were
ordered to show cause why they should not return that alleged
merchandise to the value of P20,000, alleged to have been delivered
to them by Leoncia, together with P5,000 in cash alleged to have been
received from her by the merchant Chua Ico between the 8th and
11th days of June, 1925.
On April 22, 1926, the attorney for the insolvent filed her exception
to the report of the referee, which had already been approved on
April 14, and on July 23, 1926, the court rendered a decision,
reaffirming its order of April 14, and ordered the insolvent to deliver
to the assignee the sum of P56,000, more or less. alleged to have been
in her possession on April 19, 1925. The court further ordered her to
surrender the books of accounts mentioned in the referee's report
together with the accounts receivable amounting to P40,000 and the
sums withdrawn by her from her current account with the China
Banking Corporation a few days prior to the declaration of insolvency;
and directed the assignee to file actions against the merchants Cua
Ico, Chan Keep, and Simon A. Chan Bona for the return by them of the
sum of P5,000 in cash, plus the merchandise valued at P20,000
delivered to them by the insolvent in fraud of her creditors.
On August 4, 1926, attorney for the insolvent filed a motion asking
the court to dismiss the proceedings against her on the ground that
they should have been brought against the partnership "Lao Liong
Naw & Co.," of which she was only a member. The alleged partnership
was evidenced by an agreement dated July 22, 1922, and from which
it appeared that on that date Lao Liong Naw (Leoncia), Chan Chiaco
Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le, and Juan Maquitan Chan
had formed a partnership with a capital of P21,000, of which only
P4,000 was contributed by Leoncia.
In view of the aforesaid motion Judge Del Rosario on August 7, 1926,
suspended for the time being the effects of the decision of July 23,
1926, and set the motion down for hearing on the 14th of August,
1926. His Honor again appointed Summers as referee.
After several hearings in which various witnesses were examined and
documents presented on behalf of both sides, the referee, on
February 28, 1927, rendered a second report, in which he found as
facts that the alleged partnership between the insolvent and some of
her relatives and employees was only a fictitious organization created
for the purpose of deceiving the Bureau of Customs and enable some
of the aforesaid relatives, who were mere coolies, to come to the
Philippines under the status of merchants. He, therefore,
recommended that the motion of the insolvent to dismiss the
proceedings against her be denied.
The report was assigned for hearing on May 21, 1927. Judge Del
Rosario was then absent on leave and the matter was, therefore,
submitted to Judge Francisco Zandueta, who had been temporarily
227 | P a g e
assigned to take the place of Judge Del Rosario, and on June 6, 1927,
a decision was rendered disapproving the report of the referee. The
court, therefore, affirmed the suspension of the decision of Judge Del
Rosario, and on June 23, 1926, dismissed the insolvency proceedings,
and ordered the assignee to return to the sheriff all the property of
the insolvent which he, the sheriff, might have in his possession. The
decision further provided for leave to the petitioners to file a new
petition in insolvency against the partnership Lao Liong Naw & Co. if
they so desired. A motion for reconsideration was presented by the
assignee but was denied by the court in an order of July 1, 1927. the
assignee, thereupon, appealed to this court and presents the
following assignments of error:

1. The lower court erred in disapproving the report of the referee

dated February 28, 1927.

2. The lower court erred in dismissing the petition for the involuntary
insolvency of the merchant Leoncia Vda. de Chan Diaco (alias Lao
Liong Naw or Niew).

3. The lower court erred in ordering the filing of a new petition of

insolvency against the fictitious partnership Lao Liong Niew & Co. and
the delivery to the sheriff of all the property of the insolvency.

In our opinion, all of the assignments of error are well taken. The
evidence appearing in the record fully supports the findings of the
referee and his report should have been approved by the court below.

As to the second and third assignments of error it is to be observed

that conceding for the sake of the argument that the debts in question
were incurred by the alleged partnership, it clearly appears from the
record that said partnership, as such, has no visible assets that,
therefore, the partners individually must, jointly and severally,
respond for its debts (Code of Commerce, art. 127). As the appellee is
one of the partners and admits that she is insolvent, we can see no
reason for the dismissal of the proceedings against her. It is further to
be noted that both the partnership and the separate partners thereof
may be joined in the same action, though the private property of the
latter cannot be taken in payment of the partnership debts until the
common property of the concern is exhausted (Comapnia Maritima
vs. Munoz, 9 Phil., 326) and, under this rule, it seems clear that the
alleged partnership here in question may, if necessary, be included in
the case by amendments to the insolvency petition.

We also call attention to the fact that the evidence clearly shows that
the business, alleged to have been that of the partnership, was carried
on under the name "Leoncia Vda. de Chan Diaco" or "La Vda. de G. G.
Chan Diaco," both of which are names of the appellee, and we think
it can be safely held that a partnership may be adjudged bankrupt in
the name of an ostensible partner, when such name is the name
under which the partnership did business.

The decision appealed from is hereby reversed, the reports and

recommendations of the referee are approved, the order for the
dismissal of the case is set aside, and the decision of Judge Simplicio
Del Rosario dated July 23, 1926, will remain in full force and effect. No
costs will be allowed. So ordered.

Avanceña, C. J., Johnson, Street, Malcolm, Villamor, Romualdez, and

Villa-Real, JJ., concur.

228 | P a g e
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C. YULO,Plaintiffs-
Appellants, vs. YANG CHIAO SENG, Defendant-Appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
LABRADOR, J.: chanrobles virtual law library
Appeal from the judgment of the Court of First Instance of Manila,
Hon. Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as
well as defendant's counterclaim. The appeal is prosecuted by
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
The record discloses that on June 17, 1945, defendant Yang Chiao
Seng wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the
formation of a partnership between them to run and operate a
theatre on the premises occupied by former Cine Oro at Plaza Sta.
Cruz, Manila. The principal conditions of the offer are (1) that Yang
Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000
payable quarterly in advance within the first 15 days of each quarter,
(2) that the partnership shall be for a period of two years and six
months, starting from July 1, 1945 to December 31, 1947, with the
condition that if the land is expropriated or rendered impracticable
for the business, or if the owner constructs a permanent building
thereon, or Mrs. Yulo's right of lease is terminated by the owner, then
the partnership shall be terminated even if the period for which the
partnership was agreed to be established has not yet expired; (3) that
Mrs. Yulo is authorized personally to conduct such business in the
lobby of the building as is ordinarily carried on in lobbies of theatres
in operation, provided the said business may not obstruct the free
ingress and agrees of patrons of the theatre; (4) that after December
31, 1947, all improvements placed by the partnership shall belong to
Mrs. Yulo, but if the partnership agreement is terminated before the
lapse of one and a half years period under any of the causes
mentioned in paragraph (2), then Yang Chiao Seng shall have the right
to remove and take away all improvements that the partnership may
place in the premises.chanroblesvirtualawlibrary chanrobles virtual
law library
Pursuant to the above offer, which plaintiff evidently accepted, the
parties executed a partnership agreement establishing the "Yang &
Company, Limited," which was to exist from July 1, 1945 to December
31, 1947. It states that it will conduct and carry on the business of
operating a theatre for the exhibition of motion and talking pictures.
The capital is fixed at P100,000, P80,000 of which is to be furnished
by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits
are to be distributed among the partners in the same proportion as
their capital contribution and the liability of Mrs. Yulo, in case of loss,
shall be limited to her capital contribution (Exh.
"B").chanroblesvirtualawlibrary chanrobles virtual law library
In June , 1946, they executed a supplementary agreement, extending
the partnership for a period of three years beginning January 1, 1948
to December 31, 1950. The benefits are to be divided between them
at the rate of 50-50 and after December 31, 1950, the showhouse
building shall belong exclusively to the second party, Mrs.
Yulo.chanroblesvirtualawlibrary chanrobles virtual law library
The land on which the theatre was constructed was leased by plaintiff
Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa
Marina. In the contract of lease it was stipulated that the lease shall
continue for an indefinite period of time, but that after one year the
lease may be cancelled by either party by written notice to the other
party at least 90 days before the date of cancellation. The last contract
was executed between the owners and Mrs. Yulo on April 5, 1948. But
on April 12, 1949, the attorney for the owners notified Mrs. Yulo of
the owner's desire to cancel the contract of lease on July 31, 1949. In
view of the above notice, Mrs. Yulo and her husband brought a civil
action to the Court of First Instance of Manila on July 3, 1949 to
declare the lease of the premises. On February 9, 1950, the Municipal
Court of Manila rendered judgment ordering the ejectment of Mrs.
Yulo and Mr. Yang. The judgment was appealed. In the Court of First
Instance, the two cases were afterwards heard jointly, and judgment
was rendered dismissing the complaint of Mrs. Yulo and her husband,
and declaring the contract of lease of the premises terminated as of
July 31, 1949, and fixing the reasonable monthly rentals of said
premises at P100. Both parties appealed from said decision and the
Court of Appeals, on April 30, 1955, affirmed the
judgment.chanroblesvirtualawlibrary chanrobles virtual law library
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her
share in the profits of the business. Yang answered the letter saying
that upon the advice of his counsel he had to suspend the payment
(of the rentals) because of the pendency of the ejectment suit by the
owners of the land against Mrs. Yulo. In this letter Yang alleges that
inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid
to the lessors the rentals from August, 1949, he was retaining the
rentals to make good to the landowners the rentals due from Mrs.
Yulo in arrears (Exh. "E").chanroblesvirtualawlibrary chanrobles
virtual law library
In view of the refusal of Yang to pay her the amount agreed upon,
Mrs. Yulo instituted this action on May 26, 1954, alleging the
existence of a partnership between them and that the defendant
Yang Chiao Seng has refused to pay her share from December, 1949
to December, 1950; that after December 31, 1950 the partnership
between Mrs. Yulo and Yang terminated, as a result of which, plaintiff
became the absolute owner of the building occupied by the Cine
Astor; that the reasonable rental that the defendant should pay
therefor from January, 1951 is P5,000; that the defendant has acted
maliciously and refuses to pay the participation of the plaintiff in the
profits of the business amounting to P35,000 from November, 1949
to October, 1950, and that as a result of such bad faith and malice on
the part of the defendant, Mrs. Yulo has suffered damages in the
amount of P160,000 and exemplary damages to the extent of P5,000.
The prayer includes a demand for the payment of the above sums plus
the sum of P10,000 for the attorney's
fees.chanroblesvirtualawlibrary chanrobles virtual law library
In answer to the complaint, defendant alleges that the real agreement
between the plaintiff and the defendant was one of lease and not of
partnership; that the partnership was adopted as a subterfuge to get
around the prohibition contained in the contract of lease between the
owners and the plaintiff against the sublease of the said property. As
to the other claims, he denies the same and alleges that the fair rental
value of the land is only P1,100. By way of counterclaim he alleges
that by reason of an attachment issued against the properties of the
defendant the latter has suffered damages amounting to
P100,000.chanroblesvirtualawlibrary chanrobles virtual law library
The first hearing was had on April 19, 1955, at which time only the
plaintiff appeared. The court heard evidence of the plaintiff in the
absence of the defendant and thereafter rendered judgment ordering
229 | P a g e
the defendant to pay to the plaintiff P41,000 for her participation in
the business up to December, 1950; P5,000 as monthly rental for the
use and occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use and occupation
of the lobby from July 1, 1945 until defendant vacates the property.
This decision, however, was set aside on a motion for reconsideration.
In said motion it is claimed that defendant failed to appear at the
hearing because of his honest belief that a joint petition for
postponement filed by both parties, in view of a possible amicable
settlement, would be granted; that in view of the decision of the
Court of Appeals in two previous cases between the owners of the
land and the plaintiff Rosario Yulo, the plaintiff has no right to claim
the alleged participation in the profit of the business, etc. The court,
finding the above motion, well-founded, set aside its decision and a
new trial was held. After trial the court rendered the decision making
the following findings: that it is not true that a partnership was
created between the plaintiff and the defendant because defendant
has not actually contributed the sum mentioned in the Articles of
Partnership, or any other amount; that the real agreement between
the plaintiff and the defendant is not of the partnership but one of
the lease for the reason that under the agreement the plaintiff did not
share either in the profits or in the losses of the business as required
by Article 1769 of the Civil Code; and that the fact that plaintiff was
granted a "guaranteed participation" in the profits also belies the
supposed existence of a partnership between them. It. therefore,
denied plaintiff's claim for damages or supposed participation in the
profits.chanroblesvirtualawlibrary chanrobles virtual law library
As to her claim for damages for the refusal of the defendant to allow
the use of the supposed lobby of the theatre, the court after ocular
inspection found that the said lobby was very narrow space leading
to the balcony of the theatre which could not be used for business
purposes under existing ordinances of the City of Manila because it
would constitute a hazard and danger to the patrons of the theatre.
The court, therefore, dismissed the complaint; so did it dismiss the
defendant's counterclaim, on the ground that the defendant failed to
present sufficient evidence to sustain the same. It is against this
decision that the appeal has been prosecuted by plaintiff to this
Court.chanroblesvirtualawlibrary chanrobles virtual law library
The first assignment of error imputed to the trial court is its order
setting aside its former decision and allowing a new trial. This
assignment of error is without merit. As that parties agreed to
postpone the trial because of a probable amicable settlement, the
plaintiff could not take advantage of defendant's absence at the time
fixed for the hearing. The lower court, therefore, did not err in setting
aside its former judgment. The final result of the hearing shown by
the decision indicates that the setting aside of the previous decision
was in the interest of justice.chanroblesvirtualawlibrary chanrobles
virtual law library
In the second assignment of error plaintiff-appellant claims that the
lower court erred in not striking out the evidence offered by the
defendant-appellee to prove that the relation between him and the
plaintiff is one of the sublease and not of partnership. The action of
the lower court in admitting evidence is justified by the express
allegation in the defendant's answer that the agreement set forth in
the complaint was one of lease and not of partnership, and that the
partnership formed was adopted in view of a prohibition contained in
plaintiff's lease against a sublease of the
property.chanroblesvirtualawlibrary chanrobles virtual law library
The most important issue raised in the appeal is that contained in the
fourth assignment of error, to the effect that the lower court erred in
holding that the written contracts, Exhs. "A", "B", and "C, between
plaintiff and defendant, are one of lease and not of partnership. We
have gone over the evidence and we fully agree with the conclusion
of the trial court that the agreement was a sublease, not a
partnership. The following are the requisites of partnership: (1) two
or more persons who bind themselves to contribute money, property,
or industry to a common fund; (2) intention on the part of the
partners to divide the profits among themselves. (Art. 1767, Civil
Code.).chanroblesvirtualawlibrary chanrobles virtual law library
In the first place, plaintiff did not furnish the supposed P20,000
capital. In the second place, she did not furnish any help or
intervention in the management of the theatre. In the third place, it
does not appear that she has ever demanded from defendant any
accounting of the expenses and earnings of the business. Were she
really a partner, her first concern should have been to find out how
the business was progressing, whether the expenses were legitimate,
whether the earnings were correct, etc. She was absolutely silent with
respect to any of the acts that a partner should have done; all that she
did was to receive her share of P3,000 a month, which can not be
interpreted in any manner than a payment for the use of the premises
which she had leased from the owners. Clearly, plaintiff had always
acted in accordance with the original letter of defendant of June 17,
1945 (Exh. "A"), which shows that both parties considered this offer
as the real contract between
them.chanroblesvirtualawlibrary chanrobles virtual law library
Plaintiff claims the sum of P41,000 as representing her share or
participation in the business from December, 1949. But the original
letter of the defendant, Exh. "A", expressly states that the agreement
between the plaintiff and the defendant was to end upon the
termination of the right of the plaintiff to the lease. Plaintiff's right
having terminated in July, 1949 as found by the Court of Appeals, the
partnership agreement or the agreement for her to receive a
participation of P3,000 automatically ceased as of said
date.chanroblesvirtualawlibrary chanrobles virtual law library
We find no error in the judgment of the court below and we affirm
it in toto, with costs against plaintiff-
appellant.chanroblesvirtualawlibrary chanrobles virtual law library
Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.
230 | P a g e
G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER,
GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of
Rizal, Quezon City Branch, to recover possesion of registered land
situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the
extent and description of the land sought to be recovered. The
original complaint described the land as a portion of a lot registered
in plaintiff's name under Transfer Certificate of Title No. 37686 of the
land record of Rizal Province and as containing an area of 13 hectares
more or less. But the complaint was amended by reducing the area of
6 hectares, more or less, after the defendant had indicated the
plaintiff's surveyors the portion of land claimed and occupied by him.
The second amendment became necessary and was allowed
following the testimony of plaintiff's surveyors that a portion of the
area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of
trial, after defendant's surveyor and witness, Quirino Feria, had
testified that the area occupied and claimed by defendant was about
13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave
of court, amended its complaint to make its allegations conform to
the evidence.
Defendant, in his answer, sets up prescription and title in himself thru
"open, continuous, exclusive and public and notorious possession (of
land in dispute) under claim of ownership, adverse to the entire world
by defendant and his predecessor in interest" from "time in-
memorial". The answer further alleges that registration of the land in
dispute was obtained by plaintiff or its predecessors in interest thru
"fraud or error and without knowledge (of) or interest either personal
or thru publication to defendant and/or predecessors in interest." The
answer therefore prays that the complaint be dismissed with costs
and plaintiff required to reconvey the land to defendant or pay its
value.
After trial, the lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in question and ordering
him to restore possession thereof to plaintiff and to pay the latter a
monthly rent of P132.62 from January, 1940, until he vacates the land,
and also to pay the costs.
Appealing directly to this court because of the value of the property
involved, defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that
the case was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in
the litigation.
V. The trial court erred in holding that the land in dispute is covered
by transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true
and lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay
the plaintiff the amount of P132.62 monthly from January, 1940, until
he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the
land in litigation to the defendant.
As to the first assigned error, there is nothing to the contention that
the present action is not brought by the real party in interest, that is,
by J. M. Tuason and Co., Inc. What the Rules of Court require is that
an action be brought in the name of, but not necessarily by, the real
party in interest. (Section 2, Rule 2.) In fact the practice is for an
attorney-at-law to bring the action, that is to file the complaint, in the
name of the plaintiff. That practice appears to have been followed in
this case, since the complaint is signed by the law firm of Araneta and
Araneta, "counsel for plaintiff" and commences with the statement
"comes now plaintiff, through its undersigned counsel." It is true that
the complaint also states that the plaintiff is "represented herein by
its Managing Partner Gregorio Araneta, Inc.", another corporation,
but there is nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The contention
that Gregorio Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter
into a partnership is without merit, for the true rule is that "though a
corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature
of that venture is in line with the business authorized by its charter."
(Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2
Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate
that the venture in which plaintiff is represented by Gregorio Araneta,
Inc. as "its managing partner" is not in line with the corporate
business of either of them.
Errors II, III, and IV, referring to the admission of the third amended
complaint, may be answered by mere reference to section 4 of Rule
17, Rules of Court, which sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When issues not raised
by the pleadings are tried by express or implied consent of the parties,
they shall be treated in all respects, as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to
cause them to conform to the evidence and to raise these issues may
be made upon motion of any party at my time, even of the trial of
these issues. If evidence is objected to at the trial on the ground that
it is not within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall be so freely when the
presentation of the merits of the action will be subserved thereby and
the objecting party fails to satisfy the court that the admission of such
evidence would prejudice him in maintaining his action or defense
upon the merits. The court may grant a continuance to enable the
objecting party to meet such evidence.
Under this provision amendment is not even necessary for the
purpose of rendering judgment on issues proved though not alleged.
Thus, commenting on the provision, Chief Justice Moran says in this
Rules of Court:
231 | P a g e
Under this section, American courts have, under the New Federal
Rules of Civil Procedure, ruled that where the facts shown entitled
plaintiff to relief other than that asked for, no amendment to the
complaint is necessary, especially where defendant has himself raised
the point on which recovery is based, and that the appellate court
treat the pleadings as amended to conform to the evidence, although
the pleadings were not actually amended. (I Moran, Rules of Court,
1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are
without merit..
Let us now pass on the errors V and VI. Admitting, though his
attorney, at the early stage of the trial, that the land in dispute "is that
described or represented in Exhibit A and in Exhibit B enclosed in red
pencil with the name Quirino Bolaños," defendant later changed his
lawyer and also his theory and tried to prove that the land in dispute
was not covered by plaintiff's certificate of title. The evidence,
however, is against defendant, for it clearly establishes that plaintiff
is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon,
Quezon City, with an area of 5,297,429.3 square meters, more or less,
covered by transfer certificate of title No. 37686 of the land records
of Rizal province, and of lot No. 4-B-4, situated in the same barrio,
having an area of 74,789 square meters, more or less, covered by
transfer certificate of title No. 37677 of the land records of the same
province, both lots having been originally registered on July 8, 1914
under original certificate of title No. 735. The identity of the lots was
established by the testimony of Antonio Manahan and Magno
Faustino, witnesses for plaintiff, and the identity of the portion
thereof claimed by defendant was established by the testimony of his
own witness, Quirico Feria. The combined testimony of these three
witnesses clearly shows that the portion claimed by defendant is
made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and
is well within the area covered by the two transfer certificates of title
already mentioned. This fact also appears admitted in defendant's
answer to the third amended complaint.
defendant was 13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is appears from the
testimony of J. A. Araneta and witness Emigdio Tanjuatco that as early
as 1939 an action of ejectment had already been filed against
defendant. And it cannot be supposed that defendant has been
paying rents, for he has been asserting all along that the premises in
question 'have always been since time immemorial in open,
continuous, exclusive and public and notorious possession and under
claim of ownership adverse to the entire world by defendant and his
predecessors in interest.' This assignment of error is thus clearly
without merit.
Error No. VIII is but a consequence of the other errors alleged and
needs for further consideration.
During the pendency of this case in this Court appellant, thru other
counsel, has filed a motion to dismiss alleging that there is pending
before the Court of First Instance of Rizal another action between the
same parties and for the same cause and seeking to sustain that
allegation with a copy of the complaint filed in said action. But an
examination of that complaint reveals that appellant's allegation is
not correct, for the pretended identity of parties and cause of action
in the two suits does not appear. That other case is one for recovery
of ownership, while the present one is for recovery of possession. And
while appellant claims that he is also involved in that order action
because it is a class suit, the complaint does not show that such is
really the case. On the contrary, it appears that the action seeks relief
for each individual plaintiff and not relief for and on behalf of others.
The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs
against the plaintiff.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo,
Labrador, and Concepcion, JJ., concur.

As the land in dispute is covered by plaintiff's Torrens certificate of

title and was registered in 1914, the decree of registration can no
longer be impugned on the ground of fraud, error or lack of notice to
defendant, as more than one year has already elapsed from the
issuance and entry of the decree. Neither court the decree be
collaterally attacked by any person claiming title to, or interest in, the
land prior to the registration proceedings. (Soroñgon vs.
Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in
derogation of that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No. 496.)
Adverse, notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against a Torrens
title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p.
43.) And it is likewise settled that the right to secure possession under
a decree of registration does not prescribed. (Francisco vs. Cruz, 43
Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this
point is that rendered in the case of Jose Alcantara et al., vs. Mariano
et al., 92 Phil., 796. This disposes of the alleged errors V and VI.

As to error VII, it is claimed that `there was no evidence to sustain the

finding that defendant should be sentenced to pay plaintiff P132.62
monthly from January, 1940, until he vacates the premises.' But it
appears from the record that that reasonable compensation for the
use and occupation of the premises, as stipulated at the hearing was
P10 a month for each hectare and that the area occupied by

232 | P a g e
G.R. No. 144214. July 14, 2003]
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO
JOSE, Petitioners, v.DONALDO EFREN C. RAMIREZ and Spouses CESAR
G. RAMIREZ JR. and CARMELITA C. RAMIREZ, Respondents.
DECISION
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of
the latters dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March
23, 2000 Decision1 and the July 26, 2000 Resolution2 of the Court of
Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision disposed
as follows:
WHEREFORE, foregoing premises considered, the Decision dated July
21, 1992 rendered by the Regional Trial Court, Branch 148, Makati
City is hereby SET ASIDE and NULLIFIED and in lieu thereof a new
decision is rendered ordering the [petitioners] jointly and severally to
pay and reimburse to [respondents] the amount of P253,114.00. No
pronouncement as to costs.4cräläwvirtualibräry
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose
formed a partnership with a capital of P750,000 for the operation of
a restaurant and catering business under the name Aquarius Food
House and Catering Services.5 Villareal was appointed general
manager and Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the
business on September 5, 1984. His capital contribution of P250,000
was paid by his parents, Respondents Cesar and Carmelita
Ramirez.6cräläwvirtualibräry
After Jesus Jose withdrew from the partnership in January 1987, his
capital contribution of P250,000 was refunded to him in cash by
agreement of the partners.7cräläwvirtualibräry
In the same month, without prior knowledge of respondents,
petitioners closed down the restaurant, allegedly because of
increased rental. The restaurant furniture and equipment were
deposited in the respondents house for storage. 8cräläwvirtualibräry
On March 1, 1987, respondent spouses wrote petitioners, saying that
they were no longer interested in continuing their partnership or in
reopening the restaurant, and that they were accepting the latters
offer to return their capital contribution.9cräläwvirtualibräry
On October 13, 1987, Carmelita Ramirez wrote another letter
informing petitioners of the deterioration of the restaurant furniture
and equipment stored in their house. She also reiterated the request
for the return of their one-third share in the equity of the partnership.
The repeated oral and written requests were, however, left
unheeded.10cräläwvirtualibräry
Before the Regional Trial Court (RTC) of Makati, Branch 59,
respondents subsequently filed a Complaint11 dated November 10,
1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had
expressed a desire to withdraw from the partnership and had called
for its dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture
and equipment worth over P400,000; and that the latter had no right
to demand a return of their equity because their share, together with
the rest of the capital of the partnership, had been spent as a result
of irreversible business losses.12cräläwvirtualibräry
In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation
were true, then the loans incurred by petitioners should be regarded
as purely personal and, as such, not chargeable to the partnership.
The former further averred that they had not received any regular
report or accounting from the latter, who had solely managed the
business. Respondents also alleged that they expected the equipment
and the furniture stored in their house to be removed by petitioners
as soon as the latter found a better location for the
restaurant.13cräläwvirtualibräry
Respondents filed an Urgent Motion for Leave to Sell or Otherwise
Dispose of Restaurant Furniture and Equipment14 on July 8, 1988. The
furniture and the equipment stored in their house were inventoried
and appraised at P29,000.15 The display freezer was sold for P5,000
and the proceeds were paid to them.16cräläwvirtualibräry
After trial, the RTC17 ruled that the parties had voluntarily entered
into a partnership, which could be dissolved at any time. Petitioners
clearly intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held
them liable as follows:18cräläwvirtualibräry
WHEREFORE, judgment is hereby rendered in favor of [respondents]
and against the [petitioners] ordering the [petitioners] to pay jointly
and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorneys fee in the amount of P30,000.00
(c) Costs of suit.
The CA Ruling
The CA held that, although respondents had no right to demand the
return of their capital contribution, the partnership was nonetheless
dissolved when petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and
because no sufficient evidence was presented to show financial
losses, the CA computed their liability as follows:
Consequently, since what has been proven is only the outstanding
obligation of the partnership in the amount of P240,658.00, although
contracted by the partnership before [respondents] have joined the
partnership but in accordance with Article 1826 of the New Civil Code,
they are liable which must have to be deducted from the remaining
capitalization of the said partnership which is in the amount
of P1,000,000.00 resulting in the amount of P759,342.00, and in order
to get the share of [respondents], this amount of P759,342.00 must
be divided into three (3) shares or in the amount of P253,114.00 for
each share and which is the only amount which [petitioner] will return
to [respondents] representing the contribution to the partnership
minus the outstanding debt thereof.19cräläwvirtualibräry
233 | P a g e
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the following issues for
our consideration:
9.1. Whether the Honorable Court of Appeals decision ordering the
distribution of the capital contribution, instead of the net capital after
the dissolution and liquidation of a partnership, thereby treating the
capital contribution like a loan, is in accordance with law and
jurisprudence;
9.2. Whether the Honorable Court of Appeals decision ordering the
petitioners to jointly and severally pay and reimburse the amount of
[P]253,114.00 is supported by the evidence on record; and
9.3. Whether the Honorable Court of Appeals was correct in making
[n]o pronouncement as to costs.22cräläwvirtualibräry
On closer scrutiny, the issues are as follows: (1) whether petitioners
are liable to respondents for the latters share in the partnership; (2)
whether the CAs computation of P253,114 as respondents share is
correct; and (3) whether the CA was likewise correct in not assessing
costs.
This Courts Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had
indeed existed, and that it was dissolved on March 1, 1987. They
found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the formers
dissatisfaction with, and loss of trust in, the latters management of
the partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from
petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners
the return of their equity share. Except as managers of the
partnership, petitioners did not personally hold its equity or assets.
The partnership has a juridical personality separate and distinct from
that of each of the partners.23 Since the capital was contributed to the
partnership, not to petitioners, it is the partnership that must refund
the equity of the retiring partners.24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must
refund the shares of the partners, the amount to be refunded is
necessarily limited to its total resources. In other words, it can only
pay out what it has in its coffers, which consists of all its assets.
However, before the partners can be paid their shares, the creditors
of the partnership must first be compensated.25After all the creditors
have been paid, whatever is left of the partnership assets becomes
available for the payment of the partners shares.
Evidently, in the present case, the exact amount of refund equivalent
to respondents one-third share in the partnership cannot be
determined until all the partnership assets will have been liquidated -
- in other words, sold and converted to cash -- and all partnership
creditors, if any, paid. The CAs computation of the amount to be
refunded to respondents as their share was thus erroneous.
First, it seems that the appellate court was under the
misapprehension that the total capital contribution was equivalent to
the gross assets to be distributed to the partners at the time of the
dissolution of the partnership. We cannot sustain the underlying idea
that the capital contribution at the beginning of the partnership
remains intact, unimpaired and available for distribution or return to
the partners. Such idea is speculative, conjectural and totally without
factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does
not remain static and unaffected by the changing fortunes of the
business. In the present case, the financial statements presented
before the trial court showed that the business had made meager
profits.26 However, notable therefrom is the omission of any provision
for the depreciation27 of the furniture and the equipment. The
amortization of the goodwill28 (initially valued at P500,000) is not
reflected either. Properly taking these non-cash items into account
will show that the partnership was actually sustaining substantial
losses, which consequently decreased the capital of the partnership.
Both the trial and the appellate courts in fact recognized the decrease
of the partnership assets to almost nil, but the latter failed to
recognize the consequent corresponding decrease of the capital.
Second, the CAs finding that the partnership had an outstanding
obligation in the amount of P240,658 was not supported by evidence.
We sustain the contrary finding of the RTC, which had rejected the
contention that the obligation belonged to the partnership for the
following reason:
x x x [E]vidence on record failed to show the exact loan owed by the
partnership to its creditors. The balance sheet (Exh. 4) does not reveal
the total loan. The Agreement (Exh. A) par. 6 shows an outstanding
obligation of P240,055.00 which the partnership owes to different
creditors, while the Certification issued by Mercator Finance (Exh. 8)
shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal,
the former being the nominal party defendant in the instant case,
who obtained a loan of P355,000.00 on Oct. 1983, when the original
partnership was not yet formed.
Third, the CA failed to reduce the capitalization by P250,000, which
was the amount paid by the partnership to Jesus Jose when he
withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital
was actually reduced. When petitioners and respondents ventured
into business together, they should have prepared for the fact that
their investment would either grow or shrink. In the present case, the
investment of respondents substantially dwindled. The original
amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at
the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties
from the effects of unwise, foolish or disastrous contracts they have
entered into with all the required formalities and with full awareness
of what they were doing. Courts have no power to relieve them from
obligations they have voluntarily assumed, simply because their
234 | P a g e
contracts turn out to be disastrous deals or unwise
investments.29cräläwvirtualibräry

Petitioners further argue that respondents acted negligently by

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

We disagree. The delivery of the store furniture and equipment to

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

Third Issue:

Costs

Section 1, Rule 142, provides:

SECTION 1. Costs ordinarily follow results of suit. Unless otherwise

provided in these rules, costs shall be allowed to the prevailing party
as a matter of course, but the court shall have power, for special
reasons, to adjudge that either party shall pay the costs of an action,
or that the same be divided, as may be equitable. No costs shall be
allowed against the Republic of the Philippines unless otherwise
provided by law.

Although, as a rule, costs are adjudged against the losing party, courts
have discretion, for special reasons, to decree otherwise. When a
lower court is reversed, the higher court normally does not award
costs, because the losing party relied on the lower courts judgment
which is presumed to have been issued in good faith, even if found
later on to be erroneous. Unless shown to be patently capricious, the
award shall not be disturbed by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and

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

SO ORDERED.

Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur.

Sandoval-Gutierrez, J., on official leave.

235 | P a g e
[G.R. No. L-32347-53. December 26, 1973.] the Bacolod Sub-Regional Office of the Workmen’s Compensation
Commission to declare petitioner in default, which motion was
AGUSTIN ABONG, Petitioner, v. THE WORKMEN’S COMPENSATION granted. Thereupon, claimants were allowed to present their
COMMISSION, NELLY BALLARES, ANACORITA DAHIL-DAHIL, evidence. Finding the claims of the private respondents to be allied in
MANUEL LAHAO-LAHAO, CONCHITA MONTEROYO, SHIRLEY nature, the cases were consolidated. 2
LOZADA and ROSARIO ALOVA, Respondents.
After due hearing before Acting Referee, Bertito D. Dadivas, he
Pelaez, Jalandoni & Jamir for Petitioner. rendered on August 1, 1966, a decision granting the claims, the
pertinent portions of which are quoted as
Paciano C . Villavieja for respondent Workmen’s Compensation follows:jgc:chanrobles.com.ph
Commission.
"In the light of the testimonies of herein claimants and their principal
Labaton & Labaton for Private Respondents. witness, Filomeno Pason, who is a survivor of that unfortunate
tragedy and who personally witnessed the deaths of all eight (8)
deceased workers of respondent, there is no doubt at all that their
deaths arose out of and in the course of their employment as
DECISION ‘washing’ or helpers and light tenders of respondent Dr. Agustino R.
Abong. Under Sections 2 and 8 of the Workmen’s Compensation Act,
as amended, the deaths of above deceased persons are, therefore,
compensable.

ESGUERRA, J.:
I. STATEMENT OF THE CASE
Appeal by certiorari from the decision of the Workmen’s
compensation Commission, awarding compensation to the private
respondents.
II. FACTS OF THE CASE
The undisputed facts as borne out by the record are as
follows:chanrob1es virtual 1aw library
Aladino Dionson, Filomeno Umbria, Noel Lahao-lahao, Juanito
Monteroyo and Wilfredo Monteroyo and Demetrio Escoreal, all
deceased, were members of a fishing outfit, the IWAG or more
popularly called the "ALEX", owned by the petitioner herein, Dr.
Agustino R. Abong.
On May 15, 1966, this fishing outfit set out to sea somewhere the
coast of Northern Negros. The decedents were among the 70 crew
members who were loaded on two big bancas, 8 small fishing boats
locally known as "lawagan" and one towing motorboat. While they
were, thus, fishing, typhoon "IRMA" passed along their way,
scattering the boats and blowing them far out into the open sea. The
tragedy netted eight (8) dead while some sixty (60) men survived the
disaster. 1 (P9,000.00) plus the further sum of TWO HUNDRED PESOS (P200.00),
As a consequence of the incident seven (7) notices and claims for
death compensation were filed with the Bacolod Sub-Regional Office
(or Regional Office No. VII) of the Department of Labor by herein
private respondents on June 1, 1966. A copy of the notices and claims
were sent to petitioner Dr. Agustino R. Abong by registered mail at his
place of business, but the envelopes containing said notices and
claims were returned unclaimed, although petitioner was personally
notified thrice. Thereafter, counsel for private respondents on July 6,
1966, and July 14, 1966, respectively, filed an ex-parte motion with
"In granting this award — it should be considered that two of the eight
deceased workers — Noel Lahao-lahao and Wilfredo Monteroyo —
were minors at the time of employment. Respondent herein has also
failed to submit a report of this accident ‘as soon as possible after the
occurence of an injury resulting in absence from work for a day or
more’; nor registered himself or his business enterprise in accordance
with Sections 37 and 56 of the Workmen’s Compensation Act,
otherwise known as Republic Act No. 3428.
"Section 4-A of the Workmen’s Compensation Act provides for
payment of an additional compensation equal to fifty percentum of
the compensation to be awarded, in case of failure of the employer
to comply with any order, rule or regulation of the Workmen’s
Compensation Act in the event of the death of the employee or
employees concerned.
"Wherefore, under the law, the claimants are entitled to
compensation and respondent is hereby
ordered:jgc:chanrobles.com.ph
"1. To pay to claimant, ANACORITA DAHIL-DAHIL, the sum of SIX
THOUSAND PESOS (P6,000.00), plus 50% penalty in the sum of THREE
THOUSAND PESOS (P3,000.00), plus the further sum of TWO
HUNDRED PESOS as burial expenses, through this Office;
"2. To pay to claimant, NELLY BALLARES, the sum of SIX THOUSAND
PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND
PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS
as burial expenses through this Office;
"3. To pay to claimant, MANUEL LAHAO-LAHAO, the sum of TWO
THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the
sum of ONE THOUSAND THREE HUNDRED PESOS (P1,300.00), or the
total sum of THREE THOUSAND NINE HUNDRED PESOS (P3,900.00),
plus burial expenses in the sum of TWO HUNDRED PESOS (P200.00),
through this Office;
"4. To pay to claimant, SHIRLEY LOZADA, the sum of FIVE THOUSAND

236 | P a g e
ONE HUNDRED TWENTY PESOS (P5,120.00) plus 50% penalty in the
sum of TWO THOUSAND FIVE HUNDRED SIXTY PESOS (P2,560.00) or
the total sum of SEVEN THOUSAND SIX HUNDRED EIGHTY PESOS
(P7,680.00), plus burial expenses of TWO HUNDRED PESOS (P200.00),
through this Office;
"5. To pay to claimant, ROSARIO ALOVA, the sum of SIX THOUSAND
PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND
PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS
(P9,000.00), plus the further sum of TWO HUNDRED PESOS (P200.00)
for burial expenses, through this Office;
"6. To pay to claimant, CONCHITA MONTEROYO, the sum of SIX
THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE
THOUSAND PESOS (P3,000.00) representing compensation for the
death of her husband, Juanito; and TWO THOUSAND SIX HUNDRED
PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND
THREE HUNDRED PESOS (P1,300.00) or the total sum of THREE
THOUSAND NINE HUNDRED PESOS (P3,900.00) representing
compensation for the death of her son, Wilfredo; plus the further sum
of FOUR HUNDRED PESOS (P400.00) for burial expenses of Juanito
and Wilfredo Monteroyo; or a grand total for these two cases of
THIRTEEN THOUSAND THREE HUNDRED PESOS (P13,300.00), through
this Office;
"7. To pay to counsel for claimants, Atty. Angel F. Lobaton, Sr. the sum
of TWO THOUSAND SIX HUNDRED FORTY-FOUR PESOS (P2,644.00) as
attorney’s fees; and
"8. To pay to the Workmen’s Compensation Fund, through this Office,
the sum of FIVE HUNDRED TWENTY PESOS (P520.00), pursuant to
Section 55 of the Workmen’s Compensation Act, as amended." 3
On September 14, 1966, herein petitioner filed a (1) motion to set
aside the order declaring him in default and a (2) separate motion to
set aside the Decision of the Acting Referee, to which seasonable
oppositions were interposed by private respondents on September
26, 1966. 4
On October 25, 1966, Acting Referee Bertito D. Dadivas issued an
Order denying both motions of petitioner. 5 A motion for
reconsideration was then filed by petitioner on November 4, 1966,
raising, inter alia, the fundamental question of jurisdiction and denial
of due process. 6 An opposition thereto was interposed by private
respondents on November 10, 1966. 7 are the sole responsibility of the team-leader, Simplicio Panganiban,
On March 23, 1970, Associate (Medical) Commissioner Herminia
Castelo-Sotto, M.D., of the Workmen’s Compensation Commission
rendered a decision affirming the earlier decision of the referee. 8
On April 17, 1970, petitioner sought the review of the decision of
Associate (Medical) Commission Castelo-Sotto by the respondent
Workmen’s Compensation Commission sitting en banc, but the latter
however affirmed the decision with the modification that the 50%
additional compensation earlier imposed as penalty was eliminated,
in its resolution of July 7, 1970. 9 evidence. In the case at bar, however, this Court finds the findings of
Dissatisfied with the verdict, petitioner came to this Court for reversal
of the adverse decision against him.
III.ISSUES OF THE CASE
In his brief before this Court the petitioner imputes five (5) errors
committed by respondent Workmen’s Compensation Commission,
viz:chanrob1es virtual 1aw library
1. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH
GRAVE ABUSE OF DISCRETION IN HOLDING THAT THERE WAS AN
EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PETITIONER
AND THE DECEASED CREW MEMBERS OF THE "IWAG" FISHING
OUTFIT.
2. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH
GRAVE ABUSE OF DISCRETION IN NOT DECLARING ITSELF WITHOUT
JURISDICTION OVER THE CLAIMS FOR DEATH BENEFITS.
3. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH
GRAVE ABUSE OF DISCRETION IN FINDING THAT THE DEATH OF THE
DECEASED CREW MEMBER IS COMPENSABLE UNDER THE
WORKMEN’S COMPENSATION ACT, AS AMENDED, IN FINDING
PETITIONER LIABLE FOR THE PAYMENT OF SUCH COMPENSATION.
4. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH
GRAVE ABUSE OF DISCRETION IN DENYING PETITIONER HIS RIGHT TO
BE HEARD.
5. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH
GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF
JURISDICTION, IN GRANTING EXCESSIVE AWARDS TO THE
CLAIMANTS.
The pivotal issue requiring determination is who is the statutory
employer of the decedents and who should be liable for their death
compensation. Nevertheless, We take up the merits of the points
raised ad seriatim.
IV. DISCUSSION
As regards the first three interrelated assigned errors, there is a faint
attempt by petitioner Agustino R. Abong to evade liability by
advancing the theory that he had absolutely no voice or intervention
in the choice, hiring, dismissing, control, supervision and
compensation of the fishermen-crew members, and that these
matters, which are the essence of employer-employee relationship,
and the team-members or crew pursuant to their Agreement (Exhibit
"G"). 10
The contention of petitioner is devoid of merit. It should be pointed
out that this case is an appeal from the decision of the Workmen’s
Compensation Commission. And in this class of proceedings, only
questions of law should be raised, the findings of facts made by the
Commission being conclusive and binding upon this Court. 11
Although this Court is authorized to inquire into the facts, it only does
so when the conclusions therefrom are not supported by the
fact made by Associate (Medical) Commissioner Herminia Castelo-
Sotto M.D., and concurred in by the Commission en banc to be fully
supported by the evidence on record which clearly points out that
petitioner Agustino R. Abong is the statutory employer of the
237 | P a g e
decedents. In ruling for the deceased workers, the Commission
said:jgc:chanrobles.com.ph
". . . After a careful review of the evidence and the records, We are
inclined to agree with the proposition, advanced by the claimant’s
counsel that there existed an employer-employee relationship
between the respondent and the decedents. Not only that the said
deceased workers worked for and in the interest of the business of
the herein Respondent. But that they were subject to the control,
supervision, and dismissal of the respondent, thru its agent, Simplicio
Panganiban, the alleged ‘partner’ of herein Respondent. And while
these workers were paid in kind, or by ‘pakiao basis’ still that fact did
not alter the character of their relationship with the respondent as
employees of the latter. The intervention of Simplicio Panganiban, in
this case, is merely that of an agent or intermediary between the
owner of the fishing boat and the members of its crew. In short,
Panganiban is merely the person charged by Dr. Abong to recruit the
said fishermen to work for and for the enforcement of the business
venture of herein Respondent.
"The proposition, on the other hand, of the respondent’s counsel,
that Dr. Abong was not the employer of the decedents, simply
because of an alleged partnership agreement, executed on March 23,
1962, between the respondent, Dr. Agustino R. Abong, as ‘Financier’
and Simplicio Panganiban, as his ‘Teamleader’, is intended certainly
as a very clever device designed primarily to exempt the employer
from answering any liability under the provisions of the Workmen’s
Compensation Act, as amended.
"The said contract of partnership while it may be considered as valid
and lawful, between the signatories thereto, the respondent Dr.
Abong and his ‘partner’ or agent, Simplicio Panganiban, nowhere in
that said agreement did the decedents or their heirs in interests take
any participation or manifested their conformity to the said covenant.
Thus, even if we consider this contract as valid and enforceable
between them, it cannot bind the non-signatories thereto, like the
deceased fishermen.
"The case invoked by the respondent (Pajarillo, Et Al., v. Social
Security System, G.R. No. L-21930, August 31, 1966) can not be legally
applied in the instant case, for the simple reason that the facts in that
aforesaid case are not the same as those in the case at bar. Moreover,
we are of the view, that the said Pajarillo case may be good only as
far as the Social Security System, for purposes of membership thereat,
is concerned and is not readily applicable to cases involving
Workmen’s Compensation claims as the one at bar. For here, the
contract of partnership, if valid, only binds the parties thereto, and
the decedents in this case, as the records will show, were never a
party signatory thereto. How then can we tie them to that partnership
agreement when it only holds the two-party, Abong and Panganiban,
as the sole `partners’ in that agreement?
"Furthermore, even if Panganiban will be considered as an
independent contractor, which he is not, his position as such will not
relieve the employer, respondent Abong, from his liability under the
Act. It is well-defined in the Act, that ‘an employer includes every
person or association of persons, incorporated or not, public or
private, and the legal representatives of the deceased employer. It
includes the owner or manager of the business carried on in the
establishment or place of work but who, for the reason that there is
an independent contractor in the same, or for any other reason, is not
the direct employer of laborers employed there." (Section 39,
paragraph [s], Workmen’s Compensation Act, as amended).
x x x 12
As pointed out by the Commission’s findings, the fundamental bases
showing that petitioner, Dr. Agustino R. Abong, is the employer, are
present, namely, the selection and engagement of the employee; the
payment of wages; the power of dismissal and the employer’s power
to control the employees’ conduct. 13 These powers were lodged in
petitioner Abong, thru his agent, Simplicio Panganiban, whom he
alleges to be his "partner." On this score alone, the petitioner for
review must fail. It is well-settled that employer-employee
relationship involves findings of fact which are conclusive and binding
and not subject to review by this Court. 14
Petitioner also argues that he was denied his right to be heard. 15 It
is contended that petitioner was not properly notified of the
proceedings against him.
The assigned error merits scant consideration. Proper notices and
claims for compensation together with a formal letter to accomplish
WCC Form No. 3 — Employer’s Report of Accident or Sickness — were
duly served upon petitioner at his place of business in Sagay, Negros
Occidental. 16 His failure to claim his mail and to answer the claims
or controvert the same, and to accomplish WCC Form No. 3, are fatal
errors which cannot be repaired at this time. It needs no argument to
show that service by registered mail is deemed completed upon
petitioner’s failure to claim his mail from the post office within five (5)
days from the first notice sent by the postmaster. 17 The further
contention that the "notices" should have been sent to his place of
residence in Bacolod City is of no moment either. Section 26 of
Republic Act No. 3428, as amended, provides:jgc:chanrobles.com.ph
"SEC. 26. Delivery of notice and claim . . . The notices shall be served
by personal delivery or by sending it by registered letter addressed to
the employer at his last known residence or at his place of business.
(Emphasis supplied)
Clearly, there was no error in sending petitioner’s mails to his place of
business at Sagay, Negros Occidental.
And now We come to the last point It is contended that respondent
Commission erred in granting excessive awards to the claimants.
We find this contention incorrect. The Commission’s findings relative
to the wages of the decedents are findings of facts which are not open
to review by this Court as the same are supported by substantial
evidence on record. 18 We, therefore, find no cogent reason to
disturb the Commission’s findings on this point.
V. CONCLUSION
Under the circumstances, private respondents’ claim should be
upheld not only because they are supported by the evidence on
record, but also because the Workmen’s Compensation Act is a social
legislation designed to give relief to the workman who has been the
victim of an accident in the pursuit of his employment, and the law
must be liberally construed to attain the purpose for which it was
238 | P a g e
enacted. 19 Moreover, this Tribunal finds no reason in this case to
depart from the rule which limits its appellate jurisdiction to the
review of errors of law only, accepting as conclusive the factual
findings of the Workmen’s Compensation Commission which in this
case are supported by substantial evidence.

VI. JUDGMENT

ACCORDINGLY, the assailed decision is hereby fully affirmed.

Costs against the petitioner.

Makalintal, C.J., Castro, Teehankee, Makasiar and Muñoz Palma, JJ.,

concur.

239 | P a g e
[G.R. No. 31057. September 7, 1929.] Office, commissioner to examine all the books, documents and
accounts of "Turnuhan Polistico & Co.," and to receive whatever
ADRIANO ARBES ET AL., Plaintiffs-Appellees, v. VICENTE POLISTICO evidence the parties might desire to present.
ET AL., Defendants-Appellants.
The commissioner rendered his report, which is attached to the
Marcelino Lontok and Manuel de la Rosa for Appellants. record, with the following resume:chanrob1es virtual 1aw library

Sumulong & Lavides for Appellees. Income:chanrob1es virtual 1aw library

SYLLABUS Members’ shares P97,263.70

1. UNLAWFUL PARTNERSHIPS; "TURNUHAN POLISTICO & CO.;" Credits paid 6,196.55

CHARITABLE INSTITUTIONS. — The partnership "Turnuhan Polistico &
Co." is an unlawful partnership (U. S. v. Baguio, 39 Phil., 962). Interest received 4,569.45
According to paragraph 2 of article 1666 of the Civil Code, when an
unlawful partnership is judicially dissolved, the earnings shall not be Miscellaneous 1,891.00
disposed of as profits, but shall be given to charitable institutions. But
in a case like the one at bar, whose object is to determine the rights ———— P109,620.70
of the parties, and to liquidate the unlawful partnership, no charitable
institution should be included as defendant, as the appellants Expenses:chanrob1es virtual 1aw library
contend, because it is not a necessary party to the case.
Premiums to members 68,146.25
2. ID.; ACTION TO OBTAIN PROFITS OF UNLAWFUL PARTNERSHIP. —
Said article 1666 of the Civil Code allows no action for the purpose of Loans on real-estate security 9,827.00
obtaining the earnings made by the unlawful partnership, during its
existence, as a result of the business in which it was engaged; because Loans on promissory notes 4,258.55
for that purpose the partner will have to base his action on the
partnership contract which is null and without legal existence by Salaries 1,095.00
reason of its unlawful object, and it is self-evident that what does not
exist cannot be a cause of action. Miscellaneous 1,686.108

———— 85,012.90

DECISION ————

Cash on hand 24,607.80

VILLAMOR, J.:
This is an action to bring about a liquidation of the funds and property
of the association called "Turnuhan Polistico & Co." The plaintiffs
were members or shareholders, and the defendants were designated
as president-treasurer, directors and secretary of said association.
It is well to remember that this case is now brought before the
consideration of this court for the second time. The first time was
when the same plaintiffs appealed from the order of the court below
sustaining the defendants’ demurrer, and requiring the former to
amend their complaint within a certain period, so as to include all the
members of "Turnuhan Polistico & Co.," either as plaintiffs or as
defendants. This court held then that in an action against the officers
of a voluntary association to wind up its affairs and to enforce an
accounting for money and property in their possession, it is not
necessary that all members of the association be made parties to the
action. (Borlasa v. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amended, respectively,
their complaint and their answer, and by agreement of the parties,
the court appointed Amadeo R. Quintos, of the Insular Auditor’s
The defendants objected to the commissioner’s report, but the trial
court, having examined the reasons for the objection, found the same
sufficiently explained in the report and the evidence, and accepting it,
rendered judgment, holding that the association "Turnuhan Polistico
& Co." is unlawful, and sentencing the defendants jointly and
severally to return the amount of P24,607.80, as well as the
documents showing the uncollected credits of the association, to the
plaintiffs in this case, and to the rest of the members of said
association represented by said plaintiffs, with costs against the
defendants.
The defendants assigned several errors as grounds for their appeal,
but we believe they can all be reduced to two points, to wit: (1) That
not all persons having an interest in this association are included as
plaintiffs or defendants; (2) that the objection to the commissioner’s
report should have been admitted by the court below.
As to the first point, the decision in the case of Borlasa v. Polistico,
supra, must be followed.
With regard to the second point, despite the praiseworthy efforts of
the attorney for the defendants, we are of opinion that, the trial court
having examined all the evidence touching the grounds for the

240 | P a g e
objection and having found that they had been explained away in the
commissioner’s report, the conclusion reached by the court below,
accepting and adopting the findings of fact contained in said report,
and especially those referring to the disposition of the association’s
money, should not be disturbed.
In Tan Diangseng Tan Siu Pic v. Echauz Tan Siuco (5 Phil., 516), it was
held that the findings of fact made by a referee appointed under the
provisions of section 135 of the Code of Civil Procedure stand upon
the same basis, when approved by the court, as findings made by the
judge himself. And in Kriedt v. E.C. McCullough & Co. (37 Phil., 474),
the court held: "Under section 140 of the Code of Civil Procedure it is
made the duty of the court, to render judgment in accordance with
the report of the referee unless the court shall for cause shown set
aside the report or recommit it to the referee. This provision places
upon the litigant parties the duty of discovering and exhibiting to the
court any error that may be contained therein." The appellants stated
the grounds for their objection. The trial court examined the evidence
and the commissioner’s report, and accepted the findings of fact
made in the report. We find no convincing argument in the appellants’
brief to justify a reversal of the trial court’s conclusion admitting the
commissioner’s findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful
partnership (U. S. v. Baguio, 39 Phil., 962), but the appellants allege
that because it is so, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be
included as a party defendant. The appellants refer to article 1666 of
the Civil Code, which provides:jgc:chanrobles.com.ph
"A partnership must have a lawful object, and must be established for
the common benefit of the partners.
"When the dissolution of an unlawful partnership is decreed, the
profits shall be given to the charitable institutions of the domicile of
the partnership, or, in default of such, to those of the
province."cralaw virtua1aw library
Appellants’ contention on this point is untenable. According to said
article, no charitable institution is a necessary party in the present
case for the determination of the rights of the parties. The action
which may arise from said article, in the case of an unlawful
partnership, is that for the recovery of the amounts paid in by the
members from those in charge of the administration of said
partnership, and it is not necessary for the said partners to base their
action on the existence of the partnership, but on the fact of having
contributed some money to the partnership capital. And hence, the
charitable institutions of the domicile of the partnership, and in
default thereof, those of the province are not necessary parties in this
case. The article cited above permits no action for the purpose of
obtaining the earnings made by the unlawful partnership, during its
existence as a result of the business in which it was engaged, because,
for that purpose, as Manresa remarks, the partner will have to base
his action upon the partnership contract, which is null and without
legal existence by reason of its unlawful object; and it is self-evident
that what does not exist cannot be a cause of action. Hence,
paragraph 2 of the same article provides that when the dissolution of
an unlawful partnership is decreed, the profits cannot inure to the
benefit of the partners, but must be given to some charitable
institution.
We deem it pertinent to quote Manresa’s commentaries on article
1666 at length, as a clear explanation of the scope and spirit of the
provision of the Civil Code with which we are concerned. Commenting
on said article, Manresa, among other things
says:jgc:chanrobles.com.ph
"When the subscriptions of the members have been paid to the
management of the partnership, and employed by the latter in
transactions consistent with the purposes of the partnership may the
former demand the return or reimbursement thereof from the
manager or administrator withholding them?
"Apropos of this, it is asserted: If the partnership has had no valid
existence, if it is considered juridically non-existent, the contract
entered into can have no legal effect; and in that case, how can it give
rise to an action in favor of the partners to judicially demand from the
manager or administrator of the partnership capital, each one’s
contribution?
"The authors discuss this point at great length; but Ricci decides the
matter quite clearly, dispelling all doubts thereon. He holds that the
partner who limits himself to demanding only the amount
contributed by him need not resort to the partnership contract on
which to base his claim or action. And, he adds in explanation, that
the partner makes his contribution, which passes to the managing
partner for the purpose of carrying on the business or industry which
is the object of the partnership; or, in other words, to breathe the
breath of life into a partnership contract with an object forbidden by
the law. And as said contract does not exist in the eyes of the law, the
purpose for which the contribution was made has not come into
existence, and the administrator of the partnership holding said
contribution retains what belongs to others, without any
consideration; for which reason he is bound to return it, and he who
has paid in his share is entitled to recover it.
"But this is not the case with regard to profits earned in the course of
the partnership, because they do not constitute or represent the
partner’s contribution but are the result of the industry, business, or
speculation, which is the object of the partnership; and, therefore, in
order to demand the proportional part of said profits, the partner
would have to base his action on the contract, which is null and void,
since this partition or distribution of the profits is one of the juridical
effects thereof. Wherefore, considering this contract as non-existent,
by reason of its illicit object, it cannot give rise to the necessary action,
which must be the basis of the judicial complaint. Furthermore, it
would be immoral and unjust for the law to permit a profit from an
industry prohibited by it.
"Hence, the distinction made in the second paragraph of this article
of our Code, providing that the profits obtained by unlawful means
shall not enrich the partners, but shall, upon the dissolution of the
partnership, be given to the charitable institutions of the domicile of
the partnership, or, in default of such, to those of the province.
"This is a new rule, unprecedented in our law, introduced to supply
an obvious deficiency of the former law, which did not prescribe the
purpose to which those profits denied to the partners were to be
applied, nor state what was to be done with them.
241 | P a g e
"The profits are so applied, and not the individual contributions,
because this would be an excessive and unjust sanction for, as we
have seen, there is no reason, in such a case, for depriving the partner
of the portion of the capital that he contributed, the circumstances of
the two cases being entirely different.

"Our Code does not state whether, upon the dissolution of the
unlawful partnership, the amounts contributed are to be returned to
the partners, because it only deals with the disposition of the profits;
but the fact that said contributions are not included in the disposal
prescribed for said profits, shows that in consequence of said
exclusion, the general rules of law must be followed, and hence, the
partners must be reimbursed the amount of their respective
contributions. Any other solution would be immoral, and the law will
not consent to the latter remaining in the possession of the manager
or administrator who has refused to return them, by denying to the
partners the action to demand them." (Manresa, Commentaries on
the Spanish Civil Code, vol. XI, pp. 262-264.)

The judgment appealed from, being in accordance with law, should

be, as it is hereby, affirmed with costs against the appellants;
provided, however, that the defendants shall pay the legal interest on
the sum of P24,607.80 from the date of the decision of the court, and
provided, further, that the defendants shall deposit these sums of
money and other documents evidencing uncollected credits in the
office of the clerk of the trial court, in order that said court may
distribute them among the members of said association, upon being
duly identified in the manner it may deem proper. So ordered.

Avanceña, C.J., Johnson, Street, Johns, Romualdez and Villa-Real, JJ.,

concur.

242 | P a g e
[G.R. No. 18703. August 28, 1922. ] partnership was, and is indebted to the appellants in various sums
amounting to not less than P1,000, payable in the Philippines, which
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en were not paid more than thirty days prior to the date of the filing by
C., Appellee, v. PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., the petitioners of the application for involuntary insolvency now
and INTERNATIONAL BANKING CORPORATION, Petitioners- before us. These facts were sufficiency established by the evidence.
Appellants.
The trial court denied the petition on the ground that it was not
Jose Yulo, Ross & Lawrence and J. A. Wolfson for Appellants. proven, nor alleged, that the members of the aforesaid firm were
insolvent at the time the application was filed; and that as said
Antonio Sanz for Appellee. partners are personally and solidarily liable for the consequences of
the transactions of the partnership, it cannot be adjudged insolvent
SYLLABUS so long as the partners are not alleged and proven to be insolvent.
From this judgment the petitioners appeal to this court, on the ground
INVOLUNTARY INSOLVENCY; LIMITED PARTNERSHIP; ACT OF that this finding of the lower court is erroneous.
BANKRUPTCY; SOLVENCY OF PARTNERS. — In the Philippines a limited
partnership duly organized in accordance with law has a personality The fundamental question that presents itself for decision is whether
distinct from that of its members; and if it commits an act of or not a limited partnership, such as the appellee, which has failed to
bankruptcy, such as that of failing for more than thirty days to pay pay its obligations with three creditors for more than thirty days, may
debts amounting to P1,000 or more, it may be adjudged insolvent on be held to have committed an act of insolvency, and thereby be
the petition of three of its creditors although its members may not be adjudged insolvent against its will.
insolvent.
Unlike the common law, the Philippine statues consider a limited
partnership as a juridical entity for all intents and purposes, which
personality is recognized in all its acts and contracts (art. 116, Code of
DECISION Commerce). This being so and the juridical personality of a limited
partnership being different from that of its members, it must, on
general principle, answer for, and suffer, the subject of rights and
obligations. If, as in the instant case, the limited partnership of
ROMUALDEZ, J. : Campos Rueda & Co. failed to pay its obligations with three creditors
for a period of more than thirty days, which failure constitutes, under
our Insolvency Law, one of the acts of bankrupt upon which an
adjudication of involuntary insolvency can be predicated, this
partnership must suffer the consequences of such a failure, and must
The record of this proceeding having been transmitted to this court be adjudged insolvent. We are not unmindful of the fact that some
by virtue of an appeal taken herein, a motion was presented by the courts of the United States have held that partnership may not be
appellants praying this court that this case be considered purely a adjudged insolvent in an involuntary insolvency proceeding unless all
moot question now, for the reason that subsequent to the decision of its members are insolvent, while others have maintained a contrary
appealed from, the partnership Campos Rueda & Co., voluntarily filed view. But it must be borne in mind that under the American common
an application for a judicial decree adjudging itself insolvent, which is law, partnership have no juridical personality independent from that
just what the herein petitioners and appellants tried to obtain from of its members; and if now they have such personality for the
the lower court in this proceeding. purposes of the insolvency law, it is only by virtue of a general law
enacted by the Congress of the United States on July 1, 1898, section
The motion now before us must be, and is hereby, denied even under 5, paragraph (h), of which reads thus:jgc:chanrobles.com.ph
the facts stated by the appellants in their motion aforesaid. The
question raised in this case is not a purely moot one: the fact that a "In the event of one or more but not all of the members of a
man was insolvent on a certain day does not justify an inference that partnership being adjudge bankrupt, the partnership property shall
he was some time prior thereto. not be administered in bankruptcy, unless by consent of the partner
or partners not adjudges bankrupt; shall settle the partnership
"Proof that a man was insolvent on a certain day does not justify an business as expeditiously as its nature will permit, and account for the
inference that he was on a day some time prior thereto. Many interest of the partner or partners adjudge bankrupt."cralaw
contingencies, such as unwise investments, losing contracts, virtua1aw library
misfortune, or accident, might happen to reduce a person from a
state of solvency within a short space of time." (Kimball v. Dresser, 98 The general consideration that these partnership had juridical
Me., 519; 57 Atl. Rep., 767) personality and the limitations prescribed in subsection (h) above set
forth gave rise to the conflict noted in American decisions, as stated
A decree of insolvency begins to operate on the date it is issued. It is in the case of In re Samuels (215 Fed., 845). which mentioned the two
one thing to adjudge Campos Rueda & Co. insolvent in December, apparently conflicting doctrines, citing one from In re Bertenshaw
1921, as prayed for in this case and another to declare it insolvent in (157 Fed., 363), and the other from Francis v. McNeal (186 Fed., 481).
July, 1922, stated in the motion.
But there being in our insolvency law no such provision as that
Turning to the merits of this appeal, we find that this limited

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

Therefore, it having been proven that the partnership Campos Rueda

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

Wherefore, the judgment appealed from is reversed, and it is

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

It is so ordered without special findings as to costs.

Araullo, C.J., Johnson, Street, Malcolm, Avanceña, Villamor, Ostrand,

and Johns, JJ., concur.

244 | P a g e
[G.R. No. L-25532. February 28, 1969.]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. WILLIAM J.
SUTER and THE COURT OF TAX APPEALS, Respondents.
Solicitor General Antonio P. Barredo, Assistant Solicitor General
Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T .
Temprosa for Petitioner.
A. S. Manzano, Gutierrez, Farrales & Ong for Respondents.
SYLLABUS
1. CIVIL LAW; PARTNERSHIP; PARTICULAR PARTNERSHIP;
RESPONDENT COMPANY IN INSTANT CASE IS SUCH KIND OF
PARTNERSHIP. — William J. Suter "Marcoin" Co., Ltd. was not a
universal partnership, but a particular one. As appears from Article
1674 and 1675 of the Spanish Civil Code of 1889 (which was the law
in force when the subject firm was organized in 1947), a universal
partnership requires either that the object of the association be all
the present property of the partners, as contributed by them to the
common fund, or else "all that the partners may acquire by their
industry or work during the existence of the partnership." William J.
Suter "Morcoin" Co., Ltd. was not such a universal partnership, since
the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig, and
neither one of them was an industrial partner. It follows that William
J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were
forbidden to enter by Article 1677 of the Civil Code of 1889.
2. ID.; ID.; SEPARATE PROPERTY BROUGHT BY PARTNERS INTO THE
MARRIAGE DOES NOT BECOME CONJUGAL. — The appellant’s view,
that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of
partners William J. Suter and Julia Spirig were separately owned and
contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained their respective
separate property under the Spanish Civil Code (Article 1396); "The
following shall be the exclusive property of each spouse: (a) That
which is brought to the marriage as his or her own; . . ." Thus, the
individual interest of each consort in William J. Suter "Morcoin" Co.,
Ltd. did not become common property of both after their marriage in
1948.
3. ID.; ID.; SEPARATE JURIDICAL PERSONALITY OF PARTNERSHIP;
MEMBERS THEREOF HAVE SEPARATE INCOME UNDER THE TAX CODE.
— It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does
not recognize such separate juridical personality), the bypassing of
the existence of the limited partnership as a taxpayer can only be
done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership’s separate individuality
makes it impossible to equate its income with that of the component
members. True, section 24 of the Internal Revenue Code merges
registered general co-partnerships (compañias colectivas) with the
personality of the individual partners for income tax purposes. But
this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to
limited partnerships.
4. TAXATION; TAXABILITY OF INCOME OF PARTNERSHIPS AND
CORPORATIONS; PIERCING THE VEIL OF CORPORATE FICTION; CASES
INVOLVING SUCH DISREGARD OF LEGAL FICTION DISTINGUISHED
FROM INSTANT CASE. — The rulings cited by the petitioner (Collector
of Internal Revenue v. University of the Visayas, L-13554, and Koppel,
Inc. v. Yatco, 77 Phil. 504) as authority for disregarding the fiction of
legal personality of the corporations involved therein are not
applicable to the present case. In the cited cases, the corporations
were already subject to tax when the fiction of their corporate
personality was pierced; in the present case, to do so would exempt
the limited partnership from income taxation but would throw the tax
burden upon the partners-spouses in their individual capacities. The
corporations, in the cases cited, merely served as business conduits
or alter egos of the stockholders, a factor that justified a disregard of
their corporate personalities for tax purposes. This is not true in the
present case. Here, the limited partnership is not a mere business
conduit of the partner-spouses; it was organized for legitimate
business purposes; it conducted its own dealings with its customers
prior to appellee’s marriage, and had been filing its own income tax
returns as such independent entity. The change in its membership,
brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the Tax Code,
requiring it to pay the income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the
interests of the remaining partner with the premeditated scheme or
design to use the partnership as a business conduit to dodge the tax
laws. Regularity, not otherwise, is presumed.
5. ID.; ID.; IN LIMITED PARTNERSHIP, INCOME OF INDIVIDUAL
PARTNERS SHOULD NOT BE CONSOLIDATED WITH THAT OF THE
PARTNERSHIP. — As the limited partnership under consideration is
taxable on its income, to require that income to be included in the
individual tax return of respondent Suter is to overstretch the letter
and intent of the law. In fact, it would ever conflict with what is
specifically provided in its Section 24: for the appellant
Commissioner’s stand results in equal treatment, taxwise, of a
general co-partnership (compañia colectiva) and a limited
partnership, when the Code plainly differentiates the two. Thus, the
Code taxes the latter on its income, but not the former, because it is
in the case of companias colectivas that the members, and not the
firm, are taxable in their individual capacities for any dividend or share
of the profit derived from the duly registered general partnership.
6. ID.; ID.; INCOME OF LIMITED PARTNERSHIP IS NOT INCOME OF THE
SPOUSES, AND DOES NOT FORM PART OF THE CONJUGAL
PARTNERSHIP. — But it is argued that the income of the limited
partnership is actually or constructively the income of the spouses
and forms part of the conjugal partnership of gains. This is not wholly
correct. As pointed out in Agapito v. Molo, 50 Phil. 779, and People’s
Bank v. Register of Deeds of Manila, 60 Phil. 167, the fruits of the
wife’s paraphernal become conjugal only when no longer needed to
defray the expenses for the administration and preservation of the
paraphernal capital of the wife. Then again, the appellant’s argument
erroneously confines itself to the question of the legal personality of
245 | P a g e
the limited partnership, which is not essential to the income taxability
of the partnership since the law taxes the income of even joint
accounts that have no personality of their own.
7. ID.; INCOME TAX.; INCOME OF BOTH SPOUSES, NOT THE CONJUGAL
PARTNERSHIP, IS TAXABLE. — Appellant is, likewise, mistaken in that
it assumed that the conjugal partnership of gains is a taxable unit,
which it is not. What is taxable is the "income of both spouses"
(Section 45[d]) in their individual capacities. Though the amount of
income (income of the conjugal partnership vis-a-vis the joint income
of husband and wife) may be the same for a given taxable year, their
consequences would be different, as their contributions in the
business partnership are not the same.
8. ID.; ID.; TAX CODE BARS CONSOLIDATION OF TAX RETURNS OF THE
SPOUSES AND THE CONJUGAL PARTNERSHIP. — The difference in tax
rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is
not a justification for requiring consolidation; the revenue code, as it
presently stands, does not authorize it, and even bars it by requiring
the limited partnership to pay tax on its own income.
DECISION
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter ‘Marcoin’ Co., Ltd.",
was formed on 30 September 1947 by herein respondent William J.
Suter, as the general partner, and Julia Spirig and Gustav Carlson, as
the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1
October 1947, the limited partnership was registered with the
Securities and Exchange Commission. The firm engaged, among other
activities, in the importation, marketing, distribution and operation of
automatic phonographs, radios, television sets and amusement
machines, their parts and accessories. It had an office and held itself
out as a limited partnership, handling and carrying merchandise,
using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a
quota allocation with the Central Bank.chanroblesvirtuallawlibrary
In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner
Carlson sold his share in the partnership to Suter and his wife. The
sale was duly recorded with the Securities and Exchange Commission
on 20 December 1948.
The limited partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner,
Commissioner of Internal Revenue, until in 1959 when the latter, in
an assessment, consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig, resulting in a
determination of a deficiency income tax against respondent Suter in
the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed
to the Court of Tax Appeals, which court, after trial, rendered a
decision, on 11 November 1965, reversing that of the Commissioner
of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of
Internal Revenue, of the tax court’s aforesaid decision. It raises these
issues:chanrob1es virtual 1aw library
(a) Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig
Suter, actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage
of the partners, respondent William J. Suter and Julia Spirig Suter, and
the subsequent sale to them by the remaining partner, Gustav
Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is
that the marriage of Suter and Spirig and their subsequent acquisition
of the interests of remaining partner Carlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of
juridical personality of the partnership should be disregarded for
income tax purposes because the spouses have exclusive ownership
and control of the business; consequently, the income tax return of
respondent Suter for the years in question should have included his
and his wife’s individual incomes and that of the limited partnership,
in accordance with Section 45 (d) of the National Internal Revenue
Code, which provides as follows:jgc:chanrobles.com.ph
"(d) Husband and wife. — In the case of married persons, whether
citizens, residents or non-residents, only one consolidated return for
the taxable year shall be filed either spouse to cover the income of
both spouses, . . ."cralaw virtua1aw library
In refutation of the foregoing, respondent Suter maintains, as the
Court of Tax Appeals held, that his marriage with limited partner
Spirig and their acquisition of Carlson’s interests in the partnership in
1948 is not a ground for dissolution of the partnership, either in the
Code of Commerce or in the New Civil Code, and that since its juridical
personality had not been affected and since, as a limited partnership,
as contradistinguished from a duly registered general partnership, it
is taxable on its income similarly with corporations, Suter was not
bound to include in his individual return the income of the limited
partnership.
We find the Commissioner’s appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Marcoin" Co.,
Ltd., has been dissolved by operation of law because of the marriage
of the only general partner, William J. Suter, to the originally limited
partner, Julia Spirig, one year after the partnership was organized is
rested by the appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of the
246 | P a g e
Philippines, Vol. 1, 4th Ed., page 58, that reads as
follows:jgc:chanrobles.com.ph
"‘A husband and a wife may not enter into a contract of general
copartnership, because under the Civil Code, which applies in the
absence of express provision in the Code of Commerce persons
prohibited from making donations to each other are prohibited from
entering into universal partnerships. (2 Echaverri, 196) It follows that
the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)’"
The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership,
but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code of 1889 (which was the law in force when the
subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of
the partners, as contributed by them to the common fund, or else" all
that the partners may acquire by their industry or work during the
existence of the partnership." William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William Suter and
P18,000.00 by Julia Spirig, and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not
partnership that spouses were forbidden to enter by Article 1677 of
the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan,
in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote
1, says with regard to the prohibition contained in the aforesaid
Article 1677:jgc:chanrobles.com.ph
"Los conyuges, segun esto, no pueden celebrar entre siél contrato de
sociedad universal, pero podran constituir sociedad particular?
Aunque el punto ha sido muy debatido, no inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya
que ningún precepto de nuestro Codigo los prohibe, y hay que estar
a la norma general según la que toda persona es capaz para contratar
mientras no sea declarado, incapaz por la ley. La jurisprudencia de la
Dirección de los Registros fué favorable a esta misma tesis en su
resolucion de 3 de febrero de 1936, mas parece cambiar de rumbo en
la de 9 de marzo de 1943."cralaw virtua1aw library
Nor could the subsequent marriage of the partners operate to
dissolve it, such marriage not being one of the causes provided for
that purpose either by the Spanish Civil Code or the Code of
Commerce.chanrobles.com.ph : virtual law library
The appellant’s view, that by the marriage of both partners the
company became a single proprietorship, is equally erroneous. The
capital contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage;
and after they were joined in wedlock, such contributions remained
their respective separate property under the Spanish Civil Code
(Article 1896):jgc:chanrobles.com.ph
"The following shall be the exclusive property of each
spouse:chanrob1es virtual 1aw library
(a) That which is brought to the marriage as his or her own; . . .
"Thus, the individual interest of each consort in William J. Suter
"Morcoin" Co., Ltd. did not become common property of both after
their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does
not recognize such separate juridical personality). The bypassing of
the existence of the limited partnership as a taxpayer can only be
done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership’s separate individuality
makes it impossible to equate its income with that of the component
members. True, Section 24 of the Internal Revenue Code merges
registered general partnerships (compañias colectivas) with the
personality of the individual partners for income tax purposes. But
this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to
limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue v.
University of the Visayas, L-13554, Resolution of 30 October 1964,
and Koppel Phil.), Inc., v. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations
involved therein are not applicable to the present case. In the cited
cases, the corporations were already subject to tax when the fiction
of their corporate personality was pierced; in the present case, to do
so would exempt the limited partnership from income taxation but
would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely
served as business conduits or alter egos of the stockholders, a factor
that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited
partnership is not a mere business conduit of the partner-spouses; it
was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee’s marriage; and had been
filing its own income tax returns as such independent entity. The
change in its membership, brought about by the marriage of the
partners and their subsequent acquisition of all interest therein, is no
ground for withdrawing the partnership from the coverage of Section
24 of the tax code, requiring it to pay income tax. As far as the records
show, the partners did not enter into matrimony and thereafter buy
the interests of the remaining partner with the premeditated scheme
or design to use the partnership as a business conduit to dodge the
tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its
income, to require that income to be included in the individual tax
return of respondent Suter is to overstretch the letter and intent of
the law. In fact, it would even conflict with what it specifically provides
in its Section 24: of the appellant Commissioner’s stand results in
equal treatment, taxwise, of a general copartnership (compañia
colectiva) and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter on its income,
but not the former, because it is in the case of compañias colectivas
that the members, and not the firm, are taxable in their individual
capacities for any dividend or share of the profit derived from the duly
registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. &
Juris. on the N.I.R.C., As Amended, Vol. 1, pages 88-89).
247 | P a g e
But it is argued that the income of the limited partnership is actually
or constructively the income of the spouses and forms part of the
conjugal partnership of gains. This is not wholly correct. As pointed
out in Agapito v. Molo, 50 Phil. 779, and People’s Bank v. Register of
Deeds of Manila, 60 Phil. 167, the fruits of the wife’s paraphernal
become conjugal only when no longer needed to defray the expenses
for the administration and preservation of the paraphernal capital of
the wife. Then again, the appellant’s argument erroneously confines
itself to the question of the legal personality of the limited
partnership, which is not essential to the income taxability of the
partnership since the law taxes the income of even joint accounts that
have no personality of their own. 1 Appellant is, likewise, mistaken in
that it assumes that the conjugal partnerhip of gains is a taxable unit,
which it is not. What is taxable is the "income of both spouses"
[Section 45 (d)] in their individual capacities: Though the amount of
income (income of conjugal partnership vis-a-vis the joint income of
husband and wife) may be the same for a given taxable year, their
consequences would be different, as their contributions in the
business partnership are not the same.

The difference in tax rates between the income of the limited

partnership being consolidated with, and when split from the income
of the spouses, is not a justification for requiring consolidation; the
revenue code, as it presently stands, does not authorize it, and even
bars it by requiring the limited partnership to pay tax on its own
income.chanrobles virtual lawlibrary

FOR THE FOREGOING REASONS, the decision under review is hereby

affirmed. No costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Ruiz Castro,

Fernando, Capistrano and Teehankee, JJ., concur.

Barredo, J., did not take part.

248 | P a g e
G.R. No. L-27010 April 30, 1969
MARLENE DAUDEN-HERNAEZ, Petitioner, vs. HON. WALFRIDO DE
LOS ANGELES, Judge of the Court of First Instance of Quezon City,
HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON
VALENZUELA, Respondents.
R. M. Coronado and Associates for petitioner.
Francisco Lavides for appellee.
REYES, J.B.L., Acting C.J.:chanrobles virtual law library
Petition for a writ of certiorari to set aside certain orders of the
Court of First Instance of Quezon City (Branch IV), in its Civil Case No.
Q-10288, dismissing a complaint for breach of contract and damages,
denying reconsideration, refusing to admit an amended complaint,
and declaring the dismissal final and
unappealable.chanroblesvirtualawlibrarychanrobles virtual law
library
The essential facts are the following:chanrobles virtual law
library
Petitioner Marlene Dauden-Hernaez, a motion picture actress,
had filed a complaint against herein private respondents, Hollywood
Far East Productions, Inc., and its President and General Manager,
Ramon Valenzuela, to recover P14,700.00 representing a balance
allegedly due said petitioner for her services as leading actress in two
motion pictures produced by the company, and to recover damages.
Upon motion of defendants, the respondent court (Judge Walfrido de
los Angeles presiding) ordered the complaint dismissed, mainly
because the "claim of plaintiff was not evidenced by any written
document, either public or private", and the complaint "was defective
on its face" for violating Articles 1356 and 1358 of the Civil, Code of
the Philippines, as well as for containing defective allege, petitions.
Plaintiff sought reconsideration of the dismissal and for admission of
an amended complaint, attached to the motion. The court denied
reconsideration and the leave to amend; whereupon, a second
motion for reconsideration was filed. Nevertheless, the court also
denied it for being pro forma, as its allegations "are, more or less, the
same as the first motion", and for not being accompanied by an
affidavit of merits, and further declared the dismissal final and
unappealable. In view of the attitude of the Court of First Instance,
plaintiff resorted to this Court.chanroblesvirtualawlibrarychanrobles
virtual law library
The answer sets up the defense that "the proposed amended
complaint did not vary in any material respect from the original
complaint except in minor details, and suffers from the same vital
defect of the original complaint", which is the violation of Article 1356
of the Civil Code, in that the contract sued upon was not alleged to be
in writing; that by Article 1358 the writing was absolute and
indispensable, because the amount involved exceeds five hundred
pesos; and that the second motion for reconsideration did not
interrupt the period for appeal, because it was not served on three
days' notice.chanroblesvirtualawlibrarychanrobles virtual law library
We shall take up first the procedural question. It is a well
established rule in our jurisprudence that when a court sustains a
demurrer or motion to dismiss it is error for the court to dismiss the
complaint without giving the party plaintiff an opportunity to amend
his complaint if he so chooses. 1 Insofar as the first order of dismissal
(Annex D, Petition) did not provide that the same was without
prejudice to amendment of the complaint, or reserve to the plaintiff
the right to amend his complaint, the said order was erroneous; and
this error was compounded when the motion to accept the amended
complaint was denied in the subsequent order of 3 October 1966
(Annex F, Petition). Hence, the petitioner-plaintiff was within her
rights in filing her so-called second motion for reconsideration, which
was actually a first motion against the refusal to admit the amended
complaint.chanroblesvirtualawlibrarychanrobles virtual law library
It is contended that the second motion for reconsideration was
merely pro forma and did not suspend the period to appeal from the
first order of dismissal (Annex D) because (1) it merely reiterated the
first motion for reconsideration and (2) it was filed without giving the
counsel for defendant-appellee the 3 days' notice provided by the
rules. This argument is not tenable, for the reason that the second
motion for reconsideration was addressed to the court' refusal to
allow an amendment to the original complaint, and this was a ground
not invoked in the first motion for reconsideration. Thus, the second
motion to reconsider was really not pro forma, as it was based on a
different ground, even if in its first part it set forth in greater detail
the arguments against the correctness of the first order to dismiss.
And as to the lack of 3 days' notice, the record shows that appellees
had filed their opposition (in detail) to the second motion to
reconsider (Answer, Annex 4); so that even if it were true that
respondents were not given the full 3 days' notice they were not
deprived of any substantial right. Therefore, the claim that the first
order of dismissal had become final and unappealable must be
overruled.chanroblesvirtualawlibrarychanrobles virtual law library
It is well to observe in this regard that since a motion to dismiss
is not a responsive pleading, the plaintiff-petitioner was entitled as of
right to amend the original dismissed complaint. In Paeste vs.
Jaurigue 94 Phil. 179, 181, this Court ruled as follows:
Appellants contend that the lower court erred in not admitting
their amended complaint and in holding that their action had already
prescribed. Appellants are right on both
counts.chanroblesvirtualawlibrarychanrobles virtual law library
Amendments to pleadings are favored and should be liberally
allowed in the furtherance of justice. (Torres vs. Tomacruz, 49 Phil.
913). Moreover, under section 1 of Rule 17, Rules of Court, a party
may amend his pleading once as a matter of course, that is, without
leave of court, at any time before a responsive pleading is served. A
motion to dismiss is not a "responsive pleading". (Moran on the Rules
of Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended their
complaint before it was answered, the motion to admit the
amendment should not have been denied. It is true that the
amendment was presented after the original complaint had been
ordered dismissed. But that order was not yet final for it was still
under reconsideration.
The foregoing observations leave this Court free to discuss the
main issue in this petition. Did the court below abuse its discretion in
ruling that a contract for personal services involving more than
P500.00 was either invalid of unenforceable under the last paragraph
of Article 1358 of the Civil Code of the Philippines?chanrobles virtual
law library
We hold that there was abuse, since the ruling herein contested
betrays a basic and lamentable misunderstanding of the role of the
249 | P a g e
written form in contracts, as ordained in the present Civil
Code.chanroblesvirtualawlibrarychanrobles virtual law library
In the matter of formalities, the contractual system of our Civil
Code still follows that of the Spanish Civil Code of 1889 and of the
"Ordenamiento de Alcala" 2 of upholding the spirit and intent of the
parties over formalities: hence, in general, contracts are valid and
binding from their perfection regardless of form whether they be oral
or written. This is plain from Articles 1315 and 1356 of the present
Civil Code. Thus, the first cited provision prescribes:
ART. 1315. Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the fulfillment of what
has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law. (Emphasis supplied)
Concordantly, the first part of Article 1356 of the Code Provides:
ART. 1356. Contracts shall be obligatory in whatever form they
may have been entered into, provided all the essential requisites for
their validity are present.... (Emphasis supplied)
These essential requisites last mentioned are normally (1)
consent (2) proper subject matter, and (3) consideration or causa for
the obligation assumed (Article 1318). 3 So that once the three
elements exist, the contract is generally valid and obligatory,
regardless of the form, oral or written, in which they are
couched.chanroblesvirtualawlibrarychanrobles virtual law library
To this general rule, the Code admits exceptions, set forth in the
second portion of Article 1356:
However, when the law requires that a contract be in some form
in order that it may be valid or enforceable, or that a contract be
proved in a certain way, that requirement is absolute and
indispensable....
It is thus seen that to the general rule that the form (oral or
written) is irrelevant to the binding effect inter partes of a contract
that possesses the three validating elements of consent, subject
matter, and causa, Article 1356 of the Code establishes
only two exceptions, to wit:chanrobles virtual law library
(a) Contracts for which the law itself requires that they be in some
particular form (writing) in order to make them valid and
enforceable (the so-called solemn contracts). Of these the typical
example is the donation of immovable property that the law (Article
749) requires to be embodied in a public instrument in order "that the
donation may be valid", i.e., existing or binding. Other instances are
the donation of movables worth more than P5,000.00 which must be
in writing, "otherwise the donation shall be void" (Article 748);
contracts to pay interest on loans (mutuum) that must be "expressly
stipulated in writing" (Article 1956); and the agreements
contemplated by Article 1744, 1773, 1874 and 2134 of the present
Civil Code.chanroblesvirtualawlibrarychanrobles virtual law library
(b) Contracts that the law requires to be proved by some writing
(memorandum) of its terms, as in those covered by the old Statute of
Frauds, now Article 1403(2) of the Civil Code. Their existence not
being provable by mere oral testimony (unless wholly or partly
executed), these contracts are exceptional in requiring a writing
embodying the terms thereof for their enforceability by action in
court.chanroblesvirtualawlibrarychanrobles virtual law library
The contract sued upon by petitioner herein (compensation for
services) does not come under either exception. It is true that it
appears included in Article 1358, last clause, providing that "all other
contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one." But Article 1358 nowhere
provides that the absence of written form in this case will make the
agreement invalid or unenforceable. On the contrary, Article 1357
clearly indicates that contracts covered by Article 1358 are binding
and enforceable by action or suit despite the absence of writing.
ART. 1357. If the law requires a document or other special
form, as in the acts and contracts enumerated in the following article,
the contracting parties may compel each other to observe that form,
once the contract has been perfected. This right may be
exercised simultaneously with the action the contract. (Emphasis
supplied) .
It thus becomes inevitable to conclude that both the court a
quo as well as the private respondents herein were grossly mistaken
in holding that because petitioner Dauden's contract for services was
not in writing the same could not be sued upon, or that her complaint
should be dismissed for failure to state a cause of action because it
did not plead any written
agreement.chanroblesvirtualawlibrarychanrobles virtual law library
The basic error in the court's decision lies in overlooking that in
our contractual system it is not enough that the law should require
that the contract be in writing, as it does in Article 1358. The law must
further prescribe that without the writing the contract is not valid or
not enforceable by action.chanroblesvirtualawlibrarychanrobles
virtual law library
WHEREFORE, the order dismissing the complaint is set aside,
and the case is ordered remanded to the court of origin for further
proceedings not at variance with this
decision.chanroblesvirtualawlibrarychanrobles virtual law library
Costs to be solidarity paid by private respondents Hollywood Far
East Productions, Inc., and Ramon
Valenzuela.chanroblesvirtualawlibrarychanrobles virtual law library
Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and
Barredo, JJ., concur.
Concepcion, C.J. and Castro, J., are on leave.
Capistrano, J., took no part.
250 | P a g e
[G.R. No. 33580. February 6, 1931.]
The plaintiff appealed from said decision making the following
MAXIMILIANO SANCHO, Plaintiff-Appellant, v. SEVERIANO assignments of error:jgc:chanrobles.com.ph
LIZARRAGA, Defendant-Appellee.
"1. In holding that the plaintiff and appellant is not entitled to the
Jose Perez Cardenas and Jose M. Casal for Appellant. rescission of the partnership contract, Exhibit A, and that article 1124
of the Civil Code is not applicable to the present case.
Celso B. Jamora and Antonio Gonzalez for Appellee.
"2. In failing to order the defendant to return the sum of P50,000 to
SYLLABUS the plaintiff with interest from October 15, 1920, until fully paid.

1. JUDGMENT; APPEAL FROM AN ORDER ON RENDITION OF
ACCOUNTS. — In accordance with the doctrine laid down in the case
of Natividad v. Villarica (31 Phil., 172), it is held that an appeal taken
from a decision ordering the rendition of accounts is deemed
premature.
2. PARTNERSHIP; FAILURE OF PARTNER TO PAY THE WHOLE AMOUNT
PROMISED; RESPONSIBILITY. — Owing to the defendant’s failure to
pay to the partnership the whole amount which he bound himself to
pay, he became indebted to it for the remainder, with interest and
any damages occasioned thereby, but the plaintiff did not thereby
acquire the right to demand rescission of the partnership contract
under article 1124 of the Civil Code.
3. ID.; ID.; ID.; STATUTORY CONSTRUCTION. — Article 1124 of the Civil
Code cannot be applied to the case in question, because it refers to
the resolution of obligations in general, whereas articles 1681 and
1682 specifically refer to the contract of partnership in particular. And
it is a well known principle that special provisions prevail over general
provisions.
"3. In denying the motion for a new trial."cralaw virtua1aw library
In the brief filed by counsel for the appellee, a preliminary question is
raised purporting to show that this appeal is premature and therefore
will not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts,
have not been made and submitted, the case cannot be deemed
terminated in said court and its ruling is not yet appealable. In support
of this contention counsel cites section 123 of the Code of Civil
Procedure, and the decision of this court in the case of Natividad v.
Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been
rendered as ordered by the trial court, and until they have been either
approved or disapproved, the litigation involved in this action cannot
be considered as completely decided; and, as it was held in said case
of Natividad v. Villarica, also with reference to an appeal taken from
a decision ordering the rendition of accounts following the dissolution
of a partnership, the appeal in the instant case must be deemed
premature.

DECISION
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership
contract between himself and the defendant, entered into on
October 15, 1920, the reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per annum from
October 15, 1920, with costs, and any other just and equitable
remedy against said defendant.
The defendant denies generally and specifically all the allegations of
the complaint which are incompatible with his special defenses, cross-
complaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager
and administrator of P500 monthly from October 15, 1920, until the
final dissolution, with interest, one-half of said amount to be charged
to the plaintiff. He also prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and
finding it duly proved that the defendant had not contributed all the
capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for which it was
constituted, and ordered the defendant, as managing partner, to
proceed without delay to liquidate it, submitting to the court the
result of the liquidation together with the accounts and vouchers
within the period of thirty days from receipt of notice of said
judgment, without costs.
But even going into the merits of the case, the affirmation of the
judgment appealed from is inevitable. In view of the lower court’s
findings referred to above, which we cannot revise because the parol
evidence has not been forwarded to this court, articles 1681 and 1682
of the Civil Code have been properly applied. Owing to the
defendant’s failure to pay to the partnership the whole amount which
he bound himself to pay, he became indebted to it for the remainder,
with interest and any damages occasioned thereby, but the plaintiff
did not thereby acquire the right to demand rescission of the
partnership contract according to article 1124 of the Code. This article
cannot be applied to the case in question, because it refers to the
resolution of obligations in general, whereas articles 1681 and 1682
specifically refer to the contract of partnership in particular. And it is
a well known principle that special provisions prevail over general
provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement
of costs. So ordered.
Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns
and Villa-Real, JJ., concur.

251 | P a g e
G.R. No. L-16318 October 21, 1921
PANG LIM and BENITO GALVEZ, plaintiffs-appellees,
vs.
LO SENG, defendant-appellant.
Cohn, Fisher and DeWitt for appellant.
No appearance for appellees.
STREET, J.:
For several years prior to June 1, 1916, two of the litigating parties
herein, namely, Lo Seng and Pang Lim, Chinese residents of the City
of Manila, were partners, under the firm name of Lo Seng and Co., in
the business of running a distillery, known as "El Progreso," in the
Municipality of Paombong, in the Province of Bulacan. The land on
which said distillery is located as well as the buildings and
improvements originally used in the business were, at the time to
which reference is now made, the property of another Chinaman,
who resides in Hongkong, named Lo Yao, who, in September, 1911,
leased the same to the firm of Lo Seng and Co. for the term of three
years.
Upon the expiration of this lease a new written contract, in the
making of which Lo Yao was represented by one Lo Shui as attorney
in fact, became effective whereby the lease was extended for fifteen
years. The reason why the contract was made for so long a period of
time appears to have been that the Bureau of Internal Revenue had
required sundry expensive improvements to be made in the distillery,
and it was agreed that these improvements should be effected at the
expense of the lessees. In conformity with this understanding many
thousands of pesos were expended by Lo Seng and Co., and later by
Lo Seng alone, in enlarging and improving the plant.
Among the provisions contained in said lease we note the following:
Know all men by these presents:
xxx xxx xxx
1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr.
Lo Yao of Hongkong, cede by way of lease for fifteen years more said
distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing
business under the firm name of Lo Seng and Co.), after the
termination of the previous contract, because of the fact that they are
required, by the Bureau of Internal Revenue, to rearrange, alter and
clean up the distillery.
2. That all the improvements and betterments which they may
introduce, such as machinery, apparatus, tanks, pumps, boilers and
buildings which the business may require, shall be, after the
termination of the fifteen years of lease, for the benefit of Mr. Lo Yao,
my principal, the buildings being considered as improvements.
3. That the monthly rent of said distillery is P200, as agreed upon in
the previous contract of September 11, 1911, acknowledged before
the notary public D. Vicente Santos; and all modifications and repairs
which may be needed shall be paid for by Messrs. Pang Lim and Lo
Seng.
We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso,"
which we are at present conducting, hereby accept this contract in
each and all its parts, said contract to be effective upon the
termination of the contract of September 11, 1911.
Neither the original contract of lease nor the agreement extending
the same was inscribed in the property registry, for the reason that
the estate which is the subject of the lease has never at any time been
so inscribed.
On June 1, 1916, Pang Lim sold all his interest in the distillery to his
partner Lo Seng, thus placing the latter in the position of sole owner;
and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo
Yao, executed and acknowledged before a notary public a deed
purporting to convey to Pang Lim and another Chinaman named
Benito Galvez, the entire distillery plant including the land used in
connection therewith. As in case of the lease this document also was
never recorded in the registry of property. Thereafter Pang Lim and
Benito Galvez demanded possession from Lo Seng, but the latter
refused to yield; and the present action of unlawful detainer was
thereupon initiated by Pang Lim and Benito Galvez in the court of the
justice of the peace of Paombong to recover possession of the
premises. From the decision of the justice of the peace the case was
appealed to the Court of First Instance, where judgment was
rendered for the plaintiffs; and the defendant thereupon appealed to
the Supreme Court.
The case for the plaintiffs is rested exclusively on the provisions of
article 1571 of the Civil Code, which reads in part as follows:
ART. 1571. The purchaser of a leased estate shall be entitled to
terminate any lease in force at the time of making the sale, unless the
contrary is stipulated, and subject to the provisions of the Mortgage
Law.
In considering this provision it may be premised that a contract of
lease is personally binding on all who participate in it regardless of
whether it is recorded or not, though of course the unrecorded lease
creates no real charge upon the land to which it relates. The Mortgage
Law was devised for the protection of third parties, or those who have
not participated in the contracts which are by that law required to be
registered; and none of its provisions with reference to leases
interpose any obstacle whatever to the giving of full effect to the
personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears
to be so understood by all commentators, there being, so far as we
are aware, no authority suggesting the contrary. Thus, in the
commentaries of the authors Galindo and Escosura, on the Mortgage
Law, we find the following pertinent observation: "The Mortgage Law
is enacted in aid of and in respect to third persons only; it does not
affect the relations between the contracting parties, nor their
capacity to contract. Any question affecting the former will be
determined by the dispositions of the special law [i.e., the Mortgage
Law], while any question affecting the latter will be determined by the
general law." (Galindo y Escosura, Comentarios a la Legislacion
Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as regards
the personal obligations expressed therein, the lease in question was
from the beginning, and has remained, binding upon all the parties
thereto — among whom is to be numbered Pang Lim, then a member
of the firm of Lo Seng and Co. — this does not really solve the problem
now before us, which is, whether the plaintiffs herein, as purchasers
252 | P a g e
of the estate, are at liberty to terminate the lease, assuming that it
was originally binding upon all parties participating in it.
Upon this point the plaintiffs are undoubtedly supported, prima facie,
by the letter of article 1571 of the Civil Code; and the position of the
defendant derives no assistance from the mere circumstance that the
lease was admittedly binding as between the parties
thereto. 1awph!l.net
The words "subject to the provisions of the Mortgage Law," contained
in article 1571, express a qualification which evidently has reference
to the familiar proposition that recorded instruments are effective
against third persons from the date of registration (Co-Tiongco vs. Co-
Guia, 1 Phil., 210); from whence it follows that a recorded lease must
be respected by any purchaser of the estate whomsoever. But there
is nothing in the Mortgage Law which, so far as we now see, would
prevent a purchaser from exercising the precise power conferred in
article 1571 of the Civil Code, namely, of terminating any lease which
is unrecorded; nothing in that law that can be considered as arresting
the force of article 1571 as applied to the lease now before us.
Article 1549 of the Civil Code has also been cited by the attorneys for
the appellant as supplying authority for the proposition that the lease
in question cannot be terminated by one who, like Pang Lim, has
taken part in the contract. That provision is practically identical in
terms with the first paragraph of article 23 of the Mortgage Law,
being to the effect that unrecorded leases shall be of no effect as
against third persons; and the same observation will suffice to dispose
of it that was made by us above in discussing the Mortgage Law,
namely, that while it recognizes the fact that an unrecorded lease is
binding on all persons who participate therein, this does not
determine the question whether, admitting the lease to be so binding,
it can be terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which arise in relation
with the Mortgage Law, as well as article 1549 of the Civil Coded —
all of which, as we have seen, are undecisive — we are brought to
consider the aspect of the case which seems to us conclusive. This is
found in the circumstance that the plaintiff Pang Lim has occupied a
double role in the transactions which gave rise to this litigation,
namely, first, as one of the lessees; and secondly, as one of the
purchasers now seeking to terminate the lease. These two positions
are essentially antagonistic and incompatible. Every competent
person is by law bond to maintain in all good faith the integrity of his
own obligations; and no less certainly is he bound to respect the rights
of any person whom he has placed in his own shoes as regards any
contract previously entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim
participated in the creation of this lease, and when he sold out his
interest in that firm to Lo Seng this operated as a transfer to Lo Seng
of Pang Lim's interest in the firm assets, including the lease; and Pang
Lim cannot now be permitted, in the guise of a purchaser of the
estate, to destroy an interest derived from himself, and for which he
has received full value.
The bad faith of the plaintiffs in seeking to deprive the defendant of
this lease is strikingly revealed in the circumstance that prior to the
acquisition of this property Pang Lim had been partner with Lo Seng
and Benito Galvez an employee. Both therefore had been in relations
of confidence with Lo Seng and in that position had acquired
knowledge of the possibilities of the property and possibly an
experience which would have enabled them, in case they had
acquired possession, to exploit the distillery with profit. On account
of his status as partner in the firm of Lo Seng and Co., Pang Lim knew
that the original lease had been extended for fifteen years; and he
knew the extent of valuable improvements that had been made
thereon. Certainly, as observed in the appellant's brief, it would be
shocking to the moral sense if the condition of the law were found to
be such that Pang Lim, after profiting by the sale of his interest in a
business, worthless without the lease, could intervene as purchaser
of the property and confiscate for his own benefit the property which
he had sold for a valuable consideration to Lo Seng. The sense of
justice recoils before the mere possibility of such eventuality.
Above all other persons in business relations, partners are required to
exhibit towards each other the highest degree of good faith. In fact
the relation between partners is essentially fiduciary, each being
considered in law, as he is in fact, the confidential agent of the other.
It is therefore accepted as fundamental in equity jurisprudence that
one partner cannot, to the detriment of another, apply exclusively to
his own benefit the results of the knowledge and information gained
in the character of partner. Thus, it has been held that if one partner
obtains in his own name and for his own benefit the renewal of a lease
on property used by the firm, to commence at a date subsequent to
the expiration of the firm's lease, the partner obtaining the renewal
is held to be a constructive trustee of the firm as to such lease. (20 R.
C. L., 878-882.) And this rule has even been applied to a renewal taken
in the name of one partner after the dissolution of the firm and
pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754;
32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep.,
252.)
An additional consideration showing that the position of the plaintiff
Pang Lim in this case is untenable is deducible from articles 1461 and
1474 of the Civil Code, which declare that every person who sells
anything is bound to deliver and warrant the subject-matter of the
sale and is responsible to the vendee for the legal and lawful
possession of the thing sold. The pertinence of these provisions to the
case now under consideration is undeniable, for among the assets of
the partnership which Pang Lim transferred to Lo Seng, upon selling
out his interest in the firm to the latter, was this very lease; and while
it cannot be supposed that the obligation to warrant recognized in the
articles cited would nullify article 1571, if the latter article had actually
conferred on the plaintiffs the right to terminate this lease,
nevertheless said articles (1461, 1474), in relation with other
considerations, reveal the basis of an estoppel which in our opinion
precludes Pang Lim from setting up his interest as purchaser of the
estate to the detriment of Lo Seng.
It will not escape observation that the doctrine thus applied is
analogous to the doctrine recognized in courts of common law under
the head of estoppel by deed, in accordance with which it is held that
if a person, having no title to land, conveys the same to another by
some one or another of the recognized modes of conveyance at
common law, any title afterwards acquired by the vendor will pass to
the purchaser; and the vendor is estopped as against such purchaser
from asserting such after-acquired title. The indenture of lease, it may
be further noted, was recognized as one of the modes of conveyance
at common law which created this estoppel. (8 R. C. L., 1058, 1059.)
From what has been said it is clear that Pang Lim, having been a
participant in the contract of lease now in question, is not in a position
to terminate it: and this is a fatal obstacle to the maintenance of the
253 | P a g e
action of unlawful detainer by him. Moreover, it is fatal to the
maintenance of the action brought jointly by Pang Lim and Benito
Galvez. The reason is that in the action of unlawful detainer, under
section 80 of the Code of Civil Procedure, the only question that can
be adjudicated is the right to possession; and in order to maintain the
action, in the form in which it is here presented, the proof must show
that occupant's possession is unlawful, i. e., that he is unlawfully
withholding possession after the determination of the right to hold
possession. In the case before us quite the contrary appears; for, even
admitting that Pang Lim and Benito Galvez have purchased the estate
from Lo Yao, the original landlord, they are, as between themselves,
in the position of tenants in common or owners pro indiviso,
according to the proportion of their respective contribution to the
purchase price. But it is well recognized that one tenant in common
cannot maintain a possessory action against his cotenant, since one is
as much entitled to have possession as the other. The remedy is
ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.)
It follows that as Lo Seng is vested with the possessory right as against
Pang Lim, he cannot be ousted either by Pang Lim or Benito Galvez.
Having lawful possession as against one cotenant, he is entitled to
retain it against both. Furthermore, it is obvious that partition
proceedings could not be maintained at the instance of Benito Galvez
as against Lo Seng, since partition can only be effected where the
partitioners are cotenants, that is, have an interest of an identical
character as among themselves. (30 Cyc., 178-180.) The practical
result is that both Pang Lim and Benito Galvez are bound to respect
Lo Seng's lease, at least in so far as the present action is concerned.

We have assumed in the course of the preceding discussion that the

deed of sale under which the plaintiffs acquired the right of Lo Yao,
the owner of the fee, is competent proof in behalf of the plaintiffs. It
is, however, earnestly insisted by the attorney for Lo Seng that this
document, having never been recorded in the property registry,
cannot under article 389 of the Mortgage Law, be used in court
against him because as to said instrument he is a third party. The
important question thus raised is not absolutely necessary to the
decision of this case, and we are inclined to pass it without decision,
not only because the question does not seem to have been ventilated
in the Court of First Instance but for the further reason that we have
not had the benefit of any written brief in this case in behalf of the
appellees.

The judgment appealed from will be reversed, and the defendant will
be absolved from the complaint. It is so ordered, without express
adjudication as to costs.

Johnson, Araullo, Avanceña and Villamor, JJ., concur.

254 | P a g e
[G.R. No. L-22493. July 31, 1975.] This is an appeal interposed by the defendant Benjamin C. Daco from
the decision of the Court of First Instance of Manila, Branch XVI, in
ISLAND SALES, INC., Plaintiff-Appellee, v. UNITED PIONEERS Civil Case No. 50682, the dispositive portion of which
GENERAL CONSTRUCTION COMPANY, ET AL, Defendants. BENJAMIN reads:jgc:chanrobles.com.ph
C. DACO, Defendant-Appellant.
"WHEREFORE, the Court sentences defendant United Pioneer
Grey, Buenaventura & Santiago for Plaintiff-Appellee. General Construction Company to pay plaintiff the sum of P7,119.07
with interest at the rate of 12% per annum until it is fully paid, plus
Anacleto D. Badoy, Jr., for Defendant-Appellant. attorney’s fees which the Court fixes in the sum of Eight Hundred
Pesos (P800.00) and costs.
SYNOPSIS
"The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and
The defendant company, a general partnership, purchased from Augusto Palisoc are sentenced to pay the plaintiff in this case with the
Island Sales, Inc. a motor vehicle, executing for that purpose a understanding that the judgment against these individual defendants
promissory note for the entire price, payable in twelve monthly shall be enforced only if the defendant company has no more leviable
installments. Having failed to receive the third installment, Island properties with which to satisfy the judgment against it.
Sales sued the company, including its general partners as co-
defendants. On motion of plaintiff, the complaint was later dismissed "The individual defendants shall also pay the costs."cralaw virtua1aw
insofar as one of the partners was concerned. After trial, judgment library
was entered sentencing the defendant to pay the sum due, with
interest, and expressly stating that the four of the five partners would On April 22, 1961, the defendant company a general partnership duly
pay in case the company has no properties with which to satisfy registered under the laws of the Philippines, purchased from the
judgment. One of the partners appealed claiming that the liability of plaintiff a motor vehicle on the installment basis and for this purpose
each partner should not exceed 1/5 of the obligation due inasmuch executed a promissory note for P9,440.00, payable in twelve (12)
as there are five partners in the company. equal monthly installments of P786.63, the first installment payable
on or before May 22, 1961 and the subsequent installments on the
The Supreme Court ruled that under Art. 1816 of the Civil Code, the 22nd day of every month thereafter, until fully paid, with the
liability of partners shall be pro-rata; that the dismissal of the condition that failure to pay any of said installments as they fall due
complaint to favor one of the general partners results in the would render the whole unpaid balance immediately due and
condonation of the debt of that partner’s individual share and that demandable.
appellant’s share in the obligation shall not be increased thereby but
shall be limited to 1/5 of the obligation of defendant company. Having failed to receive the installment due on July 22, 1961, the
plaintiff sued the defendant company for the unpaid balance
Decision affirmed as clarified. amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel
C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-
defendants in their capacity as general partners of the defendant
SYLLABUS company.

Daniel A. Guizona failed to file an answer and was consequently

1. OBLIGATIONS AND CONTRACTS; LIABILITY OF GENERAL PARTNERS, declared in default. 1
PRO-RATA; CONDONATION OF INDIVIDUAL LIABILITY DOES NOT
AFFECT THE OTHER’S SHARE IN THE OBLIGATION. — Where there was Subsequently, on motion of the plaintiff, the complaint was dismissed
five general partners when the promissory note in question executed insofar as the defendant Romulo B. Lumauig is concerned. 2
for and in behalf of the partnership, and the complaint against one of
them was dismissed upon motion of the plaintiff, the general When the case was called for hearing, the defendants and their
partner’s share in the obligation remains limited to only 1/5 of the counsels failed to appear notwithstanding the notices sent to them.
amount due and demandable, their liability being pro-rata. Consequently, the trial court authorized the plaintiff to present its
evidence ex-parte 3 , after which the trial court rendered the decision
appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to

DECISION reconsider the decision claiming that since there are five (5) general
partners, the joint and subsidiary liability of each partner should not
exceed one-fifth (1/5) of the obligations of the defendant company.
But the trial court denied the said motion notwithstanding the
CONCEPCION, JR., J.: conformity of the plaintiff to limit the liability of the defendants Daco
and Sim to only one-fifth (1/5) of the obligations of the defendant
company 4 . Hence, this appeal.

The only issue for resolution is whether or not the dismissal of the

255 | P a g e
complaint to favor one of the general partners of a partnership
increases the joint and subsidiary liability of each of the remaining
partners for the obligations of the partnership.

Article 1816 of the Civil Code provides:jgc:chanrobles.com.ph

"Art. 1816. All partners including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership. under its signature and
by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a partnership
contract."cralaw virtua1aw library

In the case of Co-Pitco v. Yulo (8 Phil. 544) this Court

held:jgc:chanrobles.com.ph

"The partnership of Yulo and Palacios was engaged in the operation

of a sugar estate in Negros. It was, therefore, a civil partnership as
distinguished from a mercantile partnership. Being a civil partnership,
by the express provisions of articles 1698 and 1137 of the Civil Code,
the partners are not liable each for the whole debt of the partnership.
The liability is pro rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that the other partner,
Jaime Palacios, had left the country cannot increase the liability of
Pedro Yulo."cralaw virtua1aw library

In the instant case, there were five (5) general partners when the
promissory note in question was executed for and in behalf of the
partnership. Since the liability of the partners is pro rata, the liability
of the appellant Benjamin C. Daco shall be limited to only one-fifth
(1/5) of the obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was dismissed,
upon motion of the plaintiff, does not unmake the said Lumauig as a
general partner in the defendant company. In so moving to dismiss
the complaint, the plaintiff merely condoned Lumauig’s individual
liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby

AFFIRMED, without pronouncement as to costs.

SO ORDERED.

Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ.,

concur.

256 | P a g e
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.chanrobles virtual law library
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. 1The partnership had its main office in Makati,
Metropolitan Manila.chanroblesvirtualawlibrarychanrobles virtual
law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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. 2The 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.chanroblesvirtualawlibrarychanrobles virtual law library
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. 3chanrobles virtual law library
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. 4chanrobles virtual
law library
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. 5chanrobles virtual law
library
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. 6chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual
law library
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. 7chanrobles virtual law library
Two (2) main issues are thus posed for our consideration in the case
at bar: (1) whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and replaced by a
new partnerships composed of Willy Co and Emmanuel Zapanta; and
(2) if indeed a new partnership had come into existence, whether
petitioner Yu could nonetheless assert his rights under his
employment contract as against the new
partnership.chanroblesvirtualawlibrarychanrobles virtual law library
In respect of the first issue, we agree with the result reached by the
NLRC, that is, that the legal effect of the changes in the membership
of the partnership was the dissolution of the old partnership which
had hired petitioner in 1984 and the emergence of a new firm
257 | P a g e
composed of Willy Co and Emmanuel Zapanta in
1987.chanroblesvirtualawlibrarychanrobles virtual law library
The applicable law in this connection - of which the NLRC seemed
quite unaware - is found in the Civil Code provisions relating to
partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation
of the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business.
(Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:chanrobles virtual law library
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when
no definite term or particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where
the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their
partnership interests (amounting to 82% of the total partnership
interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not
show what happened to the remaining 18% of the original partnership
interest. The acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the partners
who had originally owned such 82% interest, was enough to
constitute a new partnership.chanroblesvirtualawlibrarychanrobles
virtual law library
The occurrence of events which precipitate the legal consequence of
dissolution of a partnership do not, however, automatically result in
the termination of the legal personality of the old partnership. Article
1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring
partnership persists for the limited purpose of winding up and closing
of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was
simply continued by the new partners, without the old partnership
undergoing the procedures relating to dissolution and winding up of
its business affairs. In other words, the new partnership simply took
over the business enterprise owned by the preceeding partnership,
and continued using the old name of Jade Mountain Products
Company Limited, without winding up the business affairs of the old
partnership, paying off its debts, liquidating and distributing its net
assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful
tax considerations which underlay such an informal approach to
business on the part of the retiring and the incoming partners. It is
not, however, necessary to inquire into such
matters.chanroblesvirtualawlibrarychanrobles virtual law library
What is important for present purposes is that, under the above
described situation, not only the retiring partners (Rhodora Bendal, et
al.) but alsothe new partnership itself which continued the business of
the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8the Court held
that under facts very similar to those in the case at bar, a withdrawing
partner remains liable to a third party creditor of the old
partnership. 9The liability of the new partnership, upon the other
hand, in the set of circumstances obtaining in the case at bar, is
established in Article 1840 of the Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership
are also creditors of the person or partnership continuing the
business:chanrobles virtual law library
(1) When any new partner is admitted into an existing partnership, or
when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two or
more of the partners, or to one or more of the partners and one or
more third persons, if the business is continued without liquidation of
the partnership affairs;chanrobles virtual law library
(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;chanrobles virtual law library
(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;chanrobles virtual law library
(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;chanrobles virtual law library
(5) When any partner wrongfully causes a dissolution and remaining
partners continue the business under the provisions of article 1837,
second paragraph, No. 2, either alone or with others, and without
liquidation of the partnership affairs;chanrobles virtual law library
(6) When a partner is expelled and the remaining partners continue
the business either alone or with others without liquidation of the
partnership affairs;chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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
258 | P a g e
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 xxxchanrobles virtual law library
(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.chanroblesvirtualawlibrarychanrobles virtual law library
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. 10The 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. 11It 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.chanroblesvirtualawlibrarychanrobles virtual law library
While the new Jade Mountain was entitled to decline to retain
petitioner Benjamin Yu in its employ, we consider that Benjamin Yu
was very shabbily treated by the new partnership. The old partnership
certainly benefitted from the services of Benjamin Yu who, as noted,
previously ran the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business itself
and therefore, the new partnership similarly benefitted from the
labors of Benjamin Yu. It is worthy of note that the new partnership
did not try to suggest that there was any cause consisting of some
blameworthy act or omission on the part of Mr. Yu which compelled
the new partnership to terminate his services. Nonetheless, the new
Jade Mountain did not notify him of the change in ownership of the
business, the relocation of the main office of Jade Mountain from
Makati to Mandaluyong and the assumption by Mr. Willy Co of
control of operations. The treatment (including the refusal to honor
his claim for unpaid wages) accorded to Assistant General Manager
Benjamin Yu was so summary and cavalier as to amount to arbitrary,
bad faith treatment, for which the new Jade Mountain may
legitimately be required to respond by paying moral damages. This
Court, exercising its discretion and in view of all the circumstances of
this case, believes that an indemnity for moral damages in the amount
of P20,000.00 is proper and
reasonable.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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;chanrobles virtual law library
(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;chanrobles virtual law library
(c) indemnity for moral damages in the amount of
P20,000.00;chanrobles virtual law library
(d) six percent (6%) per annum legal interest computed on items (a)
and (b) above, commencing on 26 December 1989 and until fully paid;
andchanrobles virtual law library
(e) ten percent (10%) attorney's fees on the total amount due from
private respondent Jade Mountain.
Costs against private
respondents.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
259 | P a g e
[G.R. No. 22825. February 14, 1925. ]

TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., Plaintiffs-
Appellants, v. SALVADOR SERRA, Defendant-Appellee.
Eduardo Gutierrez Repide for Appellants.
Hilado & Hilado, Fisher, DeWitt, Perkins & Brady, Araneta &
Zaragoza, Antonio Sanz and Jose Galan y Blanco for Appellee.
SYLLABUS
1. OBLIGATIONS; CONTRACTS; NOVATION; CONSENT OF CREDITOR.
— In order that there may be a novation of a contract by the
substitution of the debtor, the express consent of the creditor is
necessary.
2. ID.; ID.; ID.; TIME AND FORM OF CONSENT. — It is not necessary
that the creditor should give his consent simultaneously with the
execution of the new contract. He may do so afterwards, provided it
is given in an indubitable manner.
3. ID.; ID.; ID.; EVIDENCE. — The mere fact that the creditor has dealt
with the person who is alleged to have been substituted in the place
of the original debtor on matters different from the obligation
incurred does not prove that said creditor has consented to the
substitution so as to liberate the original debtor from his obligations,
it not appearing that the creditor has taken part in the agreement of
substitution or that he has waived his right against debtor.
4. ID.; ID.; CONFUSION. — The rights of creditor and debtor are not
merged in one same person by the fact that the things pertaining to
said creditor and debtor which were the subject of the obligation
were transferred to him where said transfer did not include, among
the rights and obligations transferred, the credit that the creditor had
against the debtor.
On February 1, 1919, plaintiffs and defendant entered into a contract
of partnership, marked Exhibit A, for the construction and
exploitation of a railroad line from the "San Isidro" and "Palma"
centrals to the place known as "Nandong." The original capital
stipulated was P150,000. It was covenanted that the parties should
pay this amount in equal parts and the plaintiffs were entrusted with
the administration of the partnership. The agreed capital of P150,000,
however, did not prove sufficient, as the expenses up to May 15,
1920, had reached the amount of P226,092.92, as per statement
Exhibit B, presented by the administrator and O. K.’d by the
defendant.
January 29, 1920, the defendant entered into a contract of sale with
Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga,
whereby he sold to the latter the estate and central known as "Palma"
with its running business, as well as all the improvements,
machineries and buildings, real and personal properties, rights,
choses in action and interests, including the sugar plantation of the
harvest year of 1920 to 1921, covering all the property of the vendor.
This contract was executed before a notary public of Iloilo and is
evidence by Exhibit 1 of the defendant, paragraph 5 of which reads as
follows:jgc:chanrobles.com.ph
"5. The party of the first part hereby states that he has entered into a
contract with the owners of the ’San Isidro’ Central for the
construction, operation, and exploitation of a railroad line of about 10
kilometers extending from the ’Palma’ Central and ’San Isidro’ Central
to a point known as ’Nandong’, the expenses until the termination of
which shall be for the account of the ’San Isidro’ Central, and of which
expenses, one-half shall be borne by the ’Palma’ Central with the
obligation to reimburse same five (5) years with interest at the rate of
10 per cent per annum to the said ’San Isidro’ Central. The vendee
hereby obligates himself to respect the aforesaid contract and all
obligations arising therefrom."cralaw virtua1aw library

5. ID.; ID.; PARTNERSHIP; DISSOLUTION; EFFECTS OF. — The
dissolution of a partnership does not extinguish its obligations already
incurred, and the partnership continues until they are liquidated,
although it may not incur new obligations.
6. ID.; ID.; ID.; ID.; PERIOD. — Obligations contracted by a partner with
his copartners, for the fulfillment of which a period was fixed, become
pure obligations upon the immediate dissolution of the partnership
by agreement of the members, and the partner entitled to enforce
them may bring an action for the purpose after the dissolution agreed
upon by the parties, without the necessity of waiting for the
expiration of the period originally fixed.
DECISION
Before the delivery to the purchasers of the hacienda thus sold,
Eusebio R. de Luzuriaga renounced all his rights under the contract of
January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil.
C. Whitaker. This gave rise to the fact that on July 17, 1920, Venancio
Concepcion and Phil. C. Whitaker and the herein defendant executed
before Mr. Antonio Sanz, a notary public in and for the City of Manila,
another deed of absolute sale of the said "Palma" Estate for the
amount of P1,695,961.90, of which the vendor received at the time
of executing the deed the amount of P945,861.90, and the balance
was payable by installments in the form and manner stipulated in the
contract. The purchasers guaranteed the unpaid balance of the
purchase price by a first and special mortgage in favor of the vendor
upon the hacienda and the central with all the improvements,
buildings, machineries, and appurtenances then existing on the said
hacienda.
Clause 6 of the deed of July 17, 1920, contains the following
stipulations:jgc:chanrobles.com.ph

"6. Messrs. Phil. C. Whitaker and Venancio Concepcion hereby state

VILLAMOR, J. : that they are aware of the contract that Mr. Salvador Serra has with
the proprietors of the ’San Isidro’ Central for the operation and
exploitation of a railroad line about 10 kilometers long from the

260 | P a g e
’Palma’ and hereby and ’San Isidro’ centrals to the place known as
’Nandong;’ and hereby obligate themselves to respect the said
contract and subrogate themselves into the rights and obligations
thereunder. They also bind themselves to comply with all the
contracts heretofore entered by the vendor with the customers,
copaceners on shares and employees."cralaw virtua1aw library
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C.
Whitaker bought from the plaintiffs the one half of the railroad line
pertaining to the latter executing therefor the document Exhibit 5.
The price of this sale was P237,722.15, excluding any amount which
the defendant might be owing to the plaintiffs. Of the purchase price,
Venancio Concepcion and Phil. C. Whitaker paid the sum of
P47,544.43 only. In the deed Exhibit 5, the plaintiffs and Concepcion
and Whitaker agreed, among other things, that the partnership
"Palma" and "San Isidro," formed by the agreement of February 1,
1919, between Serra, Lazaro Mota, now deceased, and Juan J.
Vidaurrazaga for himself and in behalf of his brothers, Felix and
Dionisio Vidaurrazaga, should be dissolved upon the execution of this
contract, and that the said partnership agreement should be totally
cancelled and of no force and effect whatever.
So it results that the "Hacienda Palma", with the entire railroad, the
subject-matter of the contract of partnership between plaintiffs and
defendant, became the property of Whitaker and Concepcion. Phil. C.
Whitaker and Venancio Concepcion having failed to pay to the
defendant a part of the purchase price, that is, P750,000, the vendor,
the herein defendant, foreclosed the mortgage upon the said
hacienda, which was adjudicated to him at the public sale held by the
sheriff for the amount of P500,000, and the defendant put in
possession thereof, including what was planted at the time, together
with all the improvements made by Messrs. Phil. C. Whitaker and
Venancio Concepcion.
Since the defendant Salvador Serra failed to pay one-half of the
amount expended by the plaintiffs upon the construction of the
railroad line, that is, P113,046.46, as well as Phil. C. Whitaker and
Venancio Concepcion, the plaintiffs instituted the present action
praying: (1) That the deed of February 1, 1919, be declared valid and
binding; (2) that after the execution of the said document the
defendant improved economically so as to be able to pay the plaintiffs
the amount owed, but that he refused to pay either in part or in whole
the said amount notwithstanding the several demands made on him
for the purpose; and (3) that the defendant be sentenced to pay the
plaintiffs the aforesaid um of P113,046.46, with the stipulated
interest at 10 per cent per annum beginning June 4, 1920, until full
payment thereof, with the costs of the present action.
Defendant set up three special defenses: (1) The novation of the
contract by the substitution of the debtor with the conformity of the
creditors; (2) the confusion of the rights of the creditor and debtor;
and (3) the extinguishment of the contract, Exhibit A.
The court a quo in its decision had that there was a novation of the
contract by the substitution of the debtor, and therefore absolved the
defendant from the complaint with costs against the plaintiffs. With
regard to the prayer that the said contract be declared valid and
binding, the court held that there was no way of reviving the contract
which the parties themselves in interest has spontaneously and
voluntarily extinguished. (Exhibit 5.)
Plaintiffs had appealed form this judgment and as causes for the
review, they allege that the trial court erred: (a) In holding that
Messrs. Whitaker and Concepcion, upon purchasing the "Palma"
Central, were subrogated in the place of the defendant in all his rights
and obligations under the contract relating to the railroad line existing
between the "Palma" and the "San Isidro" centrals and that the
plaintiffs agreed to this subrogation; (b) in holding that the deed
Exhibit A of February 1, 1919, had been extinguished in its entirety
and made null and void by the agreement Exhibit 5 dated December
16, 1920; (c) in absolving the defendant from the complaint and in
sentencing the plaintiffs to pay the costs; and (d) in not sentencing
the defendant to pay the plaintiffs the sum of P133,046.46, with legal
interest at 10 per cent per annum from June 4, 1920, until full
payment, with cost against the defendant.
Taking for granted that the defendant was under obligation to pay the
plaintiffs one-half of the cost of the construction of the railroad line
in question, by virtue of the contract of partnership Exhibit A, the
decisive point here to determine is whether there was a novation of
the contract by the substitution of the debtor with the consent of the
creditor, as required by article 1205 of the Civil Code. If so, it is clear
that the obligation of the defendant was, in accordance with article
1156 of the same code, extinguished.
It should be noted that in order to give novation its legal effect, the
law requires that the creditor should consent to the substitution of a
new debtor. This consent must be given expressly for the reason that,
since novation extinguishes the personality of the first debtor who is
to be substituted by a new one, it implies on the part of the creditor
a waiver of the right that he had before the novation which waiver
must be express under the principle that renuntiatio non
praesumitor, recognized by the law in declaring that a waiver of right
may not be performed unless the will to waive is indisputably shown
by him who holds the right.
The fact that Phil. C. Whitaker and Venancio Concepcion were willing
to assume the defendant’s obligation to the plaintiffs is of no avail, if
the latter have no expressly consented to the substitution of the first
debtor. Neither can the letter, Exhibit 6, on page 87 of the record be
considered as proof of the consent of the plaintiffs to the substitution
of the debtor, because that exhibit is a letter written by plaintiffs to
Phil. C. Whitaker and Venancio Concepcion for the reason that the
defendant had told them (plaintiffs) that after the sale of the
’Hacienda Palma" to Messrs. Phil. C. Whitaker and Venancio
Concepcion, the latter from then on would bear the cost of the repairs
and maintenance of the railroad line and of the construction of
whatever addition there into might be necessary. So the plaintiffs by
their letter of August 14th, submitted a statement of account to Phil.
C. Whitaker and Venancio Concepcion containing the accounts of the
"San Isidro" Central, as stated June 30, 1920, saying that they had
already explained previously the reason for the increase in the
expenses and since the retiring partner, Mr. Serra, had already given
his conformity with the accounts, as stated May 15, 1920, it remained
only to hear the conformity of the new purchasers for the accounts
covering the period from May 15 to June 30, 1920, and their authority
for future investments, or their objection, if any, to the amounts
previously expended. Neither can the testimony of Julio Infante in
connection with Exhibit 7 be taken as evidence of the consent of the
plaintiffs to the exchange of the person of the debtor for that of
261 | P a g e
Messrs. Phil. C. Whitaker and Venancio Concepcion. This witness
testified, in substance, that he is acquainted with the partnership
formed by the owners of the "Hacienda Palma" and "Hacienda San
Isidro" for the construction of the railroad line; that the costs of the
construction thereof was originally estimated at P150,000; that the
owner of the "Hacienda Palma" would pay one-half of this amount;
that when the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker
and Venancio Concepcion, the latter agreed to pay one-half of the
cost of P150,000; that as the cost of construction exceeded P200,000,
he, as an employee of Messrs. Phil. C. Whitaker and Venancio
Concepcion, could not O.K. the accounts as presented by the
plaintiffs, and suggested that they take up in writing their points of
view directly with Messrs. Phil. C. Whitaker and Venancio Concepcion.
Then the plaintiffs did as suggested, and wrote the letter Exhibit 7 in
which they asked the new owners of the "Hacienda Palma" their
decision upon the following three questions: 1. Will the "Palma"
Central accept the statement of accounts as presented by the "San
Isidro" Central regarding the actual cost of the railroad line "Palma-
San Isidro-Nandong?" 2. Is the "Palma" Central willing to continue as
co-proprietor of the railroad line for the exploitation of the sugar-
cane business of "Nandong" and neighboring barrios, and therefore
to pay 50 per cent of the expenses that may incurred in completing
the line?
It was but natural that the plaintiffs should have done this. Defendant
transferred his hacienda to Messrs. Phil. C. Whitaker and Venancio
Concepcion and made it known to the plaintiffs that the owners
would hold themselves liable for the cost of constructing the said
railroad line. Plaintiffs could not prevent the defendant from selling
to Phil. C. Whitaker and Venancio Concepcion his "Hacienda Palma"
with the rights that he had over the railroad in question. The
defendant ceased to be a partner in the said line and, therefore, the
plaintiffs had to take the vendees as their new partners. Plaintiffs had
to come to an understanding with the owners of the "Hacienda
Palma" in connection with the railroad line "Palma-San Isidro —
Nandong." But in all of this, there was nothing to show the express
consent, the manifest and deliberate intention of the plaintiffs to
attempt the defendant from his obligation and to transfer it to his
successors in interest, Messrs. Phil. C. Whitaker and Venancio
Concepcion.
The plaintiffs were not a party to the document Exhibit 1. Neither in
this document, nor in others in the record, do we find any stipulation
whereby the obligation of the defendant was novated with the
consent of the creditor, and as it has been held in the case of Martinez
v. Cavives (25 Phil., 581), the oral evidence tending to prove such a
fact as this is not in law sufficient.
As has been said, in all contracts of novation consisting in the change
of the debtor, the consent of the creditor indespensable, pursuant to
article 1205 of the Civil Code which reads as
follows:jgc:chanrobles.com.ph
"Novation which consist in the substitution of a new debtor in the
place of the original one may be made without the knowledge of the
latter, but not without the consent of the creditor."cralaw virtua1aw
library
Mr. Manresa in his commentaries on articles 1205 and 1206 of the
Civil Code (vol. 8, 1907 ed., pp. 424-426) says as
follows:jgc:chanrobles.com.ph
"Article 1205 clearly says in what this kind of novation must consist,
because in stating that another person must be substituted in lieu of
the debtor, it means that it is not enough to extend the juridical
relation to that other person, but that it is necessary to place the
latter in the same position occupied by the original debtor.
"Consequently, the obligation contracted by a third person to answer
for the debtor, as in the case of suretyship, in the last analysis, does
not work as a true novation, because the third person is not put in the
same position as the debtor—the latter in his same place and with the
same obligation which is guaranteed by the former.
"Since it is necessary that the third person should become a debtor in
the same position as the debtor whom he substitutes, this charge and
the resulting novation may be respected as to the whole debt, thus
untying the debtor from his obligation, except the eventual
responsibilities of which we shall speak later, or he may continue with
the character of such debtor and also allow the third person to
participate in the obligation. In the first case, there is a complete and
perfect novation; in the second, there is a change that does not free
the debtor nor authorized the extinguishment of the accessory
obligations of the latter. In this last hypothesis, if there has been no
agreement as to solidarity, the first and the new debtor should be
considered as obligated severally.
"The provisions of article 1205 which require the consent of the
creditor as an indespensable requisite in this kind of novation and not
always that of the debtor, while not making it impossible to express
the same, imply the distinction between these forms of novation and
it is based on the simple consideration of justice that since the
consequences of the substitution may be prejudicial to the creditor,
but not to the debtor, the consent of the creditor alone is necessary.
"The two forms of this novation, also impliedly recognized by article
1206 which employs the word ’delagate,’ as applied to the debt, are
the expromission and the delegation. Between these, there is a
marked difference of meaning and, sa a consequence, a logical
difference of requisite and another clear difference as to their effects,
of which we shall speak later.
"In the expromission, the initiative of the change does not emanate
from the debtor and may be made even without his consent, since it
consist in a third person assuming his obligation; it logically requires
the consent of this third man and of the creditor and of this last
requisite lies the difference between novation and payment, as the
latter can be effected by a third person even against the will of the
creditor, whereas in the former case it cannot.
"In the delegation, the debtor offers and the creditor accepts a third
person who consents to the substitution so that the intervention and
the consent of these three persons are necessary and they are
respectively known as delegante, delegatario, and delegado. It must
be noted that the consent need not be given simultaneously and that
it may be given afterwards, as for example, that of the creditor
delegatario to the proposition of the debtor accepted by the
delegado.
"Delegation notably differs from the mere indication made by the
262 | P a g e
debtor that a third person shall pay the debt; in this case, there is no
novation and the former is not acquitted of his obligation and his
relations with the third person are regulated by the rules of agency.
The French Code in article 1276 expressly provides for this case, as
well as the inverse one where the debtor points out somebody else
to answer for the payment, declaring that there is no novation in
either case. The same sound criterion is impliedly accepted by our
Code."cralaw virtua1aw library
In the case of E. C. McCullough & Co. v. Veloso and Serna (46 Phil., 1),
it appears that McCullough & Co., Inc., sold to Veloso a real state
worth P700,000 on account of which Veloso paid P50,000, promising
to pay the balance at the times and manner stipulated in the contract.
He further bound himself to pay 10 per cent of the amount of the debt
as attorney’s fees in case of litigation. To secure the unpaid balance
of the purchase price he executed a first mortgage upon the property
in favor of the vendor. Subsequently, Veloso sold the property for
P100,000 to Joaquin Serna who bound himself to respect the
mortgage in favor of McCullough & Co., Inc., and to assume Veloso’s
obligation to pay the unpaid balance of the purchase price of the
property at the times agreed upon in the contract between Veloso
and McCullough & Co., Inc.
Veloso had paid on account of the price the amount of P50,000, and
Serna also made several payments aggregating the total amount of
P250,000. But after this, neither Veloso nor Serna made further
payments and thus gave cause for litigation. The court in deciding the
case said:jgc:chanrobles.com.ph
"The defendant contends that having sold the property to Serna, and
the latter having assumed the obligation to pay the plaintiff the
unpaid balance of the price secured by the mortgage upon the
property, he was relieved from this obligation and it then devolved
upon Serna to pay the plaintiff. This means that as a consequence of
the contract between the defendant and Serna, the contract between
the defendant and the plaintiff was novated by the substitution of
Serna as new debtor. This is untenable. In order that this novation
may take place, the new law requires the consent of the creditor (art.
1205 of the Civil Code). The plaintiff did not intervene in the contract
between Veloso and Serna and did not expressly give his consent to
this substitution. Novation must be express, and cannot be
presumed."cralaw virtua1aw library
In Martinez v. Cavives (25 Phil., 581), it was held
that:jgc:chanrobles.com.ph
". . . The consent of the new debtor is as essential to the novation as
is that of the creditor.
"There is no express stipulation in any of the documents of record that
the obligation of the defendant was novated, and the parol evidence
tending to show that it was novated is not in law to establish that
fact."cralaw virtua1aw library
The same doctrine was upheld in the case of Vaca v. Kosca (26 Phil.,
388):jgc:chanrobles.com.ph
"A new debtor cannot be substituted for the original obligor in the
first contract without the creditor’s consent."cralaw virtua1aw library
The supreme court of Spain has constantly laid down the same
doctrine with regard to novation of contracts:jgc:chanrobles.com.ph
"The obligations and rights in a contract cannot be novated with
regard to a third person who has not intervened in the execution
thereof." (Decision of June 28, 1860.)
"Novation by the change of debtors cannot be effected without the
express approval of the creditor." (Decisions of February 8, 1862 and
June 12, 1867.)
"Novation should not be established by presumptions but by the
express will of the parties." (Decisions of February 14, 1876 and June
16, 1883.)
"In order that novation of a contract by subrogation of the debtor may
take effect and thus liberate the first debtor from the obligation, it is
necessary that the subrogation be made with the consent of the
creditor." (Decision of March 2, 1897.)
"It is undeniable that obligations judicially declared, as well as those
acquired by any other title, can be novated by substituting a new
debtor in place of the primitive, only when the creditor gives his
consent to the substitution." (Decision of November 15, 1899.)
"Novation can in no case be presumed in contracts, but it is necessary
that it should result from the will of the parties, or that the old and
the new one be altogether incompatible." (Decision of December 31,
1904.)
"An obligation cannot be deemed novated by means of modifications
which do not substantially change the essence thereof, nor when it is
not extinguished by another obligation, nor when the debtor is not
substituted." (Decision of March 14, 1908.)
"The consent of the creditor required in a novation consisting of the
charge of debtors (arts. 1205, Civil Code) must appear in an express
and positive manner and must be given with the deliberate intention
of exonerating the primitive debtor of his obligations and transfer
them wholly upon the new debtor." (Decision of June 22, 1911.)
In the decision in the case of Martinez v. Cavives, supra, the following
decisions of the several courts of the United States are cited, wherein
this question was decided in the same manner:jgc:chanrobles.com.ph
"In Latiolais, admrx. v. Citizen’s Bank of Louisiana (33 La. Ann., 1444),
one Duclozel mortgaged property to the defendant bank for the triple
purpose of obtaining shares in the capital stock of the bank, bonds
which the bank was authorized to issue, and loans to him as
stockholder. Duclozel subsequently sold this mortgaged property to
one Sproule, who, as one of the terms of the sale, assumed the
liabilities of his vendor to bank. Sproule sold part of the property to
Graff and Chalfant. The debt becoming due, the bank brought suit
against the last two named and Sproule as owners. Duclozel was not
made a party. The bank discontinued these proceedings and
subsequently brought suit against Latiolais, administratrix of
Duclozel, who had died.
"The court said: ’But the plaintiff insists that in its petition in the
proceeding first brought the bank ratified the sale made by Duclozel
263 | P a g e
to Sproule, and by the latter to other parties, in treating them as
owners. Be that so, but it does not follow in the absence of either a
formal and express or of an implied consent to novate, which should
be irresistibly inferred from surrounding circumstances, that it has
discharged Duclozel unconditionally, and has accepted those parties
as new delegated debtors in his place. Nemo presumitor donare.
"‘Novation is a contract, the object of which is: either to extinguish an
existing obligation and to substitute a new one in its place; or to
discharge an old debtor and substitute a new one to him; or to
substitute a new creditor to an old creditor with regard to whom the
debtor is discharged.
"‘It is never presumed. The intention must clearly result from the
terms of the agreement or by a full discharge of the original debt.
Novation by the substitution of a new debtor can take place without
the consent of the debtor, but the delegation does not operate a
novation, unless the creditor has expressly declared that he intends
to discharge with delegating debtor, and the delegating debtor was
not in open failure or insolvency at the time. The mere indication by
a debtor of a person who is to pay in his place does not operate a
novation. Delegatus debitor est odiosus in lege.
"‘The most that could be inferred would be that the bank in the
exercise of a sound discretion, proposed to better its condition by
accepting an additional debtor to be and remain bound with the
original one.’
"In Fidelity L. & T. Co. v. Engleby (99 Va., 168), the court said: ’Whether
or not a debt has been novated is a question of fact and depends
entirely upon the intention of the parties to the particular transaction
claimed to be novated. In the absence of satisfactory proof to the
contrary, the presumption is that the debt has not been extinguished
by taking the new evidence in the absence of an intention expressed
or implied, being treated as a conditional payment merely.’
"In Hamlin v. Drummond (91 Me., 175; 39 A., 551), it was said that
novation is never presumed but must always be proven. In
Netterstorn v. Gallistel (110 Ill. App., 352), it was said that the burden
of establishing a novation is on the party who asserts its existence;
that novation is not easily presumed; and that it must clearly appear
before the court will recognized it."cralaw virtua1aw library
Notwithstanding the doctrines above quoted, defendant’s counsel
calls our attention to the decision of the supreme court of Spain of
June 16, 1908, wherein it was held that the provisions of article 1205
of the Code do not mean nor require that the consent of the creditor
to the change of a debtor must be given just at the time when the
debtors agreed on the substitution, because its evident object being
the full protection of the rights of the creditor, it is sufficient if the
latter manifests his consent in any form and at any time as long as the
agreement among the debtors hold good. And the defendant insists
that the acts performed by the plaintiffs after the "Hacienda Palma"
was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion
constitute evidence of the consent of the creditor. First of all, we
should have an idea of the facts upon which that decision was
rendered by the supreme court of Spain.
A partnership known as "La Azucarera de Pravia" obtained a fire
insurance policy from the company "La Union y Fenix Español," by
virtue of which, said company insured in consideration of an annual
premium of 3,000 pesetas, the buildings, machinery and other
apparatuses pertaining to the "Pravia Factory" for ten years and for
half their value, and another value insurance from another insurance
company insuring the same property and effects for the other half of
their value.
Later, "La Azucarera de Pravia," with other sugar companies, ceded
all its property to another company known as "Sociedad General
Azucarera de Espana," in which in consideration of a certain amount
of stock that the said "Sociedad General Azucarera de Espana" issued
to the "La Azucarera de Pravia," the latter was merged with the
former. After the cession, "La Union y Fenix Español" sued the
"Sociedad General Azucarera de Espana" demanding the payment of
the premium that should have been paid by the "La Azucarera de
Pravia," which payment the "Sociedad General Azucarera de Espana"
refused to make on the ground that the "La Azucarera de Pravia" was
not merged with the "Sociedad General Azucarera de Espana," but
merely transferred its properties to the latter in consideration of the
stock that was issued to the "La Azucarera de Pravia." It was further
contended by the "Sociedad General Azucarera de Espana" that even
if it were true that in the contract of cession it appeared that the "La
Azucarera de Pravia" was merged with the "Sociedad General
Azucarera de Espana," nevertheless, there was no such merger in law,
for in truth and in fact, the "La Azucarera de Pravia" had ceded only
its property, but not its rights and obligations; that the existence of
the partnership known as "La Azucarera de Pravia" was proven by its
registration in the mercantile register, which was not cancelled, nor
did it contain any statement to the effect that the "La Azucarera de
Pravia" had been extinguished or had ceased to do business even
after the cession of properties to the "Sociedad General Azucarera de
Espana." Another argument advanced by the "Sociedad General" was
that at the time the "Azucarera de Pravia" ceded its properties to the
"Sociedad General Azucarera de Espana," the insurance company "La
Union y Fenix Español" did not assent to the subrogation of the
"Sociedad General Azucarera" into the rights and obligations of the
"Azucarera de Pravia," assuming that there had been such a
subrogation or substitution of a debtor by another.
The supreme court of Spain gave judgment in favor of the "La Union
y Fenix Español" insurance company for the following
reasons:jgc:chanrobles.com.ph
"1. While it is true that it cannot be strictly said that ’La Azucarera de
Pravia’ was merged with the ’Sociedad General Azucarera de Espana,’
the document whereby the property of the ’La Azucarera de Pravia’
was ceded to the ’Sociedad General Azucarera de España’ clearly and
expressly recites that this company upon taking charge of the
immovable property of the ’La Azucarera de Pravia’ accepted in
general, with respect to the property ceded, ’everything belonging to
the same,’ after making provisions about active and passive
easements, contracts for transportation and other matters."cralaw
virtua1aw library
The supreme court held that by virtue of the words hereinabove
quoted, the "Sociedad General Azucarera de Espana" took over the
obligation to pay the insurance premiums of the "La Azucarera de
Pravia" inasmuch as said insurance pertained to the property that was
ceded.
264 | P a g e
"2. While it is true that ’La Union y Fenix Español’ insurance company
did not give its consent to the contract of cession at the moment of
its execution, yet the mere fact that the said insurance company now
sues the "Sociedad General Azucarera de Espana’ is an
incontrovertible proof that the said insurance company accepts the
substitution of the new debtor."cralaw virtua1aw library
By comparing the facts of that case with the defenses of the case at
bar, it will be seen that, whereas in the former case the creditor sues
the new debtor in the instant case the creditor sues the original
debtor. The supreme court of Spain in that case held that the fact that
the creditor sued the new debtor was proof incontrovertible of his
assent to the substitution of the debtor. This would seem evident
because the judicial demand made on the new debtor to comply with
the obligation of the first debtor is the best proof that the creditor
accepts the change of the debtor. His complaint is an authentic
document where his consent is given to the change of the debtor. We
are not holding that the creditor’s consent must necessarily be given
in the same instrument between the first and the new debtor. The
consent of the creditor may be given subsequently, but in either case
it must be expressly manifested. In the present case, however, the
creditor makes judicial demand upon the first debtor for the
fulfillment of his obligation, evidently showing by this act that he does
not give his consent to the substitution of the new debtor. We are of
the opinion that the decision of the supreme court of Spain of June
16, 1908, cannot be successfully invoked in support of defendant’s
contention. Wherefore, we hold that in accordance with article 1205
of the Civil Code, in the instant case, there was no novation of the
contract, by the change of the person of the debtor.
Another defense urged by the defendant is the merger of the rights
of debtor and creditor, whereby under article 1192 of the Civil Code,
the obligation, the fulfillment of which is demanded in the complaint,
became extinguished. It is maintained in appellee’s brief that the debt
of the defendant was transferred to Phil. C. Whitaker and Venancio
Concepcion by the document Exhibit 1. These in turn acquired the
credit of the plaintiffs by virtue of the debt, Exhibit 5; thus the rights
of the debtor and creditor were merged in one person. The argument
would at first seem to be incontrovertible, but if we bear in mind that
the rights and titles which the plaintiffs sold to Phil. C. Whitaker and
Venancio Concepcion refer only to one-half of the railroad line in
question, it will be seen that the credit which they had against the
defendant for the amount of one-half of the cost of construction of
the said line was not included in the sale contained in Exhibit 5. That
the plaintiffs sold their rights and titles over one-half of the line, is
evident from the very Exhibit 5. The purchasers, Phil. C. Whitaker and
Venancio Concepcion, to secure the payment of the price, executed a
mortgage in favor of the plaintiffs on the same rights and titles that
they had bought and also upon what they had purchased from Mr.
Salvador Serra. In other words, Phil C. Whitaker and Venancio
Concepcion mortgaged unto the plaintiffs what they had bought from
the plaintiffs and also what they had bought from Salvador Serra. If
Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased
something from Mr. Salvador Serra, the herein defendant, regarding
the railroad line, it was undoubtedly the one-half thereof pertaining
to Mr. Salvador Serra. This clearly shows that the rights and titles
transferred by the plaintiffs to Phil. C. Whitatker and Venancio
Concepcion were only those they had over the other half of the
railroad line. Therefore, as already stated, since there was no
novation of the contract between the plaintiffs and the defendant, as
regards the obligation of the latter to pay the former one-half of the
cost of the construction of the said railroad line, and since the
plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit
that they had against the defendant, the allegation that the obligation
of the defendant became extinguished by the merger of the rights of
creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and
Venancio Concepcion is wholly untenable.
Appellants assign also as a ground of their appeal the holding of the
court that by the termination of the partnership, as shown by the
document Exhibit 5, no legal rights can be derived therefrom.
By virtue of the contract Exhibit 5, the plaintiffs and Phil. C. Whitaker
and Venancio Concepcion, by common consent, decided to dissolve
the partnership between the "Hacienda Palma" and "Hacienda San
Isidro," thus cancelling the contract of partnership of February 1,
1919.
Counsel for appellee in his brief and oral argument maintains that the
plaintiffs cannot enforce any right arising out of that contract of
partnership, which has been annulled, such as the right to claim now
a part of the cost of the construction of the railroad line stipulated in
that contract.
Defendant’s contention signifies that any person, who has contracted
a valid obligation with a partnership, is exempt from complying with
his obligation by the mere fact of the dissolution of the partnership.
Defendant’s contention is untenable. The dissolution of a partnership
must not be understood in the absolute and strict sense so that at the
termination of the object for which it was created the partnership is
extinguished, pending the winding up of some incidents and
obligations of the partnership, but in such case, the partnership will
be reputed as existing until the juridical relations arising out of the
contract are dissolved. This doctrine has been upheld by the supreme
court of Spain in its decision of February 6, 1903, in the following case:
There was a partnership formed between several persons to purchase
some lands sold by the state. The partnership paid the purchase price
and distributed among its members the lands so acquired, but after
the lapse of some time, one of the partners instituted an action in the
court of Badajoz, praying that he be accepted as a partner with the
same rights and obligations as others, for the reason that he had not
been allowed all that he had a right to. The court granted the petition,
which judgment was affirmed by the Audiencia de Caceres.
From that decision the defendant sued out a writ of error alleging
infringement of articles 1680 and 1700 of the Civil Code, on the
proposition that all contracts are reputed consummated and
therefore extinguishes, when the contracting parties fulfill all the
obligations arising therefrom and that by the payment of the money
and the granting and distribution of the lands without any position,
the juridical relations between the contracting parties become
extinguished and none of the parties has any right of action under the
contract. The supreme court, holding that some corrections and
liquidations asked by the actor were still pending, denied the writ,
ruling that the articles cited were not infringed because a partnership
cannot be considered as extinguished until all the obligations
pertaining to it are fulfilled. (11 Manresa, page 312.)
The dissolution of a firm does not relieve any of its members from
liability for existing obligations, although it does save them from new
265 | P a g e
obligations to which they have not expressly or impliedly assented,
and any of them may be discharged from old obligations by novation
or other form of release. It is often said that a partnership continues,
even after dissolution, for the purpose of winding up its affairs. (30
Cyc., page 659.)

Another question presented by appellee’s counsel in his

memorandum and oral argument is that as in the partnership articles
of February 1, 1919, it was covenanted that the defendant would put
up one-half of the cost of the railroad line within five years from that
date, that is, from February 1, 1919, with interest at 10 per cent per
annum, the present action is premature since, from the execution of
the contract until October 25, 1922, the date of the complaint, the
five years, within which the defendant could pay his part of the cost
of the construction of the line, had not yet elapsed. Suffice it to say
that the plaintiffs and the successors in interest of the defendant, by
mutual consent, dissolved the partnership on June 16, 1920,
cancelling the contract Exhibit A to all of which the defendant
consented as evidence by his allegations in his answer. If this is so,
there is no reason for waiting for the expiration of the five years which
the parties themselves had seen fit to stipulate and therefore the
previsions of article 1113, regarding the fulfillment of pure
obligations, must be applied in this case.

For all of the foregoing, the judgment appealed from is reversed, and
we hold that the defendant Salvador Serra is indebted to the
plaintiffs, the Testate Estate of Lazaro Mota, Et Al., in the amount of
P113,046.46, and said defendant is hereby sentenced to pay the
plaintiffs said amount, together with the agreed interest at the rate
of 10 per cent per annum from the date of the filling of the complaint.

Without special pronouncement as to costs, it is so ordered.

Johnson, Street, Malcolm, Ostrand, Johns, and Romualdez, JJ.,

concur.

266 | P a g e
G.R. No. L-3518 February 29, 1952
URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as
Administrator of the Estate of URBANO LOTA), Plaintiff-Appellant,
vs. BENIGNO TOLENTINO, Defendant-Appellee.
Manuel P. Calanog and Jose A. Buendia for appellant.
Potenciano Villegas for appellee.
PARAS, C.J.: chanrobles virtual law library
This is an appeal from a resolution of the Court of First Instance of
Batangas of May 4, 1949, worded in full as follows:
On April 6, 1949, counsel for plaintiff filed a motion praying that
deceased defendant be substituted by his heirs, Marta Sadiasa and
Efigenia, Resurreccion and Mercedes, all surnamed Tolentino, as
parties defendant in this case. To said motion counsel for defendant
interposed an opposition upon the following grounds:chanrobles
virtual law library
I. That the nature of the action for accounting and liquidation of the
partnership filed by plaintiff since March 3, 1937, is purely personal in
character and, upon the death of the defendant on November 22,
1939, the claim was already extinguished. II. Assuming that the action
for accounting and liquidation of the partnership is not purely
personal in character and that such claim is not yet extinguished, the
case should now be dismissed in view of the failure of the plaintiff to
prosecute his action for an unreasonable length of time. III. Assuming
further that the plaintiff's claim was not yet extinguished upon the
death of the defendant on November 22, 1939, the rights, if any,
sought to be enforced by the plaintiff in the complaint have already
been lost by claches.chanroblesvirtualawlibrary chanrobles virtual
law library
The question before the Court therefore is whether the motion for
substitution should be granted and the case allowed to go to trial on
the merits, or whether the defendant's opposition should be
sustained and the case dismissed. The following factual background
appears of record:chanrobles virtual law library
On March 3, 1937, plaintiff filed an action against defendant to order
the latter (a) to render an accounting of his management of their
partnership, and (b) to deliver the plaintiff whatever share he may
have in the assets of the partnership after the liquidation has been
approved by the Court.chanroblesvirtualawlibrary chanrobles virtual
law library
The partnership above-mentioned was entered into by and between
plaintiff and defendant in the year 1918, whereby they agreed to
engage in general business in the municipality of Alabat, province of
Batangas, both to divide the profits and losses share alike, and
defendant to be manager of the partnership. Plaintiff alleges that
from 1918 until 1928 defendant had rendered an annual accounting,
but has refused to do so from 1929 to 1937, hence, plaintiff's
complaint.chanroblesvirtualawlibrary chanrobles virtual law library
To plaintiff's complaint, defendant filed an answer, alleging that
defendant was the industrial partner in said partnership; that he
rendered a yearly accounting and liquidation thereof from 1918 to
1932, and that in the latter year, 1932, the partnership was dissolved
and defendant delivered all its properties and assets to the plaintiff.
Hence, defendant prays for the dismissal of plaintiff's
complaint.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff died in 1938, and on September 28, 1939, he was
substituted by the administrator of his estate, Solomon
Lota.chanroblesvirtualawlibrarychanrobles virtual law library
On December 8, 1939, defendant's counsel made a suggestion upon
the record that defendant died on November 26, 1939. On January 9,
1940, the Court gave plaintiff 30 days to amend the complaint by
substituting for the deceased defendant the administrator of his
estate or his legal
representative.chanroblesvirtualawlibrary chanrobles virtual law
library
On January 28, 1941, the Court ordered the dismissal of the case for
lack of prosecution. This order was reconsidered and set aside upon a
showing by plaintiff that on March 28, 1941, he had filed a petition
for the issuance of letters of administration to deceased defendant's
surviving spouse, Marta Sadiasa, for the purpose of substituting her
for the deceased defendant, said petition being Special Proceedings
No. 3859 of this Court entitled "Intestate Estate of the late Benigno
Tolentino, Solomon Lota, petitioner." This special proceedings was,
however, dismissed for failure of the administratrix to file a bond and
to take her oath.chanroblesvirtualawlibrary chanrobles virtual law
library
It will thus be seen that from defendant's death on November 26,
1939, to the present, or almost ten years, no administrator or legal
representative had been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff made another
try to substitute said deceased by filing his motion, referred to in the
first paragraph of this resolution, praying that defendant's heirs be
substituted for him as parties
defendant.chanroblesvirtualawlibrary chanrobles virtual law library
The following considerations stand in the way of plaintiff's motion for
substitution:chanrobles virtual law library
1. It being undisputed that defendant was the manager of the
partnership formed by and between him and the plaintiff, and that
said defendant died on November 26, 1939, during the pendency of
the present for accounting and liquidation against defendant, the said
action should have been discontinued as it could no longer be
maintained against deceased defendant. Under these circumstances,
the remedy and duty of the plaintiff are as set out in the following
ruling of the Supreme Court in Po Yeng Cheo vs. Lim Ka Yam, (44 Phil.
172, 178):chanrobles virtual law library
In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affairs devolves upon the
surviving member, or members of the firm, not upon the legal
representative of the deceased partner. (Wahl vs. Donaldson Sim and
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744). And the same
rule must be equally applicable to a civil partnership clothed with the
form of the commercial association (ART. 1670, Civil Code;
Lichauco vs.Lichauco, 33 Phil.,
350).chanroblesvirtualawlibrary chanrobles virtual law library
If, as it appears of record, plaintiff died prior to defendant's death, the
duty to liquidate devolved upon the legal representative of the
plaintiff because it was the latter who sought to establish a claim
against the defendant.chanroblesvirtualawlibrary chanrobles virtual
law library
267 | P a g e
2. If after such liquidation, there should be found money or property
due the partnership from the deceased defendant, a claim therefor
should be filed against the latter's estate in administration. Again, this
is the procedure marked out in the case just cited:chanrobles virtual
law library
Upon the death of Lim Ka Yam it therefore become the duty of his
surviving associates to take the proper steps to settle the affairs of
the firms, and any claim against him, or his estate, for a sum of money
due to the partnership by reason of any misappropriation of its funds
by him or damages resulting from his wrongful acts as a manager,
should be prosecuted against his estate in administration in the
manner pointed out in sections 686 to 701, inclusive, of the Code of
Civil Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the shares in the Ya
sieng Chyip Konski and Manila Electric Railroad and Light Company,
are in the possession of the deceased partner, the proper step for the
surviving associates to take would be to make application to the court
having charge of the administration to require the administration to
surrender such property. (Po Yeng Cheo vs.Lim Ka
Yam, supra.)chanrobles virtual law library
This procedure was not also followed in the case at bar because
plaintiff, or his legal representative, did not procure the appointment
and qualification of an administrator of the estate of deceased
defendant, altho he had already filed a petition looking towards such
administration. This plaintiff was under a duty to do if he considered
himself a creditor with a legitimate claim enforceable against the
estate of deceased defendant.chanroblesvirtualawlibrary chanrobles
virtual law library
3. What plaintiff, or his legal representative, insisted on doing in the
present case is to continue and press his action for accounting and
liquidation against the heirs of deceased defendant, a procedure
which, as above stated, runs counter to that set out in the Po Yeng
Cheo vs. Lim Ka Yam case. But even in this, plaintiff, or his legal
representative, proceeded half-heartedly, because he only filed a
petition for the appointment of an administrator for the estate of
deceased defendant, but did not see to it that administrator filed a
bond and qualify as such. Hence, the said petition for administration
was dismissed.chanroblesvirtualawlibrary chanrobles virtual law
library
4. Also, conceding, without admitting, that the present action for
accounting would lie against defendant, it is this Court's opinion that
such a duty to account died with the defendant, was extinguished
upon his death, and was not shifted upon his heirs. The heirs of the
defendant have never been partners in the partnership formed by
and between plaintiff and defendant, and said heirs are hardly in a
position and hardly called upon to effect an accounting of said
partnership.chanroblesvirtualawlibrary chanrobles virtual law library
5. Finally, it will be recalled that the partnership in question was
organized in 1918 and dissolved in 1932. The action for accounting
was commenced on March 3, 1937. And the present motion for
substitution was filed on April 6, 1949, only. Trial on the merits at this
late date might prove futile and fruitless if no partnership property is
found in the possession of defendant's heirs, let alone the allegation
of said defendant in his answer to the complaint back in 1937 that he
had already delivered all the properties and assets of the partnership
to the plaintiff. If the principle of laches is ever to be applied, it should
be applied to this case.chanroblesvirtualawlibrary chanrobles virtual
law library
Wherefore, the plaintiff's action for substitution is denied and
defendant's prayer for the dismissal for this case against the plaintiff.
The present appellant is Solomon Lota, in his capacity as
administrator of the estate of Urbano Lota, original plaintiff, who died
in l938. The decisive question that arises is whether or not, after the
death of the defendant Benigno Tolentino on November 22, 1939,
plaintiff's action for accounting and liquidation of the partnership
formed in l918 between Urbano Lota and Benigno Tolentino, of which
the latter was the industrial and managing partner, may be continued
against the heirs of Benigno Tolentino. This question was decided
adversely to the appellant by the lower court and, in our opinion,
correctly. The applicable authority is the case of Po Yeng Cheo vs. Lim
Ka Yam, 44 Phil. 172, in which the following pronouncements were
made:
In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affairs devolves upon the
surviving member, or members, of the firm, not upon the legal
representatives of the deceased partner. (Wahl vs. Donaldson Sim
and Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744.) And the
same rule must be equally applicable to a civil partnership clothed
with the form of a commercial association (art. 1670, Civil Code:
Lichauco vs.Licahuco, 33 Phil., 350). Upon the death of Lim Ka Yam it
therefore become the duty of his surviving associates to take the
proper steps to settle the affairs of the firm, and any claim against
him, or his state, for a sum of money due to the partnership by reason
of any misappropriation of its funds by him, or for damages resulting
from his wrongful acts as manager, should be prosecuted against his
estate in administration in the manner pointed out in sections 686 to
701, inclusive, of the Code of Civil Procedure. Moreover, when it
appears, as here, that the property pertaining to Kwong Cheong Tay,
like the shares in the Yut Siong Chyip Konski and Manila Electric
Railroad and Light Company, are in the possession of the partner, the
proper step for the surviving associates to take would be to make
application to the court having charge of the administration to require
the administrator to surrender such
property.chanroblesvirtualawlibrary chanrobles virtual law library
But in the second place, as already indicated, the proceedings in this
cause, considered in the character of an action for an accounting,
were futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the
supposed liability of his intestate to respond for the plaintiffs
proportionate share of the capital and assets. But of course the action
was not maintenable in this aspect after the death of the defendant;
and the motion to discontinue the action against the administrator
should have been granted. (pp. 178-179.)
Another ground - equally decisive against the appellant - correctly
advanced by the lower court in dismissing the present action for
accounting, is lack of prosecution on the part of the appellant. It may
be fittingly recalled that the action for accounting and liquidation was
filed on March 3, l937. No sooner had the defendant Benigno
Tolentino died on November 22, l939, than said fact was made record
by his attorney. On January 9, 1940, the lower court gave the plaintiff
(who had then died and was substituted on September 28, 1939, by
the administrator of his estate, Solomon Lota), 30 days to amend the
complaint by substituting the administrator or legal representative of
268 | P a g e
the deceased defendant Benigno Tolentino. On January 28, 1941, the
lower court dismissed the case for lack of prosecution on the part of
the plaintiff, but the order of dismissal was reconsidered, upon a
showing by the plaintiff that on March 28, 1941, an administration
proceeding for the estate of Benigno Tolentino was instituted by the
plaintiff. On August 8, 1941 the lower court issued, at the instance of
the plaintiff, letters of administration to Tolentino's surviving spouse,
Marta Sadiasa, who however failed to qualify. Accordingly, the court
dismissed the administration proceeding on January 3, 1949, for lack
of interest. It was only as late as April 6, l949, that the plaintiff filed
the motion to substitute, not even the legal representative of Benigno
Tolentino but his heirs.chanroblesvirtualawlibrary chanrobles virtual
law library

If the plaintiff was genuinely interested in substituting the proper

party, assuming that plaintiff's action may still be pursued after
Tolentino's death, he should have taken timely measures to have the
administratrix appointed on August 8, 1941, qualify or, in case of her
failure or refusal, to procure the appointment of another
administrator; because the plaintiff could have availed himself of
section 6, Rule 80, of the Rules of Court, providing that "letters of
administration may be granted to any qualified applicant, though it
appears that there are other competent persons having better right
to the administration, if such persons fail to appear when notified and
claim the issuance of letters to themselves." Certainly, inaction for
almost eight years (after the issuance of letters of administration) on
the part of the appellant, sufficiently implies indifference to or
desistance from its suit.chanroblesvirtualawlibrary chanrobles virtual
law library

The theory of the appellant is that the heirs may properly be

substituted for the deceased Benigno Tolentino, because they are in
possession of property allegedly belonging to the partnership in
question, and the appellant seeks the recovery thereof. Apart from
the fact that said allegation seems to refer to cause of action foreign
to the claim for accounting and liquidation against Tolentino, and
should have been made in proper pleading to duly admitted by the
lower court, the filing of appellant's motion for substitution more
than twelve years after the institution of the complaint came too late
and already called for the prosecution. It is immaterial that, before
the appealed resolution was issued by the lower court, the appellant
attempted to have the deceased defendant had not yet been properly
substituted.chanroblesvirtualawlibrary chanrobles virtual law library

The resolution herein complained of will therefore be as it is hereby

affirmed, with costs against the appellant. So
ordered.chanroblesvirtualawlibrary chanrobles virtual law library

Feria, Pablo, Padilla, Tuason, Montemayor, Reyes, Jugo and Bautista

Angelo, JJ., concur.

269 | P a g e

[G.R. No. L-11840. July 26, 1960.]
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and
ANTONIO C. GOQUIOLAY", Plaintiffs-Appellants, v. WASHINGTON Z.
SYCIP, ET AL., Defendants-Appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices
for Appellants.
Sycip, Quisumbing, Salazar & Associates for Appellees.
SYLLABUS
1. PARTNERSHIP; MANAGEMENT, RIGHT OF EXCLUSIVE; PERSONAL
RIGHT; TERMINATION UPON MANAGER-PARTNER’S DEATH. — The
right of exclusive management conferred upon Tan Sin An, being
premised upon trust and confidence, was a mere personal right that
terminated upon Tan’s demise.
2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF HEIRS TO REPRESENT
DECEASED PARTNER; MANAGERIAL RIGHT; PROPRIETARY INTEREST.
— The provision in the Articles of Co-Partnership stating that "in the
event of death of any one of the partners within the 10-year term of
the partnership, the deceased partner shall be represented by his
heirs", could not have referred to the managerial right given to Tan
Sin An; more appropriately, it relates to the succession in the
proprietary interest of each partner.
3. ID.; ID.; EFFECT OF HEIRS’ FAILURE TO REPUDIATE; HEIRS BECOME
INDIVIDUAL PARTNERS; MINORITY OF HEIRS. — Consonant with the
articles of co-partnership providing for the continuation of the firm
notwithstanding the death of one of the partners, the heirs of the
deceased, by never repudiating or refusing to be bound under the said
provision in the articles, became individual partners with Antonio
Goquiolay upon Tan’s demise. Minority of the heirs is not a bar to the
application of that clause in the articles of co-partnership. Heirs
liability in the partnership being limited to the value of their
importance, they become no more than limited partners, when they
manifest their intent to be bound as general partners.
4. ID.; SALE OF PARTNERSHIP PROPERTIES; CONSENT OF ALL
PARTNERS UNNECESSARY; STRANGERS DEALING WITH
PARTNERSHIPS; POWER TO BIND PARTNERSHIP. — As to whether or
not the consent of the other partners was necessary to perfect the
sale of the partnership properties, the Court believes that it is not.
Strangers dealing with a partnership have the right to assume, in the
absence of restrictive clauses in the co- partnership agreement, that
every general partner has power to bind the partnership.
5. ID.; ID.; ESTOPPEL. — By allowing defendant Kong Chai Pin to retain
control of the partnership properties from 1942 to 1949, plaintiff
Goquiolay estopped himself from denying her (Kong Chai Pin’s) legal
representation of the partnership, with the power to bind it by proper
contracts.
6. PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL; WIDOW OF
MANAGING PARTNER AUTHORIZED BY OTHER PARTNER TO MANAGE
PARTNERSHIP. — By authorizing the widow of the managing partner
to manage partnership property (which a limited partner could not be
authorized to do), the other general partner recognized her as a
general partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate partnership
property.
7. ID.; HEIR OF PARTNER, STATUS ORDINARILY AS LIMITED PARTNER
BUT MAY WAIVE IT AND BECOME AS GENERAL PARTNER. — Although
the heir of a partner ordinarily becomes a limited partner for his own
protection, yet the heir may disregard it and instead elect to become
a collective or general partner, with all the rights and obligations of
one. This choice pertains exclusively to the heir, and does not require
the assent of the surviving partner.
8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO DEAL WITH
PROPERTY. — A third person has the right to presume that a general
partner dealing with partnership property has the requisite authority
from his co-partners.
9. ID.; PROPERTY OF PARTNERSHIP; SALE OF IMMOVABLES, WHEN
CONSIDERED WITHIN THE ORDINARY POWERS OF A GENERAL
PARTNER. — Where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the present case), the
immovables thus acquired by the firm form part of its stock-in-trade,
and the sale thereof is in pursuance of partnership purposes, hence
within the ordinary powers of the partner.
10. ID.; SALE OF PARTNERSHIP PROPERTY; ACTION FOR RESCISSION
ON GROUND OF FRAUD; NO INADEQUACY OF PRICE; CASE AT BAR. —
Appellant’s claim that the price was inadequate, relies on the
testimony of a realtor, who in 1955, six years after the sale in the
question, asserted that the land was by then worth double the price
for which it was sold. But taking into account the continued rise of
real estate values since liberation, and the fact that the sale in
question was practically a forced sale because the partnership has no
other means to pay the legitimate debts, this evidence certainly does
not show such "gross inadequacy" as to justify the rescission of the
sale.
11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO BADGE OF FRAUD. — The
Supreme court has ruled that relationship alone is not a badge of
fraud (Oria Hnos. v. McMicking, 21 Phil., 243; Hermandad de Smo.
Nombre de Jesus v. Sanchez, 40 Official Gazette 1685).
12. ID.; ID.; ID.; FRAUD OF CREDITORS DISTINGUISHED FROM FRAUD
TO OBTAIN CONSENT. — Fraud used to obtain a party’s consent to a
contract (deceit or dolus in contrahendo) is different from fraud of
creditors that gives rise to a rescission of contract.
13. ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF NO OTHER
MEANS TO OBTAIN REPARATION, NECESSARY. — The action for
rescission is subsidiary; it can not be instituted except when the party
suffering damage has no other legal means to obtain reparation for
the same. hence, if there is no allegation or evidence that the plaintiff
can not obtain reparation from the widow and heirs of the deceased
partner, the suit to rescind the sale in question s not maintainable,
even if the fraud charged actually did exist.
270 | P a g e

DECISION
REYES, J.B.L., J.:
Direct appeal from the decision of the Court of First Instance of Davao
(the amount involved being more than P200,000) dismissing the
plaintiffs-appellants’ complaint.
From the stipulation of facts of the parties and the evidence on
record, it would appear that on May 29, 1940, Tan Sin An and Antonio
C. Goquiolay entered into a general commercial partnership under
the partnership name "Tan Sin An and Antonio C. Goquiolay", for the
purpose of dealing in real estate. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by Goquiolay and
P12,000.00 by Tan Sin An. The agreement lodged upon Tan Sin An the
sole management of the partnership affairs, stipulating that —
"III. The co-partnership shall be composed of said Tan Sin An as sole
managing and partner (sic), and Antonio C. Goquiolay as co-partner.
"VIII. The affairs of the co-partnership shall be managed exclusively by
the managing and partner (sic) or by his authorized agent, and it is
expressly stipulated that the managing and partner (sic) may delegate
the entire management of the affairs of the co- partnership by
irrevocable power of attorney to any person, firm or corporation he
may select upon such terms as regards compensation as he may deem
proper, and vest in such person, firm or corporation full power and
authority, as the agent of the co-partnership and in his name, place
and stead to do anything for it or on his behalf which he as such
managing and partner (sic) might do or cause to be done.
"IX. The co-partner shall have no voice or participation in the
management of the affairs of the co-partnership; but he may examine
its accounts once every six (6) months at any time during ordinary
business hours, and in accordance with the provisions of the Code of
Commerce." (Articles of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also
that — Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin
"In the event of the death of any of the partners at any time before
the expiration of said term, the co-partnership shall not be dissolved
but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership" (Art. XII,
Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated
at any time upon mutual agreement in writing of the partners (Art.
XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of
attorney to this effect:jgc:chanrobles.com.ph
"That besides the powers and duties granted the said Tan Sin An by
the articles of co-partnership of said co-partnership "Tan Sin An and
Antonio Goquiolay", the said Tan Sin An should act as my Manager for
said co-partnership for the full period of the term for which said co-
partnership was organized or until the whole period that the said
capital of P30,000.00 of the co-partnership should last, to carry on to
the best advantage and interest of the said co-partnership, to make
and execute, sign, seal and deliver for the co-partnership, and in its
name, all bills, bonds, notes, specialties, and trust receipts or other
instruments or documents in writing whatsoever kind or nature which
shall be necessary to the proper conduction of the said businesses,
including the power to mortgage and pledge real and personal
properties, to secure the obligation of the co-partnership, to buy real
or personal properties for cash or upon such terms as he may deem
advisable, to sell personal or real properties, such as lands and
buildings of the co-partnership in any manner he may deem advisable
for the best interest of said co-partnership, to borrow money on
behalf of the co-partnership and to issue promissory notes for the
repayment thereof, to deposit the funds of the co-partnership in any
local bank or elsewhere and to draw checks against funds so
deposited . . .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay"
purchased the three (3) parcels of land, known as Lots Nos. 526, 441
and 521 of the Cadastral Survey of Davao, subject-matter of the
instant litigation, assuming the payment of a mortgage obligation of
P25,000.00, payable to "La Urbana Sociedad Mutua de Construcción
y Prestamos" for a period of ten (10) years, with 10% interest per
annum. Another 46 parcels were purchased by Tan Sin An in his
individual capacity, and he assumed payment of a mortgage debt
thereon for P35,000.00, with interest. The down payment and the
amortization were advanced by Yutivo and Co., for the account of the
purchasers.
On September 25, 1940, the two separate obligations were
consolidated in an instrument executed by the partnership and Tan
Sin An, whereby the entire 49 lots were mortgaged in favor of the
"Banco Hipotecario de Filipinas" (as successor to "La Urbana") and the
covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to P52,282.80
within eight 8 years, with 8% annual interest, payable in 96 equal
monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his
widow, Kong Chai Pin, and four minor children, namely: Tan L. Cheng,
was appointed administratrix of the intestate estate of her deceased
husband.
In the meantime, repeated demands for payment were made by the
Banco Hipotecario on the partnership and on Tan Sin An. In March,
1944, the defendant Sing Yee and Cuan, Co., Inc., upon request of
defendant Yutivo Sons Hardware Co., paid the remaining balance of
the mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co.,
Inc. filed their claims in the intestate proceedings of Tan Sin An for
P62,415.91 and P54,310.13, respectively, as alleged obligations of the
partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for
advances, interests and taxes paid in amortizing and discharging their
271 | P a g e
obligations to "La Urbana" and the "Banco Hipotecario." Disclaiming V — The lower court erred in finding that the partnership did not pay
knowledge of said claims at first, Kong Chai Pin later admitted the its obligation to the Banco Hipotecario.
claims in her amended answer and they were accordingly approved
by the Court. VI — The lower court erred in holding that the consent of Antonio
Goquiolay was not necessary to consummate the sale of the
On March 29, 1949, Kong Chai Pin filed a petition with the probate partnership properties.
court for authority to sell all the 49 parcels of land to Washington Z,
Sycip and Betty Y. Lee, for the purpose primarily of settling the VII — The lower court erred in finding that Kong Chai Pin managed the
aforesaid debts of Tan Sin An and the partnership. Pursuant to a court business of the partnership after the death of her husband, and that
order of April 2, 1949, the administratrix executed on April 4, 1949, a Antonio Goquiolay knew it.
deed of sale 1 of the 49 parcels of land to the defendants Washington
Sycip and Betty Lee in consideration of P37,000.00 and of vendees’ VIII — The lower court erred in holding that the failure of Antonio
assuming payment of the claims filed by Yutivo Sons Hardware Co. Goquiolay to oppose the management of the partnership by Kong
and Sing Yee and Cuan Co., Inc. Later, in July, 1949, defendants Sycip Chai Pin estops him now from attacking the validity of the sale of the
and Betty Lee executed in favor of the Insular Development Co., Inc. partnership properties.
a deed of transfer covering the said 49 parcels of land.
IX — The lower court erred in holding that the buyers of the
Learning about the sale to Sycip and Lee, the surviving partner partnership properties acted in good faith.
Antonio Goquiolay filed, on or about July 25, 1949, a petition in the
intestate proceedings seeking to set aside the order of the probate X — The lower court erred in holding that the sale was not fraudulent
court approving the sale in so far as his interest over the parcels of against the partnership and Antonio Goquiolay.
land sold was concerned. In its order of December 29, 1949, the
probate court annulled the sale executed by the administratrix with XI — The lower court erred in holding that the sale was not only
respect to the 60% interest of Antonio Goquiolay over the properties necessary but beneficial to the partnership.
sold. King Chai Pin appealed to the Court of Appeals, which court later
certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June XII — The lower court erred in dismissing the complaint and in
30, 1953, we rendered decision setting aside the orders of the ordering Antonio Goquiolay to pay the costs of suit."cralaw virtua1aw
probate court complained of and remanding the case for new trial, library
due to the non-inclusion of indispensable parties. Thereafter, new
pleadings were filed. There is merit in the contention that the lower court erred in holding
that the widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in
The second amended complaint in the case at bar prays, among other the sole management of the partnership, upon the latter’s death.
things, for the annulment of the sale in favor of Washington Sycip and While, as we previously stated in our narration of facts, the Articles of
Betty Lee, and their subsequent conveyance in favor of the Insular Co-Partnership and the power of attorney executed by Antonio
Development Co., Inc., in so far as the three (3) lots owned by the Goquiolay conferred upon Tan Sin An the exclusive management of
plaintiff partnership are concerned. The answer averred the validity the business, such power, premised as it is upon trust and confidence,
of the sale by Kong Chai Pin as successor partner, in lieu of the late was a mere personal right that terminated upon Tan’s demise. The
Tan Sin An. After hearing, the complaint was dismissed by the lower provision in the articles stating that "in the event of death of any one
court in its decision dated October 30, 1956; hence, this appeal taken of the partners within the 10-year term of the partnership, the
directly to us by the plaintiffs, as the amount involved is more than deceased partner shall be represented by his heirs", could not have
P200,000.00. Plaintiffs-appellants assign as errors that — referred to the managerial right given to Tan Sin An; more
appropriately, it related to the succession in the proprietary interest
"I. — The lower court erred in holding that Kong Chai Pin became the of each partner. The covenant that Antonio Goquiolay shall have no
managing partner of the partnership upon the death of her husband, voice or participation in the management of the partnership, being a
Tan Sin An, by virtue of the articles of Partnership executed between limitation upon his right as a general partner, must be held
the Tan Sin An and Antonio Goquiolay, and the general power of coextensive only with Tan’s right to manage the affairs, the contrary
attorney granted by Antonio Goquiolay. not being clearly apparent.

II — The lower court erred in holding that Kong Chai Pin could act Upon the other hand, consonant with the articles of co- partnership
alone as sole managing partner in view of the minority of the other providing for the continuation of the firm notwithstanding the death
heirs. of one of the partners, the heirs of the deceased, by never repudiating
or refusing to be bound under the said provision in the articles,
III — The lower court erred in holding that Kong Chai Pin was the only became individual partners with Antonio Goquiolay upon Tan’s
heir qualified to act as managing partner. demise. The validity of like clauses in partnership agreements is
expressly sanctioned under Article 222 of the Code of Commerce. 1
IV — The lower court erred in holding that Kong Chai Pin had authority
to sell the partnership properties by virtue of the articles of Minority of the heirs is not a bar to the application of that clause in
partnership and the general power of attorney granted to Tan Sin An the articles of co-partnership (2 Vivante, Tratado de Derecho
in order to pay the partnership indebtedness. Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English
translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).

272 | P a g e

Appellants argue, however, that since the "new" members’ liability in
the partnership was limited merely to the value of the share or estate
left by the deceased Tan Sin An, they became no more than limited
partners and, as such, were disqualified from the management of the
business under Article 148 of the Code of Commerce. Although
ordinarily, this effect follows from the continuance of the heirs in the
partnership, 2 it was not so with respect to the widow Kong Chai Pin,
who, by her affirmative actions, manifested her intent to be bound by
the partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income
therefrom up to and until the same were sold to Washington Sycip
and Betty Lee. In fact, by executing the deed of sale of the parcels of
land in dispute in the name of the partnership, she was acting no less
than as a managing partner. Having thus preferred to act as such, she
could be held liable for the partnership debts and liabilities as a
general partner, beyond what she might have derived only from the
estate of her deceased husband. By allowing her to retain control of
the firm’s property from 1942 to 1949, plaintiff estopped himself to
deny her legal representation of the partnership, with the power to
bind it by proper contracts.
The question now arises as to whether or not the consent of the other
partners was necessary to perfect the sale of the partnership
properties to Washington Sycip and Betty Lee. The answer is, we
believe, in the negative. Strangers dealing with a partnership have the
right to assume, in the absence of restrictive clauses in the co-
partnership agreement, that every general partner has power to bind
the partnership, specially those partners acting with ostensible
authority. And so, we held in one case:jgc:chanrobles.com.ph
". . . Third persons, like the plaintiff, are not bound in entering into a
contract with any of the two partners, to ascertain whether or not this
partner with whom the transaction is made has the consent of the
other partner. The public need not make inquiries as to the
agreements had between the partners. Its knowledge is enough that
it is contracting with the partnership which is represented by one of
the managing partners.
‘There is a general presumption that each individual partner is an
agent for the firm and that he has authority to bind the firm in carrying
on the partnership transactions.’ [Mills v. Riggle, 112 Pac., 617]
‘The presumption is sufficient to permit third persons to hold the firm
liable on transactions entered into by one of the members of the firm
acting apparently in its behalf and within the scope of his authority.’
[Le Roy v. Johnson, 7 U.S. Law, Ed., 391](George Litton v. Hill & Ceron,
Et Al., 67 Phil., 513-514)."cralaw virtua1aw library
We are not unaware of the provision of Article 129 of the Code of
Commerce to the effect that — concedido reciprocamente la facultad de administrar uno para otro.’
"If the management of the general partnership has not been limited
by special agreement to any of the members, all shall have the power
to take part in the direction and management of the common
business, and the members present shall come to an agreement for
all contracts or obligations which may concern the association."
(Emphasis supplied)
but this obligation is one imposed by law on the partners among
themselves, that does not necessarily affect the validity of the acts of
a partner, while acting within the scope of the ordinary course of
business of the partnership, as regards third persons without notice.
The latter may rightfully assume that the contracting partner was duly
authorized to contract for and in behalf of the firm and that,
furthermore, he would not ordinarily act to the prejudice of his co-
partners. The regular course of business procedure does not require
that each time a third person contracts with one of the managing
partners, he should inquire as to the latter’s authority to do so, or that
he should first ascertain whether or not the other partners had given
their consent thereto. In fact, Article 130 of the same Code of
Commerce provides that even if a new obligation was contracted
against the express will of one of the managing partners, "it shall not
be annulled for such reason, and it shall produce its effects without
prejudice to the responsibility of the member or members who
contracted it, for the damages they may have caused to the common
fund."cralaw virtua1aw library
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points
out:jgc:chanrobles.com.ph
"367. Primera hipotesis. — A falta de factos especiales, la facultad de
administrar corresponde a cada socio personalmente. No hay que
esperar ciertamente concordia con tantas cabezas, y para cuando no
vayan de acuerdo, la disciplina del Código no ofrece un sistema eficaz
que evite los inconvenientes. Pero, ante el silencio del contrato, debia
quiza el legislador privar de la administración a uno de los socios en
beneficio del otro? Seria una arbitrariedad. Debera quiza declarar
nula la Sociedad que no haya elegido Administrador? El remedio seria
peor que el mal. Debera, tal vez, pretender que todos los socios
concurran en todo acto de la Sociedad? Pero este concurso de todos
habria reducido a la impotencia la administración, que es asunto de
todos los dias y de todas horas. Hubieran sido disposiciones menos
oportunas que lo adoptado por el Código, el cual se confia al espiritu
de reciproca confianza que deberia animar la colaboración de los
socios, y en la ley inflexible de responsabilidad que implica comunidad
en los intereses de los mismos.
En esta hipótesis, cada socio puede ejercer todos los negocios
comprendidos en el contrato social sin dar de ello noticia a los otros,
porque cada uno de ellos ejerce la administración en la totalidad de
sus relaciones, salvo su responsabilidad en el caso de una
administración culpable. Si debiera dar noticia, el beneficio de su
simultania actividad, frecuentemente distribuida en lugares y en
tiempos diferentes, se echaria a perder. Se objetara el que de esta
forma, el derecho de oposición de cada uno de los socios puede
quedar frustrado. Pero se puede contestar que este derecho de
oposición concedido por la ley como un remedio excepcional, debe
subordinarse al derecho de ejercer el oficio de Administrador, que el
Código concede sin limite: ‘se presume que los socios se han
Se haria precipitar esta hipótesis en la otra de una administración
colectiva (art. 1.721, Código Civil) y se acabaria con pedir el
consentimiento, a lo menos tacito, de todos los socios — lo que el
Código excluye . . ., si se obligase al socio Administrador a dar noticia
previa del negocio a los otros, a fin de que pudieran oponerse si no
consintieran."cralaw virtua1aw library
Commenting on the same subject, Gay de Montella (Código de
273 | P a g e
Comercio, Tomo II, 147-148) opines:jgc:chanrobles.com.ph
"Para obligar a las Compañias enfrente de terceros (art. 128 del
Código), no es bastante que los actos y contratos hayan sido
ejecutados por un socio o varios en nombre colectivo, sino que es
preciso el concurso de estos dos elementos, uno, que el socio o socios
tengan reconocida la facultad de administrar la Compañia, y otro, que
el acto o contrato haya sido ejecutado en nombre de la Sociedad y
usando de su firma social. Asi es que toda obligación contraida bajo la
razon social, se presume contraida por la Compañia. Esta presuncion
es impuesta por motivos de necesidad practica. El tercero no puede
cada vez que trata con la Compañia, inquirir si realmente el negocio
concierne a la Sociedad. La presuncion es juris tantum y no juris et de
jure, de modo que si el gerente suscribe bajo la razón social una
obligación que no interesa a la Sociedad, éste podra rechazar la acción
del tercero probando que el acreedor conocia que la obligación no
tenia ninguna relación con ella. Si tales actos y contratos no
comportasen la concurrencia de ambos elementos, serian nulos y
podria decretarse la responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente
aprobados por la Compañia, o contabilizados en sus libros, si el acto
o contrato ha sido convalidado sin protesta y se trata de acto o
contrato que ha producido beneficio social, tendria plena validez, aun
cuando le faltase algunos o ambos de aquellos requisitos antes
señalados.
Cuando los Estatutos o la escritura social no contienen ninguna
clausula relativa al nombramiento o designación de uno o mas de un
socio para administrar la Compañia (art. 129 del Código) todos tienen
por un igual el derecho de concurir a la decisión y manejo de los
negocios comunes . . ."cralaw virtua1aw library
Although the partnership under consideration is a commercial
partnership and, therefore, to be governed by the Code of Commerce,
the provisions of the old Civil Code may give us some light on the right
of one partner to bind the partnership. States Art. 1695
thereof:jgc:chanrobles.com.ph
"Should no agreement have been made with respect to the form of
management, the following rules shall be observed:chanrob1es
virtual 1aw library
1. All the partners shall be considered agents, and whatever any one
of them may do individually shall bind the partnership; but each one
may oppose any act of the others before it has become legally
binding."cralaw virtua1aw library
The records fail to disclose that appellant Goquiolay made any
opposition to the sale of the partnership realty to Washington Z. Sycip
and Betty Lee; on the contrary, it appears that he (Goquiolay) only
interposed his objections after the deed of conveyance was executed
and approved by the probate court, and, consequently, his opposition
came too late to be effective.
Appellants assail the correctness of the amounts paid for the account
of the partnership as found by the trial court. This question, however,
need not be resolved here, as in the deed of conveyance executed by
Kong Chai Pin, the purchasers Washington Sycip and Betty Lee
assumed, as part consideration of the purchase, the full claims of the
two creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware
Co.
Appellants also question the validity of the sale covering the entire
firm realty, on the ground that it, in effect, threw the partnership into
dissolution, which requires consent of all the partners. This view is
untenable. That the partnership was left without the real property it
originally had will not work its dissolution, since the firm was not
organized to exploit these precise lots but to engage in buying and
selling real estate, and "in general real estate agency and brokerage
business." Incidentally, it is to be noted that the payment of the
solidary obligation of both the partnership and the late Tan Sin An,
leaves open the question of accounting and contribution between the
co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership properties
was only a fraudulent device by the appellees, with the connivance of
Kong Chai Pin, to ease out Antonio Goquiolay from the partnership.
The "devise", according to the appellants, started way back sometime
in 1945, when one Yu Khe Thai sounded out Antonio Goquiolay on the
possibility of selling his share in the partnership; and upon his refusal
to sell, was followed by the filing of the claims of Yutivo Sons
Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate
proceedings of Tan Sin An. As creditors of Tan Sin An and the plaintiff
partnership (whose liability was alleged to be joint and several),
Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. had every
right to file their claims in the intestate proceedings. The denial of the
claims at first by Kong Chai Pin (for lack of sufficient knowledge)
negatives any conspiracy on her part in the alleged fraudulent
scheme, even if she subsequently decided to admit their validity after
studying the claims and finding it best to admit the same. It may not
be amiss to remark that the probate court approved the questioned
claims.
There is complete failure of proof, moreover, that the price for which
the properties were sold was unreasonably low, or in any way unfair,
since appellants presented no evidence of the market value of the lots
as of the time of their sale to appellees Sycip and Lee. The alleged
value of P31,056.58 in May of 1955 is no proof of the market value in
1949, specially because in the interval, the new owners appear to
have converted the land into a subdivision, which they could not do
without opening roads and otherwise improving the property at their
own expense. Upon the other hand, Kong Chai Pin hardly had any
choice but to execute the questioned sale, as it appears that the
partnership had neither cash nor other properties with which to pay
its obligations. Anyway, we cannot consider seriously the inferences
freely indulged in by the appellants as allegedly indicating fraud in the
questioned transactions, leading to the conveyance of the lots in
dispute to the appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we
affirm the same, with costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion,
Endencia, Barrera and Gutierrez David, JJ., concur.
RESOLUTION
274 | P a g e
 (c) That the properties sold were not part of the contributed capital
(which was in cash) but land precisely acquired to be sold, although
subject to a mortgage in favor of the original owners, from whom the
December 10, 1963 partnership had acquired them.

REYES, J.B.L., J.: With these points firmly in mind, let us turn to the points insisted
upon by Appellant.

It is first averred that there is "not one iota of evidence" that Kong
The matter now pending is the appellant’s motion for reconsideration Chai Pin managed and retained possession of the partnership
of our main decision, wherein we have upheld the validity of the sale properties. Suffice it to point out that appellant Goquiolay himself
of the lands owned by the partnership Goquiolay & Tan Sin An, made admitted that —
in 1949 by the widow of the managing partner, Tan Sin An (executed
in her dual capacity of Administratrix of her husband’s estate and as ". . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin
partner, in lieu of the husband), in favor of buyers Washington Sycip continue to manage the properties (as) she had no other means of
and Betty Lee for the following consideration:chanrob1es virtual 1aw income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she
library could just do it and besides I am not interested in agricultural lands. I
allowed her to take care of the properties in order to help her and
Cash paid P37,000.00 because I believe in God and I wanted to help her."cralaw virtua1aw
library
Debts assumed by purchaser:chanrob1es virtual 1aw library
Q. So the answer to my question is you did not take any steps?
To Yutivo 62,415.91
A. I did not.
To Sing Yee Cuan & Co. 54,310.13
Q. And this conversation which you had with Mrs. Yu Eng Lai was few
__________ months after 1945?

