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G.R. No.

L-45624 April 25, 1939

GEORGE LITTON, petitioner-appellant vs. HILL & CERON, ET AL., respondents-appellees.

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 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.

RESOLUTION

July 13, 1939

CONCEPCION, J.:

A motion has been presented in this case by Robert Hill, one of the defendants sentenced in our decision to
pay to the plaintiff the amount claimed in his complaint. It is asked that we reconsider our decision, the said
defendant insisting that the appellant had not established that Carlos Ceron, another of the defendants, had
the consent of his copartner, the movant, to enter with the appellant into the contract whose breach gave
rise to the complaint. It is argued that, it being stipulated in the articles of partnership that Hill and Ceron,
only partners of the firm Hill & Ceron, would, as managers, have the management of the business of the
partnership, and that either may contract and sign for the partnership with the consent of the other; the
parties of partnership having been, so it is said, recorded in the commercial registry, the appellant could
not ignore the fact that the consent of the movant was necessary for the validity of the contract which he
had with the other partner and defendant, Ceron, and there being no evidence that said consent had been
obtained, the complaint to compel compliance with the said contract had to be, as it must be in fact, a
procedural failure.

Although this question has already been considered and settled in our decision, we nevertheless take
cognizance of the motion in order to enlarge upon our views on the matter.

The stipulation in the articles of partnership that any of the two managing partners may contract and sign
in the name of the partnership with the consent of the other, undoubtedly creates an obligation between
the two partners, which consists in asking the other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would naturally not presume that the
partner with whom he enters into the transaction is violating the articles of partnership but, on the contrary,
is acting in accordance therewith. And this finds support in the legal presumption that the ordinary course
of business has been followed (No. 18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to contracts which have the force
of law between the parties.

Wherefore, unless the contrary is shown, namely, that one of the partners did not consent to his copartner
entering into a contract with a third person, and that the latter with knowledge thereof entered into said
contract, the aforesaid presumption with all its force and legal effects should be taken into account.
There is nothing in the case at bar which destroys this presumption; the only thing appearing in he findings
of fact of the Court of Appeals is that the plaintiff "has failed to prove that Hill had consented to such
contract". According to this, it seems that the Court of Appeals is of the opinion that the two partners should
give their consent to the contract and that the plaintiff should prove it. The clause of the articles of
partnership should not be thus understood, for it means that one of the two partners should have the
consent of the other to contract for the partnership, which is different; because it is possible that one of the
partners may not see any prospect in a transaction, but he may nevertheless consent to the realization
thereof by his copartner in reliance upon his skill and ability or otherwise. And here we have to hold once
again that it is not the plaintiff who, under the articles of partnership, should obtain and prove the consent
of Hill, but the latter's partner, Ceron, should he file a complaint against the partnership for compliance with
the contract; but in the present case, it is a third person, the plaintiff, who asks for it. While the said
presumption stands, the plaintiff has nothing to prove.

Passing now to another aspect of the case, had Ceron in any way stated to the appellant at the time of the
execution of the contract, or if it could be inferred by his conduct, that he had the consent of Hill, and should
it turn out later that he did not have such consent, this alone would not annul the contract judging from the
provisions of article 130 of the Code of Commerce reading as follows:

No new obligation shall be contracted against the will of one of the managing partners, should he
have expressly stated it; but if, however, it should be contracted it shall not be annulled for this
reason, and shall have its effects without prejudice to the liability of the partner or partners who
contracted it to reimburse the firm for any loss occasioned by reason thereof. (Emphasis supplied.)

Under the aforequoted provisions, when, not only without the consent but against the will of any of the
managing partners, a contract is entered into with a third person who acts in good faith, and the transaction
is of the kind of business in which the partnership is engaged, as in the present case, said contract shall not
be annulled, without prejudice to the liability of the guilty partner.

The reason or purpose behind these legal provisions is no other than to protect a third person who contracts
with one of the managing partners of the partnership, thus avoiding fraud and deceit to which he may easily
fall a victim without this protection which the Code of Commerce wisely provides.

If we are to interpret the articles of partnership in question by holding that it is the obligation of the third
person to inquire whether the managing copartner of the one with whom he contracts has given his consent
to said contract, which is practically casting upon him the obligation to get such consent, this interpretation
would, in similar cases, operate to hinder effectively the transactions, a thing not desirable and contrary to
the nature of business which requires promptness and dispatch one the basis of good faith and honesty
which are always presumed.

In view of the foregoing, and sustaining the other views expressed in the decision, the motion is denied. So
ordered.

G.R. No. L-11840 July 26, 1960

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.