TOTAL P153,726.04 A. In the year 1945." (Emphasis supplied)

Appellant Goquiolay, in his motion for reconsideration, insists that, The appellant subsequently ratified this testimony in his deposition of
contrary to our holding, Kong Chai Pin, widow of the deceased partner 30 June 1956, page 8-9, wherein he stated:jgc:chanrobles.com.ph
Tan Sin An, never became more than a limited partner, incapacitated
by law to manage the affairs of the partnership; that the testimony of "that plantation was being occupied at that time by the widow, Mrs.
her witnesses Young and Lim belies that she took over administration Tan Sin An, and of course they are receiving quite a lot of benefit from
of the partnership property; and that, in any event, the sale should be that plantation."cralaw virtua1aw library
set aside because it was executed with the intent to defraud appellant
of his share in the properties sold. Discarding the self-serving expressions, these admissions of
Goquiolay are certainly entitled to greater weight than those of
Three things must be always held in mind in the discussion of this Hernando Young and Rufino Lim, having been made against the
motion to reconsider, being basic and beyond party’s own interest.
controversy:chanrob1es virtual 1aw library
Moreover, the appellant’s reference to the testimony of Hernando
(a) That we are dealing here with the transfer of partnership property Young, that the witness found the properties "abandoned and
by one partner, acting in behalf of the firm, to a stranger. There is no undeveloped", omits to mention that said part of the testimony
question between partners inter se, and this aspect of the case was started with the question:jgc:chanrobles.com.ph
expressly reserved in the main decision of 26 July 1960;
"Now, you said that about 1942 or 1943 you returned to Davao. Did
(b) That the partnership was expressly organized "to engage in real you meet Mrs. Kong Chai Pin there in Davao at that time?
estate business, either by buying and selling real estate." The Articles
of co-partnership, in fact, expressly provided Similarly, the testimony of Rufino Lim, to the effect that the
that:jgc:chanrobles.com.ph properties of the partnership were undeveloped, and the family of
the widow (Kong Chai Pin) did not receive any income from the
"IV. The object and purpose of the co-partnership are as partnership properties, was given in answer to the
follows:chanrob1es virtual 1aw library question:jgc:chanrobles.com.ph

1. To engage in real estate business, either by buying and selling real "According to Mr. Goquiolay, during the Japanese occupation Tan Sin
estates; to subdivide real estates into lots for the purpose of leasing An and his family lived on the plantation of the partnership and
and selling them." ; derived their subsistence from that plantation. What can you say to
that?" (Dep. 19 July 1956, p. 8)

275 | P a g e

And also — limited partner could not be authorized to do), Goquiolay recognized
"What can you say as to the development of these other properties
of the partnership which you saw during the occupation?" (Dep., p.
13, Emphasis supplied)
to which witness gave the following answer:chanrob1es virtual 1aw
library
I saw the properties in Mamay still undeveloped. The third property
which is in Tigatto is about eleven (11) hectares and planted with
abaca seedlings planted by Mr. Sin An. When I went there with
Hernando Young we saw all the abaca destroyed. The place was
occupied by the Japanese Army. They planted camotes and
vegetables to feed the Japanese Army. Of course they never paid any
money to Tan Sin An or his family." (Dep., Lim, pp. 13-14. (Emphasis
supplied)
Plainly, Both Young and Lim’s testimonies do not belie, or contradict,
Goquiolay’s admission that he told Mr. Yu Eng Lai that the widow
"could just do it" (i. e., continue to manage the properties). Witnesses
Lim and Young referred to the period of Japanese occupation; but
Goquiolay’s authority was, in fact, given to the widow in 1945, after
the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong
Chai Pin carried out no acts of management during the Japanese
occupation (1942-1944) does not mean that she did not do so from
1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim
and Young; he actually manifested his willingness that the widow
should manage the partnership properties. Whether or not she
complied with this authority is a question between her and the
appellant, and is not here involved. But the authority was given, and
she did have it when she made the questioned sale, because it was
never revoked.
It is argued that the authority given by Goquiolay to the widow Kong
Chai Pin was only to manage the property, and that it did not include
the power to alienate, citing Article 1713 of the Civil Code of 1889.
What this argument overlooks is that the widow was not a mere
agent, because she had become a partner upon her husband’s death,
as expressly provided by the articles of co-partnership. Even more,
granting that by succession to her husband, Tan Sin An, the widow
only became a limited partner, Goquiolay’s authorization to manage
the partnership property was proof that he considered and
recognized her as general partner, at least since 1945. The reason is
plain: Under the law (Article 148, last paragraph, Code of Commerce),
appellant could not empower the widow, if she were only a limited
partner, to administer the properties of the firm, even as a mere
agent:jgc:chanrobles.com.ph
"Limited partners may not perform any act of administration with
respect to the interests of the co-partnership, not even in the capacity
of agents of the managing partners." (Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An’s
widow showed that she desired to be considered a general partner.
By authorizing the widow to manage partnership property (which a
her as such partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate partnership
property.
Besides, as we pointed out in our main decision, the heir ordinarily
(and we did not say "necessarily") becomes a limited partner for his
own protection, because he would normally prefer to avoid any
liability in excess of the value of the estate inherited so as not to
jeopardize his personal assets. But this statutory limitation of
responsibility being designed to protect the heir, the latter may
disregard it and instead elect to become a collective or general
partner, with all the rights and privileges of one, and answering for
the debts of the firm not only with the inheritance but also with the
heir’s personal fortune. This choice pertains exclusively to the heir,
and does not require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here
involved expressly stipulated that:jgc:chanrobles.com.ph
"In the event of the death of any of the partners at any time before
the expiration of said term, the co-partnership shall not be dissolved
but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership" (Art. XII,
Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be
merely limited partner; on the contrary, they expressly stipulated that
in case of death of either partner "the co-partnership . . . will have to
be continued" with the heirs or assigns. It certainly could not be
continued if it were to be converted from a general partnership into
a limited partnership, since the difference between the two kinds of
associations is fundamental; and specially because the conversion
into a limited association would leave the heirs of the deceased
partner without a share in the management. Hence, the contractual
stipulation does actually contemplate that the heirs would become
general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased
partner should they refuse to assume personal and unlimited
responsibility for the obligations of the firm. The heirs, in other words,
can not be compelled to become general partners against their
wishes. But because they are not so compellable, it does not
legitimately follow that they may not voluntarily choose to become
general partners, waiving the protective mantle of the general laws of
succession. And in the latter event, it is pointless to discuss the legality
of any conversion of a limited partner into a general one. The heir
never was a limited partner, but chose to be, and became, a general
partner right at the start.
It is immaterial that the heir’s name was not included in the firm
name, since no conversion of status is involved, and the articles of co-
partnership expressly contemplated the admission of the partner’s
heirs into the partnership.
It must never be overlooked that this case involves the rights acquired
by strangers, and does not deal with the rights arising between
partners Goquiolay and the widow of Tan Sin An. The issues between
the partners inter se were expressly reserved in our main decision.
276 | P a g e
Now, in determining what kind of partner the widow of partner Tan the sale of its real property (immovables) is not within the ordinary
Sin An had elected to become, strangers had to be guided by her powers of a partner, because it is not in line with the normal business
conduct and actuations and those of appellant Goquiolay. Knowing of the firm. But where the express and avowed purpose of the
that by law a limited partner is barred from managing the partnership partnership is to buy and sell real estate (as in the present case), the
business or property, third parties (like the purchasers) who found the immovables thus acquired by the firm form part of its stock-in-trade,
widow possessing and managing the firm property with the and the sale thereof is in pursuance of partnership purposes, hence
acquiescence (or at least without apparent opposition) of the within the ordinary powers of the partner. This distinction is
surviving partners were perfectly justified in assuming that she had supported by the opinion of Gay de Montella 1 , in the very passage
become a general partner, and, therefore, in negotiating with her as quoted in the appellant’s motion for
such a partner, having authority to act for, and in behalf of, the firm. reconsideration:jgc:chanrobles.com.ph
This belief, be it noted, was shared even by the probate court that
approved the sale by the widow of the real property standing in the "La enajenación puede entrar en las facultades del gerente: cuando
partnership name. That belief was fostered by the very inaction of es conforme a los fines sociales. Pero esta facultad de enajenar
appellant Goquiolay. Note that for seven long years, from partner Tan limitada a las ventas conforme a los fines sociales, viene limitada a los
Sin An’s death in 1942 to the sale in 1949, there was more than ample objetos de comecio ó a los productos de la fabrica para explotación
time for Goquiolay to take up the management of these properties, de los cuales se ha constituido la Sociedad. Ocurrira una cosa parecida
or at least ascertain how its affairs stood. For seven years Goquiolay cuando el objeto de la Sociedad fuese la compra y venta de
could have asserted his alleged rights, and by suitable notice in the inmuebles, en cuyo caso el gerente estaria facultado para otorgar las
commercial registry could have warned strangers that they must deal ventas que fuere necesario." (Montella) (Emphasis supplied)
with him alone, as sole general partner. But he did nothing of the sort,
because he was not interested (supra), and he did not even take steps The same rule obtains in American law.
to pay, or settle, the firm debts that were overdue since before the
outbreak of the last war. He did not even take steps, after Tan Sin An In Rosen v. Rosen, 212 N. Y. Supp. 405, 406, it was
died, to cancel, or modify, the provisions of the partnership articles held:jgc:chanrobles.com.ph
that he (Goquiolay) would have no intervention in the management
of the partnership. This laches certainly contributed to confirm the "a partnership to deal in real estate may be created and either partner
view that the widow of Tan Sin An had, or was given, authority to has the legal right to sell the firm real estate"
manage and deal with the firm’s properties, apart from the
presumption that a general partner dealing with partnership property In Chester v. Dickerson, 54 N. Y. 1, 13 Am. Rep.
has the requisite authority from his co-partners (Litton v. Hill and 550:jgc:chanrobles.com.ph
Cerón, Et Al., 67 Phil., 513; quoted in our main decision, p. 11).
"And hence, when the partnership business is to deal in real estate,
"The stipulation in the articles of partnership that any of the two one partner has ample power, as a general agent of the firm, to enter
managing partners may contract and sign in the name of the into an executory contract for the sale of real estate."cralaw
partnership with the consent of the other, undoubtedly creates an virtua1aw library
obligation between the two partners, which consists in asking the
other’s consent before contracting for the partnership. This obligation And in Rovelsky v. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep.
of course is not imposed upon a third person who contracts with the 83:jgc:chanrobles.com.ph
partnership. Neither is it necessary for the third person to ascertain if
the managing partner with whom he contracts has previously "If the several partners engaged in the business of buying and selling
obtained the consent of the other. A third person may and has a right real estate can not bind the firm by purchases or sales of such
to presume that the partner with whom he contracts has, in the property made in the regular course of business, then they are
ordinary and natural course of business, the consent of his co-partner; incapable of exercising the essential rights and powers of general
for otherwise he would not enter into the contract. The third person partners and their association is not really a partnership at all, but a
would naturally not presume that the partner with whom he enters several agency."cralaw virtua1aw library
into the transaction is violating the articles of partnership, but on the
contrary, is acting in accordance therewith. And this finds support in Since the sale by the widow was in conformity with the express
the legal presumption that the ordinary course of business has been objective of the partnership, "to engage . . . in buying and selling real
followed (No. 18, section 334, Code of Civil Procedure), and that the estate" (Art. IV, No. 1, Articles of Copartnership), it can not be
law has been obeyed (No. 31, section 334). This last presumption is maintained that the sale was made in excess of her powers as general
equally applicable to contracts which have the force of law between partner.
the parties." (Litton v. Hill & Cerón, Et Al., 67 Phil., 509, 516) (Emphasis
supplied) Considerable stress is laid by appellant in the ruling of the Supreme
Court of Ohio in McGrath, Et Al., v. Cowen, Et Al., 49 N. E., 338. But
It is next urged that the widow, even as a partner, had no authority to the facts of that case are vastly different from the one before us. In
sell the real estate of the firm. This argument is lamentably superficial the McGrath case, the Court expressly found
because it fails to differentiate between real estate acquired and held that:jgc:chanrobles.com.ph
as stock-in-trade and real state held merely as business site (Vivante’s
"taller ó banco social") for the partnership. Where the partnership "The firm was then, and for some time had been, insolvent, in the
business is to deal in merchandise and goods, i.e., movable property, sense that its property was insufficient to pay its debts, though it still

277 | P a g e
had good credit, and was actively engaged in the prosecution of its
business. On that day, which was Saturday, the plaintiff caused to be
prepared, ready for execution, the four chattel mortgages in question,
which cover all the tangible property then belonging to the firm,
including the counters, shelving, and other furnishings and fixtures
necessary for, and used in carrying on, its business, and signed the
same in this form: "In witness whereof, the said Cowen & McGrath, a
firm, and Owen McGrath, surviving partner of said firm, and Owen
McGrath, individually, have hereunto set their hands, this 20th day of
May, A. D. 1893. Cowen & McGrath, by Owen McGrath. Owen
McGrath, Surviving partner of Cowen & McGrath. Owen McGrath" At
the same time, the plaintiff had prepared, ready for filing, the petition
for the dissolution of the partnership and appointment of a receiver,
which he subsequently filed, as hereinafter stated. On the day the
mortgages were signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that there was
any intention to make then. At that time none of the claims secured
by the mortgages were due, except, it may be, a small part of one of
them, and none of the creditors to whom the mortgages were made
had requested security, or were pressing for the payment of their
debts . . . The mortgages appear to be without a sufficient condition
of defeasance, and contain a stipulation authorizing the mortgagees
to take immediate possession of the property, which they did as soon
as the mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at once
closed, and possession delivered by them to the receiver appointed
upon the filing of the petition. The avowed purpose of the plaintiff in
the course pursued by him, was to terminate the partnership, place
its property beyond the control of the firm, and insure the preference
of the mortgages, all of which was known to them at the time; . . ."
(Cas cit., p. 343, Italics supplied)
It is natural that from these facts the Supreme Court of Ohio should
draw the conclusion that conveyances were made with intent to
terminate the partnership, and that they were not within the powers
of McGrath as partner. But there is no similarity between those acts
and the sale by the widow of Tan Sin An. In the McGrath case, the sale
included even the fixtures used in the business, in our case, the lands
sold were those acquired to be sold. In the McGrath case, none of the
creditors were pressing for payment; in our case, the creditors had
been unpaid for more than seven years, and their claims had been
approved by the probate court for payment. In the McGrath case, the
partnership received nothing beyond the discharge of its debts; in the
present case, not only were its debts assumed by the buyers, but the
latter paid, in addition, P37,000.00 in cash to the widow, to the profit
of the partnership. Clearly, the McGrath ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it
exists; but appellant points out, as indicia thereof, the allegedly low
price paid for the property, and the relationship between the buyers,
the creditors of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold
for a total of P153,726.04, of which P37,000.00 was in cash, and the
rest in partnership debts assumed by the purchaser. These debts
(P62,415.91 to Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not
questioned; they were approved by the Court, and its approval is now
final. The claims were, in fact, for the balance on the original purchase
price of the land sold (due first to La Urbana, later to the Banco
Hipotecario) plus accrued interests and taxes, redeemed by the two
creditors-claimants. To show that the price was inadequate, appellant
relies on the testimony of the realtor Mata, who in 1955, six years
after the sale in question, asserted that the land was worth
P312,000.00. Taking into account the continued rise of real estate
values since liberation, and the fact that the sale in question was
practically a forced sale because the partnership had no other means
to pay its legitimate debts, this evidence certainly does not show such
"gross inadequacy" as to justify rescission of the sale. If at the time of
the sale (1949) the price of P153,726.04 was really low, how is it that
appellant was not able to raise the amount, even if the creditor’s
representative, Yu Khe Thai, had already warned him four years
before (1945) that the creditors wanted their money back, as they
were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already
mortgaged, and had been mortgaged since 1940, first to La Urbana,
and then to the Banco Hipotecario. Was it reasonable to expect that
other persons would loan money to the partnership when it was
unable even to pay the taxes on the property, and the interest on the
principal since 1940? If it had been possible to find lenders willing to
take a chance on such a bad financial record, would not Goquiolay
have taken advantage of it? But the fact is clear on the record that
since liberation until 1949 Goquiolay never lifted a finger to discharge
the debts of the partnership. Is he entitled now to cry fraud after the
debts were discharged with no help from him?
With regard to the relationship between the parties, suffice it to say
that the Supreme Court has ruled that relationship alone is not a
badge of fraud (Oria Hnos. v. McMicking, 21 Phil., 243; also
Hermandad de Smo. Nombre de Jesus v. Sanchez, 40 Off. Gaz., 1685).
There is no evidence that the original buyers, Washington Sycip and
Betty Lee, were without independent means to purchase the
property. That the Yutivos should be willing to extend credit to them,
and not to appellant, is neither illegal nor immoral; at the very least,
these buyers did not have a record of inveterate defaults like the
partnership "Tan Sin An & Goquiolay."
Appellant seeks to create the impression that he was the victim of a
conspiracy between the Yutivo firm and their component members.
But no proof is adduced. If he was such a victim, he could have easily
defeated the conspirators by raising money and paying off the firm’s
debts between 1945 and 1949; but he did not; he did not even care
to look for a purchaser of the partnership assets. Were it true that the
conspiracy to defraud him arose (as he claims) because of his refusal
to sell the lands when in 1945 Yu Khe Thai asked him to do so, it is
certainly strange that the conspirators should wait 4 years, until 1949,
to have the sale effected by the widow of Tan Sin An, and that the sale
should have been routed through the probate court taking cognizance
of Tan Sin An’s estate, all of which increased the risk that the
supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and
Sing Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in
proceedings for the settlement of the estate of Tan Sin An. This for
two reasons: First, Tan Sin An and the partnership "Tan Sin An &
Goquiolay" were solidary (joint and several) debtors (Exhibit "N"
mortgage to the Banco Hipotecario), and Rule 87, section 6, is to the
effect that:jgc:chanrobles.com.ph
278 | P a g e
"Where the obligation of the decedent is joint and several with
another debtor, the claim shall be filed against the decedent as if he
were the only debtor, without prejudice to the right of the estate to
recover contribution from the other debtor." (Emphasis supplied)
Secondly, the solidary obligation was guaranteed by a mortgage on
the properties of the partnership and those of Tan Sin An personally,
and a mortagage in indivisible, in the sense that each and every parcel
under mortgage answers for the totality of the debt (Civ. Code of
1889, Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration. The fraud charged not being one
used to obtain a party’s consent to a contract (i.e., not being deceit or
dolus in contrahendo), if there is fraud at all, it can only be a fraud of
creditors that gives rise to a rescission of the offending contract. But
by express provision of law (Article 1294, Civil Code of 1889; Article
1383, New Civil Code), "the action for rescission is subsidiary; it can
not be instituted except when the party suffering damage has no
other legal means to obtain reparation for the same." Since there is
no allegation, or evidence, that Goquiolay can not obtain reparation
from the widow and heirs of Tan Sin An, the present suit to rescind
the sale in question is not maintenable, even if the fraud charged
actually did exist.
Premises considered, the motion for reconsideration is denied.
Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:chanrob1es virtual 1aw library
This is an appeal from a decision of the Court of First Instance of
Davao dismissing the complaint filed by Antonio C. Goquiolay, Et Al.,
seeking to annul the sale made by Kong Chai Pin of three parcels of
land to Washington Z. Sycip and Betty Y. Lee on the ground that it was
executed without proper authority and under fraudulent
circumstances. In a decision rendered on July 26, 1960, we affirmed
this decision although on grounds different from those on which the
latter is predicated. The case is once more before us on a motion for
reconsideration filed by appellants raising both questions of fact and
of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in
Davao City a commercial partnership for a period of ten years with a
capital of P30,000.00 of which Goquiolay contributed P18,000.00
representing 60% while Tan Sin An P12,000.00 representing 40%. The
business of the partnership was to engage in buying real estate
properties for subdivision, resale and lease. The partnership was duly
registered, and among the conditions agreed upon in the partnership
agreement which are material to this case are: (1) that Tan Sin An
would be the exclusive managing partner, and (2) in the event of the
death of any of the partners the partnership would continue, the
deceased to be represented by his heirs. On May 31, 1940, Goquiolay
executed a general power of attorney in favor of Tan Sin An
appointing the latter manager of the partnership and conferring upon
him the usual powers of management.
On May 29, 1940, the partnership acquired three parcels of land
known as Lots Nos. 526, 441 and 521 of the cadastral survey of Davao,
the only assets of the partnership, with the capital originally invested,
financing the balance of the purchase price with a mortgage in favor
of "La Urbana Sociedad Mutua de Construcción Prestamos" in the
amount of P25,000.00 payable in ten years. On the same date, Tan Sin
An, in his individual capacity, acquired 46 parcels of land executing a
mortgage thereon in favor of the same company for the sum of
P35,000.00. On September 25, 1940, these two mortgage obligations
were consolidated and transferred to the Banco Hipotecario de
Filipinas and as a result Tan Sin An, in his individual capacity, and the
partnership bound themselves to pay jointly and severally the total
amount of P52,282.80, with 8% annual interest thereon within the
period of eight years mortgaging in favor of said entity the 3 parcels
of land belonging to the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow,
defendant Kong Chai Pin, and four children, all of whom are minors of
tender age. On March 18, 1944, Kong Chai Pin was appointed
administratrix of the intestate estate of Tan Sin An. And on the same
date, Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the
remaining unpaid balance of the mortgage obligation of the
partnership amounting to P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai,
president and general manager of Yutivo Sons Hardware Co. and Sing,
Yee and Cuan Co., Inc., called for Goquiolay and the two had a
conference in the office of the former during which he offered to buy
the interest of Goquiolay in the partnership. In 1948, Kong Chai Pin,
the widow, sent her counsel, Atty. Dominador Zuño, to ask Goquiolay
to execute in her favor a power of attorney. Goquiolay refused both
to sell his interest in the partnership as well as to execute the power
of attorney.
Having failed to get Goquiolay to sell his share in the partnership,
Yutivo Sons Hardware Co., and Sing, Yee and Cuan Co., Inc. filed in
November, 1946 a claim each in the intestate proceedings of Tan Sin
An for the sum of P84,705.48 and P66,529.91, respectively, alleging
that they represent obligations of both Tan Sin An and the
partnership. After first denying any knowledge of the claims, Kong
Chai Pin, as administratrix, admitted later without qualification the
two claims in an amended answer she file on February 28, 1947. The
admission was predicated on the ground that she and the creditors
were closely related by blood, affinity and business ties. In due course,
these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the
claims, Kong Chai Pin filed a petition in the probate court to sell all the
properties of the partnership as well as some of the conjugal
properties left by Tan Sin An for the purpose of paying the claims.
Following approval by the court of the petition for authority to sell,
Kong Chai Pin, in her capacity as administratrix, and presuming to act
as managing partner of the partnership, executed on April 4, 1949 a
deed of sale of the properties owned by Tan Sin An and by the
partnership in favor of Betty Y. Lee and Washington Z. Sycip in
consideration of the payment to Kong Chai Pin of the sum of
P37,000.00, and the assumption by the buyers of the claims filed by
Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose
favor the buyers executed a mortgage on the properties purchased.
Betty Y. Lee and Washington Z. Sycip subsequently executed a deed
of sale of the same properties in favor of their co-defendant Insular
279 | P a g e
Development Company, Inc. It should be noted that these
transactions took place without the knowledge of Goquiolay and it is
admitted that Betty Y. Lee and Washington Z. Sycip bought the
properties on behalf of the ultimate buyer, the Insular Development
Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay
filed on July 25, 1949 in the intestate proceedings a petition to set
aside the order of the court approving the sale. The court granted the
petition. While the order was pending appeal in the Supreme Court,
Goquiolay filed the present case on January 15, 1953 seeking to nullify
the sale as stated in the early part of this decision. In the meantime,
the Supreme Court remanded the original case to the probate court
for rehearing due to lack of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai
Pin to sell the partnership properties on the ground that she had no
authority to sell because even granting that she became a partner
upon the death of Tan Sin An the power of attorney granted in favor
of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on
the theory that she succeeded to all the rights and prerogatives of Tan
Sin An as managing partner.
The trial court sustained the validity of the sale on the ground that
under the provisions of the articles of partnership allowing the heirs
of the deceased partner to represent him in the partnership after his
death Kong Chai Pin became a managing partner, this being the
capacity held by Tan Sin An when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed
this decision but on different grounds, among which the salient points
are: (1) the power of attorney given by Goquiolay to Tan Sin An as
manager of the partnership expired after his death; (2) his widow
Kong Chai Pin did not inherit the management of the partnership, it
being a personal right; (3) as a general rule, the heirs of a deceased
general partner come into the partnership in the capacity only of
limited partners; (4) Kong Chai Pin, however, became a general
partner because she exercised certain alleged acts of management;
and (5) the sale being necessary to pay the obligations of the
partnership, she was therefore authorized to sell the partnership
properties without the consent of Goquiolay under the principle of
estoppel, the buyers having the right to rely on her acts of
management and to believe her to be in fact the managing partner.
Considering that some of the above findings of fact and conclusions
of law are without legal or factual basis, appellants have in due course
filed a motion for reconsideration which because of the importance
of the issues therein raised has been the subject of mature
deliberation.
In support of said motion, appellants advanced the following
arguments:chanrob1es virtual 1aw library
1. If the conclusion of the Court is that heirs as a general rule enter
the partnership as limited partners only, therefore Kong Chai Pin, who
must necessarily have entered the partnership as a limited partner
originally, could have not chosen to be a general partner by exercising
the alleged acts of management, because under Article 148 of the
Code of Commerce a limited partner cannot intervene in the
management of the partnership, even if given a power of attorney by
the general partners. An Act prohibited by law cannot give rise to any
right and is void under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being
members of the Yu (Yutivo) family, the rest, members of the law firm
which handles the Yutivo interests and handled the papers of sale.
They did not rely on the alleged acts of management — they believed
(this was the opinion of their lawyers) that Kong Chai Pin succeeded
her husband as a managing partner and it was on this theory alone
that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by
the very witnesses presented by the defendants themselves.
The arguments advanced by appellants are in our opinion well-taken
and furnish sufficient basis to reconsider our decision if we want to
do justice to Antonio C. Goquiolay. And to justify this conclusion, it is
enough that we lay stress on the following points: (1) there is no
sufficient factual basis to conclude that Kong Chai Pin executed acts
of management to give her the character of general manager of the
partnership, or to serve as basis for estoppel that may benefit the
purchasers of the partnership properties; (2) the alleged acts of
management, even if proven, could not give Kong Chai Pin the
character of general manager for the same is contrary to law and well-
known authorities; (3) even if Kong Chai Pin acted as general manager
she had no authority to sell the partnership properties as to make it
legal and valid; and (4) Kong Chai Pin had no necessity to sell the
properties to pay the obligation of the partnership and if she did so it
was merely to favor the purchasers who were close relatives to the
prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of
management imputed to her our ruling cannot be sustained. In
making our aforesaid ruling we apparently gave particular importance
to the fact that it was Goquiolay himself who tried to prove the acts
of management. Appellants, however, have emphasized the fact, and
with reason, that the appellees themselves are the ones who denied
and refuted the so-called acts of management imputed to Kong Chai
Pin. to have a clear view of this factual situation, it becomes necessary
that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross- examination that
he had a conversion with one Hernando Young in Manila in the year
1945 who informed him that Kong Chai Pin "was attending to the
properties and deriving some income therefrom and she had no other
means of livelihood except those properties and some rentals derived
from the properties." He went on to say by way of remark that she
could continue doing this because he wanted to help her. On point
that he emphasized was that he was "not interested in agricultural
lands."cralaw virtua1aw library
On the other hand, defendants presented Hernando Young, the same
person referred to by Goquiolay, who was a close friend of the family
of Kong Chai Pin, for the purpose of denying the testimony of
Goquiolay. Young testified that in 1945 he was still in Davao, and
insisted no less than six times during his testimony that he was not in
Manila in 1945, the year when he allegedly gave the information to
Goquiolay, stating that he arrived in Manila for the first time in 1947.
280 | P a g e
He testified further that he had visited the partnership properties
during the period covered by the alleged information given by him to
Goquiolay and that he found them "abandoned and
underdeveloped," and that Kong Chai Pin was not deriving any
income from them.
The other witness for the defendants, Rufino Lim, also testified that
he had seen the partnership properties and corroborated the
testimony of Hernando Young in all respects: "the properties in
Mamay were underdeveloped, the shacks were destroyed in Tigato,
and the family of Kong Chai Pin did not receive any income from the
partnership properties." He specifically rebutted the testimony of
Goquiolay in his deposition given on June 30, 1956 that Kong Chai Pin
and her family were living in the partnership properties and stated
that the ‘family never actually lived in the properties of the
partnership even before the war or after the war."cralaw virtua1aw
library
It is unquestionable that Goquiolay was merely repeating an
information given to him by a third person, Hernando Young - he
stressed this point twice. A careful analysis of the substance of
Goquiolay’s testimony will show that he merely had no objection to
allowing Kong Chai Pin to continue attending to the properties in
order to give her some means of livelihood, because, according to the
information given him by Hernando Young, which he assumed to be
true, Kong Chai Pin had no other means of livelihood. But certainly he
made it very clear that he did not allow her to manage the partnership
when he explained his reason for refusing to sign a general power of
attorney for Kong Chai Pin which her counsel, Atty. Zuño, brought
with him to his house in 1948. He said:jgc:chanrobles.com.ph
". . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuño
and he asked me if I could execute a general power of attorney for
Mrs. Kong Chai Pin. Then I told Atty. Zuño what is the use of executing
a general power of attorney for Mrs. Kong Chai Pin when Mrs. Kong
Chai Pin had already got that plantation for agricultural purposes, I
said for agricultural purposes she can use that plantation . . ." (T.s.n.,
p. 9, Hearing on May 5, 1955)
It must be noted that in his testimony Goquiolay was categorically
stating his opposition to the management of the partnership by Kong
Chai Pin and carefully made the distinction that his conformity was
for her to attend to the partnership properties in order to give her
merely a means of livelihood. It should be stated that the period
covered by the testimony refers to the period of occupation when
living condition was difficult and precarious. And Atty. Zuño, it should
also be stated, did not deny the statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai
Pin exercised certain acts of management of the partnership
properties is highly controverted. The most that we can say is that the
alleged acts are doubtful more so when they are disputed by the
defendants themselves who later became the purchasers of the
properties, and yet these alleged acts, if at all, only refer to
management of the properties and not to management of the
partnership, which are two different things.
In resume, we may conclude that the sale of the partnership
properties by Kong Chai Pin cannot be upheld on the ground of
estoppel, first, because the alleged acts of management have not
been clearly proven; second, because the record clearly shows that
the defendants, or the buyers, were not misled nor did they rely on
the acts of management, but instead they acted solely on the opinion
of their counsel, Atty. Quisumbing, to the effect that she succeeded
her husband in the partnership as managing partner by operation of
law; and third, because the defendants are themselves estopped to
invoke a defense which they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong
Chai Pin are true, could such acts give her the character of general
manager of the partnership as we have concluded in our decision?
Our answer is in the negative because it is contrary to law and
precedents. Garrigues, a well-known commentator, is clearly of the
opinion that mere acceptance of the inheritance does not make the
heir of a general partner a general partner himself. He emphasized
that the heir must declare that he is entering the partnership as a
general partner unless the deceased partner has made it an express
condition in his will that the heir accepts the condition of entering the
partnership as a prerequisite of inheritance, in which case acceptance
of the inheritance is enough. 1 But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention
to become general partner by exercising acts of management? We
believe not, for, in consonance with our ruling that as a general rule
the heirs of a deceased partner succeed as limited partners only by
operation of law, it is obvious that the heir, upon entering the
partnership, must make a declaration of his character, otherwise he
should be deemed as having succeeded as limited partner by the
mere acceptance of inheritance. And here Kong Chai Pin did not make
such declaration. Being then a limited partner upon the death of Tan
Sin An by operation of law, the peremptory prohibition contained in
Article 148 2 of the Code of Commerce became binding upon her and
as a result she could not change her status by violating its provisions
not only under the general principle that prohibited acts cannot
produce any legal effect, but also because under the provisions of
Article 147 3 of the same Code she was precluded from acquiring
more rights than those pertaining to her as a limited partner. The
alleged acts of management, therefore, did not give Kong Chai Pin the
character of general manager to authorize her to bind the
partnership.
Assuming also arguendo that the alleged acts of management
imputed to Kong Chai Pin gave her the character of a general partner,
could she sell the partnership properties without authority from the
other partners?
Our answer is also in the negative in the light of the provisions of the
articles of partnership and the pertinent provisions of the Code of
Commerce and the Civil Code. Thus, Article 129 of the Code of
Commerce says:jgc:chanrobles.com.ph
"If the management of the general partnership has not been limited
by special agreement to any of the members, all shall have the power
to take part in the direction and management of the common
business, and the members present shall come to an agreement for
all contracts or obligations which may concern the
association."cralaw virtua1aw library
And the pertinent portions of the Articles of partnership
281 | P a g e
provides:jgc:chanrobles.com.ph
"VII. The affairs of the co-partnership shall be managed exclusively by
the managing partner or by his authorized agent, and it is expressly
stipulated that the managing partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power
of attorney to any person, firm or corporation he may select, upon
such terms as regards compensation as he may deem proper, and vest
in such person, firm or corporation full power and authority, as the
agent of the co-partnership and in his name, place and stead to do
anything for it or on his behalf which he as such managing partner
might do or cause to be done." (Page 23, Record on Appeal)
It would thus be seen that the powers of the managing partner are
not defined either under the provisions of the Code of Commerce or
in the articles of partnership, a situation which, under Article 2 of the
same Code, renders applicable herein the provisions of the Civil Code.
And since, according to well-known authorities, the relationship
between a managing partner and the partnership is substantially the
same as that of the agent and his principal, 4 the extent of the power
of Kong Chai Pin must, therefore, be determined under the general
principles governing agency. And, on this point, the law says that an
agency created in general terms includes only acts of administration,
but with regard to the power to compromise, sell, mortgage, and
other acts of strict ownership, an express power of attorney is
required. 5 Here Kong Chai Pin did not have such power when she sold
the properties of the partnership.
Of course, there is authority to the effect that a managing partner,
even without express power of attorney, may perform acts affecting
ownership if the same are necessary to promote or accomplish a
declared object of the partnership, but here the transaction is not for
this purpose. It was effected not to promote any avowed object of the
partnership. 6 Rather, the sale was effected to pay an obligation of
the partnership by selling its real properties which Kong Chai Pin could
not do without express authority. The authorities supporting this view
are overwhelming.
"La enajenación puede entrar en las facultades del gerente, cuando
es conforme a los fines sociales. Pero esta facultad de enajenar
limitada a las ventas conforme a los fines sociales, viene limitada a los
objetos de comercio, o los productos de la fabrica para explotación
de los cuales se ha constituido la Sociedad. Ocurrira una cosa parecida
cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las
ventas que fuere necesario. Por el contrario, el gerente no tiene
atribuciones para vender las instalaciones del comercio ni la fabrica,
ni las maquinarias, vehiculos de transporte, etc., que forman parte de
la explotación social. En todos estas casos, igualmente que si tratase
de la venta de una marca o procedimiento mecanico o quimico, etc.,
siendo actos de disposición seria necesario contar con la conformidad
expresa de todos los socios." (R. Gay de Montella, id., pp. 223-
224, Italics supplied)
"Los poderes de los Administradores no tienen ante el silencio del
contrato otros limites que los señalados por el objeto de la Sociedad
y, por consiguiente, pueden llevar a cabo todas las operaciones que
sirven para aquel ejercicio, incluso cambiando repetidas veces los
propios acuerdos según el interés convenido de la Sociedad. Pueden
contratar y despedir a los empleados, tomar en arriendo almacenes y
tiendas, expedir cambiales, girarlas, avalarlas, dar en prenda o en
hipoteca los bienes de la sociedad y adquirir inmuebles destinados a
su explotación o al empleo estable de sus capitales. Pero no podran
ejecutar los actos que estan en contradicción con la explotación que
les fue confiada no podran cambiar el objeto, el domicilio la razón
social; fundir a la Sociedad en otra; ceder la acción, y por tanto, el uso
de la firma social a otro renunciar definitivamente el ejercicio de uno
de otro ramo comercio que se les haya confiado y enajenar o pignorar
el taller o el banco social excepto que la venta o piqnoracion tengan
por el objeto procurar los medios necesarios para la continuación de
la empresa social." (Cesar Vivante, Tratado de Derecho Mercantil, pp.
124-125, Vol. II, la. ed.; Italics supplied).
"The act of one partner to bind the firm, must be necessary for the
carrying on of its business. If all that can be said of it was that it was
convenient, or that it facilitated the transaction of the business of the
firm, that is not sufficient, in the absence of evidence of sanction by
other partners. Nor, it seems, will necessity itself be sufficient if it be
an extraordinary necessity. What is necessary for carrying on the
business of the firm under ordinary circumstances and in the usual
way, is the test. Lindl. Partn. Sec. 126. While, within this rule, one
member of a partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or
otherwise, of all or part of its effects intended for sale, to a bona fide
purchaser or mortgagee, without the consent of the other members
of the firm, it is not within the scope of his implied authority to make
a final disposition of all of its effects, including those employed as the
means of carrying on its business, the object and effect of which is to
immediately terminate the partnership, and place its property
beyond its control. Such a disposition, instead of being within the
scope of the partnership business, or in the usual and ordinary way of
carrying it on, is necessarily subversive of the object of the
partnership, and contrary to the presumed intention of the
partnership in its formation." (McGrath, Et. Al. v. Cowen, Et Al., 49 N.F.
338, 343; Italics supplied)
Since Kong Chai Pin sold the partnership properties not in line with
the business of the partnership but to pay its obligation without first
obtaining the consent of the other partners, the sale is invalid being
in excess of her authority.
4. Finally, the sale under consideration was effected in a suspicious
manner as may be gleaned from the following
circumstances:chanrob1es virtual 1aw library
(a) The properties subject of the instant sale which consist of three
parcels of land situated in the City of Davao have an area of 200
hectares more or less, or 2,000,000 square meters. These properties
were purchased by the partnership for purposes of subdivision.
According to realtor Mata, who testified in court, these properties
could command at the time he testified a value of not less than
P312,000.00, and according to Dalton Chen, manager of the firm
which took over the administration, since the date of sale no
improvement was ever made thereon precisely because of this
litigation. And yet, for said properties, aside from the sum of
P37,000.00 which was paid for the properties of the deceased and the
partnership, only the paltry sum of P66,529.91 was paid as a
consideration therefor, of which the sum of P46,116.75 was even paid
in Japanese currency.
282 | P a g e
(b) Considering the area of the properties Kong Chai Pin had no valid
reason to sell them if her purpose was only to pay the partnership’s
obligation. She could have negotiated a loan if she wanted to pay it
by placing the properties as security, but preferred to sell them even
at such low prices because of her close relationship with the
purchasers and creditors who conveniently organized a partnership
to exploit them, as may be seen from the following relationship of
their pedigree:chanrob1es virtual 1aw library

KONG CHAI PIN, the administratrix, was a granddaughter of Jose P.

Yutivo, founder of the defendant Yutivo Sons Hardware Co. YUTIVO
SONS HARDWARE CO, and SIN YEE CUAN CO, INC., alleged creditors,
are owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan are the
three children of Jose). YU KHE THAI is a grandson of the same Jose P.
Yutivo, and president of the two alleged creditors. He is the
acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of
the original buyers, ‘is married to Ana Yu, a daughter of Yu Khe Thai,
BETTY Y. LEE, the other original buyer is also a daughter of Yu Khe
Thai. The INSULAR DEVELOPMENT CO., the ultimate buyer, was
organized for the specific purpose of buying the partnership
properties. Its incorporators were: Ana Yu and Betty V. Lee, Atty.
Quisumbing and Salazar the lawyers who studied the papers of sale
and have been counsel for the Yutivo interests; Dalton Chen a
brother-in-law of Yu Khe Thai and an executive of Sing Yee & Cuan Co;
Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo Sons
Hardware, and Simeon Daguiwag, a trusted employee of the Yutivos.

(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were
close relatives of Kong Chai Pin, have already conceived the idea of
possessing the lands for purposes of subdivision, excluding Goquiolay
from their plan, and this is evident from the following sequence of
events:chanrob1es virtual 1aw library

Tan Sin An died in 1942 and intestate proceedings were opened in

1944. In 1946, the creditors of the partnership filed their claim against
the partnership in the intestate proceedings. The creditors studied
ways and means of liquidating the obligation of the partnership,
leading to the formation of the defendant Insular Development Co.,
composed of members of the Yutivo family and the counsel of record
of the defendants, which subsequently bought the properties of the
partnership and assumed the obligation of the latter in favor of the
creditors of the partnership, Yutivo Sons Hardware and Sing, Yee &
Cuan, also of the Yutivo family. The buyers took time to study the
commercial potentialities of the partnership properties and their
lawyers carefully studied the document and other papers involved in
the transaction. All these steps led finally to the sale of the three
partnership properties.

Upon the strength of the foregoing considerations, I vote to grant

motion for reconsideration.

Labrador, Paredes and Makalintal, JJ., concur.

283 | P a g e
G.R. No. L-14832 January 28, 1961
NG CHO CIO ET AL., Plaintiffs-Appellants, vs. NG DIONG, Defendant-
Appellant.
C. N. HODGES, ET AL., Defendants-
Appellees.chanroblesvirtualawlibrarychanrobles virtual law library
BAUTISTA, ANGELO, J.:chanrobles virtual law library
This action was begun in the Court of First Instance of Iloilo by Ng Cho
Cio Ng Sian King and Ng Due King to recover their three-fourths
(3/4) pro-indiviso share on seven (7) parcels of land situated in the
City of Iloilo which were sold by Ng Diong as manager of the
commercial firm NG CHIN BENG HERMANOS in favor of C.N. Hodges.
The latter had sold four of those parcels of land to Jose C. Tayengco
and the other three parcels to Julian Go, and for that reason these
two were included as party defendants. As the original plaintiffs sold
their rights, title and interest in said partnership to Ng Be Chuat and
Ng Feng Tuan, the latter two were allowed to intervene as plaintiffs.
Since Jose C. Tayengco had mortgaged three of the lands which he
purchased from C. N. Hodges in favor of the Bank of the Philippine
Islands, the complaint was amended so as to include the Bank also as
party defendant.chanroblesvirtualawlibrarychanrobles virtual law
library
On October 16, 1956, after trial had begun, defendant Ng Diong died,
whereupon his heirs were order to substitute him parties defendants.
Defendants C. N. Hodges, Ng Diong and Jose C. Tayengco answered
the complaint separately setting up certain special defenses and
counterclaims. In substance, they refuted the allegations set forth in
the complaint and prayed for its
dismissal.chanroblesvirtualawlibrarychanrobles virtual law library
The parties submitted a partial Stipulation of facts on many points
covered by the pleadings thus simplifying the trial of the case while at
the same time they introduced additional evidence in amplification of
the fact stipulated, Thereupon, the trial court, after a thorough
evaluation of the evidence, rendered decision dismissing the
complaint with costs. Plaintiffs interposed the present appeal on
purely questions of law.chanroblesvirtualawlibrarychanrobles virtual
law library
The pertinent facts may be briefly stated, as follow On May 23, 1925,
Ng Diong, Ng Be Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian
King and Ng Due King entered into a contract of general co-
partnership under the name NG CHIN BENG HERMANOS. The
partnership was to exist for a period of 10 years from May 23, 1925
and Ng Diong was named as managing partner. On May 10, 1935, the
articles of co-partnership were amended by extending its life to 16
years more to be counted from May 23, 1925, or up to May 23,
1941.chanroblesvirtualawlibrarychanrobles virtual law library
On January 5, 1938, the partnership obtained from the National Loan
and Investment Board a loan in the amount of P30,000.00, and to
guarantee its payment it executed in its favor a mortgage on Lots Nos.
236-B, 317-A, 233 and 540 of the cadastral survey of Iloilo. On the
same date, the partnership also obtained from the same entity
another loan in the amount of P50,000.00 to secure which it also
executed in its favor a mortgage on Lots Nos. 386, 829 and 237 of the
same cadastral survey.chanroblesvirtualawlibrarychanrobles virtual
law library
Sometime in 1938, the partnership was declared insolvent upon
petition of its creditors in, Special Proceedings No. 2419 of the Court
of First Instance of Iloilo wherein one Crispino Melocoton was elected
as assignee. As a consequence, on June 21, 1939, the titles to the
seven parcels of land abovementioned were issued in his name as
assignee. In due time, the creditors filed their claims in said
proceeding which totalled
P192,901.12.chanroblesvirtualawlibrarychanrobles virtual law library
On August 9, 1940, a majority of the creditors with claims amounting
to P139,704.81, and the partners of the firm, acting thru counsel,
entered into a composition agreement whereby it was agreed that
said creditors would receive 20% of the amount of their claims in full
payment thereof. Prior to this agreement, however, defendant Julian
Go had already acquired the rights of 24 of the creditors of the
insolvent whose total claims amounted to P139,323.10. Said
composition agreement was approved by the insolvency
court.chanroblesvirtualawlibrarychanrobles virtual law library
On January 30, 1941, the Agricultural and Industrial Bank which had
succeeded the National Loan and Investment Board assigned its rights
and interests in the loans obtained from it by the partnership in the
aggregate amount of P80,000.00 in favor of C.N. Hodges, together
with the right and interest in the mortgage executed to secure the
loans. Since said loans became due and no payment was forthcoming,
Hodges asked permission from the insolvency court to file a complaint
against the assignee to foreclose he mortgage executed to secure the
same in a separate proceeding, and permission having been granted,
Hodges filed a complaint for that purpose on May 13, 1941. In his
complaint, Hodges prayed that the assignee be ordered to pay him
the sum of P75,622.90, with interest at 8% per annum thereon from
March 6, 1941, plus P8,000.00 attorney's fees, exclusive of costs and
charges. Meanwhile, war broke out and nothing appears to have been
done in the insolvency proceedings. The court records were
destroyed. However, they were reconstituted later and given due
course.chanroblesvirtualawlibrarychanrobles virtual law library
On August 15, 1945, the partners of the insolvent firm and Julian Go,
who acquired most of the claims of the creditors, filed a petition with
the insolvency court praying at the insolvency proceedings be closed
or terminated cause the composition agreement the creditors had
submitted relative to the settlement of the claims had already been
approved on October 10, 1940. And on October 6, 1946, the court,
acting favorably on the petition, ordered, closure of the proceedings
directing the assignee to turn and reconvey all the properties of the
partnership back to the latter as required by law. In accordance with
this order of the court, the assignee executed a deed of reconveyance
of the properties to the partnership on April 2, 1946 and by virtue
thereof, the register of deeds cancelled the titles issued in the name
of the assignee and issued new ones in lieu thereof in the name of the
partnership.chanroblesvirtualawlibrarychanrobles virtual law library
As of said date, April 2, 1946, the indebtedness of the partnership to
C. N. Hodges which was the subject of the foreclosure proceedings in
a separate case was P103,883.34. In order to pay off the same and
raise necessary funds to pay the other obligations of the partnership,
it was deemed proper and wise by Ng Diong, who continued to be the
manager of the partnership, to sell all its properties mortgaged to
Hodges in order that the excess may be applied to the Payment of
said other obligations, and to that effect Ng Diong executed on April
2, 1946 a deed of sale thereof in favor of Hodges for the sum of
P124,580.00. Out of this price; the sum of P103,883.34 was applied to
284 | P a g e
the payment of the debt of the partnership to Hodges and the balance
was paid to the other creditors of the partnership. On the same date,
Hodges executed another contract giving the partnership the right to
repurchase Lots Nos. 237, 386 and 829 in installments for the sum of
P26,000.00 within three years with interest the rate of 1% Per annum,
Payable monthly.chanroblesvirtualawlibrarychanrobles virtual law
library
On May 23, 1947, the partnership had not yet paid its indebtedness
to Julian Go in he amount of P24,864.62 under the composition
agreement, nor did it have any money to repurchase Lots Nos. 237,
386 and 829 and so Ng Diong, in behalf of the partnership, transferred
the right of the latter to repurchase the same from Hodges to Julian
Go in full payment of the partnership's indebtedness to him. And
having Julian Go exercised the option January 6, 1948, Hodges
executed a deed of sale of the properties in his favor, and pursuant
thereto the register of deeds issued new titles' in his name covering
said lots. On May 29, 1948, Hodges executed another deed of sale
covering Lots Nos. 317-A, 236-B, 233 and 540 for the sum of
P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948,
Tayengco mortgaged said lots, together with three other lots of his,
to the Bank of the Philippine Islands to secure a loan of P126,000.00
to be used in the construction of a commercial building on said
lots.chanroblesvirtualawlibrarychanrobles virtual law library
Appellants make in their brief six assignments of errors, which,
reduced to bare essentials, may be boiled down to the following
points: (1) the sale made by Ng Diong in behalf of the partnership NG
CHIN BENG HERMANOS of the seven lots belonging to it in favor of C.
N. Hodges on April 2, 1946 is null and void because at that time said
parcels were still in the custody of the assignee of the insolvency
proceedings, or in custodia legis, and, hence, the same is null and
void; (2) said sale is also null and void "because of the disparity,
irrationality and unreasonableness between the consideration and
the real value of the properties when sold"; and (3) the lower court
erred in not finding that the two deeds of mortgage executed by he
partnership in favor of the National Loan and Investment Board which
were later assigned to C. N. Hodges can no longer be enforced
because the action to foreclose the same has already
prescribed.chanroblesvirtualawlibrarychanrobles virtual law library
Anent the first issue, it would be well to state the following facts by
way of clarification: It should be recalled that on August 8, 1940 the
majority of the creditors of the partnership, as well as the
representatives of the latter, submitted to the court taking
cognizance of the insolvency proceedings a composition
agreement whereby it was agreed that said creditors would receive
20% of the amount of their claims in full payment thereof. This
agreement was approved on October 10, 1940 which, in
contemplation of law, has the effect of putting an end to the
insolvency proceedings. However, no further step was taken thereon
because of the outbreak of the war. Later, the record of the case was
reconstituted and the parties on August 15, 1945 filed a petition with
the court praying for the dismissal and closure of the proceedings in
view of the approval of the aforesaid composition agreement, and
acting favorably thereon, the court on October 6, 1945, issued an
order declaring the proceedings terminated and ordering the
assignee to return and reconvey the properties the partnership. The
actual reconveyance was done by a assignee on April 2,
1946.chanroblesvirtualawlibrarychanrobles virtual law library
It would, therefore, appear that for legal and practical purposes the
insolvency ended on said date. Since then partnership became,
restored to its status quo. It again reacquired its personality as such
with Ng Diong as its general manager. From that date on its properties
ceased to be in custodia legis. Such being the case, it is obvious that
when Ng Diong as manager of the partnership sold the seven parcels
of land to C. N. Hodges on April 2, 1946 by virtue of a deed of sale
acknowledged before a notary public on April 6, 1946, the properties
were already was at liberty to do what it may deem convenient and
proper to protect its interest. And acting accordingly, Ng Diong made
the sale in the exercise of the power granted to him by the
partnership in its articles of co-partnership. We do not, therefore, find
anything irregular in this actuation of Ng
Diong.chanroblesvirtualawlibrarychanrobles virtual law library
Since at the time of the sale the life of the partnership had already
expired, the question may be fixed: Who shall wind up it business
affairs? May its manager still execute the sale of its properties to C. N.
Hodges as was done by Ng Diong? The answer to this question cannot
but be in the affirmative because Ng Diong was still the managing
partner of the partnership and he had the necessary authority to
liquidate its affairs under its articles of co-partnership. And
considering that war had intervened and the affairs of the partnership
were placed under receivership up to October 6, 1945, we are of the
opinion that Ng Diong could still exercise his power as liquidator when
he executed the sale in question in favor of C. N. Hodges. This is
sanctioned by Article 228 of the Code of Commerce which was the
law in force at the time.1chanrobles virtual law library
With regard to the second issue, it is contended that the trial court
should have declared the sale of the lots made to C. N. Hodges null
and void "because of the disparity, irrationality and unreasonableness
between the consideration and real value of the properties when
sold." In stressing his point, counsel contends that the lands in
question, which are located in a commercial section of the City of
Iloilo, were frittered away only for a "pittance of P124,580.00" when,
borrowing his words they could have been sold like hot cakes to any
resident of the city of regular financial standing upon proper
approaches and representations, because at that time those
properties were fairly worth one-half of a million pesos."chanrobles
virtual law library
This claim may be true, but the same is unsupported. Appellants have
failed to introduce any evidence to show that they could have secured
better offers for the properties if given a chance to do so and that
they advance now is a mere speculation or conjecture which had no
place in our judicial system. Since every claim must be substantiated
by sufficient evidence, and this appellants have failed to do, their
pretense cannot be
entertained.chanroblesvirtualawlibrarychanrobles virtual law library
Neither can we give any value to the claim that the action for the
foreclosure of the mortgage executed by the partnership in favor of
C. N. Hodges has already prescribed not only because the same is
immaterial but because it is an issue that appellants are raising for the
first time in this appeal. Such issue has never been raised in their
pleadings, nor in the trial court. Verily, this claim has no
merit.chanroblesvirtualawlibrarychanrobles virtual law library
With regard to the appeal taken by the heirs of defendant Ng Diong
whose main claim is that the trial court failed to adjudicate to the
partnership the properties which were bought by Julian Go from C. N.
285 | P a g e
Hodges, suffice it to say that the same could not be done, firstly,
because no such claim was made by them in their pleadings in the trial
court, and, secondly, because the evidence shows that said properties
were bought by Julian Go by virtue of the option given to him by the
partnership for a valuable consideration in full payment of the credits
assigned to him by a good number of creditors of said partnership.
There is no evidence that he promised to reconvey the same to the
partnership.chanroblesvirtualawlibrarychanrobles virtual law library

WHEREFORE, the decision appealed from is affirmed, with costs

against appellants.chanroblesvirtualawlibrarychanrobles virtual law
library

Paras, C.J., Bengzon, Labrador, Concepcion, Reyes, J.B.L. Barrera,

Gutierrez David, Paredes and Dizon, JJ., concur.
Padilla, J., took no part.

286 | P a g e
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.chanroblesvirtualawlibrary chanrobles
virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual
law library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
287 | P a g e
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles
virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual
law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles
virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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 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.chanroblesvirtualawlibrary chanrobles virtual law library
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:chanrobles virtual law library
(1) When the term for which it was constituted
expires.chanroblesvirtualawlibrary chanrobles virtual law library
(2) When the thing is lost, or the business for which it was constituted
ends.chanroblesvirtualawlibrary chanrobles virtual law library
288 | P a g e
(3) By the natural death, civil interdiction, or insolvency of any of the
partners, and in the case provided for in article
1699.chanroblesvirtualawlibrary chanrobles virtual law library
(4) By the will of any of the partners, subject to the provisions of
articles 1705 and 1707.chanroblesvirtualawlibrary chanrobles virtual
law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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:chanrobles virtual law library
(1) The termination of the period fixed in the articles of association of
the conclusion of the enterprise which constitutes its
purpose.chanroblesvirtualawlibrary chanrobles virtual law library
(2) The entire loss of the
capital.chanroblesvirtualawlibrary chanrobles virtual law library
(3) The failure of the
association.chanroblesvirtualawlibrary chanrobles virtual law library
222. General and limited copartnerships shall furthermore be totally
dissolved for the following reasons:chanrobles virtual law library
(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.chanroblesvirtualawlibrary chanrobles virtual law library
(2) The insanity of a managing partner or any other cause which
renders him incapable of administering his
property.chanroblesvirtualawlibrary chanrobles virtual law library
(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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles
virtual law library
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 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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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
289 | P a g e
form of which in all other respects, the partners have adopted in their
articles of partnership.chanroblesvirtualawlibrary chanrobles virtual
law library
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."chanrobles virtual law
library
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.chanroblesvirtualawlibrary chanrobles virtual law library
230. Under the penalty of removal the liquidators shall -chanrobles
virtual law library
(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.chanroblesvirtualawlibrary chanrobles virtual law library
(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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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:chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
We find no merit in defendant's assignment of error numbered
3.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual
law library
Arellano, C.J., Torres and
Trent, JJ., concur.chanroblesvirtualawlibrary chanrobles virtual law
library
Per MORELAND, J.:chanrobles virtual law library
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.
290 | P a g e
G.R. No. L-45464 April 28, 1939
JOSUE SONCUYA, Plaintiff-Appellant, vs. CARMEN DE
LUNA,Defendant-Appellee.
Josue Soncuya in his own behalf.
Conrado V. Sanchez and Jesus de Veyra for appellee.
VILLA-REAL, J.: chanrobles virtual law library
On September 11, 1936, plaintiff Josue Soncuya filed with the Court
of First Instance of Manila and amended complaint against Carmen
de Luna in her own name and as co-administratrix of the intestate
estate, of Librada Avelino, in which, upon the facts therein alleged, he
prayed that defendant be sentenced to pay him the sum of P700,432
as damages and costs.chanroblesvirtualawlibrary chanrobles virtual
law library
To the aforesaid amended complaint defendant Carmen de Luna
interposed a demurrer based on the following grounds: (1) That the
complaint does not contain facts sufficient to constitute a cause of
action; and (2) that the complaint is ambiguous, unintelligible and
vague.chanroblesvirtualawlibrary chanrobles virtual law library
action for damages which he claims from the managing partner
Carmen de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil.,
172).chanroblesvirtualawlibrarychanrobles virtual law library
Having reached the conclusion that the facts alleged in the complaint
are not sufficient to constitute a cause of action on the part of plaintiff
as member of the partnership "Centro Escolar de Se�oritas" to
collect damages from defendant as managing partner thereof,
without a previous liquidation, we do not deem it necessary to discuss
the remaining question of whether or not the complaint is ambiguous,
unintelligible and vague.chanroblesvirtualawlibrary chanrobles
virtual law library
In view of the foregoing considerations, we are of the opinion and so
hold that for a partner to be able to claim from another partner who
manages the general copartnership, damages allegedly suffered by
him by reason of the fraudulent administration of the latter, a
previous liquidation of said partnership is
necessary.chanroblesvirtualawlibrary chanrobles virtual law library
Wherefore, finding no error in the order appealed from the same is
affirmed in all its parts, with costs against the appellant. So ordered.

Trial on the demurrer having been held and the parties heard, the Avance�a, C. J., Imperial, Diaz, Laurel, Concepcion, and Moran, JJ.,
court found the same well-founded and sustained it, ordering the concur.
plaintiff to amend his complaint within a period of ten days from
receipt of notice of the order.chanroblesvirtualawlibrary chanrobles
virtual law library

Plaintiff having manifested that he would prefer not to amend his

amended complaint, the attorney for the defendant, Carmen de Luna,
filed a motion praying that the amended complaint be dismissed with
costs against the plaintiff. Said motion was granted by The Court of
First Instance of Manila which ordered the dismissal of the aforesaid
amended complaint, with costs against the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library

From this order of dismissal, the appellant took an appeal, assigning

twenty alleged errors committed by the lower court in its order
referred to.chanroblesvirtualawlibrary chanrobles virtual law library

The demurrer interposed by defendant to the amended complaint

filed by plaintiff having been sustained on the grounds that the facts
alleged in said complaint are not sufficient to constitute a cause of
action and that the complaint is ambiguous, unintelligible and vague,
the only questions which may be raised and considered in the present
appeal are those which refer to said
grounds.chanroblesvirtualawlibrary chanrobles virtual law library

In the amended complaint it is prayed that defendant Carmen de Luna

be sentenced to pay plaintiff damages in the sum of P700,432 as a
result of the administration, said to be fraudulent, of he partnership,
"Centro Escolar de Se�oritas", of which plaintiff, defendant and the
deceased Librada Avelino were members. For the purpose of
adjudicating to plaintiff damages which he alleges to have suffered as
a partner by reason of the supposed fraudulent management of he
partnership referred to, it is first necessary that a liquidation of the
business thereof be made to the end that the profits and losses may
be known and the causes of the latter and the responsibility of the
defendant as well as the damages which each partner may have
suffered, may be determined. It is not alleged in the complaint that
such a liquidation has been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff to institute the

291 | P a g e
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.chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED. 1chanrobles virtual law library
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
... 2chanrobles virtual law library
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:chanrobles virtual law
library
(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:chanrobles
virtual law library
(2) That after hearing, the defendant partnership be ordered; to pay
to the plaintiff Manuel G. Singson the sum of P3,723.50 plus 1%
monthly interest thereon and 25% attorney's fees, and costs; to pay
to the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual
interest thereon and 25% for attorney's fees, and costs;to pay to the
plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest
thereon and 25% attorney's fees, and costs; to pay to the plaintiff
Bacolod Southern Lumber Yard the sum of P1,048.78, plus 6% annual
interest thereon and 25% attorney's fees, and costs; and to pay to the
plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual
interest thereon and 25% attorney's fees and costs:chanrobles virtual
law library
(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:chanrobles virtual law library
(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;chanrobles virtual law library
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and
Margarita G. Saldajeno be declared jointly liable to the plaintifs for
292 | P a g e
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;chanrobles
virtual law library
(6) The plaintiffs further pray for all other remedies to which the
Honorable Court will find them entitled to, with costs to the
defendants.chanroblesvirtualawlibrarychanrobles virtual law library
Bacolod City, June 4, 1959. 3chanrobles virtual law library
The action was docketed as Civil Case No. 5343 of said
court.chanroblesvirtualawlibrarychanrobles virtual law library
In their amended answer, the defendants Margarita G. Saldajeno and
her husband, Cecilio Saldajeno, alleged the following special and
affirmative defenses:
xxx xxx xxxchanrobles virtual law library
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;chanrobles virtual law library
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;chanrobles
virtual law library
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:chanrobles virtual law library
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;chanrobles virtual law library
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;chanrobles virtual law library
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;chanrobles virtual law library
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;chanrobles virtual law library
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc.
go beyond the limit mentioned inthe statute of frauds, Art. 1403 of
the Civil Code, and are therefor unenforceable, even assuming that
there were such credits and claims;chanrobles virtual law library
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). 4chanrobles virtual law
library
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. ... 5chanrobles virtual law library
After trial, judgment was rendered in favor of the plaintiffs and
against the defendants.chanroblesvirtualawlibrarychanrobles virtual
law library
The defendants, Margarita G. Saldajeno and her husband Cecilio
Saldajeno, appealed to the Court of Appeals assigning the following
errors:
Ichanrobles virtual law library
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE
CASE.chanroblesvirtualawlibrarychanrobles virtual law library
IIchanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
IIIchanrobles virtual law library
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).chanroblesvirtualawlibrarychanrobles virtual law library
IVchanrobles virtual law library
THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY
INJUNCTION.chanroblesvirtualawlibrarychanrobles virtual law library
293 | P a g e
Vchanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
VIchanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
VIIchanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles
virtual law library
VIIIchanrobles virtual law library
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 6. That on May 26, 1958 the defendants Leon Garibay, Timoteo
PARTNER.chanroblesvirtualawlibrarychanrobles virtual law library
IXchanrobles virtual law library
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES
FOR ATTORNEY'S FEES.chanroblesvirtualawlibrarychanrobles virtual
law library
Xchanrobles virtual law library
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF
THE PLAINTIFFS-APPELLEES.chanroblesvirtualawlibrarychanrobles
virtual law library
XIchanrobles virtual law library
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST
CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA. 6chanrobles virtual law library
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".chanroblesvirtualawlibrarychanrobles
virtual law library
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".chanroblesvirtualawlibrarychanrobles virtual law library
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".chanroblesvirtualawlibrarychanrobles virtual
law library
4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses
Cecilio Saldajeno and Margarita G. Saldajeno against the Isabela
Sawmill, Leon Garibay, and Timoteo Tubungbanua, a copy of which
Complaint is attached as Appendix
'D'.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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".chanroblesvirtualawlibrarychanrobles virtual law library
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".chanroblesvirtualawlibrarychanrobles
virtual law library
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
294 | P a g e
Occidental, a certified copy of which certificte of sale is hereto
attached as Appendix "H".chanroblesvirtualawlibrarychanrobles
virtual law library
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".chanroblesvirtualawlibrarychanrobles virtual law library
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".chanroblesvirtualawlibrarychanrobles
virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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".chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
xxx xxx xxx 7chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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. 8chanrobles virtual law library
In determining whether an action is one the subject matter of which
is not capable of pecuniary estimation this Court has adopted the
295 | P a g e
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.chanroblesvirtualawlibrarychanrobles virtual law library
In Andres Lapitan vs. SCANDIA, Inc., et al., 9this 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, 10where 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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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. 11chanrobles virtual law library
The foregoing doctrine was reiterated in a 1953 case 12where 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, 13the
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. 14chanrobles
virtual law library
296 | P a g e
Two years later, the same doctrine was laid down in the Sterling
Investment case. 15chanrobles virtual law library
In December 1971, however, this court re-examined and reversed its
earlier doctrine on the matter. In Dupla v. Court of Appeals, 16this
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
...chanroblesvirtualawlibrarychanrobles virtual law library
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
...chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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. 17chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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. 18However, on dissolution, the partnershop is not
terminated but continuous until the winding up to the
business. 19chanrobles virtual law library
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". 20chanrobles virtual law
library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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. 21chanrobles virtual law library
297 | P a g e
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.chanroblesvirtualawlibrarychanrobles
virtual law library

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.chanroblesvirtualawlibrarychanrobles virtual law library

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. 22chanrobles virtual law library

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.chanroblesvirtualawlibrarychanrobles virtual law library

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio-

Herrera, JJ., concur.

298 | P a g e
G.R. No. L-18707 December 9, 1922
PO YENG CHEO, Plaintiff-Appellee, vs. LIM KA YAM, Defendant-
Appellant.
F. R. Feria and Romualdez Bros. for appellant.
Quintin Llorente and Carlos C. Viana for appellee.
STREET, J.:
By the amended complaint in this action, the present plaintiff, Po
Yeng Cheo, alleged sole owner of a business formerly conducted in
the City of Manila under the style of Kwong Cheong, as managing
partner in said business and to recover from him its properties and
assets. The defendant having died during the pendency of the cause
in the court below and the death suggested of record, his
administrator, one Lim Yock Tock, was required to appear and make
defense.chanroblesvirtualawlibrary chanrobles virtual law library
In a decision dated July 1, 1921, the Honorable C. A. Imperial,
presiding in the court below, found that the plaintiff was entitled to
an accounting from Lim Ka Yam, the original defendant, as manager
of the business already reffered to, and he accordingly required Lim
Yock Tock, as administrator, to present a liquidation of said business
within a stated time. This order bore no substantial fruit, for the
reason that Lim Yock Tock personally knew nothing about the
aforesaid business (which had ceased operation more than ten years
previously) and was apparently unable to find any books or
documents that could shed any real light on its transaction. However,
he did submit to the court a paper written by Lim Ka Yam in life
purporting to give, with vague and uncertain details, a history of the
formation of the Kwong Cheong Tay and some account of its
disruption and cessation from business in 1910. To this narrative was
appended a statement of assets and liabilities, purporting to show
that after the business was liquidate, it was actually debtor to Lim Ka
Yam to the extent of several thousand pesos. Appreciating the
worthlessness of this so-called statement, and all parties apparently
realizing that nothing more was likely to be discovered by further
insisting on an accounting, the court proceeded, on December 27,
1921, to render final judgment in favor of the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
The decision made on this occasion takes as its basis the fact stated
by the court in its earlier decision of July 1, 1921, which may be briefly
set fourth as follows: chanrobles virtual law library
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao,
deceased, and as such Po Yeng Cheo inherited the interest left by Po
Gui Yao in a business conducted in Manila under the style of Kwong
Cheong Tay. This business had been in existence in Manila for many
years prior to 1903, as a mercantile partnership, with a capitalization
of P160,000, engaged in the import and export trade; and after the
death of Po Gui Yao the following seven persons were interested
therein as partners in the amounts set opposite their respective
names, to wit: Po Yeng Cheo, P60,000; Chua Chi Yek, P50,000; Lim Ka
Yam, P10,000; Lee Kom Chuen, P10,000; Ley Wing Kwong, P10,000;
Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000. The manager of
Kwong Cheong Tay, for many years prior of its complete cessation
from business in 1910, was Lim Ka Yam, the original defendant
herein.chanroblesvirtualawlibrary chanrobles virtual law library
Among the properties pertaining to Kwong Cheong Tay and consisting
part of its assets were ten shares of a total par value of P10,000 in an
enterprise conducted under the name of Yut Siong Chyip Konski and
certain shares to the among of P1,000 in the Manila Electric Railroad
and Light Company, of Manila.chanroblesvirtualawlibrary chanrobles
virtual law library
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to
do business, owing principally to the fact that the plaintiff ceased at
that time to transmit merchandise from Hongkong, where he then
resided. Lim Ka Yam appears at no time to have submitted to the
partners any formal liquidation of the business, though repeated
demands to that effect have been made upon him by the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
In view of the facts above stated, the trial judge rendered judgment
in favor of the plaintiff, Po Yeng Cheo, to recover of the defendant Lim
Yock Tock, as administrator of Lim Ka Yam, the sum of sixty thousand
pesos (P60,000), constituting the interest of the plaintiff in the capital
of Kwong Cheong Tay, plus the plaintiff's proportional interest in
shares of the Yut Siong Chyip Konski and Manila Electric Railroad and
Light Company, estimated at P11,000, together with the costs. From
this judgment the defendant
appealed.chanroblesvirtualawlibrary chanrobles virtual law library
In beginning our comment on the case, it is to be observed that this
court finds itself strictly circumscribed so far as our power of review
is concerned, to the facts found by the trial judge, for the plaintiff did
not appeal from the decision of the court below in so far as it was
unfavorable to him, and the defendant, as appellant, has not caused
a great part of the oral testimony to be brought up. It results, as
stated, that we must accept the facts as found by the trial judge; and
our review must be limited to the error, or errors, if any, which may
be apparent upon the face of the appealed decision, in relation with
the pleadings of record.chanroblesvirtualawlibrary chanrobles virtual
law library
Proceeding then to consider the appealed decision in relation with the
facts therein stated and other facts appearing in the orders and
proceedings in the cause, it is quite apparent that the judgment
cannot be sustained. In the first place, it was erroneous in any event
to give judgment in favor of the plaintiff to the extent of his share of
the capital of Kwong Cheong Tay. The managing partner of a
mercantile enterprise is not a debtor to the shareholders for the
capital embarked by them in the business; and he can only be made
liable for the capital when, upon liquidation of the business, there are
found to be assets in his hands applicable to capital account. That the
sum of one hundred and sixty thousand pesos (P160,000) was
embarked in this business many years ago reveals nothing as to the
condition of the capital account at the time the concern ceased to do
business; and even supposing--as the court possibly did--that the
capital was intact in 1908, this would not prove it was intact in 1910
when the business ceased to be a going concern; for in that precise
interval of time the capital may have been diminished or dissipated
from causes in no wise chargeable to the negligence or misfeasance
of the manager.chanroblesvirtualawlibrary chanrobles virtual law
library
Again, so far as appears from the appealed decision, the only property
pertaining to Kwong Cheong Tay at the time this action was brought
consisted of shares in the two concerns already mentioned of the
total par value of P11,000. Of course, if these shares had been sold
and converted into money, the proceeds, if not needed to pay debts,
would have been distributable among the various persons in interest,
299 | P a g e
that is, among the various shareholders, in their respective
proportions. But under the circumstances revealed in this case, it was
erroneous to give judgment in favor of the plaintiff for his aliquot part
of the par value of said shares. It is elementary that one partner, suing
alone, cannot recover of the managing partner the value of such
partner's individual interest; and a liquidation of the business is an
essential prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil.,
350), this court permitted one partner to recover of the manager the
plaintiff's aliquot part of the proceeds of the business, then long since
closed; but in that case the affairs of the defunct concern had been
actually liquidate by the manager to the extent that he had apparently
converted all its properties into money and had pocketed the same--
which was admitted;--and nothing remained to be done except to
compel him to pay over the money to the persons in interest. In the
present case, the shares referred to--constituting the only assets of
Kwong Cheong Tay--have not been converted into ready money and
doubtless still remain in the name of Kwong Cheong Tay as owner.
Under these circumstances it is impossible to sustain a judgment in
favor of the plaintiff for his aliquot part of the par value of said shares,
which would be equivalent to allowing one of several coowners to
recover from another, without process of division, a part of an
undivided property.chanroblesvirtualawlibrary chanrobles virtual law
library
were futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the
supposed liability of his intestate to respond for the plaintiff's
proportionate share of the capital and assets. But of course the action
was not maintainable in this aspect after the death of the defendant;
and the motion to discontinue the action as against the administrator
should have been granted.chanroblesvirtualawlibrary chanrobles
virtual law library
The judgment must be reversed, and the defendant will be absolved
from the complaint; but it will be understood that this order is
without prejudice to any proceeding which may be undertaken by the
proper person or persons in interest to settle the affairs of Kwong
Cheong Tay and in connection therewith to recover from the
administrator of Lim Ka Yam the shares in the two concerns
mentioned above. No special pronouncement will be made as to costs
of either. So ordered.chanroblesvirtualawlibrary chanrobles virtual
law library
Araullo, C. J., Johnson, Malcolm, Avanceña, and Villamor, JJ., concur.
Ostrand, J., concurs in the result.
Johns, and Romualdez, JJ., took no part in the decision of this case.

Another condition will be noted as present in this case which in our

opinion is fatal to the maintenance of the appealed judgment. This is
that, after the death of the original defendant, Lim Ka Yam, the trial
court allowed the action to proceed against Lim Yock Tock, as his
administrator, and entered judgment for a sum of money against said
administrator as the accounting party,--notwithstanding the
insistence of the attorneys for the latter that the action should be
discontinued in the form in which it was then being prosecuted. The
error of the trial court in so doing can be readily demonstrated from
more than one point of view.chanroblesvirtualawlibrary chanrobles
virtual law library

In the first place, it is well settled that when a member of a mercantile

partnership dies, the duty of liquidating its affair devolves upon the
surviving member, or members, of the firm, not upon the legal
representative of the deceased partner. (Wahl vs. Donaldson Sim &
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And the same
rule must be equally applicable to a civil partnership clothed with the
form of a commercial association (art. 1670, Civil Code; Lichauco vs.
Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it therefore
became the duty of his surviving associates to take the proper steps
to settle the affairs of the firm, and any claim against him, or his
estate, for a sum of money due to the partnership by reason of any
misappropriation of its funds by him, or for damages resulting from
his wrongful acts as manager, should be prosecuted against his estate
in administration in the manner pointed out in sections 686 to 701,
inclusive, of the Code of Civil Procedure. Moreover, when it appears,
as here, that the property pertaining to Kwong Cheong Tay, like the
shares in the Yut Siong Chyip Konski and the Manila Electric Railroad
and Light Company, are in the possession of the deceased partner,
the proper step for the surviving associates to take would be to make
application to the court having charge to the administration to require
the administrator to surrender such
property.chanroblesvirtualawlibrarychanrobles virtual law library

But, in the second place, as already indicated, the proceedings in this

cause, considered in the character of an action for an accounting,

300 | P a g e
G.R. No. L-14606 April 28, 1960 7. That the incorporators of the Laguna Transportation Company, Inc.,
and their corresponding shares are as follows:
LAGUNA TRANSPORTATION CO., INC., petitioner-appellant,
vs.
Name No. of Shares Amount
SOCIAL SECURITY SYSTEM, respondent-appellee.
Subscribe
Yatco & Yatco for appellant.
Solicitor General Edilberto Barot, Solicitor Camilo Quiason and Crispin Dominador Cruz 333 shares P33,300.0
Baizas for appellee.

BARRERA, J.: Maura Mendoza 333 shares 33,300.00

On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed
with the Court of First Instance of Laguna petition praying that an Gonzalo Mercado 66 shares 6,600.00
order be issued by the court declaring that it is not bound to register
as a member of respondent Social Security System and, therefore, not
obliged to pay to the latter the contributions required under the Artemio Mercado 94 shares 9,400.00
Social Security Act.1 To this petition, respondent filed its answer on
February 11, 1958 praying for its dismissal due to petitioner's failure Florentino Mata 110 shares 11,000.00
to exhaust administrative remedies, and for a declaration that
petitioner is covered by said Act, since the latter's business has been
in operation for at least 2 years prior to September 1, 1957. Sabina Borja 64 shares 6,400.

On February 11, 1958, respondent filed a motion for preliminary

hearing on its defense that petitioner failed to exhaust administrative 1,000 shares P100,000
remedies. When the case was called for preliminary hearing, it was
postponed by agreement of the parties. Subsequently, it was set for 8. That the corporation continued the same transportation business
trial. On the date of the trial, the parties agreed to present, in lieu of of the unregistered partnership;
any other evidence, a stipulation of facts, which they did on May 27,
9. That the plaintiff filed on August 30, 1957 an Employee's Data
1958, as follows:
Record . . . and a supplemental Information Sheet . . .;
1. That petitioner is a domestic corporation duly organized and
10. That prior to November 11, 1957, plaintiff requested for
existing under the laws of the Philippines, with principal place of
exemption from coverage by the System on the ground that it started
business at Biñan, Laguna;
operation only on June 20, 1956, when it was registered with the
2. That respondent is an agency created under Republic Act No. 1161, Securities and Exchange Commission but on November 11, 1957, the
as amended by Republic Act No. 1792, with the principal place of Social Security System notified plaintiff that it was covered;
business at the new GSIS Bldg., corner Arroceros and Concepcion
11. On November 14, 1957, plaintiff through counsel sent a letter to
Streets, Manila, where it may be served with summons;
the Social Security System contesting the claim of the System that
3. That respondent has served notice upon the petitioner requiring it plaintiff was covered, . . .
to register as member of the System and to remit the premiums due
12. On November 27, 1957, Carlos Sanchez, Manager of the
from all the employees of the petitioner and the contribution of the
Production Department of the respondent System for and in behalf of
latter to the System beginning the month of September, 1957;
the Acting Administrator, informed plaintiff that plaintiff's business
4. That sometime in 1949, the Biñan Transportation Co., a corporation has been in actual operation for at least two years, . . .
duly registered with the Securities and Exchange Commission, sold
On the basis of the foregoing stipulation of facts, the court, on August
part of the lines and equipment it operates to Gonzalo Mercado,
15, 1958, rendered a decision the dispositive part of which reads:
Artemio Mercado, Florentino Mata and Dominador Vera Cruz;
Wherefore, the Court is of the opinion and so declares that the
5. That after the sale, the said vendees formed an unregistered
petitioner was an employer engaged in business as common carrier
partnership under the name of Laguna Transportation Company
which had been in operation for at least two years prior to the
which continued to operate the lines and equipment bought from the
enactment of Republic Act No. 1161, as amended by Republic Act
Biñan Transportation Company, in addition to new lines which it was
1792 and by virtue thereof, it was subject to compulsory coverage
able to secure from the Public Service Commission;
under said law. . . .
6. That the original partners forming the Laguna Transportation
From this decision, petitioner appealed directly to us, raising purely
Company, with the addition of two new members, organized a
questions of law.
corporation known as the Laguna Transportation Company, Inc.,
which was registered with the Securities and Exchange Commission Petitioner claims that the lower court erred in holding that it is an
on June 20, 1956, and which corporation is the plaintiff now in this employer engaged in business as a common carrier which had been
case; in operation for at least 2 years prior to the enactment of the Social
Security Act and, therefore, subject to compulsory coverage
thereunder.

301 | P a g e
Section 9 of the Social Security Act, in part, provides:
SEC. 9 Compulsory Coverage. — Coverage in the System shall be
compulsory upon all employees between the ages of sixteen and sixty
years, inclusive, if they have been for at least six months in the service
of an employer who is a member of the System. Provided, That the
Commission may not compel any employer to become a member of
the System unless he shall have been in operation for at least two
years . . . . (Italics supplied.).
It is not disputed that the Laguna Transportation Company, an
unregistered partnership composed of Gonzalo Mercado, Artemio
Mercado, Florentina Mata, and Dominador Vera Cruz, commenced
the operation of its business as a common carrier on April 1, 1949.
These 4 original partners, with 2 others (Maura Mendoza and Sabina
Borja) later converted the partnership into a corporate entity, by
registering its articles of incorporation with the Securities and
Exchange Commission on June 20, 1956. The firm name "Laguna
Transportation Company" was not altered, except with the addition
of the word "Inc." to indicate that petitioner was duly incorporated
under existing laws. The corporation continued the same
transportation business of the unregistered partnership, using the
same lines and equipment. There was, in effect, only a change in the
form of the organization of the entity engaged in the business of
transportation of passengers. Hence, said entity as an employer
engaged in business, was already in operation for at least 3 years prior
to the enactment of the Social Security Act on June 18, 1954 and for
at least two years prior to the passage of the amendatory act on June
21, 1957. Petitioner argues that, since it was registered as a
corporation with the Securities and Exchange Commission only on
June 20, 1956, it must be considered to have been in operation only
on said date. While it is true that a corporation once formed is
conferred a juridical personality separate and district from the
persons composing it, it is but a legal fiction introduced for purposes
of convenience and to subserve the ends of justice. The concept
cannot be extended to a point beyond its reasons and policy, and
when invoked in support of an end subversive of this policy, will be
disregarded by the courts. (13 Am. Jur. 160.)
by the Biñan Transportation Company to the partners Gonzalo
Mercado, Artemio Mercado, Florentino Mata, and Dominador Vera
Cruz, no mention whatsoever is made either in the pleadings or in the
stipulation of facts that the lines and equipment of the unregistered
partnership had been sold and transferred to the corporation,
petitioner herein. This omission, to our mind, clearly indicates that
there was, in fact, no transfer of interest, but a mere change in the
form of the organization of the employer engaged in the
transportation business, i.e., from an unregistered partnership to that
of a corporation. As a rule, courts will look to the substance and not
to the form.(Colonial Trust Co. vs. Montolo Eric Works, 172 Fed. 310;
Metropolitan Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612;
Arnold vs. Willits, et al., 44 Phil., 634; 1 Fletcher Cyclopedia
Corporations [Perm. Ed.] 139-140.)
Finally, the weight of authority supports the view that where a
corporation was formed by, and consisted of members of a
partnership whose business and property was conveyed and
transferred to the corporation for the purpose of continuing its
business, in payment for which corporate capital stock was issued,
such corporation is presumed to have assumed partnership debts,
and is prima facie liable therefor. (Stowell vs. Garden City News
Corps., 57 P. 2d 12; Chicago Smelting & Refining Corp. vs. Sullivan, 246
IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.) The reason
for the rule is that the members of the partnership may be said to
have simply put on a new coat, or taken on a corporate cloak, and the
corporation is a mere continuation of the partnership. (8 Fletcher
Cyclopedia Corporations [Perm. Ed.] 402-411.)
Wherefore, finding no error in the judgment of the court a quo, the
same is hereby affirmed, with costs against petitioner-appellant. So
ordered.
Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador,
Concepcion and Gutierrez, David, JJ., concur.

If any general rule can be laid down, in the present state of authority,
it is that a corporation will be looked upon as a legal entity as a general
rule, and until sufficient reason to the contrary appears; but, when
the motion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons. (1 Fletcher Cyclopedia
Corporations [Perm. Ed.] 135-136; U.S. Milwaukee Refrigeration
Transit Co., 142 Fed. 247, cited in Koppel Philippines, Inc. vs. Yatco, 43
Off. Gaz., 4604.)

To adopt petitioner's argument would defeat, rather than promote,

the ends for which the Social Security Act was enacted. An employer
could easily circumvent the statute by simply changing his form of
organization every other year, and then claim exemption from
contribution to the System as required, on the theory that, as a new
entity, it has not been in operation for a period of at least 2 years. the
door to fraudulent circumvention of the statute would, thereby, be
opened.

Moreover, petitioner admitted that as an employer engaged in the

business of a common carrier, its operation commenced on April 1,
1949 while it was a partnership and continued by the corporation
upon its formation on June 20, 1956. Unlike in the conveyance made

302 | P a g e
G.R. No. L-17526 June 30, 1962
GREGORIO MAGDUSA, ET AL. Petitioners, vs. GERUNDIO ALBARAN,
ET AL., Respondents.
Montenegro, Madayag, Viola and Hernandez, Olimpio R. Epis, David
C. Ocangas and Bonifacio M. Belderol for petitioners.
Lozano, Soria, Muana, Ruiz and Morales for respondents.
REYES, J.B.L., J.:chanrobles virtual law library
Appeal from a decision of the Court of Appeals (G.R. No. 24248-R)
reversing a judgment of the Court of First Instance of Bohol and
ordering appellant Gregorio Magdusa to pay to appellees, by way of
refund of their shares as partners, the following amounts: Gerundio
Albaran, P8,979.10; Pascual Albaran, P5,394.78; Zosimo Albaran,
P1,979.28; and Telesforo Bebero, P3,020.27; plus legal interests from
the filing of the complaint, and
costs.chanroblesvirtualawlibrarychanrobles virtual law library
The Court of Appeals found that appellant and appellees, together
with various other persons, had verbally formed a partnership de
facto, for the sale of general merchandise in Surigao, Surigao, to
which appellant contributed P2,000 as capital, and the others
contributed their labor, under the condition that out of the net profits
of the business 25% would be added to the original capital, and the
remaining 75% would be divided among the members in proportion
to the length of service of each. Sometime in 1953 and 1954, the
appellees expressed their desire to withdraw from the partnership,
and appellant thereupon made a computation to determine the value
of the partners' shares to that date. The results of the computation
were embodied in the document Exhibit "C", drawn in the
handwriting of appellant. Appellees thereafter made demands upon
appellant for payment, but appellant having refused, they filed the
initial complaint in the court below. Appellant defended by denying
any partnership with appellees, whom he claimed to be mere
employees of his.chanroblesvirtualawlibrarychanrobles virtual law
library
The Court of First Instance of Bohol refused to give credence to Exhibit
"C", and dismissed the complaint on the ground that the other were
indispensable parties but hid not been impleaded. Upon appeal, the
Court of Appeals reversed, with the result noted at the start of this
opinion.chanroblesvirtualawlibrarychanrobles virtual law library
Gregorio Magdusa then petitioned for a review of the decision, and
we gave it due course.chanroblesvirtualawlibrarychanrobles virtual
law library
The main argument of appellant is that the appellees' action can not
be entertained, because in the distribution of all or part of a
partnership's assets, all the partners have no interest and are
indispensable parties without whose intervention no decree of
distribution can be validly entered. This argument was considered and
answered by the Court of Appeals in the following words:
We now come to the last issue involved. While finding that some
amounts are due the plaintiffs, the lower court withheld an award in
their favor, reasoning that a judgment ordering the defendant to pay
might affect the rights of other partners who were not made parties
in this case. The reason cited by the lower court does not constitute a
legal impediment to a judgment for the plaintiffs in this case. This is
not an action for a dissolution of a partnership and winding up of its
affairs or liquidation of its assets in which the interest of other
partners who are not brought into the case may be affected. The
action of the plaintiffs is one for the recovery of a sum of money with
Gregorio Magdusa as the principal defendant. The partnership, with
Gregorio Magdusa as managing partner, was brought into the case as
an alternative defendant only. Plaintiffs' action was based on the
allegation, substantiated in evidence, that Gregorio Magdusa, having
taken delivery of their shares, failed and refused and still fails and
refuses to pay them their claims. The liability, therefore, is personal
to Gregorio Magdusa, and the judgment should be against his sole
interest, not against the partnership's although the judgment
creditors may satisfy the judgment against the interest of Gregorio
Magdusa in the partnership subject to the condition imposed by
Article 1814 of the Civil Code.
We do not find the preceding reasoning tenable. A partner's share can
not be returned without first dissolving and liquidating the
partnership (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 177), for the return
is dependent on the discharge of the creditors, whose claims enjoy
preference over those of the partners; and it is self-evident that all
members of the partnership are interested in his assets and business,
and are entitled to be heard in the matter of the firm's liquidation and
the distribution of its property. The liquidation Exhibit "C" is not
signed by the other members of the partnership besides appellees
and appellant; it does not appear that they have approved,
authorized, or ratified the same, and, therefore, it is not binding upon
them. At the very least, they are entitled to be heard upon its
correctness.chanroblesvirtualawlibrarychanrobles virtual law library
In addition, unless a proper accounting and liquidation of the
partnership affairs is first had, the capital shares of the appellees, as
retiring partners, can not be repaid, for the firm's outside creditors
have preference over the assets of the enterprise (Civ. Code, Art.
1839), and the firm's property can not be diminished to their
prejudice. Finally, the appellant can not be held liable in his personal
capacity for the payment of partners' shares for he does not hold
them except as manager of, or trustee for, the partnership. It is the
latter that must refund their shares to the retiring partners. Since not
all the members of the partnership have been impleaded, no
judgment for refund can be rendered, and the action should have
been dismissed.chanroblesvirtualawlibrarychanrobles virtual law
library
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is
reversed and the action ordered dismissed, without prejudice to a
proper proceeding for the dissolution and liquidation of the common
enterprise. Costs against appellees.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion,
Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
303 | P a g e
G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA
and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and
TAN PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of
respondent Court of First Instance of Cebu Branch III in its Civil Case
No. 12328, an action for accounting of properties and money totalling
allegedly about P15 million pesos filed with a common cause of action
against six defendants, in which after declaring four of the said
defendants herein petitioners, in default and while the trial as against
the two defendants not declared in default was in progress, said court
granted plaintiff's motion to dismiss the case in so far as the non-
defaulted defendants were concerned and thereafter proceeded to
hear ex-parte the rest of the plaintiffs evidence and subsequently
rendered judgment by default against the defaulted defendants, with
the particularities that notice of the motion to dismiss was not duly
served on any of the defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint answer, and the judgment
so rendered granted reliefs not prayed for in the complaint, and (2)
prohibition to enjoin further proceedings relative to the motion for
immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by
respondent Tan Put only against the spouses-petitioners Antonio Lim
Tanhu and Dy Ochay. Subsequently, in an amended complaint dated
September 26, 1972, their son Lim Teck Chuan and the other spouses-
petitioners Alfonso Leonardo Ng Sua and Co Oyo and their son Eng
Chong Leonardo were included as defendants. In said amended
complaint, respondent Tan alleged that she "is the widow of Tee Hoon
Lim Po Chuan, who was a partner in the commercial partnership,
Glory Commercial Company ... with Antonio Lim Tanhu and Alfonso
Ng Sua that "defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua,
Lim Teck Chuan, and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the partnership
and although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Company, defendants managed to use the funds of the
partnership to purchase lands and building's in the cities of Cebu,
Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla,
some of which were hidden, but the description of those already
discovered were as follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants,
without liquidation continued the business of Glory Commercial
Company by purportedly organizing a corporation known as the Glory
Commercial Company, Incorporated, with paid up capital in the sum
of P125,000.00, which money and other assets of the said Glory
Commercial Company, Incorporated are actually the assets of the
defunct Glory Commercial Company partnership, of which the plaintiff
has a share equivalent to one third (¹/3 ) thereof;
14. (P)laintiff, on several occasions after the death of her husband,
has asked defendants of the above-mentioned properties and for the
liquidation of the business of the defunct partnership, including
investments on real estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio
Lim Tanhu, by means of fraud deceit and misrepresentations did then
and there, induce and convince the plaintiff to execute a quitclaim of
all her rights and interests, in the assets of the partnership of Glory
Commercial Company, which is null and void, executed through fraud
and without any legal effect. The original of said quitclaim is in the
possession of the adverse party defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim,
defendant Antonio Lim Tanhu offered to pay the plaintiff the amount
P65,000.00 within a period of one (1) month, for which plaintiff was
made to sign a receipt for the amount of P65,000.00 although no such
amount was given and plaintiff was not even given a copy of said
document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier
promised to liquidate the aforesaid properties and assets in favor
among others of plaintiff and until the middle of the year 1970 when
the plaintiff formally demanded from the defendants the accounting
of real and personal properties of the Glory Commercial Company,
defendants refused and stated that they would not give the share of
the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be
rendered:
a) Ordering the defendants to render an accounting of the real and
personal properties of the Glory Commercial Company including
those registered in the names of the defendants and other persons,
which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting,
one third (¹/3 ) of the total value of all the properties which is
approximately P5,000,000.00 representing the just share of the
plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum
of Two Hundred Fifty Thousand Pesos (P250,000.00) by way of
attorney's fees and damages in the sum of One Million Pesos
(P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs
consistent with law and equity and order the defendants to pay the
costs. (Page 38, Record.)
The admission of said amended complaint was opposed by
defendants upon the ground that there were material modifications
of the causes of action previously alleged, but respondent judge
nevertheless allowed the amendment reasoning that:
The present action is for accounting of real and personal properties
as well as for the recovery of the same with damages.
An objective consideration of pars. 13 and 15 of the amended
complaint pointed out by the defendants to sustain their opposition
will show that the allegations of facts therein are merely to amplify
304 | P a g e
material averments constituting the cause of action in the original
complaint. It likewise include necessary and indispensable defendants
without whom no final determination can be had in the action and in
order that complete relief is to be accorded as between those already
parties.
Considering that the amendments sought to be introduced do not
change the main causes of action in the original complaint and the
reliefs demanded and to allow amendments is the rule, and to refuse
them the exception and in order that the real question between the
parties may be properly and justly threshed out in a single proceeding
to avoid multiplicity of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their
common counsel, defendants denied specifically not only the
allegation that respondent Tan is the widow of Tee Hoon because,
according to them, his legitimate wife was Ang Siok Tin still living and
with whom he had four (4) legitimate children, a twin born in 1942,
and two others born in 1949 and 1965, all presently residing in
Hongkong, but also all the allegations of fraud and conversion quoted
above, the truth being, according to them, that proper liquidation had
been regularly made of the business of the partnership and Tee Hoon
used to receive his just share until his death, as a result of which the
partnership was dissolved and what corresponded to him were all
given to his wife and children. To quote the pertinent portions of said
answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the
answer, and further most respectfully declare:
1. That in the event that plaintiff is filing the present complaint as an
heir of Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue
as such, considering that the legitimate wife, namely: Ang Siok Tin,
together with their children are still alive. Under Sec. 1, (d), Rule 16 of
the Revised Rules of Court, lack of legal capacity to sue is one of the
grounds for a motion to dismiss and so defendants prays that a
preliminary hearing be conducted as provided for in Sec. 5, of the
same rule;
2. That in the alternative case or event that plaintiff is filing the
present case under Art. 144 of the Civil Code, then, her claim or
demand has been paid, waived abandoned or otherwise extinguished
as evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is
another ground for a motion to dismiss (Sec. 1, (h), Rule 16) and hence
defendants pray that a preliminary hearing be made in connection
therewith pursuant to Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin
and were blessed with the following children, to wit: Ching Siong Lim
and Ching Hing Lim (twins) born on February 16, 1942; Lim Shing Ping
born on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and
presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff
was no longer his common law wife and even though she was not
entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the
kindness and generosity on the part of the defendants, particularly
Antonio Lain Tanhu, who, was inspiring to be monk and in fact he is
now a monk, plaintiff was given a substantial amount evidenced by
the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own
personal fund and certainly not from the funds belonging to the
partnership, just as Tee Hoon Lim Po Chuan had acquired properties
out of his personal fund and which are now in the possession of the
widow and neither the defendants nor the partnership have anything
to do about said properties;
6. That it would have been impossible to buy properties from funds
belonging to the partnership without the other partners knowing
about it considering that the amount taken allegedly is quite big and
with such big amount withdrawn the partnership would have been
insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with
children who would have been lawfully entitled to succeed to the
properties left by the latter together with the widow and legitimate
children;
8. That despite the fact that plaintiff knew that she was no longer
entitled to anything of the shares of the late Tee Hoon Lim Po Chuan,
yet, this suit was filed against the defendant who have to interpose
the following —
COUNTERCLAIM
A. That the defendants hereby reproduced, by way of reference, all
the allegations and foregoing averments as part of this counterclaim;
.
B. That plaintiff knew and was aware she was merely the common-
law wife of Tee Hoon Lim Po Chuan and that the lawful and legal is
still living, together with the legitimate children, and yet she
deliberately suppressed this fact, thus showing her bad faith and is
therefore liable for exemplary damages in an amount which the
Honorable Court may determine in the exercise of its sound judicial
discretion. In the event that plaintiff is married to Tee Hoon Lim Po
Chuan, then, her marriage is bigamous and should suffer the
consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim',
even though she was not entitled to it, and yet she falsely claimed
that defendants refused even to see her and for filing this unfounded,
baseless, futile and puerile complaint, defendants suffered mental
anguish and torture conservatively estimated to be not less than
P3,000.00;
D. That in order to defend their rights in court, defendants were
constrained to engage the services of the undersigned counsel,
obligating themselves to pay P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time that this case will
be before this Honorable Court and until the same will be finally
terminated and adjudicated, defendants will have to spend at least
P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely
permissive and should be dismissed for non-payment of the
corresponding filing fee, and after being overruled by the court, in due
time, plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of
the two defendants-spouses the Lim Tanhus and Ng Suas, did not
appear, for which reason, upon motion of plaintiff dated February 16,
1973, in an order of March 12, 1973, they were all "declared in
305 | P a g e
DEFAULT as of February 3, 1973 when they failed to appear at the pre-
trial." They sought to hive this order lifted thru a motion for
reconsideration, but the effort failed when the court denied it.
Thereafter, the trial started, but at the stage thereof where the first
witness of the plaintiff by the name of Antonio Nuñez who testified
that he is her adopted son, was up for re-cross-examination, said
plaintiff unexpectedly filed on October 19, 1974 the following simple
and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned counsel, unto the
Honorable Court most respectfully moves to drop from the complaint
the defendants Lim Teck Chuan and Eng Chong Leonardo and to
consider the case dismissed insofar as said defendants Lim Teck
Chuan and Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the Honorable Court to
drop from the complaint the defendants Lim Teck Chuan and Eng
Chong Leonardo and to dismiss the case against them without
pronouncement as to costs. (Page 50, Record.)
which she set for hearing on December 21, 1974. According to
petitioners, none of the defendants declared in default were notified
of said motion, in violation of Section 9 of Rule 13, since they had
asked for the lifting of the order of default, albeit unsuccessfully, and
as regards the defendants not declared in default, the setting of the
hearing of said motion on October 21, 1974 infringed the three-day
requirement of Section 4 of Rule 15, inasmuch as Atty. Adelino Sitoy
of Lim Teck Chuan was served with a copy of the motion personally
only on October 19, 1974, while Atty. Benjamin Alcudia of Eng Chong
Leonardo was served by registered mail sent only on the same date.
Evidently without even verifying the notices of service, just as simply
as plaintiff had couched her motion, and also without any legal
grounds stated, respondent court granted the prayer of the above
motion thus:
ORDER
Acting on the motion of the plaintiff praying for the dismissal of the
complaint as against defendants Lim Teck Chuan and Eng Chong
Leonardo. —
The same is hereby GRANTED. The complaint as against defendant
Lim Teck Chuan and Eng Chong Leonardo is hereby ordered
DISMISSED without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse Dy
Ochay as well as defendants Alfonso Ng Sua and his spouse Co Oyo
have been declared in default for failure to appear during the pre-trial
and as to the other defendants the complaint had already been
ordered dismissed as against them.
Let the hearing of the plaintiff's evidence ex-parte be set on
November 20, 1974, at 8:30 A.M. before the Branch Clerk of Court
who is deputized for the purpose, to swear in witnesses and to submit
her report within ten (10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte
reception of evidence did not take place on November 20, 1974, for
on October 28, 1974, upon verbal motion of plaintiff, the court issued
the following self-explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18,
1974, the Court deputized the Branch Clerk of Court to receive the
evidence of the plaintiff ex-parte to be made on November 20, 1974.
However, on October 28, 1974, the plaintiff, together with her
witnesses, appeared in court and asked, thru counsel, that she be
allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in bringing
her witnesses to the court, the Branch Clerk of Court is hereby
authorized to receive immediately the evidence of the plaintiff ex-
parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant
Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a motion for
reconsideration thereof, and on November 1, 1974, defendant Eng
Chong Leonardo, thru counsel Atty. Alcudia, filed also his own motion
for reconsideration and clarification of the same orders. These
motions were denied in an order dated December 6, 1974 but
received by the movants only on December 23, 1974. Meanwhile,
respondent court rendered the impugned decision on December 20,
1974. It does not appear when the parties were served copies of this
decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel,
filed a motion to quash the order of October 28, 1974. Without
waiting however for the resolution thereof, on January 13, 1974, Lim
Teck Chuan and Eng Chong Leonardo went to the Court of Appeals
with a petition for certiorari seeking the annulment of the above-
mentioned orders of October 21, 1974 and October 28, 1974 and
decision of December 20, 1974. By resolution of January 24, 1975, the
Court of Appeals dismissed said petition, holding that its filing was
premature, considering that the motion to quash the order of
October 28, 1974 was still unresolved by the trial court. This holding
was reiterated in the subsequent resolution of February 5, 1975
denying the motion for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants,
petitioners herein, filed their notice of appeal, appeal bond and
motion for extension to file their record on appeal, which was
granted, the extension to expire after fifteen (15) days from January
26 and 27, 1975, for defendants Lim Tanhu and Ng Suas, respectively.
But on February 7, 1975, before the perfection of their appeal,
petitioners filed the present petition with this Court. And with the
evident intent to make their procedural position clear, counsel for
defendants, Atty. Manuel Zosa, filed with respondent court a
manifestation dated February 14, 1975 stating that "when the non-
defaulted defendants Eng Chong Leonardo and Lim Teck Chuan filed
their petition in the Court of Appeals, they in effect abandoned their
motion to quash the order of October 28, 1974," and that similarly
"when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and
Co Oyo, filed their petition for certiorari and prohibition ... in the
Supreme Court, they likewise abandoned their motion to quash." This
manifestation was acted upon by respondent court together with
306 | P a g e
plaintiffs motion for execution pending appeal in its order of the same
date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of October 28,
1974 and the motion for execution pending appeal were called for
hearing today, counsel for the defendants-movants submitted their
manifestation inviting the attention of this Court that by their filing
for certiorari and prohibition with preliminary injunction in the Court
of Appeals which was dismissed and later the defaulted defendants
filed with the Supreme Court certiorari with prohibition they in effect
abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The
resolution of the motion for execution pending appeal shall be
resolved after the petition for certiorari and prohibition shall have
been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent
court acted illegally, in violation of the rules or with grave abuse of
discretion in acting on respondent's motion to dismiss of October 18,
1974 without previously ascertaining whether or not due notice
thereof had been served on the adverse parties, as, in fact, no such
notice was timely served on the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo and no notice at all was ever sent to
the other defendants, herein petitioners, and more so, in actually
ordering the dismissal of the case by its order of October 21, 1974 and
at the same time setting the case for further hearing as against the
defaulted defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of December 20,
1974 granting respondent Tan even reliefs not prayed for in the
complaint. According to the petitioners, to begin with, there was
compulsory counterclaim in the common answer of the defendants
the nature of which is such that it cannot be decided in an
independent action and as to which the attention of respondent court
was duly called in the motions for reconsideration. Besides, and more
importantly, under Section 4 of Rule 18, respondent court had no
authority to divide the case before it by dismissing the same as against
the non-defaulted defendants and thereafter proceeding to hear it
ex-parte and subsequently rendering judgment against the defaulted
defendants, considering that in their view, under the said provision of
the rules, when a common cause of action is alleged against several
defendants, the default of any of them is a mere formality by which
those defaulted are not allowed to take part in the proceedings, but
otherwise, all the defendants, defaulted and not defaulted, are
supposed to have but a common fate, win or lose. In other words,
petitioners posit that in such a situation, there can only be one
common judgment for or against all the defendant, the non-defaulted
and the defaulted. Thus, petitioners contend that the order of
dismissal of October 21, 1974 should be considered also as the final
judgment insofar as they are concerned, or, in the alternative, it
should be set aside together with all the proceedings and decision
held and rendered subsequent thereto, and that the trial be resumed
as of said date, with the defendants Lim Teck Chuan and Eng Chong
Leonardo being allowed to defend the case for all the defendants.
On the other hand, private respondent maintains the contrary view
that inasmuch as petitioners had been properly declared in default,
they have no personality nor interest to question the dismissal of the
case as against their non-defaulted co-defendants and should suffer
the consequences of their own default. Respondent further contends,
and this is the only position discussed in the memorandum submitted
by her counsel, that since petitioners have already made or at least
started to make their appeal, as they are in fact entitled to appeal,
this special civil action has no reason for being. Additionally, she
invokes the point of prematurity upheld by the Court of Appeals in
regard to the above-mentioned petition therein of the non-defaulted
defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court
are errors of judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the
court below and mature deliberation, the Court has arrived at the
conclusion that petitioners should be granted relief, if only to stress
emphatically once more that the rules of procedure may not be
misused and abused as instruments for the denial of substantial
justice. A review of the record of this case immediately discloses that
here is another demonstrative instance of how some members of the
bar, availing of their proficiency in invoking the letter of the rules
without regard to their real spirit and intent, succeed in inducing
courts to act contrary to the dictates of justice and equity, and, in
some instances, to wittingly or unwittingly abet unfair advantage by
ironically camouflaging their actuations as earnest efforts to satisfy
the public clamor for speedy disposition of litigations, forgetting all
the while that the plain injunction of Section 2 of Rule 1 is that the
"rules shall be liberally construed in order to promote their object and
to assist the parties in obtaining not only 'speedy' but more
imperatively, "just ... and inexpensive determination of every action
and proceeding." We cannot simply pass over the impression that the
procedural maneuvers and tactics revealed in the records of the case
at bar were deliberately planned with the calculated end in view of
depriving petitioners and their co-defendants below of every
opportunity to properly defend themselves against a claim of more
than substantial character, considering the millions of pesos worth of
properties involved as found by respondent judge himself in the
impugned decision, a claim that appears, in the light of the allegations
of the answer and the documents already brought to the attention of
the court at the pre-trial, to be rather dubious. What is most
regrettable is that apparently, all of these alarming circumstances
have escaped respondent judge who did not seem to have hesitated
in acting favorably on the motions of the plaintiff conducive to the
deplorable objective just mentioned, and which motions, at the very
least, appeared to be 'of highly controversial' merit, considering that
their obvious tendency and immediate result would be to convert the
proceedings into a one-sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean
more on the contentions of private respondent may be discerned
from the manner it resolved the attempts of defendants Dy Ochay
and Antonio Lim Tanhu to have the earlier order of default against
them lifted. Notwithstanding that Dy Ochay's motion of October 8,
1971, co-signed by her with their counsel, Atty. Jovencio Enjambre
(Annex 2 of respondent answer herein) was over the jurat of the
notary public before whom she took her oath, in the order of
November 2, 1971, (Annex 3 id.) it was held that "the oath appearing
at the bottom of the motion is not the one contemplated by the
abovequoted pertinent provision (See. 3, Rule 18) of the rules. It is
not even a verification. (See. 6, Rule 7.) What the rule requires as
307 | P a g e
interpreted by the Supreme Court is that the motion must have to be
accompanied by an affidavit of merits that the defendant has a
meritorious defense, thereby ignoring the very simple legal point that
the ruling of the Supreme Court in Ong Peng vs. Custodio, 1 SCRA 781,
relied upon by His Honor, under which a separate affidavit of merit is
required refers obviously to instances where the motion is not over
oath of the party concerned, considering that what the cited provision
literally requires is no more than a "motion under oath." Stated
otherwise, when a motion to lift an order of default contains the
reasons for the failure to answer as well as the facts constituting the
prospective defense of the defendant and it is sworn to by said
defendant, neither a formal verification nor a separate affidavit of
merit is necessary.
What is worse, the same order further held that the motion to lift the
order of default "is an admission that there was a valid service of
summons" and that said motion could not amount to a challenge
against the jurisdiction of the court over the person of the defendant.
Such a rationalization is patently specious and reveals an evident
failure to grasp the import of the legal concepts involved. A motion to
lift an order of default on the ground that service of summons has not
been made in accordance with the rules is in order and is in essence
verily an attack against the jurisdiction of the court over the person
of the defendant, no less than if it were worded in a manner
specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last
the order of default as against defendant Lim Tanhu, His Honor
posited that said defendant "has a defense (quitclaim) which renders
the claim of the plaintiff contentious." We have read defendants'
motion for reconsideration of November 25, 1971 (Annex 5, id.), but
We cannot find in it any reference to a "quitclaim". Rather, the
allegation of a quitclaim is in the amended complaint (Pars. 15-16,
Annex B of the petition herein) in which plaintiff maintains that her
signature thereto was secured through fraud and deceit. In truth, the
motion for reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochay's earlier motion of October 8,
1971, Annex 2, to set aside the order of default, that plaintiff Tan
could be but the common law wife only of Tee Hoon, since his
legitimate wife was still alive, which allegation, His Honor held in the
order of November 2, 1971, Annex 3, to be "not good and meritorious
defense". To top it all, whereas, as already stated, the order of
February 19, 1972, Annex 6, lifted the default against Lim Tanhu
because of the additional consideration that "he has a defense
(quitclaim) which renders the claim of the plaintiff contentious," the
default of Dy Ochay was maintained notwithstanding that exactly the
same "contentions" defense as that of her husband was invoked by
her.
Such tenuous, if not altogether erroneous reasonings and manifest
inconsistency in the legal postures in the orders in question can hardly
convince Us that the matters here in issue were accorded due and
proper consideration by respondent court. In fact, under the
circumstances herein obtaining, it seems appropriate to stress that,
having in view the rather substantial value of the subject matter
involved together with the obviously contentious character of
plaintiff's claim, which is discernible even on the face of the complaint
itself, utmost care should have been taken to avoid the slightest
suspicion of improper motivations on the part of anyone concerned.
Upon the considerations hereunder to follow, the Court expresses its
grave concern that much has to be done to dispel the impression that
herein petitioners and their co-defendants are being railroaded out of
their rights and properties without due process of law, on the
strength of procedural technicalities adroitly planned by counsel and
seemingly unnoticed and undetected by respondent court, whose
orders, gauged by their tenor and the citations of supposedly
pertinent provisions and jurisprudence made therein, cannot be said
to have proceeded from utter lack of juridical knowledgeability and
competence.
–1–
The first thing that has struck the Court upon reviewing the record is
the seeming alacrity with which the motion to dismiss the case against
non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo
was disposed of, which definitely ought not to have been the case.
The trial was proceeding with the testimony of the first witness of
plaintiff and he was still under re-cross-examination. Undoubtedly,
the motion to dismiss at that stage and in the light of the declaration
of default against the rest of the defendants was a well calculated
surprise move, obviously designed to secure utmost advantage of the
situation, regardless of its apparent unfairness. To say that it must
have been entirely unexpected by all the defendants, defaulted and
non-defaulted , is merely to rightly assume that the parties in a judicial
proceeding can never be the victims of any procedural waylaying as
long as lawyers and judges are imbued with the requisite sense of
equity and justice.
But the situation here was aggravated by the indisputable fact that
the adverse parties who were entitled to be notified of such
unanticipated dismissal motion did not get due notice thereof.
Certainly, the non-defaulted defendants had the right to the three-
day prior notice required by Section 4 of Rule 15. How could they have
had such indispensable notice when the motion was set for hearing
on Monday, October 21, 1974, whereas the counsel for Lim Teck
Chuan, Atty. Sitoy was personally served with the notice only on
Saturday, October 19, 1974 and the counsel for Eng Chong Leonardo,
Atty. Alcudia, was notified by registered mail which was posted only
that same Saturday, October 19, 1974? According to Chief Justice
Moran, "three days at least must intervene between the date of
service of notice and the date set for the hearing, otherwise the court
may not validly act on the motion." (Comments on the Rules of Court
by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of
Section 4 of Rule 15. And in the instant case, there can be no question
that the notices to the non-defaulted defendants were short of the
requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what
is incomprehensible is the seeming inattention of respondent judge
to the explicit mandate of the pertinent rule, not to speak of the
imperatives of fairness, considering he should have realized the far-
reaching implications, specially from the point of view he
subsequently adopted, albeit erroneously, of his favorably acting on
it. Actually, he was aware of said consequences, for simultaneously
with his order of dismissal, he immediately set the case for the ex-
parte hearing of the evidence against the defaulted defendants,
which, incidentally, from the tenor of his order which We have quoted
above, appears to have been done by him motu propio As a matter of
fact, plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further
ignores or is inconsistent with a number of known juridical principles
concerning defaults, which We will here take occasion to reiterate
308 | P a g e
and further elucidate on, if only to avoid a repetition of the
unfortunate errors committed in this case. Perhaps some of these
principles have not been amply projected and elaborated before, and
such paucity of elucidation could be the reason why respondent judge
must have acted as he did. Still, the Court cannot but express its
vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and specific
warrant under the terms of existing rules or binding jurisprudence.
Extreme care must be the instant reaction of every judge when
confronted with a situation involving risks that the proceedings may
not be fair and square to all the parties concerned. Indeed, a keen
sense of fairness, equity and justice that constantly looks for
consistency between the letter of the adjective rules and these basic
principles must be possessed by every judge, If substance is to prevail,
as it must, over form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage on the part of any
litigant before it, is unworthy of any court of justice and equity.
Withal, only those rules and procedure informed, with and founded
on public policy deserve obedience in accord with their unequivocal
language or words..
Before proceeding to the discussion of the default aspects of this case,
however, it should not be amiss to advert first to the patent
incorrectness, apparent on the face of the record, of the
aforementioned order of dismissal of October 21, 1974 of the case
below as regards non-defaulted defendants Lim and Leonardo. While
it is true that said defendants are not petitioners herein, the Court
deems it necessary for a full view of the outrageous procedural
strategy conceived by respondent's counsel and sanctioned by
respondent court to also make reference to the very evident fact that
in ordering said dismissal respondent court disregarded completely
the existence of defendant's counterclaim which it had itself earlier
held if indirectly, to be compulsory in nature when it refused to
dismiss the same on the ground alleged by respondent Tan that he
docketing fees for the filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended
elaboration. As may be noted in the allegations hereof aforequoted,
it arose out of or is necessarily connected with the occurrence that is
the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely,
plaintiff's allegedly being the widow of the deceased Tee Hoon
entitled, as such, to demand accounting of and to receive the share of
her alleged late husband as partner of defendants Antonio Lim Tanhu
and Alfonso Leonardo Ng Sua in Glory Commercial Company, the
truth of which allegations all the defendants have denied. Defendants
maintain in their counterclaim that plaintiff knew of the falsity of said
allegations even before she filed her complaint, for she had in fact
admitted her common-law relationship with said deceased in a
document she had jointly executed with him by way of agreement to
terminate their illegitimate relationship, for which she received
P40,000 from the deceased, and with respect to her pretended share
in the capital and profits in the partnership, it is also defendants'
posture that she had already quitclaimed, with the assistance of able
counsel, whatever rights if any she had thereto in November, 1967,
for the sum of P25,000 duly receipted by her, which quitclaim was,
however, executed, according to respondent herself in her amended
complaint, through fraud. And having filed her complaint knowing,
according to defendants, as she ought to have known, that the
material allegations thereof are false and baseless, she has caused
them to suffer damages. Undoubtedly, with such allegations,
defendants' counterclaim is compulsory, not only because the same
evidence to sustain it will also refute the cause or causes of action
alleged in plaintiff's complaint, (Moran, supra p. 352) but also
because from its very nature, it is obvious that the same cannot
"remain pending for independent adjudication by the court." (Section
2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a
counterclaim has been pleaded by a defendant prior to the service
upon him of the plaintiff's motion to dismiss, the action shall not be
dismissed against the defendant's objection unless the counterclaim
can remain pending for independent adjudication by the court."
Defendants Lim and Leonardo had no opportunity to object to the
motion to dismiss before the order granting the same was issued, for
the simple reason that they were not opportunity notified of the
motion therefor, but the record shows clearly that at least defendant
Lim immediately brought the matter of their compulsory
counterclaim to the attention of the trial court in his motion for
reconsideration of October 23, 1974, even as the counsel for the
other defendant, Leonardo, predicated his motion on other grounds.
In its order of December 6, 1974, however, respondent court not only
upheld the plaintiffs supposed absolute right to choose her
adversaries but also held that the counterclaim is not compulsory,
thereby virtually making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration why the motion
to dismiss should not have been granted. As the plaintiff's complaint
has been framed, all the six defendants are charged with having
actually taken part in a conspiracy to misappropriate, conceal and
convert to their own benefit the profits, properties and all other
assets of the partnership Glory Commercial Company, to the extent
that they have allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from the
partnership. Upon such allegations, no judgment finding the
existence of the alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally possible
without the presence of all the defendants. The non-defaulted
defendants are alleged to be stockholders of the corporation and any
decision depriving the same of all its assets cannot but prejudice the
interests of said defendants. Accordingly, upon these premises, and
even prescinding from the other reasons to be discussed anon it is
clear that all the six defendants below, defaulted and non-defaulted,
are indispensable parties. Respondents could do no less than grant
that they are so on page 23 of their answer. Such being the case, the
questioned order of dismissal is exactly the opposite of what ought to
have been done. Whenever it appears to the court in the course of a
proceeding that an indispensable party has not been joined, it is the
duty of the court to stop the trial and to order the inclusion of such
party. (The Revised Rules of Court, Annotated & Commented by
Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez
vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the "general
rule with reference to the making of parties in a civil action requires
the joinder of all necessary parties wherever possible, and the joinder
of all indispensable parties under any and all conditions, the presence
of those latter being a sine qua non of the exercise of judicial power."
(Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely " when an
indispensable party is not before the court (that) the action should be
dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The
absence of an indispensable party renders all subsequent actuations
of the court null and void, for want of authority to act, not only as to
the absent parties but even as to those present. In short, what
309 | P a g e
respondent court did here was exactly the reverse of what the law
ordains — it eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier,
which resolved the motions for reconsideration of the dismissal order
filed by the non-defaulted defendants, His Honor rationalized his
position thus:
It is the rule that it is the absolute prerogative of the plaintiff to
choose, the theory upon which he predicates his right of action, or the
parties he desires to sue, without dictation or imposition by the court
or the adverse party. If he makes a mistake in the choice of his right
of action, or in that of the parties against whom he seeks to enforce
it, that is his own concern as he alone suffers therefrom. The plaintiff
cannot be compelled to choose his defendants, He may not, at his
own expense, be forced to implead anyone who, under the adverse
party's theory, is to answer for defendant's liability. Neither may the
Court compel him to furnish the means by which defendant may avoid
or mitigate their liability. (Vaño vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue
prosecuting her cause of action against the defendants-movants if in
the course of the trial she believes she can enforce it against the
remaining defendants subject only to the limitation provided in
Section 2, Rule 17 of the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology
as in plaintiff's motion of October 18, 1974 by referring to the action
he had taken as being "dismissal of the complaint against them or
their being dropped therefrom", without perceiving that the reason
for the evidently intentional ambiguity is transparent. The apparent
idea is to rely on the theory that under Section 11 of Rule 3, parties
may be dropped by the court upon motion of any party at any stage
of the action, hence "it is the absolute right prerogative of the plaintiff
to choose—the parties he desires to sue, without dictation or
imposition by the court or the adverse party." In other words, the
ambivalent pose is suggested that plaintiff's motion of October 18,
1974 was not predicated on Section 2 of Rule 17 but more on Section
11 of Rule 3. But the truth is that nothing can be more incorrect. To
start with, the latter rule does not comprehend whimsical and
irrational dropping or adding of parties in a complaint. What it really
contemplates is erroneous or mistaken non-joinder and misjoinder of
parties. No one is free to join anybody in a complaint in court only to
drop him unceremoniously later at the pleasure of the plaintiff. The
rule presupposes that the original inclusion had been made in the
honest conviction that it was proper and the subsequent dropping is
requested because it has turned out that such inclusion was a
mistake. And this is the reason why the rule ordains that the dropping
be "on such terms as are just" — just to all the other parties. In the
case at bar, there is nothing in the record to legally justify the
dropping of the non-defaulted defendants, Lim and Leonardo. The
motion of October 18, 1974 cites none. From all appearances, plaintiff
just decided to ask for it, without any relevant explanation at all.
Usually, the court in granting such a motion inquires for the reasons
and in the appropriate instances directs the granting of some form of
compensation for the trouble undergone by the defendant in
answering the complaint, preparing for or proceeding partially to trial,
hiring counsel and making corresponding expenses in the premises.
Nothing of these, appears in the order in question. Most importantly,
His Honor ought to have considered that the outright dropping of the
non-defaulted defendants Lim and Leonardo, over their objection at
that, would certainly be unjust not only to the petitioners, their own
parents, who would in consequence be entirely defenseless, but also
to Lim and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment against their
parents. Respondent court paid no heed at all to the mandate that
such dropping must be on such terms as are just" — meaning to all
concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order
of dismissal of October 21, 1974 as well as its order of December 6,
1974 denying reconsideration of such dismissal. As We make this
ruling, We are not oblivious of the circumstance that defendants Lim
and Leonardo are not parties herein. But such consideration is
inconsequential. The fate of the case of petitioners is inseparably tied
up with said order of dismissal, if only because the order of ex-
parte hearing of October 21, 1974 which directly affects and
prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We are to
decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing
further their questioning of the dismissal is from another point of view
understandable. On the one hand, why should they insist on being
defendants when plaintiff herself has already release from her
claims? On the other hand, as far as their respective parents-co-
defendants are concerned, they must have realized that they (their
parents) could even be benefited by such dismissal because they
could question whether or not plaintiff can still prosecute her case
against them after she had secured the order of dismissal in question.
And it is in connection with this last point that the true and correct
concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court
of Appeals of January 24, 1975 in G. R. No. SP-03066 dismissing the
petition for certiorari of non-defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974, has no bearing
at all in this case, not only because that dismissal was premised by the
appellate court on its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the motion of the
defendants of October 28, 1974 praying that said disputed order be
quashed, but principally because herein petitioners were not parties
in that proceeding and cannot, therefore, be bound by its result. In
particular, We deem it warranted to draw the attention of private
respondent's counsel to his allegations in paragraphs XI to XIV of his
answer, which relate to said decision of the Court of Appeals and
which have the clear tendency to make it appear to the Court that the
appeals court had upheld the legality and validity of the actuations of
the trial court being questioned, when as a matter of indisputable
fact, the dismissal of the petition was based solely and exclusively on
its being premature without in any manner delving into its merits. The
Court must and does admonish counsel that such manner of pleading,
being deceptive and lacking in candor, has no place in any court, much
less in the Supreme Court, and if We are adopting a passive attitude
in the premises, it is due only to the fact that this is counsel's first
offense. But similar conduct on his part in the future will definitely be
dealt with more severely. Parties and counsel would be well advised
to avoid such attempts to befuddle the issues as invariably then will
be exposed for what they are, certainly unethical and degrading to
the dignity of the law profession. Moreover, almost always they only
betray the inherent weakness of the cause of the party resorting to
them.
–2–
310 | P a g e
Coming now to the matter itself of default, it is quite apparent that
the impugned orders must have proceeded from inadequate
apprehension of the fundamental precepts governing such procedure
under the Rules of Court. It is time indeed that the concept of this
procedural device were fully understood by the bench and bar,
instead of being merely taken for granted as being that of a simple
expedient of not allowing the offending party to take part in the
proceedings, so that after his adversary shall have presented his
evidence, judgment may be rendered in favor of such opponent, with
hardly any chance of said judgment being reversed or modified.
The Rules of Court contain a separate rule on the subject of default,
Rule 18. But said rule is concerned solely with default resulting from
failure of the defendant or defendants to answer within the
reglementary period. Referring to the simplest form of default, that
is, where there is only one defendant in the action and he fails to
answer on time, Section 1 of the rule provides that upon "proof of
such failure, (the court shall) declare the defendant in default.
Thereupon the court shall proceed to receive the plaintiff's evidence
and render judgment granting him such relief as the complaint and
the facts proven may warrant." This last clause is clarified by Section
5 which says that "a judgment entered against a party in default shall
not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not
readily convey the full import of what they contemplate. To begin
with, contrary to the immediate notion that can be drawn from their
language, these provisions are not to be understood as meaning that
default or the failure of the defendant to answer should be
"interpreted as an admission by the said defendant that the plaintiff's
cause of action find support in the law or that plaintiff is entitled to
the relief prayed for." (Moran, supra, p. 535 citing Macondary & Co.
v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden,
41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga.
105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111. A. 163;
Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except
that of being heard and of presenting evidence in the trial court.
According to Section 2, "except as provided in Section 9 of Rule 13, a
party declared in default shall not be entitled to notice of subsequent
proceedings, nor to take part in the trial." That provision referred to
reads: "No service of papers other than substantially amended
pleadings and final orders or judgments shall be necessary on a party
in default unless he files a motion to set aside the order of default, in
which event he shall be entitled to notice of all further proceedings
regardless of whether the order of default is set aside or not." And
pursuant to Section 2 of Rule 41, "a party who has been declared in
default may likewise appeal from the judgment rendered against him
as contrary to the evidence or to the law, even if no petition for relief
to set aside the order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of
court. While in a sense it may be said that by defaulting he leaves
himself at the mercy of the court, the rules see to it that any judgment
against him must be in accordance with law. The evidence to support
the plaintiff's cause is, of course, presented in his absence, but the
court is not supposed to admit that which is basically incompetent.
Although the defendant would not be in a position to object,
elementary justice requires that, only legal evidence should be
considered against him. If the evidence presented should not be
sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it
cannot exceed in amount or be different in kind from what is prayed
for in the complaint.
Incidentally, these considerations argue against the present
widespread practice of trial judges, as was done by His Honor in this
case, of delegating to their clerks of court the reception of the
plaintiff's evidence when the defendant is in default. Such a Practice
is wrong in principle and orientation. It has no basis in any rule. When
a defendant allows himself to be declared in default, he relies on the
faith that the court would take care that his rights are not unduly
prejudiced. He has a right to presume that the law and the rules will
still be observed. The proceedings are held in his forced absence, and
it is but fair that the plaintiff should not be allowed to take advantage
of the situation to win by foul or illegal means or with inherently
incompetent evidence. Thus, in such instances, there is need for more
attention from the court, which only the judge himself can provide.
The clerk of court would not be in a position much less have the
authority to act in the premises in the manner demanded by the rules
of fair play and as contemplated in the law, considering his
comparably limited area of discretion and his presumably inferior
preparation for the functions of a judge. Besides, the default of the
defendant is no excuse for the court to renounce the opportunity to
closely observe the demeanor and conduct of the witnesses of the
plaintiff, the better to appreciate their truthfulness and credibility.
We therefore declare as a matter of judicial policy that there being no
imperative reason for judges to do otherwise, the practice should be
discontinued.
Another matter of practice worthy of mention at this point is that it is
preferable to leave enough opportunity open for possible lifting of the
order of default before proceeding with the reception of the plaintiff's
evidence and the rendition of the decision. "A judgment by default
may amount to a positive and considerable injustice to the defendant;
and the possibility of such serious consequences necessitates a
careful and liberal examination of the grounds upon which the
defendant may seek to set it aside." (Moran, supra p. 534, citing
Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression, therefore,
in Section 1 of Rule 18 aforequoted which says that "thereupon the
court shall proceed to receive the plaintiff's evidence etc." is not to be
taken literally. The gain in time and dispatch should the court
immediately try the case on the very day of or shortly after the
declaration of default is far outweighed by the inconvenience and
complications involved in having to undo everything already done in
the event the defendant should justify his omission to answer on
time.
The foregoing observations, as may be noted, refer to instances
where the only defendant or all the defendants, there being several,
are declared in default. There are additional rules embodying more
considerations of justice and equity in cases where there are several
defendants against whom a common cause of action is averred and
not all of them answer opportunely or are in default, particularly in
reference to the power of the court to render judgment in such
situations. Thus, in addition to the limitation of Section 5 that the
judgment by default should not be more in amount nor different in
kind from the reliefs specifically sought by plaintiff in his complaint,
Section 4 restricts the authority of the court in rendering judgment in
the situations just mentioned as follows:
311 | P a g e
Sec. 4. Judgment when some defendants answer, and other make
difficult. — When a complaint states a common cause of action
against several defendant some of whom answer, and the others fail
to do so, the court shall try the case against all upon the answer thus
filed and render judgment upon the evidence presented. The same
proceeding applies when a common cause of action is pleaded in a
counterclaim, cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and
the controlling jurisprudence explanatory thereof this wise:
Where a complaint states a common cause of action against several
defendants and some appear to defend the case on the merits while
others make default, the defense interposed by those who appear to
litigate the case inures to the benefit of those who fail to appear, and
if the court finds that a good defense has been made, all of the
defendants must be absolved. In other words, the answer filed by one
or some of the defendants inures to the benefit of all the others, even
those who have not seasonably filed their answer. (Bueno v. Ortiz, L-
22978, June 27, 1968, 23 SCRA 1151.) The proper mode of proceeding
where a complaint states a common cause of action against several
defendants, and one of them makes default, is simply to enter a
formal default order against him, and proceed with the cause upon
the answers of the others. The defaulting defendant merely loses his
standing in court, he not being entitled to the service of notice in the
cause, nor to appear in the suit in any way. He cannot adduce
evidence; nor can he be heard at the final hearing, (Lim Toco v. Go
Fay, 80 Phil. 166.) although he may appeal the judgment rendered
against him on the merits. (Rule 41, sec. 2.) If the case is finally
decided in the plaintiff's favor, a final decree is then entered against
all the defendants; but if the suit should be decided against the
plaintiff, the action will be dismissed as to all the defendants alike.
(Velez v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21
L. Ed. 60.) In other words the judgment will affect the defaulting
defendants either favorably or adversely. (Castro v. Peña, 80 Phil.
488.)
Defaulting defendant may ask execution if judgment is in his favor.
(Castro v. Peña, supra.) (Moran, Rules of Court, Vol. 1, pp. 538-539.)
In Castro vs. Peña, 80 Phil. 488, one of the numerous cases cited by
Moran, this Court elaborated on the construction of the same rule
when it sanctioned the execution, upon motion and for the benefit of
the defendant in default, of a judgment which was adverse to the
plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a
movant in the petition for execution Annex 1. Did she have a right to
be such, having been declared in default? In Frow vs. De la
Vega, supra, cited as authority in Velez vs. Ramas, supra, the
Supreme Court of the United States adopted as ground for its own
decision the following ruling of the New York Court of Errors in Clason
vs. Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant had
made default, the plaintiff should have a decree even against him,
where the court is satisfied from the proofs offered by the other, that
in fact the plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint
stating a common cause of action against several defendants, the
complainant's rights — or lack of them — in the controversy have to
be the same, and not different, as against all the defendant's although
one or some make default and the other or others appear, join issue,
and enter into trial. For instance, in the case of Clason vs.
Morris above cited, the New York Court of Errors in effect held that in
such a case if the plaintiff is not entitled to a decree, he will not be
entitled to it, not only as against the defendant appearing and
resisting his action but also as against the one who made default. In
the case at bar, the cause of action in the plaintiff's complaint was
common against the Mayor of Manila, Emilia Matanguihan, and the
other defendants in Civil Case No. 1318 of the lower court. The Court
of First Instance in its judgment found and held upon the evidence
adduced by the plaintiff and the defendant mayor that as between
said plaintiff and defendant Matanguihan the latter was the one
legally entitled to occupy the stalls; and it decreed, among other
things, that said plaintiff immediately vacate them. Paraphrasing the
New York Court of Errors, it would be unreasonable to hold now that
because Matanguihan had made default, the said plaintiff should be
declared, as against her, legally entitled to the occupancy of the stalls,
or to remain therein, although the Court of First Instance was so firmly
satisfied, from the proofs offered by the other defendant, that the
same plaintiff was not entitled to such occupancy that it peremptorily
ordered her to vacate the stalls. If in the cases of Clason vs. Morris,
supra, Frow vs. De la Vega, supra, and Velez vs. Ramas, supra the
decrees entered inured to the benefit of the defaulting defendants,
there is no reason why that entered in said case No. 1318 should not
be held also to have inured to the benefit of the defaulting defendant
Matanguihan and the doctrine in said three cases plainly implies that
there is nothing in the law governing default which would prohibit the
court from rendering judgment favorable to the defaulting defendant
in such cases. If it inured to her benefit, it stands to reason that she
had a right to claim that benefit, for it would not be a benefit if the
supposed beneficiary were barred from claiming it; and if the benefit
necessitated the execution of the decree, she must be possessed of
the right to ask for the execution thereof as she did when she, by
counsel, participated in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the above
considerations. It provides that when a complaint states a common
cause of action against several defendants, some of whom answer,
and the others make default, 'the court shall try the case against all
upon the answer thus filed and render judgment upon the evidence
presented by the parties in court'. It is obvious that under this
provision the case is tried jointly not only against the defendants
answering but also against those defaulting, and the trial is held upon
the answer filed by the former; and the judgment, if adverse, will
prejudice the defaulting defendants no less than those who answer.
In other words, the defaulting defendants are held bound by the
answer filed by their co-defendants and by the judgment which the
court may render against all of them. By the same token, and by all
rules of equity and fair play, if the judgment should happen to be
favorable, totally or partially, to the answering defendants, it must
correspondingly benefit the defaulting ones, for it would not be just
to let the judgment produce effects as to the defaulting defendants
only when adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision
under discussion in the following words:
In answer to the charge that respondent Judge had committed a grave
abuse of discretion in rendering a default judgment against the PC,
respondents allege that, not having filed its answer within the
reglementary period, the PC was in default, so that it was proper for
312 | P a g e
Patanao to forthwith present his evidence and for respondent Judge
to render said judgment. It should be noted, however, that in entering
the area in question and seeking to prevent Patanao from continuing
his logging operations therein, the PC was merely executing an order
of the Director of Forestry and acting as his agent. Patanao's cause of
action against the other respondents in Case No. 190, namely, the
Director of Forestry, the District Forester of Agusan, the Forest Officer
of Bayugan, Agusan, and the Secretary of Agriculture and Natural
Resources. Pursuant to Rule 18, Section 4, of the Rules of Court, 'when
a complaint states a common cause of action against several
defendants some of whom answer and the others fail to do so, the
court shall try the case against all upon the answer thus filed (by
some) and render judgment upon the evidence presented.' In other
words, the answer filed by one or some of the defendants inures to
the benefit of all the others, even those who have not seasonably filed
their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause
of action against all of the respondents therein, a decision in favor of
one of them would necessarily favor the others. In fact, the main
issue, in said case, is whether Patanao has a timber license to
undertake logging operations in the disputed area. It is not possible
to decide such issue in the negative, insofar as the Director of
Forestry, and to settle it otherwise, as regards the PC, which is merely
acting as agent of the Director of Forestry, and is, therefore, his alter
ego, with respect to the disputed forest area.
Stated differently, in all instances where a common cause of action is
alleged against several defendants, some of whom answer and the
others do not, the latter or those in default acquire a vested right not
only to own the defense interposed in the answer of their co-
defendant or co-defendants not in default but also to expect a result
of the litigation totally common with them in kind and in amount
whether favorable or unfavorable. The substantive unity of the
plaintiff's cause against all the defendants is carried through to its
adjective phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness of the cause
of action also inevitably implies that all the defendants are
indispensable parties, the court's power to act is integral and cannot
be split such that it cannot relieve any of them and at the same time
render judgment against the rest. Considering the tenor of the section
in question, it is to be assumed that when any defendant allows
himself to be declared in default knowing that his defendant has
already answered, he does so trusting in the assurance implicit in the
rule that his default is in essence a mere formality that deprives him
of no more than the right to take part in the trial and that the court
would deem anything done by or for the answering defendant as
done by or for him. The presumption is that otherwise he would not -
have seen to that he would not be in default. Of course, he has to
suffer the consequences of whatever the answering defendant may
do or fail to do, regardless of possible adverse consequences, but if
the complaint has to be dismissed in so far as the answering
defendant is concerned it becomes his inalienable right that the same
be dismissed also as to him. It does not matter that the dismissal is
upon the evidence presented by the plaintiff or upon the latter's mere
desistance, for in both contingencies, the lack of sufficient legal basis
must be the cause. The integrity of the common cause of action
against all the defendants and the indispensability of all of them in
the proceedings do not permit any possibility of waiver of the
plaintiff's right only as to one or some of them, without including all
of them, and so, as a rule, withdrawal must be deemed to be a
confession of weakness as to all. This is not only elementary justice; it
also precludes the concomitant hazard that plaintiff might resort to
the kind of procedural strategem practiced by private respondent
herein that resulted in totally depriving petitioners of every
opportunity to defend themselves against her claims which, after all,
as will be seen later in this opinion, the record does not show to be
invulnerable, both in their factual and legal aspects, taking into
consideration the tenor of the pleadings and the probative value of
the competent evidence which were before the trial court when it
rendered its assailed decision where all the defendants are
indispensable parties, for which reason the absence of any of them in
the case would result in the court losing its competency to act validly,
any compromise that the plaintiff might wish to make with any of
them must, as a matter of correct procedure, have to await until after
the rendition of the judgment, at which stage the plaintiff may then
treat the matter of its execution and the satisfaction of his claim as
variably as he might please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the non-
defaulted defendants, the court should have ordered also the
dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and
indivisibility of the action just discussed because all the defendants
here have already joined genuine issues with plaintiff. Their default
was only at the pre-trial. And as to such absence of petitioners at the
pre-trial, the same could be attributed to the fact that they might not
have considered it necessary anymore to be present, since their
respective children Lim and Leonardo, with whom they have common
defenses, could take care of their defenses as well. Anything that
might have had to be done by them at such pre-trial could have been
done for them by their children, at least initially, specially because in
the light of the pleadings before the court, the prospects of a
compromise must have appeared to be rather remote. Such attitude
of petitioners is neither uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and irrevocably in
default was not an absolute necessity. Practical considerations and
reasons of equity should have moved respondent court to be more
understanding in dealing with the situation. After all, declaring them
in default as respondent court did not impair their right to a common
fate with their children.
–3–
Another issue to be resolved in this case is the question of whether or
not herein petitioners were entitled to notice of plaintiff's motion to
drop their co-defendants Lim and Leonardo, considering that
petitioners had been previously declared in default. In this
connection, the decisive consideration is that according to the
applicable rule, Section 9, Rule 13, already quoted above, (1) even
after a defendant has been declared in default, provided he "files a
motion to set aside the order of default, — he shall be entitled to
notice of all further proceedings regardless of whether the order of
default is set aside or not" and (2) a party in default who has not filed
such a motion to set aside must still be served with all "substantially
amended or supplemented pleadings." In the instant case, it cannot
be denied that petitioners had all filed their motion for
reconsideration of the order declaring them in default. Respondents'
own answer to the petition therein makes reference to the order of
April 3, 1973, Annex 8 of said answer, which denied said motion for
reconsideration. On page 3 of petitioners' memorandum herein this
motion is referred to as "a motion to set aside the order of default."
313 | P a g e
But as We have not been favored by the parties with a copy of the
said motion, We do not even know the excuse given for petitioners'
failure to appear at the pre-trial, and We cannot, therefore,
determine whether or not the motion complied with the
requirements of Section 3 of Rule 18 which We have held to be
controlling in cases of default for failure to answer on time. (The
Philippine-British Co. Inc. etc. et al. vs. The Hon. Walfrido de los
Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for
failure to answer but one for failure to appear at the pre-trial. We
reiterate, in the situation now before Us, issues have already been
joined. In fact, evidence had been partially offered already at the pre-
trial and more of it at the actual trial which had already begun with
the first witness of the plaintiff undergoing re-cross-examination.
With these facts in mind and considering that issues had already been
joined even as regards the defaulted defendants, it would be
requiring the obvious to pretend that there was still need for an oath
or a verification as to the merits of the defense of the defaulted
defendants in their motion to reconsider their default. Inasmuch as
none of the parties had asked for a summary judgment there can be
no question that the issues joined were genuine, and consequently,
the reason for requiring such oath or verification no longer holds.
Besides, it may also be reiterated that being the parents of the non-
defaulted defendants, petitioners must have assumed that their
presence was superfluous, particularly because the cause of action
against them as well as their own defenses are common. Under these
circumstances, the form of the motion by which the default was
sought to be lifted is secondary and the requirements of Section 3 of
Rule 18 need not be strictly complied with, unlike in cases of default
for failure to answer. We can thus hold as We do hold for the purposes
of the revival of their right to notice under Section 9 of Rule 13, that
petitioner's motion for reconsideration was in substance legally
adequate regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from
plaintiff's amended complaint was virtually a second amendment of
plaintiffs complaint. And there can be no doubt that such amendment
was substantial, for with the elimination thereby of two defendants
allegedly solidarily liable with their co-defendants, herein petitioners,
it had the effect of increasing proportionally what each of the
remaining defendants, the said petitioners, would have to answer for
jointly and severally. Accordingly, notice to petitioners of the
plaintiff's motion of October 18, 1974 was legally indispensable under
the rule above-quoted. Consequently, respondent court had no
authority to act on the motion, to dismiss, pursuant to Section 6 of
Rule 15, for according to Senator Francisco, "(t) he Rules of Court
clearly provide that no motion shall be acted upon by the Court
without the proof of service of notice thereof, together with a copy of
the motion and other papers accompanying it, to all parties
concerned at least three days before the hearing thereof, stating the
time and place for the hearing of the motion. (Rule 26, section 4, 5
and 6, Rules of Court (now Sec. 15, new Rules). When the motion does
not comply with this requirement, it is not a motion. It presents no
question which the court could decide. And the Court acquires no
jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36,
citing Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44
Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised
Rules of Court in the Philippines, pp. 861-862.) Thus, We see again,
from a different angle, why respondent court's order of dismissal of
October 21, 1974 is fatally ineffective.
–4–
The foregoing considerations notwithstanding, it is respondents'
position that certiorari is not the proper remedy of petitioners. It is
contended that inasmuch as said petitioners have in fact made their
appeal already by filing the required notice of appeal and appeal bond
and a motion for extension to file their record on appeal, which
motion was granted by respondent court, their only recourse is to
prosecute that appeal. Additionally, it is also maintained that since
petitioners have expressly withdrawn their motion to quash of
January 4, 1975 impugning the order of October 28, 1974, they have
lost their right to assail by certiorari the actuations of respondent
court now being questioned, respondent court not having been given
the opportunity to correct any possible error it might have
committed.
We do not agree. As already shown in the foregoing discussion, the
proceedings in the court below have gone so far out of hand that
prompt action is needed to restore order in the entangled situation
created by the series of plainly illegal orders it had issued. The
essential purpose of certiorari is to keep the proceedings in lower
judicial courts and tribunals within legal bounds, so that due process
and the rule of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may immediately be
stamped out before graver injury, juridical and otherwise, ensues.
While generally these objectives may well be attained in an ordinary
appeal, it is undoubtedly the better rule to allow the special remedy
of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far reaching
in its consequences that the long and cumbersome procedure of
appeal will only further aggravate the situation of the aggrieved party
because other untoward actuations are likely to materialize as natural
consequences of those already perpetrated. If the law were
otherwise, certiorari would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for
corrective measures in the case at bar. Verily, this is one case that calls
for the exercise of the Supreme Court's inherent power of supervision
over all kinds of judicial actions of lower courts. Private respondent's
procedural technique designed to disable petitioners to defend
themselves against her claim which appears on the face of the record
itself to be at least highly controversial seems to have so fascinated
respondent court that none would be surprised should her pending
motion for immediate execution of the impugned judgment receive
similar ready sanction as her previous motions which turned the
proceedings into a one-sided affair. The stakes here are high. Not only
is the subject matter considerably substantial; there is the more
important aspect that not only the spirit and intent of the rules but
even the basic rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of the proceedings
below would be nothing short of wittingly condoning inequity and
injustice resulting from erroneous construction and unwarranted
application of procedural rules.
–5–
The sum and total of all the foregoing disquisitions is that the decision
here in question is legally anomalous. It is predicated on two fatal
malactuations of respondent court namely (1) the dismissal of the
314 | P a g e
complaint against the non-defaulted defendants Lim and Leonardo
and (2) the ex-parte reception of the evidence of the plaintiff by the
clerk of court, the subsequent using of the same as basis for its
judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed
above, the order of dismissal of October 21, 1974 is unworthy of Our
sanction: (1) there was no timely notice of the motion therefor to the
non-defaulted defendants, aside from there being no notice at all to
herein petitioners; (2) the common answer of the defendants,
including the non-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the two non-
defaulted defendants as parties, and inasmuch as they are both
indispensable parties in the case, the court consequently lost the"
sine qua non of the exercise of judicial power", per Borlasa vs.
Polistico, supra. This is not to mention anymore the irregular
delegation to the clerk of court of the function of receiving plaintiff's
evidence. And as regards the ex-parte reception of plaintiff's evidence
and subsequent rendition of the judgment by default based thereon,
We have seen that it was violative of the right of the petitioners,
under the applicable rules and principles on default, to a common and
single fate with their non-defaulted co-defendants. And We are not
yet referring, as We shall do this anon to the numerous reversible
errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental
flaws in respondent court's actuations do not call for a common
corrective remedy. We cannot simply rule that all the impugned
proceedings are null and void and should be set aside, without being
faced with the insurmountable obstacle that by so doing We would
be reviewing the case as against the two non-defaulted defendants
who are not before Us not being parties hereto. Upon the other hand,
for Us to hold that the order of dismissal should be allowed to stand,
as contended by respondents themselves who insist that the same is
already final, not only because the period for its finality has long
passed but also because allegedly, albeit not very accurately, said
'non-defaulted defendants unsuccessfully tried to have it set aside by
the Court of Appeals whose decision on their petition is also already
final, We would have to disregard whatever evidence had been
presented by the plaintiff against them and, of course, the findings of
respondent court based thereon which, as the assailed decision
shows, are adverse to them. In other words, whichever of the two
apparent remedies the Court chooses, it would necessarily entail
some kind of possible juridical imperfection. Speaking of their
respective practical or pragmatic effects, to annul the dismissal would
inevitably prejudice the rights of the non-defaulted defendants whom
We have not heard and who even respondents would not wish to
have anything anymore to do with the case. On the other hand, to
include petitioners in the dismissal would naturally set at naught
every effort private respondent has made to establish or prove her
case thru means sanctioned by respondent court. In short, We are
confronted with a legal para-dilemma. But one thing is certain — this
difficult situations has been brought about by none other than private
respondent who has quite cynically resorted to procedural
maneuvers without realizing that the technicalities of the adjective
law, even when apparently accurate from the literal point of view,
cannot prevail over the imperatives of the substantive law and of
equity that always underlie them and which have to be inevitably
considered in the construction of the pertinent procedural rules.
All things considered, after careful and mature deliberation, the Court
has arrived at the conclusion that as between the two possible
alternatives just stated, it would only be fair, equitable and proper to
uphold the position of petitioners. In other words, We rule that the
order of dismissal of October 21, 1974 is in law a dismissal of the
whole case of the plaintiff, including as to petitioners herein.
Consequently, all proceedings held by respondent court subsequent
thereto including and principally its decision of December 20, 1974
are illegal and should be set aside.
This conclusion is fully justified by the following considerations of
equity:
1. It is very clear to Us that the procedural maneuver resorted to by
private respondent in securing the decision in her favor was ill-
conceived. It was characterized by that which every principle of law
and equity disdains — taking unfair advantage of the rules of
procedure in order to unduly deprive the other party of full
opportunity to defend his cause. The idea of "dropping" the non-
defaulted defendants with the end in view of completely
incapacitating their co-defendants from making any defense, without
considering that all of them are indispensable parties to a common
cause of action to which they have countered with a common defense
readily connotes an intent to secure a one-sided decision, even
improperly. And when, in this connection, the obvious weakness of
plaintiff's evidence is taken into account, one easily understands why
such tactics had to be availed of. We cannot directly or indirectly give
Our assent to the commission of unfairness and inequity in the
application of the rules of procedure, particularly when the propriety
of reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private respondents,
although approved by His Honor, run counter to such basic principles
in the rules on default and such elementary rules on dismissal of
actions and notice of motions that no trial court should be unaware
of or should be mistaken in applying. We are at a loss as to why His
Honor failed to see through counsel's inequitous strategy, when the
provisions (1) on the three-day rule on notice of motions, Section 4 of
Rule 15, (2) against dismissal of actions on motion of plaintiff when
there is a compulsory counterclaim, Section 2, Rule 17, (3) against
permitting the absence of indispensable parties, Section 7, Rule 3, (4)
on service of papers upon defendants in default when there are
substantial amendments to pleadings, Section 9, Rule 13, and (5) on
the unity and integrity of the fate of defendants in default with those
not in default where the cause of action against them and their own
defenses are common, Section 4, Rule 18, are so plain and the
jurisprudence declaratory of their intent and proper construction are
so readily comprehensible that any error as to their application would
be unusual in any competent trial court.
3. After all, all the malactuations of respondent court are traceable to
the initiative of private respondent and/or her counsel. She cannot,
therefore, complain that she is being made to unjustifiably suffer the
consequences of what We have found to be erroneous orders of
respondent court. It is only fair that she should not be allowed to
benefit from her own frustrated objective of securing a one-sided
decision.
4. More importantly, We do not hesitate to hold that on the basis of
its own recitals, the decision in question cannot stand close scrutiny.
What is more, the very considerations contained therein reveal
convincingly the inherent weakness of the cause of the plaintiff. To be
315 | P a g e
sure, We have been giving serious thought to the idea of merely
returning this case for a resumption of trial by setting aside the order
of dismissal of October 21, 1974, with all its attendant difficulties on
account of its adverse effects on parties who have not been heard,
but upon closer study of the pleadings and the decision and other
circumstances extant in the record before Us, We are now persuaded
that such a course of action would only lead to more legal
complications incident to attempts on the part of the parties
concerned to desperately squeeze themselves out of a bad situation.
Anyway, We feel confident that by and large, there is enough basis
here and now for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately
reveal that it is littered on its face with deficiencies and imperfections
which would have had no reason for being were there less haste and
more circumspection in rendering the same. Recklessness in jumping
to unwarranted conclusions, both factual and legal, is at once evident
in its findings relative precisely to the main bases themselves of the
reliefs granted. It is apparent therein that no effort has been made to
avoid glaring inconsistencies. Where references are made to codal
provisions and jurisprudence, inaccuracy and inapplicability are at
once manifest. It hardly commends itself as a deliberate and
consciencious adjudication of a litigation which, considering the
substantial value of the subject matter it involves and the
unprecedented procedure that was followed by respondent's
counsel, calls for greater attention and skill than the general run of
cases would.
Inter alia, the following features of the decision make it highly
improbable that if We took another course of action, private
respondent would still be able to make out any case against
petitioners, not to speak of their co-defendants who have already
been exonerated by respondent herself thru her motion to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is
the widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who
was then one of the partners in the commercial partnership, Glory
Commercial Co. with defendants Antonio Lim Tanhu (Lim Tanhu, for
short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners;
that after the death of her husband on March 11, 1966 she is entitled
to share not only in the capital and profits of the partnership but also
in the other assets, both real and personal, acquired by the
partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the
following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan
married at the Philippine Independent Church of Cebu City on
December, 20, 1949; that Po Chuan died on March 11, 1966; that the
plaintiff and the late Po Chuan were childless but the former has a
foster son Antonio Nuñez whom she has reared since his birth with
whom she lives up to the present; that prior to the marriage of the
plaintiff to Po Chuan the latter was already managing the partnership
Glory Commercial Co. then engaged in a little business in hardware at
Manalili St., Cebu City; that prior to and just after the marriage of the
plaintiff to Po Chuan she was engaged in the drugstore business; that
not long after her marriage, upon the suggestion of Po Chuan the
plaintiff sold her drugstore for P125,000.00 which amount she gave
to her husband in the presence of defendant Lim Tanhu and was
invested in the partnership Glory Commercial Co. sometime in 1950;
that after the investment of the above-stated amount in the
partnership its business flourished and it embarked in the import
business and also engaged in the wholesale and retail trade of cement
and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co. he was the one who
made the final decisions and approved the appointments of new
personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter
two (2) being the elder brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized Filipino citizens whereas the
late Po Chuan until the time of his death was a Chinese citizen; that
the three (3) brothers were partners in the Glory Commercial Co. but
Po Chuan was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere employees of Po Chuan .... (Pp.
89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not
clear in the decision whether or not in making its findings of fact the
court took into account the allegations in the pleadings of the parties
and whatever might have transpired at the pre-trial. All that We can
gather in this respect is that references are made therein to pre-trial
exhibits and to Annex A of the answer of the defendants to plaintiff's
amended complaint. Indeed, it was incumbent upon the court to
consider not only the evidence formally offered at the trial but also
the admissions, expressed or implied, in the pleadings, as well as
whatever might have been placed before it or brought to its attention
during the pre-trial. In this connection, it is to be regretted that none
of the parties has thought it proper to give Us an idea of what took
place at the pre-trial of the present case and what are contained in
the pre-trial order, if any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties
every opportunity to compromise or settle their differences, is for the
court to be apprised of the unsettled issues between the parties and
of their respective evidence relative thereto, to the end that it may
take corresponding measures that would abbreviate the trial as much
as possible and the judge may be able to ascertain the facts with the
least observance of technical rules. In other words whatever is said or
done by the parties or their counsel at the pre- trial serves to put the
judge on notice of their respective basic positions, in order that in
appropriate cases he may, if necessary in the interest of justice and a
more accurate determination of the facts, make inquiries about or
require clarifications of matters taken up at the pre-trial, before
finally resolving any issue of fact or of law. In brief, the pre-trial
constitutes part and parcel of the proceedings, and hence, matters
dealt with therein may not be disregarded in the process of decision
making. Otherwise, the real essence of compulsory pre-trial would be
insignificant and worthless.
Now, applying these postulates to the findings of respondent court
just quoted, it will be observed that the court's conclusion about the
supposed marriage of plaintiff to the deceased Tee Hoon Lim Po
Chuan is contrary to the weight of the evidence brought before it
during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting
parties that they take each other as husband and wife "shall be set
forth in an instrument" signed by the parties as well as by their
316 | P a g e
witnesses and the person solemnizing the marriage. Accordingly, the
primary evidence of a marriage must be an authentic copy of the
marriage contract. While a marriage may also be proved by other
competent evidence, the absence of the contract must first be
satisfactorily explained. Surely, the certification of the person who
allegedly solemnized a marriage is not admissible evidence of such
marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the
court. In the case at bar, the purported certification issued by a Mons.
Jose M. Recoleto, Bishop, Philippine Independent Church, Cebu City,
is not, therefore, competent evidence, there being absolutely no
showing as to unavailability of the marriage contract and, indeed, as
to the authenticity of the signature of said certifier, the jurat allegedly
signed by a second assistant provincial fiscal not being authorized by
law, since it is not part of the functions of his office. Besides, inasmuch
as the bishop did not testify, the same is hearsay.
As regards the testimony of plaintiff herself on the same point and
that of her witness Antonio Nuñez, there can be no question that they
are both self-serving and of very little evidentiary value, it having been
disclosed at the trial that plaintiff has already assigned all her rights in
this case to said Nuñez, thereby making him the real party in interest
here and, therefore, naturally as biased as herself. Besides, in the
portion of the testimony of Nuñez copied in Annex C of petitioner's
memorandum, it appears admitted that he was born only on March
25, 1942, which means that he was less than eight years old at the
supposed time of the alleged marriage. If for this reason alone, it is
extremely doubtful if he could have been sufficiently aware of such
event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to
be the certificate of birth of one Antonio T. Uy supposed to have been
born on March 23, 1937 at Centro Misamis, Misamis Occidental, the
son of one Uy Bien, father, and Tan Put, mother. Significantly,
respondents have not made any adverse comment on this document.
It is more likely, therefore, that the witness is really the son of plaintiff
by her husband Uy Kim Beng. But she testified she was childless. So
which is which? In any event, if on the strength of this document,
Nuñez is actually the legitimate son of Tan Put and not her adopted
son, he would have been but 13 years old in 1949, the year of her
alleged marriage to Po Chuan, and even then, considering such age,
his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before
it, two documents of great weight belying the pretended marriage.
We refer to (1) Exhibit LL, the income tax return of the deceased Tee
Hoon Lim Po Chuan indicating that the name of his wife was Ang Sick
Tin and (2) the quitclaim, Annex A of the answer, wherein plaintiff Tan
Put stated that she had been living with the deceased without benefit
of marriage and that she was his "common-law wife". Surely, these
two documents are far more reliable than all the evidence of the
plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence.
But it is evidence offered to the judge himself, not to the clerk of
court, and should have at least moved him to ask plaintiff to explain
if not rebut it before jumping to the conclusion regarding her alleged
marriage to the deceased, Po Chuan. And in regard to the quitclaim
containing the admission of a common-law relationship only, it is to
be observed that His Honor found that "defendants Lim Tanhu and Ng
Sua had the plaintiff execute a quitclaim on November 29, 1967
(Annex "A", Answer) where they gave plaintiff the amount of P25,000
as her share in the capital and profits of the business of Glory
Commercial Co. which was engaged in the hardware business",
without making mention of any evidence of fraud and
misrepresentation in its execution, thereby indicating either that no
evidence to prove that allegation of the plaintiff had been presented
by her or that whatever evidence was actually offered did not
produce persuasion upon the court. Stated differently, since the
existence of the quitclaim has been duly established without any
circumstance to detract from its legal import, the court should have
held that plaintiff was bound by her admission therein that she was
the common-law wife only of Po Chuan and what is more, that she
had already renounced for valuable consideration whatever claim she
might have relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these
considerations, there are mentioned and discussed in the
memorandum of petitioners (1) the certification of the Local Civil
Registrar of Cebu City and (2) a similar certification of the Apostolic
Prefect of the Philippine Independent Church, Parish of Sto. Niño,
Cebu City, that their respective official records corresponding to
December 1949 to December 1950 do not show any marriage
between Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now, it stands
to reason that plaintiff's claim of marriage is really unfounded. Withal,
there is still another document, also mentioned and discussed in the
same memorandum and unimpugned by respondents, a written
agreement executed in Chinese, but purportedly translated into
English by the Chinese Consul of Cebu, between Tan Put and Tee Hoon
Lim Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with
Mr. Lim Po Chuan alias TeeHoon since 1949 but it recently occurs that
we are incompatible with each other and are not in the position to
keep living together permanently. With the mutual concurrence, we
decided to terminate the existing relationship of common law-
marriage and promised not to interfere each other's affairs from now
on. The Forty Thousand Pesos (P40,000.00) has been given to me by
Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic
of China (corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to
the deceased was that of a common-law wife but that they had
settled their property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no alternative but to
hold that plaintiff Tan Put's allegation that she is the widow of Tee
Hoon Lim Po Chuan has not been satisfactorily established and that,
on the contrary, the evidence on record convincingly shows that her
relation with said deceased was that of a common-law wife and
furthermore, that all her claims against the company and its surviving
317 | P a g e
partners as well as those against the estate of the deceased have
already been settled and paid. We take judicial notice of the fact that
the respective counsel who assisted the parties in the quitclaim, Attys.
H. Hermosisima and Natalio Castillo, are members in good standing
of the Philippine Bar, with the particularity that the latter has been a
member of the Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they had allowed
themselves to be parties to a fraudulent document His Honor did right
in recognizing its existence, albeit erring in not giving due legal
significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as
legitimate wife of Po Chuan is not only unconvincing but has been
actually overcome by the more competent and weighty evidence in
favor of the defendants, her attempt to substantiate her main cause
of action that defendants Lim Tanhu and Ng Sua have defrauded the
partnership Glory Commercial Co. and converted its properties to
themselves is even more dismal. From the very evidence summarized
by His Honor in the decision in question, it is clear that not an iota of
reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is
actually admitted impliedly in defendants' affirmative defense that Po
Chuan's share had already been duly settled with and paid to both the
plaintiff and his legitimate family. But the evidence as to the actual
participation of the defendants Lim Tanhu and Ng Sua in the
operation of the business that could have enabled them to make the
extractions of funds alleged by plaintiff is at best confusing and at
certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow
of Po Chuan she is entitled to ¹/3 share of the assets and properties of
the partnership. In fact, her prayer in said complaint is, among others,
for the delivery to her of such ¹/3 share. His Honor's statement of the
case as well as his findings and judgment are all to that same effect.
But what did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of
her own when she "married" Po Chuan and "that prior to and just
after the marriage of the plaintiff to Po Chuan, she was engaged in the
drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000
which amount she gave to her husband in the presence of Tanhu and
was invested in the partnership Glory Commercial Co. sometime in
1950; that after the investment of the above-stated amount in the
partnership, its business flourished and it embarked in the import
business and also engaged in the wholesale and retail trade of cement
and GI sheets and under (sic) huge profits." (pp. 25-26, Annex L,
petition.)
To begin with, this theory of her having contributed of P125,000 to
the capital of the partnership by reason of which the business
flourished and amassed all the millions referred to in the decision has
not been alleged in the complaint, and inasmuch as what was being
rendered was a judgment by default, such theory should not have
been allowed to be the subject of any evidence. But inasmuch as it
was the clerk of court who received the evidence, it is understandable
that he failed to observe the rule. Then, on the other hand, if it was
her capital that made the partnership flourish, why would she claim
to be entitled to only to ¹/3 of its assets and profits? Under her theory
found proven by respondent court, she was actually the owner of
everything, particularly because His Honor also found "that
defendants Lim Tanhu and Ng Sua were partners in the name but they
were employees of Po Chuan that defendants Lim Tanhu and Ng Sua
had no means of livelihood at the time of their employment with the
Glory Commercial Co. under the management of the late Po Chuan
except their salaries therefrom; ..." (p. 27, id.) Why then does she
claim only ¹/3 share? Is this an indication of her generosity towards
defendants or of a concocted cause of action existing only in her
confused imagination engendered by the death of her common-law
husband with whom she had settled her common-law claim for
recompense of her services as common law wife for less than what
she must have known would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was
confused as to the participation of defendants Lim Tanhu and Ng Sua
in Glory Commercial Co. At one point, they were deemed partners, at
another point mere employees and then elsewhere as partners-
employees, a newly found concept, to be sure, in the law on
partnership. And the confusion is worse comfounded in the judgment
which allows these "partners in name" and "partners-employees" or
employees who had no means of livelihood and who must not have
contributed any capital in the business, "as Po Chuan was practically
the owner of the partnership having the controlling interest", ¹/3 each
of the huge assets and profits of the partnership. Incidentally, it may
be observed at this juncture that the decision has made Po Chuan play
the inconsistent role of being "practically the owner" but at the same
time getting his capital from the P125,000 given to him by plaintiff
and from which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her
exhibits to be in the names of defendants Lim Tanhu and Ng Sua were
bought by them with partnership funds, His Honor confirmed the
same by finding and holding that "it is likewise clear that real
properties together with the improvements in the names of
defendants Lim Tanhu and Ng Sua were acquired with partnership
funds as these defendants were only partners-employees of deceased
Po Chuan in the Glory Commercial Co. until the time of his death on
March 11, 1966." (p. 30, id.) It Is Our considered view, however, that
this conclusion of His Honor is based on nothing but pure
unwarranted conjecture. Nowhere is it shown in the decision how
said defendants could have extracted money from the partnership in
the fraudulent and illegal manner pretended by plaintiff. Neither in
the testimony of Nuñez nor in that of plaintiff, as these are
summarized in the decision, can there be found any single act of
extraction of partnership funds committed by any of said defendants.
That the partnership might have grown into a multi-million enterprise
and that the properties described in the exhibits enumerated in the
decision are not in the names of Po Chuan, who was Chinese, but of
the defendants who are Filipinos, do not necessarily prove that Po
Chuan had not gotten his share of the profits of the business or that
the properties in the names of the defendants were bought with
money of the partnership. In this connection, it is decisively important
to consider that on the basis of the concordant and mutually
cumulative testimonies of plaintiff and Nuñez, respondent court
found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co. he was the one who
made the final decisions and approved the appointments of new
Personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter
318 | P a g e
to (2) being the elder brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized Filipino citizens whereas the
late Po Chuan until the time of his death was a Chinese citizen; that
the three (3) brothers were partners in the Glory Commercial Co. but
Po Chuan was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere employees of Po Chuan; .... (Pp.
90-91, Record.)
If Po Chuan was in control of the affairs and the running of the
partnership, how could the defendants have defrauded him of such
huge amounts as plaintiff had made his Honor believe? Upon the
other hand, since Po Chuan was in control of the affairs of the
partnership, the more logical inference is that if defendants had
obtained any portion of the funds of the partnership for themselves,
it must have been with the knowledge and consent of Po Chuan, for
which reason no accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to what is
taken by a partner without the consent of the other partner or
partners. Incidentally again, this theory about Po Chuan having been
actively managing the partnership up to his death is a substantial
deviation from the allegation in the amended complaint to the effect
that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim
Teck Chuan and Eng Chong Leonardo, through fraud and machination,
took actual and active management of the partnership and although
Tee Hoon Lim Po Chuan was the manager of Glory Commercial Co.,
defendants managed to use the funds of the partnership to purchase
lands and buildings etc. (Par. 4, p. 2 of amended complaint, Annex B
of petition) and should not have been permitted to be proven by the
hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax
declarations and land titles listed in the decision, most if not all of the
properties supposed to have been acquired by the defendants Lim
Tanhu and Ng Sua with funds of the partnership appear to have been
transferred to their names only in 1969 or later, that is, long after the
partnership had been automatically dissolved as a result of the death
of Po Chuan. Accordingly, defendants have no obligation to account
to anyone for such acquisitions in the absence of clear proof that they
had violated the trust of Po Chuan during the existence of the
partnership. (See Hanlon vs. Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to
readily disbelieve plaintiffs' pretensions. Nuñez testified that "for
about 18 years he was in charge of the GI sheets and sometimes
attended to the imported items of the business of Glory Commercial
Co." Counting 18 years back from 1965 or 1966 would take Us to 1947
or 1948. Since according to Exhibit LL, the baptismal certificate
produced by the same witness as his birth certificate, shows he was
born in March, 1942, how could he have started managing Glory
Commercial Co. in 1949 when he must have been barely six or seven
years old? It should not have escaped His Honor's attention that the
photographs showing the premises of Philippine Metal Industries
after its organization "a year or two after the establishment of Cebu
Can Factory in 1957 or 1958" must have been taken after 1959. How
could Nuñez have been only 13 years old then as claimed by him to
have been his age in those photographs when according to his "birth
certificate", he was born in 1942? His Honor should not have
overlooked that according to the same witness, defendant Ng Sua was
living in Bantayan until he was directed to return to Cebu after the
fishing business thereat floundered, whereas all that the witness
knew about defendant Lim Teck Chuan's arrival from Hongkong and
the expenditure of partnership money for him were only told to him
allegedly by Po Chuan, which testimonies are veritably exculpatory as
to Ng Sua and hearsay as to Lim Teck Chuan. Neither should His Honor
have failed to note that according to plaintiff herself, "Lim Tanhu was
employed by her husband although he did not go there always being
a mere employee of Glory Commercial Co." (p. 22, Annex the
decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no
known income except their salaries. Actually, it is not stated,
however, from what evidence such conclusion was derived in so far
as Ng Sua is concerned. On the other hand, with respect to Lim Tanhu,
the decision itself states that according to Exhibit NN-Pre trial, in the
supposed income tax return of Lim Tanhu for 1964, he had an income
of P4,800 as salary from Philippine Metal Industries alone and had a
total assess sable net income of P23,920.77 that year for which he
paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-
Pretrial in the year, he had a net income of P32,000 for which be paid
a tax of P3,512.40. (id.) As early as 1962, "his fishing business in
Madridejos Cebu was making money, and he reported "a net gain
from operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-
trial.) From what then did his Honor gather the conclusion that all the
properties registered in his name have come from funds malversed
from the partnership?
It is rather unusual that His Honor delved into financial statements
and books of Glory Commercial Co. without the aid of any accountant
or without the same being explained by any witness who had
prepared them or who has knowledge of the entries therein. This
must be the reason why there are apparent inconsistencies and
inaccuracies in the conclusions His Honor made out of them. In Exhibit
SS-Pre-trial, the reported total assets of the company amounted to
P2,328,460.27 as of December, 1965, and yet, Exhibit TT-Pre-trial,
according to His Honor, showed that the total value of goods available
as of the same date was P11,166,327.62. On the other hand, per
Exhibit XX-Pre-trial, the supposed balance sheet of the company for
1966, "the value of inventoried merchandise, both local and
imported", as found by His Honor, was P584,034.38. Again, as of
December 31, 1966, the value of the company's goods available for
sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, per
Exhibit II-3-Pre-trial, the supposed Book of Account, whatever that is,
of the company showed its "cash analysis" was P12,223,182.55. We
do not hesitate to make the observation that His Honor, unless he is
a certified public accountant, was hardly qualified to read such
exhibits and draw any definite conclusions therefrom, without risk of
erring and committing an injustice. In any event, there is no
comprehensible explanation in the decision of the conclusion of His
Honor that there were P12,223,182.55 cash money defendants have
to account for, particularly when it can be very clearly seen in Exhibits
11-4, 11-4- A, 11-5 and 11-6-Pre-trial, Glory Commercial Co. had
accounts payable as of December 31, 1965 in the amount of
P4,801,321.17. (p. 15, id.) Under the circumstances, We are not
prepared to permit anyone to predicate any claim or right from
respondent court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding
regarding the allegation in the amended complaint that a corporation
denominated Glory Commercial Co., Inc. was organized after the
death of Po Chuan with capital from the funds of the partnership. We
note also that there is absolutely no finding made as to how the
319 | P a g e
defendants Dy Ochay and Co Oyo could in any way be accountable to
plaintiff, just because they happen to be the wives of Lim Tanhu and
Ng Sua, respectively. We further note that while His Honor has
ordered defendants to deliver or pay jointly and severally to the
plaintiff P4,074,394.18 or ¹/3 of the P12,223,182.55, the supposed
cash belonging to the partnership as of December 31, 1965, in the
same breath, they have also been sentenced to partition and give
¹/3share of the properties enumerated in the dispositive portion of the
decision, which seemingly are the very properties allegedly purchased
from the funds of the partnership which would naturally include the
P12,223,182.55 defendants have to account for. Besides, assuming
there has not yet been any liquidation of the partnership, contrary to
the allegation of the defendants, then Glory Commercial Co. would
have the status of a partnership in liquidation and the only right
plaintiff could have would be to what might result after such
liquidation to belong to the deceased partner, and before this is
finished, it is impossible to determine, what rights or interests, if any,
the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In other words,
no specific amounts or properties may be adjudicated to the heir or
legal representative of the deceased partner without the liquidation
being first terminated.

Indeed, only time and the fear that this decision would be much more
extended than it is already prevent us from further pointing out the
inexplicable deficiencies and imperfections of the decision in
question. After all, what have been discussed should be more than
sufficient to support Our conclusion that not only must said decision
be set aside but also that the action of the plaintiff must be totally
dismissed, and, were it not seemingly futile and productive of other
legal complications, that plaintiff is liable on defendants'
counterclaims. Resolution of the other issues raised by the parties
albeit important and perhaps pivotal has likewise become
superfluous.

IN VIEW OF ALL THE FOREGOING, the petition is granted. All

proceedings held in respondent court in its Civil Case No. 12328
subsequent to the order of dismissal of October 21, 1974 are hereby
annulled and set aside, particularly the ex-parte proceedings against
petitioners and the decision on December 20, 1974. Respondent
court is hereby ordered to enter an order extending the effects of its
order of dismissal of the action dated October 21, 1974 to herein
petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua
and Co Oyo. And respondent court is hereby permanently enjoined
from taking any further action in said civil case gave and except as
herein indicated. Costs against private respondent.

Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ., concur.

320 | P a g e
G.R. No. L-5837 May 31, 1954
CRISTOBAL BONNEVIE, ET AL., plaintiffs-appellants,
vs.
JAIME HERNANDEZ, defendant-appellee.
Ojeda and Vilgera for appellants.
Cea and Zurbano for appellee.
REYES, J.:
This is an action for the recovery of the sum of P115,312.50, with
interests, as plaintiffs' alleged share in the profits of a partnership.
It appears that prior to January, 1947, plaintiffs with other associates
formed a syndicate or secret partnership for the purpose of acquiring
the plants, franchises and other properties of the Manila Electric Co.
— hereinafter called the Meralco — in the provinces of Camarines
Sur, Albay, and Sorsogon, with the idea of continuing that company's
business in that region. No formal articles were drawn for it was the
purpose of the members to incorporate once the deal had been
consummated. But in the meantime they elected Pedro Serranzana
and David Serrano general manager and secretary-treasurer,
respectively, of the partnership.
Negotiation for the purchase was commenced, but as it made no
headway, defendant was taken in as a member of the partnership so
that he could push the deal through, and to that end he was given the
necessary power of attorney. Using partnership funds, defendant was
able to buy the Meralco properties for P122,000, paying P40,000
upon the signing of the deed of sale and agreeing to pay the balance
in two equal installments, that is, P41,000 on or before July 31, 1947,
and another P41,000 on or before January 31, 1948, with interest at
6 per cent per annum and with a penalty clause which reads:
(6) That in case the VENDEE fails to make the payment or payments
of the balance due or any part thereof as herein provided, this
contract shall, at the option of the VENDOR, be annuled and, in such
an event, all payments made by the VENDEE to the VENDOR by virtue
of this contract shall be forfeited and retained by the VENDOR in full
satisfaction as the liquidated damages sustained by said VENDOR; and
the said VENDOR shall have the right to forthwith reenter and take
possession of the premises, properties and rights which are the
subject-matter of this contract.
Although defendant was the one named vendee in the deed of sale,
there is no question that the transaction was in penalty made for the
partnership so that the latter assumed control of the business the day
following the sale.
About the latter half of the following month the members of the
partnership proceeded with the formation of the proposed
corporation, apportioning among themselves its shares of stock in
proportion to their respective contributions to the capital of the
partnership and their individual efforts in bringing about the
acquisition of the Meralco properties. But before the incorporation
papers could be perfected, several partners, not satisfied with the
way matters were being run and fearful that the venture might prove
a failure because the business was not going well and there was a
possibility of their being assessed more than their original
investments when the time came to meet the two installments of the
unpaid purchase price due the Meralco, expressed their desire to
withdraw from the partnership and get back the money they had
invested therein. In accordance with this wish, one of them, Judge
Jaime Reyes, in a meeting held on April 10, 1947, to consider various
matters connected with the business, presented a resolution to the
effect that those partners who did not want to remain in the
association should be allowed to withdraw and get back their
contributions. The resolution was approved, with the herein plaintiffs
voting affirmatively, and on that same day plaintiffs and Judge Reyes
withdrew from the partnership, and, as admitted by both parties, the
partnership was then dissolved. In accordance with the terms of the
resolution, the withdrawing partners were, on the following day,
reimbursed their respective contributions to the partnership fund.
Following the dissolution of the partnership, the members who
preferred to remain in the business went ahead with the formation of
the corporation, taking in new associates as stockholders. And
defendant, on his part, in fulfillment of his trust, made a formal
assignment of the Meralco properties to the treasurer of the
corporation, giving them a book value of P365,000, in return for which
the corporation issued, to the various subscribers to its capital stock,
shares of stock of the total face value of P225,000 and assumed the
obligation of paying what was still due the Meralco on the purchase
price. The new corporation was named "Bicol Electric Company."
Though business was losing during the first year, that is, in 1947, the
corporation, thanks to a loan obtained from the RFC later prospered
and made money. Then trouble began for one of its big stockholders,
the defendant herein.
Two years from their withdrawal from the partnership, when the
corporate business was already in a prosperous condition, plaintiffs
brought the present suit against Jaime Hernandez, claiming a share in
the profit the latter is supposed to have made from the assignment of
the Meralco properties to the corporation, estimated by plaintiffs to
be P225,000 and their share of it to be P115,312.50.
Defendant's answer denies that he has made any profit out of the
assignment in question and alleges that in any event plaintiffs, after
their withdrawal from the partnership, ceased to have any further
interest in the subsequent transactions of the remaining members.
After trial the lower court found that the partnership had not realized
any profit out of the assignment of the Meralco properties to the
corporation and that, even supposing that profit had really been
made, defendant would not be the one to answer to plaintiffs for their
share thereof, because he did not receive the consideration for the
assignment, which according to the court, consisted of the
subscriptions of various persons to the capital stock of the
corporation. The court therefore dismissed the complaint with costs
against the plaintiffs. From this decision plaintiffs appealed. The case
comes within our jurisdiction because of the amount involved.
We find no merit in the appeal.
In the first place, the profit alleged to have been realized from the
assignment of the Meralco properties to the new corporation, the
Bicol Electric Company, is more apparent than real. It is true that the
value set for those properties in the deed of assignment was P365,000
when the acquisition price was only P122,000. But one should not
jump to the conclusion that a profit, consisting of the difference
between the two sums was really made out of the transaction, for the
assignment was not made for cash but in payment for subscriptions
to shares of stock in the assignee, and while those shares had a total
face value of P225,000, this is not necessarily their real worth.
321 | P a g e
Needless to say, the real value of the shares of stock of a corporation
depends upon the value of its assets over and above its liabilities. It
does not appear that the Bicol Electric Company had any assets other
than those acquired from the Meralco, and according to the evidence
the company, aside from owing the Meralco, P82,000 was, in the
language of the court below, actually "in the red."
In the second place, assuming that the assignment actually brought
profit to the partnership, it is hard to see how defendant could be
made to answer for plaintiffs' alleged share thereof. As stated in the
decision below, defendant did not receive the consideration for the
assignment for, as already stated, the assignment was made in
payment for subscriptions of various persons to the capital stock of
the new corporation. Plaintiffs, in order to give color of legality to
their claim against defendant, maintain that the latter should be held
liable for damages caused to them, consisting of the loss of their share
of the profits, due to defendant's failure properly to perform his duty
as a liquidator of the dissolved partnership, this on the theory that as
managing partner of the partnership, it was defendant's duty to
liquidate its affairs upon its dissolutions. But it does not appear that
plaintiffs have ever asked for a liquidation, and as will presently be
explained no liquidation was called for because when plaintiffs
withdrew from the partnership the understanding was that after they
had been reimbursed their investment, they were no longer to have
any further interest in the partnership or its assets and liabilities.
Moreover, the stipulation of facts made at the hearing does not bear
out the claim that defendant was the managing partner of the
partnership, for if there appears that the partnership had its general
manager in the person of Pedro Serranzana, who upon the formation
of the new corporation also became its vice-president and general
manager.
in the partnership upon the return to them of their investment. That
Judge Reyes did not join the plaintiffs in this action is a clear indication
that such was really the understanding. Judge Reyes has testified that
when he was invited to join in the present claim he refused because
he did not want to be a "sin verguenza." And, indeed, if the agreement
was that the withdrawing partners were still to have participation in
the subsequent transactions of the partnership so that they would
have a share not only in the profits but also in the losses, it is not likely
that their investment would have been returned to them.
It is, therefore, our conclusion that the acceptance by the
withdrawing partners, including the plaintiffs, of their investment in
the instant case was understood and intended by all the parties as a
final settlement of whatever rights or claim the withdrawing partners
might have in the dissolved partnership. Such being the case they are
now precluded from claiming any share in the alleged profits, should
there be any, at the time of the dissolution.
In view of the foregoing, we find plaintiffs' claim against defendant to
be without legal basis so that the judgment of dismissal rendered by
the court below should be, as it is hereby, affirmed, with costs against
the appellants.
Paras, C. J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo,
Labrador and Concepcion, JJ., concur.

As a general rule, when a partner retires from the firm, he is entitled

to the payment of what may be due him after a liquidation. But
certainly no liquidation is necessary where there is already a
settlement or an agreement as to what the retiring partner shall
receive. In the instant case, it appears that a settlement was agreed
upon on the very day the partnership was dissolved. For when
plaintiffs and Judge Jaime Reyes withdrew from the partnership on
that day they did so as agreed to by all the partners, subject to the
only condition that they were to be repaid their contributions or
investments within three days from said date. And this condition was
fulfilled when on the following day they were reimbursed the
respective amounts due them pursuant to the agreement.

There is evidence that the partnership was at that time operating its
business at a loss and that the partnership did not have necessary
funds to meet its obligation to Meralco for the balance of the
purchase price. And in that connection it should be recalled that
nonpayment of that obligation would result in the partnership losing
its entire investment because of the penalty clause in the deed of sale.
Because of these circumstances there is every reason to believe that
plaintiffs together with Judge Jaime Reyes, withdrew from the
partnership for fear that they might lose their entire investment
should they choose to remain in the partnership which then faced the
danger of losing its entire assets. As testified to by Judge Reyes, one
of the withdrawing partners, it was clearly understood that upon their
withdrawal and return to them of their investment they would have
nothing more to do with the association. It must, therefore, have
been the intention or understanding of the parties that the
withdrawing partners were relinquishing all their rights and interest

322 | P a g e
[G.R. No. L-24332. January 31, 1978.]
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, Petitioner, v. FELIX GO CHAN & SONS REALTY
CORPORATION and COURT OF APPEALS respondents.
Seno, Mendoza & Associates for Petitioner.
Ramon Duterte for Private Respondent.
SYNOPSIS
After the death of his principal and with full knowledge of such death,
the attorney-in-fact sold his principal’s undivided share in a parcel of
land pursuant to a special power of attorney which the principal had
executed in his favor. The administrator of the estate of the deceased
principal went to court to have the sale declared unenforceable and
to recover the disposed share. The trial court granted the relief
prayed for, but on appeal, the Court of Appeals upheld the validity of
the sale and dismissed the complaint.
On review the Supreme Court held that the sale was null and void
because, although the buyer may have been a purchaser in good faith,
said sale was made with the agent’s knowledge of his principal’s
death. The general rule is that death of the principal or the agent
extinguishes the agency and this case does not fall under any of the
exceptions to the general rule.
Appealed decision set aside and judgment of the lower court affirmed
on toto.
SYLLABUS
1. AGENCY; DEFINED. — Agency is a relationship between two parties
whereby one party, called the principal, authorizes another, called the
agent, to act for and in his behalf on transactions with third persons.
2. ID.; ELEMENTS. — The essential elements of agency are: (1) there
is consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation
to a third person; (3) the agent acts as a representative and not for
himself; and (4) the agent acts within the scope of his authority.
3. ID.; DEATH AS MODE OF EXTINGUISHMENT; EXCEPTIONS. — By
reason of the very nature of the relationship between principal and
agent, agency is extinguished by the death of the principal or of the
agent and any act of an agent after the death of his principal is void
ab initio, except as explicitly provided for in the New Civil Code: (1)
when the agency is coupled with an interest (Art. 1930); and (2) when
the agent performed an act for the principal without knowledge of
the principal’s death and the third person who contracted with him
acted in good faith. (Art. 1931)
4. ID.; REVOCATION BY PRINCIPAL DISTINGUISHED FROM
REVOCATION BY OPERATION OF LAW. — Although a revocation of a
power of attorney to be effective must be communicated to the
parties concerned, yet a revocation by operation of law, such as death
of the principal is, as a rule, instantaneously effective inasmuch as "by
legal fiction the agent’s exercise of authority is regarded as an
execution of the principal’s continuing will." With death, the
principal’s will ceases or is terminated; the source of authority is
extinguished.
5. ID.; AGENT’S HEIRS MUST NOTIFY PRINCIPAL OF AGENT’S DEATH.
— The heirs of the agent who dies must notify the principal of his
death and in the meantime adopt such measures as circumstances
may demand in the interest of the latter, but the heirs of the principal
are not duty-bound to give notice of the principal’s death to the
agent.
DECISION
MUÑOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon Rallos, who after the
death of his principal, Concepcion Rallos, sold the latter’s undivided
share in a parcel of Land pursuant to a special power of attorney
which the principal had executed in his favor. The administrator of the
estate of the deceased principal went to court to have the sale
declared unenforceable and to recover the disposed share. The trial
court granted the relief prayed for, but upon appeal, the Court of
Appeals upheld the validity of the sale and dismissed the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both
surnamed Rallos were sisters and registered co-owners of a parcel of
land known as Lot No. 5983 of the Cadastral Survey of Cebu covered
by Transfer Certificate of Title No. 11118 of the Registry of Cebu. On
April 21, 1954, the sisters executed a special power of attorney in
favor of their brother, Simeon Rallos, authorizing him to sell for and
in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died.
On September 12, 1955, Simeon Rallos sold the undivided shares of
his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan &
Sons Realty Corporation for the sum of P10,686.90. The deed of sale
was registered in the Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new Transfer Certificate of Title No. 12989 was issued
in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate
Estate of Concepcion Rallos filed a complaint docketed as Civil Case
No. R-4530 of the Court of First Instance of Cebu, praying (1) that the
sale of the undivided share of the deceased Concepcion Rallos in lot
5983 be declared unenforceable, and said share be reconveyed to her
estate; (2) that the Certificate of Title issued in the name of Felix Go
Chan & Sons Realty Corporation be cancelled and another title be
issued in the names of the corporation and the "Intestate estate of
Concepcion Rallos" in equal undivided shares; and (3) that plaintiff be
indemnified by way of attorney’s fees and payment of costs of suit.
Named party defendants were Felix Go Chan & Sons Realty
Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
323 | P a g e
subsequently, the latter dropped from the complaint. The complaint the sale in question. 1 The appellee-administrator, Ramon Rallos,
was amended twice; defendant Corporation’s Answer contained a moved for a reconsideration of the decision but the same was denied
cross-claim against its co-defendant, Simeon Rallos, while the latter in a resolution of March 4, 1965. 2
filed third-party complaint against his sister, Gerundia Rallos. While
the case was pending in the trial court, both Simeon and his sister What is the legal effect of an act performed by an agent after the
Gerundia died and they were substituted by the respective death of his principal? Applied more particularly to the instant case,
administrators of their estates. We have the query: is the sale of the undivided share of Concepcion
Rallos in lot 5983 valid although it was executed by the agent after
After trial, the court a quo rendered judgment with the following the death of his principal? What is the law in this jurisdiction as to the
dispositive portion:jgc:chanrobles.com.ph effect of the death of the principal on the authority of the agent to
act for and in behalf of the latter? Is the fact of knowledge of the
"A. On Plaintiff’s Complaint — death of the principal a material factor in determining the legal effect
of an act performed after such death?
(1) Declaring the deed of sale, Exh.’C’, null and void insofar as the one-
half pro-indiviso share of Concepcion Rallos in the property in Before proceeding to the issues, We shall briefly restate certain
question, - Lot 5983 of the Cadastral Survey of Cebu — is concerned; principles of law relevant to the matter under consideration.

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer 1. It is a basic axiom in civil law embodied in our Civil Code that no one
Certificate of Title No. 12989 covering Lot 5983 and to issue in lieu may contract in the name of another without being authorized by the
thereof another in the names of FELIX Go CHAN & SONS REALTY latter, or unless he has by law a right to represent him. 3 A contract
CORPORATION and the Estate of Concepcion Rallos in the proportion entered into in the name of another by one who has no authority or
of one-half (1/2) share each pro-indiviso; legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the person on whose behalf it has been executed, before it is revoked by
possession of an undivided one-half (1/2) share of Lot 5983 to the the other contracting party. 4 Article 1403 (1) of the same also
herein plaintiff; provides:jgc:chanrobles.com.ph

(4) Sentencing the defendant Juan T. Borromeo, administrator of the "ART. 1403. The following contracts are unenforceable, unless they
Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable are justified:jgc:chanrobles.com.ph
attorney’s fees the sum of P1,000.00; and
"(1) Those entered into in the name of another person by one who
(5) Ordering both defendants to pay the costs jointly and severally. has been given no authority or legal representation or who has acted
beyond his powers; . . . ."cralaw virtua1aw library
"B. On GO CHAN’S Cross-Claim:chanrob1es virtual 1aw library
Out of the above given principles, sprung the creation an acceptance
(1) Sentencing the co-defendant Juan T. Borromeo administrator of of the relationship of agency whereby one party, called the principal
the Estate of Simeon Rallos; to pay to defendant Felix Go Chan & Sons (mandante), authorizes another, called the agent (mandatario), to act
Realty Corporation the sum of P5,343.45, representing the price of for find in his behalf in transactions with third persons. The essential
one-half (1/2) share of lot 5983; elements of agency are: (1) there is consent, express or implied, of
the parties to establish the relationship; (2) the object is the execution
(2) Ordering co-defendant Juan T. Borromeo, administrator of the of a juridical act in relation to a third person; (3) the agents acts as a
Estate of Simeon Rallos, to pay in concept of reasonable attorney’s representative and not for himself; and (4) the agent acts within the
fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00. scope of his authority. 5

"C. On Third-Party Complaint of defendant Juan T. Borromeo Agency is basically personal, representative, and derivative in nature.
administrator of Estate of Simeon Rallos, against Josefina Rallos, The authority of the agent to act emanates from the powers granted
special administratrix of the Estate of Gerundia Rallos:chanrob1es to him by his principal; his act is the act of the principal if done within
virtual 1aw library the scope of the authority. Qui facit per alium facit per se. "He who
acts through another acts himself." 6
(1) Dismissing the third-party complaint without prejudice to filing
either a complaint against the regular administrator of the Estate of 2. There are various ways of extinguishing agency, 7 but here We are
Gerundia Rallos or a claim in the Intestate of Gerundia Rallos, covering concerned only with one cause — death of the principal: Paragraph 3
the same subject-matter of the third-party complaint, at bar." (pp. 98- of Art. 1919 of the Civil Code which was taken from Art. 1709 of the
100, Record on Appeal) Spanish Civil Code provides:jgc:chanrobles.com.ph

Felix Go Chan & Sons Realty Corporation appealed in due time to the "ART. 1919. Agency is extinguished:jgc:chanrobles.com.ph
Court of Appeals from the foregoing judgment insofar as it set aside
the sale of the one half (1/2) share of Concepcion Rallos. The "x x x
appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining "3. By the death, civil interdiction, insanity or insolvency of the

324 | P a g e
principal or of the agent; . . . ." (Underline supplied)
By reason of the very nature of the relationship between principal and
agent, agency is extinguished by the death of the principal or the
agent. This is the law in this jurisdiction. 8 Rallos, knew of the death of his principal at the time he sold the
Manresa commenting on Art. 1709 of the Spanish Civil Code explains
that the rationale for the law is found in the juridical basis of agency
which is representation. There being an integration of the personality
of the principal into that of the agent it is not possible for the
representation to continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason of the nature
of agency, death is a necessary cause for its extinction. Laurent says
that the juridical tie between the principal and the agent is severed
ipso jure upon the death of either without necessity for the heirs of
the principal to notify the agent of the fact of death of the former. 9
The same rule prevails at common law — the death of the principal
effects instantaneous and absolute revocation of the authority of the
agent unless the power be coupled with an interest. 10 This is the
prevalent rule in American Jurisprudence where it is well-settled that
a power without an interest conferred upon an agent is dissolved by
the principal’s death, and any attempted execution of the power
afterwards is not binding on the heirs or representatives of the
deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the
principal or of the agent extinguishes the agency, subject to any
exception, and if so, is the instant case within that exception? That is
the determinative point in issue in this litigation. It is the contention
of respondent corporation which was sustained by respondent court
that notwithstanding the death of the principal, Concepcion Rallos,
the act of the attorney-in-fact, Simeon Rallos, in selling the former’s
share in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the
general rule aforementioned.
ART. 1930. The agency shall remain in full force and effect even after
the death of the principal, if it has been constituted in the common
interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge the death
of the principal or of any other cause which extinguishes the agency,
is valid and shall be fully effective with respect to third persons who
may have contracted with him in good faith.
Article 1930 is not involved because admittedly the special power of
attorney executed in favor of Simeon Rallos was not coupled with an
interest.
Article 1931 is the applicable law. Under this provision, an act done
by the agent after the death of his principal is valid and effective only
under two conditions, viz: (1) that the agent acted without knowledge
of the death of the principal, and (2) that the third person who
contracted with the agent himself acted in good faith. Good faith here
means that the third son was not aware of the death of the principal
at the time he contracted with said agent. These two requisites must
concur: the absence of one will render the act of the agent invalid
unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon
latter’s share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings
filed by Simeon Rallos before the trial court. 12 That Simeon Rallos
knew of the death of his sister Concepcion is also a finding of fact of
the court a quo 13 and of respondent appellate court when the latter
stated that Simeon Rallos "must have known of the death of his sister,
and yet he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing appellant
(the realty corporation) of the death of the former." 14
On the basis of the established knowledge of Simeon Rallos
concerning the death of his principal, Concepcion Rallos, Article 1931
of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of
his principal; it is not enough that the third person acted in good faith.
Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of
the old Civil Code now Art. 1931 of the new Civil Code sustained the
validity of a sale made after the death of the principal because it was
not shown that the agent knew of his principal’s demise. 15 To the
same effect is the case of Herrera, Et. Al. v. Luy Kim Guan, Et Al., 1961,
where in the words of Justice Jesus Barrera the Court
stated:jgc:chanrobles.com.ph
". . . even granting arguendo that Luis Herrera did die in 1936 plaintiffs
presented no proof and there is no indication in the record, that the
agent Luy Kim Guan was aware of the death of his principal at the time
he sold the property. The death of the principal does not render the
act of an agent unenforceable, where the latter had no knowledge of
such extinguishment of the agency." (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent corporation, the
Court of Appeals reasoned out that there is no provision in the Code
which provides that whatever is done by an agent having knowledge
of the death of his principal is void even with respect to third persons
who may have contracted with him in good faith and without
knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it is ignores
the existence of the general rule enunciated in Article 1919 that the
death of the principal extinguishes the agency. That being the general
rule it follows a fortiori that any act o an agent after the death of his
principal is void ab initio unless the same falls under the exceptions
provided for in the aforementioned Articles 1930 and 1931. Article
1931, being an exception to the general rule, is to be strictly
construed; it is not to be given an interpretation or application
beyond the clear import of its terms for otherwise the courts will be
involved in a process of legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the
vendee acting in good faith relied on the power of attorney which was
duly registered on the original certificate of title recorded in the
Register of Deeds of the Province of Cebu, that no notice of the death
was ever annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such
omission. 17
325 | P a g e

To support such argument reference is made to a portion in
Manresa’s Commentaries which We quote:jgc:chanrobles.com.ph
"If the agency has been granted for the purpose of contracting with
certain persons, the revocation must be made known to them. But if
the agency is general in nature, without reference to particular person
with whom the agent is to contract, it is sufficient that the principal
exercise due diligence to make the revocation of the agency publicly
known.
"In case of a general power which does not specify the persons to
whom representation should be made, it is the general opinion that
all acts executed with third persons who contracted in good faith,
without knowledge of the revocation, are valid. In such case, the
principal may exercise his right against the agent, who, knowing of the
revocation, continued to assume a personality which he no longer
had." (Manresa, Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse, however, treats of revocation by an act of the
principal as a mode of terminating an agency which is to be
distinguished from revocation by operation of law such as death of
the principal which obtains in this case. On page six of this Opinion
We stressed that by reason of the very nature of the relationship
between principal and agent, agency is extinguished ipso jure upon
the death of either principal or agent. Although a revocation of a
power of attorney to be effective must be communicated to the
parties concerned, 18 yet a revocation by operation of law, such as by
death of the principal is, as a rule, instantaneously effective inasmuch
as "by legal fiction the agent’s exercise of authority is regarded as an
execution of the principal’s continuing will." 19 With death, the
principal’s will ceases or is terminated; the source of authority is
extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent
of the death of the principal. What the Code provides in Article 1932
is that, if the agent dies, his heirs must notify the principal thereof,
and in the meantime adopt such measures as the circumstances may
demand in the interest of the latter. Hence, the fact that no notice of
the death of the principal was registered on the certificate of title of
the property in the Office of the Register of Deeds, is not fatal to the
cause of the estate of the principal.
6. Holding that the good faith of a third person in dealing with an
agent affords the former sufficient protection, respondent court drew
a "parallel" between the instant case and that of an innocent
purchaser for value of a registered land, stating that if a person
purchases a registered land from one who acquired it in bad faith —
even to the extent of foregoing or falsifying the deed of sale in his
favor — the registered owner has no recourse against such innocent
purchaser for value but only against the forger. 20
To support the correctness of this "parallelism", respondent
corporation, in its brief, cites the case of Blondeau, Et. Al. v. Nano and
Vallejo, 61 Phil. 625. We quote from the brief:jgc:chanrobles.com.ph
"In the case of Angel Blondeau Et. Al. v. Agustin Nano Et. Al., 61 Phil.
630, one Vallejo was a co-owner of lands with Agustin Nano. The
latter had a power of attorney supposedly executed by Vallejo in his
favor. Vallejo delivered to Nano his land titles. The power was
registered in the Office of the Register of Deeds. When the lawyer-
husband of Angela Blondeau went to that Office, he found all in order
including the power of attorney. But Vallejo denied having executed
the power. The lower court sustained Vallejo and the plaintiff
Blondeau appealed. Reversing the decision of the court a quo, the
Supreme Court, quoting the ruling in the case of Eliason v. Wilborn,
261 U.S. 457, held:chanrob1es virtual 1aw library
‘But there is a narrower ground on which the defenses of the
defendant-appellee must be overruled. Agustin Nano had possession
of Jose Vallejo’s title papers. Without those title papers handed over
to Nano with the acquiescence of Vallejo, a fraud could not have been
perpetuated. When Fernando de la Cantera, a member of the
Philippine Bar and the husband of Angela Blondeau, the principal
plaintiff, searched the registration record, he found them in due form
including the power of attorney of Vallejo in favor of Nano. If this had
not been so and if thereafter the proper notation of the encumbrance
could not have been made, Angela Blondeau would not have, lent
P12,000.00 to the defendant Vallejo.’ An executed transfer of
registered lands placed by the registered owner thereof in the hands
of another operates as a representation to a third party that the
holder of the transfer is authorized to deal with the land.
‘As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by his
act of confidence bear the loss.’" (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case
before Us because here We are confronted with one who admittedly
was an agent of his sister and who sold the property of the latter after
her death with full knowledge of such death. The situation is expressly
covered by a provision of law on agency the terms of which are clear
and unmistakable leaving no room for an interpretation contrary to
its tenor, in the same manner that the ruling in Blondeau and the
cases cited therein found a basis in Section 55 of the Land Registration
Law which in part provides:jgc:chanrobles.com.ph
"x x x
"The production of the owner’s duplicate certificate whenever any
voluntary instrument is presented for registration shall be conclusive
authority from the registered owner to the register of deeds to enter
a certificate or to make a memorandum of registration in accordance
with such instruments, and the new certificate or memorandum shall
be binding upon the registered owner and upon all persons claiming
under him in favor of every purchaser for value and in good faith:
Provided, however, That in all cases of registration procured by fraud,
the owner may pursue all his legal and equitable remedies against the
parties to such fraud, without prejudice, however, to the rights of any
innocent holder for value of a certificate of title. . . ." (Act No. 496 as
amended)
7. One last point raised by respondent corporation in support of the
appealed decision is an 1842 ruling of the Supreme Court of
Pennsylvania in Cassiday v. McKenzie wherein payments made to an
agent after the death of the principal were held to be "good", "the
parties being ignorant of the death." Let us take note that the Opinion
of Justice Rogers was premised on the statement that the parties
were ignorant of the death of the principal. We quote from that
decision the following:jgc:chanrobles.com.ph
326 | P a g e

". . . Here the precise point is, whether a payment to an agent when
the parties are ignorant of the death is a good payment. In addition
to the case in Campbell before cited, the same judge Lord
Ellenborough, has decided in 5 Esp. 117, the general question that a
payment after the death of principal is not good. Thus, a payment of
sailor’s wages to a person having a power of attorney to receive them,
has been held void when the principal was dead at the time of the
payment. If, by this case, it is meant merely to decide the general
proposition that by operation of law the death of the principal is a
revocation of the powers of the attorney, no objection can be taken
to it. But if it intended to say that his principle applies where there
was no notice of death, or opportunity of notice, I must be permitted
to dissent from it.
Whatever conflict of legal opinion was generated by Cassiday v.
McKenzie in American jurisprudence, no such conflict exists in our
own for the simple reason that our statute, the Civil Code, expressly
provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is
coupled with an interest (Art. 1930), and (2) that the act of the agent
was executed without knowledge of the death of the principal and the
third person who contracted with the agent acted also in good faith
(Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and
again We stress the indispensable requirement - that the agent acted
without knowledge or notice of the death of the principal. In the case
before Us the agent Ramon Rallos executed the sale notwithstanding
notice of the death of his principal. Accordingly, the agent’s act is
unenforceable against the estate of his principal.

". . . That a payment may be good today, or bad tomorrow, from the IN VIEW OF ALL THE FOREGOING, We set aside the decision of
accidental circumstance of the death of the principal, which he did respondent appellate court, and We affirm en toto the judgment
not know, and which by no possibility could he know? It would be rendered by then Hon. Amador E. Gomez of the Court of First Instance
unjust to the agent and unjust to the debtor. In the civil law, the acts of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against
of the agent, done bona fide in ignorance of the death of his principal, respondent realty corporation at all instances.
are held valid and binding upon the heirs of the latter. The same rule
holds in the Scottish law, and I cannot believe the common law is so So Ordered.
unreasonable. . . ." (39 Am. Dec. 76. 80, 81; Emphasis supplied)
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ.,
To avoid any wrong impression which the Opinion in Cassiday v. concur.
McKenzie may evoke, mention may be made that the above
represents the minority view in American jurisprudence. Thus in
Clayton v. Merrett, the Court said:jgc:chanrobles.com.ph

"‘There are several cases which seem to hold that although, as a

general principle, death revokes an agency and renders null every act
of the agent thereafter performed, yet that where a payment has
been made in ignorance of the death, such payment will be good. The
leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S.
(Pa.) 282, 39 AmD 76, where, in an elaborate opinion, this view is
broadly announced. It is referred to, and seems to have been
followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in
this latter case it appeared that the estate of the deceased principal
had received the benefit of the money paid, and therefore the
representative of the estate might well have been held to be
estopped from suing for it again. . . . These cases, in so far, at least, as
they announce the doctrine under discussion, are exceptional. The
Pennsylvania Case supra (Cassiday v. McKenzie, 4 Watts & S. 282, 39
AmD 76), is believed to stand almost, if not quite, alone in announcing
the principal in its broadest scope.’" (52 Misc. 353, 357, cited in 2 C.J.
549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and

pointing out that the opinion, except so far as it related to the
particular facts, was a mere dictum, Baldwin, J.
said:jgc:chanrobles.com.ph

"‘The opinion, therefore, of the learned Judge may be regarded more

as an extrajudicial indication of his views on the general subject, than
as the adjudication of the Court upon the point in question. But
accordingly all proper weight to this opinion, as the judgment of a
Court of great respectability, it stands alone among common law
authorities, and is opposed by an array too formidable to permit us to
follow it.’" (15 Cal. 12, 17, cited in 2 C.J. 549)

327 | P a g e
[G.R. No. 76931. May 29, 1991.]
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, Petitioner, v.
COURT OF APPEALS and AMERICAN AIRLINES
INCORPORATED, Respondents.
[G.R. No. 76933. May 29, 1991.]
AMERICAN AIRLINES, INCORPORATED, Petitioner, v. COURT OF
APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, Respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service
and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
SYLLABUS
1. CIVIL LAW; INTERPRETATION OF CONTRACTS; THE ENTIRETY
THEREOF, MUST BE TAKEN INTO CONSIDERATION TO ASCERTAIN THE
MEANING OF ITS PROVISIONS. — It is a well settled legal principle that
in the interpretation of a contract, the entirety thereof must be taken
into consideration to ascertain the meaning of its provisions. The
various stipulations in the contract must be read together to give
effect to all. After a careful examination of the records, the Court finds
merit in the contention of Orient Air that the Agreement, when
interpreted in accordance with the foregoing principles, entitles it to
the 3% overriding commission based on total revenue, or as referred
to by the parties, "total flown revenue."cralaw virtua1aw library
2. ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. — As the designated
exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air’s
services for air passenger transportation, and the solicitation of sales
therefor. In return for such efforts and services, Orient Air was to be
paid commissions of two (2) kinds: first, a sales agency commission,
ranging from 7-8% of tariff fares and charges from sales by Orient Air
when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services. It is immediately observed
that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of
commissions would accrue for sales of American Air services made
not on its ticket stock but on the ticket stock of other air carriers sold
by such carriers or other authorized ticketing facilities or travel
agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any
distinction between the two (2) types of commissions and would lead
to the absurd conclusion that the parties had entered into a contract
with meaningless provisions. Such an interpretation must at all times
be avoided with every effort exerted to harmonize the entire
Agreement.
3. ID.; ID.; AMBIGUITY THEREON, CONSTRUED AGAINST THE PARTY
WHO CAUSED THEREOF. — It is clear from the records that American
Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be
taken "contra proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by the exercise of a
little more care. Thus, Article 1377 of the Civil Code provides that the
interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. To put it differently, when
several interpretations of a provision are otherwise equally proper,
that interpretation or construction is to be adopted which is most
favorable to the party in whose favor the provision was made and
who did not cause the ambiguity.
4. ID.; TERMINATION OF CONTRACT; NOT JUSTIFIED IN CASE AT BAR.
— We now turn to the propriety of American Air’s termination of the
Agreement. The respondent appellate court, on this issue, ruled thus:
"It is not denied that Orient withheld remittances but such action
finds justification from paragraph 4 of the Agreement, Exh. F, which
provides for remittances to American less commissions to which
Orient is entitled, and from paragraph 5(d) which specifically allows
Orient to retain the full amount of its commissions. Since, as stated
ante, Orient is entitled to the 3% override. American’s premise,
therefore, for the cancellation of the Agreement did not exist . . ." We
agree with the findings of the respondent appellate court. As earlier
established, Orient Air was entitled to an overriding commission
based on total flown revenue. American Air’s perception that Orient
Air was remiss or in default of its obligations under the Agreement
was, in fact, a situation where the latter acted in accordance with the
Agreement — that of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the
latter was still obligated to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and refusing to remit the
sums claimed by American Air. The latter’s termination of the
Agreement was, therefore, without cause and basis, for which it
should be held liable to Orient Air.
5. ID.; REINSTATEMENT OF CONTRACT OF AGENCY; MUST BE WITH
THE CONSENT OR AUTHORITY OF THE PRINCIPAL. — By affirming this
ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be
violative of the principles and essence of agency, defined by law as a
contract whereby "a person binds himself to render some service or
to do something in representation or on behalf of another, WITH THE
CONSENT OR AUTHORITY OF THE LATTER." In an agent-principal
relationship, the personality of the principal is extended through the
facility of the agent. In so doing, the agent, by legal fiction, becomes
the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be compelled by
law or by any court. The Agreement itself between the parties states
that "either party may terminate the Agreement without cause by
giving the other 30 days’ notice by letter, telegram or cable." We,
therefore, set aside the portion of the ruling of the respondent
appellate court reinstating Orient Air as general sales agent of
American Air.
DECISION
328 | P a g e
 general public in the assigned territory.

In connection with scheduled or non-scheduled air passenger

PADILLA, J.: transportation within the United States, neither Orient Air Services
nor its sub-agents will perform services for any other air carrier similar
to those to be performed hereunder for American without the prior
written consent of American. Subject to periodic instructions and
This case is a consolidation of two (2) petitions for review continued consent from American, Orient Air Services may sell air
on certiorari of a decision 1 of the Court of Appeals in CA-G.R. No. CV- passenger transportation to be performed within the United States
04294, entitled "American Airlines, Inc. v. Orient Air Services and by other scheduled air carriers provided American does not provide
Hotel Representatives, Inc." which affirmed, with modification, the substantially equivalent schedules between the points involved.
decision 2 of the Regional Trial Court of Manila, Branch IV, which
dismissed the complaint and granted therein defendant’s x x x
counterclaim for agent’s overriding commission and
damages.chanrobles virtual lawlibrary
4. Remittances
The antecedent facts are as follows:chanrob1es virtual 1aw library
Orient Air Services shall remit in United States dollars to American the
On 15 January 1977, American Airlines, Inc. (hereinafter referred to ticket stock or exchange orders, less commissions to which Orient Air
as American Air), an air carrier offering passenger and air cargo Services is entitled hereunder, not less frequently than semi-monthly,
transportation in the Philippines, and Orient Air Services and Hotel on the 15th and last days of each month for sales made during the
Representatives (hereinafter referred to as Orient Air), entered into a preceding half month.
General Sales Agency Agreement (hereinafter referred to as the
Agreement), whereby the former authorized the latter to act as its All monies collected by Orient Air Services for transportation sold
exclusive general sales agent within the Philippines for the sale of air hereunder on American’s ticket stock or on exchange orders, less
passenger transportation. Pertinent provisions of the agreement are applicable commissions to which Orient Air Services is entitled
reproduced, to wit:jgc:chanrobles.com.ph hereunder, are the property of American and shall be held in trust by
Orient Air Services until satisfactorily accounted for to American.
"WITNESSETH
5. Commissions
In consideration of the mutual convenants herein contained, the
parties hereto agree as follows:chanrob1es virtual 1aw library American will pay Orient Air Services commission on transportation
sold hereunder by Orient Air Services or its sub-agents as
1. Representation of American by Orient Air Services follows:chanrob1es virtual 1aw library

Orient Air Services will act on American’s behalf as its exclusive
General Sales Agent within the Philippines, including any United
States military installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of air passenger
transportation. The services to be performed by Orient Air Services
shall include:chanrob1es virtual 1aw library
(a) soliciting and promoting passenger traffic for the services of
American and, if necessary, employing staff competent and sufficient
to do so;
(b) providing and maintaining a suitable area in its place of business
to be used exclusively for the transaction of the business of American;
(c) arranging for distribution of American’s timetables, tariffs and
promotional material to sales agents and the general public in the
assigned territory;
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for
all sales of transportation by Orient Air Services or its sub-agents over
American’s services and any connecting through air transportation,
when made on American’s ticket stock, equal to the following
percentages of the tariff fares and charges:chanrob1es virtual 1aw
library
(i) For transportation solely between points within the United States
and between such points and Canada: 7% or such other rate(s) as may
be prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering
transportation between points other than those described above: 8%
or such other rate(s) as may be prescribed by the International Air
Transport Association.

(d) servicing and supervising of sales agents (including such sub- (b) Overriding commission
agents as may be appointed by Orient Air Services with the prior
written consent of American) in the assigned territory including if In addition to the above commission American will pay Orient Air
required by American the control of remittances and commissions Services an overriding commission of 3% of the tariff fares and
retained; and charges for all sales of transportation over America’s service by Orient
Air Service or its sub-agents.
(e) holding out a passenger reservation facility to sales agents and the

329 | P a g e
x x x Agreement as well as the termination itself were untenable, Orient
10. Default
If Orient Air Services shall at any time default in observing or
performing any of the provisions of this Agreement or shall become
bankrupt or make any assignment for the benefit of or enter into any
agreement or promise with its creditors or go into liquidation, or
suffer any of its goods to be taken in execution, or if it ceases to be in
business, this Agreement may, at the option of American, be
terminated forthwith and American may, without prejudice to any of
its rights under this Agreement, take possession of any ticket forms,
exchange orders, traffic material or other property or funds belonging
to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules
or resolutions of the International Air Transport Association and the
Air Traffic Conference of America, and such rules or resolutions shall
control in the event of any conflict with the provisions hereof.
x x x up to the time of payment. Further, plaintiff is directed to pay
13. Termination
American may terminate the Agreement on two days’ notice in the
event Orient Air Services is unable to transfer to the United States the
funds payable by Orient Air Services to American under this
Agreement. Either party may terminate the Agreement without cause
by giving the other 30 days’ notice by letter, telegram or cable.
x x x" 3 dispositive portion of the appellate court’s decision is as
On 11 May 1981, alleging that Orient Air had reneged on its
obligations under the Agreement by failing to promptly remit the net
proceeds of sales for the months of January to March 1981 in the
amount of US $254,400.40, American Air by itself undertook the
collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement in accordance with Paragraph
13 thereof (Termination). Four (4) days later, or on 15 May 1981,
American Air instituted suit against Orient Air with the Court of First
Instance of Manila, Branch 24, for Accounting with Preliminary
Attachment or Garnishment, Mandatory Injunction and Restraining
Order, 4 averring the aforesaid basis for the termination of the
Agreement as well as therein defendant’s previous record of failures
"to promptly settle past outstanding refunds of which there were
available funds in the possession of the defendant, . . . to the damage
and prejudice of plaintiff." 5 prevailing on July 10, 1981, the date the counterclaim was filed;
In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient
Air denied the material allegations of the complaint with respect to
plaintiff’s entitlement to alleged unremitted amounts, contending
that after application thereof to the commissions due it under the
Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the
actions taken by American Air in the course of terminating the
Air claiming that American Air’s precipitous conduct had occasioned
prejudice to its business interests.chanrobles lawlibrary : rednad
Finding that the record and the evidence substantiated the
allegations of the defendant, the trial court ruled in its favor,
rendering a decision dated 16 July 1984, the dispositive portion of
which reads:jgc:chanrobles.com.ph
"WHEREFORE, all the foregoing premises considered, judgment is
hereby rendered in favor of defendant and against plaintiff dismissing
the complaint and holding the termination made by the latter as
affecting the GSA agreement illegal and improper and order the
plaintiff to reinstate defendant as its general sales agent for
passenger transportation in the Philippines in accordance with said
GSA agreement; plaintiff is ordered to pay defendant the balance of
the overriding commission on total flown revenue covering the period
from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of
proper 3% overriding commission per month commencing from
January 1, 1981 until such reinstatement or said amounts in its
Philippine peso equivalent legally prevailing at the time of payment
plus legal interest to commence from the filing of the counterclaim
defendant the amount of One Million Five Hundred Thousand
(P1,500,000.00) pesos as and for exemplary damages; and the
amount of Three Hundred Thousand (P300,000.00) pesos as and by
way of attorney’s fees.
Costs against plaintiff." 7
On appeal, the Intermediate Appellate Court (now Court of Appeals)
in a decision promulgated on 27 January 1986, affirmed the findings
of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The
follows:jgc:chanrobles.com.ph
"WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum of US$53,491.11
representing the balance of the latter’s overriding commission
covering the period March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the
latter’s overriding commission per month starting January 1, 1981
until date of termination, May 9, 1981 or its Philippine peso
equivalent in accordance with the official rate of exchange legally
3) American is ordered to pay interest of 12% on said amounts from
July 10, 1981 the date the answer with counterclaim was filed, until
full payment;
4) American is ordered to pay Orient exemplary damages of
P200,000.00;
330 | P a g e
5) American is ordered to pay Orient the sum of P25,000.00 as
attorney’s fees.
the rest of the appealed decision is affirmed.
Costs against American." 8 American Air, with the corresponding obligations arising from such
American Air moved for reconsideration of the aforementioned
decision, assailing the substance thereof and arguing for its reversal.
The appellate court’s decision was also the subject of a Motion for
Partial Reconsideration by Orient Air which prayed for the restoration
of the trial court’s ruling with respect to the monetary awards. The
Court of Appeals, by resolution promulgated on 17 December 1986,
denied American Air’s motion and with respect to that of Orient Air,
ruled thus:jgc:chanrobles.com.ph
"Orient’s motion for partial reconsideration is denied insofar as it
prays for affirmance of the trial court’s award of exemplary damages
and attorney’s fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs
(1) and (2) of the dispositive part so that the payment of the sums
mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the
date of actual payment." 9 American Air’s services for air passenger transportation, and the
Both parties appealed the aforesaid resolution and decision of the
respondent court, Orient Air as petitioner in G.R. No. 76931 and
American Air as petitioner in G.R. No. 76933. By resolution 10 of this
Court dated 25 March 1987 both petitions were consolidated, hence,
the case at bar.chanrobles.com.ph : virtual law library
The principal issue for resolution by the Court is the extent of Orient
Air’s right to the 3% overriding commission. It is the stand of American
Air that such commission is based only on sales of its services actually
negotiated or transacted by Orient Air, otherwise referred to as
"ticketed sales." As basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in reiteration, is quoted as
follows:jgc:chanrobles.com.ph
"5. Commissions
a) . . . entire
b) Overriding Commission
In addition to the above commission, American will pay Orient Air
Services an overriding commission of 3% of the tariff fees and charges
for all sales of transportation over American’s services by Orient Air
Services or its sub-agents." (Emphasis supplied).
Since Orient Air was allowed to carry only the ticket stocks of
American Air, and the former not having opted to appoint any sub-
agents, it is American Air’s contention that Orient Air can claim
entitlement to the disputed overriding commission based only on
ticketed sales. This is supposed to be the clear meaning of the
underscored portion of the above provision. Thus, to be entitled to
the 3% overriding commission, the sale must be made by Orient Air
and the sale must be done with the use of American Air’s ticket
stocks.chanrobles virtual lawlibrary
On the other hand, Orient Air contends that the contractual
stipulation of a 3% overriding commission covers the total revenue of
American Air and not merely that derived from ticketed sales
undertaken by Orient Air. The latter, in justification of its submission,
invokes its designation as the exclusive General Sales Agent of
agency, such as, the promotion and solicitation for the services of its
principal. In effect, by virtue of such exclusivity, "all sales of
transportation over American Air’s services are necessarily by Orient
Air." 11
It is a well settled legal principle that in the interpretation of a
contract, the entirety thereof must be taken into consideration to
ascertain the meaning of its provisions. 12 The various stipulations in
the contract must be read together to give effect to all. 13 After a
careful examination of the records, the Court finds merit in the
contention of Orient Air that the Agreement, when interpreted in
accordance with the foregoing principles, entitles it to the 3%
overriding commission based on total revenue, or as referred to by
the parties, "total flown revenue."cralaw virtua1aw library
As the designated exclusive General Sales Agent of American Air,
Orient Air was responsible for the promotion and marketing of
solicitation of sales therefor. In return for such efforts and services,
Orient Air was to be paid commissions of two (2) kinds: first, a sales
agency commission, ranging from 7-8% of tariff fares and charges
from sales by Orient Air when made on American Air ticket stock; and
second, an overriding commission of 3% of tariff fares and charges for
all sales of passenger transportation over American Air services. It is
immediately observed that the precondition attached to the first type
of commission does not obtain for the second type of commissions.
The latter type of commissions would accrue for sales of American Air
services made not on its ticket stock but on the ticket stock of other
air carriers sold by such carriers or other authorized ticketing facilities
or travel agents. To rule otherwise, i.e., to limit the basis of such
overriding commissions to sales from American Air ticket stock would
erase any distinction between the two (2) types of commissions and
would lead to the absurd conclusion that the parties had entered into
a contract with meaningless provisions. Such an interpretation must
at all times be avoided with every effort exerted to harmonize the
Agreement.chanrobles law library : red
An additional point before finally disposing of this issue. It is clear
from the records that American Air was the party responsible for the
preparation of the Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra proferentem", i.e.,
construed against the party who caused the ambiguity and could have
avoided it by the exercise of a little more care. Thus, Article 1377 of
the Civil Code provides that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the
obscurity. 14 To put it differently, when several interpretations of a
provision are otherwise equally proper, that interpretation or
construction is to be adopted which is most favorable to the party in
whose favor the provision was made and who did not cause the
ambiguity. 15 We therefore agree with the respondent appellate
court’s declaration that:jgc:chanrobles.com.ph
"Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it." 16
331 | P a g e
 decision and resolution of the respondent Court of Appeals, dated 27
We now turn to the propriety of American Air’s termination of the January 1986 and 17 December 1986, respectively. Costs against
Agreement. The respondent appellate court, on this issue, ruled petitioner American Air.
thus:jgc:chanrobles.com.ph
SO ORDERED.
"It is not denied that Orient withheld remittances but such action
finds justification from paragraph 4 of the Agreement, Exh. F, which Melencio-Herrera and Regalado, JJ., concur.
provides for remittances to American less commissions to which
Orient is entitled, and from paragraph 5(d) which specifically allows Paras, J., took no part.
Orient to retain the full amount of its commissions. Since, as stated
ante, Orient is entitled to the 3% override. American’s premise, Sarmiento, J., is on leave.
therefore, for the cancellation of the Agreement did not exist . .
."cralaw virtua1aw library

We agree with the findings of the respondent appellate court. As

earlier established, Orient Air was entitled to an overriding
commission based on total flown revenue. American Air’s perception
that Orient Air was remiss or in default of its obligations under the
Agreement was, in fact, a situation where the latter acted in
accordance with the Agreement — that of retaining from the sales
proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way
of such commissions. Orient Air was clearly justified in retaining and
refusing to remit the sums claimed by American Air. The latter’s
termination of the Agreement was, therefore, without cause and
basis, for which it should be held liable to Orient
Air.chanrobles.com:cralaw:red

On the matter of damages, the respondent appellate court modified

by reduction the trial court’s award of exemplary damages and
attorney’s fees. This Court sees no error in such modification and,
thus, affirms the same.

It is believed, however, that respondent appellate court erred in

affirming the rest of the decision of the trial court. We refer
particularly to the lower court’s decision ordering American Air to
"reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA
Agreement."cralaw virtua1aw library

By affirming this ruling of the trial court, respondent appellate court,

in effect, compels American Air to extend its personality to Orient Air.
Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to
render some service or to do something in representation or on
behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER." 17 (Emphasis supplied) In an agent-principal relationship,
the personality of the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do.
Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any
court. The Agreement itself between the parties states that "either
party may terminate the Agreement without cause by giving the other
30 days’ notice by letter, telegram or cable." (Emphasis supplied) We,
therefore, set aside the portion of the ruling of the respondent
appellate court reinstating Orient Air as general sales agent of
American Air.chanrobles.com.ph : virtual law library

WHEREFORE, with the foregoing modification, the Court AFFIRMS the

332 | P a g e
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA
A. GANA, RAMON GANA, MANUEL GANA, MARIA TERESA GANA,
ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO,
and EMILY SAN JUAN, respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.
MELENCIO-HERRERA, J.:
In this petition for review on certiorari, petitioner AIR FRANCE assails
the Decision of then respondent Court of Appeals 1 promulgated on
15 December 1980 in CA-G.R. No. 58164-R, entitled "Jose G. Gana, et
al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's
judgment dismissing the Complaint of private respondents for
damages arising from breach of contract of carriage, and awarding
instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family,
numbering nine (the GANAS), purchased from AIR FRANCE through
Imperial Travels, Incorporated, a duly authorized travel agent, nine (9)
"open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila
route. The GANAS paid a total of US$2,528.85 for their economy and
first class fares. Said tickets were bought at the then prevailing
exchange rate of P3.90 per US$1.00. The GANAS also paid travel taxes
of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the
aforementioned tickets with other tickets for the same route. At this
time, the GANAS were booked for the Manila/Osaka segment on AIR
FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return
trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid tickets
were valid until 8 May 1971, the date written under the printed words
"Non valuable apres de (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of
Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company
where Jose Gana was the Director and Treasurer, for the extension of
the validity of their tickets, which were due to expire on 8 May 1971.
Teresita enlisted the help of Lee Ella Manager of the Philippine Travel
Bureau, who used to handle travel arrangements for the personnel of
the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo,
Office Manager of AIR FRANCE. The tickets were returned to Ella who
was informed that extension was not possible unless the fare
differentials resulting from the increase in fares triggered by an
increase of the exchange rate of the US dollar to the Philippine peso
and the increased travel tax were first paid. Ella then returned the
tickets to Teresita and informed her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May
1971 or one day before the expiry date. In the morning of the very
day of their scheduled departure on the first leg of their trip, Teresita
requested travel agent Ella to arrange the revalidation of the tickets.
Ella gave the same negative answer and warned her that although the
tickets could be used by the GANAS if they left on 7 May 1971, the
tickets would no longer be valid for the rest of their trip because the
tickets would then have expired on 8 May 1971. Teresita replied that
it will be up to the GANAS to make the arrangements. With that
assurance, Ella on his own, attached to the tickets validating stickers
for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS
(Scandinavian Airways System) sticker. The SAS sticker indicates
thereon that it was "Reevaluated by: the Philippine Travel Bureau,
Branch No. 2" (as shown by a circular rubber stamp) and signed
"Ador", and the date is handwritten in the center of the circle. Then
appear under printed headings the notations: JL. 108 (Flight), 16 May
(Date), 1040 (Time), OK (status). Apparently, Ella made no more
attempt to contact AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in
the afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for
Osaka, Japan. There is no question with respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines
refused to honor the tickets because of their expiration, and the
GANAS had to purchase new tickets. They encountered the same
difficulty with respect to their return trip to Manila as AIR FRANCE
also refused to honor their tickets. They were able to return only after
pre-payment in Manila, through their relatives, of the readjusted
rates. They finally flew back to Manila on separate Air France Frights
on 19 May 1971 for Jose Gana and 26 May 1971 for the rest of the
family.
On 25 August 1971, the GANAS commenced before the then Court of
First Instance of Manila, Branch III, Civil Case No. 84111 for damages
arising from breach of contract of carriage.
AIR FRANCE traversed the material allegations of the Complaint and
alleged that the GANAS brought upon themselves the predicament
they found themselves in and assumed the consequential risks; that
travel agent Ella's affixing of validating stickers on the tickets without
the knowledge and consent of AIR FRANCE, violated airline tariff rules
and regulations and was beyond the scope of his authority as a travel
agent; and that AIR FRANCE was not guilty of any fraudulent conduct
or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on
Partial and Additional Stipulations of Fact as wen as on the
documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During the
pendency of the appeal, Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and
reversed the Trial Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is
hereby ordered to pay appellants moral damages in the total sum of
NINETY THOUSAND PESOS (P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence,
petitioner's recourse before this instance, to which we gave due
course.
The crucial issue is whether or not, under the environmental milieu
the GANAS have made out a case for breach of contract of carriage
entitling them to an award of damages.
333 | P a g e
We are constrained to reverse respondent Appellate Court's
affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air
Transportation Association (IATA), included in paragraphs 9, 10, and
11 of the Stipulations of Fact between the parties in the Trial Court,
dated 31 March 1973, an airplane ticket is valid for one year. "The
passenger must undertake the final portion of his journey by
departing from the last point at which he has made a voluntary stop
before the expiry of this limit (parag. 3.1.2. ) ... That is the time
allowed a passenger to begin and to complete his trip (parags. 3.2 and
3.3.). ... A ticket can no longer be used for travel if its validity has
expired before the passenger completes his trip (parag. 3.5.1.) ... To
complete the trip, the passenger must purchase a new ticket for the
remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted
for breach of contract when it dishonored the tickets of the GANAS
after 8 May 1971 since those tickets expired on said date; nor when it
required the GANAS to buy new tickets or have their tickets re-issued
for the Tokyo/Manila segment of their trip. Neither can it be said that,
when upon sale of the new tickets, it imposed additional charges
representing fare differentials, it was motivated by self-interest or
unjust enrichment considering that an increase of fares took effect,
as authorized by the Civil Aeronautics Board (CAB) in April, 1971. This
procedure is well in accord with the IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on
the date on which transportation commences from the point of
origin. Any ticket sold prior to a change of fare or charge (increase or
decrease) occurring between the date of commencement of the
journey, is subject to the above general rule and must be adjusted
accordingly. A new ticket must be issued and the difference is to be
collected or refunded as the case may be. No adjustment is necessary
if the increase or decrease in fare (or charge) occurs when the journey
is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of those
rules since the evidence bears out that Teresita, who handled travel
arrangements for the GANAS, was duly informed by travel agent Ella
of the advice of Reno, the Office Manager of Air France, that the
tickets in question could not be extended beyond the period of their
validity without paying the fare differentials and additional travel
taxes brought about by the increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told this by
Mr. Rillo?
A I told her, because that is the reason why they accepted again the
tickets when we returned the tickets spin, that they could not be
extended. They could be extended by paying the additional fare,
additional tax and additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM.
vs. Court of Appeals, 65 SCRA 237 (1975), holding that it would be
unfair to charge respondents therein with automatic knowledge or
notice of conditions in contracts of adhesion, is inapplicable. To all
legal intents and purposes, Teresita was the agent of the GANAS and
notice to her of the rejection of the request for extension of the
validity of the tickets was notice to the GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era
showing reservations for JAL. Flight 108 for 16 May 1971, without
clearing the same with AIR FRANCE allegedly because of the imminent
departure of the GANAS on the same day so that he could not get in
touch with Air France 6 was certainly in contravention of IATA rules
although as he had explained, he did so upon Teresita's assurance
that for the onward flight from Osaka and return, the GANAS would
make other arrangements.
Q Referring you to page 33 of the transcript of the last session, I had
this question which reads as follows: 'But did she say anything to you
when you said that the tickets were about to expire?' Your answer
was: 'I am the one who asked her. At that time I told her if the tickets
being used ... I was telling her what about their bookings on the
return. What about their travel on the return? She told me it is up for
the Ganas to make the arrangement.' May I know from you what did
you mean by this testimony of yours?
A That was on the day when they were asking me on May 7, 1971
when they were checking the tickets. I told Mrs. Manucdoc that I was
going to get the tickets. I asked her what about the tickets onward
from the return from Tokyo, and her answer was it is up for the Ganas
to make the arrangement, because I told her that they could leave on
the seventh, but they could take care of that when they arrived in
Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and
Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would expire on
May 7, and they insisted on leaving. I asked Mrs. Manucdoc what
about the return onward portion because they would be travelling to
Osaka, and her answer was, it is up to for the Ganas to make the
arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you told her
that? If you can remember, what were her exact words?
A Her words only, it is up for the Ganas to make the arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the ticket counter in
the airport allowed the GANAS to leave is not tantamount to an
implied ratification of travel agent Ella's irregular actuations. It should
be recalled that the GANAS left in Manila the day before the expiry
date of their tickets and that "other arrangements" were to be made
with respect to the remaining segments. Besides, the validating
stickers that Ella affixed on his own merely reflect the status of
334 | P a g e
reservations on the specified flight and could not legally serve to
extend the validity of a ticket or revive an expired one.

The conclusion is inevitable that the GANAS brought upon themselves

the predicament they were in for having insisted on using tickets that
were due to expire in an effort, perhaps, to beat the deadline and in
the thought that by commencing the trip the day before the expiry
date, they could complete the trip even thereafter. It should be
recalled that AIR FRANCE was even unaware of the validating SAS and
JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air
Lines and AIR FRANCE merely acted within their contractual rights
when they dishonored the tickets on the remaining segments of the
trip and when AIR FRANCE demanded payment of the adjusted fare
rates and travel taxes for the Tokyo/Manila flight.

WHEREFORE, the judgment under review is hereby reversed and set

aside, and the Amended Complaint filed by private respondents
hereby dismissed.

No costs.

SO ORDERED.

Teehankee (Chairman), Plana, Relova and Gutierrez, Jr., JJ., concur.

335 | P a g e
G.R. No. L-20136 June 23, 1965 could not have possibly vested in him any property right in
his own name; (2) the children of Anatolio Buenconsejo had no
IN RE: PETITION FOR ISSUANCE OF SEPARATE CERTIFICATE OF TITLE. authority to execute said power of attorney, because their father is
JOSE A. SANTOS Y Diaz, petitioner-appellant, still alive and, in fact, he and his wife opposed the petition of Santos;
vs. (3) in consequence of said power of attorney (if valid) and
ANATOLIO BUENCONSEJO, ET AL., respondents-appellees. redemption, Santos could have acquired no more than the share pro
Segundo C. Mastrili for petitioner-appellant. indiviso of Anatolio Buenconsejo in Lot No. 1917, so that petitioner
Manuel Calleja Rafael S. Lucila and Jose T. Rubio for respondents- cannot — without the conformity of the other co-owners (Lorenzo
appellees. and Santiago Bon), or a judicial decree of partition issued pursuant to
the provisions of Rule 69 of the new Rules of Court (Rule 71 of the old
CONCEPCION, J.: Rules of Court) which have not been followed By Santos — adjudicate
to himself in fee simple a determinate portion of said Lot No. 1917, as
Petitioner Jose A. Santos y Diaz seeks the reversal of an order of the his share therein, to the exclusion of the other co-owners.
Court of First Instance of Albay, denying his petition, filed in Cadastral
Case No. M-2197, LRC Cad. Rec. No. 1035, for the cancellation of Inasmuch as the appeal is patently devoid of merit, the order
original certificate of title No. RO-3848 (25322), issued in the name of appealed from is hereby affirmed, with treble cost against petitioner-
Anatolio Buenconsejo, Lorenzo Bon and Santiago Bon, and covering appellant Jose A. Santos y Diaz. It is so ordered.
Lot No. 1917 of the Cadastral Survey of Tabaco, Albay, and the
issuance in lieu thereof, of a separate transfer certificate of title in his Bengzon, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P.,
name, covering part of said Lot No. 1917, namely Lot No. 1917-A of and Zaldivar, JJ., concur.
Subdivision Plan PSD-63379. Bautista Angelo, Barrera and Paredes, JJ., took no part.

The main facts are not disputed. They are set forth in the order
appealed from, from which we quote:

It appears that the aforementioned Lot No. 1917 covered by Original

Certificate of Title No. RO-3848 (25322) was originally owned in
common by Anatolio Buenconsejo to the extent of ½ undivided
portion and Lorenzo Bon and Santiago Bon to the extent of the other
½ (Exh. B); that Anatolio Buenconsejo's rights, interests and
participation over the portion abovementioned were on January 3,
1961 and by a Certificate of Sale executed by the Provincial Sheriff of
Albay, transferred and conveyed to Atty. Tecla San Andres Ziga,
awardee in the corresponding auction sale conducted by said Sheriff
in connection with the execution of the decision of the Juvenile
Delinquency and Domestic Relations Court in Civil Case No. 25267,
entitled "Yolanda Buenconsejo, et al. vs. Anatolio Buenconsejo"; that
on December 26, 1961 and by a certificate of redemption issued by
the Provincial Sheriff of Albay, the rights, interest, claim and/or or
participation which Atty. Tecla San Andres Ziga may have acquired
over the property in question by reason of the aforementioned
auction sale award, were transferred and conveyed to the herein
petitioner in his capacity as Attorney-in-fact of the children of
Anatolio Buenconsejo, namely, Anastacio Buenconsejo, Elena
Buenconsejo and Azucena Buenconsejo (Exh. C).

It would appear, also, that petitioner Santos had redeemed the

aforementioned share of Anatolio Buenconsejo, upon the authority
of a special power of attorney executed in his favor by the children of
Anatolio Buenconsejo; that relying upon this power of attorney and
redemption made by him, Santos now claims to have acquired the
share of Anatolio Buenconsejo in the aforementioned Lot No. 1917;
that as the alleged present owner of said share, Santos caused a
subdivision plan of said Lot No. 1917 to be made, in which the portion
he claims as his share thereof has been marked as Lot No. 1917-A; and
that he wants said subdivision at No. 1917-A to be segregated from
Lot No. 1917 and a certificate of title issued in his name exclusively
for said subdivision Lot No. 1917-A.

As correctly held by the lower court, petitioner's claim is clearly

untenable, for: (1) said special power of attorney authorized him to
act on behalf of the children of Anatolio Buenconsejo, and, hence, it

336 | P a g e
[G.R. No. 20726. December 20, 1923.
ALBALADEJO Y CIA., S. en C., Plaintiff-Appellant, v. The PHILIPPINE
REFINING CO., as successor to The Visayan Refining Co., Defendant-
Appellant.
Eduardo Gutierrez Repide and Felix Socias, for Plaintiff-Appellant.
Manly, Goddard & Lockwood, for Defendant-Appellant.
Fisher, DeWitt, Perkins & Brady of counsel.
SYLLABUS
1. CONTRACT; NEGLIGENCE IMPUTED TO DEFENDANT IN
PERFORMANCE OF CONTRACTUAL DUTY. — By contract between the
plaintiff and the Visayan Refining Company it was agreed that the
latter would take, at current prices, all the copra which the former
should buy in a designated territory; and it was made the duty of the
Visayan Refining Company to send boats at opportune times to
convey the copra collected by the plaintiff to the point where it was
to be used in the manufacture of coconut oil. In its first cause of action
the plaintiff alleged that the company mentioned had at various times
negligently failed to send boats to transport the copra purchased by
the plaintiff and that as a result of this delay the copra awaiting
shipment had unduly diminished in weight in the process of drying,
thereby inflicting heavy loss upon the plaintiff. The trial judge having
found that transportation had been supplied with reasonable
promptitude, and that the company mentioned had not been guilty
of the alleged negligence, said finding is affirmed by this court.
2. ID.; CONTRACT ONE OF PURCHASE, NOT OF AGENCY. — Under the
contract of purchase above referred to the plaintiff was not the agent
of the Visayan Refining Company as regards the original purchase of
copra by the plaintiff from the producers. On the contrary those
purchases were made by the plaintiff in its own behalf. The defendant
therefore was not liable to reimburse the plaintiff for expenses
incurred by the plaintiff in maintaining its purchasing organization
intact over a period during which the actual buying of copra was
suspended.
3. ID., DETRIMENT INCURRED AT REQUEST OF ANOTHER; ABSENCE OF
INTENTION TO INCUR CONTRACTUAL LIABILITY. — The circumstance
that the Visayan Refining Company encouraged the plaintiff to keep
its organization intact during such period of suspension and suggested
that when the company resumed buying (which was expected to
occur at some time in the future) the plaintiff would be compensated
for all loss which it had suffered, meaning that the profits then to be
made would justify such expenses, does not render the company
liable for such losses upon its subsequent failure to resume the buying
of copra. The inducements thus held out to the plaintiff were not
intended to lay the basis of any contractual liability, and the law will
not infer the existence of a contract contrary to the revealed intention
of the parties.
DECISION
] STREET, J. :
This action was instituted in the Court of First Instance of the Province
of Albay by Albaladejo y Cia., S. en C., to recover a sum of money from
the Philippine Refining Co., as successor to the Visayan Refining Co.,
two causes of action being stated in the complaint. Upon hearing the
cause the trial judge absolved the defendant from the first cause of
action but gave judgment for the plaintiff to recover the sum of
P49,626.68, with costs, upon the second cause of action. From this
judgment that plaintiff appealed with respect to the action taken
upon the first cause of action, and the defendant appealed with
respect to the action taken upon the second cause of action. It results
that, by the appeal of the two parties, the decision of the lower court
is here under review as regards the action taken upon both grounds
of action set forth in the complaint.
It appears that Albaladejo Y Cia. is a limited partnership, organized in
conformity with the laws of these Islands, and having its principal
place of business at Legaspi, in the Province of Albay; and during the
transactions which gave origin to this litigation said firm was engaged
in the buying and selling of the products of the country, especially
copra, and in the conduct of a general mercantile business in Legaspi
and in other places where it maintained agencies, or sub-agencies, for
the prosecution of its commercial enterprises.
The Visayan Refining Co. is a corporation organized under the laws of
the Philippine Islands; and prior to July 9, 1920, it was engaged in
operating its extensive plant at Opon, Cebu, for the manufacture of
coconut oil.
On August 28, 1918, the plaintiff made a contract with the Visayan
Refining Co., the material parts of which are as
follows:jgc:chanrobles.com.ph
"Memorandum of Agreement Re Purchase of Copra. — This
memorandum of agreement, made and entered into by and between
Albaladejo y Compania, S. en C., of Legaspi, Province of Albay,
Philippine Islands, party of the first part, and the Visayan Refining
Company, Inc., of Opon, Province of Cebu, Philippine Islands, party of
the second part,
"Witnesseth That. — Whereas, the party of the first part is engaged
in the purchase of copra in the Province of Albay; and, Whereas, the
party of the second part is engaged in the business of the
manufacture of coconut oil, for which purpose it must continually
purchase large quantities of copra; Now, Therefore, in consideration
of the premises and covenants hereinafter set forth, the said parties
have agreed and do hereby contract and agree as follows, to
wit:jgc:chanrobles.com.ph
"1. The party of the first part agrees and binds itself to sell to the party
of the second part, and the party of the second part agrees and binds
itself to buy from the party of the first part, for a period of one (1)
year from the date of these presents, all the copra purchased by the
party of the first part in the Province of Albay.
"2. The party of the second part agrees to pay the party of the first
part for the said copra the market price thereof in Cebu at date (of)
337 | P a g e
purchase, deducting, however, from such price the cost of
transportation by sea to the factory of the party of second part at
Opon, Cebu, the amount deducted to be ascertained from the rates
established, from time to time, by the public utility commission, or
such entity as shall succeed to its functions, and also a further
deduction for the shrinkage of the copra from the time of its delivery
to the party of the second part to its arrival at Opon, Cebu, plus one-
half of real per picul in the event the copra is delivered to boats which
will unload it on the pier of the party of the second part at Opon,
Cebu, plus one real per picul in the event that the party of the first
part shall employ its own capital exclusively in its purchase.
"3. During the continuance of this contract the party of the second
part will not appoint any other agent for the purchase of copra in
Legaspi, nor buy copra from any vendor in Legaspi.
"4. The party of the second part will, so far as practicable, keep the
party of the first part advised of the prevailing prices paid for copra in
the Cebu market.
"5. The party of the second part will provide transportation by sea to
Opon, Cebu, for the copra delivered to it by the party of the first part,
but the party of the first part must deliver such copra to the party of
the second part free on board the boats of the latter’s ships or on the
pier alongside the latter’s ships, as the case may be."cralaw virtua1aw
library
Pursuant to this agreement the plaintiff, during the year therein
contemplated, bought copra extensively for the Visayan Refining Co.
At the end of said year both parties found themselves satisfied with
the existing arrangement, and they therefore continued by tacit
consent to govern their future relations by the same agreement. In
this situation affairs remained until July 9, 1920, when the Visayan
Refining Co. closed down its factory at Opon and withdrew from the
copra market.
When the contract above referred to was originally made, Albaladejo
y Cia. apparently had only one commercial establishment, i.e., that at
Legaspi; but the large requirements of the Visayan Refining Co. for
copra appeared so far to justify the extension of the plaintiff’s
business that during the course of the next two or three years it
established some twenty agencies, or subagencies, in various ports
and places of the Province of Albay and neighboring provinces.
After the Visayan Refining Co. had ceased to buy copra, as above
stated, of which fact the plaintiff was duly notified, the supplies of
copra already purchased by the plaintiff were gradually shipped out
and accepted by the Visayan Refining Co., and in the course of the
next eight or ten months the accounts between the two parties were
liquidated. The last account rendered by the Visayan Refining Co. to
the plaintiff was for the month of April, 1921, and it showed a balance
of P288 in favor of the defendant. Under date of June 25, 1921, the
plaintiff company addressed a letter from Legaspi to the Philippine
Refining Co. (which had now succeeded to the rights and liabilities of
the Visayan Refining Co.) , expressing its approval of said account. In
this letter no dissatisfaction was expressed by the plaintiff as to the
state of affairs between the parties; but about six weeks thereafter
the present action was begun.
Upon reference to paragraph five of the contract reproduced above
it will be seen that the Visayan Refining Co. obligated itself to provide
transportation by sea to Opon, Cebu, for the copra which should be
delivered to it by the plaintiff; and the first cause of action set forth in
the complaint is planted upon the alleged negligent failure of the
Visayan Refining Co. to provide opportune transportation for the
copra collected by the plaintiff and deposited for shipment at various
places. In this connection we reproduce the following allegations
from the complaint:jgc:chanrobles.com.ph
"6. That, from the month of September, 1918, until the month of June,
1920, the plaintiff opportunely advised the Visayan of the stocks that
the former had for shipment, and, from time to time, requested the
Visayan to send vessels to take up said stocks; but that the Visayan
culpably and negligently allowed a great number of days to elapse
before sending the boats for the transportation of the copra to Opon,
Cebu, and that due to the fault and negligence of the Visayan, the
stocks of copra prepared for shipment by the plaintiff had to remain
an unnecessary length of time in warehouses and could not be
delivered to the Visayan, nor could they be transmitted to this letter
because of the lack of boats, and that for this reason the copra
gathered by the plaintiff and prepared for delivery to the Visayan
suffered the diminishment of weight herein below specified, through
shrinkage or excessive drying, and, in consequence thereof, an
important diminishment in its value.
x x x
"8. That the diminishment in weight suffered as shrinkage through
excessive drying by all the lots of copra sold by the plaintiff to the
Visayan, due to the fault and negligence of the Visayan in the sending
of boats to take up said copra, represents a total of 9,695 piculs and
56 cates, the just and reasonable value of which, at the rates fixed by
the purchaser as the price in its liquidation, is a total of two hundred
and one thousand, five hundred and ninety nine pesos and fifty-three
centavos (P201,599.53), Philippine currency, in which amount the
plaintiff has been damaged and injured by the negligent and culpable
acts and omissions of the Visayan, as herein above stated and
alleged."cralaw virtua1aw library
In the course of the appealed decision the trial judge makes a careful
examination of the proof relative to the movements of the fleet of
boats maintained by the Visayan Refining Co. for the purpose of
collecting copra from the various ports where it was gathered for the
said company, as well as of the movements of other boats chartered
or hired by said company for the same purpose; and upon
consideration of all the facts revealed in evidence, his Honor found
that the Visayan Refining Co. had used reasonable promptitude in its
efforts to get out the copra from the places where it had been
deposited for shipment, notwithstanding occasional irregularities due
at times to the condition of the weather as related to transportation
by sea and at other times to the inability of the Visayan Refining Co.
to dispatch boats to the more remote ports. This finding of the trial
judge, that no negligence of the kind alleged can properly be imputed
to the Visayan Refining Co., is in our opinion supported by the proof.
Upon the point of the loss of weight of the copra by shrinkage, the
trial judge found that this is a product of which necessarily undergoes
considerable shrinkage in the process of drying, and intelligent
witnesses who are conversant with the matter testified at the trial
338 | P a g e
that shrinkage of copra varies from twenty to thirty per centum of the
original gross weight. It is agreed that the shrinkage shown in all of
the copra which the plaintiff delivered to the Visayan Refining Co.
amounted to only 8.187 per centum of the whole, and amount which
is notably below the normal. This showing was undoubtedly due in
part, as the trial judge suggests, to the fact that in purchasing the
copra directly from the producers the plaintiff’s buyers sometimes
estimated the picul at sixty-eight kilos, or somewhat less, but in no
case at the true weight of 63.25 kilos. The plaintiff was therefore
protected in a great measure from loss by shrinkage by purchasing
upon a different basis of weight from that upon which he sold,
otherwise the shrinkage shown in the result must have been much
greater than that which actually appeared. But even considering this
fact, it is quite evident that the demonstrated shrinkage of 8.187 per
centum was an extremely moderate average; and this fact goes to
show that there was no undue delay on the part of the Visayan
Refining Co. in supplying transportation for the copra collected by the
plaintiff.
In the course of his well-reasoned opinion upon this branch of the
case, the trial judge calls attention to the fact that it is expressly
provided in paragraph two of the contract that the shrinkage of copra
from the time of its delivery to the party of the second part till its
arrival at Opon should fall upon the plaintiff, from whence it is to be
inferred that the parties intended that the copra should be paid for
according to its weight upon arrival at Opon regardless of its weight
when first purchased; and such appears to have been the uniform
practice of the parties in settling their accounts for the copra
delivered over a period of nearly two years.
From what has been said it follows that the first cause of action set
forth in the complaint is not well founded, and the trial judge
committed no error in absolving the plaintiff therefrom.
It appears that in the first six months of the year 1919, the plaintiff
found that its transactions with the Visayan Refining Co. had not been
productive of reasonable profit, a circumstance which the plaintiff
attributed to loss of weight or shrinkage in the copra from the time of
purchase to its arrival at Opon; and the matter was taken up with the
officials of said company, with the result that a bounty amounting to
P15,610.41 was paid to the plaintiff by the Visayan Refining Co. In the
ninth paragraph of the complaint the plaintiff alleges that this
payment was made upon account of shrinkage, for which the Visayan
Refining Co. admitted itself to be liable; and it is suggested that
making of this payment operated as a recognition on the part of the
Visayan Refining Co. of the justice of the plaintiff’s claim with respect
to the shrinkage in all subsequent transactions. With this proposition
we cannot agree. At most the payment appears to have been in
recognition of an existing claim, without involving any commitment
as to liability on the part of the defendant in the future; and
furthermore it appears to have been in the nature of a mere gratuity
in order to encourage the plaintiff and to assure that the plaintiff’s
organization would be kept in efficient state for future activities. It is
certain that no general liability for plaintiff’s losses was assumed for
the future; and the defendant on more than one occasion thereafter
expressly disclaimed liability for such losses.
As already stated purchases of copra by the defendant were
suspended in the month of July, 1920. At this time the plaintiff had an
expensive organization which had been built up chiefly, we suppose,
with a view to the buying of copra; and this organization was
maintained practically intact for nearly a year after the suspension of
purchases by the Visayan Refining Co. Indeed in October, 1920, the
plaintiff added an additional agency at Gubat to the twenty or more
already in existence. As a second cause of action the plaintiff seeks to
recover the sum of P110,000, the alleged amount expended by the
plaintiff in maintaining and extending its organization as above
stated. As a basis for the defendant’s liability in this respect it is
alleged that said organization was maintained and extended at the
express request, or requirement of the defendant, in conjunction with
the repeated assurances that the defendant would soon resume
activity as a purchaser of copra.
With reference to this cause of action the trial judge found that the
plaintiff, as claimed, had incurred expenses at the request of the
defendant and upon its representation that the plaintiff would be
fully compensated therefor in the future. Instead, however, of
allowing the plaintiff the entire amount claimed, his Honor gave
judgment for only thirty per centum of said amount, in view of the
fact that the plaintiff’s transactions in copra had amounted in the past
only to about thirty per centum of the total business transacted by it.
Estimated upon this basis, the amount recognized as constituting a
just claim was found to be P49,626.68, and for this amount judgment
was rendered against the defendant.
The discussion of this branch of the appeal involves the sole question
whether the plaintiff’s expenses in maintaining and extending its
organization for the purchase of copra in the period between July,
1920, to July, 1921, were incurred at the instance and request of the
defendant, or upon any promise of the defendant to make that
expenditure good. A careful examination of the evidence, mostly of a
documentary character, is, in our opinion, convincing that the
supposed liability does not exist.
By recurring to paragraph four of the contract between the plaintiff
and the Visayan Refining Co. it will be seen that the latter agreed to
keep the plaintiff advised of the prevailing prices paid for copra in the
Cebu market. In compliance with this obligation the Visayan Refining
Co. was accustomed to send out "trade letters" from time to time to
its various clients in the southern provinces of whom the plaintiff was
one. In these letters the manager of the company was accustomed to
make comment upon the state of the market and to give such
information as might be of interest or value to the recipients of the
letters. From the series of letters thus sent to Albaladejo y Cia. during
the latter half of 1920, we here reproduce the following
excerpts:chanrob1es virtual 1aw library
(Letter of July 2, 1920, from K. B. Day, General Manager, of the
Visayan Refining Co., to Albaladejo y Cia.)
"The copra market is still very weak. I have spent the past two weeks
in Manila studying conditions and find that practically no business at
all is being done. A few of the mills having provincial agents are
accepting small deliveries, but I do not suppose that 500 piculs of
copra are changing, hands a day. Buyers are offering from P13 to P15,
depending on quality, and sellers are offering to sell at anywhere from
P16 to P18, but no business can be done for the simple reason that
the banks will not lend the mills any money to buy copra with at this
time.
339 | P a g e
"Reports from the United States are to the effect that the oil market
is in a very serious and depressed condition and that the large
quantities of oil cannot be disposed of at any price.
x x x much better than what you have been receiving in the past. Due to
"Under these conditions it is imperative that this mill buy no more
copra than it can possibly help at the present time. We are not anxious
to compete, nor do we wish to purchase same in competition with
others. We do, however, desire to keep our agents doing business and
trust that they will continue to hold their parroquianos (customers),
buying only minimum quantities at present.
"The local market has not changed since last week, and our liquidating
price is P14."cralaw virtua1aw library
(Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Cia.)
"Notify your subagents to drop out of the market temporarily. We do
not desire to purchase at present."cralaw virtua1aw library
(Letter of July 10, 1920, from K. B. Day, General Manager, to
Albaladejo y Cia.)
"The market continues to grow weaker. Conditions are so uncertain
that this company desires to drop out of the copra market until
conditions have a chance to readjust themselves. We request
therefore that our agents drop out of active competition for copra
temporarily. Stocks that are at present on hand will, or course, be
liquidated, but no new stocks should be acquired. Agents should do
their best to keep their organizations together temporarily, for we
expect to be in the market again soon stronger than ever. We expect
the cooperation of agents in making this effective; and if they give us
this cooperation, we will endeavor to see that they do not lose by the
transaction in the long run. This company has been receiving copra
from its agents for a long time at prices which have netted it a loss.
The company has been supporting its agents during this period. It now
expects the same support from its agents. Agents having stocks
actually on hand in their bodegas should telegraph us the quantity
immediately and we will protect same. But stocks not actually in
bodegas cannot be considered."cralaw virtua1aw library
(Letter of July 17, 1920, from K. B. Day to Albaladejo y Cia.)
"Conditions have changed very little in the copra market since last
reports. . . . We are in the same position as last week and are out of
the market.
"For the benefit of our agents, we wish to explain in a few words just
why we are out of the market. Our tanks are full of oil and we have
been forced to close down our mill until the arrival of a boat to load
some of our stocks on hand. We have large stocks of copra. The
market for oil is so uncertain that we do not care to increase these
stocks until such time as we know that the market has touched the
bottom. As soon as this period of uncertainty is over, we expect to be
in the market again stronger than ever, but it is only the part of
business wisdom to play safe at such times as these.
"Owing to the very small amounts of copra now in the provinces, we
do not think that our agents will lose anything by our being out of the
market. On the contrary, the producers of copra will have a chance to
allow their nuts to mature on the trees so that the quality of copra
which you will receive when we again are in the market should be
the high prices and scarcity of copra a large proportion of the copra
we have received has been made from unripe coconuts and in order
to keep revenue coming in the producers have kept harvesting these
coconuts without giving them the chance to let their nuts ripen and
should give you a better copra in the future which will shrink less and
be more satisfactory both from your standpoint and ours. Please do
all you can to assist us at this time. We shall greatly appreciate your
cooperation."cralaw virtua1aw library
(Letter of August 7, 1920, from H. U. Umstead, Assistant General
Manager, to Albaladejo y Cia.)
"The copra situation in Manila remains unchanged and the outlook is
still uncertain. Arrivals continue small.
"We are still out of the market and are not yet in a position to give
you buying orders. We trust, however, that within the next few weeks
we may be able to reenter the market and resume our former
activity.
x x x
"While we are out of the market we have no objection whatever to
our agents selling copra to other purchasers, if by doing so they are
able to keep themselves in the market and retain their parroquianos
(customers). We do not, however, wish you to use our money for this
purpose, nor do we want you to buy copra on speculation with the
idea in mind that we will take it off your hands at high prices when we
reenter the market. We wish to warn you against this now so that you
will not be working under any misapprehension.
"In this same mail, we are sending you a notice of change of
organization. In your dealings with us hereafter, will you kindly
address all communications to the Philippine Refining Corporation,
Cebu, which you will understand will be delivered to us."cralaw
virtua1aw library
(Letter of August 21, 1920, from Philippine Refining Corporation, by
K. B. Day, to Albaladejo y Cia.)
"We are not yet in the market, but as we have indicated before, are
hopeful of renewing our activities soon. We shall advise all our agents
seasonably of our return to the market. . . .
"We are preparing new forms of agreement between ourselves and
our agents and hope to have them completed in time to refer them
to our agents in the course of the next week or ten days.
"All agents should endeavor to liquidate outstanding advances at this
time because this is a particularly good time to clean out old accounts
and be on a business basis when we return to the market. We request
that our agents concentrate their attention on this point during the
coming week."cralaw virtua1aw library
340 | P a g e
(Letter of October 16, 1920, from K. B. Day, Manager to Albaladejo y
Cia.)
"Copra in Manila and coconut oil in the United States have taken a
severe drop during the past week. The Cebu price seems to have
remained unchanged, but we look for an early drop in the local
market.
"We have received orders from our president in New York to buy no
more copra until the situation becomes more favorable. We had
hoped and expected to be in the market actively before this time, but
this most unexpected reaction in the market makes the date of our
entry in it more doubtful.
"With this in view, we hereby notify our agents that we can accept no
more copra and advance no more money until we have permission
from our president to do so. We request, therefore, that you go
entirely out of the market, so far as we are concerned, with the
exception of receiving copra against outstanding accounts.
"In any case agent be compelled to take in copra and desire to send
same to us, we will be glad to sell same for him to the highest bidder
in Cebu. We will make no charge for our services in this connection,
but the copra must be forwarded to us on consignment only so that
we will not appear as buyers and be required to pay the internal-
revenue tax.
"We are extremely sorry to be compelled to make the present
announcement to you, but the market is such that our president does
not deem it wise for us to purchase copra at present, and, with this in
view, we have no alternative other than to comply with his orders.
We hope that our agents will realize the spirit in which these orders
are given, and will do all they can to remain faithful to us until such
time as we can reenter the market, which we hope and believe will be
within a comparatively short time."cralaw virtua1aw library
(Special Letter of October 16, 1929, from Philippine Refining
Corporation, by K. B. Day, to Albaladejo y Cia.)
"We have received very strict instructions from New York temporarily
to suspend the purchase of copra, and of course we must comply
therewith. However, should you find yourselves obliged to buy copra
in connection with your business, and cannot dispose of it
advantageously in Cebu, we shall be glad to receive your copra under
the condition that we shall sell it in the market on your account to the
highest bidder, or, in other words, we offer you our services free, to
sell your copra to the best possible advantages that the local market
may offer, provided that, in doing so, we be not obliged to accept your
copra as a purchase when there be no market for this product.
"Whenever you find yourselves obliged to buy copra in order to
liquidate pending advances, we can accept it provided that, so long as
present conditions prevail, we be not required to make further cash
advances."cralaw virtua1aw library
We shall quote no further from letters written by the management of
the Philippine Refining Corporation to the plaintiff, as we find nothing
in the correspondence which reflects an attitude different from that
reflected in the matter above quoted. It is only necessary to add that
the hope so frequently expressed in the letters, to the effect that the
Philippine Refining Corporation would soon enter the market as a
buyer of copra on a more extensive scale than its predecessor, was
not destined to be realized, and the factory at Opon remained closed.
But it is quite obvious that there is nothing in these letters on which
to hold the defendant liable for the expenses incurred by the plaintiff
in keeping its organization intact during the period now under
consideration. Nor does the oral testimony submitted by the plaintiff
materially change the situation in any respect. Furthermore, the
allegation in the complaint that one agency in particular (Gubat) had
been opened on October 1, 1920, at the special instance and request
of the defendant, is not at all sustained by the evidence.
We note that in his letter of July 10, 1920, Mr. Day suggested that if
the various purchasing agents of the Visayan Refining Co. would keep
their organization intact, the company would endeavor to see that
they should not lose by the transaction in the long run. These words
afford no sufficient basis for the conclusion, which the trial judge
deduced therefrom, that the defendant is bound to compensate the
plaintiff for the expenses incurred in maintaining its organization. The
correspondence sufficiently shows on its face that there was no
intention on the part of the company to lay a basis for contractual
liability of any sort; and the plaintiff must have understood the letters
in that light. The parties could undoubtedly have contracted about it,
but there was clearly no intention to enter into contractual relation;
and the law will not raise a contract by implication against the
intention of the parties. The inducement held forth was that, when
purchasing should resumed, the plaintiff would be compensated by
the profits then to be earned for any expense that would be incurred
in keeping its organization intact. It is needless to say that there is no
proof showing that the officials of the defendant acted in bad faith in
holding out this hope.
In the appellant’s brief contention is advanced that the contract
between the plaintiff and the Visayan Refining Co. created the
relation of principal and agent between the parties, and reliance is
placed upon article 1729 of the Civil Code which requires the principal
to indemnify the agent for damages incurred in carrying out the
agency. Attentive perusal of the contract is, however, convincing to
the effect that the relation between the parties was not that of
principal and agent in so far as relates to the purchase of copra by the
plaintiff. It is true that the Visayan Refining Co. made the plaintiff one
of its instruments for the collection of copra; but it is clear that in
making its purchases from the producers the plaintiff was buying
upon its own account and that when it turned over the copra to the
Visayan Refining Co., pursuant to that agreement, a second sale was
effected. In paragraph three of the contract it is declared that during
the continuance of this contract the Visayan Refining Co. would not
appoint any other agent for the purchase of copra in Legaspi; and this
gives rise indirectly to the inference that the plaintiff was considered
its buying agent. But the use of this term in one clause of the contract
cannot dominate the real nature of the agreement as revealed in
other clauses, no less than in the caption of the agreement itself. In
some of the trade letters also the various instrumentalities used by
the Visayan Refining Co. for the collection of copra are spoken of as
agents. But this designation was evidently used for convenience; and
it is very clear that in its activity as a buyer the plaintiff was acting
upon its own account and not as agent, in the legal sense, of the
Visayan Refining Co. The title to all of the copra purchased by the
plaintiff undoubtedly remained in it until it was delivered by way of
341 | P a g e
subsequent sale to said company.

For the reasons stated we are of the opinion that no liability on the
part of the defendant is shown upon the plaintiff’s second cause of
action, and the judgment of the trial court on this part of the case is
erroneous.

The appealed judgment will therefore be affirmed in so far as it

absolves the defendant from the first cause of action and will be
reversed in so far as it gives judgment against the defendant upon the
second cause of action; and the defendant will be completely
absolved from the complaint. So ordered, without express finding as
to costs of either instance.

Johnson, Malcolm, Avanceña, Villamor, Johns and Romualdez, JJ.,

concur.

342 | P a g e
6. Cui vs. Cui, 100 Phil. 913
G.R. No. L-7041 February 21, 1957
JESUS MA. CUI, ET AL., plaintiffs-appellants,
vs.
ANTONIO MA. CUI, ET AL., defendants-appellees.
Claro M. Recto, Jose P. Laurel and Vicente Jayme for appellants.
Pimintel & Pimintel and Amador E. Gomez for appellees.
BAUTISTA ANGELO, J.:
On May 25, 1948, Jesus Ma. Cui and Jorge Ma. Cui brought an action
in the Court of First Instance of Cebu against Antonio Ma. Cui and
Mercedes Cui de Ramos seeking the annulment of the sale of three
parcels of land against Antonio Ma. Cui and Mercedes Cui de Ramas
of the latter and the partition of the same among the heirs who
should inherit them including the plaintiffs. The Rehabilitation
Finance Corporation was included as party defendant because the
lands above-mentioned were mortgaged to it to secure a loan of
P130,000, the object being to have the mortgage declared null and
void.
On March 19, 1949, Rosario Cui, daughter of Don Mariano Cui, filed
in the same court a petition for the appointment of a guardian of the
person and properties of her father on the ground of incompetency
and, accordingly, he was declared incompetent on March 31, 1949
and one Victorino Reynes was appointed as his guardian.
On July 13, 1949, the complaint was amended by including as party
plaintiffs the guardian as party plaintiffs the guardian Victorino
Reynes and the other children and relatives of Don Mariano, namely,
Jose Ma. Cui, Serafin Ma. Cui, Rosario Cui, her husband Irineo
Encarnacion, Lourdes C. Velez, Priscilla Velez and Federico Tamayo.
Defendants in their answer set up the defense that the sale
mentioned in the complaint is valid because it was executed when
Don Mariano Cui was still in possession of his mental faculties and
that, while the sale was at first executed in favor of the defendants
and their sister Rosario Cui, the latter however resold her share to
Don Mariano for reason stated in the deed of resale executed to the
effect. They prayed that the complaint be dismissed.
On May 22, 1951, after due hearing and the presentation of
voluminous evidence on the part of both parties, the court rendered
its decision dismissing the complaint and which plaintiffs appealed in
due time, and because the value of the property involved exceeds the
amount of P50,000, the case was certified to us for decision by the
Court of Appeals under section 1 of Republic Act No. 296.
Plaintiffs and defendants, with the exception of the Rehabilitation
Finance Corporation, are the legitimate children of Don Mariano Cui
and Doña Antonia Perales who died intestate in the City of Cebu on
March 20, 1939. Plaintiffs in their complaint allege that during the
marriage of Don Mariano Cui and Doña Antonia Perales, the spouses
acquired certain properties in the City of Cebu, namely, Lots Nos.
2312, 2313 and 2319, with an approximate area of 2,658 square
meters, having an assessed value of P159,480, and a market value of
120 per square meter; that upon the death of Doña Antonia Perales,
the conjugal partnership did not leave any indebtedness and the
conjugal properties were placed under the administration of Don
Mariano Cui; that while the latter was 84 years of age and under the
influence of defendants, the latter, by means of deceit, secured the
transfer to themselves of the aforementioned lots without any
pecuniary consideration; that in the deed of sale executed on March
8, 1946, Rosario Cui appeared as one of the vendees, but on learning
of this fact she subsequently renounced her rights under the sale and
returned her portion to Don Mariano Cui by executing a deed of resale
in his favor on October 11, 1946; that defendants, fraudulently and
with the desire of enriching themselves unjustly at the expense of
their father, Don Mariano Cui, and of their brothers and co-heirs,
secured a loan of P130,000 from the Rehabilitation properties, and
with the loan thus obtained, defendants contructed thereon an
apartment building of strong materials consisting of 14 doors, valued
at approximately P130,000 and another building on the same parcels
of land, which buildings were leased to some Cinese commercial firms
a monthly rental of P7,600, which defendants have collected and will
continue to collect to the prejudice of the plaintiffs; and because of
this fraudulent and illegal transaction, plaintiffs prayed that the sale
and mortgage executed on the properties in question, in so far as the
shares of the plaintiffs are concerned, be declared null and void and
the defendants be ordered to pay the plaintiffs their shares in the
rentals of the properties at the rate of P7,600 a month from
November 1, 1947 up to the time of their full payment, together with
whatever interest may be thereon and the expenses of litigation.
Defendants, on the other hand, aver that while the properties in
question were acquired during the marriage of Don Mariano Cui and
Doña Antonia Perales, however, they were entirely the exclusive
property of Don Mariano Cui up to the time of their transfer to
defendants under the deed of Sale Exhibit A, having been acquired by
him as a donation from his uncle Don Pedro Cui and his aunt Doña
Benigna Cui; that this fact was known to the plaintiffs and to the
guardian of Don Mariano, Victorino Reynes, because in the extra-
judicial partition executed between plaintiffs and defendants on
December 6, 1946 of the properties of the deceased Antonia Perales,
the three lots in question did not form part of the conjugal properties
of the spouses Don Mariano Cui and Doña Antonia Perales; that Don
Mariano Cui, for a consideration, voluntarily and without deceit,
pressure or influence on the part of defendants, executed and signed
the deed of sale Exhibit A; and that Don Cariano Cui was at that time
in full enjoyment of his mental faculties and only suffered loss of
memory several years later when he was declared by the court
incompetent to manage his properties.
Defendants denied that the building constructed on the three lots in
question consisted of 14 doors and alleged that it consisted of only 12
doors. They also denied that they received the sum of P7,600 as
monthly rental of said building because what they have been
receiving was only a monthly rental of P4,800. As a special defense,
they aver that they are the owners of the naked ownership of 2/3 of
the three lots in question subject to the usufruct over the rents of
products thereof in favor of Don Mariano Cui during his lifetime, with
the exception of the rents from the building constructed on the 2/3
portion belonging to them; that the 2/3 of the lots in question did not
produce any rent at the time of their acquisition by the defendants,
for they produced rentals only after the defendants had constructed
the 12-door apartment now standing thereon; that subsequently and
by verbal agreement between Don Mariano Cui and the defendants,
the usufruct of the former over said 2/3 portion was fixed at P400
343 | P a g e
monthly, and this sum Don Mariano has been receiving since then up
to the present time. Defendants also aver that they are the exclusive
owner of the 12-door apartment constructed on the 2/3 portion of
the lots in question, having been constructed at their expense and by
virtue of the authorization given to them in the deed of sale Exhibit A;
that the loan of P130,000 obtained from the Rehabilitation Finance
Corporation was solicited personally by defendants Antonio Ma. Cui
and Mercedes Cui de Ramas for their exclusive benefit and for the
purpose of investing it in the construction of said building; that since
the property is undivided, Don Mariano Cui, as one of the co-owners,
consented to the execution of a mortgage thereon in favor of said
corporation to guarantee the payment of the loan jointly with his co-
owners, the aforesaid defendants, for the sole purpose of
accommodating the latter and to enable them to obtain the loan; that
the plaintiffs are in estoppel to claim that the lots in question belong
to the conjugal partnership of their parents Don Mariano Cui and
Doña Antonia Perales, and that plaintiffs instituted the present action
because they do not like the manner in which their father had
disposed of said lots, especially Jesus Ma. Cui who was unsuccessful
in his request that the ¹/3 said lots be sold to him. They prayed that
the action be dismissed.
In this appeal, appellants now contended that the lower court erred:
(1) "In not declaring the deed of sale, Exhibit A, avoid or inexistent for
lack of valid consent and consideration"; (2) "In not declaring illegal
the sale, evidenced by Exhibit A, on the ground that it was a
transaction between principal and agent, which is prohibited by
paragraph (2), Article 1959 of the old Civil Code"; (3) "In not finding
that the three lots conveyed by means of the deed of sale, Exhibit A,
belong to the unliquidated conjugal partnership of Don Mariano Cui
and his deceased wife Doña Antonia Perales, and that entire
property"; and (4) "In not finding that the plaintiffs are entitled to
seven-eights (7/8) of property in question and of the rentals thereof
beginning November 1, 1947." We will discuss these issues
separately.
In support of their contention that Don Mariano Cui did not and could
not have validly consented to the deed of sale in question, appellants
submitted the following proposition: (a) Don Mariano was
incapacitated to give his consent by reason of his age and ailment; (b)
Don Mariano acted under a mistake, and his signature was secured by
means of deceit; and (c) the sale Exhibit A is vatiated by undue
influence.
In support of the first proposition, it is argued that Don Mariano, at
the time he signed the deed of sale Exhibit A on March 8, 1946, was
already 83 years old, was sickly and infirm, and frequently complained
of ill health. It is also contended that six days before the sale, or on
March 2, 1946, he had executed a general power of attorney in favor
of defendant Antonio Cui, which act could signify that Don Mariano
himself realized that he was longer capacitated to administer his
properties and found it necessary to relieve himself of the task of
dealing with other persons in connection therewith. It is also pointed
out that his children, Jorge, Jesus and Rosario Cui testified that he was
ill, he was forgetful, he could not read nor remember well what he
read, and his letters show that he was no longer familiar with the rules
of orthography. In his letter he also complained about his illness and
he realized that his affections were due to his old age. It is also
emphasized that as early as August, 1944, Jesus Cui noted that his
father was "muy debil . . . en cuestiones negocios" and that "en cuanto
a su capacidad para administar sus bienes en que tenia que producir
o estudiar, el (Don Mariano) no se acordaba." Although he was not in
same when he signed the deed of sale Exhibit A, yet he was admittedly
"incompetente para manejar su dinero." (pp. 85-86, Brief for plaintiffs
and Appellants.)
As regards the second proportion, it is insinuated that if Don Mariano,
by reason of his advanced age, his weak mind and body and feeble
will and reason, was not capacitated to give his consent, it would
follow as a corollary that he could not fully understand the contents
of the deed of sale. He must have therefore labored under a mistake
as to true nature of the transaction especially when it was written in
a language which he did not understand. Other insinuation leading to
the same result are: Don Mariano must have erroneously thought
that the only way to pay his debt of P3,000 to Ramon Aboitiz was by
executing the sale, just as he gave consent to the sale of his conjugal
property of San Jose St., Cebu City, because he thought it was the only
available way to pay his indebtedness to the Insular Life Assurance Co.
Or he must have thought that the document he was made to sign by
Antonio Cui was not a sale but a mere authority to administer the
property for purpose of revenue, or he must have been induced to
signing it after he was promised a life annuity in the form of usufruct
over the rents of the properties in question. In other words the
insinuation is made that Antonio Cui employed deceit in securing the
signature Don Mariano to the sale in question in order merely to
satisfy his selfish ends. There being, therefore, error and deceit, there
is no valid consent which can give validity to the sale on the sale on
the part of Don Mariano.
And with regard to the third proposition, the following circumstances
are pointed out: At the time of the sale, Don Mariano was already 83
years old, was infirm and was living with the vendees, herein
appellees. Antonio Cui was his lawyer and attorney in fact and there
was between them confidential family and spiritual relations. Don
Mariano was then in financial as shown by the fact that he was
worried about his debt to Ramon Aboitiz, and way back in 1946 he
had to borrow money from his daughter Rosario Cui which remained
unpaid even after the sale in question. The presence of undue
influence is further shown, appellants contend, in the execution by
Don Mariano of the Mortgage in favor of the Rehabilitation Finance
Corporation, the extrajudicial partition Exhibit 1-a, the partition of the
property in question, the alleged oral waiver of usufrutuary rights,
and the alleged explanatory statement Exhibit 34. These acts, which
were allegedly mastermined by Antonio Cui, show, appellants
contend, that Antonio Cui could get from father whatever he wanted.
We do not believe the arguments advanced by appellants in an effort
to nullify the deed of sale Exhibit A sufficient in law to invalidate the
same on the ground of lack of valid consent on the part of Don
Mariano for the simple reason that they are merely based on surmises
or conjectures or circumstances which, though they may show
inferentially that he was sickly or forgetful because of his advanced
age, do not however point unremittingly to the conclusion that at the
time he signed said deed of sale he was not full enjoyment of his
mental faculties as to disqualify him to do so or that he was not aware
of the nature of the transaction he was then undertaking. Although at
the time of the sale he was already 83 years old, he was sickly and
forgetful, as contended, yet, according to the authorities, weakness
of mind alone, not caused by insanity, is not a ground for avoiding a
contract, for it is still necessary to show that the person at the time of
344 | P a g e
doing the act "is not capable of understanding with reasonable
clearness the nature and effect of the transaction in which he is
engaging" (Page on Contracts, Vol. III, p. 2810). Or, as well stated in
the very case cited by counsel for appellants only when there is "great
weakness of mind in a person executing a conveyance of land, arising
from age, sickness, or any other cause", can a person ask a court of
equity to interfere in order to set aside the conveyance (Allore vs.
Jewell, 24 Law Ed., 263-264). And here the evidence shows that such
is not the case, for the several letters and documents signed all
executed by Don Mariano many months after the execution of the
deed of sale Exhibit A clearly indicate that, while he was of an
advanced age, he was however still physically fit and his mind was
keen and clear. This we will see in the following discussion of the
evidence.
One of such evidence is the testimony of Rosario Cui, one of the
appellants herein. It should be remembered that it was she who
initiated the proceedings for the declaration of incompetency of Don
Mariano Cui in order that he may be placed under guardianship and
at the hearing held for that purpose, she was the main witness. When
called upon to testify as to the state of health and mental condition
of Don Mariano, she stated that during the period she had been living
with her father in Calapan, Mindoro, which dates as for back as the
Japanese occupation, she had observed that the state of his mind was
very good, he was not yet so forgetful as he is now, and that she
discovered his mental weakness which makes him incompetent to
manage his own affairs only sometime in the month of January, 1949
(pp. 5 and 6, Exhibit 9; p. 136, t.s.n). And on the strenght of her
testimony, Don Mariano was declared incompetent on March 31,
1949. This is an indication that, when the deed of sale was executed
on March 8, 1946, three years before his declaration of
incompetency, Don Mariano was still in the full enjoyment of his
mental-faculties. It should be stated that his testimony of Rosario Cui
stands undisputed.
A circumstance which strongly corroborates this testimony of Rosario
Cui is the letter Exhibit 26 which Don Mariano wrote to Don Ramon
Aboitiz on May 31, 1946, two months after the execution of the deed
of sale Exhibit A, in relation to the indebtedness he owed him by
reason of his having acted as the surety of his son Jesus Cui which the
latter had not been able to settle. This letter, which shows how lucid,
keen, clear and analytical his mind was, is herein reproduced for ready
reference:
Cebu, Mayo 31, 1946
Sr. DON RAMON ABOITIZ
CEBU
ESTIMADO AMIGO —
La portadora de la presente es mi hija Mercedes, esposa del Dr.
Ramas, a quien he dado el encargo de presentarse a Vd. con esta carta
y pagarle en mi nombre como fiador de mi hijo Jesus Cui el saldo
resultante de laliquidacion hecha por Vd. el 5 de Diciembre de 1941
de la deuda que este contrajo, de Vd. por cierto prestamo en metalico
que le dio bajo mi garantia consistente en hipoteca.
Como Vd. trata de cobrar intereses sobre el mencionado saldo hasta
la fecha en que se pague el mismo a partir desde el 1.o de Enero de
1944, permitame que le suplique encarecidamente apelando a su
buen corazon y reconocida generosidad, deje Vd. de cobrarme esos
intereses. En apoyo de esta suplica someto a su buen criterio lo
siguiente: 1.o, mi buenavoluntad, diligencia y prontitud en finiquitar
al citado saldo; 2.o el motivo, como Vd. lo sabe, se tuvo que contraer
la citada deuda sin ningun provecho para mi, antes bien me ha
causada molestias y apuros para pagarla completamente, y 3.o
durante la ocupacion japonesa en Cebu y estando yo ya refugiado en
Manila le escribia de vez en cuando a mi dicho hijo Jesusy siempre le
recordaba que procurara hacerlo por todos los medios, sabiendo yo
que el disponia de bastante dinero; lo cual demuestra a Vd. que la
prealudida deuda me ha tenido en constante preocupacion,
realizandose porultimo mis temores de que al fin habria yo que pagar
casi a la deuda entera.
Como Vd. muy pronto se va a marchar de este nuestro pais,
concedame Vd. lo que le pido en la precedente suplica como un
recuerdo, imperecerederopara mi, de nuestra buena amistad. Le
deseo un feliz viaje, asi como una feliz estancia en el pais donde
establecerse, con buen exito ademas en susnegocios.
Disponga como gusto de affmo. amigo y servidor.
(Fdo.)
Scarcely four months before the execution of the deed of sale, Don
Mariano was residing in Calapan, Mindoro, in the house of Rosario
Cui, and while there he received several letters from his daughter-in-
law, Carmen Gomez, wherein in a very expressive and persuasive
manner she asked her father-in-law, Don Mariano, to extend a
helping hand to his son Jesus Cui, who was then confined in the
stockade of the military authorities in Leyte for collaboration, so that
he may get his provisional release by putting up a bail bond for him.
Because Jesus Cui, his son, had embarked him into some commercial
venture even before the war which resulted in a disastrous failure and
made him suffer a loss of nearly P25,000, aside from the undertaking
he assumed as a surety for the payment of a loan of P3,000 which
Jesus had contracted from Don Ramon Aboitiz on January 27, 1941
which Jesus failed to pay, all of which made him bitter and resentful
against his own son, Don Mariano turned a deaf ear to the plea of
Carmen stating in a language as forceful as it is clear the reasons for
his attitude. These reasons were expressed by Don Mariano in letters
dated November 11, 1945 and November 22, 1945 which are also
herein reproduced for ready reference, omitting the letters of
Carmen, which are referred to therein, for being unnecessary for our
purpose. Note that the person named Chong appearing in the letters
is the nickname given to Jesus, son of Don Mariano:
Calapan, Mindoro
Nbre. 11, 1945
MI ESTIMADA MAMING —
Recibi el 9 del actual tu carta, fechada el 21 de Obre. ppdo y me entere
desu contenido.
Empiezo dandote las expressivas gracias por su interes y buen deseo
por mi salud, que ya no es tan buena como antes; tengo ya mis
achaques a causa de mi vejez que va avanzando cada dia mas; no
puedo esperar ya buena salud.
345 | P a g e
Me haces una apologia en favor de tu marido Chong, mi hijo,
alabandole comoun buen hijo; comprendo que lo hagas, porque la
pasion te ciega; pero no me lo digas a mi que conozco muy a-fondo a
Chong. Nunca le he conocido a Chong como buen hijo mio, pues me
ha dado el los mayores disgustos que he tenido en mi vida. Mes
mijores amigos que esteban al tanto de la vida de Chong y de sus
fracasos en los negocios y con quienes a veces me desahogaba, me
echaban a mi la culpa porque era yo demasiado apasionado por el.
Ahora que llegado a ser pobre, lo comprendo y lo lamento, y me
recuerda de lo que me dijo a mi tia Benigna, ya difunta (q.e.p.d) un
dia, muy formalmente y en serio, que presentia que yo a la vez me
quedaria pobre y me aconsejo que tuviera mucho cuidado en
administrar mis bienes con prudencia..
Siento mucho tener que decirte que no me encuentro en condiciones
para prestar la fianza que me pides en favor de Chong; primero,
porque no dispongo de beienes inmuebles para constituir la fianza y
segundo, porque si bien es verdad que me quedan solares en la calle
Manalili de esa Ciudad, pero el gravamen de hipoteca sobre estos
solares esta sin cancelarse aun en el registro de propiedad, lo cual
tendra aun bastante tiempo, y por otra parte, me reservo los mismos,
siempre libres, para poder disponer de ellos cuando fuere necesario,
para atendar mis gastos. Dispensame, pues, que no pueda
complacerte en lo que me pides. Ahora le escribo a nene para que te
envie esta carta como me lo pides.
En retorno Yre y Nenita te envian sus recuerdos.
Termino deseando a ti y Nene siempre beuna salud y enviando a este
un cariñoso beso y a ti.
En sincero afecto de tu suergo
MARIANO CUI
Calapan, Mindoro
Nbre. 22, 1945
ME APRECIABLE MAMING —
Recibi el 20 del actual por correo tu carta escrita ya alli en Manila y
me apresuro a contestartela.
Ya habras recibido y te habras enterado ya de mi carta, fecha 11 del
actual. Contestando la tuya anterior portador de aquella mi nieto
Liling, que semarcho de aqui para alli el sabado pasado.
Siento mucho tener que desirte que insisto en mi negativa de ser
fiador de Chong en la forma indirecta que se me propone por los que
negocian en prestar fianzas; yo que he sido juez conozco el alcance de
esa fianza queyo otorgue a favor de Don Ramon Aboitiz para garantir
el prestamo, que este hizo a Chong, de TRES MIL PESOS, que creo que
estan sin pagar aun y que yo como burro de carga tendre que
pagarlos. Debes, pues dejarme ya en pazporque tengo mala pata en
ser fiador de Chong. Estoy pidiendo a Dios que me de medios para
poder ayudarle. Temo, ademas, que Dios me castigue haciendomal
uso de los pocos bienes que me ga dejado para mantenerme durante
los pocos anos de vida que me va considiendo aun y para ni vivir
pidiendo limosna, ya que de mis hijos poco puedo esperar.
Agradezco mucho to oferta de que cuando os establicias alli en Manila
pararesidir permanentemente me distenares una habitacion para mi,
y me reservotal oferta para cuando sea conveniente aceptarla.
Sin otra cosa mas, afectuoso recuerdos a Chong y a ti mi aprecio
sincero.
Tu suegro,
Rosario Cui not only testified that Don Mariano was still good and of
sound mind when he lived with her for eighteen months from
September, 1944 up to February, 1946, and for another four months
from July, 1946 to October, 1946 in Calapan, Mindoro, but she also
sustained correspondence with Don Mariano even as late as the year
1947. Hereunder we transcribe Don Mariano's letter to Rosario on
July 14, 1947:
Cebu, Julio 14, 1947
Sra. ROSARIO C. DE ENCARNACION
CALAPAN, MINDOROMI
QUERIDISIMA HIJA —
Siento mucho que el no haber tu recibido carta mia desde que he
llegado aquios haya preocupado tanto artibuyendolo a mi falta de
buena salud. Gracias a Dios no fue asi.
A la semana despues de haber llegado he recibido una carta tuya,
disculpandote de no haber tu podido despedirnos abordo del barco
en que ibamos con motivo de las fuertes lluvias que entonces
cayeron. Te conteste que habias hecho muy bien, teniendo tu una
salud muy delicada para cogerte unas mojaduras de funestas
consecuencias para ti.
A mediados de mayo ultimo calcule que estarias aun en Manila a
consequenciaaun de la operacion de tu matriz; pero no sabiendo que
direccion pner en micarta a ti desisti de escribirte.
Cuanta bondad y generosidad en el arreglo de mi cuarto o habitacion.
Aunqueno lo veo aun, os lo agradezco ya de todo corazon. Debe de
estar ya muy confortable, y sin las goteras que tanto me molestaban.
Espero poder volveraun alli en cuanto se termine estos asuntos.
Te deseo que se te desaperezca pronto la debilidad de tu corazon para
que notengas mas inveycciones de alcampor.
Envio mis mas afectuosos recuerdos a Yre y chiquillos.
Te da un fuerte abrazo tu padre que entranablamente te quiere.
Another interesting circumstance is the discussion which Jesus Ma.
Cui had with his father Don Mariano on April 20, 1946 relative to the
sale of the lots in question. It should be noted that when Jesus came
to know of that sale he could not refrain his anger feeling that he had
been ignored or the subject of discrimination on the part of his father
and give vent to his feeling he wrote to him on March 20, 1947 a
letter, copy of which was marked Exhibit M-2, wherein he appealed
to him (his father) to give him and his other children an opportunity
to buy the properties in question, to which letter Don Mariano
346 | P a g e
answered with another date April 22, 1947 wherein he apparently
gave in to the demand of Jesus subject to certain condition. As the
evidence shows, Don Mariano came to answer the letter of Jesus in
this manner: Don Mariano discussed the matter with his son Antonio
showing to him the letter of Jesus on which occasion Antonio said:
"Bueno papa, si tu crees que en eso el esta empeñado y si queres darle
a el y el ha dicho a ti que el va a hacer todos los medios para conseguir
dicho terreno, puedes hacer todo lo que quiera con tal de que me
devuelves mi dinero que yo habia pagado porque era dinero de mi
esposa." To this Don Mariano answered: "Vamos a ver primero, que
es lo que van a contestar a la carta que voy a mandar."
The letter thus referred to is the one sent by Don Mariano to Jesus,
Exhibit I, wherein the former made known to Jesus that he was willing
to give to all his children equal opportunity to buy the lots in question
subject to the condition that his son or daughter who is not able to
pay his debt or obligations or has no money with which to pay them
would be automatically excluded from the sale. The evidence also
shows that neither Jesus nor the other children who wanted to
participate in the sale took the trouble of answering the letter nor
made known their desire as to the proposition of their father, and
such silence is undoubtedly due to the fact that they were not in a
financial condition to comply with the condition imposed in the letter.
In fact, according to Antonio Cui, such is the predicament in which his
brothers were situated as shown by the fact that Jorge at that time
was indebted to his father in the amount of P6,000, Jesus in the
amount of P18,000, Jose in the amount of P14,000, while his other
brothers did not have the necessary means to take part in the sale.
The fact unfolded in connection with this incident constitute a clear
indication of the state of mind then enjoyed by Don Mariano for he
took the precaution before answering the letter of Jesus of discussing
the matter first with his son Antonio who was the one mostly affected
by the decision he was about to make considering the menacing
attitude and the incessant demand of Jesus regarding the transaction.
Only a person of sound mind could have adopted such precaution and
circumspections.
The deed of sale Exhibit A was executed by Don Mariano Cui, Antonio
Cui and Mercedes Cui de Ramas on March 8, 1946 in the city of Cebu,
and by Rosario Cui and her husband Dr. Ireneo Encarnacion in the City
of Manila on March 20, 1946. The consideration of the sale was
P64,000 plus the reservation of the right in favor of Don Mariano "to
enjoy the fruits and rents of the same" as long as he lives. It appears
however that, while in said deed of sale it is stated that Don Mariano
has acknowledged receipt of said consideration of P64,000, the same
is not true with regard to the share of Rosario Cui. So Don Mariano
went to Calapan, Mindoro in July, 1946 to collect from Rosario her
share of the purchase price amounting to P20,000. Rosario then
excused herself from going ahead with the sale alleging as reason that
she needed what money she had to rehabilitate her electric plant in
Calapan and also because Cebu was very far from Mindoro where
they had already their permanent residence. Not being able to pay
her share in the consideration of the sale, Don Mariano demanded
from her the resale of her interest. This was done when she went to
Manila on October 11, 1946 to execute the deed of resale in favor of
Don Mariano. This attitude of Don Mariano is very significant in so far
as his state of mind is concerned. It shows that he was fully conscious
of what was transpiring and of the transaction he was executing so
much so that he went to the extent of demanding from Rosario the
resale of her interest when she failed to pay her share in the
consideration of the sale.
There are other letters and documents which Don Mariano had
prepared and executed in the neighborhood of the time the deed of
sale in question was executed which also depict the mental condition
that he possessed at the time, and to show this we can do no better
than to quote what the lower court said on this point:
Ademas de lo que ya dejamos expuesto, Don Mariano Cui ejecuto
varios actos que tambien impugnan la contension de que el ya estuvo
mentalmente incapacitado al otogar el Exh. A. Poco antes y tambien
despues de otogar dicha escritura, el escribo varias cartas a sus hijos
y otogo varios documentos. Entre las cartas figuran el Exh. 4, que esta
dirigida a Jorge, lleva la fecha 24 de marzo de 1945; Exh. 23, dirigida
a su hija Mercedes, fechada 9 de septiembre de 1946; Exh. 26, dirigida
a Don Ramon Aboitiz, fechada el 21 de mayo de 1946; Exhs. 36 y 40
dirigidas a su hijo Antonio, y fechadas 3 de julio p. 13 de agosto de
1945, respectivamente; Exhs. 41 y 42, contestaciones de las cartas de
Carmen, esposa de Jesus, fechadas el 11 y 22 de noviembre de 1945,
respectivamente; y exh. 57, dirigida a su hija Rosario, fechada Julio 14,
1947. Entre los documentos figuran; Exh. 1-a, escitura de reparticion
extrajudicial, otorgada el 6 de deciembre de 1946; Exh. 3-b, un
affidavit de fecha 20 de febrero de 1945; Exh. 24, recibo a favor de Gil
Ramas, otorgado el 5 de marzo de 1946; Exh. 24, constanciaque fue
suscrita y jurada ante el Escribano de este Juzgado el 23 de febrerode
1948; Exh. 34, borrador de exhibit anterior con las correcciones
hechas de puno y letra de Don Mariano Cui; Exh. 44, autorizacion a
Mercedes y Antonio para hipotecar su participacion en los lotes en
cuestion, fechadael 7 de enero de 1947; Exh. 45, convenio entre Don
Mariano, por una parte, y Mercedes y Antonio, por otra parte,
referente a los terrenos en cuestion, que lleva fecha 30 de septiembre
de 1947; Exh. C escritura de hipoteca a favor de la RFC de fecha 15 de
abril de 1947; y Exh. S, un memorandum que contiene algunas notas
de sus ingresos y gastos que comprende has ta el mes de enero de
1949, poco antes de haber perdido su memoria.
Una lectura de las cartas arribas mencionadas dos lleva a la necesaria
conviccion de que durante el periodo en que se escibieron las mismas,
o sea hasta el mes de Julio de 1947, Don Mariano Cui aun tenia el
pleno goce de sus facultades mentales, pues de otro modo, el no
podia expresarsecon tanta claridad y precision en los asuntos que
trataba en dichas cartas. Con respecto a los documentos arriba
referidos, los mismos, son de tal naturaleza e importancia, que no se
podian haber otorgardo por Don Mariano si el no estaba en su cabal
juicio. El Exh. S fue presentado por los mismos demandantes, y esta
circunstancia, naturalmente, presupone que ellos admiten que Don
Mariano Cui estuvo mentalmente sano al anotar los asientos en dicho
memorandum, muchos de los cuales tuvieron lugar ya despues de
otorgarse el documento en cuestion Exh. A.
It is obvious from the foregoing discussion that Don Mariano signed
and executed the deed of sale Exhibit A not only at a time when he
was still in the full enjoyment of his mental faculties, but also under
conditions which indicate that he knew what he was doing and, as a
consequence, it cannot be said that he has entered into the
transaction without his consent or under a misapprehension that the
document he was signing was not the sale of the properties in
question but one merely pertaining to their administration.
347 | P a g e
In connection with the contention that the deed of sale Exhibit A was
executed by Don Mariano under circumstances which point out that
he has done so because of undue influence on the part of the
defendants, counsel for appellants mentions the following
circumstances: (1) Don Mariano was already 83 years old, he was the
father of the vendees, and at the time of the sale or long before it was
consummated, he was living with the vendees; (2) one of the vendees,
Antonio Cui, was his attorney in fact and lawyer; (3) the vendor and
the vendees had obviously confidential family and spiritual relations;
(4) the vendor was suffering from mental weakness; and (5) the
vendor was in financial distress. The presence of undue influence,
according to appellants, is further shown by the execution of the
mortgage in favor of the Rehabilitation Finance Corporation, the
extra-judicial petition Exh. 1-a, the partition of the properties in
question, the alleged oral waiver of usufructuary rights, and the
explanatory statement Exhibit 34, which acts, it is claimed, in which
Don Mariano was supposed to have taken part and which were all
masterminded by Antonio Cui, show that Antonio Cui could get from
his father whatever he wanted.
There is however no concrete proof that may substantiate this claim
of undue influence. The only direct evidence on the matter is the
testimony of Jesus Cui which in the main is based on mere conjecture
and not on actual facts. The circumstance that Don Mariano Cui was
then living in the house of Mercedes Cui when the deed of sale was
signed does not necessarily imply that he was made to sign it under
the insidious machinations practiced on him by his daughter. On the
contrary, the evidence shows that Don Mariano lived most of the time
before the execution of the sale with his other children and not
necessarily with herein defendants. Thus, according to the testimony
of Jesus Cui himself, during the Japanese occupation, or from 1942 to
1943, his father lived in the City of Cebu. During the month of
September, 1943, he went to Manila and lived in the house of his
daughter Lourdes Cui de Velez, where he stayed up to September,
1944. Then he went to Calapan, Mindoro to live in the house of his
daughter Rosario where he stayed up to February, 1946 when he
returned to Cebu. It was only then that he began living in the house
of Mercedes Cui. In Mercedes Cui when the deed of sale was executed
on March 8, 1946. There is therefore no basis for concluding that said
deed of sale was executed simply under the undue influence of
Antonio Cui and Mercedes Cui. The fact that about six days before the
sale Antonio Cui was made by Don Mariano Cui his attorney in fact
could not mean anything unusual for he was then getting old and he
needed one who could help him administer the properties of his
deceased spouse, and the choice fell on Antonio because he was the
only lawyer in the family. And if to all this we add that Don Mariano
was then in full enjoyment of his mental faculties, as we have already
pointed out elsewhere, it would be presumptuous, if not unfair, on
our part to affirm, as appellants want us to do, that he allowed himself
to do an act which is not fully accord with his free and voluntary will.
We will not take up the claim that the deed of sale Exhibit A was
executed without mediating any consideration on the part of the
vendees. if this were true then said deed would be void and inexistent
for it would then be afictitious or simulated contract. This claim is
merely predicated on the documents Exhibits G and H and the
declarations of Rosario Cui and Jesus Ma. Cui. We will briefly discuss
this evidence.
Exhibit G is an alleged written statement made by Don Mariano Cui
on January 24, 1949 which reads as follows:
A quien corresponde:
Habiendome enterado que hoy existe un lio entre mis hijos en el
Juzgado sobre mis propiedades t los de mi difunta esposa, y sobre
todo porque el transpaso de las misma a mi hijo Antonio Ma. Cui ya
hija Mercedes Cui de Ramas no se halla aun pagado por los mismos,
es mi deseo que el pleito entre mis hijos sea inmediatamente
zanjadoy todas participen por igual dichos bienes.
Y para que asi consta firmo esta declaracion en la Ciudad de Cebu, hoy
a 24 de enero de 1949.
(Fdo.) MARIANO CUI
Rosario Cui, testifying on the circumstances surrounding the
preparation of said Exhibit G, said as follows:
Sr. PIMENTEL:
P. Ayer declaro usted sobre este Exhibit G que, segun usted, esta
firmadopor su Padres?
R. Si, señor.
P. Como llego a su poder este documento?
R. Esto me dio mi papa; sabe usted cuando estaba tratando con mi
hermano,este me insulto y estaba y llorando, y despues se fueron al
cine; y entoncesdijo el; Deja Vd. y mande preparar una orden mia de
que yo quiero se termineese asunto y que se arregle entre estedes y
no me gusta que haya pleito y yo voy a firmar y se preparo eso.
P. Usted mando preparar el exhibit G en la localidad?
R. Si, señor, con el S. Jayme.
P. Donde lo firmo este exhibit G?
R. En la casa de mi hermana Mercedes. Cuando lo firmo estabamos
los dos, mi marido y yo.
P. Su hermano de usted estaba presente?
R. Estaba en casa mi hermana Mercedes, pero no estaba delante. Mi
hermano estaba ausente. Cuando se hizo este, debla haberse firmado
el 24, pero era por suplica de mi papa, y habia mucha gente, y ademas
en aquel dia noquiera dar disgustos, y cuando nos marchamos, le dije:
"Papa, esta aqui el papel que me ha entregado, que voy a hacer", y
dijo: "voy a firmarlo."
P. Eso fue cuando?
R. El enero 25.
P. Sabiendo usted que su padre vivia en la casa de Mercedes por que
no llamo usted a Mercedes para ser mas legal?
348 | P a g e
No me acuerdo de eso.
P. Ni siquiera el esposo de su hermana, el Doctor, llamo usted para
que preseciara la firma de este Exhibit G?
R. No me acorde de eso. (pags. 162-B, 163 y164, transcripcion,)
If we would give credit to what document Exhibit G literally says, we
would indeed come to the conclusion that Antonio Ma. Cui and his
sister Mercedes, vendees of the property, have not as yet paid the
consideration of the sale to their father Don Mariano, but the
testimony of Rosario Cui itself belies that such was the real intention
of Don Mariano when the statement was allegedly made. According
to Rosario Cui, when Don Mariano was informed that a case was
brought to court to seek the annulment of the sale of the Manalili
property and she informed him of the attitude of the other children,
Don Mariano said: "Deje Vd. y mande preparar una orden mia de que
yo quieroque se termine el asunto y se arregle entre ustedes y no me
gusta que haya pleito, y yo voy a firmar y se preparo eso." Then she
caused that statementto be prepared by Atty. Jayme which was
signed by Don Mariano in the house of Mercedes, If we were to
believe the testimony of Rosario Cui, we would find that the only wish
of Don Mariano was to have the litigation terminated and amicably
settled and that nothing was said about the alleged non-payment of
the consideration. And it is strange that the statement was signed in
the house of Mercedes Cui and the latter never came to know about
it before it was presented in court. It is apparent that the whole thing
was a concoction of some of those interested in winning the case
which was already pending in court by inserting something that might
serve as basis for the nullification of the sale; and our suspicion is
strengthened when we consider that statement was allegedly signed
at a time when, according to Rosario Cui herself, her father was
already mentally infirm, so much so that about one month thereafter
he was declared incompetent and mentally incapacitated.
The document Exhibit H is an alleged letter of Don Mariano to his son-
in-law, Dr. Ireneo Encarnacion, husband of Rosario, dated January 30,
1949, wherein Don Mariano apparently added at the foot the
following statement: "PD. Quizas te podre pagar cuando me paguen
ellos Nene los solares de Manalili." If we will give credit to the above
statement, we would also conclude that the vendees have not paid
the consideration of the sale of the Manalili property. Again we can
say that such cannot represent the clear will of Don Mariano if we
want to be consistent with our finding that at that time he was no
longer in possession of his mental faculties. Apparently, this is
another scheme employed by Rosario Cui and her husband to bolster
up their case seeking the annulment of the sale.
But the most serious attempt to show that the defendants did not pay
any consideration for the sale of the lots in question is the story that
is now being brought to bear on the sale of the San Jose property by
Don Mariano to his daughter-in-law, Elisa Quintos, wife of Antonio
Cui, on August 31, 1944 which, it is alleged, does not show on its face
the true consideration paid by Elisa to don Mariano regarding said
property. In relating the so try relative to this transaction, the picture
which counsel for appellants wants to portray is that the true
consideration paid by Elisa to Don Mariano is the sum of P125,000,
and not simply P50,000 as it was made to appear therein, and,
therefore, when the deed of sale was executed on March 8, 1946 no
actual consideration passed from Antonio Cui to Don Mariano
because the latter was not then owing any amount either to said
Antonio or to his wife Elisa Quintos.
Before discussing the details concerning the sale of the San Jose
property as narrated by counsel for appellants, let us take note of the
version of Antonio Cui as to how he came to pay the consideration of
P21,333 assigned to him in the transaction. Antonio Cui testified that
of the said sum of P21,333 representing his share in the consideration
of the sale, P1,333 was advanced in his favor by his sister Mercedes
as shown by the receipt Exhibit 24 issued by Don Mariano in favor of
the latter. The balance of P20,000 represents settlement of the debt
his father then owed to his wife Elisa. This indebtedness, according to
Antonio, arose in the following manner: On June 10, 1935, the
conjugal partnership of the spouses Don Mariano Cui and Doña
Antonia Perales contracted an obligation of P80,000 with the Filipinas
Life Assurance Co., Ltd. secured by a mortgaged on real estate
belonging both to the conjugal partnership and to the estate of Don
Mariano. On March 23, 1942, the company made a demand on Don
Mariano for the payment of the obligation which was then increasing
in view of the accumulation of the interests. In order that he may
settle this obligation, Don Mariano asked his son Jesus Cui to look for
a buyer of the San Jose property in Cebu City.
Apparently, Jesus made efforts to look for a buyer as shown by several
letters and telegrams he sent to his father regarding the matter so
much so that Don Mariano, acknowledging said efforts, sent to him
on October 5, 1943 a letter thanking him for the interest he was
displaying and stating that he could keep for himself whatever
amount he might secure in excess of the sum of P90,000 which at that
time was the totality of the obligation (Exh. 49). But since two years
had passed and nothing concrete came from the efforts exerted by
Jesus, Don Mariano had to turn for help to his son Antonio. Antonio
agree to help and said that he would talk to his wife about it. The best
way he and his wife found to raise the money was to sell the property
his wife had in Malate, City of Manila, for the sum P300,000. Of this
amount, they gave to his father the sum of P125,000 to cover his
needs and obligations. With this money, Don Mariano pay his debt to
the insurance company of P94,736.93, including interests, deducted
the sum of P5,000 representing the amount spent by him for the
wedding of Antonio and Elisa, and applied P50,000 as consideration
for the sale to Elisa Quintos of the house and lot at San Jose street in
Cebu City. And in recognition of the help extended to him by Antonio
and Elisa, Don Mariano acknowledged in their favor the sum of
P70,000 as a loan. The deed of sale of the San Jose property to Elisa
Quintos was executed by Don Mariano Cui on August 31, 1944 with
two of his children, Lourdes Cui de Velez and Jorge Cui as witnesses.
And when the sale of the lots in question came, it was agreed that the
loan of P70,000 be reduced to P20,000, Philippine currency, in
deference to the request of Don Mariano which amount, in addition
to the sum of P1,333 advanced by Mercedes, became the
consideration paid by Antonio Cui for his share in the transaction. This
is the explanation given by Antonio of how he came to pay the
consideration of the sale, and apparently this is supported by the
same deed of sale wherein Don Mariano acknowledged having
received the total consideration (Exhibit A).
Appellants, however, do not seem to agree to this narration for they
do not give faith and credit to the explanation given by Antonio Cui as
to how he came to pay his share in the consideration of sale, and to
show that Antonio cannot be truthful and that the sale of the San Jose
349 | P a g e
property, as well as that of the lots in question, are but the product
of his insidious scheme and manipulations to serve his own selfish
interests, they brought forth in this case certain documents and
telegrams tending to show that Don Mariano could have intended to
sell the San Jose property for less than the amount of his obligation
to the insurance company more so when he had received offers for
the purchase of said property in the amount of not less than
P150,000. Thus, an attempt was made to show that on August 25,
1944, or five days before the sale to Elisa Quintos was consummated,
Paulino Gullas offered to buy the property for P150,000. There was
also an attempt to show that at about the time the sale was being
made to Elisa Quintos of that property, Sergio Osmeña, Jr. also made
an offer in the same amount of P150,000.
While these facts are true because they are supported by unrefuted
evidence, it is however also true that those offers came when the
negotiation between Don Mariano Cui and Elisa Quintos had already
been completed. It should be borne in mind that the authority given
by Don Mariano Cui to Jesus Cui to sell the property was given even
as early as 1942 and despite the lapse of two years nothing concrete
came out in spite of the efforts made by Jesus to look for a buyer, and
so Elisa Quintos had to sell her property in Manila just to please and
accommodate her father-in-law, Don Mariano. The offer, therefore,
of Paulino Gullas or of Sergio Osmeña, Jr., even for the sum of
P150,000, came late, and under the circumstances, Don Mariano had
no other alternative, as any other decent man would have done, than
to reject the offers and maintain the sale he made to Elisa even at the
sacrifice of some material advantage in his favor. He wrote to Jesus
on August 7, 1944 (Exhibit 52) and told him that he had already sold
the San Jose property to Elisa assuring him at the same time that
although the price paid for it was not high, still he considered the sale
to his advantage as Elisa and Antonio spontaneously reserved in his
favor the right to occupy for life any room he may choose in the same
house included in the transaction when he should return to Cebu to
live there, a privilege which Don Mariano knew no other buyer would
be in position to offer. This explains somewhat this apparent
incongruity in the transaction. This consideration may really appear
low especially when done in Japanese currency, but at the same time
we cannot overlook the fact that some moral factor has played an
important part in the transaction. At any rate, that is the
consideration that appears in the document (Exhibit R), and its
genuineness and due execution is not now disputed. We are,
therefore, constrained to consider it on its face value.
The consideration paid by Mercedes Cui for her share in the sale in
question is also disputed by appellants who claim that she has not
paid any amount and that the explanation she has given as to how she
came to pay said consideration is not worthy of credence. Mercedes
Cui, on this matter, testified that before her father Mariano left for
Manila in the month of July, 1943, he had been taking from her on
several occasions sum of money which reached a total of P140,000;
that in February, 1946, her father returned to Cebu and she again
gave him the sum of P2,000, making a total of P16,000, the money
taken by her father; that after receiving the sum of P2,000, her father
offered to sell her ¹/3 of the interest in the three lots in question,
which she accepted; that days before she signed the deed of sale
Exhibit A, she gave her father the sum of P6,666, of which P1,333 were
given for the account of her brother Antonio Cui, and the sum of
P5,333 was applied to cover the balance of her share in the
consideration to complete the amount of P16,000 previously taken by
her father; that in acknowledgement of the receipt from her of said
amounts, her father executed the receipts Exhibit 24 in his own
handwriting, and days after, she was made to sign said deed of sale;
and that her father did not include in the sale her other brothers and
sisters because he knew their precarious financial situation.
The weakness which appellants find in this explanation given by
Mercedes Cui lies in that she has been able to produce any receipt
showing the deliveries of money she claimed to have made to her
father. This may be true, but this was explained by her saying that it
has never been her habit to ask for receipt from her father for any
money she may have given him, unlike her sister Rosario who has the
habit of asking for receipts. On the other hand, she claims that her
payment of the consideration cannot be disputed for Don Mariano
has expressly acknowledged having received it in a document written
in his own handwriting, as evidence by Exhibit 24, the genuineness of
which is not disputed. And there is one circumstance that bolster up
this claim, which also holds true with regard to Antonio Cui, and that
is the attitude shown by Don Mariano when Rosario Cui has not paid
her consideration in the sale. It should be recalled that when Don
Mariano came to know this fact, he went to Calapan, Mindoro, where
Rosario was residing, to demand payment from her, and when she
failed, he asked her to execute a deed of resale in his favor. If Antonio
or Mercedes, as appellants now claim, has not paid his or her share in
the consideration, Don Mariano would have also demanded from any
one of them the resale of the property, in the same way that Rosario
was required. The fact that Don Mariano did not do so shows that
both paid their shares to his full satisfaction.
But appellants are not yet satisfied with this reasoning. They insist
that Mercedes has not paid any consideration because, they contend,
if it were true that she has given her father the different sums of
money she claims she has given, which amount to P16,000, the
receipt of said amounts would have been noted by Don Mariano in
the diary Exhibit KK which was kept by him during the years 1942 to
1945 wherein several entries appear of different sums of money
received and disbursed by him for sundry expenses. When these
alleged sums were not noted down in said diary, they contend, it is
because they are not true.
If we were to believe the testimony of Jesus Ma. Cui that his father
had the habit of writing down in said diary all the receipts and
expenses he makes daily up to the last centavo, the contention may
be correct, considering that the sums of money delivered by
Mercedes do not appear in said diary. But that statement of Jesus Cui
is an exaggeration for, as affirmed by Antonio Cui, not all the entries
appearing therein are in the handwriting of Don Mariano, nor is it true
that all the receipts and expenses he makes everyday are noted down
therein, for the truth is that there are many money transactions and
expenses made by Don Mariano during the period of 1942 to 1945
that have not been recorded therein. Thus, the expenses and receipts
had by Don Mariano while he was in Manila, do not appear therein,
nor those incurred by him in his travels from Manila to Calapan, and
vice-versa. Nor do they appear therein the expenses incurred by Don
Mariano for his son Jorge and his family when they went to Calapan;
neither does it appear the loan of P3,000 made to Miguel Ortigas. It
does not also appear the sum of P18,000 borrowed from him by Jorge
while they were in Manila as testified by the latter.
350 | P a g e
In connection with this diary, we may also point out the suspicious
circumstances surrounding its presentation in court as evidence. It
appears that this document was presented by Rosario Cui who
testified that she received it from her father after Mercedes had
already testified in this case, which was on September 30, 1949.
According to her, Don Mariano on that occasion gave her instruction
as to where to get said document and what to do with it. She said that
when she talked with her father about the claim of Antonio that the
consideration he paid was P70,000 which were reduced to P20,000
upon his request, her father said: "despues me dijo mi papa
quebuscara en sus libros, porque el tenia un libro diario donde
apuntaba susgastos y tenia varios cuadernos todavia alli pero yo no
quise sacar todo; entonses al me dijo que yo lo llevara y lo utilizara
para comprobar dos gastos y las entradas durante esos años." (p. 112,
Memorandum for Appellees)What Rosario has attributed to her
father as regards the use of the diary Exhibit KK is hard to believe
considering that by that time, September 30,1949, Don Mariano could
no longer hold such a coherent conversation and much less give
instructions as to the best way could make use of the diary,
considering that Don Mariano at that time has already been declared
mentally incapacitated. The presentation of said diary can have no
other meaning than that it is an eleventh hour attempt to bolster up
the claim of appellants that the deed of sale Exhibit A lacks
consideration.
As an additional arguemen to nullify the deed of sale Exhibit A, even
partially, in the supposition that all their previous arguments would
prove of no avail, appellants raise the question that said sale should
be invalidated at least in so far as the portion of the property sold to
Antonio Cui is concerned, for the reason that when that sale was
effected he was then acting as the agent or administrator of the
properties of Don Mariano Cui. In advancing this argument,
appellants lay stress on the power of attorney Exhibit L which was
executed by Don Mariano in favor of Antonio Cui on March 2, 1946,
wherein the former has constituted the latter as his "true and lawful
attorney" to perform in his name and that of the intestate heirs of
Doña Antonia Perales the following acts:
. . . to administer, sell, mortgage, lease, demand, claim, represent me
and the intestate heirs, in all meetings of corporations, associations,
of which my or their presence is required, sue for, collect, cash,
indorse checks drawn in my favor or of the intestate heirs against any
person or entity or bank, and sign all documents, that I and or the
intestate heirs to which I am the administrator are entitled to; giving
and granting untomy said attorney full power to perform and to make
everything necessary to be done or which he believes to be necessary
or beneficial for me and the said heirs as fully and to all intents and
purposes as I might or could do if personally present, with full power
of substitution, and revocation, hereby granting ratifying all that he
or his substitutes shall lawfully do or cause to be done by virtue of
these presents.
While under article 1459 of the old Civil Code an agent or
administrator is disqualified from purchasing property in his hands for
sale or management, and, in this case, the property in question was
sold to Antonio Cui while he was already the agent or administrator
of the properties of Don Mariano Cui, we however believe that this
question can not now be raised or invoked for the following reasons.
(1) This contention is being raised in this appeal for the first time. It
was never raised in the trial court. An examination of the complaints,
both original as well as amended, will show that nowhere therein do
they raise the invalidity of the sale on that ground nor ask as an
alternative relief for the partial revocation of the sale in so far as
Antonio's share is concerned because of the alleged relation of
principal and agent between vendor and vendee. It is undoubtedly for
this reason that the trial has not passed upon this question in its
decision. And considering that under Section 19, Rule 48, of our Rules
of Court, an appellant may only include "In his assignment of error
any question of law or fact that has been raised in the court below
and which is within the issues made by the parties in their pleadings",
it follows that appellants are now prevented from raising this
question for the first time in this instance.
(2) The power of attorney in question is couched in so general a
language that one cannot tell whether it refers to the properties of
Don Mariano or only to the conjugal properties of the spouses.
However, considering that the appointment was extended to Antonio
Cui by Don Mariano so that he may act as agent "for me and for the
intestate heirs of the deceased Antonia Perales", one is led to believe
that the power refers to the conjugal properties wherein he had one-
half interest in the heirs of Doña Antonia, the remaining half.
Moreover, the power of attorney was executed on March 2, 1946
while the deed of sale was executed on March 8, 1946. They were
therefore executed practically at the same time, which makes it
doubtful as to whether such sale can be deemed to be within the
prohibition of the law.
(3) The prohibition of the law is contained in article 1459 of the old
Civil Code, but this prohibition has already been removed. Under the
provisions of article 1491, section 2, of the new Civil Code, an agent
may now buy property placed in his hands for sale or administration,
provided that the principal gives his consent thereto. While the new
Code came into effect only on August 30, 1950, however, since this is
a right that is declared for the first time, the same may be given
retroactive effect if no vested or acquired right is impaired (Article
2253, new Civil Code). During the lifetime Don Mariano, and
particularly on March 8, 1946, the herein appellants could not claim
any vested or acquired right in these properties, for, as heirs, the most
they had was a mere expentancy. We may, therefore, invoke now this
practical and liberal provision of our new Civil Code even if the sale
had taken place before its effectivity.
The remaining question to be determined refers to the nature of the
properties in question which appellants claim belong to the conjugal
partnership of Don Mariano Cui and Doña Antonia Perales while, on
the other hand, appellees contend belong exclusively to Don Mariano.
In support of their contention, appellants rely on the legal
presumption that said properties are conjugal because they were
acquired by Don Mariano and his wife during their marriage, and on
the testimony of Jesus, Jorge and Rosario Cui, three of the children of
Don Mariano, who testified that said properties are conjugal because
they have always been of the belief or impression that they belong to
the conjugal partnership of their parents. They have not presented
any documentary evidence in support of their contention.
It is true that the properties in question were acquired during the
marriage of Don Mariano Cui Doña Antonia Perales", and as much
351 | P a g e
they are presumed to be conjugal properties (Article 1407, old Civil
Code), but this presumption appears here rebutted by conclusive and
strong evidence to the contrary. It should be stated that these
properties originally belonged to Don Pedro Cui and Doña Benigna
Cui, uncle and aunt, respectively, of Don Mariano, which were
donated by them to Don Mariano on April 12, 1912 on condition that
the latter renounce any further inheritance he might have been in the
intestate estate of the donors. And while appellees have been able to
introduce any copy of the deed of donation because the same has
already disappeared, the fact however remains that it has been
clearly established that such donation has been actually made
exclusively to Don Mariano by clear and satisfactory evidence. The
following is a discussion of such evidence which consists in the
testimony of Marta Cui and Generoso Vda. de Jakosalem, both nieces
of the donors, and in numerous documents the genuineness of which
is not disputed.
Marta Cui, a woman 81 years old, testified that since she was 10 years
of age she lived in the company of her uncle Pedro Cui and aunt
Benigna Cui; that during their lifetime these two made donations of
their lands to their nephews and nieces subject to the condition that
they should renounce whatever share they might have in their
inheritance and among the donees was Don Mariano Cui; that the
donations were made exclusively to their nephews and nieces, or
without including their respective spouses; that the donation made in
her favor is contained in the document Exhibit 21; and that the lots in
question were donated to Don Mariano Cui to the exclusion of his
spouse Antonia Perales. Examining said donation Exhibit 21 one
would find that it was really made exclusive in favor of Marta Cui
subject to the condition that she would renounce whatever
inheritance she might have from the donors.
Generoso Vda. de Jakosalem, another woman of advanced age who
because of unexpected illness was not able to continue testifying, also
affirmed that the lots in question were donated to Don Mariano by
her uncle Pedro Cui and aunt Benigna Cui exclusively, and this she
knows personally because on the same date such donation was made,
she also received a donation from the same donors.
Antonia Ma. Cui, testifying on this matter, said: that while he was
acting as private secretary of his father Don Mariano before the was,
he had an opportunity to see a copy of the deed of donation of the
lots in question in his favor (his father), which copy was furnished by
the clerk of court, and at the foot thereof there appears a note to the
effect that the original of said deed was on file in the record of the
cadastral case covering the property; that said document appears
signed by the donors Pedro Cui and Benigna Cui, by the donee
Mariano Cui and the instrumental witnesses Victor Cui and Dionisio
Jakosalem; that said copy having been lost, he went to see the clerk
of court to inquire about the original that was on file in the record of
the cadastral case but the clerk of court told him that the record was
destroyed during the last was; that he them went to the office of the
Bureau of Achives to see if he could get a copy of the document but
in said office he only found the notarial register of the notary public
Raymundo Enrique wherein the deed of donation appears recorded;
that at his request the chief of said office issued photastic copies of
the pages of the notarial register which contained the annotation
relative not only to the deed of donation in question but also to that
which pertains to the other deeds of donation executed by the donors
Pedro Cui and Benigna Cui (Exhibit 31-a and 31-b); that the entry No.
310 that appears in the copy marked Exhibit 31-b refers to the deed
of donation of the lots in question in favor of his father because said
entry refers to a property situated in Plaza Washington, Cebu, where
his father did not have any other property except that donated to him
by his relatives, which was later divided into three lots, and that it is
of common knowledge among members of the Cui family that all the
nephews of Pedro Cui and Benigna Cui received from them by way of
donation several pieces of lands subject to the condition that they
renounce their right to inherit from the donors.
Entry No. 310 which appears in photastic copy Exhibit 31-b contains
under the heading "Nature of Instrument" the following annotation:
"Donacion condicional que hacen Pedro Cui y Benigna Cui a favor de
su sobrino Mariano Cui de un solar con todas sus mejoras y edifficio
en la plaza de Washington, Cebu; y la aceptacion del donatario quien
agradece a los donantes." In the same entry there also appears that
the document was executed on April 12, 1912 by Pedro Cui, Benigna
Cui, and attested by Victor Cui and Dionisio Jakosalem.
In the photastic copy Exhibit 31-a, there appear entries Nos. 301, 303,
304 and 305 which refer to the deeds of donnation executed by Pedro
Cui and Benigna Cui in favor of their nephews and nieces Mauricio Cui,
Marta Cui, Victor Cui, Angel Cui and Felicidad Cui. Note that these
donations were made exclusively in favor of the nephews and nieces
without including their respective spouses and were all executed on
April 11, 1912, or one day before the execution of the donation in
favor of Don Mariano Cui. The two photostatic copies Exhibits 31-a
and 31-b corroborate the testimony of Marta Cui and Generoso Vda.
de Jakosalem to the effect that all the donations made by Don Pedro
Cui and Benigna Cui in favor of their nephews and nieces were made
to them exclusively or without including their respective spouses, and
subject to the condition that they should renounce their right to
inherit from the donors.
In addition to the foregoing evidence, there are other documents
which strenghten the contention that the lots in question were
donated exclusively to Don Mariano Cui. One of them is the inventory
prepared by Don Mariano of the properties which belonged to him
exclusively and those which belonged to the conjugal partnership, as
a result of the death of his wife Antonia Perales in 1939, copies of
which were furnished to all the children of Don Mariano. In this
inventory marked Exhibit 8, under the heading "Bienes del esposo
superviviente Don Mariano Cui," the following appears: "1.-Un solar
compuesto de los lotes 2312, 2313 y 2319, del Catastro de Cebu, con
sus mejoras consistentes en una casa de pierda y madera con techo
de teja y con una azotea tambien de pierda y madera." In the same
inventory under the heading "Bienes ganancials habidos durante el
matrimonio de Don Mariano Cui y Doña Antonia Perales," there also
appears the following statement: "1. Un edificio mixto de concreto y
madera con techo de hierro galvanizado . . . construido un una
porcion de terreno, de mildosientos cincuenta (1,250) metros
cuadrados de superficie, mas o menos, la cual forma parte de un solar
de mayor extention, situado entre las Calles Manalili y Calderon de la
ciudad de Cebu, Cebu . . . y pertenece en propiedad exclusiva al
esposa superviviente Don Mariano Cui." This property is the one
known as lots Nos. 2312, 2313, and 2319. This inventory was never
objected to by the heirs and shows clearly that while the land belongs
exclusively to Don Mariano Cui the building constructed thereon was
considered as conjugal property.
352 | P a g e
Another important document is the extra-judicial partition of the however constrained to uphold its validity if we are to be consistent
properties pertaining to the conjugal partnership of Don Mariano Cui with our conclusion that Don Mariano has executed it while still in the
and the deceased wife Antonia Perales, marked Exhibit 1-a, which was full enjoyment of his mental faculties, considering that he never lifted
signed by Don Mariano and all his children, with the exception of a finger to dispute it, in the same manner he did with regard to
Jorge Cui, who was then in Manila when the document was signed on Rosario Cui. No other conclusion is plausible and proper, considering
December 6, 1946. In said document mention is made of the all the circumstances of the case.
inventory which was prepared by Don Mariano of the conjugal
properties belonging to him and his wife, as well as the powers of Wherefore, we hereby affirm the decision appealed from, without
attorney executed in favor of Don Mariano by his children authorizing pronouncement as to costs.
him to administer the properties belonging to the conjugal
partnership. It is interesting to note that in this deed of partition a Paras, C.J., Bengzon, Montemayor, Reyes A., Labrador, Reyes, J.B.L.,
relation is made of the conjugal properties as well as of the debts and Endencia and Felix, JJ., concur.
obligation which were then existing against the partnership and the
disposition made of the properties to pay said debts and obligations.
It is also interesting to note that the three lots in question are not
included in this deed of partition. The fact that all the heirs, with the
exception of Jorge, signed this deeds of partition without any protest,
is a clear proof that they knew right along that said lots were exclusive
property of their father and did not belong to the conjugal
partnership. It is true that appellants Jesus Ma. Cui and Rosario Cui,
while admitting the authenticity and due execution of the above deed
of partition, now contend that they signed the same without being
aware of its contents, but this contention can hardly be given credit,
for we can not suppose that, referring as it does to an important
document which concern precisely a partition of inheritance, they
should sign the same without first ascertaining or satisfying
themselves of the nature of the transaction.

Other important documents that may have a bearing on this matter

are inheritance tax return Exhibit 32 and the relation Exhibit 33 of the
real properties of Don Mariano Cui for the purpose required by law
relative to the issuance of the Residence Certificate B. The inheritance
tax return was filed by Don Mariano Cui in 1939 in connection with
the hereditary left by his wife Antonia Perales and in said the lots in
question were not included, while the relation Exhibit 33 includes said
lots because they were deemed by Don Mariano as his exclusive
property and as such should be included in the assessment to be
made in connection with the issuance of the Residence Certificate B.
These two documents, which were prepared by Don Mariano Cui,
clearly indicate that the lots in question were always considered by
him as his exclusive property.

There can therefore be no doubt, in the light of the overhelming

evidence, testimonial as well as documentary, we have discussed in
the preceeding paragraphs, that these three lots in question have
always been considered not only by Don Mariano Cui, but by his
children and other relatives, him by his uncle Pedro Cui and aunt
Benigna Cui to the exclusion of his wife Antonia Perales.
Consequently, the contention that, in disposing of said property, Don
Mariano Cui has appropriated what belongs to his co-heirs, has
completely no function in the evidence.

Having reached the conclusion that the lots in question were the
exclusive property of Don Mariano Cui and that the deed of sale
Exhibit A was executed by him freely, intelligently, and with sufficient
pecuniary consideration, we deem it unnecessary to dwell on the
other points discussed by both parties in their briefs and in their
respective memoranda. While these points, vehemently advocated
by appellants' counsel may throw could on the due execution of the
sale, or may cast doubt on the sufficiency of its consideration, we are

353 | P a g e
7. 19 SCRA 258
G.R. Nos. L-22951 and L-22952 January 31, 1967
ALLIED FREE WORKERS' UNION (PLUM), petitioner,
vs.
COMPAÑIA MARITIMA, Manager JOSE C. TEVES, and COURT OF
INDUSTRIAL RELATIONS, respondents.
-----------------------------
G.R. No. L-22971 January 31, 1967
COMPAÑIA MARITIMA and Manager JOSE C. TEVES, petitioners,
vs.
ALLIED FREEWORKERS' (PLUM) and COURT OF INDUSTRIAL
RELATIONS, respondents.
L-22951 and 22952:
Vicente A. Rafael and Associates for petitioner.
Rafael Dinglasan for respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.
L-22971:
Rafael Dinglasan for petitioner.
Vicente A. Rafael and Associates for respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.
BENGZON, J.P., J.:
The three cases before this Court are the respective appeals
separately taken by the parties hereto from an order1 of the Court of
Industrial Relations en banc affirming its trial judge's decision,
rendered on November 4, 1963, in CIR Case 175-MC and CIR Case 426-
ULP. Thus L-22971 is the appeal of MARITIMA2 in CIR Case 175-MC;
L-22952 is AFWU's appeal in the same case; and L-22951 refers to
AFWU's3 appeal in CIR Case 426-ULP. Since these cases were jointly
tried and decided in the court a quo and they involve the same
fundamental issue — the presence or absence of employer-employee
relationship — they are jointly considered herein.
MARITIMA is a local corporation engaged in the shipping business.
Teves is its branch manager in the port of Iligan City. And AFWU is duly
registered legitimate labor organization with 225 members.
On August 11, 1952, MARITIMA, through Teves, entered into a
CONTRACT 4 with AFWU the terms of which We reproduce:
— ARRASTRE AND STEVEDORING CONTRACT —
KNOW ALL MEN BY THESE PRESENTS:
This CONTRACT made and executed this 11th day of August, 1952, in
the City of Iligan, Philippines, by and between the COMPAÑIA
MARITIMA Iligan Branch, represented by its Branch Manager in Iligan
City, and the ALLIED FREE WORKERS' UNION, a duly authorized labor
union, represented by its President:
WITNESSETH.
1. That the Compañia MARITIMA hereby engage the services of the
Allied Free Workers' Union to do and perform all the work of
stevedoring and arrastre services of all its vessels or boats calling in
the port of Iligan City, beginning August 12, 1952.
2. That the Compañia MARITIMA shall not be liable for the payment
of the services rendered by the Allied Free Workers' Union, for the
loading, unloading and deliveries of cargoes as same is payable by the
owners and consignees of cargoes, as it has been the practice in the
port of Iligan City.
3. That the Allied Free Workers' Union shall be responsible for the
damages that may be caused to the cargoes in the course of their
handling.
4. That this CONTRACT is good and valid for a period of one (1) month
from August 12, 1952, but same may be renewed by agreement of the
parties; however Compañia MARITIMA reserves the right to revoke
this CONTRACT even before the expiration of the term, if and when
the Allied Free Workers' Unionfails to render good service.
IN WITNESS WHEREOF, we hereunto sign this presents in the City of
Iligan, Philippines, this 11th day of August, 1952.
(SGD) SALVADOR T. LLUCH
President
Allied Free Workers' Union
Iligan City (SGD) JOSE C. TEVES
Branch Manager
Compañia Maritima
Iligan City
SIGNED IN THE PRESENCE OF:
1. (SGD) JOSE CUETO
2. (SGD) SERGIO OBACH.
During the first month of the existence of the CONTRACT , AFWU
rendered satisfactory service. So, MARITIMA, through Teves, verbally
renewed the same. This harmonious relations between MARITIMA
and AFWU lasted up to the latter part of 1953 when the former
complained to the latter of unsatisfactory and inefficient service by
the laborers doing the arrastre and stevedoring work. This
deteriorating situation was admitted as a fact by AFWU's president.
To remedy the situation since MARITIMA's business was being
adversely affected — Teves was forced to hire extra laborers from
among "stand-by" workers not affiliated to any union to help in the
stevedoring and arrastre work. The wages of these extra laborers
were paid by MARITIMA through separate vouchers and not by
AFWU. Moreover, said wages were not charged to the consignees or
owners of the cargoes.
On July 23, 1954, AFWU presented to MARITIMA a written proposal5
for a collective bargaining agreement.
This demand embodied certain terms and conditions of employment
different from the provisions of the CONTRACT . No reply was made
by MARITIMA.
On August 6, 1954, AFWU instituted proceedings in the Industrial
Court6 praying that it be certified as the sole and exclusive bargaining
354 | P a g e
agent in the bargaining unit composed of all the laborers doing the
arrastre and stevedoring work in connection with MARITIMA's vessels
in Iligan City. MARITIMA answered, alleging lack of employer-
employee relationship between the parties.
On August 24, 1954, MARITIMA informed AFWU of the termination of
the CONTRACT because of the inefficient service rendered by the
latter which had adversely affected its business. The termination was
to take effect as of September 1, 1954. MARITIMA then contracted
with the Iligan Stevedoring Union for the arrastre and stevedoring
work. The latter agreed to perform the work subject to the same
terms and conditions of the CONTRACT . The new agreement was to
be carried out on September 1, 1954.
On August 26, 1954, upon the instance of AFWU, MARITIMA found
itself charged before the Industrial Court7 of unfair labor practices
under Sec. 4(a), (1), (3), (4) and (6) of Rep. Act No. 875. MARITIMA
answered, again denying the employer-employee relationship
between the parties.
On September 1, 1954, members of AFWU, together with those of the
Mindanao Workers Alliance — a sister union — formed a picket line
at the wharf of Iligan City, thus preventing the Iligan Stevedoring
Union from carrying out the arrastre and stevedoring work it
contracted for.8 This picket lasted for nine days.
On September 9, 1954, MARITIMA filed an action9 to rescind the
CONTRACT , enjoin AFWU members from doing arrastre and
stevedoring work in connection with its, vessels, and for recovery of
damages against AFWU and its officers. Incidentally, this civil case has
been the subject of three proceedings already which have reached
this Court. The first 10 involved a preliminary injunction issued therein
on September 9, 1954, by the trial court prohibiting AFWU from
interfering in any manner with the loading and unloading of cargoes
from MARITIMA's vessels. This injunction was lifted that very evening
upon the filing of a counter bond by AFWU. Subsequently, a motion
to dissolve said counterbond was filed by MARITIMA but the hearing
on this incident was enjoined by Us on March 15, 1955, upon the
institution of the petition for prohibition and injunction in said L-8876.
11 Meanwhile, AFWU members-laborers were able to continue the
arrastre and stevedoring work in connection with MARITIMA's
vessels.
On December 5, 1960, the CFI decision in the civil case was
promulgated. It ordered the rescission of the CONTRACT and
permanently enjoined AFWU members from performing work in
connection with MARITIMA's vessels. AFWU then filed its notice of
appeal, appeal bond and record on appeal. 12 The subsequent
incidents thereto gave rise to the two other proceedings which have
previously reached Us here.
On January 6, 1961, upon motion of MARITIMA ,an order of execution
pending appeal and a writ of injunction against AFWU was issued by
the trial court in the civil case. This enabled MARITIMA to engage the
services of the Mindanao Arrastre Service to do the arrastre and
stevedoring work on January 8, 1961. However, AFWU filed a petition
for certiorari, injunction and prohibition 13 here and on January 18,
1961, was able to secure a writ of preliminary injunction ordering the
maintenance of the status quo prior to January 6, 1961. Thus, after
January 18, 1961, AFWU laborers were again back doing the same
work as before.
The third incident that reached US 14 involved an order of the same
trial court in the same civil case, dated January 11, 1961, which
amended some clerical errors in the original decision of December 5,
1960. Upon motion of MARITIMA, the trial court, on March 24, 1962,
issued an order for the execution of the decision of January 11, 1961,
since AFWU did not appeal therefrom, and on March 31, 1962, a writ
of execution ousting the 225 AFWU members-laborers from their
work in connection with the loading and unloading of cargoes was
issued and a levy on execution upon the properties of AFWU was
effected. Accordingly, on April 1, 1962, MARITIMA was again able to
engage the services of the Mindanao Arrastre Service.
On April 16, 1962, upon the institution of the petition for certiorari,
injunction, prohibition and mandamus, a preliminary injunction was
issued by Us against the orders of March 24 and 31, 1962. But then,
on May 16, 1962, upon motion of MARITIMA this preliminary
injunction was lifted by Us insofar as it related to the execution of the
order ousting the AFWU laborers from the stevedoring and arrastre
work in connection with the MARITIMA vessels. 15 Such then was the
status of things.
On November 4, 1963, after almost 10 years of hearing the two cases
jointly, the Industrial Court finally rendered its decision. The
dispositive part provided:
IN VIEW OF ALL THE FOREGOING CIRCUMSTANCES, the complaint of
the union for unfair labor practices against the Compañia MARITIMA
and/or its agent Jose C. Teves and the Iligan Stevedoring Union and/or
Sergio Obach is hereby dismissed for lack of substantial evidence and
merit.
In pursuance of the provisions of Section 12 of Republic Act 875 and
the Rules of this court on certification election, the Honorable, the
Secretary of Labor or any of his authorized representative is hereby
requested to conduct certification election among all the workers
and/or stevedores working in the wharf of Iligan City who are
performing stevedoring and arrastre service aboard Compañia
MARITIMA vessels docking at Iligan City port in order to determine
their representative for collective bargaining with the employer,
whether their desire to be represented by the petitioner Allied Free
Workers Union or neither [sic]; and upon termination of the said
election, the result thereof shall forthwith be submitted to this court
for further consideration. The union present payroll may be utilized in
determining the qualified voters, with the exclusion of all supervisors.
SO ORDERED.
As already indicated, the fundamental issue involved in these cases
before Us consists in whether there is an employer-employee
relationship between MARITIMA, on the one hand, and AFWU and/or
its members-laborers who do the actual stevedoring and arrastre
work on the other hand.
THE UNFAIR LABOR PRACTICE CASE
(L-22951 * [CIR Case 426-ULP])
355 | P a g e
Petitioner AFWU's proposition is that the court a quo erred (1) in
concluding that MARITIMA had not refused to bargain collectively
with it, as the majority union; (2) in not finding that MARITIMA had
committed acts of discrimination, interferences and coercions upon
its members-laborers, and (3) in concluding that the CONTRACT may
not be interferred with even if contrary to law or public policy.
It is true that MARITIMA admits that it did not answer AFWU's
proposal for a collective bargaining agreement. From this it does not
necessarily follow that it is guilty of unfair labor practice. Under the
law 16 the duty to bargain collectively arises only between the
"employer" and its "employees". Where neither party is an
"employer" nor an "employee" of the other, no such duty would exist.
Needless to add, where there is no duty to bargain collectively the
refusal to bargain violates no right. So, the question is: Under the
CONTRACT , was MARITIMA the "employer" and AFWU and/or its
members the "employees" with respect to one another?
The court a quo held that under the CONTRACT , AFWU was an
independent contractor of MARITIMA. This conclusion was based on
the following findings of fact, which We can no longer disturb, stated
in the CIR decision:
7. ... The petitioner union operated as a labor contractor under the
so-called "cabo" system; and as such it has a complete set of officers
and office personnel (Exhs. "F" and "F-1") and its organizational
structure includes the following: General President, with the
following under him — one vice-president, legal counsel, general
treasurer, general manager and the board of directors. Under the
general manager is the secretary, the auditor, and the office staff
composing of the general foreman, general checker, general
timekeeper, and the respective subordinates like assistant foreman,
capataz, assistant general checker, field checker, office timekeeper,
and field timekeeper all appointed by the general manager of the
union and are paid in accordance with the union payroll exclusively
prepared by the union in the office. (See t.s.n. pp. 32-36, June 9, 1960;
pp. 78-80, February 16, 1961; pp. 26-28, August 9, 1960). The payrolls
where laborers are listed and paid were prepared by the union itself
without the intervention or control of the respondent company
and/or its agent at Iligan City. The respondent never had any
knowledge of the individual names of laborers and/or workers listed
in the union payroll or in their roster of membership.
8. The union engaged the services of their members in undertaking
the work of arrastre and stevedoring either to haul shippers' goods
from their warehouses in Iligan City to the MARITIMA boat or from
the boat to the different consignees. The charges for such service
were known by the union and collected by them through their bill
collector. This is shown by the preparation of the union forms known
as "conduci" or delivery receipts. These "conduci" or receipts contain
informations as to the number and/or volume of cargoes handled by
the union, the invoice number, the name of the vessel and the
number of bills of lading covering the cargoes to be delivered. Those
delivery receipts are different and separate from the bills of lading
and delivery receipts issued by the company to the consignees or
shippers. Cargoes carried from the warehouses to the boat or from
the boat to the consignees were always accompanied by the union
checker who hand-carry the "conduci". Once goods are delivered to
their destination the union through its bill collectors prepare the bills
of collection and the charges thereon are collected by the union bill
collectors who are employees of the union and not of the respondent.
The respondent had no intervention whatsoever in the collection of
those charges as the same are clearly indicated and described in the
labor CONTRACT , Exhibit "A". There were, however, instances when
the respondents were requested to help the union in the collection of
charges for services rendered by members of the union when
fertilizers and gasoline drums were loaded aboard the Compañia
MARITIMA boats. This was necessary in order to facilitate the
collection of freight and handling charges from the government for
auditing purposes. When cargoes are to be loaded, the shipper
usually notifies the petitioner union when to load their cargoes
aboard Compañia MARITIMA boats calling in the port of Iligan City;
and when a boat docks in said port, the union undertakes to haul the
said shipper's goods to the boat. In doing this work, the union
employs their own trucks or other vehicles or conveyance from
shipper's warehouse to the boat or vice-versa. The respondent has no
truck of any kind for the service of hauling cargoes because such
service is included in the CONTRACT executed between the parties.
(See Exh. "A").
9. The union members who were hired by the union to perform
arrastre and stevedoring work on respondents' vessels at Iligan port
were being supervised and controlled by the general foreman of the
petitioner union or by any union assistant or capataz responsible for
the execution of the labor CONTRACT when performing arrastre
and/or stevedoring work aboard vessels of the Compañia MARITIMA
docking at Iligan City. The foreman assigned their laborers to perform
the required work aboard vessels of the respondent. For instance,
when a boat arrives, the general foreman requests the cargo report
from the chief mate of the vessel in order to determine where the
cargoes are located in the hold of the boat and to know the
destination of these cargoes. All the laborers and/or workers hired for
said work are union members and are only responsible to their
immediate chief who are officers and/or employees of the union. The
respondent firm have their own separate representatives like
checkers who extend aid to the union officers and members in
checking the different cargoes unloaded or loaded aboard vessels of
the Compañia MARITIMA. There were no instances where offices and
employees of the respondent Compañia MARITIMA and/or its agent
had interferred in the giving of instructions to the laborers performing
the arrastre and/or stevedoring work either aboard vessels or at the
wharf of Iligan City. As contractor, the union does not receive
instructions as to what to do, how to do, and works without specific
instructions. They have no fixed hours of work required by the
MARITIMA.
10. While cargoes were in transit either from the warehouse to the
boat or from the boat to the different consignees, any losses or
damages caused with the said cargoes were charged to the account
of the union; and the union likewise imposed the penalty or fine to
any employee who caused or committed the damages to cargoes in
transit. Other disciplinary measures imposed on laborers performing
the said work were exercised by the general foreman of the union
who has blanket authority from the union general manager to
exercise disciplinary control over their members who were assigned
to perform the work in a group of laborers assigned by the union to
perform loading or unloading cargoes when a Compañia MARITIMA
boat docked at Iligan City. The respondents have not at any time
interferred in the imposition of disciplinary action upon the laborers
who are members of the union. In one instance, under this situation,
356 | P a g e
the president of the union himself dismissed one inefficient laborer
found to have been performing inefficient service at the time (t.s.n.
pp. 17-18, February 15, 1961).
xxx xxx xxx
13. Erring laborers and/or workers who are affiliates of the union
were directly responsible to the union and never to the respondent.
Respondent cannot, therefore, discipline and/or dismiss these erring
workers of the union. (Emphasis supplied)
And in absolving MARITIMA of the unfair labor charge on this point,
the court a quo concluded:
From the foregoing circumstances and findings, the Court is of the
opinion that no substantial evidence has been presented to sustain
the charge of unfair labor practice acts as alleged to have been
committed by herein respondent. The Court finds no interference in
the union activities, if any, of the members of the Allied Free Workers
Union as these persons engaged in the stevedoring and arrastre
service were employed by the Allied Free Workers Union as
independent contractor subject to the terms and conditions of their
then existing labor CONTRACT Exhibit "A". To construe the CONTRACT
otherwise would tend to disregard the rights and privileges of the
parties intended by them in their CONTRACT . (Exhibit "A"). This Court
believes that it may not interfere in the implementation of the said
labor CONTRACT in the absence of abuse by one party to the prejudice
of the other. ...
Further, the Court finds that the petitioner, aside from its labor
CONTRACT (See Exhibit "A") with the respondent Compañia
MARITIMA also has other labor contracts with other shipping firms on
the stevedoring and arrastre work; and that this CONTRACT obligated
the petitioner as an independent labor contractor to undertake the
arrastre and stevedoring service on Compañia MARITIMA boats
docking at Iligan City Port. The petitioner is an independent
contractor as defined in the CONTRACT Exhibit "A" and in the
evidence submitted by the parties. "An independent contractor is one
who, in rendering services, exercises an independent employment or
occupation and represents the will of his employer only as to the
results of his work and not as to the means whereby it is
accomplished; one who exercising an independent employment,
contracts to do a piece of work according to his own methods,
without being subject to the control of his employer except as to the
result of his work; and who engaged to perform a certain service for
another, according to his own manner and methods, free from the
control and direction of his employer in all matters connected with
the performance of the service except as to the result of the work."
(see 56 C.J.S. pp. 41-43; Cruz, et al. vs. Manila Hotel et al., G.R. No. L-
9110, April 30, 1957). These factors were present in the relation of
the parties as described in their CONTRACT Exhibit "A".
xxx xxx xxx
In Viaña vs. Al Lagadan et al., G.R. No. L-8967, May 31, 1956, the
Supreme Court states the rule as follows.
'In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the
selection and engagement of the employees; (2) the payment of
wages; (3) the power of dismissal; and (4) the power to control the
employee's conduct — although the latter is the most important
element (35 Am. Jur. 445). Assuming that the share received by the
deceased could partake of the nature of wages — on which we need
not and do not express our view — and that the second element,
therefore, exists in the case at bar, the record does not contain any
specific data regarding the third and fourth elements.'
The clear implication of the decision of the Supreme Court is that if
the defendant has no power of control — which, according to the
Supreme Court, is the "most important element" — there is no
employer-employee relationship. (Emphasis supplied)
The conclusion thus reached by the court a quo is in full accord with
the facts and the applicable jurisprudence. We totally agree with the
court a quo that AFWU was an independent contractor. And an
independent contractor is not an "employee".17
Neither is there any direct employment relationship between
MARITIMA and the laborers. The latter have no separate individual
contracts with MARITIMA. In fact, the court a quo found that it was
AFWU that hired them. Their only possible connection with
MARITIMA is through AFWU which contracted with the latter. Hence,
they could not possibly be in a better class than AFWU which dealt
with MARITIMA.18
In this connection, it is interesting to note that the facts as found by
the court a quo strongly indicate that it is AFWU itself who is the
"employer" of those laborers. The facts very succinctly show that it
was AFWU, through its officers, which (1) selected and hired the
laborers, (2) paid their wages, (3) exercised control and supervision
over them, and (4) had the power to discipline and dismiss them.
These are the very elements constituting an employer-employee
relationship.19
Of course there is no legal impediment for a union to be an
"employer". 20 Under the particular facts of this case, however,
AFWU appears to be more of a distinct and completely autonomous
business group or association. Its organizational structure and
operational system is no different from other commercial entities on
the same line. It even has its own bill collectors and trucking facilities.
And that it really is engaged in business is shown by the fact that it
had arrastre and stevedoring contracts with other shipping firms in
Iligan City.
Now, in its all-out endeavor to make an "employer" out of MARITIMA,
AFWU citing an impressive array of jurisprudence, even goes to the
extent of insisting that it be considered a mere "agent" of MARITIMA.
Suffice it to say on this point that an agent can not represent two
conflicting interests that are diametrically opposed. And that the
cases sought to be relied upon did not involve representatives of
opposing interests.
Anent the second point raised: AFWU claims that the court a quo
found that acts of interferences and discriminations were committed
by MARITIMA against the former's members simply for their union
affiliation. 21 However, nowhere in the 32-page decision of the court
a quo can any such finding be found. On the contrary, said court made
the following finding:
357 | P a g e
18. There is no showing that this new union, the Iligan Stevedoring
Union, was organized with the help of the branch manager Jose C.
Teves. The organizer of the union like Messrs. Sergio Obach, Labayos
and Atty. Obach and their colleagues have never sought the
intervention, help or aid of the respondent Compañia MARITIMA or
its branch manager Teves in the formation and/or organization of the
said Iligan Stevedoring Union. It appears that these people have had
previous knowledge and experience in handling stevedoring and in
the arrastre service prior to the employment of the Allied Free
Workers Union in the Iligan port. The charge of union interference
and domination finds no support from the evidence. (Emphasis
supplied)
More worthy of consideration is the suggestion that the termination
of the CONTRACT was in bad faith. First of all, contrary to AFWU's
sweeping statement, the court a quo did not find that the termination
of the CONTRACT was "in retaliation to AFWU's demand for collective
bargaining. On the contrary, the court a quo held that MARITIMA's
authority to terminate the CONTRACT was rightfully exercised:
21. The evidence does not show substantially any act of interference
in the union membership or activities of the petitioner union. The
rescission of their CONTRACT is not a union interference
contemplated in the law.
xxx xxx xxx
x x x Further, the Court is satisfied that there is no act or acts of
discrimination as claimed by herein petitioner to have been
committed by the respondent firm or its branch manager Teves.
Evidence is clear that Teves, in representation of the principal, the
respondent Compañia MARITIMA, has also acted, in good faith in
implementing the provisions of their existent CONTRACT (Exhibit "A"),
and when he advised the union of the rescission of the said
CONTRACT effective August 31, 1954, he did so in the concept that
the employer firm may so terminate their contract pursuant to
paragraph 4 of Exhibit "A" which at the time was the law controlling
between them. ... (Emphasis supplied)
We are equally satisfied that the real reason for the termination of
the CONTRACT was AFWU's inefficient service. The court a quo drew
its conclusion from the following findings:
11. During the first month of the existence of the labor CONTRACT
Exhibit 'A', the petitioner union rendered satisfactory service. Under
this situation, the Compañia MARITIMA's representative at Iligan City
was authorized to renew verbally with the extension of the
CONTRACT Exhibit "A" from month to month basis after the first
month of its expiration. This situation of harmony lasted up to the
latter part of 1953 when the Compañia MARITIMA and its branch
manager agent complained to the union of the unsatisfactory service
of the union laborers hired to load and unload cargoes aboard
Compañia MARITIMA boats. This deteriorating situation was
admitted as a fact by the union president (See Exhs. "3", "3-A" and "3-
B"; See also t.s.n. pp. 65-66, August 9, 1960).
12. There was a showing that the laborers employed by the union
were inefficient in performing their jobs, and the business of the
respondent company in Iligan City suffered adversely during the year
1954; and this was due to the fact that respondents' vessels were
forced to leave cargoes behind in order not to disrupt the schedule of
departures. The Union laborers were slow in loading and/or
unloading freight from which the respondent Compañia MARITIMA
secured its income and/or profits. At times, cargoes were left behind
because of the union's failure to load them before vessel's departure.
In order to solve this inefficiency of the complaining union, the branch
manager of the Compañia MARITIMA was forced to hire extra
laborers from among 'stand-by' workers not affiliated to any union for
the purpose of helping in the stevedoring and arrastre work on their
vessels because, at that time, the union was not performing and/or
rendering efficient service in the loading and unloading of cargoes. ...
xxx xxx xxx
14. Because of the deterioration of the Service rendered to the
respondent, the branch manager of the respondent Compañia
MARITIMA informed the union of its intention to rescind the
CONTRACT Exhibit "A" because the company had been suffering
losses for such inefficient service. (See Exhibit "N").
Respondent Teves reported to the MARITIMA's head office on the
financial losses of the company in its operations. (See Exhibits 'Y', 'Y-
1' to 'X-5').
15. On August 24, 1954, branch manager Jose C. Teves of the Iligan
City MARITIMA Branch, wrote the petitioner union informing them of
the termination of their CONTRACT , Exhibit "A". (See Exhibit "N").
This step was taken after the company found the union lagging behind
their work under the CONTRACT , so much so that MARITIMA boats
have to leave on schedule without loading cargoes already contacted
to be transported. (Emphasis supplied)
Perhaps, AFWU might say that this right to terminate appearing in
paragraph 4 of the CONTRACT is contrary to law, morals, good
customs, public order, or public policy. 22 However, it has not
adduced any argument to demonstrate such point. Moreover, there
is authority to the effect that the insertion in a CONTRACT for
personal services of a resolutory condition permitting the cancellation
of the CONTRACT by one of the contracting parties is valid. 23 Neither
would the termination constitute "union-busting". Oceanic Air
Products vs. CIR, 24 cited by AFWU is not in point. That case
presupposes an employer-employee relationship between the parties
disputants — a basis absolutely wanting in this case.
AFWU's third point is again that MARITIMA's act of terminating the
CONTRACT constituted union interference. As stated, the court a quo
found as a fact that there is no sufficient evidence of union
interference. And no reason or argument has been advanced to show
that the fact of said termination alone constituted union interference.
THE CERTIFICATION ELECTION CASE
(L-22952 ** & L-22971 [CIR Case No. 175-MC]).
In the certification ejection case, the court a quo directed the holding
of a certification election among the laborers then doing arrastre and
stevedoring work. Both MARITIMA and AFWU have appealed from
that ruling. The latter maintains that the lower court should have
directly certified it as the majority union, entitled to represent all the
workers in the arrastre and stevedoring work unit, whereas
MARITIMA contends that said court could not even have correctly
358 | P a g e
ordered a certification election considering that there was an absence
of employer-employee relationship between it and said laborers.
There is no question that certification election could not have been
proper during the existence of the CONTRACT in view of the court a
quo's finding that there was no employment relationship thereunder
between the parties. But after the termination of the CONTRACT on
August 31, 1954, what was the nature of the relationship between
MARITIMA and the laborers-members of AFWU?
From the finding that after the rescission of the CONTRACT ,
MARITIMA continued to avail of the services of AFWU the court a quo
concluded that there came about an implied employer-employee
relationship between the parties. This conclusion cannot be
sustained.
First of all, it is contradicted by the established facts. In its findings of
fact, the court a quo observed that after the rescission, the AFWU
laborers continued working in accordance with the "cabo" system,
which was the prevailing custom in the place. Said the court:
20. After the rescission of the CONTRACT Exhibit "A" on August 31,
1954, the Allied Free Workers Union and its members were working
or performing the work of arrastre and stevedoring service aboard
'vessels of the Compañia MARITIMA docking at Iligan City port under
the 'cabo system' then prevailing in that teritory; and the customs and
conditions then prevailing were observed by the parties without
resorting to the conditions of the former labor contract Exhibit "A".
(Emphasis supplied)
Under the "Cabo" system, the union was an independent contractor.
This is shown by the court a quo's own finding that prior to the
CONTRACT between MARITIMA and AFWU, the former had an oral
arrastre and stevedoring agreement with another union. This
agreement was also based on the "cabo" system. As found by the
court a quo:
4. That prior to the execution of Exhibit "A", the arrastre and
stevedoring work was performed by the Iligan Wharf Laborers Union
headed by one Raymundo Labayos under a verbal agreement similar
to the nature and contents of Exhibit "A"; and this work continued
from 1949 to 1952.
5. Under the oral CONTRACT , the Iligan Laborers Union acting as an
independent labor contractor engaged [in] the services of its
members as laborers to perform the contract work of arrastre and
stevedoring service aboard vessels of the Compañia MARITIMA calling
and docking at Iligan City; and for the services therein rendered the
union charged shippers and/or consignees in accordance with the
consignment or place, and the proceeds thereof shall be shared by
the union members in accordance with the union's internal rules and
regulations. This system of work is locally known as the 'cabo system'.
The laborers who are members of the union and hired for the arrastre
and stevedoring work were paid on union payrolls and the Compañia
MARITIMA has had nothing to do with the preparation of the same.
6. Because of unsatisfactory service rendered by the Iligan Wharf
Labor Union headed by Labayos, the Compañia MARITIMA through its
agent in Iligan City cancelled their oral contractor and entered into a
new contractor, Exhibit "A" with the Allied Free Workers Union
(PLUM) now petitioner in this case. The terms and conditions of the
same continued and was similar to the oral contractor entered into
with the union headed by Labayos. ...
7. The cancellation of the oral contract with the Iligan Wharf Labor
Union headed by Labayos was due to the inefficient service rendered
by the said union. The labor contract entered into by the petitioner
herein (Exh. "A") was negotiated through the intervention of Messrs.
Salvador Lluch, Mariano Ll Badelles, Laurentino Ll. Badelles, Nicanor
T. Halivas and Raymundo Labayos. The contract was prepared by their
legal panel and after several negotiations, respondent Teves
reluctantly signed the said written contract with the union with the
assurance however that the same arrange previously had with the
former union regarding the performance and execution of the
arrastre and stevedoring contract be followed in accordance with the
custom of such kind of work at Iligan City. The petitioner union,
operated as a labor contractor under the so-called "cabor" system; ...
(Emphasis supplied)
From the above findings, it is evident that, insofar as the working
arrangement was concerned, there was no real difference between
the CONTRACT and the prior oral agreement. Both were based on the
"cabo" system. Under both, (1) the union was an independent
contractor which engaged the services of its members as laborers; (2)
the charges against the consignees and owners of cargoes were made
directly by the union; and (3) the laborers were paid on union payrolls
and MARITIMA had nothing to do with the preparation of the same.
These are the principal characteristics of the "cabo" system on which
the parties based their relationship after the termination of the
CONTRACT.
Hence, since the parties observed the "cabo" system after the
rescission of the CONTRACT, and since the characteristics of said
system show that the contracting union was an independent
contractor, it is reasonable to assume that AFWU continued being an
independent contractor of MARITIMA. And, being an independent
contractor, it could not qualify as an "employee". With more reason
would be true with respect to the laborers.
Moreover, there is no evidence at all regarding the characteristics of
the working arrangement between AFWU and MARITIMA after the
termination of the CONTRACT. All we have to go on is the court a
quo's finding that the "cabo" system was observed — a system that
negatives employment relationship. The four elements generally
regarded as indicating the employer-employee relationship — or at
the very least, the element of "control" — must be shown to sustain
the conclusion that there came about such relationship. The lack of
such a showing in the case at bar is fatal to AFWU's contention.
Lastly, to uphold the court a quo's conclusion would be tantamount
to the imposition of an employer-employee relationship against the
will of MARITIMA. This cannot be done, since it would violate
MARITIMA's exclusive prerogative to determine whether it should
enter into an employment CONTRACT or not, i.e, whether it should
hire others or not. 25 In Pampanga Bus Co. vs. Pambusco Employees'
Union, 26 We said:
x x x The general right to make a contract in relation to one's business
is an essential part of the liberty of the citizens protected by the due
process clause of the constitution. The right of a laborer to sell his
359 | P a g e
labor to such person as he may choose is, in its essence, the same as
the right of an employer to purchase labor from any person whom it
chooses. The employer and the employee have thus an equality of
right guaranteed by the constitution. 'If the employer can compel the
employee to work against the latter's will, this is servitude. If the
employee can compel the employer to give him work against the
employer's will, this is oppression (Emphasis supplied) .
ordered the holding of a certification election in CIR Case No. 175-MC,
and the petition for certification in said case should be, as it is hereby,
dismissed. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar,
Sanchez and Castro, JJ., concur.

Therefore, even if the AFWU laborers continued to perform arrastre

and stevedoring work after August 31, 1954, it cannot be correctly
concluded — as did the court a quo — that an employer-employee
relationship — even impliedly at that — arose when before there
never had been any. Indeed, it would appeal unreasonable and unjust
to force such a relationship upon MARITIMA when it had clearly and
continuously manifested its intention not to have any more business
relationship whatsoever with AFWU because of its inefficient service.
It was only to comply with injunctions and other judicial mandates
that MARITIMA continued to abide by the status quo, extending in
fact and in effect the operation of the MARITIMA contract.

The only remaining question now is whether, in the particular context

of what We have said, the lower court's ruling ordering a certification
election can be sustained. As already stated, the duty to bargain
collectively exists only between the "employer" and its "employees".
However, the actual negotiations — which may possibly culminate in
a concrete collective bargaining contract — are carried on between
the "employer" itself and the official representative of the
"employees" 27 — in most cases, the majority labor union. Since the
only function of a certification election is to determine, with judicial
sanction, who this official representative or spokesman of the
"employees" will be, 28 the order for certification election in question
cannot be sustained. There being no employer-employee relationship
between the parties disputants, there is neither a "duty to bargain
collectively" to speak of. And there being no such duty, to hold
certification elections would be pointless. There is no reason to select
a representative to negotiate when there can be no negotiations in
the first place. We therefore hold that where — as in this case — there
is no duty to bargain collectively, it is not proper to hold certification
elections in connection therewith.

The court a quo's objective in imposing the employer-employee

relationship may have been to do away with the "cabo" system which,
although not illegal, is in its operation regarded as disadvantageous
to the laborers and stevedores. The rule however remains that the
end cannot justify the means. For an action to be sanctioned by the
courts, the purpose must not only be good but the means undertaken
must also be lawful.

A true and sincere concern for the welfare of AFWU members-

laborers would call for reforms within AFWU itself, if the evil of the
so-called "cabo" system is to be eliminated. As We suggested in
Bermiso vs. Hijos de Escaño, 29 the remedy against the "cabo" system
need not be sought in the courts but in the laborers themselves who
should organize into a closely-knit union "which would secure the
privileges that the members desire thru the election of officers among
themselves who would not exploit them."

Wherefore, the appealed decision of the Court of Industrial Relations

is hereby affirmed insofar as it dismissed the charge of unfair labor
practice in CIR Case 426-ULP, but reversed and set aside insofar as it

360 | P a g e
8. 97 Phil. 171
G.R. No. L-7144 May 31, 1955
FAR EASTERN EXPORT & IMPORT CO., petitioner,
vs.
LIM TECK SUAN, respondent.
Juan Nabong and Crisolito Pascual for petitioner.
Jose P. Laurel, Marciano Almario and Jose T. Lojom for respondent.
MONTEMAYOR, J.:
This is a petition for certiorari to review a decision of the Court of
Appeals dated September 25, 1953, reversing the decision of the
Court of First Instance of Manila, and sentencing the defendant-
petitioner Far Eastern Export & Import Co. later referred to as export
company, to pay the plaintiff-respondent Lim Teck Suan later to be
referred to as Suan, the sum of P11,4476.60, with legal interest from
the date of the filing of the complaint and to pay the costs.
As to the facts and the issue in the case we are reproducing the
findings of the Court of Appeals, which findings are binding on this
Tribunal in case of similar appeals:
Sometime in November, 1948, Ignacio Delizalde, an agent of the Far
Eastern Export & Import Company, went to the store of Lim Teck Suan
situated at 267 San Vicente Street, Manila, and offered to sell textile,
showing samples thereof, and having arrived at an agreement with
Bernardo Lim, the General Manager of Lim Teck Suan, Delizalde
returned on November 17 with the buyer's order, Exhibit A, already
prepared which reads:
FAR EASTERN EXPORT & IMPORT COMPANY
75 Escolta 2nd Floor Brias Roxas Bldg., Manila
Ship to LIM TECK SUAN Date Written 11/17/48
475 Nueva St., Manila Your No.
Our No. 276
I hereby commission you to procure for me the following
merchandise, subject to the terms and conditions listed below:
======================================================
Quantity Unit Particulars Amount
10,000 yds Ashtone Acetate & Rayon-No. 13472
Width: 41/42 inches; Weight:
Approximately 8 oz. per yd; Ten (10)
colors, buyers choice, as per attached
samples, equally assorted; at $1.13
per yard F.A.S. New York U. S. $11,500.00
Item herein sold are FOB-FAS X C. & F
CIF
======================================================
TERMS AND CONDITIONS
Acceptance
This Buyer's Order is subject to confirmation by the exporter.
Shipment
Period of Shipment is to be within December. Bank Documents should
be for a line of 45 days to allow for presentation and payment against
"ON BOARD" bills of lading. Partial shipments permitted.
Payment
Payment will be by "Confirmed Irrevocable Letter of Credit" to be
opened in favor of Frenkel International Corporation, 52 Broadway,
New York, 4, N. Y. for the full amount of the above cost of
merchandise plus (approximately) for export packing: insurance,
freight, documentation, forwarding, etc. which are for the buyers
accounts, IMMEDIATELY upon written Confirmation. Our Guarantee
In case shipment is not affected, seller agrees to reimburse buyer for
all banking expenses. Confirmed Accepted
Signed Nov. 17, 1948
Authorized official
Confirmed
Accepted (Sgd.) Illegible Date Nov. 1948 to be signed by our
representative upon confirmation.
In accordance with said Exhibit A, plaintiff established a letter of credit
No. 6390 (Exhibit B) in favor of Frenkel International Corporation
through the Hongkong and Shanghai Bangking Corporation, attached
to the agreed statement of facts. On February 11, 1949, the textile
arrived at Manila on board the vessel M. S. Arnold Maersk, covered
by bill of lading No. 125 (Exhibit C), Invoice No. 1684-M (Exhibit D)
issued by Frenkel International Corporation direct to the plaintiff. The
plaintiff complained to the defendant of the inferior quality of the
textile received by him and had them examined by Marine Surveyor
Del Pan & Company. Said surveyor took swatches of the textile and
had the same analyzed by the Institute of Science (Exhibit E-1) and
submitted a report or survey under date of April 9, 1949 (Exhibit E).
Upon instructions of the defendants plaintiff deposited the goods
with the United Warehouse Corporation (Exhibits H, H-1 to H-6. As
per suggestion of the Far Eastern Export and Import Company
contained in its letter dated June 16, 1949, plaintiff withdrew from
the United Bonded Warehouse, Port Area, Manila, the fifteen cases
of Ashtone Acetate and Rayon Suiting for the purpose of offering
them for sale which netted P11,907.30. Deducting this amount from
the sum of P23,686.96 which included the amount paid by plaintiff for
said textile and the warehouse expenses, a difference of P11,476.66
is left, representing the net direct loss.
The defense set up is that the Far Eastern Export and Import Company
only acted as a broker in this transaction; that after placing the order
the defendants took no further action and the cargo was taken
directly by the buyer Lim Teck Suan, the shipment having been made
to him and all the documents were also handled by him directly
without any intervention on the part of the defendants; that upon
receipt of Lim Teck Suan's complaint the defendants passed it to its
principal, Frenkel International Corporation, for comment, and the
latter maintained that the merchandise was up to standard called for.
361 | P a g e

The lower court acquitted the defendants from the complaint asking
for damages in the sum of P19,500.00 representing the difference in
price between the textile ordered and those received, plus profits
unrealized and the cost of this suit, and dismissed the counterclaim
filed by the defendants without pronouncement as to costs.
As already stated, the Court of Appeals reversed the judgment
entered by the Court of First Instance of Manila, basing its decision of
reversal on the case of Jose Velasco, vs. Universal Trading Co., Inc., 45
Off. Gaz. 4504 where the transaction therein involved was found by
the court to be one of purchase and sale and not of brokerage or
agency. We have carefully examined the Velasco case and we agree
with the Court of Appeals that the facts in that case are very similar
to those in the present case. In the case of Velasco, we have the
following statement by the court itself which we reproduced below:
Prior to November 8, 1945 a salesman or agent of the Universal
Trading Co., Inc. informed Jose Velasco, Jr. that his company was in a
position to accept and fill in orders for Panamanian Agewood Bourbon
Whisky because there were several thousand cases of this article
ready for shipment to the company by its principal office in America.
Acting upon this offer and representative Velasco went to the
Universal Trading Co., Inc., and after a conversation with the latter's
official entered into an agreement couched in the following terms:
"Agreement is hereby made between Messrs. Jose Velasco, Jr., 340
Echaque, Manila, and the Universal Trading Company, Manila, for
order as follows and under the following terms:
Quantity Merchan
dise and Unit Unit Amount
Price
Description
100 Panamanian Agewood Bourbon
Whisky ..........................Case $17.00 $1,700
_______
Total amount of order ........... $1,700
Terms of Agreement:
"1. That the Universal Trading Company agrees to order the above
merchandise from their Los Angeles Office at the price quoted above,
C.I.F. Manila, for December shipment;
"2. That Messrs. Jose Velasco, Jr., 340 Echaque, Manila, obligates
myself/themselves to take the above merchandise when advised of
its arrival from the United States and to pay in cash the full amount of
the order in the Philippine Currency at the office of the Universal
Trading Company;
"3. This order may be subject to delay because of uncertain shipping
conditions. War risk insurance, transhipping charges, if any, port
charges, and any storage that may be incurred due to your not taking
delivery of the order upon being notified by us that the order is ready
for delivery, and government taxes, are all for your account;
"4. The terms of this agreement will be either of the following:
"a. To open up irrevocable letter of credit for the value of the order
with any of the local banks, or thru bills of lading payable to A. J.
Wilson Company, 1263 South North Avenue, Los Angeles, California;
"b. To put up a cash deposit equivalent to 50 % of the order;
"5. Reasonable substitute, whenever possible, will be shipped in lieu
of items called for, if order is not available."
Accordingly, Velasco deposited with the defendant the sum of $1,700
which is 50% of the price of the whisky pursuant to agreement made,
instead of 'to open up irrevocable letter of credit for the value of the
order with any of the local banks, or through bills of lading payable to
A. J. Wilson Company.' On November 6, 1945, the same date that the
contract or agreement, Exhibit A, was signed an invoice under the
name of the Universal Trading Co., Inc. was issued to Velasco for the
100 cases of Panamanian Agewood Bourbon Whisky for the price of
$1,700 which invoice manifested that the article was sold to Jose
Velasco, Jr. On January 15, 1946 another invoice was issued
containing besides the list price of $1,700 or P3,400, a statement of
bank charges, customs duties, internal revenue taxes, etc., giving a
total amount of P5,690.10 which after deducting the deposit of
$1,700, gives a balance of P3,990.01.
On January 25, 1946 the Universal Trading Co., Inc. wrote Exhibit 4 to
Mr. Velasco advising him that the S. S. Manoeran had docked and that
they would appreciate it if he would pay the amount of P3,990.10
direct to them. It turned out, however, that after the ship arrived,
what the Universal Trading Co., Inc. tried to deliver to Velasco was not
Panamanian Agewood Bourbon Whisky but Panamanian Agewood
Blended Whisky. Velasco refused to receive the shipment and in turn
filed action against the defendant for the return of his deposit of $
1,700 with interest. For its defense, defendant contends that it merely
acted as agent for Velasco and could not be held responsible for the
substitution of Blended Whisky for Bourbon Whisky and that
furthermore the Blended Whisky was a reasonable substitute for
Bourbon. After due hearing the Court of First Instance of Manila held
that the transaction was purchase and sale and ordered the
defendant to refund to the plaintiff his deposit of P1,700 with legal
interest from the date of the filing of the suit with costs, which
decision on appeal was affirmed by this Court.
We notice the following similarities. In the present case, the export
company acted as agent for Frenkel International Corporation,
presumably the supplier of the textile sold. In the Velasco case, the
Universal Trading Co., was acting as agent for A. J. Wilson Company,
also the supplier of the whisky sold. In the present case, Suan
according to the first part of the agreement is said merely to be
commissioning the Export Company to procure for him the
merchandise in question, just as in the other case, Velasco was
supposed to be ordering the whisky thru the Universal Trading Co. In
the present case, the price of the merchandise bought was paid for by
Suan by means of an irrevocable letter of credit opened in favor of the
supplier, Frenkel International Corporation. In the Velasco case,
Velasco was given the choice of either opening a similar irrevocable
letter of credit in favor of the supplier A. J. Wilson Company or making
a cash deposit. It is true that in the Velasco case, upon the arrival of
the whisky and because it did not conform to specifications, Velasco
refused to received it; but in the present case although Suan received
the merchandise he immediately protested its poor quality and it was
deposited in the warehouse and later withdrawn and sold for the best
362 | P a g e
price possible, all at the suggestion of the Export company. The
present case is in our opinion a stronger one than that of Velasco for
holding the transaction as one of purchase and sale because as may
be noticed from the agreement (Exhibit "A"), the same speaks of the
items (merchandise) therein involved as sold, and the sale was even
confirmed by the Export company. In both cases, the agents Universal
Trading Co. and the export company dealt directly with the local
merchants Velasco and Suan without expressly indicating or revealing
their principals. In both cases there was no privity of contract
between the buyers — Suan and Velasco and the suppliers Frenkel
International Corporation and A. J. Wilson Company, respectively. In
both cases no commission or monetary consideration was paid or
agreed to be paid by the buyers to the Export company and the
Universal Trading Co., proof that there was no agency or brokerage,
and that the profit of the latter was undoubtedly the difference
between the price listed to the buyers and the net or special price
quoted to the sellers, by the suppliers. As already stated, it was held
in the Velasco case that the transaction therein entered into was one
of purchase and sale, and for the same reasons given there, we agreed
with the Court of Appeals that the transaction entered into here is
one of purchase and sale.

As was held by this Tribunal in the case of Gonzalo Puyat & Sons
Incorporated vs. Arco Amusement, 72 Phil., 402, where a foreign
company has an agent here selling its goods and merchandise, that
same agent could not very well act as agent for local buyers, because
the interests of his foreign principal and those of the buyer would be
in direct conflict. He could not serve two masters at the same time. In
the present case, the Export company being an agent of the Frenkel
International Corporation could not, as it claims, have acted as an
agent or broker for Suan.

Finding no reversible error in the decision appealed from, the same is

hereby affirmed, with costs.

Pablo, Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion,

and Reyes, J. B. L., JJ., concur.

363 | P a g e
9. 26 SCRA 540
G.R. No. L-21601 December 17, 1966
NIELSON & COMPANY, INC., plaintiff-appellant,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
W. H. Quasha and Associates for plaintiff-appellant.
Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-
appellee.
ZALDIVAR, J.:
On February 6, 1958, plaintiff brought this action against defendant
before the Court of First Instance of Manila to recover certain sums
of money representing damages allegedly suffered by the former in
view of the refusal of the latter to comply with the terms of a
management contract entered into between them on January 30,
1937, including attorney's fees and costs.
Defendant in its answer denied the material allegations of the
complaint and set up certain special defenses, among them,
prescription and laches, as bars against the institution of the present
action.
After trial, during which the parties presented testimonial and
numerous documentary evidence, the court a quo rendered a
decision dismissing the complaint with costs. The court stated that it
did not find sufficient evidence to establish defendant's counterclaim
and so it likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in
view of the amount involved in the case.
The facts of this case, as stated in the decision appealed from, are
hereunder quoted for purposes of this decision:
It appears that the suit involves an operating agreement executed
before World War II between the plaintiff and the defendant whereby
the former operated and managed the mining properties owned by
the latter for a management fee of P2,500.00 a month and a 10%
participation in the net profits resulting from the operation of the
mining properties. For brevity and convenience, hereafter the
plaintiff shall be referred to as NIELSON and the defendant, LEPANTO.
The antecedents of the case are: The contract in question (Exhibit `C')
was made by the parties on January 30, 1937 for a period of five (5)
years. In the latter part of 1941, the parties agreed to renew the
contract for another period of five (5) years, but in the meantime, the
Pacific War broke out in December, 1941.
In January, 1942 operation of the mining properties was disrupted on
account of the war. In February of 1942, the mill, power plant,
supplies on hand, equipment, concentrates on hand and mines, were
destroyed upon orders of the United States Army, to prevent their
utilization by the invading Japanese Army. The Japanese forces
thereafter occupied the mining properties, operated the mines during
the continuance of the war, and who were ousted from the mining
properties only in August of 1945.
After the mining properties were liberated from the Japanese forces,
LEPANTO took possession thereof and embarked in rebuilding and
reconstructing the mines and mill; setting up new organization;
clearing the mill site; repairing the mines; erecting staff quarters and
bodegas and repairing existing structures; installing new machinery
and equipment; repairing roads and maintaining the same; salvaging
equipment and storing the same within the bodegas; doing police
work necessary to take care of the materials and equipment
recovered; repairing and renewing the water system; and
remembering (Exhibits "D" and "E"). The rehabilitation and
reconstruction of the mine and mill was not completed until 1948
(Exhibit "F"). On June 26, 1948 the mines resumed operation under
the exclusive management of LEPANTO (Exhibit "F-l").
Shortly after the mines were liberated from the Japanese invaders in
1945, a disagreement arose between NIELSON and LEPANTO over the
status of the operating contract in question which as renewed expired
in 1947. Under the terms thereof, the management contract shall
remain in suspense in case fortuitous event or force majeure, such as
war or civil commotion, adversely affects the work of mining and
milling.
"In the event of inundations, floodings of mine, typhoon, earthquake
or any other force majeure, war, insurrection, civil commotion,
organized strike, riot, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which adversely
affects the work of mining and milling; NIELSON shall report such fact
to LEPANTO and without liability or breach of the terms of this
Agreement, the same shall remain in suspense, wholly or partially
during the terms of such inability." (Clause II of Exhibit "C").
NIELSON held the view that, on account of the war, the contract was
suspended during the war; hence the life of the contract should be
considered extended for such time of the period of suspension. On
the other hand, LEPANTO contended that the contract should expire
in 1947 as originally agreed upon because the period of suspension
accorded by virtue of the war did not operate to extend further the
life of the contract.
No understanding appeared from the record to have been bad by the
parties to resolve the disagreement. In the meantime, LEPANTO
rebuilt and reconstructed the mines and was able to bring the
property into operation only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors
depending on whether or not the management contract basis of the
action has been extended for a period equivalent to the period of
suspension. If the agreement is suspended our attention should be
focused on the first set of errors claimed to have been committed by
the court a quo; but if the contrary is true, the discussion will then be
switched to the alternative set that is claimed to have been
committed. We will first take up the question whether the
management agreement has been extended as a result of the
supervening war, and after this question shall have been determined
in the sense sustained by appellant, then the discussion of the
defense of laches and prescription will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which
refers to suspension should any event constituting force majeure
happen appears in Clause II thereof which we quote hereunder:
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In the event of inundations, floodings of the mine, typhoon,
earthquake or any other force majeure, war, insurrection, civil
commotion, organized strike, riot, injury to the machinery or other
event or cause reasonably beyond the control of NIELSON and which
adversely affects the work of mining and milling; NIELSON shall report
such fact to LEPANTO and without liability or breach of the terms of
this Agreement, the same shall remain in suspense, wholly or partially
during the terms of such inability.
A careful scrutiny of the clause above-quoted will at once reveal that
in order that the management contract may be deemed suspended
two events must take place which must be brought in a satisfactory
manner to the attention of defendant within a reasonable time, to
wit: (1) the event constituting the force majeure must be reasonably
beyond the control of Nielson, and (2) it must adversely affect the
work of mining and milling the company is called upon to undertake.
As long as these two condition exist the agreement is deem
suspended.
Does the evidence on record show that these two conditions had
existed which may justify the conclusion that the management
agreement had been suspended in the sense entertained by
appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war
supervened in our country and that the mines in the Philippines were
either destroyed or taken over by the occupation forces with a view
to their operation. The Lepanto mines were no exception for not was
the mine itself destroyed but the mill, power plant, supplies on hand,
equipment and the like that were being used there were destroyed as
well. Thus, the following is what appears in the Lepanto Company
Mining Report dated March 13, 1946 submitted by its President C. A.
DeWitt to the defendant:1 "In February of 1942, our mill, power plant,
supplies on hand, equipment, concentrates on hand, and mine, were
destroyed upon orders of the U.S. Army to prevent their utilization by
the enemy." The report also mentions the report submitted by Mr.
Blessing, an official of Nielson, that "the original mill was destroyed in
1942" and "the original power plant and all the installed equipment
were destroyed in 1942." It is then undeniable that beginning
February, 1942 the operation of the Lepanto mines stopped or
became suspended as a result of the destruction of the mill, power
plant and other important equipment necessary for such operation in
view of a cause which was clearly beyond the control of Nielson and
that as a consequence such destruction adversely affected the work
of mining and milling which the latter was called upon to undertake
under the management contract. Consequently, by virtue of the very
terms of said contract the same may be deemed suspended from
February, 1942 and as of that month the contract still had 60 months
to go.
On the other hand, the record shows that the defendant admitted
that the occupation forces operated its mining properties subject of
the management contract,2 and from the very report submitted by
President DeWitt it appears that the date of the liberation of the mine
was August 1, 1945 although at the time there were still many booby
traps.3 Similarly, in a report submitted by the defendant to its
stockholders dated August 25, 1948, the following appears: "Your
Directors take pleasure in reporting that June 26, 1948 marked the
official return to operations of this Company of its properties in
Mankayan, Mountain Province, Philippines."4
It is, therefore, clear from the foregoing that the Lepanto mines were
liberated on August 1, 1945, but because of the period of
rehabilitation and reconstruction that had to be made as a result of
the destruction of the mill, power plant and other necessary
equipment for its operation it cannot be said that the suspension of
the contract ended on that date. Hence, the contract must still be
deemed suspended during the succeeding years of reconstruction
and rehabilitation, and this period can only be said to have ended on
June 26, 1948 when, as reported by the defendant, the company
officially resumed the mining operations of the Lepanto. It should
here be stated that this period of suspension from February, 1942 to
June 26, 1948 is the one urged by plaintiff.5
It having been shown that the operation of the Lepanto mines on the
part of Nielson had been suspended during the period set out above
within the purview of the management contract, the next question
that needs to be determined is the effect of such suspension. Stated
in another way, the question now to be determined is whether such
suspension had the effect of extending the period of the management
contract for the period of said suspension. To elucidate this matter,
we again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the
suspension had the effect of extending the period of the contract,
namely, George T. Scholey and Mark Nestle. Scholey was a mining
engineer since 1929, an incorporator, general manager and director
of Nielson and Company; and for some time he was also the vice-
president and director of the Lepanto Company during the pre-war
days and, as such, he was an officer of both appellant and appellee
companies. As vice-president of Lepanto and general manager of
Nielson, Scholey participated in the negotiation of the management
contract to the extent that he initialed the same both as witness and
as an officer of both corporations. This witness testified in this case to
the effect that the standard force majeure clause embodied in the
management contract was taken from similar mining contracts
regarding mining operations and the understanding regarding the
nature and effect of said clause was that when there is suspension of
the operation that suspension meant the extension of the contract.
Thus, to the question, "Before the war, what was the understanding
of the people in the particular trend of business with respect to the
force majeure clause?", Scholey answered: "That was our
understanding that the suspension meant the extension of time
lost."6
Mark Nestle, the other witness, testified along similar line. He had
been connected with Nielson since 1937 until the time he took the
witness stand and had been a director, manager, and president of the
same company. When he was propounded the question: "Do you
know what was the custom or usage at that time in connection with
force majeure clause?", Nestle answered, "In the mining world the
force majeure clause is generally considered. When a calamity comes
up and stops the work like in war, flood, inundation or fire, etc., the
work is suspended for the duration of the calamity, and the period of
the contract is extended after the calamity is over to enable the
person to do the big work or recover his money which he has invested,
or accomplish what his obligation is to a third person ."7
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And the above testimonial evidence finds support in the very minutes
of the special meeting of the Board of Directors of the Lepanto
Company issued on March 10, 1945 which was then chairmaned by
Atty. C. A. DeWitt. We read the following from said report:
The Chairman also stated that the contract with Nielson and Company
would soon expire if the obligations were not suspended, in which
case we should have to pay them the retaining fee of P2,500.00 a
month. He believes however, that there is a provision in the contract
suspending the effects thereof in cases like the present, and that even
if it were not there, the law itself would suspend the operations of the
contract on account of the war. Anyhow, he stated, we shall have no
difficulty in solving satisfactorily any problem we may have with
Nielson and Company.8
Thus, we can see from the above that even in the opinion of Mr.
DeWitt himself, who at the time was the chairman of the Board of
Directors of the Lepanto Company, the management contract would
then expire unless the period therein rated is suspended but that,
however, he expressed the belief that the period was extended
because of the provision contained therein suspending the effects
thereof should any of the case of force majeure happen like in the
present case, and that even if such provision did not exist the law
would have the effect of suspending it on account of the war. In
substance, Atty. DeWitt expressed the opinion that as a result of the
suspension of the mining operation because of the effects of the war
the period of the contract had been extended.
Contrary to what appellant's evidence reflects insofar as the
interpretation of the force majeure clause is concerned, however,
appellee gives Us an opposite interpretation invoking in support
thereof not only a letter Atty. DeWitt sent to Nielson on October 20,
1945,9 wherein he expressed for the first time an opinion contrary to
what he reported to the Board of Directors of Lepanto Company as
stated in the portion of the minutes of its Board of Directors as quoted
above, but also the ruling laid down by our Supreme Court in some
cases decided sometime ago, to the effect that the war does not have
the effect of extending the term of a contract that the parties may
enter into regarding a particular transaction, citing in this connection
the cases of Victorias Planters Association v. Victorias Milling
Company, 51 O.G. 4010; Rosario S. Vda. de Lacson, et al. v. Abelardo
G. Diaz, 87 Phil. 150; and Lo Ching y So Young Chong Co. v. Court of
Appeals, et al., 81 Phil. 601.
To bolster up its theory, appellee also contends that the evidence
regarding the alleged custom or usage in mining contract that
appellant's witnesses tried to introduce was incompetent because (a)
said custom was not specifically pleaded; (b) Lepanto made timely
and repeated objections to the introduction of said evidence; (c)
Nielson failed to show the essential elements of usage which must be
shown to exist before any proof thereof can be given to affect the
contract; and (d) the testimony of its witnesses cannot prevail over
the very terms of the management contract which, as a rule, is
supposed to contain all the terms and conditions by which the parties
intended to be bound.
It is here necessary to analyze the contradictory evidence which the
parties have presented regarding the interpretation of the force
majeure clause in the management contract.
At the outset, it should be stated that, as a rule, in the construction
and interpretation of a document the intention of the parties must be
sought (Rule 130, Section 10, Rules of Court). This is the basic rule in
the interpretation of contracts because all other rules are but
ancilliary to the ascertainment of the meaning intended by the
parties. And once this intention has been ascertained it becomes an
integral part of the contract as though it had been originally expressed
therein in unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189,
So., 348, cited in 17A C.J.S., p. 47). How is this intention determined?
One pattern is to ascertain the contemporaneous and subsequent
acts of the contracting parties in relation to the transaction under
consideration (Article 1371, Civil Code). In this particular case, it is
worthy of note what Atty. C. A. DeWitt has stated in the special
meeting of the Board of Directors of Lepanto in the portion of the
minutes already quoted above wherein, as already stated, he
expressed the opinion that the life of the contract, if not extended,
would last only until January, 1947 and yet he said that there is a
provision in the contract that the war had the effect of suspending
the agreement and that the effect of that suspension was that the
agreement would have to continue with the result that Lepanto
would have to pay the monthly retaining fee of P2,500.00. And this
belief that the war suspended the agreement and that the suspension
meant its extension was so firm that he went to the extent that even
if there was no provision for suspension in the agreement the law
itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October
20, 1945 wherein apparently he changed his mind because there he
stated that the contract was merely suspended, but not extended, by
reason of the war, contrary to the opinion he expressed in the
meeting of the Board of Directors already adverted to, but between
the two opinions of Atty. DeWitt We are inclined to give more weight
and validity to the former not only because such was given by him
against his own interest but also because it was given before the
Board of Directors of Lepanto and in the presence, of some Nielson
officials 10 who, on that occasion were naturally led to believe that
that was the true meaning of the suspension clause, while the second
opinion was merely self-serving and was given as a mere
afterthought.
Appellee also claims that the issue of true intent of the parties was
not brought out in the complaint, but anent this matter suffice it to
state that in paragraph No. 19 of the complaint appellant pleaded that
the contract was extended. 11 This is a sufficient allegation
considering that the rules on pleadings must as a rule be liberally
construed.
It is likewise noteworthy that in this issue of the intention of the
parties regarding the meaning and usage concerning the force
majeure clause, the testimony adduced by appellant is
uncontradicted. If such were not true, appellee should have at least
attempted to offer contradictory evidence. This it did not do. Not
even Lepanto's President, Mr. V. E. Lednicky who took the witness
stand, contradicted said evidence.
In holding that the suspension of the agreement meant the extension
of the same for a period equivalent to the suspension, We do not have
the least intention of overruling the cases cited by appellee. We
simply want to say that the ruling laid down in said cases does not
366 | P a g e
apply here because the material facts involved therein are not the
same as those obtaining in the present. The rule of stare decisis
cannot be invoked where there is no analogy between the material
facts of the decision relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company,
51 O.G. 4010, there was no evidence at all regarding the intention of
the parties to extend the contract equivalent to the period of
suspension caused by the war. Neither was there evidence that the
parties understood the suspension to mean extension; nor was there
evidence of usage and custom in the industry that the suspension
meant the extension of the agreement. All these matters, however,
obtain in the instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz,
87 Phil. 150, the issue referred to the interpretation of a pre-war
contract of lease of sugar cane lands and the liability of the lessee to
pay rent during and immediately following the Japanese occupation
and where the defendant claimed the right of an extension of the
lease to make up for the time when no cane was planted. This Court,
in holding that the years which the lessee could not use the land
because of the war could not be discounted from the period agreed
upon, held that "Nowhere is there any insinuation that the defendant-
lessee was to have possession of lands for seven years excluding years
on which he could not harvest sugar." Clearly, this ratio decidendi is
not applicable to the case at bar wherein there is evidence that the
parties understood the "suspension clause by force majeure" to mean
the extension of the period of agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of
Appeals, et al., 81 Phil. 601, appellant leased a building from appellee
beginning September 13, 1940 for three years, renewable for two
years. The lessee's possession was interrupted in February, 1942
when he was ousted by the Japanese who turned the same over to
German Otto Schulze, the latter occupying the same until January,
1945 upon the arrival of the liberation forces. Appellant contended
that the period during which he did not enjoy the leased premises
because of his dispossession by the Japanese had to be deducted from
the period of the lease, but this was overruled by this Court, reasoning
that such dispossession was merely a simple "perturbacion de
merohecho y de la cual no responde el arrendador" under Article
1560 of the old Civil Code Art. 1664). This ruling is also not applicable
in the instant case because in that case there was no evidence of the
intention of the parties that any suspension of the lease by force
majeure would be understood to extend the period of the agreement.
In resume, there is sufficient justification for Us to conclude that the
cases cited by appellee are inapplicable because the facts therein
involved do not run parallel to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is
correct in its contention that the defense of laches applies
independently of prescription. Laches is different from the statute of
limitations. Prescription is concerned with the fact of delay, whereas
laches is concerned with the effect of delay. Prescription is a matter
of time; laches is principally a question of inequity of permitting a
claim to be enforced, this inequity being founded on some change in
the condition of the property or the relation of the parties.
Prescription is statutory; laches is not. Laches applies in equity,
whereas prescription applies at law. Prescription is based on fixed
time, laches is not. (30 C.J.S., p. 522; See also Pomeroy's Equity
Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of
laches within the meaning contemplated by the authorities on the
matter. In the leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96
Phil. 622, this Court enumerated the essential elements of laches as
follows:
(1) conduct on the part of the defendant, or of one under
whom he claims, giving rise to the situation of which complaint is
made and for which the complaint seeks a remedy; (2) delay in
asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct and having been
afforded an opportunity to institute a suit; (3) lack of knowledge or
notice on the part of the defendant that the complainant would assert
the right on which he bases his suit; and (4) injury or prejudice to the
defendant in the event relief is accorded to the complainant, or the
suit is not held barred.
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed
that defendant refused to pay its management fees, its percentage of
profits and refused to allow it to resume the management operation.
Anent the second element, while it is true that appellant Nielson knew
since 1945 that appellee Lepanto has refused to permit it to resume
management and that since 1948 appellee has resumed operation of
the mines and it filed its complaint only on February 6, 1958, there
being apparent delay in filing the present action, We find the delay
justified and as such cannot constitute laches. It appears that
appellant had not abandoned its right to operate the mines for even
before the termination of the suspension of the agreement as early
as January 20, 194612 and even before March 10, 1945, it already
claimed its right to the extension of the contract,13 and it pressed its
claim for the balance of its share in the profits from the 1941
operation14 by reason of which negotiations had taken place for the
settlement of the claim15 and it was only on June 25, 1957 that
appellee finally denied the claim. There is, therefore, only a period of
less than one year that had elapsed from the date of the final denial
of the claim to the date of the filing of the complaint, which certainly
cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said
that appellee Lepanto did not know that appellant would assert its
rights on which it based suit. The evidence shows that Nielson had
been claiming for some time its rights under the contract, as already
shown above.
Neither is the fourth element present, for if there has been some
delay in bringing the case to court it was mainly due to the attempts
at arbitration and negotiation made by both parties. If Lepanto's
documents were lost, it was not caused by the delay of the filing of
the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches
is that the delay in the filing of the complaint in the present case was
the inevitable of the protracted negotiations between the parties
concerning the settlement of their differences. It appears that Nielson
367 | P a g e
asked for arbitration16 which was granted. A committee consisting of
Messrs. DeWitt, Farnell and Blessing was appointed to act on said
differences but Mr. DeWitt always tried to evade the issue17 until he
was taken ill and died. Mr. Farnell offered to Nielson the sum of
P13,000.58 by way of compromise of all its claim arising from the
management contract18 but apparently the offer was refused.
Negotiations continued with the exchange of letters between the
parties but with no satisfactory result.19 It can be said that the delay
due to protracted negotiations was caused by both parties. Lepanto,
therefore, cannot be permitted to take advantage of such delay or to
question the propriety of the action taken by Nielson. The defense of
laches is an equitable one and equity should be applied with an even
hand. A person will not be permitted to take advantage of, or to
question the validity, or propriety of, any act or omission of another
which was committed or omitted upon his own request or was caused
by his conduct (R. H. Stearns Co. vs. United States, 291 U.S. 54, 78 L.
Ed. 647, 54 S. Ct., 325; United States vs. Henry Prentiss & Co., 288 U.S.
73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the
action of Nielson is already barred by the statute of limitations, and
that ruling is now assailed by the appellant in this appeal. In urging
that the court a quo erred in reaching that conclusion the appellant
has discussed the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941
operations. Inasmuch as appellee Lepanto alleges that the correct
basis of the computation of the sharing in the net profits shall be as
provided for in Clause V of the Management Contract, while appellant
Nielson maintains that the basis should be what is contained in the
minutes of the special meeting of the Board of Directors of Lepanto
on August 21, 1940, this question must first be elucidated before the
main issue is discussed.
The facts relative to the matter of profit sharing follow: In the
management contract entered into between the parties on January
30, 1937, which was renewed for another five years, it was stipulated
that Nielson would receive a compensation of P2,500.00 a month plus
10% of the net profits from the operation of the properties for the
preceding month. In 1940, a dispute arose regarding the computation
of the 10% share of Nielson in the profits. The Board of Directors of
Lepanto, realizing that the mechanics of the contract was unfair to
Nielson, authorized its President to enter into an agreement with
Nielson modifying the pertinent provision of the contract effective
January 1, 1940 in such a way that Nielson shall receive (1) 10% of the
dividends declared and paid, when and as paid, during the period of
the contract and at the end of each year, (2) 10% of any depletion
reserve that may be set up, and (3) 10% of any amount expended
during the year out of surplus earnings for capital account. 20 Counsel
for the appellee admitted during the trial that the extract of the
minutes as found in Exhibit B is a faithful copy from the original. 21
Mr. George Scholey testified that the foregoing modification was
agreed upon. 22
Lepanto claims that this new basis of computation should be rejected
(1) because the contract was clear on the point of the 10% share and
it was so alleged by Nielson in its complaint, and (2) the minutes of
the special meeting held on August 21, 1940 was not signed.
It appearing that the issue concerning the sharing of the profits had
been raised in appellant's complaint and evidence on the matter was
introduced 23 the same can be taken into account even if no
amendment of the pleading to make it conform to the evidence has
been made, for the same is authorized by Section 4, Rule 17, of the
old Rules of Court (now Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant
Lepanto, it is contended by the latter that the period to be considered
for the prescription of the claim regarding participation in the profits
is only four years, because the modification of the sharing embodied
in the management contract is merely verbal, no written document
to that effect having been presented. This contention is untenable.
The modification appears in the minutes of the special meeting of the
Board of Directors of Lepanto held on August 21, 1940, it having been
made upon the authority of its President, and in said minutes the
terms of the modification had been specified. This is sufficient to have
the agreement considered, for the purpose of applying the statute of
limitations, as a written contract even if the minutes were not signed
by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing
containing the terms of a contract if adopted by two persons may
constitute a contract in writing even if the same is not signed by either
of the parties (3 A.L.R., 2d, pp. 812-813). Another authority says that
an unsigned agreement the terms of which are embodied in a
document unconditionally accepted by both parties is a written
contract (Corbin on Contracts, Vol. 1, p. 85)
The modification, therefore, made in the management contract
relative to the participation in the profits by appellant, as contained
in the minutes of the special meeting of the Board of Directors of
Lepanto held on August 21, 1940, should be considered as a written
contract insofar as the application of the statutes of limitations is
concerned. Hence, the action thereon prescribes within ten (10) years
pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10%
participation in the 1941 operations accrued on December 21, 1941
and the right to commence an action thereon began on January 1,
1942 so that the action must be brought within ten (10) years from
the latter date. It is true that the complaint was filed only on February
6, 1958, that is sixteen (16) years, one (1) month and five (5) days after
the right of action accrued, but the action has not yet prescribed for
various reasons which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for
appellant's claim is undeniably a claim for money. Said claim accrued
on December 31, 1941, and Lepanto is a war sufferer. Hence the claim
was covered by Executive Order No. 32 of March 10, 1945. It is well
settled that the operation of the Moratorium Law suspends the
running of the statue of limitations (Pacific Commercial Co. vs.
Aquino, G.R. No. L-10274, February 27, 1957).
This Court has held that the Moratorium Law had been enforced for
eight (8) years, two (2) months and eight (8) days (Tioseco vs. Day, et
al., L-9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487,
April 29, 1960), and deducting this period from the time that had
elapsed since the accrual of the right of action to the date of the filing
of the complaint, the extent of which is sixteen (16) years, one (1)
month and five (5) days, we would have less than eight (8) years to be
368 | P a g e
counted for purposes of prescription. Hence appellant's action on its
claim of 10% on the 1941 profits had not yet prescribed.
Another reason that may be taken into account in support of the no-
bar theory of appellant is the arbitration clause embodied in the
management contract which requires that any disagreement as to any
amount of profits before an action may be taken to court shall be
subject to arbitration. 24 This agreement to arbitrate is valid and
binding. 25 It cannot be ignored by Lepanto. Hence Nielson could not
bring an action on its participation in the 1941 operations-profits until
the condition relative to arbitration had been first complied with. 26
The evidence shows that an arbitration committee was constituted
but it failed to accomplish its purpose on June 25, 1957. 27 From this
date to the filing of the complaint the required period for prescription
has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared
in 1941, exclusive of interest, amounting to P17,500.00; (2) 10% in the
depletion reserves for 1941; and (3) 10% in the profits for years prior
to 1948 amounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar
year of 1954 28 shows that it declared a 10% cash dividend in
December, 1941, the amount of which is P175,000.00. The evidence
in this connection (Exhibits L and O) was admitted without objection
by counsel for Lepanto. 29 Nielson claims 10% share in said amount
with interest thereon at 6% per annum. The document (Exhibit L) was
even recognized by Lepanto's President V. L. Lednicky, 30 and this
claim is predicated on the provision of paragraph V of the
management contract as modified pursuant to the proposal of
Lepanto at the special meeting of the Board of Directors on August
21, 1940 (Exh. B), whereby it was provided that Nielson would be
entitled to 10% of any dividends to be declared and paid during the
period of the contract.
With regard to the second claim, Nielson admits that there is no
evidence regarding the amount set aside by Lepanto for depletion
reserve for 1941 31 and so the 10% participation claimed thereon
cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on
the sum of P197,647.08, which appears in Lepanto's annual report for
1948 32 and entered as profit for prior years in the statement of
income and surplus, which amount consisted "almost in its entirety of
proceeds of copper concentrates shipped to the United States during
1947," this claim should to denied because the amount is not
"dividend declared and paid" within the purview of the management
contract.
The fifth assignment of error of appellant refers to the failure of the
lower court to order Lepanto to pay its management fees for January,
1942, and for the full period of extension amounting to P150,000.00,
or P2,500.00 a month for sixty (60) months, — a total of P152,500.00
— with interest thereon from the date of judicial demand.
It is true that the claim of management fee for January, 1942 was not
among the causes of action in the complaint, but inasmuch as the
contract was suspended in February, 1942 and the management fees
asked for included that of January, 1942, the fact that such claim was
not included in a specific manner in the complaint is of no moment
because an appellate court may treat the pleading as amended to
conform to the evidence where the facts show that the plaintiff is
entitled to relief other than what is asked for in the complaint (Alonzo
vs. Villamor, 16 Phil. 315). The evidence shows that the last payment
made by Lepanto for management fee was for November and
December, 1941. 33 If, as We have declared, the management
contract was suspended beginning February 1942, it follows that
Nielson is entitled to the management fee for January, 1942.
Let us now come to the management fees claimed by Nielson for the
period of extension. In this respect, it has been shown that the
management contract was extended from June 27, 1948 to June 26,
1953, or for a period of sixty (60) months. During this period Nielson
had a right to continue in the management of the mining properties
of Lepanto and Lepanto was under obligation to let Nielson do it and
to pay the corresponding management fees. Appellant Nielson
insisted in performing its part of the contract but Lepanto prevented
it from doing so. Hence, by virtue of Article 1186 of the Civil Code,
there was a constructive fulfillment an the part of Nielson of its
obligation to manage said mining properties in accordance with the
contract and Lepanto had the reciprocal obligation to pay the
corresponding management fees and other benefits that would have
accrued to Nielson if Lepanto allowed it (Nielson) to continue in the
management of the mines during the extended period of five (5)
years.
We find that the preponderance of evidence is to the effect that
Nielson had insisted in managing the mining properties soon after
liberation. In the report 34 of Lepanto, submitted to its stockholders
for the period from 1941 to March 13, 1946, are stated the activities
of Nielson's officials in relation to Nielson's insistence in continuing
the management. This report was admitted in evidence without
objection. We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San
Fernando (La Union) to await the liberation of the mines. (Mr. Blessing
was the Treasurer and Metallurgist of Nielson). Blessing with Clark
and Stanford went to the property on July 16 and found that while the
mill site had been cleared of the enemy the latter was still holding the
area around the staff houses and putting up a strong defense. As a
result, they returned to San Fernando and later went back to the
mines on July 26. Mr. Blessing made the report, dated August 6,
recommending a program of operation. Mr. Nielson himself spent a
day in the mine early in December, 1945 and reiterated the program
which Mr. Blessing had outlined. Two or three weeks before the date
of the report, Mr. Coldren of the Nielson organization also visited the
mine and told President C. A. DeWitt of Lepanto that he thought that
the mine could be put in condition for the delivery of the ore within
ten (10) days. And according to Mark Nestle, a witness of appellant,
Nielson had several men including engineers to do the job in the
mines and to resume the work. These engineers were in fact sent to
the mine site and submitted reports of what they had done. 35
On the other hand, appellee claims that Nielson was not ready and
able to resume the work in the mines, relying mainly on the testimony
of Dr. Juan Nabong, former secretary of both Nielson and Lepanto,
given in the separate case of Nancy Irving Romero vs. Lepanto
Consolidated Mining Company (Civil Case No. 652, CFI, Baguio), to the
effect that as far as he knew "Nielson and Company had not
attempted to operate the Lepanto Consolidated Mining Company
369 | P a g e
because Mr. Nielson was not here in the Philippines after the last war. 10%
He came back later," and that Nielson and Company had no money
nor stocks with which to start the operation. He was asked by counsel November
for the appellee if he had testified that way in Civil Case No. 652 of
the Court of First Instance of Baguio, and he answered that he did not 1949
confirm it fully. When this witness was asked by the same counsel
whether he confirmed that testimony, he said that when he testified P 200,000.00
in that case he was not fully aware of what happened and that after
he learned more about the officials of the corporation it was only then 9
that he became aware that Nielson had really sent his men to the
mines along with Mr. Blessing and that he was aware of this fact 10%
personally. He further said that Mr. Nielson was here in 1945 and "he
was going out and contacting his people." 36 July

Lepanto admits, in its own brief, that Nielson had really insisted in 1950
taking over the management and operation of the mines but that it
(Lepanto) unequivocally refuse to allow it. The following is what 300,000.00
appears in the brief of the appellee:
10
It was while defendant was in the midst of the rehabilitation work
which was fully described earlier, still reeling under the terrible 10%
devastation and destruction wrought by war on its mine that Nielson
insisted in taking over the management and operation of the mine. October
Nielson thus put Lepanto in a position where defendant, under the
circumstances, had to refuse, as in fact it did, Nielson's insistence in 1950
taking over the management and operation because, as was obvious,
it was impossible, as a result of the destruction of the mine, for the 500,000.00
plaintiff to manage and operate the same and because, as provided
in the agreement, the contract was suspended by reason of the war. 11
The stand of Lepanto in disallowing Nielson to assume again the
management of the mine in 1945 was unequivocal and cannot be 20%
misinterpreted, infra.37
December
Based on the foregoing facts and circumstances, and Our conclusion
that the management contract was extended, We believe that 1950
Nielson is entitled to the management fees for the period of
extension. Nielson should be awarded on this claim sixty times its 1,000,000.00
monthly pay of P2,500.00, or a total of P150,000.00.
12
In its sixth assignment of error Nielson contends that the lower court
erred in not ordering Lepanto to pay it (Nielson) the 10% share in the 20%
profits of operation realized during the period of five (5) years from
the resumption of its post-war operations of the Mankayan mines, in March
the total sum of P2,403,053.20 with interest thereon at the rate of 6%
per annum from February 6, 1958 until full payment. 38 1951

The above claim of Nielson refers to four categories, namely: (1) cash 1,000,000.00
dividends; (2) stock dividends; (3) depletion reserves; and (4) amount
expended on capital investment. 13

Anent the first category, Lepanto's report for the calendar year 1954 20%
39 contains a record of the cash dividends it paid up to the date of
said report, and the post-war dividends paid by it corresponding to June
the years included in the period of extension of the management
contract are as follows: 1951

POST-WAR 1,000,000.00

8 14

370 | P a g e
20% 20%

September December

1951 1952

1,000,000.00 1,000,000.00

15 21

40% 20%

December March

1951 1953

2,000,000.00 1,000,000.00

16 22

20% 20%

March June

1952 1953

1,000,000.00 1,000,000.00

17 TOTAL

20% P14,000,000.00

May According to the terms of the management contract as modified,

appellant is entitled to 10% of the P14,000,000.00 cash dividends that
1952 had been distributed, as stated in the above-mentioned report, or the
sum of P1,400,000.00.
1,000,000.00
With regard to the second category, the stock dividends declared by
18 Lepanto during the period of extension of the contract are: On
November 28, 1949, the stock dividend declared was 50% of the
20% outstanding authorized capital of P2,000,000.00 of the company, or
stock dividends worth P1,000,000.00; and on August 22, 1950, the
July stock dividends declared was 66-2/3% of the standing authorized
capital of P3,000,000.00 of the company, or stock dividends worth
1952 P2,000,000.00. 40

1,000,000.00 Appellant's claim that it should be given 10% of the cash value of said
stock dividends with interest thereon at 6% from February 6, 1958
19 cannot be granted for that would not be in accordance with the
management contract which entitles Nielson to 10% of any dividends
20% declared paid, when and as paid. Nielson, therefore, is entitled to 10%
of the stock dividends and to the fruits that may have accrued to said
September stock dividends pursuant to Article 1164 of the Civil Code. Hence to
Nielson is due shares of stock worth P100,000.00, as per stock
1952 dividends declared on November 28, 1949 and all the fruits accruing
to said shares after said date; and also shares of stock worth
1,000,000.00 P200,000.00 as per stock dividends declared on August 20, 1950 and
all fruits accruing thereto after said date.
20

371 | P a g e
Anent the third category, the depletion reserve appearing in the
statement of income and surplus submitted by Lepanto
corresponding to the years covered by the period of extension of the
contract, may be itemized as follows:
In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion reserve set
up was P11,602.80.
In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set
up was P33,556.07.
In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion
reserve set up was P84,963.30.
In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion
reserve set up was P129,089.88.
In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion
reserve was P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve
set up as P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted that
the amount given was for the whole year. Inasmuch as the contract
was extended only for the last half of the year 1948, said amount of
P11,602.80 should be divided by two, and so Nielson is only entitled
to 10% of the half amounting to P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for
the whole year and since the contract was extended only until the first
half of the year, said amount of P277,493.25 should be divided by
two, and so Nielson is only entitled to 10% of the half amounting to
P138,746.62. Summing up the entire depletion reserves, from the
middle of 1948 to the middle of 1953, we would have a total of
P539,298.81, of which Nielson is entitled to 10%, or to the sum of
P53,928.88.
Finally, with regard to the fourth category, there is no figure in the
record representing the value of the fixed assets as of the beginning
of the period of extension on June 27, 1948. It is possible, however,
to arrive at the amount needed by adding to the value of the fixed
assets as of December 31, 1947 one-half of the amount spent for
capital account in the year 1948. As of December 31, 1947, the value
of the fixed assets was P1,061,878.88 41 and as of December 31,
1948, the value of the fixed assets was P3,270,408.07. 42 Hence, the
increase in the value of the fixed assets for the year 1948 was
P2,208,529.19, one-half of which is P1,104,264.59, which amount
represents the expenses for capital account for the first half of the
year 1948. If to this amount we add the fixed assets as of December
31, 1947 amounting to P1,061,878.88, we would have a total of
P2,166,143.47 which represents the fixed assets at the beginning of
the second half of the year 1948.
There is also no figure representing the value of the fixed assets when
the contract, as extended, ended on June 26, 1953; but this may be
computed by getting one-half of the expenses for capital account
made in 1953 and adding the same to the value of the fixed assets as
of December 31, 1953 is P9,755,840.41 43 which the value of the fixed
assets as of December 31, 1952 is P8,463,741.82, the difference being
P1,292,098.69. One-half of this amount is P646,049.34 which would
represent the expenses for capital account up to June, 1953. This
amount added to the value of the fixed assets as of December 31,
1952 would give a total of P9,109,791.16 which would be the value of
fixed assets at the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto
from June, 1948 to June, 1953 is P6,943,647.69, which amount
represents the difference between the value of the fixed assets of
Lepanto in the year 1948 and in the year 1953, as stated above. On
this amount Nielson is entitled to a share of 10% or to the amount of
P694,364.76.
Considering that most of the claims of appellant have been
entertained, as pointed out in this decision, We believe that appellant
is entitled to be awarded attorney's fees, especially when, according
to the undisputed testimony of Mr. Mark Nestle, Nielson obliged
himself to pay attorney's fees in connection with the institution of the
present case. In this respect, We believe, considering the intricate
nature of the case, an award of fifty thousand (P50,000.00) pesos for
attorney's fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse
the decision of the court a quo and enter in lieu thereof another,
ordering the appellee Lepanto to pay appellant Nielson the different
amounts as specified hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the
amount of P17,500.00, with legal interest thereon from the date of
the filing of the complaint;
(2) management fee for January, 1942 in the amount of
P2,500.00, with legal interest thereon from the date of the filing of
the complaint;
(3) management fees for the sixty-month period of extension
of the management contract, amounting to P150,000.00, with legal
interest from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of
extension of the management contract, amounting to P1,400,000.00,
with legal interest thereon from the date of the filing of the
complaint;
(5) 10% of the depletion reserve set up during the period of
extension, amounting to P53,928.88, with legal interest thereon from
the date of the filing of the complaint;
(6) 10% of the expenses for capital account during the period
of extension, amounting to P694,364.76, with legal interest thereon
from the date of the filing of the complaint;
(7) to issue and deliver to Nielson and Co., Inc. shares of stock
of Lepanto Consolidated Mining Co. at par value equivalent to the
total of Nielson's l0% share in the stock dividends declared on
November 28, 1949 and August 22, 1950, together with all cash and
stock dividends, if any, as may have been declared and issued
subsequent to November 28, 1949 and August 22, 1950, as fruits that
accrued to said shares;
372 | P a g e
If sufficient shares of stock of Lepanto's are not available to satisfy this
judgment, defendant-appellee shall pay plaintiff-appellant an amount
in cash equivalent to the market value of said shares at the time of
default (12 C.J.S., p. 130), that is, all shares of the stock that should
have been delivered to Nielson before the filing of the complaint must
be paid at their market value as of the date of the filing of the
complaint; and all shares, if any, that should have been delivered after
the filing of the complaint at the market value of the shares at the
time Lepanto disposed of all its available shares, for it is only then that
Lepanto placed itself in condition of not being able to perform its
obligation (Article 1160, Civil Code);

(8) the sum of P50,000.00 as attorney's fees; and

(9) the costs. It is so ordered.