GOQUIOLAY, plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

REYES, J. B. L., J.:

Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being more
than P200,00) 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 in dealing in real state. 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 lodge 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.

IV. Vhe affairs of 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 persons, 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.

V. 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. (Article of Co-
Partnership).

The lifetime of the partnership was fixed at ten (10) years and also that —

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:

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", that said Tan Sin An should act as the
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 Construccion 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 downpayment 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, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin 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 Sans 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, interest and taxes paid in
amortizing and discharging their obligations to "La Urbana" and the "Banco Hipotecario". Disclaiming
knowledge of said claims at first, Kong Chai Pin later admitted the claims in her amended answer and they
were accordingly approved by the Court.

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the 49
parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the aforesaid
debts of Tan Sin An and the partnership. Pursuant to a court order of April 2, 1949, the administratrix
executed on April 4, 1949, a deed of sale1 of the 49 parcels of land to the defendants Washington Sycip and
Betty Lee in consideration of P37,000.00 and of vendees' assuming payments of the claims filed by Yutivo
Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and Betty Lee
executed in favor of the Insular Development Co., Inc. a deed of transfer covering the said 49 parcels of
land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about July
25, 1949, a petition in the intestate proceedings seeking to set aside the order of the probate court approving
the sale in so far as his interest over the parcels of land sold was concerned. In its order of December 29,
1949, the probate court annulled the sale executed by the administratrix with respect to the 60% interest
of Antonio Goquiolay over the properties sold. Kong 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 30, 1953, we rendered decision
setting aside the orders of the probate court complained of and remanding the case for new trial, due to the
non-inclusion of indispensable parties. Thereafter, new pleadings were filed.

The second amended complaint in the case at bar prays, among other things, for the annulment of the sale
in favor of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of Insular
Development Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are concerned. The
answer averred the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan Sin An.
After hearing, the complaint was dismissed by the lower court in its decision dated October 30, 1956; hence,
this appeal taken directly to us by the plaintiffs, as the amount involved is more than P200,000.00. Plaintiffs-
appellants assign as errors that —

I — The lower court erred in holding that Kong Chai Pin became the managing partner of the
partnership upon the death of her husband, Tan Sin An, by virtue of the articles of Partnership
executed between Tan Sin An and Antonio Goquiolay, and the general power of attorney granted by
Antonio Goquiolay.

II — The lower court erred in holding that Kong Chai Pin could act alone as sole managing partner in
view of the minority of the other heirs.

III — The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as
managing partner.
IV — The lower court erred in holding that Kong Chai Pin had authority to sell the partnership
properties by virtue of the articles of partnership and the general power of attorney granted to Tan
Sin An in order to pay the partnership indebtedness.

V — The lower court erred in finding that the partnership did not pay its obligation to the Banco
Hipotecario.

VI — The lower court erred in holding that the consent of Antonio Goquiolay was not necessary to
consummate the sale of the partnership properties.

VII — The lower court erred in finding that Kong Chai Pin managed the business of the partnership
after the death of her husband, and that Antonio Goquiolay knew it.

VIII — The lower court erred in holding that the failure of Antonio Goquiolay to oppose the
management of the partnership by Kong Chai Pin estops him now from attacking the validity of the
sale of the partnership properties.

IX — The lower court erred in holding that the buyers of the partnership properties acted in good
faith.

X — The lower court erred in holding that the sale was not fraudulent against the partnership and
Antonio Goquiolay.

XI — The lower court erred in holding that the sale was not only necessary but beneficial to the
partnership.

XII — The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay to pay
the costs of suit.

There is a 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 sole management of the partnership, upon the latter's death.
While, as we previously stated in our narration of facts, the Articles of Co-Partnership and the power of
attorney executed by Antonio Goquiolay, conferred upon Tan Sin An the exclusive management of the
business, such power, premised as it is upon trust and confidence, was a mere personal right that terminated
upon Tan's demise. The provision in the articles 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 related to the
succession in the proprietary interest of each partner. The covenant that Antonio Goquiolay shall have no
voice or participation in the management of the partnership, being a limitation upon his right as a general
partner, must be held coextensive only with Tan's right to manage the affairs, the contrary not being clearly
apparent.

Upon the other hand, 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. The validity of like clauses in partnership agreements is expressly sanctioned under Article
222 of the Code of Commerce.2

Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership (2 Vivante,
Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English translation by the
Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).

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, 3 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 the 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:

. . . 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 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 the 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] (George Litton vs. Hill & Ceron, et al., 67 Phil.,
513-514).

We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that —

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."

Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:

367. Primera hipotesis. — A falta de pactos 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 Codigo no ofrece un sistema eficaz que evite los
inconvenientes. Pero, ante el silencio del contrato, debia quiza el legislador privar de la
administracion 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 administracion, que es asunto d todos los dias
y de todas horas. Hubieran sido disposiciones menos oportunas que lo adoptado por el Codigo, el
cual se confia al espiritu de reciproca confianza que deberia animar la colaboracion de los socios, y
en la ley inflexible de responsabilidad que implica comunidad en los intereses de los mismos.

En esta hipotesis, 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 administracion en la totalidad de
sus relaciones, salvo su responsabilidad en el caso de una administracion 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 oposicion de cada
uno de los socios puede quedar frustrado. Pero se puede contestar que este derecho de oposicion
concedido por la ley como un remedio excepcional, debe subordinarse al derecho de ejercer el oficio
de Administrador, que el Codigo concede sin limite: "se presume que los socios se han concedido
reciprocamente la facultad de administrar uno para otro." Se haria precipitar esta hipotesis en la otra
de una administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el consentimiento,
a lo menos tacito, de todos los socios — lo que el Codigo 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.

Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148) opines:

Para obligar a las Compañias enfrente de terceros (art. 128 del Codigo), 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 se que toda obligacion contraida bajo la razon social, se presume
contraida por la Compañia. Esta presunion 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 razon social una obligacion que no interesa a la Sociedad, este podra rechazar la accion del
tercero probando que el acreedor conocia que la obligacion no tenia ninguna relacion con ella. Si
tales actos y contratos no comportasen la concurrencia de ambos elementos, seria 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
designacion de uno o mas de un socio para administrar la Compañia (art. 129 del Codigo) todos
tienen por un igual el derecho de concurir a la decision y manejo de los negocios comunes. . . .

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:

Should no agreement have been made with respect to the form of management, the following rules
shall be observed:

1. All the partners shall be considered agents, and whatever any one of the may do individually shall
bind the partnership; but each one may oppose any act of the others before it has become legally
binding.

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 assails 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 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.

RESOLUTION

December 10, 1963

REYES, J. B. L., J.:

The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we have
upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made 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 partner, in lieu of the husband), in favor of buyers Washington Sycip and Betty Lee
for the following consideration:

Cash paid P37,000.00


Debts assumed by
purchase:
To Yutivo 62,415.91
To Sing Yee Cuan & 54,310.13
Co.
TOTAL P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our holding, Kong Chai Pin,
widow of the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by law
to manage the affairs of the partnership; that the testimony of her witnesses Young and Lim belies that she
took over administration of the partnership property; and that, in any event, the sale should be set aside
because it was executed with the intent to defraud appellant of his share in the properties sold.

Three things must be always held in mind in the discussion of this motion to reconsider, being basic and
beyond controversy:

(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of
the firm, to a stranger. There is no question between partners inter se, and this aspects of the case was
expressly reserved in the main decision of 26 July 1960;

(b) That the partnership was expressly organized "to engage in real estate business, either by buying and
selling real estate". The Article of co-partnership, in fact, expressly provided that:

IV. The object and purpose of the co-partnership are as follows:

1. To engage in real estate business, either by buying and selling real estates; to subdivide real
estates into lots for the purpose of leasing and selling them.;

(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 a mortgage in favor of the original owners, from whom the partnership
had acquired them.

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 evidence" that Kong Chai Pin managed and retained possession
of the partnership properties. Suffice it to point out that appellant Goquiolay himself admitted that —

. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties
(as) she had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai
Pin, she 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 because I believe in God and I wanted to help her.

Q. — So the answer to my question is you did not take any steps?

A. — I did not.

Q. — And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945?

A. — In the year 1945. (Emphasis supplied)

The appellant subsequently ratified this testimony in his deposition of 30 June 1956, page 8-9, wherein he
sated:

that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they
are receiving quite a lot of benefit from that plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater
weight than those of Hernando Young and Rufino Lim, having been made against the party's own interest.

Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the
properties "abandoned and undeveloped", omits to mention that said part of the testimony started with the
question:

Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin
there in Davao at that time?

Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were undeveloped,
and the family of the widow (Kong Chai Pin) did not receive any income from the partnership properties,
was given in answer to the question:

According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his family lived on the
plantation of the partnership and derived their subsistence from that plantation. What can you say
to that? (Dep. 19 July 1956, p. 8)

And also —

What can you say so 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:

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 fine 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 has 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 a became the limited partner, Goquiolay's
authorization to manage the partnership property was proof that he considered and recognized her has
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:

Limited partners may not perform any act of administration with respect to the interests of the co-
partnership, not even in the capacity 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 limited
partner could not be authorized to do), Goquiolay recognized 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 bud 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:

In that 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 heirs 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 reversed in our main decision. Now, in determining what kind of partner the widow
of partner Tan Sin An had elected to become, strangers had to be guided by her conduct and actuations and
those of appellant Goquiolay. Knowing that by law a limited partner is barred from managing the partnership
business or property, third parties (like the purchasers) who found the widow possessing and managing the
firm property with the acquiescense (or at least without apparent opposition) of the surviving partners were
perfectly justified in assuming that she had become a general partner, and, therefore, in negotiating with
her as such a partner, having authority to act for, and in behalf of, the firm. 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
partnership name. That belief was fostered by the very inaction of appellant Goquiolay. Note that for seven
long years, from partner Tan Sin An's death in 1942 to the sale in 1949, there was more than ample time
for Goquiolay to take up the management of these properties, or at least ascertain how its affairs stood. For
seven years Goquiolay could have asserted his alleged rights, and by suitable notice in the commercial
registry could have warned strangers that they must deal 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 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 died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay) would
have no intervention in the management of the partnership. This laches certainly contributed to confirm the
view that the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's properties,
apart from the presumption that a general partner dealing with partnership property has the requisite
authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil., 513; quoted in our main decision,
p. 11).

The stipulation in the articles of partnership that any of the two managing partners may contract and
sign in the name of the partnership with the consent of the other, undoubtedly creates an obligation
between the two partners, which consists in asking the other's consent before contracting for the
partnership. This obligation of course is not imposed upon a third person who contracts with the
partnership. Neither is it necessary for the third person to ascertain if the managing partner with
whom he contracts has previously obtained the consent of the other. A third person may and has a
right to presume that the partner with whom he contracts has, in the ordinary and natural course of
business, the consent of his co-partner; for otherwise he would not enter into the contract. The third
person would naturally not presume that the partner with whom he enters into the transaction is
violating the articles of partnership, but on the contrary, is acting in accordance therewith. And this
finds support in the legal presumption that the ordinary course of business has been followed (No.
18, section 334, Code of Civil Procedure), and that the law has been obeyed (No. 31, section 334).
This last presumption is equally applicable to contracts which have the force of law between the
parties. (Litton vs. Hill & Ceron, et al., 67 Phil., 509, 516) (Emphasis supplied)

It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This
argument is lamentably superficial because it fails to differentiate between real estate acquired and held
as stock-in-trade and real state held merely as business site (Vivante's "taller o banco social") for the
partnership. Where the partnership business is to deal in merchandise and goods, i.e., movable property,
the sale of its real property (immovables) is not within the ordinary powers of a partner, because it is not
in line with the normal business of the firm. But 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. This distinction is supported by the opinion of Gay de Montella 1, in the very passage
quoted in the appellant's motion for reconsideration:

La enajenacion 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 comecio o a los productos de la fabrica para explotacion 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. (Montella) (Emphasis supplied)

The same rule obtains in American law.

In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:

a partnership to deal in real estate may be created and either partner has the legal right to sell the
firm real estate

In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:

And hence, when the partnership business is to deal in real estate, one partner has ample power, as
a general agent of the firm, to enter into an executory contract for the sale of real estate.

And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:

If the several partners engaged in the business of buying and selling real estate can not bind the
firm by purchases or sales of such property made in the regular course of business, then they are
incapable of exercising the essential rights and powers of general partners and their association is
not really a partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective of the partnership, "to engage *
* * in buying and selling real estate" (Art IV, No. 1, Articles of Copartnership), it can not be maintained that
the sale was made in excess of her powers as general partner.

Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs.
Cowen, et al., 49 N. E., 338. But the facts of that case are vastly different from the one before us. In the
McGrath case, the Court expressly found that:

The firm was then, and for some time had been, insolvent, in the sense that its property was
insufficient to pay its debts, though it still 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 here-unto 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, Emphasis 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 similarly 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 to 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 (1946) 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. vs. McMicking, 21 Phil., 243; also Hermandad de Smo.
Nombre de Jesus vs. 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; 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:

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 mortgage 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.

Separate Opinion

BAUTISTA ANGELO, J., dissenting:


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
Construccion 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 filed 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. On 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 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 hid 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:

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
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 conversation 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."

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. 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."

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:

. . . 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?

Out 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 out 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:

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.