Concepcion, C.J., Regala, Makalintal, Bengzon, J.P., Sanchez and

Castro, JJ., concur.

Reyes, J.B.L. and Barrera, JJ., took no part.

373 | P a g e
10. 100 Phil. 755
G.R. No. L-8169 January 29, 1957
THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,
vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON,
PORFIRIO DE LA FUENTE and THE COURT OF APPEALS (First Division),
respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for respondents.
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a judgment of the Court
of Appeals which reversed that of the Court of First Instance of Manila
and sentenced ". . . the defendants-appellees to pay, jointly and
severally, the plaintiffs-appellants the sum of P1,651.38, with legal
interest from December 6, 1947 (Gutierrez vs. Gutierrez, 56 Phil., 177,
180), and the costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the Defendant-
Appellee, the Shell Company of the Philippine Islands, Ltd. accept the
statement of facts made by the trial court in its decision and
appearing on pages 23 to 37 of the Record on Appeal, we quote
hereunder such statement:
This is an action for recovery of sum of money, based on alleged
negligence of the defendants.
It is a fact that a Plymounth car owned by Salvador R. Sison was
brought, on September 3, 1947 to the Shell Gasoline and Service
Station, located at the corner of Marques de Comillas and Isaac Peral
Streets, Manila, for washing, greasing and spraying. The operator of
the station, having agreed to do service upon payment of P8.00, the
car was placed on a hydraulic lifter under the direction of the
personnel of the station.
What happened to the car is recounted by Perlito Sison, as follows:
Q. Will you please describe how they proceeded to do the work?
A. Yes, sir. The first thing that was done, as I saw, was to drive the car
over the lifter. Then by the aid of the two grease men they raised up
my car up to six feet high, and then washing was done. After washing,
the next step was greasing. Before greasing was finished, there is a
part near the shelf of the right fender, right front fender, of my car to
be greased, but the the grease men cannot reached that part, so the
next thing to be done was to loosen the lifter just a few feet lower.
Then upon releasing the valve to make the car lower, a little bit lower
...
Q. Who released the valve?
A. The greasemen, for the escape of the air. As the escape of the air
is too strong for my ear I faced backward. I faced toward Isaac Peral
Street, and covered my ear. After the escaped of the air has been
finished, the air coming out from the valve, I turned to face the car
and I saw the car swaying at that time, and just for a few second the
car fell., (t.s.n. pp. 22-23.)
The case was immediately reported to the Manila Adjustor Company,
the adjustor of the firemen's Insurance Company and the Commercial
Casualty Insurance Company, as the car was insured with these
insurance companies. After having been inspected by one Mr. Baylon,
representative of the Manila Adjustor Company, the damaged car was
taken to the shops of the Philippine Motors, Incorporated, for repair
upon order of the Firemen's Insurance Company and the Commercial
Casualty Company, with the consent of Salvador R. Sison. The car was
restored to running condition after repairs amounting to P1,651.38,
and was delivered to Salvador R. Sison, who, in turn made
assignments of his rights to recover damages in favor of the Firemen's
Insurance Company and the Commercial Casualty Insurance
Company.
On the other hand, the fall of the car from the hydraulic lifter has been
explained by Alfonso M. Adriano, a greaseman in the Shell Gasoline
and Service Station, as follows:
Q. Were you able to lift the car on the hydraulic lifter on the occasion,
September 3, 1947?
A. Yes, sir.
Q. To what height did you raise more or less?
A. More or less five feet, sir.
Q. After lifting that car that height, what did you do with the car?
A. I also washed it, sir.
Q. And after washing?
A. I greased it.
Q. On that occasion, have you been able to finish greasing and
washing the car?
A. There is one point which I could not reach.
Q. And what did you do then?
A. I lowered the lifter in order to reach that point.
Q. After lowering it a little, what did you do then?
A. I pushed and pressed the valve in its gradual pressure.
Q. Were you able to reach the portion which you were not able to
reach while it was lower?
A. No more, sir.
Q. Why?
374 | P a g e
A. Because when I was lowering the lifter I saw that the car was
swinging and it fell.
THE COURT. Why did the car swing and fall?
WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)
The position of Defendant Porfirio de la Fuente is stated in his
counter-statement of facts which is hereunder also reproduced:
In the afternoon of September 3, 1947, an automobile belonging to
the plaintiff Salvador Sison was brought by his son, Perlito Sison, to
the gasoline and service station at the corner of Marques de Comillas
and Isaac Peral Streets, City of Manila, Philippines, owned by the
defendant The Shell Company of the Philippine Islands, Limited, but
operated by the defendant Porfirio de la Fuente, for the purpose of
having said car washed and greased for a consideration of P8.00
(t.s.n., pp. 19-20.) Said car was insured against loss or damage by
Firemen's Insurance Company of Newark, New Jersey, and
Commercial Casualty Insurance Company jointly for the sum of
P10,000 (Exhibits "A', "B", and "D").
The job of washing and greasing was undertaken by defendant
Porfirio de la Fuente through his two employees, Alfonso M. Adriano,
as greaseman and one surnamed de los Reyes, a helper and washer
(t.s.n., pp. 65-67). To perform the job the car was carefully and
centrally placed on the platform of the lifter in the gasoline and
service station aforementioned before raising up said platform to a
height of about 5 feet and then the servicing job was started. After
more than one hour of washing and greasing, the job was about to be
completed except for an ungreased portion underneath the vehicle
which could not be reached by the greasemen. So, the lifter was
lowered a little by Alfonso M. Adriano and while doing so, the car for
unknown reason accidentally fell and suffered damage to the value of
P1, 651.38 (t.s.n., pp. 65-67).
The insurance companies after paying the sum of P1,651.38 for the
damage and charging the balance of P100.00 to Salvador Sison in
accordance with the terms of the insurance contract, have filed this
action together with said Salvador Sison for the recovery of the total
amount of the damage from the defendants on the ground of
negligence (Record on Appeal, pp. 1-6).
The defendant Porfirio de la Fuente denied negligence in the
operation of the lifter in his separate answer and contended further
that the accidental fall of the car was caused by unforseen event
(Record on Appeal, pp. 17-19).
The owner of the car forthwith notified the insurers who ordered
their adjustor, the Manila Adjustor Company, to investigate the
incident and after such investigation the damaged car, upon order of
the insures and with the consent of the owner, was brought to the
shop of the Philippine Motors, Inc. The car was restored to running
condition after thereon which amounted to P1,651.38 and returned
to the owner who assigned his right to collect the aforesaid amount
to the Firemen's Insurance Company and the Commercial Casualty
Insurance Company.
On 6 December 1947 the insures and the owner of the car brought an
action in the Court of First Instance of Manila against the Shell
Company of the Philippines, Ltd. and Porfirio de la Fuente to recover
from them, jointly and severally, the sum of P1,651.38, interest
thereon at the legal rate from the filing of the complaint until fully
paid, the costs. After trial the Court dismissed the complaint. The
plaintiffs appealed. The Court of Appeals reversed the judgment and
sentenced the defendant to pay the amount sought to be recovered,
legal interest and costs, as stated at the beginning of this opinion.
In arriving at the conclusion that on 3 September 1947 when the car
was brought to the station for servicing Profirio de la Fuente, the
operator of the gasoline and service station, was an agent of the Shell
Company of the Philippines, Ltd., the Court of Appeals found that —
. . . De la Fuente owned his position to the Shell Company which could
remove him terminate his services at any time from the said
Company, and he undertook to sell the Shell Company's products
exculusively at the said Station. For this purpose, De la Fuente was
placed in possession of the gasoline and service station under
consideration, and was provided with all the equipments needed to
operate it, by the said Company, such as the tools and articles listed
on Exhibit 2 which the hydraulic lifter (hoist) and accessories, from
which Sison's automobile fell on the date in question (Exhibit 1 and
2). These equipments were delivered to De la Fuente on a so-called
loan basis. The Shell Company took charge of its care and
maintenance and rendered to the public or its customers at that
station for the proper functioning of the equipment. Witness Antonio
Tiongson, who was sales superintendent of the Shell Company, and
witness Augusto Sawyer, foreman of the same Company, supervised
the operators and conducted periodic inspection of the Company's
gasoline and service station, the service station in question inclusive.
Explaining his duties and responsibilities and the reason for the loan,
Tiongson said: "mainly of the supervision of sales or (of) our dealers
and rountinary inspection of the equipment loaned by the Company"
(t.s.n., 107); "we merely inquire about how the equipments are,
whether they have complaints, and whether if said equipments are in
proper order . . .", (t.s.n., 110); station equipments are "loaned for the
exclusive use of the dealer on condition that all supplies to be sold by
said dealer should be exclusively Shell, so as a concession we loan
equipments for their use . . .," "for the proper functioning of the
equipments, we answer and see to it that the equipments are in good
running order usable condition . . .," "with respect to the public."
(t.s.n., 111-112). De la Fuente, as operator, was given special prices
by the Company for the gasoline products sold therein. Exhibit 1 —
Shell, which was a receipt by Antonio Tiongson and signed by the De
la Fuente, acknowledging the delivery of equipments of the gasoline
and service station in question was subsequently replaced by Exhibit
2 — Shell, an official from of the inventory of the equipment which
De la Fuente signed above the words: "Agent's signature" And the
service station in question had been marked "SHELL", and all
advertisements therein bore the same sign. . . .
. . . De la Fuente was the operator of the station "by grace" of the
Defendant Company which could and did remove him as it pleased;
that all the equipments needed to operate the station was owned by
the Defendant Company which took charge of their proper care and
maintenance, despite the fact that they were loaned to him; that the
Defendant company did not leave the fixing of price for gasoline to De
la Fuente; on the other hand, the Defendant company had complete
control thereof; and that Tiongson, the sales representative of the
Defendant Company, had supervision over De la Fuente in the
375 | P a g e
operation of the station, and in the sale of Defendant Company's Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo,
products therein. . . . Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.

Taking into consideration the fact that the operator owed his position
to the company and the latter could remove him or terminate his
services at will; that the service station belonged to the company and
bore its tradename and the operator sold only the products of the
company; that the equipment used by the operator belonged to the
company and were just loaned to the operator and the company took
charge of their repair and maintenance; that an employee of the
company supervised the operator and conducted periodic inspection
of the company's gasoline and service station; that the price of the
products sold by the operator was fixed by the company and not by
the operator; and that the receipt signed by the operator indicated
that he was a mere agent, the finding of the Court of Appeals that the
operator was an agent of the company and not an independent
contractor should not be disturbed.

To determine the nature of a contract courts do not have or are not

bound to rely upon the name or title given it by the contracting
parties, should there be a controversy as to what they really had
intended to enter into, but the way the contracting parties do or
perform their respective obligation stipulated or agreed upon may be
shown and inquired into, and should such performance conflict with
the name or title given the contract by the parties, the former must
prevail over the latter.

It was admitted by the operator of the gasoline and service station

that "the car was carefully and centrally placed on the platform of the
lifter . . ." and the Court of Appeals found that —

. . . the fall of Appellant Sison's car from the hydraulic lift and the
damage caused therefor, were the result of the jerking and swaying
of the lift when the valve was released, and that the jerking was due
to some accident and unforeseen shortcoming of the mechanism
itself, which caused its faulty or defective operation or functioning,

. . . the servicing job on Appellant Sison's automobile was accepted by

De la Fuente in the normal and ordinary conduct of his business as
operator of his co-appellee's service station, and that the jerking and
swaying of the hydraulic lift which caused the fall of the subject car
were due to its defective condition, resulting in its faulty operation. .
..

As the act of the agent or his employees acting within the scope of his
authority is the act of the principal, the breach of the undertaking by
the agent is one for which the principal is answerable. Moreover, the
company undertook to "answer and see to it that the equipments are
in good running order and usable condition;" and the Court of Appeals
found that the Company's mechanic failed to make a thorough check
up of the hydraulic lifter and the check up made by its mechanic was
"merely routine" by raising "the lifter once or twice and after
observing that the operator was satisfactory, he (the mechanic) left
the place." The latter was negligent and the company must answer
for the negligent act of its mechanic which was the cause of the fall of
the car from the hydraulic lifter.

The judgment under review is affirmed, with costs against the

petitioner.

376 | P a g e
11. 160 SCRA 171
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO
S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.
SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil
Code in this appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for
the appellees) entered into on Oct. 19, 1960 by and between Mrs.
Segundina Noguera, party of the first part; the Tourist World Service,
Inc., represented by Mr. Eliseo Canilao as party of the second part,
and hereinafter referred to as appellants, the Tourist World Service,
Inc. leased the premises belonging to the party of the first part at
Mabini St., Manila for the former-s use as a branch office. In the said
contract the party of the third part held herself solidarily liable with
the party of the part for the prompt payment of the monthly rental
agreed on. When the branch office was opened, the same was run by
the herein appellant Una 0. Sevilla payable to Tourist World Service
Inc. by any airline for any fare brought in on the efforts of Mrs. Lina
Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World
Service, Inc. appears to have been informed that Lina Sevilla was
connected with a rival firm, the Philippine Travel Bureau, and, since
the branch office was anyhow losing, the Tourist World Service
considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc.
dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office
of the manager and vice-president of the Tourist World Service, Inc.,
Ermita Branch, and the second,authorizing the corporate secretary to
receive the properties of the Tourist World Service then located at the
said branch office. It further appears that on Jan. 3, 1962, the contract
with the appellees for the use of the Branch Office premises was
terminated and while the effectivity thereof was Jan. 31, 1962, the
appellees no longer used it. As a matter of fact appellants used it since
Nov. 1961. Because of this, and to comply with the mandate of the
Tourist World Service, the corporate secretary Gabino Canilao went
over to the branch office, and, finding the premises locked, and, being
unable to contact Lina Sevilla, he padlocked the premises on June 4,
1962 to protect the interests of the Tourist World Service. When
neither the appellant Lina Sevilla nor any of her employees could
enter the locked premises, a complaint wall filed by the herein
appellants against the appellees with a prayer for the issuance of
mandatory preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein, the
trial court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order
dismissing her counterclaim which the court a quo, in an order dated
June 8, 1963, granted permitting her to present evidence in support
of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the
herein appellees and after the issues were joined, the reinstated
counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the court a
quo ordered both cases dismiss for lack of merit, on the basis of which
was elevated the instant appeal on the following assignment of
errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE
NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S
COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT
MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST
WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE
RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT
SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST
WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT
APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA
FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN
HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL
APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O.
SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT
APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR
FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues
to be resolved are:
1. Whether the appellee Tourist World Service unilaterally
disco the telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist
World Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging
to the appellee Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness
venture was entered into by and between her and appellee TWS with
offices at the Ermita branch office and that she was not an employee
of the TWS to the end that her relationship with TWS was one of a
joint business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife
of an eminent eye, ear and nose specialist as well as a imediately
columnist had been in the travel business prior to the establishment
377 | P a g e
of the joint business venture with appellee Tourist World Service, Inc.
and appellee Eliseo Canilao, her compadre, she being the godmother
of one of his children, with her own clientele, coming mostly from her
own social circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement
dated 19 October 1960 (Exh. 'A') covering the premises at A. Mabini
St., she expressly warranting and holding [sic] herself 'solidarily' liable
with appellee Tourist World Service, Inc. for the prompt payment of
the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-
15, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from
appellee Tourist World Service, Inc., which had its own, separate
office located at the Trade & Commerce Building; nor was she an
employee thereof, having no participation in nor connection with said
business at the Trade & Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own
passengers, her own bookings her own business (and not for any of
the business of appellee Tourist World Service, Inc.) obtained from
the airline companies. She shared the 7% commissions given by the
airline companies giving appellee Tourist World Service, Lic. 3%
thereof aid retaining 4% for herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of
maintaining the A. Mabini St. office, paying for the salary of an office
secretary, Miss Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some of fice furnishings
(pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in consideration for the 3%
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb.
16,1965).
6. It was the understanding between them that appellant Mrs.
Sevilla would be given the title of branch manager for appearance's
sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just
a title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee
Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate
secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was
an employee of the appellee Tourist World Service, Inc. and as such
was designated manager.1
xxx xxx xxx
The trial court2 held for the private respondent on the premise that
the private respondent, Tourist World Service, Inc., being the true
lessee, it was within its prerogative to terminate the lease and
padlock the premises. 3 It likewise found the petitioner, Lina Sevilla,
to be a mere employee of said Tourist World Service, Inc. and as such,
she was bound by the acts of her employer. 4 The respondent Court
of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining
the lower court, erred. Specifically, they state:
I relationship between Sevilla and Tourist World Service," the Rule of
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE
PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC.
WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA
SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF
HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE
APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING
INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY
OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO
PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE
THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE
TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE
RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2)
DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF
LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA
RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP
PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH
APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING
AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED
ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND
GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT
SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN
JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS
AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE
TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD
SERVICE INC.6
As a preliminary inquiry, the Court is asked to declare the true nature
of the relation between Lina Sevilla and Tourist World Service, Inc.
The respondent Court of see fit to rule on the question, the crucial
issue, in its opinion being "whether or not the padlocking of the
premises by the Tourist World Service, Inc. without the knowledge
and consent of the appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or not the evidence for the
said appellant supports the contention that the appellee Tourist
World Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita branch
office of the appellee Tourist World Service, Inc.7 Tourist World
Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere
employee, being "branch manager" of its Ermita "branch" office and
that inferentially, she had no say on the lease executed with the
private respondent, Segundina Noguera. The petitioners contend,
however, that relation between the between parties was one of joint
venture, but concede that "whatever might have been the true
Law enjoined Tourist World Service and Canilao from taking the law
378 | P a g e
into their own hands, 8 in reference to the padlocking now
questioned.
The Court finds the resolution of the issue material, for if, as the
private respondent, Tourist World Service, Inc., maintains, that the
relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the
case, labor disputes being the exclusive domain of the Court of
Industrial Relations, later, the Bureau Of Labor Relations, pursuant to
statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the
evidence of an employer-employee relation. In general, we have
relied on the so-called right of control test, "where the person for
whom the services are performed reserves a right to control not only
the end to be achieved but also the means to be used in reaching such
end." 10 Subsequently, however, we have considered, in addition to
the standard of right-of control, the existing economic conditions
prevailing between the parties, like the inclusion of the employee in
the payrolls, in determining the existence of an employer-employee
relationship.11
The records will show that the petitioner, Lina Sevilla, was not subject
to control by the private respondent Tourist World Service, Inc., either
as to the result of the enterprise or as to the means used in
connection therewith. In the first place, under the contract of lease
covering the Tourist Worlds Ermita office, she had bound herself in
solidum as and for rental payments, an arrangement that would be
like claims of a master-servant relationship. True the respondent
Court would later minimize her participation in the lease as one of
mere guaranty, 12 that does not make her an employee of Tourist
World, since in any case, a true employee cannot be made to part with
his own money in pursuance of his employer's business, or otherwise,
assume any liability thereof. In that event, the parties must be bound
by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the
branch office was opened, the same was run by the herein appellant
Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for
any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these
circumstances, it cannot be said that Sevilla was under the control of
Tourist World Service, Inc. "as to the means used." Sevilla in pursuing
the business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll.
For her efforts, she retained 4% in commissions from airline bookings,
the remaining 3% going to Tourist World. Unlike an employee then,
who earns a fixed salary usually, she earned compensation in
fluctuating amounts depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not
make her, ergo, Tourist World's employee. As we said, employment is
determined by the right-of-control test and certain economic
parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are
not, as a consequence, accepting Lina Sevilla's own, that is, that the
parties had embarked on a joint venture or otherwise, a partnership.
And apparently, Sevilla herself did not recognize the existence of such
a relation. In her letter of November 28, 1961, she expressly
'concedes your [Tourist World Service, Inc.'s] right to stop the
operation of your branch office 14 in effect, accepting Tourist World
Service, Inc.'s control over the manner in which the business was run.
A joint venture, including a partnership, presupposes generally a of
standing between the joint co-venturers or partners, in which each
party has an equal proprietary interest in the capital or property
contributed 15 and where each party exercises equal rights in the
conduct of the business.16 furthermore, the parties did not hold
themselves out as partners, and the building itself was embellished
with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.
It is the Court's considered opinion, that when the petitioner, Lina
Sevilla, agreed to (wo)man the private respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract that the agent
renders services "in representation or on behalf of another.18 In the
case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As compensation,
she received 4% of the proceeds in the concept of commissions. And
as we said, Sevilla herself based on her letter of November 28, 1961,
pre-assumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and
from the respondent Court's recital of facts, that the ties had
contemplated a principal agent relationship, rather than a joint
managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we
hereby declare to be compatible with the intent of the parties, cannot
be revoked at will. The reason is that it is one coupled with an interest,
the agency having been created for mutual interest, of the agent and
the principal. 19 It appears that Lina Sevilla is a bona fide travel agent
herself, and as such, she had acquired an interest in the business
entrusted to her. Moreover, she had assumed a personal obligation
for the operation thereof, holding herself solidarily liable for the
payment of rentals. She continued the business, using her own name,
after Tourist World had stopped further operations. Her interest,
obviously, is not to the commissions she earned as a result of her
business transactions, but one that extends to the very subject matter
of the power of management delegated to her. It is an agency that, as
we said, cannot be revoked at the pleasure of the principal.
Accordingly, the revocation complained of should entitle the
petitioner, Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining
itself to the telephone disconnection and padlocking incidents. Anent
the disconnection issue, it is the holding of the Court of Appeals that
there is 'no evidence showing that the Tourist World Service, Inc.
disconnected the telephone lines at the branch office. 20 Yet, what
cannot be denied is the fact that Tourist World Service, Inc. did not
take pains to have them reconnected. Assuming, therefore, that it had
no hand in the disconnection now complained of, it had clearly
condoned it, and as owner of the telephone lines, it must shoulder
responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect
to the padlocking incident. For the fact that Tourist World Service, Inc.
was the lessee named in the lease con-tract did not accord it any
authority to terminate that contract without notice to its actual
occupant, and to padlock the premises in such fashion. As this Court
379 | P a g e
has ruled, the petitioner, Lina Sevilla, had acquired a personal stake xxx xxx xxx
in the business itself, and necessarily, in the equipment pertaining
thereto. Furthermore, Sevilla was not a stranger to that contract (10) Acts and actions refered into article 21, 26, 27, 28, 29, 30,
having been explicitly named therein as a third party in charge of 32, 34, and 35.
rental payments (solidarily with Tourist World, Inc.). She could not be
ousted from possession as summarily as one would eject an The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby
interloper. ordered to respond for the same damages in a solidary capacity.

The Court is satisfied that from the chronicle of events, there was
indeed some malevolent design to put the petitioner, Lina Sevilla, in
a bad light following disclosures that she had worked for a rival firm.
To be sure, the respondent court speaks of alleged business losses to
justify the closure '21 but there is no clear showing that Tourist World
Ermita Branch had in fact sustained such reverses, let alone, the fact
that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information
(that Sevilla was working for another company), Tourist World's board
of directors adopted two resolutions abolishing the office of
'manager" and authorizing the corporate secretary, the respondent
Eliseo Canilao, to effect the takeover of its branch office properties.
On January 3, 1962, the private respondents ended the lease over the
branch office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that
the Ermita office was padlocked, personally by the respondent
Canilao, on the pretext that it was necessary to Protect the interests
of the Tourist World Service. " 22 It is strange indeed that Tourist
World Service, Inc. did not find such a need when it cancelled the
lease five months earlier. While Tourist World Service, Inc. would not
pretend that it sought to locate Sevilla to inform her of the closure,
but surely, it was aware that after office hours, she could not have
been anywhere near the premises. Capping these series of
"offensives," it cut the office's telephone lines, paralyzing completely
its business operations, and in the process, depriving Sevilla
articipation therein.
Insofar, however, as the private respondent, Segundina Noguera is
concerned, no evidence has been shown that she had connived with
Tourist World Service, Inc. in the disconnection and padlocking
incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral
damages,24 P10,000.00 as exemplary damages, 25 and P5,000.00 as
nominal 26 and/or temperate27 damages, to be just, fair, and
reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well
as the Resolution issued on July 31, 1975, by the respondent Court of
Appeals is hereby REVERSED and SET ASIDE. The private respondent,
Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly
and severally to indemnify the petitioner, Lina Sevilla, the sum of
25,00.00 as and for moral damages, the sum of P10,000.00, as and for
exemplary damages, and the sum of P5,000.00, as and for nominal
and/or temperate damages.
Costs against said private respondents.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

This conduct on the part of Tourist World Service, Inc. betrays a

sinister effort to punish Sevillsa it had perceived to be disloyalty on
her part. It is offensive, in any event, to elementary norms of justice
and fair play.

We rule therefore, that for its unwarranted revocation of the contract

of agency, the private respondent, Tourist World Service, Inc., should
be sentenced to pay damages. Under the Civil Code, moral damages
may be awarded for "breaches of contract where the defendant acted
... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further

damages for the moral injury done to Lina Sevilla from its brazen
conduct subsequent to the cancellation of the power of attorney
granted to her on the authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.24

ART. 2219. Moral damages25 may be recovered in the

following and analogous cases:

380 | P a g e
12. GR No. L-34338, November 21, 1984
G.R. No. L-34338 November 21, 1984
LOURDES VALERIO LIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
RELOVA, J.:
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa
and was sentenced "to suffer an imprisonment of four (4) months and
one (1) day as minimum to two (2) years and four (4) months as
maximum, to indemnify the offended party in the amount of P559.50,
with subsidize imprisonment in case of insolvency, and to pay the
costs." (p. 14, Rollo)
From this judgment, appeal was taken to the then Court of Appeals
which affirmed the decision of the lower court but modified the
penalty imposed by sentencing her "to suffer an indeterminate
penalty of one (1) month and one (1) day of arresto mayor as
minimum to one (1) year and one (1) day of prision correccional as
maximum, to indemnify the complainant in the amount of P550.50
without subsidiary imprisonment, and to pay the costs of suit." (p. 24,
Rollo)
The question involved in this case is whether the receipt, Exhibit "A",
is a contract of agency to sell or a contract of sale of the subject
tobacco between petitioner and the complainant, Maria de Guzman
Vda. de Ayroso, thereby precluding criminal liability of petitioner for
the crime charged.
The findings of facts of the appellate court are as follows:
... The appellant is a businesswoman. On January 10, 1966, the
appellant went to the house of Maria Ayroso and proposed to sell
Ayroso's tobacco. Ayroso agreed to the proposition of the appellant
to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant
was to receive the overprice for which she could sell the tobacco. This
agreement was made in the presence of plaintiff's sister, Salud G.
Bantug. Salvador Bantug drew the document, Exh. A, dated January
10, 1966, which reads:
To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda.
de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf
tobacco to be sold at Pl.30 per kilo. The proceed in the amount of
Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given
to her as soon as it was sold.
This was signed by the appellant and witnessed by the complainant's
sister, Salud Bantug, and the latter's maid, Genoveva Ruiz. The
appellant at that time was bringing a jeep, and the tobacco was
loaded in the jeep and brought by the appellant. Of the total value of
P799.50, the appellant had paid to Ayroso only P240.00, and this was
paid on three different times. Demands for the payment of the
balance of the value of the tobacco were made upon the appellant by
Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug
further testified that she had gone to the house of the appellant
several times, but the appellant often eluded her; and that the
"camarin" the appellant was empty. Although the appellant denied
that demands for payment were made upon her, it is a fact that on
October 19, 1966, she wrote a letter to Salud Bantug which reads as
follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte
pa ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito
at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay
man lang ako ng marami para hindi masiadong kahiyahiya sa iyo.
Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta
lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan
mo ay bukas ay dadalhan kita ng pera.
Medio mahirap ang maningil sa palengke ng Cabanatuan dahil
nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at tiyak
na babayaran kita.
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Ludy
Pursuant to this letter, the appellant sent a money order for P100.00
on October 24, 1967, Exh. 4, and another for P50.00 on March 8,
1967; and she paid P90.00 on April 18, 1967 as evidenced by the
receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no
further amount was paid, the complainant filed a complaint against
the appellant for estafa. (pp. 14, 15, 16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the
following questions of law, to wit:
1. Whether or not the Honorable Court of Appeals was legally right in
holding that the foregoing document (Exhibit "A") "fixed a period" and
"the obligation was therefore, immediately demandable as soon as
the tobacco was sold" (Decision, p. 6) as against the theory of the
petitioner that the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was intended
in which case the only action that can be maintained is a petition to
ask the court to fix the duration thereof;
2. Whether or not the Honorable Court of Appeals was legally right in
holding that "Art. 1197 of the New Civil Code does not apply" as
against the alternative theory of the petitioner that the fore. going
receipt (Exhibit "A") gives rise to an obligation wherein the duration
of the period depends upon the will of the debtor in which case the
only action that can be maintained is a petition to ask the court to fix
the duration of the period; and
3. Whether or not the honorable Court of Appeals was legally right in
holding that the foregoing receipt is a contract of agency to sell as
against the theory of the petitioner that it is a contract of sale. (pp. 3-
4, Rollo)
It is clear in the agreement, Exhibit "A", that the proceeds of the sale
of the tobacco should be turned over to the complainant as soon as
the same was sold, or, that the obligation was immediately
demandable as soon as the tobacco was disposed of. Hence, Article
381 | P a g e
1197 of the New Civil Code, which provides that the courts may fix the
duration of the obligation if it does not fix a period, does not apply.

Anent the argument that petitioner was not an agent because Exhibit
"A" does not say that she would be paid the commission if the goods
were sold, the Court of Appeals correctly resolved the matter as
follows:

... Aside from the fact that Maria Ayroso testified that the appellant
asked her to be her agent in selling Ayroso's tobacco, the appellant
herself admitted that there was an agreement that upon the sale of
the tobacco she would be given something. The appellant is a
businesswoman, and it is unbelievable that she would go to the extent
of going to Ayroso's house and take the tobacco with a jeep which she
had brought if she did not intend to make a profit out of the
transaction. Certainly, if she was doing a favor to Maria Ayroso and it
was Ayroso who had requested her to sell her tobacco, it would not
have been the appellant who would have gone to the house of
Ayroso, but it would have been Ayroso who would have gone to the
house of the appellant and deliver the tobacco to the appellant. (p.
19, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per
kilo and the proceeds to be given to complainant as soon as it was
sold, strongly negates transfer of ownership of the goods to the
petitioner. The agreement (Exhibit "A') constituted her as an agent
with the obligation to return the tobacco if the same was not sold.

ACCORDINGLY, the petition for review on certiorari is dismissed for

lack of merit. With costs.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De

la Fuente, JJ., concur.

382 | P a g e
13. 11 SCRA 165
G.R. No. L-19265 May 29, 1964
MOISES SAN DIEGO, SR., petitioner,
vs.
ADELO NOMBRE and PEDRO ESCANLAR, respondents.
A. R. Castañeda and M. S. Roxas for petitioner.
Amado B. Parreño Law Office for respondents.
PAREDES, J.:
The case at bar had its origin in Special Proceedings No. 7279 of the
CFI of Negros Occidental wherein respondent Adelo Nombre was the
duly constituted judicial administrator. On May 1, 1960, Nombre, in
his capacity was judicial administrator of the intestate estate subject
of the Sp. Proc. stated above, leased one of the properties of the
estate (a fishpond identified as Lot No. 1617 of the cadastral survey
of Kabankaban, Negros Occidental), to Pedro Escanlar, the other
respondent. The terms of the lease was for three (3) years, with a
yearly rental of P3,000.00 to expire on May 1, 1963, the transaction
having been done, admittedly, without previous authority or approval
of the Court where the proceedings was pending. On January 17,
1961, Nombre was removed as administrator by Order of the court
and one Sofronio Campillanos was appointed in his stead. The appeal
on the Order of Nombre's removal is supposedly pending with the
Court of Appeals. Respondent Escanlar was cited for contempt,
allegedly for his refusal to surrender the fishpond to the newly
appointed administrator. On March 20, 1961, Campillanos filed a
motion asking for authority to execute a lease contract of the same
fishpond, in favor of petitioner herein, Moises San Diego, Sr., for 5
years from 1961, at a yearly rental of P5,000.00. Escanlar was not
notified of such motion. Nombre, the deposed administrator,
presented a written opposition to the motion of Campillanos on April
11, 1964, pointing out that the fishpond had been leased by him to
Escanlar for 3 years, the period of which was going to expire on May
1, 1963. In a supplemental opposition, he also invited the attention of
the Court that to grant the motion of the new administrator would in
effect nullify the contract in favor of Escanlar, a person on whom the
Court had no jurisdiction. He also intimated that the validity of the
lease contract entered into by a judicial administrator, must be
recognized unless so declared void in a separate action. The
opposition notwithstanding, the Court on April 8, 1961, in effect
declared that the contract in favor of Escanlar was null and void, for
want of judicial authority and that unless he would offer the same as
or better conditions than the prospective lessee, San Diego, there was
no good reason why the motion for authority to lease the property to
San Diego should not be granted. Nombre moved to reconsider the
Order of April 8, stating that Escanlar was willing to increase the rental
of P5,000.00, but only after the termination of his original contract.
The motion for reconsideration was denied on April 24, 1961, the trial
judge stating that the contract in favor of Escanlar was executed in
bad faith and was fraudulent because of the imminence of Nombre's
removal as administrator, one of the causes of which was his
indiscriminate pleasant, of the property with inadequate rentals.
From this Order, a petition for Certiorari asking for the annulment of
the Orders of April 8 and 24, 1961 was presented by Nombre and
Escanlar with the Court of Appeals. A Writ of preliminary injunction
was likewise prayed for to restrain the new administrator Campillanos
from possessing the fishpond and from executing a new lease
contract covering it; requiring him to return the possession thereof to
Escanlar, plus damages and attorney's fees in the amount of
P10,000.00 and costs. The Court of Appeals issued the injunctive writ
and required respondents therein to Answer. Campillanos insisted on
the invalidity of the contract in favor of Escanlar; the lower court
alleged that it did not exactly annul or invalidate the lease in his
questioned orders but suggested merely that Escanlar "may file a
separate ordinary action in the Court of general jurisdiction."
The Court of Appeals, in dismissing the petition for certiorari, among
others said —
The controlling issue in this case is the legality of the contract of lease
entered into by the former administrator Nombre, and Pedro Escanlar
on May 1, 1960.
Respondents contend that this contract, not having been authorized
or approved by the Court, is null and void and cannot be an obstacle
to the execution of another of lease by the new administrator,
Campillanos. This contention is without merit. ... . It has been held
that even in the absence of such special powers, a contract or lease
for more than 6 years is not entirely invalid; it is invalid only in so far
as it exceeds the six-year limit (Enrique v. Watson Company, et al., 6
Phil. 84). 1
No such limitation on the power of a judicial administrator to grant a
lease of property placed under his custody is provided for in the
present law. Under Article 1647 of the present Civil Code, it is only
when the lease is to be recorded in the Registry of Property that it
cannot be instituted without special authority. Thus, regardless of the
period of lease, there is no need of special authority unless the
contract is to be recorded in the Registry of Property. As to whether
the contract in favor of Escanlar is to be so recorded is not material to
our inquiry. 1äwphï1.ñët
On the contrary, Rule 85, Section 3, of the Rules of Court authorizes a
judicial administrator, among other things, to administer the estate
of the deceased not disposed of by will. Commenting on this Section
in the light of several Supreme Court decisions (Jocson de Hilado v.
Nava, 69 Phil. 1; Gamboa v. Gamboa, 68 Phil. 304; Ferraris v. Rodas,
65 Phil. 732; Rodriguez v. Borromeo, 43 Phil. 479), Moran says:
"Under this provision, the executor or administrator has the power of
administering the estate of the deceased for purposes of liquidation
and distribution. He may, therefore, exercise all acts of administration
without special authority of the Court. For instance, he may lease the
property without securing previously any permission from the court.
And where the lease has formally been entered into, the court cannot,
in the same proceeding, annul the same, to the prejudice of the
lessee, over whose person it had no jurisdiction. The proper remedy
would be a separate action by the administrator or the heirs to annul
the lease. ... .
On September 13, 1961, petitioner herein Moises San Diego, Sr., who
was not a party in the case, intervened and moved for a
reconsideration of the above judgment. The original parties (the new
administrator and respondent judge) also filed Motions for
reconsideration, but we do not find them in the record. On November
18, 1961, the Court of Appeals denied the motions for
reconsideration. With the denial of the said motions, only San Diego,
383 | P a g e
appealed therefrom, raising legal questions, which center on
"Whether a judicial administrator can validly lease property of the
estate without prior judicial authority and approval", and "whether
the provisions of the New Civil Code on Agency should apply to judicial
administrators."
The Rules of Court provide that —
An executor or administrator shall have the right to the possession of
the real as well as the personal estate of the deceased so long as it is
necessary for the payment of the debts and the expenses of
administration, and shall administer the estate of the deceased not
disposed of by his will. (Sec. 3, Rule 85, old Rules).
We, likewise, seriously doubt petitioner's legal standing to pursue this
appeal. And, if We consider the fact that after the expiration of the
original period of the lease contract executed by respondent Nombre
in favor of Escanlar, a new contract in favor of said Escanlar, was
executed on May 1, 1963, by the new administrator Campillanos.
who, incidentally, did not take any active participation in the present
appeal, the right of petitioner to the fishpond becomes a moot and
academic issue, which We need not pass upon.
WHEREFORE, the decision appealed from should be, as it is hereby
affirmed, in all respects, with costs against petitioner Moises San
Diego, Sr.

Lease has been considered an act of administration (Jocson v. Nava; Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera,
Gamboa v. Gamboa; Rodriguez v. Borromeo; Ferraris v. Rodas, supra). Regala and Makalintal, JJ., concur.
Padilla, Labrador and Dizon, JJ., took no part.
The Civil Code, on lease, provides:
Footnotes
If a lease is to be recorded in the Registry of Property, the following
persons cannot constitute the same without proper authority, the 1Referring to Art. 1548 of the old Civil Code.
husband with respect to the wife's paraphernal real estate, the father
or guardian as to the property of the minor or ward, and the manager
without special power. (Art. 1647).

The same Code, on Agency, states:

Special powers of attorneys are necessary in the following cases:

(8) To lease any real property to another person for more than one
year. (Art. 1878)

Petitioner contends, that No. 8, Art. 1878 is the limitation to the right
of a judicial administrator to lease real property without prior court
authority and approval, if it exceeds one year. The lease contract in
favor of Escanlar being for 3 years and without such court approval
and authority is, therefore, null and void. Upon the other hand,
respondents maintain that there is no limitation of such right; and
that Article 1878 does not apply in the instant case.

We believe that the Court of Appeals was correct in sustaining the

validity of the contract of lease in favor of Escanlar, notwithstanding
the lack of prior authority and approval. The law and prevailing
jurisprudence on the matter militates in favor of this view. While it
may be admitted that the duties of a judicial administrator and an
agent (petitioner alleges that both act in representative capacity), are
in some respects, identical, the provisions on agency (Art. 1878, C.C.),
should not apply to a judicial administrator. A judicial administrator is
appointed by the Court. He is not only the representative of said
Court, but also the heirs and creditors of the estate (Chua Tan v. Del
Rosario, 57 Phil. 411). A judicial administrator before entering into his
duties, is required to file a bond. These circumstances are not true in
case of agency. The agent is only answerable to his principal. The
protection which the law gives the principal, in limiting the powers
and rights of an agent, stems from the fact that control by the
principal can only be thru agreements, whereas the acts of a judicial
administrator are subject to specific provisions of law and orders of
the appointing court. The observation of former Chief Justice Moran,
as quoted in the decision of the Court of Appeals, is indeed sound,
and We are not prone to alter the same, at the moment.

384 | P a g e
14. 20 Phil 269
G.R. No. 6906 September 27, 1911
FLORENTINO RALLOS, ET AL., plaintiff-appellee,
vs.
TEODORO R. YANGCO, defendant-appellant.
Mariano Escueta, for appellant.
Martin M. Levering, for appellees.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of the
Province of Cebu, the Hon. Adolph Wislizenus presiding, in favor of
the plaintiffs, in the sum of P1,537.08, with interest at 6 per cent per
annum from the month of July, 1909, with costs.
The defendant in this case on the 27th day of November, 1907, sent
to the plaintiff Florentino Rallos, among others, the following letter:
CIRCULAR NO. 1.
MANILA, November 27, 1907
MR. FLORENTINO RALLOS, Cebu.
DEAR SIR: I have the honor to inform you that I have on this date
opened in my steamship office at No. 163 Muelle de la Reina,
Binondo, Manila, P. I., a shipping and commission department for
buying and selling leaf tobacco and other native products, under the
following conditions:
1. When the consignment has been received, the consignor
thereof will be credited with a sum not to exceed two-thirds of the
value of the goods shipped, which may be made available by
acceptance of a draft or written order of the consignor on five to ten
day's sight, or by his ordering at his option a bill of goods. In the latter
case he must pay a commission of 2 per cent.
2. No draft or written order will be accepted without previous
notice forwarding the consignment of goods to guarantee the same.
3. Expenses of freight, hauling and everything necessary for
duly executing the commission will be charged in the commission.
4. All advances made under sections (1) and (3) shall bear
interest at 10 per cent a year, counting by the sale of the goods
shipped or remittance of the amount thereof.
5. A commission of 2 ½ per cent will be collected on the
amount realized from the sale of the goods shipped.
6. A Payment will be made immediately after collection of the
price of the goods shipped.
7. Orders will be taken for the purchase of general
merchandise, ship-stores, cloths, etc., upon remittance of the amount
with the commission of 2 per cent on the total value of the goods
bought. Expenses of freight, hauling, and everything necessary for
properly executing the commission will be charged to the consignor.
8. The consignor of the good may not fix upon the consignee
a longer period than four months, counting from the date of receipt,
for selling the same; with the understanding that after such period
the consignee is authorized to make the sale, so as to prevent the
advance and cost of storage from amounting to more than the actual
value of said goods, as has often happened.
9. The shipment to the consignors of the goods ordered on
account of the amount realized from the sale of the goods consigned
and of the goods bought on remittance of the value thereof, under
sections (1) and (3), will not be insured against risk by sea and land
except on written order of the interested parties.
10. On all consignments of goods not insured according to the
next preceding section, the consignors will bear the risk.
11. All the foregoing conditions will take effect only after this
office has acknowledged the consignor's previous notice.
12. All other conditions and details will be furnished at the
office of the undersigned.
If you care to favor me with your patronage, my office is at No. 163
Muelle de la Reinna, Binondo, Manila, P. I., under the name of
"Teodoro R. Yangco." In this connection it gives me great pleasure to
introduce to you Mr. Florentino Collantes, upon whom I have
conferred public power of attorney before the notary, Mr. Perfecto
Salas Rodriguez, dated November 16, 1907, to perform in my name
and on my behalf all acts necessary for carrying out my plans, in the
belief that through his knowledge and long experience in the
business, along with my commercial connections with the merchants
of this city and of the provinces, I may hope to secure the most
advantageous prices for my patrons. Mr. Collantes will sign by power
of attorney, so I beg that you make due note of his signature hereto
affixed.
Very respectfully,
(Sgd.) T. R. YANGCO.
(Sgd.) F. COLLANTES.
Accepting this invitation, the plaintiffs proceeded to do a considerable
business with the defendant through the said Collantes, as his factor,
sending to him as agent for the defendant a good deal of produce to
be sold on commission. Later, and in the month of February, 1909,
the plaintiffs sent to the said Collantes, as agent for the defendant,
218 bundles of tobacco in the leaf to be sold on commission, as had
been other produce previously. The said Collantes received said
tobacco and sold it for the sum of P1,744. The charges for such sale
were P206.96. leaving in the hands of said Collantes the sum of
P1,537.08 belonging to the plaintiffs. This sum was, apparently,
converted to his own use by said agent.
It appears, however, that prior to the sending of said tobacco the
defendant had severed his relations with Collantes and that the latter
was no longer acting as his factor. This fact was not known to the
plaintiffs; and it is conceded in the case that no notice of any kind was
given by the defendant to the plaintiffs of the termination of the
385 | P a g e
relations between the defendant and his agent. The defendant
refused to pay the said sum upon demand of the plaintiffs, placing
such refusal upon the ground that at the time the said tobacco was
received and sold by Collantes he was acting personally and not as
agent of the defendant. This action was brought to recover said sum.

As is seen, the only question for our decision is whether or not the
plaintiffs, acting in good faith and without knowledge, having sent
produce to sell on commission to the former agent of the defendant,
can recover of the defendant under the circumstances above set
forth. We are of the opinion that the defendant is liable. Having
advertised the fact that Collantes was his agent and having given
them a special invitation to deal with such agent, it was the duty of
the defendant on the termination of the relationship of principal and
agent to give due and timely notice thereof to the plaintiffs. Failing to
do so, he is responsible to them for whatever goods may have been
in good faith and without negligence sent to the agent without
knowledge, actual or constructive, of the termination of such
relationship.

For these reasons the judgment appealed from is confirmed, without

special finding as to costs.

Torres, Mapa, Johnson and Carson, JJ., concur.

386 | P a g e
15. 7 Phil 357
G.R. No. 2962 February 27, 1907
B. H. MACKE, ET AL., plaintiffs-appellees,
vs.
JOSE CAMPS, defendant-appellant.
Manuel G. Gavieres for appellant.
Gibbs & Gale for appellees.
CARSON, J.:
The plaintiffs in this action, B. H. Macke and W. H. Chandler, partners
doing business under the firm name of Macke, Chandler & Company,
allege that during the months of February and March, 1905, they sold
to the defendant and delivered at his place of business, known as the
"Washington Cafe," various bills of goods amounting to P351.50; that
the defendant has only paid on account of said accounts the sum of
P174; that there is still due them on account of said goods the sum of
P177.50; that before instituting this action they made demand for the
payment thereof; and that defendant had failed and refused to pay
the said balance or any part of it up to the time of the filing of the
complaint.
B. H. Macke, one of the plaintiffs, testified that on the order of one
Ricardo Flores, who represented himself to be agent of the
defendant, he shipped the said goods to the defendants at the
Washington Cafe; that Flores later acknowledged the receipt of said
goods and made various payments thereon amounting in all to P174;
that on demand for payment of balance of the account Flores
informed him that he did not have the necessary funds on hand, and
that he would have to wait the return of his principal, the defendant,
who was at that time visiting in the provinces; that Flores
acknowledged the bill for the goods furnished and the credits being
the amount set out in the complaint; that when the goods were
ordered they were ordered on the credit of the defendant and that
they were shipped by the plaintiffs after inquiry which satisfied the
witness as to the credit of the defendant and as to the authority of
Flores to act as his agent; that the witness always believed and still
believes that Flores was the agent of the defendant; and that when
he went to the Washington Cafe for the purpose of collecting his bill
he found Flores, in the absence of the defendant in the provinces,
apparently in charge of the business and claiming to be the business
manager of the defendant, said business being that of a hotel with a
bar and restaurant annexed.
A written contract dated May 25, 1904, was introduced in evidence,
from which it appears that one Galmes, the former owner of the
business now know as the "Washington Cafe," subrented the building
wherein the business was conducted, to the defendant for a period of
one year, for the purpose of carrying on that business, the defendant
obligating himself not to sublet or subrent the building or the business
without the consent of the said Galmes. This contract was signed by
the defendant and the name of Ricardo Flores appears thereon as a
witness, and attached thereto is an inventory of the furniture and
fittings which also is signed by the defendant with the word
"sublessee" (subarrendatario) below the name, and at the foot of this
inventory the word "received" (recibo) followed by the name "Ricardo
Flores," with the words "managing agent" (el manejante encargado)
immediately following his name.
Galmes was called to the stand and identified the above- described
document as the contract and inventory delivered to him by the
defendant, and further stated that he could not tell whether Flores
was working for himself or for some one else — that it to say, whether
Flores was managing the business as agent or sublessee.
The defendant did not go on the stand nor call any witnesses, and
relies wholly on his contention that the foregoing facts are not
sufficient to establish the fact that he received the goods for which
payment is demanded.
In the absence of proof of the contrary we think that this evidence is
sufficient to sustain a finding that Flores was the agent of the
defendant in the management of the bar of the Washington Cafe with
authority to bind the defendant, his principal, for the payment of the
goods mentioned in the complaint.
The contract introduced in evidence sufficiently establishes the fact
that the defendant was the owner of business and of the bar, and the
title of "managing agent" attached to the signature of Flores which
appears on that contract, together with the fact that, at the time the
purchases in question were made, Flores was apparently in charge of
the business, performing the duties usually entrusted to managing
agent, leave little room for doubt that he was there as authorized
agent of the defendant. One who clothes another apparent authority
as his agent, and holds him out to the public as such, can not be
permitted to deny the authority of such person to act as his agent, to
the prejudice of innocent third parties dealing with such person in
good faith and in the following preassumptions or deductions, which
the law expressly directs to be made from particular facts, are
deemed conclusive:
(1) "Whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a
particular thing true, and to act upon such belief, he can not, in any
litigation arising out such declaration, act, or omission, be permitted
to falsify it" (subsec. 1, sec. 333, Act no. 190); and unless the contrary
appears, the authority of an agent must be presumed to include all
the necessary and usual means of carrying his agency into effect. (15
Conn., 347; 90 N. C. 101; 15 La. Ann, 247; 43 Mich., 364; 93 N. Y., 495;
87 Ind., 187.)
That Flores, as managing agent of the Washington Cafe, had authority
to buy such reasonable quantities of supplies as might from time to
time be necessary in carrying on the business of hotel bar may fairly
be presumed from the nature of the business, especially in view of
the fact that his principal appears to have left him in charge during
more or less prolonged periods of absence; from an examination of
the items of the account attached to the complaint, we are of opinion
that he was acting within the scope of his authority in ordering these
goods are binding on his principal, and in the absence of evidence to
the contrary, furnish satisfactory proof of their delivery as alleged in
the complaint.
The judgment of the trial court is affirmed with the costs of his
instance against the appellant. After expiration of twenty days
judgment will be rendered in accordance herewith, and ten days
thereafter the case remanded to the lower court for proper action. So
ordered.
Arellano, C.J., Torres and Willard, JJ., concur.
Tracey, J., dissents.
387 | P a g e
16. 119 SCRA 245
G.R. No. L-40242 December 15, 1982
DOMINGA CONDE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE CORDERO,
together with his wife, NICETAS ALTERA, RAMON CONDE, together
with his wife, CATALINA T. CONDE, respondents.
MELENCIO-HERRERA, J.:
An appeal by certiorari from the Decision of respondent Court of
Appeals 1 (CA-G.R. No. 48133- R) affirming the judgment of the Court
of First Instance of Leyte, Branch IX, Tacloban City (Civil Case No. B-
110), which dismissed petitioner's Complaint for Quieting of Title and
ordered her to vacate the property in dispute and deliver its
possession to private respondents Ramon Conde and Catalina Conde.
The established facts, as found by the Court of Appeals, show that on
7 April 1938. Margarita Conde, Bernardo Conde and the petitioner
Dominga Conde, as heirs of Santiago Conde, sold with right of
repurchase, within ten (10) years from said date, a parcel of
agricultural land located in Maghubas Burauen Leyte, (Lot 840), with
an approximate area of one (1) hectare, to Casimira Pasagui, married
to Pio Altera (hereinafter referred to as the Alteras), for P165.00. The
"Pacto de Retro Sale" further provided:
... (4) if at the end of 10 years the said land is not repurchased, a
new agreement shall be made between the parties and in no case title
and ownership shall be vested in the hand of the party of the SECOND
PART (the Alteras).
xxx xxx xxx (Exhibit "B")
On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840
to the Alteras "subject to the right of redemption by Dominga Conde,
within ten (10) years counting from April 7, 1983, after returning the
amount of P165.00 and the amounts paid by the spouses in concept
of land tax ... " (Exhibit "1"). Original Certificate of Title No. N-534 in
the name of the spouses Pio Altera and Casimira Pasagui, subject to
said right of repurchase, was transcribed in the "Registration Book" of
the Registry of Deeds of Leyte on 14 November 1956 (Exhibit "2").
On 28 November 1945, private respondent Paciente Cordero, son-in-
law of the Alteras, signed a document in the Visayan dialect, the
English translation of which reads:
MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD
WITH REPURCHASE WHICH DOCUMENT GOT LOST
WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and
residents of Burauen Leyte, Philippines, after having been duly sworn
to in accordance with law free from threats and intimidation, do
hereby depose and say:
1. That I, PIO ALTERA bought with the right of repurchase two parcels
of land from DOMINGA CONDE, BERNARDO CONDE AND MARGARITA
CONDE, all brother and sisters.
2. That these two parcels of land were all inherited by the three.
3. That the document of SALE WITH THE RIGHT OF REPURCHASE got
lost in spite of the diligent efforts to locate the same which was lost
during the war.
4. That these two parcels of land which was the subject matter of a
Deed of Sale with the Right of Repurchase consists only of one
document which was lost.
5. Because it is about time to repurchase the land, I have allowed the
representative of Dominga Conde, Bernardo Conde and Margarita
Conde in the name of EUSEBIO AMARILLE to repurchase the same.
6. Now, this very day November 28, 1945, 1 or We have received
together with Paciente Cordero who is my son-in-law the amount of
ONE HUNDRED SIXTY-FIVE PESOS (P165. 00) Philippine Currency of
legal tender which was the consideration in that sale with the right of
repurchase with respect to the two parcels of land.
That we further covenant together with Paciente Cordero who is my
son-in-law that from this day the said Dominga Conde, Bernardo
Conde and Margarita Conde will again take possession of the
aforementioned parcel of land because they repurchased the same
from me. If and when their possession over the said parcel of land be
disturbed by other persons, I and Paciente Cordero who is my son-in-
law will defend in behalf of the herein brother and sisters mentioned
above, because the same was already repurchased by them.
IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark
or signature to our respective names below this document or
memorandum this 28th day of November 1945 at Burauen Leyte,
Philippines, in the presence of two witnesses.
PIO ALTERA (Sgd.) PACIENTE CORDERO
WITNESSES:
1. (SGD.) TEODORO C. AGUILLON
To be noted is the fact that neither of the vendees-a-retro, Pio Altera
nor Casimira Pasagui, was a signatory to the deed. Petitioner
maintains that because Pio Altera was very ill at the time, Paciente
Cordero executed the deed of resale for and on behalf of his father-
in-law. Petitioner further states that she redeemed the property with
her own money as her co-heirs were bereft of funds for the purpose.
The pacto de retro document was eventually found.
On 30 June 1965 Pio Altera sold the disputed lot to the spouses
Ramon Conde and Catalina T. Conde, who are also private
respondents herein. Their relationship to petitioner does not appear
from the records. Nor has the document of sale been exhibited.
Contending that she had validly repurchased the lot in question in
1945, petitioner filed, on 16 January 1969, in the Court of First
Instance of Leyte, Branch IX, Tacloban City, a Complaint (Civil Case No.
B-110), against Paciente Cordero and his wife Nicetas Altera, Ramon
Conde and his wife Catalina T. Conde, and Casimira Pasagui Pio Altera
having died in 1966), for quieting of title to real property and
declaration of ownership.
388 | P a g e
Petitioner's evidence is that Paciente Cordero signed the
Memorandum of Repurchase in representation of his father-in-law
Pio Altera, who was seriously sick on that occasion, and of his mother-
in-law who was in Manila at the time, and that Cordero received the
repurchase price of P65.00.
Private respondents, for their part, adduced evidence that Paciente
Cordero signed the document of repurchase merely to show that he
had no objection to the repurchase; and that he did not receive the
amount of P165.00 from petitioner inasmuch as he had no authority
from his parents-in-law who were the vendees-a-retro.
After trial, the lower Court rendered its Decision dismissing the
Complaint and the counterclaim and ordering petitioner "to vacate
the property in dispute and deliver its peaceful possession to the
defendants Ramon Conde and Catalina T. Conde".
On appeal, the Court of Appeals upheld the findings of the Court a
quo that petitioner had failed to validly exercise her right of
repurchase in view of the fact that the Memorandum of Repurchase
was signed by Paciente Cordero and not by Pio Altera, the vendee-a-
retro, and that there is nothing in said document to show that
Cordero was specifically authorized to act for and on behalf of the
vendee a retro, Pio Altera.
Reconsideration having been denied by the Appellate Court, the case
is before us on review.
There is no question that neither of the vendees-a-retro signed the
"Memorandum of Repurchase", and that there was no formal
authorization from the vendees for Paciente Cordero to act for and
on their behalf.
Of significance, however, is the fact that from the execution of the
repurchase document in 1945, possession, which heretofore had
been with the Alteras, has been in the hands of petitioner as
stipulated therein. Land taxes have also been paid for by petitioner
yearly from 1947 to 1969 inclusive (Exhibits "D" to "D-15"; and "E").
If, as opined by both the Court a quo and the Appellate Court,
petitioner had done nothing to formalize her repurchase, by the same
token, neither have the vendees-a-retro done anything to clear their
title of the encumbrance therein regarding petitioner's right to
repurchase. No new agreement was entered into by the parties as
stipulated in the deed of pacto de retro, if the vendors a retro failed
to exercise their right of redemption after ten years. If, as alleged,
petitioner exerted no effort to procure the signature of Pio Altera
after he had recovered from his illness, neither did the Alteras
repudiate the deed that their son-in-law had signed. Thus, an implied
agency must be held to have been created from their silence or lack
of action, or their failure to repudiate the agency. 2
Possession of the lot in dispute having been adversely and
uninterruptedly with petitioner from 1945 when the document of
repurchase was executed, to 1969, when she instituted this action, or
for 24 years, the Alteras must be deemed to have incurred in laches.
3 That petitioner merely took advantage of the abandonment of the
land by the Alteras due to the separation of said spouses, and that
petitioner's possession was in the concept of a tenant, remain bare
assertions without proof.
Private respondents Ramon Conde and Catalina Conde, to whom Pio
Altera sold the disputed property in 1965, assuming that there was,
indeed, such a sale, cannot be said to be purchasers in good faith. OCT
No. 534 in the name of the Alteras specifically contained the condition
that it was subject to the right of repurchase within 10 years from
1938. Although the ten-year period had lapsed in 1965 and there was
no annotation of any repurchase by petitioner, neither had the title
been cleared of that encumbrance. The purchasers were put on
notice that some other person could have a right to or interest in the
property. It behooved Ramon Conde and Catalina Conde to have
looked into the right of redemption inscribed on the title, and
particularly the matter of possession, which, as also admitted by them
at the pre-trial, had been with petitioner since 1945.
Private respondent must be held bound by the clear terms of the
Memorandum of Repurchase that he had signed wherein he
acknowledged the receipt of P165.00 and assumed the obligation to
maintain the repurchasers in peaceful possession should they be
"disturbed by other persons". It was executed in the Visayan dialect
which he understood. He cannot now be allowed to dispute the same.
"... If the contract is plain and unequivocal in its terms he is ordinarily
bound thereby. It is the duty of every contracting party to learn and
know its contents before he signs and delivers it." 4
There is nothing in the document of repurchase to show that Paciente
Cordero had signed the same merely to indicate that he had no
objection to petitioner's right of repurchase. Besides, he would have
had no personality to object. To uphold his oral testimony on that
point, would be a departure from the parol evidence rule 5 and would
defeat the purpose for which the doctrine is intended.
... The purpose of the rule is to give stability to written agreements,
and to remove the temptation and possibility of perjury, which would
be afforded if parol evidence was admissible. 6
In sum, although the contending parties were legally wanting in their
respective actuations, the repurchase by petitioner is supported by
the admissions at the pre-trial that petitioner has been in possession
since the year 1945, the date of the deed of repurchase, and has been
paying land taxes thereon since then. The imperatives of substantial
justice, and the equitable principle of laches brought about by private
respondents' inaction and neglect for 24 years, loom in petitioner's
favor.
WHEREFORE, the judgment of respondent Court of Appeals is hereby
REVERSED and SET ASIDE, and petitioner is hereby declared the
owner of the disputed property. If the original of OCT No. N-534 of
the Province of Leyte is still extant at the office of the Register of
Deeds, then said official is hereby ordered to cancel the same and, in
lieu thereof, issue a new Transfer Certificate of Title in the name of
petitioner, Dominga Conde.
No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ.,
concur.
389 | P a g e
17. 221 SCRA 224
G.R. No. 94753. April 7, 1993.
MANOTOK BROTHERS, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF
THE REGIONAL TRIAL COURT OF MANILA (Branch VI), and SALVADOR
SALIGUMBA, respondents.
Antonio C. Ravelo for petitioner.
Remigio M. Trinidad for private respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN
ENTITLED' RULE; APPLICATION IN CASE AT BAR. — In an earlier case,
this Court ruled that when there is a close, proximate and causal
connection between the agent's efforts and labor and the principal's
sale of his property, the agent is entitled to a commission. We agree
with respondent Court that the City of Manila ultimately became the
purchaser of petitioner's property mainly through the efforts of
private respondent. Without discounting the fact that when
Municipal Ordinance No. 6603 was signed by the City Mayor on May
17, 1968, private respondent's authority had already expired, it is to
be noted that the ordinance was approved on April 26, 1968 when
private respondent's authorization was still in force. Moreover, the
approval by the City Mayor came only three days after the expiration
of private respondent's authority. It is also worth emphasizing that
from the records, the only party given a written authority by
petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was
private respondent.
DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the instant Petition
docketed as G.R. No. 94753 sought relief from this Court's Resolution
dated May 3, 1989, which reads:
"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and
Court of Appeals). — Considering the manifestation of compliance by
counsel for petitioner dated April 14, 1989 with the resolution of
March 13, 1989 which required the petitioner to locate private
respondent and to inform this Court of the present address of said
private respondent, the Court Resolved to DISMISS this case, as the
issues cannot be joined as private respondent's and counsel's
addresses cannot be furnished by the petitioner to this court." 1
In addition, petitioner prayed for the issuance of a preliminary
injunction to prevent irreparable injury to itself pending resolution by
this Court of its cause. Petitioner likewise urged this Court to hold in
contempt private respondent for allegedly adopting sinister ploy to
deprive petitioner of its constitutional right to due process.
Acting on said Petition, this Court in a Resolution 2 dated October 1,
1990 set aside the entry of judgment made on May 3, 1989 in case
G.R. No. 78898; admitted the amended petition; and issued a
temporary restraining order to restrain the execution of the judgment
appealed from.
The amended petition 3 admitted, by this Court sought relief from this
Court's Resolution abovequoted. In the alternative, petitioner begged
leave of court to re-file its Petition for Certiorari 4 (G.R. No. 78898)
grounded on the allegation that petitioner was deprived of its
opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner
herein (then defendant-appellant) is the owner of a certain parcel of
land and building which were formerly leased by the City of Manila
and used by the Claro M. Recto High School, at M.F. Jhocson Street,
Sampaloc Manila.
By means of a letter 5 dated July 5, 1966, petitioner authorized herein
private respondent Salvador Saligumba to negotiate with the City of
Manila the sale of the aforementioned property for not less than
P425,000.00. In the same writing, petitioner agreed to pay private
respondent a five percent (5%) commission in the event the sale is
finally consummated and paid.
Petitioner, on March 4, 1967, executed another letter 6 extending the
authority of private respondent for 120 days. Thereafter, another
extension was granted to him for 120 more days, as evidenced by
another letter 7 dated June 26, 1967.
Finally, through another letter 8 dated November 16, 1967, the
corporation with Rufino Manotok, its President, as signatory,
authorized private respondent to finalize and consummate the sale of
the property to the City of Manila for not less than P410,000.00. With
this letter came another extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26,
1968, passed Ordinance No. 6603, appropriating the sum of
P410,816.00 for the purchase of the property which private
respondent was authorized to sell. Said ordinance however, was
signed by the City Mayor only on May 17, 1968, one hundred eighty
three (183) days after the last letter of authorization.
On January 14, 1969, the parties signed the deed of sale of the subject
property. The initial payment of P200,000.00 having been made, the
purchase price was fully satisfied with a second payment on April 8,
1969 by a check in the amount of P210,816.00.
Notwithstanding the realization of the sale, private respondent never
received any commission, which should have amounted to
P20,554.50. This was due to the refusal of petitioner to pay private
respondent said amount as the former does not recognize the latter's
role as agent in the transaction.
Consequently, on June 29, 1969, private respondent filed a complaint
against petitioner, alleging that he had successfully negotiated the
sale of the property. He claimed that it was because of his efforts that
the Municipal Board of Manila passed Ordinance No. 6603 which
appropriated the sum for the payment of the property subject of the
sale.
Petitioner claimed otherwise. It denied the claim of private
respondent on the following grounds: (1) private respondent would
390 | P a g e
be entitled to a commission only if the sale was consummated and
the price paid within the period given in the respective letters of
authority; and (2) private respondent was not the person responsible
for the negotiation and consummation of the sale, instead it was
Filomeno E. Huelgas, the PTA president for 1967-1968 of the Claro M.
Recto High School. As a counterclaim, petitioner (then defendant-
appellant) demanded the sum of P4,000.00 as attorney's fees and for
moral damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified
as to the efforts undertaken by him to ensure the consummation of
the sale. He recounted that it first began at a meeting with Rufino
Manotok at the office of Fructuoso Ancheta, principal of C.M. Recto
High School. Atty. Dominador Bisbal, then president of the PTA, was
also present. The meeting was set precisely to ask private respondent
to negotiate the sale of the school lot and building to the City of
Manila. Private respondent then went to Councilor Mariano Magsalin,
the author of the Ordinance which appropriated the money for the
purchase of said property, to present the project. He also went to the
Assessor's Office for appraisal of the value of the property. While
these transpired and his letters of authority expired, Rufino Manotok
always renewed the former's authorization until the last was given,
which was to remain in force until May 14, 1968. After securing the
report of the appraisal committee, he went to the City Mayor's Office,
which indorsed the matter to the Superintendent of City Schools of
Manila. The latter office approved the report and so private
respondent went back to the City Mayor's Office, which thereafter
indorsed the same to the Municipal Board for appropriation.
Subsequently, on April 26, 1968, Ordinance No. 6603 was passed by
the Municipal Board for the appropriation of the sum corresponding
to the purchase price. Petitioner received the full payment of the
purchase price, but private respondent did not receive a single
centavo as commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified
acknowledging the authority of private respondent regarding the
transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the
petitioner's President, Rufino Manotok.
Huelgas testified to the effect that after being inducted as PTA
president in August, 1967 he followed up the sale from the start with
Councilor Magsalin until after it was approved by the Mayor on May
17, 1968. He. also said that he came to know Rufino Manotok only in
August, 1968, at which meeting the latter told him that he would be
given a "gratification" in the amount of P20,000.00 if the sale was
expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was
an agreement between the two of them regarding the "gratification".
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA
meetings from 1965 to 1967 but he never offered to help in the
acquisition of said property. Moreover, he testified that Huelgas was
aware of the fact that it was private respondent who was negotiating
the sale of the subject property.
Thereafter, the then Court of First Instance (now, Regional Trial Court)
rendered judgment sentencing petitioner and/or Rufino Manotok to
pay unto private respondent the sum of P20,540.00 by way of his
commission fees with legal interest thereon from the date of the filing
of the complaint until payment. The lower court also ordered
petitioner to pay private respondent the amount of P4,000.00 as and
for attorney's fees. 9
Petitioner appealed said decision, but to no avail. Respondent Court
of Appeals affirmed the said ruling of the trial court. 10
Its Motion for Reconsideration having been denied by respondent
appellate court in a Resolution dated June 22, 1987, petitioner
seasonably elevated its case on Petition for Review on Certiorari on
August 10, 1987 before this Court, docketed as G.R. No. 78898.
Acting on said Petition, this Court issued a Minute Resolution 11 dated
August 31, 1987 ordering private respondent to comment on said
Petition.
It appearing that the abovementioned Resolution was returned
unserved with the postmaster's notation "unclaimed", this Court in
another Resolution 12 dated March 13, 1989, required petitioner to
locate private respondent and to inform this Court of the present
address of private respondent within ten (10) days from notice. As
petitioner was unsuccessful in its efforts to locate private respondent,
it opted to manifest that private respondent's last address was the
same as that address to which this. Court's Resolution was forwarded.
Subsequently, this Court issued a Resolution dated May 3, 1989
dismissing petitioner's case on the ground that the issues raised in the
case at bar cannot be joined. Thus, the above-entitled case became
final and executory by the entry of judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to
Execute the said judgment before the court of origin. Upon discovery
of said development, petitioner verified with the court of origin the
circumstances by which private respondent obtained knowledge of
the resolution of this Court. Sensing a fraudulent scheme employed
by private respondent, petitioner then instituted this instant Petition
for Relief, on August 30, 1990. On September 13, 1990, said petition
was amended to include, in the alternative, its petition to re-file its
Petition for Certiorari (G.R. No. 78898).
The sole issue to be addressed in this petition is whether or not
private respondent is entitled to the five percent (5%) agent's
commission.
It is petitioner's contention that as a broker, private respondent's job
is to bring together the parties to a transaction. Accordingly, if the
broker does not succeed in bringing the minds of the purchaser and
the vendor to an agreement with respect to the sale, he is not entitled
to a commission.
Private respondent, on the other hand, opposes petitioner's position
maintaining that it was because of his efforts that a purchase actually
materialized between the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent is not entitled to
any commission as he was not successful in consummating the sale
391 | P a g e
between the parties, for the sole reason that when the Deed of Sale
was finally executed, his extended authority had already expired. By
this alone, one might be misled to believe that this case squarely falls
within the ambit of the established principle that a broker or agent is
not entitled to any commission until he has successfully done the job
given to him. 13
Going deeper however into the case would reveal that it is within the
coverage of the exception rather than of the general rule, the
exception being that enunciated in the case of Prats vs. Court of
Appeals. 14 In the said case, this Court ruled in favor of claimant-
agent, despite the expiration of his authority, when a sale was finally
consummated.
In its decision in the abovecited case, this Court said, that while it was
respondent court's (referring to the Court of Appeals) factual findings
that petitioner Prats (claimant-agent) was not the efficient procuring
cause in bringing about the sale (prescinding from the fact of
expiration of his exclusive authority), still petitioner was awarded
compensation for his services. And We quote:
"In equity, however, the Court notes that petitioner had diligently
taken steps to bring back together respondent Doronila and the SSS,.
xxx xxx xxx
The court has noted on the other hand that Doronila finally sold the
property to the Social Security System at P3.25 per square meter
which was the very same price counter-offered by the Social Security
System and accepted by him in July, 1967 when he alone was dealing
exclusively with the said buyer long before Prats came into the picture
but that on the other hand Prats' efforts somehow were instrumental
in bringing them together again and finally consummating the
transaction at the same price of P3.25 per square meter, although
such finalization was after the expiration of Prats' extended exclusive
authority.
xxx xxx xxx
Under the circumstances, the Court grants in equity the sum of One
hundred Thousand Pesos (P100,000.00) by way of compensation for
his efforts and assistance in the transaction, which however was
finalized and consummated after the expiration of his exclusive
authority . . ." 15 (Emphasis supplied.).
From the foregoing, it follows then that private respondent herein,
with more reason, should be paid his commission, While in Prats vs.
Court of Appeals, the agent was not even the efficient procuring cause
in bringing about the sale, unlike in the case at bar, it was still held
therein that the agent was entitled to compensation. In the case at
bar, private respondent is the efficient procuring cause for without his
efforts, the municipality would not have anything to pass and the
Mayor would not have anything to approve.
In an earlier case, 16 this Court ruled that when there is a close,
proximate and causal connection between the agent's efforts and
labor and the principal's sale of his property, the agent is entitled to a
commission.
We agree with respondent Court that the City of Manila ultimately
became the purchaser of petitioner's property mainly through the
efforts of private respondent. Without discounting the fact that when
Municipal Ordinance No. 6603 was signed by the City Mayor on May
17, 1968, private respondent's authority had already expired, it is to
be noted that the ordinance was approved on April 26, 1968 when
private respondent's authorization was still in force. Moreover, the
approval by the City Mayor came only three days after the expiration
of private respondent's authority. It is also worth emphasizing that
from the records, the only party given a written authority by
petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was
private respondent.
Contrary to what petitioner advances, the case of Danon vs. Brimo,
17 on which it heavily anchors its justification for the denial of private
respondent's claim, does not apply squarely to the instant petition.
Claimant-agent in said case fully comprehended the possibility that
he may not realize the agent's commission as he was informed that
another agent was also negotiating the sale and thus, compensation
will pertain to the one who finds a purchaser and eventually effects
the sale. Such is not the case herein. On the contrary, private
respondent pursued with his goal of seeing that the parties reach an
agreement, on the belief that he alone was transacting the business
with the City Government as this was what petitioner made it to
appear.
While it may be true that Filomeno Huelgas followed up the matter
with Councilor Magsalin, the author of Municipal Ordinance No. 6603
and Mayor Villegas, his intervention regarding the purchase came
only after the ordinance had already been passed — when the buyer
has already agreed to the purchase and to the price for which said
property is to be paid. Without the efforts of private respondent then,
Mayor Villegas would have nothing to approve in the first place. It was
actually private respondent's labor that had set in motion the
intervention of the third party that produced the sale, hence he
should be amply compensated.
WHEREFORE, in the light of the foregoing and finding no reversible
error committed by respondent Court, the decision of the Court of
Appeals is hereby AFFIRMED. The temporary restraining order issued
by this Court in its Resolution dated October 1, 1990 is hereby lifted.
SO ORDERED.
Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.
392 | P a g e
18. 42 SCRA 131
G.R. No. L-30573 October 29, 1971
VICENTE M. DOMINGO, represented by his heirs, ANTONINA
RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE
JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO,
petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P.
PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and
represented by his heirs, Antonina Raymundo vda. de Domingo,
Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision
dated, March 12, 1969 of the Special Division of Five of the Court of
Appeals affirming the judgment of the trial court, which sentenced
the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50
and the intervenor Teofilo P. Purisima P2,607.50 with interest on both
amounts from the date of the filing of the complaint, to pay Gregorio
Domingo P1,000.00 as moral and exemplary damages and P500.00 as
attorney's fees plus costs.
The following facts were found to be established by the majority of
the Special Division of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M.
Domingo granted Gregorio Domingo, a real estate broker, the
exclusive agency to sell his lot No. 883 of Piedad Estate with an area
of about 88,477 square meters at the rate of P2.00 per square meter
(or for P176,954.00) with a commission of 5% on the total price, if the
property is sold by Vicente or by anyone else during the 30-day
duration of the agency or if the property is sold by Vicente within
three months from the termination of the agency to apurchaser to
whom it was submitted by Gregorio during the continuance of the
agency with notice to Vicente. The said agency contract was in
triplicate, one copy was given to Vicente, while the original and
another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P.
Purisima to look for a buyer, promising him one-half of the 5%
commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as
a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower
than the price of P2.00 per square meter (Exhibit "B"). Vicente
directed Gregorio to tell Oscar de Leon to raise his offer. After several
conferences between Gregorio and Oscar de Leon, the latter raised
his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C",
to which Vicente agreed by signing Exhibit "C". Upon demand of
Vicente, Oscar de Leon issued to him a check in the amount of
P1,000.00 as earnest money, after which Vicente advanced to
Gregorio the sum of P300.00. Oscar de Leon confirmed his former
offer to pay for the property at P1.20 per square meter in another
letter, Exhibit "D". Subsequently, Vicente asked for an additional
amount of P1,000.00 as earnest money, which Oscar de Leon
promised to deliver to him. Thereafter, Exhibit "C" was amended to
the effect that Oscar de Leon will vacate on or about September 15,
1956 his house and lot at Denver Street, Quezon City which is part of
the purchase price. It was again amended to the effect that Oscar will
vacate his house and lot on December 1, 1956, because his wife was
on the family way and Vicente could stay in lot No. 883 of Piedad
Estate until June 1, 1957, in a document dated June 30, 1956 (the year
1957 therein is a mere typographical error) and marked Exhibit "D".
Pursuant to his promise to Gregorio, Oscar gave him as a gift or
propina the sum of One Thousand Pesos (P1,000.00) for succeeding
in persuading Vicente to sell his lot at P1.20 per square meter or a
total in round figure of One Hundred Nine Thousand Pesos
(P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not
disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the
additional amount of One Thousand Pesos (P1,000.00) by way of
earnest money. In the deed of sale was not executed on August 1,
1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended
by Vicente, Oscar told Gregorio that he did not receive his money
from his brother in the United States, for which reason he was giving
up the negotiation including the amount of One Thousand Pesos
(P1,000.00) given as earnest money to Vicente and the One Thousand
Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar
did not see him after several weeks, Gregorio sensed something fishy.
So, he went to Vicente and read a portion of Exhibit "A" marked habit
"A-1" to the effect that Vicente was still committed to pay him 5%
commission, if the sale is consummated within three months after the
expiration of the 30-day period of the exclusive agency in his favor
from the execution of the agency contract on June 2, 1956 to a
purchaser brought by Gregorio to Vicente during the said 30-day
period. Vicente grabbed the original of Exhibit "A" and tore it to
pieces. Gregorio held his peace, not wanting to antagonize Vicente
further, because he had still duplicate of Exhibit "A". From his meeting
with Vicente, Gregorio proceeded to the office of the Register of
Deeds of Quezon City, where he discovered Exhibit "G' deed of sale
executed on September 17, 1956 by Amparo Diaz, wife of Oscar de
Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon
City, in favor Vicente as down payment by Oscar de Leon on the
purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus
learning that Vicente sold his property to the same buyer, Oscar de
Leon and his wife, he demanded in writting payment of his
commission on the sale price of One Hundred Nine Thousand Pesos
(P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who
told him that Vicente went to him and asked him to eliminate
Gregorio in the transaction and that he would sell his property to him
for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply
to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not
entitled to the 5% commission because he sold the property not to
Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz,
wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the
exclusive agency contract, is genuine; that Amparo Diaz, the vendee,
being the wife of Oscar de Leon the sale by Vicente of his property is
393 | P a g e
practically a sale to Oscar de Leon since husband and wife have
common or identical interests; that Gregorio and intervenor Teofilo
Purisima were the efficient cause in the consummation of the sale in
favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as
"propina" or gift and not as additional earnest money to be given to
the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar
de Leon with respect to the additional earnest money, does not
appear to have been answered by Oscar de Leon and therefore there
is no writing or document supporting Oscar de Leon's testimony that
he paid an additional earnest money of One Thousand Pesos
(P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount
of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente
as earnest money, evidenced by the letter Exhibit "4"; and that
Vicente did not even mention such additional earnest money in his
two replies Exhibits "I" and "J" to Gregorio's letter of demand of the
5% commission.
The three issues in this appeal are (1) whether the failure on the part
of Gregorio to disclose to Vicente the payment to him by Oscar de
Leon of the amount of One Thousand Pesos (P1,000.00) as gift or
"propina" for having persuaded Vicente to reduce the purchase price
from P2.00 to P1.20 per square meter, so constitutes fraud as to cause
a forfeiture of his commission on the sale price; (2) whether Vicente
or Gregorio should be liable directly to the intervenor Teofilo Purisima
for the latter's share in the expected commission of Gregorio by
reason of the sale; and (3) whether the award of legal interest, moral
and exemplary damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto
Soriano and concurred in by Justice Juan Enriquez did not touch on
these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his
concurring opinion, affirmed that it does not constitute breach of
trust or fraud on the part of the broker and regarded same as merely
part of the whole process of bringing about the meeting of the minds
of the seller and the purchaser and that the commitment from the
prospect buyer that he would give a reward to Gregorio if he could
effect better terms for him from the seller, independent of his
legitimate commission, is not fraudulent, because the principal can
reject the terms offered by the prospective buyer if he believes that
such terms are onerous disadvantageous to him. On the other hand,
Justice Gatmaitan, with whom Justice Antonio Cafizares corner held
the view that such an act on the part of Gregorio was fraudulent and
constituted a breach of trust, which should deprive him of his right to
the commission.
The duties and liabilities of a broker to his employer are essentially
those which an agent owes to his principal.1
Consequently, the decisive legal provisions are in found Articles 1891
and 1909 of the New Civil Code.
Art. 1891. Every agent is bound to render an account of his
transactions and to deliver to the principal whatever he may have
received by virtue of the agency, even though it may not be owing to
the principal.
Every stipulation exempting the agent from the obligation to render
an account shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but
also for negligence, which shall be judged with more less rigor by the
courts, according to whether the agency was or was not for a
compensation.
Article 1891 of the New Civil Code amends Article 17 of the old
Spanish Civil Code which provides that:
Art. 1720. Every agent is bound to give an account of his
transaction and to pay to the principal whatever he may have
received by virtue of the agency, even though what he has received is
not due to the principal.
The modification contained in the first paragraph Article 1891 consists
in changing the phrase "to pay" to "to deliver", which latter term is
more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the
highest loyalty that is required to an agent — condemning as void any
stipulation exempting the agent from the duty and liability imposed
on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of
Article 1726 of the old Spanish Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for
negligence, which shall be judged with more or less severity by the
courts, according to whether the agency was gratuitous or for a price
or reward.
The aforecited provisions demand the utmost good faith, fidelity,
honesty, candor and fairness on the part of the agent, the real estate
broker in this case, to his principal, the vendor. The law imposes upon
the agent the absolute obligation to make a full disclosure or
complete account to his principal of all his transactions and other
material facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation exempting the agent
from such an obligation and considers such an exemption as void. The
duty of an agent is likened to that of a trustee. This is not a technical
or arbitrary rule but a rule founded on the highest and truest principle
of morality as well as of the strictest justice.2
Hence, an agent who takes a secret profit in the nature of a bonus,
gratuity or personal benefit from the vendee, without revealing the
same to his principal, the vendor, is guilty of a breach of his loyalty to
the principal and forfeits his right to collect the commission from his
principal, even if the principal does not suffer any injury by reason of
such breach of fidelity, or that he obtained better results or that the
agency is a gratuitous one, or that usage or custom allows it; because
the rule is to prevent the possibility of any wrong, not to remedy or
repair an actual damage.3 By taking such profit or bonus or gift or
propina from the vendee, the agent thereby assumes a position
wholly inconsistent with that of being an agent for hisprincipal, who
has a right to treat him, insofar as his commission is concerned, as if
no agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not
394 | P a g e
exculpate the agent who has only himself to blame for such a result
by reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article
1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of
money paid to him as an insurance agent for the account of his
employer as required by said Article 1720, said insurance agent was
convicted estafa.4 An administrator of an estate was likewise under
the same Article 1720 for failure to render an account of his
administration to the heirs unless the heirs consented thereto or are
estopped by having accepted the correctness of his account
previously rendered.5
Because of his responsibility under the aforecited article 1720, an
agent is likewise liable for estafa for failure to deliver to his principal
the total amount collected by him in behalf of his principal and cannot
retain the commission pertaining to him by subtracting the same from
his collections.6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver
to his client all the money and property received by him for his client
despite his attorney's lien.7 The duty of a commission agent to render
a full account his operations to his principal was reiterated in Duhart,
etc. vs. Macias.8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a commission while
ignorant of the fact that the latter has been unfaithful, the principal
may recover back the commission paid, since an agent or broker who
has been unfaithful is not entitled to any compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions
retained by an unfaithful agent, the court in Little vs. Phipps (1911)
208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled
that the agent is bound to exercise the utmost good faith in his
dealings with his principal. As Lord Cairns said, this rule "is not a
technical or arbitrary rule. It is a rule founded on the highest and
truest principles, of morality." Parker vs. McKenna (1874) LR
10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire
fidelity towards his principal, but is guilty of taking a secret profit or
commission in regard the matter in which he is employed, he loses his
right to compensation on the ground that he has taken a position
wholly inconsistent with that of agent for his employer, and which
gives his employer, upon discovering it, the right to treat him so far as
compensation, at least, is concerned as if no agency had existed. This
may operate to give to the principal the benefit of valuable services
rendered by the agent, but the agent has only himself to blame for
that result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the corrupting
tendency of the inconsistent relationship. Little vs. Phipps (1911) 94
NE 260.9
As a general rule, it is a breach of good faith and loyalty to his principal
for an agent, while the agency exists, so to deal with the subject
matter thereof, or with information acquired during the course of the
agency, as to make a profit out of it for himself in excess of his lawful
compensation; and if he does so he may be held as a trustee and may
be compelled to account to his principal for all profits, advantages,
rights, or privileges acquired by him in such dealings, whether in
performance or in violation of his duties, and be required to transfer
them to his principal upon being reimbursed for his expenditures for
the same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue or had
accrued, to the agent, or unless with such knowledge he has allowed
the agent so as to change his condition that he cannot be put in status
quo. The application of this rule is not affected by the fact that the
principal did not suffer any injury by reason of the agent's dealings or
that he in fact obtained better results; nor is it affected by the fact
that there is a usage or custom to the contrary or that the agency is a
gratuitous one. (Emphasis applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the
broker, received a gift or propina in the amount of One Thousand
Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without
the knowledge and consent of his principal, herein petitioner-
appellant Vicente Domingo. His acceptance of said substantial
monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him
partial advance of Three Hundred Pesos (P300.00) on his commission.
As a consequence, instead of exerting his best to persuade his
prospective buyer to purchase the property on the most
advantageous terms desired by his principal, the broker, herein
defendant-appellee Gregorio Domingo, succeeded in persuading his
principal to accept the counter-offer of the prospective buyer to
purchase the property at P1.20 per square meter or One Hundred
Nine Thousand Pesos (P109,000.00) in round figure for the lot of
88,477 square meters, which is very much lower the the price of P2.00
per square meter or One Hundred Seventy-Six Thousand Nine
Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered
by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply
if the agent or broker acted only as a middleman with the task of
merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the
transaction. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he received from
the purchaser and his principal did not object therto. 11 Herein
defendant-appellee Gregorio Domingo was not merely a middleman
of the petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant only.
And therein petitioner-appellant was not aware of the gift of One
Thousand Pesos (P1,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent's accepting
such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz,
the wife of Oscar de Leon, does not materially alter the situation;
because the transaction, to be valid, must necessarily be with the
consent of the husband Oscar de Leon, who is the administrator of
their conjugal assets including their house and lot at No. 40 Denver
Street, Cubao, Quezon City, which were given as part of and
395 | P a g e
constituted the down payment on, the purchase price of herein
petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law
and in fact, it was still Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendant-

appellee Gregorio Domingo must forfeit his right to the commission
and must return the part of the commission he received from his
principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only

recover from Gregorio Domingo his one-half share of whatever
amounts Gregorio Domingo received by virtue of the transaction as
his sub-agency contract was with Gregorio Domingo alone and not
with Vicente Domingo, who was not even aware of such sub-agency.
Since Gregorio Domingo received from Vicente Domingo and Oscar
de Leon respectively the amounts of Three Hundred Pesos (P300.00)
and One Thousand Pesos (P1,000.00) or a total of One Thousand
Three Hundred Pesos (P1,300.00), one-half of the same, which is Six
Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo
to Teofilo Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused

Vicente Domingo mental anguish and serious anxiety as well as
wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand
Pesos (P1,000.00) attorney's fees in the reasonable amount of One
Thousand Pesos (P1,000.00), considering that this case has been
pending for the last fifteen (15) years from its filing on October 3,
1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision

of the Court of Appeals and directing defendant-appellee Gregorio
Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One
Thousand Pesos (P1,000.00) as moral damages and One Thousand
Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the
sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando,

Teehankee, Barredo and Villamor, JJ., concur.

396 | P a g e
19. 139 SCRA 239
G.R. No. L-67889 October 10, 1985
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TERESITA NACIANCENO,
respondents.
Payawal, Jimenez & Associates for petitioners.
Nelson A. Loyola for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Intermediate
Appellate Court affirming in toto the judgment of the Court of First
Instance of Manila, Branch XXI, which ordered the petitioner to pay
respondent the thirty percent (30%) commission on 15,666 pieces of
Philippine flags worth P936,960.00, moral damages, attorney's fees
and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in
convincing officials of the then Department of Education and Culture,
hereinafter called Department, to purchase without public bidding,
one million pesos worth of national flags for the use of public schools
throughout the country. The respondent was able to expedite the
approval of the purchase by hand-carrying the different indorsements
from one office to another, so that by the first week of September,
1974, all the legal requirements had been complied with, except the
release of the purchase orders. When Nacianceno was informed by
the Chief of the Budget Division of the Department that the purchase
orders could not be released unless a formal offer to deliver the flags
in accordance with the required specifications was first submitted for
approval, she contacted the owners of the United Flag Industry on
September 17, 1974. The next day, after the transaction was
discussed, the following document (Exhibit A) was drawn up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United Flag
Industry to deal with any entity or organization, private or
government in connection with the marketing of our products-flags
and all its accessories.
For your service, you will be entitled to a commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the
United Flag Industry. The next day, on October 17, 1974, the
respondent's authority to represent the United Flag Industry was
revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving
the payment of P469,980.00 on October 23, 1974 for the first
delivery, tendered the amount of P23,900.00 or five percent (5%) of
the amount received, to the respondent as payment of her
commission. The latter allegedly protested. She refused to accept the
said amount insisting on the 30% commission agreed upon. The
respondent was prevailed upon to accept the same, however,
because of the assurance of the petitioners that they would pay the
commission in full after they delivered the other half of the order. The
respondent states that she later on learned that petitioner Siasat had
already received payment for the second delivery of 7,833 flags.
When she confronted the petitioners, they vehemently denied
receipt of the payment, at the same time claiming that the
respondent had no participation whatsoever with regard to the
second delivery of flags and that the agency had already been
revoked.
The respondent originally filed a complaint with the Complaints and
Investigation Office in Malacañang but when nothing came of the
complaint, she filed an action in the Court of First Instance of Manila
to recover the following commissions: 25%, as balance on the first
delivery and 30%, on the second delivery.
The trial court decided in favor of the respondent. The dispositive
portion of the decision reads as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo
Siasat to pay to the plaintiff the sum of P281,988.00, minus the sum
P23,900.00, with legal interest from the date of this decision, and
ordering the defendants to pay jointly and solidarily the sum of
P25,000.00 as moral damages, and P25,000.00 as attorney's fees, also
with legal interest from the date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate
Court. After their motion for reconsideration was denied, the
petitioners went to this Court on a petition for review on August 6,
1984.
In assailing the appellate court's decision, the petition tenders the
following arguments: first, the authorization making the respondent
the petitioner's representative merely states that she could deal with
any entity in connection with the marketing of their products for a
commission of 30%. There was no specific authorization for the sale
of 15,666 Philippine flags to the Department; second, there were two
transactions involved evidenced by the separate purchase orders and
separate delivery receipts, Exhibit 6-C for the purchase and deliver on
October 16, 1974, and Exhibits 7 to 7-C, for the purchase and delivery
on November 6, 1974. The revocation of agency effected by the
parties with mutual consent on October 17, 1974, therefore,
forecloses the respondent's claim of 30% commission on the second
transaction; and last, there was no basis for the granting of attorney's
fees and moral damages because there was no showing of bad faith
on the part of the petitioner. It was respondent who showed bad faith
in denying having received her commission on the first delivery. The
petitioner's counterclaim, therefore, should have been granted.
This petition was initially dismissed for lack of merit in a minute
resolution.On a motion for reconsideration, however,this Court give
due course to the petition on November 14, 1984.
After a careful review of the records, we are constrained to sustain
with some modifications the decision of the appellate court.
397 | P a g e

We find respondent's argument regarding respondent's incapacity to
represent them in the transaction with the Department untenable.
There are several kinds of agents. To quote a commentator on the
matter:
An agent may be (1) universal: (2) general, or (3) special. A universal;
agent is one authorized to do all acts for his principal which can
lawfully be delegated to an agent. So far as such a condition is
possible, such an agent may be said to have universal authority. (Mec.
Sec. 58).
A general agent is one authorized to do all acts pertaining to a
business of a certain kind or at a particular place, or all acts pertaining
to a business of a particular class or series. He has usually authority
either expressly conferred in general terms or in effect made general
by the usages, customs or nature of the business which he is
authorized to transact.
An agent, therefore, who is empowered to transact all the business of
his principal of a particular kind or in a particular place, would, for this
reason, be ordinarily deemed a general agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or to act
upon some particular occasion. lie acts usually in accordance with
specific instructions or under limitations necessarily implied from the
nature of the act to be done. (Mec. Sec. 61) (Padilla, Civil Law The Civil
Code Annotated, Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document
embodying the agreement between the petitioners and the
respondent to deduce that the 'latter was instituted as a general
agent. Indeed, it can easily be seen by the way general words were
employed in the agreement that no restrictions were intended as to
the manner the agency was to be carried out or in the place where it
was to be executed. The power granted to the respondent was so
broad that it practically covers the negotiations leading to, and the
execution of, a contract of sale of petitioners' merchandise with any
entity or organization.
There is no merit in petitioners' allegations that the contract of agency
between the parties was entered into under fraudulent
representation because respondent "would not disclose the agency
with which she was supposed to transact and made the petitioner
believe that she would be dealing with The Visayas", and that "the
petitioner had known of the transactions and/or project for the said
purchase of the Philippine flags by the Department of Education and
Culture and precisely it was the one being followed up also by the
petitioner."
If the circumstances were as claimed by the petitioners, they would
have exerted efforts to protect their interests by limiting the
respondent's authority. There was nothing to prevent the petitioners
from stating in the contract of agency that the respondent could
represent them only in the Visayas. Or to state that the Department
of Education and Culture and the Department of National Defense,
which alone would need a million pesos worth of flags, are outside
the scope of the agency. As the trial court opined, it is incredible that
they could be so careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our
Revised Rules of Court states that "when the terms of an agreement
have been reduced to writing, it is to be considered as containing all
such terms, and, therefore, there can be between the parties and
their successors-in-interest, no evidence of the terms of the
agreement other than the contents of the writing", except in cases
specifically mentioned in the same rule. Petitioners have failed to
show that their agreement falls under any of these exceptions. The
respondent was given ample authority to transact with the
Department in behalf of the petitioners. Equally without merit is the
petitioners' proposition that the transaction involved two separate
contracts because there were two purchase orders and two
deliveries. The petitioners' evidence is overcome by other pieces of
evidence proving that there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes
to the Budget Commission on September 3, 1974 (Exhibit "C") attests
to the fact that out of the total budget of the Department for the fiscal
year 1975, "P1,000,000.00 is for the purchase of national flags." This
is also reflected in the Financial and Work Plan Request for Allotment
(Exhibit "F") submitted by Secretary Juan Manuel for fiscal year 1975
which however, divided the allocation and release of the funds into
three, corresponding to the second, third, and fourth quarters of the
said year. Later correspondence between the Department and the
Budget Commission (Exhibits "D" and "E") show that the first
allotment of P500.000.00 was released during the second quarter.
However, due to the necessity of furnishing all of the public schools
in the country with the Philippine flag, Secretary Manuel requested
for the immediate release of the programmed allotments intended
for the third and fourth quarters. These circumstances explain why
two purchase orders and two deliveries had to be made on one
transaction.
The petitioners' evidence does not necessarily prove that there were
two separate transactions. Exhibit "6" is a general indorsement made
by Secretary Manuel for the purchase of the national flags for public
schools. It contains no reference to the number of flags to be ordered
or the amount of funds to be released. Exhibit "7" is a letter request
for a "similar authority" to purchase flags from the United Flag
Industry. This was, however, written by Dr. Narciso Albarracin who
was appointed Acting Secretary of the Department after Secretary
Manuel's tenure, and who may not have known the real nature of the
transaction.
If the contracts were separate and distinct from one another, the
whole or at least a substantial part of the government's supply
procurement process would have been repeated. In this case, what
were issued were mere indorsements for the release of funds and
authorization for the next purchase.
Since only one transaction was involved, we deny the petitioners'
contention that respondent Nacianceno is not entitled to the
stipulated commission on the second delivery because of the
revocation of the agency effected after the first delivery. The
revocation of agency could not prevent the respondent from earning
her commission because as the trial court opined, it came too late,
the contract of sale having been already perfected and partly
executed.
398 | P a g e
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to
this one in principle, this Court held:
We do not mean to question the general doctrine as to the power of
a principal to revoke the authority of his agent at will, in the absence
of a contract fixing the duration of the agency (subject, however, to
some well defined exceptions). Our ruling is that at the time fixed by
the manager of the plaintiff company for the termination of the
negotiations, the defendant real estate agent had already earned the
commissions agreed upon, and could not be deprived thereof by the
arbitrary action of the plaintiff company in declining to execute the
contract of sale for some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon
by cancelling the agency and, thereafter, dealing directly with the
buyer. (Infante v. Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al.
v. Ledesma (C.A. 49 O.G. 1507) is correct:
The appellee is entitled to recovery. No citation is necessary to show
that the general law of contracts the equitable principle of estoppel.
and the expense of another, uphold payment of compensation for
services rendered.
There is merit, however, in the petitioners' contention that the
agent's commission on the first delivery was fully paid. The evidence
does not sustain the respondent's claim that the petitioners paid her
only 5% and that their right to collect another 25% commission on the
first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and
Investigation Office to help her collect her commission, her statement
under oath referred exclusively to the 30% commission on the second
delivery. The statement was emphatic that "now" her demand was
for the 30% commission on the (second) release of P469,980.00. The
demand letter of the respondent's lawyer dated November 13, 1984
asked petitioner Siasat only for the 30% commission due from the
second delivery. The fact that the respondent demanded only the
commission on the second delivery without reference to the alleged
unpaid balance which was only slightly less than the amount claimed
can only mean that the commission on the first delivery was already
fully paid, Considering the sizeable sum involved, such an omission is
too glaringly remiss to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears
her signature with the handwritten words "Fully Paid", inscribed
above it.
The respondent contested her signature as a forgery, Handwriting
experts from two government agencies testified on the matter. The
reason given by the trial court in ruling for the respondent is too flimsy
to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the
private respondent signed her name as "Tessie Nacianceno" while in
this particular instance, she signed as "T. Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation
of forgery. A variance in the manner the respondent signed her name
can not be considered as conclusive proof that the questioned
signature is a forgery. The mere fact that the respondent signed
thirteen documents using her full name does not rule out the
possibility of her having signed the notation "Fully Paid", with her
initial for the given came and the surname written in full. What she
was signing was a mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of
forgery.
In support of their allegation of full payment as evidenced by the
signed authorization letter (Exhibit "5-A"), the petitioners presented
as witness Mr. Francisco Cruz. Jr., a senior document examiner of the
Philippine Constabulary Crime laboratory. In rebuttal, the respondent
presented Mr. Arcadio Ramos, a junior document examiner of the
National Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal
cases involving forgery are applicable. Forgery cannot be presumed.
It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities, one
consistent with the defendant's innocence and another indicative of
his guilt, that which is favorable to the accused should be considered.
The constitutional presumption of innocence continues until
overthrown by proof of guilt beyond reasonable doubt, which
requires moral certainty which convinces and satisfies the reason and
conscience of those who are to act upon it. (People v. Clores, et al.,
125 SCRA 67; People v. Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony
would constitute the sole ground for conviction and there is equally
convincing expert testimony to the contrary, the constitutional
presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon.
Sandiganbayan and People of the Philippines, 134 SCRA 105). In the
present case, the circumstances earlier mentioned taken with the
testimony of the PC senior document examiner lead us to rule against
forgery.
We also rule against the respondent's allegation that the petitioners
acted in bad faith when they revoked the agency given to the
respondent.
Fraud and bad faith are matters not to be presumed but matters to
be alleged with sufficient facts. To support a judgment for damages,
facts which justify the inference of a lack or absence of good faith
must be alleged and proven. (Bacolod-Murcia Milling Co., Inc. vs. First
Farmers Milling Co., Inc., Etc., 103 SCRA 436).
There is no evidence on record from which to conclude that the
revocation of the agency was deliberately effected by the petitioners
to avoid payment of the respondent's commission. What appears
before us is only the petitioner's use in court of such a factual
allegation as a defense against the respondent's claim. This alone
does not per se make the petitioners guilty of bad faith for that
defense should have been fully litigated.
399 | P a g e
Moral damages cannot be awarded in the absence of a wrongful act
or omission or of fraud or bad faith. (R & B Surety & Insurance Co.,
Inc. vs. Intermediate Appellate Court, 129 SCRA 736).

We therefore, rule that the award of P25,000.00 as moral damages is

without basis.

The additional award of P25,000.00 damages by way of attorney's

fees, was given by the courts below on the basis of Article 2208,
Paragraph 2, of the Civil Code, which provides: "When the defendant's
act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interests;" attorney's fees
may be awarded as damages. (Pirovano et al. v. De la Rama Steamship
Co., 96 Phil. 335).

The underlying circumstances of this case lead us to rule out any

award of attorney's fees. For one thing, the respondent did not come
to court with completely clean hands. For another, the petitioners
apparently believed they could legally revoke the agency in the
manner they did and deal directly with education officials handling
the purchase of Philippine flags. They had reason to sincerely believe
they did not have to pay a commission for the second delivery of flags.

We cannot close this case without commenting adversely on the

inexplicably strange procurement policies of the Department of
Education and Culture in its purchase of Philippine flags. There is no
reason why a shocking 30% of the taxpayers' money should go to an
agent or facilitator who had no flags to sell and whose only work was
to secure and handcarry the indorsements of education and budget
officials. There are only a few manufacturers of flags in our country
with the petitioners claiming to have supplied flags for our public
schools on earlier occasions. If public bidding was deemed
unnecessary, the Department should have negotiated directly with
flag manufacturers. Considering the sad plight of underpaid and
overworked classroom teachers whose pitiful salaries and allowances
cannot sometimes be paid on time, a P300,000.00 fee for a
P1,000,000.00 purchase of flags is not only clearly unnecessary but a
scandalous waste of public funds as well.

WHEREFORE, the decision of the respondent court is hereby

MODIFIED. The petitioners are ordered to pay the respondent the
amount of ONE HUNDRED FOURTY THOUSAND NINE HUNDRED AND
NINETY FOUR PESOS (P140,994.00) as her commission on the second
delivery of flags with legal interest from the date of the trial court's
decision. No pronouncement as to costs.

SO ORDERED.

Relova, De la Fuente and Patajo, JJ., concur.

Melencio-Herrera, J., is on leave.

Plana, J., took no part.

Teehankee, J., Let copy hereof be furnished the Commission on Audit

for appropriate remedial action, as it may take.

400 | P a g e
20. 55 Phil 290
G.R. No. L-32977 November 17, 1930
THE MUNICIPAL COUNCIL OF ILOILO, plaintiff-appellee,
vs.
JOSE EVANGELISTA, ET AL., defendants-appellees.
TAN ONG SZE VDA. DE TAN TOCO, appellant.
Trenas & Laserna for defendant-appellant.
Provincial Fiscal Blanco of Iloilo for plaintiff-appellees.
Felipe Ysmael for appellee Mauricio Cruz & Co.
No appearance for other appellees.
VILLA-REAL, J.:
This is an appeal taken by the defendant Tan Ong Sze Vda. de Tan
Toco from the judgment of the Court of First Instance of Iloilo,
providing as follows:
Wherefore, judgment is hereby rendered, declaring valid and binding
the deed of assignment of the credit executed by Tan Toco's widow,
through her attorney-in-fact Tan Buntiong, in favor of late Antero
Soriano; likewise the assignment executed by the latter during his
lifetime in favor of the defendant Mauricio Cruz & Co., Inc., and the
plaintiff is hereby ordered to pay the said Mauricio Cruz & Co., Inc.,
the balance of P30,966.40; the plaintiff is also ordered to deposit said
sum in a local bank within the period of ninety days from the time this
judgment shall become final, at the disposal of the aforesaid Mauricio
Cruz & Co. Inc., and in case that the plaintiff shall not make such
deposit in the manner indicated, said amount shall bear the legal
interest of six percent per annum from the date when the plaintiff
shall fail to make the deposit within the period herein set forth, until
fully paid.
Without special pronouncement of costs.
In support of its appeal, the appellant assigns the following alleged
errors as committed by the trial court in its decision, to wit:
1. The lower court erred in rejecting as evidence Exhibit 4-A, Tan Toco,
and Exhibit 4-B, Tan Toco.
2. The lower court erred in sustaining the validity of the deed of
assignment of the credit, Exhibit 2-Cruz, instead of finding that said
assignment made by Tan Buntiong to Attorney Antero Soriano was
null and void.
3. The lower court erred in upholding the assignment of that credit by
Antero Soriano to Mauricio Cruz & Co., Inc., instead of declaring it null
and void.
4. The court below erred in holding that the balance of the credit
against the municipality of Iloilo should be adjudicated to the
appellant herein, Tan Toco's widow.
5. The lower court erred in denying the motion for a new trial filed by
the defendant-appellant.
The facts of the case are as follows:
On March 20, 1924, the Court of First Instance of Iloilo rendered
judgment in civil case No. 3514 thereof, wherein the appellant herein,
Tan Ong Sze Vda. de Tan Toco was the plaintiff, and the municipality
of Iloilo the defendant, and the former sought to recover of the latter
the value of a strip of land belonging to said plaintiff taken by the
defendant to widen a public street; the judgment entitled the plaintiff
to recover P42,966.40, representing the value of said strip of land,
from the defendant (Exhibit A). On appeal to this court (G. R. No
.22617) 1 the judgment was affirmed on November 28, 1924 (Exhibit
B).
After the case was remanded to the court of origin, and the judgment
rendered therein had become final and executory, Attorney Jose
Evangelista, in his own behalf and as counsel for the administratrix of
Jose Ma .Arroyo's intestate estate, filed a claim in the same case for
professional services rendered by him, which the court, acting with
the consent of the appellant widow, fixed at 15 per cent of the
amount of the judgment (Exhibit 22 — Soriano).
At the hearing on said claim, the claimants appeared, as did also the
Philippine National Bank, which prayed that the amount of the
judgment be turned over to it because the land taken over had been
mortgaged to it. Antero Soriano also appeared claiming the amount
of the judgment as it had been assigned to him, and by him, in turn,
assigned to Mauricio Cruz & Co., Inc.
After hearing all the adverse claims on the amount of the judgment
the court ordered that the attorney's lien in the amount of 15 per cent
of the judgment, be recorded in favor of Attorney Jose Evangelista, in
his own behalf and as counsel for the administratrix of the deceased
Jose Ma .Arroyo, and directed the municipality of Iloilo to file an
action of interpleading against the adverse claimants, the Philippine
National Bank, Antero Soriano, Mauricio Cruz & Co., Jose Evangelista
and Jose Arroyo, as was done, the case being filed in the Court of First
Instance of Iloilo as civil case No. 7702.
After due hearing, the court rendered the decision quoted from at the
beginning.
On March 29, 1928, the municipal treasurer of Iloilo, with the
approval of the auditor of the provincial treasurer of Iloilo and of the
Executive Bureau, paid the late Antero Soriano the amount of P6,000
in part payment of the judgment mentioned above, assigned to him
by Tan Boon Tiong, acting as attorney-in-fact of the appellant herein,
Tan Ong Sze Vda. de Tan Toco.
On December 18, 1928, the municipal treasurer of Iloilo deposited
with the clerk of the Court of First Instance of Iloilo the amount of
P6,000 on account of the judgment rendered in said civil case No.
3514. In pursuance of the resolution of the court below ordering that
the attorney's lien in the amount of 15 per cent of the judgment be
recorded in favor of Attorney Jose Evangelista, in his own behalf and
as counsel for the late Jose Ma. Arroyo, the said clerk of court
delivered on the same date to said Attorney Jose Evangelista the said
amount of P6,000. At the hearing of the instant case, the
codefendants of Attorney Jose Evangelista agreed not to discuss the
payment made to the latter by the clerk of the Court of First Instance
of Iloilo of the amount of P6,000 mentioned above in consideration
401 | P a g e
of said lawyer's waiver of the remainder of the 15 per cent of said
judgment amounting to P444.69.
With these two payments of P6,000 each making a total of P12,000,
the judgment for P42,966.44 against the municipality of Iloilo was
reduced to P30,966.40, which was adjudicated by said court to
Mauricio Cruz & Co.
This appeal, then, is confined to the claim of Mauricio Cruz & Co. as
alleged assignee of the rights of the late Attorney Antero Soriano by
virtue of the said judgment in payment of professional services
rendered by him to the said widow and her coheirs.
The only question to be decided in this appeal is the legality of the
assignment made by Tan Boon Tiong as attorney-in-fact of the
appellant Tan Ong Sze Viuda de Tan Toco, to Attorney Antero Soriano,
of all the credits, rights and interests belonging to said appellant Tan
Ong Sze Viuda de Tan Toco by virtue of the judgment rendered in civil
case No .3514 of the Court of First Instance of Iloilo, entitled Viuda de
Tan Toco vs. The Municipal Council of Iloilo, adjudicating to said
widow the amount of P42,966.40, plus the costs of court, against said
municipal council of Iloilo, in consideration of the professional
services rendered by said attorney to said widow of Tan Toco and her
coheirs, by virtue of the deed Exhibit 2.
The appellant contends, in the first place, that said assignments was
not made in consideration of professional services by Attorney Antero
Soriano, for they had already been satisfied before the execution of
said deed of assignment, but in order to facilitate the collection of the
amount of said judgment in favor of the appellant, for the reason that,
being Chinese, she had encountered many difficulties in trying to
collect.lawphil.net
In support of her contention on this point, the appellant alleges that
the payments admitted by the court in its judgment, as made by Tan
Toco's widow to Attorney Antero Soriano for professional services
rendered to her and to her coheirs, amounting to P2,900, must be
added to the P700 evidenced by Exhibits 4-A, Tan Toco, and 4-B Tan
Toco, respectively, which exhibits the court below rejected as
evidence, on the ground that they were considered as payments
made for professional services rendered, not by Antero Soriano
personally, by the firm of Soriano & Arroyo.
A glance at these receipts shows that those amounts were received
by Attorney Antero Soriano for the firm of Soriano & Arroyo, which is
borne out by the stamp on said receipts reading, "Befete Soriano &
Arroyo," and the manner in which said attorney receipted for them,
"Soriano & Arroyo, by A. Soriano."
Therefore, the appellant's contention that the amounts of P200 and
P500 evidence by said receipts should be considered as payments
made to Attorney Antero Soriano for professional services rendered
by him personally to the interests of the widow of Tan Toco, is
untenable.
Besides, if at the time of the assignments to the late Antero Soriano
his professional services to the appellant widow of Tan Toco had
already been paid for, no reason can be given why it was necessary to
write him money in payment of professional services on March 14,
1928 (Exhibit 5-G Tan Toco) and December 15, of the same year
(Exhibit 5-H Tan Toco) after the deed of assignment, (Exhibit 2-Cruz)
dated September 27, 1927, had been executed. In view of the fact
that the amounts involved in the cases prosecuted by Attorney Antero
Soriano as counsel for Tan Toco's widow, some of which cases have
been appealed to this court, run into the hundreds of thousands of
pesos, and considering that said attorney had won several of those
cases for his clients, the sum of P10,000 to date paid to him for
professional services is wholly inadequate, and shows, even if
indirectly, that the assignments of the appellant's rights and interests
made to the late Antero Soriano and determined in the judgment
aforementioned, was made in consideration of the professional
services rendered by the latter to the aforesaid widow and her
coheirs.
The defendant-appellant also contends that the deed of assignment
Exhibit 2-Cruz was drawn up in contravention of the prohibition
contained in article 1459, case 5, of the Civil Code, which reads as
follows:
ART. 1459. The following persons cannot take by purchase, even at a
public or judicial auction, either in person or through the mediation
of another:
xxx xxx xxx
5. Justices, judges, members of the department of public prosecution,
clerks of superior and inferior courts, and other officers of such
courts, the property and rights in litigation before the court within
whose jurisdiction or territory they perform their respective duties
.This prohibition shall include the acquisition of such property by
assignment.
Actions between co-heirs concerning the hereditary property,
assignments in payment of debts, or to secure the property of such
persons, shall be excluded from this rule.
The prohibition contained in this paragraph shall include lawyers and
solicitors with respect to any property or rights involved in any
litigation in which they may take part by virtue of their profession and
office.
It does not appear that the Attorney Antero Soriano was counsel for
the herein appellant in civil case No. 3514 of the Court of First
Instance of Iloilo, which she instituted against the municipality of
Iloilo, Iloilo, for the recovery of the value of a strip of land
expropriated by said municipality for the widening of a certain public
street. The only lawyers who appear to have represented her in that
case were Arroyo and Evangelista, who filed a claim for their
professional fees .When the appellant's credit, right, and interests in
that case were assigned by her attorney-in-fact Tan Boon Tiong, to
Attorney Antero Soriano in payment of professional services
rendered by the latter to the appellant and her coheirs in connection
with other cases, that particular case had been decided, and the only
thing left to do was to collect the judgment. There was no relation of
attorney and client, then, between Antero Soriano and the appellant,
in the case where that judgment was rendered; and therefore the
assignment of her credit, right and interests to said lawyer did not
violate the prohibition cited above.
402 | P a g e
As to whether Tan Boon Tiong as attorney-in-fact of the appellant,
was empowered by his principal to make as assignment of credits,
rights and interests, in payment of debts for professional services
rendered by lawyers, in paragraph VI of the power of attorney, Exhibit
5-Cruz, Tan Boon Tiong is authorized to employ and contract for the
services of lawyers upon such conditions as he may deem convenient,
to take charge of any actions necessary or expedient for the interests
of his principal, and to defend suits brought against her. This power
necessarily implies the authority to pay for the professional services
thus engaged. In the present case, the assignment made by Tan Boon
Tiong, as Attorney-in-fact for the appellant, in favor of Attorney
Antero Soriano for professional services rendered in other cases in
the interests of the appellant and her coheirs, was that credit which
she had against the municipality of Iloilo, and such assignment was
equivalent to the payment of the amount of said credit to Antero
Soriano for professional services.

With regard to the failure of the other attorney-in-fact of the

appellant, Tan Montano, authorized by Exhibit 1 — Tan Toco, to
consent to the deed of assignment, the latter being also authorized to
pay, in the name and behalf of the principal, all her debts and the liens
and encumbrances her property, the very fact that different letters of
attorney were given to each of these two representatives shows that
it was not the principal's intention that they should act jointly in order
to make their acts valid. Furthermore, the appellant was aware of that
assignment and she not only did not repudiate it, but she continued
employing Attorney Antero Soriano to represent her in court.

For the foregoing considerations, the court is of opinion and so holds:

(1) That an agent of attorney-in -fact empowered to pay the debts of
the principal, and to employ lawyers to defend the latter's interests,
is impliedly empowered to pay the lawyer's fees for services rendered
in the interests of said principal, and may satisfy them by an
assignment of a judgment rendered in favor of said principal; (2) that
when a person appoints two attorneys-in-fact independently, the
consent of the one will not be required to validate the acts of the
other unless that appears positively to have been the principal's
attention; and (3) that the assignment of the amount of a judgment
made by a person to his attorney, who has not taken any part in the
case wherein said judgment was rendered, made in payment of
professional services in other cases, does not contravene the
prohibition of article 1459, case 5, of the Civil Code.

By virtue whereof, and finding no error in the judgment appealed

from, the same is affirmed in its entirety, with costs against the
appellant. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns

and Romualdez, JJ., concur.

403 | P a g e
21.
G.R. No. L-39059 September 30, 1974
ANTONIO CABALLERO and CONCORDIA CABALLERO, plaintiffs-
appellants,
vs.
ALMA DEIPARINE, TOMAS RAGA, OLIMPIO RAGA, ADRIANO RAGA,
and MAGDALENA RAGA, defendant-appellees.
Porfiro D. Ellescas for plaintiff-appellants.
Hilario G. Davide, Jr. for defendant-appellees.
ESGUERRA, J.:p
This case was originally appealed to the Court of Appeals which
certified it to this Court by resolution of its Fifth Division, dated June
14, 1974, for the reason that it involves purely legal questions which
are within the exclusive jurisdiction of this Court to adjudicate. The
two legal questions raised are (1) whether the written stipulation of
facts entered into by the counsel for both parties without the
signature of the latter is valid and binding and (2) whether a motion
for new trial and to amend the complaint may be granted after a
decision is rendered by the trial court on the basis of said stipulation
of facts.
I. Statement of the Case
On March 21, 1967, plaintiffs Antonio Caballero and Concordia
Caballero filed a complaint against defendants Alma Deiparine, Tomas
Raga, Olimpio Raga, Adriano Raga and Magdalena Raga alleging,
among other things:
1. That plaintiffs Antonio Caballero and Concordia Caballero
are the children by the first marriage, and the defendants, Tomas
Raga, Olimpio Raga, Adriano Raga and Magdalena Raga, are the
children by second marriage of Vicenta Bucao, now deceased, who
died sometime in February, 1943 in Tabunoc, Talisay, Cebu;
2. That Vicenta Bucao in her lifetime and Tomas Raga acquired
by joint purchase a parcel of land from the Talisay-Minglanilla Friar
Lands Estate identified as Lot 2072 situated in Tabunoc, Talisay, Cebu
and now more particularly described in Transfer Certificate of Title
No. Rt-2485 (T-17232) of the Registry of Deeds of Cebu and further
declared for taxation purposes under Tax Declaration No. 15954 and
at P100.00;
3. That sometime in 1932, defendant Tomas Raga and Vicenta
Bucao jointly sold 1/4 of said Lot 2072 to plaintiff Antonio Caballero,
which sale was evidenced by a deed of sale; and since the title to said
lot at the time of the conveyance to him had not as yet been issued
to them they held the subject portion in trust for said Antonio
Caballero until its title could be delivered to the latter;
4. That plaintiff Antonio Caballero had been paying the yearly
land tax for the subject portion thru his mother Vicenta Bucao, from
the time of his acquisition thereof until Vicenta's death in 1943;
5. That long before the death of Vicenta Bucao in 1943,
plaintiff Antonio Caballero had been, asking the former to deliver the
title to the portion sold to him, but he was told by his mother to wait,
as after all, according to her, he (plaintiff) was already in possession
thereof and, besides, his mother was then still living;
6. That after the death of Vicenta Bucao in 1943, plaintiff
Antonio Caballero asked defendant Tomas Raga to deliver the title to
the portion sold to him from Lot 2072, but he (Tomas Raga) told him
to wait until it could be segregated and that there was no hurry since
he (Antonio) was already in possession thereof, and, being his
brother, he would protect him (Antonio) from any claim of third
persons thereto, should the occasion arise;
7. That plaintiff Antonio Caballero had been in the continuous,
open, peaceful and adverse possession of the subject portion and had
built a house thereon way back in 1941 which is still existing up to the
present and used as his dwelling;
8. That the share of Vicenta Bucao to Lot 2072 consisting of
207 square meters, more or less, in which the plaintiffs Antonio
Caballero and Concordia Caballero own an undivided 1/6 share each,
had not been partitioned among her heirs by the first and second
marriages, respectively;
9. That sometime on May 11, 1965, plaintiff Antonio Caballero
received from defendant Alma Deiparine a letter demanding that he
vacate the portion of Lot 2072 which he was holding for she had
bought it from defendant Tomas Raga, and as the new owner she
would like to construct a house thereon and would further improve
said lot;
10. That upon refusal of the plaintiff to vacate the portion in
question defendant Alma Deiparine brought an action for ejectment
against him in the Municipal Court of Talisay, and after trial said Court
rendered judgment in favor of Antonio Caballero, the plaintiff herein;
11. That defendant Alma Deiparine appealed the decision of
the Municipal Court in the ejectment case to the Court of First
Instance of Cebu where she again lost but she elevated the decision
of the Court of First Instance to the Court of Appeals where it is
pending;
12. That in the light of the foregoing facts Transfer Certificate
of Title No. 9934 is fraudulent and questionable for having
deliberately included in the sale made by defendant Tomas Raga to
defendant Alma Deiparine the portion previously sold to herein
plaintiff Antonio Caballero as well as the plaintiffs' share inherited
from their deceased mother, Vicente Bucao;
13. That the defendants Tomas Raga, Olimpio Raga, Adriano
Raga and Magdalena Raga have willfully and falsely misrepresented
themselves by declaring in the instrument of declaration of heirs and
confirmation of sale they executed on March 18, 1963, that they are
the sole heirs of Vicenta Bucao, thereby deliberately and willfully
excluding the plaintiffs herein from succeeding to the share of their
mother, Vicenta Bucao, in Lot 2072;
14. That defendant Tomas Raga, Olimpio Raga, Adriano Raga
and Magdalena Raga have willfully and with deliberate falsehood
404 | P a g e
misrepresented themselves when they stated in the instrument of
declaration of heirs and confirmation of sale that Vicenta Bucao's
share in Lot 2072 was sold to Tomas Raga, for there was in fact no
such sale between them, the truth of the matter being that long
before Vicenta Bucao's death in the early part of 1943 the said
defendants had earlier evacuated from Tabunoc in the later part of
1942 and were in hiding when the Japanese forces occupied Talisay,
leaving behind the herein plaintiff to minister alone to their sickly
mother, Vicenta Bucao, during the last days of her life until her death
in 1943 and she died without the presence of even one of her children
by the second marriage;
15. That the deed of sale executed by defendant Tomas Raga
over Lot 2072 in favor of defendant Alma Deiparine has been
delivered to the latter but the possession of the property in question
has not been delivered and still remains in the possession of the
herein plaintiffs;
16. That the plaintiffs herein discovered the fraudulent
conveyance of Lot 2072 to defendant Alma Deiparine only upon the
receipt of the latter's letter dated May 11, 1965.
Defendant Alma Deiparine answered the complaint alleging, among
other things:
1. That the alleged sale between Antonio Caballero on one
hand and Vicenta Bucao and defendant Tomas Raga on the other
hand was only made known to her after she had already filed an
action for ejectment against Antonio Caballero; at the time she
purchased the lot in question on March 28, 1963, the certificate of
title to the land was free of any encumbrance and she purchased it in
good faith for a valuable consideration without any knowledge or
information about the alleged sale to plaintiff Caballero of a portion
thereof; the office of the register of deeds does not show that said
deed of sale was registered and from the time she purchased the land
on the date aforesaid until Antonio Caballero filed his answer to the
ejectment case she filed, Antonio Caballero never made mention of
said deed of sale although he had already received a letter of
ejectment as well as oral demands to vacate; hence, the deed of sale
in his favor is fictitious as confirmed by Antonio's conduct in keeping
the same in secrecy for more than 30 years;
2. That the Transfer Certificate of Title No. 9934 issued to her
is valid, legal, enforceable and regular, no fraud having committed in
its issuance.
Defendants Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena
Raga also answered plaintiffs, complaint alleging, among other things:
1. hat it is not true that Tomas Raga and Vicente Bucao sold
1/4 of the land in question to Antonio Caballero;
2. hat before the 1/2 of the land in question was sold by
Vicenta Bucao to Tomas Raga it was Vicenta and Tomas who were
paying the taxes and after the sale it was Tomas alone who paid the
same;
3. That Antonio Caballero never made demands because he
know and still knows that he is not the owner of any portion of the
land in question; while it is true that he is occupying a portion of the
subject land where his house now stands, the same is by mere
tolerance by Vicenta and Tomas for they took pity upon him when he
needed a place where to build his house;
4. That the land in question was sold by Tomas Raga in good
faith to defendant Alma Deiparine;
5. That the sale in favor of defendant Alma Deiparine is valid
and did not prejudice Antonio Caballero since he has no right
whatsoever in and over the land in question or in any portion thereof;
6. That the declaration of heirs and confirmation of sale
speaks the truth and was not intended to prejudice any person;
7. That a sale was made by Vicenta Bucao in favor of Tomas
Raga of her 1/2 participation in the land in question;
8. That it cannot be true that the sale to Alma Deiparine was
only discovered by Antonio Caballero on May 11, 1965, because even
before the actual sale was made, plaintiff Antonio know that there
were negotiations for the sale of the land and after the sale the
plaintiffs were also informed that the land has a new owner.
II. Facts of the Case
Before the case was called for hearing, the parties through counsel
entered into a stipulation of facts on March 13, 1968, which provides
as follows:
STIPULATION OF FACTS
The PLAINTIFFS and the DEFENDANTS in the above-entitled case duly
assisted by their respective counsels, unto this Honorable Court
hereby respectfully submit the following stipulation of facts:
1. That the parties are all of legal ages and residents of Talisay,
Cebu;
2. That Plaintiffs Antonio and Concordia, all surnamed
Caballero, and Defendant Tomas, Olimpio, Adriano and Magdalena,
all surnamed Raga, are the children of Vicenta Bucao now deceased,
the first two named being the children by the first marriage and the
last four named being the children by the second marriage;
3. That during the lifetime of Vicenta Bucao she with her
second husband Casimero Raga and her son Tomas Raga acquired by
joint purchase a parcel of land from the Talisay-Minglanilla Estate
identified as Lot No. 2072 and described in TRANSFER CERTIFICATE OF
TITLE NO. RT-2485 (T-17232) issued by the Register of Deeds of Cebu
on October 12, 1936, a certified true copy of which is identified as
Annex "A" in the Complaint and Tomas Raga is the owner of undivided
one-half thereof;
4. That in 1932 Vicenta Bucao and Tomas Raga before Annex
"A" mentioned in the next preceding paragraph had been issued,
executed jointly a notarial instrument identified as Annex "B" wherein
they acknowledged that Antonio Caballero had contributed the
amount therein stated for the purchase of the property and they sold
1/4 of the lot to him; when the title to said lot was issued, Vicenta
Bucao and Tomas Raga held it in trust for their co-owner;
405 | P a g e

5. That the portion mentioned as sold to plaintiff Antonio
Caballero remained unsegregated from Lot 2072 and the deed of sale,
Annex "B" of the Complaint; nor had it been registered in the Register
of Deeds; but he, had been in occupation of a portion of this lot
peacefully until the present;
6. That the Tax Declaration of the property remained in the
name of Vicenta Bucao;
7. That during the lifetime of Vicenta Bucao, she, with the
conformity of her husband, sold her undivided 1/2 of the above parcel
to her co-owner, Tomas Raga;
8. That on March 18, 1963 defendants Olimpio Raga, Adriano
Raga, Magdalena Raga and Tomas Raga executed an instrument
known as "Declaration and confirmation of sale" without the
participation of plaintiffs Antonio Caballero and Concordia Caballero,
wherein they stated that they are the heirs of Vicenta Bucao of the
1/2 of the property to Tomas Raga, a certified true copy of which
document is identified as Annex "E" in the Complaint;
9. That on March 28, 1963 Alma Deiparine acquired in good
faith, with a just title and for a valuable consideration, the whole of
Lot 2072 from Tomas Raga as per deed of absolute sale identified as
Annex "C" in the complaint which cancelled Transfer Certificate of
Title No. RT-2482 (T-17232) and the issuance in her name of Transfer
Certificate of Title No. 9934 on April 1, 1963, a certified true copy of
which is identified as Annex "D" in the complaint;
10. That defendant Alma Deiparine came to know only of Annex
"B" when it was presented by plaintiff Antonio Caballero at the trial
of an ejectment case filed by the former in the Municipal Court of
Talisay, Cebu which was docketed as Civil Case No. 108. This case was
decided in favor of Antonio Caballero but the decision was appealed
by Alma Deiparine to the Court of First Instance of Cebu which
affirmed the decision for Caballero. The case is now in the Court of
Appeals on appeal by Alma Deiparine;
11. That based on the foregoing stipulation of facts the parties
hereby jointly submit the following legal issues for the determination
of this Honorable Court:
a) Whether the plaintiffs could ask for the rescission of the
declaration of heirs and confirmation of sale identified as Annex "E"
in the complaint;
b) Whether the deed of sale in favor of Alma Deiparine
identified as Annex "C" in the Complaint can be annulled and Transfer
Certificate of Title No. 9934 (Annex "D") be cancelled.
WHEREFORE, it is most respectfully prayed that the foregoing
Stipulation of Facts be approved and that a decision he handed down
on the legal issues submitted on the basis of said Stipulation of Facts.
Cebu City, March 13, 1968.
(Sgd.) MELECIO C. GUBA
Counsel for Plaintiffs
430 Sanciangko St.,
Cebu City
(Sgd.) HILARIO G. DAVIDE, JR.
Counsel for Defendants
Suite 307, COMTRUST Bldg.,
Jones Ave., Cebu City
The Clerk of Court
Court of First Instance of Cebu
S I R:
Please immediately submit the foregoing Stipulation of Facts for the
approval of the Court upon your receipt hereof.
(Sgd.) MELECIO C. GUBA
(Sgd.) H. G. DAVIDE, JR.
The trial court on April 30, 1968, rendered a decision based on the
stipulation of facts, the dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby
rendered against the plaintiffs, dismissing the complaint insofar as the
defendant Alma Deiparine is concerned, but awarding to said
plaintiffs and against the other defendants Raga, jointly and severally,
the amount of ONE THOUSAND PESOS (P1,000.00), as moral
damages, and FIVE HUNDRED PESOS (P500.00) as attorney's fees. The
defendants Raga are likewise ordered to pay the costs.
Plaintiffs filed a motion for reconsideration and/or new trial and for
leave of court to admit an amended complaint which the lower court
in its order of August 26, 1968, denied. Hence, this appeal to the Court
of Appeals by Antonio Caballero and Concordia Caballero, which was
certified to this Court.
III. Discussion of Assigned Errors
Appellants assigned the following errors to have been committed by
the trial court:
1. The court a quo erred in finding that the appellants
submitted the stipulation of facts for its approval, the truth being that
they were never made to participate in the preparation and
information of said stipulation of facts;
2. The court a quo erred in finding that the stipulation of facts
bear the conformity of the appellants, the truth being that they never
gave their conformity to said stipulation of facts which was made the
basis of the appealed decision;
3. The court a quo erred in approving the stipulation of facts
which did not bear the conformity of the parties, particularly by
plaintiffs-appellants;
4. The court a quo erred in rendering a decision based only on
the stipulation of facts which did not state all the facts as borne by
the issues brought about in the complaint as well as in the answer,
nor did the stipulation of facts bear the conformity of plaintiffs-
appellants;
406 | P a g e

5. The court a quo erred in denying the plaintiffs-appellants'
motion for reconsideration;
6. The court a quo erred likewise in denying the admission of
plaintiffs-appellants' amended complaint.
Since the assigned errors are inter-related and revolve around the
basic issue of the legality of the Stipulation of Facts, they will be
discussed jointly for the sake of brevity.
A perusal of the stipulation of facts does not disclose any assent
and/or conformity to the same given by the plaintiffs-appellants. It
should be noted that the complaint is verified by plaintiff Antonio
Caballero who swore to the truth thereof before his counsel-notary-
public, Atty. Melecio C. Guba, although under the Rules, considering
the nature and subject matter of the complaint, it did not require any
verification. It should also be noted that the introductory paragraph
of said stipulation of facts clearly states that both parties were "duly
assisted" by their counsel, which seems to connote the idea that the
parties-litigants, particularly the plaintiffs-appellants, had actual
participation in the formulation of said stipulation of facts. But the
same stipulation of facts shows that plaintiffs-appellants, particularly
principal plaintiff Antonio Caballero, never signed the same. As to why
their counsel, particularly Atty. Melecio C. Guba for the plaintiffs, did
not require his clients to affix their signatures so as to show their
conformity and assent thereto, when he even required the same
principal plaintiff, Antonio Caballero, to verify the complaint has not
been explained and remains quite puzzling. The conduct of then
counsel for plaintiffs-appellants in entering into a compromise
agreement or stipulation of facts which practically confesses
judgment, without the consent and conformity of his clients, is not in
keeping with the sworn duty of a lawyer to protect the interest of his
clients. It is a groosly reprehensible act which amounts to fraud. The
stipulation of facts should not have been tolerated by the trial court
by giving its seal of approval thereto.
And to top it all, plaintiffs-appellants' counsel made the unauthorized
admission therein that principal defendant Alma Deiparine acquired
in good faith with a just title and for a valuable consideration the
whole of Lot 2072. Their counsel even admitted also in said document
that during the lifetime of Vicenta Bucao, she, with the conformity of
her husband, sold her undivided ½ of Lot 2072 to her co-owner Tomas
Raga. No document was ever shown to him by the Ragas in support
of this claim and the record do not disclose that there was such
document. On the contrary it is replete with implications that no such
sale was ever made.
Plaintiffs-appellants maintain that if given a chance they can prove
that principal defendant Alma Deiparine is a purchaser in bad faith
and her registration of the deed of sale executed by the Ragas did not
confer upon her any right under the law. The stipulation of facts which
was made the basis of the decision appealed from was null and void
as it contained serious unauthorized admissions against the interest
and claims of plaintiffs-appellants who had no hand in its preparation
and formulation. Hence the lower court should have set aside the
decision and admit the amended complaint so as to have the issues
properly ventilated.
Appellees on the other hand contend that the stipulation of facts was
entered into with full knowledge, consent and authority of all the
parties; that the same was executed after the parties through their
respective counsel had manifested at the pre-trial hearing on
February 3, 1968, that they were submitting a stipulation of facts; that
at the pre-trial all the parties were present and the stipulation of facts
was signed by counsel for and in behalf of their clients and strictly
within their authority to do so; and that it was entered into in good
faith on the basis of the true facts which could be established at the
trial.
The stipulation of facts in question appellees further continue, is a
matter of ordinary judicial Procedure as it relates to admission; that
no one is in a better position than the counsel to determine what facts
are to be established in a given case to support the theory of the case;
that he alone knows what facts he cannot established by the evidence
and what facts can be admitted without trial either because it to be
true as borne out by oral or documentary evidence he himself has on
hand or because he has no evidence to refute it; that it was within his
authority to make the stipulation for and in behalf of his client; that
in the instant cases, the complaint itself is barren of any allegation
that appellee Alma Deiparine is buyer in bad faith; that the allegations
in the complaint are directed only against the alleged false
misrepresentations of the defendants Tomas Raga, Olimpio Raga,
Adriano Raga and Magdalena Raga in the declaration of heirs; that the
complaint was prepared by Atty. Melecio C. Guba and as a lawyer of
good standing he is presumed to know the case and the nature of his
evidence, and his failure to allege such a material fact simply shows
lack of evidence to prove bad faith on the part of appellee Alma
Deiparine that no error nor mistake, much less, bad faith, attended
the admission made in the stipulation of facts that said appellee Alma
Deiparine purchase the property in good faith and for a valuable
consideration; that it was not necessary that the parties litigant
should sign the stipulation of facts which is nothing more than a
pleading containing judicial admission which the lawyer himself can
make.
Finally, appellees argue that the stipulation of facts clearly show that
Atty. Guba acted for and in behalf of his clients; that there is no
showing at all of absence of such authority, and that a client is bound
by the action of his counsel in the conduct of a case and he cannot be
heard to complain that the result might have been different had he
proceeded differently; that a client is bound by the mistakes of his
lawyer; that if such grounds were to be admitted as reasons for
reopening of cases, there would never be an end to a suit for as long
as new counsel could be employed who could allege and show that
prior counsel had not been sufficiently diligentor experienced or
learned; that even granting that Atty. Guba committed a mistake,
such a mistake is no ground for the reversal of the decision or re-
opening of the case; that plaintiffs' remedy is to proceed against his
counsel Atty. Guba, and that the lower court, therefore, did not err in
rendering the decision on the basis thereof and in denying the
motions for reconsideration and for amendment of the complaint.
After weighing the conflicting claims of the parties, We find merit in
the contention of plaintiffs-appellants. Antonio Caballero and
Concordia Caballero. A reading of the stipulation of facts convinces Us
that it is a compromise agreement of the parties. The stipulation
concludes with this prayer: "WHEREFORE, it is most respectfully
prayed that the foregoing Stipulation of Facts be approved and that a
407 | P a g e
decision be handed down on the legal issues submitted on the basis Costs against appellees.
of said Stipulation of Facts." Apparently it is intended to terminate the
case. Rule 138, Section 23 of the Rules of Court specifically provides Makalintal, C.J., Castro, Teehankee and Muñoz Palma JJ., concur.
that:
Makasiar J., is on leave.
Authority of attorneys to bind clients. — Attorneys have authority to
bind their clients in any case by any agreement in relation thereto
made in writing, and in taking appeals, and in all matters of ordinary
judicial procedure. But they cannot, without special authority,
compromise their client's litigation, or receive anything in discharge
of a client's claim but the full amount in cash. (Emphasis supplied)

It may be true that during the pre-trial hearing held on February 3,

1968, the parties concerned agreed to execute a stipulation of facts
but it does not mean that the respective counsels of the contending
parties can prepare a stipulation of facts the contents of which is
prejudicial to the interest of their clients and sign it themselves
without the intervention of their clients. In the case at bar, the then
counsel for plaintiffs-appellants, Atty. Melecio C. Guba, agreed that
defendant-appellee Alma Deiparine bought the land in question in
good faith and for a valuable consideration; that during the lifetime
of their mother Vicenta Bucao, she, with the conformity of her
husband, sold her undivided ½ of the land in question to her co-owner
and son, Tomas Raga. All these adverse facts were made the basis of
the appealed decision against the plaintiffs. No further evidence was
presented as there was no hearing. The attorney for the plaintiffs in
making such admission went beyond the scope of his authority as
counsel and practically gave away the plaintiffs' case. The admission
does not refer to a matter of judicial procedure related to the
enforcement of the remedy. It related to the very subject matter of
the cause of action, or to a matter on which the client alone can make
the admission binding on him. In Belandres vs. Lopez Sugar Central
Mill Co., Inc., L-6869, May 27, 1955; 97 Phil. 100, 104, 105, it was held
that:

The broad implied or apparent powers of an attorney with respect to

the conduct or control of litigation are, however, limited to matters
which relate only to the procedure or remedy. The employment of
itself confers upon the attorney no implied or power or authority over
the subject matter of the cause of action or defense; and, unless the
attorney has expressly been granted authority with respect thereto,
the power to deal with or surrender these matters is regarded as
remaining exlusively in the client.

The line of demarcation between the respective rights and powers of

an attorney and his client is clearly defined. The cause of action, the
claim or demand sued upon, and the subject matter of the litigation
are all within the exclusive control of a client, and an attorney may
not impair, compromise, settle, surrender, or destroy them without
his client's consent. But all the proceedings in court to enforce the
remedy, to bring the claim, demand, cause of action, or subject
matter of the suit to hearing, trial, determination, judgment, and
execution, are within the exclusive control of the attorney. (Emphasis
supplied)

FOR ALL THE FOREGOING, the decision appealed from is hereby set
aside and this case shall be remanded to the court a quo for further
proceedings in consonance with the opinion above set forth, and to
admit the amended complaint submitted by the plaintiffs.

408 | P a g e
22. 29 SCRA 303
G.R. No. L-24765 August 29, 1969
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
MAXIMO STA. MARIA, ET AL., defendant,
VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA, all
surnamed STA. MARIA, defendants-appellants.
Tomas Besa and Jose B. Galang for plaintiff-appellee.
G.P. Nuguid, Jr. for defendants-appellants.
TEEHANKEE, J.:
In this appeal certified to this Court by the Court of Appeals as
involving purely legal issues, we hold that a special power of attorney
to mortgage real estate is limited to such authority to mortgage and
does not bind the grantor personally to other obligations contracted
by the grantee, in the absence of any ratification or other similar act
that would estop the grantor from questioning or disowning such
other obligations contracted by the grantee.
Plaintiff bank filed this action on February 10, 1961 against defendant
Maximo Sta. Maria and his six brothers and sisters, defendants-
appellants, Valeriana, Emeteria, Teofilo, Quintin, Rosario and Leonila,
all surnamed Sta. Maria, and the Associated Insurance & Surety Co.,
Inc. as surety, for the collection of certain amounts representing
unpaid balances on two agricultural sugar crop loans due allegedly
from defendants. 1
The said sugar crop loans were obtained by defendant Maximo Sta.
Maria from plaintiff bank under a special power of attorney, executed
in his favor by his six brothers and sisters, defendants-appellants
herein, to mortgage a 16-odd hectare parcel of land, jointly owned by
all of them, the pertinent portion of which reads as follows:
That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and
LEONILA all surnamed STA. MARIA, sole heirs of our deceased parents
CANDIDO STA. MARIA and FRANCISCA DE LOS REYES, all of legal age,
Filipinos, and residents of Dinalupihan, Bataan, do hereby name,
constitute and appoint Dr. MAXIMO STA. MARIA, of legal age,
married, and residing at Dinalupihan, Bataan to be our true and lawful
attorney of and in our place, name and stead to mortgage, or convey
as security to any bank, company or to any natural or juridical person,
our undivided shares over a certain parcel of land together the
improvements thereon which parcel of land is more particularly
described as follows, to wit:
"Situated in the Barrio of Pinulot, Municipality of Dinalupihan, Bataan,
containing an area of 16.7249 hectares and bounded as follows to wit:
North by property of Alejandro Benito; on the Northeast, by public
land and property of Tomas Tulop; on the southeast, by property of
Ramindo Agustin; on the southwest, by properties of Jose V. Reyes
and Emilio Reyes; and on the northwest, by excluded portion claimed
by Emilio Reyes."
of which parcel of land aforementioned we are together with our said
attorney who is our brother, the owners in equal undivided shares as
evidenced by Transfer Certificate of Title No. T-2785 of the Registry of
Deeds of Bataan dated Feb. 26th 1951. (Exh. E)2
In addition, Valeriana Sta. Maria alone also executed in favor of her
brother, Maximo, a special power of attorney to borrow money and
mortgage any real estate owned by her, granting him the following
authority:
For me and in my name to borrow money and make, execute, sign
and deliver mortgages of real estate now owned by me standing in
my name and to make, execute, sign and deliver any and all
promissory notes necessary in the premises. (Exh. E-I)3
By virtue of the two above powers, Maximo Sta. Maria applied for two
separate crop loans, for the 1952-1953 and 1953-1954 crop years,
with plaintiff bank, one in the amount of P15,000.00, of which only
the sum of P13,216.11 was actually extended by plaintiff, and the
other in the amount of P23,000.00, of which only the sum of
P12,427.57 was actually extended by plaintiff. As security for the two
loans, Maximo Sta. Maria executed in his own name in favor of
plaintiff bank two chattel mortgages on the standing crops,
guaranteed by surety bonds for the full authorized amounts of the
loans executed by the Associated Insurance & Surety Co., Inc. as
surety with Maximo Sta. Maria as principal. The records of the crop
loan application further disclose that among the securities given by
Maximo for the loans were a "2nd mortgage on 25.3023 Has. of
sugarland, including sugar quota rights therein" including, the parcel
of land jointly owned by Maximo and his six brothers and sisters
herein for the 1952-1953 crop loan, with the notation that the bank
already held a first mortgage on the same properties for the 1951-
1952 crop loan of Maximo, 4 and a 3rd mortgage on the same
properties for the 1953-1954 crop loan. 5
The trial court rendered judgment in favor of plaintiff and against
defendants thus:1äwphï1.ñët
WHEREFORE premises considered, judgment is hereby rendered
condemning the defendant Maximo R. Sta. Maria and his co-
defendants Valeriana, Quintin, Rosario, Emeteria, Teofilo, and Leonila
all surnamed Sta. Maria and the Associated Insurance and Surety
Company, Inc., jointly and severally, to pay the plaintiff, the Philippine
National Bank, Del Carmen Branch, as follows:
1. On the first cause of action, the sum of P8,500.72 with a daily
interest of P0.83 on P6,100.00 at 6% per annum beginning August 21,
1963 until fully paid;
2. On the second cause of action, the sum of P14,299.79 with a daily
interest of P1.53 on P9,346.44 at 6% per annum until fully paid; and
3. On both causes of action the further sum equivalent to 10% of the
total amount due as attorney's fee as of the date of the execution of
this decision, and the costs.6
Defendant Maximo Sta. Maria and his surety, defendant Associated
Insurance & Surety Co., Inc. who did not resist the action, did not
appeal the judgment. This appeals been taken by his six brothers and
sisters, defendants-appellants who reiterate in their brief their main
contention in their answer to the complaint that under this special
power of attorney, Exh. E, they had not given their brother, Maximo,
the authority to borrow money but only to mortgage the real estate
jointly owned by them; and that if they are liable at all, their liability
409 | P a g e
should not go beyond the value of the property which they had
authorized to be given as security for the loans obtained by Maximo.
In their answer, defendants-appellants had further contended that
they did not benefit whatsoever from the loans, and that the plaintiff
bank's only recourse against them is to foreclose on the property
which they had authorized Maximo to mortgage.
We find the appeal of defendants-appellants, except for defendant
Valeriana Sta. Maria who had executed another special power of
attorney, Exh. E-1, expressly authorizing Maximo to borrow money on
her behalf, to be well taken.
1. Plaintiff bank has not made out a cause of action against
defendants-appellants (except Valeriana), so as to hold them liable
for the unpaid balances of the loans obtained by Maximo under the
chattel mortgages executed by him in his own name alone. In the
early case of Bank of P.I. vs. De Coster, this Court, in holding that the
broad power of attorney given by the wife to the husband to look
after and protect the wife's interests and to transact her business did
not authorize him to make her liable as a surety for the payment of
the pre-existing debt of a third person, cited the fundamental
construction rule that "where in an instrument powers and duties are
specified and defined, that all of such powers and duties are limited
andconfined to those which are specified and defined, and all other
powers and duties are excluded." 7 This is but in accord with the
disinclination of courts to enlarge an authority granted beyond the
powers expressly given and those which incidentally flow or derive
therefrom as being usual or reasonably necessary and proper for the
performance of such express powers. Even before the filing of the
present action, this Court in the similar case of De Villa vs. Fabricante
8 had already ruled that where the power of attorney given to the
husband by the wife was limited to a grant of authority to mortgage
a parcel of land titled in the wife's name, the wife may not be held
liable for the payment of the mortgage debt contracted by the
husband, as the authority to mortgage does not carry with it the
authority to contract obligation. This Court thus held in the said case:
Appellant claims that the trial court erred in holding that only Cesario
A. Fabricante is liable to pay the mortgage debt and not his wife who
is exempt from liability. The trial court said: "Only the defendant
Cesario A. Fabricante is liable for the payment of this amount because
it does not appear that the other defendant Maria G. de Fabricante
had authorized Cesario A. Fabricante to contract the debt also in her
name. The power of attorney was not presented and it is to be
presumed that the power (of attorney) was limited to a grant of
authority to Cesario A. Fabricante to mortgage the parcel of land
covered by Transfer Certificate of Title in the name of Maria G. de
Fabricante.
We went over the contents of the deed of mortgage executed by
Cesario Fabricante in favor of Appellant on April 18, 1944, and there
is really nothing therein from which we may infer that Cesario was
authorized by his wife to construct the obligation in her name. The
deed shows that the authority was limited to the execution of the
mortgage insofar as the property of the wife is concerned. There is a
difference between authority to mortgage and authority to contract
obligation. Since the power of attorney was not presented as
evidence, the trial court was correct in presuming that the power was
merely limited to a grant of authority to mortgage unless the contrary
is shown.9
2. The authority granted by defendants-appellants (except Valeriana)
unto their brother, Maximo, was merely to mortgage the property
jointly owned by them. They did not grant Maximo any authority to
contract for any loans in their names and behalf. Maximo alone, with
Valeriana who authorized him to borrow money, must answer for said
loans and the other defendants-appellants' only liability is that the
real estate authorized by them to be mortgaged would be subject to
foreclosure and sale to respond for the obligations contracted by
Maximo. But they cannot be held personally liable for the payment of
such obligations, as erroneously held by the trial court.
3. The fact that Maximo presented to the plaintiff bank Valeriana's
additional special power of attorney expressly authorizing him to
borrow money, Exh. E-1, aside from the authority to mortgage
executed by Valeriana together with the other defendants-appellants
also in Maximo's favor, lends support to our view that the bank was
not satisfied with the authority to mortgage alone. For otherwise,
such authority to borrow would have been deemed unnecessary and
a surplusage. And having failed to require that Maximo submit a
similar authority to borrow, from the other defendants-appellants,
plaintiff, which apparently was satisfied with the surety bond for
repayment put up by Maximo, cannot now seek to hold said
defendants-appellants similarly liable for the unpaid loans. Plaintiff's
argument that "a mortgage is simply an accessory contract, and that
to effect the mortgage, a loan has to be secured" 10 falls, far short of
the mark. Maximo had indeed, secured the loan on his own account
and the defendants-appellants had authorized him to mortgage their
respective undivided shares of the real property jointly owned by
them as security for the loan. But that was the extent of their
authority land consequent liability, to have the real property answer
for the loan in case of non-payment. It is not unusual in family and
business circles that one would allow his property or an undivided
share in real estate to be mortgaged by another as security, either as
an accommodation or for valuable consideration, but the grant of
such authority does not extend to assuming personal liability, much
less solidary liability, for any loan secured by the grantee in the
absence of express authority so given by the grantor.
4. The outcome might be different if there had been an express
ratification of the loans by defendants-appellants or if it had been
shown that they had been benefited by the crop loans so as to put
them in estoppel. But the burden of establishing such ratification or
estoppel falls squarely upon plaintiff bank. It has not only failed to
discharge this burden, but the record stands undisputed that
defendant-appellant Quintin Sta. Maria testified that he and his co-
defendants executed the authority to mortgage "to accommodate
(my) brother Dr. Maximo Sta. Maria ... and because he is my brother,
I signed it to accommodate him as security for whatever he may apply
as loan. Only for that land, we gave him as, security" and that "we
brothers did not receive any centavo as benefit." 11 The record
further shows plaintiff bank itself admitted during the trial that
defendants-appellants "did not profit from the loan" and that they
"did not receive any money (the loan proceeds) from (Maximo)." 12
No estoppel, therefore, can be claimed by plaintiff as against
defendants-appellants.
5. Now, as to the extent of defendant Valeriana Sta. Maria's liability
to plaintiff. As already stated above, Valeriana stands liable not
merely on the mortgage of her share in the property, but also for the
410 | P a g e
loans which Maximo had obtained from plaintiff bank, since she had 9Id., at 673-674, emphasis supplied.
expressly granted Maximo the authority to incur such loans. (Exh. E-
1.) Although the question has not been raised in appellants' brief, we 10Appellee's Brief, p. 15.
hold that Valeriana's liability for the loans secured by Maximo is not
joint and several or solidary as adjudged by the trial court, but only 11T.S.N., August 12, 1963, pp. 40-41.
joint, pursuant to the provisions of Article 1207 of the Civil Code that
"the concurrence ... of two or more debtors in one and the same 12T.S.N., August 23, 1963, p. 55.
obligation does not imply that ... each one of the (debtors) is bound
to render entire compliance with the prestation. There is a solidary
liability only when the obligation expressly so states, or when the law
or the nature of the obligation requires solidarity." It should be noted
that in the additional special power of attorney, Exh. E-1, executed by
Valeriana, she did not grant Maximo the authority to bind her
solidarity with him on any loans he might secure thereunder.

6. Finally, as to the 10% award of attorney's fees, this Court believes

that considering the resources of plaintiff bank and the fact that the
principal debtor, Maximo Sta. Maria, had not contested the suit, an
award of five (5%) per cent of the balance due on the principal,
exclusive of interests, i.e., a balance of P6,100.00 on the first cause of
action and a balance of P9,346.44 on the second cause of action, per
the bank's statements of August 20, 1963, (Exhs. Q-1 and BB-1,
respectively) should be sufficient.

WHEREFORE, the judgment of the trial court against defendants-

appellants Emeteria, Teofilo, Quintin, Rosario and Leonila, all
surnamed Sta. Maria is hereby reversed and set aside, with costs in
both instances against plaintiff. The judgment against defendant-
appellant Valeriana Sta. Maria is modified in that her liability is held
to be joint and not solidary, and the award of attorney's fees is
reduced as set forth in the preceding paragraph, without costs in this
instance.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro,

Fernando, Capistrano and Barredo, JJ., concur.
1äwphï1.ñët Reyes, J.B.L., J., is on official leave.

Footnotes

1The original complaint included apparently another sister by the

name of Elena, Rec. on App., p. 2, but this is the only mention of Elena
in the record. She appears not to have been summoned and no
answer was filed in her behalf. No judgment was rendered against
Elena; she did not execute the power of attorney in question, and for
all purposes, she is not a party hereto.

2Rec. on App., 14-15, emphasis supplied.

3Rec. on App., pp. 19-20, emphasis supplied.

4Exh. A.

5Exh. R.

6Rec. on Appeal, pp. 156-157.

749 Phil. 574 (1926); 47 Phil. 594, 613 (1925).

8105 Phil. 672, (April 30, 1959).

411 | P a g e
23. 211 SCRA 112
G.R. No. 102998 July 5, 1996
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and ROBERTO M. REYES, respondents.
VITUG, J.:p
The case at bar is a suit for replevin and damages. The petition for
review on certiorari assails the decision of the Court of Appeals1 in
CA-G.R. CV No. 23605 affirming that of the Regional Trial Court of
Manila, Branch
XX,2 which has disposed of its Civil Case No. 87-42270 in this wise:
WHEREFORE, the case against defendant-spouses (sic) Reynaldo
Manahan is hereby dismissed without prejudice, for failure to
prosecute. Plaintiff having failed to show the liability of defendant
John Doe in the person of Roberto M. Reyes, the case against the
latter should likewise be dismissed. Moreover, plaintiff is hereby
directed to return the vehicle seized by virtue of the order of seizure
issued by this Court with all its accessories to the said Roberto M.
Reyes.3
The decisions of both the appellate court and the court a quo are
based on a like finding of the facts hereinafter briefly narrated.
The spouses Reynaldo and Florencia Manahan executed, on 15 May
1980, a promissory note4 binding themselves to pay Carmasters, Inc.,
the amount of P83,080.00 in thirty-six monthly installments
commencing 01 July 1980. To secure payment, the Manahan spouses
executed a deed of chattel mortgage5 over a motor vehicle, a Ford
Cortina 1.6 GL, with motor and serial number CUBFWE-801010.
Carmasters later assigned6 the promissory note and the chattel
mortgage to petitioner BA Finance Corporation with the conformity
of the Manahans. When the latter failed to pay the due installments,
petitioner sent demand letters. The demands not having been
heeded, petitioner, on 02 October 1987, filed a complaint for replevin
with damages against the spouses, as well as against a John Doe,
praying for the recovery of the vehicle with an alternative prayer for
the payment of a sum of money should the vehicle not be returned.
Upon petitioner's motion and the filing of a bond in the amount of
P169,161.00 the lower court issued a writ of replevin. The court,
however, cautioned petitioner that should summons be not served
on the defendants within thirty (30) days from the writ's issuance, the
case would be dismissed to failure to prosecute.7 The warning was
based on what the court perceived to be the deplorable practice of
some mortgagees of "freezing (the) foreclosure or replevin cases"
which they would so "conveniently utilize as a leverage for the
collection of unpaid installments on mortgaged chattels."8
The service of summons upon the spouses Manahan was caused to
be served by petitioner at No. 35 Lantana St., Cubao, Quezon City. The
original of the summons had the name and the signature of private
respondent Roberto M. Reyes indicating that he received, on 14
October 1987, a copy of the summons and the complaint.9 Forthwith,
petitioner, through its Legal Assistant, Danilo E. Solano, issued a
certification to the effect that it had received from Orson R. Santiago,
the deputy sheriff of the Regional Trial Court of Manila, Branch 20,
the Ford Cortina seized from private respondent Roberto M. Reyes,
the John Doe referred to in the complaint, 10 in Sorsogon, Sorsogon.
11 On 20 October 1987, the lower court came out with an order of
seizure.
Alleging possession in good faith, private respondent filed, on 26
October 1987, a motion for an extension of time within which to file
his answer and/or a motion for intervention. The court granted the
motion.
A few months later, or on 18 February 1988, the court issued an order
which, in part, stated:
Perusal of the record shows that an order for the seizure of personal
property was issued on October 20, 1987 in pursuance to a previous
order of the Court dated October 13, 1987. However, to date, there is
no showing that the principal defendants were served with summons
inspite of the lapse of four (4) months.
Considering, this is a replevin case and to forestall the evils that arise
from this practice, plaintiff failing to heed the Order dated October
13, 1987, particularly second paragraph thereof, the above-entitled
case is hereby ordered DISMISSED for failure to prosecute and further
ordering the plaintiff to return the property seized with all its
accessories to defendant John Doe in the person of Roberto M. Reyes.
SO ORDERED. 12
On 26 February 1988, petitioner filed a notice of dismissal of the case
"without prejudice and without pronouncement as to costs, before
service of Summons and Answer, under Section 1, Rule 17, of the
Rules of Court." 13 It also sought in another motion the withdrawal of
the replevin bond. In view of the earlier dismissal of the case (for
petitioner's failure to prosecute), the court, on 02 March 1988, merely
noted the notice of dismissal and denied the motion to withdraw the
replevin bond considering that the writ of replevin had meanwhile
been implemented. 14
On 09 March 1988, private respondent filed a motion praying that
petitioner be directed to comply with the court order requiring
petitioner to return the vehicle to him. In turn, petitioner filed, on 14
March 1988, a motion for the reconsideration of the orders of 18
February 1988 and 02 March 1988 contending that: (a) the dismissal
of the case was tantamount to adjudication on the merits that
thereby deprived it with the remedy to enforce the promissory note,
the chattel mortgage and the deed of assignment, under Section 3,
Rule 117, of the Rules of Court; (b) the order to return the vehicle to
private respondent was a departure from jurisprudence recognizing
the right of the mortgagor to foreclose the property to respond to the
unpaid obligation secured by the chattel mortgage, and (c) there were
no legal and factual bases for the court's view that the filing of the
replevin case was "characterized (by) evil practices." 15
On 20 April 1988, the court granted petitioner's motion for
reconsideration and accordingly recalled the order directing the
return of the vehicle to private respondent, set aside the order
dismissing the case, directed petitioner "to cause the service of
summons together with a copy of the complaint on the principal
defendants within five (5) days from receipt" 16 thereof at
412 | P a g e
petitioner's expense, and ordered private respondent to answer the
complaint.
A few months later, or on 02 August 1988, petitioner filed a motion
to declare private respondent in default. The court granted the
motion on that same day and declared private respondent "in default
for his failure to file the . . . answer within the reglementary period."
17 The court likewise granted petitioner's motion to set the case for
the presentation, ex parte, of evidence. Petitioner, thereupon,
submitted the promissory note, the deed of chattel mortgage, the
deed of assignment, a statement of account in the name of Florencia
Manahan and two demand letters.
On 27 February 1989, the trial court rendered a decision dismissing
the complaint against the Manahans for failure of petitioner to
prosecute the case against them. It also dismissed the case against
private respondent for failure of petitioner to show any legal basis for
said respondent's liability. The court ratiocinated:
. . . . Roberto M. Reyes is merely ancillary debtor in this case. The
defendant spouses Manahan being the principal debtor(s) and as
there is no showing that the latter has been brought before the
jurisdiction of this court, it must necessarily follow that the plaintiff
has no cause of action against said Roberto M. Reyes herein before
referred to as defendant John Doe. Under the circumstances, it is
incumbent upon the plaintiff to return the seized vehicle unto the said
Roberto M. Reyes. 18
In its appeal to the Court of Appeals, petitioner has asserted that a
suit for replevin aimed at the foreclosure of the chattel is an action
quasi in rem which does not necessitate the presence of the principal
obligors as long as the court does not render any personal judgment
against them. This argument did not persuade the appellate court, the
latter holding that —
. . . . In action quasi in rem an individual is named as defendant and
the purpose of the proceeding is to subject his interest therein to the
obligation or lien burdening the property, such as proceedings having
for their sole object the sale or disposition of the property of the
defendant, whether by attachment, foreclosure, or other form of
remedy (Sandejas vs. Robles, 81 Phil. 421). In the case at bar, the court
cannot render any judgment binding on the defendants spouses for
having allegedly violated the terms and conditions of the promissory
note and the contract of chattel mortgage on the ground that the
court has no jurisdiction over their persons no summons having been
served on them. That judgment, it rendered, is void for having denied
the defendants spouses due process of law which contemplates
notice and opportunity to be heard before judgment is rendered,
affecting one's person or property (Macabingkil vs. Yatco, 26 SCRA
150, 157).
It is next contended by appellant that as between appellant, as
mortgagee, and John Doe, whose right to possession is dubious if not
totally non-existent, it is the former which has the superior right of
possession.
We cannot agree.
It is an undisputed fact that the subject motor vehicle was taken from
the possession of said Roberto M. Reyes, a third person with respect
to the contract of chattel mortgage between the appellant and the
defendants spouses Manahan.
The Civil Code expressly provides that every possessor has a right to
be respected in his possession (Art. 539, New Civil Code); that good
faith is always presumed, and upon him who alleges bad faith on the
part of a possessor rests the burden of proof (Art. 527, ibid.); and that
the possession of movable property acquired in good faith is
equivalent to a title; nevertheless, one who has lost any movable or
has been unlawfully deprived thereof, may recover it from the person
in possession of the same (Art. 559, ibid.). Thus, it has been held that
a possessor in good faith is entitled to be respected and protected in
his possession as if he were the true owner thereof until a competent
court rules otherwise (Chus Hai vs. Kapunan, 104 Phil. 110; Yu, et al.
vs. Hon. Honrado, etc., et al., 99 SCRA 237). In the case at bar, the trial
court did not err in holding that the complaint does not state any
cause of action against Roberto M. Reyes, and in ordering the return
of the subject chattel to him. 19
The appellate court, subsequently, denied petitioner's motion for
reconsideration.
In the instant appeal, petitioner insists that a mortgagee can maintain
an action for replevin against any possessor of the object of a chattel
mortgage even if the latter were not a party to the mortgage.
Replevin, broadly understood, is both a form of principal remedy and
of a provisional relief. It may refer either to the action itself, i.e., to
regain the possession of personal chattels being wrongfully detained
from the plaintiff by another, or to the provisional remedy that would
allow the plaintiff to retain the thing during the pendency of the
action and hold it pendente lite. 20 The action is primarily possessory
in nature and generally determines nothing more than the right of
possession. Replevin is so usually described as a mixed action, being
partly in rem and partly in personam — in rem insofar as the recovery
of specific property is concerned, and in personam as regards to
damages involved. As an "action in rem," the gist of the replevin
action is the right of the plaintiff to obtain possession of specific
personal property by reason of his being the owner or of his having a
special interest therein. 21 Consequently, the person in possession of
the property sought to be replevied is ordinary the proper and only
necessary party defendant, and the plaintiff is not required to so join
as defendants other persons claiming a right on the property but not
in possession thereof. Rule 60 of the Rules of Court allows an
application for the immediate possession of the property but the
plaintiff must show that he has a good legal basis, i.e., a clear title
thereto, for seeking such interim possession.
Where the right of the plaintiff to the possession of the specific
property is so conceded or evident, the action need only be
maintained against him who so possesses the property. In rem actio
est per quam rem nostram quae ab alio possidetur petimus, et
semper adversus eum est qui rem possidet. In Northern Motors, Inc.
vs. Herrera, 22 the Court has said:
There can be no question that persons having a special right of
property in the goods the recovery of which is sought; such as a
chattel mortgagee, may maintain an action for replevin therefor.
Where the mortgage authorizes the mortgagee to take possession of
the property on default, he may maintain an action to recover
413 | P a g e
possession of the mortgaged chattels from the mortgagor or from any
person in whose hands he may find them. 23
In effect then, the mortgagee, upon the mortgagor's default, is
constituted an attorney-in-fact of the mortgagor enabling such
mortgagee to act for and in behalf of the owner. Accordingly, that the
defendant is not privy to the chattel mortgage should be
inconsequential. By the fact that the object of replevin is traced to his
possession, one properly can be a defendant in an action for replevin.
It is here assumed that the plaintiffs right to possess the thing is not
or cannot be disputed.
In case the right of possession on the part of the plaintiff, or his
authority to claim such possession or that of his principal, is put to
great doubt (a contending party might contest the legal bases for
plaintiffs cause of action or an adverse and independent claim of
ownership or right of possession is raised by that party), it could
become essential to have other persons involved and accordingly
impleaded for a complete determination and resolution of the
controversy. For instance, in Servicewide Specialists, Inc., vs. Court of
Appeals, et al., G.R. No. 103301, 08 December 1995, this Court ruled.
While, in its present petition for review on certiorari, Servicewide has
raised a number of points, the crucial issue still remains, however, to
be whether or not an action filed by the mortgagee for replevin to
effect a foreclosure of the property covered by the chattel mortgage
would require that the mortgagor be so impleaded as an
indispensable party thereto.
Rule 60 of the Rules of Court allows a plaintiff, in an action for the
recovery of possession of personal property, to apply for a writ of
replevin if it can be shown that he is the owner of the property
claimed . . . or is entitled to the possession thereof.' The plaintiff need
not be the owner so long as he is able to specify his right to the
possession of the property and his legal basis therefor. The question
then, insofar as the matter finds relation to the instant case, is
whether or not the plaintiff (herein petitioner) who has predicated his
right on being the mortgagee of a chattel mortgage should implead
the mortgagor in his complaint that seeks to recover possession of the
encumbered property in order to effect its foreclosure.
The answer has to be in the affirmative. In a suit for replevin, a clear
right of possession must be established. A foreclosure under a chattel
mortgage may properly be commenced only once there is default on
the part of the mortgagor of his obligation secured by the mortgage.
The replevin in the instant case has been sought to pave the way for
the foreclosure of the object covered by the chattel mortgage. The
conditions essential for that foreclosure would be to show, firstly, the
existence of the chattel mortgage and, secondly, the default of the
mortgagor. These requirements must be established since the validity
of the plaintiffs exercise of the right of foreclosure are inevitably
dependent thereon. It would thus seem, considering particularly an
adverse and independent claim of ownership by private respondent
that the lower court acted improvidently when it granted the
dismissal of the complaint against Dollente, albeit on petitioner's
(then plaintiff) plea, on the ground that the "non-service of summons
upon Ernesto Dollente (would) only delay the determination of the
merits of the case, to the prejudice of the parties." In Imson v. Court
of Appeals, we have explained:
. . . . An indispensable party is one whose interest will be affected by
the court's action in the litigation, and without whom no final
determination of the case can be had. The party's interest in the
subject matter of the suit and in the relief sought are so inextricably
intertwined with the other parties' that his legal presence as a party
to the proceeding is an absolute necessity. In his absence there
cannot be a resolution of the dispute of the parties before the court
which is effective, complete, or equitable.
Conversely, a party is not indispensable to the suit if his interest in the
controversy or subject matter is distinct and divisible from the
interest of the other parties and will not necessarily be prejudiced by
a judgment which does complete justice to the parties in court. He is
not indispensable if his presence would merely permit complete relief
between him and those already parties to the action or will simply
avoid multiple litigation.
Without the presence of indispensable parties to a suit or proceeding,
a judgment of a court cannot attain real finality. (Footnotes omitted.)
A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to
the possession of the property unless and until the mortgagor
defaults and the mortgagee thereupon seeks to foreclose thereon.
Since the mortgagee's right of possession is conditioned upon the
actual fact of default which itself may be controverted, the inclusion
of other parties like the debtor or the mortgagor himself, may be
required in order to allow a full and conclusive determination of the
case. When the mortgagee seeks a replevin in order to effect the
eventual foreclosure of the mortgage, it is not only the existence of,
but also the mortgagor's default on, the chattel mortgage that, among
other things, can properly uphold the right to replevy the property.
The burden to establish a valid justification for that action lies with
the plaintiff. An adverse possessor, who is not the mortgagor, cannot
just be deprived of his possession, let alone be bound by the terms of
the chattel mortgage contract, simply because the mortgagee brings
up an action for replevin.
The appellate court, accordingly, acted well in arriving at its now
questioned judgment.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED No
costs.
SO ORDERED.
Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.
414 | P a g e
24. 53 Phil 205
G.R. No. L-30181 July 12, 1929
THE DIRECTOR OF PUBLIC WORKS, plaintiff-appellee,
vs.
SING JUCO, ET AL., defendants.
SING JUCO, SING BENGCO and PHILIPPINE NATIONAL BANK,
appellants.
Roman J. Lacson for appellant National Bank.
Soriano and Nepomuceno for appellants Sing Juco and Sing Bengco.
Attorney-General Jaranilla for appellee.
STREET, J.:
From Torrens certificate of title No. 1359 relating to land in the
municipality of Iloilo, it appears that on September 28, 1920, the title
of the property described therein was owned, in undivided shares, by
Mariano de la Rama, Gonzalo Mariano Tanboontien, Sing Juco and
Sing Bengco. The interest vested by said certificate in Mariano de la
Rama was subsequently transferred to sale to Enrique Enchaus. It
further appears that on November 23, 1020, the owners of the
property covered by the said certificate conveyed it by way of a
mortgage to the Philippine National Bank for the purpose of securing
a credit in current account in a mount not in excess of P170,000, with
interest at a rate of 12 percent per annum. The indebtedness covered
by this mortgage has not been satisfied, and upon the date of the
decision of the court below it amounted to the sum of P170,000, plus
interest at 12 percent per annum from November 24, 1920.
The land above referred to contains an area of nearly 16 hectares, or
to be exact, 158,589.44 square meters according to the certificate. It
is located on "Point Llorente" at the mouth of Iloilo river, near the City
of Iloilo, and it is of so low a level that, prior to the improvement to
which reference is to be made, it was subject to frequent flooding. In
1921, the Government of the Philippine Islands was planning
extensive harbor improvements in this vicinity, requiring extensive
dredging by the Bureau of Public Works in the mouth of said river. The
conduct of these dredging operations made it necessary for the
Director of Public Works to find a place of deposit for the dirt and mud
taken from the place, or places, dredged. As the land already referred
to was low and easily accessible to the spot where dredging was to be
conducted, it was obviously for the interest of the Government and
the said owners of the land that the material taken out by the dredges
should be deposited on the said property. Accordingly, after
preliminary negotiations to this effect have been conducted, a
contract was made between the Director of Public Works,
representing the Government of the Philippine Islands, and the four
owners, M. de la Rama, Sing Juco, G. M. Tanboontien, and Seng
Bengco, of which, as modified by some respects by subsequent
agreement, the following features are noteworthy.
(1) The Bureau of Public Works agreed to deposit the material to be
dredged by it from the Iloilo River, in connection with the contempted
improvement, upon the lot of the land, already described as covered
by certificate No. 1359, at a price to be determined at the actual cost
of the filling, with certain surcharges to be determined by the Director
of Public Works. It was contemplated in the original draft of the
contract that the Bureau would be able to furnish some 250,000 cubic
meters of dredged material for filling in the land, was limited to the
material which should be dredged from the river as a result of the
proposed improvement. To this stipulation the four owners of the
property assented on March 14, 1921.
(2) With respect to the compensation it was agreed that the amount
due should be determined by the Director of Public Works, under
certain conditions mentioned in the contract, of an amount of not less
that 20 nor more than 75 centavos per cubic meter. It was further
agreed that, when the work should be finished, the cost thereof
should be paid by the owners in 5 annual installments and that for
failure to pay such installment the whole of the amount thereafter to
accrue should become at once due. This contract was noted in the
Torrens certificate of title on January 8, 1924.
In connection with the making of the contract abovementioned, the,
Director of Public Works required a bond to be supplied by the owners
in the penal amount of P150,000, approximately twice the estimated
cost of the filling, conditioned for the payment of the amount due
from the owners. This bond was executed contemporaneously with
the main contract; and in connection therewith it should be noted
that one of the names appearing upon said contract was that of "Casa
Viuda de Tan Toco," purporting to be signed by M. de la Rama.
The dredging operation were conducted by the Bureau of Public
Works in substantial accomplice, we find, with the terms of said
agreement; and after the account with the owners were liquidated
and the amount due from them determined, demand was made upon
them for the payment of the first installment. No such payment was,
however, made as a consequence this action was instituted by the
Director of Public Works on October 14, 1926, for the purpose of
recovering the amount due to the Government under the contract
from the original owners of the property from the sureties whose
names were signed to the contract of suretyship, and to enforce the
obligation as a real lien upon the property. In said action the
Philippine National Bank was made a party defendant, as having an
interest under its prior mortgage upon the property, while Enrique
Enchaus was made defendant as successor in interest of M. de la
Rama, and Tan Ong Sze widow of Tan Toco, was also made defendant
by reason of her supposed liability derived from the act of De la Rama
in signing the firm "Casa Viuda de Tan Toco" as a surety on bond. It
was noteworthy that in the complaint it was asked that, in the
enforcement of the government's lien, the property should be sold
"subject to the first mortgage in favor of the Philippine National
Bank."
To this complaint different defenses were set up, as follows: On behalf
of the owners of the property, it was contended that the government
has not complied with that contract, in that dredged material
deposited on the land had not been sufficient in quantity to raise the
level of the land above high water, and that, as a consequence, the
land had not been much benefited. It is therefore asserted that the
owners of the property are not obligated to pay the filling operation.
These defendants sought to recover further damages by way of cross-
complaint for the same supposed breach of contract on the part of
the Government. On the part of Viuda de Tan Toco the defense was
interposed that the name "Casa Viuda de Tan Toco" signed to the
contract of suretyship by Mariano de la Rama was signed without
authority; while on the part of the Philippine National Bank was
asserted that the mortgage credit pertaining to the bank is superior
to the Governments lien for improvement, and by way of
415 | P a g e
counterclaim the bank asked that its mortgage be foreclosed for the
amount of its mortgage credit, and that the four mortgagors, Sing
Juco, Sing Bengco, M. de la Rama and G.M. Tanboontien, be required
to pay the amount due to the bank, and that in case of their failure to
do so the mortgaged property should be sold and the proceeds paid
preferentially to the bank upon its mortgage.
Upon hearing the cause the trial court, ignoring that part of the
original complaint wherein the Government seeks to enforce its lien
in subordination to its first mortgage, made pronouncements:
(1) Declaring Sing Juco, Sing Bengco, M. de la Rama and G. M.
Tanboontien indebted to the Government in the amount of P70, 938,
with interest from the date of the filing of the complaint, and
requiring them to pay the said sum to the plaintiff;
(2) Declaring, in effect, that the lien of the Government for the filing
improvement was superior to the mortgage of the Philippine National
Bank; and finally
(3) Declaring the defendant Tan Ong Sze, Viuda de Tan Toco,
personally liable upon the contract of suretyship, in case the four
principal obligors should not satisfy their indebtedness to the
Government, or if the land should not sell enough to satisfy the same.
From this judgment various parties defendant appealed as follows: All
of the defendants, except the Philippine National Bank, appealed
from so much of the decision as held that the defendant owners and
signatories to the contract of suretyship has not been released by
non-performance of the contract on the part of the Bureau of Public
Works, and from the refusal of the court to give to the defendant
owners damages for breach of contract on the part of the
Government. On the part of Tan Ong Sze, Viuda de Tan Toco, error is
assigned to the action of the court in holding said defendant liable
upon the contract of suretyship. Finally, the Philippine National Bank
appealed from so much of the decision as gave the lien of the
Government for improvement priority over the mortgagee executed
in favor of the bank.
Dealing with these contentions in the order indicated, we find the
contention of the appellants (except the Philippine National Bank), to
the effect that the Director of Public Works has failed to comply with
the obligations imposed upon the government by the contract, is
wholly untenable. By said contract, the Government was not
obligated to raise the land on which the dredged material was
deposited to any specified level. The Government only obligated itself
upon said land the material should be dredged from the mouth of the
Iloilo River in the course of the improvement undertaken by the
Government in and near that place. Under the original contract as
originally drafted, the Government agreed to furnish 250,000 cubic
meters, more or less, of dredged material; but on Mar. 14, 1921, the
owners of the property indicated their acceptance of a modification
of the contract effected by the Director of Public Works and the
Secretary of Commerce and Communications, in which it was made
clear that the material to be supplied would be such only as should be
dredged from the river as a result of the proposed improvement. In
the endorsement of the Director of Public Works, thus accepted by
the owners, it was made clear that the Bureau of Public Works did not
undertake to furnish material to complete the filling of the land to any
specified level. Proof submitted on the part of the owners tends to
show that parts of the filled land are still subject to inundation in rainy
weather; and it is contended, that the owners have, for this reason,
been able to sell in lots the property to individual occupants. the sum
of P15,000, which is claimed upon this account, as damages by the
owners, is the amount of interest alleged to have been accrued upon
their investment, owing to their inability to place the land
advantageously upon the market. The claim is, as already suggested,
untenable. There has been no breach on the part of the Government
in fulfilling the contract. In fact it appears that the Government
deposited in the period covered by the contract 236,460 cubic
meters, and after the amount thus deposited had been reduced by
21,840 cubic meters, owing to the natural process of drying, the
Bureau of Public Works further deposited 53,000 cubic meters on the
same land. In this connection, the district engineer testified that the
filling which has been charged to the owners at P70,938 actually cost
the Government the amount of P88,297.85. The charge made for the
work was evidently computed on a very moderate basis; and the
owners of the property have no just ground of complaint whatever.
The contention of Tan Ong Sze, widow of Tan Toco, to the effect that
she was not, and is not, bound by the contract of suretyship, is our
pinion, well-founded. It will be remembered that said contract
purports to have been signed by Mariano de la Rama, acting for this
defendant under the power of attorney. But the Government has
exhibited no power of attorney which would authorize the creation,
by the attorney-in-fact, of an obligation in the nature of suretyship
binding upon this principal.
It is true that the Government introduced in evidence 2 documents
exhibiting powers of attorney, conferred by these documents (Exhibit
K, identical with Exhibit 5) Mariano de la Rama was given the power
which reads as follows:
. . . and also for me and in my name to sign, seal and execute, and as
my act and deed deliver, any lease or any other deed for the
conveying any real or personal property or the other matter or thing
wherein I am or may be personally interested or concerned. And I do
hereby further authorize and empower my said attorney to substitute
and point any other attorney or attorneys under him for the purposes
aforesaid, and the same again and pleasure to revoke; and generally
for me and in my name to do, perform, and execute all and any other
lawful and reasonable acts and things whatsoever as fully and
effectually as I, the said Tan Ong Sze might or could do if personally
present.
In another document, (Exhibits L and M), executed in favor of the
same Mariano de la Rama by his uncle Tan Lien Co, attorney-in-fact of
Tan Ong Sze, with power of substitution, there appears the following:
. . . and also for her and for her name to sign, seal and execute, and as
her act and deed deliver, any lease, release, bargain, sale, assignment,
conveyance or assurance, any other deed for the conveying any real
or personal property or other matter or thing wherein she or may be
personally interested or concerned.
Neither of these powers officially confers upon Mariano de la Rama
the power to bind a principal by a contract of suretyship. The clauses
noted relate more specifically to the execution of contracts relating
to property; and the more general words at the close of the quoted
clauses should be interpreted, under the general rule ejusdem
416 | P a g e
generis, as referring to the contracts of like character. Power to
execute a contract so exceptional a nature as a contract of suretyship
or guaranty cannot be inferred from the general words contained in
these powers.
In article 1827 of the Civil Code it is declared that guaranty shall not
be presumed; it must be expressed and cannot be extended beyond
its specified limits. By analogy a power of attorney to execute a
contract of guaranty should not be inferred from vague or general
words, especially when such words have their origin and explanation
in particular powers of a wholly different nature. It results that the
trial court was in error in giving personal judgment against Tan Ong
Sze upon the bond upon which she was sued in this case.
We now proceed to consider the last important disputed question
involved in this case, which is, whether the indebtedness owing to the
Government under the contract for filling the parcel of land already
mentioned is entitled to preference over the mortgage credit due to
the Philippine National Bank, as the trial judge held, or whether on
the contrary, the latter claim is entitled to priority over the claim of
the Government Upon entering into the discussion of the feature of
the case it is well to recall the fact that the bank's mortgage was
registered in the office of the Register of Deeds of the province of
Iloilo on November 26, 1920, while the filing contract was registered
on January 8, 1924, that is to say, there is a priority of more than three
years, in point of time, in the inscription of the mortgage credit under
the filling contract was made an express lien upon the property which
was the subject of improvement.
In the brief submitted in behalf of the bank it appears to be assumed
that the Government credit under the filling contract is a true
refectionary credit (credito refacionario) under subsection 2 of Article
1923 of the Civil Code. It may be observed, however, that in a precise
and technical sense, this credit is not exactly of the nature of the
refectionary credit as known to the civil law. In the civil law the
refectionary credit is primarily an indebtedness incurred in the repair
or reconstruction of something previously made, such repair or
reconstruction being made necessary by the deterioration or
destruction as it formerly existed. The conception does not ordinarily
include an entirely new work, though Spanish jurisprudence appears
to have sanctioned this broader conception in certain cases as may be
gathered from the decision in the Enciclopedia Juridica Espanola (vol.
26, pp. 888-890) s. v. Refaccionario. The question whether the credit
we are considering falls precisely under the conception of the
refectionary credit in the civil law is in this case academic rather than
practical, for the reason that by the express terms of the filling
contract the credit was constituted a lien upon the improved
property. But assuming, as might be tenable in the state of
jurisprudence, that said credit is a refectionary credit enjoying
preference under subsection 3 or article 1923 of the Civil code , then
the mortgage credit must be given priority under subsection 2 of the
article 1927 of the same code, for the reason that the mortgage was
registered first.
Possibly the simpler view of the situation is to consider the
Government's right under the stipulation expressly making the credit
a lien upon the property, for it was certainly lawful for the parties to
the filling contract to declare the credit a lien upon the property to be
improved — to the extent hereinafter define — whether the credit
precisely fulfills the conception of refectionary credit or not. In this
aspect we have before us a competition between the real lien created
by the filling contract of the later registration. The true solution to the
problem is, in our opinion, not open to doubt; and again the result is
that priority must be conceded to the mortgage. The mortgage was
created by the lawful owners at a time when no other competing
interest existed in the property. The lien of the mortgage therefore
attached to the fee, or unlimited interest of the owners in the
property. On the other hand, the lien created by the filling contract
was created after the mortgage had been made and registered, and
therefore, after the owners of the property had parted with the
interest created by the mortgage. The Government's lien owes its
origin to the contract, and derives its efficacy from the volition of the
contracting parties. But no party can by contract create a right in
another intrinsically greater than that which he himself possess. The
owners, at the time this contract was made, were owners of the
equity of redemption only and not of the entire interest in the
property, and the lien created by the contract could only operate
upon the equity of redemption.
In this connection, we observed that, as the new material was
deposited from the Government dredges upon the property in
question, it became an integral part of the soil and an irremovable
fixture; and the deposit having been made under contract between
the Government and the owners of the equity of redemption, without
the concurrence of the mortgage creditor in said contract the latter
could not be prejudiced thereby. The trial court, in declaring that the
Government's lien should have preference over the mortgage, seems
to have proceeded upon the idea that, at the time the mortgage was
created, the new soil had yet been deposited under the filling contract
and that as a consequence the mortgage lien should not been
considered as attaching to the value added by deposit of the
additional material. This proposition, however, overlooks the fact that
the deposited material became an irremovable fixture, by the act and
intention of the parties to the filling contract, and the lien of the
mortgage undoubtedly attached to the increment thus spread over
and affixed to the mortgaged land. If the idea which prevailed in the
trial court should be accepted as law upon this point, the result would
be that a mortgage creditor could, by the act of strangers, be entirely
proved out of his property by making of improvements to which he
has not assented. This cannot be accepted as good law.
We may add that the case cannot, on this point, be resolved favorably
to the contention of the Director of Public Works, upon the authority
of Unson vs. Urquijo, Zuluoaga and Escubi (50 Phil., 160), for the
reason that upon the deposit of the dredged material on the land such
material lost its identity. In the case cited the machinery in respect to
which the vendor's preference was upheld by this court retained its
separate existence and remained perfectly capable of identification
at all times.
From what it has been said it results that the appealed judgment must
be affirmed, and the same is hereby affirmed, in dismissing, in effect,
the cross-complaint filed by some of the defendants against the
plaintiff, the Director of Public Works. Such judgment is further
affirmed in its findings, which are not dispute, with respect to the
amount of the Government's claim under the filling contract and the
amount of mortgage credit of the bank, as it is also affirmed in respect
to the joint and several judgment entered in favor of the plaintiff
against Sing Juco, Sing Bengco, Tanboontien and Mariano de la Rama
417 | P a g e
Tanbunco (alias Mariano de la Rama) for the amount due to the
Government

Said judgment, however, must be reversed and the same is being

reversed in so far as it holds that Tan Ong Sze, Viuda de Tan Toco, is
liable upon the contract of suretyship, and she is hereby absolved
from the complaint. The judgment must also be reversed in so far as
it declares that the Government's lien under the filling contract is
entitled to priority over the bank's mortgage. On the contrary it is
hereby declared that the bank's credit is entitled to priority out of the
proceeds of the foreclosure sale, the residue, if any, to be applied to
the Government's lien created by the filling contract and otherwise in
accordance with law. For further proceedings in conformity with this
opinion, the cause is hereby remanded to the cause of origin, without
pronouncements as to costs. So ordered.

Johnson, Villamor, Johns, Romualdez, and Villa-Real, JJ., concur.

Malcolm and Ostrand, JJ., also voted as indicated in the dispositive
part of their decision, but their names are not signed to opinion owing
to their absence of leave at the time of their promulgation.

418 | P a g e
25. 48 Phil. 536
G.R. No. L-23352 December 31, 1925
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., INC.,
plaintiff-appellee,
vs.
JUAN M. POIZAT, ET AL., defendants.
GABRIELA ANDREA DE COSTER, appellant.
Antonio M. Opisso for appellant.
Eusebio Orense and Fisher, DeWitt, Perkins & Brady for appellee.
STATEMENT
August 25, 1905, the appellant, with his consent executed to and in
favor of her husband, Juan M. Poizat, a general power of attorney,
which among other things, authorized him to do in her name, place
and stead, and making use of her rights and actions, the following
things:
To loan or borrow any amount in cash or fungible conditions he may
deem convenient collecting or paying the principal or interest, for the
time, and under the principal of the interest, when they respectively
should or private documents, and making there transactions with or
without mortgage, pledge or personal securities.
November 2, 1912, Juan M. Poizat applied for and obtained from the
plaintiff a credit for the sum of 10,000 Pounds Sterling to be drawn on
the" Banco Espanol del Rio de la Plata" in London not later than
January, 1913. Later, to secure the payment of the loan, he executed
a mortgage upon the real property of his wife, the material portions
of which are as follows:
This indenture entered into the City of Manila, P.I., by and between
Juan M. Poizat, merchant, of legal age, married and residing in the City
of Manila, in his own behalf and in his capacity also as attorney in fact
of his wife Dona Gabriela Andrea de Coster by virtue of the authority
vested in him by the power of attorney duly executed and
acknowledge in this City of Manila, etc.
First. That in the name of Dona Gabriela Andrea de Coster, wife of
Don Juan M. Poizat, there is registered on page 89 (back) of Book 3,
Urban Property consisting of a house and six adjacent warehouse, all
of strong material and constructed upon her own land, said property
being Nos. 5, 3, and 1 of Calle Urbiztondo, and No. 13 of Calle Barraca
in the District of Binondo in the City of Manila, etc.
Second. That the marriage of Don Juan M. Poizat and Dona Gabriela
Andrea de Coster being subsisting and undissolved, and with the
object of constructing a new building over the land hereinabove
described, the aforesaid house with the six warehouse thereon
constructed were demolished and in their stead a building was
erected, by permission of the Department of Engineering and Public
Works of this City issued November 10, 1902, said building being of
strong material which, together with the land, now forms only one
piece of real estate, etc; which property must be the subject of a new
description in which it must appear that the land belongs in fee simple
and in full ownership as paraphernal property to the said Dona
Gabriela Andrea de Coster and the new building thereon constructed
to the conjugal partnership of Don Juan M. Poizat and the said Dona
Gabriela Andrea de Coster, etc.
Third. That the Philippine Sugar Estates Development Company, Ltd.,
having granted to Don Juan M. Poizat a credit of Ten Thousand
Pounds Sterling with a mortgage upon the real property above
described, etc.
(a) That the Philippine sugar Estated Development Company,
Ltd. hereby grants Don Juan M. Poizat a credit in the amount of Ten
Thousand Pounds sterling which the said Mr. Poizat may use within
the entire month of January of the coming year, 1913, upon the bank
established in the City of London, England, known as 'Banco Espanol
del Rio de la Plata, which shall be duly advised, so as to place upon
the credit of Mr. Poizat the said amount of Ten Thousand Pounds
Sterling, after executing the necessary receipts therefore.
(c) That Don Juan M. Poizat personally binds himself and also
binds his principal Dona Gabriela Andrea de Coster to pay the
Philippine Sugar Estates Development Company, Ltd., for the said
amount of Ten Thousand Pounds Sterling at the yearly interest of 9
per cent which shall be paid at the end of each quarter, etc.
(d) Don Juan M. Poizat also binds himself personally and his
principal Dona Gabriela Andrea de Coster to return to the Philippine
Sugar Estates Development Company, Ltd., the amount of Ten
Thousand Pounds Sterling within four years from the date that the
said Mr. Poizat shall receive the aforesaid sum as evidenced by the
receipt that he shall issue to the 'BAnco Espanol del Rio de la Plata.'
(e) As security for the payment of the said credit, in the case
Mr. Poizat should receive the money, together with its interest hereby
constitutes a voluntary especial mortgage upon the Philippine Sugar
Estates Development Company, Ltd., f the urban property above
described, etc.
(f) Don Juan M. Poizat in the capacity above mentioned binds
himself, should he receive the amount of the credit, and while he may
not return the said amount of Ten thousand Pounds Sterling to the
Philippine Sugar Estates Development Company, Ltd., to insure
against fire the mortgaged property in an amount not less than One
hundred Thousand Pesos, etc.
Fourth. Don Buenaventura Campa in the capacity that he holds
hereby accepts this indenture in the form, manner, and condition
executed by Don Juan M. Poizat by himself personally and in
representation of his wife Dona Gabriela Andrea de Coster, in favor of
the Philippine Sugar Estates Development Company, Ltd.,
In witness whereof, we have signed these presents in Manila, this
November 2, 1912.
(Sgd.) JUAN M. POIZAT
THE PHILIPPINE SUGAR ESTATES
DEVELOPMENT COMPANY, LTD.
The President
BUENAVENTURA CAMPA
Signed in the presence of:
419 | P a g e
(Sgd.) MANUEL SAPSANO
JOSE SANTOS
UNITED STATES OF AMERICA
PHILIPPINE ISLANDS
CITY OF MANILA
In the City of Manila P.I., this November 2, 1912, before me Enrique
Barrera y Caldes, a Notary Public for said city, personally appeared
before me Don Juan M. Poizat and Don Buenaventura Campa, whom
i know to be the persons who executed the foregoing document and
acknowledged same before me as an act of their free will and deed;
the first exhibited to me his certificate of registry No. 14237, issued in
Manila, February 6, 1912, the second did not exhibit any cedula, being
over sixty years old; this document bears No. 495, entered on page 80
of my Notarial registry.
Before me:
(Sgd.) Dr. ENRIQUE BARRERA Y CALDES
[NOTARIAL SEAL]
Notary Public
Up to the 31st of December , 1912
For failure to pay the loan, on November 12, 1923, the plaintiff
brought an action against the defendants to foreclose the mortgage.
In this action, the summons was served upon the defendant Juan M.
Poizat only, who employed the services of Antonio A. Sanz to
represent the defendants. The attorneys filed a general appearance
for all of them, and later an answer in the nature of a general denial.
February 18, 1924, when the case was called for trial, Jose Galan y
Blanco in open court admitted all of the allegations made in the
compliant, and consented that judgment should be rendered as
prayed for . Later, Juan M. Poizat personally, for himself and his
codefendants, file an exception to the judgment and moved for a new
trial, which was denied March 31, 1924.
August 22, 1924, execution was issued directing the sale of the
mortgaged property to satisfy the judgment.itc@alf
September 18, 1924, the property, which had an assessed value of
P342,685, was sold to the plaintiff for the sum of P100,000.
September 23, 1924, and for the first time, the appellant personally
appeared by her present attorney, and objected to the confirmation
of the sale, among other things, upon illegally executed, and is null
and void, because the agent of this defendant was not authorized to
execute it. That there was no consideration. That the plaintiff, with
full knowledge that J. M. Poizat was acting beyond the scope of his
authority, filed this action to subject the property of this defendant to
the payment of the debt which, as to appellant, was not a valid
contract. That the judgment was rendered by confession when the
plaintiff and J. M. Poizat knew that Poizat was not authorized to
confess judgment, and that the proceeding was a constructive fraud.
That at the time the action was filed and the judgment rendered, this
defendant was absent from the Philippine Islands, and had no
knowledge of the execution of the mortgage. That after the judgment
of foreclosure became final and order of the sale of the property was
made, that this defendant for the first time learned that he mortgage
contract was tainted with fraud, and that she first knew and learned
of such things on the 11th of September, 1924. That J. M. Poizat was
not authorized to bind her property to secure the payment of his
personal debts. That the plaintiff knew that the agent of the
defendant was not authorized to bind her or her property. That the
mortgage was executed to secure a loan of 10,000 Pounds which was
not made to this defendant or for her benefit, but was made to him
personally and for the personal use and benefit of J. M. Poizat.
Among other things, the mortgage in question, marked Exhibit B, was
introduced in evidence, and made a part of the record.
All of such objections to the confirmation of the sale were overruled,
from which Gabriela Andrea de Coster appealed and assigns the
following errors:
I. The lower court erred in finding that Juan M. Poizat was,
under the power of attorney which he had from Gabriela Andrea de
Coster, authorized to mortgage her paraphernal property as security
for a loan made to him personally by the Philippine Sugar Estates
Development Company, Ltd., to him;
II. The lower court erred in not finding that under the power
of attorney, Juan M. Poizat had no authority to make Gabriela Andrea
de Coster jointly liable with him for a loan of 10,000 pound made by
the Philippine Sugar Estates Development Co., Ltd., to him;
III. The lower court erred in not finding that the Philippine
Sugar Estates Development Company, Ltd., had knowledge and notice
of the lack of authority of Don Juan M. Poizat to execute the mortgage
deed Exhibit A of the plaintiff;
IV. The lower court erred in holding that Gabriela Andrea de
Coster was duly summoned in this case; and in holding that Attorney
Jose Galan y Blanco could lawfully represent her or could, without
proof of express authority, confess judgment against Gabriela Andrea
de Coster;
V. The court erred in holding that the judgment in this case has
become final and res judicata;
VI. The court erred in approving the judicial sale made by the
sheriff at an inadequate price;
VII. The lower court erred in not declaring these proceedings,
the judgment and the sale null and void.
JOHNS, J.:
For the reasons stated in the decision of this court in the Bank of the
Philippine Islands vs. De Coster, the alleged service of the summons
in the foreclosure suit upon the appellant was null and void. In fact, it
was made on J. M. Poizat only, and there is no claim or pretense that
any service of summons was ever made upon her. After service was
made upon him, the attorneys in question entered their appearance
for all of the defendants in the action, including the appellant upon
whom no service was ever made, and file an answer for them. Later,
in open court, it was agreed that judgment should be entered for the
plaintiff as prayed for in its complaint.
420 | P a g e

The appellant contends that the appearance made by the attorneys
for her was collusive and fraudulent, and that it was made without
her authority, and there maybe some truth in that contention. It is
very apparent that t the attorneys made no effort to protect or
defend her legal rights, but under our view of the case, that question
is not material to this decision.
The storm center of this case is the legal force and effect of the real
mortgage in question , by whom and for whom it was executed, and
upon whom is it binding, and whether or not it is null and void as to
the appellant.
It is admitted that the appellant gave her husband, J. M. Poizat, the
power of attorney in question, and that it is in writing and speaks for
itself. If the mortgage was legally executed by her attorney in fact for
her and in her name as her act and deed, it would be legal and binding
upon her and her property. If not so executed, it is null and void.
It appears upon the face of the instrument that J. M. Poizat as the
husband of the wife, was personally a party to the mortgage, and that
he was the only persona who signed the mortgage. and the he was
the only person who signed the mortgage. It does not appear from his
signature that he signed it for his wife or as her agent or attorney in
fact, and there is nothing in his signature that would indicate that in
the signing of it by him, he intended that his signature should bind his
wife. It also appears from the acknowledgment of the instrument that
he executed it as his personal act and deed only, and there is nothing
to show that he acknowledge it as the agent or attorney in fact of his
wife, or as her act and deed.
The mortgage recites that it was entered into by and between Juan
M. Poizat in his own behalf and as attorney in fact of his wife. That the
record title of the mortgaged property is registered in the name of his
wife, Dona Gabriela Andrea de Coster. That they were legally married,
and that the marriage between them has never been dissolved. That
with the object of constructing a new building on the land. the six
warehouses thereon were demolished, and that a new building was
erected. That the property is the subject of a new registration in which
it must be made to appear that the land belongs in fee simple and in
full ownership as the paraphernal property of the wife, and that the
new building thereon is the property of the conjugal partnership.
"That the Philippine Sugar Estates Development Company, Ltd.,
having granted to Don Juan M. Poizat a credit of 10,000 Pounds
Sterling with the mortgage upon the real property above described,"
that the Development Company "hereby grants Don Juan M. Poizat a
credit in the amount of 10,000 Pounds Sterling which the said Mr.
Poizat may use, etc." That should he personally or on behalf of his wife
use the credit he acknowledges, that he and his principal are indebted
to the Development Company in the sum of 10,000 Pounds Sterling
which "they deem to have received as a loan from the said
commercial entity." That he binds himself and his wife to pay that
amount with a yearly interest of 9 per cent, payable quarterly. That
as security for the payment of said credit in the case Mr. Poizat should
receive the money at any time, with its interest, "the said Mr. Poizat
in the dual capacity that above mentioned binds himself, should he
receive the amount of the credit."
It thus appears that at the time the power of attorney and the
mortgage were executed, Don Juan M. Poizat and Gabriela Andrea de
Coster were husband and wife, and that the real property upon which
the mortgage was her sole property before her marriage, and that it
was her paraphernal property at the time the mortgage was
executed, and that the new building constructed on the land was the
property of the conjugal partnership.
The instrument further recites that the Development Company
"hereby grants Don Juan M. Poizat a credit in the amount of 10,000
Pounds Sterling which the said Mr. Poizat may use within the entire
month of January of the coming year, 1913." In other words, it
appears upon the face of the mortgage that the loan was made to the
husband with authority to use the money for his sole use and benefit.
With or without a power of attorney, the signature of the husband
would be necessary to make the instrument a valid mortgage upon
the property of the wife, even though she personally signed the
mortgage.
It is contended that the instrument upon its face shows that its
purpose and intent was to bind the wife. But it also shows upon its
face that the credit was granted to Don Juan M. Poizat which he might
use within the "entire month of January."
Any authority which he had to bind his wife should be confined and
limited to his power of attorney.
Giving to it the very broadest construction, he would not have any
authority to mortgage her property, unless the mortgage was
executed for her "and in her name, place or stead," and as her act and
deed. The mortgage in question was not so executed. it was signed by
Don Juan M. Poizat in his own name, his own proper person, and by
him only, and it was acknowledge by him in his personal capacity, and
there is nothing in either the signature or acknowledgment which
shows or tends to show that it was executed for or on behalf of his
wife or "in her name, place or stead."
It is contended that the instrument shows upon its face that it was
intended to make the wife liable for his debt, and to mortgage her
property to secure its payment, and that his personal signature should
legally be construed as the joined or dual signature of both the
husband and that of the wife as her agent. That is to say, construing
the recitals in the mortgage and the instrument as a whole, his lone
personal signature should be construed in a double capacity and
binding equally and alike both upon the husband and the wife. No
authority has been cited, and none will ever be found to sustain such
a construction.
As the husband of the wife, his signature was necessary to make the
mortgage valid. In other words, to make it valid, it should have been
signed by the husband in his own proper person and by him as
attorney in fact for his wife, and it should have been executed by both
husband and wife, and should have been so acknowledged.
There is no principle of law by which a person can become liable on a
real mortgage which she never executed either in person or by
attorney in fact. It should be noted that this is a mortgage upon real
property, the title to which cannot be divested except by sale on
execution or the formalities of a will or deed. For such reasons, the
law requires that a power of attorney to mortgage or sell real
property should be executed with all of the formalities required in a
deed. For the same reason that the personal signature of Poizat,
421 | P a g e
standing alone, would not convey the title of his wife in her own real
property, such a signature would not bind her as a mortgagor in real
property, the title to which was in her name.
We make this broad assertion that upon the facts shown in the
record, no authority will ever be found to hold the wife liable on a
mortgage of her real property which was executed in the form and
manner in which the mortgage in question was executed. The real
question involved is fully discussed in Mechem on Agency, volume 1,
page 784, in which the author says:
It is to be observed that the question here is not how but how such
an authority is to be executed. it is assumed that the agent was
authorized to bind his principal, but the question is, has he done so.
That is the question here.
Upon that point, there is a full discussion in the following sections,
and numerous authorities are cited:
SEC. 1093. Deed by agent must purport to be made and
sealed in the name of the principal. — It is a general rule in the law of
agency that in order to bind the principal by a deed executed by an
agent, the deed must upon its grace purport to be made, signed and
sealed in the name of the principal. If, on the contrary, though the
agent describes name, the words of grant, covenant and the like,
purport upon the face of the instrument to be his, and the seal
purports to be his seal, the deed will bind the agent if any one and not
the principal.
SEC. 1101. Whose deed is a given deed. — How question
determined. — In determining whether a given deed is the deed of
the principal, regard may be had First, to the party named as grantor.
Is the deed stated to be made by the principal or by some other
person? Secondly, to the granting clause. Is the principal or the agent
the person who purports to make the grant? Thirdly, to the
covenants, if any. Are these the covenants of the principal? Fourthly,
to the testimonium clause. Who is it who is to set his name and seal
in testimony of the grant? Is it the principal or the agent? And Fifthly,
to the signature and seal. Whose signature and seal are these? Are
they those of the principal or of the agent?
If upon such an analysis the deed does not upon its face purport to be
the deed of the principal, made, signed, sealed and delivered in his
name and his deed, it cannot take effect as such.
SEC. 1102. Not enough to make deed the principal's that the
agent is described as such. — It is not enough merely that not acted
in the name of the principal. Nor is it ordinarily sufficient that he
describes himself in the deed as acting by virtue of a power of
attorney or otherwise, or for or in behalf, or as attorney, of the
principal, or as a committee, or as trustee of a corporation, etc.; for
these expressions are usually but descriptio personae, and if, in fact,
he has acted of action thereon accrue to and against him personally
and not to or against the principal, despite these recital.
SEC. 1103. Not principal's deed where agent appears as
grantor and signer. — Neither can the deed ordinarily be deemed to
be the deed of the principal where the agent is the one who is named
as the grantor or maker, and he is also the one who signs and seals it.
...
SEC. 1108. . . . But however clearly the body of the deed may
show an intent that it shall be the act of he principal, yet unless its
executed by his attorney for him, it is not his deed, but the deed of
the attorney or of no one. The most usual and approved form of
executing a deed by attorney is by his writing the name of the
principal and adding by A B his attorney or by his attorney A B.'
That is good law. Applying it to the facts, under his power of attorney,
Juan M. Poizat may have had authority to borrow money and
mortgage the real property of his wife, but the law specifies how and
in what manner it must be done, and the stubborn fact remains that,
as to the transaction in question, that power was never exercised. The
mortgage in question was executed by him and him only, and for such
reason, it is not binding upon the wife, and as to her, it is null and void.
It follows that the whole decree against her and her paraphernal
property and the sale of that property to satisfy the mortgage are null
and void, and that any title she may have had in or to her paraphernal
property remains and is now vested in the wife as fully and as
absolutely as if the mortgage had never been executed, the decree
rendered or the property sold. As to Don Juan M. Poizat, the decree
is valid and binding, and remains in full force and effect.
It is an undisputed fact, which appears in the mortgage itself, that the
land in question was the paraphernal property of the wife, but after
the marriage the old buildings on the property were torn down and a
new building constructed and, in the absence of evidence to the
contrary, it must be presumed that the new building is conjugal
property of the husband and wife. As such, it is subject of the debts
of the conjugal partnership for the payment or security of which the
husband has the power to mortgage or otherwise encumber the
property .
It is very probable that his particular question was not fully presented
to or considered by the lower court.
The mortgage as to the paraphernal property of the wife is declared
null and void ab initio, and as to her personally, the decree is declared
null and void, and as to her paraphernal property, the sale is set aside
and vacated, and held for naught, leaving it free and clear from the
mortgage, decree and sale, and in the same condition as if the
mortgage had never been executed, with costs in favor of the
appellant. So ordered.
Johnson, Malcolm, Ostrand, and Romualdez, JJ., concur.
Separate Opinions
STREET, J., with whom concur AVANCEÑA, C.J., VILLAMOR, and VILLA-
REAL, JJ., dissenting:
In the year 1913 the plaintiff, the Philippine Sugar Estates
Development Company, Ltd., let J. M. Poizat have nearly P100,000 of
money on the supposed security of a mortgage on property belonging
to his wife, Gabriela Andrea de Coster, executed by Poizat under a
422 | P a g e
power of attorney from her. The plaintiff has now to learn that the
security on which it relied is worthless and that it did not even so
much as have Gabriela Andrea de Coster in court in the foreclosure
proceeding. In the decision so holding the undersigned are unable to
concur.
To dispose first of the point as to the jurisdiction of the court over the
person and property of Gabriela Andrea de Coster, it is only necessary
to the third paragraph from the end of the power of attorney (Exhibit
A to the opposition of Gabriela Andrea de Coster) under which Poizat
acted. To express in a few words the substance of this paragraph in
the part relevant to the present discussion, Poizat is given full
authority to represent his wife in all judicial proceedings in Philippine
courts, including among other things, the making of appearances,
submission of answers, receiving of service of process, and to take in
her behalf any procedural steps and measures required by law of
procedure in order to make effective and bring to termination the
matters in which he, as attorney in fact, may be concerned. If this
power is not sufficient to authorize Poizat to accept the service and
employ a lawyer to appear in court for the principal, as was done in
this case their ingenuity in the attempt to draft such authority.
But the disastrous feature of the decision is found in the
pronouncement that the mortgage on which the plaintiff's money
was obtained is a nullity; and upon this point the court holds that
Gabriela Andrea de Coster was not bound because the contract
signed "Juan M. Poizat." But the documents expressly recites in its
preamble that it is executed by Juan M. Poizat, acting both in
representation of himself and in the character of attorney in fact of
his wife, Gabriela Andrea de Coster, in virtue of the authority
conferred upon him in the power of attorney already mentioned.
Furthermore, throughout the body of the document the idea is
repeatedly expressed that J. M. Poizat obligates both himself and his
wife. We submit that under the doctrine informing the Civil Code —
which should control in this jurisdiction — the mortgage instrument
was lawfully executed and in a form sufficient to bind the principal as
well as the agent. Certainly it would never occur to a civilian lawyer
that the documents in question is informally executed; and the
circumstance that a learned Spanish notary (Don Enrique Barrera y
Caldes) intervened in the execution of this instrument would alone
suffice to show that it is done in conformity with approved Spanish
models — a fact otherwise apparent.
Even in the United States and Great Britain, where strict doctrines
might be expected to prevail in such matters, owing to the technical
ruled involving the real property in those countries, ample authority
is found to the effect that the principal will be bound by a contract
signed by the agent only, when it appears from the face of the
instrument that he is acting in the character of agent. (2 C. L., 672.)
From the portentous way in which the opinion of the courts refers to
the question of the sufficiency of the signature to the mortgage as the
"storm center of the case," one would suppose that this question had
been the subject of discussion in the lower court as well as in the
briefs of the attorneys here. Nothing of the sort is true, for this capital
point, on which the case is made principally to turn, has been jumped
up exclusively in this court; and the voluminous briefs will be searched
in vain for the slightest reference to the subject. In fact both parties
appear to have assumed that the mortgage was executed with all
proper formality. Apart from the fact that the question was not raised
in the lower court, no assignment of error in this court calls in
question the sufficiency of the mode of execution of the instrument.
Under these circumstances this court should have confined itself to
the matters put in issue by the litigants; and it should not have gone
out of its way to take up a point not discussed by the parties, and upon
which in fact the losing party has never been heard. It is a good rule
of practice--sometimes respected by us--that an appellate court will
not permit an appellant to raise a point upon appeal which was not
put in issue in the court below and upon which no assignment of error
has been made. In our opinion the order appealed from should be
affirmed.
DECISION UPON PETITION FOR REHEARING
February 15, 1926
JOHNS, J.:
The plaintiff has filed a very able, vigorous and exhaustive petition for
rehearing, which we have given the careful consideration which the
importance of the questions deserve.
The first proposition advanced is that the mortgage in question is valid
not only as to the buildings, but also as to the land on which they are
constructed. The previous decision of this court is to the effect that,
the buildings being conjugal property, the mortgage is valid, which is
the paraphernal property of the wife.
Plaintiff contends that the land is conjugal property under the
provisions of article 1404 of the Civil Code. That article does not apply
to the instant case. It does not appear that the buildings are of the
nature therein specified. The commentator Manresa, cited in the
motion for reconsideration, rightly distinguishes those buildings
which, by reason of their importance, convert the land on which, on
account of their small relative value, continue to remain as
accessories to the land on which they are constructed, and for such
reason partake of the land.
The word building is a generic term for all architectural work with roof
built for the purpose used as man's dwelling, or for offices, clubs,
theaters, etc. When the structure does not constitute a building, then
the rule must be followed. The article cannot but be interpreted
strictly. An inclosure for cattle or a 'tinada,' a stone barn, etc., follow
the soil as accessories thereto. (9 Manresa, 626, 1919 ed.)
It appears from the mortgaged that the buildings in question to be
constructed are warehouses, and as the circumstances and details do
not appear in the record, such warehouses could not be construed as
the class of buildings mentioned in article 1404. Hence, the facts are
not sufficient to justify the court in holding that the exceptional
provision applies to this case in the sense of considering the soil as an
accessory to the building, contrary to the general rule contained in
the Civil Code (arts. 358-364 and 1368). But conceding that article
1404 does apply, yet under the provisions of that article, the owner
of the land is entitled to an indemnity for its value. Since, according
to the spirit of the law contained in article 349 of the Civil Code, no
one can be deprived of his property without previous indemnity, and
it not appearing in the instant case that such indemnity was never
paid, the land in question cannot now be considered as conjugal
423 | P a g e
property. But it further appears that the mortgage upon which
plaintiff relies contains the following recitals:
. . . which property must be the subject of a new registration wherein
it must be stated that the lot forming apart thereof pertains to said
Dona Gabriela Andrea de Coster in full ownership and fee simple as
paraphernal property, and the building newly erected thereon to the
conjugal; partnership between Don Juan M. Poizat and his wife, the
aforesaid Dona Gabriela Andrea de Coster . . . (Emphasis ours.)
The plaintiff, having taken and accepted the mortgage is bound by
those recitals. It further appears that this property is registered under
the Torrens System, and that the title to the land is vested in the wife,
and is not conjugal property, and that the wife is at least the owner
of the land.
In a supplemental plea filed January 21, 1926, petitioner cites and
relies on the case of the National Bank vs. Quintos and Ansaldo (46
Phil., 370), in which article 1408 of the Civil Code was construed and
applied. It must be conceded that this article applies only to those
cases wherein there is a presumption that the debt contracted by the
husband is for the common benefit of both spouses, but this
presumption may be overcome by evidence to the contrary.
All debts and obligations contracted during the marriage by the
husband, the legal representative of the partnership in the normal
condition thereof, are deemed contracted by the partnership. The law
presumes that they are contracted for the common benefit of both.
However, this presumption may be overthrown by evidence to the
contrary, as we shall see when we take up article 1413. (9 Manresa,
648.)
For this reason, where, as in the instant case, it appears that the loan
obtained by the husband was not only not obtained for the common
benefit of the conjugal partnership, but was obtained to the damage
of the wife, there is no such presumption, and that article does not
apply. It is further contended that the mortgage was executed with
all of the legal necessary formalities, and in accord with the
established practice and custom in the Philippine Islands, from which
plaintiff's counsel contends that it is not required that the attorney in
fact, who executes a document in his own name and that of his
principal, must show in his signature his double capacity by writing
first his own signature and then the name of his principal, and say "by"
and thereafter his own signature as attorney in fact.
The Act should be construed with reference to section 81 of Act No.
136, which says:
After the enactment of a new system of registration of land titles, the
notarial law of the Philippine Islands of February fifth, eighteen
hundred and eighty-nine, its regulations of April eleventh, eighteen
hundred and ninety, and the general instructions for drafting
instruments subject to record in the Philippine Islands, of October
third, eighteen hundred and eighty-nine, and the modifications
thereof, by General Order Number Forty, issued from the office of the
United States Military Governor, on September twenty-third,
eighteen hundred and ninety-nine, and by General Order Number
Twenty, issued from the office of the Military Governor on February
third, nineteen hundred, shall be repealed and shall be of no effect
after the date of such enactment, and thereafter appointments of
notaries public and the performance of official duties by them shall
be regulated by the subsequent provisions of this Act.
The old Spanish notarial law and system of conveyances was repealed
in the Philippines, and another and a different notarial law and system
became the law of the land with the enactment of Act No. 496. One
of the fundamental differences between the two systems consists in
this. Under the Spanish system, the documents were executed in the
form of minutes, wherein the notary was the one who spoke, and
under Act No. 496, the notary is not the one who speaks, and there is
no record kept of the minutes, and the intervention of a notary is
limited to the acknowledgment only of the document. Under the
Spanish System, to determine the capacity in which a person
executed a document, it was sufficient to look at the text of the
document, because its whole text was attended with the solemnity of
the notary authorizing its execution. Under the present system, it is
necessary to resort to the form in which the parties sign an
instrument, because it is the signature rather than the text which
bears the stamp of authenticity.
Neither does section 127 of Act No. 496 bear the construction for
which the plaintiff contends. It provides in legal effect that were one
or more persons executed a conveyance, the instrument must be
executed by all of the parties to the conveyance, and that if there are
two or more persons, the instrument must not only be signed by all
of the parties to the conveyance, but it must be acknowledged by all
of them. That clearly appears from the certificate of acknowledgment
in which it is recited:
. . . personally appeared ________________________ known to me
to be the same person (or persons) who executed the foregoing
instrument, and acknowledge that the same in his (or their) free act
and deed.
The construction for which plaintiff contends would nullify the words
" or persons" and the words "or their." The fact that those words are
used in the manner in which they are used in section 127, must mean
that where two or more persons give a deed or mortgage on real
property, that all of them should not only sign the mortgage, but that
all of them should acknowledge it as "their free act and deed.
Again, in the instant case, the power of attorney was given by the wife
to the husband, and the husband himself was a party to the mortgage,
and the money was paid to him for and on his personal account, and
his signature was necessary to bind any interest which he had in the
land as the husband of the wife, and the signature of the wife in some
form was necessary to bind her interest in the land. Here, you have
the signature upon the face of it which shows that in the signing of it,
the husband ever intended to bind his wife. If Poizat had not been the
husband of his wife, and if he himself was not a party to the
instrument and did not have any interest in the land mortgaged,
another and a very different question would be presented, and his
lone signature might then bind the property of the wife.
With all due respect to the learned counsel, no law, either Spanish or
American, has been cited or will ever be found which, upon the facts
shown in the record, will construe the lone unqualified signature of
the husband as the joint and dual signing of both the husband and the
wife, so as to make it binding upon the paraphernal property of the
wife.
424 | P a g e
Although not cited in the petition during the discussion of this case in
conference, attention was called to article 1717 of the Civil Code
which provides as follows:
When an agent acts in his own name, the principal shall have no right
of action against the persons with whom the agent has contracted, or
such persons against the principal.
In such case, the agent is directly liable to the person with whom he
has contracted, as if the transactions were his own. Cases involving
things belonging to the principal are excepted.
The provisions of this article shall be understood to be without
prejudice to actions between principal and agent.
In the instant case, this section should be construed with article 1713,
which among other things provides that:
In order to compromise, alienate, mortgage, or to execute any other
act of strict ownership, an express power is required.
The mortgage in question was upon real property, and it was not a
"simple contract, " and where an agency is created by an express
power, it must be executed with the formalities of an express power.
Again, although the wife was a party to the body of the mortgage,
Poizat himself had an interest in the real property, and was a party to
the instrument, and his personal signature was necessary to the
mortgage to bind his own personal interest, and the interest of the
conjugal partnership. The power of attorney from the wife gave her
husband the express power defined in article 1713, and that power
should have been exercised, and the mortgage should have been
executed "in the name, place, and stead of the wife." That was not
done.
The authorities cited in the petition for a rehearing and in the majority
opinion are based upon, and refer to, the execution by the agent of a
"simple contract," and for such reason are not in point. There is a very
marked legal distinction between the authority of an agent to make a
"simple contract," and his authority to convey or mortgage real
property and the manner in which the power should be executed.
It may be true that the decision of this court is based upon questions
that are not as fully discussed in the appellant's brief, as they should
have been, but the fact remains that they were pointed out, and
attention was called to them in the argument in the brief, and that
they are expressly covered by the assignments of error.
Although ably presented, we are clearly of the opinion that the
petition for a rehearing must be denied. So ordered.
Johnson, Malcolm, Ostrand, and Romualdez, JJ., concur.
AVANCEÑA, C.J., STREET, VILLAMOR, and VILLA-REAL, JJ., dissenting:
We insist in our dissenting opinion and reference is hereby made to
what we briefly said in our separate opinion. We wish, however, to
emphasize our point of view on the merits of the case with regard to
appellant's liability.
The theory of the majority is contained in the following paragraph of
its decision upon the motion for reconsideration:
. . . If Poizat had not been the husband of his wife, and if he himself
was not a party to the instrument and did not have any interest in the
land mortgaged, another and a very different question would be
presented, and his lone signature might then bind the property of the
wife.
It follows from this point that the power given by the appellant to her
husband Juan M. Poizat is held sufficient to mortgage the land in
question, that the contract entered into by him with the plaintiff,
mortgaging this land, is within the scope of this power, and that the
contract thus signed by Poizat might be sufficient to bind the
appellant. But it is said that it is not, by reason of the fact that Poizat
was also a party to the contract and has an interest in the property
mortgaged. We do not see the importance of this fact. If Poizat were
not a party to the contract and had no interest in the property
mortgaged, the document would, as it stands, — signed by him alone,
— be sufficient to bind the appellant, not by what his signature says,
since it says nothing, but because the document shows that he was
acting on behalf of the appellant. This being the case, we see no
reason why the document should not have full effect and that of the
appellant. The most that can be said is that it was necessary that
Poizat should have signed twice, but again we do not see the necessity
of this duplicity. The signature serves only to authenticate the
document, — and for this purpose one is enough, — and not to
express the nature and extent of the obligation, which must be
determined by the document itself.
But whether this be the effect of the majority opinion, or that it is
necessary, in order to bind the appellant, that Poizat should have
signed the document twice, the first time on his own behalf, and the
second on that of the appellant, or should have signed it only once,
stating that he did so in his own behalf and that of the appellant, with
all due respect to the majority, we believe that the decision rendered
is erroneous.
The doctrine laid down by the majority is openly repugnant to the
spiritualistic conception which informs article 1278 of the Civil Code,
according to which contracts shall be binding whatever may be the
form in which they may have been entered into, provided that the
essential requisites for their validity are present.
In some contracts, a public document is required as a special form for
convenience of evidence (art. 1280, Civil Code), but not as an essential
requisite for its validity, but only for its efficaciousness (art. 1279, Civil
Code). in very few cases does the Civil Code require a certain form for
special reasons, as a requisite to the validity of the contract as for
instance in the donation, in which a public document is required (art.
633, Civil Code), and in the mortgage, which must be registered (art.
1875, Civil Code). But except in these cases, and even in these cases,
once the required special form is complied with, the question as to
form in the former, or the question as to other formalities in the
latter, falls under the broad rule established in article 1278, and losses
all its influence on the effects of the contract, it being enough that the
contract be proven. In this connection, we are not unmindful of the
amendments introduced by the Code of Civil Procedure to the Civil
Code as to the form of contracts for their efficaciousness, but
425 | P a g e
nevertheless we believe that the rule provided by article 1278 of the
Civil Code subsists.

In the instant case, the power given by the appellant to Poizat, as well
as the mortgage executed by the latter in his own behalf and that of
the appellant with the plaintiff was executed in the form required by
the law, that is, in a public document registered in the registry of
property. Under such circumstances, it is not proper to destroy the
effects of these contracts and ignore the rights and obligations which
the parties thereby desired to acquire and assume, merely by reason
of a formality which no law requires, and does not seem to answer
any purpose. The theory of agency, according to the Civil Code, is
based on representation and its characteristic is the subrogation of
the agent in the place of his principal whom he substitutes, in matters
constituting the subject-matter of the agency. Thus, once it is stated
in the document that the agent acts by virtue of the agency, he
absorbs the personality of the principal, and by a legal fiction, he
appears as the principal himself, and whatever he does within the
agency is considered as done by the principal.

At any rate, even supposing that Poizat acted in his own name in
executing the contract with the plaintiff, as he acted within the limits
of the agency or power granted him by the appellant and the contract
relates to things belonging to her, the plaintiff has an action against
the appellant under article 1717 of the Civil Code.

426 | P a g e
26. 212 SCRA 25
G.R. No. 95703 August 3, 1992
RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner,
vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO
and RUFINO S. AQUINO, respondents.
L.M. Maggay & Associates for petitioner.
GRIÑO-AQUINO, J.:
This petition for review seeks reversal of the decision dated
September 18, 1990 of the Court of Appeals, reversing the decision of
the Regional Trial Court of Makati, Branch 150, which dismissed the
private respondents' complaint and awarded damages to the
petitioner, Rural Bank of Bombon.
On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo,
executed a special power of attorney in favor of Rufina S. Aquino
authorizing him:
1. To secure a loan from any bank or lending institution for any
amount or otherwise mortgage the property covered by Transfer
Certificate of Title No. S-79238 situated at Las Piñas, Rizal, the same
being my paraphernal property, and in that connection, to sign, or
execute any deed of mortgage and sign other document requisite and
necessary in securing said loan and to receive the proceeds thereof in
cash or in check and to sign the receipt therefor and thereafter
endorse the check representing the proceeds of loan. (p. 10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special power of
attorney and her owner's copy of Transfer Certificate of Title No. S-
79238 (19963-A).
On August 26, 1981, a Deed of Real Estate Mortgage was executed by
Rufino S. Aquino in favor of the Rural Bank of Bombon (Camarines
Sur), Inc. (hereafter, defendant Rural Bank) over the three parcels of
land covered by TCT No. S-79238. The deed stated that the property
was being given as security for the payment of "certain loans,
advances, or other accommodations obtained by the mortgagor from
the mortgagee in the total sum of Three Hundred Fifty Thousand
Pesos only (P350,000.00), plus interest at the rate of fourteen (14%)
per annum . . ." (p. 11, Rollo).
On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo
filed an action against Rufino Aquino and the Bank because Aquino
allegedly left his residence at San Pascual, Hagonoy, Bulacan, and
transferred to an unknown place in Bicol. She discovered that Aquino
first resided at Sta. Isabel, Calabanga, Camarines Sur, and then later,
at San Vicente, Calabanga, Camarines Sur, and that they (plaintiffs)
were allegedly surprised to discover that the property was mortgaged
to pay personal loans obtained by Aquino from the Bank solely for
personal use and benefit of Aquino; that the mortgagor in the deed
was defendant Aquino instead of plaintiff Gallardo whose address up
to now is Manuyo, Las Piñas, M.M., per the title (TCT No. S-79238)
and in the deed vesting power of attorney to Aquino; that
correspondence relative to the mortgage was sent to Aquino's
address at "Sta. Isabel, Calabanga, Camarines Sur" instead of
Gallardo's postal address at Las Piñas, Metro Manila; and that
defendant Aquino, in the real estate mortgage, appointed defendant
Rural Bank as attorney in fact, and in case of judicial foreclosure as
receiver with corresponding power to sell and that although without
any express authority from Gallardo, defendant Aquino waived
Gallardo's rights under Section 12, Rule 39, of the Rules of Court and
the proper venue of the foreclosure suit.
On January 23, 1984, the trial court, thru the Honorable Fernando P.
Agdamag, temporarily restrained the Rural Bank "from enforcing the
real estate mortgage and from foreclosing it either judicially or
extrajudicially until further orders from the court" (p.36, Rollo).
Rufino S. Aquino in his answer said that the plaintiff authorized him
to mortgage her property to a bank so that he could use the proceeds
to liquidate her obligation of P350,000 to him. The obligation to pay
the Rural Bank devolved on Gallardo. Of late, however, she asked him
to pay the Bank but defendant Aquino set terms and conditions which
plaintiff did not agree to. Aquino asked for payment to him of moral
damages in the sum of P50,000 and lawyer's fees of P35,000.
The Bank moved to dismiss the complaint and filed counter-claims for
litigation expenses, exemplary damages, and attorney's fees. It also
filed a crossclaim against Aquino for P350,000 with interest, other
bank charges and damages if the mortgage be declared unauthorized.
Meanwhile, on August 30, 1984, the Bank filed a complaint against
Ederlinda Gallardo and Rufino Aquino for "Foreclosure of Mortgage"
docketed as Civil Case No. 8330 in Branch 141, RTC Makati. On motion
of the plaintiff, the foreclosure case and the annulment case (Civil
Case No. 6062) were consolidated.
On January 16, 1986, the trial court rendered a summary judgment in
Civil Case No. 6062, dismissing the complaint for annulment of
mortgage and declaring the Rural Bank entitled to damages the
amount of which will be determined in appropriate proceedings. The
court lifted the writ of preliminary injunction it previously issued.
On April 23, 1986, the trial court, in Civil Case No. 8330, issued an
order suspending the foreclosure proceedings until after the decision
in the annulment case (Civil Case No. 6062) shall have become final
and executory.
The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals,
which on September 18, 1990, reversed the trial court. The dispositive
portion of the decision reads:
UPON ALL THESE, the summary judgment entered by the lower court
is hereby REVERSED and in lieu thereof, judgment is hereby
RENDERED, declaring the deed of real estate mortgage dated August
26, 1981, executed between Rufino S. Aquino with the marital
consent of his wife Bibiana Aquino with the appellee Rural Bank of
Bombon, Camarines Sur, unauthorized, void and unenforceable
against plaintiff Ederlinda Gallardo; ordering the reinstatement of the
preliminary injunction issued at the onset of the case and at the same
time, ordering said injunction made permanent.
Appellee Rural Bank to pay the costs. (p. 46, Rollo.)
427 | P a g e
Hence, this petition for review by the Rural Bank of Bombon,
Camarines Sur, alleging that the Court of Appeals erred:
1. in declaring that the Deed of Real Estate Mortgage was
unauthorized, void, and unenforceable against the private
respondent Ederlinda Gallardo; and
2. in not upholding the validity of the Real Estate Mortgage
executed by Rufino S. Aquino as attorney-in-fact for Gallardo, in favor
of the Rural Bank of Bombon, (Cam. Sur), Inc.
Both assignments of error boil down to the lone issue of the validity
of the Deed of Real Estate Mortgage dated August 26, 1981, executed
by Rufino S. Aquino, as attorney-in-fact of Ederlinda Gallardo, in favor
of the Rural Bank of Bombon (Cam. Sur), Inc.
The Rural Bank contends that the real estate mortgage executed by
respondent Aquino is valid because he was expressly authorized by
Gallardo to mortgage her property under the special power of
attorney she made in his favor which was duly registered and
annotated on Gallardo's title. Since the Special Power of Attorney did
not specify or indicate that the loan would be for Gallardo's benefit,
then it could be for the use and benefit of the attorney-in-fact,
Aquino.
However, the Court of Appeals ruled otherwise. It held:
The Special Power of Attorney above quoted shows the extent of
authority given by the plaintiff to defendant Aquino. But defendant
Aquino in executing the deed of Real Estate Mortgage in favor of the
rural bank over the three parcels of land covered by Gallardo's title
named himself as the mortgagor without stating that his signature on
the deed was for and in behalf of Ederlinda Gallardo in his capacity as
her attorney-in-fact.
At the beginning of the deed mention was made of "attorney-in-fact
of Ederlinda H. Gallardo," thus: " (T)his MORTGAGE executed by
Rufino S. Aquino attorney in fact of Ederlinda H. Gallardo, of legal age,
Filipino, married to Bibiana Panganiban with postal address at Sta.
Isabel . . .," but which of itself, was merely descriptive of the person
of defendant Aquino. Defendant Aquino even signed it plainly as
mortgagor with the marital consent yet of his wife Bibiana P. Aquino
who signed the deed as "wife of mortgagor."
xxx xxx xxx
The three (3) promissory notes respectively dated August 31, 1981,
September 23, 1981 and October 26, 1981, were each signed by
Rufino Aquino on top of a line beneath which is written "signature of
mortgagor" and by Bibiana P. Aquino on top of a line under which is
written "signature of spouse," without any mention that execution
thereof was for and in behalf of the plaintiff as mortgagor. It results,
borne out from what were written on the deed, that the amounts
were the personal loans of defendant Aquino. As pointed out by the
appellant, Aquino's wife has not been appointed co-agent of
defendant Aquino and her signature on the deed and on the
promissory notes can only mean that the obligation was personally
incurred by them and for their own personal account.
The deed of mortgage stipulated that the amount obtained from the
loans shall be used or applied only for "fishpond (bangus and sugpo
production)." As pointed out by the plaintiff, the defendant Rural
Bank in its Answer had not categorically denied the allegation in the
complaint that defendant Aquino in the deed of mortgage was the
intended user and beneficiary of the loans and not the plaintiff. And
the special power of attorney could not be stretched to include the
authority to obtain a loan in said defendant Aquino's own benefit. (pp.
40-41, Rollo.)
The decision of the Court of Appeals is correct. This case is governed
by the general rule in the law of agency which this Court, applied in
"Philippine Sugar Estates Development Co. vs. Poizat," 48 Phil. 536,
538:
It is a general rule in the law of agency that, in order to bind the
principal by a mortgage on real property executed by an agent, it must
upon its face purport to be made, signed and sealed in the name of
the principal, otherwise, it will bind the agent only. It is not enough
merely that the agent was in fact authorized to make the mortgage,
if he has not acted in the name of the principal. Neither is it ordinarily
sufficient that in the mortgage the agent describes himself as acting
by virtue of a power of attorney, if in fact the agent has acted in his
own name and has set his own hand and seal to the mortgage. This is
especially true where the agent himself is a party to the instrument.
However clearly the body of the mortgage may show and intend that
it shall be the act of the principal, yet, unless in fact it is executed by
the agent for and on behalf of his principal and as the act and deed of
the principal, it is not valid as to the principal.
In view of this rule, Aquino's act of signing the Deed of Real Estate
Mortgage in his name alone as mortgagor, without any indication that
he was signing for and in behalf of the property owner, Ederlinda
Gallardo, bound himself alone in his personal capacity as a debtor of
the petitioner Bank and not as the agent or attorney-in-fact of
Gallardo. The Court of Appeals further observed:
It will also be observed that the deed of mortgage was executed on
August 26, 1981 therein clearly stipulating that it was being executed
"as security for the payment of certain loans, advances or other
accommodation obtained by the Mortgagor from the Mortgagee in
the total sum of Three Hundred Fifty Thousand Pesos only
(P350,000.00)" although at the time no such loan or advance had
been obtained. The promissory notes were dated August 31,
September 23 and October 26, 1981 which were subsequent to the
execution of the deed of mortgage. The appellant is correct in
claiming that the defendant Rural Bank should not have agreed to
extend or constitute the mortgage on the properties of Gallardo who
had no existing indebtedness with it at the time.
Under the facts the defendant Rural Bank appeared to have ignored
the representative capacity of Aquino and dealt with him and his wife
in their personal capacities. Said appellee Rural Bank also did not
conduct an inquiry on whether the subject loans were to benefit the
interest of the principal (plaintiff Gallardo) rather than that of the
agent although the deed of mortgage was explicit that the loan was
for purpose of the bangus and sugpo production of defendant Aquino.
In effect, with the execution of the mortgage under the circumstances
and assuming it to be valid but because the loan taken was to be used
428 | P a g e
exclusively for Aquino's business in the "bangus" and "sugpo"
production, Gallardo in effect becomes a surety who is made primarily
answerable for loans taken by Aquino in his personal capacity in the
event Aquino defaults in such payment. Under Art. 1878 of the Civil
Code, to obligate the principal as a guarantor or surety, a special
power of attorney is required. No such special power of attorney for
Gallardo to be a surety of Aquino had been executed. (pp. 42-43,
Rollo.)

Petitioner claims that the Deed of Real Estate Mortgage is enforceable

against Gallardo since it was executed in accordance with Article 1883
which provides:

Art. 1883. If an agent acts in his own name, the principal has
no right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.

In such case the agent is the one directly bound in favor of the person
with whom he has contracted, as if the transaction were his own,
except when the contract involves things belonging to the principal.

The above provision of the Civil Code relied upon by the petitioner
Bank, is not applicable to the case at bar. Herein respondent Aquino
acted purportedly as an agent of Gallardo, but actually acted in his
personal capacity. Involved herein are properties titled in the name
of respondent Gallardo against which the Bank proposes to foreclose
the mortgage constituted by an agent (Aquino) acting in his personal
capacity. Under these circumstances, we hold, as we did in Philippine
Sugar Estates Development Co. vs. Poizat, supra, that Gallardo's
property is not liable on the real estate mortgage:

There is no principle of law by which a person can become liable on a

real mortgage which she never executed either in person or by
attorney in fact. It should be noted that this is a mortgage upon real
property, the title to which cannot be divested except by sale on
execution or the formalities of a will or deed. For such reasons, the
law requires that a power of attorney to mortgage or sell real
property should be executed with all of the formalities required in a
deed. For the same reason that the personal signature of Poizat,
standing alone, would not convey the title of his wife in her own real
property, such a signature would not bind her as a mortgagor in real
property, the title to which was in her name. (p. 548.)

WHEREFORE, finding no reversible error in the decision of the Court

of Appeals, we AFFIRM it in toto. Costs against the petitioner.

SO ORDERED.

429 | P a g e
27. 9 SCRA 142
G.R. Nos. L-18223-24 June 29, 1963
COMMERCIAL BANK & TRUST COMPANY OF THE PHILIPPINES,
plaintiff-appellee,
vs.
REPUBLIC ARMORED CAR SERVICE CORPORATION and DAMASO
PEREZ, ET AL., defendants-appellants.
Pompeyo Diaz for plaintiff-appellee.
Halili, Bolinao, Bolinao & Associates and Crispin D. Baizas for
defendants-appellants.
LABRADOR, J.:
The above-entitled cases are appeals from judgments rendered by the
Court of First Instance of through Judges Gustavo Victoriano and
Conrado M. Vasquez, respectively, of said Court.
In G.R. No. L-8223 plaintiff-appellee filed it complaint alleging that the
defendants-appellants were granted by it credit accommodations in
the form of an overdraft line for an amount not exceeding P80,000,
with interest (paragraph 2, Complaint); that defendants or either of
them drew regularly upon the above credit line and as of February 10,
1960, the total of their drawings and interest due amounted to
P79,940.80 (par. 3, id.); that repeated demands were made upon
defendants to pay for the drawings but said demands were ignored
(par. 4, id.). In their answer to the complaint the defendants admit
having drawn upon the credit line extended to them as alleged in the
complaint; claim they have not ignored the demands for the payment
of the sums demanded and have instituted actions against the former
officers of defendant corporation who held defrauded the latter; etc.
(par. 4, Answer). By way of special affirmative defenses, they allege
that the former officers and directors of the defendant corporation
had deliberately defrauded and mismanaged the corporations, as a
part of their scheme to wrest control of various corporations owned
by Damaso Perez, from the latter, and as a result of said frauds or
mismanagements the defendants have instituted actions for damages
for breach of trust; and that the amounts drawn on the credit line
subject of the complaint were received and used by the former
directors and officers of the defendant corporations and constitute
part of the funds misapplied by them. Upon motion, Judge Victoriano
entered for the plaintiff a judgment on the pleadings, holding that the
"special affirmative defenses (of the answer) filled to show that any
allegation respecting the extent of defendants' drawing although they
have admitted having drawn against the credit line, subject of the
action, so that said denial, not being specific denial in the true sense,
does not controvert the allegation at which it is aimed," etc. The court
also further held that the alleged mismanagement and fraud of the
former directors and officials of defendant corporation and the action
now pending in court regarding the same are merely internal affairs
of the corporation which cannot affect or diminish the liability of the
defendant corporation to the plaintiff. The defendants appealed from
the decision to the Court of Appeals, but this Court certified the case
to Us.
In G.R. No. L-18224 the complaint also alleges that the defendants
were given credit accommodation in the form of an overdraft line in
an amount not exceeding P150,000 and drew regularly upon said
credit line amounts which with their interest reach the sum of
P133,453.17; that demands were made for the payment of the
drawings but defendants have failed to pay the amounts demanded.
Defendants in their answer admit the opening of the credit line in
their favor and that demands for the indebtedness were made upon
them, but allege as special defenses that the directors and officers of
the defendant corporation deliberately defrauded and mismanaged
the said corporation breach of trust in order to deprive Damaso Perez
of his control and majority interest in the defendant corporation, as a
result of which fraud, mismanagement and breach of trust the
defendants suffered tremendous losses; that the amounts drawn by
defendant corporation upon the credit line were received and used
by the former directors and officers and same constitute part of the
funds of the defendant corporation misapplied and mismanaged by
said former officers and directors of said corporation. Upon the
presentation of the answer the plaintiff presented motion sustained,
for judgment on the pleadings which the court sustained, holding:
The defendants having admitted the indebtedness in question, its
liability to pay the plaintiff the amount of the said indebtedness is
beyond question. The alleged fact that the money borrowed from the
plaintiff was misappropriated or misapplied by some officers of the
defendant corporation is no defense against the liability of the
defendants to the plaintiff. It is an internal matter of the defendant
corporation in which the plaintiff has no concern or participation
whatsoever. This is specially so with respect to the defendant Damaso
Perez who appears to have executed the agreement, Annex A, in his
own personal capacity and not as an officer of the defendant Republic
Credit Corporation. The allegation that the defendants have a right to
claim indemnity or contribution from the erring directors and officers
of the defendant corporation is a matter which may be the subject of
a separate action, and in which the plaintiff is not concerned. (p. 37,
Record on Appeal)
Against the above judgment the defendants also have prosecuted this
appeal. The Court of Appeals certified the same to Us in accordance
with law.
In G.R. No. L-18223, the defendants-appellants argue that the
admission made by the defendants in their answer that the amount
demanded was due, is qualified "in the sense that whatever amounts
were drawn from the overdraft line in question were part of those
corporate funds of Philippine Armored Car, Inc., misused and
misapplied by Ramon Racelis, et al., former directors and executive
officers of said corporation." (p. 13, Appellee's Brief) In answer to this
argument we call attention to the fact that in the agreement attached
to the complaint Exhibit "A", the obligation of the defendants-
appellants to pay for the amount due under the overdraft line is not
in any way qualified; there is no statement that the responsibility of
the defendants-appellants for the amount taken on overdraft would
cease or be defeated or reduced upon misappropriations on
mismanagement of the funds of the corporation by the directors and
employees thereof. The special defense is, therefore, a sham defense.
Furthermore, under general rules and principles of law the
mismanagement of the business of a party by his agents does not
relieve said party from the responsibility that he had contracted to
third persons, especially in the case at bar where the written
agreement contains no limitation to defendants-appellants'
liability.1äwphï1.ñët
430 | P a g e
The so-called special defense contained in the answer is, therefore,
no special defense to the liability of the defendants-appellants, nor to
the action, and the court's action or judgment on the pleadings was
properly taken. The argument contained in the brief of the
defendants-appellants that the defendants contemplated a third-
party complaint is of no weight, because a third-party complaint was
not available to the defendants under the facts of the case. A third-
party complaint is, under the Rules, available only if the defendant
has a right to demand contribution, indemnity, subrogation or any
other relief from the supposed third-party defendants in respect to
the plaintiff's claim. (Sec. 1, Rule 12, Rules of Court). The supposed
parties defendants or alleged officers of the defendant corporation
had nothing to do with the overdraft account of defendant
corporation with the plaintiff-appellee. Consequently, they cannot be
made parties defendants in a third party complaint. Anyway the filing
of a third party complaint is no hindrance to the issuance of the order
of the court declaring that the defendants' answer presented no issue
or defense and that, therefore, plaintiff-appellee was entitled to
judgment.

In G. R. No. L-18224, our ruling in the first case is also applicable. In

this second case, it is also alleged that at the time of the agreement
for credit in current account the defendant corporation was under the
management of Ramon Racelis and others who defrauded and
mismanaged the corporation, in breach of trust, etc., etc. Again we
declare that the written agreement for credit in current account,
Annex "A", contains no limitation about the liability of the
defendants-appellants, nor an express agreement that the
responsibility of the defendants-appellants should be conditioned
upon the lawful management of the business of the defendant
corporation. The same rulings in the first case are applicable in this
second case.

WHEREFORE, the judgments appealed from are hereby affirmed, with

costs against the defendants-appellants.

Padilla, Bautista Angelo, Concepcion., Reyes, J.B.L., Barrera, Paredes,

Dizon, Regala and Makalintal, JJ., concur.
Bengzon, C.J., took no part.

431 | P a g e
28. 58 Phil. 635
G.R. No. L-39037 October 30, 1933
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
PAZ AGUDELO Y GONZAGA, ET AL., defendants.
PAZ AGUDELO Y GONZAGA, appellant.
Hilado and Hilado and Norberto Romualdez for appellant.
Roman J. Lacson for appellee.
VILLA-REAL, J.:
The defendant Paz Agudelo y Gonzaga appeals to this court from the
judgment rendered by the Court of First Instance of Occidental
Negros, the dispositive part of which reads as follows:
Wherefore, judgment is rendered herein absolving the defendant
Mauro A. Garrucho from the complaint and ordering the defendant
Paz Agudelo y Gonzaga to pay to the plaintiff the sum of P31,091.55,
Philippine currency, together with the interest on the balance of
P20,774.73 at 8 per cent per annum of P4.55 daily from July 16, 1929,
until fully paid, plus the sum of P1,500 as attorney's fees, and the
costs of this suit.
It is hereby ordered that in case the above sums adjudged in favor of
the defendant by virtue of this judgment are not paid to the Philippine
National Bank or deposited in the office of the clerk of this court, for
delivery to the plaintiff, within three months from the date of this
decision, the provincial sheriff of Occidental Negros shall set at public
auction the mortgaged properties described in annex E of the second
amended complaint, and apply the proceeds thereof to the payment
of the sums in question.
It is further ordered that in case the proceeds of the mortgaged
properties are not sufficient to cover the amount of this judgment, a
writ of execution be issued against any other property belonging to
the defendant Paz Agudelo y Gonzaga, not otherwise exempt from
execution, to cover the balance resulting therefrom.
In support of her appeal, the appellant assigns six alleged errors as
committed by the trial court, which we shall discuss in the course of
this decision.
The following pertinent facts, which have been proven without
dispute during the trial, are necessary for the decision of the
questions raised in the present appeal, to wit:
On November 9, 1920, the defendant-appellant Paz Agudelo y
Gonzaga executed in favor of her nephew, Mauro A. Garrucho, the
document Exhibit K conferring upon him a special power of attorney
sufficiently broad in scope to enable him to sell, alienate and
mortgage in the manner and form he might deem convenient, all her
real estate situated in the municipalities of Murcia and Bacolod,
Occidental Negros, consisting in lots Nos. 61 and 207 of the cadastral
survey of Bacolod, Occidental Negros, together with the
improvement thereon.
On December 22, 1920, Amparo A. Garrucho executed the document
Exhibit H whereby she conferred upon her brother Mauro A Garrucho
a special power of attorney sufficiently broad in scope to enable him
to sell, alienate, mortgage or otherwise encumber, in the manner and
form he might deem convenient, all her real estate situated in the
municipalities of Murcia and Bago, Occidental Negros.
Nothing in the aforesaid powers of attorney expressly authorized
Mauro A. Garrucho to contract any loan nor to constitute a mortgage
on the properties belonging to the respective principals, to secure his
obligations.
On December 23, 1920, Mauro A. Garrucho executed in the favor of
the plaintiff entity, the Philippine National bank, the document Exhibit
G, whereby he constituted a mortgage on lot No. 878 of the cadastral
survey of Murcia, Occidental Negros, with all the improvements
thereon, described in transfer certificate of title No. 2415 issued in
the name of Amparo A. Garrucho, to secure the payment of credits,
loans, commercial overdrafts, etc., not exceeding P6,000, together
with interest thereon, which he might obtain from the aforesaid
plaintiff entity, issuing the corresponding promissory note to that
effect.
During certain months of the year 1921 and 1922, Mauro A. Garrucho
maintained a personal current account with the plaintiff bank in the
form of a commercial credit withdrawable through checks (Exhibits S,
1 and T).
On August 24, 1931, the said Mauro A. Garrucho executed in favor of
the plaintiff entity, the Philippine National Bank, the document
Exhibit J whereby he constituted a mortgage on lots Nos. 61 and 207
of the cadastral survey of Bacolod together with the buildings and
improvements thereon, described in original certificates of title Nos.
2216 and 1148, respectively, issued in the name of Paz Agudelo y
Gonzaga, to secure the payment of credits, loans and commercial
overdrafts which the said bank might furnish him to the amount of
P16,00, payable on August 24, 1922, executing the corresponding
promissory note to that effect.
The mortgage deeds Exhibit G and J as well as the corresponding
promissory notes for P6,000 and P16,000, respectively, were
executed in Mauro A. Garrucho's own name and signed by him in his
personal capacity, authorizing the mortgage creditor, the Philippine
National Bank, to take possession of the mortgaged properties, by
means of force if necessary, in case he failed to comply with any of
the conditions stipulated therein.
On January 4, 1922, the manager of the Iloilo branch of the Philippine
National Bank notified Mauro A. Garrucho that his promissory note
for P6,000 of 10 days within which to make payment thereof (Exhibit
O).1awphil.net
On May 9, 1922, the said manager notified Mauro A. Garrucho that
his commercial credit was closed from that date (Exhibit S).
Inasmuch as Mauro A. Garrucho had overdrawn his credit with the
plaintiff-appellee, the said manager thereof, in a letter dated June 27,
1922 (Exhibit T), requested him to liquidate his account amounting to
P15,148.15, at the same time notifying him that his promissory note
432 | P a g e
for P16,000 giving as security for the commercial overdraft in
question, had fallen due some time since.
On July 15, 1922, Mauro A. Garrucho, executed in favor of the plaintiff
entity the deed Exhibit C whereby he constituted a mortgage on lots
Nos. 61 and 207 of the cadastral survey of Bacolod, together with the
improvements thereon, described in transfer certificates of title Nos.
2216 and 1148, respectively, issued in the name of Paz Agudelo y
Gonzaga, and on lot No. 878 of the cadastral survey of Murcia,
described in transfer certificate of title No. 2415, issued in the name
of Amparo A. Garrucho.
In connection of the credits, loans, and commercial overdrafts
amounting to P21,000 which had been granted him, Mauro A.
Garrucho, on the said date July 15, 1922, executed the promissory
note, Exhibit B, for P21,000 as a novation of the former promissory
notes for P6,000 and P16,000, respectively.
In view of the aforesaid consolidated mortgage, Exhibit C, the
Philippine National Bank, on the said date of July 15, 1922, cancelled
the mortgages constituted on lots Nos. 61, 207 and 878 described in
Torrens titles Nos. 2216, 1148 and 2415, respectively.
On November 25, 1925, Amparo A. Garrucho sold lot No. 878
described in certificate of title No. 2415, to Paz Agudelo y Gonzaga
(Exhibit M).
On January 15, 1926, in the City of Manila, Paz Agudelo y Gonzaga
signed the affidavit, Exhibit N, which reads as follows:
Know all men by these presents: That I, Paz Agudelo y Gonzaga, single,
of age, and resident of the City of Manila, P. I., by these present do
hereby agree and consent to the transfer in my favor of lot No. 878 of
the Cadastre of Murcia, Occidental Negros, P. I., by Miss Amparo A.
Garrucho, as evidenced by the public instrument dated November 25,
1925, executed before the notary public Mr. Genaro B. Benedicto,
and do hereby further agree to the amount of the lien thereon stated
in the mortgage deed executed by Miss Amparo A. Garrucho in favor
of the Philippine National Bank.
In testimony whereof, I hereunto affix my signature in the City of
Manila, P.I., this 15th of January, 1926.
(Sgd.) PAZ AGUDELO Y GONZAGA.
Pursuant to the sale made by Amparo A. Garrucho in favor of Paz
Agudelo y Gonzaga, of lot No. 878 of the cadastral survey of Murcia,
described in certificate of title No. 2145 issued in the name of said
Amparo A. Garrucho, and to the affidavit, Exhibit N, transfer
certificate of title No. 5369 was issued in the name of Paz Agudelo y
Gonzaga.
Without discussing and passing upon whether or not the powers of
attorney issued in favor of Mauro A. Garrucho by his sister, Amparo
A. Garrucho, and by his aunt, Paz Agudelo y Gonzaga, respectively, to
mortgage their respective real estate, authorized him to obtain loans
secured by mortgage in the properties in question, we shall consider
the question of whether or not Paz Agudelo y Gonzaga is liable for the
payment of the loans obtained by Mauro A. Garrucho from the
Philippine National Bank for the security of which he constituted a
mortgage on the aforesaid real estate belonging to the defendant-
appellant Paz Agudelo y Gonzaga.
Article 1709 of the Civil Code provides the following:
ART. 1709. By the contract of agency, one person binds himself to
render some service, or to do something for the account or at the
request of another.
And article 1717 of the same Code provides as follows:
ART. 1717. When an agent acts in his own name, the principal shall
have no right of action against the persons with whom the agent has
contracted, or such persons against the principal.
In such case, the agent is directly liable to the person with whom he
has contracted, as if the transaction were his own. Cases involving
things belonging to the principal are excepted.
The provisions of this article shall be understood to be without
prejudice to actions between principal and agent.
Aside from the phrases "attorney in fact of his sister, Amparo A.
Garrucho, as evidenced by the power of attorney attached hereto"
and "attorney in fact of Paz Agudelo y Gonzaga" written after the
name of Mauro A. Garrucho in the mortgage deeds, Exhibits G. and J,
respectively, there is nothing in the said mortgage deeds to show that
Mauro A. Garrucho is attorney in fact of Amparo A. Garrucho and of
Paz Agudelo y Gonzaga, and that he obtained the loans mentioned in
the aforesaid mortgage deeds and constituted said mortgages as
security for the payment of said loans, for the account and at the
request of said Amparo A. Garrucho and Paz Agudelo y Gonzaga. The
above-quoted phrases which simply described his legal personality,
did not mean that Mauro A. Garrucho obtained the said loans and
constituted the mortgages in question for the account, and at the
request, of his principals. From the titles as well as from the signatures
therein, Mauro A. Garrucho, appears to have acted in his personal
capacity. In the aforesaid mortgage deeds, Mauro A. Garrucho, in his
capacity as mortgage debtor, appointed the mortgage creditor
Philippine National Bank as his attorney in fact so that it might take
actual and full possession of the mortgaged properties by means of
force in case of violation of any of the conditions stipulated in the
respective mortgage contracts. If Mauro A. Garrucho acted in his
capacity as mere attorney in fact of Amparo A. Garrucho and of Paz
Agudelo y Gonzaga, he could not delegate his power, in view of the
legal principle of "delegata potestas delegare non potest" (a
delegated power cannot be delegated), inasmuch as there is nothing
in the records to show that he has been expressly authorized to do so.
He executed the promissory notes evidencing the aforesaid loans,
under his own signature, without authority from his principal and,
therefore, were not binding upon the latter (2 Corpus Juris, pp. 630-
637, par. 280). Neither is there anything to show that he executed the
promissory notes in question for the account, and at the request, of
his respective principals (8 Corpus Juris, pp. 157-158).
Furthermore, it is noted that the mortgage deeds, Exhibits C and J,
were cancelled by the documents, Exhibits I and L, on July 15, 1922,
and in their stead the mortgage deed, Exhibit C, was executed, in
which there is absolutely no mention of Mauro A. Garrucho being
433 | P a g e
attorney in fact of anybody, and which shows that he obtained such
credit fro himself in his personal capacity and secured the payment
thereof by mortgage constituted by him in his personal capacity,
although on properties belonging to his principal Paz Agudelo y
Gonzaga.
Furthermore, the promissory notes executed by Mauro A. Garrucho
in favor of the Philippine National Bank, evidencing loans of P6,000
and P16,000 have been novated by the promissory notes for P21,000
(Exhibit B) executed by Mauro A. Garrucho, not only without express
authority from his principal Paz Agudelo y Gonzaga but also under his
own signature.
In the case of National Bank vs. Palma Gil (55 Phil., 639), this court laid
down the following doctrine:
A promissory note and two mortgages executed by the agent for and
on behalf of his principal, in accordance with a power of attorney
executed by the principal in favor of the agent, are valid, and as
provided by article 1727 of contracted by the agent; but a mortgage
on real property of the principal not made and signed in the name of
the principal is not valid as to the principal.
It has been intimated, and the trial judge so stated. that it was the
intention of the parties that Mauro A. Garrucho would execute the
promissory note, Exhibit B, and the mortgage deed, Exhibit C, in his
capacity as attorney in facts of Paz Agudelo y Gonzaga, and that
although the terms of the aforesaid documents appear to be contrary
to the intention of the parties, such intention should prevail in
accordance with article 1281 of the Civil Code.
Commenting on article 1281 of the Civil Code, Manresa, in his
Commentaries to the Civil Code, says the following:
IV. Intention of the contracting parties; its appreciation. — In order
that the intention may prevail, it is necessary that the question of
interpretation be raised, either because the words used appear to be
contrary thereto, or by the existence of overt acts opposed to such
words, in which the intention of the contracting parties is made
manifest. Furthermore, in order that it may prevail against the terms
of the contract, it must be clear or, in other words, besides the fact
that such intention should be proven by admissible evidence, the
latter must be of such charter as to carry in the mind of the judge an
unequivocal conviction. This requisite as to the kind of evidence is laid
down in the decision relative to the Mortgage Law of September 30,
1891, declaring that article 1281 of the Civil Code gives preference to
intention only when it is clear. When the aforesaid circumstances is
not present in a document, the only thing left for the register of deeds
to do is to suspend the registration thereof, leaving the solution of the
problem to the free will of the parties or to the decision of the courts.
However, the evident intention which prevails against the defective
wording thereof is not that of one of the parties, but the general
intent, which, being so, is to a certain extent equivalent to mutual
consent, inasmuch as it was the result desired and intended by the
contracting parties. (8 Manresa, 3d edition, pp. 726 and 727.)
Furthermore, the records do not show that the loan obtained by
Mauro A. Garrucho, evidenced by the promissory note, Exhibit B, was
for his principal Paz Agudelo y Gonzaga. The special power of
attorney, Exhibit K, does not authorize Mauro A. Garrucho to
constitute a mortgage on the real estate of his principal to secure his
personal obligations. Therefore, in doing so by virtue of the
document, Exhibit C, he exceeded the scope if his authority and his
principal is not liable for his acts. (2 Corpus Juris, p. 651; article 1714,
Civil Code.)
It is further claimed that inasmuch as the properties mortgaged by
Mauro A. Garrucho belong to Paz Agudelo y Gonzaga, the latter is
responsible for the acts of the former although he acted in his own
name, in accordance with the exception contained in article 1717 of
the Civil Code. It would be an exception with the properties of his own
name in connection with the properties of his principal, does so within
the scope of his authority. It is noted that Mauro A. Garrucho was not
authorized to execute promissory notes even in the name of his
principal Paz Agudelo y Gonzaga, nor to constitute a mortgage on her
real properties to secure such promissory notes. The plaintiff
Philippine National Bank should know this inasmuch as it is in duty
bound to ascertain the extent of the agent's authority before dealing
with him. Therefore, Mauro A. Garrucho and not Paz Agudelo y
Gonzaga is personally liable for the amount of the promissory note
Exhibit B. (2 Corpus Juris, pp. 563-564.)
However, Paz Agudelo y Gonzaga in an affidavit dated January 15,
1926 (Exhibit AA), and in a letter dated January 16, 1926 (Exhibit Z),
gave her consent to the lien on lot No. 878 of the cadastre of Murcia,
Occidental Negros, described in Torrens title No. 5369, the ownership
of which was transferred to her by her niece Amparo A. Garrucho. This
acknowledgment, however, does not extend to lots Nos. 207 and 61
of the cadastral survey of Bacolod, described in transfer certificates
of title Nos. 1148 and 2216, respectively, inasmuch as, although it is
true that a mortgage is indivisible as to the contracting parties and as
top their successors in interest (article 1860, Civil Code), it is not so
with respect to a third person who did not take part in the
constitution thereof either personally or through an agent, inasmuch
as he can make the acknowledgment thereof in the form and to the
extent he may deem convenient, on the ground that he is not in duty
bound to acknowledge the said mortgage. Therefore, the only liability
of the defendant-appellant Paz Agudelo y Gonzaga is that which arises
from the aforesaid acknowledgment, but only with respect to the lien
and not to the principal obligation secured by the mortgage
acknowledged by her to have been constituted on said lot No. 878 of
the cadastral survey of Murcia, Occidental Negros. Such liability is not
direct but a subsidiary one.
Having reach this contention, it is unnecessary to pass upon the other
questions of law raised by the defendant- appellant in her brief and
upon the law cited therein.
In view of the foregoing consideration, we are of the opinion and so
hold that when an agent negotiates a loan in his personal capacity and
executes a promissory note under his own signature, without express
authority from his principal, giving as security therefor real estate
belonging to the letter, also in his own name and not in the name and
representation of the said principal, the obligation do constructed by
him is personal and does not bind his aforesaid principal.
Wherefore, it is hereby held that the liability constructed by the
aforesaid defendant-appellant Paz Agudelo y Gonzaga is merely
subsidiary to that of Mauro A. Garrucho, limited lot No. 878 of the
434 | P a g e
cadastral survey of Murcia, Occidental Negros, described in Torrens
title No. 2415. However, inasmuch as the principal obligator, Mauro
A. Garrucho, has been absolved from the complaint and the plaintiff-
appellee has not appealed from the judgment absolving him, the law
does not afford any remedy whereby Paz Agudelo y Gonzaga may be
required to comply with the said subsidiary obligation in view of the
legal maxim that the accessory follows the principal. Wherefore, the
defendant herein should also be absolved from the complaint which
is hereby dismissed, with the costs against the appellee. So ordered.

Avanceña, C.J., Malcolm, Hull, and Imperial, JJ., concur.

435 | P a g e
29. 40 Phil. 834
G.R. No. L-13471 January 12, 1920
VICENTE SY-JUCO and CIPRIANA VIARDO, plaintiffs-appellants,
vs.
SANTIAGO V. SY-JUCO, defendant-appellant.
Sumulong and Estrada for plaintiffs and appellants.
Delgado and Delgado for defendant and appellant.
AVANCEÑA, J.:
In 1902 the defendant was appointed by the plaintiffs administrator
of their property and acted as such until June 30, 1916, when his
authority was cancelled. The plaintiffs are defendant's father and
mother who allege that during his administration the defendant
acquired the property claimed in the complaint in his capacity as
plaintiffs' administrator with their money and for their benefit. After
hearing the case the trial court rendered his decision, the dispositive
part of which is the following:
Wherefore, the court give judgment for the plaintiffs and orders:
1. That the defendant return to the plaintiffs the launch Malabon, in
question, and execute all the necessary documents and instruments
for such delivery and the registration in the records of the Custom
House of said launch as plaintiffs' property;
2. That the defendant return to the plaintiffs the casco No. 2584, or
pay to them the value thereof which has been fixed at the sum of
P3,000, and should the return of said casco be made, execute all the
necessary instruments and documents for its registration in plaintiffs'
name at the Custom House; and
3. That the defendant return to the plaintiffs the automobile No. 2060
and execute the necessary instruments and documents for its
registration at the Bureau of Public Works. And judgment is hereby
given for the defendant absolving him from the complaint so far
concerns:
1. The rendition of accounts of his administration of plaintiffs
property;
2. The return of the casco No. 2545;
3. The return of the typewriting machine;
4. The return of the house occupied by the defendant; and
5. The return of the price of the piano in question.
Both parties appealed from this judgment.
In this instance defendant assigns three errors alleged to have been
committed by the lower court in connection with the three items of
the dispositive part of the judgment unfavorable to him. We are of
the opinion that the evidence sufficiently justifies the judgment
against the defendant.
Regarding the launch Malabon, it appears that in July, 1914, the
defendant bought it in his own name from the Pacific Commercial Co.,
and afterwards registered it at the Custom House. But his does not
necessarily show that the defendant bought it for himself and with his
own money, as he claims. This transaction was within the agency
which he had received from the plaintiffs. The fact that he has acted
in his own name may be only, as we believe it was, a violation of the
agency on his part. As the plaintiffs' counsel truly say, the question is
not in whose favor the document of sale of the launch is executed nor
in whose name same was registered, but with whose money was said
launch bought. The plaintiffs' testimony that it was bought with their
money and for them is supported by the fact that, immediately after
its purchase, the launch had to be repaired at their expense, although
said expense was collected from the defendant. I the launch was not
bought for the plaintiffs and with their money, it is not explained why
they had to pay for its repairs.
The defendant invokes the decision of this Court in the case of
Martinez vs. Martinez (1 Phil. Rep., 647), which we do not believe is
applicable to the present case. In said case, Martinez, Jr., bought a
vessel in his own name and in his name registered it at the Custom
House. This court then said that although the funds with which the
vessel was bought belonged to Martinez Sr., Martinez Jr. is its sole and
exclusive owner. But in said case the relation of principal and agent,
which exists between the plaintiffs and the defendant in the present
case, did not exist between Martinez, Sr., and Martinez, Jr. By this
agency the plaintiffs herein clothed the defendant with their
representation in order to purchase the launch in question. However,
the defendant acted without this representation and bought the
launch in his own name thereby violating the agency. If the result of
this transaction should be that the defendant has acquired for himself
the ownership of the launch, it would be equivalent to sanctioning
this violation and accepting its consequences. But not only must the
consequences of the violation of this agency not be accepted, but the
effects of the agency itself must be sought. If the defendant
contracted the obligation to but the launch for the plaintiffs and in
their representation, but virtue of the agency, notwithstanding the
fact that he bought it in his own name, he is obliged to transfer to the
plaintiffs the rights he received from the vendor, and the plaintiffs are
entitled to be subrogated in these rights.
There is another point of view leading us to the same conclusion.
From the rule established in article 1717 of the Civil Code that, when
an agency acts in his own name, the principal shall have no right of
action against the person with whom the agent has contracted, cases
involving things belonging to the principal are excepted. According to
this exception (when things belonging to the principal are dealt with)
the agent is bound to the principal although he does not assume the
character of such agent and appears acting in his own name (Decision
of the Supreme Court of Spain, May 1, 1900). This means that in the
case of this exception the agent's apparent representation yields to
the principal's true representation and that, in reality and in effect,
the contract must be considered as entered into between the
principal and the third person; and, consequently, if the obligations
belong to the former, to him alone must also belong the rights arising
from the contract. The money with which the launch was bough
having come from the plaintiff, the exception established in article
1717 is applicable to the instant case.
436 | P a g e
Concerning the casco No. 2584, the defendant admits it was
constructed by the plaintiff himself in the latter's ship-yard.
Defendant's allegation that it was constructed at his instance and with
his money is not supported by the evidence. In fact the only proof
presented to support this allegation is his own testimony
contradicted, on the on hand, by the plaintiffs' testimony and, on the
other hand, rebutted by the fact that, on the date this casco was
constructed, he did not have sufficient money with which to pay the
expense of this construction.
As to the automobile No. 2060, there is sufficient evidence to show
that its prices was paid with plaintiffs' money. Defendant's adverse
allegation that it was paid with his own money is not supported by the
evidence. The circumstances under which, he says, this payment has
been made, in order to show that it was made with his own money,
rather indicate the contrary. He presented in evidence his check-book
wherein it appears that on March 24, 1916, he issued a check for P300
and on the 27th of same month another for P400 and he says that the
first installment was paid with said checks. But it results that, in order
to issue the check for P300 on March 24 of that year, he had to deposit
P310 on that same day; and in order to issue the other check for P400
on the 27th of the same month, he deposited P390 on that same day.
It was necessary for the defendant to make these deposits for on
those dates he had not sufficient money in the bank for which he
could issue those checks. But, in order to pay for the price of the
automobile, he could have made these payments directly with the
money he deposited without the necessity of depositing and
withdrawing it on the same day. If this action shows something, it
shows defendant's preconceived purpose of making it appear that he
made the payment with his own funds deposited in the bank.
Upon an examination of the evidence relative to this casco, we find
that it belonged to the plaintiffs and that the latter sold it afterwards
to the defendant by means of a public instrument. Notwithstanding
plaintiffs' allegation that when they signed this instrument they were
deceived, believing it not to be an instrument of sale in favor of the
defendant, nevertheless, they have not adduced sufficient proof of
such deceit which would destroy the presumption of truth which a
public document carries with it. Attorney Sevilla, who acted as the
notary in the execution of this instrument, testifying as a witness in
the case, said that he never verified any document without first
inquiring whether the parties knew its content. Our conclusion is that
this casco was lawfully sold to the defendant by the plaintiffs.
Concerning the wood, windows and doors given by the plaintiffs to
the defendant and used in the construction of the latter's house on
calle Real of the barrio of La Concepcion of the municipality of
Malabon, Rizal, we find correct the trial Court's decision that they
were given to the defendant as his and his wife's property.
Concerning the rendition of accounts which the plaintiffs require of
the defendant, we likewise find correct the trial court's decision
absolving the latter from this petition, for it appears, from the
plaintiffs' own evidence, that the defendant used to render accounts
of his agency after each transactions, to the plaintiffs' satisfaction.
From the foregoing considerations, we affirm the judgment appealed
from in all its parts except in so far as the casco No. 2545 is concerned,
and as to this we declare that, it having been sold by the plaintiffs to
the defendant, the latter is absolved. No special findings as to costs.
So ordered.

The plaintiffs, in turn, assign in this instance the following three errors Arellano, C.J., Torres, Johnson, Araullo, Street and Malcolm, JJ.,
alleged to have been committed by the lower court: concur.

1. The court erred in not declaring that the plaintiffs did not sell to the
defendant the casco No. 2545 and that they were its owners until it
was sunk in June, 1916.

2. The court erred in absolving the defendant from his obligation to

render an account of his administration to the plaintiffs, and to pay to
the latter the amount of the balance due in their favor.

3. The court erred in not condemning the defendant to pay to the

plaintiffs the value of the woods, windows and doors taken from their
lumber-year by the defendant and used in the construction of the
house on calle Real of the barrio of La Concepcion, municipality of
Malabon, Rizal.

Concerning the casco No. 2545, the lower court refrained from
making any declaration about its ownership in view of the fact that
this casco had been leased and was sunk while in the lessee's hands
before the complaint in this case was filed. The lower court, therefore,
considered it unnecessary to pass upon this point. We agree with the
plaintiffs that the trial court should have made a pronouncement
upon this casco. The lessee may be responsible in damages for its loss,
and it is of interest to the litigants in this case that it be determined
who is the owner of said casco that may enforce this responsibility of
the lessee.

437 | P a g e
30. 184 SCRA 155
G.R. No. 75640 April 5, 1990
NATIONAL FOOD AUTHORITY, (NFA), petitioner,
vs.
INTERMEDIATE APPELLATE COURT, SUPERIOR (SG) SHIPPING
CORPORATION, respondents.
Zapanta, Gloton & Ulejorada for petitioner.
Sison, Ortiz & Associates for private respondents.
PARAS, J.:
This is a petition for review on certiorari made by National Food
Authority (NFA for brevity) then known as the National Grains
Authority or NGA from the decision 1 of the Intermediate Appellate
Court affirming the decision 2 of the trial court, the decretal portion
of which reads:
WHEREFORE, defendants Gil Medalla and National Food Authority are
ordered to pay jointly and severally the plaintiff:
a. the sum of P25,974.90, with interest at the legal rate from
October 17, 1979 until the same is fully paid; and,
b. the sum of P10,000.00 as and for attorney's fees.
Costs against both defendants.
SO ORDERED. (p. 22, Rollo)
Hereunder are the undisputed facts as established by the then
Intermediate Appellate Court (now Court of Appeals), viz:
On September 6, 1979 Gil Medalla, as commission agent of the
plaintiff Superior Shipping Corporation, entered into a contract for
hire of ship known as "MV Sea Runner" with defendant National
Grains Authority. Under the said contract Medalla obligated to
transport on the "MV Sea Runner" 8,550 sacks of rice belonging to
defendant National Grains Authority from the port of San Jose,
Occidental Mindoro, to Malabon, Metro Manila.
Upon completion of the delivery of rice at its destination, plaintiff on
October 17, 1979, wrote a letter requesting defendant NGA that it be
allowed to collect the amount stated in its statement of account
(Exhibit "D"). The statement of account included not only a claim for
freightage but also claims for demurrage and stevedoring charges
amounting to P93,538.70.
On November 5, 1979, plaintiff wrote again defendant NGA, this time
specifically requesting that the payment for freightage and other
charges be made to it and not to defendant Medalla because plaintiff
was the owner of the vessel "MV Sea Runner" (Exhibit "E"). In reply,
defendant NGA on November 16, 1979 informed plaintiff that it could
not grant its request because the contract to transport the rice was
entered into by defendant NGA and defendant Medalla who did not
disclose that he was acting as a mere agent of plaintiff (Exhibit "F").
Thereupon on November 19, 1979, defendant NGA paid defendant
Medalla the sum of P25,974.90, for freight services in connection with
the shipment of 8,550 sacks of rice (Exhibit "A").
On December 4, 1979, plaintiff wrote defendant Medalla demanding
that he turn over to plaintiff the amount of P27,000.00 paid to him by
defendant NFA. Defendant Medalla, however, "ignored the demand."
Plaintiff was therefore constrained to file the instant complaint.
Defendant-appellant National Food Authority admitted that it
entered into a contract with Gil Medalla whereby plaintiffs vessel "MV
Sea Runner" transported 8,550 sacks of rice of said defendant from
San Jose, Mindoro to Manila.
For services rendered, the National Food Authority paid Gil Medalla
P27,000.00 for freightage.
Judgment was rendered in favor of the plaintiff. Defendant National
Food Authority appealed to this court on the sole issue as to whether
it is jointly and severally liable with defendant Gil Medalla for
freightage. (pp. 61-62, Rollo)
The appellate court affirmed the judgment of the lower court, hence,
this appeal by way of certiorari, petitioner NFA submitting a lone issue
to wit: whether or not the instant case falls within the exception of
the general rule provided for in Art. 1883 of the Civil Code of the
Philippines.
It is contended by petitioner NFA that it is not liable under the
exception to the rule (Art. 1883) since it had no knowledge of the fact
of agency between respondent Superior Shipping and Medalla at the
time when the contract was entered into between them (NFA and
Medalla). Petitioner submits that "(A)n undisclosed principal cannot
maintain an action upon a contract made by his agent unless such
principal was disclosed in such contract. One who deals with an agent
acquires no right against the undisclosed principal."
Petitioner NFA's contention holds no water. It is an undisputed fact
that Gil Medalla was a commission agent of respondent Superior
Shipping Corporation which owned the vessel "MV Sea Runner" that
transported the sacks of rice belonging to petitioner NFA. The context
of the law is clear. Art. 1883, which is the applicable law in the case at
bar provides:
Art. 1883. If an agent acts in his own name, the principal has
no right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the person
with whom he has contracted, as if the transaction were his own,
except when the contract involves things belonging to the principal.
The provision of this article shall be understood to be without
prejudice to the actions between the principal and agent.
Consequently, when things belonging to the principal (in this case,
Superior Shipping Corporation) are dealt with, the agent is bound to
the principal although he does not assume the character of such agent
and appears acting in his own name. In other words, the agent's
apparent representation yields to the principal's true representation
438 | P a g e
and that, in reality and in effect, the contract must be considered as
entered into between the principal and the third person (Sy Juco and
Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if the principal can be
obliged to perform his duties under the contract, then it can also
demand the enforcement of its rights arising from the contract.

WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED

and the appealed decision is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes

1 Penned by Justice Jorge R. Coquia with the concurring votes of

Justice Floreliana Castro-Bartolome and Justice Bienvenido C.
Ejercito.

2 Penned by Judge Ricardo D. Pronove, Jr.

439 | P a g e
31. 49 Phil. 816
G.R. No. L-25950 December 24, 1926
E. AWAD, plaintiff-appellant,
vs.
FILMA MERCANTILE CO., INC., defendant-appellee.
M. H. de Joya and Ramon P. Gomez for appellant.
Crossfield and O'Brien for appellee.
OSTRAND, J.:
Early in the month of September, 1924, the plaintiff, doing business
in the Philippine Islands under the name of E. Awad & Co., delivered
certain merchandise of the invoice value of P11,140 to Chua Lioc, a
merchant operating under the name of Hang Chua Co. in Manila, said
merchandise to be sold on commission by Chua Lioc. Representing
himself as being the owner of the merchandise, Chua Lioc, on
September 8, 1924, sold it to the defendant for the sum of
P12,155.60. He owed the Philippine Manufacturing Co., the sum of
P3,480, which the defendant agreed to pay, and was also indebted to
the defendant itself in the sum of P2,017.98. The total amount of the
two debts, P5,497.98, was deducted from the purchase price, leaving
a balance of P6,657.52 which the defendant promised to pay to Chua
Lioc on or before October 9, 1924.
The merchandise so purchased on September 9, was delivered to the
defendant, who immediately offered it for sale. Three days later D. J.
Awad, the representative of the plaintiff in the Philippine Islands;
having ascertained that the goods entrusted to Chua Lioc was being
offered for sale by the defendant, obtained authorization from Chua
Lioc to collect the sum of P11,707 from said defendant and informed
the latter's treasurer of the facts above set forth. On September 15,
D. J. Awad, in behalf of E. Awad & Co., wrote a letter to the defendant
corporation advising it that, inasmuch as the merchandise belonged
to E. Awad & Co., the purchase price should be paid to them, to which
letter, the defendant, on September 18, 1924, made the following
answer:
Messrs. E. AWAD & CO.
435 Juan Luna Manila.
GENTLEMEN: We are in receipt of your letter of September 15, 1924,
in which you state that certain blankets and shirts were brought from
you by the Chinaman Chua Lioc under false pretenses on
consignment, basis, and in which you say that the merchandise is
yours and we should make payment to you for said merchandise. In
answer to your letter, we beg to say to you that the blankets and shirts
in question, together with other merchandise, were purchased and
received by us from the Chinaman Chua Lioc on September 9, 1924,
in the ordinary course of business, and that there is now due from us
to the said Chinaman a balance of P6,657.52, which is payable on
October 9, 1924. In view of these facts, we are unable to comply with
your request, and would advise you, in case this Chinaman is indebted
to you for said merchandise, to take the necessary steps through the
Court to secure the payment of this balance due to him to your firm,
inasmuch as if you do not do so, we shall be obliged to pay the balance
which we owe for said merchandise directly to him.
Yours respectfully,
FILMA MERCHANTILE CO. INC.
On the same date, September 18, 1924, the Philippine Trust
Company, brought an action, civil case No. 26934, against Chua Lioc
for the recovery of the sum of P1,036.36 and under a writ of
attachment garnished the balance due Chua Lioc from the defendant.
On October 7, E. Awad also brought an action, civil case No. 27016,
against Chua Lioc for the recovery of the sum of P11,140, the invoice
value of the merchandise above-mentioned and also obtained a writ
of attachment under which notice of garnishment of the said
aforesaid balance we served upon the herein defendant.
The complaint in the present action was filed on November 26, 1924,
the plaintiff demanding payment of the same sum of P11,140 for
which action had already been brought against Chua Lioc. The
defendant, its answer, set up as special defense that it brought the
merchandise in good faith and without any knowledge whether of the
person from whom or the condition under which the said
merchandise had been acquired by Chua Lioc or Hang Chuan Co.; that
the defendant therefore had acquired title to the merchandise
purchased; that the balance of P6,657.52, now in the hands of the
defendant had been attached in the two actions brought on
September 18, and October 7, respectively, and garnishment served
upon the defendant, who therefore, holds the money subject to the
orders of the court in the cases above-mentioned, but which sum the
defendant is able and willing to pay at any time when the court
decides to whom the money lawfully pertains.1awphil.net
Upon trial, the court below dismissed the case without costs on the
ground that the plaintiff was only entitled to payment of the sum of
P6,657.52, but which sum the defendant had the right to retain
subject to the orders of the court in cases Nos. 26134 and 27016.
From this judgment the plaintiff appealed.
The law applicable to the case is well settled. Article 246 of the Code
of Commerce reads as follows:
When the agent transacts business in his own name, it shall not be
necessary for him to state who is the principal and he shall be directly
liable, as if the business were for his own account, to the persons with
whom he transacts the same, said persons not having any right of
action against the principal, nor the latter against the former, the
liabilities of the principal and of the agent to each other always being
reserved.
The rule laid down in the article quoted is contrary to the general rule
in the United States as to purchases of merchandise from agents with
undisclosed principal, but it has been followed in a number of cases
and is the law in its jurisdiction. (Pastells & Regordosa vs. Hollman &
Co., 2 Phil., 235; Castle Bros., Wolf & Sons vs. Go-Juno, & Phil., 144;
Lim Tiu vs. Ruiz y Rementeria, 15 Phil., 367.) But the appellant points
out several circumstances which, in his opinion, indicate that the
defendant-appellee was aware of the condition under which the
merchandise was entrusted to the agent Chua Lioc and therefore did
not purchase the goods in good faith. This, if true, would, of course,
lead to a decision of the case in favor of the plaintiff, but there is, in
440 | P a g e
our opinion, nothing conclusive about the circumstances referred to
and they are not sufficient to overcome the presumption of good
faith.

The appealed judgment is in accordance with the law and the facts
and is affirmed with the costs against the appellant. So ordered.

Avanceña, C. J., Street, Malcolm, Villamor, Johns, Romualdez and

Villa-Real, JJ., concur.

441 | P a g e
32. GR No. 113074, January 22, 1997
G.R. No. 113074 January 22, 1997
ALFRED HAHN, petitioner,
vs.
COURT OF APPEALS and BAYERSCHE MOTOREN WERKE
AKTIENGSELLSCHAFT (BMW), respondents.
MENDOZA, J.:
This is a petition for review of the decision1 of the Court of Appeals
dismissing a complaint for specific performance which petitioner had
filed against private respondent on the ground that the Regional Trial
Court of Quezon City did not acquire jurisdiction over private
respondent, a nonresident foreign corporation, and of the appellate
court's order denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the
name and style "Hahn-Manila." On the other hand, private
respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is
a nonresident foreign corporation existing under the laws of the
former Federal Republic of Germany, with principal office at Munich,
Germany.
On March 7, 1967, petitioner executed in favor of private respondent
a "Deed of Assignment with Special Power of Attorney," which reads
in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the
BMW trademark and device in the Philippines which ASSIGNOR uses
and has been using on the products manufactured by ASSIGNEE, and
for which ASSIGNOR is the authorized exclusive Dealer of the
ASSIGNEE in the Philippines, the same being evidenced by certificate
of registration issued by the Director of Patents on 12 December 1963
and is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently
record said transfer of the said BMW trademark and device in favor
of the ASSIGNEE herein with the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the
stipulations hereunder stated, the ASSIGNOR hereby affirms the said
assignment and transfer in favor of the ASSIGNEE under the following
terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user
other than ASSIGNOR or infringer of the BMW trademark in the
Philippines; for such purpose, the ASSIGNOR shall inform the
ASSIGNEE immediately of any such use or infringement of the said
trademark which comes to his knowledge and upon such information
the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility
to prosecute unilaterally or in concert with ASSIGNEE, any such
infringer of the subject mark and for purposes hereof the ASSIGNOR
is hereby named and constituted as ASSIGNEE's Attorney-In-Fact, but
any such suit without ASSIGNEE's consent will exclusively be the
responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue
business relations as has been usual in the past without a formal
contract, and for that purpose, the dealership of ASSIGNOR shall
cover the ASSIGNEE's complete production program with the only
limitation that, for the present, in view of ASSIGNEE's limited
production, the latter shall not be able to supply automobiles to
ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has
been usual in the past without a formal contract." But on February 16,
1993, in a meeting with a BMW representative and the president of
Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was
informed that BMW was arranging to grant the exclusive dealership
of BMW cars and products to CMC, which had expressed interest in
acquiring the same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in a letter,
expressed dissatisfaction with various aspects of petitioner's
business, mentioning among other things, decline in sales,
deteriorating services, and inadequate showroom and warehouse
facilities, and petitioner's alleged failure to comply with the standards
for an exclusive BMW dealer.2 Nonetheless, BMW expressed
willingness to continue business relations with the petitioner on the
basis of a "standard BMW importer" contract, otherwise, it said, if this
was not acceptable to petitioner, BMW would have no alternative but
to terminate petitioner's exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive
dealership would be a breach of the Deed of Assignment.3 Hahn
insisted that as long as the assignment of its trademark and device
subsisted, he remained BMW's exclusive dealer in the Philippines
because the assignment was made in consideration of the exclusive
dealership. In the same letter petitioner explained that the decline in
sales was due to lower prices offered for BMW cars in the United
States and the fact that few customers returned for repairs and
servicing because of the durability of BMW parts and the efficiency of
petitioner's service.
Because of Hahn's insistence on the former business relation, BMW
withdrew on March 26, 1993 its offer of a "standard importer
contract" and terminated the exclusive dealer relationship effective
June 30, 1993. 4 At a conference of BMW Regional Importers held on
April 26, 1993 in Singapore, Hahn was surprised to find Alvarez among
those invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars
and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a
complaint for specific performance and damages against BMW to
compel it to continue the exclusive dealership. Later he filed an
amended complaint to include an application for temporary
restraining order and for writs of preliminary, mandatory and
prohibitory injunction to enjoin BMW from terminating his exclusive
dealership. Hahn's amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in
the Philippines with principal offices at Munich, Germany. It may be
served with summons and other court processes through the
Secretary of the Department of Trade and Industry of the Philippines.
...
442 | P a g e

xxx xxx xxx
5. On March 7, 1967, Plaintiff executed in favor of defendant
BMW a Deed of Assignment with Special Power of Attorney covering
the trademark and in consideration thereof, under its first whereas
clause, Plaintiff was duly acknowledged as the "exclusive Dealer of the
Assignee in the Philippines. . . .
xxx xxx xxx
8. From the time the trademark "BMW & DEVICE" was first
used by the Plaintiff in the Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA" and without any monetary
contribution from defendant BMW, established BMW's goodwill and
market presence in the Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies. . . . Moreover,
Plaintiff has built buildings and other infrastructures such as service
centers and showrooms to maintain and promote the car and
products of defendant BMW.
xxx xxx xxx
10. In a letter dated February 24, 1993, defendant BMW
advised Plaintiff that it was willing to maintain with Plaintiff a
relationship but only "on the basis of a standard BMW importer
contract as adjusted to reflect the particular situation in the
Philippines" subject to certain conditions, otherwise, defendant BMW
would terminate Plaintiffs exclusive dealership and any relationship
for cause effective June 30, 1993. . . .
xxx xxx xxx
15. The actuations of defendant BMW are in breach of the
assignment agreement between itself and plaintiff since the
consideration for the assignment of the BMW trademark is the
continuance of the exclusive dealership agreement. It thus, follows
that the exclusive dealership should continue for so long as defendant
BMW enjoys the use and ownership of the trademark assigned to it
by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to
Branch 104 of the Quezon City Regional Trial Court, which on June 14,
1993 issued a temporary restraining order. Summons and copies of
the complaint and amended complaint were thereafter served on the
private respondent through the Department of Trade and Industry,
pursuant to Rule 14, §14 of the Rules of Court. The order, summons
and copies of the complaint and amended complaint were later sent
by the DTI to BMW via registered mail on June 15, 19935 and received
by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on
the application for the writ of preliminary injunction proceeded ex
parte, with petitioner Hahn testifying. On June 30, 1993, the trial
court issued an order granting the writ of preliminary injunction upon
the filing of a bond of P100,000.00. On July 13, 1993, following the
posting of the required bond, a writ of preliminary injunction was
issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the
trial court did not acquire jurisdiction over it through the service of
summons on the Department of Trade and Industry, because it
(BMW) was a foreign corporation and it was not doing business in the
Philippines. It contended that the execution of the Deed of
Assignment was an isolated transaction; that Hahn was not its agent
because the latter undertook to assemble and sell BMW cars and
products without the participation of BMW and sold other products;
and that Hahn was an indentor or middleman transacting business in
his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was
doing business in the Philippines through him as its agent, as shown
by the fact that BMW invoices and order forms were used to
document his transactions; that he gave warranties as exclusive BMW
dealer; that BMW officials periodically inspected standards of service
rendered by him; and that he was described in service booklets and
international publications of BMW as a "BMW Importer" or "BMW
Trading Company" in the Philippines.
The trial court6 deferred resolution of the motion to dismiss until
after trial on the merits for the reason that the grounds advanced by
BMW in its motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW
filed a petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR
OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE
ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION, AND IN
PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING
RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF LACK
OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY DISMISS
THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining
order and, after hearing, for a writ of preliminary injunction, to enjoin
the trial court from proceeding further in Civil Case No. Q-93-15933.
Private respondent pointed out that, unless the trial court's order was
set aside, it would be forced to submit to the jurisdiction of the court
by filing its answer or to accept judgment in default, when the very
question was whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's
complaint. On December 20, 1993, it rendered judgment finding the
trial court guilty of grave abuse of discretion in deferring resolution of
the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before
it came out with its questioned order of July 26, 1993, we rule and so
hold that petitioner's (BMW) motion to dismiss could be resolved
then and there, and that the respondent judge's deferment of his
action thereon until after trial on the merit constitutes, to our mind,
grave abuse of discretion.
xxx xxx xxx
443 | P a g e
. . . [T]here is not much appreciable disagreement as regards the
factual matters relating to the motion to dismiss. What truly divide
(sic) the parties and to which they greatly differ is the legal
conclusions they respectively draw from such facts, (sic) with Hahn
maintaining that on the basis thereof, BMW is doing business in the
Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on
the motion to dismiss would anyway be elevated to it on appeal, the
Court of Appeals itself resolved the motion. It ruled that BMW was
not doing business in the country and, therefore, jurisdiction over it
could not be acquired through service of summons on the DTI
pursuant to Rule 14, §14. 'The court upheld private respondent's
contention that Hahn acted in his own name and for his own account
and independently of BMW, based on Alfred Hahn's allegations that
he had invested his own money and resources in establishing BMW's
goodwill in the Philippines and on BMW's claim that Hahn sold
products other than those of BMW. It held that petitioner was a mere
indentor or broker and not an agent through whom private
respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint
against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals
erred (1) in finding that the trial court gravely abused its discretion in
deferring action on the motion to dismiss and (2) in finding that
private respondent BMW is not doing business in the Philippines and,
for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, §14 provides:
§14. Service upon private foreign corporations. — If the
defendant is a foreign corporation, or a nonresident joint stock
company or association, doing business in the Philippines, service may
be made on its resident agent designated in accordance with law for
that purpose, or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers or agents
within the Philippines. (Emphasis added).
What acts are considered "doing business in the Philippines" are
enumerated in §3(d) of the Foreign Investments Act of 1991 (R.A. No.
7042) as follows:7
d) the phrase "doing business" shall include soliciting orders,
service contracts, opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period
or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and
any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to
include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account. (Emphasis
supplied)
Thus, the phrase includes "appointing representatives or distributors
in the Philippines" but not when the representative or distributor
"transacts business in its name and for its own account." In addition,
§1(f)(1) of the Rules and Regulations implementing (IRR) the Omnibus
Investment Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts,
enumerated in Article 44 of the Code. In particular, "doing business"
includes:
(1) . . . A foreign firm which does business through middlemen
acting in their own names, such as indentors, commercial brokers or
commission merchants, shall not be deemed doing business in the
Philippines. But such indentors, commercial brokers or commission
merchants shall be the ones deemed to be doing business in the
Philippines.
The question is whether petitioner Alfred Hahn is the agent or
distributor in the Philippines of private respondent BMW. If he is,
BMW may be considered doing business in the Philippines and the
trial court acquired jurisdiction over it (BMW) by virtue of the service
of summons on the Department of Trade and Industry. Otherwise, if
Hahn is not the agent of BMW but an independent dealer, albeit of
BMW cars and products, BMW, a foreign corporation, is not
considered doing business in the Philippines within the meaning of
the Foreign Investments Act of 1991 and the IRR, and the trial court
did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own
name and for his own account and not as agent or distributor in the
Philippines of BMW on the ground that "he alone had contacts with
individuals or entities interested in acquiring BMW vehicles.
Independence characterizes Hahn's undertakings, for which reason
he is to be considered, under governing statutes, as doing business."
(p. 13) In support of this conclusion, the appellate court cited the
following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first
used by the Plaintiff in the Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA" and without any monetary
contributions from defendant BMW, established BMW's goodwill and
market presence in the Philippines. Pursuant thereto, Plaintiff
invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies. . . . Moreover,
Plaintiff has built buildings and other infrastructures such as service
centers and showrooms to maintain and promote the car and
products of defendant BMW.
As the above quoted allegations of the amended complaint show,
however, there is nothing to support the appellate court's finding that
Hahn solicited orders alone and for his own account and without
"interference from, let alone direction of, BMW." (p. 13) To the
contrary, Hahn claimed he took orders for BMW cars and transmitted
them to BMW. Upon receipt of the orders, BMW fixed the
downpayment and pricing charges, notified Hahn of the scheduled
production month for the orders, and reconfirmed the orders by
444 | P a g e
signing and returning to Hahn the acceptance sheets. Payment was
made by the buyer directly to BMW. Title to cars purchased passed
directly to the buyer and Hahn never paid for the purchase price of
BMW cars sold in the Philippines. Hahn was credited with a
commission equal to 14% of the purchase price upon the invoicing of
a vehicle order by BMW. Upon confirmation in writing that the
vehicles had been registered in the Philippines and serviced by him,
Hahn received an additional 3% of the full purchase price. Hahn
performed after-sale services, including warranty services, for which
he received reimbursement from BMW. All orders were on invoices
and forms of BMW.8
These allegations were substantially admitted by BMW which, in its
petition for certiorari before the Court of Appeals, stated:9
9.4. As soon as the vehicles are fully manufactured and full
payment of the purchase prices are made, the vehicles are shipped to
the Philippines. (The payments may be made by the purchasers or
third-persons or even by Hahn.) The bills of lading are made up in the
name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine
ports, for purposes of conducting pre-delivery inspections.
Thereafter, he delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is
credited with a commission of fourteen percent (14%) of the full
purchase price thereof, and as soon as he confirms in writing that the
vehicles have been registered in the Philippines and have been
serviced by him, he will receive an additional three percent (3%) of
the full purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows
an agency. An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his pay merely
by bringing the buyer and the seller together, even if no sale is
eventually made.
As to the service centers and showrooms which he said he had put up
at his own expense, Hahn said that he had to follow BMW
specifications as exclusive dealer of BMW in the Philippines.
According to Hahn, BMW periodically inspected the service centers to
see to it that BMW standards were maintained. Indeed, it would seem
from BMW's letter to Hahn that it was for Hahn's alleged failure to
maintain BMW standards that BMW was terminating Hahn's
dealership.
The fact that Hahn invested his own money to put up these service
centers and showrooms does not necessarily prove that he is not an
agent of BMW. For as already noted, there are facts in the record
which suggest that BMW exercised control over Hahn's activities as a
dealer and made regular inspections of Hahn's premises to enforce
compliance with BMW standards and specifications.10 For example,
in its letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and
letters that we have to tackle the Philippine market more
professionally and that we are through your present activities not
adequately prepared to cope with the forthcoming challenges.11
In effect, BMW was holding Hahn accountable to it under the 1967
Agreement.
This case fits into the mould of Communications Materials, Inc. v.
Court of Appeals,12 in which the foreign corporation entered into a
"Representative Agreement" and a "Licensing Agreement" with a
domestic corporation, by virtue of which the latter was appointed
"exclusive representative" in the Philippines for a stipulated
commission. Pursuant to these contracts, the domestic corporation
sold products exported by the foreign corporation and put up a
service center for the products sold locally. This Court held that these
acts constituted doing business in the Philippines. The arrangement
showed that the foreign corporation's purpose was to penetrate the
Philippine market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive
distributor in the Philippines, even as it announced in the Asian region
that Hahn was the "official BMW agent" in the Philippines.13
The Court of Appeals also found that petitioner Alfred Hahn dealt in
other products, and not exclusively in BMW products, and, on this
basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding
is based entirely on allegations of BMW in its motion to dismiss filed
in the trial court and in its petition for certiorari before the Court of
Appeals.14 But this allegation was denied by Hahn15 and therefore
the Court of Appeals should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have
indicated to the Court of Appeals the necessity of affirming the trial
court's order deferring resolution of BMW's motion to dismiss.
Petitioner alleged that whether or not he is considered an agent of
BMW, the fact is that BMW did business in the Philippines because it
sold cars directly to Philippine buyers. 16 This was denied by BMW,
which claimed that Hahn was not its agent and that, while it was true
that it had sold cars to Philippine buyers, this was done without
solicitation on its part.17
It is not true then that the question whether BMW is doing business
could have been resolved simply by considering the parties'
pleadings. There are genuine issues of facts which can only be
determined on the basis of evidence duly presented. BMW cannot
short circuit the process on the plea that to compel it to go to trial
would be to deny its right not to submit to the jurisdiction of the trial
court which precisely it denies. Rule 16, §3 authorizes courts to defer
the resolution of a motion to dismiss until after the trial if the ground
on which the motion is based does not appear to be indubitable. Here
the record of the case bristles with factual issues and it is not at all
clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding
to the summons it would be waiving its objection to the trial court's
jurisdiction. It is now settled that, for purposes of having summons
served on a foreign corporation in accordance with Rule 14, §14, it is
sufficient that it be alleged in the complaint that the foreign
corporation is doing business in the Philippines. The court need not
go beyond the allegations of the complaint in order to determine
whether it has Jurisdiction.18 A determination that the foreign
corporation is doing business is only tentative and is made only for
the purpose of enabling the local court to acquire jurisdiction over the
445 | P a g e
foreign corporation through service of summons pursuant to Rule 14, 6 Per Judge Maximiano Asuncion.
§14. Such determination does not foreclose a contrary finding should
evidence later show that it is not transacting business in the country. 7 The Foreign Investments Act of 1991 superseded Arts. 44-
As this Court has explained: 56 of the Omnibus Investments Code.

This is not to say, however, that the petitioner's right to question the 8 Rollo, pp. 96, 140-141.
jurisdiction of the court over its person is now to be deemed a
foreclosed matter. If it is true, as Signetics claims, that its only 9 Id., p. 141.
involvement in the Philippines was through a passive investment in
Sigfil, which it even later disposed of, and that TEAM Pacific is not its 10 Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1987).
agent, then it cannot really be said to be doing business in the
Philippines. It is a defense, however, that requires the contravention 11 Rollo, p. 75.
of the allegations of the complaint, as well as a full ventilation, in
effect, of the main merits of the case, which should not thus be within 12 G.R. No. 102223, Aug. 22, 1996.
the province of a mere motion to dismiss. So, also, the issue posed by
the petitioner as to whether a foreign corporation which has done 13 Rollo, p. 213.
business in the country, but which has ceased to do business at the
time of the filing of a complaint, can still be made to answer for a 14 Rollo, pp. 91, 163.
cause of action which accrued while it was doing business, is another
matter that would yet have to await the reception and admission of 15 Rollo, p. 124.
evidence. Since these points have seasonably been raised by the
petitioner, there should be no real cause for what may 16 Rollo, pp. 245; 292.
understandably be its apprehension, i.e., that by its participation
during the trial on the merits, it may, absent an invocation of separate 17 Rollo, pp. 177, 284, 600.
or independent reliefs of its own, be considered to have voluntarily
submitted itself to the court's jurisdiction.19 18 Litton Mills, Inc. v. Court of Appeals, G.R. No. 94980, May
15, 1996; Signetics Corp. v. Court of Appeals, 225 SCRA 737 (1993).
Far from committing an abuse of discretion, the trial court properly
deferred resolution of the motion to dismiss and thus avoided 19 Signetics Corp. v. Court of Appeals, 225 SCRA at 746.
prematurely deciding a question which requires a factual basis, with
the same result if it had denied the motion and conditionally assumed
jurisdiction. It is the Court of Appeals which, by ruling that BMW is not
doing business on the basis merely of uncertain allegations in the
pleadings, disposed of the whole case with finality and thereby
deprived petitioner of his right to be heard on his cause of action. Nor
was there justification for nullifying the writ of preliminary injunction
issued by the trial court. Although the injunction was issued ex parte,
the fact is that BMW was subsequently heard on its defense by filing
a motion to dismiss.

WHEREFORE, the decision of the Court of Appeals is REVERSED and

the case is REMANDED to the trial court for further proceedings.

SO ORDERED.

Regalado, Romero, Puno and Torres, Jr., JJ., concur.

Footnotes

1 Per Justice Cancio C. Garcia and concurred in by Justice

Ramon U. Mabutas and Antonio M. Martinez, chairman.

2 Rollo, pp. 75-78.

3 Rollo, pp. 79-82.

4 Rollo, pp. 83-84.

5 Rollo, p. 593.

446 | P a g e
33. GR No. 143978, December 3, 2002
G.R. No. 143978 December 3, 2002
MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAÑA,
petitioners,
vs.
EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review seeking to set aside the decision1 of the
Court of Appeals2 in CA-G.R. CV No. 46539, which reversed and set
aside the decision3 of the Regional Trial Court of Cebu City, Branch 22
in Civil Case No. CEB-12740.
The records show that private respondents, Spouses Eduardo R.
Gullas and Norma S. Gullas, were the registered owners of a parcel of
land in the Municipality of Minglanilla, Province of Cebu, measuring
104,114 sq. m., with Transfer Certificate of Title No. 31465.4 On June
29, 1992, they executed a special power of attorney5 authorizing
petitioners Manuel B. Tan, a licensed real estate broker,6 and his
associates Gregg M. Tecson and Alexander Saldaña, to negotiate for
the sale of the land at Five Hundred Fifty Pesos (P550.00) per square
meter, at a commission of 3% of the gross price. The power of
attorney was non-exclusive and effective for one month from June 29,
1992.7
On the same date, petitioner Tan contacted Engineer Edsel Ledesma,
construction manager of the Sisters of Mary of Banneaux, Inc.
(hereafter, Sisters of Mary), a religious organization interested in
acquiring a property in the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the property with
Engineer Ledesma. Thereafter, the two men accompanied Sisters
Michaela Kim and Azucena Gaviola, representing the Sisters of Mary,
to see private respondent Eduardo Gullas in his office at the
University of Visayas. The Sisters, who had already seen and inspected
the land, found the same suitable for their purpose and expressed
their desire to buy it.8 However, they requested that the selling price
be reduced to Five Hundred Thirty Pesos (P530.00) per square meter
instead of Five Hundred Fifty Pesos (P550.00) per square meter.
Private respondent Eduardo Gullas referred the prospective buyers to
his wife.
It was the first time that the buyers came to know that private
respondent Eduardo Gullas was the owner of the property. On July 3,
1992, private respondents agreed to sell the property to the Sisters of
Mary, and subsequently executed a special power of attorney9 in
favor of Eufemia Cañete, giving her the special authority to sell,
transfer and convey the land at a fixed price of Two Hundred Pesos
(P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Cañete executed a deed of
sale in favor of the Sisters of Mary for the price of Twenty Million Eight
Hundred Twenty Two Thousand Eight Hundred Pesos
(P20,822.800.00), or at the rate of Two Hundred Pesos (P200.00) per
square meter.10 The buyers subsequently paid the corresponding
taxes.11 Thereafter, the Register of Deeds of Cebu Province issued
TCT No. 75981 in the name of the Sisters of Mary of Banneaux, Inc.12
Earlier, on July 3, 1992, in the afternoon, petitioners went to see
private respondent Eduardo Gullas to claim their commission, but the
latter told them that he and his wife have already agreed to sell the
property to the Sisters of Mary. Private respondents refused to pay
the broker’s fee and alleged that another group of agents was
responsible for the sale of land to the Sisters of Mary.
On August 28, 1992, petitioners filed a complaint13 against the
defendants for recovery of their broker’s fee in the sum of One Million
Six Hundred Fifty Five Thousand Four Hundred Twelve and 60/100
Pesos (P1,655,412.60), as well as moral and exemplary damages and
attorney’s fees. They alleged that they were the efficient procuring
cause in bringing about the sale of the property to the Sisters of Mary,
but that their efforts in consummating the sale were frustrated by the
private respondents who, in evident bad faith, malice and in order to
evade payment of broker’s fee, dealt directly with the buyer whom
petitioners introduced to them. They further pointed out that the
deed of sale was undervalued obviously to evade payment of the
correct amount of capital gains tax, documentary stamps and other
internal revenue taxes.
In their answer, private respondents countered that, contrary to
petitioners’ claim, they were not the efficient procuring cause in
bringing about the consummation of the sale because another broker,
Roberto Pacana, introduced the property to the Sisters of Mary ahead
of the petitioners.14 Private respondents maintained that when
petitioners introduced the buyers to private respondent Eduardo
Gullas, the former were already decided in buying the property
through Pacana, who had been paid his commission. Private
respondent Eduardo Gullas admitted that petitioners were in his
office on July 3, 1992, but only to ask for the reimbursement of their
cellular phone expenses.
In their reply and answer to counterclaim,15 petitioners alleged that
although the Sisters of Mary knew that the subject land was for sale
through various agents, it was petitioners who introduced them to
the owners thereof.
After trial, the lower court rendered judgment in favor of petitioners,
the dispositive portion of which reads:
WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is
hereby rendered for the plaintiffs and against the defendants. By
virtue hereof, defendants Eduardo and Norma Gullas are hereby
ordered to pay jointly and severally plaintiffs Manuel Tan, Gregg
Tecson and Alexander Saldaña;
1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX
HUNDRED EIGHTY FOUR PESOS (P624,684.00) as broker’s fee with
legal interest at the rate of 6% per annum from the date of filing of
the complaint; and
2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney’s fees
and costs of litigation.
For lack of merit, defendants’ counterclaim is hereby DISMISSED.
447 | P a g e
IT IS SO ORDERED.16
Both parties appealed to the Court of Appeals. Private respondents
argued that the lower court committed errors of fact and law in
holding that it was petitioners’ efforts which brought about the sale
of the property and disregarding the previous negotiations between
private respondent Norma Gullas and the Sisters of Mary and Pacana.
They further alleged that the lower court had no basis for awarding
broker’s fee, attorney’s fees and the costs of litigation to
petitioners.17
Petitioners, for their part, assailed the lower court’s basis of the
award of broker’s fee given to them. They contended that their 3%
commission for the sale of the property should be based on the price
of P55,180.420.00, or at P530.00 per square meter as agreed upon
and not on the alleged actual selling price of P20,822,800.00 or at
P200.00 per square meter, since the actual purchase price was
undervalued for taxation purposes. They also claimed that the lower
court erred in not awarding moral and exemplary damages in spite of
its finding of bad faith; and that the amount of P50,000.00 as
attorney’s fees awarded to them is insufficient. Finally, petitioners
argued that the legal interest imposed on their claim should have
been pegged at 12% per annum instead of the 6% fixed by the
court.18
The Court of Appeals reversed and set aside the lower court’s decision
and rendered another judgment dismissing the complaint.19
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE
PETITIONERS ARE NOT ENTITLED TO THE BROKERAGE COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS
DEPRIVED THE PETITIONERS OF MORAL AND EXEMPLARY DAMAGES,
ATTORNEYS’ FEES AND INTEREST IN THE FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a licensed real
estate broker, and petitioners Gregg M. Tecson and Alexander
Saldaña are his associates. In Schmid and Oberly v. RJL Martinez
Fishing Corporation,20 we defined a "broker" as "one who is engaged,
for others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the negotiator
between other parties, never acting in his own name but in the name
of those who employed him. x x x a broker is one whose occupation
is to bring the parties together, in matters of trade, commerce or
navigation." (Emphasis supplied)
During the trial, it was established that petitioners, as brokers, were
authorized by private respondents to negotiate for the sale of their
land within a period of one month reckoned from June 29, 1992. The
authority given to petitioners was non-exclusive, which meant that
private respondents were not precluded from granting the same
authority to other agents with respect to the sale of the same
property. In fact, private respondent authorized another agent in the
person of Mr. Bobby Pacana to sell the same property. There was
nothing illegal or amiss in this arrangement, per se, considering the
non-exclusivity of petitioners’ authority to sell. The problem arose
when it eventually turned out that these agents were entertaining
one and the same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private
respondents that Pacana was the one entitled to the stipulated 3%
commission is untenable, considering that it was the petitioners who
were responsible for the introduction of the representatives of the
Sisters of Mary to private respondent Eduardo Gullas. Private
respondents, however, maintain that they were not aware that their
respective agents were negotiating to sell said property to the same
buyer.
Private respondents failed to prove their contention that Pacana
began negotiations with private respondent Norma Gullas way ahead
of petitioners. They failed to present witnesses to substantiate this
claim. It is curious that Mrs. Gullas herself was not presented in court
to testify about her dealings with Pacana. Neither was Atty. Nachura
who was supposedly the one actively negotiating on behalf of the
Sisters of Mary, ever presented in court.
Private respondents’ contention that Pacana was the one responsible
for the sale of the land is also unsubstantiated. There was nothing on
record which established the existence of a previous negotiation
among Pacana, Mrs. Gullas and the Sisters of Mary. The only piece of
evidence that the private respondents were able to present is an
undated and unnotarized Special Power of Attorney in favor of
Pacana. While the lack of a date and an oath do not necessarily render
said Special Power of Attorney invalid, it should be borne in mind that
the contract involves a considerable amount of money. Hence, it is
inconsistent with sound business practice that the authority to sell is
contained in an undated and unnotarized Special Power of Attorney.
Petitioners, on the other hand, were given the written authority to
sell by the private respondents.
The trial court’s evaluation of the witnesses is accorded great respect
and finality in the absence of any indication that it overlooked certain
facts or circumstances of weight and influence, which if reconsidered,
would alter the result of the case.21
Indeed, it is readily apparent that private respondents are trying to
evade payment of the commission which rightfully belong to
petitioners as brokers with respect to the sale. There was no dispute
as to the role that petitioners played in the transaction. At the very
least, petitioners set the sale in motion. They were not able to
participate in its consummation only because they were prevented
from doing so by the acts of the private respondents. In the case of
Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke
Aktiengesellschaft (BMW)22 we ruled that, "An agent receives a
commission upon the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing the buyer and the
seller together, even if no sale is eventually made." (Underscoring
ours). Clearly, therefore, petitioners, as brokers, should be entitled to
the commission whether or not the sale of the property subject
matter of the contract was concluded through their efforts.
448 | P a g e
 8 Record, p. 131.
Having ruled that petitioners are entitled to the brokers’ commission,
we should now resolve how much commission are petitioners entitled 9 Folder of Exhibits, Exhibit "C", dated July 4, 1992.
to?
10 Ibid., Exhibit "D".
Following the stipulation in the Special Power of Attorney, petitioners
are entitled to 3% commission for the sale of the land in question. 11 Id., Exhibit "E".
Petitioners maintain that their commission should be based on the
price at which the land was offered for sale, i.e., P530.00 per square 12 Id., Exhibit "F".
meter. However, the actual purchase price for which the land was
sold was only P200.00 per square meter. Therefore, equity 13 Record, pp. 1-7.
considerations dictate that petitioners’ commission must be based on
this price. To rule otherwise would constitute unjust enrichment on 14 Record, pp. 28-34.
the part of petitioners as brokers.
15 Id., at 35-38.
In the matter of attorney’s fees and expenses of litigation, we affirm
the amount of P50,000.00 awarded by the trial court to the 16 Record, p. 206.
petitioners.
17 Rollo, p. 21.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The
May 29, 2000 decision of the Court of Appeals is REVERSED and SET 18 Id., at 21-22.
ASIDE. The decision of the Regional Trial Court of Cebu City, Branch
22, in Civil Case No. CEB-12740 ordering private respondents Eduardo 19 Rollo, pp. 32-33.
Gullas and Norma S. Gullas to pay jointly and severally petitioners
Manuel B. Tan, Gregg Tecson and Alexander Saldaña the sum of Six 20 166 SCRA 493 (1988).
Hundred Twenty-Four Thousand and Six Hundred Eighty-Four Pesos
(P624,684.00) as broker’s fee with legal interest at the rate of 6% per 21 People v. Realm, 301 SCRA 495 (1999); Yam v. Court of Appeals,
annum from the filing of the complaint; and the sum of Fifty Thousand 303 SCRA 1 (1999); People v. Maglatay, 304 SCRA 272 (1999).
Pesos (P50,000.00) as attorney’s fees and costs of litigation, is
REINSTATED. 22 266 SCRA 537 (1997).

SO ORDERED.

Vitug, and Carpio, JJ., concur.

Davide, Jr., C.J., (Chairman), no part due to close relationship to a
party.
Azcuna, J., on official leave.

Footnotes

1 Dated May 29, 2000, Rollo, p. 16.

2 Penned by Associate Justice Mariano M. Umali and concurred in by

Associate Justices

Conrado M. Vazquez, Jr. and Eriberto U. Rosario, Jr.

3 Penned by Judge Pampio A. Abarintos, promulgated on March 11,

1994, Rollo, p. 8.

4 Annex "F", Record, p. 16.

5 Annex "A", Record, pp. 8-9.

6 Folder of Exhibits, Exhibit "I".

7 Ibid., Exhibits "A" and "A-3".

449 | P a g e
34. 38 Phil. 501
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEÑA, J.:
On January 24, 1911, in this city of manila, a contract in the following
tenor was entered into by and between the plaintiff, as party of the
first part, and J. Parsons (to whose rights and obligations the present
defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to
sell his beds in the Visayan Islands to J. Parsons under the following
conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr.
Parsons for the latter's establishment in Iloilo, and shall invoice them
at the same price he has fixed for sales, in Manila, and, in the invoices,
shall make and allowance of a discount of 25 per cent of the invoiced
prices, as commission on the sale; and Mr. Parsons shall order the
beds by the dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds
received, within a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be
borne by M. Quiroga, and the freight, insurance, and cost of unloading
from the vessel at the point where the beds are received, shall be paid
by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request
its payment, said payment when made shall be considered as a
prompt payment, and as such a deduction of 2 per cent shall be made
from the amount of the invoice.
The same discount shall be made on the amount of any invoice which
Mr. Parsons may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days
before hand of any alteration in price which he may plan to make in
respect to his beds, and agrees that if on the date when such
alteration takes effect he should have any order pending to be served
to Mr. Parsons, such order shall enjoy the advantage of the alteration
if the price thereby be lowered, but shall not be affected by said
alteration if the price thereby be increased, for, in this latter case, Mr.
Quiroga assumed the obligation to invoice the beds at the price at
which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except
the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which,
for the benefit of both contracting parties, Mr. Parsons may find
himself obliged to make, Mr. Quiroga assumes the obligation to offer
and give the preference to Mr. Parsons in case anyone should apply
for the exclusive agency for any island not comprised with the Visayan
group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for
the sale of "Quiroga" beds in all the towns of the Archipelago where
there are no exclusive agents, and shall immediately report such
action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be
terminated by either of the contracting parties on a previous notice
of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint,
only two of them constitute the subject matter of this appeal and
both substantially amount to the averment that the defendant
violated the following obligations: not to sell the beds at higher prices
than those of the invoices; to have an open establishment in Iloilo;
itself to conduct the agency; to keep the beds on public exhibition,
and to pay for the advertisement expenses for the same; and to order
the beds by the dozen and in no other manner. As may be seen, with
the exception of the obligation on the part of the defendant to order
the beds by the dozen and in no other manner, none of the
obligations imputed to the defendant in the two causes of action are
expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said
obligations are implied in a contract of commercial agency. The whole
question, therefore, reduced itself to a determination as to whether
the defendant, by reason of the contract hereinbefore transcribed,
was a purchaser or an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential
clauses. In the contract in question, what was essential, as
constituting its cause and subject matter, is that the plaintiff was to
furnish the defendant with the beds which the latter might order, at
the price stipulated, and that the defendant was to pay the price in
the manner stipulated. The price agreed upon was the one
determined by the plaintiff for the sale of these beds in Manila, with
a discount of from 20 to 25 per cent, according to their class. Payment
was to be made at the end of sixty days, or before, at the plaintiff's
request, or in cash, if the defendant so preferred, and in these last
two cases an additional discount was to be allowed for prompt
payment. These are precisely the essential features of a contract of
purchase and sale. There was the obligation on the part of the plaintiff
to supply the beds, and, on the part of the defendant, to pay their
price. These features exclude the legal conception of an agency or
order to sell whereby the mandatory or agent received the thing to
sell it, and does not pay its price, but delivers to the principal the price
he obtains from the sale of the thing to a third person, and if he does
not succeed in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the
beds, was necessarily obliged to pay their price within the term fixed,
without any other consideration and regardless as to whether he had
or had not sold the beds.
450 | P a g e
It would be enough to hold, as we do, that the contract by and discount on the invoice price, and the reason for applying this benefit
between the defendant and the plaintiff is one of purchase and sale, to the beds sold directly by the plaintiff to persons in Iloilo was
in order to show that it was not one made on the basis of a because, as the defendant obligated itself in the contract to incur the
commission on sales, as the plaintiff claims it was, for these contracts expenses of advertisement of the plaintiff's beds, such sales were to
are incompatible with each other. But, besides, examining the clauses be considered as a result of that advertisement.
of this contract, none of them is found that substantially supports the
plaintiff's contention. Not a single one of these clauses necessarily In respect to the defendant's obligation to order by the dozen, the
conveys the idea of an agency. The words commission on sales used only one expressly imposed by the contract, the effect of its breach
in clause (A) of article 1 mean nothing else, as stated in the contract would only entitle the plaintiff to disregard the orders which the
itself, than a mere discount on the invoice price. The word agency, defendant might place under other conditions; but if the plaintiff
also used in articles 2 and 3, only expresses that the defendant was consents to fill them, he waives his right and cannot complain for
the only one that could sell the plaintiff's beds in the Visayan Islands. having acted thus at his own free will.
With regard to the remaining clauses, the least that can be said is that
they are not incompatible with the contract of purchase and sale. For the foregoing reasons, we are of opinion that the contract by and
between the plaintiff and the defendant was one of purchase and
The plaintiff calls attention to the testimony of Ernesto Vidal, a former sale, and that the obligations the breach of which is alleged as a cause
vice-president of the defendant corporation and who established and of action are not imposed upon the defendant, either by agreement
managed the latter's business in Iloilo. It appears that this witness, or by law.
prior to the time of his testimony, had serious trouble with the
defendant, had maintained a civil suit against it, and had even accused The judgment appealed from is affirmed, with costs against the
one of its partners, Guillermo Parsons, of falsification. He testified appellant. So ordered.
that it was he who drafted the contract Exhibit A, and, when
questioned as to what was his purpose in contracting with the Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.
plaintiff, replied that it was to be an agent for his beds and to collect
a commission on sales. However, according to the defendant's
evidence, it was Mariano Lopez Santos, a director of the corporation,
who prepared Exhibit A. But, even supposing that Ernesto Vidal has
stated the truth, his statement as to what was his idea in contracting
with the plaintiff is of no importance, inasmuch as the agreements
contained in Exhibit A which he claims to have drafted, constitute, as
we have said, a contract of purchase and sale, and not one of
commercial agency. This only means that Ernesto Vidal was mistaken
in his classification of the contract. But it must be understood that a
contract is what the law defines it to be, and not what it is called by
the contracting parties.

The plaintiff also endeavored to prove that the defendant had

returned beds that it could not sell; that, without previous notice, it
forwarded to the defendant the beds that it wanted; and that the
defendant received its commission for the beds sold by the plaintiff
directly to persons in Iloilo. But all this, at the most only shows that,
on the part of both of them, there was mutual tolerance in the
performance of the contract in disregard of its terms; and it gives no
right to have the contract considered, not as the parties stipulated it,
but as they performed it. Only the acts of the contracting parties,
subsequent to, and in connection with, the execution of the contract,
must be considered for the purpose of interpreting the contract,
when such interpretation is necessary, but not when, as in the instant
case, its essential agreements are clearly set forth and plainly show
that the contract belongs to a certain kind and not to another.
Furthermore, the return made was of certain brass beds, and was not
effected in exchange for the price paid for them, but was for other
beds of another kind; and for the letter Exhibit L-1, requested the
plaintiff's prior consent with respect to said beds, which shows that it
was not considered that the defendant had a right, by virtue of the
contract, to make this return. As regards the shipment of beds
without previous notice, it is insinuated in the record that these brass
beds were precisely the ones so shipped, and that, for this very
reason, the plaintiff agreed to their return. And with respect to the
so-called commissions, we have said that they merely constituted a

451 | P a g e
35. GR No. 129919, February 6, 20012
G.R. No. 129919 February 6, 2002
DOMINION INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of the Court of
Appeals2 affirming the decision3 of the Regional Trial Court, Branch
44, San Fernando, Pampanga, which ordered petitioner Dominion
Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra
(Guevarra) the sum of P156,473.90 representing the total amount
advanced by Guevarra in the payment of the claims of Dominion’s
clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil
Case No. 8855 for sum of money against defendant Dominion
Insurance Corporation. Plaintiff sought to recover thereunder the
sum of P156,473.90 which he claimed to have advanced in his
capacity as manager of defendant to satisfy certain claims filed by
defendant’s clients.
"In its traverse, defendant denied any liability to plaintiff and asserted
a counterclaim for P249,672.53, representing premiums that plaintiff
allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against
Fernando Austria, who, at the time relevant to the case, was its
Regional Manager for Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates:
October 18, 1991, November 12, 1991, March 29, 1991, December
12, 1991, January 17, 1992, January 29, 1992, February 28, 1992,
March 17, 1992 and April 6, 1992, in all of which dates no pre-trial
conference was held. The record shows that except for the settings
on October 18, 1991, January 17, 1992 and March 17, 1992 which
were cancelled at the instance of defendant, third-party defendant
and plaintiff, respectively, the rest were postponed upon joint
request of the parties.
"On May 22, 1992 the case was again called for pre-trial conference.
Only plaintiff and counsel were present. Despite due notice,
defendant and counsel did not appear, although a messenger, Roy
Gamboa, submitted to the trial court a handwritten note sent to him
by defendant’s counsel which instructed him to request for
postponement. Plaintiff’s counsel objected to the desired
postponement and moved to have defendant declared as in default.
This was granted by the trial court in the following order:
"ORDER
"When this case was called for pre-trial this afternoon only plaintiff
and his counsel Atty. Romeo Maglalang appeared. When shown a
note dated May 21, 1992 addressed to a certain Roy who was
requested to ask for postponement, Atty. Maglalang vigorously
objected to any postponement on the ground that the note is but a
mere scrap of paper and moved that the defendant corporation be
declared as in default for its failure to appear in court despite due
notice.
"Finding the verbal motion of plaintiff’s counsel to be meritorious and
considering that the pre-trial conference has been repeatedly
postponed on motion of the defendant Corporation, the defendant
Dominion Insurance Corporation is hereby declared (as) in default and
plaintiff is allowed to present his evidence on June 16, 1992 at 9:00
o’clock in the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed
by a written offer of documentary exhibits on July 8 and a
supplemental offer of additional exhibits on July 13, 1992. The
exhibits were admitted in evidence in an order dated July 17, 1992.
"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT
ORDER OF DEFAULT.’ It alleged therein that the failure of counsel to
attend the pre-trial conference was ‘due to an unavoidable
circumstance’ and that counsel had sent his representative on that
date to inform the trial court of his inability to appear. The Motion
was vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied defendant’s motion for
reasons, among others, that it was neither verified nor supported by
an affidavit of merit and that it further failed to allege or specify the
facts constituting his meritorious defense.
"On September 28, 1992 defendant moved for reconsideration of the
aforesaid order. For the first time counsel revealed to the trial court
that the reason for his nonappearance at the pre-trial conference was
his illness. An Affidavit of Merit executed by its Executive Vice-
President purporting to explain its meritorious defense was attached
to the said Motion. Just the same, in an Order dated November 13,
1992, the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as
follows:
"WHEREFORE, premises considered, judgment is hereby rendered
ordering:
"1. The defendant Dominion Insurance Corporation to pay plaintiff
the sum of P156,473.90 representing the total amount advanced by
plaintiff in the payment of the claims of defendant’s clients;
452 | P a g e
"2. The defendant to pay plaintiff P10,000.00 as and by way of
attorney’s fees;
"3. The dismissal of the counter-claim of the defendant and the third-
party complaint;
"4. The defendant to pay the costs of suit."4
On December 14, 1992, Dominion appealed the decision to the Court
of Appeals.5
On July 19, 1996, the Court of Appeals promulgated a decision
affirming that of the trial court.6 On September 3, 1996, Dominion
filed with the Court of Appeals a motion for reconsideration.7 On July
16, 1997, the Court of Appeals denied the motion.8
Hence, this appeal.9
The Issues
The issues raised are: (1) whether respondent Guevarra acted within
his authority as agent for petitioner, and (2) whether respondent
Guevarra is entitled to reimbursement of amounts he paid out of his
personal money in settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another,
with the consent or authority of the latter.10 The basis for agency is
representation.11 On the part of the principal, there must be an
actual intention to appoint12 or an intention naturally inferrable from
his words or actions;13 and on the part of the agent, there must be
an intention to accept the appointment and act on it,14 and in the
absence of such intent, there is generally no agency.15
A perusal of the Special Power of Attorney16 would show that
petitioner (represented by third-party defendant Austria) and
respondent Guevarra intended to enter into a principal-agent
relationship. Despite the word "special" in the title of the document,
the contents reveal that what was constituted was actually a general
agency. The terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a
corporation duly organized and existing under and by virtue of the
laws of the Republic of the Philippines, xxx represented by the
undersigned as Regional Manager, xxx do hereby appoint RSG
Guevarra Insurance Services represented by Mr. Rodolfo Guevarra
xxx to be our Agency Manager in San Fdo., for our place and stead, to
do and perform the following acts and things:
"1. To conduct, sign, manager (sic), carry on and transact Bonding and
Insurance business as usually pertain to a Agency Office, or FIRE,
MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the
right, upon our prior written consent, to appoint agents and sub-
agents.
"2. To accept, underwrite and subscribed (sic) cover notes or Policies
of Insurance and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver
and transfer for and receive and give effectual receipts and discharge
for all money to which the FIRST CONTINENTAL ASSURANCE
COMPANY, INC.,18 may hereafter become due, owing payable or
transferable to said Corporation by reason of or in connection with
the above-mentioned appointment.
"4. To receive notices, summons, and legal processes for and in behalf
of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in
connection with actions and all legal proceedings against the said
Corporation."19 [Emphasis supplied]
The agency comprises all the business of the principal,20 but, couched
in general terms, it is limited only to acts of administration.21
A general power permits the agent to do all acts for which the law
does not require a special power.22 Thus, the acts enumerated in or
similar to those enumerated in the Special Power of Attorney do not
require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special
power of attorney is required. The pertinent portion that applies to
this case provides that:
"Article 1878. Special powers of attorney are necessary in the
following cases:
"(1) To make such payments as are not usually considered as acts of
administration;
"x x x xxx xxx
"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement
of claims is not included among the acts enumerated in the Special
Power of Attorney, neither is it of a character similar to the acts
enumerated therein. A special power of attorney is required before
respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the
Memorandum of Management Agreement23 dated February 18,
1987 which enumerates the scope of respondent Guevarra’s duties
and responsibilities as agency manager for San Fernando, Pampanga,
as follows:
"x x x xxx xxx
"1. You are hereby given authority to settle and dispose of all motor
car claims in the amount of P5,000.00 with prior approval of the
Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx xxx x x x "24
453 | P a g e
In settling the claims mentioned above, respondent Guevarra’s
authority is further limited by the written standard authority to
pay,25 which states that the payment shall come from respondent
Guevarra’s revolving fund or collection. The authority to pay is
worded as follows:
"This is to authorize you to withdraw from your revolving
fund/collection the amount of PESOS __________________ (P )
representing the payment on the _________________ claim of
assured _______________ under Policy No. ______ in that accident
of ___________ at ____________.
The extent to which petitioner was benefited by the settlement of the
insurance claims could best be proven by the Release of Claim Loss
and Subrogation Receipts27 which were attached to the original
complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the
total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then
in the possession of respondent Guevarra as reflected in the
statement of account dated July 11, 1990 would be deducted from
the above amount.

"It is further expected, release papers will be signed and authorized The outstanding balance and the production/remittance for the
by the concerned and attached to the corresponding claim folder period corresponding to the claims was P3,604.84. Deducting this
after effecting payment of the claim. from P116,276.95, we get P112,672.11. This is the amount that may
be reimbursed to respondent Guevarra.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager"26 The Fallo

[Emphasis supplied]
The instruction of petitioner as the principal could not be any
clearer.1âwphi1 Respondent Guevarra was authorized to pay the
claim of the insured, but the payment shall come from the revolving
fund or collection in his possession.
IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the
decision of the Court of Appeals28 and that of the Regional Trial
Court, Branch 44, San Fernando, Pampanga,29 in that petitioner is
ordered to pay respondent Guevarra the amount of P112,672.11
representing the total amount advanced by the latter in the payment
of the claims of petitioner’s clients.

Having deviated from the instructions of the principal, the expenses No costs in this instance.
that respondent Guevarra incurred in the settlement of the claims of
the insured may not be reimbursed from petitioner Dominion. This SO ORDERED.
conclusion is in accord with Article 1918, Civil Code, which states that:
Davide, Jr., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ.,
"The principal is not liable for the expenses incurred by the agent in concur.
the following cases:

"(1) If the agent acted in contravention of the principal’s instructions,

unless the latter should wish to avail himself of the benefits derived
from the contract;

"xxx xxx xxx"

However, while the law on agency prohibits respondent Guevarra

from obtaining reimbursement, his right to recover may still be
justified under the general law on obligations and contracts.

Article 1236, second paragraph, Civil Code, provides:

"Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the will
of the debtor, he can recover only insofar as the payment has been
beneficial to the debtor."

In this case, when the risk insured against occurred, petitioner’s

liability as insurer arose.1âwphi1 This obligation was extinguished
when respondent Guevarra paid the claims and obtained Release of
Claim Loss and Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been
extinguished, respondent Guevarra may demand for reimbursement
from his principal. To rule otherwise would result in unjust
enrichment of petitioner.

454 | P a g e
b. Obligations of the Agent
#s 1-10
1. 14 SCRA 775
G.R. No. L-20567 July 30, 1965
PHILIPPINE NATIONAL BANK, petitioner,
vs.
MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS
(Second Division), respondents.
Besa, Galang and Medina for petitioner.
De Santos and Delfino for respondents.
REYES, J.B.L., J.:
The Philippine National Bank petitions for the review and reversal of
the decision rendered by the Court of Appeals (Second Division), in its
case CA-G.R. No. 24232-R, dismissing the Bank's complaint against
respondent Manila Surety & Fidelity Co., Inc., and modifying the
judgment of the Court of First Instance of Manila in its Civil Case No.
11263.
The material facts of the case, as found by the appellate Court, are as
follows:
The Philippine National Bank had opened a letter of credit and
advanced thereon $120,000.00 to Edgington Oil Refinery for 8,000
tons of hot asphalt. Of this amount, 2,000 tons worth P279,000.00
were released and delivered to Adams & Taguba Corporation (known
as ATACO) under a trust receipt guaranteed by Manila Surety &
Fidelity Co. up to the amount of P75,000.00. To pay for the asphalt,
ATACO constituted the Bank its assignee and attorney-in-fact to
receive and collect from the Bureau of Public Works the amount
aforesaid out of funds payable to the assignor under Purchase Order
No. 71947. This assignment (Exhibit "A") stipulated that:
The conditions of this assignment are as follows:
1. The same shall remain irrevocable until the said credit
accomodation is fully liquidated.
2. The PHILIPPINE NATIONAL BANK is hereby appointed as our
Attorney-in-Fact for us and in our name, place and stead, to collect
and to receive the payments to be made by virtue of the aforesaid
Purchase Order, with full power and authority to execute and deliver
on our behalf, receipt for all payments made to it; to endorse for
deposit or encashment checks, money order and treasury warrants
which said Bank may receive, and to apply said payments to the
settlement of said credit accommodation.
This power of attorney shall also remain irrevocable until our total
indebtedness to the said Bank have been fully liquidated. (Exhibit E)
ATACO delivered to the Bureau of Public Works, and the latter
accepted, asphalt to the total value of P431,466.52. Of this amount
the Bank regularly collected, from April 21, 1948 to November 18,
1948, P106,382.01. Thereafter, for unexplained reasons, the Bank
ceased to collect, until in 1952 its investigators found that more
moneys were payable to ATACO from the Public Works office,
because the latter had allowed mother creditor to collect funds due
to ATACO under the same purchase order to a total of P311,230.41.
Its demands on the principal debtor and the Surety having been
refused, the Bank sued both in the Court of First Instance of Manila to
recover the balance of P158,563.18 as of February 15, 1950, plus
interests and costs.
On October 4, 1958, the trial court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendants, Adams & Taguba Corporation and Manila
Surety & Fidelity Co., Inc., to pay plaintiff, Philippines National Bank,
the sum of P174,462.34 as of February 24, 1956, minus the amount
of P8,000 which defendant, Manila Surety Co., Inc. paid from March,
1956 to October, 1956 with interest at the rate of 5% per annum from
February 25, 1956, until fully paid provided that the total amount that
should be paid by defendant Manila Surety Co., Inc., on account of
this case shall not exceed P75,000.00, and to pay the costs;
2. Orderinq cross-defendant, Adams & Taguba Corporation, and third-
party defendant, Pedro A. Taguba, jointly and severally, to pay cross
and third-party plaintiff, Manila Surety & Fidelity Co., Inc., whatever
amount the latter has paid or shall pay under this judgment;
3. Dismissing the complaint insofar as the claim for 17% special tax is
concerned; and
4. Dismissing the counterclaim of defendants Adams & Taguba
Corporation and Manila Surety & Fidelity Co., Inc.
From said decision, only the defendant Surety Company has duly
perfected its appeal. The Central Bank of the Philippines did not
appeal, while defendant ATACO failed to perfect its appeal.
The Bank recoursed to the Court of Appeals, which rendered an
adverse decision and modified the judgment of the court of origin as
to the surety's liability. Its motions for reconsideration having proved
unavailing, the Bank appealed to this Court.
The Court of Appeals found the Bank to have been negligent in having
stopped collecting from the Bureau of Public Works the moneys
falling due in favor of the principal debtor, ATACO, from and after
November 18, 1948, before the debt was fully collected, thereby
allowing such funds to be taken and exhausted by other creditors to
the prejudice of the surety, and held that the Bank's negligence
resulted in exoneration of respondent Manila Surety & Fidelity
Company.
This holding is now assailed by the Bank. It contends the power of
attorney obtained from ATACO was merely in additional security in its
favor, and that it was the duty of the surety, and not that of the
creditor, owed see to it that the obligor fulfills his obligation, and that
the creditor owed the surety no duty of active diligence to collect any,
sum from the principal debtor, citing Judge Advocate General vs.
Court of Appeals, G.R. No. L-10671, October 23, 1958.
455 | P a g e
This argument of appellant Bank misses the point. The Court of
Appeals did not hold the Bank answerable for negligence in failing to
collect from the principal debtor but for its neglect in collecting the
sums due to the debtor from the Bureau of Public Works, contrary to
its duty as holder of an exclusive and irrevocable power of attorney
to make such collections, since an agent is required to act with the
care of a good father of a family (Civ. Code, Art. 1887) and becomes
liable for the damages which the principal may suffer through his non-
performance (Civ. Code, Art. 1884). Certainly, the Bank could not
expect that the Bank would diligently perform its duty under its power
of attorney, but because they could not have collected from the
Bureau even if they had attempted to do so. It must not be forgotten
that the Bank's power to collect was expressly made irrevocable, so
that the Bureau of Public Works could very well refuse to make
payments to the principal debtor itself, and a fortiori reject any
demands by the surety.

Even if the assignment with power of attorney from the principal

debtor were considered as mere additional security still, by allowing
the assigned funds to be exhausted without notifying the surety, the
Bank deprived the former of any possibility of recoursing against that
security. The Bank thereby exonerated the surety, pursuant to Article
2080 of the Civil Code:

ART. 2080. — The guarantors, even though they be solidary, are

released from their obligation whenever by come act of the creditor
they cannot be subrogated to the rights, mortgages and preferences
of the latter. (Emphasis supplied.)

The appellant points out to its letter of demand, Exhibit "K",

addressed to the Bureau of Public Works, on May 5, 1949, and its
letter to ATACO, Exhibit "G", informing the debtor that as of its date,
October 31, 1949, its outstanding balance was P156,374.83. Said
Exhibit "G" has no bearing on the issue whether the Bank has
exercised due diligence in collecting from the Bureau of Public Works,
since the letter was addressed to ATACO, and the funds were to come
from elsewhere. As to the letter of demand on the Public Works
office, it does not appear that any reply thereto was made; nor that
the demand was pressed, nor that the debtor or the surety were ever
apprised that payment was not being made. The fact remains that
because of the Bank's inactivity the other creditors were enabled to
collect P173,870.31, when the balance due to appellant Bank was only
P158,563.18. The finding of negligence made by the Court of Appeals
is thus not only conclusive on us but fully supported by the evidence.

Even if the Court of Appeals erred on the second reason it advanced

in support of the decision now under appeal, because the rules on
application of payments, giving preference to secured obligations are
only operative in cases where there are several distinct debts, and not
where there is only one that is partially secured, the error is of no
importance, since the principal reason based on the Bank's negligence
furnishes adequate support to the decision of the Court of Appeals
that the surety was thereby released.

WHEREFORE, the appealed decision is affirmed, with costs against

appellant Philippine National Bank.

Bengzon, C.J., Concepcion, Paredes, Dizon, Regala, Makalintal,

Bengzon, J.P., and Zaldivar, JJ., concur.
Bautista Angelo and Barerra, JJ., took no part.

456 | P a g e
2. 94 Phil 440
[G.R. No. L-5142. February 26, 1954.]
CONSOLACION L. RAMOS, administratrix-appellant, v. BENIGNO A.
CAOIBES, attorney-in fact-appellee.
Consolacion L. Ramos in her own behalf.
Benigno A. Caoibes in his own behalf.
SYLLABUS
1. PRINCIPAL AND AGENT; OBLIGATIONS OF AN AGENT. — Where an
agent makes use of his power of attorney after the death of his
principal, the agent has the obligation to deliver the amount collected
by him by virtue of said power to the administratrix of the estate of
his principal.
2. ID.; DONATION OF PERSONAL PROPERTY; REQUISITES FOR ITS
VALIDITY. — Where a donation of personal property was made in
writing but has not been accepted in the same form, the donation is
not valid. Nor can it be considered a donation upon valuable
consideration where no services or valuable consideration were
involved. The mere fact that the agent collected the principal’s claim
from the War Damage Commission is not such a service as to require
compensation.
DECISION
JUGO, J.:
This is an appeal by Consolacion L. Ramos as administratrix of the
estate of Concepcion Ramos from an order issued by the Court of First
Instance of Batangas on June 15, 1951.
On August 16,1948, Concepcion Ramos Dipusoy executed before a
notary public two documents which have been marked as Annex "A"
and Annex "B."cralaw virtua1aw library
Annex "A" is a power of attorney which reads as
follows:jgc:chanrobles.com.ph
"SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:jgc:chanrobles.com.ph
"That I, Concepcion Ramos Dipusoy, of legal age, single, Filipino
citizen and resident of Balayan, Batangas, have made, constituted and
appointed, and by these presents do make, constitute and appoint
Mr. Benigno A. Caoibes, also of legal age, married, Filipino citizen and
at present residing at 1047 Antipolo Street, Sampaloc, Manila, my
true and lawful attorney-in-fact, for me and in my name, place and
stead, to collect any amount due me from the Philippine War Damage
Commission, regarding my claim filed for my properties that were lost
during the last war in Balayan, Batangas, to cash checks, warrants and
to sign receipts, vouchers, documents which shall be necessary to the
said purpose.
"That I am giving and granting unto my said attorney-in-fact Benigno
A. Caoibes, full and absolute power and authority to do and perform
all any every act or thing whatsoever to be done necessary in and
about the premises, as fully to all intents and purposes as I might or
could myself do if I were personally present, and hereby confirming
and ratifying all that my said attorney-in-fact shall lawfully do or cause
to be done and by virtue of these presents.
"IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of
August, 1948, in the City of Manila, Philippines.
"(Miss) CONCEPCION RAMOS DIPUSOY.
"Signed in the presence of:chanrob1es virtual 1aw library
1. (Sgd.) CONSOLACION L. RAMOS Witness.
2. (Sgd.) SOCORRO L. RAMOS Witness.
"REPUBLIC OF THE PHILIPPINES } s.s. CITY OF MANILA.
"Before me a Notary Public for and in the City of Manila, personally
appeared Miss Concepcion Ramos Dipusoy, with Residence
Certificate No. A-3115097, issued at Balayan, Batangas, on February
26, 1948, who is known to me to be the same person who executed
the foregoing power of attorney in favor of Mr. Benigno A. Caoibes,
and acknowledged to me that the same is her free and voluntary act
and deed.
"IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of
August, 1948, in the City of Manila and affixed my Notarial Seal.
(Sgd.) ARTEMIO ABAYANotary Public.
My commission expires on December 31, 1948."
Annex B is an affidavit of the following tenor:jgc:chanrobles.com.ph
"REPUBLIC OF THE PHILIPPINES } s.s. CITY OF MANILA.
AFFIDAVIT
"That I, CONCEPCION RAMOS DIPUSOY, of legal age, single, Filipino
citizen, and resident of Balayan, Batangas, after having been duly
sworn to in accordance to law depose and say:jgc:chanrobles.com.ph
"That in case payment of any amount or amounts collected from the
Philippine War Damage Commission, my nephew and at the same
time attorney-in-fact, shall give my sister Teopista Vda. de Basa one-
half (1/2), of the corresponding amount and the other half (1/2) shall
be given to my nephew and niece Mr. and Mrs. Benigno A. Caoibes.
"IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of
August, 1948, in the City of Manila.
(Sgd.) CONCEPCION RAMOS DIPUSOY.
457 | P a g e
Signed in the presence of:chanrob1es virtual 1aw library
(Sgd.) CONSOLATION L. RAMOS
(Sgd.) SOCORRO L. RAMOS
"Subscribed and sworn to before me this 16th day of August, 1948, in
the City of Manila. Affiant have exhibited her residence certificate No.
A-3115097, issued at Balayan, Batangas, on February 26, 1948.
(Sgd.) ARTEMIO ABAYA Noraty Public.
My Commission expires on December 31, 1948"
Concepcion Ramos died on August 19,1948, leaving a will dated
January 7, 1927 admitted to probate on October 4, 1948, in which she
ordered that the credits due to her be distributed among the children
of the deceased Antonino Ramos, namely, Consolacion, Ramon,
Socorro, and Cirila.
One year before she died, Concepcion Ramos filed with the War
Damage Commission a claim which was identified as No. 411773. On
August 31,1948, the Commission issued check No. 348444, in the
amount of P501.62, payable to the deceased Concepcion Ramos. This
check was returned to the Commission and substituted by the latter
with check No. 564614, on November 10, 1948, for the same amount,
but payable to Benigno A. Caoibes, who had presented to said entity
Annexes "A" and "B", above mentioned, in order to exchange the first
check No. 564614, which he cashed for himself.
Annexes "A" and "B" were presented to the Commission by Caoibes
after the death of Concepcion. The administratrix, Consolacion L.
Ramos, the appellant herein, discovered the collection made by
Caoibes when she saw the note "previous payment" which appeared
in the account sent to her by the Commission on October 13, 1950.
She filed a motion with the court asking that Caoibes be ordered to
deposit the sum of P501.62 with the clerk of court. Caoibes answered
the motion admitting that after the death of Concepcion, he
presented Annexes "A" and "B" to the Commission and received in
cash the sum of P501.62, amount of the second check, above
mentioned, but stating that he was willing to deliver to the clerk the
sum of P250.81. He contended that, by virtue of Annex "A", and
Annex "B", he had the right to retain, for himself, half of the sum of
P501.62.
The court below issued the following order:jgc:chanrobles.com.ph
"Considering the motion of the administratrix praying that Atty.
Benigno A. Caoibes turn over the amount of P501.62, representing
war damage claim, to the office of the Clerk of this Court, and the
answer of Atty. Caoibes to the said motion and this Court having had
the opportunity to personally confer with the parties and Attorney
Caoibes being agreeable to turn over the amount of P250.81 to the
Clerk of this Court in final settlement of this matter — it is ordered
that the said Atty. Caoibes deposit the amount of P250.81 with the
Clerk of this Court, the said amount to be at the disposal of the
administratrix and the other parties in this intestate proceedings.
With this order, the matter before this Court is deemed closed.
"SO ORDERED.
Batangas, Batangas, June 15, 1951.
(Sgd.) E. SORIANO Judge"
On July 3, 1951, the administratrix filed a motion for reconsideration,
which was denied by the order of the court dated July 12, 1951. (In
the printed Record on Appeal the date appears to be July 12, 1950,
but it is evidently a mistake and it should be July 12, 1951.)
We will now proceed to consider the two documents.
Annex A is only a power of attorney. Caoibes, as agent, had the
obligation to deliver the amount collected by virtue of said power to
his principal, Concepcion, or, after her death, to the administratrix of
her estate, Consolación. There is absolutely no cession of rights made
in favor of Caoibes in Annex "A", and under Article 1711 of the old
Civil Code (which was in force at the time of the transaction), the
contract of agency is presumed to be gratuitous, unless the agent is a
professional agent. There is no proof that Caoibes was such.
Furthermore, according to Article 1732 of said Code, an agency is
terminated, among other causes, by the death of the principal or of
the agent. When Caoibes made use of the power of attorney, his
principal, Concepcion, was already dead.
Coming now to Annex "B", the alleged document of donation, it
should be noted that it is not a donation of real but of personal
property and is governed by article 632 of the old Civil Code, which
reads as follows:jgc:chanrobles.com.ph
"Donations of personal property may be made verbally or in writing.
"Verbal donation requires the simultaneous delivery of the gift. In the
absence of this requisite the donation shall produce no effect, unless
made in writing and accepted in the same form."cralaw virtua1aw
library
The alleged donation was made in writing but it has not been
accepted in the same form, and, consequently, has no validity. It
cannot be considered a donation upon valuable consideration, for no
services nor any valuable consideration had passed from the donees
to the donor. The mere fact that Caoibes collected the claim from the
War Damage Commission is not such a service as to require
compensation. Caoibes did not even prepare the claim.
The court below in its order of June 15, 1951, said that it "having had
the opportunity to personally confer with the parties and Attorney
Caoibes being agreeable to turn over the amount of P250.81 to the
Clerk of this Court in final settlement of this matter — it is ordered
that the said Atty. Caoibes deposit the amount of P250.81 with the
Clerk of this Court, the said amount to be at the disposal of the
administratrix and the other parties in these intestate proceedings.
With this order, the matter before the administratrix never consented
to the reduction of the claim.
In view of the foregoing, the order appealed from is reversed and
Benigno A. Caoibes is ordered to deposit with the Clerk of Court of
Batangas the sum of P501.62 to be at the disposal of the
administratrix in her capacity as such, without pronouncement as to
costs. So ordered.
458 | P a g e
3. 30 Phil. 491
G.R. No. L-8346 March 30, 1915
GUTIERREZ HERMANOS, plaintiff-appellant,
vs.
ORIA HERMANOS & CO., defendant-appellant.
Rafael de la Sierra for plaintiff.
Chicote and Miranda for defendant.
TORRES, J.:
On August 12, 1909, counsel for the mercantile firm of Gutierrez
Hermanos of this city filed a written complaint in the Court of First
Instance of Manila against the commercial concern of Oria Hermanos
& Co. of Laoang, Province of Samar, alleging therein as a cause of
action that between plaintiff and defendant there have existed
commercial relations which gave rise to the opening of a mutual
current account, at 8 percent interest, under the name of Oria
Hermanos & Co., on the books of the plaintiff Gutierrez Hermanos;
that, on January 11, 1909, plaintiff transmitted to defendant an
abstract of the latter's current account on December 31, 1908, which
showed a balance in plaintiff's favor of P144,473.78 and which was
approved by defendant, Oria Hermanos & Co., by a letter of March 9,
1909, which was copied literally in the complaint; that, on May 25,
1909, plaintiff notified defendant that the current account existing
between them would be closed at the end of thirty days counting
from that date, at the expiration of which period defendant should
pay any debit balance that might be owing; that, on June 30 of the
same year, Gutierrez Hermanos transmitted to the defendant, Oria
Hermanos & Co., the statement of the latter's current account up to
that date and, confirming its previous letter to the defendant of May
25, 1909, called attention to the necessity of paying the balance,
which then amounted to P147,204.28; that the defendant firm,
notwithstanding the said demands and others subsequently made,
and without having made any objection whatever to the said
statement of account, refused to pay the principal and interest owing
on the said account. Plaintiff's counsel therefore prayed that Oria
Hermanos and Co. be sentenced to pay the sum of P147,204.28,
besides the interest thereon at the rate of 8 per cent annum from
June 30, 1909, and the costs.
Defendant filed its answer on November 9, 1909, setting up four cross
complaints and six counterclaims against the plaintiff, Gutierrez
Hermanos, and specifically denied such of the allegations of the
complaint as were not in agreement with its answer. Plaintiff
demurred to certain paragraphs of the answer and as to the others
thereof prayed the court to order defendant to make its allegations
more specific. The court overruled this demurrer, but granted the
petition that defendant should make its allegations more specific in
the second, third, and fourth cross complaints and first counterclaim.
In compliance with the said order, defendant, on May 4, 1910, filed
am amended answer in which it specifically admitted paragraphs 1
and 2 of the complaint, and as the first cross complaint, alleged that,
by reason of mercantile relations and the opening of a mutual current
account from May 1, 1900, the plaintiff had obligated itself
periodically to send to the defendant firm a memorandum or
statement of the current account, and further obligated itself, in case
the said mercantile relations should be finally terminated, to present
a general and complete account, duly supported by vouchers and
other proofs; that plaintiff, Gutierrez Hermanos, had contended itself
by sending to Oria Hermanos and Co. some memoranda or abstracts
of account, accepted by defendant as such "abstract of account,"
without the latter's having waived its right to demand the
presentation, as agreed upon, of the vouchers and other proofs upon
the closing of the current account, a stipulation which Gutierrez
Hermanos had failed to comply with. Defendant therefore prayed
that the plaintiff, Gutierrez Hermanos, be sentenced to render and
present the said final account, duly accompanied by vouchers, in
conformity with the agreement made.
In the second cross complaint defendant alleged that, by virtue of a
commission contract, Oria Hermanos & Co. had from the 1st of May,
1900, to the 7th of September, 1909, forwarded 65,119.66 piculs of
copra, 70,420 bales of hemp, and 5,175.03 piculs of loose hemp to
Gutierrez Hermanos for sale on commission; that the latter firm
informed the defendant that it, the plaintiff, had sold the said
products to third persons for the account of the defendant, Oria
Hermanos & Co.; that by reason of said sale or sales Gutierrez
Hermanos collected large and important sums for commission and
brokerage and had turned in for the goods sold amounts less than
what they were actually worth in Manila; that defendant, Oria
Hermanos & Co., had recently received information that these lots of
hemp and copra were purchased by the firm of Gutierrez Hermanos
for itself, notwithstanding that the latter had stated to its principals,
Oria Hermanos & Co., that they had been sold to third persons; that
it collected by reason of such sale, commission and brokerage; acts
which redound to the fraud, injury, and prejudice of the defendant,
Oria Hermanos and Co. Therefore the latter prayed that Gutierrez
Hermanos be sentenced to render a general and complete account of
the amounts of hemp and copra received by it for sale on commission
from the year 1900 to 1909, setting out the dates of the receipt of the
said merchandise, dates of the sales, names of the purchasers, prices
stipulated, discounts obtained, and commissions collected by
Gutierrez Hermanos, etc.
Defendant alleged as the third cross complaint that, by virtue of the
said commission contract, Gutierrez Hermanos sent to the firm of Oria
Hermanos & Co., at different times according to the latter's request,
from May 1, 1900, up to the date of the closing of the current account,
193,310 sacks of rice alleged to have been purchased from third
persons, wherefore Oria Hermanos & Co. paid a certain stipulated
percentage as commission or brokerage for the sales; but that now
Oria Hermanos & Co. have received information which it believes to
be true, and so alleges, that the rice so forwarded had not been
purchased from third persons, but belonged to Gutierrez Hermanos
who sold it directly to defendant, collecting from the latter excessive
prices, advance payments, commission and interest, all to the fraud
and injury of the defendant firm. Oria Hermanos & Co., therefore,
prayed that Gutierrez Hermanos be sentenced to render an account,
duly supported by vouchers, of all the lots of rice forwarded to Oria
Hermanos, with a statement of the dates of the orders, amounts,
dates of the purchases, names of purchasers, amounts charged to
Oria Hermanos & Co., etc.
In the fourth cross complaint defendant related that, by reason of the
same commission contract existing between the two firms, Gutierrez
Hermanos had sent to Oria Hermanos & Co., from the 1st of May,
1900, up to the closing of the current account, various quantities of
459 | P a g e
salt, petroleum, tobacco, groceries and beverages, and had collected
a commission for the purchase thereof, that afterwards Oria
Hermanos & Co. learned that the forwarding firm, the plaintiff, had
set larger prices on the said goods than it had actually paid for them
and had unduly charged such prices, before it had paid them, to the
defendant's account, collecting for itself commission and interest
thereon, to the fraud and prejudice of the defendant firm. Therefore
the latter prayed that Gutierrez Hermanos be sentenced to render a
complete account, accompanied by vouchers, of the shipments
aforementioned.
In the first counterclaim filed by the defendant, Oria Hermanos & Co.,
petition was made that Gutierrez Hermanos be sentenced to pay it
the sum of P13,894.60, as the amount of an overcharge of 3 per cent
in interest collected from defendant, in a charge of 8 percent interest
per annum on a private debt of P47,649 drawing 5 per cent interest
per annum, which latter amount Juan T. Molleda owed the firm of
Gutierrez Hermanos and payment for which was assumed by Oria
Hermanos & Co. upon its organization into a mercantile firm in May,
1900.
In the second counterclaim the defendant firm, Oria Hermanos & Co.
set forth: That, on April 18, 1900, its predecessor had ordered its
consignee in Manila, Gutierrez Hermanos, to insure against all war
risks the stocks of hemp and merchandise which the said firm
possessed in the pueblo of Laoang, for P35,000, and likewise those it
had in Catubig, for P32,000; that Gutierrez Hermanos did not comply
with the said order, only insuring the stocks in Laoang for P67,000,
leaving those of Catubig totally unprotected; that when, on May 10,
1900, this latter pueblo was destroyed by fire Oria Hermanos & Co.
lost all its stocks there and could not collect the insurance of P32,000
on the said property, which, through the fault, negligence, and
omission of Gutierrez Hermanos had not been insured. This amount
last mentioned, added to the premiums, expenses, and interest paid
by Oria Hermanos & Co. aggregates the sum of P63,700, payment of
which defendant demanded of plaintiff.
As a third counterclaim it is alleged that, on May 18, 1900, the firm of
Gutierrez Hermanos, complying with orders from Oria Hermanos, &
Co., insured against all war risks, in a certain insurance company of
London, England, whose agent in the Philippine Islands was Stevenson
& Co., the stock of hemp which the defendant company had in the
pueblo of Catarman, Samar, for 3,000 pounds sterling, and paid the
premiums thereon at the rate of 10 per cent per quarter; that, during
the first quarter for which the premiums had been so paid, all the
insured tobacco belonging to Oria Hermanos & Co., in Catarman, was
stolen by the insurgent forces; that then the underwriter refused to
pay the amount of the insurance on the ground that Gutierrez
Hermanos had made out the said insurance defectively wherefore
Oria Hermanos & Co. ordered its agent Gutierrez Hermanos to
institute proceedings before the courts of these Islands for the
collection of the amount of the said insurance; but that plaintiff
instead brought suit for the purpose before the courts of England and
by its negligence, indolence, and carelessness had, during a period of
eight years, obliged the defendant firm to incur costly expenditures
which, added to the amount of the insurance premiums paid,
attorney's fees, costs, interest, etc., aggregated P67,000; that for this
sum, together with legal interests thereon, it prayed that it be
reimbursed by Gutierrez Hermanos.
With respect to the fourth counterclaim, the defendant firm set forth
that, under the commission contract and the current account contract
existing between both companies, Gutierrez Hermanos bound itself
to acquire for and forward to Oria Hermanos & Co. such rice and other
effects, including cash, as defendant might order from plaintiff; but
that, since the beginning of 1904, the firm of Gutierrez Hermanos
maliciously failed to make the consignments of rice and other effects,
under the false pretext that there were no such articles in the market,
thereby preventing the said firm of Oria Hermanos & Co. from
obtaining a profit of not less than P25,000 and, besides, injuring its
fame, credit, and mercantile reputation in the Island of Samar to the
extent of approximately P50,000. Therefore defendant prayed that
Gutierrez Hermanos be sentenced to pay it the sum of P75,000 as the
amount of such losses and damages occasioned it.
As the fifth counterclaim defendant alleged that, for a period of
twenty-two months, from the month of May, 1900, it chartered
several of its boats to the American military government; that the
charter parties aggregated a value of P400,000; that these contracts
were executed and the amounts thereof collected by Messrs. Oria &
Fuster, members of the defendant company, who turned the said
amounts into the current account they had with the firm of Gutierrez
Hermanos; but the plaintiff charged in the current account,
appropriated to itself, and collected from the funds of Oria Hermanos
& Co. which it had in its possession, 2 1/2 per cent of the amount
collected by reason of the said charter parties for commission and
brokerage, there being no stipulation whatever relative to the
collection of this commission; that Gutierrez Hermanos, moreover,
charged against the said amount collected by it 8 per cent compound
interest; and that the sum in such wise improperly charged and
appropriated amounted, together with the accumulated interest, to
P15,000, which defendant prayed be returned to it by Gutierrez
Hermanos.
The object of the sixth counterclaim is the recovery of P31,000, in
which amount defendant, Oria Hermanos & Co., alleged it was injured
by Gutierrez Hermanos having arbitrarily charged in the current
account compound interest at the rate of 8 per cent per semester
from the year 1900 up to the time of the closing of the said current
account, while the agreement made between both firms upon
opening the said account was that the latter should bear a mutual
interest of 8 per cent per annum only.
On May 14, 1910, counsel for Gutierrez Hermanos filed a written
answer to the foregoing countercomplaints and counterclaims, and
prayed that plaintiff be absolved therefrom.
On August 1, 1910, this case came up for hearing and was continued
on the following days until on April 24, 1912, the Honorable S. del
Rosario, judge, rendering judgment therein, the dispositive part of
which is as follows: "Messrs. Oria Hermanos & Co. are sentenced to
pay to Messrs. Gutierrez Hermanos the sum of P147,204.28, with
interest thereon at the rate of 8 per cent per annum from the 30th of
June, 1909, after deduction of all the sums that result as balances, in
favor of the former, from the accounts that shall be rendered by the
latter, in conformity with the cross complaints and counterclaims that
have been admitted.
Messrs. Gutierrez Hermanos are sentenced:
460 | P a g e
(a) With respect to the first cross complaint, to render to Messrs. Oria
Hermanos & co. accounts, supported by vouchers, only of those
articles in the acquisition of which fraud, deceit, or error has been
proven and to which the following pronouncements refer.
(b) As regards the second cross complaint, to return to Messrs. Oria
Hermanos & Co., after due settlement of the accounts, all the sums
collected as internal-revenue tax and referred to in the invoices of
rice, salt, petroleum, lime, rattan, flour, aniseed spirit, cigarettes, and
other articles mentioned in their respective places in the record,
unless plaintiff shows in a satisfactory manner that it did actually pay
to the Bureau of Internal Revenue, the contents of Exhibit 178
notwithstanding, the sums which, for the reason aforestated, were
debited to defendant, in which case the latter may bring an action
against the said Bureau of Internal Revenue.
(c) With respect to the third cross complaint, plaintiff must render to
defendant an account, supported by vouchers, of the shipments of
rice concerned in the invoices examined in which fraud or error was
discovered, and said account shall embrace the 153 invoices referred
to by the litigants in this suit (page 324 of the transcript of the
stenographic notes, session of November 29, 1910).
(d) With regard to the fourth cross complaint, plaintiff shall render an
account, supported by vouchers, of all the purchases it made of
petroleum for Messrs. Oria Hermanos & Co., and in connection with
the invoices held in the latter's possession and referred to on page
391 of the transcript of the stenographic notes of the session of
November 29, 1910.
(e) In the matter of the second counterclaim, plaintiff shall return to
Messrs. Oria Hermanos & Co. the sum of P1,812 with interest thereon
at the rate of 8 per cent per annum from the 5th of May, 1910, to the
date of payment. The interest due shall be compounded after each
semester, reckoning from June 1, 1900, and both the principal and the
interest so compounded shall bear the same interest of 8 per cent per
annum.
Messrs. Gutierrez Hermanos are absolved, in the first place, from the
second cross complaint in so far as concerns the demand therein
made for a rendition of accounts in connection with the hemp and
copra; and in the second place, from the first, third, fourth, fifth, and
sixth counterclaims.
Without special finding as to costs.
The parties, upon their notification of this judgment, duly excepted
thereto and by written motion prayed for a reopening of the case and
a new trial. These motions were overruled, with exception by the
appellants, and the proper bills of exceptions having been filed, the
same were approved and forwarded to the clerk of this court.
This action was brought to recover the sum of P147,204.28, the
balance of a current account opened on May 1, 1900, between
Gutierrez Hermanos and the commercial firm of Oria Hermanos & Co.,
at the rate 8 per cent mutual interest up to June 30, 1909, which sum
was found to be owing by Oria Hermanos & Co. to the commercial
firm of Gutierrez Hermanos.
Other subject matters of the present suit are the rendition of
accounts by Gutierrez Hermanos, as commission agent, to Oria
Hermanos & Co., as principal, and the collection of various sums
demanded by the latter in the cross complaints and counterclaims
filed, during the trial, by its counsel against the claim made by
Gutierrez Hermanos for the payment of the amount specified in the
preceding paragraph.
To prove the propriety and justice of its complaint, Gutierrez
Hermanos, plaintiff, alleged: That, in accordance with the agreement
made, it sent semiannually a general account that comprised a
statement of the business transacted during the preceding six
months, to Oria Hermanos & Co. who, after examining the account
with its specification and vouchers, sometimes approved the same
without comment of any kind, and at others, after some objections,
but that, in the latter cases, upon explanations being subsequently
given by Gutierrez Hermanos, the defendant firm used at last to
accept the account rendered; that such was the procedure followed
during the nine years approximately that both firms maintained
commercial relations, and that the record showed that during the said
nine years Oria Hermanos & Co. had given in favor of Gutierrez
Hermanos 17 agreements or approvals of account, the last of which,
transcribed in the complaint, is of the following tenor:
LAOAG, March 9, 1909.
Messrs. GUTIERREZ HERMANOS, Manila.
DEAR SIRS: In our possession, your very esteemed letter dated
December 31 last, from which we have withdrawn the extract of our
current account with your firm, closed the same day, showing a
balance in your favor of P144,473.78, which extract meets with our
approval.
We remain, Yours, very respectfully, ORIA
HERMANOS & Co.
That, on May 25, 1909, the plaintiff firm notified the defendant firm
that it could not continue to do business with the latter and therefore
the current account stipulated between both parties would be closed
within a period of thirty days; plaintiff therefore transmitted to
defendant a general detailed account that comprised the period from
January, 1909, to June 30 of the same year, with the warning that
after that date (May 25, 1909) defendant would have to pay the debit
balance, inasmuch as, although the said last account had not been
approved, no objection whatever had been made thereto by Oria
Hermanos & Co. Therefore in the said letter of May 25, plaintiff
demanded of defendant the payment of the sum mentioned of
P147,204.28 which the latter had not paid in spite of plaintiff's
demands and notwithstanding the fact that defendant had made no
objection whatever to the last account rendered.
Counsel for defendant, Oria Hermanos & Co., after a denial of the
facts that had not been admitted prayed in special defense and in four
cross complaints that the plaintiff, Gutierrez Hermanos, be compelled
to present a general account, duly verified and supported by
vouchers, of all the shipments of hemp, copra, rice and other effects
specifically mentioned, and to render a final account in conformity
with the agreement made between both parties and converting the
details mentioned in the said cross complaints.
461 | P a g e

Notwithstanding the proof shown in the record of the certainty and
reality of the debt as a balance resulting from the current account
kept between the parties, it is of course impossible to determine the
net amount, the object of the claim presented by plaintiff, until there
shall have first been decided whether there should or not be rendered
a general account, accompanied by vouchers, comprehensive of the
business transacted in connection with the different commercial
articles dealt in, and of the mercantile relations between both firms
from May 1, 1900, to June 30, 1909, and also whether Gutierrez
Hermanos is indebted to Oria Hermanos & Co. and what is the amount
of the debt.
Even upon the supposition that the plaintiff, Gutierrez Hermanos, is
obliged to make a general rendition of accounts comprehensive of the
business transacted between both firms within the dates mentioned,
it is evident that, until it be known whether plaintiff is or is not
indebted to Oria Hermanos & Co. and what is the amount owing as
disclosed by the account rendered, it cannot be decided whether
plaintiff is or is not entitled to collect the whole amount claimed in
the complaint, for only in view of the result of the rendition of
accounts requested by plaintiff can it be lawfully established whether
Gutierrez Hermanos is a creditor of Oria Hermanos & Co. and what
amount is owing to it by the latter. All this is referred to in the first
error alleged by defendant.
In case it should be held that the law does not allow the rendition of
accounts requested by the defendant, Oria Hermanos & Co., and that
this latter is not a creditor of Gutierrez Hermanos, it is evident of
course that plaintiff would be unquestionably entitled to collect the
amount specified in the complaint, or some other amount duly
proved at trial to be owing it by defendant. It is therefore incumbent
upon us to elucidate hereinafter the propriety or impropriety of the
contentions made by defendant in its four cross complaints.
Defendant's counsel in his first cross-complaint and special defense
prayed that the plaintiff, Gutierrez Hermanos, be compelled to render
and present a general, final, complete and verified account, pursuant
to the agreement made between both parties, inasmuch as plaintiff
bound itself to send periodically to defendant a note or numerical
extract of the current account, and in case the mercantile relations
between both firms should come to an end or be finally closed,
Gutierrez Hermanos bound itself to present a general and complete
account, duly supported by vouchers, and defendant, in accepting
and approving the semiannual accounts rendered by plaintiff, did not
waive its right to demand the general account agreed upon, at the
time of the final closing of the said current account, the obligation to
furnish which was not complied with by the plaintiff, Gutierrez
Hermanos.
The latter denied in its answer the allegations made by Oria Hermanos
& Co. in its cross-complaint, and set forth that, in consequence of the
mutual current account opened between the parties from the year
1900, plaintiff transmitted weekly or fortnightly, according to
circumstances, a specific statement of the transactions effected, as
well as, semiannually, a general account of the business done during
the six months last elapsed, and that defendant, after an examination
of such semiannual account together with its details and vouchers,
and after some objections thereto had been explained, was
accustomed to prove the same. This was the produre carried on for
more than nine years during which Oria Hermanos & Co. from time to
time approved each one of the 17 account that were presented to it,
and upon Gutierrez Hermanos closing the current account from
January to June, 1909, it also presented to defendant a general
detailed account, which, nothwithstanding that no objection
whatever was made to it, was not approved. Therefore the complaint
was filed that initiated this litigation.
Had the agreement between the parties been recorded with all its
conditions in some instrument, it would have appeared whether
Gutierrez Hermanos actually bound itself to present to Oria
Hermanos and Co., besides the semiannual accounts rendered, a
general account comprising all the business undertaken between
1900 and June, 1909, on which latter date it was considered by
Gutierrez Hermanos as terminated. The allegation made by
defendant relative to this point had not been substantiated by any
evidence whatever, and therefore there is no reason nor legal ground
whereby plaintiff could be compelled to present that general account
requested in the first cross-complaint.
It is, in our opinion, appropriate it insert hereinafter what the trial
court, in the judgment rendered, says with respect to this matter: "If
commission agents be obliged to render to their principals itemized
accounts, supported by vouchers, of the sums they collect as
commission and of the transactions effected by them in relation with
their principals, as often as the latter may desire, in cases where there
arises some trouble, some difference of opinion or a conflict of
interests, or where the commission agents close the account, as
occurs in the case at bar because the principals did not pay what they
were owing or because, instead of the debt being diminished, it was
increased, the commission contract would become an inexhaustible
and never ending source of litigation and of claims without number,
a formidable arm for spiteful principals against which it would be
insufficient to oppose an arsenal of vouchers such as might be
treasured by the most prescient commission agent, because there
could be avoided neither the brother resulting from their necessary
examination, nor the heavy expenses and loss of time that are the
inevitable accompaniment of this class of work."
When an account has been presented or rendered and has been
approved by the party whom it concerns or interests, it is not proper
to revise it, unless it should be proved that in its approval there was
deceit, fraud, or error seriously prejudicial to the party who gave such
approval. Arts. 1265 and 1266, Civil Code.)
In the decision rendered in the case of Pastor vs. Nicasio, (6 Phil. Rep.,
152), the following doctrine was laid down;
When accounts of the agent to the principal are once approved by the
principal, the latter has no right to ask afterwards for a revision of the
same or for a detailed account of the business, unless he can show
that there was fraud, deceit, error or mistake in the approval of the
accounts — facts not proven in this case.
The record does not show it to have been duly proven that upon Oria
Hermanos & Co. giving its approval to the 17 accounts presented by
Gutierrez Hermanos there was deceit, fraud, or mistake prejudicial to
the former's interests. For the sole reason that Gutierrez Hermanos,
upon closing the current account with Oria Hermanos & Co. was
obliged, certainly an unwarranted obligation, to render a general
462 | P a g e
account comprehensive of all the business transacted between both
parties during more than nine years, and there being no proof of the
alleged agreement between them, it would be improper to hold that
the plaintiff is obliged to render and present a general account in the
sense requested by Oria Hermanos & Co. in its first cross-complaint.
With respect to the second cross-complaint, relative to the sale on
commission of lots of hemp and copra by defendants to plaintiff
during the period from may, 1900, until the close of the mercantile
relations between both firms, it was alleged that for such sale or sale
on commission Gutierrez Hermanos collected a large and important
commission of many thousands of pesos and credited defendant in
the current account with lesser prices than those obtained and that
defendant received information that these lots of hemp and copra
which were said to have sold to third persons were afterwards found
to have been purchased by the firm of Gutierrez Hermanos itself, to
the fraud, injury, and prejudice of the defendant, Oria Hermanos and
Co.; wherefore the latter prayed that plaintiff should present a
general and complete account, duly verified by vouchers and with the
details specified of each and all of the shipments of hemp and copra
forwarded to plaintiff from May, 1900, to 1909. These facts were
denied by plaintiff, and the court, in view of the evidence adduced by
both parties, held that the record showed absolutely no proof that
plaintiff, Gutierrez Hermanos, had committed any fraud or error
prejudicial to defendant.
In fact it was not proved that Gutierrez Hermanos credited in the
current account a lesser price than that obtained from the sale on
commission of the lots of hemp and copra sent to it by Oria Hermanos
and Co., for from the documentary evidence consisting of account
transmitted by plaintiff to the commercial firms of Stevenson and Co.
and Warner, Barnes and Co. (Limited), in collection of the price of
hemp and copra acquired by these houses, it appears that the prices
fixed at sale to the latter are the same and agree with those specified
in the statements transmitted by plaintiff to defendant, Oria
Hermanos and Co., and that the hemp and copra shipped by the
defendant were sold on commission to third persons — that is, to the
aforesaid commercial firms.
The charge laid against plaintiff, that it did not disclose the name of
the commercial firm or concern from whom the hemp that it sold had
come, does not, although it may have concealed this fact, constitute
a fraudulent act, nor one originating civil liability, inasmuch as plaintiff
realized on the lots of hemp under the marks of Oria Hermanos & Co.
which they bore from their point of origin and by which they were
known both in Manila and abroad (Exhibit DD) and not only in the
invoices, but also in the accounts presented by Gutierrez Hermanos
upon its collecting the price of such hemp sold on
commission, there appeared the marks stamped by Oria Hermanos &
Co. on their lots of hemp, and therefore it cannot be affirmed that
Gutierrez Hermanos superseded Oria Hermanos & Co. as the owner
of the hemp that plaintiff sold on commission and that came from
defendant during the more than nine years in which the former was
a commission agent of the latter.
With respect to the fact of Gutierrez Hermanos not having disclosed
the name of the concern to which the hemp belonged, in the cases
where plaintiff sold it in its own name, plaintiff's procedure cannot be
qualified as deceitful or fraudulent, inasmuch as article 245 of the
Code of Commerce authorized it to act as it did, to contract on its own
account without need of disclosing the name of its principal, in which
case Gutierrez Hermanos was liable to the person or concern with
whom it contracted, as if the business were its own. So, then, the
purchaser has no right of action against the principal, nor the latter
against the former, without prejudice to the actions which lie
respectively in behalf of the principal and the commission agent,
pursuant to the provisions of article 246 of the Civil Code.
With regard to the lots of copra, notwithstanding the allegations
made in this cross-complaint, defendant has not produced any proof
whatever of the facts charged, in face of plaintiff's denial in its answer.
Therefore, in consideration of the reasons set forth with respect to
the lots of hemp, the judgment of the lower court disallowing
defendant's petition that plaintiff render accounts relative to the
sales of hemp and copra is held to be in accordance with law.
In this part of the judgment of the trial court consideration was also
given to the fact of plaintiff's having debited against defendant in the
account rendered it the payment of the internal-revenue tax of one-
third of 1 per cent.
With respect to the tax paid on the price of the hemp and copra sold
by the plaintiff in the name and for the account of the defendant, the
procedure of the plaintiff is perfectly legal, in accordance with the
provisions of section 139 of the Internal Revenue Law, in laying upon
Oria Hermanos & Co. the obligation to pay the said tax as the owner
of the hemp and copra sold, and, therefore, the claim made by
defendant against the account drawn up by Gutierrez Hermanos is
unreasonable and unfounded.
As regards the tax of one-third of 1 per cent which, according to
accounts presented by Gutierrez Hermanos to Oria Hermanos & Co.,
plaintiff had paid on the price of the rice, salt, kerosene, lime, mats,
rattan, flour, anise-seed spirits, and cigarettes, inasmuch as the said
section of the above cited Act obliges the vendors and not the
purchasers of these articles to pay the said tax, it is undeniable that
the firm of Gutierrez Hermanos that had acquired the said articles
which were forwarded to Oria Hermanos & Co. should neither have
paid the tax in question, nor should have charged it for payment
against defendant, since it had already been paid to the Government
by the owners of the articles sold to plaintiff.
In view of the provisions of law contained in the aforesaid section 139,
it is not understood how Gutierrez Hermanos could have been
compelled to pay the said tax on the rice, salt, petroleum, lime, mats,
rattan, flour, anise-seed spirit, and cigarettes, nor on the price of the
beer, on the supposition that plaintiff acquired these articles from
third persons in this city. In the case of the rice imported from abroad,
the payment of the tax thereon pertains to the importer who sells it
to third persons.
If Gutierrez Hermanos made a mistake, notwithstanding the clear
phraseology of the said section, said mistake should not prejudice
defendant who, in July, 1905, had already stated that it did not agree
with plaintiff's action in the matter for, in the letter Exhibit FF,
defendant demanded that plaintiff investigate the case in order to
avoid a double payment of the tax.
For the foregoing reasons the plaintiffs, Gutierrez Hermanos, after
liquidation of the sums paid as a tax of one-third of 1 per cent on the
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price of the rice acquired in this city and of the salt, kerosene, lime,
mats, flour, anise-seed spirit, cigarettes, and beer, referred to in the
second counter-complaint, must pay to Oria Hermanos & Co. the
amount shown by said liquidation to be owing.
As regards the third cross-complaint, wherein it is alleged that fraud,
deceit, or error was committed or incurred by Gutierrez Hermanos in
connection with the accounts for the rice forwarded to Oria
Hermanos & Co., a fact denied by plaintiff, the trial judge, in view of
the evidence introduced at the hearing of the case, established the
following conclusion:
Justice, therefore, demands that Messers. Gutierrez Hermanos
render a new account of the lots of rice which they shipped to Messrs.
Oria Hermanos & Co., inasmuch as they, as proved in the verification
of some of the lots, committed the fraud of having collected a
commission of 2 per cent for the purchase of the rice, as commission
agents, in addition to a profit in reference to the said lots, in their
capacity of merchants, on the price of the rice imported by them from
Saigon.
If they acted as committed agents, they could have contented
themselves with the 2 per cent commission and should not have
charged any extra price. If, as commission agents, it was more
advantageous for them to reap the profits from the rice imported
from Saigon, they should neither have charged nor collected the 2 per
cent commission. The commission agent is obliged to acquire the
articles or effects for which he has received an order from his principal
in the most advantageous and less onerous conditions for the latter.
Such an obligation, prescribed by article 258 of the Code of
Commerce, was not fulfilled by the procedure observed by plaintiff in
the matter of the verified invoices of rice, in some of which, as has
been proved, there appears to have been charged a larger amount
than the cost price.
This court reserves its opinion, unit at such proper time it shall have
seen to result, shown by the new accounts to be presented by
plaintiff, as to whether, in the rice accounts rendered by it to
defendant, there was fraud or only error susceptible of correction, for
plaintiff alleges in turn, as shown in the letter Exhibit ññ, that Oria
Hermanos & Co. required plaintiff to increase the price in the invoices
of rice, anise-seed spirit, petroleum, etc., by 25 per cent of the cost of
these articles. Therefore plaintiff shall render an account, verified by
vouchers, to Oria Hermanos of all the shipments of rice concerned,
not only in the invoices examined, but also ion those that have not
been examined, up to No. 153, which invoices are those mentioned
on page 324 of the transcript of the stenographic notes of the session
of November 29, 1910.
The approval and agreement given by defendant to the 17
semiannual accounts presented by plaintiff is no impediment to a
revision of the same, once it shall have been shown that there was
fraud, error, or serious in correction prejudicial to the party who
accepted the said accounts. The law which protects him who acts in
good faith cannot permit any considerable prejudice to be caused to
the rights and interests of a third party who had neither the occasion
nor the opportunity to acquaint himself with the truth of the facts
which he had admitted as true in such manner as they were presented
to him.
Oria Hermanos & Co., upon its accepting and approving the accounts
which were presented to it by Gutierrez Hermanos, as transcripts or
copies from the latter's books, did not have an opportunity to make
the required verification of the entries of rice contained in the said
accounts or of the invoices of this article in all their details, and
whenever it has discovered that Gutierrez Hermanos, as commission
agent, has made overcharged or placed extra prices in addition to the
2 per cent commission, it has a right to demand reimbursement of the
excess in price which it had erroneously paid as principal. The
judgment of the lower court must, therefore, be affirmed with
respect to the entries of rice made in the 170 invoices referred to in
the accounts presented by plaintiff, by means of a revision of the
accounts presented in connection with the said article of the Code of
Commerce.
With respect to the fourth crosscomplaint relative to Gutierrez
Hermanos having entered in the invoices transmitted to Oria
Hermanos & Co. higher prices than those paid for the salt, beverages,
tobacco, wine, beer, and groceries, in spite of the allegations made by
plaintiff the record of the proceedings shows no proof of the truth of
the act charged to plaintiff. The fact of not having recorded in the
invoices of the said effects shipped to defendant the names of the
persons who had acquired them does not constitute proof nor even a
presumption of illegal procedure on the part of Gutierrez Hermanos.
Neither is plaintiff obliged by any law to state the names of the
owners of such articles, nor does the omission thereof show bad faith
on the part of the commission agents.
As regards the petroleum, it is undeniable that in the invoices to
which the fourth cross-complaint refers higher prices were given than
those it actually cost. Moreover, Oria Hermanos & Co. is entitled to
the discount obtained by the commission house from the commercial
firm which sold the petroleum.
The trial judge, as grounds for his finding, says the following: "It is
therefore evident that, according to the proofs submitted, Messrs.
Gutierrez Hermanos committed fraud in the purchase and shipments
of the said article, not only because they kept the discount allowed by
the selling firm by which their principals, for whom they purchased
the petroleum should have profited, and not the commission agents
who acted for them simply in the capacity of agents; but also because
in one of the invoices they charged, besides, a greater price than they
paid to the vendors, and then collected a commission of 2 per cent on
all the invoices. It is the obligation of commission agents to make the
purchases for their principals on the most advantageous terms. For
this they are paid the rate of commission stipulated. They have no
right to keep the discount allowed by the vendors on the price of the
articles they purchase for their principals, even less to increase, to
their benefit, the price charged them."
In consideration, then, of evidence introduced relative to the
purchase of the petroleum shipped to defendant, referred to in the
fourth cross-complaint, plaintiff must render an account, verified by
vouchers, of the price of all the petroleum that it acquired for Oria
Hermanos & Co. and which is covered by the invoices mentioned on
page 391 of the transcript of the stenographic notes taken of the
session of December 28, 1910.
The judgment of the lower court treats of the fact that Gutierrez
Hermanos charged interest on the value of the articles which it had
464 | P a g e
purchased for Oria Hermanos & Co., before even having paid the
vendors the price of the articles acquired. Defendant has complaint
against this procedure on the part of plaintiff and qualifies as
improper and illegal the collection of the 8 per cent interest on the
price of the effects forwarded to Oria Hermanos & Co. from the date
of their shipment, when actual payment of such purchases was made
many days afterwards.
The accounts presented by Gutierrez Hermanos, wherein note was
made of the collection of interest at the rate of 8 per cent on the price
of the effects acquired by plaintiff for Oria Hermanos & Co. and
shipped to defendant for its disposal, notwithstanding that they were
not paid for unit many days afterwards, were approved and accepted
by plaintiff without any objection thereto whatever and with no
protest against the notation of the interest on the price of the articles
purchased. Therefore, aside from the reasons given by the lower
court in his judgment and relative to this point, it can not be held that
there was either fraud or error in the procedure observed by
Gutierrez Hermanos in charging in its account the stipulated interest
from the date when it acquired the effects, afterwards shipped to the
defendant, Oria Hermanos & Co., because Gutierrez Hermanos could
have paid cash for the articles purchased. Even though payment
might have been delayed for a few days more it is certain that
Gutierrez Hermanos as commission agent was obliged to pay the price
of the articles acquired and, consequently, said price began to draw
interest chargeable to the consignee who, as owner of such articles,
could dispose of them freely. For these reasons defendant's claim can
not be sustained.
We now take up the fifth special defense, or the first counterclaim
presented by defendant against plaintiff, wherein it is prayed that the
latter be sentenced to pay to the former the sum of P13,894.60,
together with the legal interest thereon, which sum is the difference
between the 5 per cent which was all Oria Hermanos & Co. should
have the sum of P47,649, the debt contracted by Juan T. Molleda in
favor of Gutierrez Hermanos and transferred to Oria Hermanos and
Co. who assumed its payment instead of Molleda.
The reasons, set forth in the judgment appealed from and based on
documentary evidence, are so clear and conclusive that they could
not be rejected by defendant, nor invalidated at trial by other
evidence in rebuttal. Consequently, we are constrained to admit them
as decisive of the point in controversy and as duly showing that the
interest stipulated on the amount which was transferred to Oria
Hermanos and Co. is 8 per cent and not 5 per cent as defendant
claims. Therefore the sum of P13,894.60 claimed cannot be
recovered, and it is held that the finding made by the trial judge in
respect to the first counterclaim filed by defendant is in accord with
the law and the evidence. This finding is based on the following
grounds: "If the firm of Molleda and Oria as well as that of Oria
Hermanos & Co., of which latter Mr. Tomas Oria is manager, both
consented to Messrs. Gutierrez Hermanos charging in all the extracts
of current account sent to them an interest of 8 per cent on the sum
of P47,649 56; and if they willingly and constantly acquiesced in the
payment of a particular rate of interest instead of that of 5 per cent,
during nine years without raising any objection whatever, they are
not entitled to obtained restitution for the difference paid of 3 per
cent, nor have they any right to consider as unlawfully collected the 8
per cent interest on the sum above mentioned. The record shows no
proof of the existence of any of the vices which, according to law,
might invalidate the consent given by defendant to the collection
from it of the interest of 8 per cent, which must be that stipulated,
nor was such a vice alleged by Oria Hermanos & Co." Moreover,
against this finding in plaintiff's favor no error whatever has been
alleged by defendant.
In the second counterclaim, the sixth special defense, defendant
prays that Gutierrez Hermanos be sentenced to the payment of
P63,700, with legal interest thereon from the date of the presentation
of this counterclaim, and alleged; that the firm of Gutierrez
Hermanos, disregarding the instructions of Molleda and Oria, the
predecessor of Oria Hermanos and Co., merely insured the stocks of
hemp and merchandise which the latter had in Laoang, for an
imaginary value of P67,000, leaving totally unprotected the stocks of
hemp and merchandise in Catubig, valued at P32,000; that such
failure to comply with said instruction caused Oria Hermanos and Co.,
by reason of the fire that occurred in Catubig, to lose the sum of
P63,700, including the premiums. expenses, and interest paid, and
that defendant, immediately upon discovery of the loss by plaintiff's
fault and negligence, filed claim therefor and protested against the
same.
In answer Gutierrez Hermanos alleged that in the letter from Oria
Hermanos and Co., of the date of April 28, 1900, the latter stated that
it recommended to plaintiff the question of the insurance of the
warehouses in Laoang and of the houses in Catubig, advised that if
the stocks of hemp and merchandise therein were insured, as
defendant believed they were, plaintiff should endeavor to increase
the insurance thereon; and that in another letter of the same date
Don Tomas Oria, after relating the fact that the insurgents had
attacked the pueblo of Catubig and killed the troops there garrisoned,
stated that he earnestly recommended to Gutierrez the matter of the
insurance in order that it might be made as soon as possible in the
manner explained in the official letter of the same date.
Gutierrez Hermanos, supposing that Catubig might already have been
burned and destroyed as a result of the occurrences related by Oria
in his letter, judging by the news published in the newspapers of this
city on May 2, 1900, deemed that it would be a useless expense to
increase the insurance of the merchandise held in stock in the said
pueblo under ordinary fire insurance which was that taken out by the
firm of Molleda and Oria, for the reason that the insurance companies
would refuse to pay the amount of the insurance in case the damage
was caused by war, invasion, riot, military force, etc. As Gutierrez
Hermanos then had no means whereby it might communicates with
Molleda and Oria to request specific instructions from this latter firm
in regard to the insurance ordered, which ordinary and not war
insurance, it had to consult Don Casimiro Oria, a partner of Oria
Hermanos and Co., and this gentleman, with a full knowledge of the
state of affairs in Catubig, advised that no further attempt be made
to increase the ordinary fire insurance on the goods in Catubig,
because it would be a useless expense and because there were well-
founded reasons for supposing that at that date the pueblo had
already been completely destroyed, together with the buildings and
stocks of merchandise which it was proposed to insure. But after
taking into account the importance of the buildings and the large
stocks of goods stored in Laoang, which pueblo, according to a letter
from Oria to Gutierrez Hermanos, was also in danger of being
attacked by the insurgents, plaintiff proceeded to insure them against
war risks for three months for P7,000 sterling, a transaction which
465 | P a g e
was communicated by plaintiff to Molleda and Oria by a letter of May
5, 1900, and which this latter firm acknowledged without making any
objection whatever to the war insurance placed; that, since the 2d of
June of the same year, neither was any claim or protest made by the
firm of Oria Hermanos, but, on the contrary, Oria Hermanos and Co.
applied to the Government of the United States claiming an indemnity
of P90,000 Philippine currency for the burning of the buildings and
goods in the pueblo of Catubig — a claim still pending decision by the
Government.
The judge of the Court of First Instance, deciding the question raised
in this counterclaim, set forth among others the following
considerations: "If Messrs. Gutierrez Hermanos had taken steps to
insure the stocks of merchandise in Catubig and had declared to any
officer of the insuring company the truth about the terrible slaughter
which had just taken place, it would have been impossible to obtain a
war insurance on the said merchandise; and if, instead of declaring
the truth, plaintiff had omitted it, the insurance if obtained could not
have been collected. The insurance company would have learned of
the circumstances which had not been stated and had been omitted
in the application and would have refused to pay the insurance, as it
did in the case of the Catarman insurance, as will be seen further on.
And if plaintiff had applied to the English courts, as it did in the case
referred to, the result would have been the same."
Even though Gutierrez Hermanos had increased by value of the
insurance on the hemp and merchandise in Catubig through means of
ordinary fire insurance, pursuant to the instructions given by Molleda
and Oria, the predecessors of Oria Hermanos & Co. and whose rights
this latter firm represents, the same result would have followed,
inasmuch as in this class of insurance the insuring company does not
assume risks for fires and damages caused by war, riot, and military
force; and as in the official letter aforementioned plaintiff was not
authorized to increase the insurance through means of a war
insurance policy, it is unquestionable that plaintiff, in not increasing
the ordinary insurance, proceeded in a prudent and reasonable
manner and for the benefit of the defendant by saving the latter from
uselessly paying an important premium for an insurance which it
afterwards could not have collected, Furthermore, the news was
already disseminated in Manila that the pueblo of Catubig had been
completely burned to the ground. Not only, therefore, would it have
been impossible to obtain the increase of an ordinary insurance, but
even a war insurance, though offering to pay a large and excessive
premium.
In the letter of the date of May 34, 1900, Exhibit 5, page 190 of the
file of the record, Gutierrez Hermanos informed Oria Hermanos and
Co. that the insurance firm refused to pay the amount of the
insurance on the merchandise in Catubig, for the reason that the
cases of fire caused through military force, etc., were excluded from
the policy. So that even though Gutierrez Hermanos had, in
compliance with orders from Oria Hermanos & Co., increased the
amount of the insurance on the stock of merchandise stored in
Catubig, Oria Hermanos & Co. would not have been benefited
thereby, because the insurance company would have refused to pay
the increase, just as it did not pay the amount of the original insurance
for the reason aforementioned. Furthermore, as we have already
stated, the order to increase the insurance only refers to ordinary
insurance against fire, and not to extraordinary insurance against war
risks.
With respect to the war insurance placed on the stocks of goods in
Laoang, the trial court could not in accordance with law hold plaintiff
to be liable for the payment of the sum Oria Hermanos and Co. did
not protest nor object in any wise against the placing of the said war
insurance on the merchandise in Laoang, and also because in the
second counterclaim no petition or demand whatever was made in
connection with this transaction. For these reasons therefore,
Gutierrez Hermanos must be absolved of the second counterclaim.
We now come to the third counterclaim, the seventh special defense
presented by defendant, wherein petition was made that the firm of
Gutierrez Hermanos be compelled to pay to Oria Hermanos the sum
of P67,000, besides the legal interest thereon since the filing of this
claim, which sum was the amount of the insurance, premiums paid,
fees, costs, interest, and charges for telegrams, etc., alleged to have
been expended and lost through the inattention, negligence,
improvidence, and carelessness of the plaintiff, Gutierrez Hermanos,
without defendant's being able to collect the amount of the insurance
on the stock of hemp in Catarman, Samar.
In a letter of May 10, 1900, addressed by Oria Hermanos & Co. to
Gutierrez Hermanos, the former commissioned the latter to try to
insure against war risks some 1,400 piculs of hemp that Oria
Hermanos and Co. had in the pueblo of Catarman which had been
evacuated by the American troops; and in another letter of the same
date Tomas Oria said to Gutierrez Hermanos that Catarman had been
evacuated by the troops three days after the departure of the
steamer Santander which was unable to load about 3,000 piculs of
hemp that his firm had there, and, as he knew that the said pueblo
had not been burned, he wished to have insurance taken out on the
value of about 1,400 piculs of hemp stored in the Delgado warehouse.
Gutierrez Hermanos had Stevenson and Co., of Manila, cable to the
latter's head office in London for the desired insurance, and as soon
as it was obtained Gutierrez Hermanos wrote to Oria Hermanos & Co.
informing defendant that plaintiff had insured against war risks 1,400
piculs of hemp deposited in the Delgado warehouse in Catarman, for
three months from the 18th of May, 1900.
A few days subsequent to the placing of this insurance, Oria
Hermanos & Co. ordered Gutierrez Hermanos to collect the amount
of the insurance, for the reason that all the stock of hemp in Catarman
had been stolen by the insurgents. The representative of the
underwriter refused, however, to pay the amount of the insurance
because Oria Hermanos and Co. had concealed certain facts which,
had they been known to the underwriter, would have deterred the
company from issuing a policy for the hemp, and all the steps taken
for the purpose of obtaining the collection of the £3,000 sterling for
which the hemp had been insured, resulted in failure.
Therefore, on petition of the firm of Oria Hermanos & Co. through the
firm of Stevenson and Co., suit was duly brought before the English
courts in London. The prosecution of this suit was commended to
English attorneys to whom Oria Hermanos & Co. furnished, through
Gutierrez Hermanos, all the documents and data conducive to a
successful issue. Notwithstanding, the claim of Oria Hermanos & Co.
was rejected by the London courts. No liability attached to Gutierrez
Hermanos for the failure of the suit in London.
466 | P a g e
The firm of Gutierrez Hermanos merely complied with the orders of
Oria Hermanos & Co. to insure the stock of hemp in Cataraman, with
an insurance company established in London, through Stevenson and
Co. of Manila, in view of the fact that there was no insurance company
in this city which would issue policies against war risks. For this
purpose, by a letter of October 17, 1905, Exhibit F-2 Oria Hermanos &
Co. transmitted to Gutierrez Hermanos the power of attorney and the
letter for Messrs. Horsley, Kibble and Co. for the purpose of the
latter's negotiating with the underwriters for some honorable
settlement of the matter, during the time required for the receipt of
all the documents that had been requested. In another letter of
January 25, 1906, Oria Hermanos & Co. stated to Stevenson and Co.
that it took pleasure in replying to the latter's favor of the 19th
instant, addressed to Mr. Oria; that Delgado's letter to Oria of the
date of October 19, 1901, was forwarded in the original to London,
through Messrs. Gutierrez Hermanos, to Stevenson and Co., on July
16, 1904; that defendant inclosed a copy of Delgado's declaration
before the municipal judge of Catarman, transmitted to Stevenson
and Co. on November 21, 1903; and that the two letters to Gutierrez
Hermanos, of May 28, 1903, and October 2, 1901, as well as the
memorandum of the values of the goods, had been transmitted to
Gutierrez Hermanos with a telegraphic order to said firm to deliver
them to Stevenson and Co. If the amount of the insurance could not
afterwards be collected, it was not through fault of Gutierrez
Hermanos, who acted in the matter in accordance with instructions
from Oria Hermanos and Co.
So that firm of Gutierrez Hermanos was a mere conductor through
which the stock of hemp in Catarman was insured by a firm in London
through mediation of Messrs. Stevenson and Co., for the firm of Oria
Hermanos and Co. had to grant a power of attorney on behalf of the
said Messrs. Horsley, Kibble and Co. in order that the latter might
represent the former before the courts in England. If afterwards the
representatives of Oria Hermanos and Co. did not obtain a favorable
decision in those courts, the loss of the suit cannot be ascribed to
either the fault or the negligence of Gutierrez Hermanos, inasmuch as
this plaintiff merely complied with the orders of the defendant, Oria
Hermanos and Co., to bring suit in the English courts, not against
Stevenson and Co. of these Islands, but against the insurance
company of London.
The firm of Gutierrez Hermanos, in executing orders and charges of
Oria Hermanos and Co., became, by virtue of an implied agency, an
agent of the latter and, in the fulfillment of the orders of the principal,
adjusted its action to the instructions of Oria Hermanos & Co. The
record does not show that in so doing it proceeded with negligence
or with deceit. Therefore there is no reason nor legal ground whereby
plaintiff should be compelled to pay the sum demanded in the third
counterclaim for the causes therein stated. (Arts. 1710, 1719 and
1726 of the Civil Code.) Consequently Gutierrez Hermanos should be
absolved from the third counterclaim filed by defendant.
In the fourth counterclaim, the eighth special defense, defendant,
Oria Hermanos & Co., prays that plaintiff, Gutierrez Hermanos, be
sentenced to pay P75,000 for losses and damages, with interest,
inasmuch as by reason of a contract executed between both parties,
plaintiff bound itself to acquire for and transmit to defendant rice and
other articles, including coin, which Oria Hermanos & Co. might
request at Laoang, Samar, and so plaintiff did; but since 1904, the fifth
year of their mercantile relations, plaintiff failed repeatedly to comply
with its obligation to send the rice and other article requested by
defendant, totally sometimes and at other times partially limiting the
shipment of the effects ordered and excusing itself from remitting
money on the pretext that it could not obtain insurance for the
shipment of cash; that defendant afterwards discovered that there
were in this city large stocks of rice and other effects which plaintiff
[defendant] had requested, and could surely have been sold in Laoang
and the pueblos of the coast of Samar, as Oria Hermanos & Co. was
the only importing firm in that island; and had defendant received
from plaintiff the rice and the other effects the former had requested
to be shipped to it, defendant would have obtained a profit of not less
than P25,000 whereupon it could have bought large quantities of
hemp which would have brought it great profit. Defendant further
alleged that such failure on the part of plaintiff to comply with the
agreement made caused injury to the reputation and mercantile
credit of Oria Hermanos and Co., in Samar, and losses and damages
of the value of about P50,000, the total of the losses and damages
suffered on both accounts amounting to a sum of not less than P75,
000; and that the motive of such procedure on the part of Gutierrez
Hermanos was to injure and destroy defendant's credit in Laoang and
on the entire coast of Samar, because plaintiff planned to establish
there a business of its own like that of Oria Hermanos and Co.
Plaintiff, Gutierrez Hermanos, specifically denied the facts alleged by
defendant in its counterclaim and set forth that the evidence
introduced relative to such facts showed that since 1904 plaintiff had
been reducing the shipments of rice, wine, and other effects to such
extent that in 1906 and 1907 cases occurred where the order shipped
was reduced to one-third, and in 1908 also where the steamer
Serantes was sent without any cargo whatever, for the reason that
the debit balance in defendant's current account amounted, in 1905,
to P321,000 and because Oria Hermanos and Co. did not send a
quantity of hemp and copra sufficient in value to cover the value of
the remittance of money and of the shipments of the effects
requested; that defendant, instead of sending hemp to plaintiff for
the gradual payment of its debt, sent it to Cebu; that therefore Oria
Hermanos & Co. had no well-founded grounds whereupon to claim
indemnity for losses and damages, especially since, according to the
stipulations of the agreement and as shown by the evidence, the part
of the credit utilized by defendant was to be covered and paid for with
the price of the hemp, copra and other effects which Oria Hermanos
& Co. should have to send to Gutierrez Hermanos; and that, if the
debtor balance of the current account continued to increase instead
of decreasing, it must be concluded that the procedure of Gutierrez
Hermanos in reducing the amount of the shipments of the orders was
due to the conduct of Oria Hermanos & Co. who did not endeavor by
the shipment of copra, hemp, and other effects gradually to pay even
a part of the credit opened, notwithstanding that the rights and
obligations established in the contract should have been mutual.
If defendant, without concerning itself with diminishing its debtor
balance, did no more than order goods for sale and remit drafts to the
paid by Gutierrez Hermanos, not sending in exchange to plaintiff
hemp, copra, and other effects, plaintiff, Gutierrez Hermanos, in
refusing discretionally to furnish certain effects to defendant and to
pay drafts drawn by the latter, did not violate the obligations it
assumed in the contract.
The fact that the debtor balance accepted by Oria Hermanos and Co.
on March 9, 1909, Exhibit A, was raised to P144,473.78, is the best
467 | P a g e
proof of the good conduct observed by plaintiff during the nine years
of mercantile relations between both parties, and is at the same time
the most graphical demonstration that defendant's contention made
in its fourth counterclaim is not based on any just or legal grounds.
Article 1100, last paragraph of subarticle 2, of the Civil Code
prescribes: "In mutual obligations none of the persons bound shall
incur default if the other does not fulfill or does not submit to properly
fulfill what is incumbent upon him. From the time one of the persons
obligated fulfills his obligation the default begins for the other party."
Article 1124 of the same Code provides as follows: "The right to
rescind the obligations is considered as implied in mutual ones, in
case one of the obligated persons does not comply with what is
incumbent upon him.
The person prejudiced may chose between exacting the fulfillment of
the obligation or its rescission, with indemnity for damages and
payment of interest in either case. He may also demand the
rescission, even after having requested its fulfillment, should the
latter appear impossible." Under these grounds we hold that the
absolutory finding contained in the judgment appealed from is in
accordance with the law and the evidence.
In the fifth counterclaim, the ninth special defense, defendant, Oria
Hermanos and CO., prayed that Gutierrez Hermanos be sentenced to
pay the sum of P15,000, together with the legal interest thereon,
inasmuch as plaintiff, Gutierrez Hermanos, charged in the current
account, collected and appropriated to itself the funds which Oria
Hermanos & Co. had in plaintiff's possession and assessed against the
same compound interest at 8 per cent and 2 ½ per cent on the net
amount of the collection made as charterage for the steamers
Serantes and Laoang, the launches Comillas and Golondrina, and the
cutter Remedios, as commission for said charterage, when all the
steps for the collection of the same were taken personally by Messrs.
Oria and further, defendant's partners and there was no contracts
whatever between the parties whereby Gutierrez Hermanos might
collect, enter into the current account and appropriate to itself the
said amount as commission through the collection of the aforesaid
charterage.
Plaintiff's counsel merely denied the facts alleged, which certainly
were not proved at the trial. It was, on the contrary, fully proven that
Don Tomas Oria and the managers of Oria Hermanos & Co. knew, by
reason of the accounts Gutierrez Hermanos had been sending them,
that the plaintiff firm charged the 2 per cent commission on the
amount of the charterages, for it is so recorded in the letter from Oria
addressed to Gutierrez Hermanos under date of June 12, 1901, in
which P690 appears annotated as the amount of plaintiff's 2 per cent
commission for the charterage of the Laoang and the Serantes, and in
other letter from Oria Hermanos and Co. of October 18, 1900, (Exhibit
A-2, page 476 of the record) wherein demand was made for vouchers
and a memorandum of the collections effected for the charterage of
these steamers, the Laoang, and the Serates. Furthermore, it appears
in this same letter for it is stead that credit has been given in Gutierrez
Hermanos' account for P272.50, as being the amount this firm was
entitled to receive as 2 per cent commission on the P15,625 collected
by it from the quartermaster for the charterage of the Serates and for
the transportation of eight passengers on the steamer Laoang; and it
is also therein stated that Gutierrez Hermanos' account has been
credited with the sum of P24, as the amount of 2 per cent commission
on P1,200 collected for four days' charterage of the Laoang. These
documents show that Gutierrez Hermanos has taken part in the
collection of the said charterages and, therefore, was entitled to
receive the amount agreed upon as commission for such collection.
Oria's assertion that Gutierrez Hermanos did nothing for the
collection of the P400,000, the amount of the charterage for the boats
of Oria Hermanos and Co., Gutierrez Hermanos relative to the
collection of the charterages due for the launches Golondrina and
Adela, and for this purpose he sent the proper vouchers for such
collection. Consequently there is neither reason nor legal ground to
prevent our holding as proper the finding established by the trial
court that Oria Hermanos & Co. did, with due knowledge of the
matter, approve the amount of the commissions collected by
Gutierrez Hermanos on the sums it had collected as charterage for
the defendant's boats, in accordance with the agreement made
between the parties, which defendant can not repudiate, nor can its
regret for the part it took therein avail it for the reimbursement
sought in its fifth counterclaim. The finding of the trial judge in regard
to the latter is, therefore, in conformity with the law.
The object of the sixth counterclaim is to obtain reimbursement of
the sum of P31,000, the amount of the interest charged and
compounded semiannually, instead of annually, at the rate of 8 per
cent net interest. Oria Hermanos & Co. demands this sum from
Gutierrez Hermanos, alleging that there was an agreement between
the parties to the effect that a settlement of the interest should be
made at the end of each year, and also that the interest due and
unpaid should be capitalized annually.
The firm of Oria Hermanos & Co., Tomas Oria, one of the partners of
the same, and the defendant's bookkeeper, a relative of the said Oria
and also a partner of the firm, had been receiving extracts or copies
of the semiannual accounts rendered by Gutierrez Hermanos, and,
after a careful examination of the same, after offering objections
thereto which sometimes delayed Oria Hermanos and Co.'s approval
thereof for more than six months, after receiving the explanations
requested and vouchers demanded of plaintiff, they concluded by
admitting and agreeing to the accounts rendered and the amounts
involved, and made neither objection nor protest whatever against
the system or method employed by Gutierrez Hermanos in
capitalizing at the end of each year the interest of the semiannual
accounts rendered, nor against the interest charged on the capitalized
interest, not only in defendant's debit, but also by reciprocation in the
credit given it in the account of the receipts obtained from price of
the hemp, copra and other products shipped to Gutierrez Hermanos.
All the foregoing facts appear on page 18 of the transcript of the
stenographic notes taken of the hearing on July 14, 1914.
The transaction effected by Gutierrez Hermanos in the accounts it
presented to defendant, Oria Hermanos & Co., is confirmed by some
twenty letters signed, some of them, by Pria Hermanos and Co.,
others, the greater part of them, by Tomas Oria, and still others by
Mr. Fuster, a partner of the latter firm. Therefore the semiannual
capitalization made by plaintiff, Gutierrez Hermanos, was sanctioned
and approved by defendant on the seventeen occasions that it
approved the accounts presented by plaintiff, expressive of such
capitalization of the reciprocal interest stipulated between the
contracting parties.
468 | P a g e
Article 1109 of the Civil Code prescribes as follows: "Interest due shall
earn legal interest from the time it is judicially demanded, even if the
obligation should have been silent on this point.
In commercial transactions the provisions of the Code of Commerce
shall be observed.
Article 317 of the Code of Commerce provides: "Interest which has
fallen due and has not been paid shall not earn interest. The
contracting parties may, however, capitalized the net interest which
has not been paid, which, as new principal, shall earn interest."
Upon the execution of the contract which was the origin of the
mercantile relations between Gutierrez Hermanos and Oria
Hermanos & Co., the stipulation made between both parties were not
sent forth in any document, they being content with a verbal
agreement in which it was stipulated that the rate of interest of the
reciprocal current account to be kept between them should be 8 per
cent, without determining whether such interest was to fall due
annually, as affirmed by Tomas Oria, the manager of Oria Hermanos
& Co., or semiannually, as contended by Gutierrez Hermanos.
However, it is certain that in the seventeen accounts presented by
plaintiff to defendant, at the end of each period of six months from
1900 to December 31, 1908, embracing nearly nine years, the interest
due was liquidated every six months in the reciprocal current account
between both firms, without opposition or protest on the part of Oria
Hermanos and Co. In the absence of a written agreement defendant's
procedure raises the presumption that such were the stipulations
verbally made between made between the interested parties, and the
verbal agreement was constantly maintained and confirmed without
protest or objection whatever on the part of the managers of Oria
Hermanos & Co. If Tomas Oria, changing his opinion, after the firm of
which he is principal member had approved the said seventeen
accounts, believed that he was authorized to contradict his own acts
and to allege another manner of computing and liquidating the 8 per
cent interests stipulated by stating that it should have been collected
annually, and not semiannually as was done and approved in the
seventeen accounts rendered during a period of more than nine
years, the rectification afterwards made of an assent and agreement
repentance what he himself did in agreement with defendant, since
they were authorized to take such action by article 317 of the Code of
Commerce. Therefore the ruling of the trial judge absolving plaintiff
of the sixth counterclaim filed by defendant is in accordance with the
law and with the evidence as disclosed by the record.
For all the reasons hereinabove set forth as grounds for the findings
rendered in respect to the complaint and to each one of the cross-
complaints and counterclaims presented by defendant, the errors
assigned to the judgment appealed from and not admitted in this
decision have been duly refused.
Therefore, for the reasons assigned in this decision, we sentence the
commercial firm of Oria Hermanos & Co. to the payment of the sum
of P147,204.28 and of the stipulated interest at the rate of 8 per cent
per annum from June 30, 1909, after deduction of all the sums which
as balances in favor of defendant may result from the accounts to be
rendered by Gutierrez Hermanos, in conformity with the finding
made, especially in reference to the second, third, and fourth cross-
complaints.
Gutierrez Hermanos is absolved from the first cross-complaint, and
also from the second, in which latter defendant prayed for an
accounting of the hemp and copra business. Plaintiff is likewise
absolved from the fourth cross-complaint, excepting the part thereof
relative to the petroleum, and also from the first, second, third,
fourth, fifth, and sixth counterclaims filed by defendant.
Held: (1) That Gutierrez Hermanos, after Liquidation of the sums paid
as a one-third per cent tax on the price of the rice acquired in this city,
of that of the salt, kerosene, lime, mats, rattan, flour, anisette,
cigarettes, beer, and other articles, for which plaintiff paid said sums
and charged them to defendant's account, must pay to Oria
Hermanos & Co. the sum disclosed by the said liquidation, in
conformity with the second cross-complaint.
(2) That Gutierrez Hermanos shall render to defendant an account,
supported by vouchers, of the price, expenses, and all amounts paid
for the shipments of rice covered by the invoices examined during the
trial of this case, as well as the 153 invoices mentioned by the parties
in the hearing of November 29, 1910.
(3) That plaintiff shall render an account, supported by vouchers, of
all the petroleum it acquired for Oria Hermanos & Co., the invoices of
which are mentioned in the transcript of the stenographic notes taken
at the hearing of December 28, 1910.
The judgment appealed from is affirmed in so far as it is in accord with
this decision and is reversed in so far as it is not, without special
finding as to costs.
Arellano, C.J. and Johnson, J., concur.
Carson and Trent, JJ., concur in the result.
Separate Opinions
MORELAND, J., dissenting:
I do not agree to the return of this case to the court below for the
purpose of having the plaintiff "render accounts."
In the first place, there is no account to render, and the finding of the
trial court and this court to the contrary is clearly erroneous.
In the second place, the parties offered, or had every opportunity to
offer, all of their evidence relative to the sale and delivery of the
merchandise described in the complaint and the payment of the
purchase price. It is a plain case of a sale of goods by plaintiff to
defendant. If there is evidence supporting the allegations of the
complaint, plaintiff is entitled to a judgment. If not, the defendant
wins. There is no reason for a return of the cause. The parties have
already had every opportunity warranted by law. (Hicks vs. Manila
Hotel Co., 28 Phil. Rep., 325; Gov. of Phil., Islands vs. Philippine Sugar
Estates Development Co., Ltd. ante, p. 27.)
In the third place, if this court is correct in its ruling, the judgment
appealed from is not final and we can do nothing but dismiss the
appeal.
The judgment of the lower court is in part as follows:
469 | P a g e

Judgment is, therefore, rendered against Oria Hermanos y Compañia
and in favor of Gutierrez Hermanos for the sum of one hundred and
forty-seven thousand two hundred and four pesos and twenty-eight
centavos (P147,204.28), with interest at eight per cent annum from
the 30th of June, 1909, but there must be deducted therefrom the
sums which are found in favor of the said Oria Hermanos y Compañia
from the rendition of accounts by said Gutierrez Hermanos in
accordance with the counterclaims and cross complaint which have
heretofore been allowed.
The judgment further says: "(a) With reference to the first
counterclaim, to render accounts duly vouchered to Oria Hermanos y
Compañia with reference to those articles as to which fraud or error
has been proved and to which the subsequent pronouncements
herein made refer.
(b) With reference to the second counterclaim, to restore to Oria
Hermanos y Compañia after the proper rendering if accounts with
reference thereto, all of the sums, etc.
xxx xxx xxx
(d) With reference to the fourth counterclaim, to render vouchered
accounts of all the purchases of petroleum which Oria Hermanos y
Compañia have made from the plaintiffs, etc.
If we take this judgment at its face, then it is clear that is it not final,
that something is necessary yet to be done before the sum due from
defendant to plaintiff, if anything, can be determined. Whereas
judgment is not final, we have no authority to take jurisdiction for the
purpose of determining the merits; and the determination of this
court in the prevailing opinion of many of the questions which would
have been presented if the judgment was final is without authority.
This proposition has been so frequently held by this court that the
contrary doctrine laid down by this case will come as a shock to both
the bench and bar (Code of Civil Procedure, sections 123 and 143;
International Bank vs. Martinez, 220 U.S., 214).
In the case of Montemayor vs. Cunanan (14 Phil. rep., 454), it
appeared that "M commenced an action in the Court of First Instance
against C for divorce and also for a division of the marital property.
The court, after hearing the evidence, entered a decree granting to M
her divorce and appointed a commission to make an inventory of the
marital property and report to the court for a division of the same. C
duly excepted to the order decreeing the divorce and without waiting
for a division of the marital property presented a bill of exceptions,
which was duly allowed. After the bill of exceptions was received in
the Supreme Court M presented a motion asking that the appeal of C
be not allowed upon the ground that the judgment of the lower court
was not final." In that case the court held "that said motion should be
granted for the reason that the lower court had only resolved a part
of the question presented to it and that the decree of the lower court
did not finally determine the action or proceeding in said cause; that
bills of exceptions should only be allowed upon final judgments which
finally determine the action or proceeding in the lower court." In the
opinion the court said: "We are of the opinion and so hold that it was
the purpose of the legislature in enacting the provisions of sections
123 and 143 of the Code of Procedure in Civil Actions to prohibit
appeals except from decisions of the lower court which finally
determine the action or proceeding." The opinion cites many cases
from Supreme Court of the United States and other American courts
and also several decisions of this court. It is entirely in point with the
case at bar and should be followed. No one has offered any
explanation why it is not followed and I know of none.
In the case of Toribio vs. Toribio (7 Phil. Rep., 526), the judgment
provided that "therefore, the court, after considering the facts proved
and the law applicable thereto, orders that the defendants within
sixty days submit for the consideration of the court an inventory of all
of the goods and property of them deceased Narciso Natalio Lopez,
and that they render accounts of administration of the same in order
that the court may make the proper order for the protection of the
respective rights of all the parties interested, reserving final decision
of the cause until the proper time."
The opinion, after citing sections 123 and 143 of the Code of Civil
Procedure and decisions of the Supreme Court of the United States,
held that the judgment was not final inasmuch as the court required
the rendering of an account by the defendants. Many of the cases
cited assert the proposition that, under laws such as are found in
sections 123 and 143 of the Code of Civil Procedure, an appellate
court has no jurisdiction in an appeal taken from a judgment which is
not final. (Guarantee Company vs. Mechanics' Savings Bank etc., 173
U.S., 582.)
In the case of Ron vs. Mojica (8 Phil. Rep., 328), it was held that "in a
suit for the partition of property, brought in accordance with the
provisions of the Code of Civil Procedure, the judicial order or
resolution by virtue of which the judge declares who are the parties
who have a right to certain property belonging to several owners is
not final, nor does it definitely close the case, and is subject to
exception." (Araullo vs. Araullo, 3 Phil. Rep., 567.)
I am of the opinion that the cases cited fully dispose of the right of the
parties to appeal in this case, as the judgment is not final by virtue of
its very terms and the amount thereof cannot possibly be known, if
we accept the decision of the court below and of this court, until the
accountings required have been duly made and the amount fixed
which one party owes to the other.
This court, in dealing with the merits of this cause, has definitely
settled the liability of the defendant for many thousands or pesos.
Will the judgment of this court as to this sum become final at the end
of the time prescribed by law? If so, what will the situation be if, on
the rendering of the accounts ordered by this decision, it shall be
determined that the plaintiff owes to the defendant a sum sufficient
to offset the amount already found to be due from the defendant to
the plaintiff by the judgment of this court? Will the defendant be able
to reduce the final judgment in favor of the plaintiff, rendered by this
court, by the amount which is found due on the accounting? Or will it
be obliged to offset the judgment of this court in favor of the plaintiff
by the sums found due it on the accounting in a separate proceeding
for that purpose? If there is a judgment in favor of the plaintiff and
against the defendant for P100,000, how can the defendant get the
benefit of subsequent accountings for P100,000 in its favor? This is
not like an action of divorce or partition which can be divided into two
parts, each separate and distinct from the other, and the judgment as
to one part be, in a way, independent of the other. This is an action
for a sum of money and the several amounts claimed by the plaintiff
470 | P a g e
and defendant, respectively, must be aggregated and a balance struck
before it can be determined how much one owes the other. The
action cannot be divided into parts. it is one single action; it cannot
be determined that the plaintiff is entitled to P100,000 on one cause
of action, and that determination affirmed by this court, and then the
cause be sent back for the determination of how much the plaintiff
owes defendant on counterclaims. The determination necessary to be
made in an action for a sum of money is the amount due from
defendant to plaintiff. In the very nature of things, no final judgment
can be rendered until the amount due is actually determined and
fixed. No such determination has been made in this case.

For these reasons I dissent. The treatment of this case by the court is
without precedent.

471 | P a g e
4. 42 SCRA 131
G.R. No. L-30573 October 29, 1971
VICENTE M. DOMINGO, represented by his heirs, ANTONINA
RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE
JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO,
petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P.
PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and
represented by his heirs, Antonina Raymundo vda. de Domingo,
Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision
dated, March 12, 1969 of the Special Division of Five of the Court of
Appeals affirming the judgment of the trial court, which sentenced
the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50
and the intervenor Teofilo P. Purisima P2,607.50 with interest on both
amounts from the date of the filing of the complaint, to pay Gregorio
Domingo P1,000.00 as moral and exemplary damages and P500.00 as
attorney's fees plus costs.
The following facts were found to be established by the majority of
the Special Division of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M.
Domingo granted Gregorio Domingo, a real estate broker, the
exclusive agency to sell his lot No. 883 of Piedad Estate with an area
of about 88,477 square meters at the rate of P2.00 per square meter
(or for P176,954.00) with a commission of 5% on the total price, if the
property is sold by Vicente or by anyone else during the 30-day
duration of the agency or if the property is sold by Vicente within
three months from the termination of the agency to apurchaser to
whom it was submitted by Gregorio during the continuance of the
agency with notice to Vicente. The said agency contract was in
triplicate, one copy was given to Vicente, while the original and
another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P.
Purisima to look for a buyer, promising him one-half of the 5%
commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as
a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower
than the price of P2.00 per square meter (Exhibit "B"). Vicente
directed Gregorio to tell Oscar de Leon to raise his offer. After several
conferences between Gregorio and Oscar de Leon, the latter raised
his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C",
to which Vicente agreed by signing Exhibit "C". Upon demand of
Vicente, Oscar de Leon issued to him a check in the amount of
P1,000.00 as earnest money, after which Vicente advanced to
Gregorio the sum of P300.00. Oscar de Leon confirmed his former
offer to pay for the property at P1.20 per square meter in another
letter, Exhibit "D". Subsequently, Vicente asked for an additional
amount of P1,000.00 as earnest money, which Oscar de Leon
promised to deliver to him. Thereafter, Exhibit "C" was amended to
the effect that Oscar de Leon will vacate on or about September 15,
1956 his house and lot at Denver Street, Quezon City which is part of
the purchase price. It was again amended to the effect that Oscar will
vacate his house and lot on December 1, 1956, because his wife was
on the family way and Vicente could stay in lot No. 883 of Piedad
Estate until June 1, 1957, in a document dated June 30, 1956 (the year
1957 therein is a mere typographical error) and marked Exhibit "D".
Pursuant to his promise to Gregorio, Oscar gave him as a gift or
propina the sum of One Thousand Pesos (P1,000.00) for succeeding
in persuading Vicente to sell his lot at P1.20 per square meter or a
total in round figure of One Hundred Nine Thousand Pesos
(P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not
disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the
additional amount of One Thousand Pesos (P1,000.00) by way of
earnest money. In the deed of sale was not executed on August 1,
1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended
by Vicente, Oscar told Gregorio that he did not receive his money
from his brother in the United States, for which reason he was giving
up the negotiation including the amount of One Thousand Pesos
(P1,000.00) given as earnest money to Vicente and the One Thousand
Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar
did not see him after several weeks, Gregorio sensed something fishy.
So, he went to Vicente and read a portion of Exhibit "A" marked habit
"A-1" to the effect that Vicente was still committed to pay him 5%
commission, if the sale is consummated within three months after the
expiration of the 30-day period of the exclusive agency in his favor
from the execution of the agency contract on June 2, 1956 to a
purchaser brought by Gregorio to Vicente during the said 30-day
period. Vicente grabbed the original of Exhibit "A" and tore it to
pieces. Gregorio held his peace, not wanting to antagonize Vicente
further, because he had still duplicate of Exhibit "A". From his meeting
with Vicente, Gregorio proceeded to the office of the Register of
Deeds of Quezon City, where he discovered Exhibit "G' deed of sale
executed on September 17, 1956 by Amparo Diaz, wife of Oscar de
Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon
City, in favor Vicente as down payment by Oscar de Leon on the
purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus
learning that Vicente sold his property to the same buyer, Oscar de
Leon and his wife, he demanded in writting payment of his
commission on the sale price of One Hundred Nine Thousand Pesos
(P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who
told him that Vicente went to him and asked him to eliminate
Gregorio in the transaction and that he would sell his property to him
for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply
to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not
entitled to the 5% commission because he sold the property not to
Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz,
wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the
exclusive agency contract, is genuine; that Amparo Diaz, the vendee,
being the wife of Oscar de Leon the sale by Vicente of his property is
472 | P a g e
practically a sale to Oscar de Leon since husband and wife have
common or identical interests; that Gregorio and intervenor Teofilo
Purisima were the efficient cause in the consummation of the sale in
favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as
"propina" or gift and not as additional earnest money to be given to
the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar
de Leon with respect to the additional earnest money, does not
appear to have been answered by Oscar de Leon and therefore there
is no writing or document supporting Oscar de Leon's testimony that
he paid an additional earnest money of One Thousand Pesos
(P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount
of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente
as earnest money, evidenced by the letter Exhibit "4"; and that
Vicente did not even mention such additional earnest money in his
two replies Exhibits "I" and "J" to Gregorio's letter of demand of the
5% commission.
The three issues in this appeal are (1) whether the failure on the part
of Gregorio to disclose to Vicente the payment to him by Oscar de
Leon of the amount of One Thousand Pesos (P1,000.00) as gift or
"propina" for having persuaded Vicente to reduce the purchase price
from P2.00 to P1.20 per square meter, so constitutes fraud as to cause
a forfeiture of his commission on the sale price; (2) whether Vicente
or Gregorio should be liable directly to the intervenor Teofilo Purisima
for the latter's share in the expected commission of Gregorio by
reason of the sale; and (3) whether the award of legal interest, moral
and exemplary damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto
Soriano and concurred in by Justice Juan Enriquez did not touch on
these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his
concurring opinion, affirmed that it does not constitute breach of
trust or fraud on the part of the broker and regarded same as merely
part of the whole process of bringing about the meeting of the minds
of the seller and the purchaser and that the commitment from the
prospect buyer that he would give a reward to Gregorio if he could
effect better terms for him from the seller, independent of his
legitimate commission, is not fraudulent, because the principal can
reject the terms offered by the prospective buyer if he believes that
such terms are onerous disadvantageous to him. On the other hand,
Justice Gatmaitan, with whom Justice Antonio Cafizares corner held
the view that such an act on the part of Gregorio was fraudulent and
constituted a breach of trust, which should deprive him of his right to
the commission.
The duties and liabilities of a broker to his employer are essentially
those which an agent owes to his principal.1
Consequently, the decisive legal provisions are in found Articles 1891
and 1909 of the New Civil Code.
Art. 1891. Every agent is bound to render an account of his
transactions and to deliver to the principal whatever he may have
received by virtue of the agency, even though it may not be owing to
the principal.
Every stipulation exempting the agent from the obligation to render
an account shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but
also for negligence, which shall be judged with more less rigor by the
courts, according to whether the agency was or was not for a
compensation.
Article 1891 of the New Civil Code amends Article 17 of the old
Spanish Civil Code which provides that:
Art. 1720. Every agent is bound to give an account of his
transaction and to pay to the principal whatever he may have
received by virtue of the agency, even though what he has received is
not due to the principal.
The modification contained in the first paragraph Article 1891 consists
in changing the phrase "to pay" to "to deliver", which latter term is
more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the
highest loyalty that is required to an agent — condemning as void any
stipulation exempting the agent from the duty and liability imposed
on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of
Article 1726 of the old Spanish Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for
negligence, which shall be judged with more or less severity by the
courts, according to whether the agency was gratuitous or for a price
or reward.
The aforecited provisions demand the utmost good faith, fidelity,
honesty, candor and fairness on the part of the agent, the real estate
broker in this case, to his principal, the vendor. The law imposes upon
the agent the absolute obligation to make a full disclosure or
complete account to his principal of all his transactions and other
material facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation exempting the agent
from such an obligation and considers such an exemption as void. The
duty of an agent is likened to that of a trustee. This is not a technical
or arbitrary rule but a rule founded on the highest and truest principle
of morality as well as of the strictest justice.2
Hence, an agent who takes a secret profit in the nature of a bonus,
gratuity or personal benefit from the vendee, without revealing the
same to his principal, the vendor, is guilty of a breach of his loyalty to
the principal and forfeits his right to collect the commission from his
principal, even if the principal does not suffer any injury by reason of
such breach of fidelity, or that he obtained better results or that the
agency is a gratuitous one, or that usage or custom allows it; because
the rule is to prevent the possibility of any wrong, not to remedy or
repair an actual damage.3 By taking such profit or bonus or gift or
propina from the vendee, the agent thereby assumes a position
wholly inconsistent with that of being an agent for hisprincipal, who
has a right to treat him, insofar as his commission is concerned, as if
no agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not
473 | P a g e
exculpate the agent who has only himself to blame for such a result
by reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article
1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of
money paid to him as an insurance agent for the account of his
employer as required by said Article 1720, said insurance agent was
convicted estafa.4 An administrator of an estate was likewise under
the same Article 1720 for failure to render an account of his
administration to the heirs unless the heirs consented thereto or are
estopped by having accepted the correctness of his account
previously rendered.5
Because of his responsibility under the aforecited article 1720, an
agent is likewise liable for estafa for failure to deliver to his principal
the total amount collected by him in behalf of his principal and cannot
retain the commission pertaining to him by subtracting the same from
his collections.6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver
to his client all the money and property received by him for his client
despite his attorney's lien.7 The duty of a commission agent to render
a full account his operations to his principal was reiterated in Duhart,
etc. vs. Macias.8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a commission while
ignorant of the fact that the latter has been unfaithful, the principal
may recover back the commission paid, since an agent or broker who
has been unfaithful is not entitled to any compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions
retained by an unfaithful agent, the court in Little vs. Phipps (1911)
208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled
that the agent is bound to exercise the utmost good faith in his
dealings with his principal. As Lord Cairns said, this rule "is not a
technical or arbitrary rule. It is a rule founded on the highest and
truest principles, of morality." Parker vs. McKenna (1874) LR
10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire
fidelity towards his principal, but is guilty of taking a secret profit or
commission in regard the matter in which he is employed, he loses his
right to compensation on the ground that he has taken a position
wholly inconsistent with that of agent for his employer, and which
gives his employer, upon discovering it, the right to treat him so far as
compensation, at least, is concerned as if no agency had existed. This
may operate to give to the principal the benefit of valuable services
rendered by the agent, but the agent has only himself to blame for
that result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the corrupting
tendency of the inconsistent relationship. Little vs. Phipps (1911) 94
NE 260.9
As a general rule, it is a breach of good faith and loyalty to his principal
for an agent, while the agency exists, so to deal with the subject
matter thereof, or with information acquired during the course of the
agency, as to make a profit out of it for himself in excess of his lawful
compensation; and if he does so he may be held as a trustee and may
be compelled to account to his principal for all profits, advantages,
rights, or privileges acquired by him in such dealings, whether in
performance or in violation of his duties, and be required to transfer
them to his principal upon being reimbursed for his expenditures for
the same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue or had
accrued, to the agent, or unless with such knowledge he has allowed
the agent so as to change his condition that he cannot be put in status
quo. The application of this rule is not affected by the fact that the
principal did not suffer any injury by reason of the agent's dealings or
that he in fact obtained better results; nor is it affected by the fact
that there is a usage or custom to the contrary or that the agency is a
gratuitous one. (Emphasis applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the
broker, received a gift or propina in the amount of One Thousand
Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without
the knowledge and consent of his principal, herein petitioner-
appellant Vicente Domingo. His acceptance of said substantial
monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him
partial advance of Three Hundred Pesos (P300.00) on his commission.
As a consequence, instead of exerting his best to persuade his
prospective buyer to purchase the property on the most
advantageous terms desired by his principal, the broker, herein
defendant-appellee Gregorio Domingo, succeeded in persuading his
principal to accept the counter-offer of the prospective buyer to
purchase the property at P1.20 per square meter or One Hundred
Nine Thousand Pesos (P109,000.00) in round figure for the lot of
88,477 square meters, which is very much lower the the price of P2.00
per square meter or One Hundred Seventy-Six Thousand Nine
Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered
by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply
if the agent or broker acted only as a middleman with the task of
merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the
transaction. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he received from
the purchaser and his principal did not object therto. 11 Herein
defendant-appellee Gregorio Domingo was not merely a middleman
of the petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant only.
And therein petitioner-appellant was not aware of the gift of One
Thousand Pesos (P1,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent's accepting
such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz,
the wife of Oscar de Leon, does not materially alter the situation;
because the transaction, to be valid, must necessarily be with the
consent of the husband Oscar de Leon, who is the administrator of
their conjugal assets including their house and lot at No. 40 Denver
Street, Cubao, Quezon City, which were given as part of and
474 | P a g e
constituted the down payment on, the purchase price of herein 8 54 Phil. 513.
petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law
and in fact, it was still Oscar de Leon who was the buyer. 9 134 ALR Ann. pp. 1346, 1347-1348; see also 1 ALR 2d, 987.

As a necessary consequence of such breach of trust, defendant- 10 3 CJS 53-54; see also 12 Am. Jur. 2d 835-841, 908-912.
appellee Gregorio Domingo must forfeit his right to the commission
and must return the part of the commission he received from his 11 12 Am. Jur. 2d, 835-841, 908-912; Raymond vs. Davis, Jan.
principal. 3, 1936, 199 NE 321, 102 ALR 1112-1115, 1116-1121.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only

recover from Gregorio Domingo his one-half share of whatever
amounts Gregorio Domingo received by virtue of the transaction as
his sub-agency contract was with Gregorio Domingo alone and not
with Vicente Domingo, who was not even aware of such sub-agency.
Since Gregorio Domingo received from Vicente Domingo and Oscar
de Leon respectively the amounts of Three Hundred Pesos (P300.00)
and One Thousand Pesos (P1,000.00) or a total of One Thousand
Three Hundred Pesos (P1,300.00), one-half of the same, which is Six
Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo
to Teofilo Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused

Vicente Domingo mental anguish and serious anxiety as well as
wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand
Pesos (P1,000.00) attorney's fees in the reasonable amount of One
Thousand Pesos (P1,000.00), considering that this case has been
pending for the last fifteen (15) years from its filing on October 3,
1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision

of the Court of Appeals and directing defendant-appellee Gregorio
Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One
Thousand Pesos (P1,000.00) as moral damages and One Thousand
Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the
sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando,

Teehankee, Barredo and Villamor, JJ., concur.

Footnotes

1 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown vs.
Coates, 67 ALR 2d 943; Haymes vs. Rogers 17 ALR 2d 896; Moore vs.
Turner, 32 ALR 2d 713.

2 See also Manresa, Vol. 2, p. 461, 4th ed.

3 12 Am. Jur. 2d Sec. 171, 811-12.

4 U.S. vs. Kiene 7 Phil. 736.

5 Ojinaga vs. Estate of Perez, 9 Phil. 185

6 U.S. vs. Reyes, 36 Phil. 791.

7 In Re: Bamberger 49 Phil. 962.

475 | P a g e
5. 36 Phil. 791 purposes, the agency was terminated, the agent was under the
G.R. No. L-12743 August 25, 1917 obligation to turn over to the principal the amount collected, minus
his commission on that amount. (U. S. vs. Schneer [1907], 7 Phil. Rep.,
THE UNITED STATES, plaintiff-appellee, 523.)
vs.
DOMINGO REYES, defendant-appellant. All the requisites of estafa as punished by article 535, paragraph 5, of
the Penal Code, and as construed by the commentators, are here
Antonio Bengson for appellant. present. The assignment of error relative to the nonproduction by the
Acting Attorney-General for appellee. fiscal of the transcription of the preliminary investigation is not
particularly important as secondary evidence was admitted and the
MALCOLM, J.: substantial rights of the accused were not affected.

This is an appeal from a judgment finding Domingo Reyes guilty of
estafa and sentencing him to four months and one day of arresto
mayor, to the accessory penalties of the law, and to indemnify R. B.
Blackman in the sum of P118, with subsidiary imprisonment in case of
insolvency, and to pay the costs.
The judgment of the trial court being in accord with the facts and the
law is hereby affirmed with the costs. So ordered.
Arellano, C.J., Johnson, Carson, Araullo and Street, JJ., concur.

Marked discrepancies in connection with the evidence, particularly

that which concerns the figures, are to be noted. Accepting the
findings of the trial court, we can summarize the facts as follows:

R. B. Blackman is a surveyor in the Province of Pangasinan. Domingo

Reyes, the accused, also lives in that province. Blackman employed
Reyes to collect certain amounts due from twelve individuals for
Blackman's work in connection with the survey of their lands. The
total amount to be collected by Reyes was P860. He only succeeded
in collecting P540. He delivered to Blackman P368. He retained the
balance, or P172. So far as good. The difficult point concerns the exact
terms of the contract. It was merely an oral agreement between
Blackman and Reyes. Blackman claims that he agreed to pay Reyes a
commission of 10 per cent. Reyes claims that he was to receive a
commission of 20 per cent. The trial court, in its decision, states that
— "R. B. Blackman, agrimensor, dio al aqui acusado el encargo de
cobrar algunas cuentas de honorarios devengados per mediciones
practicadas por el como agrimensor, concediendole un 10 por ciento
sobre todas las cobranzas." (R. B. Blackman, the surveyor, ordered the
said accused to collect certain debts due for surveying and offered a
10 per cent commission on all accounts collected.)

To return to the figures again, it will be noticed that if we accept the

statements of Blackman, Reyes was entitled to 10 per cent of P540
(or P530), or P54, making P172 misappropriated, or, if we deduct his
commission, P118. On the other hand, if we accept the statements of
Reyes, then 20 per cent of the total amount to be collected, P860, is
exactly P172, the amount claimed to have been misappropriated.

There are a number of reasons which impel us to the conclusion that

the defendant and appellant is guilty as charged. In the first place, in
view of the discrepancy in the evidence we are not disposed to set up
our judgment as superior to that of the trial court. In the second place,
conceding that Reyes was to receive 20 per cent, this, unless some
contrary and express stipulation was included, would not entitle him
in advance to 20 per cent of the amount actually collected. In the third
place, the right to receive a commission of either 10 or 20 per cent
did not make to hold out any sum he chose. (Campbell vs. The State
[1878], 35 Ohio St., 70.) In the fourth place, under the oral contract
Reyes was an agent who was bound to pay to the principal all that he
had received by virtue of the agency. (Civil Code, article 1720; U. S. vs.
Kiene [1907], 7 Phil. Rep., 736.) And, lastly, since for all practical

476 | P a g e
6. 49 Phil. 126
G.R. No. L-24543 July 12, 1926
ROSA VILLA MONNA, plaintiff-appellee,
vs.
GUILLERMO GARCIA BOSQUE, ET AL., defendants.
GUILLERMO GARCIA BOSQUE, F. H. GOULETTE, and R. G. FRANCE,
appellants.
Eiguren and Razon for the appellant Garcia Bosque.
Benj. S. Ohnick for the appellants France and Goulette.
Fisher, DeWitt, Perkins and Brady and John R. McFie, jr., for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of Manila by
Rosa Villa y Monna, widow of Enrique Bota, for the purpose of
recovering from the defendants, Guillermo Garcia Bosque and Jose
Romar Ruiz, as principals, and from the defendants R. G. France and
F. H. Goulette, as solidary sureties for said principals, the sum of
P20,509.71, with interest, as a balance alleged to be due to the
plaintiff upon the purchase price of a printing establishment and
bookstore located at 89 Escolta, Manila, which had been sold to
Bosque and Ruiz by the plaintiff, acting through her attorney in fact,
one Manuel Pirretas y Monros. The defendant Ruiz put in no
appearance, and after publication judgment by default was entered
against him. The other defendants answered with a general denial
and various special defenses. Upon hearing the cause the trial judge
gave judgment in favor of the plaintiff, requiring all of the defendants,
jointly and severally, to pay to the plaintiff the sum of P19,230.01, as
capital, with stipulated interest at the rate of 7 per centum per
annum, plus the further sum of P1,279.70 as interest already accrued
and unpaid upon the date of the institution of the action, with interest
upon the latter amount at the rate of 6 per centum per annum. From
this judgment Guillermo Garcia Bosque, as principal, and R. G. France
and F.H. Goulette, as sureties. appealed.
It appears that prior to September 17, 1919, the plaintiff, Rosa Villa y
Monna, viuda de E. Bota, was the owner of a printing establishment
and bookstore located at 89 Escolta, Manila, and known as La Flor de
Cataluna, Viuda de E. Bota, with the machinery, motors, bindery, type
material furniture, and stock appurtenant thereto. Upon the date
stated, the plaintiff, then and now a resident of Barcelona, Spain,
acting through Manuel Pirretas, as attorney in fact, sold the
establishment above-mentioned to the defendants Guillermo Garcia
Bosque and Jose Pomar Ruiz, residents of the City of Manila, for the
stipulated sum of P55,000, payable as follows: Fifteen thousand pesos
(P15,000) on November 1, next ensuing upon the execution of the
contract, being the date when the purchasers were to take
possession; ten thousand pesos (P10,000) at one year from the same
date; fifteen thousand pesos (P15,000) at two years; and the
remaining fifteen thousand pesos (P15,000) at the end of three years.
By the contract of sale the deferred installments bear interest at the
rate of 7 per centum per annum. In the same document the
defendants France and Goulette obligated themselves as solidary
sureties with the principals Bosque and Ruiz, to answer for any
balance, including interest, which should remain due and unpaid after
the dates stipulated for payment of said installments, expressly
renouncing the benefit of exhaustion of the property of the principals.
The first installment of P15,000 was paid conformably to agreement.
In the year 1920, Manuel Pirretas y Monros, the attorney in fact of
the plaintiff, absented himself from the Philippine Islands on a
prolonged visit to Spain; and in contemplation of his departure he
executed a document, dated January 22, 1920, purporting to be a
partial substitution of agency, whereby he transferred to "the
mercantile entity Figueras Hermanos, or the person, or persons,
having legal representation of the same," the powers that had been
previously conferred on Pirretas by the plaintiff "in order that," so the
document runs, "they may be able to effect the collection of such
sums of money as may be due to the plaintiff by reason of the sale of
the bookstore and printing establishment already mentioned, issuing
for such purpose the receipts, vouchers, letters of payment, and other
necessary documents for whatever they shall have received and
collected of the character indicated."
When the time came for the payment of the second installment and
accrued interest due at the time, the purchasers were unable to
comply with their obligation, and after certain negotiations between
said purchasers and one Alfredo Rocha, representative of Figueras
Hermanos, acting as attorney in fact for the plaintiff, an agreement
was reached, whereby Figueras Hermanos accepted the payment of
P5,800 on November 10, 1920, and received for the balance five
promissory notes payable, respectively, on December 1, 1920,
January 1, 1921, February 1, 1921, March 1, 1921, and April 1, 1921.
The first three of these notes were in the amount of P1,000 each, and
the last two for P2,000 each, making a total of P7,000. It was
furthermore agreed that the debtors should pay 9 per centum per
annum on said deferred installments, instead of the 7 per centum
mentioned in the contract of sale. These notes were not paid
promptly at maturity but the balance due upon them was finally paid
in full by Bosque on December 24, 1921.
About this time the owners of the business La Flor de Cataluña,
appear to have converted it into a limited partnership under the style
of Guillermo Garcia Bosque, S. en C.;" and presently a corporation was
formed to take over the business under the name "Bota Printing
Company, Inc." By a document executed on April 21, 1922, the
partnership appears to have conveyed all its assets to this corporation
for the purported consideration of P15,000, Meanwhile the seven
notes representing the unpaid balance of the second installment and
interest were failing due without being paid. Induced by this
dilatoriness on the part the debtor and supposedly animated by a
desire to get the matter into better shape, M. T. Figueras entered into
the agreement attached as Exhibit 1 to the answer of Bosque. In this
document it is recited that Guillermo Garcia Bosque. S. en C., is
indebted to Rosa Villa, viuda de E. Bota, in the amount of P32,000 for
which R. G. France and F. H. Goulette are bound as joint and several
sureties, and that the partnership mentioned had transferred all its
assets to the Bota Printing Company, Inc., of which one George
Andrews was a principal stockholder. It is then stipulated that France
and Goulette shall be relieved from all liability on their contract as
sureties and that in lieu thereof the creditor, Doña Rosa Villa y Monna,
accepts the Bota Printing Company, Inc., as debtor to the extent of
P20,000, which indebtedness was expressly assumed by it, and
George Andrews as debtor to the extent of P12,000, which he
undertook to pay at the rate of P200 per month thereafter. To this
contract the name of the partnership Guillermo Garcia Bosque, S. en
C., was affixed by Guillermo Garcia Bosque while the name of the Bota
Printing Company, Inc., was signed by G. Andrews, the latter also
477 | P a g e
signing in his individual capacity. The name of the plaintiff was affixed
by M.T. Figueras in the following style: "p.p. Rosa Villa, viuda de E.
Bota, M. T. Figueras, party of the second part."
No question is made as to the authenticity of this document or as to
the intention of Figueras to release the sureties; and the latter rely
upon the discharge as complete defense to the action. The defendant
Bosque also relies upon the same agreement as constituting a
novation such as to relieve him from personal liability. All of the
defendants furthermore maintain that even supposing that M. T.
Figueras authority to novate the original contract and discharge the
sureties therefrom, nevertheless the plaintiff has ratified the
agreement by accepting part payment of the amount due thereunder
with full knowledge of its terms. In her amended complaint the
plaintiff asserts that Figueras had no authority to execute the contract
containing the release (Exhibit 1) and that the same had never been
ratified by her.
The question thus raised as to whether the plaintiff is bound by
Exhibit 1 constitutes the main controversy in the case, since if this
point should be determined in the affirmative the plaintiff obviously
has no right of action against any of the defendants. We accordingly
address ourselves to this point first.
The partial substitution of agency (Exhibit B to amended complaint)
purports to confer on Figueras Hermanos or the person or persons
exercising legal representation of the same all of the powers that had
been conferred on Pirretas by the plaintiff in the original power of
attorney. This original power of attorney is not before us, but
assuming, as is stated in Exhibit B, that this document contained a
general power to Pirretas to sell the business known as La Flor de
Cataluña upon conditions to be fixed by him and power to collect
money due to the plaintiff upon any account, with a further power of
substitution, yet it is obvious upon the face of the act of substitution
(Exhibit B) that the sole purpose was to authorize Figueras Hermanos
to collect the balance due to the plaintiff upon the price of La Flor de
Cataluña, the sale of which had already been affected by Pirretas. The
words of Exhibit B on this point are quite explicit ("to the end that the
said lady may be able to collect the balance of the selling price of the
Printing Establishment and Bookstore above-mentioned, which has
been sold to Messrs. Bosque and Pomar"). There is nothing here that
can be construed to authorize Figueras Hermanos to discharge any of
the debtors without payment or to novate the contract by which their
obligation was created. On the contrary the terms of the substitution
shows the limited extent of the power. A further noteworthy feature
of the contract Exhibit 1 has reference to the personality of the
purported attorney in fact and the manner in which the contract was
signed. Under the Exhibit B the substituted authority should be
exercised by the mercantile entity Figueras Hermanos or the person
duly authorized to represent the same. In the actual execution of
Exhibit 1, M. T. Figueras intervenes as purpoted attorney in fact
without anything whatever to show that he is in fact the legal
representative of Figueras Hermanos or that he is there acting in such
capacity. The act of substitution conferred no authority whatever on
M. T. Figueras as an individual. In view of these defects in the granting
and exercise of the substituted power, we agree with the trial judge
that the Exhibit 1 is not binding on the plaintiff. Figueras had no
authority to execute the contract of release and novation in the
manner attempted; and apart from this it is shown that in releasing
the sureties Figueras acted contrary to instructions. For instance, in a
letter from Figueras in Manila, dated March 4, 1922, to Pirretas, then
in Barcelona, the former stated that he was attempting to settle the
affair to the best advantage and expected to put through an
arrangement whereby Doña Rosa would receive P20,000 in cash, the
balance to be paid in installments, "with the guaranty of France and
Goulette." In his reply of April 29 to this letter, Pirretas expresses the
conformity of Doña Rosa in any adjustment of the claim that Figueras
should see fit to make, based upon payment of P20,000 in cash, the
balance in installments, payable in the shortest practicable periods, it
being understood, however, that the guaranty of Messrs. France and
Goulette should remain intact. Again, on May 9, Pirretas repeats his
assurance that the plaintiff would be willing to accept P20,000 down
with the balance in interest-bearing installments "with the guaranty
of France and Goulette." From this it is obvious that Figueras had no
actual authority whatever to release the sureties or to make a
novation of the contract without their additional guaranty.
But it is asserted that the plaintiff ratified the contract (Exhibit 1) by
accepting and retaining the sum of P14,000 which, it is asserted, was
paid by the Bota Printing Co., Inc., under that contract. In this
connection it should be noted that when the firm of Guillermo Garcia
Bosque, S. en C., conveyed all it assets on April 21, 1922 to the newly
formed corporation, Bota Printing Co., Inc., the latter obligated itself
to pay al the debts of the partnership, including the sum of P32,000
due to the plaintiff. On April 23, thereafter, Bosque, acting for the
Bota Printing Co., Inc., paid to Figueras the sum of P8,000 upon the
third installment due to the plaintiff under the original contract of
sale, and the same was credited by Figueras accordingly. On May 16
a further sum of P5,000 was similarly paid and credited; and on May
25, a further sum of P200 was likewise paid, making P14,000 in all.
Now, it will be remembered that in the contract (Exhibit 1), executed
on May 17, 1922, the Bota Printing Co., Inc., undertook to pay the sum
of P20,00; and the parties to the agreement considered that the sum
of P13,800 then already paid by the Bota Printing Co., Inc., should be
treated as a partial satisfaction of the larger sum of P20,000 which the
Bota Printing Co., Inc., had obligated itself to pay. In the light of these
facts the proposition of the defendants to the effect that the plaintiff
has ratified Exhibit 1 by retaining the sum of P14,000, paid by the Bota
Printing Co., Inc., as above stated, is untenable. By the assumption of
the debts of its predecessor the Bota Printing Co., Inc., had become a
primary debtor to the plaintiff; and she therefore had a right to accept
the payments made by the latter and to apply the same to the
satisfaction of the third installment of the original indebtedness.
Nearly all of this money was so paid prior to the execution of Exhibit
1 and although the sum of P200 was paid a few days later, we are of
the opinion that the plaintiff was entitled to accept and retain the
whole, applying it in the manner above stated. In other words the
plaintiff may lawfully retain that money notwithstanding her refusal
to be bound by Exhibit 1.
A contention submitted exclusively in behalf of France and Goulette,
the appellant sureties, is that they were discharged by the agreement
between the principal debtor and Figueras Hermanos, as attorney in
fact for the plaintiff, whereby the period for the payment of the
second installment was extended, without the assent of the sureties,
and new promissory notes for unpaid balance were executed in the
manner already mentioned in this opinion. The execution of these
new promissory notes undoubtedly constituted and extension of time
as to the obligation included therein, such as would release a surety,
even though of the solidary type, under article 1851 of the Civil Code.
478 | P a g e
Nevertheless it is to be borne in mind that said extension and
novation related only to the second installment of the original
obligation and interest accrued up to that time. Furthermore, the
total amount of these notes was afterwards paid in full, and they are
not now the subject of controversy. It results that the extension thus
effected could not discharge the sureties from their liability as to
other installments upon which alone they have been sued in this
action. The rule that an extension of time granted to the debtor by
the creditor, without the consent of the sureties, extinguishes the
latter's liability is common both to Spanish jurisprudence and the
common law; and it is well settled in English and American
jurisprudence that where a surety is liable for different payments,
such as installments of rent, or upon a series of promissory notes, an
extension of time as to one or more will not affect the liability of the
surety for the others. (32 Cyc., 196; Hopkirk vs. McConico, 1 Brock.,
220; 12 Fed. Cas., No. 6696; Coe vs. Cassidy, 72 N. Y., 133; Cohn vs.
Spitzer, 129 N. Y. Supp., 104; Shephard Land Co. vs. Banigan, 36 R. I.,
1; I. J. Cooper Rubber Co. vs. Johnson, 133 Tenn., 562; Bleeker vs.
Johnson, 190, N. W. 1010.) The contention of the sureties on this
point is therefore untenable.
reason that the proof does not show, in our opinion, that the creditor,
on her attorney in fact, was a party to any such agreement. On the
other hand it is to be collected from the evidence that the suggestion
that a mortgage would be executed on the plant to secure the
purchase price and that this mortgage would operate for the
protection of the sureties came from the principal and not from any
representative of the plaintiff.
As a result of our examination of the case we find no error in the
record prejudicial to any of the appellants, and the judgment
appealed from will be affirmed, So ordered, with costs against the
appellants.
Avanceña, C. J., Villamor, Ostrand, Johns, Romualdez and Villa-Real,
JJ., concur.

There is one stipulation in the contract (Exhibit A) which, at first

suggests a doubt as to propriety of applying the doctrine above stated
to the case before us. We refer to cause (f) which declares that the
non-fulfillment on the part of the debtors of the stipulation with
respect to the payment of any installment of the indebtedness, with
interest, will give to the creditor the right to treat and declare all of
said installments as immediately due. If the stipulation had been to
the effect that the failure to pay any installment when due would ipso
facto cause to other installments to fall due at once, it might be
plausibly contended that after default of the payment of one
installment the act of the creditor in extending the time as to such
installment would interfere with the right of the surety to exercise his
legal rights against the debtor, and that the surety would in such case
be discharged by the extension of time, in conformity with articles
1851 and 1852 of the Civil Code. But it will be noted that in the
contract now under consideration the stipulation is not that the
maturity of the later installments shall be ipso facto accelerated by
default in the payment of a prior installment, but only that it shall give
the creditor a right to treat the subsequent installments as due, and
in this case it does not appear that the creditor has exercised this
election. On the contrary, this action was not instituted until after all
of the installments had fallen due in conformity with the original
contract. It results that the stipulation contained in paragraph (f) does
not affect the application of the doctrine above enunciated to the
case before us.

Finally, it is contended by the appellant sureties that they were

discharged by a fraud practiced upon them by the plaintiff in failing to
require the debtor to execute a mortgage upon the printing
establishment to secure the debt which is the subject of this suit. In
this connection t is insisted that at the time France and Goulette
entered into the contract of suretyship, it was represented to them
that they would be protected by the execution of a mortgage upon
the printing establishment by the purchasers Bosque and Pomar. No
such mortgage was in fact executed and in the end another creditor
appears to have obtained a mortgage upon the plant which is
admitted to be superior to the claim of the plaintiff. The failure of the
creditor to require a mortgage is alleged to operate as a discharge of
the sureties. With this insistence we are unable to agree, for the

479 | P a g e
7. 231 SCRA 370
G.R. No. L-109937 March 21, 1994
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS,
represented by CANDIDA G. DANS, and the DBP MORTGAGE
REDEMPTION INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption
Insurance Pool.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised
Rules of Court to reverse and set aside the decision of the Court of
Appeals in CA-G.R CV No. 26434 and its resolution denying
reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I respondent Estate and against DBP. The DBP MRI Pool, however, was
In May 1987, Juan B. Dans, together with his wife Candida, his son and
daughter-in-law, applied for a loan of P500,000.00 with the
Development Bank of the Philippines (DBP), Basilan Branch. As the
principal mortgagor, Dans, then 76 years of age, was advised by DBP
to obtain a mortgage redemption insurance (MRI) with the DBP
Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP
on August 4, 1987 and released on August 11, 1987. From the
proceeds of the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On August 15, 1987, Dans
accomplished and submitted the "MRI Application for Insurance" and
the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service
fee of 10 percent, was credited by DBP to the savings account of the
DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the
credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon
notice, relayed this information to the DBP MRI Pool. On September
23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible
for MRI coverage, being over the acceptance age limit of 60 years at
the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval
of her late husband's MRI application. The DBP offered to refund the
premium of P1,476.00 which the deceased had paid, but Candida
Dans refused to accept the same, demanding payment of the face
value of the MRI or an amount equivalent to the loan. She, likewise,
refused to accept an ex gratia settlement of P30,000.00, which the
DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as
administratrix, filed a complaint with the Regional Trial Court, Branch
I, Basilan, against DBP and the insurance pool for "Collection of Sum
of Money with Damages." Respondent Estate alleged that Dans
became insured by the DBP MRI Pool when DBP, with full knowledge
of Dans' age at the time of application, required him to apply for MRI,
and later collected the insurance premium thereon. Respondent
Estate therefore prayed: (1) that the sum of P139,500.00, which it
paid under protest for the loan, be reimbursed; (2) that the mortgage
debt of the deceased be declared fully paid; and (3) that damages be
awarded.
The DBP and the DBP MRI Pool separately filed their answers, with
the former asserting a cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the
documents and exhibits submitted by respondent Estate. As a result
of these admissions, the trial court narrowed down the issues and,
without opposition from the parties, found the case ripe for summary
judgment. Consequently, the trial court ordered the parties to submit
their respective position papers and documentary evidence, which
may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of
absolved from liability, after the trial court found no privity of contract
between it and the deceased. The trial court declared DBP in estoppel
for having led Dans into applying for MRI and actually collecting the
premium and the service fee, despite knowledge of his age
ineligibility. The dispositive portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the
furtherance of justice and equity, the Court finds judgment for the
plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of
P139,500.00 plus legal rate of interest as amortization payment paid
under protest;
2. To consider the mortgage loan of P300,000.00 including all
interest accumulated or otherwise to have been settled, satisfied or
set-off by virtue of the insurance coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's
fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of
litigation and other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby
dismissed. The Cross-claim of Defendant DBP is likewise dismissed
(Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated
September 7, 1992, the appellate court affirmed in toto the decision
of the trial court. The DBP's motion for reconsideration was denied in
a resolution dated April 20, 1993.
Hence, this recourse.
480 | P a g e
II
When Dans applied for MRI, he filled up and personally signed a
"Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the
following declaration:
I hereby declare and agree that all the statements and answers
contained herein are true, complete and correct to the best of my
knowledge and belief and form part of my application for insurance.
It is understood and agreed that no insurance coverage shall be
effected unless and until this application is approved and the full
premium is paid during my continued good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take
effect: (1) when the application shall be approved by the insurance
pool; and (2) when the full premium is paid during the continued good
health of the applicant. These two conditions, being joined
conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with
the DBP MRI Pool. The pool, however, did not approve the application
of Dans. There is also no showing that it accepted the sum of
P1,476.00, which DBP credited to its account with full knowledge that
it was payment for Dan's premium. There was, as a result, no
perfected contract of insurance; hence, the DBP MRI Pool cannot be
held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the
borrower, to secure MRI coverage. Instead of allowing Dans to look
for his own insurance carrier or some other form of insurance policy,
DBP compelled him to apply with the DBP MRI Pool for MRI coverage.
When Dan's loan was released on August 11, 1987, DBP already
deducted from the proceeds thereof the MRI premium. Four days
latter, DBP made Dans fill up and sign his application for MRI, as well
as his health statement. The DBP later submitted both the application
form and health statement to the DBP MRI Pool at the DBP Main
Building, Makati Metro Manila. As service fee, DBP deducted 10
percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a
lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of
applying for said insurance, thereby leading him and his family to
believe that they had already fulfilled all the requirements for the MRI
and that the issuance of their policy was forthcoming. Apparently,
DBP had full knowledge that Dan's application was never going to be
approved. The maximum age for MRI acceptance is 60 years as clearly
and specifically provided in Article 1 of the Group Mortgage
Redemption Insurance Policy signed in 1984 by all the insurance
companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who
acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of
his authority without giving such party sufficient notice of his
powers."
The DBP is not authorized to accept applications for MRI when its
clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the
while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it
accepted Dan's application for MRI by collecting the insurance
premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of the
agent's powers. There is no showing that Dans knew of the limitation
on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of
the authority conferred by the principal on the agent and he (third
person) has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino,
Commentaries and Jurisprudence on the Civil Code of the Philippines,
p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The
rule that the agent is liable when he acts without authority is founded
upon the supposition that there has been some wrong or omission on
his part either in misrepresenting, or in affirming, or concealing the
authority under which he assumes to act (Francisco, V., Agency 307
[1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-
disclosure of the limits of the agency carries with it the implication
that a deception was perpetrated on the unsuspecting client, the
provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines
come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance
of his duties, act with justice give everyone his due and observe
honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the
insurance policy. To assume that were it not for DBP's concealment
of the limits of its authority, Dans would have secured an MRI from
another insurance company, and therefore would have been fully
insured by the time he died, is highly speculative. Considering his
advanced age, there is no absolute certainty that Dans could obtain
an insurance coverage from another company. It must also be noted
that Dans died almost immediately, i.e., on the nineteenth day after
applying for the MRI, and on the twenty-third day from the date of
release of his loan.
One is entitled to an adequate compensation only for such pecuniary
loss suffered by him as he has duly proved (Civil Code of the
Philippines, Art. 2199). Damages, to be recoverable, must not only be
capable of proof, but must be actually proved with a reasonable
481 | P a g e
degree of certainty (Refractories Corporation v. Intermediate
Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine
Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too
remote to be included in an accurate estimate of damages (Sun Life
Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).

While Dans is not entitled to compensatory damages, he is entitled to

moral damages. No proof of pecuniary loss is required in the
assessment of said kind of damages (Civil Code of Philippines, Art.
2216). The same may be recovered in acts referred to in Article 2219
of the Civil Code.

The assessment of moral damages is left to the discretion of the court

according to the circumstances of each case (Civil Code of the
Philippines, Art. 2216). Considering that DBP had offered to pay
P30,000.00 to respondent Estate in ex gratia settlement of its claim
and that DBP's non-disclosure of the limits of its authority amounted
to a deception to its client, an award of moral damages in the amount
of P50,000.00 would be reasonable.

The award of attorney's fees is also just and equitable under the
circumstances (Civil Code of the Philippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV

No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to
REIMBURSE respondent Estate of Juan B. Dans the amount of
P1,476.00 with legal interest from the date of the filing of the
complaint until fully paid; and (2) to PAY said Estate the amount of
Fifty Thousand Pesos (P50,000.00) as moral damages and the amount
of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs
against petitioner.

SO ORDERED.

482 | P a g e
8. 15 SCRA 301
G.R. No. L-17160 November 29, 1965
PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant,
vs.
PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR:
PRIMATERIA (PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M.
CRAME, defendants-appellees.
Jose A. Javier for plaintiff-appellant.
Ibarra and Papa for defendants-appellees.
BENGZON, C.J.:
This is an action to recover from defendants, the sum of P33,009.71
with interest and attorney's fees of P8,000.00.
Defendant Primateria Societe Anonyme Pour Le Commerce Exterieur
(hereinafter referred to as Primateria Zurich) is a foreign juridical
entity and, at the time of the transactions involved herein, had its
main office at Zurich, Switzerland. It was then engaged in
"Transactions in international trade with agricultural products,
particularly in oils, fats and oil-seeds and related products."
The record shows that:
On October 24, 1951, Primateria Zurich, through defendant Alexander
B. Baylin, entered into an agreement with plaintiff Philippine Products
Company, whereby the latter undertook to buy copra in the
Philippines for the account of Primateria Zurich, during "a tentative
experimental period of one month from date." The contract was
renewed by mutual agreement of the parties to cover an extended
period up to February 24, 1952, later extended to 1953. During such
period, plaintiff caused the shipment of copra to foreign countries,
pursuant to instructions from defendant Primateria Zurich, thru
Primateria (Phil.) Inc. — referred to hereafter as Primateria
Philippines — acting by defendant Alexander G. Baylin and Jose M.
Crame, officers of said corporation. As a result, the total amount due
to the plaintiff as of May 30, 1955, was P33,009.71.
At the trial, before the Manila court of first instance, it was proven
that the amount due from defendant Primateria Zurich, on account of
the various shipments of copra, was P31,009.71, because it had paid
P2,000.00 of the original claim of plaintiff. There is no dispute about
accounting.
And there is no question that Alexander G. Baylin and Primateria
Philippines acted as the duly authorized agents of Primateria Zurich in
the Philippines. As far as the record discloses, Baylin acted
indiscriminately in these transactions in the dual capacities of agent
of the Zurich firm and executive vice-president of Primateria
Philippines, which also acted as agent of Primateria Zurich. It is
likewise undisputed that Primateria Zurich had no license to transact
business in the Philippines.
For failure to file an answer within the reglementary period,
defendant Primateria Zurich was declared in default.
After trial, judgment was rendered by the lower court holding
defendant Primateria Zurich liable to the plaintiff for the sums of
P31,009.71, with legal interest from the date of the filing of the
complaint, and P2,000.00 as and for attorney's fees; and absolving
defendants Primateria (Phil.), Inc., Alexander G. Baylin, and Jose M.
Crame from any and all liability.
Plaintiff appealed from that portion of the judgment dismissing its
complaint as regards the three defendants.
It is plaintiff's theory that Primateria Zurich is a foreign corporation
within the meaning of Sections 68 and 69 of the Corporation Law, and
since it has transacted business in the Philippines without the
necessary license, as required by said provisions, its agents here are
personally liable for contracts made in its behalf.
Section 68 of the Corporation Law states: "No foreign corporation or
corporation formed, organized, or existing under any laws other than
those of the Philippines shall be permitted to transact business in the
Philippines, until after it shall have obtained a license for that purpose
from the Securities and Exchange Commission .. ." And under Section
69, "any officer or agent of the corporation or any person transacting
business for any foreign corporation not having the license prescribed
shall be punished by imprisonment for etc. ... ."
The issues which have to be determined, therefore, are the following:
1. Whether defendant Primateria Zurich may be considered a
foreign corporation within the meaning of Sections 68 and 69 of the
Corporation Law;
2. Assuming said entity to be a foreign corporation, whether it
may be considered as having transacted business in the Philippines
within the meaning of said sections; and
3. If so, whether its agents may be held personally liable on
contracts made in the name of the entity with third persons in the
Philippines.
The lower court ruled that the Primateria Zurich was not duly proven
to be a foreign corporation; nor that a societe anonyme ("sociedad
anomima") is a corporation; and that failing such proof, the societe
cannot be deemed to fall within the prescription of Section 68 of the
Corporation Law. We agree with the said court's conclusion. In fact,
our corporation law recognized the difference between sociedades
anonimas and corporations.
At any rate, we do not see how the plaintiff could recover from both
the principal (Primateria Zurich) and its agents. It has been given
judgment against the principal for the whole amount. It asked for such
judgment, and did not appeal from it. It clearly stated that its appeal
concerned the other three defendants.
But plaintiff alleges that the appellees as agents of Primateria Zurich
are liable to it under Art. 1897 of the New Civil Code which reads as
follows:
Art. 1897. The agent who acts as such is not personally liable
to the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers.
483 | P a g e
But there is no proof that, as agents, they exceeded the limits of their
authority. In fact, the principal — Primateria Zurich — who should be
the one to raise the point, never raised it, denied its liability on the
ground of excess of authority. At any rate, the article does not hold
that in cases of excess of authority, both the agent and the principal
are liable to the other contracting party.

This view of the cause dispenses with the necessity of deciding the
other two issues, namely: whether the agent of a foreign corporation
doing business, but not licensed here is personally liable for contracts
made by him in the name of such corporation.1 Although, the solution
should not be difficult, since we already held that such foreign
corporation may be sued here (General Corporation vs. Union Ins., 87
Phil. 509). And obviously, liability of the agent is necessarily premised
on the inability to sue the principal or non-liability of such principal.
In the absence of express legislation, of course.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed

judgment is affirmed, with costs against appellant.

Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal,

Bengzon, J.P., and Zaldivar, JJ., concur.

Barrera, J., took no part.

Footnotes

1 Lashar v. Stimson, 23 Atl. 552, is one case invoked by the appellant.

We are not fully aware of the statutory provisions in Pennsylvania.
But one thing is certain; in that case, the foreign corporation was not
sued; and no judgment against it was obtained.

484 | P a g e
9. 117 SCRA 789
[G.R. Nos. L-33819 and L-33897. October 23, 1982.]
NATIONAL POWER CORPORATION, Plaintiff-Appellant, v. NATIONAL
MERCHANDISING CORPORATION and DOMESTIC INSURANCE
COMPANY OF THE PHILIPPINES, Defendants-Appellants.
The Solicitor General, for Plaintiff-Appellant.
Sycip, Salazar, Luna Manalo & Feliciano, for Defendants-Appellants.
SYNOPSIS
Plaintiff-appellant National Power Corporation (NPC) and defendant-
appellant National Merchandising Corporation (NAMERCO), the
Philippine representative of New York-based International
Commodities Corporation, executed a contract of sale of sulfur with
a stipulation for liquidated damages in case of breach. Defendant-
appellant Domestic Insurance Company executed a performance
bond in favor of NPC to guarantee the seller’s obligation. In entering
into the contract, Namerco, however, did not disclose to NPC that
Namerco’s principal, in a cabled instruction, stated that the sale was
subject to availability of a steamer, and contrary to its principal’s
instruction, Namerco agreed that non-availability of a steamer was
not a justification for non-payment of liquidated damages. The New
York supplier was not able to deliver the sulfur due to its inability to
secure shipping space. Consequently, the Government Corporate
Counsel rescinded the contract of sale due to the supplier’s non-
performance of its obligations, and demanded payment of liquidated
damages from both Namerco and the surety. Thereafter, NPC sued
for recovery of the stipulated liquidated damages. After trial, the
Court of First Instance rendered judgment ordering defendants-
appellants to pay solidarity to the NPC reduced liquidated damages
with interest.
The Supreme Court held that Namerco is liable fur damages because
under Article 1897 of the Civil Code the agent who exceeds the limits
of his authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such party. The
Court, however, further reduced the solidary liability of defendants-
appellants for liquidated damages.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN
AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY IS PERSONALLY
LIABLE. — Under Article 1897 of the Civil Code the agent who exceeds
the limits of his authority without giving the party with whom he
contracts sufficient notice of his powers is personally liable to such
party.
2. ID.; ID.; ID.; ID.; CASE AT BAR. — In the present case,
Namerco, the agent of a New York-based principal, entered into a
contract of sale with the National Power Corporation without
disclosing to the NPC the limits of its powers and, contrary to its
principal’s prior cabled instructions that the sale should be subject to
availability of a steamer, it agreed that non-availability of a steamer
was not a justification for nonpayment of the liquidated damages.
Namerco. therefore, is liable for damages.
3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH
AN AGENT IS PUT UPON AN INQUIRY AND MUST DISCOVER UPON HIS
PERIL THE AUTHORITY OF THE AGENT IS NOT APPLICABLE WHERE THE
AGENT, NOT THE PRINCIPAL, IS SOUGHT TO BE HELD LIABLE ON THE
CONTRACT. — The rule that every person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the
agent would apply only in cases where the principal is sought to be
held liable on the contract entered into by the agent. The said rule is
not applicable in the instant case since it is the agent, not the
principal, that is sought to be held liable on the contract of sale which
was expressly repudiated by the principal because the agent took
chances, it exceeded its authority and, in effect. it acted in its own
name.
4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT
WHO ACTED BEYOND HIS POWERS IS UNENFORCEABLE ONLY AS
AGAINST THE PRINCIPAL BUT NOT AGAINST THE AGENT AND ITS
SURETY. — Article 1403 of the Civil Code which provides that a
contract entered into in the name of another person by one who has
acted beyond his powers is unenforceable, refers to the
unenforceability of the contract against the principal. In the instant
case, the contract containing the stipulation for liquidated damages is
not being enforced against its principal but against the agent and its
surety. It being enforced against the agent because Article 1897
implies that the agent who acts in excess of his authority is personally
liable to the party with whom he contracted. And that rule is
complimented by Article 1898 of the Civil Code which provides that
"if the agent contracts, in the name of the principal, exceeding the
scope of his authority, and the principal does not ratify the contract,
it shall be void if the party with whom the agent contracted is aware
of the limits of the powers granted by the principal." Namerco never
disclosed to the NPC the cabled or written instructions of its principal.
For that reason and because Namerco exceeded the limits of its
authority, it virtually acted in its own name and not as agent and it is,
therefore, bound by the contract of sale which, however, it not
enforceable against its principal. If, as contemplated in Articles 1897
and 1898, Namerco is bound under the contract of sale, then it
follows that it is bound by the stipulation for liquidated damages in
that contract.
5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE
LIMITS OF HIS AUTHORITY IS BASED ON CONTRACT AND NOT ON
TORT OR QUASI-DELICT; CASE AT BAR. — Defendant’s contention that
Namerco’s liability should be based on tort or quasi-delict, as held in
some American cases, like Mendelson v. Holton, 149 N.E. 38,42 ACR
1307, is not well-taken. As correctly argued by the NPC, it would be
unjust and inequitable for Namerco to escape liability of the contract
after it had deceived the NPC by not disclosing the limits of its powers
and entering into the contract with stipulations contrary to its
principal’s instructions.
6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION
CONTRACTED BY AN AGENT WHO EXCEEDED HIS AUTHORITY IS NOT
AFFECTED THEREBY. — The contention of the defendants that the
Domestic Insurance Company is not liable to the NPC because its bond
was posted, not to Namerco, the agent, but for the New York firm
which is not liable on the contract of sale, cannot be sustained
485 | P a g e
because it was Namerco that actually solicited the bond from the
Domestic Insurance Company and, Namerco is being held liable under
the contract of sale because it virtually acted in its own name. In the
last analysis, the Domestic Insurance Company acted as surety for
Namerco. The rule is that "want of authority of the person who
executes an obligation as the agent or representative of the principal
will not, as a general rule, affect the surety thereon, especially in the
absence of fraud, even though the obligation is not binding on the
principal." (72 C.J.S. 525).
7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON
NOT WARRANTED WHERE THE DISPOSITION OF THE CASE HAS BEEN
DELAYED DUE TO NO FAULT OF DEFENDANTS. — With respect to the
imposition of the legal rate of interest on the damages from the filing
of the complaint in 1957, or a quarter of a century ago, defendant’s
contention that interest should not be collected on the amount of
damages is meritorious. It should be manifestly iniquitous to collect
interest on the damages especially considering that the disposition of
this case has been considerably delayed due to no fault of the
defendants
8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY
LOSS IS REQUIRED FOR RECOVERY THEREOF. — No proof of pecuniary
lost is required for the recovery of liquited damages. The stipulatian
for liquidated damages is intended to obviate controversy on the
amount of damages. There can be no question that the NPC suffered
damages because its production of fertilizer was disrupted or
diminished by reason of the non-delivery of the sulfur. The parties
foresaw that it might be difficult to ascertain the exact amount of
damages for non-delivey of the sulfur. So, they fixed the liquidated
damages to be paid as indemnity to the NPC.
9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. — Nominal
damages are damages in name only or are in fact the same as no
damages (25 C.J.S. 466). It would not be correct to hold in this case
that the NPC suffered damages in name only or that the breach of
contract "as merely technical in character since the NPC suffered
damages because its production of fertilizer "as disrupted or
diminished by reason of the non-delivery of the sulfur.
DECISION
AQUINO, J.:
This case is about the recovery of liquidated damages from a seller’s
agent that allegedly exceeded its authority in negotiating the sale.
Plaintiff National Power Corporation appealed on questions of law
from the decision of the Court of First Instance of Manila dated
October 10, 1966, ordering defendants National Merchandising
Corporation and Domestic Insurance Company of the Philippines to
pay solidarily to the National Power Corporation reduced liquidated
damages in the sum of P72,114.66 plus legal, rate of interest from the
filing of the complaint and the costs (Civil Case No. 33114).
The two defendants appealed from the same decision allegedly
because it is contrary to law and the evidence. As the amount
originally involved is P360,572.80 and defendants’ appeal is tied up
with plaintiff’s appeal on questions of law, defendants’ appeal can be
entertained under Republic Act No. 2613 which amended section 17
of the Judiciary Law.
On October 17, 1956, the National Power Corporation and National
Merchandising Corporation (Namerco) of 3111 Nagtahan Street,
Manila, as the representative of the International Commodities
Corporation of 11 Mercer Street, New York City (Exh. C), executed in
Manila a contract for the purchase by the NPC from the New York firm
of four thousand long tons of crude sulfur for its Maria Cristina
Fertilizer Plant in Iligan City at a total price of (450,716 (Exh. E).
On that same date, a performance bond in the sum of P90,143.20 was
executed by the Domestic Insurance Company in favor of the NPC to
guarantee the seller’s obligations (Exh. F).
It was stipulated in the contract of sale that the seller would deliver
the sulfur at Iligan City within sixty days from notice of the
establishment in its favor of a letter of credit for $212,120 and that
failure to effect delivery would subject the seller and its surety to the
payment of liquidated damages at the rate of two-fifth of one percent
of the full contract price for the first thirty days of default and four-
fifth of one percent for every day thereafter until complete delivery is
made (Art. 8, p. 111, Defendants’ Record on Appeal).
In a letter dated November 12, 1956, the NPC advised John Z. Sycip,
the president of Namerco, of the opening on November 8 of a letter
of credit for $212,120 in favor of International Commodities
Corporation which would expire on January 31, 1957 (Exh. I). Notice
of that letter of credit was, received by cable by the New York firm on
November 15, 1956 (Exh. 80-Wallick). Thus, the deadline for the
delivery of the sulfur was January 15, 1957.
The New York supplier was not able to deliver the sulfur due to its
inability to secure shipping space. During the period from January 20
to 26, 1957 there was a shutdown of the NPC’s fertilizer plant because
there was no sulfur. No fertilizer was produced (Exh. K).
In a letter dated February 27, 1957, the general manager of the NPC
advised Namerco and the Domestic Insurance Company that under
Article 9 of the contract of sale "non-availability of bottom or vessel"
was not a fortuitous event that would excuse non-performance and
that the NPC would resort to legal remedies to enforce its rights (Exh.
L and M).
The Government Corporate Counsel in his letter to Sycip dated May
8, 1957 rescinded the contract of sale due to the New York supplier’s
non-performance of its obligations (Exh. G). The same counsel in his
letter of June 8, 1957 demanded from Namerco the payment of
P360,572.80 as liquidated damages. He explained that time was of the
essence of the contract. A similar demand was made upon the surety
(Exh. H and H-1).
The liquidated damages were computed on the basis of the 115-day
period between January 15, 1957, the deadline for the delivery of the
sulfur at Iligan City, and May 9, 1957 when Namerco was notified of
the rescission of the contract, or P54,085.92 for the first thirty days
and P306,486.88 for the remaining eighty-five days. Total:
P360,572.80.
486 | P a g e

On November 5, 1957, the NPC sued the New York firm, Namerco and
the Domestic Insurance Company for the recovery of the stipulated
liquidated damages (Civil Case No. 33114).
The trial court in its order of January 17, 1958 dismissed the case as
to the New York firm for lack of jurisdiction because it was not doing
business in the Philippines (p. 60, Defendants Record on Appeal).
On the other hand, Melvin Wallick, as the assignee of the New York
corporation and after the latter was dropped as a defendant in Civil
Case No. 33114, sued Namerco for damages in connection with the
same sulfur transaction (Civil Case No. 37019). The two cases, both
filed in the Court of First Instance of Manila, were consolidated. A
joint trial was held. The lower court rendered separate decisions in
the two cases on the same date.
In Civil Case No. 37019, the trial court dismissed Wallick’s action for
damages against Namerco because the assignment in favor of Wallick
was champertous in character. Wallick appealed to this Court. The
appeal was dismissed because the record on appeal did not disclose
that the appeal was perfected on time (Res. of July 11, 1972 in L-
33893).In this Civil Case No. 33114, although the records on appeal
were approved in 1967, inexplicably, they were elevated to this Court
in 1971. That anomaly initially contributed to the delay in the
adjudication of this case.
Defendants’ appeal L-33819. — They contend that the delivery of the
sulfur was conditioned on the availability of a vessel to carry the
shipment and that Namerco acted within the scope of its authority as
agent in signing the contract of sale.
The documentary evidence belies these contentions. The invitation to
bid issued by the NPC provides that non-availability of a steamer to
transport the sulfur is not a ground for non-payment of the liquidated
damages in case of non-performance by the seller.
"4. Responsibility for availability of vessel. — The availability of
vessel to transport the quantity of sulfur within the time specified in
item 14 of this specification shall be the responsibility of the bidder.
In case of award of contract, failure to ship on time allegedly due to
non-availability of vessels shall not exempt the Contractor from
payment of liquidated damages provided in item 15 of this
specification."cralaw virtua1aw library
"15. Liquidated damages. — . . .
"Availability of vessel being a responsibility of the Contractor as
specified in item 4 of this specification, the terms ‘unforeseeable
causes beyond the control and without the fault or negligence of the
Contractor’ and ‘force majeure’ as used herein shall not be deemed
to embrace or include lack or nonavailability of bottom or vessel. It is
agreed that prior to making his bid, a bidder shall have made previous
arrangements regarding shipments within the required time. It is
clearly understood that in no event shall the Contractor be exempt
from the payment of liquidated damages herein specified for reason
of lack of bottom or vessel. Lack of bottom or nonavailability of vessel
shall, in no case, be considered as a ground for extension of time. . . .
."cralaw virtua1aw library
Namerco’s bid or offer is even more explicit. It provides that it was
"responsible for the availability of bottom or vessel" and that it
"guarantees the availability of bottom or vessel to ship the quantity
of sulfur within the time specified in this bid" (Exh. B, p. 22,
Defendants’ Record on Appeal).
In the contract of sale itself item 15 of the invitation to bid is
reproduced in Article 9 which provides that "it is clearly understood
that in no event shall the seller be entitled to an extension of time or
be exempt from the payment of liquidated damages herein specified
for reason of lack of bottom or vessel" (Exh. E, p. 36, Record on
Appeal).
It is true that the New York corporation in its cable to Namerco dated
August 9, 1956 stated that the sale was subject to availability of a
steamer (Exh. N). However, Namerco did not disclose that cable to
the NPC and, contrary to its principal’s instruction, it agreed that
nonavailability of a steamer was not a justification for nonpayment of
the liquidated damages.
The trial court rightly concluded that Namerco acted beyond the
bounds of its authority because it violated its principal’s cabled
instructions (1) that the delivery of the sulfur should be "C & F
Manila", not "C & F Iligan City" ; (2) that the sale be subject to the
availability of a steamer and (3) that the seller should be allowed to
withdraw right away the full amount of the letter of credit and not
merely eighty percent thereof (pp- 123-124, Record on Appeal).
The defendants argue that it was incumbent upon the NPC to inquire
into the extent of the agent’s authority and, for its failure to do so, it
could not claim any liquidated damages which, according to the
defendants, were provided for merely to make the seller more
diligent in looking for a steamer to transport the sulfur.
The NPC counter-argues that Namerco should’ have advised the NPC
of the limitations on its authority to negotiate the sale.
We agree with the trial court that Namerco is liable for damages
because under article 1897 of the Civil Code the agent who exceeds
the limits of his authority without giving the party with whom he
contracts sufficient notice of his powers is personally liable to such
party.
The truth is that even before the contract of sale was signed Namerco
was already aware that its principal was having difficulties in booking
shipping space. In a cable dated October 16, 1956, or one day before
the contract of sale was signed, the New York supplier advised
Namerco that the latter should not sign the contract unless it
(Namerco) wished to assume sole responsibility for the shipment
(Exh. T).
Sycip, Namerco’s president, replied in his letter to the seller dated
also October 16, 1956, that he had no choice but to finalize the
contract of sale because the NPC would forfeit Namerco’s bidder’s
bond in the sum of P45,100 posted by the Domestic Insurance
Company if the contract was not formalized (Exh. 14, 14-A and Exh.
V).
487 | P a g e
Three days later, or on October 19, the New York firm cabled Namerco
that the firm did not consider itself bound by the contract of sale and
that Namerco signed the contract on its own responsibility (Exh. W).
In its letters dated November 8 and 19, 1956, the New York
corporation informed Namerco that since the latter acted contrary to
the former’s cabled instructions, the former disclaimed responsibility
for the contract and that the responsibility for the sale rested on
Namerco (Exh. Y and Y-1).
The letters of the New York firm dated November 26 and December
11, 1956 were even more revealing. It bluntly told Namerco that the
latter was never authorized to enter into the contract and that it acted
contrary to the repeated instructions of the former (Exh. U and Z).
Said the vice-president of the New York firm to Namerco:chanrobles
virtual lawlibrary
"As we have pointed out to you before, you have acted strictly
contrary to our repeated instructions and, however regretfully, you
have no one but yourselves to blame."cralaw virtua1aw library
The rule relied upon by the defendants-appellants that every person
dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent would apply in this case if the principal
is sought to be held liable on the contract entered into by the agent.
That is not so in this case. Here, it is the agent that it sought to be held
liable on a contract of sale which was expressly repudiated by the
principal because the agent took chances, it exceeded its authority,
and, in effect, it acted in its own name.
As observed by Castan Tobeñas, an agent "que haya traspasado los
limites dew mandato, lo que equivale a obrar sin mandato" (4
Derecho Civil Español, 8th Ed., 1956, p. 520).
As opined by Olivieri, "si el mandante contesta o impugna el negocio
juridico concluido por el mandatario con el tercero, aduciendo el
exceso de los limites impuestos, es justo que el mandatario, que ha
tratado con engaño al tercero, sea responsable personalmente
respecto de el des las consecuencias de tal falta de aceptacion por
parte del mandate. Tal responsabilidad del mandatario se informa en
el principio de la falta de garantia de la existencia del mandato y de la
cualidad de mandatario, garantia impuesta coactivamente por la ley,
que quire que aquel que contrata como mandatario este obligado a
garantizar al tercero la efectiva existencia de los poderes que afirma
se halla investido, siempre que el tercero mismo sea de buena fe.
Efecto de tal garantia es el resarcimiento de los daños causados al
tercero como consecuencia de la negativa del mandante a reconocer
lo actuado por el mandatario." (26, part II, Scaveola, Codigo Civil,
1951, pp. 358-9).
Manresa says that the agent who exceeds the limits of his authority is
personally liable "porque realmente obra sin poderes" and the third
person who contracts with the agent in such a case would be
defrauded if he would not be allowed to sue the agent (11 Codigo
Civil, 6th Ed., 1972, p. 725).
The defendants also contend that the trial court erred in holding as
enforceable the stipulation for liquidated damages despite its finding
that the contract was executed by the agent in excess of its authority
and is, therefore, allegedly unenforceable.
In support of that contention, the defendants cite article 1403 of the
Civil Code which provides that a contract entered into in the name of
another person by one who has acted beyond his powers is
unenforceable.
We hold that defendants’ contention is untenable because article
1403 refers to the unenforceability of the contract against the
principal. In the instant case, the contract containing the stipulation
for liquidated damages is not being enforced against it principal but
against the agent and its surety.
It is being enforced against the agent because article 1807 implies that
the agent who acts in excess of his authority is personally liable to the
party with whom he contracted.
And that rule is complemented by article 1898 of the Civil Code which
provides that "if the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify
the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the
principal."
It is being enforced against the agent because article 1897 implies that
the agent who acts in excess of his authority is personally liable to the
party with whom he contracted.
And the rule is complemented by article 1898 of the Civil Code which
provides that "if the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify
the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the
principal."
As priorly discussed, namerco, as agent, exceeded the limits of its
authority in contracting with the NPC in the name of its principal. The
NPC was unaware of the limitations on the powers granted by the
New York firm to Namerco.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
The New York corporation in its letter of April 26, 1956
said:jgc:chanrobles.com.ph
"We hereby certify that National Merchandising Corporation . . . are
our exclusive representatives in the Philippines for the sale of our
products.
"Furthermore, we certify that they are empowered to present our
offers in our behalf in accordance with our cabled or written
instructions." (Exh. C).
Namerco never disclosed to the NPC the cabled or written
instructions of its principal. For that reason and because Namerco
exceeded the limits of its authority, it virtually acted in its own name
and not as agent and it is, therefore, bound by the contract of sale
which, however, is not enforceable against its principal.
488 | P a g e
If, as contemplated in articles 1897 and 1898, Namerco is bound
under the contract of sale, then it follows that it is bound by the
stipulation for liquidated damages in that contract.
Defendants’ contention that Namerco’s liability should be based on
tort or quasi-delict, as held in some American cases, like Mendelsohn
v. Holton, 149 N.E. 38, 42 ALR 1307, is not well-taken. As correctly
argued by the NPC, it would be unjust and inequitable for Namerco to
escape liability after it had deceived the NPC.
Another contention of the defendants is that the Domestic Insurance
Company is not liable to the NPC because its bond was posted, not for
Namerco, the agent, but for the New York firm which is not liable on
the contract of sale.
That contention cannot be sustained because it was Namerco that
actually solicited the bond from the Domestic Insurance Company
and, as explained already, Namerco is being held liable under the
contract of sale because it virtually acted in its own name. It became
the principal in the performance bond. In the last analysis, the
Domestic Insurance Company acted as surety for Namerco.
The rule is that "want of authority of the person who executes an
obligation as the agent or representative of the principal will not, as a
general rule, affect the surety’s liability thereon, especially in the
absence of fraud, even though the obligation is not binding on the
principal" (72 C.J.S. 525).
Defendants’ other contentions are that they should be held liable only
for nominal damages, that interest should not be collected on the
amount of damages and that the damages should be computed on
the basis of a forty-five day period and not for a period of one hundred
fifteen days.
With respect to the imposition of the legal rate of interest on the
damages from the filing of the complaint in 1957, or a quarter of a
century ago, defendants’ contention is meritorious. It would be
manifestly inequitable to collect interest on the damages especially
considering that the disposition of this case has been considerably
delayed due to no fault of the defendants.
The contention that only nominal damages should be adjudged is
contrary to the intention of the parties (NPC, Namerco and its surety)
because it is clearly provided that liquidated damages are recoverable
for delay in the delivery of the sulfur and, with more reason, for
nondelivery.
No proof of pecuniary loss is required for the recovery of liquidated
damages. the stipulation for liquidated damages is intended to
obviate controversy on the amount of damages. There can be no
question that the NPC suffered damages because its production of
fertilizer was disrupted or diminished by reason of the nondelivery of
the sulfur.chanrobles.com.ph : virtual law library
The parties foresaw that it might be difficult to ascertain the exact
amount of damages for nondelivery of the sulfur. So, they fixed the
liquidated damages to be paid as indemnity to the NPC.
On the other hand, nominal damages are damages in name only or
are in fact the same as no damages (25 C.J.S. 466). It would not be
correct to hold in this case that the NPC suffered damages in name
only or that the breach of contract was merely technical in character.
As to the contention that the damages should be computed on the
basis of forty-five days, the period required by a vessel leaving
Galveston, Texas to reach Iligan City, that point need not be resolved
in view of our conclusion that the liquidated damages should be
equivalent to the amount of the bidder’s bond posted by Namerco.
NPC’s appeal, L-33897. — The trial court reduced the liquidated
damages to twenty percent of the stipulated amount. the NPC
contends the it is entitled to the full amount of liquidated damages in
the sum of P360,572.80.
In reducing the liquidated damages, the trial court relied on article
2227 of the Civil Code which provides that "liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable."
Apparently, the trial court regarded as an equitable consideration the
persistent efforts of Namerco and its principal to charter a steamer
and that the failure of the New York firm to secure shipping space was
not attributable to its fault or negligence.
The trial court also took into account the fact that the selling price of
the sulfur was P450,716 and that to award as liquidated damages
more than eighty percent of the price would not be altogether
reasonable.
The NPC contends that Namerco was an obligor in bad faith and,
therefore, it should be responsible for all damages which could be
reasonably attributed to its nonperformance of the obligation as
provided in article 2201 of the Civil Code.
On the other hand, the defendants argue that Namerco having acted
as a mere agent, was not liable for the liquidated damages stipulated
in the alleged unenforceable contract of sale; that, as already noted,
Namerco’s liability should be based on tort or quasi-delict and not on
the contract of sale; that if Namerco is not liable, then the insurance
company, its surety, is likewise not liable; that the NPC is entitled only
to nominal damages because it was able to secure the sulfur from
another source (58-59 tsn November 10, 1960) and that the reduced
award of stipulated damages is highly iniquitous, considering that
Namerco acted in good faith and that the NPC did not suffer any
actual damages.chanrobles law library : red
These contentions have already been resolved in the preceding
discussion. We find no sanction or justification for NPC’s claim that it
is entitled to the full payment of the liquidated damages computed
by its official.
Ruling on the amount of damages. — A painstaking evaluation of the
equities of the case in the light of the arguments of the parties as
expounded in their five briefs leads to the conclusion that the
damages due from the defendants should be further reduced to
P45,100 which is equivalent to their bidder’s bond or to about ten
percent of the selling price of the sulfur.
WHEREFORE, the lower court’s judgment is modified and defendants
National Merchandising Corporation and Domestic Insurance
Company of the Philippines are ordered to pay solidarily to the
National Power Corporation the sum of P45,100.00 as liquidated
damages. No costs.
SO ORDERED.
489 | P a g e
10. 13 SCRA 84
G.R. No. L-19118 January 30, 1965
MARIANO A. ALBERT, plaintiff-appellant,
vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee.
Uy & Artiaga and Antonio M. Molina for plaintiff-appellant.
Aruego, Mamaril & Associates for defendant-appellees.
BENGZON, J.P., J.:
No less than three times have the parties here appealed to this Court.
In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we
found plaintiff entitled to damages (for breach of contract) but
reduced the amount from P23,000.00 to P15,000.00.
Then in Albert vs. University Publishing Co., Inc., L-15275, October 24,
1960, we held that the judgment for P15,000.00 which had become
final and executory, should be executed to its full amount, since in
fixing it, payment already made had been considered.
Now we are asked whether the judgment may be executed against
Jose M. Aruego, supposed President of University Publishing Co., Inc.,
as the real defendant.
Fifteen years ago, on September 24, 1949, Mariano A. Albert sued
University Publishing Co., Inc. Plaintiff alleged inter alia that
defendant was a corporation duly organized and existing under the
laws of the Philippines; that on July 19, 1948, defendant, through Jose
M. Aruego, its President, entered into a contract with plaintifif; that
defendant had thereby agreed to pay plaintiff P30,000.00 for the
exclusive right to publish his revised Commentaries on the Revised
Penal Code and for his share in previous sales of the book's first
edition; that defendant had undertaken to pay in eight quarterly
installments of P3,750.00 starting July 15, 1948; that per contract
failure to pay one installment would render the rest due; and that
defendant had failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's corporate
existence; admitted the execution and terms of the contract dated
July 19, 1948; but alleged that it was plaintiff who breached their
contract by failing to deliver his manuscript. Furthermore, defendant
counterclaimed for damages.1äwphï1.ñët
Plaintiff died before trial and Justo R. Albert, his estate's
administrator, was substituted for him.
The Court of First Instance of Manila, after trial, rendered decision on
April 26, 1954, stating in the dispositive portion —
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor
of the plaintiff and against the defendant the University Publishing
Co., Inc., ordering the defendant to pay the administrator Justo R.
Albert, the sum of P23,000.00 with legal [rate] of interest from the
date of the filing of this complaint until the whole amount shall have
been fully paid. The defendant shall also pay the costs. The
counterclaim of the defendant is hereby dismissed for lack of
evidence.
As aforesaid, we reduced the amount of damages to P15,000.00, to
be executed in full. Thereafter, on July 22, 1961, the court a quo
ordered issuance of an execution writ against University Publishing
Co., Inc. Plaintiff, however, on August 10, 1961, petitioned for a writ
of execution against Jose M. Aruego, as the real defendant, stating,
"plaintiff's counsel and the Sheriff of Manila discovered that there is
no such entity as University Publishing Co., Inc." Plaintiff annexed to
his petition a certification from the securities and Exchange
Commission dated July 31, 1961, attesting: "The records of this
Commission do not show the registration of UNIVERSITY PUBLISHING
CO., INC., either as a corporation or partnership." "University
Publishing Co., Inc." countered by filing, through counsel (Jose M.
Aruego's own law firm), a "manifestation" stating that "Jose M.
Aruego is not a party to this case," and that, therefore, plaintiff's
petition should be denied.
Parenthetically, it is not hard to decipher why "University Publishing
Co., Inc.," through counsel, would not want Jose M. Aruego to be
considered a party to the present case: should a separate action be
now instituted against Jose M. Aruego, the plaintiff will have to reckon
with the statute of limitations.
The court a quo denied the petition by order of September 9, 1961,
and from this, plaintiff has appealed.
The fact of non-registration of University Publishing Co., Inc. in the
Securities and Exchange Commission has not been disputed.
Defendant would only raise the point that "University Publishing Co.,
Inc.," and not Jose M. Aruego, is the party defendant; thereby
assuming that "University Publishing Co., Inc." is an existing
corporation with an independent juridical personality. Precisely,
however, on account of the non-registration it cannot be considered
a corporation, not even a corporation de facto (Hall vs. Piccio, 86 Phil.
603). It has therefore no personality separate from Jose M. Aruego; it
cannot be sued independently.
The corporation-by-estoppel doctrine has not been invoked. At any
rate, the same is inapplicable here. Aruego represented a non-
existent entity and induced not only the plaintiff but even the court
to believe in such representation. He signed the contract as
"President" of "University Publishing Co., Inc.," stating that this was
"a corporation duly organized and existing under the laws of the
Philippines," and obviously misled plaintiff (Mariano A. Albert) into
believing the same. One who has induced another to act upon his
wilful misrepresentation that a corporation was duly organized and
existing under the law, cannot thereafter set up against his victim the
principle of corporation by estoppel (Salvatiera vs. Garlitos, 56 O.G.
3069).
"University Publishing Co., Inc." purported to come to court,
answering the complaint and litigating upon the merits. But as stated,
"University Publishing Co., Inc." has no independent personality; it is
just a name. Jose M. Aruego was, in reality, the one who answered
and litigated, through his own law firm as counsel. He was in fact, if
not, in name, the defendant.
Even with regard to corporations duly organized and existing under
the law, we have in many a case pierced the veil of corporate fiction
to administer the ends of justice. * And in Salvatiera vs. Garlitos,
490 | P a g e
supra, p. 3073, we ruled: "A person acting or purporting to act on into effect against University Publishing Co., Inc. and/or Jose M.
behalf of a corporation which has no valid existence assumes such Aruego. So ordered.
privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent." Had Jose M. Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon,
Aruego been named as party defendant instead of, or together with, Regala, Makalintal and Zaldivar, JJ., concur.
"University Publishing Co., Inc.," there would be no room for debate Bautista Angelo, J., took no part.
as to his personal liability. Since he was not so named, the matters of
"day in court" and "due process" have arisen. Footnotes

In this connection, it must be realized that parties to a suit are *Arnold vs. Willits & Patterson, Ltd., 44 Phil. 634; Koppel (Phil.), Inc.
"persons who have a right to control the proceedings, to make vs. Yatco, 77 Phil. 496: La Campana Coffee Factory, Inc. vs. Kaisahan
defense, to adduce and cross-examine witnesses, and to appeal from ng mga Manggagawa sa La Campana, 93 Phil. 160: Marvel Building
a decision" (67 C.J.S. 887) — and Aruego was, in reality, the person Corporation vs. David, 94 Phil. 376: Madrigal Shipping Co., Inc. vs.
who had and exercised these rights. Clearly, then, Aruego had his day Ogilvie, L-8431, Oct. 30, 1958: Laguna Transportation Co., Inc. vs.
in court as the real defendant; and due process of law has been S.S.S., L-14606, April 28, 1960: McConnel vs. C.A., L-10510, March 17,
substantially observed. 1961; Liddell & Co., Inc. vs. Collector of Internal Revenue, L-9687, June
30, 1961: Palacio vs. Fely Transportation Co., L-15121, August 31,
By "due process of law" we mean " "a law which hears before it 1962.
condemns; which proceeds upon inquiry, and renders judgment only
after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has said,
" "Due process of law" contemplates notice and opportunity to be
heard before judgment is rendered, affecting one's person or
property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat vs.
Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention
here also that the "due process" clause of the Constitution is designed
to secure justice as a living reality; not to sacrifice it by paying undue
homage to formality. For substance must prevail over form. It may
now be trite, but none the less apt, to quote what long ago we said in
Alonso vs. Villamor, 16 Phil. 315, 321-322:

A litigation is not a game of technicalities in which one, more deeply

schooled and skilled in the subtle art of movement and position,
entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue
and then, brushing side as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that
Justice be done upon the merits. Lawsuits, unlike duels, are not to be
won by a rapier's thrust. Technicality, when it deserts its proper office
as an aid to justice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts. There should be no vested
rights in technicalities.

The evidence is patently clear that Jose M. Aruego, acting as

representative of a non-existent principal, was the real party to the
contract sued upon; that he was the one who reaped the benefits
resulting from it, so much so that partial payments of the
consideration were made by him; that he violated its terms, thereby
precipitating the suit in question; and that in the litigation he was the
real defendant. Perforce, in line with the ends of justice, responsibility
under the judgment falls on him.

We need hardly state that should there be persons who under the law
are liable to Aruego for reimbursement or contribution with respect
to the payment he makes under the judgment in question, he may, of
course, proceed against them through proper remedial measures.

PREMISES CONSIDERED, the order appealed from is hereby set aside

and the case remanded ordering the lower court to hold
supplementary proceedings for the purpose of carrying the judgment

491 | P a g e
G.R. No. 103737 December 15, 1994
NORA S. EUGENIO and ALFREDO Y. EUGENIO, Petitioners, v. HON.
COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE
PHILIPPINES, INC., Respondents.
Public Attorney's Office for petitioners.chanrobles virtual law library
Romualdo M. Jubay for private respondent.
REGALADO, J.:
Private respondent Pepsi-Cola Bottling Company of the Philippines,
Inc. is engaged in the business of manufacturing, making bottling and
selling soft drinks and beverages to the general public. Petitioner Nora
S. Eugenio was a dealer of the soft drink products of private
respondent corporation. Although she had only one store located at
27 Diamond Street, Emerald Village, Marikina, Metro Manila, Eugenio
had a regular charge account in both the Quezon City plant (under the
name "Abigail Minimart" *) as well as in the Muntinlupa plant (under
the name "Nora Store") of respondent corporation. Her husband and
co-petitioner, Alfredo Y. Eugenio, used to be a route manager of
private respondent in its Quezon City
plant.chanroblesvirtualawlibrarychanrobles virtual law library
On March 17, 1982, private respondent filed a complaint for a sum of
money against petitioners Nora S. Eugenio and Alfredo Y. Eugenio,
docketed as Civil Case No. Q-34718 of the then Court of First Instance
of Quezon City, Branch 9 (now Regional Trial Court, Quezon City,
Branch 97). In its complaint, respondent corporation alleged that on
several occasions in 1979 and 1980, petitioners purchased and
received on credit various products from its Quezon City plant. As of
December 31, 1980, petitioners allegedly had an outstanding balance
of P20,437.40 therein. Likewise, on various occasions in 1980,
petitioners also purchased and received on credit various products
from respondent's Muntinlupa plant and, as of December 31, 1989,
petitioners supposedly had an outstanding balance of P38,357.20
there. In addition, it was claimed that petitioners had an unpaid
obligation for the loaned "empties" from the same plant in the
amount of P35,856.40 as of July 11, 1980. Altogether, petitioners had
an outstanding account of P94,651.00 which, so the complaint
alleged, they failed to pay despite oral and written
demands. 1chanrobles virtual law library
In their defense, petitioners presented four trade provisional receipts
(TPRs) allegedly issued to and received by them from private
respondent's Route Manager Jovencio Estrada of its Malate
Warehouse (Division 57), showing payments in the total sum of
P80,500.00 made by Abigail's Store. Petitioners contended that had
the amounts in the TPRs been credited in their favor, they would not
be indebted to Pepsi-Cola. The details of said receipts are as follows:
TPR No. Date of Issue Amount
500320 600 Fulls returned 5/6/80 P23,520.00
500326 600 Fulls returned 5/10/80 23,520.00
500344 600 Fulls returned 5/14/80 23,520.00
500346 Cash 5/15/80 10,000.00 2
-----
Total P80,560.00
Further, petitioners maintain that the signature purporting to be that
of petitioner Nora S. Eugenio in Sales Invoice No. 85366 dated May
15, 1980 in the amount of P5,631.00, 3 which was included in the
computation of their alleged debt, is a falsification. In sum, petitioners
argue that if the aforementioned amounts were credited in their
favor, it would be respondent corporation which would be indebted
to them in the sum of P3,546.02 representing
overpayment.chanroblesvirtualawlibrarychanrobles virtual law
library
After trial on the merits, the court a quo rendered a decision on
February 17, 1986, ordering petitioners, as defendants therein to
jointly and severally pay private respondent the amount of
P74,849.00, plus 12% interest per annum until the principal amount
shall have been fully paid, as well as P20,000.00 as attorney's
fees. 4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals
declared said decision a nullity for failure to comply with the
requirement in Section 14, Article VIII of the 1987 Constitution that
decisions of courts should clearly and distinctly state the facts and the
law on which they are based. The Court of Appeals accordingly
remanded the records of the case to the trial court, directing it to
render another decision in accordance with the requirements of the
Constitution. 5chanrobles virtual law library
In compliance with the directive of the Court of Appeals, the lower
court rendered a second decision on September 29, 1989. In this new
decision, petitioners were this time ordered to pay, jointly and
severally, the reduced amount of P64,188.60, plus legal interest of
6% per annum from the filing of the action until full payment of the
amount adjudged. 6 On appeal therefrom, the Court of Appeals
affirmed the judgment of the trial court in a decision promulgated on
September 27, 1991. 7 A motion for the reconsideration of said
judgment of respondent court was subsequently denied in a
resolution dated January 23, 1992. 8chanrobles virtual law library
We agree with petitioners and respondent court that the crux of the
dispute in the case at bar is whether or not the amounts in the
aforementioned trade provisional receipts should be credited in favor
of herein petitioner spouses.chanroblesvirtualawlibrarychanrobles
virtual law library
In a so-called encyclopedic sense, however, our course of action in
this case and the denouement of the controversy therein takes into
account the jurisprudential rule that in the present recourse we
would normally have restricted ourselves to questions of law and
eschewed questions of fact were it not for our perception that the
lower courts manifestly overlooked certain relevant factual
considerations resulting in a misapprehension thereof.
Consequentially, that position shall necessarily affect our analysis of
the rules on the burden of proof and the burden of evidence, and
ultimately, whether the proponent of the corresponding claim has
preponderated or rested on an equipoise or fallen short of
preponderance.chanroblesvirtualawlibrarychanrobles virtual law
library
First, the backdrop. It appears that on August 1, 1981, private
respondent through the head of its Legal Department, Atty. Antonio
N. Rosario, sent an inter-office correspondence to petitioner Alfredo
Eugenio inviting him for an interview/interrogation on August 3, 1981
regarding alleged "non-payment of debts to the company,
inefficiency, and loss of trust and confidence." 9The interview was
reset to August 4, 1981 to enable said petitioner to bring along with
him their union president, Luis Isip. On said date, a statement of
492 | P a g e
overdue accounts were prepared showing that petitioners owed Estrada regarding his signatures on the disputed TPRs, as well as his
respondent corporation the following amounts: affidavit dated February 5, 1982 21 wherein he affirmed his denial, are
hearsay evidence because Estrada was not presented as a witness to
Muntinlupa Plant testify and be cross-examined thereon. Except for the terse statement
Nora's Store of respondent court that since petitioner Alfredo Eugenio was
Trade Account P38,357.20 (as of 12/3/80) 10 supposedly present on December 4, 1981, "(t)he testimony of
Loaned Empties P35,856.40 (as of 7/11/81) 11 Jovencio Estrada at the aforementioned investigation categorically
Quezon City Plant denying that he issued and signed the disputed TPRs is, therefore, not
Abigail Minimart hearsay," 22there was no further explanation on this unusual doctrinal
Regular Account P20,437.40 (as of 1980) 12 departure.chanroblesvirtualawlibrarychanrobles virtual law library
----- The rule is clear and explicit. Under the hearsay evidence rule, a
Total P94,651.00 witness can testify only to those facts which he knows of his personal
A reconciliation of petitioners' account was then conducted. The knowledge; that is, which are derived from his own perception,
liability of petitioners as to the loaned empties (Muntinlupa plant, except as otherwise provided in the Rules. 23 In the present case,
Nora Store) was reduced to P21,686.00 after a reevaluation of the Estrada failed to appear as a witness at the trial. It was only Azurin
value of the loaned empties. 13Likewise, the amount of P5,631.00 who testified that during the investigation he conducted, Estrada
under Invoice No. 85366, which was a spurious document, was supposedly denied having signed the TPRs. It is elementary that under
deducted from their liability in their trade account with the the measure on hearsay evidence, Azurin's testimony cannot
Muntinlupa plant. 14 Thereafter, Eugenio and Isip signed the constitute legal proof as to the truth of Estrada's denial. For that
reconciliation sheets reflecting these items: matter, it is not admissible in evidence, petitioners' counsel having
seasonably objected at the trial to such testimony of Azurin as
Muntinlupa Plant hearsay. And, even if not objected to and thereby admissible, such
Nora Store hearsay evidence has no probative value whatsoever. 24chanrobles
Trade Account P32,726.20 15 virtual law library
Loaned Empties P21,686.00 16
It is true that the testimony or deposition of a witness deceased or
Quezon City Plant unable to testify, given in a former case or proceeding, judicial or
Abigail Minimart administrative, involving the same parties and subject matter, may be
Trade Account P20,437.20 17 given in evidence against the adverse party who had the opportunity
------ to cross-examine him. 25Private respondent cannot, however, seek
Total P74,849.40 sanctuary in this exception to the hearsay evidence
rule.chanroblesvirtualawlibrarychanrobles virtual law library
After the meeting, private respondent alleged that petitioner Alfredo
Y. Eugenio requested that he be allowed to retire and the existing Firstly, the supposed investigation conducted by Azurin was neither a
accounts be deducted from his retirement pay, but that he later judicial trial nor an administrative hearing under statutory regulations
withdrew his retirement plan. Said petitioner disputed that allegation and safeguards. It was merely an inter-office interview conducted by
and, in fact, he subsequently filed a complaint for illegal dismissal. The a personnel officer through an ad hoc arrangement. Secondly, a
finding of labor arbiter, later affirmed by the Supreme Court, showed perusal of the alleged stenographic notes, assuming arguendo that
that this petitioner was indeed illegally dismissed, and that he never these notes are admissible in evidence, would show that the
filed an application for retirement. In fact, this Court made a finding "investigation" was more of a free-flowing question and answer type
that the retirement papers allegedly filed in the name of this of discussion wherein Estrada was asked some questions, after which
petitioner were forged. 18 This makes two falsified documents to be Eugenio was likewise asked other questions. Indeed, there was no
foisted against petitioners.chanroblesvirtualawlibrarychanrobles opportunity for Eugenio to object, much less to cross-examine
virtual law library Estrada. Even in a formal prior trial itself, if the opportunity for
cross-examination did not exist therein or if the accused was not
With their aforesaid accounts still unpaid, petitioner Alfredo Y. afforded opportunity to fully cross-examine the witness when the
Eugenio submitted to Atty. Rosario the aforementioned four TPRs. testimony was offered, evidence relating to the testimony given
Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel therein is thereafter inadmissible in another proceeding, absent any
manager, to conduct an investigation to verify this claim of conduct on the part of the accused amounting to a waiver of his right
petitioners. According to Azurin, during the investigation on to cross-examine. 26chanrobles virtual law library
December 4, 1981, Estrada allegedly denied that he issued and signed
the aforesaid TPRs. 19 He also presented a supposed affidavit which Thirdly, the stenographer was not even presented to authenticate the
Estrada allegedly executed during that investigation to affirm his stenographic notes submitted to the trial court. A copy of the
verbal statements therein. Surprisingly, however, said supposed stenographic report of the entire testimony at the former trial must
affidavit is inexplicably dated February 5, 1982. 20 At this point, it be supported by the oath of the stenographer that it is a correct
should be noted that Estrada never testified thereafter in court and transcript of his notes of the testimony of the witness as a sine qua
what he is supposed to have done or said was merely related by non for its competency and admissibility in evidence. 27The supposed
Azurin.chanroblesvirtualawlibrarychanrobles virtual law library stenographic notes on which respondent corporation relies is
unauthenticated and necessarily inadmissible for the purpose
Now, on this point, respondent court disagreed with herein intended.chanroblesvirtualawlibrarychanrobles virtual law library
petitioners that the testimony on the alleged denial of Jovencio

493 | P a g e
Lastly, although herein private respondent insinuated that Estrada
was not presented as a witness because he had disappeared, no
evidence whatsoever was offered to show or even intimate that this
was due to any machination or instigation of petitioners. There is no
showing that his absence was procured, or that he was eloigned,
through acts imputable to petitioners. In the case at bar, except for
the self-serving statement that Estrada had disappeared, no plausible
explanation was given by respondent corporation. Estrada was an
employee of private respondent, hence it can be assumed that it
could easily trace or ascertain his whereabouts. It had the resources
to do so, in contradistinction to petitioners who even had to seek the
help of the Public Attorney's Office to defend them here. Private
respondent could not have been unaware of the importance of
Estrada's testimony and the consequent legal necessity for presenting
him in the trial court, through coercive process if
necessary.chanroblesvirtualawlibrarychanrobles virtual law library
Obviously, neither is the affidavit of Estrada admissible; it is likewise
barred as evidence by the hearsay evidence rule. 28 This is aside from
the fact that, by their nature, affidavits are generally not prepared by
the affiants themselves but by another who uses his own language in
writing the affiant's statements, which may thus be either omitted or
misunderstood by the one writing them. 29 The dubiety of that
affidavit, as earlier explained, is further underscored by the fact that
it was executed more than two months after the investigation,
presumably for curative purposes as it
were.chanroblesvirtualawlibrarychanrobles virtual law library
Now, the authenticity of a handwriting may be proven, among other
means, by its comparison made by the witness or the court with
writings admitted or treated as genuine by the party against whom
the evidence is offered or proved to be genuine to the satisfaction of
the judge. 30 The alleged affidavit of Estrada states". . . that the
comparison that was made as to the authenticity of the signature
appearing in the TPRs and that of my signature showed that there was
an apparent dissimilarity between the two signatures, xerox copy of
my 201 File is attached hereto as Annex 'F' of this
affidavit. 31 However, a search of the Folder of Exhibits in this case
does not reveal that private respondent ever submitted any
document, not even the aforementioned 201 File, containing a
specimen of the signature of Estrada which the Court can use as a
basis for comparison. Neither was any document containing a
specimen of Estrada's signature presented by private respondent in
the formal offer of its exhibits. 32chanrobles virtual law library
Respondent court made the further observation that "Estrada was
even asked by Atty. Azurin at said investigation to sign three times to
provide specimens of his genuine signature." 33 There is, however, no
showing that he did, but assuming that Estrada signed the
stenographic notes, the Court would still be unable to make the
necessary comparison because two signatures appear on the right
margin of each and every page of the stenographic notes, without any
indication whatsoever as to which of the signatures is Estrada's. The
whole document was marked for identification but the signatures
were not. In fact, although formally offered, it was merely introduced
by the private respondent "in order to show that Jovencio Estrada had
been investigated and categorically denied having collected from
Abigail Minimart and denying having signed the receipts claimed by
Alfredo Eugenio to be his payment," 34 and not for the purpose of
presenting any alleged signature of Estrada on the document as a
basis for comparison.chanroblesvirtualawlibrarychanrobles virtual
law library
This is a situation that irresistibly arouses judicial curiosity, if not
suspicion. Respondent corporation was fully aware that its case
rested, as it were, on the issue of whether the TPRs were authentic
and which issue, in turn, turned on the genuineness of Estrada's
signatures thereon. Yet, aside from cursorily dismissing the non-
presentation of Estrada in court by the glib assertion that he could not
be found, and necessarily aware that his alleged denial of his
signatures on said TPRs and his affidavit rendered the same
vulnerable to the challenge that they are hearsay and inadmissible,
respondent corporation did nothing more. In fact, Estrada's
disappearance has not been explained up to the
present.chanroblesvirtualawlibrarychanrobles virtual law library
The next inquiry then would be as to what exactly is the nature of the
TPRs insofar as they are used in the day-to-day business transactions
of the company. These trade provisional receipts are bound and given
in booklets to the company sales representatives, under proper
acknowledgment by them and with a record of the distribution
thereof. After every transaction, when a collection is made the
customer is given by the sales representative a copy of the trade
provisional receipt, that is, the triplicate copy or customer's copy,
properly filled up to reflect the completed transaction. All unused
TPRs, as well as the collections made, are turned over by the sales
representative to the appropriate company officer. 35chanrobles
virtual law library
According to respondent court, "the questioned TPR's are merely
'provisional' and were, as printed at the bottom of said receipts, to be
officially confirmed by plaintiff within fifteen (15) days by delivering
the original copy thereof stamped paid and signed by its cashier to
the customer. . . . Defendants-appellants (herein petitioners) failed to
present the original copies of the TPRs in question, showing that they
were never confirmed by the plaintiff, nor did they demand from
plaintiff the confirmed original copies thereof." 36chanrobles virtual
law library
We do not agree with the strained implication intended to be adverse
to petitioners. The TPRs presented in evidence by petitioners are
disputably presumed as evidentiary of payments made on account of
petitioners. There are presumptions juris tantum in law that private
transactions have been fair and regular and that the ordinary course
of business has been followed. 37 The role of presumptions in the law
on evidence is to relieve the party enjoying the same of the evidential
burden to prove the proposition that he contends for, and to shift the
burden of evidence to the adverse party. Private respondent having
failed to rebut the aforestated presumptions in favor of valid payment
by petitioners, these would necessarily continue to stand in their
favor in this case.chanroblesvirtualawlibrarychanrobles virtual law
library
Besides, even assuming arguendo that herein private respondent's
cashier never received the amounts reflected in the TPRs, still private
respondent failed to prove that Estrada, who is its duly authorized
agent with respect to petitioners, did not receive those amounts from
the latter. As correctly explained by petitioners, "in so far as the
private respondent's customers are concerned, for as long as they pay
their obligations to the sales representative of the private respondent
using the latter's official receipt, said payment extinguishes their
obligations." 38Otherwise, it would unreasonably cast the burden of
494 | P a g e
supervision over its employees from respondent corporation to its
customers.chanroblesvirtualawlibrarychanrobles virtual law library
The substantive law is that payment shall be made to the person in
whose favor the obligation has been constituted, or his successor-in-
interest or any person authorized to receive it. 39 As far as third
persons are concerned, an act is deemed to have been performed
within the scope of the agent's authority, if such is within the terms
of the power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding
between the principal and his agent. 40In fact, Atty. Rosario, private
respondent's own witness, admitted that "it is the responsibility of
the collector to turn over the collection." 41chanrobles virtual law
library
Still pursuing its ruling in favor of respondent corporation, the Court
of Appeals makes the following observation:
. . . Having allegedly returned 600 Fulls to the plaintiff's representative
on May 6, 10, and 14, 1980, appellant-wife's Abigail Store must have
received more than 1,800 cases of soft drinks from plaintiff before
those dates. Yet the Statement of Overdue Account pertaining to
Abigail Minimart (Exhs. "D", "D-1" to "D-3") which appellant-husband
and his representative Luis Isip signed on August 3, 1981 does now
show more than 1,800 cases of soft drinks were delivered to Abigail
Minimart by plaintiff's Quezon City Plant (which supposedly issued
the disputed TPRs) in May, 1980 or the month before." 42chanrobles
virtual law library
We regret the inaccuracy in said theory of respondent court which
was impelled by its sole and limited reliance on a mere statement
of overdueamounts. Unlike a statement of account which truly
reflects the day-to-day movement of an account, a statement of an
overdue amount is only a summary of the account, simply reflecting
the balance due thereon. A statement of account, being more specific
and detailed in nature, allows one to readily see and verify if indeed
deliveries were made during a specific period of time, unlike a bare
statement of overdue payments. Respondent court cannot make its
aforequoted categorical deduction unless supporting documents
accompanying the statement of overdue amounts were submitted to
enable easy and accurate verification of the
facts.chanroblesvirtualawlibrarychanrobles virtual law library
A perusal of the statement of overdue accounts shows that, except
for a reference number given for each entry, no further details were
volunteered nor offered. It is entirely possible that the statement of
overdue account merely reflects the outstanding debt of a particular
client, and not the specific particulars, such as deliveries made,
particularly since the entries therein were surprisingly entered
irrespective of their chronological order. Obviously, therefore, one
can not use the statement of overdue amounts as conclusive proof of
deliveries done within a particular time
frame.chanroblesvirtualawlibrarychanrobles virtual law library
Except for its speculation that petitioner Alfredo Y. Eugenio could
have had easy access to blank forms of the TPRs because he was a
former route manager no evidence whatsoever was presented by
private respondent in support of that theory. We are accordingly
intrigued by such an unkind assertion of respondent corporation since
Azurin himself admitted that their accounting department could not
even inform them regarding the persons to whom the TPRs were
issued. 43 In addition, it is significant that respondent corporation did
not take proper action if indeed some receipts were actually lost, such
as the publication of the fact of loss of the receipts, with the
corresponding investigation into the
matter.chanroblesvirtualawlibrarychanrobles virtual law library
We, therefore, reject as attenuated the comment of the trial court
that the TPRs, which Eugenio submitted after the reconciliation
meeting, "smacks too much of an afterthought." 44 The reconciliation
meeting was held on August 4, 1981. Three months later, on
November, 1981, petitioner Alfredo Y. Eugenio submitted the four
TPRs. He explained, and this was not disputed, that at the time the
reconciliation meeting was held, his daughter Nanette, who was
helping his wife manage the store, had eloped and she had possession
of the TPRs. 45 It was only in November, 1981 when petitioners were
able to talk to Nanette that they were able to find and retrieve said
TPRs. He added that during the reconciliation meeting, Atty. Rosario
assured him that any receipt he may submit later will be credited in
his favor, hence he signed the reconciliation documents. Accordingly,
when he presented the TPRs to private respondent, Atty. Rosario
directed Mr. Azurin to verify the TPRs. Thus, the amount stated in the
reconciliation sheet was not final, as it was still subject to such
receipts as may thereafter be presented by
petitioners.chanroblesvirtualawlibrarychanrobles virtual law library
On the other hand, petitioners claimed that the signature of
petitioner Nora S. Eugenio in Sales Invoice No. 85366, in the amount
of P5,631.00 is spurious and should accordingly be deducted from the
disputed amount of P74,849.40. A scrutiny of the reconciliation sheet
shows that said amount had already been deducted upon the
instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola ,
Muntinlupa Plant. 46 That amount is not disputed by respondent
corporation and should no longer be deducted from the total liability
of petitioner in the sum of P74,849.40. Since petitioners had made a
payment of P80,560.00, there was consequently an overpayment of
P5,710.60.chanroblesvirtualawlibrarychanrobles virtual law library
All told, we are constrained to hold that respondent corporation has
dismally failed to comply with the pertinent rules for the admission of
the evidence by which it sought to prove its contentions.
Furthermore, there are questions left unanswered and begging for
cogent explanations why said respondent did not or could not comply
with the evidentiary rules. Its default inevitably depletes the weight
of its evidence which cannot just be taken in vacuo, with the result
that for lack of the requisite quantum of evidence, it has not
discharged the burden of preponderant proof necessary to prevail in
this case.chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the judgment of respondent Court of Appeals in C.A.
G.R. CV No. 26901, affirming that of the trial court in Civil Case No. Q-
34718, is ANNULLED and SET ASIDE. Private respondent Pepsi-Cola
Bottling Company of the Philippines, Inc. is hereby ORDERED to pay
petitioners Nora and Alfredo Eugenio the amount of P5,710.60
representing overpayment made to the
former.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED.
Narvasa, C.J. and Puno, J.,
concur.chanroblesvirtualawlibrarychanrobles virtual law library
Mendoza, J., took no part.
495 | P a g e
[G.R. No. L-49395. December 26, 1984.] "As a distributor; Green Valley Poultry & Allied Products, Inc. will be
entitled to a discount as follows:chanrob1es virtual 1aw library
GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., Petitioner, v.
THE INTEMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS Feed Store Price (Catalogue)
PHILIPPINE CORPORATION, Respondents.
Less 10%
R.L. Guttierrez and Associates for Petitioner.
————————————
Leon Osa for Private Respondent.
Wholesale Price

Less10%
SYLLABUS
————————————

Distributor Price

CIVIL LAW; SPECIAL CONTRACTS; AGENCY; SALE ON CREDIT OF "There are exceptions to the above price structure. At present, these
GOODS BY AGENT MUST BE AUTHORIZED BY THE PRINCIPAL UNDER are:chanrob1es virtual 1aw library
THE CIVIL CODE; CASE AT BAR. — Whether viewed as an agency to sell
or as a contract of sale, the liability of Green Valley is indubitable. 1. Afsillin Improved — 40 lbs. bag.
Adopting Green Valley’s theory that the contract is an agency to sell,
it is liable because it sold on credit without authority from its The distributor commission for this product size is 8% off P120.00.
principal. The Civil Code has a provision exactly in point. It reads: "Art.
1905. The commission agent cannot, without the express or implied 2. Narrow-Spectrum Injectible Antibiotics
consent of the principal, sell on credit. Should he do so, the principal
may demand from him payment in cash, but the commission agent These products are subject to price fluctuations. Therefore, they are
shall be entitled to any interest or benefit, which may result from such invoiced at net price per vial.
sale."
3. Deals and Special Offers are not subject to the above distributor
price structure. A 5% distributor commission is allowed when the
distributor furnishes copies for each sale of a complete deal or special
DECISION offer to a feedstore, drugstore or other type of account.

"Deals and Special Offers purchased for resale at regular price

invoiced at net deal or special offer price.
ABAD SANTOS, J.:
"Prices are subject to change without notice, Squibb will endeavor to
advise you promptly of any price changes. However, prices in effect
at the time orders are received by Squibb Order Department will
apply in all instances.
This is a petition to review a decision of the defunct Court of Appeals
which affirmed the judgment of the trial court "Green Valley Poultry & Allied Products, Inc. will distribute only for
whereby:jgc:chanrobles.com.ph the Central Luzon and Northern Luzon including Cagayan Valley areas.
We will not allow any transfer or stocks from Central Luzon and
". . ., judgment is hereby rendered in favor of the plaintiff [E.R., Squibb Northern Luzon including Cagayan Valley to other parts of Luzon,
& Sons Philippine Corporation], ordering the defendant [Green Valley Visayas or Mindanao which are covered by our other appointed
Poultry & Allied Products, Inc.] to pay the sum of P48,374.74 plus Distributors. In line with this, you will follow strictly our stipulations
P96.00 with interest at 6% per annum from the filing of this action; that the maximum discount you can give to your direct and turnover
plus attorney’s fees in the amount of P5,000.00 and to pay the accounts will not go beyond 10%.
costs."cralaw virtua1aw library
"It is understood that Green Valley Poultry and Allied Products, Inc.
On November 3, 1969, Squibb and Green Valley entered into a letter will accept turn-over orders from Squibb representatives for delivery
agreement the text of which reads as follows:jgc:chanrobles.com.ph to customers in your area. If for credit or other valid reasons a turn-
over order is not served, the Squibb representative will be notified
"E.R. Squibb & Sons Philippine Corporation is pleased to appoint within 48 hours and hold why the order will not be served.
Green Valley Poultry & Allied Products, Inc. as a non-exclusive
distributor for Squibb Veterinary Products, as recommended by Dr. "It is understood that Green Valley Poultry & Allied Products, Inc. will
Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health Division Sales put up a bond of P20,000.00 from a mutually acceptable bonding
Supervisor. company.

496 | P a g e
 Aquino, Concepcion, Jr., Escolin and Cuevas, JJ., concur.
"Payment for Purchases of Squibb Products will be due 60 days from
date of invoice or the nearest business day thereto. No payment will Makasiar, J., I reserve my vote.
be accepted in the form of post-dated checks. Payment by check must
be on current dating.

"It is mutually agreed that this non-exclusive distribution agreement

can be terminated by either Green Valley Poultry & Allied Products,
Inc. or Squibb Philippines on 30 days notice.

"I trust that the above terms and conditions will be met with your
approval and that the distributor arrangement will be one of mutual
satisfaction.

"If you are agreeable, please sign the enclosed three (3) extra copies
of this letter and return them to this Office at your earliest
convenience.

"Thank you for your interest and support of the products of E.R.
Squibb & Sons Philippines Corporation." (Rollo, pp. 12-13.)

For goods delivered to Green Valley but unpaid, Squibb filed suit to
collect. The trial court as aforesaid gave judgment in favor of Squibb
which was affirmed by the Court of Appeals.

In both the trial court and the Court of Appeals, the parties advanced
their respective theories.chanrobles.com.ph : virtual law library

Green Valley claimed that the contract with Squibb was a mere
agency to sell; that it never purchased goods from Squibb; that the
goods received were on consignment only with the obligation to turn
over the proceeds, less its commission, or to return the goods if not
sold, and since it had sold the goods but had not been able to collect
from the purchasers thereof, the action was premature.

Upon the other hand. Squibb claimed that the contract was one of
sale so that Green Valley was obligated to pay for the goods received
upon the expiration of the 60-day credit period.

Both courts below upheld the claim of Squibb that the agreement
between the parties was a sales contract.

We do not have to categorize the contract. Whether viewed as an

agency to sell or as a contract of sale, the liability of Green Valley is
indubitable. Adopting Green Valley’s theory that the contract is an
agency to sell, it is liable because it sold on credit without authority
from its principal. The Civil Code has a provision exactly in point. It
reads:jgc:chanrobles.com.ph

"Art. 1905. The commission agent cannot, without the express or

implied consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the commission
agent shall be entitled to any interest or benefit, which may result
from such sale."cralaw virtua1aw library

WHEREFORE, the petition is hereby dismissed; the judgment of the

defunct Court of Appeals is affirmed with costs against the petitioner.

SO ORDERED.

497 | P a g e
G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC.,
LUCIA CASTILLO, MAGNO CASTILLO and GLORIA
CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and
Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden
Savings & Loan Association, Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of
negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with
branches throughout the Philippines and even abroad. Golden
Savings and Loan Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private respondents as
its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with
Golden Savings and deposited over a period of two months 38
treasury warrants with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority and purportedly
signed by its General Manager and countersigned by its Auditor. Six
of these were directly payable to Gomez while the others appeared
to have been indorsed by their respective payees, followed by Gomez
as second indorser.1
On various dates between June 25 and July 16, 1979, all these
warrants were subsequently indorsed by Gloria Castillo as Cashier of
Golden Savings and deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were then sent for
clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing.2
More than two weeks after the deposits, Gloria Castillo went to the
Calapan branch several times to ask whether the warrants had been
cleared. She was told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later, however, "exasperated"
over Gloria's repeated inquiries and also as an accommodation for a
"valued client," the petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount of
P508,000.00, the second on July 13, 1979, in the amount of
P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make
withdrawals from his own account, eventually collecting the total
amount of P1,167,500.00 from the proceeds of the apparently
cleared warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury on July 19,
1979, and demanded the refund by Golden Savings of the amount it
had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in
the Regional Trial Court of Mindoro.5 After trial, judgment was
rendered in favor of Golden Savings, which, however, filed a motion
for reconsideration even as Metrobank filed its notice of appeal. On
November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of
defendant Golden Savings and Loan Association, Inc. and defendant
Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings
Account No. 2498 of the sum of P1,754,089.00 and to reinstate and
credit to such account such amount existing before the debit was
made including the amount of P812,033.37 in favor of defendant
Golden Savings and Loan Association, Inc. and thereafter, to allow
defendant Golden Savings and Loan Association, Inc. to withdraw the
amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and
Loan Association, Inc. attorney's fees and expenses of litigation in the
amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo
and Lucia Castillo attorney's fees and expenses of litigation in the
amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed,
prompting Metrobank to file this petition for review on the following
grounds:
1. Respondent Court of Appeals erred in disregarding and failing to
apply the clear contractual terms and conditions on the deposit slips
allowing Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where
the checks or treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that
of a mere collecting agent which cannot be held liable for its failure
to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of
Appeals, Metrobank is made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between
Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury
warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that
Metrobank was indeed negligent in giving Golden Savings the
498 | P a g e
impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds
thereof from his account with it. Without such assurance, Golden
Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Indeed,
Golden Savings might even have incurred liability for its refusal to
return the money that to all appearances belonged to the depositor,
who could therefore withdraw it any time and for any reason he saw
fit.
It was, in fact, to secure the clearance of the treasury warrants that
Golden Savings deposited them to its account with Metrobank.
Golden Savings had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants through its own
services. The proceeds of the warrants were withheld from Gomez
until Metrobank allowed Golden Savings itself to withdraw them from
its own deposit.7 It was only when Metrobank gave the go-signal that
Gomez was finally allowed by Golden Savings to withdraw them from
his own account.
The argument of Metrobank that Golden Savings should have
exercised more care in checking the personal circumstances of Gomez
before accepting his deposit does not hold water. It was Gomez who
was entrusting the warrants, not Golden Savings that was extending
him a loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the
genuineness of his signature as checked by Golden Savings. In fact,
the treasury warrants were dishonored allegedly because of the
forgery of the signatures of the drawers, not of Gomez as payee or
indorser. Under the circumstances, it is clear that Golden Savings
acted with due care and diligence and cannot be faulted for the
withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The
amount involved was not trifling — more than one and a half million
pesos (and this was 1979). There was no reason why it should not
have waited until the treasury warrants had been cleared; it would
not have lost a single centavo by waiting. Yet, despite the lack of such
clearance — and notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants, as it now
repeatedly stresses — it allowed Golden Savings to withdraw — not
once, not twice, but thrice — from the uncleared treasury warrants in
the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria
Castillo about the clearance and it also wanted to "accommodate" a
valued client. It "presumed" that the warrants had been cleared
simply because of "the lapse of one week."8 For a bank with its long
experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the
conditions printed on the dorsal side of the deposit slips through
which the treasury warrants were deposited by Golden Savings with
its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself
only as the depositor's collecting agent, assuming no responsibility
beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also
applies to checks drawn on local banks and bankers and their
branches as well as on this bank, which are unpaid due to insufficiency
of funds, forgery, unauthorized overdraft or any other reason.
(Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was
acting only as a collecting agent for Golden Savings and give it the
right to "charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also
applies to checks ". . . which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft of any other reason." It is claimed
that the said conditions are in the nature of contractual stipulations
and became binding on Golden Savings when Gloria Castillo, as its
Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions,
considering that they have apparently been imposed by the bank
unilaterally, without the consent of the depositor. Indeed, it could be
argued that the depositor, in signing the deposit slip, does so only to
identify himself and not to agree to the conditions set forth in the
given permit at the back of the deposit slip. We do not have to rule
on this matter at this time. At any rate, the Court feels that even if the
deposit slip were considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the light of the
circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden
Savings, Metrobank seems to be suggesting that as a mere agent it
cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but also for
negligence, which shall be judged 'with more or less rigor by the
courts, according to whether the agency was or was not for a
compensation.
The negligence of Metrobank has been sufficiently established. To
repeat for emphasis, it was the clearance given by it that assured
Golden Savings it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited
Metrobank misled Golden Savings. There may have been no express
clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its
allowing Golden Savings to withdraw from its account not only once
or even twice but three times. The total withdrawal was in excess of
its original balance before the treasury warrants were deposited,
which only added to its belief that the treasury warrants had indeed
been cleared.
Metrobank's argument that it may recover the disputed amount if the
warrants are not paid for any reason is not acceptable. Any reason
does not mean no reason at all. Otherwise, there would have been no
need at all for Golden Savings to deposit the treasury warrants with it
for clearance. There would have been no need for it to wait until the
warrants had been cleared before paying the proceeds thereof to
Gomez. Such a condition, if interpreted in the way the petitioner
suggests, is not binding for being arbitrary and unconscionable. And
it becomes more so in the case at bar when it is considered that the
supposed dishonor of the warrants was not communicated to Golden
Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence
in giving express or at least implied clearance to the treasury warrants
499 | P a g e
and allowing payments therefrom to Golden Savings. But that is not
all. On top of this, the supposed reason for the dishonor, to wit, the
forgery of the signatures of the general manager and the auditor of
the drawer corporation, has not been established.9 This was the
finding of the lower courts which we see no reason to disturb. And as
we said in MWSS v. Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA
238). It must be established by clear, positive and convincing
evidence. This was not done in the present case.
A no less important consideration is the circumstance that the
treasury warrants in question are not negotiable instruments. Clearly
stamped on their face is the word "non-negotiable." Moreover, and
this is of equal significance, it is indicated that they are payable from
a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially
the underscored parts, are pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. — An unqualified order or
promise to pay is unconditional within the meaning of this Act though
coupled with —
(a) An indication of a particular fund out of which reimbursement is
to be made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument
judgment.
But an order or promise to pay out of a particular fund is not
unconditional.
The indication of Fund 501 as the source of the payment to be made
on the treasury warrants makes the order or promise to pay "not
unconditional" and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of the
Negotiable Instruments Law is applicable in the case at bar. This
conclusion conforms to Abubakar vs. Auditor General11 where the
Court held:
The petitioner argues that he is a holder in good faith and for value of
a negotiable instrument and is entitled to the rights and privileges of
a holder in due course, free from defenses. But this treasury warrant
is not within the scope of the negotiable instrument law. For one
thing, the document bearing on its face the words "payable from the
appropriation for food administration, is actually an Order for
payment out of "a particular fund," and is not unconditional and does
not fulfill one of the essential requirements of a negotiable
instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general,
Golden Savings assumed that they were "genuine and in all respects
what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not
applicable to the non-negotiable treasury warrants. The indorsement
was made by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with
Metrobank for clearing. It was in fact Metrobank that made the
guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan
Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the
Philippine Islands,12 but we feel this case is inapplicable to the present
controversy.1âwphi1 That case involved checks whereas this case
involves treasury warrants. Golden Savings never represented that
the warrants were negotiable but signed them only for the purpose
of depositing them for clearance. Also, the fact of forgery was proved
in that case but not in the case before us. Finally, the Court found the
Jai Alai Corporation negligent in accepting the checks without
question from one Antonio Ramirez notwithstanding that the payee
was the Inter-Island Gas Services, Inc. and it did not appear that he
was authorized to indorse it. No similar negligence can be imputed to
Golden Savings.
We find the challenged decision to be basically correct. However, we
will have to amend it insofar as it directs the petitioner to credit
Golden Savings with the full amount of the treasury checks deposited
to its account.
The total value of the 32 treasury warrants dishonored was
P1,754,089.00, from which Gomez was allowed to withdraw
P1,167,500.00 before Golden Savings was notified of the dishonor.
The amount he has withdrawn must be charged not to Golden Savings
but to Metrobank, which must bear the consequences of its own
negligence. But the balance of P586,589.00 should be debited to
Golden Savings, as obviously Gomez can no longer be permitted to
withdraw this amount from his deposit because of the dishonor of the
warrants. Gomez has in fact disappeared. To also credit the balance
to Golden Savings would unduly enrich it at the expense of
Metrobank, let alone the fact that it has already been informed of the
dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the
modification that Paragraph 3 of the dispositive portion of the
judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only
and thereafter allowing defendant Golden Savings & Loan
Association, Inc. to withdraw the amount outstanding thereon, if any,
after the debit.
SO ORDERED.
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
500 | P a g e
c. obligations of the principal
G.R. No. 108957 June 14, 1993
PRUDENTIAL BANK, Petitioner, vs. THE COURT OF APPEALS, AURORA
CRUZ, Respondents.
Monique Q. Ignacio for petitioner.chanrobles virtual law library
Eduardo C. Tutaan for private respondent.
CRUZ, J.:
We deal here with another controversy involving the integrity of a
bank.chanroblesvirtualawlibrarychanrobles virtual law library
The complaint in this case arose when private respondent Aurora F.
Cruz, * with her sister as co-depositor, invested P200,000.00 in
Central Bank bills with the Prudential Bank at its branch in Quezon
Avenue, Quezon City, on June 23, 1986. The placement was for 63
days at 13.75% annual interest. For this purpose, the amount of
P196,122.88 was withdrawn from the depositors' Savings Account
No. 2546 and applied to the investment. The difference of P3,877.07
represented the pre-paid
interest.chanroblesvirtualawlibrarychanrobles virtual law library
The transaction was evidenced by a Confirmation of Sale 1delivered to
Cruz two days later, together with a Debit Memo 2in the amount
withdrawn and applied to the confirmed sale. These documents were
issued by Susan Quimbo, the employee of the bank to whom Cruz was
referred and who was apparently in charge of such
transactions. 3chanrobles virtual law library
Upon maturity of the placement on August 25, 1986, Cruz returned to
the bank to "roll-over" or renew her investment. Quimbo, who again
attended to her, prepared a Credit Memo 4 crediting the amount of
P200,000.00 in Cruz's savings account passbook. She also prepared a
Debit Memo for the amount of P196,122.88 to cover the re-
investment of P200,000.00 minus the prepaid interest of
P3,877.02. 5chanrobles virtual law library
This time, Cruz was asked to sign a Withdrawal Slip 6for P196,122.98,
representing the amount to be re-invested after deduction of the
prepaid interest. Quimbo explained this was a new requirement of
the bank. Several days later, Cruz received another Confirmation of
Sale 7and a copy of the Debit Memo. 8chanrobles virtual law library
On October 27, 1986, Cruz returned to the bank and sought to
withdraw her P200,000.00. After verification of her records, however,
she was informed that the investment appeared to have been already
withdrawn by her on August 25, 1986. There was no copy on file of
the Confirmation of Sale and the Debit Memo allegedly issued to her
by Quimbo. Quimbo herself was not available for questioning as she
had not been reporting for the past week. Shocked by this
information, Cruz became hysterical and burst into tears. The branch
manager, Roman Santos, assured her that he would look into the
matter. 9chanrobles virtual law library
Every day thereafter, Cruz went to the bank to inquire about her
request to withdraw her investment. She received no definite answer,
not even to the letter she wrote the bank which was received by
Santos himself. 10Finally, Cruz sent the bank a demand letter dated
November 12, 1986 for the amount of P200,000.00 plus interest. 11In
a reply dated November 20, 1986, the bank's Vice President Lauro J.
Jocson said that there appeared to be an anomaly
and requested Cruz to defer court action as they hoped to settle the
matter amicably. 12Increasingly worried, Cruz sent another letter
reiterating her demand. 13This time the reply of the bank was
unequivocal and negative. She was told that her request had to be
denied because she had already withdrawn the amount she was
claiming. 14chanrobles virtual law library
Cruz's reaction was to file a complaint for breach of contract against
Prudential Bank in the Regional Trial Court of Quezon City. She
demanded the return of her money with interest, plus damages and
attorney's fees. In its answer, the bank denied liability, insisting that
Cruz had withdrawn her investment. The bank also instituted a third-
party complaint against Quimbo, who did not file an answer and was
declared in default. 15The bank, however, did not present any
evidence against her.chanroblesvirtualawlibrarychanrobles virtual
law library
After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the
plaintiffs and disposed as follows:
ACCORDINGLY, judgment is hereby rendered ordering the
defendant/third-party plaintiff to pay to the plaintiffs the following
amounts:chanrobles virtual law library
1. P200,000.00, plus interest thereon at the rate of 13.75% per
annum from October 27, 1986, until fully paid;chanrobles virtual law
library
2. P30,000.00, as moral damages;chanrobles virtual law library
3. P20,000.00, as exemplary damages; andchanrobles virtual law
library
4. P25,000.00, as reasonable attorney's
fees.chanroblesvirtualawlibrarychanrobles virtual law library
The counterclaim and the third-party complaint of the
defendant/third-party plaintiff are
dismissed.chanroblesvirtualawlibrarychanrobles virtual law library
With costs against the defendant/third-party plaintiff.
The decision was affirmed in toto on appeal to the respondent
court.chanroblesvirtualawlibrarychanrobles virtual law library
The judgment of the Court of Appeals 16is now faulted in this petition,
mainly on the ground that the bank should not have been found liable
for a quasi-delict when it was sued for breach of
contract.chanroblesvirtualawlibrarychanrobles virtual law library
The petition shall fail. The petitioner is quibbling. It appears to be
merely temporizing to delay enforcement of the liability clearly
established against it.chanroblesvirtualawlibrarychanrobles virtual
law library
The basic issues are factual. The private respondent claims she has
not yet collected her investment of P200,000.00 and has submitted in
proof of their contention the Confirmation of Sale and the Debit
Memo issued to her by Quimbo on the official forms of the bank. The
petitioner denies her claim and points to the Withdrawal Slip, which
it says Cruz has not denied having signed. It also contends that the
Confirmation of Sale and the Debit Memo are fake and should not
have been given credence by the lower
courts.chanroblesvirtualawlibrarychanrobles virtual law library
501 | P a g e
The findings of the trial court on these issues have been affirmed by
the respondent court and we see no reason to disturb them. The
petitioner has not shown that they have been reached arbitrarily or
in disregard of the evidence of record. On the contrary, we find
substantial basis for the conclusion that the private respondents
signed the Withdrawal Slip only as part of the bank's new procedure
of re-investment. She did not actually receive the amount indicated
therein, which she was made to understand was being re-invested in
her name. The bank itself so assured her in the Confirmation of Sale
and the Debit Memo later issued to her by
Quimbo.chanroblesvirtualawlibrarychanrobles virtual law library
Especially persuasive are the following observations of the trial
court: 17
What is more, it could not be that plaintiff Aurora F. Cruz withdrew
only the amount of P196,122.98 from their savings account, if her
only intention was to make such a withdrawal. For, if, indeed, it was
the desire of the plaintiffs to withdraw their money from the
defendant/third-party plaintiff, they could have withdrawn an
amount in round figures. Certainly, it is unbelievable that their
withdrawal was in the irregular amount of P196,122.98 if they really
received it. On the contrary, this amount, which is the price of the
Central Bank bills rolled over, indicates that, as claimed by plaintiff
Aurora F. Cruz, she did not receive this money, but it was left by her
with the defendant/third-party plaintiff in order to buy Central Bank
bills placement for another sixty-three (63) days, for which she signed
a withdrawal slip at the instance of third-party defendant Susan
Quimbo who told her that it was a new bank requirement for the roll-
over of a matured placement which she trustingly believed.
Indeed, the bank has not explained the remarkable coincidence that
the amount indicated in the withdrawal slip is exactly the same
amount Cruz was re-investing after deducting therefrom the pre-paid
interest.chanroblesvirtualawlibrarychanrobles virtual law library
The bank has also not, succeeded in impugning the authenticity of the
Confirmation of Sale and the Debit Memo which were made on its
official, forms. These are admittedly not available to the general
public or even its depositors and are handled only by its personnel.
Even assuming that they were not signed by its authorized officials, as
it claims, there was no obligation on the part of Cruz to verify their
authority because she had the right to presume it. The documents had
been issued in the office of the bank itself and by its own employees
with whom she had previously dealt. Such dealings had not been
questioned before, much leas invalidated. There was absolutely no
reason why she should not have accepted their authority to act on
behalf of their employer.chanroblesvirtualawlibrarychanrobles
virtual law library
It is also worthy of note - and wonder - that although the bank
impleaded Quimbo in a third-party complaint, it did not pursue its suit
even when she failed to answer and was declared in default. The bank
did not introduce evidence against her although it could have done so
under the rules. No less remarkably, it did not call on her to testify on
its behalf, considering that under the circumstances claimed by it, she
would have been the best witness to show that Cruz had actually
withdrawn her P200,000.00 placement. Instead, the bank chose to
rely on its other employees whose testimony was less direct and
categorical than the testimony Quimbo could have
given.chanroblesvirtualawlibrarychanrobles virtual law library
We do not find that the Court of Appeals held the bank liable on
a quasi-delict. The argument of the petitioner on this issue is pallid, to
say the least, consisting as it does only of the observation that the
article cited by the respondent court on the agent's liability falls under
the heading in the Civil Code on quasi-delicts. On the other hand, the
respondent court clearly declared that:
The defendant/third-party plaintiff being liable for the return of the
P200,000.00 placement of the plaintiffs, the extent of the liability of
the defendant/third-party plaintiff for damages resultant
thereof, which is contractual, is for all damages which may be
reasonably attributed to the non-performance of the obligation, . . .
xxx xxx xxxchanrobles virtual law library
Because of the bad faith of the defendant/third-party plaintiff in
its breach of its contract with the plaintiffs, the latter are, therefore,
entitled to an award of moral damages . . . (Emphasis supplied)
There is no question that the petitioner was made liable for its failure
or refusal to deliver to Cruz the amount she had deposited with it and
which she had a right to withdraw upon its maturity. That investment
was acknowledged by its own employees, who had the apparent
authority to do so and so could legally bind it by its acts vis-a-vis Cruz.
Whatever might have happened to the investment - whether it was
lost or stolen by whoever - was not the concern of the depositor. It
was the concern of the bank.chanroblesvirtualawlibrarychanrobles
virtual law library
As far as Cruz was concerned, she had the right to withdraw her
P200,000.00 placement when it matured pursuant to the terms of her
investment as acknowledged and reflected in the Confirmation of
Sale. The failure of the bank to deliver the amount to her pursuant to
the Confirmation of Sale constituted its breach of their contract, for
which it should be held liable.chanroblesvirtualawlibrarychanrobles
virtual law library
The liability of the principal for the acts of the agent is not even
debatable. Law and jurisprudence are clearly and absolutely against
the petitioner.chanroblesvirtualawlibrarychanrobles virtual law
library
Such liability dates back to the Roman Law maxim, Qui per alium facit
per seipsum facere videtur. "He who does a thing by an agent is
considered as doing it himself." This rule is affirmed by the Civil Code
thus:
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his
authority.chanroblesvirtualawlibrarychanrobles virtual law library
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full
powers.chanroblesvirtualawlibrarychanrobles virtual law library
Conformably, we have declared in countless decisions that the
principal is liable for obligations contracted by the agent. The agent's
apparent representation yields to the principal's true representation
and the contract is considered as entered into between the principal
and the third person. 18
A bank is liable for wrongful acts of its officers done in the interests of
the bank or in the course of dealings of the officers in their
502 | P a g e
representative capacity but not for acts outside the scope of their
authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as
worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for
such frauds, even though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation
is liable to innocent third persons where the representation is made
in the course of its business by an agent acting within the general
scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a fraud
upon his principal or some other person, for his own ultimate benefit
(McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021.)
Application of these principles in especially necessary because banks
have a fiduciary relationship with the public and their stability
depends on the confidence of the people in their honesty and
efficiency. Such faith will be eroded where banks do not exercise strict
care in the selection and supervision of its employees, resulting in
prejudice to their depositors.chanroblesvirtualawlibrarychanrobles
virtual law library
While this is not to say that bank regulations are meaningless or have
no binding effect, they should, however, not be used for covering up
the fault of bank employees when they blunder or, worse,
intentionally cheat him. The misdeeds of such employees must be
readily acknowledged and rectified without delay. The bank must
always act in good faith. The ordinary customer does not feel the need
for a lawyer by his side every time he deals with a bank because he is
certain that it is not a predator or a potential adversary. The bank
should show that there is really no reason for any apprehension
because it truly deserves his faith in
it.chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the petition is DENIED and the appealed decision is
AFFIRMED, with costs against the petitioner. It is so ordered.
Griño-Aquino, Bellosillo and Quiason, JJ., concur.

It would appear from the facts established in the case before us that
the petitioner was less than eager to present Quimbo at the trial or
even to establish her liability although it made the initial effort - which
it did not pursue - to hold her answerable in the third-party complaint.
What ever happened to her does not appear in the record. Her
absence from the proceedings feeds the suspicion of her possible
misdeed, which the bank seems to have studiously ignored by its
insistence that the missing money had been actually withdrawn by
Cruz. By such insistence, the bank is absolving not only itself but also,
in effect and by extension, the disappeared Quimbo who apparently
has much to explain.chanroblesvirtualawlibrarychanrobles virtual law
library

We agree with the lower courts that the petitioner acted in bad faith
in denying Cruz the obligation she was claiming against it. It was
obvious that an irregularity had been committed by the bank's
personnel, but instead of repairing the injury to Cruz by immediately
restoring her money to her, it sought to gloss over the anomaly in its
own operations.chanroblesvirtualawlibrarychanrobles virtual law
library

Cruz naturally suffered anxious moments and mental anguish over

the loss of the investment. The amount of P200,000.00 is not small
even by present standards. By unjustly withholding it from her on the
unproved defense that she had already withdrawn it, the bank
violated the trust she had reposed in it and thus subjected itself to
further liability for moral and exemplary
damages.chanroblesvirtualawlibrarychanrobles virtual law library

If a person dealing with a bank does not read the fine print in the
contract, it is because he trusts the bank and relies on its integrity.
The ordinary customer applying for a loan or even making a deposit
(and so himself extending the loan to the bank) does not bother with
the red tape requirements and the finicky conditions in the
documents he signs. His feeling is that he does not have to be wary of
the bank because it will deal with him fairly and there is no reason to
suspect its motives. This is an attitude the bank must
justify.chanroblesvirtualawlibrarychanrobles virtual law library

503 | P a g e
G.R. No. 88539 October 26, 1993
KUE CUISON, doing business under the firm name and style"KUE
CUISON PAPER SUPPLY," Petitioner, vs. THE COURT OF APPEALS,
VALIANT INVESTMENT ASSOCIATES, Respondents.
Leighton R. Siazon for petitioner.chanrobles virtual law library
Melanio L. Zoreta for private respondent.
BIDIN, J.:
This petition for review assails the decision of the respondent Court
of Appeals ordering petitioner to pay private respondent, among
others, the sum of P297,482.30 with interest. Said decision reversed
the appealed decision of the trial court rendered in favor of
petitioner.chanroblesvirtualawlibrarychanrobles virtual law library
The case involves an action for a sum of money filed by respondent
against petitioner anchored on the following antecedent
facts:chanrobles virtual law library
Petitioner Kue Cuison is a sole proprietorship engaged in the purchase
and sale of newsprint, bond paper and scrap, with places of business
at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila. Private
respondent Valiant Investment Associates, on the other hand, is a
partnership duly organized and existing under the laws of the
Philippines with business address at Kalookan
City.chanroblesvirtualawlibrarychanrobles virtual law library
From December 4, 1979 to February 15, 1980, private respondent
delivered various kinds of paper products amounting to P297,487.30
to a certain Lilian Tan of LT Trading. The deliveries were made by
respondent pursuant to orders allegedly placed by Tiu Huy Tiac who
was then employed in the Binondo office of petitioner. It was likewise
pursuant to Tiac's instructions that the merchandise was delivered to
Lilian Tan. Upon delivery, Lilian Tan paid for the merchandise by
issuing several checks payable to cash at the specific request of Tiu
Huy Tiac. In turn, Tiac issued nine (9) postdated checks to private
respondent as payment for the paper products. Unfortunately, sad
checks were later dishonored by the drawee
bank.chanroblesvirtualawlibrarychanrobles virtual law library
Thereafter, private respondent made several demands upon
petitioner to pay for the merchandise in question, claiming that Tiu
Huy Tiac was duly authorized by petitioner as the manager of his
Binondo office, to enter into the questioned transactions with private
respondent and Lilian Tan. Petitioner denied any involvement in the
transaction entered into by Tiu Huy Tiac and refused to pay private
respondent the amount corresponding to the selling price of the
subject merchandise.chanroblesvirtualawlibrarychanrobles virtual
law library
Left with no recourse, private respondent filed an action against
petitioner for the collection of P297,487.30 representing the price of
the merchandise. After due hearing, the trial court dismissed the
complaint against petitioner for lack of merit. On appeal, however,
the decision of the trial court was modified, but was in effect reversed
by the Court of Appeals, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is MODIFIED in that
defendant-appellant Kue Cuison is hereby ordered to pay plaintiff-
appellant Valiant Investment Associates the sum of P297,487.30 with
12% interest from the filing of the complaint until the amount is fully
paid, plus the sum of 7% of the total amount due as attorney's fees,
and to pay the costs. In all other respects, the decision appealed from
is affirmed. (Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF
DEFENDANT-APPELLANT CONTRARY TO THE
UNDISPUTED/ESTABLISHED FACTS AND
CIRCUMSTANCES.chanroblesvirtualawlibrarychanrobles virtual law
library
THE HONORABLE COURT ERRED IN FINDING DEFENDANT-APPELLANT
LIABLE FOR AN OBLIGATION UNDISPUTEDLY BELONGING TO TIU HUY
TIAC.
THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED
DECISION OF THE TRIAL COURT, (Rollo, p, 19)chanrobles virtual law
library
The issue here is really quite simple - whether or not Tiu Huy Tiac
possessed the required authority from petitioner sufficient to hold
the latter liable for the disputed
transaction.chanroblesvirtualawlibrarychanrobles virtual law library
This petition ought to have been denied outright, forin the final
analysis, it raises a factual issue. It is elementary that in petitions for
review under Rule 45, this Court only passes upon questions of law.
An exception thereto occurs where the findings of fact of the Court of
Appeals are at variance with the trial court, in which case the Court
reviews the evidence in order to arrive at the correct findings based
on the records.chanroblesvirtualawlibrarychanrobles virtual law
library
As to the merits of the case, it is a well-established rule that one who
clothes another with apparent authority as his agent and holds him
out to the public as such cannot be permitted to deny the authority
of such person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith and in the honest belief
that he is what he appears to be (Macke, et al, v. Camps, 7 Phil. 553
(1907]; Philippine National Bank. v Court of Appeals, 94 SCRA 357
[1979]). From the facts and the evidence on record, there is no doubt
that this rule obtains. The petition must therefore
fail.chanroblesvirtualawlibrarychanrobles virtual law library
It is evident from the records that by his own acts and admission,
petitioner held out Tiu Huy Tiac to the public as the manager of his
store in Sto. Cristo, Binondo, Manila. More particularly, petitioner
explicitly introduced Tiu Huy Tiac to Bernardino Villanueva,
respondent's manager, as his (petitioner's) branch manager as
testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has
been doing business with petitioner for quite a while, also testified
that she knew Tiu Huy Tiac to be the manager of petitioner's Sto.
Cristo, Binondo branch. This general perception of Tiu Huy Tiac as the
manager of petitioner's Sto. Cristo store is even made manifest by the
fact that Tiu Huy Tiac is known in the community to be the
"kinakapatid" (godbrother) of petitioner. In fact, even petitioner
admitted his close relationship with Tiu Huy Tiac when he said that
they are "like brothers" (Rollo, p. 54). There was thus no reason for
anybody especially those transacting business with petitioner to even
doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo
Binondo branch.chanroblesvirtualawlibrarychanrobles virtual law
library
504 | P a g e
In a futile attempt to discredit Villanueva, petitioner alleges that the
former's testimony is clearly self-serving inasmuch as Villanueva
worked for private respondent as its
manager.chanroblesvirtualawlibrarychanrobles virtual law library
We disagree, The argument that Villanueva's testimony is self-serving
and therefore inadmissible on the lame excuse of his employment
with private respondent utterly misconstrues the nature of "'self-
serving evidence" and the specific ground for its exclusion. As pointed
out by this Court in Co v. Court of Appeals et, al., (99 SCRA 321
[1980]):
Self-serving evidence is evidence made by a party out of courtat one
time; it does not include a party's testimony as a witness in court. It is
excluded on the same ground as any hearsay evidence, that is the lack
of opportunity for cross-examination by the adverse party, and on the
consideration that its admission would open the door to fraud and to
fabrication of testimony. On theother hand, a party's testimony in
court is sworn and affords the other party the opportunity for cross-
examination (emphasis supplied)
Petitioner cites Villanueva's failure, despite his commitment to do so
on cross-examination, to produce the very first invoice of the
transaction between petitioner and private respondent as another
ground to discredit Villanueva's testimony. Such failure, proves that
Villanueva was not only bluffing when he pretended that he can
produce the invoice, but that Villanueva was likewise prevaricating
when he insisted that such prior transactions actually took place.
Petitioner is mistaken. In fact, it was petitioner's counsel himself who
withdrew the reservation to have Villanueva produce the document
in court. As aptly observed by the Court of Appeals in its decision:
. . . However, during the hearing on March 3, 1981, Villanueva failed
to present the document adverted to because defendant-appellant's
counsel withdrew his reservation to have the former (Villanueva)
produce the document or invoice, thus prompting plaintiff-appellant
to rest its case that same day (t.s.n., pp. 39-40, Sess. of March 3,
1981). Now, defendant-appellant assails the credibility of Villanueva
for having allegedly failed to produce even one single document to
show that plaintiff-appellant have had transactions before, when in
fact said failure of Villanueva to produce said document is a direct off-
shoot of the action of defendant-appellant's counsel who withdrew
his reservation for the production of the document or invoice and
which led plaintiff-appellant to rest its case that very day. (Rollo, p.52)
In the same manner, petitioner assails the credibility of Lilian Tan by
alleging that Tan was part of an intricate plot to defraud him.
However, petitioner failed to substantiate or prove that the subject
transaction was designed to defraud him. Ironically, it was even the
testimony of petitioner's daughter and assistant manager Imelda Kue
Cuison which confirmed the credibility of Tan as a witness. On the
witness stand, Imelda testified that she knew for a fact that prior to
the transaction in question, Tan regularly transacted business with
her father (petitioner herein), thereby corroborating Tan's testimony
to the same effect. As correctly found by the respondent court, there
was no logical explanation for Tan to impute liability upon petitioner.
Rather, the testimony of Imelda Kue Cuison only served to add
credence to Tan's testimony as regards the transaction, the liability
for which petitioner wishes to be
absolved.chanroblesvirtualawlibrarychanrobles virtual law library
But of even greater weight than any of these testimonies, is
petitioner's categorical admission on the witness stand that Tiu Huy
Tiac was the manager of his store in Sto. Cristo, Binondo, to wit:
Court:
xxx xxx xxx
Q And who was managing the store in Sto. Cristo?chanrobles virtual
law library
A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot
remember the exact year.chanroblesvirtualawlibrarychanrobles
virtual law library
Q So, Mr. Tiu Huy Tiac took over the
management,.chanroblesvirtualawlibrarychanrobles virtual law
library
A Not that was because every afternoon, I was there,
sir.chanroblesvirtualawlibrarychanrobles virtual law library
Q But in the morning, who takes charge?chanrobles virtual law library
A Tiu Huy Tiac takes charge of management and if there (sic) orders
for newsprint or bond papers they are always referred to the
compound in Baesa, sir. (t.s.n., p. 16, Session of January 20, 1981, CA
decision, Rollo, p. 50, emphasis supplied).
Such admission, spontaneous no doubt, and standing alone, is
sufficient to negate all the denials made by petitioner regarding the
capacity of Tiu Huy Tiac to enter into the transaction in question.
Furthermore, consistent with and as an obvious indication of the fact
that Tiu Huy Tiac was the manager of the Sto. Cristo branch, three (3)
months after Tiu Huy Tiac left petitioner's employ, petitioner even
sent, communications to its customers notifying them that Tiu Huy
Tiac is no longer connected with petitioner's business. Such
undertaking spoke unmistakenly of Tiu Huy Tiac's valuable position as
petitioner's manager than any uttered disclaimer. More than
anything else, this act taken together with the declaration of
petitioner in open court amount to admissions under Rule 130 Section
22 of the Rules of Court, to wit : "The act, declaration or omission of
a party as to a relevant fact may be given in evidence against him."
For well-settled is the rule that "a man's acts, conduct, and
declaration, wherever made, if voluntary, are admissible against him,
for the reason that it is fair to presume that they correspond with the
truth, and it is his fault if they do not. If a man's extrajudicial
admissions are admissible against him, there seems to be no reason
why his admissions made in open court, under oath, should not be
accepted against him." (U.S. vs. Ching Po, 23 Phil. 578, 583
[1912];).chanroblesvirtualawlibrarychanrobles virtual law library
Moreover, petitioner's unexplained delay in disowning the
transactions entered into by Tiu Huy Tiac despite several attempts
made by respondent to collect the amount from him, proved all the
more that petitioner was aware of the questioned commission was
tantamount to an admission by silence under Rule 130 Section 23 of
the Rules of Court, thus: "Any act or declaration made in the presence
of and within the observation of a party who does or says nothing
when the act or declaration is such as naturally to call for action or
comment if not true, may be given in evidence against
him."chanrobles virtual law library
505 | P a g e
All of these point to the fact that at the time of the transaction Tiu
Huy Tiac was admittedly the manager of petitioner's store in Sto.
Cristo, Binondo. Consequently, the transaction in question as well as
the concomitant obligation is valid and binding upon
petitioner.chanroblesvirtualawlibrarychanrobles virtual law library
By his representations, petitioner is now estopped from disclaiming
liability for the transaction entered by Tiu Huy Tiac on his behalf. It
matters not whether the representations are intentional or merely
negligent so long as innocent, third persons relied upon such
representations in good faith and for value As held in the case
of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622
[1990]):
Court deems it unnecessary to resolve the other peripheral issues
raised by petitioner.chanroblesvirtualawlibrarychanrobles virtual law
library
WHEREFORE, the instant petition in hereby DENIED for lack of merit.
Costs against petitioner.chanroblesvirtualawlibrarychanrobles virtual
law library
SO ORDERED.
Feliciano, Romero, Melo and Vitug, JJ., concur.

More in point, we find that by the principle of estoppel, Manila

Remnant is deemed to have allowed its agent to act as though it had
plenary powers. Article 1911 of the Civil Code provides:

"Even when the agent has exceeded his authority, the principal
issolidarily liable with the agent if the former allowed the latter to act
as though he had full powers." (Emphasis supplied).

The above-quoted article is new. It is intended to protect the rights of

innocent persons. In such a situation, both the principal and the agent
may be considered as joint tortfeasors whose liability is joint and
solidary.chanroblesvirtualawlibrarychanrobles virtual law library

Authority by estoppel has arisen in the instant case because by its

negligence, the principal, Manila Remnant, has permitted its agent,
A.U. Valencia and Co., to exercise powers not granted to it. That the
principal might not have had actual knowledge of theagent's misdeed
is of no moment.

Tiu Huy Tiac, therefore, by petitioner's own representations and

manifestations, became an agent of petitioner by estoppel, an
admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person
relying thereon (Article 1431, Civil Code of the Philippines). A party
cannot be allowed to go back on his own acts and representations to
the prejudice of the other party who, in good faith, relied upon them
(Philippine National Bank v. Intermediate Appellate Court, et al., 189
SCRA 680 [1990]).chanroblesvirtualawlibrarychanrobles virtual law
library

Taken in this light,. petitioner is liable for the transaction entered into
by Tiu Huy Tiac on his behalf. Thus, even when the agent has exceeded
his authority, the principal is solidarily liable with the agent if the
former allowed the latter to fact as though he had full powers (Article
1911 Civil Code), as in the case at
bar.chanroblesvirtualawlibrarychanrobles virtual law library

Finally, although it may appear that Tiu Huy Tiac defrauded his
principal (petitioner) in not turning over the proceeds of the
transaction to the latter, such fact cannot in any way relieve nor
exonerate petitioner of his liability to private respondent. For it is an
equitable maxim that as between two innocent parties, the one who
made it possible for the wrong to be done should be the one to bear
the resulting loss (Francisco vs. Government Service Insurance
System, 7 SCRA 577 [1963]).chanroblesvirtualawlibrarychanrobles
virtual law library

Inasmuch as the fundamental issue of the capacity or incapacity of

the purported agent Tiu Huy Tiac, has already been resolved, the

506 | P a g e
[G.R. No. 6906. September 27, 1911.] the goods shipped, which may be made available by acceptance of a
draft or written order of the consignor on five to ten days’ sight, or by
FLORENTINO RALLOS, ET AL., Plaintiffs-Appellees, v. TEODORO R. his ordering at his option a bill of goods. In the latter case he must pay
YANGCO, Defendant-Appellant. a commission of 2 per cent.

Mariano Escueta, for Appellant. "2. No draft or written order will be accepted without previous notice
forwarding the consignment of goods to guarantee the same.
Martin M. Levering, for Appellees.
"3. Expenses of freight, hauling and everything necessary for duly
SYLLABUS executing the commission will be charged in the commission.

1. PRINCIPAL AND AGENT; TERMINATION OF THE AGENCY; DUTY OF "4. All advances made under sections (1) and (3) shall bear interest at
PRINCIPAL TO GIVE DUE NOTICE. — The defendant having advertised 10 per cent a year, counting from a month after the making thereof,
the fact that C was his agent, having given special notice to the until liquidated by the sale of the goods shipped or by remittance of
plaintiffs of the agency, and having also given them a special invitation the amount thereof.
to deal with such agent, it became the defendant’s duty, upon the
termination of the relationship of principal and agent, to give due and "5. A commission of 2 per cent will be collected on the amount
timely notice thereof to the plaintiffs. realized from the sale of the goods shipped.

2. D.; ID.; ID.; LIABILITY OF PRINCIPAL. — The general rule is that,
when the relationship of principal and agent is established, and the
principal gives notice of the agency and holds out the agent as his
authorized representative, upon the termination of the agency it is
the duty of the principal to give due and timely notice thereof,
otherwise, he will be held liable to third parties acting in good faith
and properly relying upon such agency.
"6. Payment will be made immediately after collection of the price of
the goods shipped.
"7. Orders will be taken for the purchase of general merchandise,
ship-stores, cloths, etc., upon remittance of the amount with the
commission of 2 per cent on the total value of the goods bought.
Expenses of freight, hauling, and everything necessary for properly
executing the commission will be charged to the consignor.

"8. The consignor of the goods may not fix upon the consignee a
DECISION longer period than four months, counting from the date of receipt, for
selling the same; with the understanding that after such period the
consignee is authorized to make the sale, so as to prevent the advance
and cost of storage from amounting to more than the actual value of
MORELAND, J.: said goods, as has often happened.

"9. The shipment to the consignors of the goods ordered on account

of the amount realized from the sale of the goods consigned and of
the goods bought on remittance of the value thereof, under sections
This is an appeal from a judgment of the Court of First Instance of the (1) and (3), will not be insured against risk by sea and land except on
Province of Cebu, the Hon. Adolph Wislizenus presiding, in favor of written order of the interested parties.
the plaintiffs, in the sum of P1,537.08, with interest at 6 per cent per
annum from the month of July, 1909, with costs. "10. On all consignments of goods not insured according to the next
preceding section, the consignors will bear the risk.
The defendant in this case on the 27th day of November, 1907, sent
to the plaintiff Florentino Rallos, among others, the following "11. All the foregoing conditions will take effect only after this office
letter:jgc:chanrobles.com.ph has acknowledged the consignor’s previous notice.

"CIRCULAR No. 1. "12. All other conditions and details will be furnished at the office of
the undersigned.
"MANILA, November 27, 1907.
"If you care to favor me with your patronage, my office is at No. 163
"Mr. FLORENTINO RALLOS, Cebu. Muelle de la Reina, Binondo, Manila, P. I., under the name of ’Teodoro
R. Yangco.’ In this connection it gives me great pleasure to introduce
"DEAR SIR: I have the honor to inform you that I have on this date to you Mr. Florentino Collantes, upon whom I have conferred public
opened in my steamship office at No. 163 Muelle de la Reina, power of attorney before the notary, Mr. Perfecto Salas Rodriguez,
Binondo, Manila, P. I., a shipping and commission department for dated November 16, 1907, to perform in my name and on my behalf
buying and selling leaf tobacco and other native products, under the all acts necessary for carrying out my plans, in the belief that through
following conditions:jgc:chanrobles.com.ph his knowledge and long experience in the business, along with my
commercial connections with the merchants of this city and of the
"1. When the consignment has been received, the consignor thereof provinces, I may hope to secure the most advantageous prices for my
will be credited with a sum not to exceed two-thirds of the value of

507 | P a g e
patrons. Mr. Collantes will sign by power of attorney, so I beg that you
make due note of his signature hereto affixed.

"Very respectfully,

(Sgd.) "T. R. YANGCO.

(Sgd.) "F. COLLANTES.

Accepting this invitation, the plaintiffs proceeded to do a considerable

business with the defendant through the said Collantes, as his factor,
sending to him as agent for the defendant a good deal of produce to
be sold on commission. Later, and in the month of February, 1909,
the plaintiffs sent to the said Collantes, as agent for the defendant,
218 bundles of tobacco in the leaf to be sold on commission, as had
been other produce previously. The said Collantes received said
tobacco and sold it for the sum of P1,744. The charges for such sale
were P206.96, leaving in the hands of said Collantes the sum of
P1,537.08 belonging to the plaintiffs. This sum was, apparently,
converted to his own use by said agent.

It appears, however, that prior to the sending of said tobacco the

defendant had severed his relations with Collantes and that the latter
was no longer acting as his factor.

This fact was not known to the plaintiffs; and it is conceded in the case
that no notice of any kind was given by the defendant to the plaintiffs
of the termination of the relations between the defendant and his
agent. The defendant refused to pay the said sum upon demand of
the plaintiffs, placing such refusal upon the ground that at the time
the said tobacco was received and sold by Collantes he was acting
personally and not as agent of the defendant. This action was brought
to recover said sum.

As is seen, the only question for our decision is whether or not the
plaintiffs, acting in good faith and without knowledge, having sent
produce to sell on commission to the former agent of the defendant,
can recover of the defendant under the circumstances above set
forth. We are of the opinion that the defendant is liable. Having
advertised the fact that Collantes was his agent and having given
special notice to the plaintiffs of that fact, and having given them a
special invitation to deal with such agent, it was the duty of the
defendant on the termination of the relationship of principal and
agent to give due and timely notice thereof to the plaintiffs. Failing to
do so, he is responsible to them for whatever goods may have been
in good faith and without negligence sent to the agent without
knowledge, actual or constructive, of the termination of such
relationship.

For these reasons the judgment appealed from is affirmed, without

special finding as to costs.

Torres, Mapa, Johnson and Carson, JJ., concur.

508 | P a g e
d. Modes of extinguishment of Agency factory for the manufacture of nails in Talisay, Occidental Negros,
under the style of "Claparols Steel & Nail Plant." The raw material, nail
[G.R. No. L-18616. March 31, 1964.] wire, was imported from foreign sources, specially from Belgium; and
Claparols had a regular dollar allocation therefor, granted by the
VICENTE M. COLEONGCO, Plaintiff-Appellant, v. EDUARDO L. Import Control Commission and the Central Bank. The marketing of
CLAPAROLS, Defendant-Appellee. the nails was handled by the "ABCD Commercial" of Bacolod, which
was owned by a chinaman named Kho To.
San Juan, Africa & Benedicto, for Plaintiff-Appellant.
Losses compelled Claparols in 1953 to look for someone to finance his
Alberto Jamir, for Defendant-Appellee. imports of nail wire. At first, Kho To agreed to do the financing, but
on April 25, 1953, the Chinaman introduced his compadre, appellant
Vicente Coleongco, to the appellee, recommending said appellant to
be the financier in the stead of Kho To. Claparols agreed, and on April
SYLLABUS 25 of that year a contract (Exhibit B) was perfected between them
whereby Coleongco undertook to finance and put up the funds
required for the importation of the nail wire, which Claparols bound
himself to convert into nails at his plant. It was agreed that Coleongco
1. PARTNERSHIP; POWER OF ATTORNEY COUPLED WITH INTEREST would have the exclusive distribution of the product, and the
REVOCABLE FOR CAUSE. — A power of attorney although coupled "absolute care in the marketing of these nails and the promotion of
with interest in a partnership can be revoked for a just cause, such as sales all over the Philippines", except the Davao Agency; that
when the attorney-in-fact betrays the interest of the principal as Coleongco would "share the control of all the cash" from sales or
happened in the case at bar. deposited in banks; that he would have a representative in the
management; that all contracts and transactions should be jointly
2. DAMAGES; MORAL DAMAGES FOR MALICIOUSLY UNDERMINING approved by both parties; that proper books would be kept and
PLAINTIFF’S BANK CREDIT. — Material, moral and exemplary damages annual accounts rendered; and that profits and losses would be
may be awarded a plaintiff for a defendant’s acts in maliciously shared "on a 50-50 basis." The contract was renewed from year to
undermining said plaintiff’s credit that led the bank to secure an year until 1958, and Coleongco’s share subsequently increased by 5%
unwarranted writ of execution against said plaintiff. of the net profit of the factory (Exhibit D, E, F).

Two days after the execution of the basic agreement, Exhibit "B", on
April 27, 1953, Claparols executed in favor of Coleongco, at the
latter’s behest, a special power of attorney (Exhibit C) to open and
DECISION negotiate letters of credit, to sign contracts, bills of lading, invoices,
and papers covering transactions; to represent appellee and the nail
factory; and to accept payments and cash advances from dealers and
distributors. Thereafter, Coleongco also became the assistant
REYES, J.B.L., J.: manager of the factory, and took over its business transactions, while
Claparols devoted most of his time to the nail manufacture processes.

Around mid-November of 1956, appellee Claparols was disagreeably

surprised by service of an alias writ of execution to enforce a
Appeal by plaintiff Vicente Coleongco from a decision of the Court of
judgment obtained against him by the Philippine National Bank,
First Instance of Negros Occidental (in its Civil Case No. 4170)
despite the fact that on the preceding September he had submitted
dismissing plaintiff’s action for damages, and ordering him to pay
an amortization plan to settle the account. Worried and alarmed,
defendant Eduardo Claparols the amount of P81,387.27 plus legal
Claparols immediately left for Manila to confer with the bank
interest from the filing of the counterclaim till payment thereof;
authorities. Upon arrival, he learned to his dismay that the execution
P50,000 as moral and compensatory damages suffered by defendant;
had been procured because of derogatory information against
and costs.
appellee that had reached the bank from his associate, appellant
Coleongco. On July 6, 1956, the latter, without appellee’s knowledge,
A writ of preliminary attachment for the sum of P100,000 was
had written to the bank —
subsequently issued against plaintiff’s properties, in spite of
opposition thereto.
"in connection with the verbal offer — for the acquisition by me of
the whole interest of Mr. Eduardo L. Claparols in the Claparols Steel
Plaintiff Coleongco, not being in conformity with the judgment,
and Nail Plant and the Claparols Hollow Blocks Factory" (Exhibit 36);
appealed to this Court directly, the claims involved being in excess of
P200,000.
and later, on October 29, 1956, Coleongco had written to the bank
another letter (Exhibit 35), also behind the back of appellee, wherein
The antecedent facts, as found by the trial court and shown by the
Coleongco charged Claparols with taking machines mortgaged to the
records, are as follows:chanrob1es virtual 1aw library
bank, and added —
Since 1951, defendant-appellee, Eduardo L. Claparols, operated a

509 | P a g e
"In my humble personal opinion I presume that Mr. Eduardo L.
Claparols is not serious in meeting his obligations with your bank,
otherwise he had not taken these machines and equipments a sign of
bad faith since the factory is making a satisfactory profit of my
administration."cralaw virtua1aw library
Fortunately, Claparols managed to arrange matters with the bank and
to have the execution levy lifted. Incensed at what he regarded as
disloyalty of his attorney-in-fact, he consulted lawyers. The upshot
was that appellee revoked the power of attorney (Exhibit "C"), and
informed Coleongco thereof (Exhibits T, T-1), by registered mail,
demanding a full accounting at the same time. Coleongco, as would
be expected, protested these acts of Claparols, but the latter insisted,
and on the first of January, 1957 wrote a letter to Coleongco
dismissing him as assistant manager of the plant and asked C. Miller
& Company, auditors, to go over the books and records of the
business with a view to adjusting the accounts of the associates.
These last steps were taken in view of the revelation made by his
machinery superintendent, Romulo Agsam, that in the course of the
preceding New Year celebrations, Coleongco had drawn Agsam aside
and proposed that the latter should pour acid on the machinery to
paralyze the factory. The examination by the auditors, summarized in
Exhibits 80 and 87, found that Coleongco owed the Claparols Nail
Factory the amount of P81,387.37, as of June 30, 1957.
In the meantime, Claparols had found in the factory files certain
correspondence in February, 1955 between Coleongco and the nail
dealer Kho To whereby the former proposed to Kho that the latter
should cut his monthly advances to Claparols from P2,000 to P1,000
a month, because — letter, Exhibit "33", reducing the advances to Claparols; Coleongco’s
"I think it is time that we do our plan to take advantage of the
difficulties of Eddie with the banks for our benefit. If we can squeeze
him more, I am sure that we can extend our contract with him before
it ends next year, and perhaps on better terms. If we play well our
cards we might yet own his factory" (Exhibit 32);
and conformably to Coleongco’s proposal, Kho To had written to
Claparols that "due to present business conditions" the latter could
only be allowed to draw P1,000 a month beginning April, 1955 (Exhibit
33).
As the parties could not amicably settle their accounts, Coleongco
filed a suit against Claparols charging breach of contract, asking for
accounting, and praying for P528,762.19 as damages, and attorney’s
fees, to which Claparols answered, denying the charge, and
counterclaiming for the rescission of the agreement with Coleongco
for P561,387.39 by way of damages. After trial, the court rendered
judgment, as stated at the beginning of this opinion.
In this appeal, it is first contended by the appellant Coleongco that the
power of attorney (Exhibit "C") was made to protect his interest under
the financing agreement (Exhibit "B"), and was one coupled with an
interest that the appellee Claparols had no legal power to revoke. This
point can not be sustained. The financing agreement itself already
contained clauses for the protection of appellant’s interest, and did
not call for the execution of any power of attorney in favor of
Coleongco. But granting appellant’s view, it must not be forgotten
that a power of attorney can be made irrevocable by contract only in
the sense that the principal may not recall it at his pleasure; but
coupled with interest or not, the authority certainly can be revoked
for a just cause, such as when the attorney- in-fact betrays the
interest of the principal, as happened in this case. It is not open to
serious doubt that the irrevocability of the power of attorney may not
be used to shield the perpetration of acts in bad faith, breach of
confidence, or betrayal of trust, by the agent, for that would amount
to holding that a power, coupled with an interest authorizes the agent
to commit frauds against the principal.
Our new Civil Code, in Article 1172, expressly provides the contrary in
prescribing that responsibility arising from fraud is demandable in all
obligations, and that any waiver of action for future fraud is void. It is
also on this principle that the Civil Code, in its Article 1800, declares
that the powers of a partner, appointed as manager, in the articles of
copartnership are irrevocable without just or lawful cause; and an
agent with power coupled with an interest can not stand on better
ground than such a partner in so far as irrevocability of the power is
concerned.
That the appellant Coleongco acted in bad faith towards his principal
Claparols is, on the record, unquestionable. His letters to the
Philippine National Bank (Exhibits 35 and 36) attempting to
undermine the credit of the principal and to acquire the factory of the
latter, without the principal’s knowledge; Coleongco’s letter to his
cousin, Kho To (Exhibit 32), instructing the latter to reduce to one-half
the usual monthly advances to Claparols on account of nail sales in
order to squeeze said appellee and compel him to extend the contract
entitling Coleongco to share in the profits of the nail factory in better
terms, and ultimately "own his factory", a plan carried out by Kho’s
attempt to have Romulo Agsam pour acid on the machinery; his illegal
diversion of the profits of the factory to his own benefit; and the
surreptitious disposition of the Yates band resaw machine in favor of
his cousin’s Hong Shing Lumber Yard, made while Claparols was in
Baguio in July and August of 1956, are plain acts of deliberate
sabotage by the agent that fully justified the revocation of the power
of attorney (Exhibit "C") by Claparols and his demand for an
accounting from his agent Coleongco.
Appellant attempts to justify his letters to the Philippine National
Bank (Exhibits 35 and 36), claiming that Claparols mal-administration
of the business endangered the security for the advances that he had
made under the financing contract (Exhibit "B"). But if that were the
case, it is to be expected that Coleongco would have first protested
to Claparols himself, which he never did. Appellant likewise denies the
authorship of the letter to Kho (Exhibit 32) as well as the attempt to
induce Agsam to damage the machinery of the factory. Between the
testimony of Agsam and Claparols and that of Coleongco, the court
below chose to believe the former, and we see no reason to alter the
lower court’s conclusion on the value of the evidence before it,
considering that Kho’s letter to Claparols (Exhibit 33) plainly
corroborates and dovetails with the plan outlined in Coleongco’s own
letter (Exhibit 32), signed by him, and that the credibility of Coleongco
is affected adversely by his own admission of his having been
previously convicted of estafa (t.s.n., p. 139, 276), a crime that implies
moral turpitude. Even disregarding Coleongco’s letter to his son-in-
law (Exhibit 82) that so fully reveals Coleongco’s lack of business
scruples, the clear preponderance of evidence is against Appellant.
The same remarks apply to the finding of the trial court that it was
510 | P a g e
appellant Coleongco, and not Claparols, who disposed of the band
resawing equipment, since said machine was received in July, 1956
and sold in August of that year to the Hong Shing Lumber Co.,
managed by appellant’s cousin, Vicente Kho. The untruth of
Coleongco’s charge that Claparols, upon his return from Baguio in
September, 1956, admitted having sold the machines behind his
associate’s back is further evidenced by (a) Coleongco’s letter, Exhibit
"V", dated October 29, 1956, inquiring the whereabouts of the resaw
equipment from Claparols (an inquiry incompatible with Claparols
previous admission); (b) by the undenied fact that the appellee was in
Baguio and Coleongco was acting for him during the months of July
and August when the machine was received and sold; and (c) the fact
that as between the two it is Coleongco who had a clear interest in
selling the sawing machine to his cousin Kho To’s lumber yard. If
Claparols wished to sell the machine without Coleongco’s knowledge,
he would not have picked the latter’s cousin for a buyer.
The action of plaintiff-appellant for damages and lost profits due to
the discontinuance of the financing agreement, Exhibit "B", may not
prosper, because the record shows that the appellant likewise
breached his part of the contract. It will be recalled that under
paragraph 2 of the contract, Exhibit "B", it was
stipulated:jgc:chanrobles.com.ph
"That the Party of the Second Part (Coleongco) has agreed to finance
and put up all the necessary money which may be needed to pay for
the importation of the raw material needed by such nail factory and
allocated by the ICC from time to time either in cash or with whatever
suitable means which the Party of the Second Part may be able to
make by suitable arrangements with any well known banking
institution recognized by the Central Bank of the Philippines."cralaw
virtua1aw library
Instead of putting up all the necessary money needed to finance the
imports of raw material, Coleongco merely advanced 25% in cash on
account of the price and had the balance covered by surety
agreements executed by Claparols and others as solidary (joint and
several) guarantors (see Exhibits G, H, I). The upshot of this
arrangement was that Claparols was made to shoulder 3/4 of the
payment for the imports, contrary to the financing agreement.
Paragraph 11 of the latter expressly denied Coleongco any power or
authority to bind Claparols without previous consultation and
authority. When the balances for the cost of the importations became
due, Coleongco in some instances, paid it with the dealers’ advances
to the nail factory against future sales without the knowledge of
Claparols (Exhibits "K" to K-11, K-13). Under paragraphs 8 and 11 of
the financing agreement, Coleongco was to give preference to the
operating expenses before sharing profits, so that until the operating
costs were provided for, Coleongco had no right to apply the factory’s
income to pay his own obligations.
even bought two motor vehicles with them), we find no justification
for his insistence in sharing in the factory’s profit for these years, nor
for the restoration of the revoked power of attorney.
The accountant’s reports and testimony (specially Exhibits 80 and 87)
prove that as of June 30, 1957, Coleongco owed to Claparols the sum
of P83,466.34 that after some adjustment was reduced to
P81,387.37, practically accepted even by appellant’s auditor. The
alleged discrepancies between the general ledger and the result thus
arrived at was satisfactorily explained by accountant Atienza in his
testimony (t.s.n., 1173-1178).
No error was, therefore, committed by the trial court in declaring the
financing contract (Exh. B) properly resolved by Claparols or in
rendering judgment against appellant in favor of appellee for the said
amount of P81,387.37. The basic rule of contracts requires parties to
act loyally toward each other, in the pursuit of the common end, and
appellant clearly violated the rule of good faith prescribed by Art.
1315 of the new Civil Code.
The lower court also allowed Claparols P50,000 for damages,
material, moral and exemplary, caused by the appellant Coleongco’s
acts in maliciously undermining appellee’s credit that led the
Philippine National Bank to secure a writ of execution against
Claparols. Undeniably, the attempts of Coleongco to discredit and
"squeeze" Claparols out of his own factory and business could not but
cause the latter mental anguish and serious anxiety, as found by the
court below, for which he is entitled to compensation; and the
malevolence that lay behind appellee’s actions justified also the
imposition of exemplary or deterrent damages (Civ. Code, Art. 2232).
While the award could have been made larger without violating the
canons of justice, the discretion in fixing such damages primarily lay
in the trial court, and we feel that the same should be respected.
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed.
Costs against appellant Vicente Coleongco.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion,
Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.

Again, the examination of the books by accountant Atienza of C.

Miller and Co., showed that from 1954 onwards Coleongco (who had
the control of the factory’s cash and bank deposits, under paragraph
11 of Exhibit "B") never liquidated and paid in full to Claparols his half
of the profits, so that by the end of 1956 there was due to Claparols
P38,068.41 on this account (Exhibit 91). For 1957 to 1958 Claparols
financed the imports of nail wire without the help of appellant, and in
view of the latter’s infringement of his obligations, his acts of
disloyalty previously discussed, and his diversions of factory funds (he

511 | P a g e
[G.R. No. L-24332. January 31, 1978.]
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, Petitioner, v. FELIX GO CHAN & SONS REALTY
CORPORATION and COURT OF APPEALS respondents.
Seno, Mendoza & Associates for Petitioner.
Ramon Duterte for Private Respondent.
SYNOPSIS
After the death of his principal and with full knowledge of such death,
the attorney-in-fact sold his principal’s undivided share in a parcel of
land pursuant to a special power of attorney which the principal had
executed in his favor. The administrator of the estate of the deceased
principal went to court to have the sale declared unenforceable and
to recover the disposed share. The trial court granted the relief
prayed for, but on appeal, the Court of Appeals upheld the validity of
the sale and dismissed the complaint.
On review the Supreme Court held that the sale was null and void
because, although the buyer may have been a purchaser in good faith,
said sale was made with the agent’s knowledge of his principal’s
death. The general rule is that death of the principal or the agent
extinguishes the agency and this case does not fall under any of the
exceptions to the general rule.
Appealed decision set aside and judgment of the lower court affirmed
on toto.
SYLLABUS
1. AGENCY; DEFINED. — Agency is a relationship between two parties
whereby one party, called the principal, authorizes another, called the
agent, to act for and in his behalf on transactions with third persons.
2. ID.; ELEMENTS. — The essential elements of agency are: (1) there
is consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation
to a third person; (3) the agent acts as a representative and not for
himself; and (4) the agent acts within the scope of his authority.
3. ID.; DEATH AS MODE OF EXTINGUISHMENT; EXCEPTIONS. — By
reason of the very nature of the relationship between principal and
agent, agency is extinguished by the death of the principal or of the
agent and any act of an agent after the death of his principal is void
ab initio, except as explicitly provided for in the New Civil Code: (1)
when the agency is coupled with an interest (Art. 1930); and (2) when
the agent performed an act for the principal without knowledge of
the principal’s death and the third person who contracted with him
acted in good faith. (Art. 1931)
4. ID.; REVOCATION BY PRINCIPAL DISTINGUISHED FROM
REVOCATION BY OPERATION OF LAW. — Although a revocation of a
power of attorney to be effective must be communicated to the
parties concerned, yet a revocation by operation of law, such as death
of the principal is, as a rule, instantaneously effective inasmuch as "by
legal fiction the agent’s exercise of authority is regarded as an
execution of the principal’s continuing will." With death, the
principal’s will ceases or is terminated; the source of authority is
extinguished.
5. ID.; AGENT’S HEIRS MUST NOTIFY PRINCIPAL OF AGENT’S DEATH.
— The heirs of the agent who dies must notify the principal of his
death and in the meantime adopt such measures as circumstances
may demand in the interest of the latter, but the heirs of the principal
are not duty-bound to give notice of the principal’s death to the
agent.
DECISION
MUÑOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon Rallos, who after the
death of his principal, Concepcion Rallos, sold the latter’s undivided
share in a parcel of Land pursuant to a special power of attorney
which the principal had executed in his favor. The administrator of the
estate of the deceased principal went to court to have the sale
declared unenforceable and to recover the disposed share. The trial
court granted the relief prayed for, but upon appeal, the Court of
Appeals upheld the validity of the sale and dismissed the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both
surnamed Rallos were sisters and registered co-owners of a parcel of
land known as Lot No. 5983 of the Cadastral Survey of Cebu covered
by Transfer Certificate of Title No. 11118 of the Registry of Cebu. On
April 21, 1954, the sisters executed a special power of attorney in
favor of their brother, Simeon Rallos, authorizing him to sell for and
in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died.
On September 12, 1955, Simeon Rallos sold the undivided shares of
his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan &
Sons Realty Corporation for the sum of P10,686.90. The deed of sale
was registered in the Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new Transfer Certificate of Title No. 12989 was issued
in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate
Estate of Concepcion Rallos filed a complaint docketed as Civil Case
No. R-4530 of the Court of First Instance of Cebu, praying (1) that the
sale of the undivided share of the deceased Concepcion Rallos in lot
5983 be declared unenforceable, and said share be reconveyed to her
estate; (2) that the Certificate of Title issued in the name of Felix Go
Chan & Sons Realty Corporation be cancelled and another title be
issued in the names of the corporation and the "Intestate estate of
Concepcion Rallos" in equal undivided shares; and (3) that plaintiff be
indemnified by way of attorney’s fees and payment of costs of suit.
Named party defendants were Felix Go Chan & Sons Realty
Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
512 | P a g e
subsequently, the latter dropped from the complaint. The complaint the sale in question. 1 The appellee-administrator, Ramon Rallos,
was amended twice; defendant Corporation’s Answer contained a moved for a reconsideration of the decision but the same was denied
cross-claim against its co-defendant, Simeon Rallos, while the latter in a resolution of March 4, 1965. 2
filed third-party complaint against his sister, Gerundia Rallos. While
the case was pending in the trial court, both Simeon and his sister What is the legal effect of an act performed by an agent after the
Gerundia died and they were substituted by the respective death of his principal? Applied more particularly to the instant case,
administrators of their estates. We have the query: is the sale of the undivided share of Concepcion
Rallos in lot 5983 valid although it was executed by the agent after
After trial, the court a quo rendered judgment with the following the death of his principal? What is the law in this jurisdiction as to the
dispositive portion:jgc:chanrobles.com.ph effect of the death of the principal on the authority of the agent to
act for and in behalf of the latter? Is the fact of knowledge of the
"A. On Plaintiff’s Complaint — death of the principal a material factor in determining the legal effect
of an act performed after such death?
(1) Declaring the deed of sale, Exh.’C’, null and void insofar as the one-
half pro-indiviso share of Concepcion Rallos in the property in Before proceeding to the issues, We shall briefly restate certain
question, - Lot 5983 of the Cadastral Survey of Cebu — is concerned; principles of law relevant to the matter under consideration.

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer 1. It is a basic axiom in civil law embodied in our Civil Code that no one
Certificate of Title No. 12989 covering Lot 5983 and to issue in lieu may contract in the name of another without being authorized by the
thereof another in the names of FELIX Go CHAN & SONS REALTY latter, or unless he has by law a right to represent him. 3 A contract
CORPORATION and the Estate of Concepcion Rallos in the proportion entered into in the name of another by one who has no authority or
of one-half (1/2) share each pro-indiviso; legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the person on whose behalf it has been executed, before it is revoked by
possession of an undivided one-half (1/2) share of Lot 5983 to the the other contracting party. 4 Article 1403 (1) of the same also
herein plaintiff; provides:jgc:chanrobles.com.ph

(4) Sentencing the defendant Juan T. Borromeo, administrator of the "ART. 1403. The following contracts are unenforceable, unless they
Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable are justified:jgc:chanrobles.com.ph
attorney’s fees the sum of P1,000.00; and
"(1) Those entered into in the name of another person by one who
(5) Ordering both defendants to pay the costs jointly and severally. has been given no authority or legal representation or who has acted
beyond his powers; . . . ."cralaw virtua1aw library
"B. On GO CHAN’S Cross-Claim:chanrob1es virtual 1aw library
Out of the above given principles, sprung the creation an acceptance
(1) Sentencing the co-defendant Juan T. Borromeo administrator of of the relationship of agency whereby one party, called the principal
the Estate of Simeon Rallos; to pay to defendant Felix Go Chan & Sons (mandante), authorizes another, called the agent (mandatario), to act
Realty Corporation the sum of P5,343.45, representing the price of for find in his behalf in transactions with third persons. The essential
one-half (1/2) share of lot 5983; elements of agency are: (1) there is consent, express or implied, of
the parties to establish the relationship; (2) the object is the execution
(2) Ordering co-defendant Juan T. Borromeo, administrator of the of a juridical act in relation to a third person; (3) the agents acts as a
Estate of Simeon Rallos, to pay in concept of reasonable attorney’s representative and not for himself; and (4) the agent acts within the
fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00. scope of his authority. 5

"C. On Third-Party Complaint of defendant Juan T. Borromeo Agency is basically personal, representative, and derivative in nature.
administrator of Estate of Simeon Rallos, against Josefina Rallos, The authority of the agent to act emanates from the powers granted
special administratrix of the Estate of Gerundia Rallos:chanrob1es to him by his principal; his act is the act of the principal if done within
virtual 1aw library the scope of the authority. Qui facit per alium facit per se. "He who
acts through another acts himself." 6
(1) Dismissing the third-party complaint without prejudice to filing
either a complaint against the regular administrator of the Estate of 2. There are various ways of extinguishing agency, 7 but here We are
Gerundia Rallos or a claim in the Intestate of Gerundia Rallos, covering concerned only with one cause — death of the principal: Paragraph 3
the same subject-matter of the third-party complaint, at bar." (pp. 98- of Art. 1919 of the Civil Code which was taken from Art. 1709 of the
100, Record on Appeal) Spanish Civil Code provides:jgc:chanrobles.com.ph

Felix Go Chan & Sons Realty Corporation appealed in due time to the "ART. 1919. Agency is extinguished:jgc:chanrobles.com.ph
Court of Appeals from the foregoing judgment insofar as it set aside
the sale of the one half (1/2) share of Concepcion Rallos. The "x x x
appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining "3. By the death, civil interdiction, insanity or insolvency of the

513 | P a g e
principal or of the agent; . . . ." (Underline supplied)
By reason of the very nature of the relationship between principal and
agent, agency is extinguished by the death of the principal or the
agent. This is the law in this jurisdiction. 8 Rallos, knew of the death of his principal at the time he sold the
Manresa commenting on Art. 1709 of the Spanish Civil Code explains
that the rationale for the law is found in the juridical basis of agency
which is representation. There being an integration of the personality
of the principal into that of the agent it is not possible for the
representation to continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason of the nature
of agency, death is a necessary cause for its extinction. Laurent says
that the juridical tie between the principal and the agent is severed
ipso jure upon the death of either without necessity for the heirs of
the principal to notify the agent of the fact of death of the former. 9
The same rule prevails at common law — the death of the principal
effects instantaneous and absolute revocation of the authority of the
agent unless the power be coupled with an interest. 10 This is the
prevalent rule in American Jurisprudence where it is well-settled that
a power without an interest conferred upon an agent is dissolved by
the principal’s death, and any attempted execution of the power
afterwards is not binding on the heirs or representatives of the
deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the
principal or of the agent extinguishes the agency, subject to any
exception, and if so, is the instant case within that exception? That is
the determinative point in issue in this litigation. It is the contention
of respondent corporation which was sustained by respondent court
that notwithstanding the death of the principal, Concepcion Rallos,
the act of the attorney-in-fact, Simeon Rallos, in selling the former’s
share in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the
general rule aforementioned.
ART. 1930. The agency shall remain in full force and effect even after
the death of the principal, if it has been constituted in the common
interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge the death
of the principal or of any other cause which extinguishes the agency,
is valid and shall be fully effective with respect to third persons who
may have contracted with him in good faith.
Article 1930 is not involved because admittedly the special power of
attorney executed in favor of Simeon Rallos was not coupled with an
interest.
Article 1931 is the applicable law. Under this provision, an act done
by the agent after the death of his principal is valid and effective only
under two conditions, viz: (1) that the agent acted without knowledge
of the death of the principal, and (2) that the third person who
contracted with the agent himself acted in good faith. Good faith here
means that the third son was not aware of the death of the principal
at the time he contracted with said agent. These two requisites must
concur: the absence of one will render the act of the agent invalid
unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon
latter’s share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings
filed by Simeon Rallos before the trial court. 12 That Simeon Rallos
knew of the death of his sister Concepcion is also a finding of fact of
the court a quo 13 and of respondent appellate court when the latter
stated that Simeon Rallos "must have known of the death of his sister,
and yet he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing appellant
(the realty corporation) of the death of the former." 14
On the basis of the established knowledge of Simeon Rallos
concerning the death of his principal, Concepcion Rallos, Article 1931
of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of
his principal; it is not enough that the third person acted in good faith.
Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of
the old Civil Code now Art. 1931 of the new Civil Code sustained the
validity of a sale made after the death of the principal because it was
not shown that the agent knew of his principal’s demise. 15 To the
same effect is the case of Herrera, Et. Al. v. Luy Kim Guan, Et Al., 1961,
where in the words of Justice Jesus Barrera the Court
stated:jgc:chanrobles.com.ph
". . . even granting arguendo that Luis Herrera did die in 1936 plaintiffs
presented no proof and there is no indication in the record, that the
agent Luy Kim Guan was aware of the death of his principal at the time
he sold the property. The death of the principal does not render the
act of an agent unenforceable, where the latter had no knowledge of
such extinguishment of the agency." (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent corporation, the
Court of Appeals reasoned out that there is no provision in the Code
which provides that whatever is done by an agent having knowledge
of the death of his principal is void even with respect to third persons
who may have contracted with him in good faith and without
knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it is ignores
the existence of the general rule enunciated in Article 1919 that the
death of the principal extinguishes the agency. That being the general
rule it follows a fortiori that any act o an agent after the death of his
principal is void ab initio unless the same falls under the exceptions
provided for in the aforementioned Articles 1930 and 1931. Article
1931, being an exception to the general rule, is to be strictly
construed; it is not to be given an interpretation or application
beyond the clear import of its terms for otherwise the courts will be
involved in a process of legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the
vendee acting in good faith relied on the power of attorney which was
duly registered on the original certificate of title recorded in the
Register of Deeds of the Province of Cebu, that no notice of the death
was ever annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such
omission. 17
514 | P a g e

To support such argument reference is made to a portion in
Manresa’s Commentaries which We quote:jgc:chanrobles.com.ph
"If the agency has been granted for the purpose of contracting with
certain persons, the revocation must be made known to them. But if
the agency is general in nature, without reference to particular person
with whom the agent is to contract, it is sufficient that the principal
exercise due diligence to make the revocation of the agency publicly
known.
"In case of a general power which does not specify the persons to
whom representation should be made, it is the general opinion that
all acts executed with third persons who contracted in good faith,
without knowledge of the revocation, are valid. In such case, the
principal may exercise his right against the agent, who, knowing of the
revocation, continued to assume a personality which he no longer
had." (Manresa, Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse, however, treats of revocation by an act of the
principal as a mode of terminating an agency which is to be
distinguished from revocation by operation of law such as death of
the principal which obtains in this case. On page six of this Opinion
We stressed that by reason of the very nature of the relationship
between principal and agent, agency is extinguished ipso jure upon
the death of either principal or agent. Although a revocation of a
power of attorney to be effective must be communicated to the
parties concerned, 18 yet a revocation by operation of law, such as by
death of the principal is, as a rule, instantaneously effective inasmuch
as "by legal fiction the agent’s exercise of authority is regarded as an
execution of the principal’s continuing will." 19 With death, the
principal’s will ceases or is terminated; the source of authority is
extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent
of the death of the principal. What the Code provides in Article 1932
is that, if the agent dies, his heirs must notify the principal thereof,
and in the meantime adopt such measures as the circumstances may
demand in the interest of the latter. Hence, the fact that no notice of
the death of the principal was registered on the certificate of title of
the property in the Office of the Register of Deeds, is not fatal to the
cause of the estate of the principal.
6. Holding that the good faith of a third person in dealing with an
agent affords the former sufficient protection, respondent court drew
a "parallel" between the instant case and that of an innocent
purchaser for value of a registered land, stating that if a person
purchases a registered land from one who acquired it in bad faith —
even to the extent of foregoing or falsifying the deed of sale in his
favor — the registered owner has no recourse against such innocent
purchaser for value but only against the forger. 20
To support the correctness of this "parallelism", respondent
corporation, in its brief, cites the case of Blondeau, Et. Al. v. Nano and
Vallejo, 61 Phil. 625. We quote from the brief:jgc:chanrobles.com.ph
"In the case of Angel Blondeau Et. Al. v. Agustin Nano Et. Al., 61 Phil.
630, one Vallejo was a co-owner of lands with Agustin Nano. The
latter had a power of attorney supposedly executed by Vallejo in his
favor. Vallejo delivered to Nano his land titles. The power was
registered in the Office of the Register of Deeds. When the lawyer-
husband of Angela Blondeau went to that Office, he found all in order
including the power of attorney. But Vallejo denied having executed
the power. The lower court sustained Vallejo and the plaintiff
Blondeau appealed. Reversing the decision of the court a quo, the
Supreme Court, quoting the ruling in the case of Eliason v. Wilborn,
261 U.S. 457, held:chanrob1es virtual 1aw library
‘But there is a narrower ground on which the defenses of the
defendant-appellee must be overruled. Agustin Nano had possession
of Jose Vallejo’s title papers. Without those title papers handed over
to Nano with the acquiescence of Vallejo, a fraud could not have been
perpetuated. When Fernando de la Cantera, a member of the
Philippine Bar and the husband of Angela Blondeau, the principal
plaintiff, searched the registration record, he found them in due form
including the power of attorney of Vallejo in favor of Nano. If this had
not been so and if thereafter the proper notation of the encumbrance
could not have been made, Angela Blondeau would not have, lent
P12,000.00 to the defendant Vallejo.’ An executed transfer of
registered lands placed by the registered owner thereof in the hands
of another operates as a representation to a third party that the
holder of the transfer is authorized to deal with the land.
‘As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by his
act of confidence bear the loss.’" (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case
before Us because here We are confronted with one who admittedly
was an agent of his sister and who sold the property of the latter after
her death with full knowledge of such death. The situation is expressly
covered by a provision of law on agency the terms of which are clear
and unmistakable leaving no room for an interpretation contrary to
its tenor, in the same manner that the ruling in Blondeau and the
cases cited therein found a basis in Section 55 of the Land Registration
Law which in part provides:jgc:chanrobles.com.ph
"x x x
"The production of the owner’s duplicate certificate whenever any
voluntary instrument is presented for registration shall be conclusive
authority from the registered owner to the register of deeds to enter
a certificate or to make a memorandum of registration in accordance
with such instruments, and the new certificate or memorandum shall
be binding upon the registered owner and upon all persons claiming
under him in favor of every purchaser for value and in good faith:
Provided, however, That in all cases of registration procured by fraud,
the owner may pursue all his legal and equitable remedies against the
parties to such fraud, without prejudice, however, to the rights of any
innocent holder for value of a certificate of title. . . ." (Act No. 496 as
amended)
7. One last point raised by respondent corporation in support of the
appealed decision is an 1842 ruling of the Supreme Court of
Pennsylvania in Cassiday v. McKenzie wherein payments made to an
agent after the death of the principal were held to be "good", "the
parties being ignorant of the death." Let us take note that the Opinion
of Justice Rogers was premised on the statement that the parties
were ignorant of the death of the principal. We quote from that
decision the following:jgc:chanrobles.com.ph
515 | P a g e

". . . Here the precise point is, whether a payment to an agent when
the parties are ignorant of the death is a good payment. In addition
to the case in Campbell before cited, the same judge Lord
Ellenborough, has decided in 5 Esp. 117, the general question that a
payment after the death of principal is not good. Thus, a payment of
sailor’s wages to a person having a power of attorney to receive them,
has been held void when the principal was dead at the time of the
payment. If, by this case, it is meant merely to decide the general
proposition that by operation of law the death of the principal is a
revocation of the powers of the attorney, no objection can be taken
to it. But if it intended to say that his principle applies where there
was no notice of death, or opportunity of notice, I must be permitted
to dissent from it.
Whatever conflict of legal opinion was generated by Cassiday v.
McKenzie in American jurisprudence, no such conflict exists in our
own for the simple reason that our statute, the Civil Code, expressly
provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is
coupled with an interest (Art. 1930), and (2) that the act of the agent
was executed without knowledge of the death of the principal and the
third person who contracted with the agent acted also in good faith
(Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and
again We stress the indispensable requirement - that the agent acted
without knowledge or notice of the death of the principal. In the case
before Us the agent Ramon Rallos executed the sale notwithstanding
notice of the death of his principal. Accordingly, the agent’s act is
unenforceable against the estate of his principal.

". . . That a payment may be good today, or bad tomorrow, from the IN VIEW OF ALL THE FOREGOING, We set aside the decision of
accidental circumstance of the death of the principal, which he did respondent appellate court, and We affirm en toto the judgment
not know, and which by no possibility could he know? It would be rendered by then Hon. Amador E. Gomez of the Court of First Instance
unjust to the agent and unjust to the debtor. In the civil law, the acts of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against
of the agent, done bona fide in ignorance of the death of his principal, respondent realty corporation at all instances.
are held valid and binding upon the heirs of the latter. The same rule
holds in the Scottish law, and I cannot believe the common law is so So Ordered.
unreasonable. . . ." (39 Am. Dec. 76. 80, 81; Emphasis supplied)
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ.,
To avoid any wrong impression which the Opinion in Cassiday v. concur.
McKenzie may evoke, mention may be made that the above
represents the minority view in American jurisprudence. Thus in
Clayton v. Merrett, the Court said:jgc:chanrobles.com.ph

"‘There are several cases which seem to hold that although, as a

general principle, death revokes an agency and renders null every act
of the agent thereafter performed, yet that where a payment has
been made in ignorance of the death, such payment will be good. The
leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S.
(Pa.) 282, 39 AmD 76, where, in an elaborate opinion, this view is
broadly announced. It is referred to, and seems to have been
followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in
this latter case it appeared that the estate of the deceased principal
had received the benefit of the money paid, and therefore the
representative of the estate might well have been held to be
estopped from suing for it again. . . . These cases, in so far, at least, as
they announce the doctrine under discussion, are exceptional. The
Pennsylvania Case supra (Cassiday v. McKenzie, 4 Watts & S. 282, 39
AmD 76), is believed to stand almost, if not quite, alone in announcing
the principal in its broadest scope.’" (52 Misc. 353, 357, cited in 2 C.J.
549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and

pointing out that the opinion, except so far as it related to the
particular facts, was a mere dictum, Baldwin, J.
said:jgc:chanrobles.com.ph

"‘The opinion, therefore, of the learned Judge may be regarded more

as an extrajudicial indication of his views on the general subject, than
as the adjudication of the Court upon the point in question. But
accordingly all proper weight to this opinion, as the judgment of a
Court of great respectability, it stands alone among common law
authorities, and is opposed by an array too formidable to permit us to
follow it.’" (15 Cal. 12, 17, cited in 2 C.J. 549)

516 | P a g e
G.R. No. L-36585 July 16, 1984
MARIANO DIOLOSA and ALEGRIA VILLANUEVA-
DIOLOSA, Petitioners, vs. THE HON. COURT OF APPEALS, and
QUIRINO BATERNA (As owner and proprietor of QUIN BATERNA
REALTY), Respondents.
Enrique L. Soriano for petitioners.chanrobles virtual law library
Domingo Laurea for private respondent.
RELOVA, J.:
Appeal by certiorari from a decision of the then Court of Appeals
ordering herein petitioners to pay private respondent "the sum of
P10,000.00 as damages and the sum of P2,000.00 as attorney's fees,
and the costs." chanrobles virtual law library
This case originated in the then Court of First Instance of Iloilo where
private respondents instituted a case of recovery of unpaid
commission against petitioners over some of the lots subject of an
agency agreement that were not sold. Said complaint, docketed as
Civil Case No. 7864 and entitled: "Quirino Baterna vs. Mariano Diolosa
and Alegria Villanueva-Diolosa", was dismissed by the trial court after
hearing. Thereafter, private respondent elevated the case to
respondent court whose decision is the subject of the present
petition.chanroblesvirtualawlibrarychanrobles virtual law library
The parties - petitioners and respondents-agree on the findings of
facts made by respondent court which are based largely on the pre-
trial order of the trial court, as follows:
PRE-TRIAL ORDER chanrobles virtual law library
When this case was called for a pre-trial conference today, the
plaintiff, assisted by Atty. Domingo Laurea, appeared and the
defendants, assisted by Atty. Enrique Soriano, also
appeared.chanroblesvirtualawlibrarychanrobles virtual law library
A. - During the pre-trial conference the parties, in addition to what
have been admitted in the pleadings, have agreed and admitted that
the following facts are attendant in this case and that they will no
longer adduce evidence to prove them:
1. That the plaintiff was and still is a licensed real estate broker, and
as such licensed real estate broker on June 20, 1968, an agreement
was entered into between him as party of the second part and the
defendants spouses as party of the first part, whereby the former was
constituted as exclusive sales agent of the defendants, its successors,
heirs and assigns, to dispose of, sell, cede, transfer and convey the
lots included in VILLA ALEGRE SUBDIVISION owned by the defendants,
under the terms and conditions embodied in Exhibit "A", and
pursuant to said agreement (Exhibit "A"), the plaintiff acted for and in
behalf of the defendants as their agent in the sale of the lots included
in the VILLA ALEGRE SUBDIVISION; chanrobles virtual law library
2. That on September 27, 1968, the defendants terminated the
services of plaintiff as their exclusive sales agent per letter marked as
Exhibit "B", for the reason stated in the latter.
B. - During the trial of this case on the merit, the plaintiff will adduce
by competent evidence the following facts:
1. That as a real estate broker, he had sold the lots comprised in
several subdivisions, to wit: Greenfield Subdivision, the Villa Beach
Subdivision, the Juntado Subdivision, the St. Joseph Village, the
Ledesma Subdivision, the Brookside Subdivision, the Villa Alegre
Subdivision, and Cecilia Subdivision, all in the City of Iloilo except St.
Joseph which is in Pavia Iloilo.chanroblesvirtualawlibrarychanrobles
virtual law library
2. That the plaintiff, as a licensed real estate broker, has been
seriously damaged by the action of the defendants in rescinding, by
Exhibit "B", the contract (Exhibit "A") for which the plaintiff suffered
moral damages in the amount of P50,000.00, damages to his good will
in the amount of P100,000.00, for attorney's fees in the amount of
P10,000.00 to protect his rights and interests, plus exemplary
damages to be fixed by the
Court.chanroblesvirtualawlibrary chanrobles virtual law library
3. That the plaintiff is entitled to a commission on the lots unsold
because of the rescission of the contract.
C. - The defendants during the trial will ill prove by competent
evidence the following:
1. That the plaintiff's complaint was filed to make money out of the
suit from defendants, to harrass and to molest
defendants; chanrobles virtual law library
2. That because of the unjustified and unfounded complaint of the
plaintiff, the defendants suffered moral damages in the amount of
P50,000.00, and that for the public good, the court may order the
plaintiff to pay the defendants exemplary damages in the amount of
P20,000.00, plus attorney's fees of P10,000.00.
D.- Contentions of the parties:
1. The plaintiff contends:
(a) That under the terms of the contract (Exhibit "A") the plaintiff had
unrevocable authority to sell all the lots included in the Villa Alegre
Subdivision and to act as exclusive sales agent of the defendants until
all the lots shall have been disposed of; chanrobles virtual law library
(b) That the rescission of the contract under Exhibit "B", contravenes
the agreement of the parties.
2. The defendants contend:
(a) That they were within their legal right to terminate the agency on
the ground that they needed the undisposed lots for the use of the
family; chanrobles virtual law library
(b) That the plaintiff has no right in law to case for commission on lots
that they have not sold.
E. - The parties hereby submit to the Court the following issues:
1. Whether under the terms of Exhibit "A" the plaintiff has the
irrevocable right to sen or dispose of all the lots included within Villa
Alegre Subdivision; chanrobles virtual law library
2. Can the defendants terminate their agreement with the plaintiff by
a letter like Exhibit "B"?
F. - The plaintiff submitted the following exhibits which were
admitted by the defendants:
517 | P a g e
Exhibit "A" - agreement entered into between the parties on June 20,
1968 whereby the plaintiff had the authority to sell the subdivision
lots included in Villa Alegre subdivision; chanrobles virtual law library
Exhibit "B" - Letter of the defendant Alegria V. Diolosa dated
September 27, 1968 addressed to the plaintiff terminating the agency
and rescinding Exhibit "A" for the reason that the lots remained
unsold lots were for reservation for their grandchildren.
The Court will decide this case based on the facts admitted in the
pleadings, those agreed by the parties during the pre-trial conference,
and those which they can prove during the trial of this case, in
accordance with the contention of the parties based on the issues
submitted by them during the pre-trial
conference.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED.chanroblesvirtualawlibrarychanrobles virtual law library
Iloilo City, Philippines, August 14, 1969.
(SGD) VALERIO V. ROVIRA
Judge
(pp. 22-25, Rollo)
The only issue in this case is whether the petitioners could terminate
the agency agreement, Exhibit "A", without paying damages to the
private respondent. Pertinent portion of said Exhibit "A" reads:
That the PARTY OF THE FIRST PART is the lawful and absolute owner
in fee simple of VILLA ALEGRE SUBDIVISION situated in the District of
Mandurriao, Iloilo City, which parcel of land is more particularly
described as follows, to wit:
A parcel of land, Lot No. 2110-b-2-C, PSD 74002, Transfer Certificate
of Title No. T_____ situated in the District of Mandurriao, Iloilo,
Philippines, containing an area of 39016 square meters, more or less,
with improvements thereon.
That the PARTY OF THE FIRST PART by virtue of these presents, to
enhance the sale of the lots of the above-described subdivision, is
engaging as their EXCLUSIVE SALES AGENT the PARTY OF THE SECOND
PART, its successors, heirs and assigns to dispose of, sell, cede,
transfer and convey the above-described property in whatever
manner and nature the PARTY OF THE SECOND PART, with the
concurrence of the PARTY OF THE FIRST PART, may deem wise and
proper under the premises, whether it be in cash or installment
basis, until all the subject property as subdivided is fully disposed
of. (p. 7 of Petitioner's brief. Emphasis supplied).
Respondent court, in its decision which is the subject of review said:
Article 1920 of the Civil Code of the Philippines notwithstanding, the
defendants could not terminate the agency agreement, Exh. "A", at
will without paying damages. The said agency agreement expressly
stipulates ... until all the subject property as subdivided is fully
disposed of ..." The testimony of Roberto Malundo(t.s.n. p. 99) that
the plaintiff agreed to the intention of Mrs. Diolosa to reserve some
lots for her own famay use cannot prevail over the clear terms of the
agency agreement. Moreover, the plaintiff denied that there was an
agreement to reserve any of the lots for the family of the defendants.
(T.s.n. pp. 16).chanroblesvirtualawlibrary chanrobles virtual law
library
There are twenty seven (27) lots of the subdivision remaining unsold
on September 27, 1968 when the defendants rescinded the agency
agreement, Exhibit "A". On that day the defendants had only six
grandchildren. That the defendants wanted to reserve the twenty
seven remaining lots for the six grandchildren is not a legal reason for
defendants rescind the agency agreement. Even if the grandchildren
were to be given one lot each, there would still be twenty-one lots
available for sale. Besides it is undisputed that the defendants have
other lands which could be reserved for their grandchildren. (pp. 26-
27, Rollo)
The present appeal is manifestly without
merit.chanroblesvirtualawlibrary chanrobles virtual law library
Under the contract, Exhibit "A", herein petitioners allowed the private
respondent "to dispose of, sell, cede, transfer and convey ... until out
the subject property as subdivided is fully disposed of." The authority
to sell is not extinguished until all the lots have been disposed of.
When, therefore, the petitioners revoked the contract with private
respondent in a letter, Exhibit "B" -
Dear Mr. Baterna: chanrobles virtual law library
Please be informed that we have finally decided to reserve the
remaining unsold lots, as of this date of our VILLA ALEGRE Subdivision
for our grandchildren.chanroblesvirtualawlibrarychanrobles virtual
law library
In view thereof, notice is hereby served upon you to the effect that
our agreement dated June 20, 1968 giving you the authority to sell as
exclusive sales agent of our subdivision is hereby
rescinded.chanroblesvirtualawlibrarychanrobles virtual law library
Please be duly guided.
Very truly yours,
(SGD) ALEGRIA V. DIOLOSA
Subdivision Owner
(p. 11 of Petitioner's Brief)chanrobles virtual law library
they become liable to the private respondent for damages for breach
of contract.chanroblesvirtualawlibrary chanrobles virtual law library
And, it may be added that since the agency agreement, Exhibit "A", is
a valid contract, the same may be rescinded only on grounds specified
in Articles 1381 and 1382 of the Civil Code, as follows:
ART. 1381. The following contracts are rescissible:
(1) Those which are entered in to by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;chanrobles virtual law
library
(2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number; chanrobles virtual
law library
(3) Those undertaken in fraud of creditors when the latter cannot in
any other name collect the claims due them; chanrobles virtual law
library
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval
518 | P a g e
of the litigants or of competent judicial authority; chanrobles virtual
law library

(5) All other contracts specially declared by law to be subject to

rescission.

ART. 1382. Payments made in a state of insolvency for obligations to

whose fulfillment the debtor could not be compelled at the time they
were effected, are also rescissible."

In the case at bar, not one of the grounds mentioned above is present
which may be the subject of an action of rescission, much less can
petitioners say that the private respondent violated the terms of their
agreement-such as failure to deliver to them (Subdivision owners) the
proceeds of the purchase price of the
lots.chanroblesvirtualawlibrary chanrobles virtual law library

ACCORDINGLY, the petition is hereby dismissed without

pronouncement as to costs.chanroblesvirtualawlibrary chanrobles
virtual law library

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and

Dela Fuente, JJ., concur.

519 | P a g e
G.R. No. 66715 September 18, 1990
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (First Civil
Cases Division) and ROMEO ALCEDO, respondents.
Juan D. Diaz, Benjamin C. Del Rosario and Pedro R. Lazo for petitioner.
Carlos S. Ayeng, Augustus C. Rallos and Orlando S. Ayeng for private
respondent.
GRIÑO-AQUINO, J.:
This is a petition for certiorari which seeks to set aside: (a) the decision
dated November 29, 1983 of the Intermediate Appellate Court (now
Court of Appeals)
CA-G.R. CV No. 68021 which affirmed the decision of the Court of First
Instance of Negros Occidental (now Regional Trial Court), Branch IV,
Bacolod City, in Civil Case No. 11393; and (b) respondent court's
resolution dated February 29, 1984 denying petitioner Philippine
National Bank's (PNB for short) motion for reconsideration.
The facts of the case are the following:
On March 20, 1968, Leticia de la Vina-Sepe executed a real estate
mortgage in favor of PNB, San Carlos Branch, over a lot registered in
her name under TCT No.
T-31913 to secure the payment of a sugar crop loan of P3,400. Later,
Leticia Sepe, acting as attorney-in-fact for her brother-in-law, private
respondent Romeo Alcedo, executed an amended real estate
mortgage to include his (Alcedo's) Lot No. 1626 (being a portion of Lot
No. 1402, covered by TCT 52705 of the Isabela Cadastre) as additional
collateral for Sepe's increased loan of P16,500 (pp. 5-6, PNB's Brief, p.
74, Rollo). Leticia Sepe and private respondent Alcedo verbally agreed
to split fifty-fifty (50-50) the proceeds of the loan (p. 94, Rollo) but
failing to receive his one-half share from her, Alcedo wrote a letter on
May 12, 1970 to the PNB, San Carlos Branch, revoking the Special
Power of Attorney which he had given to Leticia Sepe to mortgage his
Lot No. 1626 (p. 95, Rollo).
Replying on May 22, 1970, the PNB Branch Manager, Jose T. Gellegani
advised Alcedo that his land had already been included as collateral
for Sepe's 1970-71 sugar crop loan, which the latter had already
availed of, nevertheless, he assured Alcedo that the bank would
exclude his lot as collateral for Sepe's forthcoming (1971-72) sugar
crop loan (p. 95, Rollo). The letter reads:
May 22, 1970
Mr. Romeo Alcedo
Mamballo, M. Padilla
Negros Occidental
Dear Mr. Alcedo:
This is to acknowledge receipt of your letter dated May 12, 1970,
requesting us to revoke the 'Special Power of Attorney' you have
executed in favor of Mrs. Leticia de la Vina-Sepe, on February 18,
1969, on Lot No. 1402, Isabela Cadastre, covered by Transfer
Certificate of Title No. 52705, with an area of 20.9200 hectares.
In this connection, we wish to advise you that the aforementioned
parcel of land had been included as collateral to secure the 1970-71
sugar crop loan of Mrs. Leticia de la Vina-Sepe, which she had already
availed of. In view of your late request, please be advised and assured
that we shall exclude the aforementioned lot as a collateral of Leticia
de la Vina-Sepe in our recommendation for her 1971-72 sugar crop
loan.
For your information, we enclose a copy of our letter to Mrs. Sepe,
which is self-explanatory,
Thank you.
Very truly yours,
(Sgd.) JOSE T. GELLEGANI Manager
(pp. 6-7, Record on Appeal, p. 75, Rollo.)
in
On the same day, May 22, 1970, PNB advised Sepe in writing to
replace Lot No. 1402 with another collateral of equal or higher value.
May 22, 1970
Mrs. Leticia de la Vina-Sepe
Canla-on City
Dear Mrs. Sepe:
We wish to advice you that Mr. Romeo Alcedo, in a letter written to
us, has plans to revoke the 'Special Power of Attorney' he executed in
1969 in your favor, affecting Lot No. 1402, Isabela Cadastre, covered
by Transfer Certificate of Title No. 52705 with an area of 20.9200
Hectares. Our record shows that this parcel of land is mortgaged to us
to secure the agricultural sugar crop loans we have granted you.
Mr. Alcedo made us understand that this said property shall serve as
security for your 1969/70 sugar crop loan only. As it already secures
your 1970-71 crop loan, which you have already availed, the same
may be excluded as security for future crop loans. In the meantime, it
is requested that you replace Lot No. 1402, above-mentioned, with
the same or more appraised value.
Kindly call on us regarding this matter at your earliest convenience.
Thank you.
Very truly yours,
(Sgd.) JOSE T. GELLEGANI
Manager
(pp. 7-8, Record on Appeal, p. 75, Rollo.)
Despite the above advice from PNB, Sepe was still able to obtain an
additional loan from PNB increasing her debt of P 16,500 to
P56,638.69 on the security of Alcedo's property as collateral. On
January 15, 1974, Alcedo received two (2) letters from PNB: (1)
informing him of Sepe's failure to pay her loan in the total amount of
P 56,638.69; and (2) giving him six (6) days to settle Sepe's
outstanding obligation, as otherwise, foreclosure proceedings would
be commenced against his property (p. 33, Rollo). Alcedo requested
Sepe to pay her accounts to forestall foreclosure proceedings against
his property, but to no avail (p. 15, Rollo).
520 | P a g e
On April 17, 1974, Alcedo sued Sepe and PNB in the Court of First
Instance of Negros Occidental for collection and injunction with
damages (p. 33, Rollo).
During the pendency of the case, PNB filed in the Office of the Sheriff
at Pasig, Metro Manila, a petition for extrajudicial foreclosure of its
real estate mortgage on Alcedo's land. On November 19, 1974, the
property was sold to PNB as the highest bidder in the sale. The
corresponding Sheriffs Certificate of Sale was issued to the Bank (p.
33, Rollo).
On October 18, 1975, Alcedo filed an amended complaint against
Leticia and her husband Elias Sepe, and the Provincial Sheriff of
Negros Occidental praying additionally for annulment of the
extrajudicial foreclosure sale and reconveyance of the land to him
free from liens and encumbrances, with damages.
With leave of court, Alcedo filed a second amended complaint
withdrawing his action to collect his one-half share (amounting to
P28,319.34) out of the proceeds of the sugar crop loans obtained by
Sepe (p. 34, Rollo).
In its answer, PNB alleged that it had no knowledge of the agreement
between Mrs. Sepe and Alcedo to split the crop loan proceeds
between them. It required Sepe to put up other collaterals when it
granted her an additional loan because Alcedo informed the Bank that
he was revoking the Special Power of Attorney he gave Sepe; that the
revocation was not formalized in accordance with law; and that in any
event, the revocation of the Special Power of Attorney on May 12,
1970 by Alcedo did not impair the real estate mortgage earlier
executed on April 28, 1969 by Sepe in favor of the Bank (p. 36, Rollo).
On March 14, 1980, the trial court rendered judgment in favor of
Alcedo-
1. Declaring the public auction sale and the certificate of sale
executed by the Provincial Sheriff of Negros Occidental relative to Lot
No. 1626, Isabela Cadastre (TCT No. T-52705), as null and void;
2. Ordering the defendant Philippine National Bank to reconvey to
plaintiff the title to aforesaid Lot No. 1626 free from all liens and
encumbrances relative to the loans obtained by defendant Leticia de
la Vina-Sepe;
3. Ordering defendant spouses Leticia de la Vina-Sepe and Elias Sepe
and the Philippine National Bank, in solidum, to pay to the plaintiff
moral damages in the sum of Pl 0,000.00, and another sum of
P5,000.00 as attorney's fees and expenses of litigation;
4. On the cross-claim of defendant PNB against Leticia de la Vina-
Sepe, considering that no evidence has been adduced regarding the
updated actual accountability of the latter with the former, it is
hereby directed that PNB proceed to collect against the cross-
defendant whatever outstanding obligation the latter owes the
former arising from transactions in connection with the instant case.
No pronouncement as to costs. (pp. 10-11, Rollo.)
The bank appealed but to no avail for on November 29,1983, the
Intermediate Appellate Court affirmed in toto the judgment of the
trial court (p. 54, Rollo.) The appellate court reasoned out that the
Bank was estopped from foreclosing the mortgage on Alcedo's lot to
pay Sepe's 1971-72 sugar crop loan, after having assured Alcedo on
May 22, 1970 "that we shall exclude the aforementioned lot as a
collateral of Leticia de la Vina-Sepe in our recommendation for her
1971-72 sugar crop loan" (p. 37, Rollo). The Court of Appeals held:
... Plaintiff-appellee's letter was unequivocal and clear to the effect
that defendant Leticia de la Vina Sepe was no longer empowered to
bind, encumber or mortgage his property. Although We may not hold
this revocation to retroact to April 28, 1969 which was the date of the
original mortgage, We can neither interpret it in any other way than
that from the moment of notice to the PNB, it was the absolute
intention of the owner to withdraw all authority from said defendant
to further bind or encumber his property. This was clearly understood
by the defendant-appellant PNB. There was no question on its part
that Leticia de la Vina Sepe was no longer authorized to offer plaintiff-
appellee's property as collateral for her contract of mortgage with the
PNB. Defendant-appellant, therefore, acknowledged this revocation
of the agency and in no uncertain terms assured the plaintiff-appellee
that indeed, the latter's property will no longer be accepted by it as
collateral for the sugar crop loan of the aforementioned defendant
for the year 1971 to 1972. This meeting of the minds between the
plaintiff-appellee and defendant-appellant took place not through
verbal communications only, but in writing, as shown by their letters
dated May 12, 1970 and May 22, 1970, respectively. ...
xxx xxx xxx
... To Our minds, the aforementioned act and declaration of
defendant-appellant PNB as embodied in said letter binds said bank
under the principle of estoppel by deed and defined as follows:
A doctrine in American jurisprudence whereby a party creating an
appearance of fact which is not true is held bound by that appearance
as against another person who has acted on the faith of it. (Strong v.
Gutierrez Repide, 6 Phil. 685).
which is provided for in Articles 1431 and 1433 of the New Civil Code
in conjunction with Section 3, paragraph (a), Rule 131 of the Rules of
Court, all of which provide:
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon.' '
Art. 1433. Estoppel may be in pais or by deed.
Sec. 3. Conclusive presumptions. The following are instances of
conclusive presumptions:
(a) Whenever a party has,by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation arising
out of such declaration, act, or omission, be permitted to falsify it.
and which was enunciated in the following decisions of the Supreme
Court:
Whenever a party has, by his own declaration, act or omission
intentionally and deliberately led another to believe a particular thing
true and to act upon such belief, he cannot, in any litigation arising
out of such declaration, act, or omission, be permitted to falsify it.
Estoppel arises when one, by his acts, representations, or admissions,
or by his silence when he ought to speak out, intentionally or through
culpable negligence induces another to believe certain facts to exist
and such other rightfully relies and acts on such belief, so that he will
521 | P a g e
be prejudiced if the former is permitted to deny the existence of such
facts (Huyatid v. Huyatid 47265-R, Jan. 4, 1978).
The doctrine of estoppel is based upon the grounds of public policy,
fair dealing, good faith and justice, and its purpose is to forbid one to
speak against his own act, representations, or commitments to the
injury of one to whom they were directed and who reasonably relied
thereon. Said doctrine springs from equitable principles and the
equities of the case. It is designed to aid the law in the administration
of justice where without its aid injustice might result.' (Philippine
National Bank v. Court of Appeals, L-30831, November 21, 1979, 94
SCRA 368)
By its letter dated May 22, 1970, defendant-appellant PNB led
plaintiff-appellee to believe that his property covered by TCT T-52705
would no longer be included as collateral in the sugar crop loan of
defendant Leticia de la Vina Sepe for the year 1971-72. It led said
plaintiff-appellee to believe that his property as of said year will no
longer be encumbered and will be free from any lien or mortgage.
Plaintiff-appellee had the light to rely on said belief, because of the
aforementioned act and declaration of defendant-appellant bank.
Under the laws and jurisprudence aforequoted, defendant-appellant
bank can no longer be allowed to deny or falsify its act or declaration,
or to renege from it. This is one of the conclusive presumptions
provided for by the Rules of Court. (pp. 37, 38-39, Rollo.)
PNB seeks a review of that decision on the grounds that:
1. the doctrine of promissory estoppel does not apply to this case;
2. PNB was a mortgagee in good faith and for value; and
3. PNB adduced substantial evidence in support of its cross-claim
against defendant Leticia Sepe (p. 15, Rollo).
These issues boil down to whether or not PNB validly foreclosed the
real estate mortgage on Alcedo's property despite notice of Alcedo's
revocation of the Special Power of Attorney authorizing Leticia Sepe
to mortgage his property as security for her sugar crop loans and
despite the Bank's written assurance to Alcedo that it would exclude
his property as collateral for Sepe's future loan obligations.
After careful deliberation, the Court is not persuaded to disturb the
decisions of the trial court and the Court of Appeals in this case.
We agree with the opinion of the appellate court that under the
doctrine of promissory estoppel enunciated in the case of Republic
Flour Mills Inc. vs. Central Bank, L-23542, August 11, 1979, the act and
assurance given by the PNB to Alcedo "that we shall exclude the
aforementioned lot [Lot No. 1402] as a collateral of Leticia de la Vina-
Sepe in our recommendation for her 1971-72 sugar crop loan" (p. 37,
Rollo) is binding on the bank. Having given that assurance, the bank
may not turn around and do the exact opposite of what it said it would
not do. One may not take inconsistent positions (Republic vs. Court of
Appeals, 133 SCRA 505). A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon
them (Lazo vs. Republic Surety & Insurance Co., Inc., 31 SCRA 329.)
In the case of Philippine National Bank vs. Court of Appeals (94 SCRA
357), where the bank manager assured the heirs of the debtor-
mortgagor that they would be allowed to pay the remaining
obligation of their deceased parents, the Supreme Court held that the
bank must abide by its representations.
On equitable principles, particularly on the ground of estoppel, we
must rule against petitioner Bank. The doctrine of estoppel is based
upon the grounds of public policy, fair dealing, good faith and justice,
and its purpose is to forbid one to speak against its own act,
representations, or commitments to the injury of one to whom they
were directed and who reasonably relied thereon. The doctrine of
estoppel springs from equitable principles and the equities in the
case. It is designed to aid the law in the administration of justice
where without its aid injustice might result. It has been applied by this
Court wherever and whenever the special circumstances of a case so
demands.
In the case at bar, since PNB had promised to exclude Alcedo's
property as collateral for Sepe's 1971-72 sugar crop loan, it should
have released the property to Alcedo. The mortgage which Sepe gave
to the bank on Alcedo's lot as collateral for her 1971-72 sugar crop
loan was null and void for having been already disauthorized by
Alcedo. Since Alcedo's property secured only P13,100.00 of Sepe's
1970-71 sugar crop loan of P16,500.00 (because P3,400 was secured
by Sepe's own property), Alcedo's property may be held to answer for
only the unpaid balance, if any, of Sepe's 1970-71 loan, but not the
1971-72 crop loan.
While Article 1358 of the New Civil Code requires that the revocation
of Alcedo's Special Power of Attorney to mortgage his property should
appear in a public instrument:
Art. 1358. The following must appear in a public document:
(1) Acts or contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein
are governed by Articles 1403, No. 2 and 1405.
nevertheless, a revocation embodied in a private writing is valid and
binding between the parties (Doliendo v. Depino, 12 Phil. 758;
Hawaiian-Philippines Co. vs. Hernaez, 45 Phil. 746) for —
The legalization by a public writing and the recording of the same in
the registry are not essential requisites of a contract entered into, as
between the parties, but mere conditions of form or solemnities
which the law imposes in order that such contract may be valid as
against third persons, and to insure that a publicly executed and
recorded agreement shall be respected by the latter. (Alano, et al. vs.
Babasa, 10 Phil. 511.)
The PNB acted with bad faith in proceeding against Alcedo's property
to satisfy Sepe's unpaid 1971-72 sugar crop loan. The extrajudicial
foreclosure being null and void ab initio, the certificate of sale which
the Sheriff delivered to PNB as the highest bidder at the sale is also
null and void.
WHEREFORE, finding no reversible error in the decision of the Court
of Appeals, the petition for review is denied for lack of merit.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.
522 | P a g e
G.R. No. L-40681 October 2, 1934

DY BUNCIO & COMPANY, INC., plaintiff-appelle, vs. ONG GUAN CAN,

ET AL., defendants.
JUAN TONG and PUA GIOK ENG, appellants.

Pedro Escolin for appellants.

G. Viola Fernando for appellee.

chanrobles virtual law library

HULL, J.: chanrobles virtual law library

This is a suit over a rice mill and camarin situated at Dao, Province of
Capiz. Plaintiff claims that the property belongs to its judgment
debtor, Ong Guan Can, while defendants Juan Tong and Pua Giok Eng
claim as owner and lessee of the owner by virtue of a deed dated July
31, 1931, by Ong Guan Can, Jr.chanroblesvirtualawlibrary chanrobles
virtual law library

After trial the Court of First Instance of Capiz held that the deed was
invalid and that the property was subject to the execution which has
been levied on said properties by the judgment creditor of the owner.
Defendants Juan Tong and Pua Giok bring this appeal and insist that
the deed of the 31st of July, 1931, is
valid.chanroblesvirtualawlibrary chanrobles virtual law library

The first recital of the deed is that Ong Guan Can, Jr., as agent of Ong
Guan Can, the proprietor of the commercial firm of Ong Guan Can &
Sons, sells the rice-mill and camarin for P13,000 and gives as his
authority the power of attorney dated the 23d of May, 1928, a copy
of this public instrument being attached to the deed and recorded
with the deed in the office of the register of deeds of Capiz. The
receipt of the money acknowledged in the deed was to the agent, and
the deed was signed by the agent in his own name and without any
words indicating that he was signing it for the
principal.chanroblesvirtualawlibrary chanrobles virtual law library

Leaving aside the irregularities of the deed and coming to the power
of attorney referred to in the deed and registered therewith, it is at
once seen that it is not a general power of attorney but a limited one
and does not give the express power to alienate the properties in
question. (Article 1713 of the Civil Code.)chanrobles virtual law library

Appellants claim that this defect is cured by Exhibit 1, which purports

to be a general power of attorney given to the same agent in 1920.
Article 1732 of the Civil Code is silent over the partial termination of
an agency. The making and accepting of a new power of attorney,
whether it enlarges or decreases the power of the agent under a prior
power of attorney, must be held to supplant and revoke the latter
when the two are inconsistent. If the new appointment with limited
powers does not revoke the general power of attorney, the execution
of the second power of attorney would be a mere futile
gesture.chanroblesvirtualawlibrary chanrobles virtual law library

The title of Ong Guan Can not having been divested by the so-called
deed of July 31, 1931, his properties are subject to attachment and
execution.chanroblesvirtualawlibrary chanrobles virtual law library

The judgment appealed from is therefore affirmed. Costs against

appellants. So ordered.chanroblesvirtualawlibrary chanrobles virtual
law library

Avanceña, C.J., Abad Santos, Vickers and Diaz, JJ., concur.

523 | P a g e
G.R. No. L-5180 August 31, 1953
CONSEJO INFANTE, Petitioner, vs. JOSE CUNANAN, JUAN MIJARES
and THE COURT OF APPEALS, SECOND DIVISION, Respondents.
Yuseco, Abdon & Yuseco for petitioner.
Jose E. Erfe and Maria Luisa Gomez for respondents.
BAUTISTA ANGELO, J.:
This is a petition for review of a decision of the Court of appeals
affirming the judgement of the court of origin which orders the
defendant to pay the plaintiffs the sum of P2,500 with legal interest
thereon from February 2,1949 and the costs of
action.chanroblesvirtualawlibrary chanrobles virtual law library
Consejo Infante, defendant herein, was the owner of two parcels of
land, together with a house built thereon, situated in the City of
Manila and covered by Transfer Certificate of Title No. 61786. On or
before November 30, 1948, she contracted the services of Jose
Cunanan and Juan Mijares, plaintiff herein, to sell the above-
mentioned property for a price of P30,000 subject to the condition
that the purchaser would assume the mortgage existing thereon in
the favor of the Rehabilitation Finance Corporation. She agreed to pay
them a commission of 5 per cent on the purchase price plus whatever
overprice they may obtain for the property. Plaintiffs found one Pio S.
Noche who was willing to buy the property under the terms agreed
upon with defendant, but when they introduced him to defendant,
the latter informed them that she was no longer interested in selling
the property and succeeded in making them sign a document stating
therein that the written authority she had given them was already
can-celled. However, on December 20, 1948, defendant dealt directly
with Pio S. Noche selling to him the property for P31,000. Upon
learning this transaction, plaintiffs demanded from defendant the
payment of their commission, but she refused and so they brought
the present action.chanroblesvirtualawlibrary chanrobles virtual law
library
Defendant admitted having contracted the services of the plaintiffs to
sell her property as set forth in the complaint, but stated that she
agreed to pay them a commission of P1,200 only on condition that
they buy her a property somewhere in Taft Avenue to where she
might transfer after selling her property. Defendant avers that while
plaintiffs took steps to sell her property as agreed upon, they sold the
property at Taft Avenue to another party and because of this failure
it was agreed that the authority she had given them be
cancelled.chanroblesvirtualawlibrary chanrobles virtual law library
The lower court found that the preponderance of evidence was in
favor of the plaintiffs and rendered judgement sentensing the
defendant to pay the plaintiff the sum of P2,500 with legal interest
thereon from February 2,1949 plus the costs of action. This decision
was affirmed in toto by the Court of
Appeals.chanroblesvirtualawlibrary chanrobles virtual law library
There is no dispute that respondents were authorized by petitioner to
sell her property for the sum of P30,000 with the understanding that
they will be given a commission of 5 percent plus whatever overprice
they may obtain for the property. Petitioner, however, contends that
authority has already been withdrawn on November 30, 1948 when,
by the voluntary act of respondents, they executed a document
stating that said authority shall be considered cancelled and without
any effect, so that when petitioner sold the property to Pio S. Noche
on December 20, 1948, she was already free from her commitment
with respondents and, therefore, was not in duty bound to pay them
any commission for the
transaction..chanroblesvirtualawlibrary chanrobles virtual law library
If the facts were as claimed by petitioner, there is in-deed no doubt
that she would have no obligation to pay respondents the commission
which was promised them under the original authority because,
under the old Civil Code, her right to withdraw such authority is
recognized. A principal may withdraw the authority given to an agent
at will. (Article 1733.) But this fact is disputed. Thus, respondents
claim that while they agreed to cancel the written authority given to
them, they did so merely upon the verbal assurance given by
petitioner that, should the property be sold to their own buyer, Pio S.
Noche, they would be given the commission agreed upon. True, this
verbal assurance does not appear in the written cancellation, Exhibit
1, and, on the other hand, it is disputed by petitioner, but respondents
were allowed to present oral evidence to prove it, and this is now
assigned as error in this petition for
review.chanroblesvirtualawlibrary chanrobles virtual law library
The plea that oral evidence should not have been allowed to prove
the alleged verbal assurance is well taken it appearing that the written
authority given to respondents has been cancelled in a written
statement. The rule on this matter is that "When the terms of an
agreement have been reduced to writing, it is to be considered as
containing all those terms, and, therefore, there can be, between
parties and their successors in interest, no evidence of the terms of
the agreement other than the contents of the writing." (Section 22,
Rule 123, Rules of Court.) The only exceptions to this rule are:
"(a)Where a mistake or imperfection of the writing, or its failure to
express the true intent and agreement of the parties, or the validity
of the agreement is put in issue by the pleadings"; and "(b) Where
there is an intrinsic ambiguity in the writing." (Ibid.) There is no doubt
that the point raised does not come under any of the cases excepted,
for there is nothing therein that has been put in issue by respondents
in their complaint. The terms of the document, Exhibit 1, seem to be
clear and they do not contain any reservation which may in any way
run counter to the clear intention of the
parties.chanroblesvirtualawlibrary chanrobles virtual law library
But even disregarding the oral evidence adduced by respondents in
contravention of the parole evidence rule, we are, however, of the
opinion that there is enough justification for the conclusion reached
by the lower court as well as by the Court of Appeals to the effect that
respondents are entitled to the commission originally agreed upon. It
is a fact found by the Court of Appeals that after petitioner had given
the written authority to respondents to sell her land for the sum of
P30,000, respondents found a buyer in the person of one Pio S. Noche
who was willing to buy the property under the terms agreed upon,
and this matter was immediately brought to the knowledge of
petitioner. But the latter, perhaps by way of strategem, advised
respondents that she was no longer interested in the deal and was
able to prevail upon them to sign a document agreeing to the
cancellation of the written
authority.chanroblesvirtualawlibrary chanrobles virtual law library
That petitioner had changed her mind even if respondents had found
a buyer who was willing to close the deal, is a matter that would not
give rise to a legal consequence if respondents agree to call off the
transaction in deference to the request of the petitioner. But the
situation varies if one of the parties takes advantage of the
524 | P a g e
benevolence of the other and acts in a manner that would promote
his own selfish interest. This act is unfair as would amount to bad
faith. This act cannot be sanctioned without ac-cording to the party
prejudiced the reward which is due him. This is the situation in which
respondents were placed by petitioner. Petitioner took advantage of
the services rendered by respondents, but believing that she could
evade payment of their commission, she made use of a ruse by
inducing them to sign the deed of cancellation Exhibit 1. This act of
subversion cannot be sanctioned and cannot serve as basis for
petitioner to escape payment of the commission agreed
upon.chanroblesvirtualawlibrary chanrobles virtual law library

Wherefore, the decision appealed from is hereby affirmed, with costs

against petitioner.chanroblesvirtualawlibrary chanrobles virtual law
library

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Monte-mayor, Reyes, and

Jugo, JJ., concur.

Separate Opinions chanrobles virtual law library

LABRADOR, J., concurring and dissenting:chanrobles virtual law

library

I concur in the result. I can not agree, however, to the ruling made in
the majority decision that the petitioners can not introduce evidence
of the circumstances under which the document was signed, i.e. upon
promise by respondent that should the property be sold to
petitioner's buyer they would nevertheless be entitled to the
commission agreed upon. Such evidence is not excluded by the parole
evidence rule, because it does not tend to alter or vary the terms of
the document. This document was merely a withdrawal of the
authority granted the petitioner to sell the property, not an
agreement that they shall not be paid their commission.

525 | P a g e
G.R. No. L-17043 January 31, 1961
NATIVIDAD HERRERA, assisted by her husband EMIGDIO
SALAZAR, Plaintiffs-Appellants, vs. LUY KIM GUAN and LINO
BANGAYAN, Defendants-Appellees.
T. de los Santos for plaintiffs-appellants.
Rafael C. Climaco and Abelardo S. Fernandez for defendants-
appellees.
BARRERA, J.:chanrobles virtual law library
This is an appeal from the decision of the Court of First Instance of
Zamboanga City (a) dismissing plaintiff-appellant's complaint for the
recovery of three (3) parcels of land and their produce in the sum of
P320,000.00; and (b) instead, sentencing plaintiff to pay P2,000.00 for
attorney's fees and P1,000.00 for expenses of litigation, to defendant
Lino Bangayan, and P2,000.00 as attorney's fees and P500.00 as
expenses of litigation, to the other defendant Luy Kim
Guan.chanroblesvirtualawlibrarychanrobles virtual law library
The pertinent facts as found by the trial court and upon which its
decision was predicated are set forth in the following portion of the
decision appealed from:
The Plaintiff Natividad Herrera is the legitimate daughter of Luis
Herrera, now deceased and who died in China sometime after he
went to that country in the last part of 1931 or early part of 1932. The
said Luis Herrera in his lifetime was the owner of three (3) parcels of
land and their improvements, known as Lots 1740, 4465 and 4467 of
Expediente No. 5, G.L.R.O. Record 477 and the area, nature,
improvements and bound of each and every of these three (3) lots are
sufficiently described in the complaint filed by the
plaintiffs.chanroblesvirtualawlibrarychanrobles virtual law library
Before leaving for China, however, Luis Herrera executed on
December 1, 1931, a deed of General Power of Attorney, Exhibit 'B',
which authorized and empowered the defendant Kim Guan, among
others to administer and sell the properties of said Luis
Herrera.chanroblesvirtualawlibrarychanrobles virtual law library
Lot 1740 was originally covered by Original Certificate Title 8601
registered in the name of Luis Herrera, married to GO Bang. This lot
was sold by the defendant Luy Kim in his capacity as attorney-in-fact
of the deceased Luis Her to Luy Chay on September 11, 1939, as
shown in Exhibit "2", corresponding deed of sale. Transfer Certificate
of Title 3162, Exhibit "3", was issued to Luy Chay by virtue of deed of
sale. On August 28, 1941, to secure a loan of P2,00 a deed of mortgage
to the Zamboanga Mutual Building and Association was executed by
Luy Chay, Exhibit "4". On January 31, 1947, the said Luy Chay executed
a deed of sale, Exhibit "E", in favor of Lino Bangayan. By virtue of this
Transfer Certificate of Title T-2567 was issued to Lino Bangayan on
June 24, 1949, Exhibit "1":chanrobles virtual law library
Lots 4465 and 4467 were originally registered in the of Luis Herrera,
married to Go Bang, under Original Certificate of Title No. 0-14360,
Exhibit "5". On December 1, 1931, Luis Herrera sold one-half (�)
undivided share and to Herrera and Go Bang, the other half (�), as
shown by Exhibit "12" and Exhibit "12-A", the latter an annotation
made the Register of Deeds of the City of Zamboanga, in which stated
as follows:chanrobles virtual law library
Cancelado el presente Certificado en virtud de una escritura de
traspaso y en su lugar se ha expedido el Certificado de T No. 494-(T-
13045) del Tomo 2 del Libro de Certificado de Transferencias.
(Fdo) R. D. MACROHON
Registrador de Titulos
Ciudad de Zamboanga
On July 23, 1937, Luis Herrera thru his attorney-in-fact Luy Kim Guan,
one of the defendants, sold to Nicomedes Salazar his one half (�)
participation in these two (2) lots, as shown in Exhibit "C", the
corresponding deed of sale for P3,000.00 Transfer Certificate of Title
No. T-494-(T-13045) was is to Nicomedes Salazar and to the
defendant Luy Kim Guan, Exhibit '7'. On August 4, 1937, the defendant
Luy Kim Guan Nicomedes Salazar executed a deed of mortgage in
favor of Bank of the Philippine Islands to secure a loan of P3,500.00,
Exhibit '6'. On August 17, 1937, the defendant Luy Kim Guan and
Nicomedes Salazar sold Lot 4465 to Carlos Eijansantos for the sum of
P100.00 as shown in Exhibit "9", the corresponding deed of sale, and
Transfer Certificate of Title No. T-2653 was issued on September 7,
1939 to Carlos Eijansantos, Exhibit "10". Nicomedes Salazar sold his
one half (�) interest on Lot 4467 to the defendant Lino Bangayan for
P3,000.00 on February 22, 1949, Exhibit 'B', and the corresponding
Transfer Certificate of Title T-2654 was issued to Lino Bangayan and
to Luy Kim Guan, both are co-owners in equal shares, Exhibit "8".
Opinion of the City Attorney, Exhibit "p", and an affidavit of Atty. Jose
T. Atilano, Exhibit "O", state that Lino Bangayan is a Filipino
citizen.chanroblesvirtualawlibrarychanrobles virtual law library
As admitted by both parties (plaintiffs and defendants), Luis Herrera
is now deceased, but as to the specific and precise date of his death
the evidence of both parties failed to show.
It is the contention of plaintiff-appellant that all the transactions
mentioned in the preceding quoted portion of the decision were
fraudulent and were executed after the death of Luis Herrera and,
consequently, when the power of attorney was no longer operative.
It is also claimed that the defendants Lino Bangayan and Luy Kim Guan
who now claim to be the owners of Lots Nos. 1740 and 4467 are
Chinese by nationality and, therefore, are disqualified to acquire real
properties. Plaintiff-appellant, in addition, questions the supposed
deed of sale allegedly executed by Luis Herrera on December 1, 1931
in favor of defendant Luy Kim Guan, conveying one-half interest on
the two lots, Nos. 4465 and 4467, asserting that what was actually
executed on that date, jointly with the general power of attorney, was
a lease contract over the same properties for a period of 20 years for
which Luy Kim Guan paid the sum of
P2,000.00.chanroblesvirtualawlibrarychanrobles virtual law library
We find all the contentions of plaintiff-appellant untenable. Starting
with her claim that the second deed executed on December 1, 1931
by Luis Herrera was a lease contract instead of a deed of sale as
asserted by defendant Luy Kim Guan, we find that the only evidence
in support of her contention is her own testimony and that of her
husband to the effect that the deceased Luis Herrera showed the said
document to them, and they remembered the same to be a lease
contract on the three properties for a period of 20 years in
consideration of P2,000.00. Their testimony was sought to be
corroborated by the declaration of the clerk of Atty. Enrique A.
Fernandez, who allegedly notarized the document. Outside of this
oral testimony, given more than 23 years after the supposed
526 | P a g e
instrument was read by them, no other evidence was adduced. On
the other hand, defendant Luy Kim Gua produced in evidence a
certification1 signed by the Register of Deeds of Dipolog, Zamboanga
(Exh. 11) to the effect that a deed of sale, dated December 1, 1931,
was execute by Luis Herrera in favor of Luy Kim Guan and entered in
the Primary Book No. 4 as duly registered on September 30, 1936
under Original Certificate of Title No. 14360. It is to be noted that the
deed of sale was registered shortly after the issuance in the name of
Luis Herrera of Origin Certificate of Title No. 14360 pursuant to
Decree No. 59093, covering the two lots, Nos. 4465 and 4467 (Exh. 5)
dated April 7, 1936. In virtue of said deed of sale of December 1, 1931,
Original Certificate of Title No. 1436 was cancelled and Transfer
Certificate of Title No. 1304 (Exh. 12) in the names of the conjugal
partnership of the spouses Luis Herrera and Go Bang, one-half share,
an Luy Kim Guan, single, one-half share, was issued on September 30,
1936. Later, or on July 23, 1937, Luy Kim Guan, in his capacity as
attorney-in-fact of Luis Herrera, sold the half interest of the latter in
the two parcels o land, in favor of Nicomedes Salazar, whereupon TCT
No. 13045 was cancelled and TCT No. RT-657 (494-T-13045 (Exh. 7)
was issued in the names of Luy Kim Guan an Nicomedes Salazar in
undivided equal shares. On August 4, 1937, both Luy Kim Guan and
Nicomedes Salazar mortgaged the two parcels in favor of the Bank of
the Philippine Islands for the sum of P3,500.00 (Exh. 6). On August 17,
1937, Nicomedes Salazar and Luy Kim Gua sold their respective shares
in Lot No. 4465 to Carlo Eijansantos (Exh. 9), subject to the mortgage,
resulting in the issuance of TCT No. 2653 (Exh. 10) covering the entire
lot No. 4465 in the name of said Carlos Eijansantos. On February 23,
1949, Nicomedes Salazar sold his shall share in Lot No. 4467 to Lino
Bangayan, as a consequence of which, TCT No. 2654 (Exh. B) was
issued covering said Lot No. 4467 in the names of Luy Kim Guan and
Lino Bangayan in undivided equal
shares.chanroblesvirtualawlibrarychanrobles virtual law library
With respect to Lot No. 1740, the same was sold by Luy Kim Guan, in
his capacity as attorney-in-fact of Luis Herrera, on September 11,
1939 to Luy Chay (See Exh. 2) who, in August, 1941, mortgaged the
same (Exh. 4) to the Zamboanga Mutual Loan and Building Association
(See TCT No. 3162 [Exh. 3] issued in the name of Luy Chay). Later on,
Luy Chay sold the entire lot to defendant Lino Bangayan by virtue of
the deed of sale dated January 31, 1947 (Exh. E), and as a
consequence thereof, TCT No. 2567 was issued in the name of said
vendee. (See Exh. 1). As a result of these various transactions, duly
recorded in the corresponding office of the Register of Deeds, and
covered by appropriate transfer certificates of title, the properties are
now registered in the following manner: Lot No. 1740, in the name of
Lino Bangayan; Lot No. 4465, in the name of Carlos Eijansantos; and
Lot No. 4467, in the names of Lino Bangayan and Luy Kim Guan in
undivided equal shares.chanroblesvirtualawlibrarychanrobles virtual
law library
In the face of these documentary evidence presented by the
defendants, the trial court correctly upheld the contention of the
defendants as against that of plaintiff-appellant who claims that the
second deed executed by Luis Herrera in 1931 was a lease contract. It
is pertinent to note what the lower court stated in this regard, that is,
if the second deed executed by Luis Herrera was a lease contract
covering, the 3 lots in question for a period of twenty (20) years, there
would have been no purpose for him to constitute Luy Kim Guan as.
his attorney-in-fact to administer and take charge of the same
properties already covered by the lease
contract.chanroblesvirtualawlibrarychanrobles virtual law library
Coming now to the contention that these transactions are null and
void and of no effect because they were executed by the attorney-in-
fact after the death of his Principal, suffice it to say that as found by
the lower court, the date of death of Luis Herrera has not been
satisfactorily proven. The only evidence presented by the Plaintiff-
appellant in this respect is a supposed letter received from a certain
"Candi", dated at Amoy in November, 1936, purporting to give
information that Luis Herrera (without mentioning his name) had died
in August of that year. This piece of evidence was properly rejected
by the lower court for lack of identification. the other hand, we have
the testimony of the witness Chung Lian to the effect that when he
was in Amoy the year 1940, Luis Herrera visited him and had a
conversation with him, showing that the latter was still alive at the
time. Since the documents had been executed the attorney-in-fact
one in 1937 and the other in 1939, it is evident, if we are to believe
this testimony, that the documents were executed during the lifetime
of the principal. Be that as it may, even granting arguendothat Luis
Herrera did die in 1936, plaintiffs presented no proof and there is no
indication in the record, that the age Luy Kim Guan was aware of the
death of his prince at the time he sold the property. The death of the
principal does not render the act of an agent unenforceable, where
the latter had no knowledge of such extinguishment the
agency.2chanrobles virtual law library
Appellants also raise the question of the legality of the titles acquired
by Luy Chay and Lino Bangayan, on ground that they are disqualified
to acquire real properties in the Philippines. This point is similarly
without me because there is no evidence to support the claim. In fact,
in the deed of sale as well as in TCT No. 3162 issued to Luy Chay, the
latter was referred to as a citizen of the Philippines. Nevertheless, the
lower court acknowledged the probability that Luy Chay could have
been actually a Chinese citizens.3 At any rate, the property was
subsequently purchased by Lino Bangayan, as a result which TCT No.
3162 in the name of Luy Chay was cancelled and another certificate
(TCT No. T-2567) was issued in favor of said
vendee.chanroblesvirtualawlibrarychanrobles virtual law library
As to Bangayan's qualification, the lower court held that said
defendant had sufficiently established his Philippine citizenship
through Exhibit P, concurred in by the Secretary of Justice. We find no
reason to disturb such ruling.chanroblesvirtualawlibrarychanrobles
virtual law library
With respect to Luy Kim Guan, while it is true that he is a Chinese
citizen, nevertheless, inasmuch as he acquired his one-half share in
Lot No. 4467 in 1931, long before the Constitution was adopted, his
ownership can not be attacked on account of his
citizenship.chanroblesvirtualawlibrarychanrobles virtual law library
Appellants, in this appeal, contest the judgment of the court a
quo awarding defendants Lino Bangayan and Luy Kim Guan attorney's
fees in the sum of P2,000.00 each, and expenses of litigation in the
amounts of P1,000.00 and P500.00, respectively. We agree with the
appellant in this regard.chanroblesvirtualawlibrarychanrobles virtual
law library
This Court has laid down the rule that in the absence of stipulation, a
winning party may be awarded attorney's fees only in case plaintiff's
action or defendant's stand is so untenable as to amount to gross and
evident bad faith.4 The same thing however, can not be said of the
case at bar. As a matter of fact, the trial court itself declared that the
complaint was filed in good faith. Attorney's fees, therefore, can not
527 | P a g e
be awarded to defendants simply because the judgment was
favorable to them and adverse to plaintiff, for it may amount to
imposing a premium on the right to redress grievances in court. And
so with expenses of litigation. A winning party may be entitled to
expenses of litigation only where he, by reason of plaintiff's clearly
unjustifiable claims or defendant's unreasonable refusal to his
demands, was compelled to incur said expenditures. Evidently, the
facts of this case do not warrant the granting of such litigation
expenses to defendants. In the absence of proof that the action was
intended for reasons other than honest, we may agree with the trial
court that the same must have been instituted by plaintiffs in their
belief that they have a valid cause against the
defendants.chanroblesvirtualawlibrarychanrobles virtual law library

WHEREFORE, and with the above modification, the decision appealed

from is hereby affirmed in all other respects without prejudice to
appellants' right to demand from the agent (Luy Kim Guan) an
accounting of proceeds of the agency, if such right is still available. No
costs. So ordered.chanroblesvirtualawlibrarychanrobles virtual law
library

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Concepcion,

Reyes, J.B.L., Paredes and Dizon, concur.

528 | P a g e
[G.R. No. L-11415. May 25, 1959.] attorney authorizing Eustaquio Bayuga to engage the sevices of an
attorney to prosecute their case against Leonardo Gambito for
MANUEL BUASON and LOLITA M. REYES, Plaintiffs-Appellants, v. annulment of a contract of sale of the parcel of land (civil No. 5787 of
MARIANO PANUYAS, Defendant-Appellee. the same court) and after the termination of the case in their favor to
sell it, and from the proceeds of the sale to deduct whatever expenses
Garcia & Jacinto, for Appellants. he had incurred in the litigation (Exhibit B). On 14 March 1934
Buenaventura Dayao died leaving his wife Eugenia Vega and children
Servando Cleto for Appellee. Pablo, Teodoro, Fortunata and Juliana, all surnamed Dayao. On 21
March 1939 his four children executed a deed of sale conveying
12.8413 hectares of the parcel of land to the appellants, the spouses
Manuel Buason and Lolita M. Reyes (Exhibit A). Their mother Eugenia
SYLLABUS Vega affixed her thumbmark to the deed of sale as witness (Exhibit
A). The appellants took possession of the parcel of land through their
tenants in 1939. On 18 July 1944 Eustaquio Bayuga sold 8 hectares of
the same parcel of land to the spouses Mariano Panuyas (appellee
herein) and Sotera B. Cruz (Exhibit D). Eustaquio Bayuga died on 25
1. SALES; DOUBLE SALE OF LAND REGISTERED UNDER ACT 496; March 1946 and Eugenia Vega in 1954.
BETTER RIGHT IN FAVOR OF REGISTERED SALE. — If it does not appear
that the second purchasers had actual knowledge of the previous sale The appellant and the appellee calim ownership to the same parcil of
to the appellants, they had a right to rely on the face of the certificate land. In their complaint the appellants prayed that the appellee be
of title of the registered owners and of the authority conferred by ordered to deliver possession of the part of the parcel of land held by
them upon the agent with a power of attorney recorded on the back him; that the deed of sale of that part of the parcel of land held by the
of the certificate. In case of double sale of land registered under the appellee executed by Eustaquio Bayuga in his favor and of his wife
Land Registration Act, he who records the sale in the Registry of Deeds (Exhibit D) be declared null and void and that transfer certificate of
has a better right than he who did not. title No. 8419 issued in their name be cancelled; that the deed of sale
of the parcel of land executed by the children and heirs of
2. AGENCY; ACTS DONE BY AN AGENT AFTER DEATH OF PRINCIPAL Buenaventura Dayao in their fabor (Exhibit A) be declared valid; that
WITHOUT HIS KNOWLEDGE OF SUCH DEATH. — The contention that the appellee be ordered to pay them damages and attorney’s fees in
as the death of the principal ended the authority of the agent, the sale the sum of P9,600; and that he be ordered to pay the costs of the suit.
made by the latter of the land in question after the death of the The appellee’s affirmative defenses are that he and his wife were
principal is null and void, is untenable, it not having been shown that buyer in good faith and for valuable consideration; that appellants’
the agent knew of his principal’s demise, and for that reason the sale causes of action are barred by the statute of limitations; that the
made by the agent is valid and effective with respect to third persons complaint states no cause of action; that the claim on which their
who have contracted wiht him in good faith. (Art. 1723, Old Civil Code, action is based is unenforceable under the statute of frauds; and that
1931, New Civil Code). the appellants are guilty of laches. By way of counter-claim, he prayed
that for bringing a clearly unfounded suit against him which
depreciated the value of the land and injured his good reputation, the
appellants be ordered to pay him the sums of P5,000 as actual
DECISION damages and P10,000 as moral damages.

After trial on 20 August 1956 the Court rendered judgment holding

that the appellants’ action is barred by the statute of limitation and
dismissing their complaint. Their motion for reconsideration filed on
PADILLA, J.:
23 August 1956 was denied on 28 August 1956. Hence this appeal
upon questions of law.

This is an appeal from a judgment of the Court of First Instance of
Nueva Ecija dismissing an action brought by the spouses Manuel
Buason and Lolita M. Reyes for annulment of a deed of sale in favor
of the defendant, cancellation of transfer certificate of title No. 8419
issued in the name of the defendant and his wife, declaration that the
sale in their favor is valid, recovery of possession of te parcel of land
described in the complaint from the defendant, damages, attorney’s
fees and costs. (Civil No. 2144.)
In their lifetime the spouses Buenaventura Dayao and Eugenia Vega
acquired by homestead patent a parcel of land situated at barrio
Gabaldon, municipality of Munoz, province of Nueva Ecija, containing
an area of 14.8413 hectares covered by original certificate of title
No.1187 (Exhibit C). On 29 October 1930 they executed a power of
It appears that the appellants did not register the sale of 12.8413
hectares of the parcel of land in question executed in their favor by
the Dayao children on 21 March 1939 after death of their father
Buenaventura Dayao. On the other hand, the power of attorney
executed by Buenaventura Dayao on 29 October 1930 authorizing
Eustaquio Bayuga to sell the parcel of land (Exhibit B) was annotated
or inscribed on the back of original certificate of title No. 1187 (Exhibit
C) as Entry No. 16836/H-1187, and the sale executed by Eustaquio
Bayuga in favor of the appellee Mariano Panuyas and his wife Sotera
B. Cruz under the aforesaid power of attorney was annotated or
incribed on the back of the same original certificate of title (Exhibit C)
as Entry No. 778/H-1187. It does not appear that the appellee and his
wife had actual knowledge of the previous sale. In the absence of such
knowledge, thay had a right to rely on the face of the cetificate of title

529 | P a g e
of the registered owners and of the authority conferred by them upon
the agent also recorded on the back of the certificate of title. As this
is a case of double sale of land registered under the Land Registration
Act, he who recorded the sale in the Registry of Deeds has a better
right than he who did not. 1

As to the appellants’ contention that, as the death of the principal on

14 March 1934 ended the authority of the agent, 2 the sale of 8
hectares of the parcel of land by the agent to the appellee Mariano
Panuyas and his wife Sotera B. Cruz was null and void, suffice it to
state that it has not been shown that the agent knew of his principal’s
demise, and for that reason article 1738, old Civil Code or 1931, new
Civil Code, which provides:chanrob1es virtual 1aw library

Anything done by the agent, without knowledge of the death of the

principal or of any other cause which extinguishes the agence, is valid
and shall be fully effective with respect to third persons who may have
contracted with him in good faith.

is the law applicable to the point raised by the appellants.

The judgment appealed from is affirmed, with costs against the

appellants.

Paras, C.J., Bengzon, Montemayour, Reyes, A., Bautista Angelo,

Labrador, Concepcion and Endencia, JJ., concur.

530 | P a g e
3.Trusts
a. In general
G.R. No. L-26699 March 16, 1976
BENITA SALAO, assisted by her husband, GREGORIO MARCELO;
ALMARIO ALCURIZA, ARTURO ALCURIZA, OSCAR ALCURIZA and
ANITA ALCURIZA, the latter two being minors are represented by
guardian ad litem, ARTURO ALCURIZA, plaintiffs-appellants,
vs. JUAN S. SALAO, later substituted by PABLO P. SALAO,
Administrator of the Intestate of JUAN S. SALAO; now MERCEDES P.
VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO VDA. DE
SANTOS, LUCIANA P. SALAO, ISABEL SALAO DE SANTOS, and PABLO
P. SALAO, as successors-in-interest of the late JUAN S. SALAO,
together with PABLO P. SALAO, Administrator, Defendants-
Appellants.
Eusebio V. Navarro for plaintiffs-appellants.chanrobles virtual law
library
Nicolas Belmonte & Benjamin T. de Peralta for defendants-appellants.
AQUINO, J.:
This litigation regarding a forty-seven-hectare fishpond located at
Sitio Calunuran, Hermosa, Bataan involves the law of trusts and
prescription. The facts are as follows: chanrobles virtual law library
The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit,
Malabon, Rizal begot four children named Patricio, Alejandra, Juan
(Banli) and Ambrosia. Manuel Salao died in 1885. His eldest son,
Patricio, died in 1886 survived by his only child. Valentin
Salao.chanroblesvirtualawlibrarychanrobles virtual law library
There is no documentary evidence as to what, properties formed part
of Manuel Salao's estate, if any. His widow died on May 28, 1914.
After her death, her estate was administered by her daughter
Ambrosia.chanroblesvirtualawlibrarychanrobles virtual law library
It was partitioned extrajudicially in a deed dated December 29, 1918
but notarized on May 22, 1919 (Exh. 21). The deed was signed by her
four legal heirs, namely, her three children, Alejandra, Juan and
Ambrosia, and her grandson, Valentin Salao, in representation of his
deceased father, Patricio.chanroblesvirtualawlibrarychanrobles
virtual law library
The lands left by Valentina Ignacio, all located at Barrio Dampalit were
as follows:
Nature of Land
Area in chanrobles virtual law library
square meters
(1) One-half interest in a fishpond which she had inherited from her
parents, Feliciano Ignacio and Damiana Mendoza, and the other half
of which was owned by her co-owner, Josefa Sta. Ana . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . 21,700 chanrobles virtual law library
(2) Fishpond inherited from her parents . . . . . . . . . . . .
7,418 chanrobles virtual law library
(3) Fishpond inherited from her parents . . . . . . . . . . . . .
6,989 chanrobles virtual law library
(4) Fishpond with a bodega for salt . . . . . . . . . . . . . . . .
50,469 chanrobles virtual law library
(5) Fishpond with an area of one hectare, 12 ares and 5 centares
purchased from Bernabe and Honorata Ignacio by Valentina Ignacio
on November 9, 1895 with a bodega for salt . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,205 chanrobles virtual law library
(6) Fishpond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 chanrobles
virtual law library
(7) One-half interest in a fishpond with a total area of 10,424 square
meters, the other half was owned by A. Aguinaldo . . . . . . . . . . . . . . . .
. . . . . . . 5,217 chanrobles virtual law library
(8) Riceland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,454 chanrobles
virtual law library
(9) Riceland purchased by Valentina Ignacio from Eduardo Salao on
January 27, 1890 with a house and two camarins thereon . . . . . . . . . .
. . . . . . . . 8,065 chanrobles virtual law library
(10) Riceland in the name of Ambrosia Salao, with an area of 11,678
square meters, of which 2,173 square meters were sold to Justa
Yongco . . . . . . . . . .9,505 chanrobles virtual law library
TOTAL . . . . . . . . . . . . .. 179,022 square
meters
To each of the legal heirs of Valentina Ignacio was adjudicated a
distributive share valued at P8,135.25. In satisfaction of his
distributive share, Valentin Salao (who was then already forty-eight
years old) was given the biggest fishpond with an area of 50,469
square meters, a smaller fishpond with an area of 6,989 square
meters and the riceland with a net area of 9,905 square meters. Those
parcels of land had an aggregate appraised value of P13,501 which
exceeded Valentin's distributive share. So in the deed of partition he
was directed to pay to his co-heirs the sum of P5,365.75. That
arrangement, which was obviously intended to avoid the
fragmentation of the lands, was beneficial to
Valentin.chanroblesvirtualawlibrarychanrobles virtual law library
In that deed of partition (Exh. 21) it was noted that "desde la muerte
de Valentina Ignacio y Mendoza, ha venido administrando sus bienes
la referida Ambrosia Salao" "cuya administracion lo ha sido a
satisfaccion de todos los herederos y por designacion los mismos". It
was expressly stipulated that Ambrosia Salao was not obligated to
render any accounting of her administration "en consideracion al
resultado satisfactorio de sus gestiones, mejoradas los bienes y
pagodas por ella las contribusiones (pages 2 and 11, Exh.
21).chanroblesvirtualawlibrarychanrobles virtual law library
By virtue of the partition the heirs became "dueños absolutos de sus
respectivas propiedadas, y podran inmediatamente tomar posesion
de sus bienes, en la forma como se han distribuido y llevado a cabo
las adjudicaciones" (page 20, Exh.
21).chanroblesvirtualawlibrarychanrobles virtual law library
The documentary evidence proves that in 1911 or prior to the death
of Valentina Ignacio her two children, Juan Y. Salao, Sr. and Ambrosia
Salao, secured a Torrens title, OCT No. 185 of the Registry of Deeds of
531 | P a g e
Pampanga, in their names for a forty-seven-hectare fishpond located
at Sitio Calunuran, Lubao, Pampanga (Exh. 14). It is also known as Lot
No. 540 of the Hermosa cadastre because that part of Lubao later
became a part of Bataan.chanroblesvirtualawlibrarychanrobles
virtual law library
The Calunuran fishpond is the bone of contention in this
case.chanroblesvirtualawlibrarychanrobles virtual law library
Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had
engaged in the fishpond business. Where they obtained the capital is
not shown in any documentary evidence. Plaintiffs' version is that
Valentin Salao and Alejandra Salao were included in that joint
venture, that the funds used were the earnings of the properties
supposedly inherited from Manuel Salao, and that those earnings
were used in the acquisition of the Calunuran fishpond. There is no
documentary evidence to support that
theory.chanroblesvirtualawlibrarychanrobles virtual law library
On the other hand, the defendants contend that the Calunuran
fishpond consisted of lands purchased by Juan Y. Salao, Sr. and
Ambrosia Salao in 1905, 1906, 1907 and 1908 as, shown in their
Exhibits 8, 9, 10 and 13. But this point is disputed by the
plaintiffs.chanroblesvirtualawlibrarychanrobles virtual law library
However, there can be no controversy as to the fact that after Juan Y.
Salao, Sr. and Ambrosia Salao secured a Torrens title for the
Calunuran fishpond in 1911 they exercised dominical rights over it to
the exclusion of their nephew, Valentin
Salao.chanroblesvirtualawlibrarychanrobles virtual law library
Thus, on December 1, 1911 Ambrosia Salao sold under pacto de
retro for P800 the Calunuran fishpond to Vicente Villongco. The
period of redemption was one year. In the deed of sale (Exh19)
Ambrosia confirmed that she and her brother Juan were the dueños
proindivisos of the said pesqueria. On December 7, 1911 Villongco,
the vendee a retro, conveyed the same fishpond to Ambrosia by way
of lease for an anual canon of P128 (Exh. 19-
a).chanroblesvirtualawlibrarychanrobles virtual law library
After the fishpond was redeemed from Villongco or on June 8, 1914
Ambrosia and Juan sold it under pacto de retro to Eligio Naval for the
sum of P3,360. The period of redemption was also one year (Exh. 20).
The fishpond was later redeemed and Naval reconveyed it to the
vendors a retro in a document dated October 5, 1916 (Exh. 20-
a).chanroblesvirtualawlibrarychanrobles virtual law library
The 1930 survey shown in the computation sheets of the Bureau of
Lands reveals that the Calunuran fishpond has an area of 479,205
square meters and that it was claimed by Juan Salao and Ambrosia
Salao, while the Pinanganacan fishpond (subsequently acquired by
Juan and Ambrosia) has an area of 975,952 square meters (Exh.
22).chanroblesvirtualawlibrarychanrobles virtual law library
Likewise, there is no controversy as to the fact that on May 27, 1911
Ambrosia Salao bought for four thousand pesos from the heirs of
Engracio Santiago a parcel of swampland planted to bacawan and
nipa with an area of 96 hectares, 57 ares and 73 centares located at
Sitio Lewa, Barrio Pinanganacan, Lubao, Pampanga (Exh. 17-
d).chanroblesvirtualawlibrarychanrobles virtual law library
The record of Civil Case No. 136, General Land Registration Office
Record No. 12144, Court of First Instance of Pampanga shows that
Ambrosia Salao and Juan Salao filed an application for the registration
of that land in their names on January 15, 1916. They alleged in their
petition that "han adquirido dicho terreno por partes iguales y por la
compra a los herederos del finado, Don Engracio Santiago" (Exh. 17-
a).chanroblesvirtualawlibrarychanrobles virtual law library
At the hearing on October 26, 1916 before Judge Percy M. Moir,
Ambrosia testified for the applicants. On that same day Judge Moir
rendered a decision, stating, inter alia,that the heirs of Engracio
Santiago had sold the land to Ambrosia Salao and Juan Salao. Judge
Moir "ordena la adjudicacion y registro del terreno solicitado a
nombre de Juan Salao, mayor de edad y de estado casado y de su
esposa Diega Santiago y Ambrosia Salao, de estado soltera y mayor
de edad, en participaciones iguales" (Exh. 17-
e).chanroblesvirtualawlibrarychanrobles virtual law library
On November 28, 1916 Judge Moir ordered the issuance of a decree
for the said land. The decree was issued on February 21, 1917. On
March 12, 1917 Original Certificate of Title No. 472 of the Registry of
Deeds of Pampanga was issued in the names of Juan Salao and
Ambrosia Salao.chanroblesvirtualawlibrarychanrobles virtual law
library
That Pinanganacan or Lewa fishpond later became Cadastral Lot No.
544 of the Hermosa cadastre (Exh. 23). It adjoins the Calunuran
fishpond (See sketch, Exh. 1).chanroblesvirtualawlibrarychanrobles
virtual law library
Juan Y. Salao, Sr. died on November 3, 1931 at the age of eighty years
(Exh. C). His nephew, Valentin Salao, died on February 9, 1933 at the
age of sixty years according to the death certificate (Exh. A. However,
if according to Exhibit 21, he was forty-eight years old in 1918, he
would be sixty-three years old in
1933).chanroblesvirtualawlibrarychanrobles virtual law library
The intestate estate of Valentin Salao was partitioned extrajudicially
on December 28, 1934 between his two daughters, Benita Salao-
Marcelo and Victorina Salao-Alcuriza (Exh. 32). His estate consisted of
the two fishponds which he had inherited in 1918 from his
grandmother, Valentina
Ignacio.chanroblesvirtualawlibrarychanrobles virtual law library
If it were true that he had a one-third interest in the Calunuran and
Lewa fishponds with a total area of 145 hectares registered in 1911
and 1917 in the names of his aunt and uncle, Ambrosia Salao and Juan
Y. Salao, Sr., respectively, it is strange that no mention of such interest
was made in the extrajudicial partition of his estate in
1934.chanroblesvirtualawlibrarychanrobles virtual law library
It is relevant to mention that on April 8, 1940 Ambrosia Salao donated
to her grandniece, plaintiff Benita Salao, three lots located at Barrio
Dampalit with a total area of 5,832 square meters (Exit. L). As donee
Benita Salao signed the deed of
donation.chanroblesvirtualawlibrarychanrobles virtual law library
On that occasion she could have asked Ambrosia Salao to deliver to
her and to the children of her sister, Victorina, the Calunuran fishpond
if it were true that it was held in trust by Ambrosia as the share of
Benita's father in the alleged joint
venture.chanroblesvirtualawlibrarychanrobles virtual law library
But she did not make any such demand. It was only after Ambrosia
Salao's death that she thought of filing an action for the reconveyance
532 | P a g e
of the Calunuran fishpond which was allegedly held in trust and which
had become the sole property of Juan Salao y Santiago
(Juani).chanroblesvirtualawlibrarychanrobles virtual law library
On September 30, 1944 or during the Japanese occupation and about
a year before Ambrosia Salao's death on September 14, 1945 due to
senility (she was allegedly eighty-five years old when she died), she
donated her one-half proindiviso share in the two fishponds in
question to her nephew, Juan S. Salao, Jr. (Juani) At that time she was
living with Juani's family. He was already the owner of the the other
half of the said fishponds, having inherited it from his father, Juan Y.
Salao, Sr. (Banli) The deed of denotion included other pieces of real
property owned by Ambrosia. She reserved for herself the usufruct
over the said properties during her lifetime (Exh. 2 or
M).chanroblesvirtualawlibrarychanrobles virtual law library
The said deed of donation was registered only on April 5, 1950 (page
39, Defendants' Record on
Appeal).chanroblesvirtualawlibrarychanrobles virtual law library
The lawyer of Benita Salao and the Children of Victorina Salao in a
letter dated January 26, 1951 informed Juan S. Salao, Jr. that his
clients had a one-third share in the two fishponds and that when Juani
took possession thereof in 1945, he refused to give Benita and
Victorina's children their one-third share of the net fruits which
allegedly amounted to P200,000 (Exh.
K).chanroblesvirtualawlibrarychanrobles virtual law library
Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically
stated that Valentin Salao did not have any interest in the two
fishponds and that the sole owners thereof his father Banli and his
aunt Ambrosia, as shown in the Torrens titles issued in 1911 and 1917,
and that he Juani was the donee of Ambrosia's one-half share (Exh. K-
1).chanroblesvirtualawlibrarychanrobles virtual law library
Benita Salao and her nephews and niece filed their original complaint
against Juan S. Salao, Jr. on January 9, 1952 in the Court of First
Instance of Bataan (Exh. 36). They amended their complaint on
January 28, 1955. They asked for the annulment of the donation to
Juan S. Salao, Jr. and for the reconveyance to them of the Calunuran
fishpond as Valentin Salao's supposed one-third share in the 145
hectares of fishpond registered in the names of Juan Y. Salao, Sr. and
Ambrosia Salao.chanroblesvirtualawlibrarychanrobles virtual law
library
Juan S. Salao, Jr. in his answer pleaded as a defense the indefeasibility
of the Torrens title secured by his father and aunt. He also invoked
the Statute of Frauds, prescription and laches. As counter-claims, he
asked for moral damages amounting to P200,000, attorney's fees and
litigation expenses of not less than P22,000 and reimbursement of the
premiums which he has been paying on his bond for the lifting of the
receivership Juan S. Salao, Jr. died in 1958 at the age of seventy-one.
He was substituted by his widow, Mercedes Pascual and his six
children and by the administrator of his
estate.chanroblesvirtualawlibrarychanrobles virtual law library
In the intestate proceedings for the settlement of his estate the two
fishponds in question were adjudicated to his seven legal heirs in
equal shares with the condition that the properties would remain
under administration during the pendency of this case (page 181,
Defendants' Record on
Appeal).chanroblesvirtualawlibrarychanrobles virtual law library
After trial the trial court in its decision consisting of one hundred ten
printed pages dismissed the amended complaint and the counter-
claim. In sixty-seven printed pages it made a laborious recital of the
testimonies of plaintiffs' fourteen witnesses, Gregorio Marcelo,
Norberto Crisostomo, Leonardo Mangali Fidel de la Cruz, Dionisio
Manalili, Ambrosio Manalili, Policarpio Sapno, Elias Manies Basilio
Atienza, Benita Salao, Emilio Cagui Damaso de la Peña, Arturo Alcuriza
and Francisco Buensuceso, and the testimonies of defendants' six
witnesses, Marcos Galicia, Juan Galicia, Tiburcio Lingad, Doctor
Wenceslao Pascual, Ciriaco Ramirez and Pablo P. Salao. (Plaintiffs
presented Regino Nicodemus as a fifteenth witness, a rebuttal
witness).chanroblesvirtualawlibrarychanrobles virtual law library
The trial court found that there was no community of property among
Juan Y. Salao, Sr., Ambrosia Salao and Valentin Salao when the
Calunuran and Pinanganacan (Lewa) lands were acquired; that a co-
ownership over the real properties of Valentina Ignacio existed
among her heirr after her death in 1914; that the co-ownership was
administered by Ambrosia Salao and that it subsisted up to 1918
when her estate was partitioned among her three children and her
grandson, Valentin Salao.chanroblesvirtualawlibrarychanrobles
virtual law library
The trial court surmised that the co-ownership which existed from
1914 to 1918 misled the plaintiffs and their witnesses and caused
them to believe erroneously that there was a co-ownership in 1905
or thereabouts. The trial court speculated that if valentin had a hand
in the conversion into fishponds of the Calunuran and Lewa lands, he
must have done so on a salary or profit- sharing basis. It conjectured
that Valentin's children and grandchildren were given by Ambrosia
Salao a portion of the earnings of the fishponds as a reward for his
services or because of Ambrosia's affection for her
grandnieces.chanroblesvirtualawlibrarychanrobles virtual law library
The trial court rationalized that Valentin's omission during his lifetime
to assail the Torrens titles of Juan and Ambrosia signified that "he was
not a co-owner" of the fishponds. It did not give credence to the
testimonies of plaintiffs' witnesses because their memories could not
be trusted and because no strong documentary evidence supported
the declarations. Moreover, the parties involved in the alleged trust
were already dead.chanroblesvirtualawlibrarychanrobles virtual law
library
It also held that the donation was validly executed and that even if it
were void Juan S. Salao, Jr., the donee, would nevertheless be the sole
legal heir of the donor, Ambrosia Salao, and would inherit the
properties donated to him.chanroblesvirtualawlibrarychanrobles
virtual law library
Both parties appealed. The plaintiffs appealed because their action
for reconveyance was dismissed. The defendants appealed because
their counterclaim for damages was
dismissed.chanroblesvirtualawlibrarychanrobles virtual law library
The appeals, which deal with factual and legal issues, were made to
the Court of Appeals. However, as the amounts involved exceed two
hundred thousand pesos, the Court of Appeals elevated the case to
this Court in its resolution of Octoter 3, 1966 (CA-G.R. No. 30014-R).
Plaintiffs' appeal. - An appellant's brief should contain "a subject
index index of the matter in the brief with a digest of the argument
and page references" to the contents of the brief (Sec. 16 [a], Rule 46,
533 | P a g e
1964 Rules of Court; Sec. 17, Rule 48, 1940 Rules of
Court).chanroblesvirtualawlibrarychanrobles virtual law library
The plaintiffs in their appellants' brief consisting of 302 pages did not
comply with that requirement. Their statements of the case and the
facts do not contain "page references to the record" as required in
section 16[c] and [d] of Rule 46, formerly section 17, Rule 48 of the
1940 Rules of Court.chanroblesvirtualawlibrarychanrobles virtual law
library
Lawyers for appellants, when they prepare their briefs, would do well
to read and re-read section 16 of Rule 46. If they comply strictly with
the formal requirements prescribed in section 16, they might make a
competent and luminous presentation of their clients' case and
lighten the burden of the Court.chanroblesvirtualawlibrarychanrobles
virtual law library
What Justice Fisher said in 1918 is still true now: "The pressure of
work upon this Court is so great that we cannot, in justice to other
litigants, undertake to make an examination of the voluminous
transcript of the testimony (1,553 pages in this case, twenty-one
witnesses having testified), unless the attorneys who desire us to
make such examination have themselves taken the trouble to read
the record and brief it in accordance with our rules" (Palara vs. Baguisi
38 Phil. 177, 181). As noted in an old case, this Court decides hundreds
of cases every year and in addition resolves in minute orders an
exceptionally considerable number of petitions, motions and
interlocutory matters (Alzua and Arnalot vs. Johnson, 21 Phil. 308,
395; See In re Almacen, L-27654, February 18, 1970, 31 SCRA 562,
573).chanroblesvirtualawlibrarychanrobles virtual law library
Plaintiffs' first assignment of error raised a procedural issue. In
paragraphs 1 to 14 of their first cause of action they made certain
averments to establish their theory that Valentin Salao had a one-
third interest in the two fishponds which were registrered in the
names of Juan Y. Salao, Sr. (Banli) and Ambrosia
Salao.chanroblesvirtualawlibrarychanrobles virtual law library
Juan S. Salao, Jr. (Juani) in his answer "specifically" denied each and
all the allegations" in paragraphs I to 10 and 12 of the first cause of
action with the qualification that Original certificates of Title Nos. 185
and 472 were issued "more than 37 years ago" in the names of Juan
(Banli) and Ambrosia under the circumstances set forth in Juan S.
Salao, Jr.'s "positive defenses" and "not under the circumstances
stated in the in the amended
complaint".chanroblesvirtualawlibrarychanrobles virtual law library
The plaintiffs contend that the answer of Juan S. Salao, Jr. was in
effect tin admission of the allegations in their first cause of action that
there was a co-ownership among Ambrosia, Juan, AIejandra and
Valentin, all surnamed Salao, regarding the Dampalit property as early
as 1904 or 1905; that the common funds were invested the
acquisition of the two fishponds; that the 47-hectare Calunuran
fishpond was verbally adjudicated to Valentin Salao in the l919
partition and that there was a verbal stipulation to to register "said
lands in the name only of Juan Y.
Salao".chanroblesvirtualawlibrarychanrobles virtual law library
That contention is unfounded. Under section 6, Rule 9 of the 1940 of
Rules of Court the answer should "contain either a specific dinial a
statement of matters in accordance of the cause or causes of action
asserted in the complaint". Section 7 of the same rule requires the
defendant to "deal specificaly with each material allegation of fact the
truth of wihich he does not admit and, whenever practicable shall set
forth the substance of the matters which he will rely upon to support
his denial". "Material averments in the complaint, other than those as
to the amount damage, shall be deemed admitted when specifically
denied" (Sec. 8). "The defendant may set forth set forth by answer as
many affirmative defenses as he may have. All grounds of defenses as
would raise issues of fact not arising upon the preceding pleading
must be specifically pleaded" (Sec.
9).chanroblesvirtualawlibrarychanrobles virtual law library
What defendant Juan S. Salao, Jr. did in his answer was to set forth in
his "positive defenses" the matters in avoidance of plaintiffs' first
cause of action which which supported his denials of paragraphs 4 to
10 and 12 of the first cause of action. Obviously, he did so because he
found it impracticable to state pierceneal his own version as to the
acquisition of the two fishponds or to make a tedious and repetitious
recital of the ultimate facts contradicting allegations of the first cause
of action.chanroblesvirtualawlibrarychanrobles virtual law library
We hold that in doing so he substantially complied with Rule 9 of the
1940 Rules of Court. It may be noted that under the present Rules of
Court a "negative defense is the specific denial of t the material fact
or facts alleged in the complaint essential to plaintiff's cause of causes
of action". On the other hand, "an affirmative defense is an allegation
of new matter which, while admitting the material allegations of the
complaint, expressly or impliedly, would nevertheless prevent or bar
recovery by the plaintiff." Affirmative defenses include all matters set
up "by of confession and avoidance". (Sec. 5, Rule 6, Rules of
Court).chanroblesvirtualawlibrarychanrobles virtual law library
The case of El Hogar Filipino vs. Santos Investments, 74 Phil. 79 and
similar cases are distinguishable from the instant case. In the El
Hogar case the defendant filed a laconic answer containing the
statement that it denied "generally ans specifically each and every
allegation contained in each and every paragraph of the complaint".
It did not set forth in its answer any matters by way of confession and
avoidance. It did not interpose any matters by way of confession and
avoidance. It did not interpose any affirmative
defenses.chanroblesvirtualawlibrarychanrobles virtual law library
Under those circumstances, it was held that defendant's specific
denial was really a general denial which was tantamount to an
admission of the allegations of the complaint and which justified
judgment on the pleadings. That is not the situation in this
case.chanroblesvirtualawlibrarychanrobles virtual law library
The other nine assignments of error of the plaintiffs may be reduced
to the decisive issue of whether the Calunuran fishpond was held in
trust for Valentin Salao by Juan Y. Salao, Sr. and Ambrosia Salao. That
issue is tied up with the question of whether plaintiffs' action for
reconveyance had already
prescribed.chanroblesvirtualawlibrarychanrobles virtual law library
The plaintiffs contend that their action is "to enforce a trust which
defendant" Juan S. Salao, Jr. allegedly violated. The existence of a
trust was not definitely alleged in plaintiffs' complaint. They
mentioned trust for the first time on page 2 of their appelants'
brief.chanroblesvirtualawlibrarychanrobles virtual law library
To determine if the plaintiffs have a cause of action for the
enforcement of a trust, it is necessary to maek some exegesis on the
nature of trusts (fideicomosis). Trusts in Anglo-American
jurisprudence were derived from the fideicommissa of the Roman law
534 | P a g e
(Government of the Philippine Islands vs. Abadilla, 46 Phil. 642,
646).chanroblesvirtualawlibrarychanrobles virtual law library
"In its technical legal sense, a trust is defined as the right, enforceable
solely in equity, to the beneficial enjoyment of property, the legal title
to which is vested in another, but the word 'trust' is frequently
employed to indicate duties, relations, and responsibilities which are
not strictly technical trusts" (89 C.J.S.
712).chanroblesvirtualawlibrarychanrobles virtual law library
A person who establishes a trust is called the trustor; one in whom
confidence is reposed as regards property for the benefit of another
person is known as the trustee; and the person for whose benefit the
trust has been created is referred to as the beneficiary" (Art. 1440,
Civil Code). There is a fiduciary relation between the trustee and
the cestui que trust as regards certain property, real, personal, money
or choses in action (Pacheco vs. Arro, 85 Phil.
505).chanroblesvirtualawlibrarychanrobles virtual law library
"Trusts are either express or implied. Express trusts are created by the
intention of the trustor or of the parties. Implied trusts come into
being by operation of law" (Art. 1441, Civil Code). "No express trusts
concerning an immovable or any interest therein may be proven by
parol evidence. An implied trust may be proven by oral evidence"
(Ibid, Arts. 1443 and 1457).chanroblesvirtualawlibrarychanrobles
virtual law library
"No particular words are required for the creation of an express trust,
it being sufficient that a trust is clearly intended" (Ibid, Art. 1444;
Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-19012,
October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which
are created by the direct and positive acts of the parties, by some
writing or deed, or will, or by words either expressly or impliedly
evincing an intention to create a trust" (89 C.J.S.
72).chanroblesvirtualawlibrarychanrobles virtual law library
"Implied trusts are those which, without being expressed, are
deducible from the nature of the transaction as matters of intent, or
which are superinduced on the transaction by operation of law as
matter of equity, independently of the particular intention of the
parties" (89 C.J.S. 724). They are ordinarily subdivided into resulting
and constructive trusts (89 C.J.S.
722).chanroblesvirtualawlibrarychanrobles virtual law library
"A resulting trust. is broadly defined as a trust which is raised or
created by the act or construction of law, but in its more restricted
sense it is a trust raised by implication of law and presumed to have
been contemplated by the parties, the intention as to which is to be
found in the nature of their transaction, but not expressed in the deed
or instrument of conveyance (89 C.J.S. 725). Examples of resulting
trusts are found in articles 1448 to 1455 of the Civil Code. (See Padilla
vs. Court of Appeals, L-31569, September 28, 1973, 53 SCRA 168, 179;
Martinez vs. Graño 42 Phil. 35).chanroblesvirtualawlibrarychanrobles
virtual law library
On the other hand, a constructive trust is -a trust "raised by
construction of law, or arising by operation of law". In a more
restricted sense and as contra-distinguished from a resulting trust, a
constructive trust is "a trust not created by any words, either
expressly or impliedly evincing a direct intension to create a trust, but
by the construction of equity in order to satisfy the demands of
justice." It does not arise "by agreement or intention, but by
operation of law." (89 C.J.S. 726-
727).chanroblesvirtualawlibrarychanrobles virtual law library
Thus, "if property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust
for the benefit of the person from whom the property comes" (Art.
1456, Civil Code).chanroblesvirtualawlibrarychanrobles virtual law
library
Or "if a person obtains legal title to property by fraud or concealment,
courts of equity will impress upon the title a so-called constructive
trust in favor of the defrauded party". Such a constructive trust is not
a trust in the technical sense. (Gayondato vs. Treasurer of the P. I., 49
Phil. 244).chanroblesvirtualawlibrarychanrobles virtual law library
Not a scintilla of documentary evidence was presented by the
plaintiffs to prove that there was an express trust over the Calunuran
fishpond in favor of Valentin Salao. Purely parol evidence was offered
by them to prove the alleged trust. Their claim that in the oral
partition in 1919 of the two fishponds the Calunuran fishpond was
assigned to Valentin Salao is legally
untenable.chanroblesvirtualawlibrarychanrobles virtual law library
It is legally indefensible because the terms of article 1443 of the Civil
Code (already in force when the action herein was instituted) are
peremptory and unmistakable: parol evidence cannot be used to
prove an express trust concerning
realty.chanroblesvirtualawlibrarychanrobles virtual law library
Is plaintiffs' massive oral evidence sufficient to prove an implied trust,
resulting or constructive, regarding the two fishponds? chanrobles
virtual law library
Plaintiffs' pleadings and evidence cannot be relied upon to prove an
implied trust. The trial court's firm conclusion that there was no
community of property during the lifetime of Valentina; Ignacio or
before 1914 is substantiated by defendants' documentary evidence.
The existence of the alleged co-ownership over the lands supposedly
inherited from Manuel Salao in 1885 is the basis of plaintiffs'
contention that the Calunuran fishpond was held in trust for Valentin
Salao.chanroblesvirtualawlibrarychanrobles virtual law library
But that co-ownership was not proven by any competent evidence. It
is quite improbable because the alleged estate of Manuel Salao was
likewise not satisfactorily proven. The plaintiffs alleged in their
original complaint that there was a co-ownership over two hectares
of land left by Manuel Salao. In their amended complaint, they alleged
that the co-ownership was over seven hectares of fishponds located
in Barrio Dampalit, Malabon, Rizal. In their brief they alleged that the
fishponds, ricelands and saltbeds owned in common in Barrio
Dampalit had an area of twenty-eight hectares, of which sixteen
hectares pertained to Valentina Ignacio and eleven hectares
represented Manuel Salao's
estate.chanroblesvirtualawlibrarychanrobles virtual law library
They theorized that the eleven hectares "were, and necessarily, the
nucleus, nay the very root, of the property now in litigation (page 6,
plaintiffs-appellants' brief). But the eleven hectares were not proven
by any trustworthy evidence. Benita Salao's testimony that in 1918 or
1919 Juan, Ambrosia, Alejandra and Valentin partitioned twenty-
eight hectares of lands located in Barrio Dampalit is not credible. As
noted by the defendants, Manuel Salao was not even mentioned in
plaintiffs' complaints.
535 | P a g e
The 1919 partition of Valentina Ignacio's estate covered
about seventeen hectares of fishponds and ricelands (Exh. 21). If at
the time that partition was made there were eleven hectares of land
in Barrio Dampalit belonging to Manuel Salao, who died in 1885,
those eleven hectares would have been partitioned in writing as in
the case of the seventeen hectares belonging to Valentina Ignacio's
estate.chanroblesvirtualawlibrarychanrobles virtual law library
It is incredible that the forty-seven-hectare Calunuran fishpond would
be adjudicated to Valentin Salao mere by by word of mouth.
Incredible because for the partition of the seventeen hectares of land
left by Valentina Ignacio an elaborate "Escritura de Particion"
consisting of twenty-two pages had to be executed by the four Salao
heirs. Surely, for the partition of one hundred forty-five hectares of
fishponds among three of the same Salao heirs an oral adjudication
would not have sufficed.chanroblesvirtualawlibrarychanrobles virtual
law library
The improbability of the alleged oral partition becomes more evident
when it is borne in mind that the two fishponds were registered land
and "the act of registration" is "the operative act" that conveys and
affects the land (Sec. 50, Act No. 496). That means that any
transaction affecting the registered land should be evidenced by a
registerable deed. The fact that Valentin Salao and his successors-in-
interest, the plaintiffs, never bothered for a period of nearly forty
years to procure any documentary evidence to establish his supposed
interest ox participation in the two fishponds is very suggestive of the
absence of such interest.chanroblesvirtualawlibrarychanrobles
virtual law library
The matter may be viewed from another angle. As already stated, the
deed of partition for Valentina Ignacio's estate wag notarized in 1919
(Exh. 21). The plaintiffs assert that the two fishponds were verbally
partitioned also in 1919 and that the Calunuran fishpond was
assigned to Valentin Salao as his
share.chanroblesvirtualawlibrarychanrobles virtual law library
Now in the partition of Valentina Ignacio's estate, Valentin was
obligated to pay P3,355.25 to Ambrosia Salao. If, according to the
plaintiffs, Ambrosia administered the two fishponds and was the
custodian of its earnings, then it could have been easily stipulated in
the deed partitioning Valentina Ignacio's estate that the amount due
from Valentin would just be deducted by Ambrosia from his share of
the earnings of the two fishponds. There was no such stipulation. Not
a shred of documentary evidence shows Valentin's participation in
the two fishponds.chanroblesvirtualawlibrarychanrobles virtual law
library
The plaintiffs utterly failed to measure up to the yardstick that a trust
must be proven by clear, satisfactory and convincing evidence. It
cannot rest on vague and uncertain evidence or on loose, equivocal
or indefinite declarations (De Leon vs. Molo-Peckson, 116 Phil. 1267,
1273).
Trust and trustee; establishment of trust by parol evidence; certainty
of proof. - Where a trust is to be established by oral proof, the
testimony supporting it must be sufficiently strong to prove the right
of the alleged beneficiary with as much certainty as if a document
proving the trust were shown. A trust cannot be established, contrary
to the recitals of a Torrens title, upon vague and inconclusive
proof. (Syllabus, Suarez vs. Tirambulo, 59 Phil. 303).
Trusts; evidence needed to establish trust on parol testimony. - In
order to establish a trust in real property by parol evidence, the proof
should be as fully convincing as if the act giving rise to the trust
obligation were proven by an authentic document. Such a trust
cannot be established upon testimony consisting in large part of
insecure surmises based on ancient hearsay. (Syllabus, Santa Juana vs.
Del Rosario 50 Phil. 110).
The foregoing rulings are good under article 1457 of the Civil Code
which, as already noted, allows an implied trust to be proven by oral
evidence. Trustworthy oral evidence is required to prove an implied
trust because, oral evidence can be easily
fabricated.chanroblesvirtualawlibrarychanrobles virtual law library
On the other hand, a Torrens title is generally a conclusive of the
ownership of the land referred to therein (Sec. 47, Act 496). A strong
presumption exists. that Torrens titles were regularly issued and that
they are valid. In order to maintain an action for reconveyance, proof
as to the fiduciary relation of the parties must be clear and convincing
(Yumul vs. Rivera and Dizon, 64 Phil. 13, 17-
18).chanroblesvirtualawlibrarychanrobles virtual law library
The real purpose of the Torrens system is, to quiet title to land. "Once
a title is registered, the owner may rest secure, without the necessity
of waiting in the portals of the court, or sitting in the mirador de su
casa, to avoid the possibility of losing his land" (Legarda and Prieto vs.
Saleeby, 31 Phil. 590, 593).chanroblesvirtualawlibrarychanrobles
virtual law library
There was no resulting trust in this case because there never was any
intention on the part of Juan Y. Salao, Sr., Ambrosia Salao and Valentin
Salao to create any trust. There was no constructive trust because the
registration of the two fishponds in the names of Juan and Ambrosia
was not vitiated by fraud or mistake. This is not a case where to satisfy
the demands of justice it is necessary to consider the Calunuran
fishpond " being held in trust by the heirs of Juan Y. Salao, Sr. for the
heirs of Valentin Salao.chanroblesvirtualawlibrarychanrobles virtual
law library
And even assuming that there was an implied trust, plaintiffs' action
is clearly barred by prescription or laches (Ramos vs. Ramos, L-19872,
December 3, 1974, 61 SCRA 284; Quiniano vs. Court of Appeals, L-
23024, May 31, 1971, 39 SCRA 221; Varsity Hills, Inc. vs. Navarro, 9,
February 29, 1972, 43 SCRA 503; Alzona vs. Capunitan and Reyes, 114
Phil. 377).chanroblesvirtualawlibrarychanrobles virtual law library
Under Act No. 190, whose statute of limitation would apply if there
were an implied trust in this case, the longest period of extinctive
prescription was only ten year (Sec. 40; Diaz vs. Gorricho and Aguado,
103 Phil. 261, 266).chanroblesvirtualawlibrarychanrobles virtual law
library
The Calunuran fishpond was registered in 1911. The written
extrajudicial demand for its reconveyance was made by the plaintiffs
in 1951. Their action was filed in 1952 or after the lapse of more than
forty years from the date of registration. The plaintiffs and their
predecessor-in-interest, Valentin Salao, slept on their rights if they
had any rights at all. Vigilanti prospiciunt jura or the law protects him
who is watchful of his rights (92 C.J.S. 1011, citing Esguerra vs. Tecson,
21 Phil. 518, 521).chanroblesvirtualawlibrarychanrobles virtual law
library
536 | P a g e
"Undue delay in the enforcement of a right is strongly persuasive of a
lack of merit in the claim, since it is human nature for a person to
assert his rights most strongly when they are threatened or invaded".
"Laches or unreasonable delay on the part of a plaintiff in seeking to
enforce a right is not only persuasive of a want of merit but may,
according to the circumstances, be destructive of the right itself."
(Buenaventura vs. David, 37 Phil. 435, 440-
441).chanroblesvirtualawlibrarychanrobles virtual law library
Having reached the conclusion that the plaintiffs are not entitled to
the reconveyance of the Calunuran fishpond, it is no longer n to Pass
upon the validity of the donation made by Ambrosia Salao to Juan S.
Salao, Jr. of her one-half share in the two fishponds The plaintiffs have
no right and personality to assil that
donation.chanroblesvirtualawlibrarychanrobles virtual law library
Even if the donation were declared void, the plaintiffs would not have
any successional rights to Ambrosia's share. The sole legal heir of
Ambrosia was her nephew, Juan, Jr., her nearest relative within the
third degree. Valentin Salao, if living in 1945 when Ambrosia died,
would have been also her legal heir, together with his first cousin,
Juan, Jr. (Juani). Benita Salao, the daughter of Valentin, could not
represent him in the succession to the estate of Ambrosia since in the
collateral line, representation takes place only in favor of the children
of brothers or sisters whether they be of the full or half blood is (Art
972, Civil Code). The nephew excludes a grandniece like Benita Salao
or great-gandnephews like the plaintiffs Alcuriza (Pavia vs. Iturralde 5
Phil. 176).chanroblesvirtualawlibrarychanrobles virtual law library
The trial court did not err in dismissing plaintiffs' complaint.
Defendants' appeal. - The defendants dispute the lower court's
finding that the plaintiffs filed their action in good faith. The
defendants contend that they are entitled to damages because the
plaintiffs acted maliciously or in bad faith in suing them. They ask for
P25,000 attorneys fees and litigation expenses and, in addition, moral
damages.chanroblesvirtualawlibrarychanrobles virtual law library
We hold that defemdamts' appeal is not meritorious. The record
shows that the plaintiffs presented fifteen witnesses during the
protracted trial of this case which lasted from 1954 to 1959. They
fought tenaciously. They obviously incurred considerable expenses in
prosecuting their case. Although their causes of action turned out to
be unfounded, yet the pertinacity and vigor with which they pressed
their claim indicate their sincerity and good
faith.chanroblesvirtualawlibrarychanrobles virtual law library
There is the further consideration that the parties were descendants
of common ancestors, the spouses Manuel Salao and Valentina
Ignacio, and that plaintiffs' action was based on their honest
supposition that the funds used in the acquisition of the lands in
litigation were earnings of the properties allegedly inherited from
Manuel Salao.chanroblesvirtualawlibrarychanrobles virtual law
library
Considering those circumstances, it cannot be concluded with
certitude that plaintiffs' action was manifestly frivolous or was
primarily intended to harass the defendants. An award for damages
to the defendants does not appear to be just and
proper.chanroblesvirtualawlibrarychanrobles virtual law library
The worries and anxiety of a defendant in a litigation that was not
maliciously instituted are not the moral damages contemplated in the
law (Solis & Yarisantos vs. Salvador, L-17022, August 14, 1965, 14
SCRA 887; Ramos vs. Ramos, supra). The instant case is not among the
cases mentioned in articles 2219 and 2220 of the Civil Code wherein
moral damages may be recovered. Nor can it be regarded as
analogous to any of the cases mentioned in those articles.
The adverse result of an action does not per se make the act wrongful
and subject the actor to the payment of moral damages. The law
could not have meant to impose a penalty on the right to litigate; such
right is so precious that moral damages may not be charged on those
who may exercise it erroneously. (Barreto vs. Arevalo, 99 Phil. 771.
779).
The defendants invoke article 2208 (4) (11) of the Civil Code which
provides that attorney's fees may be recovered "in case of a clearly
unfounded civil action or proceeding against the plaintiff" (defendant
is a plaintiff in his counterclaim) or "in any other case where the court
deems it just and equitable" that attorney's fees should he
awarded.chanroblesvirtualawlibrarychanrobles virtual law library
But once it is conceded that the plaintiffs acted in good faith in filing
their action there would be no basis for adjudging them liable to the
defendants for attorney's fees and litigation expenses (See Rizal
Surety & Insurance Co., Inc. vs. Court of Appeals, L-23729, May 16,
1967, 20 SCRA 61).chanroblesvirtualawlibrarychanrobles virtual law
library
It is not sound public policy to set a premium on the right to litigate.
An adverse decision does not ipso facto justify the award of attorney's
fees to the winning party (Herrera vs. Luy Kim Guan, 110 Phil. 1020,
1028; Heirs of Justiva vs. Gustilo, 61 O. G.
6959).chanroblesvirtualawlibrarychanrobles virtual law library
The trial court's judgment is affirmed. No pronouncement as to
costs.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED.
Barredo (Chairman), Antonio, Concepcion, Jr. and Martin, JJ.,
concur.chanroblesvirtualawlibrarychanrobles virtual law library
Fernando (Chairman, Second Division), J., took no
part.chanroblesvirtualawlibrarychanrobles virtual law library
Martin, J., was designated to sit in the Second Division.
537 | P a g e
G.R. No. L-17809 December 29, 1962
RESURRECCION DE LEON, ET AL., Plaintiffs-Appellees, v. EMILIANA
MOLO-PECKSON, ET AL., respondents-appellants.
Cornelio R. Magsarili for plaintiffs-appellees.
Sycip, Salazar, Luna and Associates for respondents-appellants.
BAUTISTA ANGELO, J.:
Resurreccion De Leon, et al. filed on November 13, 1958 before the
Court of First Instance of Rizal a complaint seeking to compel Emiliana
Molo-Peckson, et al. to convey to the former ten parcel of land
located in Pasay City with an area of 1,749 sq. m. upon payment of
P1.00 per parcel upon the plea that said lots were willed or donated
in 1948 to the latter by their foster parents Mariano Molo y Legaspi
and Juana Juan with the understanding that they should sell them to
the plaintiffs under the terms above-
stated.chanroblesvirtualawlibrarychanrobles virtual law library
Defendants, in their answer, disclaimed any legal obligation on their
part to sell the above properties to the plaintiffs for the nominal
consideration of P1.00 per lot alleging that if they executed the
document on which the complaint is predicated it was on the
mistaken assumption that their foster parents had requested them
that they executed on August 9, 1956 a document revoking said
donation which was acknowledged before Notary Public Leoncio C.
Jimenez.chanroblesvirtualawlibrarychanrobles virtual law library
No testimonial evidence was presented by either party. Instead, both
agreed to submit the case upon the presentation of their respective
exhibits which were all admitted by the trial
court.chanroblesvirtualawlibrarychanrobles virtual law library
After trial on the merits, the court a quo rendered on September 21,
1960 a decision wherein it held that, under the facts established by
the evidence, trust has been constituted by the late spouses Mariano
Molo and Juana Juan over the ten parcels of land in question in favor
plaintiffs as beneficiaries and, as a consequence concluded:
Considering all the foregoing, the Court orders:chanrobles virtual law
library
1. The defendants, jointly and severally to free the said ten (10)
parcels of land from the mortgage lien in favor of the Rehabilitation
Finance Corporation (now Development Bank of the Philippines) and
Claro Cortez, and thereafter to sign and execute in favor of the
plaintiffs a deed of absolute sale of the said properties for and in
consideration of TEN (P10.00) PESOS already deposited in Court after
all conditions imposed in Exhibit A have been complied
with;chanrobles virtual law library
2. That in the event the defendants shall refuse to execute and
perform the above, they are ordered, jointly and severally, to pay the
plaintiffs the value of said ten (10) parcels of land in question, the
amount to be assessed by the City of Pasay City as the fair market
value of the same, upon orders of the Court to assess said
value;chanrobles virtual law library
3. The defendants jointly and severally to pay the plaintiffs' Attorney's
fees in the amount of P3,000.00, as defendants acted in gross and
evident bad faith in refusing to satisfy the plaintiffs' plainly valid, just
and demandable claim, under Article 2208 sub-paragraph 5 of the
New Civil Code; chanrobles virtual law library
4. The defendants to render an accounting of the fruits of said ten (10)
parcels of land from the time plaintiffs demanded the conveyance of
said parcels of land on August 11, 1956 as per Exhibits B and C, in
accordance with the provisions of Article 1164, New Civil Code which
provides that the creditor has a right to the fruit of the thing from the
time the obligation to deliver it arises; andchanrobles virtual law
library
5. The defendants to pay the costs.
Defendants took the present
appeal.chanroblesvirtualawlibrarychanrobles virtual law library
On January 24, 1941, Mariano Molo y Legaspi died leaving a will
wherein he bequeathed his entire estate to his wife, Juana Juan. This
will was probated in the Court of First Instance of Pasay City, Rizal,
which was affirmed by the Supreme Court on November 26, 1956
(G.R. No. L-8774). On May 11, 1948, Juana Juan in turn executed a will
naming therein many devisees and legatees, one of whom is
Guillermo San Rafael, mother of the plaintiffs and defendant Pilar
Perez Nable. On June 7, 1948, however, Juana Juan executed a
donation inter vivos in favor of Emiliana Molo-Peckson and Pilar Perez
Nable of almost all of her entire property leaving only about
P16,000.00 worth of property for the devisees mentioned in the will.
Among the properties conveyed to the donees are the ten parcels of
land subject of the present action. Juana Juan died on May 28,
1950.chanroblesvirtualawlibrarychanrobles virtual law library
On December 5, 1950, Emiliana Molo-Peckson and Pilar Perez Nable
executed a document which they called "MUTUAL AGREEMENT" the
pertinent provisions of which are:
That the above named parties hereby mutually agree by these
presents . . . that the following lots should be sold at ONE (1) PESO
each to the following persons and organization:
chanrobles virtual law library
TO - JUSTA DE LEON and RESURRECCION DE LEON, several parcels of
land located at Calle Tolentino (South of Tenorio and Kapitan
Magtibay), Pasay City, share and share alike or half and half of TEN
(10) LOTS described in:chanrobles virtual law library
Transfer Certificate of Title No. 28157 - and allocated as
follows:chanrobles virtual law library
(a) To JUSTA DE LEON Five (5)
Lots.chanroblesvirtualawlibrarychanrobles virtual law library
(b) To RESURRECCION DE LEON, the remaining Five (5)
Lots.chanroblesvirtualawlibrarychanrobles virtual law library
That this agreement is made in conformity with the verbal wish of the
late Don Mariano Molo y Legaspi and the late Dona Juana Francisco
Juan y Molo. These obligations were repeatedly told to Emiliana Molo
Peckson, before their death and that same should be fulfilled after
their death.
On August 9, 1956, however, the same defendants, assisted by their
husbands, executed another document in which they revoked the so-
called mutual agreement mentioned above, and another relating to
the same subject matter, stating therein that the parties, "after
matured and thorough study, realized that the above-mentioned
538 | P a g e
public instruments . . . do not represent their true and correct
interpretation of the verbal wishes of the late spouses Don Mariano
Molo y Legaspi and Dona Juana Francisco Juan y Molo." But after the
execution of this document, that is, on August 11, 1956, the
beneficiary Resurreccion de Leon and Justa de Leon, thru their
counsel demanded the conveyance to them of the ten parcels of land
for the consideration of P1.00 per parcel as stated in the document of
December 5, 1950. And having the defendants refused to do so, said
beneficiaries consigned on July 8, 1957 the amount of P10.00 as the
consideration of the ten parcels of
land.chanroblesvirtualawlibrarychanrobles virtual law library
In this appeal, appellants assign the following errors:
I executed it more so when bothof them had studied in reputable
THE LOWER COURT ERRED IN HOLDING THAT THE SPOUSES,
MARIANO MOLO AND JUANA JUAN, CONSTITUTED A TRUST OVER
THE PROPERTIES IN QUESTION PETITION WITH PLAINTIFFS-
APPELLEES AS BENEFICIARIES.
II
THE LOWER COURT ERRED IN APPLYING ARTICLE 1440, 1441, 1449,
1453 AND 1457 OF THE NEW CIVIL CODE TO THE CASE AT BAR.
III
THE LOWER COURT ERRED IN HOLDING PLAINTIFFS-APPELLEES'
EXHIBIT "A" TO BE A DECLARATION AGAINST INTEREST AND AN
ADMISSION BY DEFENDANTS-APPELLANTS.
IV
THE LOWER COURT ERRED IN HOLDING THAT DEFENDANTS-
APPELLANTS HAD NO RIGHT TO REVOKE EXHIBIT "A".
V
THE LOWER COURT ERRED, IN ORDERING APPELLANTS TO RENDER AN
ACCOUNTING OF THE FRUIT OF THE PROPERTIES IN QUESTION.
VI
THE LOWER COURT ERRED IN ORDERING APPELLANTS TO FREE THE
PROPERTIES FROM THE MORTGAGE LIENS IN FAVOR OF THE
DEVELOPMENT BANK OF THE PHILIPPINES AND CLARO CORTEZ.
VII
THE LOWER COURT ERRED IN AWARDING ATTORNEY'S FEES TO THE
APPELLEES.
VIII
THE LOWER COURT ERRED IN NOT DISMISSING THE COMPLAINT.
There is no merit in the claim that the document executed on
December 5, 1950 does not represent the true and correct
interpretation by appellants of the verbal wish of their foster parents
relative to the conveyance for a nominal consideration to appellees
of the ten parcels of land in question considering the circumstances
obtaining in the present case. To begin with, this document was
executed by appellants on December 5, 1950, or about two years and
six months from the time they acquired title to the lands by virtue of
the donation inter vivos executed in their favor by their foster mother
Juana Juan and six months after the death of the donor. There is
nobody who could cajole them to execute it, nor is there any force
that could corce them to make the declaration therein expressed,
except the constraining mandat of their conscience to comply with
"the obligations repeatedly told to Emiliana Molo Peckson," one of
appellants, before their death, epitomized inthe "verbal wish of the
late Don Mariano Molo y Legaspi and the late Doña Juana Francisco
Juan y Molo" to convey after their death said ten parcelsof land at
P1.00 a parcel to appellees. In fact, the acknowledgement appended
to the document they subscribed states that it was "their own free act
andvoluntary deed."chanrobles virtual law library
Indeed, it is to be supposed that appellants understood and
comprehended the legal import of said documents when they
centers of learning, one being a pharmacist and the other a member
of the bar. Moreover, they have more than ample time - the six
months intervening betwen the death of the donor and the execution
of the document - to ponder not only wish of their predecessors-in-
interest but also on the propriety of putting in writing the mandate
they have received. It is, therefore, reasonable to presume that that
document represents the real wish of appellants' predecessors-in-
interest and that the only thing to be determinedis its real import and
legal implications.chanroblesvirtualawlibrarychanrobles virtual law
library
That the document represents a recognition of pre-existing trust or a
declaration of an express trust impressed on the ten parcels of land
in question is evident. A declaration of trust has been defined as an
act by which a person acknowledges that the property, title to which
he holds, is held by him for the use of another (Griffith v. Maxfield, 51
S.W. 832, 66Ark. 513, 521). This is precisely the nature of the will of
the donor: to convey the titles of the lands to appellants with the duty
to hold them intrust for the appellees. Appellants oblingly complied
with this duty byexecuting the document under
consideration.chanroblesvirtualawlibrarychanrobles virtual law
library
True it is that to establish a trust the proof must be clear, satisfactory
and convincing. It cannot rest on vague, uncertain evidence, or on a
loose,equivocal or indefinite declaration (In re Tuttle's Estate, 200 A.
921, 132 Pa. Super 356); but here the document in question clearly
and unequivocallydeclares the existence of the trust even if the same
was executed subsequent to the death of the trustor, Juana Juan, for
it has been held that the right creating or declaring a trust need not
be contemporaneous or inter-parties (Stephenson v. Stephenson, 171
S.W. 2d 265, 351 Mo. 8; In re Corbin's Trust Orhp., 57 York Leg. Rec.
201). It was even held that an express trust maybe declared by a
writing made after the legal estate has been vested in the trustee
(Kurtz v. Robinson, Tex. Civ. App. 256 S.W. 2d 1003). The contention,
therefore, of appellants that the will and the donation executed by
their predecessors-in-interest were absolute for it did not contain a
hint that the lots in question will be held in trust by them does not
merit weight because the fact that an express trust was created by a
deed which was absolute on its face may be shown by a writing
separate from the deed itself (Mugan v. Wheeler, 145 S.W. 462, 241
Mo. 376).chanroblesvirtualawlibrarychanrobles virtual law library
The fact that the beneficiaries were not notified of the existence of
the trust or that the latter have not been given an opportunity to
accept it isof no importance, for it is not essential to the existence of
a valid trustand to the right of the beneficiaries to enforce the same
539 | P a g e
that they had knowledge thereof the time of its creation (Stoehr v. date of the finality of the said
Miller, 296 F. 414).Neither is it necessary that the beneficiary should decision.chanroblesvirtualawlibrarychanrobles virtual law library
consent to the creation of the trust (Wockwire-Spencer Steel
Corporation v. United Spring Mfg. Co.,142 N.E. 758, 247 Mass. 565). We find no error in the directive of the trial court that appellants
In fact it has been held that in case of a voluntary trust the assent of shouldfree the lands in question from the encumbrance that was
the beneficiary is not necessary to render itvalid because as a general created thereon by them in favor of the Development Bank of the
rule acceptance by the beneficiary is presumed (Article 1446, new Philippines and one Claro cortez, for as trustees it is their duty to
Civil Code; Cristobal v. Gomez, 50 Phil. deliver the properties to the cestui que trust free from all liens and
810).chanroblesvirtualawlibrarychanrobles virtual law library encumbrances.chanroblesvirtualawlibrarychanrobles virtual law
library
It is true, as appellants contend, that the alleged declaration of trust
was revoked, and having been revoked it cannot be accepted, but the To recapitulate, we hold: (1) that the document executed on
attempted revocation did not have any legal effect. The rule is that in December 5, 1950 creates an express trust in favor of appellees; (2)
the absence of any reservation of the power to revoke a voluntary that appellants had no right to revoke it without the consent of
trust is irrevocable without the consent of the beneficiary (Allen v. the cestui que trust; (3) that appellants must render an accounting of
Safe Deposit and Trust Co.of Baltimore, 7 A. 2d 180, 177 Md. 26). It the fruits of the lands from the datethe judgement rendered in G.R.
cannot be revoked by the creatoralone, nor by the trustee (Fricke v. No. L-8774 became final and executory; and (4)that appellants should
Weber, C.C.A. Ohio, 145 F. 2d 737;Hughes v. C.I.R., C.C.A. 9, 104 F. 2d free said lands from all liens and
144; Ewing v. Shannahan, 20 S.W. 1065,113 Mo. 188). Here, there is encumbrances.chanroblesvirtualawlibrarychanrobles virtual law
no such reservation.chanroblesvirtualawlibrarychanrobles virtual law library
library WHEREFORE, with the modification as above indicated with regard to
Appellants contend that the lower court erred in applying the accounting,we hereby affirm the decision appealed from, without
provisions of the new Civil Code on trust. This is correct. The express pronouncement as to costs.
trust was constituted during the lifetime of the predecessor-in- Labrador, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and
interest of appellants,that is, before the effectivity of the new Civil Makalintal, JJ., concur.
Code, although the instrumentrecognizing and declaring such trust Padilla and Concepcion, JJ., took no part.
was executed on December 5, 1950, afterthe effectivity of said Code.
The Civil Code of 1889 and previous laws andauthorities on the
matter, therefore, should govern the herein trust under the
provisions of Article 2253 of the new Civil
code.chanroblesvirtualawlibrarychanrobles virtual law library

But the Civil Code of 1889 contains no specific provisions on trust as

doesthe new Civil Code. Neither does the Code of Civil Procedure of
1901 for thesame merely provides for the proceeding to be followed
relative to trustsand trustees (Chapter XVIII). This silence, however,
does not mean that thejuridical institution of trust was then unknown
in this jurisdiction, for theprinciples relied upon by the Supreme Court
before the effectivity of thenew Civil Code were those embodied in
Anglo-American jurisprudence as derivedfrom the Roman and Civil
Law principles (Government v. Abadilla, 46 Phil. 42).And these are the
same principles on which we predicate our ruling heretoforestated
and on which we now rely for the validity of trust in
question.chanroblesvirtualawlibrarychanrobles virtual law library

The trial court ordered appellants to render an accounting of the

fruits of the properties in question even if appellees did not expressly
ask for it intheir prayer for relief. We, however, believe that this is
covered by the general prayer "for such other relief just and equitable
under the premises."What is important is to know from what what
date the accounting should bemade. The trial court ordered that the
accounting be made from the time appellees demanded the
conveyance of the ten parcels of land on August 11, 1956, in
accordance with Article 1164 of the new Civil Code which provides
that the creditor has a right to the fruit of the thing from thetime the
obligation to deliver it arises. But this cannot be done without first
submitting proof that the conditions stated in the mutual agreement
hadbeen complied with. And this only happened when the decision of
the Supreme Court in G.R. No. L-8774 became final and executory.
The ruling of the trialcourt in this respect should therefore be
modified in the sense that the accounting should be made from the

540 | P a g e
G.R. No. L-21334 December 10, 1924
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, Petitioner,
vs. ANASTASIA ABADILLA, ET AL., claimants.
THE MUNICIPALITY OF TAYABAS, ET AL., claimants-appellees,
MARIA PALAD, ET AL., claimants-appellants.
Domingo Lopez, Ramon Diokno and Gabriel N. Trinidad for appellants.
Attorney-General Villa-Real for municipality as appellee.
No appearance for the other appellees.
OSTRAND, J.:
This is an appeal from a judgment in cadastral and land registration
case No. 3 of the Court of First Instance of Tayabas (G. L. R. O. Record
No. 213) in which case lots Nos. 3464, 3469, and 3470 are claimed by
the municipality of Tayabas and the governor of the province on one
side, and by Maria, Eufemio, Eugenia, Felix, Caridad, Segunda, and
Emilia Palad on the other. Lot No. 3470 is also claimed by Dorotea
Lopez. The court below ordered the registration of the three lots in
the name of the governor of the Province of Tayabas in trust for a
secondary school to be established in the municipality of Tayabas. The
claimants Palad and Dorotea Lopez
appealed.chanroblesvirtualawlibrary chanrobles virtual law library
It appears from the evidence that the lands in question were originally
owned by one Luis Palad, a school teacher, who obtained titled to the
land by composicion gratuita in 1894. On January 25, 1892, Palad
executed a holographic will party in Spanish and partly in Tagalog.
Palad died on December 3, 1896, without descendants, but leaving a
widow, the appellant Dorotea Lopez, to whom he had been married
since October 4, 1885. On July 27, 1987, the Court of First Instance of
Tayabas ordered the protocolization of the will over the opposition of
Leopoldo and Policarpio Palad, collateral heirs of the deceased and of
whom the appellants Palad are
descendants.chanroblesvirtualawlibrary chanrobles virtual law
library
The will contained a clause in Tagalog which, translated into English,
reads:
That the cocoanut land in Colongcolong, which I have put under
cultivation, be used by my wife after my death during her life or until
she marries, which property is referred to in the inventory under No.
5, but from this cocoanut land shall be taken what is to be lent to the
persons who are to plant cocoanut trees and that which is to be paid
to them as their share of the crop if any should remain; and that she
try to earn with the product of the cocoanut trees of which those
bearing fruit are annually increasing; and if the times aforementioned
should arrive, I prepare and donate it to secondary college to be
erected in the capital of Tayabas; so this will be delivered by my wife
and the executors to the Ayuntamiento of this town, should there be
any, and if not, to the civil governor of this province in order to cause
the manager thereof to comply with my wishes for the good of many
and the welfare of the town.
After the death of Luis Palad the widow Dorotea Lopez remained in
possession of the land and in the year 1900 married one Calixto
Dolendo. On April 20, 1903, the aforesaid collateral heirs of Luis Palad
brought an action against the widow for the partition of the lands
here in question on the ground that she, by reason of her second
marriage, had lost the right to their exclusive use and possession. In
the same action the municipality of Tayabas intervened claiming the
land under the clause of the Palad will above quoted. During the
pendency of the action an agreement was arrived at by the parties
under which the land which now constitutes lots Nos. 3464 and 3469
were turned over to the municipality as its share of the inheritance
under the will, and the remaining portion of the land in controversy
and which now forms lot No. 3470 was left in the possession of
Dorotea Lopez. On the strength of the agreement the action was
dismissed on November 9, 1904, upon motion by the counsel for the
municipality and concurred in by all the parties, reserving to the
collateral heirs the right to bring another action. The municipality of
Tayabas has been in possession of said lots Nos. 3464 and 3469 ever
since and Dorotea Lopez has likewise held uninterrupted possession
of lot No. 3470.chanroblesvirtualawlibrary chanrobles virtual law
library
In regard to lots Nos. 3464 and 3469, claimed by the appellants Palad
and the appellees, the case presents several problems not directly
covered by statutory provisions or by Spanish or local precedents and,
for the solution of which, we must resort to the underlying principles
of the law on the subject. As it is doubtful whether the possession of
the municipality of Tayabas can be considered adverse within the
meaning of section 41 of the Code of Civil Procedure, the case as to
these lots turns upon the construction and validity of the clause
quoted from the will of Luis Palad, rather than upon the question of
prescription of title.chanroblesvirtualawlibrary chanrobles virtual law
library
The clause is very unskillfully drawn; its language is ungrammatical
and at first blush seems somewhat obscure, but on closer
examination it sufficiently reveals the purpose of the testator. And if
its provisions are not in contravention of some established rule of law
or public policy, they must be respected and given effect. It may be
observed that the question as to the sufficiency of the form of the will
must be regarded as settled by the protocolization proceedings had
in the year 1897.chanroblesvirtualawlibrary chanrobles virtual law
library
It is a well-known rule that testamentary dispositions must be liberally
construed so as to give effect to the intention of the testator as
revealed by the will itself. Applying this rule of construction it seems
evident that by the clause in question the testator proposed to create
a trust for the benefit of a secondary school to be established in the
town of Tayabas, naming as trustee the ayuntamiento of the town or
if there be no ayuntamiento, then the civil governor of the Province
of Tayabas.chanroblesvirtualawlibrary chanrobles virtual law library
As the law of trusts has been much more frequently applied in
England and in the United Stated than it has in Spain, we may draw
freely upon American precedents in determining the effect of the
testamentary trust here under consideration, especially so as the
trusts known to American and English equity jurisprudence are
derived from the fidei commissa of the Roman law and are based
entirely upon Civil Law
principles.chanroblesvirtualawlibrary chanrobles virtual law library
In order that a trust may become effective there must, of course, be
a trustee and a cestui que trust, and counsel for the appellants Palad
argues that we here have neither; that there is no ayuntamiento,
no Gobernador Civil of the province, and no secondary school in the
town of Tayabas.chanroblesvirtualawlibrary chanrobles virtual law
library
541 | P a g e
An ayuntamiento corresponds to what in English is termed a
municipal corporation and it may be conceded that the ordinary
municipal government in these Island falls short of being such a
corporation. But we have provincial governors who like their
predecessors, the civil governors, are the chief executives of their
respective provinces. It is true that in a few details the function and
power of the two offices may vary somewhat, but it cannot be
successfully disputed that one office is the legal successor of the
other. It might as well be contended that when under the present
regime the title of the chief executive of the Philippine was changed
from Civil Governor to that of Governor-General, the latter was not
the legal successor of the former. There can therefore be but very
little doubt that the governor of the Province of Tayabas, as the
successor of the civil governor of the province under the Spanish
regime, may acts as trustee in the present
case.chanroblesvirtualawlibrary chanrobles virtual law library
In regard to private trust it is not always necessary that the cestui que
trust should be named, or even be in esse at the time the trust is
created in his favor. (Flint on Trusts and Trustees, section 25; citing
Frazier vs.Frazier, 2 Hill Ch., 305; Ashurt vs. Given, 5 Watts & S., 329;
Carson vs.Carson, 1 Wins. [N. C.] 24.) Thus a devise to a father in trust
for accumulation for his children lawfully begotten at the time of his
death has been held to be good although the father had no children
at the time of the vesting of the funds in him as trustees. In charitable
trust such as the one here under discussion, the rule is still further
relaxed. (Perry on Trusts, 5th ed., section 66.)chanrobles virtual law
library
This principle is in harmony with article 788 of the Civil Code which
reads as follows:
Any disposition which imposes upon an heirs the obligation of
periodically investing specified sums in charitable works, such as
dowries for poor maidens or scholarships for students, or in favor of
the poor, or any charitable public educational institution, shall be
valid under the following conditions:chanrobles virtual law library
If the charge is imposed on real property and is temporary, the heir
or heirs may dispose of the encumbered estate, but the lien shall
continue until the record thereof is
canceled.chanroblesvirtualawlibrary chanrobles virtual law library
If the charge is perpetual, the heir may capitalize it and invest the
capital at interest, fully secured by first
mortgage.chanroblesvirtualawlibrary chanrobles virtual law library
The capitalization and investment of the principal shall be made with
the intervention of the civil governor of the province after hearing the
opinion of the prosecuting
officer.chanroblesvirtualawlibrary chanrobles virtual law library
In any case, if the testator should not have laid down any rules for the
management and application of the charitable legacy, it shall be done
by the executive authorities upon whom this duty devolves by law.
It is true that minor distinctions may possibly be drawn between the
case before us and that presupposed in the article quoted, but the
general principle is the same in both cases. Here the trustee, who
holds the legal title, as distinguished from the beneficial title resting
in the cestui que trust, must be considered the heirs. The devise under
consideration does not in terms require periodical investments of
specified sums, but it is difficult to see how this can affect the general
principle involved, and unless the devise contravenes some other
provision of the Code it must be
upheld.chanroblesvirtualawlibrary chanrobles virtual law library
We have been unable to find any such provision. There is no violation
of any rule against perpetuities: the devise does not prohibit the
alienation of the land devised. It does not violate article 670 of the
Code: the making of the will and the continuance or quantity of the
estate of the heir are not left in the discretion of the third party. The
devisee is not uncertain and the devise is therefore are repugnant to
article 750 of the Civil Code. The provincial governor can hardly be
regarded as a public establishment within the meaning of article 748
and may therefore receive the inheritance without the previous
approval of the Government.chanroblesvirtualawlibrary chanrobles
virtual law library
But counsel argues that assuming all this to be true the collateral heirs
of the deceased would nevertheless be entitled to the income of the
land until the cestui que trust is actually in esse. We do not think so. If
the trustee holds the legal title and the devise is valid, the natural
heirs of the deceased have no remaining interest in the land except
their right to the reversion in the event the devise for some reason
should fail, an event which has not as yet taken place. From a reading
of the testamentary clause under discussion it seems quite evident
that the intention of the testator was to have income of the property
accumulate for the benefit of the proposed school until the same
should be established.chanroblesvirtualawlibrary chanrobles virtual
law library
From what has been said it follows that the judgment appealed from
must be affirmed in regard to lots Nos. 3464 and
3469.chanroblesvirtualawlibrary chanrobles virtual law library
As to lot No. 3470 little need be said. It may be noted that though the
Statute of Limitation does not run as between trustee and cestui que
trustas long as the trust relations subsist, it may run as between the
trust and third persons. Contending that the Colongcolong land was
community property of her marriage with Luis Palad and that lot No.
3470 represented her share thereof, Dorotea Lopez has held
possession of said lot, adverse to all other claimants, since the year
1904 and has now acquired title by
prescription.chanroblesvirtualawlibrary chanrobles virtual law library
The judgment appealed from is affirmed in regard to lots Nos. 3464
and 3469 and is reversed as to lot No. 3470, and it is ordered that said
lot No. 3470 be registered in the name of the claimant Dorotea Lopez.
No costs will be allowed. So
ordered.chanroblesvirtualawlibrary chanrobles virtual law library
Street, Avanceña, Villamor and Romualdez, JJ., concur. chanrobles
virtual law library
chanrobles virtual law library
chanrobles virtual law library
Separate Opinions
MALCOLM, J., concurring and dissenting:chanrobles virtual law
library
542 | P a g e
I concur in regard to lots Nos. 3464 and 3469 and dissent in regard to
lot No. 3470. As to the last mentioned lot, it will be recalled that title
to it is adjudicated to Dorotea Lopez, the widow of Luis Palad who, in
his will, transmitted the usufructuary rights to the land to his widow
"during her life or until she marries," after which the property was to
be delivered to the ayuntamiento of Tayabas, Tayabas, or if there
should not be any, to the civil governor of the Province of Tayabas, for
the benefit of a secondary college. Dorotea Lopez having remarried,
the property should have been turned over to the municipality of
Tayabas. The alleged agreement of 1904 cannot alter there basic and
controlling facts. The possession of Dorotea Lopez has been in
contravention of the terms of the trust and in bad
faith.chanroblesvirtualawlibrary chanrobles virtual law library

Whatever may be the rule elsewhere, in civil law jurisdictions

including the Philippines, it is settled that to perfect title by adverse
possession, such possession must have been held in good faith on the
part of the claimant. (Arriola vs. Gomez de la Serna [1909], 14 Phil.,
627; Santiago vs. Cruz [1911], 19 Phil., 145; Cuaycong vs. Benedicto
[1918], 37 Phil., 781; Tolentino vs. Vitug [1918], 39 Phil., 126;
Ochoa vs. Hernandez [1913], 230 U. S., 139; Kennedy vs. Townsley
[1849], 16 Ala., 239; Abshire vs. Lege [1913], 133 La., 254; 2 C. J., 199.)
The doctrines announced in the Tolentino vs. Vitug, supra, are
particularly applicable to the
facts.chanroblesvirtualawlibrary chanrobles virtual law library

For these reason, I would prefer to see the judgment appealed from
affirmed in all respects.chanroblesvirtualawlibrary chanrobles virtual
law library

543 | P a g e
G.R. No. L-27014 October 5, 1927
PAULINA CRISTOBAL, ET AL., Plaintiffs-Appellees, v. MARCELINO
GOMEZ, Defendant-Appellant.
M. H. de Joya and Jose Batungabacal for appellant.
Ambrosio Santos for appellees.
STREET, J.:
This action was instituted in the Court of First Instance of the Province
of Cavite by Paulina Cristobal, Luis Gomez, Josefa Gomez, Paciencia
Gomez and Jose Gomez, for the purpose of recovering from
Marcelino Gomez two parcels of land located in the sitio of Jabay,
municipality of Bacoor, Province of Cavite, and lot located in the town
of Bacoor, Cavite, - all more particularly described in the second
paragraph of the complaint, and for the purpose of compelling the
defendant to pay to the plaintiffs the income received by him from
said property since 1918. To the complaint the defendant answered
with a general denial and two special defenses not necessary to be
here recounted other than to indicate that he claimed to be owner in
his own right of all of the property which is the subject of the action.
Upon hearing the cause the trial court found that the property in
question belongs to the plaintiffs, as coowners, and he therefore
ordered the defendant to surrender the property to them and
execute an appropriate deed of transfer as well as to pay the costs of
the proceeding. From this judgment the defendant
appealed.chanroblesvirtualawlibrary chanrobles virtual law library
The property with which this action is concerned formerly belonged
to Epifanio Gomez, deceased husband of the plaintiff Paulina
Cristobal an father of the four Gomez children who joined with their
mother Paulina in the complaint. On December 13, 1891, Epifanio
Gomez sold this property under contract of sale with pacto de retro to
Luis R. Yangco, redeemable in five years for the sum of P2,500 the
vendor remaining in possession in the character of lessee. The period
expressed in this agreement passed of lessee. The period expressed
in this agreement passed without redemption, with the result that the
property consolidated in Yangco, who, nevertheless, many years later
conceded to the vendor the privilege of repurchasing. Gomez was
without means to effect the repurchase of the property himself, and
he therefore found it necessary to apply to a kinsman, Bibiano Bañas,
for assistance. Bañas hesitated to lend Gomez the money upon his
own sole credit; but told him that he would let him have the money if
his brother Marcelino Gomez and his sister Telesfora Gomez would
make themselves responsible for the loan. Epifanio therefor
consulted with his brother and sister and they agreed to assist him in
getting back his property. Accordingly, in the latter part of July, 1907,
Bibiano Bañas was called in consultation, at the home of Telesfora
Gomez in Manila, with Epifanio Gomez and Marcelino Gomez. These
four being present upon that occasion, an agreement was reached,
which was, in substance, that Bibiano Bañas, should advance the sum
of P7,000, upon the personal credit of Marcelino and Telesfora
Gomez, and that this money should be used to repurchase the
property in the name of Telesfora Gomez and Marcelino Gomez, who
should hold and administer the property until the capital advanced by
Bañas should be paid off, after which the property would be returned
to Epifanio Gomez. This agreement was carried into effect by the
execution of the Exhibits A and D of the plaintiffs, and though
executed two days apart, these documents, as the trial court found,
really constitute parts of one transaction. By the Exhibit A, executed
on August 12, 1907, Marcelino Gomez and Telesfora Gomez created
a "private partnership in participation" for the purpose of redeeming
the property which their brother Epifanio had sold to Yangco. It was
therein agreed that the capital of this partnership should consist of
P7,000, of which Marcelino Gomez was to supply the amount of
P1,500, and Telesfora Gomez the sum of P5,550. It was further agreed
that all the property to redeemed should be placed in the name of the
two namely, Marcelino Gomez and Telesfora Gomez, and that
Marcelino Gomez should be its manager. Among the provisions in this
agreement of major importance to the present decision, we find the
following:
( h) That all the income, rent, and produce of the aforesaid property
of Epifanio Gomez shall be applied exclusively to the amortization of
the capital employed by the two parties, that is to say, Don Marcelino
Gomez and Doña Telesfora Gomez, with its corresponding interest
and other incidental expenses.chanroblesvirtualawlibrary chanrobles
virtual law library
( i) As soon as the capital employed, with its interest and other
incidental expenses, shall have been covered, said properties shall be
returned to our brother Epifanio Gomez or to his legitimate children,
with the direct intervention, however, of both parties, namely, Don
Marcelino Gomez and Doña Telesfora Gomez, or one of
them.chanroblesvirtualawlibrary chanrobles virtual law library
( j) In order that the property of Epifanio Gomez may be returned, it
is made essential that he shall manifest good behavior in the opinion
of Don Marcelino Gomez and Doña Telesfora Gomez jointly.
By the Exhibit D, executed on July 10, 1907, Luis Yangco conveyed to
Marcelino Gomez and Telesfora Gomez the three pieces of property
which he had obtained from Epifanio Gomez. Though this conveyance
recited a consideration of 5,000, the amount really paid to Yangco
upon this occasion was P6,700, consisting of the sum of P5,000 which
was needed to redeem the property from Yangco, the further sum of
P1,500 necessary to pay a loan which Epifanio Gomez had obtained
from Gregoria Yangco, sister of Luis R. Yangco, and finally the sum of
P200 which Yangco exacted as a present for his manager. The
payment of these sums left P300 of the capital which Bañas had
advanced, and this balance was left with Marcelino Gomez to pay the
expenses of documentation and to make certain needed repairs upon
the property.chanroblesvirtualawlibrary chanrobles virtual law
library
A little more than a year after the transaction above-mentioned had
been consummate, Epifanio Gomez died, leaving a widow, Paulina
Cristobal, and the four children who are coplaintiffs with their mother
in this action. Marcelino Gomez meanwhile entered into possession
of the property, - a possession which he subsequently maintained
until his death, which occurred after this action had been tried in the
court below. During this period of about twenty years Marcelino
Gomez improved the larger parcel by extending the salt beds
constructed upon it and by converting them from the Filipino form to
the Chinese style. During the same period the three parcels of
property quintupled in value, being now worth about P50,000,
according to the estimate made by Marcelino Gomez
himself.chanroblesvirtualawlibrary chanrobles virtual law library
Less than a year after the death of Epifanio Gomez, his sister Telesfora
became desirous of freeing herself from the responsibility which she
had assumed to Bibianio Bañas. Accordingly, on September 10, 1909,
with the consent of Bañas, the document Exhibit E was prepared and
544 | P a g e
executed by Telesfora and Marcelino Gomez. By this instrument
Telesfora conveyed to Marcelino her interest and share in the three
properties previously redeemed from Yangco. The conveyance recites
a consideration of the sum of P6,096, paid in the act. Nevertheless,
no money passed, and the real consideration of the conveyance, as
admitted by Marcelino Gomez himself, was that Marcelino should
assume the obligation which Telesfora had contracted with Bañas by
reason of the loan of P7,000 made the latter upon the occasion of the
redemption of the property from Yangco. The amount of this
obligation was estimated at P6,096, and the consideration mentioned
in the Exhibit E was therefore fixed in this amount. At the time that
Exhibit E was executed the same parties, Marcelino Gomez and
Telesfora Gomez, executed the document Exhibit 13 of the
defendant, whereby they declared dissolved the partnership that had
been created by the Exhibit A; and Telesfora Gomez again declared
that she conveyed to Marcelino Gomez the three parcels in questions
for the same consideration recited in the Exhibit
E.chanroblesvirtualawlibrary chanrobles virtual law library
As long as both Telesfora and Marcelino Gomez had been personally
answerable to Bañas for the loan of P7,000, he had been content to
look to their personal responsibility for reimbursement; but not that
the loan was being novated, with Marcelino as the sole debtor, Bañas
required him to execute a contract of sale for the three parcels,
with pacto de retro, for the purpose of securing the indebtedness
(Exhibit 14 of the defendant). This instrument was executed on
September 10, 1909, contemporaneously with the execution of the
documents by which Telesfora conveyed her interest in the property
to Marcelino and by which the partnership was declared dissolved. In
the instrument Exhibit 14 it is declared that Marcelino Gomez sells the
property to Bañas for the sum of P8,500, with pacto de retro,
redeemable within the period of five years, extendible for whatever
time Bañas may consider convenient. At the same time, and by the
same instrument, Bañas leased the property to the vendor Gomez for
the period fixed for repurchase at a semiannual rental of P510, taxes
to be paid by the lessee. The period of repurchase fixed in this
contract passed without redemption having been effected, but by an
instrument dated June 26, 1915, Bañas conceded to Gomez the right
to repurchase, without any definite limit of time, conditioned upon
the payment of the rent. Finally, on April 1, 1918, Marcelino Gomez
paid to Bañas the sum of P7,575.92 in full satisfaction of the entire
claim and received from Bañas a reconveyance of the three parcels,
thus closing the documentary history of the property so far as
concerns this litigation. Reflection upon the foregoing transaction
leaves no room for doubt as to the fact that Bañas held the property
under the contract of sale withpacto de retro (Exhibit 14) as a mere
security for his loan. This inference is borne out by the fact that partial
payments on the capital had been accepted by him and that he
voluntarily extended the period of redemption indefinitely after the
property had nominally
consolidated.chanroblesvirtualawlibrary chanrobles virtual law
library
The defendant Gomez says that the money used by him to redeem
the property in the end was money of his own which he had obtained
from the sale of lithographic plant. Assuming that this is true, it must
nevertheless be remembered that the properties in question,
especially the salt beds, were productive of considerable income; and
Gomez admitted at the trial that he had obtained enough from the
property to reimburse him for all outlays. It is therefore evident that
the Bañas loan has been fully liquidated from the income of the
property, or the equivalent, and that the purpose of the original trust
had been fully accomplished before this action was
brought.chanroblesvirtualawlibrary chanrobles virtual law library
The proof shows that Epifanio Gomez was in financial straits from the
time of the Philippine revolution until his death; and in the early years
of the present century he had from time to time informally
hypothecated several of these salt beds to different creditors to
secure petty loans, and this notwithstanding the fact that the
property had previously been sold under contract of sale with pacto
de retro to Luis R. Yangco. The fact that these loans had been made
was known to Marcelino and Telesfora Gomez when they entered
into partnership arrangement to get back the property from Yangco.
Marcelino Gomez, as a manager, was therefore confronted with the
necessity of paying off these small debts, with the result that he finally
paid out upon the property a total of around P10,000, including of
course the debt to Bañas of P7,000. For these and all other expenses
incident to the property he has, upon his own statement, been fully
reimbursed.chanroblesvirtualawlibrary chanrobles virtual law library
The facts sketched above exhibit the dominant features of the case,
and reflection upon their import conducts us to the conclusion that
the trial court committed no error in holding that the defendant
Marcelino Gomez must surrender the property involved in this
lawsuit; and he being now dead, the same obligation devolves on his
heirs. The so-called partnership agreement (Exhibit A) between
Marcelino Gomez and his sister created a trust for the express
purpose of rescuing the property of Epifanio Gomez; and now that the
purpose has been accomplished, the property should be returned to
his legitimate children, as provided in paragraph (i) of the agreement.
This bilateral contract was fully binding on both the contracting
parties; and the trial court did not err in declaring that, under the
second trial paragraph of article 1257 of the Civil Code, the successors
of Epifanio Gomez are entitled to demand fulfillment of the trust.
In Martinez vs. Graño (42 Phil., 35), we held that a person who, before
consolidation of property in the purchaser under a contract of sale
with pacto de retro, agrees with the vendors to buy the property and
administer it till all debts constituting an encumbrance thereon shall
be paid, after which the property shall be turned back to the original
owner, is bound by such agreement; and upon buying in the property
under these circumstances such person becomes in effect a trustee
and is bound to administer the property in this character. The same
rule is applicable in the case before
us.chanroblesvirtualawlibrary chanrobles virtual law library
But it is claimed for the applicant that the trust agreement (Exhibit A)
was kept secret from Epifanio Gomez and that, having no knowledge
of it, he could not have accepted it before the stipulation was
revoked. This contention is contradicted in act by the testimony of
Bibiano Bañas, who says that Epifanio Gomez was present when the
arrangement for the repurchase of the property from Yangco was
discussed and that he assented thereto. Moreover, Bañas states that
after the agreement had been executed, he told Epifanio Gomez in
the presence of his brother and sister that he should be well pleased
as the object he had in view had been accomplished, meaning, that
the property was recorded. But even supposing that Epifanio Gomez
may never have seen the Exhibit A, we have no doubt that he
understood the nature of the arrangement and his assent thereto was
a sufficient acceptance. This being true, it was not competent for the
parties to the trust agreement thereafter to dissolve the partnership
and destroy the beneficial right of Epifanio Gomez in the property.
545 | P a g e
The effect of Exhibits E and 13 was merely to eliminate Telesfora
Gomez from responsibility in the performance of the trust and to
clothe Marcelino Gomez alone with the obligations that had been
created by Exhibit A.chanroblesvirtualawlibrary chanrobles virtual
law library
Much energy has been expended by the attorneys for the appellant
in attempting to demonstrate that, if Epifanio Gomez at any time had
any right in the property by virtue of the Exhibit A, such right could
only be derived from the aspect of Exhibit A as a donation, and that,
inasmuch as the donation was never accepted by Epifanio Gomez in a
public document, his supposed interest therein is unenforceable. But
this, in our opinion, is not a tenable hypothesis. The partnership
agreement should not be viewed in the light of an intended donation,
but as an express trust.chanroblesvirtualawlibrary chanrobles virtual
law library
Much stress is placed in the appellant's brief upon paragraph ( j) of
the partnership agreement which, it is claimed, makes it a condition
precedent to the return of the property to Epifanio Gomez that he
should Exhibit good behavior in the opinion of Marcelino and
Telesfora Gomez; and it is claimed that Epifanio Gomez violated this
condition by two kinds of misbehavior before his death, namely, first,
by selling different salt lots to various persons, and secondly, by
attending cockfights, an activity distasteful to his brother and sister.
This feature of the case if fully discussed and the contention of the
appellant refuted in the appealed decision. But a few words may be
here added upon this aspect of the case. The trust agreement
provides that after the capital employed and other expenses shall
have been covered, the property shall be returned to Epifanio Gomez
or his legitimate children. This contemplated the action to be taken
when the debt should be fully liquidated, something that did not
occur in this case until 1918. But Epifanio Gomez died in 1908. It is
evident that misbehavior on the part of Epifanio Gomez during the
year or more that he lived after the trust agreement was made could
not be attributed as a ground of forfeiture to his legitimate children
ten years later, especially as no step had ever been taken in the life of
Epifanio Gomez to defeat his rights under the trust on account of his
alleged misbehavior.chanroblesvirtualawlibrary chanrobles virtual
law library
Again, it is contended for the appellant that inasmuch as the property
consolidated in Bañas in the year 1915 under the contract of sale
withpacto de retro to him, the subsequent repurchase of the property
by Marcelino Gomez in 1918 vested an indefeasible title in the latter
free from the original trust. But it is obvious that the purchase
effected in 1918 was really a repurchase, consequent upon the
extension of the time of redemption by Bañas, and Gomez must be
considered to be holding in the same right as before, that is, subject
to the trust in favor of Epifanio
Gomez.chanroblesvirtualawlibrary chanrobles virtual law library
Lastly, it is urged that Gomez has the benefit of prescription in his
favor, having been in possession more than ten years under the deed
by which he acquired the sole right from his sister in 1909. This
contention would be valid if the defendant had really been holding
adversely under a claim of title exclusive of any other right and
adverse to all other claimants; but, as we have already demonstrated,
he was merely a trustee in possession under a continuing and
subsisting trust. Prescription is not effective in favor of such a holder
(Code of Civil Procedure, sec. 38). Moreover, even supposing that the
statute of limitations might have begun to run in the defendant's
favor when he recovered the property from Bañas in 1918, the ten
years allowed by law had not been completed when this action was
instituted; and in this connection the minority of one or more of the
plaintiffs during this period may be
disregarded.chanroblesvirtualawlibrary chanrobles virtual law library
A point unconnected with the other issues in the case is raised by the
fourth assignment of error in the appellants brief. This has reference
to the title to parcel C, the lot located in Bacoor. There can be no
doubt that the ownership of this piece of property was originally
vested in Epifanio Gomez by virtue of a composition title from the
Government; and said title has never passed from him except by
virtue of the contract of sale of 1891 in favor of Luis R. Yangco.
Nevertheless, the defendant has submitted in evidence a notarial
document emitted on December 31, 1904, by Epifanio Gomez, in the
character of notary public, wherein he certifies that Marcelino Gomez
had requested him to draw up a notarial act showing the properties
of which Marcelino Gomez was known to be the true owner: upon
which follows an enumeration of properties possessed by Marcelino
Gomez. Among these we find the lot in Bacoor, being the parcel C
described in the complaint. The appellant relies upon this instrument
as proving title in Marcelino Gomez, and it is contended that Epifanio
Gomez and his successors are estopped from claiming said lot. This
contention is untenable. It is true that we have here the written
admission of Epifanio Gomez would have been estopped from
asserting ownership in himself. Nevertheless, it is clear enough this
document Epifanio Gomez, in conclusion with his brother Marcelino,
was merely laying the basis of a scheme to defeat Yangco's rights
under his contract of purchase of 1891, or perhaps to defeat other
creditors of Epifanio Gomez, - a plot which, in view of subsequent
occurrences, they did not attempt to carry into effect. No estoppel
can be invoked by Marcelino Gomez or his successors, based upon
this document, for the reason that he was not misled by the false
statement contained therein.chanroblesvirtualawlibrary chanrobles
virtual law library
In conclusion we note that the trial court did not determine the extent
of the proportional interest in the property pertaining to the different
plaintiffs, and no issue has been made with respect to the extent of
their several rights. The solution of this point, if any contention should
arise among them in the future, depends upon the character of the
property in relation to the spouses Epifanio Gomez and Paulina
Cristobal, that is, whether it was conjugal property or the individual
property of Epifanio Gomez. In the dispositive paragraph of the
appealed decision the court ordered Marcelino Gomez to executed a
deed conveying the three parcels in question to the plaintiffs; but, the
defendant being now dead, and the exact extent of the several
interests pertaining to the plaintiffs not being determined, it will be
sufficient for us to declares, as we now do, that the plaintiffs are the
owners of the property in question, and to require the successors in
interest of the defendant to deliver the property to the
plaintiffs.chanroblesvirtualawlibrary chanrobles virtual law library
The appealed judgment will therefore be modified by incorporating
therein a declaration of ownership in favor of the plaintiffs and by
eliminating the requirement for the specific execution of a
conveyance. In other respects the judgment is affirmed. So ordered,
with costs against the
appellant.chanroblesvirtualawlibrarychanrobles virtual law library
Avanceña, C. J., Johnson, Malcolm, Villamor, Ostrand and Romualdez
JJ., concur.
546 | P a g e
Separate Opinions This is one of many cases which come before this court growing out
of the increase in the value of property, and which would never
chanrobles virtual law library appear in court, if there was not an increase in value. The very fact
JOHNS, J., with whom concurs VILLA-REAL, J., dissenting:chanrobles that during the whole period of twenty years, the defendant was
virtual law library never called upon or required to make an accounting and that at all
times he considered, dealt with, and treated the property as his own,
Paulina Cristobal is the widow, and the other plaintiffs are her is conclusive evidence that he never held the title in trust for any
children and those Epifanio Gomez, her deceased husband, and the one.chanroblesvirtualawlibrary chanrobles virtual law library
defendants is the brother of Epifanio Gomez. As stated in the majority
opinion on December 31, 1891, the deceased brother sold the The judgment of the lower court should be reversed.
property in question under pacto de retro to Luis Yangco with the
right to redeem in five years. The deceased brother, not having the
money with which to redeem the property, applied to Bibiano Bañas
for assistance, who agreed to do so on condition that the defendant
and his sister would become personally responsible for the loan, and
on July, 1907, the property was thus redeemed upon the terms and
conditions stated in the majority opinion, and pursuant to that
agreement, the P7,000 thus advanced by Bibiano Bañas was used to
repurchase the property in the name of the defendant and his sister
Telesfora Gomez.chanroblesvirtualawlibrary chanrobles virtual law
library

The record is conclusive that Epifanio Gomez was a man of dissolute

habits and more or less spendthrift. That he was squandering his
property, and was very unreliable in money matters, and that on
several occasions the defendants and his sister had been forced to
come to his relief to protect the good name of the family, and that it
was for such reason that the conditions specified were imposed in the
agreement of July, 1907. It is also appears that the sister, desiring to
be released of her financial responsibility, conveyed any interest
which she may have had to the defendant. That later the title to the
property consolidated in Yangco's with whom the contract of pacto
de retro was made, and that thereafter it was conveyed to the
defendant. The record is also conclusive that the defendant was a
thrifty, prudent, business man, and that under his management and
by close personal attention to the business, he eventually paid for the
property, and that a portion of the purchase price was paid out of his
own money, and that it was through his personal attention and the
investment of his own money, that he was enabled to acquire title
and pay for the property.chanroblesvirtualawlibrary chanrobles
virtual law library

The legal effect of the majority opinion is to penalize the defendant

for his thrift and prudent business methods, and to take the property
away from him without any compensation for his twenty years of long
and faithful service upon the theory that he acquired the title in trust,
and at all times held it in trust for the use and benefit of his deceased
brother and his heirs. There is no evidence that the defendant acted
as trustee or that he ever recognized a trust, or that during the whole
period of twenty years he ever rendered any accounting or that any
one ever requested him to make an accounting. The evidence is
conclusive that at all times he acted, dealt with and treated the
property as his own, upon which he spent his own time, his own
money, and improved the property, so as to give it a commercial
value. Because he did that and the property now has increased in
value, it is taken away from him without any compensation for his
services, and he is denied the fruits of twenty years of his labor in
giving it a commercial value.chanroblesvirtualawlibrary chanrobles
virtual law library

547 | P a g e

[G.R. No. L-18872. July 15, 1966.]
In the Matter of the Trusteeship of Minors Benigno, Angela and
Antonio, all surnamed Perez y Tuason. J. ANTONIO
ARANETA, Petitioner-Appellee, v. ANTONIO PEREZ, Judicial
Guardian of Angela and ANTONIO PEREZ Y TUASON, Oppositor-
Appellant.
Alfonso Felix, Jr. for Oppositor-Appellant.
Araneta & Araneta for Petitioner-Appellee.
SYLLABUS
1. TRUSTEESHIP; PROHIBITION AGAINST DONATION OF PROPERTIES
UNDER TRUST. — Article 736, prohibiting guardians and trustees from
making a donation of the properties entrusted to them, is a new
provision of the Civil Code, which took effect on August 30, 1950, and,
pursuant to Articles 2253 and 2255 of said Code, does not apply
retroactively to a testamentary trust established in 1948.
2. ID.; ID.; WHEN DONATION BY TRUSTEE MAY BE ALLOWED. — In
prohibiting a trustee from donating properties entrusted to him, the
new Civil Code does so for the protection of the trust beneficiaries
and evidently contemplates gifts of pure beneficence, that is, those
which are supported by no other cause than the liberality of the
donor. When the donation is clearly in the interest of the
beneficiaries, to say it cannot be done would be contrary to the spirit
and intent of the law.
DECISION
MAKALINTAL, J.:
This appeal was originally taken to the Court of Appeals, and
subsequently certified to Us for the reason that it involves a purely
legal question. The order appealed from was issued by the Court of
First Instance of Rizal on April 4, 1957 in trusteeship proceeding No.
Q-73.
The trust was established pursuant to the will of the late Angela S.
Tuason, particularly the clause which reads as
follows:jgc:chanrobles.com.ph
"CUATRO. Instituyo como mis unicos herederos a mis mencionados
tres hiyos, a razon de una novena parte del caudal hereditario que
dejare para cada uno de ellos. Lego a mi hijo Antonio otra porcion
equivalente a dos novenas partes del caudal hereditario. Y finalmente
lego a mis nietos que fueren hijos de mi hija Angela otra porcion
equivalente a dos novenas partes del caudal hereditario. Dichos tres
legados sin embargo, estan sujetos a la manda que se menciona en el
parrafo siguiente. Los dos legados a favor de mis mencionados nietos
seran administrados por mi albacea, J. Antonio Araneta (y en defecto
de este, su hermano, Salvador Araneta), con amplios poderes de
vender los mismos y con su producto adquirir otros bienes, y con
derecho a cobrar por su administracion, honorarios razonables. Los
poderes de dicho administrador seran los de un trustee con los
poderos mas amplios permitidos por la ley. Debera, sin embargo,
rendir trimestralmente, cuenta de su administracion a los legatarios
que fueren mayores de edad y a los tutores de los que fueren
menores de edad. Y asimismo, debera hacerles entrega de la
participacion que a cada legatario corresponda en las rentas netas de
la administracion. La administracion sobre un grupo cesara cuando
todos mis nietos de dicho grupo llegaren a su mayoria de edad, y una
mayoria de los mismos acordaren la termination de la administracion.
Por nietos, debe enterderse no solamente a los nietos varones sino
tambien sino tambien a los nietos mujeres."cralaw virtua1aw library
Appellee J. Antonio Araneta was appointed trustee on March 24, 1950
and he qualified on the following May 5 when he took his oath of
office. The beneficiaries of the trust are Benigno, Angela and Antonio,
all surnamed Perez y Tuason, the last two being represented by
appellant Antonio Perez, who is their father and judicial guardian.
In the order appealed from the lower court approved, upon petition
of the trustee, a deed of donation executed by him on April 30, 1955
in favor of the City of Manila covering a lot — pertaining to the
trusteeship, with an area of 853.1 square meters. Such approval was
given over the opposition of appellant Antonio Perez. As found by the
lower court, the said lot was being used as a street and had been so
used since prior to its acquisition by the late Angela S. Tuason. The
street leads to other lots also pertaining to the trusteeship with an
area of 8,176.6 square meters, and it is through the said street that
the tenant occupying those other lots pass in going to and from their
respective houses. On the lot in question the trustee had been paying
a realty tax of P100.00 yearly.
The lower court also found that the lots aforementioned would be
converted into a residential subdivision and that for the purpose the
corresponding plan has been prepared; that the lot donated to the
City of Manila appears on the plan to be included among the areas
covered by the street lay-outs as required by law; and that the
donation would save the trusteeship the amount of the realty tax and
relieve it from the duty of maintaining the lot in usable condition as a
street. There can be no dispute therefore that the donation was
beneficial to the trusteeship, not to say necessary under the law if the
planned residential subdivision is to be realized.
Appellant does not deny the beneficial aspects of the donation. But
he maintains that it is invalid on the ground that under Article 736 of
the Civil Code "guardians and trustees cannot donate the properties
entrusted to them." It should be remembered that this article is a new
provision of the Civil Code, which took effect only on August 30, 1950
(Rep. Act No. 386) and does not apply retroactively to the
testamentary trust established upon the death of Angela S. Tuason on
March 20, 1948, taking into account Articles 2253 and 2255, which
provide against such retrospective operation on acts or events that
took place under former laws. There being nothing in the old Civil
548 | P a g e
Code which prohibits a trustee from donating properties under
trusteeship, and considering that the powers given to herein appellee
as trustee are of a plenary character, subject only to the limitation
that they should be permissible under the law; considering further
that when the testatrix conferred such powers she must have had in
mind the law that was in force at the time; and considering finally that
after all a trust is created for the benefit of the cestuis que trust and
that in this particular case the acts of the trustee are subject to the
supervision of the Court, We see no reason why the donation in
question should not be allowed.

The new Civil Code, in prohibiting a trustee from donating properties

entrusted to him does so for the protection of the trust beneficiaries
and evidently contemplates gifts of pure beneficence, that is, those
which are supported by no other cause than the liberality of the
donor. But when the donation, as in the present instance, is clearly in
their interest, to say it cannot be done would be contrary to the spirit
and intent of the law.

The order appealed from is hereby affirmed, with costs against

the Appellant.

Concepcion, C.J., J.B.L. Reyes, Barrera, Dizon, Regala, J.P. Bengzon,

Zaldivar and Sanchez, JJ., concur.

549 | P a g e
[G.R. No. L-49087. April 5, 1982.]
MINDANAO DEVELOPMENT AUTHORITY, now the SOUTHERN
PHILIPPINES DEVELOPMENT ADMINISTRATION, Petitioner, v. THE
COURT OF APPEALS and FRANCISCO ANG BANSING, Respondents.
SYNOPSIS
On February 25, 1939, Ang Bansing, owner of a large tract of land in
Davao City, sold portion thereof to Cruz. Their contract stipulated that
Ang Bansing would work for the titling of the entire area of his land at
hit expense, while the vendee would spend for the titling of the
portion sold to him. After the cadastral survey, where the portion sold
to Cruz was designated as Lot 1846-C and the portion remaining with
Ang Bansing was designated as Lots 1846-A, 1846-B, l846-D, and
1846-E, Cruz sold Lot 1846-C to the Commonwealth of the Philippines.
Thereafter, pursuant to a decree of registration, Original Certificate of
Title No. 26, covering the entire area, including the lot sold to Cruz,
was issued on March 7, 1941 in the names of the original claimants in
the cadastral proceedings. This OCT was however canceled on March
31, t941 per Deed of Adjudication in favor of Ang Bansing for which
he was issued a transfer certificate of title. Later, on various dates,
Ang Bansing also sold Lot 1846-A, portions of Lot l846-B, and Lot
1846-D to Cruz and the Transfer Certificate of Title corresponding to
the said lots in the name of Ang Bansing were canceled and new ones
issued in the name of Cruz. Transfer Certificate of Title No. 2601 was
issued in the name of Ang Bansing for the remaining lots, including
Lot l846-C. On February 25, 1965, pursuant to Presidential
Proclamation 459, government ownership of certain parcels of land
in Davao City were transferred to the Mindanao Development
Authority (MDA), among which was Lot l846-C. MDA accordingly
requested Ang Bansing to surrender his owner’s duplicate of TCT 2601
for registration of the government’s ownership over Lot l846-C, but
he refused. MDA thus filed a suit for reconveyance on April 11, 1969,
claiming that Ang Bansing acted as trustee for Cruz when he worked
for the titling of the entire tract of land as per their contract. The trial
court found the existence of an express trust and ordered the
reconveyance of the subject lot to MDA. On appeal, however, the
Court of Appeals found no express trust and dismissed the complaint.
On petition for review, the Supreme Court held that failure on the
part of Ang Bansing to definitely describe the subject-matter of the
supposed trust or the beneficiaries or object thereof is strong
evidence that he intended no trust; and that only an implied trust or
constructive trust may have been impressed upon the title of Ang
Bansing over Lot 1846-C but such constructive trust has already
prescribed and has been barred by laches.
Petition denied.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUSTS; KINDS. —
Trusts are either express or implied. Express trusts are created by the
intention of the trustor or of the parties. Implied trusts come into
being by operation of law (Article 1441, Civil Code).
2. ID.; ID.; ID.; ID.; EXPRESS TRUST; ELEMENTS. — It is fundamental in
the law of trusts that certain requirements must exist before an
express trust will be recognized. Basically, these elements include a
competent trustor and trustee, an ascertainable trust res. and
sufficiently certain beneficiaries. Stilted formalities are unnecessary,
but nevertheless each of the above elements is required to be
established, and, if anyone of them is missing, it is fatal to the trusts.
Furthermore, there must be a present and complete disposition of the
trust property, notwithstanding that the enjoyment in the beneficiary
will take place in the future. It is essential, too, that the purpose be an
active one to prevent trust from being executed into a legal estate or
interest, and one that is not in contravention of some prohibition of
statute or rule of public policy. There must also be some power of
administration other than a mere duty to perform a contract although
the contract is for a third-party beneficiary. A declaration of terms is
essential, and these must be stated with reasonable certainty in order
that the trustee may administer, and that the court, if called upon to
do so, may enforce, the trust (Sec. 31, Trusts, 76 Am. Jur. 2d, pp. 278-
279).
3. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — There is no express trust
where the stipulation in the deed of sale executed by Ang Bansing in
favor of Juan Cruz is a mere condition that Ang Bansing shall pay the
expenses for the registration of his land and for Juan Cruz to shoulder
the expenses for the registration of the land sold to him. The
stipulation does not categorically create an obligation on the part of
Ang Bansing to hold the property in trust for Juan Cruz. It is essential
to the creation of an express trust that the settler presently and
unequivocally make a disposition of property and make himself the
trustee of the property for the benefit of another (Sec. 35, Trusts, 76
Am. Jur. 2d, 281).
4. ID.; ID.; ID.; ID.; ID.; CLEAR AND UNEQUIVOCAL LANGUAGE
NECESSARY TO CREATE TRUST. — Clear and unequivocal language is
necessary to create a trust and mere precatory language and
statements of ambiguous nature, are not sufficient to establish a
trust. As the Court stated in De Leon v. Packson, 1l Phil. 1267, a trust
must he proven by clear, satisfactory and convincing evidence; it
cannot rest on vague and uncertain evidence or on loose, equivocal
or indefinite declarations.
5. ID.; ID.; ID.; ID.; ID.; REPUDIATION THEREOF RENDERS TRUST,
PRESCRIPTIBLE; CASE AT BAR. — But, even granting arguendo, that an
express trust had been established, it would appear that the trustee
had repudiated the trust and the petitioner did not take any action
therein until after the lapse of 23 years. Thus, in its Reply to the
Defendant’s Answer, filed on June 29, 1969, petitioner admitted that
"after the last war she City Engineer’s Office of Davao City made
repeated demands on the defendants for the delivery and
conveyance to the Commonwealth Government, now the Republic of
the Philippines, of the title of land in question, Lot l846-C, but the
defendant ignored and evaded the same." Considering that the
demand was made in behalf of the Commonwealth Government, it is
obvious that the said demand was made before July 4, 1946, when
the Commonwealth Government was dismantled and the Republic of
the Philippines came into being. From 1946 to 1969, when the action
for reconveyance was filed with the court, 23 years had passed. For
sure, the period for enforcing the alleged beneficiary over the land in
question after the repudiation of the trust by the trustee, had already
prescribed.
550 | P a g e
6. ID.; ID.; ID.; ID.; IMPLIED TRUST; CASE AT BAR. — An implied trust
may have been impressed upon the title of Ang Bansing over Lot
1846-C of the Davao Cadastre since the land in question was
registered in his name although the land belonged to another. In
implied trust, there is neither promise nor fiduciary relations, the so-
called trustee does not recognize any trust and has no intent to hold
the property for the beneficiary. It does not arise by agreement or
intention, but by operation of law. Thus, if property is acquired
through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person
from whom the property comes (Article 1456, Civil Code).
7. ID.; ID.; ID.; ID.; ID.; PRESCRIPTIBLE; CASE AT BAR. — Such
constructive trust is not a trust in the technical sense and prescribes
in 10 years. Here, the 10 year prescriptive period began on March 31,
1941, upon the issuance of Original Certificate of Title No. 26 in the
names of Victoria Ang Bansing, Orfelina Ang Bansing, and Francisco
Ang Bansing. From that date up to April 11, 1969, when the complaint
for reconveyance was filed, more than 28 years had passed. Clearly,
the action for reconveyance had prescribed.
8. ID.; ID.; ID.; ID.; ID.; ACTION FOR RECONVEYANCE OF SUBJECT LOT
BARRED BY LACHES IN CASE AT BAR. — The enforcement of the
constructive trust that may have been impressed upon the title of Ang
Bansing over Lot I846-C of the Davao Cadastre is barred by laches. It
appears that the deed of me in favor of the Commonwealth
Government was executed by Juan Cruz on December 23, 1939,
during the cadastral proceedings, and even before the cadastral
survey plan was approved by the Director of Lands on July 10, 1940.
But, the vendee therein did not file an answer, much less an
opposition to the answer of Ang Bansing, in the said cadastral
proceedings. The judgment rendered in the said cadastral proceeding,
awarding the lot in question to Ang Bansing, is already final. After an
inexcusable delay of more than 28 years and acquiescence to existing
conditions, is now too late for the petitioner to complain.
AQUINO, J., dissenting:chanrob1es virtual 1aw library
1. CIVIL LAW; OBLIGATIONS AND CONTRACT; EXPRESS TRUST;
EVIDENCED BY AFFIDAVIT IN CASE AT BAR. — Ang Bansing is a trustee
in an express trust covering Lot No. l846-C. The trust is evidenced by
his aforementioned affidavit on April 23, 1941 which he executed 23
days after TCT No. 1783 was issued so him for that lot wherein he
swore that he intended to cede and transfer that lot to Juan Cruz after
the survey. The same should be considered in conjunction with the
stipulation in the 1939 deed of sale that Ang Bansing would undertake
the titling of the whole Lot No. 1846 and that the registration
expenses corresponding to Lot No. 1846-C would be borne by Juan
Cruz, the vendee of that subdivision lot.
2. ID.; ID.; ID.; NOT PRESCRIPTIBLE. — There being an express trust in
this case, the equitable action to compel the trustee to reconvey the
land registered in his name in trust for the benefit of the cestui que
trust does not prescribe Manalang v. Canlas, 94 Phil. 776; Ramos v.
Ramos, 61 SCRA 284). In any event, the real plaintiff in this case is the
Republic of the Philippines and prescription does not run against the
State (De la Viña v. Government of the P.1.; 65 Phil. 262, 265; Republic
v. Ruiz, L-23712 April 29, 1968, 23 SCRA 348).
3. ID.; ESTOPPEL; STATE NOT ESTOPPED BY NEGLIGENCE OF PUBLIC
OFFICERS. — The government officials concerned were negligent in
not intervening in the land registration proceeding or in not promptly
asking Ang Bansing to reconvey the disputed lot to the
Commonwealth or to the Republic of the Philippines. Such negligence
does not prejudice the State. The negligence or omissions of public
officers as to their public duties will not work an estoppel against the
State (10 R. C. L. 705, cited in Bachrach Motor Co. v. Unson, 50 Phil.
981, 990; Central Azucarera de Tarlac v. Collector of Internal Revenue,
104 Phil. 653,656; People v. Ventura, 114 Phil. 162, 169).
DECISION
CONCEPCION, JR., J.:
Petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. No. 48488-R, entitled: "Mindanao Development
Authority, etc., plaintiff-appellee, versus Francisco Ang
Bansing, Defendant-Appellant", which reversed the decision of the
Court of First Instance of Davao and dismissed the complaint filed in
Civil Case No. 6480 of the said court.chanrobles virtual lawlibrary
It is not disputed that the respondent Francisco Ang Bansing was the
owner of a big tract of land with an area of about 300,000 sq.m.,
situated in Barrio Panacan, Davao City. On February 25, 1939, Ang
Bansing sold a portion thereof, with an area of about 5 hectares to
Juan Cruz Yap Chuy. The contract provided, among others, the
following:jgc:chanrobles.com.ph
"That I hereby agree to work for the titling of the entire area of my
land under my own expenses and the expenses for the titling of the
portion sold to me shall be under the expenses of the said Juan Cruz
Yap Chuy" 1
After the sale, the land of Ang Bansing was surveyed and designated
as Lot 664-B Psd-1638 was further subdivided into five (5) lots and the
portion sold to Juan Cruz Yap Chuy, shortened to Juan Cruz, was
designated as Lot 664-B-3, with an area of 61.107 square meters,
more or less. 2 On June 15-17 and December 15, 1939, a cadastral
survey was made and Lot 664-B-3 was designated as Lot 1846-C of the
Davao Cadastre.
On December 23, 1939, Juan Cruz sold Lot 1846-C to the
Commonwealth of the Philippines for the amount of P6,347.50. 3 On
that same day, Juan Cruz, as vendor, and C.B. Cam and Miguel N.
Lansona, as sureties, executed a surety bond in favor of the vendee
to guarantee the vendor’s absolute title over the land sold. 4
The cadastral survey plan was approved by the Director of Lands on
July 10, 1940, 5 and on March 7, 1941, Original Certificate of Title No.
26 was issued in the names of Victoriana Ang Bansing, Orfelina Ang
Bansing, and Francisco Ang Bansing, as claimants of the land,
pursuant to Decree No. 745358 issued on July 29, 1940. On March 31,
1941, OCT No. 26 was cancelled pursuant to a Deed of Adjudication
551 | P a g e
and Transfer Certificate of Title No. 1783 was issued in the name of
Francisco Ang Bansing. 6 marked as Annex ‘A’ and his affidavit marked as Annex ‘C’." 10
On that day, March 31, 1941, Ang Bansing sold Lot 1846-A to Juan
Cruz and TCT No. 1783 was cancelled. TCT No. 1784 was issued in the
name of Juan Cruz, for Lot 1846-A and TCT No. 1785 was issued in the
name of Ang Bansing for the remaining Lots 1846-B, 1846-C, 1846-D,
and 1846-E. Later, Ang Bansing sold two subdivision lots of Lot 1846-
B, namely: Lot 1846-B-2-C and Lot 1846-B-1 to Vedasto Corcuera for
which TCT No. 2551 and TCT No. 2552, respectively, were issued in
the name of the said Vedasto Corcuera on August 10, 1946.
Thereafter, Lot 1848-A, with an area of 9.6508 hectares, and Lots
1846-B-A and 1848-B-2-D, all subdivided portions of Lot 1846-B, were
similarly conveyed to Juan Cruz for which TCT No. 2599 and TCT No.
2600, respectively, were issued in the name of Juan Cruz on
September 26, 1946. TCT No. 2601 was issued in the name of Ang
Bansing for the remainder of the property, including the lot in
question. Then, another portion of 1846-B, designated in the
subdivision plan as Lot 1848-B-2-B was sold to Juan Cruz for which TCT
No. 184 was issued in the latter’s name. On November 28, 1946, after
these conveyances, there remained in the possession of Ang Bansing
under TCT No. 2601, Lot 1846-C, the lot in question; Lot 1846-D; and
Lot 1846-E. However, TCT No. 2601 was again partially cancelled
when Ang Bansing sold Lot 1846-D to Vedasto Corcuera. 7
On February 25, 1965, the President of the Philippines issued
Proclamation No. 459, transferring ownership of certain parcels of
land situated in Sasa, Davao City, to the Mindanao Development
Authority, now the Southern Philippines Development
Administration, subject to private rights, if any. Lot 1846-C, the
disputed parcel of land, was among the parcels of land transferred to
the Mindanao Development Authority in said proclamation. 8
On March 31, 1969, Atty. Hector L. Bisnar, counsel for the Mindanao
Development Authority, wrote Ang Bansing requesting the latter to
surrender the Owner’s duplicate copy of TCT No. 2601 so that Lot
1846-C could be formally transferred to his client, but Ang Bansing
refused. 9 Consequently, on April 11, 1969, the Mindanao
Development Authority filed a complaint against Francisco Ang
Bansing before the Court of First Instance of Davao City, docketed
therein as Civil Case No. 6480, for the reconveyance of the title over
Lot 1846-C, alleging, among others, the following:chanrob1es virtual
1aw library
x x x
"9. That the deed of sale, marked as Annex ‘A’, it was stipulated by
the parties that the defendant would work to secure title of his entire
tract of land of about 30 hectares defraying the expenses for the same
and the expenses for the title of the portion sold by the defendant to
Juan Cruz Yap Chuy shall be borne by the latter;
"10. That the defendant as vendor and the one who worked to secure
the title of his entire tract of land which included the portion sold by
him to Juan Cruz Yap Chuy acted in the capacity of and/or served as
trustee for any and all parties who become successor-in-interest to
Juan Cruz Yap Chuy and the defendant was bound and obligated to
give, deliver and reconvey to Juan Cruz Yap Chuy and/or his successor-
in-interest the title pertaining to the portion of land sold and
conveyed by him to Juan Cruz Yap Chuy by virtue of the deed of sale
In answer, Ang Bansing replied:chanrob1es virtual 1aw library
x x x
"9. That defendant admits that in Annex ‘A’ of the complaint, it was
agreed and stipulated in paragraph 6 thereof that:chanrob1es virtual
1aw library
‘That I hereby agree to work for the titling of the entire area of my
land under my own expense and the expenses for the titling of the
portion sold to me shall be under the expenses of the said Juan Cruz
Yap Chuy.’
and defendant in fact secured at his expense his OCT No. 26 for his
entire land; that in the process of defendant’s securing his title
neither Juan Cruz Yap Chuy nor the Commonwealth of the Philippines
asserted any right to ownership of the subject property and that was
almost 30 years ago until plaintiff filed its complaint, thus plaintiff is
forever barred from claiming any right over the subject property.
There was no real sale made but only the intention to sell a portion of
the land as stated by defendant in Annex ‘C’ of the complaint.
"10. That defendant denies allegations contained in paragraph 10 of
the complaint that he acted as the trustee of Juan Cruz Yap Chuy.
Defendant was never such; matter of fact Juan Cruz Yap Chuy for the
last 26 years, that is until he died in October, 1965, never made any
demand to have the title of the subject property transferred in his
name because he knew all the time that the alleged sale in his favor
was per se null and void he also knew that no sale was ever
consummated." 11
After trial, the Court of First Instance of Davao City found that an
express trust had been established and ordered the reconveyance of
the title to Lot 1846-C of the Davao Cadastre to the plaintiff Mindanao
Development Authority. 12
Ang Bansing appealed to the Court of Appeals and the said appellate
court ruled that no express trust has been created and, accordingly,
reversed the judgment and dismissed the complaint. 13
Hence, the present recourse.
The petition is without merit. As found by the respondent Court of
Appeals, no express trust had been created between Ang Bansing and
Juan Cruz over Lot 1846-C of the Davao Cadastre. "Trusts are either
express or implied. Express trusts are created by the intention of the
trustor or of the parties. Implied trusts come into being by operation
of law." 14 It is fundamental in the law of trusts that certain
requirements must exist before an express trust will be recognized.
Basically, these elements include a competent trustor and trustee, an
ascertainable trust res, and sufficiently certain beneficiaries. Stilted
formalities are unnecessary, but nevertheless each of the above
elements is required to be established, and, if any one of them is
missing, it is fatal to the trusts. Furthermore, there must be a present
and complete disposition of the trust property, notwithstanding that
the enjoyment in the beneficiary will take place in the future. It is
552 | P a g e
essential, too, that the purpose be an active one to prevent trust from
being executed into a legal estate or interest, and one that is not in
contravention of some prohibition of statute or rule of public policy.
There must also be some power of administration other than a mere
duty to perform a contract although the contract is for a third-party
beneficiary. A declaration of terms is essential, and these must be
stated with reasonable certainty in order that the trustee may
administer, and that the court, if called upon so to do, may enforce,
the trust. 15
In this case, the herein petitioner relies mainly upon the following
stipulation in the deed of sale executed by Ang Bansing in favor of
Juan Cruz to prove that an express trust had been established with
Ang Bansing as the settlor and trustee and Juan Cruz as the cestui que
trust or beneficiary:jgc:chanrobles.com.ph
"That I hereby agree to work for the titling of the entire area of my
land under my own expenses and the expenses for the titling of the
portion sold to me shall be under the expenses of said Juan Cruz Yap
Chuy."cralaw virtua1aw library
The above-quoted stipulation, however, is nothing but a condition
that Ang Bansing shall pay the expenses for the registration of his land
and for Juan Cruz to shoulder the expenses for the registration of the
land sold to him. The stipulation does not categorically create an
obligation on the part of Ang Bansing to hold the property in trust for
Juan Cruz. Hence, there is no express trust. It is essential to the
creation of an express trust that the settlor presently and
unequivocally make a disposition of the property and make himself
the trustee of the property for the benefit of another. 16
"In case of a declaration of trust, the declaration must be clear and
unequivocal that the owner holds property in trust for the purposes
named." 17
While Ang Bansing had agreed in the deed of sale that he will work
for the titling of "the entire area of my land under my own expenses,"
it is not clear therefrom whether said statement refers to the 30-
hectare parcel of land or to that portion left to him after the sale. A
failure on the part of the settlor definitely to describe the subject-
matter of the supposed trust or the beneficiaries or object thereof is
strong evidence that he intended no trust. 18
The intent to create a trust must be definite and particular. It must
show a desire to pass benefits through the medium of a trust, and not
through some related or similar device. 19
Clear and unequivocal language is necessary to create a trust and
mere precatory language and statements of ambiguous nature, are
not sufficient to establish a trust. As the Court stated in the case of De
Leon v. Packson, 20 a trust must be proven by clear, satisfactory and
convincing evidence; it cannot rest on vague and uncertain evidence
or on loose, equivocal or indefinite declarations. Considering that the
trust intent has not been expressed with such clarity and definiteness,
no express trust can be deduced from the stipulation aforequoted.
Nor will the affidavit executed by Ang Bansing on April 23, 1941, 21
be construed as having established an express trust. As counsel for
the herein petitioner has stated, "the only purpose of the Affidavit
was to clarify that the area of the land sold by Ang Bansing to Juan
Cruz Yap Chuy is not only 5 hectares but 61,107 square meters or a
little over six (6) hectares." 22
That no express trust had been agreed upon by Ang Bansing and Juan
Cruz is evident from the fact that Juan Cruz, the supposed beneficiary
of the trust, never made any attempt to enforce the alleged trust and
require the trustee to transfer the title over Lot 1846-C, in his name.
Thus, the records show that the deed of sale, covering Lot 1846-C,
was executed by Ang Bansing in favor of Juan Cruz on February 25,
1939. Two years later, or on March 31, 1941, Ang Bansing sold Lot
1846-A to the said Juan Cruz for which TCT No. 1784 was issued in the
name of Juan Cruz. Subsequently thereafter, Lot 1848-A, with an area
of 9.6508 hectares, and Lot 1846-A and 1848-B-2-D, all subdivided
portions of Lot 1846-B, were similarly conveyed to the said Juan Cruz
for which TCT No. 2599 and TCT No. 2600, respectively, were issued
in the name of Juan Cruz on September 26, 1946. Then, another
portion of Lot 1846-B, designated in the subdivision plan as Lot 1848-
B-2-B, was sold to Juan Cruz for which TCT No. 184 was issued in his
name on November 28, 1948. Despite these numerous transfers of
portions of the original 30-hectare parcel of land of Ang Bansing to
Juan Cruz and the issuance of certificates of title in the name of Juan
Cruz, the latter never sought the transfer of the title to Lot 1846-C in
his name. For sure, if the parties had agreed that Ang Bansing shall
hold the property in trust for Juan Cruz until after the former shall
have obtained a certificate of title to the land, the latter would have
asked for the reconveyance of the title to him in view of the surety
bond executed by him in favor of the Commonwealth Government
wherein he warrants his title over the property. The conduct of Juan
Cruz is inconsistent with a trust and may well have probative effect
against a trust.
But, even granting, arguendo, that an express trust had been
established, as claimed by the herein petitioner, it would appear that
the trustee had repudiated the trust and the petitioner herein, the
alleged beneficiary to the trust, did not take any action therein until
after the lapse of 23 years. Thus, in its Reply to the Defendant’s
Answer, filed on June 29, 1969, the herein petitioner admitted that
"after the last war the City Engineer’s Office of Davao City made
repeated demands on the defendants for the delivery and
conveyance to the Commonwealth Government, now the Republic of
the Philippines, of the title of land in question, Lot 1846-C, but the
defendant ignored and evaded the same." 23 Considering that the
demand was made in behalf of the Commonwealth Government, it is
obvious that the said demand was made before July 4, 1946, when
the Commonwealth Government was dismantled and the Republic of
the Philippines came into being. From 1946 to 1969, when the action
for reconveyance was filed with the court, 23 years had passed. For
sure, the period for enforcing the rights of the alleged beneficiary
over the land in question after the repudiation of the trust by the
trustee, had already prescribed.chanrobles.com.ph : virtual law
library
Needless to say, only an implied trust may have been impressed upon
the title of Ang Bansing over Lot 1846-C of the Davao Cadastre since
the land in question was registered in his name although the land
belonged to another. In implied trusts, there is neither promise nor
fiduciary relations, the so-called trustee does not recognize any trust
and has no intent to hold the property for the beneficiary. 24 It does
not arise by agreement or intention, but by operation of law. Thus, if
property is acquired through mistake or fraud, the person obtaining
553 | P a g e
it is, by force of law, considered a trustee of an implied trust for the 1. Before the war, Francisco Ang Bansing was the owner of a tract of
benefit of the person from whom the property comes.25cralaw:red unregistered land with an area of about twenty-nine hectares located
at Barrio Panacan (Sasa), Davao City.
If a person obtains legal title to property by fraud or concealment,
courts of equity will impress upon the title a so-called constructive 2. On February 25, 1939, he sold to Juan Cruz Yap Chuy for six
trust in favor of the defrauded party. 26 thousand pesos a portion of the said land with an area of around five
hectares, bounded on the north by the land of Vedasto Corcuera, on
There is also a constructive trust if a person sells a parcel of land and the east by the Davao Gulf, on the south by the land of Ang Ping and
thereafter obtains title to it through fraudulent misrepresentation. on the west by the remaining portion but separated by the provincial
27 road. Ang Bansing’s wife, Anatalia Cepeda, was one of the two
witnesses in the deed of sale. The sale was registered on March 1,
Such a constructive trust is not a trust in the technical sense and is 1939 in the registry of deeds of Davao City.
prescriptible; it prescribes in 10 years. 28
3 In the deed of sale, Ang Bansing made the following commitment:
Here, the 10-year prescriptive period began on March 31, 1941, upon "That I hereby agree to work for the titling of the entire area of my
the issuance of Original Certificate of Title No. 26 in the names of land under my own expenses and the expenses for the titling of the
Victoriana Ang Bansing, Orfelina Ang Bansing, and Francisco Ang portion sold to (by) me shall be under the expenses of the said Juan
Bansing. From that date up to April 11, 1969, when the complaint for Cruz Yap Chuy." It was also stipulated that the buyer could take
reconveyance was filed, more than 28 years had passed. Clearly, the possession of the land and its improvements (p. 14, Record on
action for reconveyance had prescribed. Appeal).

Besides, the enforcement of the constructive trust that may have
been impressed upon the title of Ang Bansing over Lot 1846-C of the
Davao Cadastre is barred by laches. 29 It appears that the deed of sale
in favor of the Commonwealth Government was executed by Juan
Cruz on December 23, 1939, during the cadastral proceedings, and
even before the cadastral survey plan was approved by the Director
of Lands on July 10, 1940. But, the vendee therein did not file an
answer, much less an opposition to the answer of Ang Bansing, in the
said cadastral proceedings. The judgment rendered in the said
cadastral proceeding, awarding the lot in question to Ang Bansing, is
already final. After an inexcusable delay of more than 28 years and
acquiescence of existing conditions, it is now too late for the
petitioner to complain.
WHEREFORE, the petition should be, as it is hereby, DENIED. No costs.
4. After the survey of Ang Bansing’s land, the portion sold to Juan Cruz
Yap Chuy came to be known as Lot No. 664-B-3, described as follows:
"Bounded on the North by Lot No. 664-B-4; on the East by the Davao
Gulf; on the South by Lot No. 564 and on the West by Lot No. 664-B-
5; containing an area of sixty-one thousand one hundred seven
(61,107) square meters more or less." By reason of the 1939 cadastral
survey, Lot No. 664-B-3 came to be known as Lot No. 1846-C of the
Davao cadastre. The survey was made on June 15-17 and December
15, 1939, and was approved on July 10, 1940.
5. About ten months later, or on December 23, 1939, Juan Cruz Yap
Chuy sold to the Commonwealth of the Philippines the same portion,
identified as Lot No. 664-B-3, with an area of 61,107 square meters,
together with the improvements thereon, for the sum of P6,347.50
allocated as follows:chanrob1es virtual 1aw library

SO ORDERED. 6.1107 hectares at P140 a hectare P855.00

De Castro, Ericta and Escolin, JJ., concur. 756 coconut trees, all fruit-bearing,

Abad Santos, J., concurs in the result. at P7 per tree 5,292.00

Barredo (Chairman), I reserve my vote. 200 coconut trees, not productive,

Separate Opinions at one peso a tree 200.00

The sale included a parcel of land identified as Lot No. 664-B-5, with
AQUINO, J., dissenting:chanrob1es virtual 1aw library an area of 8,023 square meters, which was a part of the national road
and which Cruz donated to the Commonwealth Government. The sale
I dissent. The disputed land should be adjudicated to the government was registered in the registry of deeds of Davao City on December 27,
agency known as the Southern Philippines Development 1939, meaning that Ang Bansing had constructive notice thereof .
Administration, the successor of the Commonwealth of the
Philippines. 6. Simultaneously with that deed of sale, Juan Cruz Yap Chuy, as
principal, and G.B. Cam and Miguel N. Lanzona, as sureties, executed
To adjudge Francisco Ang Bansing as the owner of the land is to a bond in the sum of P6,347.50 (the price of the sale) in favor of the
sanction a brazen breach of trust or a form of landgrabbing and to Commonwealth of the Philippines. The bond would become void if
perpetrate a gross injustice. The facts are as follows:chanrob1es the Commonwealth obtained absolute title to the land.
virtual 1aw library
7. On April 23, 1941, Ang Bansing executed an affidavit wherein he

554 | P a g e
confirmed the previous sale to Juan Cruz Yap Chuy of the said Lot No. Bansing to Corcuera.
1846-C. His wife, Anatalia Cepeda, was a witness in the said affidavit.
Ang Bansing clarified that the exact area of the lot sold is 61,107 14. Other portions of Lot No. 1846-B were sold by Ang Bansing to Juan
square meters and not five hectares only which latter area was merely Cruz. Lot Nos. 1846-C and 1846-E, the remaining lots, registered in the
his calculation. Ang Bansing further said in that name of Ang Bansing, as shown in TCT No. T-2601 (Exh. L), were not
affidavit:jgc:chanrobles.com.ph alienated by him.

"That I hereby certify that I have no objection that the said portion 15. On September 25, 1965, President Diosdado Macapagal issued
after the survey be transferred and ceded, as I intended to transfer Proclamation No. 459, transferring to the Mindanao Development
and cede the same, to the said Juan Cruz Yap Chuy by virtue of the Authority (a corporate body created by Republic Act No. 3034),
said Deed of Sale above-mentioned" (referring to the 1939 Deed of "subject to private rights, if any," eight parcels of land forming part of
Sale). the Government’s private domain. Among those parcels was Parcel 6,
Lot No. 1846-C, Psd-16952, the herein disputed lot, with an area of
That affidavit was registered on May 8, 1941. 61,107 square meters, bounded on the west by the national highway,
on the north by Lot No. 1846-D, on the east by the Gulf of Davao and
8. Lot No. 664-B-3 or No. 1846-C was covered by Tax Declarations Nos. on the south by Lot No. 564-A. Thus, Lot No. 1846-C became a part of
80454, R-3612, R-5232 and A-12-123 in the name of the Republic of the Port Area Reservation from Sasa to Panacan, Davao City.
the Philippines (pp. 88-89, Record on Appeal). On the other hand, Ang
Bansing never declared Lot No. 1846-C for tax purposes and never 16. In a letter dated March 31, 1969, counsel for the Mindanao
paid any realty taxes therefor. Development Authority requested Ang Bansing to surrender the
owner’s duplicate of TCT No. T-2601 so that Lot No. 1846-C could be
9. Ang Bansing obtained Decree No. 745358 for the registration of the transferred to the said government agency (Exh. K). Ang Bansing did
29-hectare land (including Lot No. 664-B-3 or No. 1846-C). By virtue not heed the demand.
of that decree, Original Certificate of Title No. 26 was issued on March
7, 1941 in the names of Victoriana Ang Bansing, Orfelina Ang Bansing 17. On April 11, 1969, the Mindanao Development Authority sued Ang
and Francisco Ang Bansing. Bansing for the reconveyance of Lot No. 1846-C. After trial (during
which Ang Bansing did not testify), the trial court held that Ang
10. The issuance of that title implies that the government official (may Bansing held Lot No. 1846-C in trust for the State and that the
be the provincial district engineer at Davao City), who was aware of prescriptive period for recovering the lot from Ang Bansing started
the purchase of Lot No. 664-B-3 from Ang Bansing, was negligent in only in 1968 when Ang Bansing allegedly repudiated the trust.
not intervening in the land registration proceeding so as to have that
lot registered in the name of the Commonwealth of the Philippines. 18. The trial court cancelled Ang Bansing’s title and directed the
Another implication is that Ang Bansing had already acted register of deeds to issue a new title to the Mindanao Development
fraudulently or in bad faith in not asking his lawyer to segregate Lot Authority for Lot No. 1846-C. Ang Bansing appealed to the Court of
No. 664-B-3 or Lot No. 1846-C from his land and to see to it that a Appeals.
separate title for that lot was issued in the name of the
Commonwealth of the Philippines. 19. That Court in its decision dated December 27, 1977, reversing the
trial court’s decision, held that Ang Bansing was the owner of the
11. On March 31, 1941, or 24 days after the issuance of OCT No. 26, it disputed lot. It ruled that even if Ang Bansing held Lot No. 1846-C in
was cancelled because of a "deed of adjudication." Transfer express trust, the trust was "novated" by subsequent circumstances
Certificate of Title No. 1783 was issued for the 29-hectare land in the and that the sale of Lot No. 1846-C to the Commonwealth of the
name of Francisco Ang Bansing alone. Philippines was not consummated because Ang Bansing sold Lot No.
1846-A and portions of Lot No. 1846-B to Juan Cruz in lieu of Lot No.
12. Ang Bansing’s land, known as Lot No. 1846, was subdivided into 1846-C.
five lots, namely: Lots Nos. 1846-A, 1846-B, 1846-C, 1846-D and 1846-
E. On that same date of March 31, 1941, when Ang Bansing obtained 20. The Appellate Court also held that the Mindanao Development
TCT No. 1783, he sold Lot No. 1846-A to Juan Cruz Yap Chuy. Because Authority had no cause of action for reconveyance because it had no
of that sale, TCT No. 1783 was cancelled and TCT No. 1784 was issued privity with Ang Bansing and that the trust, if any, was an implied or
to Juan Cruz Yap Chuy, while TCT No. 1785 was issued to Ang Bansing constructive trust and the action based on that kind of trust was
for the other four lots which (it should be repeated) included Lot No. barred by prescription.
1846-C, the disputed lot sold in 1939 by Ang Bansing to Juan Cruz Yap
Chuy and in turn sold by the latter to the Commonwealth of the 21. Presidential Decree No. 690, which took effect on April 22, 1975,
Philippines. (The name Juan Cruz Yap Chuy was shortened to Juan established the Southern Philippines Development Administration
Cruz as shown in Entry No. 8052 dated August 4, 1953, appearing in and abolished the Mindanao Development Authority. The latter’s
TCT No. 1784. Cruz died in 1965.) assets were transferred to the Administration.

13. Ang Bansing sold to Vedasto Corcuera Lots Nos. 1846-B-1 and I am of the opinion that Ang Bansing is a trustee in an express trust
1846-B-2-C, which are subdivision lots of Lot No. 1846-B. As a result covering Lot No. 1846-C. The trust is evidenced by his aforementioned
TCT No. 1785 was cancelled and TCT Nos. 2551 and 2552 were issued affidavit of April 23, 1941 which he executed twenty-three days after
to Corcuera on August 10, 1946. Lot No. 1846-D was also sold by Ang TCT No. 1783 was issued to him for that lot.

555 | P a g e

As already noted, Ang Bansing in that affidavit swore that he intended
to cede and transfer that lot to Juan Cruz after the survey (Exh. C).
That sworn statement should be considered in conjunction with the
stipulation in the 1939 deed of sale that Ang Bansing would undertake
the titling of the whole Lot No. 1846 and that the registration
expenses corresponding to Lot No. 1846-C would be borne by Juan
Cruz, the vendee of that subdivision lot (Exh. A).
The said statements create an express trust for Lot No. 1846-C in favor
of Juan Cruz and his successors-in-interest or assignees. "No particular
words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended" (Art. 1444, Civil Code).
It is significant that, while Ang Bansing sold Lot Nos. 1846-A, 1846-B
and 1846-D to Cruz and Corcuera, he did not touch at all Lot No. 1846-
C. He did not alienate that lot because he knew that it was not his
property and that it belonged to the State.
Equally significant and credible is the trial court’s finding that it was
only in 1968 that Ang Bansing laid claim to Lot No. 1846-C through
Rufino Boncayao, a surveyor who worked in the Davao City engineer’s
office and who discovered that the title to the lot had not yet been
placed in the name of the Commonwealth of the Philippines.
The trial court found that Boncayao, as the agent of Ang Bansing and
with the advice and backing of Vicente C. Garcia, Ang Bansing’s
lawyer, claimed that Ang Bansing was the true owner of Lot No. 1846-
C.
There being an express trust in this case, the equitable action to
compel the trustee to reconvey the land registered in his name in
trust for the benefit of the cestui que trust does not prescribe
(Manalang v. Canlas, 94 Phil. 776; Ramos v. Ramos, L-19872,
December 3, 1974, 61 SCRA 284, 299).
The defense of prescription cannot be set up in an action to recover
property held in trust for the benefit of another (Sevilla v. De los
Angeles, 97 Phil. 875).
Property held in trust can be recovered by the beneficiary regardless
of the lapse of time (Marabilles v. Quito, 100 Phil. 64; Bancairen v.
Diones, 98 Phil. 122, 126; Juan v. Zuñiga, 114 Phil. 1163; Vda. de
Jacinto v. Vda. de Jacinto, 115 Phil. 363, 370).
Prescription in the case of express trusts can be invoked only from the
time the trust is repudiated (Tamayo v. Callejo, 68 O.G. 8661, 46 SCRA
27, 32).
And a trustee who takes a Torrens title in his name for the land held
in trust cannot repudiate the trust by relying on the registration. That
is one of the limitations upon the finality of a decree of title (Sotto v.
Teves, L-38018, October 31, 1978, 86 SCRA 154, 178; Alvarez v.
Espiritu, 122 Phil. 229, 235).
The rule, that an action for reconveyance prescribes in ten years,
applies to an implied trust, not to an express trust (Carantes v. Court
of Appeals, L-33360, April 25, 1977, 76 SCRA 514).
So, as a general rule a trust estate (in an express trust) is exempt from
the operation of the statute of limitations. The exception is when the
trustee repudiates the trust in which case the trustee may acquire the
trust estate by prescription. The repudiation must be known to the
cestui que trust and must be direct, clear, open and equivocal.
(Callejon Salinas v. Roman Tuason and Moreno Roman, 55 Phil. 729;
Palma v. Cristobal, 77 Phil. 712; Valdez v. Olorga, L-22571, May 25,
1973, 51 SCRA 71.)
"One who acquires a Torrens title in his own name to property which
he is administering for himself and his brothers and sisters as heirs in
common by descent from a common ancestor may be compelled to
surrender to each of his co-heirs his appropriate share." A partition
proceeding is an appropriate remedy to enforce this right. (Castro v.
Castro, 57 Phil. 675). An equitable action for reconveyance is also a
proper remedy (Laguna v. Levantino, 71 Phil. 566; Sumira v. Vistan, 74
Phil. 138).
In any event, the real plaintiff in this case is the Republic of the
Philippines and prescription does not run against the State (De la Viña
v. Government of the P.I., 65 Phil. 262, 265; Republic v. Ruiz, L-23712,
April 29, 1968, 23 SCRA 348).
The maxim is nullum tempus occurrit regi or nullum tempus occurrit
reipublicae (lapse of time does not bar the right of the crown or lapse
of time does not bar the commonwealth). The rule is now embodied
in Article 1108(4) of the Civil Code.
It is a maxim of great antiquity in English law. The best reason for its
existence is the great public policy of preserving public rights and
property from damage and loss through the negligence of public
officers. (34 Am Jur 301; Ballentine’s Law Dictionary, p. 891; U.S. v.
Nashville, Chattanooga & St. Louis Railway Co., 118 U.S. 120, 125).
Thus, the right of reversion or reconveyance to the State of lands
fraudulently registered or not susceptible of private appropriation or
acquisition does not prescribe (Martinez v. Court of Appeals, L-31271,
April 29, 1974, 56 SCRA 647, 655; Republic v. Ramos, 117 Phil. 45, 49).
The government officials concerned were negligent in not intervening
in the land registration proceeding or in not promptly asking Ang
Bansing to reconvey the disputed lot to the Commonwealth or to the
Republic of the Philippines.
Such negligence does not prejudice the State. The negligence or
omissions of public officers as to their public duties will not work an
estoppel against the State (10 R.C.L. 705, cited in Bachrach Motor Co.
v. Unson, 50 Phil. 981, 990; Central Azucarera de Tarlac v. Collector of
Internal Revenue, 104 Phil. 653, 656; People v. Ventura, 114 Phil. 162,
169).
I vote to reverse and set aside the decision of the Court of Appeals
and to affirm the trial court’s decision with the modification that the
title should be issued to the Southern Philippines Development
Administration.
556 | P a g e
[G.R. No. L-27294. June 28, 1983.]
ALFREDO ROA, JR., LETICIA ROA DE BORJA, RUBEN ROA, CORNELIO
ROA and ELSIE ROA-CACNIO (as heirs of the late Alfredo Roa,
Sr.), Petitioners, v. HON. COURT OF APPEALS and the spouses
JOAQUIN CASIÑO and CUSTODIA VALDEHUESA, Respondents.
Alberto Cacnio, for Petitioners.
Melecio Virgilio Law Office for Respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL ACTION; COMPROMISE AGREEMENT;
COMPLIANCE THERETO; PARTIES BOUND. — We reject the contention
of the petitioners that Alfredo Roa, Sr. was not bound by the
compromise agreement for not being a participant or signatory
thereto. It may be true that Alfredo Roa, Sr. did not sign the
compromise agreement but he certainly benefited from the effects of
the compromise agreement which obliged Pablo Valdehuesa to
withdraw, as he did withdraw his opposition to the registration of the
Roa property under the Torrens system. The Roa property was
subsequently registered without opposition and title was issued
thereto in the name of Alfredo Roa, his brother Zosimo and his sisters
Trinidad, Esperanza and Concepcion, all surnamed Roa as co-owners
thereof. Certainly, the Roas may not escape compliance from their
obligation under the compromise agreement by partitioning the
property and assigning the property in dispute as part of the share of
the petitioners. Moreover, it will be a pure and simple ease of unjust
enrichment for petitioners to acquire and own the property of Pablo
Valdehuesa. without paying the value thereof or exchanging the land
with another with an equal area as originally agreed.
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUST; EXPRESS
TRUST, A CASE OF. — We do not agree with the holding of the
respondent appellate court that an express trust was created
between the parties by reason of the compromise agreement entered
into between them. Express trusts are by the intention of the trustor
or one of the parties (Article 1441, New Civil Code). While no
particular words are required for the creation of an express trust, it
being sufficient that a trust is clearly intended (Article 1441, New Civil
Code), in the case at bar, We find no direct and positive intent to
create a trust relationship between the parties to the compromise
agreement under which Pablo Valdehuesa agreed to withdraw his
opposition to the application for registration upon the commitment
of the Roas to give Valdehuesa another piece of land of equal area or
pay its price of P400.00. It seems clear so Us that the Roas under the
compromise agreement did not commit themselves to hold the lot
claimed by Pablo Valdehuesa or Pablo Valdehuesa and in Pablo
Valdehuesa’s name.
3. ID.; ID.; ID.; IMPLIED TRUST; NOT PRESENT IN CASE AT BAR. — We
can not sustain the holding of the respondent appellate court in its
Resolution denying petitioners’ motion for reconsideration that by
operation of law an implied trust was created under the terms of the
compromise agreement in the light of Article 1456 of the New Civil
Code cited above. We rule that Article 1456 is not applicable because
it is quite clear that the property of Pablo Valdehuesa was acquired
by the Roas not through mistake or fraud but by reason of the
voluntary agreement of Valdehuesa to withdraw his opposition to the
registration of the land under the Torrens system.
4. ID.; ID.; ID.; CONSTRUCTIVE TRUST, DEFINED. — A constructive
trust, otherwise know as a trust ex maleficio, a trust ex delicto, a trust
de son tort, an involuntary trust, or an implied trust, is trust by
operation of law which arises contrary to intention and in invitum,
against one who, by fraud, actual or constructive, by duress or abuse
of confidence by commission of wrong, or by any form of
unconscionable conduct, artifice, concealment, or questionable
means, or who in any way against equity and good conscience, either
has obtained or holds the legal right to property which he ought not,
in equity and good conscience, hold and enjoy. It is raised by equity
to satisfy the demands of justice. However, a constructive trust does
not arise on every moral wrong in acquiring or holding property or on
every abuse of confidence in business or other affairs; ordinarily such
a trust arises and will be declared only on wrongful acquisitions or
retentions of property of which equity, in accordance with its
fundamental principles and the traditional exercise of its jurisdiction
or in accordance with statutory provision, takes cognizance. . It has
been broadly ruled that a breach of confidence, although in business
or social relations, rendering an acquisition or retention of property
by one person unconscionable against another, raises a constructive
trust (76 Am. Jur. 2d, Sec. 121. pp. 446-447).
5. ID.; ID.; ID.; ID.; APPROPRIATE REMEDY AGAINST UNJUST
ENRICHMENT. — A constructive trust is substantially an appropriate
remedy against unjust enrichment. It is raised by equity in respect of
property, which has been acquired by fraud, or where, although
acquired originally without fraud, it is against equity that it should be
retained by the person holding it (76 Am. Jur. 21, Sec. 222, p. 447).
6. ID.; PROPERTY; PRESCRIPTION OF ACTION; ACTION TO RECOVER
POSSESSION OF REAL PROPERTY HELD UNDER TRUST; PRESCRIBES
AFTER TEN YEARS FROM DATE OF REPUDIATION. — Pablo Valdehuesa
and his heirs remained in possession of the property in question in
1925 when by reason the compromise agreement Valdehuesa
withdrew his opposition to the registration applied for by the Roas,
for which reason the latter were able to obtain a Torrens title to the
property in their name. However, Valdehuesa and his heirs continued
their possession of the land until he sold the property in question to
private respondents herein on April 30, 1930 and the latter remained
in possession and were never disturbed in their occupancy until the
filing of the original complaint for recovery of possession on
September 1, 1955 after demand was made upon them when a
relocation survey initiated by petitioners established that private
respondents were actually occupying about 2 hectares on the eastern
end of the property. Upon these facts, the prescriptive period may
only be counted from the time petitioners repudiated the trust
relation, in 1955 upon the filing of the complaint for recovery of
possession against private respondents so that the counterclaim of
the private respondents contained in their amended answer of June
12, 1956 wherein they asserted absolute ownership of the disputed
realty by reason of their continuous and adverse possession of the
same is well within the ten year prescriptive period.
557 | P a g e
DECISION
GUERRERO, J.:
Appeal by way of certiorari from the Decision of the Court of Appeals
1 in CA-G.R. No. 34746-R entitled "Alfredo Roa, Plaintiff-Appellant,
versus Joaquin Casino, Et Al., Defendants-Appellees," and from the
Resolution of the said Court 2 denying plaintiff-appellant’s motion for
reconsideration of the said Decision.
On September 1, 1955, an action for recovery of possession of a
parcel of land was filed before the Court of First Instance of Misamis
Oriental by Alfredo Roa, Sr. (now deceased and subsequently
substituted by his heirs, the herein petitioners) against respondent
spouses, Joaquin Casiño and Custodia Valdehuesa (real name appears
to be Teodosia Valdehuesa), successors-in-interest of one Pablo
Valdehuesa, now deceased.chanrobles.com.ph : virtual law library
In his complaint, Alfredo Roa, Sr. alleged that the said land is
agricultural; that it is situated in Bugo, formerly within the
municipality of Tagoloan, Misamis Oriental, now comprised within the
limits of the City of Cagayan de Oro; that it is registered in his name
under Original Certificate of Title No. T-21D; that he found the private
respondents occupying said land. He prayed that possession of the
same be returned to him and that he be awarded actual and moral
damages in the sum of P10,000.00.
In answer to the complaint, respondent spouses alleged that the land
in question formerly belonged to one Pablo Valdehuesa, father of
respondent Custodia (Teodosia) Valdehuesa and now deceased; that
it was however titled in the name of Alfredo Roa, Sr., Trinidad Reyes
Roa, Esperanza Roa de Ongpin, Concepcion Roa and her husband
Zosimo Roa in Land Registration Case No. 12, G.R.L.O. Record No.
10003 of the Court of First Instance of Misamis Oriental by virtue of
an agreement entered into between the Roas and said Pablo
Valdehuesa; that the conditions of the said compromise agreement
were never complied with by the Roas, notwithstanding the death of
Pablo Valdehuesa in 1928 and despite repeated demands for
compliance thereof; that the heirs of said Pablo Valdehuesa sold the
land in question to them on April 30, 1930, after rescinding the
aforementioned compromise agreement; and that they now enjoy
the privileges of absolute ownership over said land by reason of their
continuous and adverse possession thereof since time immemorial.
By way of counterclaim, the respondents prayed for the
reconveyance of the said parcel of land contending that the
compromise agreement created an implied trust between the parties
to it, and for damages in the amount of P10,000.00.
In answer to private respondent’s counterclaim, Alfredo Roa, Sr.
maintained that the heirs of Pablo Valdehuesa cannot rescind the
compromise agreement by their own act alone or without going to
court; and that the alleged sale of the said heirs to private
respondents was null and void, in view of the fact that respondent
spouses knew that the land was then titled in the name of the Roas
under Act 496.cralawnad
On December 22, 1959, the parties submitted to the Court a quo an
agreed Stipulation of Facts, to wit:jgc:chanrobles.com.ph
"STIPULATION OF FACTS
That parties herein, assisted by their respective attorneys, have
agreed on the following facts:chanrob1es virtual 1aw library
1. That the plaintiff and the defendants are all of age and with capacity
to sue and be sued.
2. That the plaintiff and his brothers and sisters Trinidad Reyes Roa,
Esperanza Roa de Ongpin, Concepcion Roa and Zosimo Roa, husband
of the latter, were the owners pro-indiviso of a parcel of land located
in Tagoloan, Misamis Oriental, containing an area of several hundred
hectares, and sometime in 1925, and for the purpose of registering
their title to said parcel of land, the said co-owners filed an application
with the Court of First Instance of Misamis Oriental, and said
application was docketed in said Court as Expediente No. 12, G.L.R.O.
Record No. 10003.
3. That in the application as well as in the plans accompanying said
application in Expediente No. 12, G.L.R.O. No. 10003, was included a
parcel of land which is now the portion in litigation in this case.
4. That one Pablo Valdehuesa filed an opposition in said Expediente
No. 12, G.L.R.O. Record No. 11003, claiming absolute and exclusive
ownership over a portion which is now the property under litigation.
5. That sometime during the year 1925, the co-owners, said
Concepcion Roa, Esperanza Roa de Ongpin and Trinidad Reyes Roa
and Zosimo Roa entered into an agreement with the said Pablo
Valdehuesa, and the terms of their agreement are contained in the
document hereto attached, made a part hereof, and marked as
Exhibit "1."
6. That in compliance with his obligation under and by virtue of said
Exhibit "1" the said Pablo Valdehuesa withdrew the opposition filed
by him in said case Expediente No. 12, G.L.R.O. Record No. 10003, and
as the result of said withdrawal, the plaintiff and his co-owners
succeeded in registering their title to their property, including the
portion owned by Pablo Valdehuesa as claimed in his opposition.
7. That the said Pablo Valdehuesa died in May of 1928, and upon his
death his estate passed to the ownership of his widow and legitimate
children including all his rights under said Exhibit "1" to the property
in question.
8. That since then the property in question has been in the possession
of the defendants, and their possession together with the possession
of their predecessors in said property has been open, continuous and
uninterrupted to this date.
9. That sometime after the issuance of title in favor of the plaintiff
(Transfer Certificate of Title No. 21-A) and his aforementioned
brothers and sisters covering the parcel of land subject matter of the
application filed by them in Expediente No. 12, G.L.R.O. Record No.
10003, the said plaintiff and his brothers and sisters partitioned
among themselves said property, and plaintiff was adjudicated a
share in said property, of which the parcel of land covered by the
558 | P a g e
opposition of Pablo Valdehuesa withdrawn under the terms of Exhibit condicion de que le reconozcamos su dominio y propiedad sobre una
"1" is a part or portion of said charge, and covered by T-21-D (copy parcela de terreno dentro de la comprension de Bugu que el ocupaba,
attached as Exh. "A"). o se le compre, y de otro modo se le compense al reintegrarnos dicha
parcela en tiempo oportuno. La descripcion del terreno referido, cuya
10. That the portion in litigation as correctly described in paragraph 3 extension es de una hectarea, cuarenta y nueve areas y cincuenta y
of the complaint is covered by the certificate of title referred to nueve centiareas, aparece en el escrito de oposicion que obra en el
above. referido Exp. 12, y que luego fue retirado por convenio de partes.

11. That in 1955 the plaintiff had a surveyor relocate the corners and 3. Por tanto, en complimiento de dicho convenio, y como
boundaries of his land as described in his title and that the portion of consecuencia del mismo, ratificamos lo que tenemos prometido, para
about 2 hectares on the eastern end of the land is in the possession lo cual autorizamos al Sr. Zosimo Roa a que busque y adquiera otro
and is actually occupied by the defendant. This is the portion in pedazo de terreno fuera de la comprension de Bugu, de una hectarea,
litigation described in par. 3 of the complaint. cuarenta y nueve areas y cincuenta y nueve centiareas, poco mas o
menos, y que sea aceptable para el Sr. Pablo Valdehuesa, como canje
12. That Expediente No. 12, G.L.R.O. Record No. 10003 have been or permuta con la parcela que el ocupa; en la inteligencia de que el
totally destroyed during the last World War, and the parties reserve valor de compra no exceda de P400.00 en su defecto, si no se
the right to present additional evidence during the hearing of this encuentra un terreno que sea satisfactorio para el Sr. Pablo
case. Valdehuesa, se le compensara el reintegro arriba citado en la
mencionada cantidad de P400.00.
Cagayan de Oro City, December 22, 1959.
4. Por su parte, el Sr. Pablo Valdehuesa, acepta todo lo establecido en
(Sgd.) ALFREDO ROA este documento, obligandose a respetarlo y acatarlo.

Plaintiff En testimonio de todo lo cual, firmamos el presente documento en

Cagayan de Misamis, hoy, 11 de Mayo de 1927.
(Sgd.) HERNANDO PINEDA
(Sgd.) Trinidad Roa de Reyes (Sgd.) Esperanza Roa de Ongpin
(Attorney for Plaintiff)
(Sgd.) Concepcion Roa (Sgd.) Zosimo Roa
(Sgd.) JOAQUIN CASIÑO
Alfredo Roa
(Sgd.) CUSTODIA VALDEHUESA
Pablo Valdehuesa
(Defendants)
Pursuant to said Exhibit "1", Concepcion, Esperanza, Trinidad and
(Sgd.) MANUEL C. FERNANDEZ Zosimo, all surnamed Roa, agreed to replace the land of Pablo
Valdehuesa with another parcel of land with an area of 1.4959
(Sgd.) CONCORDIO C. DIEL hectares to be given to Pablo Valdehuesa in exchange for the land
occupied by him, or if said land was not acceptable to him, to pay him
(Attorney for Defendants)" the amount of P400.00. Neither of these undertakings was complied
with by the Roas and Pablo Valdehuesa continued in possession of the
The aforesaid compromise agreement mentioned in paragraph 5 of land occupied by him until the same was sold by the heirs of Pablo
the agreed Stipulation of Facts was thereafter ratified on May 11, Valdehuesa to the respondent spouses on April 30, 1930.
1927 as shown in Exhibit "1" as follows:chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph On March 6, 1964, the lower court rendered the decision ordering the
plaintiff Alfredo Roa to reconvey the land in dispute to the
"SEPAN TODOS LOS QUE LA PRESENTE VIEREN:chanrob1es virtual defendants, now the respondent spouses, on the ground that same
1aw library could not have been registered in the name of the plaintiff and his
brother and sisters if not for the compromise agreement aforestated
Que nosotros, los abajo firmantes, mayores de edad hacemos and further to pay said defendants the amount of P1,000.00 as
constar:chanrob1es virtual 1aw library attorney’s fees plus costs.chanrobles law library

1. Que somos los dueños mancomunados de la propiedad conocida
por Terrenos de Bugu, en el municipio de Tagoloan, provincia de
Misamis.
2. Que en la tramitacion del Exp. No. 12, G.L.R.O., Record No. 10003,
para el registro de dicha propiedad, el Sr. Pablo Valdehuesa del
municipio de Tagoloan, que era uno de los opositores, consintio en
retirar su oposicion contra nuestra citada solicitud de registro a
On appeal taken by Alfredo Roa, the appellate court affirmed the
decision of the lower court and declared that (a) the compromise
agreement created an express trust between the Roa brothers and
sisters, including Alfredo, Sr., (b) that the respondent spouses’ action
for reconveyance was imprescriptible on the authority of Mirabiles,
Et. Al. v. Quito, Et Al., L-14008, October 18, 1956; and (c) that Alfredo
Roa cannot invoke the indefeasibility and imprescriptibility of the
Torrens title issued in his name for the land in dispute since the said

559 | P a g e
title was secured by him in breach of an express trust, and thus, the
Court ordered the reconveyance of the property within fifteen (15)
days from the finality of the decision.
Alfredo Roa, now substituted by his heirs, the herein petitioners
Alfredo Roa, Jr., Leticia Roa de Borja, Ruben Roa, Cornelio Roa and
Elsie Roa-Cacnio, moved to reconsider the adverse decision. Acting on
this motion for reconsideration, the Court of Appeals in a majority
resolution denied the said motion, and while conceding that "the
creation of an express trust leaves room for doubt," the said Court
ruled that the compromise agreement, at the least gave rise to an
implied trust under Art. 1456 of the New Civil Code. Hence,
petitioners filed this present petition on the following assignment of
errors:chanrob1es virtual 1aw library
I. The respondent Court of Appeals erred when it ruled that Alfredo
Roa, the petitioners’ predecessor-in-interest, was bound by the
compromise agreement (Exh. "I") in the execution of which, according
to the Stipulation of Facts, said Alfredo Roa neither participated nor
signed.
II. On the assumption that the aforementioned compromise
agreement was binding upon Alfredo Roa, the respondent Court of
Appeals erred when it held the said agreement, which stipulated the
conveyance of the property in dispute for a consideration, as having
established a trust relationship between the parties to it.
III. The respondent Court of Appeals erred when it held that the ruling
in the case of Gerona, Et. Al. v. De Guzman, G.R. No. L-19060, May 29,
1964, is inapplicable to the case at bar.
On the first assigned error, We reject the contention of the petitioners
that Alfredo Roa, Sr. was not bound by the compromise agreement
for not being a participant or signatory thereto. It may be true that
Alfredo Roa, Sr. did not sign the compromise agreement, Exh. "1", for
he was then in Manila working as a newspaperman but he certainly
benefited from the effects of the compromise agreement which
obliged Pablo Valdehuesa to withdraw, as he did withdraw his
opposition to the registration of the Roa property under the Torrens
system. The Roa property was subsequently registered without
opposition and title was issued thereto in the name of Alfredo Roa,
his brother Zosimo and his sisters Trinidad, Esperanza and
Concepcion, all surnamed Roa as co-owners thereof. Certainly, the
Roas may not escape compliance from their obligation under the
compromise agreement by partitioning the property and assigning
the property in dispute as part of the share of the petitioners.
Moreover, it will be a pure and simple case of unjust enrichment for
petitioners to acquire and own the property of Pablo Valdehuesa,
without paying the value thereof or exchanging the land with another
with an equal area as originally agreed.
With respect to the second assignment of error, We do not agree with
the holding of the respondent appellate court that an express trust
was created between the parties by reason of the compromise
agreement entered into between them. Express trusts are created by
the intention of the trustor or one of the parties (Article 1441, New
Civil Code). While no particular words are required for the creation of
an express trust, it being sufficient that a trust is clearly intended
(Article 1444, New Civil Code), in the case at bar, We find no direct
and positive intent to create a trust relationship between the parties
to the compromise agreement under which Pablo Valdehuesa agreed
to withdraw his opposition to the application for registration upon the
commitment of the Roas to give Valdehuesa another piece of land of
equal area or pay its price of P400.00. It seems clear to Us that the
Roas under the compromise agreement did not commit themselves
to hold the lot claimed by Pablo Valdehuesa for Pablo Valdehuesa and
in Pablo Valdehuesa’s name.
If the compromise agreement did not result to an express trust
relationship, did it, however, give rise to an implied trust? Private
respondents claim that under the terms of the compromise
agreement, the land claimed by Pablo Valdehuesa should be deemed
held in trust by the Roas when the latter failed to relocate him or pay
the price therefor. The respondent appellate court took private
respondent’s position, and opined, 3 thus —
"It could thus be gleaned that had it not been for the promise of the
Roas contained in Exhibit I, Valdehuesa would not have been induced
to withdraw his opposition in the land registration case. When,
therefor, the Roas turned their back to a solemn agreement entered
in a court proceedings, they were guilty of fraud.chanrobles.com :
virtual law library
"Fraud is every kind of deception, whether in the form of insidious
machinations, manipulations, concealments or misrepresentations,
for the purpose of leading another party into error and then execute
a particular act. It must have a determining influence on the consent
of the victim." (4 Tolentino, Civil Code, p. 462)
"It results from the foregoing that although the creation of an express
trust leaves room for doubt, by operation of law, an implied trust is
created.
"Art. 1456. If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes. (N.C.C.)"
We cannot sustain the holding of the respondent appellate court in
its Resolution denying petitioners’ motion for reconsideration that by
operation of law an implied trust was created under the terms of the
compromise agreement in the light of Article 1456 of the New Civil
Code cited above. We rule that art. 1456 is not applicable because it
is quite clear that the property of Pablo Valdehuesa was acquired by
the Roas not through mistake or fraud but by reason of the voluntary
agreement of Valdehuesa to withdraw his opposition to the
registration of the land under the Torrens system.
There is incontrovertible evidence that the Roas intended to abide by
the compromise agreement at the time of the execution of the same.
The private respondents themselves introduced additional evidence
which showed that on May 11, 1927, Trinidad Roa, Esperanza Roa de
Ongpin, Concepcion Roa and Zosimo Roa confirmed in writing the
terms and conditions of the agreement they had entered into with
Pablo Valdehuesa in the land registration proceedings. Even the
respondent appellate court expressly determined the aforesaid
failure of the Roas to comply with the terms of the compromise
agreement to be an afterthought; thus,
"The change of mind of the plaintiff-appellant later is of no moment
560 | P a g e
in the case at bar."
While it is Our ruling that the compromise agreement between the
parties did not create an express trust nor an implied trust under Art.
1456 of the New Civil Code, We may, however, make recourse to the
principles of the general law of trusts, insofar as they are not in
conflict with the New Civil Code, Code of Commerce, the Rules of
Court and special laws which under Art, 1442 of the New Civil Code
are adopted. While Articles 1448 to 1456 of the New Civil Code
enumerates cases of implied trust, Art. 1447 specifically stipulates
that the enumeration of the cases of implied trust does not exclude
others established by the general law of trusts, but the limitations laid
down in Art 1442 shall be applicable.chanrobles virtual lawlibrary
In American law and jurisprudence, We find the following general
principles:jgc:chanrobles.com.ph
"A constructive trust, otherwise known as a trust ex maleficio, a trust
ex delicto, a trust de son tort, an involuntary trust, or an implied trust,
is a trust by operation of law which arises contrary to intention and in
invitum, against one who, by fraud, actual or constructive, by duress
or abuse of confidence, by commission of wrong, or by any form of
unconscionable conduct, artifice, concealment, or questionable
means, or who in any way against equity and good conscience, either
has obtained or holds the legal right to property which he ought not,
in equity and good conscience, hold and enjoy. It is raised by equity
to satisfy the demands of justice. However, a constructive trust does
not arise on every moral wrong in acquiring or holding property or on
every abuse of confidence in business or other affairs; ordinarily such
a trust arises and will be declared only on wrongful acquisitions or
retentions of property of which equity, in accordance with its
fundamental principles and the traditional exercise of its jurisdiction
or in accordance with statutory provision, takes cognizance. It has
been broadly ruled that a breach of confidence, although in business
or social relations, rendering an acquisition or retention of property
by one person unconscionable against another, raises a constructive
trust. (76 Am. Jur. 2d, Sec. 221, pp. 446-447).
And specifically applicable to the case at bar is the doctrine that "A
constructive trust is substantially an appropriate remedy against
unjust enrichment. It is raised by equity in respect of property, which
has been acquired by fraud, or where, although acquired originally
without fraud, it is against equity that it should be retained by the
person holding it." (76 Am. Jur. 2d, Sec. 222, p. 447)
The above principle is not in conflict with the New Civil Code, Code of
Commerce, Rules of Court and special laws. And since We are a court
of law and of equity, the case at bar must be resolved on the general
principles of law on constructive trust which basically rest on
equitable considerations in order to satisfy the demands of justice,
morality, conscience and fair dealing and thus protect the innocent
against fraud. As the respondent court said, "It behooves upon the
courts to shield fiduciary relations against every manner of chickanery
or detestable design cloaked by legal technicalities."cralaw virtua1aw
library
The next point to resolve is whether the counterclaim of private
respondents for the reconveyance of the property in dispute has
already prescribed in the light of established jurisprudence that the
right to enforce an implied trust prescribes in ten years.
4
Admittedly, Pablo Valdehuesa and his heirs remained in possession of
the property in question in 1925 when by reason of the compromise
agreement Valdehuesa withdrew his opposition to the registration
applied for by the Roas, for which reason the latter were able to
obtain a Torrens title to the property in their name. However,
Valdehuesa and his heirs continued their possession of the land until
he sold the property in question to private respondents herein on
April 30, 1930 and the latter remained in possession and were never
disturbed in their occupancy until the filing of the original complaint
for recovery of possession on Sept. 1, 1955 after demand was made
upon them when a relocation survey initiated by petitioners
established that private respondents were actually occupying about 2
hectares on the eastern end of the property. Upon these facts, the
prescriptive period may only be counted from the time petitioners
repudiated the trust relation in 1955 upon the filing of the complaint
for recovery of possession against private respondents so that the
counterclaim of the private respondents contained in their amended
answer of June 12, 1956 wherein they asserted absolute ownership
of the disputed realty by reason of their continuous and adverse
possession of the same is well within the ten-year prescriptive
period.chanrobles virtual lawlibrary
Finally, the case at bar is quite similar to the case of Dolores Pacheco
v. Santiago Arro, 85 Phil. 505, wherein the claim to the lots in the
cadastral case was withdrawn by the respondents relying upon the
assurance and promise made in open court by Dr. M. Y. in behalf of J.
Y. y R., the predecessor-in-interest of the petitioners and the Court
held that a trust or a fiduciary relation between them arose, or
resulted therefrom, or was created thereby and the trustee cannot
invoke the statute of limitations to bar the action and defeat the right
of the cestuis que trustent. (Cited also in Tolentino, Civil Code of the
Philippines, Vol. IV, p. 627).
WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed
from is hereby AFFIRMED.
SO ORDERED.
Concepcion, Jr., De Castro and Escolin, JJ., concur.
Makasiar (Chairman) and Abad Santos, JJ., took no part.
Aquino, J., concurs in the result.
561 | P a g e
G.R. No. L-23159 July 28, 1969
TRUSTEESHIP OF BENIGNO, ANTONIO and ANGELA, all surnamed
PEREZ Y TUASON, ANTONIO M. PEREZ, judicial guardian-appellant,
vs. J. ANTONIO ARANETA, trustee-appellee.
-----------------------------
G.R. No. L-23160 July 28, 1969
TRUSTEESHIP OF THE MINORS BENIGNO, ANGELA and ANTONIO, all
surnamed PEREZ Y TUASON, ANTONIO M. PEREZ, judicial guardian-
appellant, vs. J. ANTONIO ARANETA, trustee-appellee.
-----------------------------
G.R. No. L-23161 July 28, 1969
TRUSTEESHIP OF BENIGNO, ANTONIO and ANGELA, all surnamed
PEREZ Y TUASON, ANTONIO M. PEREZ, judicial guardian-appellant,
vs. J. ANTONIO ARANETA, trustee-appellee.
-----------------------------
G.R. No. L-24297 July 28, 1969
TRUSTEESHIP OF THE MINORS BENIGNO PEREZ Y TUASON, ET AL.,
ANTONIO PEREZ Y TUASON, ET AL., beneficiaries-appellants, vs. J.
ANTONIO ARANETA, trustee-appellee.
Alfonso Felix, Jr. and A. Perez for judicial guardian-appellant.
Araneta and Araneta for trustee-appellee.
RESOLUTION
SANCHEZ, J.:chanrobles virtual law library
The four (4) cases above numbered are before this Court upon
a joint motion to dismiss filed in each of the said cases, which motions
to dismiss are written in the same language, one a verbatim
reproduction of the others except as hereinafter noted. A sample of
the joint motion to dismiss as set forth in L-23159 reads:
JOINT MOTION TO DISMISSchanrobles virtual law library
COME NOW, J. Antonio Araneta, the trustee-appellee in the
above-entitled case, and the undersigned Benigno de la Vega, Angela
T. Staley (nee Angela Perez y Tuason), and Antonio Perez y Tuason,
assisted by their respective counsels and to the Honorable Court
respectfully allege:
1. That this appeal from an order of the trusteeship court in Special
Proceeding No. Q-73 involves a trust which was created by the late
Angela S. Tuason for the benefit of the children of her daughter,
Angela I. Tuason, and which was administered by J. Antonio Araneta
as trustee in trusteeship proceeding No. Q-73 of the lower
court.chanroblesvirtualawlibrarychanrobles virtual law library
2. That the undersigned Benigno de la Vega is Angela I. Tuason's son
by the late Benigno de la Vega Inclan, but was also known as 'Benigno
Perez y Tuason' because he was adopted by Antonio M. Perez, the
present husband of Angela I. Tuason; Angela T. Staley (nee Angela
Perez y Tuason) and Antonio Perez y Tuason are the children of Angela
I. Tuazon by Antonio M. Perez; and that Benigno de la Vega (Benigno
Perez y Tuason), Angela T. Staley (nee Angela Perez y Tuason) and
Antonio Perez y Tuason are all the beneficiaries of the trust
administered by the trustee-appellee in Special Proceeding No. Q-73
in the lower court.chanroblesvirtualawlibrarychanrobles virtual law
library
3. That the judicial guardian-appellant, Antonio M. Perez, is a party to
trusteeship proceeding No. Q-73 and prosecuted this appeal and
other appeals from orders of the lower court in said proceeding only
in his capacity as the judicial guardian and in behalf of the aforesaid
three beneficiary who were then his wards on account of their
minority.chanrobles virtual law library
4. That the guardianship over the three aforenamed beneficiaries
terminated when they became of legal
age.chanroblesvirtualawlibrarychanrobles virtual law library
5. That Benigno de la Vega (Benigno Perez y Tuason) became of age
on February 3, 1960, Angela T. Staley on March 21, 1965 and Antonio
Perez y Tuason, the youngest, on April 17,
1969.chanroblesvirtualawlibrarychanrobles virtual law library
6. That under the terms of the trust herein involved, the trust would
terminate when all of the beneficiaries become of legal age and a
majority of them should decide to terminate it, in which case, the
entire trust estate should be distributed equally among all the
beneficiaries; and that all the said three beneficiaries as well as the
trustee-appellee decided and agreed, after the youngest beneficiary,
Antonio Perez y Tuason, had reached the age of 21 on April 17, 1969,
to terminate the trust on April 30,
1969.chanroblesvirtualawlibrarychanrobles virtual law library
7. That the trustee-appellee and all the afore-named three
beneficiaries of the trust, assisted by their respective counsels,
thereafter filed with the lower court in the trusteeship proceeding a
"Joint Manifestation and Motion for Approval of Project of Partition,"
dated April 18, 1969, praying for an order declaring that the trust
would terminate on April 30, 1969, approving the project of partition
of the trust estate therein embodied, and authorizing the trustee-
appellee to convey all the assets of the trust estate to the above-
named three beneficiaries in accordance with said project of
partition. A xerox copy of said 'Joint Manifestation and Motion for
Approval of Project of Partition' is hereto attached as Appendix 'A',
and the corresponding Order (xerox copy) of the lower court, dated
April 19, 1969 granting it is hereto attached as Appendix
"B".chanroblesvirtualawlibrarychanrobles virtual law library
8. That as this Honorable Court will note, all the three beneficiaries
already manifested in the said joint manifestation and motion
(Appendix "A") that they confirmed and ratified an the quarterly
accounts of the trustee-appellee which had been filed prior to the
date of said motion (See paragraphs 5 and 12 of Appendix "A"), and
that "for expediency and practical reasons ... all motions, petitions and
incidents which may still be pending resolution in this proceeding, and
all appeals and special civil actions pending in the Supreme Court and
the Court of Appeals relating to or affecting this trust be considered
abandoned and withdrawn" (See paragraph 4 of Appendix
"A").chanroblesvirtualawlibrarychanrobles virtual law library
9. That the three beneficiaries herein confirm and ratify the trustee-
appellee's right to the trustee's fees involved in this
appeal.chanroblesvirtualawlibrarychanrobles virtual law library
562 | P a g e
10. That all the undersigned parties have no further desire to Jurat
prosecute this appeal..chanroblesvirtualawlibrarychanrobles virtual
law library SUBSCRIBED AND SWORN TO BEFORE me on this 30th day of
May, 1969 at Manila affiants exhibiting to me the following:
11. That since the undersigned are all the real parties in interest in the
above-entitled case, it is submitted that in view of the foregoing, this Res. Cert.
Name Date and Place
case has become academic and should be dismissed. No.

WHEREFORE, it is respectfully prayed that the above-entitled

case be dismissed.chanroblesvirtualawlibrarychanrobles virtual law J. Antonio Araneta A-182901 Jan. 10, 1969 - Manila
library

Manila, MAY 30, 1969. Angela T. Staley A-157243 Feb. 27, 1969 - Manila

Jan. 31, 1969 - Sagada, Mt.

(SGD.) J. ANTONIO ARANETA Benigno de la Vega A-3417506
Prov.
Trustee
(SGD.) ANGELA T. STALEY
Beneficiary Antonio Perez y
A-5879287 May 19, 1969 - Manila
(SGD.) BENIGNO DE LA VEGA Tuason
Beneficiary
(SGD.) RODOLFO D. MAPILE
NOTARY PUBLIC
Until December 31, 1970
(SGD.) ANTONIO PEREZ Y TUASON
Beneficiary Doc. No. 314
Page No. 64
Book No. II
Series of 1969
Assisted By:
The sole difference between the averments in the joint motion
to dismiss in L-23159 and L-23160 is in the averment of paragraph 9
in the last mentioned case, which reads:
ARANETA, MENDOZA & PAPA
9. That this appeal was made solely to seek a ruling on what
expenses should be charged to principal of the trust or to its income,
a question that will serve no purpose now because the undersigned
By beneficiaries of the trust, in whose behalf this appeal was made, are
now entitled both to the principal and income of the trust.

In L-23161 and in L-24297, the allegations noted in paragraph 9

(SGD.) J. ANTONIO ARANETA of the joint motion to dismiss in L-23159 and L-23160 are omitted.
Counsel for Trustee Instead, paragraphs 10 and 11 in L-23159 and L-23160 were
4th Floor, A & T Building Escolta, Manila reproduced in L-23161 and L-24297 as paragraphs 9 and
10.chanroblesvirtualawlibrarychanrobles virtual law library

It thus appearing that the above-entitled cases have all become

(SGD.) ANTONIO PISON, (SGD.) LEONARDO ABOLAC moot and academic, the Court resolved to dismiss all of the said cases,
JR. Counsel for Benigno de la without costs. So ordered.
Counsel for Angela T. Vega
Staley and Antonio Perez y Tuazon Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando,
UPL Building 3rd Floor, Avenue Building Capistrano, Teehankee and Barredo, JJ., concur.
Port Area, Manila Rizal Avenue, Manila Dizon, J., took no part.

Verification

WE, the undersigned, after being duly sworn, depose and

declare:chanrobles virtual law library

That we have read the foregoing motion and that the allegations
thereof are true and correct of our own knowledge.

(SGD.) ANGELA T. STALEY (SGD.) J. ANTONIO ARANETA

(SGD.) BENIGNO DE LA VEGA (SGD.) ANTONIO PEREZ Y TUASON

563 | P a g e
 b. Kinds of trusts
1. Express
[G.R. No. L-21616. December 11, 1967.]
GERTRUDES F. CUAYCONG, ET AL., Plaintiffs-Appellants, v. LUIS D.
CUAYCONG, Et Al., Defendants-Appellees.
Benito C Jalandoni and M. S. Gomez, for Plaintiffs-Appellants.
Hilado & Hilado for Defendants-Appellees.
SYLLABUS
1. CIVIL LAW; TRUSTS; EXPRESS AND IMPLIED TRUST DISTINGUISHED.
— Our Civil Code defines an express trust as one created by the
intention of the trustor or of the parties, and an implied trust as one
that comes into being by operation of law (Art. 1141). Express trusts
are those created by the direct and positive acts of the parties, by
some writing or deed or will or by words evidencing an intention to
create a trust. On the other hand, implied trusts are those which,
without being expressed, are deducible from the nature of the
transaction by operation of law as matters of equity, independently
of the particular intention of the parties. Thus, if the intention to
establish a trust is clear, the trust is express; if the intent to establish
a trust is to be taken from circumstances or other matters indicative
of such intent, then the trust is implied.
2. ID.; ID.; EXPRESS TRUST OF AN IMMOVABLE; WRITTEN EVIDENCE
REQUIRED; CASE AT BAR. — From the provisions of paragraph 8 of the
complaint herein, it is clear that plaintiffs alleged an express trust over
an immovable, especially since it is alleged that the trustor expressly
told the defendants of his intention to establish the trust. Under
Article 1443 of the Civil Code, such an express trust over an
immovable may not be proved by parole evidence. Since the
complaint did not mention the written instrument of the alleged trust
and since the complaint was not amended as per instruction of the
Judge below, then the complaint was properly dismissed.
3. ID.; ID.; ARTICLE 1453; WHEN APPLICABLE. — Article 1453, one of
the cases of implied trust, would apply if the person conveying the
property did not expressly state that he was establishing the trust,
unlike the case at bar where he was alleged to have expressed such
intent.
4. ID.; ID.; IMPLIED TRUST; PERIOD OF PRESCRIPTION. — Even
assuming the alleged trust to be an implied one, the right alleged by
plaintiffs would have already prescribed since starting in 1936 when
the trustor died, plaintiffs had already been allegedly refused by the
defendants in their demands over the land, and the complaint was
filed only in 1961 - more than the 10 - year period of such prescription
for the enforcement of such rights under the trust. It is settled that
the right to enforce an implied trust in one’s favor prescribes in 10
years. And even under the Code of Civil Procedure, action to recover
real property such as lands prescribes in ten years (Sec. 40, Act 190).
DECISION
BENGZON, J.P., J.:
Eduardo Cuaycong, married to Clotilde de Leon, died on June 21, 1936
without issue but with three brothers and a sister surviving him: Lino,
Justo, Meliton and Basilisa. Upon his death, his properties were
distributed to his heirs as he willed except two haciendas in Victorias,
Negros Occidental, devoted to sugar and other crops — the Haciendas
Sta. Cruz and Pusod both known as Hacienda Bacayan. Hacienda
Bacayan is comprised of eight (8) lots — Nos. 28, covered by T.C.T.
No. T-22130; Nos. 8, 17, 18 & 135, covered by T.C.T. No. T-22131; Nos.
21, 22, 23, covered by T.C.T. No. 22132 — all of which are titled in the
name of Luis D. Cuaycong, son of Justo Cuaycong.
Lino Cuaycong died on May 4, 1937 and was survived by his children
Paz, Carolina, Gertrudes, Carmen, Virgilio, Benjamin, Praxedes and
Anastacio. Praxedes Cuaycong, married to Jose Betia, is already
deceased and is survived by her children Jose Jr., Jesus, Mildred,
Nenita and Nilo, all surnamed Betia. Anastacio Cuaycong, also
deceased, is survived by his children Ester, Armando, Lourdes, Luis T.,
Eva and Aida, all surnamed Cuaycong.
Meliton and Basilisa died without any issue.
On October 3, 1961, the surviving children of Lino Cuaycong:
Gertrudes, Carmen, Paz, Carolina, Virgilio; the surviving children of
Anastacio: Ester, Armando, Lourdes, Luis T., Eva and Aida; as well as
Jose, Jr., Jesus, Mildred, Nenita, Nilo, all surnamed Betia, children of
deceased Praxedes Cuaycong Betia, filed as pauper litigants, a suit
against Justo, Luis and Benjamin Cuaycong 1 for conveyance of
inheritance and accounting, before the Court of First Instance of
Negros Occidental (Civil Case No. 6314), alleging among others
that:chanrob1es virtual 1aw library
1. Eduardo Cuaycong had on several occasions, made known to his
brothers and sisters that he and his wife Clotilde de Leon (died in
1940) had an understanding and made arrangements with Luis
Cuaycong and his father Justo Cuaycong, that it was their desire to
divide Haciendas Sta. Cruz and Pusod among his brothers and sisters
and his wife Clotilde.
2. With the consent of his wife, Eduardo had asked his brothers and
sister to pay his wife P75,000 (the haciendas were worth P150,000)
and then divide equally the remaining one-half share of Eduardo.
3. The brothers and sister failed to pay the 1/2 share of Clotilde over
the two haciendas which were later acquired by Luis Cuaycong thru
clever strategy, fraud, misrepresentation and in disregard of
Eduardo’s wishes by causing the issuance in his name of certificates
of title covering said properties.
4. As the two haciendas were the subject of transactions between the
564 | P a g e
spouses and Justo and Luis Cuaycong, Eduardo told Justo and Luis,
and the two agreed, to hold in trust what might belong to his brothers The plaintiffs claim that an implied trust is referred to in the complaint
and sister as a result of the arrangements and deliver to them their which, under Article 1457 of the Civil Code, may be proved by parole
share when the proper time comes. evidence.

5. That as far back as 1936 Lino demanded from Justo and Luis his Our Civil Code defines an express trust as one created by the intention
share and especially after Eduardo’s and Clotilde’s death, the of the trustor or of the parties, and an implied trust as one that comes
plaintiffs demanded their shares. into being by operation of law. 2 Express trusts are those created by
the direct and positive acts of the parties, by some writing or deed or
6. That their demands had been refused and in 1960 during the estate will or by words evidencing an intention to create a trust. On the other
proceedings of Praxedes Escalon, deceased wife of Luis D. Cuaycong, hand, implied trusts are those which, without being expressed, are
the latter fraudulently made it appear that the plaintiffs had nothing deducible from the nature of the transaction by operation of law as
to do with the land; that Luis Cuaycong had possessed the lands since matters of equity, independently of the particular intention of the
June 21, 1936 from which time he should be made to account for the parties. 3 Thus, if the intention to establish a trust is clear, the trust is
plaintiff’s share; and that P1,500 attorney’s fees should be paid in express; if the intent to establish a trust is to be taken from
their favor. circumstances or other matters indicative of such intent, then the
trust is implied. From these and from the provisions of paragraph 8 of
Luis D. Cuaycong on October 20, 1961 moved to dismiss the complaint the complaint itself, We find it clear that the plaintiffs alleged an
on the grounds of unenforceability of the claim under the statute of express trust over an immovable, especially since it is alleged that the
frauds, no cause of action (Rule 8, Sec. I [f] of the Rules of Court), and trustor expressly told the defendants of his intention to establish the
bar of causes of action by the statute of limitations (Rule 8, Sec. I [e]). trust. Such a situation definitely falls under Article 1443 of the Civil
Subsequently, opposition thereto, answer and reply were filed; the Code.
plaintiffs also sought to have Benjamin Cuaycong declared in default
for his failure to answer. Appellants point out that not only paragraph 8 should be considered
but the whole complaint, in which case they argue that an implied
On December 16, 1961, the Court of First Instance ruled that the trust trust should be construed to exist. Article 1453, one of the cases of
alleged, particularly in paragraph 8 of the complaint, refers to an implied trust, is also cited: "When property is conveyed to a person in
immovable which under Article 1443 of the Civil Code may not be reliance upon his declared intentions to hold it for or transfer it to
proved by parole evidence. Plaintiffs were given 10 days to file an another or the grantor, there is an implied trust in favor of the person
amended complaint mentioning or alleging therein the written whose benefit is contemplated." Said arguments are untenable, even
evidence of the alleged trust, otherwise the case would be dismissed. considering the whole complaint. The intention of the trustor to
establish the alleged trust may be seen in paragraphs 5 and 6. 4 Article
Later, on December 23, 1961, the court decreed that since there was 1453 would apply if the person conveying the property did not
no amended complaint filed, thus, no enforceable claim, it was expressly state that he was establishing the trust, unlike the case at
useless to declare Benjamin Cuaycong in default. bar where he was alleged to have expressed such intent.
Consequently, the lower court did not err in dismissing the complaint.
Plaintiff thereafter manifested that the claim is based on an implied
trust as shown by paragraph 8 of the complaint. They added that Besides, even assuming the alleged trust to be an implied one, the
there being no written instrument of trust, they could not amend the right alleged by plaintiffs would have already prescribed since starting
complaint to include such instrument. in 1936 when the trustor died, plaintiffs had already been allegedly
refused by the aforesaid defendants in their demands over the land,
On January 13, 1962, the court dismissed the case for failure to amend and the complaint was filed only in 1961 — more than the 10-year
the complaint; it further refused to reconsider its order denying the period of prescription for the enforcement of such rights under the
motion to declare Benjamin Cuaycong in default, stating that such a trust. It is settled that the right to enforce an implied trust in one’s
default declaration would be of no purpose. favor prescribes in ten (10) years. 5 And even under the Code of Civil
Procedure, action to recover real property such as lands prescribes in
Failing in their efforts to have the dismissal reconsidered, plaintiffs ten years (Sec. 40, Act 190).
appealed to Us. The resolution of the appeal hinges on whether the
trust is express or implied. And for the above reasons, We agree that it was pointless to declare
Benjamin Cuaycong in default, considering that without a written
Paragraph 8 of the complaint states:jgc:chanrobles.com.ph instrument as evidence of the alleged trust, the case for the plaintiffs
must be dismissed.
"That as the said two haciendas were then the subject of certain
transactions between the spouses Eduardo Cuaycong and Clotilde de WHEREFORE, the order of dismissal of the lower court appealed from
Leon on one hand, and Justo and Luis D. Cuaycong on the other, is hereby affirmed, without costs. So ordered.
Eduardo Cuaycong told his brother Justo and his nephew, defendant
Luis D. Cuaycong, to hold in trust what might belong to his brothers Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,
and sister as a result of the arrangements and to deliver to them their Castro, Angeles and Fernando, JJ., concur.
shares when the proper time comes, to which Justo and Luis D.
Cuaycong agreed."cralaw virtua1aw library Endnotes:

565 | P a g e
1. Benjamin Cuaycong was made a defendant because he refused to
sue as a plaintiff.

2. Article 1441.

3. 89 C.J.S. 722, 724.

4." (5) — That on several occasions during the later years of Eduardo
and Lino Cuaycong, the former made known to the latter and to their
brothers and sister, that he and his wife, Clotilde de Leon, who died
in 1941, had an understanding and made arrangements with
defendants Luis D. Cuaycong and his father, Justo Cuaycong, that it
was their (Eduardo’s and Clotilde’s) wish and desire, that Hdas. `Sta.
Cruz’ and `Pusod’ above-referred to, should be divided between the
brothers and sister of Eduardo Cuaycong, namely, Justo, Meliton,
Lino, and Basilisa, all surnamed Cuaycong, and his wife, Clotide de
Leon;"

(6) — That pursuant to such wish and desire and arrangements, the
said Eduardo Cuaycong, with the knowledge and consent of his wife,
Clotilde de Leon, and as an agreement with the latter to effectuate
their wish and desire had directed his brothers and sister to pay his
wife the sum of P75,000.00, the value of the two haciendas above-
mentioned being P150,000.00, and then divide the same among
themselves share and share alike; or, at all events, should his brothers
and sister fail to do just that, they should divide only the one-half (1/2)
portions proindiviso thereof appertaining to him (Eduardo) in the said
conjugal properties;"

5. Gonzales v. Jimenez, L-19073, Jan. 20, 1965.

566 | P a g e
G.R. No. L-59879 May 13, 1985
PATRICIO SINAON and MARIA, FRANCISCA and JOSE, all surnamed
SINAON, Petitioners, vs. ANDRES SOROÑGON, ANASTACIA
PARREÑO, SOLEDAD PARREÑO, ANA PARREÑO, MARCELINA,
CLARITA, RUFINO and MANUEL, all surnamed ARELLANO, SIMPLICIO
SOMBLINGO and BRIGIDA SOMBLINGO and COURT OF
APPEALS, Respondents.
Neil D. Hechanova for petitioners.chanrobles virtual law library
Benjamin P. Sorongon for respondents.
AQUINO, J.:
The issue in this case is whether an action for reconveyance of a
registered five-hectare land, based on implied trust, would lie after
the supposed trustees had held the land for more than forty
years.chanroblesvirtualawlibrarychanrobles virtual law library
According to the documentary evidence consisting of public
documents and tax records, Judge (later Justice) Carlos A. Imperial in
a decree dated March 4, 1916 adjudicated to Canuta Soblingo
(Somblingo), a widow, Lot No. 4781 of the Sta. Barbara, Iloilo cadastre
with an area of 5.5 hectares. OCT No. 6178-A was issued in 1917 to
Canuta (Exh. 6 and 7 or B).chanroblesvirtualawlibrarychanrobles
virtual law library
In 1923 Canuta sold the lot to the spouses Patricio Sinaon and Julia
Sualibio for P2,000 (Exh. 8). TCT No. 2542 was issued to the Sinaon
spouses (Exh. 9 or C). It is still existing and uncancelled up to this time,
Julia was the granddaughter of
Canuta.chanroblesvirtualawlibrarychanrobles virtual law library
The lot was declared for tax purposes in Sinaon's name (Exh. 3). The
Sinaon spouses and their children paid the realty taxes due thereon
(Exh. 1 to 5-C). They have possessed the land as owners from 1923 up
to this time or for more than half a century.
Canuta was one of the five children of Domingo Somblingo, the
alleged original owner of the lot when it was not yet registered. His
other four children were Felipe, Juan, Esteban and Santiago. The
theory of respondents Soroñgon, et al.,chanrobles virtual law library
which they adopted in their 1968 second amended complaint (they
filed the action in 1964) is that Canuta and the Sinaons were trustees
of the lot and that the heirs of Domingo's four children are entitled to
a 4/5 share thereof.chanroblesvirtualawlibrarychanrobles virtual law
library
That theory was sustained by the trial court and the Appellate Court.
The trial court ordered the Sinaons to convey 4/5 of Lot No. 4781 to
respondents Soroñgon, et al. It decreed partition of the lot in five
equal parts. The Sinaons appealed to this Court. The respondents did
not file any brief.chanroblesvirtualawlibrarychanrobles virtual law
library
We hold that after the Sinaons had appeared to be the registered
owners of the lot for more than forty years and had possessed it
during that period, their title had become indefeasible and their
possession could not be disturbed. Any pretension as to the existence
of an implied trust should not be
countenanced.chanroblesvirtualawlibrary chanrobles virtual law
library
The trustors. who created the alleged trust, died a long time ago. An
attempt to prove the trust was made by unreliable oral evidence. The
title and possession of the Sinaons cannot be defeated by oral
evidence which can be easily fabricated and contradicted. The
contradictory oral evidence leaves the court sometimes bothered and
bewildered.chanroblesvirtualawlibrary chanrobles virtual law library
There was no express trust in this case. Express trusts concerning real
property cannot be proven by parol evidence (Art. 1443, Civil Code).
An implied trust "cannot be established, contrary to the recitals of a
Torrens title, upon vague and inconclusive proof" (Suarez vs.
Tirambulo, 59 Phil. 303; Salao vs. Salao, L-26699, March 16,1976, 70
SCRA 65, 83).chanroblesvirtualawlibrary chanrobles virtual law library
Even assuming that there was an implied trust, plaintiffs' action was
clearly barred by prescription (Salao vs. Salao, supra, p.
84).chanroblesvirtualawlibrary chanrobles virtual law library
Prescription is rightly regarded as a statute of repose whose object is
to suppress fraudulent and stale claims from springing up at great
distances of time and surprising the parties or their representatives
when the facts have become obscure from the lapse of time or the
defective memory or death or removal of witnesses (53 C.J.S. 903).
See Teves Vda. de Bacong vs. Teves and CA, G.R. No. 50143, October
24, 1983, 125 SCRA 137; Ramos vs. Ramos, L-19872, December 3,
1974, 61 SCRA 284; Gallanosa vs. Arcangel, L-29300, June 21, 1978,
83 SCRA 676 and Sinco vs. Longa 51 Phil.
507.chanroblesvirtualawlibrary chanrobles virtual law library
It was not necessary for the Sinaons to plead prescription as a defense
because there is no dispute as to the dates. There was no factual issue
as to prescription (Chua Lamko vs. Dioso, 97 Phil. 821, 824; Ferrer vs.
Ericta, L-41767, August 23, 1978, 84 SCRA
705).chanroblesvirtualawlibrary chanrobles virtual law library
At any rate, the Sinaons invoked in the lower court the ruling laid
down in Gerona vs. De Guzman, 120 Phil. 149, 153 that an action for
reconveyance of realty, based upon a constructive or implied trust
resulting from fraud, may be barred by prescription. The prescriptive
period is reckoned from the issuance of the title which operates as a
constructive notice (Diaz vs. Gorricho and Aguado, 103 Phil. 261, 266-
267; J.M. Tuason & Co., Inc. vs. Magdangal, 114 Phil. 42, 46-47; Lopez
vs. Gonzaga, 119 Phil. 424,
437).chanroblesvirtualawlibrary chanrobles virtual law library
The supposed trust in this case, which is neither an express nor a
resulting trust, is a constructive trust arising by operation of law (Art.
1456, Civil Code). It is not a trust in the technical sense (Gayondato
vs. Treasurer of the P.I., 49 Phil. 244). * chanrobles virtual law library
WHEREFORE, the judgment of the Court of Appeals is reversed and
the complaint is dismissed. The receivership is terminated. The
receiver is directed to wind up his accounts. No
costs.chanroblesvirtualawlibrary chanrobles virtual law library
SO ORDERED.
Makasiar (Chairman), Abad Santos, Escolin and Cuevas, JJ.,
concur.chanroblesvirtualawlibrary chanrobles virtual law library
Justice Concepcion, Jr., took no part.
567 | P a g e
 2. Implied
G.R. No. L-22571 May 25, 1973
JOSEFINA VALDEZ, JAIME VALDEZ, ROGELIO ALMONTE, RAQUEL
ALMONTE and RAUL ALMONTE, the latter two minors, represented
in this action by their father, FRANCISCO ALMONTE, plaintiffs-
appellees,
vs.
TEOFILA OLORGA, by herself and in representation of minor
CARMEN VALDEZ and RENATO OLORGA, defendants-appellants.
Salvador P. Socrates for plaintiffs-appellees.
Perfecto de los Reyes and Clarito A. Demaala for defendants-
appellants.
MAKALINTAL, J.:
The present appeal was taken by the defendants directly to this Court
by record on appeal filed way back in 1964. The case, however, was
submitted for decision only on September 4, 1970. In a motion dated
April 25, 1973, the defendants appellants prayed that decision herein
be expedited.
A reading of the brief of the appellants shows that most of the
arguments advanced therein challenge the findings of fact made by
the court a quo. As pointed out by the plaintiffs-appellees, such
findings are no longer reviewable by this Court, its jurisdiction being
limited to deciding purely legal questions.
The following facts as stated in the decision appealed from may
therefore be considered established:
This is an action for partition filed by the living children and
grandchildren of the late spouses Federico Valdez, Sr. and Juanita
Batul against the heir and widow of Federico Valdez, Jr. The action
concerns Lot No. 18, of Puerto Princesa Cadastre, covered by T.C.T.
No. T-94 in the name of Federico Valdez, Jr.
Federico Valdez, Sr. died in Manila in the year 1931 and his wife,
Juanita Batul, died in 1939. The spouses left the following children as
their heirs: (1) Avelina Olorga, who died in 1941, leaving as her heir
co-defendant Renato Olorga; (2) Elisa Valdez-Almonte, who died in
1947, leaving Rogelio, Raquel and Raul, all surnamed Almonte, as her
heirs; (3) the plaintiff Josefina Valdez; (4) Federico Valdez, Jr., who
died in September, 1960, leaving as his heirs defendants Teofila
Olorga, his wife, and Carmen Valdez, his daughter; and (5) Jaime
Valdez, co-plaintiff herein. In 1924, the spouses Federico Valdez, Sr.
and Juanita Batul, bought Lot No. 18, the property now in dispute,
from Dolores M. de Gutierrez for P500.00. In 1930, the old Valdez
family, as vendees, occupied and lived in the premises of Lot No. 18.
After the death of Federico Valdez, Sr., Juanita Batul, in the year 1936,
executed a contract of lease over a portion of Lot No. 18 in favor of
the protestant church of Puerto Princesa, Exhibit "A". The same
Juanita Batul leased in 1939 a portion of Lot No. 18 to Mr. Gregorio
Quicho.
The transfer of the lot in the name of Federico, Sr., was never done
because the owner's original certificate of title was lost.
Josefina Valdez and Federico Valdez, Jr. commissioned their cousin
Concepcion Castro to negotiate with the Gutierrez family (Exhibit "C")
in 1948 in order that the property in question may be transferred to
them. It turned out that the Gutierrez family was asking for an
additional amount of P2,500.00 (Exh. "D").
Mrs. Castro came back to Puerto Princess without having realized her
mission. In the same year she went back to Manila with Federico
Valdez, Jr., and Mr. Gregorio Quicho. The deed was executed for the
amount of P2,200.00 which was given by Mr. Gregorio Quicho, as
payment for back rentals and payment for the purchase of that
portion of lot No. 18 which he was renting and occupying. In executing
the deed of sale, EXHIBIT "I" , the name of Federico Valdez, Jr.
appeared as the only vendee. This was done pursuant to the wishes
of Mr. Quicho who advanced the money, in order that he could
facilitate the deed of sale between him and the Valdezes, with the
understanding that Federico Valdez, Jr. will hold the same in trust for
his other brother and sisters (Testimony of Mrs. Castro).
When Federico Valdez, Jr. was still living, he never attempted to
exclude the herein plaintiffs from ownership of the land in question.
Said plaintiffs have been in open continuous and uninterrupted
possession of the premises they are occupying inside the lot in
question long before the execution of the deed of sale (Exh. "I"). It
was only after the death of Federico Valdez, Jr. that the widow Teofila
Olorga tried to eject the plaintiffs.
As clearly stated in the memorandum for the plaintiffs the following
facts are undisputed:
(1) That the land in question Lot No. 18 of the Puerto Princesa
Cadastre, was originally purchased by the spouses Federico Valdez,
Sr. and Juanita Batul from Dolores M. de Gutierrez for P500.00;
(2) That the parties herein, plaintiffs and defendants alike, are all
successors-in-interest of the spouses Federico Valdez, Sr., and Juanita
Batul, either as forced or compulsory heirs or in representation
thereof;
(3) That the above-named spouses had been in open, public, peaceful
and uninterrupted occupation and possession of Lot No. 18, the
property in question, since the year 1930 or 1933;
(4) That in 1939, Mr. Gregorio Quicho rented a portion of the lot in
question from Juanita Batul;
(5) That Mr. Quicho advanced the amount of P2,200.00 partly as
purchase price of the portion purchased by him, in the final execution
of the deed of sale, Exhibit "I"; and
(6) That a part of the property in question, Lot 18-B, is still registered
in the name of Federico Valdez, Jr., under T.C.T. No. T-634, cancelling
T.C.T. No. 75.
The following facts, although not admitted by the defendants, were
not disputed:
(1) That the Valdez Family, in 1930 or 1933, entered into, possessed
and occupied Lot 18, the property in question;
(2) That Juanita Batul, in 1936, entered into a contract of lease (Exh.
"A") with the Baptist Church of Puerto Princesa over a portion of Lot
18;
568 | P a g e
(3) That in 1947, upon discovering that the land in question had not
been transferred in the name of their parents, Josefina Valdez made
efforts to have the said land transferred to them, and commissioned
Mrs. Castro, together with Federico Valdez, Jr., to negotiate with the
Gutierrez family for the purpose, which culminated in the execution
of the deed of sale, Exhibit "I";
(4) That in the course of said negotiation undertaken by Mrs. Castro,
Federico Valdez, Jr, was brought to Manila where the deed of sale was
finally placed in his name alone, with the express understanding that
he will hold the same in trust for his other brother and sisters;
(5) That the placing of the deed of sale in the name of Federico Valdez,
Jr. alone, instead of the "Heirs of Federico Valdez, Sr." or "Heirs of
Juanita Batul" was done through the suggestion of Mr. Quicho who
wanted to facilitate his own deed of sale over the portion that he
purchased;
(6) That at the time of the execution of the deed of sale (Exh. "I"),
Valdez, Jr. was barely 21 years old, a sophomore student in the high
school, and he, together with his wife, were without any lucrative
trade or calling;
(7) That Josefina Valdez and her co-plaintiffs had been in continuous,
public, peaceful and uninterrupted possession and occupation of the
premises in question long before the death of Valdez, Jr.;
(8) That Valdez, Jr. never asserted, nor attempted to assert, during his
lifetime, sole and exclusive ownership of the premises in question,
against the herein plaintiffs; and
(9) That during the lifetime of Valdez, Jr. he sold a portion of the land
in question and leased other portions thereof to private parties, but
he did so with the consent and approval of her elder sister, Josefina
Valdez.
In this connection we have to consider also the offer of evidence by
the plaintiffs as matters to be testified by Mr. Gregorio Quicho were
he present and able to testify and which were admitted by the
defendants, such that the presentation of Mr. Quicho was waived by
the plaintiffs. The testimony of Mr. Quicho which would have been
given by him if he were presented and which were admitted by the
defendants are as follows:
(1) That a deed of sale for a consideration of P500.00 was executed
by the spouses Gutierrez in favor of the spouses Federico Valdez, Sr.
and Juanita Batul, over Lot 18 of Puerto Princesa Cadastre, the very
lot in question, in the year 1924;
(2) That Mr. Quicho rented and occupied since 1939, a portion of Lot
18, the lot in question, from Juanita Batul;
(3) That the amount of P2,200.00 which was paid to Dolores M.
Gutierrez for the execution of the deed of sale, Exhibit "I", was
delivered by Mr. Gregorio Quicho, for payment of unpaid back rentals
and as advances for the purchase of the portion of Lot 18 which he
finally acquired;
(4) That Mr. Quicho was instrumental in having the deed of sale
executed in the name of Federico Valdez, Jr. the portion which he
wanted to acquire.
The legal point raised by the appellants is that since the land in
question was sold to the late Federico Valdez, Jr. in 1948 and the
Transfer Certificate of Title, so he alleges, was issued in his name in
1950, the action had already prescribed when it was filed more than
ten (10) years thereafter, or in 1962; that furthermore, from the date
of the sale up to the time his death in 1960 he exercised exclusive
ownership of the land. In other words the appellants claim both
extinctive and acquisitive prescription.
Both claims are belied by the facts as found by the court a quo, which
held: (1.) that when the deed of sale was executed and the name of
Federico Valdez, Jr. was made to appear therein as the only vendee,
"this was done pursuant to the wishes of Mr. Quicho who advanced
the money, in order that he could facilitate the deed of sale between
him and the Valdezes, With the understanding that Federico Valdez,
Jr. will hold the same in, trust for his other brother and sisters;" and
(2) that when 'Federico Valdez, Jr. was still living, "he never attempted
to exclude the herein plaintiffs from ownership of the land in
question, (and) said plaintiffs have been in continuous and
uninterrupted possession of the premises they are occupying inside
the lot in question long before the execution of the deed of sale (Exh.
"I"), (and) it was only after the death of Federico Valdez, Jr. (in 1960)
that the widow, Teofila Olorga, tried to eject the plaintiffs."
Given the antecedents of the property and the fact that its acquisition
by Federico Valdez, Jr. was for the benefit not of himself alone but
also of his brother and sisters, although for purposes of convenience
he was made to appear as the sole vendee, the juridical relation that
arose among them was one of co-ownership, with the plaintiffs-
appellees actually in possession of a portion of the property. Under
Article 494 of the Civil Code, "No prescription shall run in favor of a
co-owner or co-heir against his co-owners or co-heirs so long as he
expressly or impliedly recognizes the co-ownership." Insofar as the
aspect of extinctive prescription referred to in this article is
concerned, it is but a restatement of Article 1965 of the Spanish Civil
Code, which provides: "As between co-heirs, co-owners, or
proprietors of adjacent estates, the action to demand the partition of
the inheritance or of the thing held in common, or the survey of the
adjacent properties, does not prescribe." And from the standpoint of
acquisitive prescription, or prescription of ownership, this Court has
held in numerous decisions involving fiduciary relations such as those
occupied by a trustee with respect to the cestui que trust that as a
general-rule the former's possession is not adverse and therefore
cannot ripen into a title by prescription. Adverse possession in such a
case requires, the concurrence of the following-circumstances: (a)
that the trustee has performed unequivocal acts of repudiation
amounting to an ouster of the cestui que trust; (b) that such, positive
acts of repudiation have been made known to the cestui que trust and
(c) that the evidence thereon should be clear and conclusive. * These
circumstances are not present in this case.
In view of the foregoing considerations the judgment appealed from
is hereby affirmed. With costs.
Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio
and Esguerra, JJ., concur.
569 | P a g e
G.R. No. L-8785 March 30, 1914
UY ALOC, ET AL., Plaintiffs-Appellants, vs. CHO JAN LING, ET
AL.,defendants.
SIMEON BLAS, Defendant-Appellee.
William A. Kincaid and Thos. L. Hartigan for appellants.
Haussermann, Cohn, & Fisher for appellee.
CARSON, J. :chanrobles virtual law library
This is an appeal from an order sustaining a motion to quash an
execution sued out by the plaintiffs against Simeon Blas, a surety
upon one appeal bonds furnished by the defendants and appellants
in the course of a former appeal from a judgment entered in this
cause. The motion is based upon the ground that execution was
issued for an amount in excess of that of which the surety is liable
upon his bond.chanroblesvirtualawlibrary chanrobles virtual law
library
It appears that on November 28, 1906, plaintiffs instituted this action
and that on November 30, 1908, the Court of First Instance of Manila
rendered a decree ordering substantially:chanrobles virtual law
library
1. That the real property involved in the action be transferred by Cho
Jan Ling to the persons therein found to be the
owners.chanroblesvirtualawlibrary chanrobles virtual law library
2. That Cho Jan Ling render unto his coowners account if his
administration of his property from May, 1905, until the appointment
of a receiver in this action.chanroblesvirtualawlibrary chanrobles
virtual law library
3. That Cho Jan Ling pay over the sum of P24,155.95 in his possession
as rents prior to May, 1905.chanroblesvirtualawlibrary chanrobles
virtual law library
4. That the receiver render his final
accounts.chanroblesvirtualawlibrary chanrobles virtual law library
The decree terminates with the words: "And when said final account
shall have been rendered the court will make the necessary orders
(resolvera lo que proceda) in accordance with the determinations of
this decree."chanrobles virtual law library
From this decree an appeal was prosecuted to the Supreme Court of
the Philippine Islands, and for the purpose of the appeal the
defendants furnished bond in the following terms:
Whereas in the above-entitled cause the plaintiffs have filed a
complaint against the defendants for the recovery of certain property
and of the rents accruing therefrom;chanrobles virtual law library
Whereas judgment was rendered in said accuse ordering the
defendant Cho Jan Ling to pay the plaintiffs the sum of twenty-four
thousand, one hundred fifty-five pesos and ninety-five centavos
(P24,155.95) and to transfer said property to the association formed
by said plaintiffs and defendants, with the exception of the Cho Chun
Chac, and to pay the costs of suit, and furthermore to render accounts
of his administration of said property;chanrobles virtual law library
Whereas said defendant interposed an appeal from said judgment to
the Supreme Court of these Islands, which was admitted by said court,
upon condition that execution of said judgment might be issued
unless bond, sufficient in the opinion of the court, be given to assure
the fulfillment of said judgment in case the same should be affirmed,
wholly or in part;chanrobles virtual law library
Therefore we, Cho Jan Ling, as principal, and Doña Severina Lerma,
with the assent of her spouse Don Manuel Almeda, and Don Simeon
Blas, as sureties, hereby jointly and severally obligate ourselves to pay
to the plaintiffs the sum of sixty thousand pesos (P60,000) to
guarantee that said defendants will comply with said judgment in case
the same be wholly or partially affirmed by the Supreme Court and
the costs which may be taxed by reason of the appeal
interposed.chanroblesvirtualawlibrary chanrobles virtual law library
Signed and sealed at Manila, January 18, 1909. - CHO JAN LING. -
SIMEON BLAS. - S.L. DE ALMEDA. - MANUEL ALMEDA.
Upon appeal the judgment was affirmed. 1 Thereafter, in the Court of
First Instance further proceedings were had in the cause in which the
defendant Cho Jan Ling was required to render, and did render,
accounts of his administration of the properties in question, all in
compliance with the terms of the decree of November 30, 1908, thus
affirmed on appeal. At the close of these further proceedings it was
found and decided that Cho Jan Ling was indebted to the plaintiffs to
the amount of P18,313.34.chanroblesvirtualawlibrary chanrobles
virtual law library
Plaintiffs then sued out execution against Simeon Blas, one of the
sureties upon the bond of January 18,1909, and included in their
execution the full amount of the liability of Cho Jan Ling to the
plaintiffs - that is to say, not only the P24,155.95, interest and costs
which Simeon Blas guaranteed as surety on said bond, but also the
further amount of P18,313.34 and interest which Cho Jan Ling was
long subsequently condemned to pay. The motion to quash the
execution as to the excess over the contractual obligation of the
surety, Blas, was granted, and plaintiffs have
appealed.chanroblesvirtualawlibrary chanrobles virtual law library
Upon this statement of the facts of the case we agree with the trial
judge who held as follows:
I am of the opinion that the sureties upon the appeal bond of Cho Jan
Ling, conditioned that the defendant should comply with the
judgment entered if it was confirmed, can not be called upon as
sureties to satisfy any judgment subsequently entered. The
conditions of their bond were that he should pay a sum of money,
transfer some property and render an accounting. This does not
include the condition that the sureties would pay any amount which
might be found due upon accounting. The liability of the sureties is
limited to that which is specifically stated in the bond, and their
contract has been complied with, with the exception of the payment
of the sum of P24,155.95, as
stated.chanroblesvirtualawlibrary chanrobles virtual law library
It was error to issue the execution against the sureties for the amount
of subsequent judgment.
The real question involved in this appeal is one of interpretation of
the terms of the bond, which must be construed in the light of the
Civil Code provision that: "Security is not presumed; it must be
express and cannot be extended further than that specified therein."
(Art. 1827.)chanrobles virtual law library
570 | P a g e
Appeal bonds are ordinarily given to secure the fulfillment of final
judgments, and the measure of the surety's liability is ordinarily the
amount of the final judgment rendered in the course of which the
appeal arose. But the appeal in this case appears to have been taken,
without objections from any of the parties, from a judgment which by
its very terms was not final, in that it did not dispose of all the issues
raised by the pleadings. It may well be that had the plaintiff stood
upon his rights, the former appeal would not have been allowed until
a final judgment had been entered; or, if allowed, that an appeal bond
would not have been required which would have secured the
payment of any amount which might be found due under the
accounting. But since the plaintiff went forward at that time without
insisting upon his rights, and accepted without objection an appeal
bond which did not in express terms or by necessary implication
secure to him all that he might have demanded, he will not now be
permitted to read into the bond a provision which he did not then
insist upon.chanroblesvirtualawlibrary chanrobles virtual law library

Of course the liability of Cho Jan Ling was not terminated but merely
rendering the accounts on which, under the term of the original
decree, judgment for P18,813.34 was thereafter entered against him.
But the question here is not as to the liability of Cho Jan Ling. The
question before us is as to liability assumed by the sureties of the
bond. Cho Jan Ling's liability is wholly independent of the bond, while
theirs is strictly limited by its terms. Hence, while we agree with
counsel for appellants, and the cases cited by him, that the duty of
guardians, trustees, administrators and the like to account for the
funds which come into their hands is not finally fulfilled by the mere
preparation of a statement of the amount of their receipts and
disbursements, so long as any funds remain with their hands, we by
no means agree with him that because this duty rested upon Cho Jan
Ling it necessarily rested on the sureties on his appeal
bond.chanroblesvirtualawlibrary chanrobles virtual law library

The sureties on the appeal bond guaranteed merely that Cho Jan Ling
would comply with the judgment requiring him "to render his final
accounts;" not that he would do what he was and is morally bound to
do, that is, to account for and turn over all the funds of plaintiff in his
possession. The judgment, compliance with which was guaranteed by
the sureties, did not in itself provide for the turning over of the
balance due as a result of the accounting. For that purpose the entry
of a new decree was necessary. The sureties on the appeal bond
neither expressly nor impliedly undertook the guarantee compliance
with any other judgment than that already entered when the
instrument was executed.chanroblesvirtualawlibrary chanrobles
virtual law library

The order entered in the court below should be affirmed, with the
costs of this instance against the appellants. So
ordered.chanroblesvirtualawlibrary chanrobles virtual law library

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

571 | P a g e
G.R. No. L-48309 January 30, 1943
EUSEBIA ESCOBAR, Plaintiff-Appellant, vs. RAMON LOCSIN, in his
capacity as special administrator of the intestate estate of Juana
Ringor, Defendant-Appellee.
Eugenio S. Estayo for appellant.
Mariano Santa Romana for appellee.
BOCOBO, J.:
The complain in this case, which prays for the reconveyance of lot No.
692 of the Cuyapo cadastre in Nueva Ecija, alleges that the plaintiff is
the owner of said lot; and that in the course of the cadastral
proceedings, plaintiff being illiterate, asked Domingo Sumangil to
claim the same for her (plaintiff) but Sumangil committed a breach of
trust by claiming the lot for himself, so it was adjudicated in favor of
Sumangil. The defendant is the special administrator of the estate of
Juana Ringor, to whom the parcel of land in question was assigned by
partition in the intestate estate of Domingo Sumangil and Honorata
Duque.chanroblesvirtualawlibrary chanrobles virtual law library
The Court of First Instance of Nueva Ecija found that the plaintiff is
the real owner of the lot which she had acquired in 1914 by
donation propter nuptias from Pablo Ringor; that plaintiff had since
that year been in possession of the land; and that the same had been
decreed in the cadastral proceedings in favor of Domingo Sumangil.
The trial court, while recognizing that the plaintiff had the equitable
title and the defendant the legal title, nevertheless dismissed the
complaint because the period of one year provided for in section 38
of the Land Registration Act (No. 496) for the review of a decree had
elapsed, and the plaintiff had not availed herself of this
remedy.chanroblesvirtualawlibrary chanrobles virtual law library
The trial court plainly erred. The complaint did not seek the review of
the decree or the reopening of the cadastral case, but the
enforcement of a trust. Hence, section 38 of Act No. 496 does not
apply. The estate of Juana Ringor as the successor in interest of the
trustee, Domingo Sumangil, is in equity bound to execute a deed of
conveyance of this lot to the cestui que trust, the plaintiff-appellant.
The remedy herein prayed for has been upheld by this Court in
previous cases, one of which is Severino vs. Severino (44 Phil., 343,
year 1923) in which it was said among other things:
liabilities created by law and applicable to unregistered land, except
as otherwise expressly provided in this Act or in the amendments
hereof.chanroblesvirtualawlibrary chanrobles virtual law library
SEC. 102 of the Act, after providing for actions for damages in which
the Insular Treasurer, as the custodian of the Assurance Fund is a
party, contains the following proviso:chanrobles virtual law library
Provided, however, That nothing in this Act shall be construed to
deprive the plaintiff of any action which he may have against any
person for such loss or damage or deprivation of land or of any estate
or interest therein without joining the Treasurer of the Philippine
Archipelago as a defendant
therein.chanroblesvirtualawlibrary chanrobles virtual law library
That an action such as the present one is covered by this proviso can
hardly admit of doubt.
A trust - such as that which was created between the plaintiff and
Domingo Sumangil - is sacred and inviolable. The Courts have
therefore shielded fiduciary relations against every manner of
chicanery or detestable design cloaked by legal technicalities. The
Torrens system was never calculated to foment betrayal in the
performance of a trust.chanroblesvirtualawlibrary chanrobles virtual
law library
The judgment appealed from is hereby reverse, and the defendant is
ordered to convey that lot in question to the plaintiff within fifteen
days from the entry of final judgment herein; and upon his failure or
refusal to do so, this judgment shall constitute sufficient authorization
for the Register of Deeds of Nueva Ecija, in lieu of a deed of
conveyance, to transfer the certificate of title for said lot No. 692 to
the plaintiff Eusebia Escobar. The defendant shall pay the costs of
both instances. So ordered.chanroblesvirtualawlibrary chanrobles
virtual law library
Yulo, C.J., Moran, Ozaeta and Paras, JJ., concur.

Turning to our own Land Registration Act. we find no indication there

of an intention to cut off, through the issuance of a decree of
registration, equitable rights or remedies such as those here in
question. On the contrary, section 70 of the Act provides:chanrobles
virtual law library

Registered lands and ownership therein, shall in all respects be

subject to the same burdens and incidents attached by law to
unregistered land. Nothing contained in this Act shall in any way be
construed to relieve registered land or the owners thereof from any
rights incident to the relation of husband and wife, or from liability to
attachment on mesne process or levy on execution, or from liability
to any lien of any description established by law on land and the
buildings thereon, or the interest of the owner in such land or
buildings, or to change the laws of descent, or the rights of partition
between coparceners, joint tenants and other cotenants, or the right
to take the same by eminent domain, or to relieve such land from
liability to be appropriated in any lawful manner for the payment of
debts, or to change or affect in any other way any other rights or

572 | P a g e
G.R. No. L-58010 March 31, 1993
EMILIA O'LACO and HUGO LUNA, Petitioners, vs. VALENTIN CO CHO
CHIT, O LAY KIA and COURT OF APPEALS, Respondents.
Sergio L. Guadiz for petitioners.chanrobles virtual law library
Norberto J. Quisumbing & Associates for private respondents.
BELLOSILLO, J.:
History is replete with cases of erstwhile close family relations put
asunder by property disputes. This is one of them. It involves half-
sisters each claiming ownership over a parcel of land. While petitioner
Emilia O'Laco asserts that she merely left the certificate of title
covering the property with private respondent O Lay Kia for
safekeeping, the latter who is the former's older sister insists that the
title was in her possession because she and her husband bought the
property from their conjugal funds. To be resolved therefore is the
issue of whether a resulting trust was intended by them in the
acquisition of the property. The trial court declared that there was no
trust relation of any sort between the sisters.1The Court of Appeals
ruled otherwise. 2Hence, the instant petition for review
on certiorari of the decision of the appellate court together with its
resolution denying reconsideration. 3chanrobles virtual law library
It appears that on 31 May 1943, the Philippine Sugar Estate
Development Company, Ltd., sold a parcel of land, Lot No. 5, Block
No. 10., Plan
Psu-10038, situated at Oroquieta St., Sta. Cruz, Manila, with the Deed
of Absolute Sale naming Emilia O'Laco as vendee; thereafter, Transfer
Certificate of Title No. 66456 was issued in her
name.chanroblesvirtualawlibrarychanrobles virtual law library
On 17 May 1960, private respondent-spouses Valentin Co Cho Chit
and O Lay Kia learned from the newspapers that Emilia O'Laco sold
the same property to the Roman Catholic Archbishop of Manila for
P230,000.00, with assumption of the real estate mortgage
constituted thereon. 4chanrobles virtual law library
On 22 June 1960, respondent-spouses Valentin Co Cho Chit and O Lay
Kia sued petitioner-spouses Emilia O'Laco and Hugo Luna to recover
the purchase price of the land before the then Court of First Instance
of Rizal, respondent-spouses asserting that petitioner Emilia O'Laco
knew that they were the real vendees of the Oroquieta property sold
in 1943 by Philippine Sugar Estate Development Company, Ltd., and
that the legal title thereto was merely placed in her name. They
contend that Emilia O'Laco breached the trust when she sold the land
to the Roman Catholic Archbishop of Manila. Meanwhile, they asked
the trial court to garnish all the amounts still due and payable to
petitioner-spouses arising from the sale, which was granted on 30
June 1960. 5chanrobles virtual law library
Petitioner-spouses deny the existence of any form of trust relation.
They aver that Emilia O'Laco actually bought the property with her
own money; that she left the Deed of Absolute Sale and the
corresponding title with respondent-spouses merely for safekeeping;
that when she asked for the return of the documents evidencing her
ownership, respondent-spouses told her that these were misplaced
or lost; and, that in view of the loss, she filed a petition for issuance
of a new title, and on 18 August 1944 the then Court of First Instance
of Manila granted her petition.chanroblesvirtualawlibrarychanrobles
virtual law library
On 20 September 1976, finding no trust relation between the parties,
the trial court dismissed the complaint together with the
counterclaim. Petitioners and respondents
appealed.chanroblesvirtualawlibrarychanrobles virtual law library
On 9 April 1981, the Court of Appeals set aside the decision of the trial
court thus -
. . . . We set aside the decision of the lower court dated September
20, 1976 and the order of January 5, 1977 and another one is hereby
entered ordering the defendants-appellees to pay plaintiffs-
appellants jointly and severally the sum of P230,000.00 representing
the value of the property subject of the sale with assumption of
mortgage to the Roman Catholic Archbishop of Manila with legal
interest from the filing of the complaint until fully paid, the sum of
P10,000.00 as attorney's fees, plus costs.
On 7 August 1981, the Court of Appeals denied reconsideration of its
decision, prompting petitioners to come to this Court for
relief.chanroblesvirtualawlibrarychanrobles virtual law library
Petitioners contend that the present action should have been
dismissed. They argue that the complaint fails to allege that earnest
efforts toward a compromise were exerted considering that the suit
is between members of the same family, and no trust relation exists
between them. Even assuming ex argumenti that there is such a
relation, petitioners further argue, respondents are already barred by
laches.chanroblesvirtualawlibrarychanrobles virtual law library
We are not persuaded. Admittedly, the present action is between
members of the same family since petitioner Emilia O'Laco and
respondent O Lay Kia are half-sisters. Consequently, there should be
an averment in the complaint that earnest efforts toward a
compromise have been made, pursuant to Art. 222 of the New Civil
Code, 6or a motion to dismiss could have been filed under Sec. 1, par.
(j), Rule 16, of the Rules of Court. 7For, it is well-settled that the
attempt to compromise as well as the inability to succeed is a
condition precedent to the filing of a suit between members of the
same family. 8Hence, the defect in the complaint is assailable at any
stage of the proceedings, even on appeal, for lack of cause of
action. 9chanrobles virtual law library
But, plaintiff may be allowed to amend his complaint to correct the
defect if the amendment does not actually confer jurisdiction on the
court in which the action is filed, i.e., if the cause of action was
originally within that court's jurisdiction. 10In such case, the
amendment is only to cure the perceived defect in the complaint, thus
may be allowed.chanroblesvirtualawlibrarychanrobles virtual law
library
In the case before Us, while respondent-spouses did not formally
amend their complaint, they were nonetheless allowed to introduce
evidence purporting to show that earnest efforts toward a
compromise had been made, that is, respondent O Lay Kia
importuned Emilia O'Laco and pressed her for the transfer of the title
of the Oroquieta property in the name of spouses O Lay Kia and
Valentin Co Cho Chit, just before Emilia's marriage to Hugo
Luna. 11But, instead of transferring the title as requested, Emilia sold
the property to the Roman Catholic Archbishop of Manila. This
testimony was not objected to by petitioner-spouses. Hence, the
complaint was deemed accordingly amended to conform to the
evidence, 12pursuant to Sec. 5, Rule 10 of the Rules of Court which
reads -
573 | P a g e
Sec. 5. Amendment to conform to or authorize presentation of
evidence. - When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall be treated in all
respects, as if they had been raised in the pleadings . . . . (emphasis
supplied).
Indeed, if the defendant permits evidence to be introduced without
objection and which supplies the necessary allegations of a defective
complaint, then the evidence is deemed to have the effect of curing
the defects of the complaint. 13The insufficiency of the allegations in
the complaint is deemed ipso facto rectified. 14chanrobles virtual law
library
But the more crucial issue before Us is whether there is a trust
relation between the parties in contemplation of
law.chanroblesvirtualawlibrarychanrobles virtual law library
We find that there is. By definition, trust relations between parties
may either be express or implied. 15Express trusts are those which are
created by the direct and positive acts of the parties, by some writing
or deed, or will, or by words evincing an intention to create a
trust. 16Implied trusts are those which, without being express, are
deducible from the nature of the transaction as matters of intent, or
which are superinduced on the transaction by operation
of law as matters of equity, independently of the particular intention
of the parties. 17Implied trusts may either be resulting or constructive
trusts, both coming into being by operation of law. 18chanrobles
virtual law library
Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or
interest 19and are presumed always to have been contemplated by
the parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in equity to hold his
legal title for the benefit of another. 20On the other hand, constructive
trusts are created by the construction of equity in order to satisfy the
demands of justice 21and prevent unjust enrichment. They arise
contrary to intention against one who, by fraud, duress or abuse of
confidence, obtains or holds the legal right to property which he
ought not, in equity and good conscience, to hold. 22chanrobles
virtual law library
Specific examples of resulting trusts may be found in the Civil Code,
particularly Arts. 1448, 1449, 1451, 1452 and 1453, 23while
constructive trusts are illustrated in Arts. 1450, 1454, 1455 and
1456. 24chanrobles virtual law library
Unlike express trusts concerning immovables or any interest therein
which cannot be proved by parol evidence, 25implied trusts may be
established by oral evidence. 26However, in order to establish an
implied trust in real property by parol evidence, the proof should be
as fully convincing as if the acts giving rise to the trust obligation were
proven by an authentic document. 27It cannot be established upon
vague and inconclusive proof . 28chanrobles virtual law library
After a thorough review of the evidence on record, We hold that a
resulting trust was indeed intended by the parties under Art. 1448 of
the New Civil Code which states -
Art. 1448. There is an implied trust when property is sold, and the
legal estate is granted to one party but the price is paid by another for
the purpose of having the beneficial interest of the property. The
former is the trustee, while the latter is the beneficiary . . . . (emphasis
supplied).
First. As stipulated by the parties, the document of sale, the owner's
duplicate copy of the certificate of title, insurance policies, receipt of
initial premium of insurance coverage and real estate tax receipts
were all in the possession of respondent spouses which they offered
in evidence. As emphatically asserted by respondent O Lay Kia, the
reason why these documents of ownership remained with her is that
the land in question belonged to her. 29chanrobles virtual law library
Indeed, there can be no persuasive rationalization for the possession
of these documents of ownership by respondent-spouses for
seventeen (17) years after the Oroquieta property was purchased in
1943 than that of precluding its possible sale, alienation or
conveyance by Emilia O'Laco, absent any machination or fraud. This
continued possession of the documents, together with other
corroborating evidence spread on record, strongly suggests that
Emilia O'Laco merely held the Oroquieta property in trust for
respondent-spouses.
Second. It may be worth to mention that before buying the Oroquieta
property, respondent-spouses purchased another property situated
in Kusang-Loob, Sta. Cruz, Manila, where the certificate of title was
placed in the name of Ambrosio O'Laco, older brother of Emilia, under
similar or identical circumstances. The testimony of former counsel
for respondent-spouses, then Associate Justice Antonio G. Lucero of
the Court of Appeals, is enlightening -
Q - In the same conversation he told you how he would buy the
property (referring to the Oroquieta property), he and his
wife?chanrobles virtual law library
A - Yes, Sir, he did.chanroblesvirtualawlibrarychanrobles virtual law
library
Q - What did he say?
xxx xxx xxx
A - He said he and his wife has (sic) already acquired by purchase a
certain property located at Kusang-Loob, Sta. Cruz, Manila. He told
me he would like to place the Oroquieta Maternity Hospital in case the
negotiation materialize(s) in the name of a sister of hiss wife
(O'Laco) (emphasis supplied). 30
On the part of respondent-spouses, they explained that the reason
why they did not place these Oroquieta and Kusang-Loob properties
in their name was that being Chinese nationals at the time of the
purchase they did not want
to execute the required affidavit to the effect that they were allies of
the Japanese. 31Since O Lay Kia took care of Emilia who was still young
when her mother died, 32respondent-spouses did not hesitate to
place the title of the Oroquieta property in Emilia's
name.chanroblesvirtualawlibrarychanrobles virtual law library
Quite significantly, respondent-spouses also instituted an action for
reconveyance against Ambrosio O'Laco when the latter claimed the
Kusang-Loob property as his own. A similar stipulation of facts was
likewise entered, i.e., respondent-spouses had in their possession
documents showing ownership of the Kusang-Loob property which
they offered in evidence. In that case, the decision of the trial court,
now final and executory, declared respondent-spouses as owners of
574 | P a g e
the Kusang-Loob property and ordered Ambrosio O'Laco to reconvey
it to them. 33chanrobles virtual law library
Incidentally, Ambrosio O'Laco thus charged respondent spouses
Valentin Co Cho Chit and O Lay Kia before the Anti-Dummy Board,
docketed as Case No. 2424, for their acquisition of the Kusang-Loob
and Oroquieta properties. 34He claimed that respondent-spouses
utilized his name in buying the Kusang-Loob property while that of
petitioner O'Laco was used in the purchase of the Oroquieta property.
In effect, there was an implied admission by Ambrosio that his sister
Emilia, like him, was merely used as a dummy. However, the
Anti-Dummy Board exonerated respondent-spouses since the
purchases were made in 1943, or during World War II, when the Anti-
Dummy Law was not enforceable.
Third. The circumstances by which Emilia O'Laco obtained a new title
by reason of the alleged loss of the old title then in the possession of
respondent-spouses cast serious doubt on the veracity of her
ownership. The petitions respectively filed by Emilia O'Laco and
Ambrosio O'Laco for the Oroquieta and the Kusang-Loob properties
were both granted on the same day, 18 August 1944, by the then
Court of First Instance of Manila. These orders were recorded in the
Primary Entry Book of the Register of Deeds of Manila at the same
time, 2:35 o'clock in the afternoon of 1 September 1944, in
consecutive entries, Entries Nos. 246117-18. 35This coincidence lends
credence to the position of respondent-spouses that there was in fact
a conspiracy between the siblings Ambrosio and Emilia to defraud and
deprive respondents of their title to the Oroquieta and Kusang-Loob
properties.
Fourth. Until the sale of the Oroquieta property to the Roman Catholic
Archbishop of Manila, petitioner Emilia O'Laco actually recognized the
trust. Specifically, when respondent-spouses learned that Emilia was
getting married to Hugo, O Lay Kia asked her to have the title to the
property already transferred to her and her husband Valentin, and
Emilia assured her that "would be arranged (maaayos na)" after her
wedding. 36Her answer was an express recognition of the trust,
otherwise, she would have refused the request outright. Petitioners
never objected to this evidence; nor did they attempt to controvert
it.
Fifth. The trial court itself determined that "Valentin Co Cho Chit and
O Lay Kia had some money with which they could buy the
property." 37In fact, Valentin was the Chief Mechanic of the Paniqui
Sugar Mills, was engaged in the buy and sell business, operated a
gasoline station, and owned an auto supply store as well as a ten-door
apartment in Caloocan City. 38In contrast, Emilia O'Laco failed to
convince the Court that she was financially capable of purchasing the
Oroquieta property. In fact, she opened a bank account only in 1946
and likewise began filing income tax returns that same year, 39while
the property in question was bought in 1943. Respondent-spouses
even helped Emilia and her brothers in their expenses and livelihood.
Emilia could only give a vague account on how she raised the money
for the purchase of the property. Her narration of the transaction of
sale abounds with "I don't know" and "I don't
remember." 40chanrobles virtual law library
Having established a resulting trust between the parties, the next
question is whether prescription has set
in.chanroblesvirtualawlibrarychanrobles virtual law library
As differentiated from constructive trusts, where the settled rule is
that prescription may supervene, in resulting trust, the rule of
imprescriptibility may apply for as long as the trustee has not
repudiated the trust. 41Once the resulting trust is repudiated,
however, it is converted into a constructive trust and is subject to
prescription.chanroblesvirtualawlibrarychanrobles virtual law library
A resulting trust is repudiated if the following requisites concur: (a)
the trustee has performed unequivocal acts of repudiation amounting
to an ouster of the cestui qui trust; (b) such positive acts of
repudiation have been made known to the cestui qui trust; and, (c)
the evidence thereon is clear and convincing. 42chanrobles virtual law
library
In Tale v. Court of Appeals 43the Court categorically ruled that an
action for reconveyance based on an implied or constructive trust
must perforce prescribe in ten (10) years, and not otherwise, thereby
modifying previous decisions holding that the prescriptive period was
four (4) years.chanroblesvirtualawlibrarychanrobles virtual law
library
Neither the registration of the Oroquieta property in the name of
petitioner Emilia O'Laco nor the issuance of a new Torrens title in
1944 in her name in lieu of the alleged loss of the original may be
made the basis for the commencement of the prescriptive period.
For, the issuance of the Torrens title in the name of Emilia O'Laco
could not be considered adverse, much less fraudulent. Precisely,
although the property was bought by respondent-spouses, the legal
title was placed in the name of Emilia O'Laco. The transfer of the
Torrens title in her name was only in consonance with the deed of
sale in her favor. Consequently, there was no cause for any alarm on
the part of respondent-spouses. As late as 1959, or just before she got
married, Emilia continued to recognize the ownership of respondent-
spouses over the Oroquieta property. Thus, until that point,
respondent-spouses were not aware of any act of Emilia which would
convey to them the idea that she was repudiating the resulting trust.
The second requisite is therefore absent. Hence, prescription did not
begin to run until the sale of the Oroquieta property, which was
clearly an act of repudiation.chanroblesvirtualawlibrarychanrobles
virtual law library
But immediately after Emilia sold the Oroquieta property which is
obviously a disavowal of the resulting trust, respondent-spouses
instituted the present suit for breach of trust. Correspondingly, laches
cannot lie against them.chanroblesvirtualawlibrarychanrobles virtual
law library
After all, so long as the trustee recognizes the trust, the beneficiary
may rely upon the recognition, and ordinarily will not be in fault for
omitting to bring an action to enforce his rights. 44There is no running
of the prescriptive period if the trustee expressly recognizes the
resulting trust. 45Since the complaint for breach of trust was filed by
respondent-spouses two (2) months after acquiring knowledge of the
sale, the action therefore has not yet prescribed.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The
Decision of the Court of Appeals of 9 April 1981, which reversed the
trial court, is AFFIRMED. Costs against
petitioners.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED.
Cruz, Griño-Aquino and Quiason, JJ., concur.
575 | P a g e
G.R. No. L-44100 April 28, 1983
SPECIAL SERVICES CORPORATION, Petitioner, vs. CENTRO LA PAZ
(SAMAHANG ESPIRITISTA SA LUNDUYANG LA PAZ), A CHAPTER OF
UNION ESPIRITISTA CRISTIANA DE FILIPINAS,
INC., Respondents.chanrobles virtual law library
MELENCIO-HERRERA, J.:chanrobles virtual law library
This is a Petition for Review on certiorari of the Decision promulgated
on May 11, 1976 by respondent Court of Appeals 1 in CA-G.R. No.
56582-R, entitled "Centro La Paz (Samahang Espiritista sa Lunduyang
La Paz) a Chapter of Union Espiritista Cristiana de Filipinas, Inc. vs. The
Sheriff of Manila and the Special Services Corporation." The Union
Espiritista Cristiana de Filipinas, Inc., is a semi-religious and charitable
organization. 2chanrobles virtual law library
The antecedental facts follow: chanrobles virtual law library
On October 10, 1972, judgment was rendered in favor of petitioner
Special Services Corporation by the Court of First Instance, Branch IV,
Manila, against one Alejandro Estudillo in the amount of P94,727.52,
more or less, in an action for Replevin with Sum of Money (Civil Case
No. 85819). A writ of execution was thereafter issued but which has
remained unsatisfied.chanroblesvirtualawlibrary chanrobles virtual
law library
By virtue of an alias writ of execution issued on December 15, 1972,
the Sheriff of Manila caused the annotation of a notice of levy on
Transfer Certificate of Title No. 51837, in respect of the rights, interest
and participation of said Alejandro Estudillo, one of the registered
owners indicated in said title. That title covers two parcels of land
situated in Sampaloc, Manila, consisting of three hundred forty eight
(348) square meters and registered in the names of Alejandro
Estudillo, married to Primitiva Victoria; Joaquina de la Rosa, widow;
Pedro Paguio, married to Amor Jose and Maximo Victoria, married to
Juliana Roberto, all Chapter
members.chanroblesvirtualawlibrary chanrobles virtual law library
The public auction sale of Estudillo's rights and interests in said
properties was scheduled on July 23,
1973.chanroblesvirtualawlibrary chanrobles virtual law library
On June 27, 1973, Alejandro Estudillo filed a "Motion to Dissolve
and/or Cancel the Notice of Levy" alleging that he and the other
registered owners indicated on the title merely held in trust the
properties and improvements thereon in favor of respondent Centro
La Paz (Samahang Espiritista Sa Lunduyang La Paz) a Chapter of Union
Espiritista Cristiana de Filipinas, Inc. (hereinafter referred to as
CENTRO, for brevity), as evidenced by "Acknowledgments" executed
by them on October 20, 1961 and October 2, 1971. Estudillo further
alleged that CENTRO's ownership was also evidenced by letters dated
February 15, 1963, November 29, 1963 and August 8, 1966 sent to the
City Assessor by him and Crispulo Romero, President of CENTRO, long
before the filing of the replevin case on December 28, 1971 praying
for the revocation of tax assessments on said properties as the same,
were used for religious purposes. 3 chanrobles virtual law library
On July 21, 1973, CENTRO submitted a third party claim to the Sheriff
of Manila likewise averring exclusive ownership of the properties in
question . 4 chanrobles virtual law library
On July 23, 1973, "Centro La Paz (Samahang Espiritista sa Lunduyang
La Paz) a Chapter of Union Espiritista Cristiana de Filipinas, Inc.," as
plaintiff, instituted Civil Case No. 91412 for Damages and Preliminary
Injunction against herein petitioner and the Sheriff of Manila with the
Court of First Instance, Branch IV, Manila, the same Court which
rendered judgment in the replevin case. CENTRO reiterated
ownership of the properties in question and emphasized that the
registered owners thereof had publicly acknowledged their
possession of said properties in the concept of trustees. 5chanrobles
virtual law library
In its "Opposition to Petition for Preliminary Injunction and Answer,"
petitioner averred that a Torrens Title issued in favor of an owner is
conclusive of all matters stated therein and that the
"Acknowledgments" of the registered owners not being annotated on
Transfer Certificates of Title No. 51837 could not bind
anyone. 6 chanrobles virtual law library
On August 27, 1973, a writ of preliminary injunction was issued by the
lower Court enjoining the public auction sale of Estudillo's interest in
the properties in question, 7 conditioned upon CENTRO's posting a
bond of P30,000.00.chanroblesvirtualawlibrary chanrobles virtual law
library
In a judgment rendered on August 30, 1974, the Court a quo decreed
in the dispositive portion: chanrobles virtual law library
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby
rendered in favor of the plaintiff, against the defendants, enjoining
the latter from proceeding with the public auction sale of the real
property, pursuant to the notice of sale on execution of real property,
with costs against the
defendant.chanroblesvirtualawlibrary chanrobles virtual law library
The writ of preliminary injunction issued in connection with this case
is, as it is hereby made
permanent.chanroblesvirtualawlibrary chanrobles virtual law library
Defendant's counterclaim is, as it is hereby ordered dismissed for lack
of merit.chanroblesvirtualawlibrary chanrobles virtual law library
SO ORDERED. 8
The lower Court held that by a preponderance of evidence CENTRO
had established that it was "really and true and lawful owner of the
property in dispute, and that the persons registered therein as its
owners are merely trustees of the plaintiff," thus: chanrobles virtual
law library
The evidence on hand clearly preponderates in favor of the plaintiff.
The series of documents executed even as early as 1957, long before
the issue of whether Alejandro Estudillo really has an interest and/or
participation in the property in dispute, attest to plaintiff's ownership
of the property in question. The Deed of Donation dated March 13,
1957 (Exh. A), Deed of Absolute Sale (Exh. E) executed by Joaquina
dela Rosa in favor of Alejandro Estudillo, Pedro Paguio and Maximo
Victoria of the same property covered by the Deed of Donation,
Exhibit A; Deed of Sale (Exh. F) of two parcels in dispute described
under T.C.T. No. 51837 executed by Sta. Mesa Realty, Inc. in favor of
Alejandro Estudillo, Joaquina dela Rosa, Pedro Q. Paguio and Maximo
Victoria, Deed of Acknowledgment dated October 30, 1961 (Exh. G)
also executed by the same Estudillo de la Rosa and Victoria
acknowledging that the property described under the
aforementioned T.C.T. No. 51837, together with the improvements
thereon are being possessed by them only as trustees; another Deed
576 | P a g e
of Acknowledgment executed on October 22, 1971, jointly by Amor
Jose, widow of Paguio and the latter's daughters, Sumilang Paguio
and Filipina Paguio (co-registered owner of Estudillo) likewise
declaring that their possession of the said property is merely that of
trustees and not as owners; the petitions for revocation of tax
assessments Nos. 3187 and 3188 (Exhs. I and J); the petition to
exempt said parcels from taxation, being owned by a religious
organization (Exh. K) and the follow-up letters addressed to the City
Assessor of Manila, dated February 15, 1963 (Exh. L), December
29,1963 (Exh. M) and May 29, 1962 (Exh N) respectively, plus the
Deed of Sale (Exh. 0) executed by Estudillo, heirs of dela Rosa and
Paguio of the two parcels in favor of Centro La Paz, indubitably point
to one and inescapable conclusion that the plaintiff is really the true
and lawful owner of the property in dispute and that persons
registered therein as its owners, are merely trustees of the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
While it may be true that the declaration of Estudillo subsequent to
the levy upon his interest in the aforesaid property may be self-
serving, which could be for the purpose of avoiding liability, his
declaration and that of his co-owners, however, taking place years
before the instant controversy, could hardly be said to have been
motivated by a similar purpose (to evade responsibility) since at that
time, none as yet exist in favor of the defendant nor anybody elm
against the Estudillo. (Record on Appeal, pp. 54-55) 9
Faced with that adverse judgment, petitioner appealed to respondent
Appellate Court, which affirmed the Court a quo's Decision on May
11, 1976, and subsequently denied
reconsideration.chanroblesvirtualawlibrary chanrobles virtual law
library
Petitioner then availed of the instant Petition, raising the following
issues: chanrobles virtual law library
l) Whether or not Centro La Paz which is merely a Chapter of Union
Espiritista de Filipinas, Inc. has a juridical personality of its own in
accordance with the provisions of our laws; chanrobles virtual law
library
2) Whether or not Centro La Paz, as claimed by it and the respondent
Court of Appeals, can validly be conferred upon ownership of Transfer
Certificate of Title No. 51837 by virtue of documents executed
allegedly in its favor.
We affirm the judgment appealed
from.chanroblesvirtualawlibrary chanrobles virtual law library
For one thing, the issues now raised were not directly litigated in the
Court below. For another, it is evident from the Complaint that the
plaintiff was the mother organization, thus: chanrobles virtual law
library
Centro La Paz (Samahang Espiritista sa Lunduyang La Paz), A Chapter
of Union Espiritista Cristiana de Filipinas, Inc., Plaintiff.
Paragraph 1 of the Complaint likewise reads: chanrobles virtual law
library
1. That the plaintiff is a juridical person duly organized and existing
under and by virtue of the laws of the Republic of the Philippines, a
semi-religious and charitable organization, with a right to sue and be
sued, ...
In the Offer of Evidence filed before the Trial Court, the purpose of
presenting Exhibit "A", the Deed of Donation dated March 13, 1957,
was "to establish or prove the following": chanrobles virtual law
library
(a) That the plaintiff "CENTRO LA PAZ" as a chapter of the association
of spiritista commonly known as 'UNION ESPIRITISTA CRISTIANA DE
FILIPINAS, INC., 'which is a duly registered corporation or entity with
the Office of the Securities and Exchange Commission, is a Juridical
Person with the right to sue and be sued; chanrobles virtual law
library
xxx xxx xxx 10chanrobles virtual law library
In the Memorandum of CENTRO before the Trial Court, the following
allegation also appears: chanrobles virtual law library
That the plaintiff is a Chapter of the UNION ESPIRITISTA CRISTIANA DE
FlLIPINAS, INC., a semi-religious and charitable organization duly
registered with the Securities and Exchange Commission as per
Certificate of Registration No. 15147, dated March 19, 1959,
... 11chanrobles virtual law library
And in the Decision of the Trial Court, it found: chanrobles virtual law
library
The evidence for the plaintiff disclosed that it is a chapter of the Union
Espiritista Christiana de Filipinas, Inc., a semi-religious and charitable
organization duly registered with the Securities and Exchange
Commission per Certificate of Registration No. 15147 dated March 19,
1959.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxx 12
Evident from all the foregoing is that although it was CENTRO that was
actively prosecuting the case, in substance, it was representing the
mother organization, the Union Espiritista Cristiana de Filipinas, Inc.,
which is the real party in interest and is itself named in the Complaint.
It is an organization that is duly registered with the Securities and
Exchange Commission, and thus possessed of a juridical personality
to sue and be sued. 13chanrobles virtual law library
As found by both the Trial Court and respondent Appellate Court, the
evidence sufficiently establishes that the registered owners of the
parcels of land covered by TCT 51837, all of whom are members of
CENTRO, hold the properties in trust for CENTRO by virtue of the
indubitable documents executed even before the institution of suit.
In the same manner that the real property, registered solely in the
name of a husband, can be proven to be conjugal property with his
wife, the fact of registration in the name of Alejandro Estudillo and
others does not bar evidence to show that the registered owners hold
the properties in trust for CENTRO. 14 chanrobles virtual law library
Admittedly, the trust was not registered in accordance with section
65 of Act 496 (the former Land Registration Law). The absence of said
registration, however, cannot be taken against CENTRO inasmuch as,
if the public auction sale had actually been held, with petitioner as the
successful buyer, petitioner could not have been considered a
purchaser for value and in good faith at said sale since it had
knowledge of CENTRO's claim, particularly when the latter had filed a
third-party-claim with the Sheriff of Manila before the scheduled
auction sale, which knowledge was equivalent to registration of the
several "Acknowledgments" in the Registry of Deeds. 15 chanrobles
virtual law library
577 | P a g e
The conclusion follows that inasmuch as Estudillo has no interest in
the properties in question, there is nothing that petitioner can levy
upon. The power of a Court in the execution of its judgment extends
only over properties unquestionably belonging to the judgment
debtor. 16chanrobles virtual law library

WHEREFORE, the judgment of respondent Court of Appeals (now

Intermediate Appellate Court) affirming that of the Trial Court, which
enjoined petitioner "from proceeding with the public auction sale of
the properties in question, pursuant to the notice of sale on execution
of real property" and made the writ of preliminary injunction
permanent, is hereby affirmed.chanroblesvirtualawlibrarychanrobles
virtual law library

SO ORDERED.

Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ.,

concur.

578 | P a g e
[G.R. No. 106251. November 19, 1993.]
CHIAO LIONG TAN, Petitioner, v. THE HONORABLE COURT OF
APPEALS, HON. MANUEL T. MURO, Presiding Judge, RTC of Manila,
Branch 54 and TAN BAN YONG, Respondents.
Joaquin M. Arao for Petitioner.
Macavinta & Sta. Ana Law Offices for Private Respondent.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; CREDIBILITY; FINDINGS OF FACTS OF
THE TRIAL COURT, GENERALLY UPHELD ON APPEAL; CASE AT BAR. —
Since the Court of Appeals merely affirmed the trial court’s
assessment of the credibility of the witnesses that testified before it,
petitioner is in effect questioning the factual findings of said court and
its appraisal of their testimony, which this Court cannot review, its
jurisdiction being limited to questions of law. The considerable weight
given to the findings of the trial court is not without any reason. It had
the opportunity to observe the demeanor of witnesses which is
usually not reflected in the transcript of records. The profundity of the
conclusions thus reached is just the result of such observance. When
the Court of Appeals affirmed said findings, it goes to show that no
misapprehension of facts was committed as said Court has the power
to scrutinize said factual findings under existing rules of procedures.
2. ID.; ID.; CERTIFICATE OF REGISTRATION OF A MOTOR VEHICLE IN
ONE’S NAME, CREATES A STRONG PRESUMPTION OF OWNERSHIP. —
A certificate of registration of a motor vehicle in one’s name indeed
creates a strong presumption of ownership. For all practical purposes,
the person in whose favor it has been issued is virtually the owner
thereof unless proved otherwise. In other words, such presumption is
rebuttable by competent proof.
3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; IMPLIED TRUST;
CREATED WHERE CERTIFICATE OF REGISTRATION OF MOTOR VEHICLE
WAS PLACED IN THE NAME OF ANOTHER; CASE AT BAR. — The New
Civil Code recognizes cases of implied trust other than those
enumerated therein. Thus, although no specific provision could be
cited to apply to the parties herein, it is undeniable that an implied
trust was created when the certificate of registration of the motor
vehicle was placed in the name of petitioner although the price
thereof was not paid by him but by private Respondent. The principle
that a trustee who puts a certificate of registration in his name cannot
repudiate the trust by relying on the registration is one of the well-
known limitations upon a title. A trust, which derives its strength from
the confidence one reposes on another especially between brothers,
does not lose that character simply because of what appears in a legal
document.
4. REMEDIAL LAW; CIVIL ACTIONS; REPLEVIN; MAY RESOLVE ISSUE ON
OWNERSHIP; REASON. — It is true that the judgment in a replevin suit
must only resolve in whom is the right of possession. Primarily, the
action of replevin is possessory in character and determines nothing
more than the right of possession. However, when the title to the
property is distinctly put in issue by the defendant’s plea and by
reason of the policy to settle in one action all the conflicting claims of
the parties to the possession of the property in controversy, the
question of ownership may be resolved in the same proceeding.
5. ID.; ID.; ID.; FLEXIBLE TO AUTHORIZE SETTLEMENT OF ALL EQUITIES
BETWEEN THE PARTIES. — Although a "replevin" action is primarily
one for possession of personalty, yet it is sufficiently flexible to
authorize a settlement of all equities between the parties, arising
from or growing out of the main controversy. Thus, in an action for
replevin where the defendant is adjudged entitled to possession, he
need not go to another forum to procure relief for the return of the
replevied property or secure a judgment for the value of the property
in case the adjudged return thereof could not be had. Appropriately,
the trial court rendered an alternative judgment.
DECISION
NOCON, J.:
Petitioner seeks in this petition the reversal of the Court of Appeals’
decision dated May 15, 1992 in CA-G.R. CV No. 29982 affirming the
unfavorable decision of the trial court 1 in his suit for replevin and
damages.
Petitioner Chiao Liong Tan Claims to be the owner of a motor vehicle,
particularly described as Isuzu Elf van, 1976 Model with Motor No.
44999-2 and Chassis No. 9646780 which he purchased in March,
1987. As owner thereof, petitioner says he has been in possession,
enjoyment and utilization of the said motor vehicle until it was taken
from him by his older brother, Tan Ban Yong, the private respondents
herein.cralawnad
Petitioner relies principally on the fact that the Isuzu Elf van is
registered in his name under Certificate of Registration No. 1501909.
He claims in his testimony before the trial court that the said vehicle
was purchased from Balintawak Isuzu Motor Center for a price of over
P100,000.00; that he sent his brother to pay for the van and the
receipt for payment was placed in his (petitioner’s) name because it
was his money that was used to pay for the vehicle; that he allowed
his brother to use the van because the latter was working for his
company, the CLT Industries; and that his brother later refused to
return the van to him and appropriated the same for
himself.chanrobles law library : red
On the other hand, private respondent testified that CLT Industries is
a family business that was placed in petitioner’s name because at that
time he was then leaving for the United States and petitioner is the
remaining Filipino in the family residing in the Philippines. When the
family business needed a vehicle in 1987 for use in the delivery of
machinery to its customers, he asked petitioner to look for a vehicle
and gave him the amount of P5,000.00 to be deposited as down
payment for an Isuzu Elf Van which would be available in about a
579 | P a g e
month. After a month, he himself paid the whole price out of a loan
of P140,000.00 which he obtained from his friend Tan Pit Sin.
Inasmuch as the receipt for the downpayment was placed in the name
of petitioner and since he was still on good terms with him, private
respondents allowed the registration of the vehicle in petitioner’s
name. It was also their understanding that he would keep the van for
himself because CLT Industries was not in a position to pay him.
Hence, from the time of the purchase, he had been in possession of
the vehicle including the original registration papers thereof, but
allowing petitioner from time to time to use the van for deliveries of
machinery.
Tan Pit Sin who had known private respondent since 1968, not only
because they were classmates but also because of their business
dealings with each other, confirmed that private respondent
borrowed from him P140,000.00 in March, 1987 to buy an Isuzu Elf
van. In fact, he had borrowed said vehicle of a few times.
Gina Lu, an employee of the Balintawak Isuzu Motors, testified that
private respondent paid the balance of the purchase price of the Isuzu
Elf van in the amount of P133,000.00 but the receipt was issued in the
name of Chiao Liong Tan to make the records consistent because it
was the latter who made the deposit of P5,000.00. Thereafter, the
Isuzu Elf van was released to him.cralawnad
After hearing, the trial court found for Private Respondent. The
dispositive portion of the decision reads as
follows:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered declaring defendant Tan
Ban Yong to be the owner of and entitled to the possession of the
vehicle described in par. 2 of the Complaint, and the plaintiff is hereby
ordered to deliver possession thereof to the said defendant or in the
alternative if such delivery cannot be made, to the sum of
P138,000.00 as the value of the vehicle taking into account the
depreciation of the vehicle but offset by the inflation rate; in either
alternative, plaintiff is also ordered to pay to said defendant
consequential damages of P20,000.00 for the latter having been
deprived of the possession and use of the vehicle and to pay the costs.
All amounts adjudged herein, except costs, shall bear interest at the
legal rate from date of this decision, until delivery of the vehicle or the
alternative payment of the value thereof as well as payment of
consequential damages is paid; the interest applies to the value of the
vehicle if return thereof is delayed. No cost." 2chanrobles virtual
lawlibrary
Finding no merit in the appeal, the respondent Court of Appeals
affirmed the decision of the trial court. Undaunted by his successive
failure, petitioner comes to us and raised the following errors
allegedly committed by the respondent Court of Appeals, to
wit:jgc:chanrobles.com.ph
"1. . . . in finding the testimonies of private respondent’s witnesses
credible.
"2. . . . in disregarding the Certificate of Registration of the subject
motor vehicle as proof of ownership by the petitioner-appellant." 3
Since the Court of Appeals merely affirmed the trial court’s
assessment of the credibility of the witnesses that testified before it,
petitioner is in effect questioning the factual findings of said court and
its appraisal of their testimony, which this Court cannot review, its
jurisdiction being limited to questions of law. The considerable weight
given to the finding of the trial court is not without any reason. It had
the opportunity to observe the demeanor of witnesses which is
usually not reflected in the transcript of records. The profundity of the
conclusions thus reached is just the result of such observance. When
the Court of Appeals affirmed said findings, it goes to show that no
misapprehension of facts was committed as said Court has the power
to scrutinize said factual findings under existing rules of
procedures.chanrobles law library : red
In concluding that the testimonies of Tan Ban Yong, Tan Pit Sin and
Gina Lu cast doubt on the petitioner’s ownership of the motor vehicle
in question, both the trial court and the Court of Appeals attached
significance to their respective interlocking accounts on how the
motor vehicle was acquired, complete with the financing source and
mode of repayment. Respondent Tan Ban Yong’s declaration that he
borrowed P140,000.00 from Tan Pit Sin and paid the balance of the
purchase price of the motor vehicle himself to Gina Lu of the
Balintawak Isuzu Motors, is corroborated by the above-mentioned
persons themselves. Tan Pit Sin not only confirmed the loan but also
stated that the same was paid in three (3) months; P50,000.00 on the
first payment; another P50,000.00 on the second payment and
P40,000.00 on the last payment. 4 Gina Lu, who testified at the
instance of petitioner, declared that the downpayment of P5,000.00
was paid by petitioner and so the receipt for the same was issued in
his name but the balance of P133,000.00 was paid by private
respondent and to make the record consistent, she issued the receipt
in the name of petitioner again.
In contrast to the clear and categorical averments of private
respondent and the witnesses in this case negating petitioner’s
ownership of the motor vehicle in question, petitioner’s averments
before the trial court and this Court are not only disparate but
conflicting. In his testimony below, petitioner averred that he used his
own money to purchase the motor vehicle by paying the sum of
P100,000.00, 5 which testimony is negated by his admission on page
5 of his petition 6 before this Court that private respondent borrowed
money from Tan Pit Sin with which to purchase the subject motor
vehicle. Then, in his pleading before the court below, particularly in
his reply to the answer of private respondent, petitioner alleged that
the motor vehicle was intended for his exclusive use and not to
service the family business. 7 And yet, in his petition before this Court,
he claimed that the subject motor vehicle was purchased for CLT
Industries, which he solely owned and accordingly, registered in the
latter’s name. 8 On top of these entangled averments, petitioner did
not have in his possession the Certificate of Registration of the motor
vehicle and the official receipt of payment for the same, thereby
lending credence to the claim of private respondent who has
possession thereof, that he owns the subject motor
vehicle.chanrobles virtual lawlibrary
A certificate of registration of a motor vehicle in one’s name indeed
creates a strong presumption of ownership. For all practical purposes,
the person in whose favor it has been issued is virtually the owner
thereof unless proved otherwise. In other words, such presumption is
rebuttable by competent proof.
The New Civil Code recognizes cases of implied trust other than those
580 | P a g e
enumerated therein. 9 Thus, although no specific provision could be Finally, although a "replevin" action is primarily one for possession of
cited to apply to the parties herein, it is undeniable that an implied personality, yet it is sufficiently flexible to authorize a settlement of
trust was created when the certificate of registration of the motor all equities between the parties, arising from or growing out of the
vehicle was placed in the name of petitioner although the price main controversy. 17 Thus, in an action for replevin where the
thereof was not paid by him but by private Respondent. The principle defendant is adjudged entitled to possession, he need not go to
that a trustee who puts a certificate of registration in his name cannot another forum to procure relief for the return of the replevied
repudiate the trust by relying on the registration is one of the well- property or secure a judgment for the value of the property in case
known limitations upon a title. A trust, which derives its strength from the adjudged return thereof could not be had. Appropriately, the trial
the confidence one reposes on another especially between brothers, court rendered an alternative judgment.
does not lose that character simply because of what appears in a legal
document.chanrobles virtualawlibrary WHEREFORE, the questioned decision being in accordance with the
chanrobles.com:chanrobles.com.ph law, the instant petition for review is hereby DENIED for lack of
merit.chanrobles.com.ph : virtual law library
Even under the Torrens System of land registration, this Court in some
instances did away with the irrevocability or indefeasibility of a SO ORDERED.
certificate of title to prevent injustice against the rightful owner of the
property. 10 Narvasa, C.J., Padilla and Regalado, JJ., concur.

It is true that the judgment 11 in a replevin suit must only resolve in Puno J., took no part.
whom is the right of possession. Primarily, the action of replevin is
possessory in character and determines nothing more than the right
of possession. However, when the title to the property is distinctly put
in issue by the defendant’s plea and by reason of the policy to settle
in one action all the conflicting claims of the parties to the possession
of the property in controversy, the question of ownership may be
resolved in the same proceeding.

Procedure-wise, the Court observes that the action by petitioner as

plaintiff in the trial court was only one for Replevin and Damages.
Since replevin is only a provisional remedy where the replevin plaintiff
claims immediate delivery of personal property pending the judgment
of the trial court in a principal case, 12 the petitioner should have filed
in the trial court as a main case an action to recover possession of the
Isuzu Elf van which was in the possession of the private Respondent.
Logically, the basis of petitioner’s cause of action should have been
his ownership of said van.chanrobles virtual lawlibrary

In the State of California, from whose Code of Procedure 13 we copied

our rule on replevin, their old replevin rule which allowed the
immediate delivery of the chattel at the commencement of the action
upon application with bond by the replevin plaintiff had already been
struck down as early as July 1, 1971 in the case of Blair v. Pitchess. 14
As in fact, on June 12, 1972 when the United States Supreme Court
struck down as unconstitutional the Florida and Pennsylvania replevin
statutes in Fuentes v. Shevin, 15 most of the states, on their own,
changed their replevin statutes to include a mandatory preliminary
hearing before the writ could be issued, similar to our mandatory
preliminary hearing before the writ of preliminary injunction can be
issued. 16

If that had been the case in this jurisdiction, then the trial judge would
have discovered right away at the preliminary hearing that private
respondent should have immediately staked his claim of ownership
and that would have created serious doubts about petitioner’s claim
of ownership. Most likely, the writ would not have been issued and
the complaint would have been dismissed motu proprio by the trial
court upon the discovery that the petitioner did not have a principal
case therein. As it is, the complaint proceeded its course to the
detriment of private Respondent.chanrobles law library : red

581 | P a g e
[G.R. No. L-32749. January 22, 1988.]
SABAS H. HOMENA and ILUMINADA JUANEZA, Plaintiffs-Appellants,
v. DIMAS CASA AND MARIA CASTOR and the REGISTER OF DEEDS
FOR THE PROVINCE OF COTABATO, Defendants-Appellees.
SYLLABUS
1. CIVIL PROCEDURE; CAUSE OF ACTION BASED ON A VOID
CONTRACT; UNENFORCEABLE. — Basically, the plaintiffs’ supposed
cause of action rests upon the deed of sale executed by defendants in
their favor on June 15, 1962 wherein the latter sold a two-hectare
portion of the homestead which they were applying for to the
plaintiffs on the understanding that the actual conveyance of the said
portion to plaintiffs would be made only after the lapse of the five-
year period during which, under the Public Land Act, the homestead
owner was prohibited from transferring his rights. The agreement is
clearly illegal and void ab initio; it is intended to circumvent and
violate the law. As parties to a void contract, the plaintiffs have no
rights which they can enforce and the court can not lend itself to its
enforcement.
2. ID.; ID.; LACHES OR PRESCRIPTION, IRRELEVANT. — Plaintiffs can
neither invoke the doctrine of implied trust based on an illegal
contract. The issue of prescription or laches becomes irrelevant in a
case such as this, where plaintiffs clearly have no cause of action.
DECISION
YAP, J.:
This is an appeal from the order of the Court of First Instance of
Cotabato dated January 4, 1968 dismissing plaintiffs-appellants’
complaint and from its order dated May 8, 1968, denying their motion
for reconsideration.
The complaint, filed by plaintiffs-appellants against the spouses
Dimas Casa and Maria Castor, the defendants-appellees herein, was
for alleged unlawful acts of dispossession disturbing plaintiffs’;
peaceful, continuous, open, uninterrupted adverse and public
possession of the property in question. In their complaint, plaintiffs
also sought to annul the original certificate of title issued by the
Register of Deeds for the province of Cotabato in favor of defendant
spouses pursuant to a Homestead Patent on the ground that said
patent was obtained by defendant spouses through fraud and
misrepresentation by stating, among others, in their application, that
the lot was not claimed and occupied by another person. Plaintiffs
alleged that on June 15, 1967, they purchased from the defendants
two (2) hectares of the aforementioned parcel of land, it being agreed
in the deed of sale that the said portion would be reconveyed to
plaintiffs after the five-year prohibitory period, as provided for in the
Homestead Patent Law, shall have elapsed, and that defendants failed
to abide by said agreement.chanroblesvirtualawlibrary
The defendants moved to dismiss the complaint, based on the
following grounds: (1) the complaint is barred by prescription, since
thirteen years had elapsed from the issuance of the homestead
patent before the action was filed; (2) plaintiff has no cause of action,
since the deed of sale executed on June 15, 1952 or prior to the
approval of the application and issuance of the homestead patent was
null and void and inoperative to convey the land in question, which
was at that time still public land; and (3) plaintiff is not the proper
party to institute the action to annul the homestead patent.
In their opposition to the motion to dismiss, plaintiffs averred that
they were not assailing the validity of the patent as a whole, but only
with respect to that portion of two (2) hectares owned by them which
defendants, through fraud, were able to register in their name.
Because of such fraud, the action of the plaintiffs cannot be deemed
to have prescribed, since such action can be brought within four (4)
years from discovery of the fraud. Moreover, the defense of
prescription can not be set up in an action to recover property held in
trust by a person for another.
On January 4, 1968, the court a quo issued the questioned order
dismissing the complaint. The plaintiffs appealed the case to the Court
of Appeals, assigning the following errors:jgc:chanrobles.com.ph
"1. The lower court erred in holding that the allegations in the
complaint do not conform with the terms and conditions of the
contract as to amount to a justifiable cause of action.
"2. The lower court erred in holding that the plaintiffs-appellants have
no personality to bring the present action as they do not seek the land
for themselves but for the government.
"3. The lower court erred in holding that the present action based on
fraud is barred by the statute of limitations.
"4. Finally, the lower court erred in holding that the deed of sale is not
lawful as the same was made to circumvent the provisions of the
Public Land Act.
The Court of Appeals certified the case to this Court as it involved only
questions of law.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
We find no merit in the petition. The lower court committed no
reversible error in dismissing the complaint.
Basically, the plaintiffs’ supposed cause of action rests upon the deed
of sale executed by defendants in their favor on June 15, 1962
wherein the latter sold a two-hectare portion of the homestead which
they were applying for to the plaintiffs on the understanding that the
actual conveyance of the said portion to plaintiffs would be made only
after the lapse of the five-year period during which, under the Public
Land Act, the homestead owner was prohibited from transferring his
rights. The agreement is clearly illegal and void ab initio; it is intended
to circumvent and violate the law. As parties to a void contract, the
582 | P a g e
plaintiffs have no rights which they can enforce and the court can not
lend itself to its enforcement.

Plaintiffs can neither invoke the doctrine of implied trust based on an

illegal contract. The issue of prescription or laches becomes irrelevant
in a case such as this, where plaintiffs clearly have no cause of action.

WHEREFORE, the petition is hereby DENIED and the orders appealed

from are AFFIRMED.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

583 | P a g e
[G.R. No. L-12149. September 30, 1960.]
HEIRS OF EMILIO CANDELARIA, ETC., Plaintiff-Appellant, v. LUISA
ROMERO, ET AL., Defendants-Appellees.
Vicente P. Fernando for Appellants.
P. L. Meer for Appellees.
SYLLABUS
1. TRUST AND TRUSTEES; WHEN A RESULTING OR IMPLIED TRUST
ARISES; RULE FOUNDED ON EQUITY. — Where property is taken by a
person under an agreement to hold it for, or convey it to another or
the grantor, a resulting or implied trust arises in favor of the person
for whose benefit the property was intended. This rule has been
incorporated in the New Civil Code in Article 1453 thereof, and is
founded on equity.
2. ID.; ID.; LACHES; EFFECT OF CONTINUOUS RECOGNITION OF TRUST.
— Laches constitutes a bar to actions to enforce a constructive or
implied trust, and repudiation is not required, unless there is
concealment of the facts giving rise to the trust. Continuous
recognition of a resulting trust, however, precludes any defense of
laches in a suit to declare and enforce the trust. The beneficiary of a
resulting trust may, without prejudice to his right to enforce the trust,
prefer the trust to persist and demand no conveyance from the
trustee.
DECISION
GUTIERREZ DAVID, J.:
This is an appeal from an order dismissing plaintiff’s complaint for
reconveyance of real property with damages. The dismissal was
ordered on a mere motion to dismiss before answer was filed.
The complaint, which was filed on December 20, 1956 by Ester
Candelaria in her own behalf and in representation of the other
alleged heirs of Emilio Candelaria, alleges in substance that sometime
prior to 1917 the latter and his brother Lucas Candelaria bought each
a lot in the Solokan Subdivision on the installment basis; that Lucas
paid the first two installments corresponding to his lot, but faced with
the inability of meeting the subsequent installments because of
sickness which caused him to be bedridden, he sold his interest
therein to his brother Emilio, who then reimbursed him the amount
he had already paid, and thereafter continued payment of the
remaining installments until the whole purchase, price had been fully
satisfied; "that although Lucas Candelaria had no more interest over
the lot, the subsequent payments made by Emilio Candelaria until
fully paid were made in the name of Lucas Candelaria, with the
understanding that the necessary documents of transfer will be made
later, the reason that the transaction being from brother to brother"
; that in 1918 a transfer certificate of title for said lot was issued by
the register of deeds of Manila in the name of "Lucas Candelaria
married to Luisa Romero" ; that Lucas held the title to said lot merely
in trust for Emilio and that this fact was acknowledged not only by him
but also by the defendants (his heirs) on several occasions; that Lucas’
possession of the lot was merely tolerated by Emilio and his heirs; that
from the time Emilio bought the lot from his brother, Lucas had been
collecting all its rents for his own use as financial aid to him as a
brother in view of the fact that he was bedridden without any means
of livelihood and with several children to support, although from
1926, when Emilio was confined at the Culion Leper Colony up to his
death on February 5, 1936, Lucas had been giving part of the rents to
Fortunata Bautista, the second wife of Emilio, in accordance with the
latter’s wishes; that Lucas died in August, 1942, survived by the
present defendants, who are his spouse Luisa Romero and several
children; and that said defendants are still in possession of the lot,
having refused to reconvey it to plaintiff despite repeated demands.
Instead of answering the complaint, the defendants filed a motion to
dismiss, alleging, among other things, that plaintiff’s cause of action
is unenforceable under the new Civil Code and that the action has
already prescribed. And the court having upheld the motion, plaintiff
took this appeal.
In the order granting the motion to dismiss, the lower court held that
an express and not an implied trust was created as may be gleaned
from the facts alleged in the complaint, which is unenforceable
without any writing, and that since Transfer Certificate of Title No.
9584 covering the land in question had been issued to Lucas
Candelaria way-back in 1918 or 38 years before the filing of the
complaint, the action has already prescribed.
The trust alleged to have been created, in our opinion, is an implied
trust. As held, in effect, by this Court in the case of Martinez v. Graño
(42 Phil., 35), where property is taken by a person under an
agreement to hold it for, or convey it to another or the grantor, a
resulting or implied trust arises in favor of the person for whose
benefit the property was intended. This rule, which has been
incorporated in the new Civil Code in Art. 1453 thereof, is founded
upon equity. The rule is the same in the United States, particularly
where, on the faith of the agreement or understanding, the grantee
is enabled to gain an advantage in the purchase of the property or
where the consideration or part thereof has been furnished by or for
such other. Thus, it has been held that where the grantee takes the
property under an agreement to convey to another on certain
conditions, a trust results for the benefit of such other or his heirs,
which equity will enforce according to the agreement. (189 C.J.S.
960). It is also the rule there that an implied trust arises where a
person purchases land with his own money and takes a conveyance
thereof in the name of another. In such a case, the property is held on
a resulting trust in favor of the one furnishing the consideration for
the transfer, unless a different intention or understanding appears.
The trust which results under such circumstances does not arise from
contract or agreement of the parties, but from the facts and
circumstances, that is to say, it results because of equity and arises by
implication or operation of law. (See 89 C.J.S. 964-968.) .
584 | P a g e
In the present case, the complaint expressly alleges that "although
Lucas Candelaria had no more interest over the lot, the subsequent
payments made by Emilio Candelaria until fully paid were made in the
name of Lucas Candelaria, with the understanding that the necessary
documents of transfer will be made later, the reason that the
transaction being brother to brother." From this allegation, it is
apparent that Emilio Candelaria who furnished the consideration
intended to obtain a beneficial interest in the property in question.
Having supplied the purchase money, it may naturally be presumed
that he intended the purchase for his own benefit. Indeed, it is
evident from the above-quoted allegation in the complaint that the
property in question was acquired by Lucas Candelaria under
circumstances which show that it was conveyed to him on the faith of
his intention to hold it for, or convey it to the grantor, the plaintiff’s
predecessor in interest.

Constructive or implied trusts may, of course, be barred by lapse of

time. The rule in such trusts is that laches constitutes a bar to actions
to enforce the trust, and repudiation is not required, unless there is
concealment of the facts giving rise to the trust. (Diaz, Et. Al. v.
Gorricho, Et Al., 103 Phil., 261; 54 Off. Gaz. [37] 8429.) Continuous
recognition of a resulting trust, however, precludes any defense of
laches in a suit to declare and enforce the trust. (See 581, 54 Am. Jur.
pp. 448-450.) The beneficiary of a resulting trust may, therefore,
without prejudice to his right to enforce the trust, prefer the trust to
persist and demand no conveyance from the trustee. It being alleged
in the complaint that Lucas held the title to the lot in question merely
in trust for Emilio and that this fact was acknowledged not only by him
but also by his heirs, herein defendants — which allegation is
hypothetically admitted — we are not prepared to rule that plaintiff’s
action is already barred by lapse of time. On the contrary, we think
the interest of justice would be better served if she and her alleged
co-heirs were to be given an opportunity to be heard and allowed to
present proof in support of their claim.

Wherefore, the order of dismissal appealed from is hereby reversed

and the case remanded to the court a quo for further proceedings. So
ordered without costs.

Paras, C.J., Bengzon, Bautista Angelo, Labrador; Concepción, Reyes,

J.B.L., Barrera, Paredes, and Dizon, JJ., concur.

585 | P a g e
[G.R. No. 97995. January 21, 1993.]
PHILIPPINE NATIONAL BANK, Petitioner, v. COURT OF APPEALS AND
B.P. MATA AND CO., INC., Respondents.
Roland A. Niedo for Petitioner.
Benjamin C. Santos Law Office for Respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUSTS; EXPRESS
TRUST DISTINGUISHED FROM IMPLIED TRUST. — Trusts are either
express or implied. While express trusts are created by the intention
of the trustor or of the parties, implied trusts come into being by
operation of law. Implied trusts are those which, without being
expressed, are deducible from the nature of the transaction as
matters of the intent or which are superinduced on the transaction by
operation of law as matters of equity, independently of the particular
intention of the parties.
2. ID.; ID.; ID.; KINDS OF IMPLIED TRUSTS; RESULTING TRUST
DISTINGUISHED FROM CONSTRUCTIVE TRUST. — Implied trusts are
subdivided into resulting and constructive trusts. A resulting trust is a
trust raised by implication of law and presumed always to have been
contemplated by the parties, the intention of which is found in the
nature of the transaction, but not expressed in the deed or
instrument of conveyance. Examples of resulting trusts are found in
Articles 1448 to 1455 of the Civil Code. On the other hand, a
constructive trust is one not created by words either expressly or
impliedly, but by construction of equity in order to satisfy the
demands of justice. An example of a constructive trust is Article 1456
quoted above.
3. ID.; ID.; ID.; ID.; CONSTRUCTIVE TRUST UNDER ARTICLE 1456 OF
THE NEW CIVIL CODE NOT A TRUST IN THE TECHNICAL SENSE;
REASON THEREFOR; CASE AT BAR. — A deeper analysis of Article 1456
reveals that it is not a trust in the technical sense for in a typical trust,
confidence is reposed in one person who is named a trustee for the
benefit of another who is called the cestui que trust, respecting
property which is held by the trustee for the benefit of the cestui que
trust. A constructive trust, unlike an express trust, does not emanate
from, or generate a fiduciary relation. While in an express trust, a
beneficiary and a trustee are linked by confidential or fiduciary
relations, in a constructive trust, there is neither a promise nor any
fiduciary relation to speak of and the so-called trustee neither accepts
any trust nor intends holding the property for the beneficiary. In the
case at bar, Mata, in receiving the US$14,000 in its account through
IBAA, had no intent of holding the same for a supposed beneficiary or
cestui que trust, namely PNB. But under Article 1456, the law
construes a trust, namely a constructive trust, for the benefit of the
person from whom the property comes, in this case PNB, for reasons
of justice and equity.
4. ID.; ID.; ID.; ID.; MISTAKE GIVING RISE TO CONSTRUCTIVE TRUST
MAY BE COMMITTED EITHER BY GRANTOR OR GRANTEE. — We agree
with petitioner’s stand that under Article 1456, the law does not make
any distinction since mutual mistake is a possibility on either side - on
the side of either the grantor or the grantee. Thus, it was error to
conclude that in a constructive trust, only the person obtaining the
property commits a mistake. This is because it is also possible that a
grantor, like PNB in the case at hand, may commit the mistake.
5. ID.; ID.; ID.; ID.; RESULTING OR CONSTRUCTIVE TRUST MAY BE
BARRED BY PRESCRIPTION AND ALSO BY LACHES; LACHES
DISTINGUISHED FROM PRESCRIPTION; CASE AT BAR. — Proceeding
now to the issue of whether or not petitioner may still claim the
US$14,000 it erroneously paid private respondent under a
constructive trust, we rule in the negative. Although we are aware
that only seven (7) years lapsed after petitioner erroneously credited
private respondent with the said amount and that under Article 1144,
petitioner is well within the prescriptive period for the enforcement
of a constructive or implied trust, we rule that petitioner’s claim
cannot prosper since it is already barred by laches. It is a well-settled
rule now that an action to enforce an implied trust, whether resulting
or constructive, may be barred not only by prescription but also by
laches. While prescription is concerned with the fact of delay, laches
deals with the effect of unreasonable delay. It is amazing that it took
petitioner almost seven years before it discovered that it had
erroneously paid private Respondent. Petitioner would attribute its
mistake to the heavy volume of international transactions handled by
the Cable and Remittance Division of the International Department of
PNB. Such specious reasoning is not persuasive. It is unbelievable for
a bank, and a government bank at that, which regularly publishes its
balanced financial statements annually or more frequently, by the
quarter, to notice its error only seven years later. As a universal bank
with worldwide operations, PNB cannot afford to commit such costly
mistakes. Moreover, as between parties where negligence is
imputable to one and not to the other, the former must perforce bear
the consequences of its neglect. Hence, petitioner should bear the
cost of its own negligence.
6. ID.; QUASI-CONTRACTS; QUASI-CONTRACTUAL RELATIONS MAY BE
FORCED UPON PARTIES WHOSE CONSENT THERETO IS PRESUMED, TO
AVOID CASE OF UNJUST ENRICHMENT; SOLUTION INDEBITI;
REQUISITES; CASE AT BAR. — the Civil Code does not confine itself
exclusively to the quasi-contracts enumerated from Articles 2144 to
2175 but is open to the possibility that, absent a pre-existing
relationship, there being neither crime nor quasi-delict, a quasi-
contractual relation may be forced upon the parties to avoid a case of
unjust enrichment. There being no express consent, in the sense of a
meeting of minds between the parties, there is no contract to speak
of. However, in view of the peculiar circumstances or factual
environment, consent is presume to the end that a recipient of
benefits or favors resulting from lawful, voluntary and unilateral acts
of another may not be unjustly enriched at the expense of another.
Undoubtedly, the instant case fulfills the indispensable requisites of
solutio indebiti as defined in Article 2154: that something (in this case
money) has been received when there was no right to demand it and
(2) the same was unduly delivered through mistake. There is a
presumption that there was a mistake in the payment "if something
which had never been due or had already been paid was delivered;
but he from whom the return is claimed may prove that the delivery
was made out of liberality or for any other just cause." In the case at
bar, a payment in the corrected amount of US$1,400 through
Cashier’s Check No. 269522 had already been made by PNB for the
586 | P a g e
account of Mata on February 25, 1975. Strangely, however, fourteen
days later, PNB effected another payment through Cashier’s Check
No. 270271 in the amount of US$14,000, this time purporting to be
another transmittal of reimbursement from Star Kist, private
respondent’s foreign principal.
7. ID.; AMERICAN JURISPRUDENCE ON CONSTRUCTIVE TRUST AND
QUASI-CONTRACTS. — Under American Law, a court of equity does
not consider a constructive trustee for all purposes as though he were
in reality a trustee; although it will force him to return the property,
it will not impose upon him the numerous fiduciary obligations
ordinarily demanded from a trustee of an express trust. It must be
borne in mind that in an express trust, the trustee has active duties of
management while in a constructive trust, the duty is merely to
surrender the property. Still applying American case law, quasi-
contractual obligations give rise to a personal liability ordinarily
enforceable by an action at law, while constructive trusts are
enforceable by a proceeding in equity to compel the defendant to
surrender specific property. To be sure, the distinction is more
procedural than substantive. Further reflection on these concepts
reveals that a constructive "trust" is as much a misnomer as a "quasi-
contract," so far removed are they from trusts and contracts proper,
respectively. In the case of a constructive trust, as in the case of quasi-
contract, a relationship is "forced" by operation of law upon the
parties, not because of any intention on their part but in order to
prevent unjust enrichment, thus giving rise to certain obligations not
within the contemplation of the parties. Although we are not quite in
accord with the opinion that "the trusts known to American and
English equity jurisprudence are derived from the fidei commissa of
the Roman Law," it is safe to state that their roots are firmly grounded
on such Civil Law principles as expressed in the Latin maxim, "Nemo
cum alterius detrimento locupletari potest," particularly the concept
of constructive trust.
DECISION
ROMERO, J.:
Rarely is this Court confronted with a case calling for the delineation
in broad strokes of the distinctions between such closely allied
concepts as the quasi-contract called "solutio indebiti" under the
venerable Spanish Civil Code and the species of implied trust
denominated "constructive trusts," commonly regarded as of Anglo-
American origin. Such a case is the one presented to us now which
has highlighted more of the affinity and less of the dissimilarity
between the two concepts as to lead the legal scholar into the error
of interchanging the two. Presented below are the factual
circumstances that brought into juxtaposition the twin institutions of
the Civil Law quasi-contract and the Anglo-American trust.
Private Respondent B. P. Mata & Co. Inc. (Mata), is a private
corporation engaged in providing goods and services to shipping
companies. Since 1966, it has acted as a manning or crewing agent for
several foreign firms, one of which is Star Kist Foods, Inc., USA (Star
Kist). As part of their agreement, Mata makes advances for the crew’s
medical expenses, National Seaman’s Board fees, Seaman’s Welfare
fund, and standby fees and for the crew’s basic personal needs.
Subsequently, Mata sends monthly billings to its foreign principal Star
Kist, which in turn reimburses Mata by sending a telegraphic transfer
through banks for credit to the latter’s account.
Against this background, on February 21, 1975, Security Pacific
National Bank (SEPAC) of Los Angeles which had an agency
arrangement with Philippine National Bank (PNB), transmitted a cable
message to the International Department of PNB to pay the amount
of US$14,000 to Mata by crediting the latter’s account with the
Insular Bank of Asia and America (IBAA), per order of Star Kist. Upon
receipt of this cabled message on February 24, 1975, PNB’s
International Department noticed an error and sent a service message
to SEPAC Bank. The latter replied with instructions that the amount
of US$14,000 should only be for US$1,400.chanroblesvirtualawlibrary
On the basis of the cable message dated February 24, 1975, Cashier’s
Check No. 269522 in the amount of US$1,400 (P9,772.96)
representing reimbursement from Star Kist, was issued by the Star
Kist for the account of Mata on February 25, 1975 through the Insular
Bank of Asia and America (IBAA).
However, fourteen days after or on March 11, 1975, PNB effected
another payment through Cashier’s Check No. 270271 in the amount
of US$14,000 (P97,878.60) purporting to be another transmittal of
reimbursement from Star Kist, private respondent’s foreign principal.
Six years later, or more specifically, on May 13, 1981, PNB requested
Mata for refund of US$14,000 (P97,878.60) after it discovered its
error in effecting the second payment.chanrobles virtual lawlibrary
On February 4, 1982, PNB filed a civil case for collection and refund of
US$14,000 against Mata arguing that based on a constructive trust
under Article 1456 of the Civil Code, it has a right to recover the said
amount it erroneously credited to respondent Mata. 1
After trial, the Regional Trial Court of Manila rendered judgment
dismissing the complaint ruling that the instant case falls squarely
under Article 2154 on solutio indebiti and not under Article 1456 on
constructive trust. The lower court rules out constructive trust,
applying strictly the technical definition of a trust as "a right of
property, real or personal, held by one party for the benefit of
another; that there is a fiduciary relation between a trustee and a
cestui que trust as regards certain property, real, personal, money or
choses in action." 2
In affirming the lower court, the appellate court added in its opinion
that under Article 2154 on solutio indebiti, the person who makes the
payment is the one who commits the mistake vis-a-vis the recipient
who is unaware of such a mistake. 3 Consequently, recipient is duty
bound to return the amount paid by mistake. But the appellate court
concluded that petitioner’s demand for the return of US$14,000
cannot prosper because its cause of action had already prescribed
under Article 1145, paragraph 2 of the Civil Code which
states:jgc:chanrobles.com.ph
587 | P a g e
"The following actions must be commenced within six
years:chanrob1es virtual 1aw library
x x x
(2) Upon a quasi-contract."cralaw virtua1aw library
This is because petitioner’s complaint was filed only on February 4,
1982, almost seven years after March 11, 1975 when petitioner
mistakenly made payment to private Respondent.
Hence, the instant petition for certiorari proceeding seeking to annul
the decision of the appellate court on the basis that Mata’s obligation
to return US$14,000 is governed, in the alternative, by either Article
1456 on constructive trust or Article 2154 of the Civil Code on quasi-
contract. 4 In the case at bar, Mata, in receiving the US$14,000 in its account
Article 1456 of the Civil Code provides:jgc:chanrobles.com.ph
"If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust
for the benefit of the person from whom the property comes."cralaw
virtua1aw library
On the other hand, Article 2154 states:jgc:chanrobles.com.ph
"If something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it
arises."cralaw virtua1aw library
Petitioner naturally opts for an interpretation under constructive
trust as its action filed on February 4, 1982 can still prosper, as it is
well within the prescriptive period of ten (10) years as provided by
Article 1144, paragraph 2 of the Civil Code. 5
If it is to be construed as a case of payment by mistake or solutio
indebiti, then the prescriptive period for quasi-contracts of six years
applies, as provided by Article 1145. As pointed out by the appellate
court, petitioner’s cause of action thereunder shall have prescribed,
having been brought almost seven years after the cause of action
accrued. However, even assuming that the instant case constitutes a
constructive trust and prescription has not set in, the present action
has already been barred by laches.chanrobles virtual lawlibrary
To recall, trusts are either express or implied. While express trusts are
created by the intention of the trustor or of the parties, implied trusts
come into being by operation of law. 6 Implied trusts are those which,
without being expressed, are deducible from the nature of the
transaction as matters of the intent or which are superinduced on the
transaction by operation of law as matters of equity, independently
of the particular intention of the parties. 7 money) has been received when there was no right to demand it and
In turn, implied trusts are subdivided into resulting and constructive
trusts. 8 A resulting trust is a trust raised by implication of law and
presumed always to have been contemplated by the parties, the
intention of which is found in the nature of the transaction, but not
expressed in the deed or instrument of conveyance. 9 Examples of
resulting trusts are found in Articles 1448 to 1455 of the Civil Code.
10 On the other hand, a constructive trust is one not created by words
either expressly or impliedly, but by construction of equity in order to
satisfy the demands of justice. An example of a constructive trust is
Article 1456 quoted above. 11
A deeper analysis of Article 1456 reveals that it is not a trust in the
technical sense 12 for in a typical trust, confidence is reposed in one
person who is named a trustee for the benefit of another who is called
the cestui que trust, respecting property which is held by the trustee
for the benefit of the cestui que trust. 13 A constructive trust, unlike
an express trust, does not emanate from, or generate a fiduciary
relation. While in an express trust, a beneficiary and a trustee are
linked by confidential or fiduciary relations, in a constructive trust,
there is neither a promise nor any fiduciary relation to speak of and
the so-called trustee neither accepts any trust nor intends holding the
property for the beneficiary. 14
through IBAA, had no intent of holding the same for a supposed
beneficiary or cestui que trust, namely PNB. But under Article 1456,
the law construes a trust, namely a constructive trust, for the benefit
of the person from whom the property comes, in this case PNB, for
reasons of justice and equity.
At this juncture, a historical note on the codal provisions on trust and
quasi-contracts is in order.
Originally, under the Spanish Civil Code, there were only two kinds of
quasi contracts: negotiorum gestio and solutio indebiti. But the Code
Commission, mindful of the position of the eminent Spanish jurist,
Manresa, that "the number of quasi contracts may be indefinite,"
added Section 3 entitled "Other Quasi-Contracts." 15
Moreover, even as Article 2142 of the Civil Code defines a quasi-
contract, the succeeding article provides that: "The provisions for
quasi-contracts in this Chapter do not exclude other quasi-contracts
which may come within the purview of the preceding article." 16
Indubitably, the Civil Code does not confine itself exclusively to the
quasi-contracts enumerated from Articles 2144 to 2175 but is open to
the possibility that, absent a pre-existing relationship, there being
neither crime nor quasi-delict, a quasi-contractual relation may be
forced upon the parties to avoid a case of unjust enrichment. 17 There
being no express consent, in the sense of a meeting of minds between
the parties, there is no contract to speak of. However, in view of the
peculiar circumstances or factual environment, consent is presume to
the end that a recipient of benefits or favors resulting from lawful,
voluntary and unilateral acts of another may not be unjustly enriched
at the expense of another.cralawnad
Undoubtedly, the instant case fulfills the indispensable requisites of
solutio indebiti as defined in Article 2154: that something (in this case
(2) the same was unduly delivered through mistake. There is a
presumption that there was a mistake in the payment "if something
which had never been due or had already been paid was delivered;
but he from whom the return is claimed may prove that the delivery
was made out of liberality or for any other just cause." 18
In the case at bar, a payment in the corrected amount of US$1,400
through Cashier’s Check No. 269522 had already been made by PNB
588 | P a g e
for the account of Mata on February 25, 1975. Strangely, however,
fourteen days later, PNB effected another payment through Cashier’s
Check No. 270271 in the amount of US$14,000, this time purporting
to be another transmittal of reimbursement from Star Kist, private
respondent’s foreign principal.
While the principle of undue enrichment or solutio indebiti, is not
new, having been incorporated in the subject on quasi-contracts in
Title XVI of Book IV of the Spanish Civil Code entitled "Obligations
incurred without contract," 19 the chapter on Trusts is fairly recent,
having been introduced by the Code Commission in 1949. Although
the concept of trusts is nowhere to be found in the Spanish Civil Code,
the framers of our present Civil Code incorporated implied trusts,
which includes constructive trusts, on top of quasi-contracts, both of
which embody the principle of equity above strict legalism. 20
In analyzing the law on trusts, it would be instructive to refer to Anglo-
American jurisprudence on the subject. Under American Law, a court
of equity does not consider a constructive trustee for all purposes as
though he were in reality a trustee; although it will force him to return
the property, it will not impose upon him the numerous fiduciary
obligations ordinarily demanded from a trustee of an express trust.
21 It must be borne in mind that in an express trust, the trustee has
active duties of management while in a constructive trust, the duty is
merely to surrender the property.
Still applying American case law, quasi-contractual obligations give
rise to a personal liability ordinarily enforceable by an action at law,
while constructive trusts are enforceable by a proceeding in equity to
compel the defendant to surrender specific property. To be sure, the
distinction is more procedural than substantive. 22
Further reflection on these concepts reveals that a constructive
"trust" is as much a misnomer as a "quasi-contract," so far removed
are they from trusts and contracts proper, respectively. In the case of
a constructive trust, as in the case of quasi-contract, a relationship is
"forced" by operation of law upon the parties, not because of any
intention on their part but in order to prevent unjust enrichment, thus
giving rise to certain obligations not within the contemplation of the
parties. 23
Although we are not quite in accord with the opinion that "the trusts
known to American and English equity jurisprudence are derived from
the fidei commissa of the Roman Law," 24 it is safe to state that their
roots are firmly grounded on such Civil Law principles as expressed in
the Latin maxim, "Nemo cum alterius detrimento locupletari potest,"
25 particularly the concept of constructive trust.
Returning to the instant case, while petitioner may indeed opt to avail
of an action to enforce a constructive trust or the quasi-contract of
solutio indebiti, it has been deprived of a choice, for prescription has
effectively blocked quasi-contract as an alternative, leaving only
constructive trust as the feasible option.
Petitioner argues that the lower and appellate courts cannot indulge
in semantics by holding that in Article 1456 the recipient commits the
mistake while in Article 2154, the recipient commits on mistake. 26
On the other hand, private respondent, invoking the appellate court’s
reasoning, would impress upon us that under Article 1456, there can
be no mutual mistake. Consequently, private respondent contends
that the case at bar is one of solutio indebiti and not a constructive
trust.chanrobles virtual lawlibrary
We agree with petitioner’s stand that under Article 1456, the law
does not make any distinction since mutual mistake is a possibility on
either side — on the side of either the grantor or the grantee. 27 Thus,
it was error to conclude that in a constructive trust, only the person
obtaining the property commits a mistake. This is because it is also
possible that a grantor, like PNB in the case at hand, may commit the
mistake.
Proceeding now to the issue of whether or not petitioner may still
claim the US$14,000 it erroneously paid private respondent under a
constructive trust, we rule in the negative. Although we are aware
that only seven (7) years lapsed after petitioner erroneously credited
private respondent with the said amount and that under Article 1144,
petitioner is well within the prescriptive period for the enforcement
of a constructive or implied trust, we rule that petitioner’s claim
cannot prosper since it is already barred by laches. It is a well-settled
rule now that an action to enforce an implied trust, whether resulting
or constructive, may be barred not only by prescription but also by
laches. 28
While prescription is concerned with the fact of delay, laches deals
with the effect of unreasonable delay. 29 It is amazing that it took
petitioner almost seven years before it discovered that it had
erroneously paid private Respondent. Petitioner would attribute its
mistake to the heavy volume of international transactions handled by
the Cable and Remittance Division of the International Department of
PNB. Such specious reasoning is not persuasive. It is unbelievable for
a bank, and a government bank at that, which regularly publishes its
balanced financial statements annually or more frequently, by the
quarter, to notice its error only seven years later. As a universal bank
with worldwide operations, PNB cannot afford to commit such costly
mistakes. Moreover, as between parties where negligence is
imputable to one and not to the other, the former must perforce bear
the consequences of its neglect. Hence, petitioner should bear the
cost of its own negligence.
WHEREFORE, the decision of the Court of Appeals dismissing
petitioner’s claim against private respondent is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Bidin, Davide, Jr. and Melo, JJ., concur.
Gutierrez, Jr., J., in the result.
589 | P a g e