And the pertinent portions of the Articles of partnership provides:

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 enajenacion 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 explotacion 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 explotacion social. En todos
estas casos, igualmente que si tratase de la venta de una marca o procedimiento mecanico o quimico,
etc., siendo actos de disposicion seria necesario contar con la conformidad expresa de todos los
socios. (R. Gay de Montella, id., pp. 223-224, Emphasis 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
segun el interes convenido de la Sociedad. Pueden contratar y despedir a los empleados, tomar en
arriendo almacenas y tiendas, expedir cambiales, girarlas, avalarlas, dar en prenda o en hipoteca los
bienes de la sociedad y adquirir inmuebles destinados a su explotacion o al empleo estable de sus
capitales. Pero no podran ejecutar los actos que estan en contradiccion con la explotacion que les
fue confiada no podran cambiar el objeto, el domicilio la razon social; fundir a la Sociedad en otra;
ceder la accion, 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 piqnorar el taller o el banco social
excepto que la venta o piqnoracion tengan por el objeto procurar los medios necesarios para la
continuacion de la empresa social. (Cesar Vivante, Tratado de Derecho Mercantil, pp. 124-125, Vol
II, la. ed.; Emphasis 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 saction 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 mortgage, 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. vs. Cowen, et al., 49 N.F. 338, 343; Emphasis 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 same under consideration was effected in a suspicious manner as may be gleaned from the
following circumstances:

(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.

(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:

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:

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.
G.R. No. L-3146 September 14, 1907

NICOLAS CO-PITCO, plaintiff-appellee, vs. PEDRO YULO, defendant-appellant.

WILLIARD, J.:

The appellee makes the point in his brief in this court that although the defendant excepted to the order of
the court below denying his motion for a new trial on the ground of the insufficiency of the evidence, yet we
can not review such evidence because it is not properly certified. We think that this point is well taken. The
testimony of one witness is certified to by the stenographer, who says that it is all the evidence which took
during the trial. The testimony of this witness is unimportant. There follow in the record several pages of
what purports to be evidence of different witnesses taken in narrative form, but neither the judge, nor the
clerk, nor the stenographer certify in any way what these pages are or that they contain evidence taken
during the trial of this case. For the purpose of this review, therefore, we can only consider the facts admitted
by the pleadings and those stated in the decision of the court below. In that decision the court makes the
following finding of fact, among others:

Before February, 1903, Florencio Yulo and Jaime Palacios were partners in the operation of a sugar
estate in Victorias, Island of Negros, and had commercial dealings with a Chinaman named Dy-
Sianco, who furnished them with money and goods, and used to buy their crop of sugar. In February,
1903, the defendant, Pedro Yulo, father of the said Florencio, took charge of the latter's interest in
the above-mentioned partnership, and he became a general partner with the said Jaime Palacios in
the same business, and he continued as such partner until about the end of 1904, dealing with Dy-
Sianco in the same manner as the old partnership had dealt with the latter.

He then finds that the balance due from the firm Pedro Yulo and Jaime Palacios was 1,638.40 pesos,
Philippine currency, and orders judgment against the defendant, Pedro Yulo, for the entire amount, with
interest.

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 can not
increase the liability of Pedro Yulo.

The judgment of the court below is reversed and judgment is ordered in favor of the plaintiff and against
the defendant, Pedro Yulo, for the sum of P819.20 pesos, Philippine Currency, with interest thereon at the
rate of 6 per cent per annum from the 12th day of January, 1905, and the costs of the Court of First Instance.
No costs will be allowed to either party in this court. So ordered.

G.R. No. L-11624 January 21, 1918

E. M. BACHRACH, plaintiff-appellee, vs. "LA PROTECTORA", ET AL., defendants-appellants.

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. 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.

ISLAND SALES, INC., plaintiff-appellee, vs. UNITED PIONEERS GENERAL CONSTRUCTION


COMPANY, ET. AL defendants. BENJAMIN C. DACO, defendant-appellant.

CONCEPCION JR., J.:

This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First
Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads:

WHEREFORE, the Court sentences defendant United Pioneer General Construction Company
to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is
fully paid, plus attorney's fees which the Court fixes in the sum of Eight Hundred Pesos
(P800.00) and costs.

The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with the understanding that the judgment against
these individual defendants shall be enforced only if the defendant company has no more
leviable properties with which to satisfy the judgment against it. .

The individual defendants shall also pay the costs.

On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the
Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this purpose
executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63,
the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day
of every month thereafter, until fully paid, with the condition that failure to pay any of said installments as
they fall due would render the whole unpaid balance immediately due and demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for
the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B.
Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the
defendant company.

Daniel A. Guizona failed to file an answer and was consequently declared in default.1

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-
parte3 , after which the trial court rendered the decision appealed from.

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

The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general
partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for
the obligations of the partnership.

Article 1816 of the Civil Code provides:

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

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

The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in Negros.
It was, therefore, a civil partnership as distinguished from a mercantile partnership. Being a
civil partnership, by the express provisions of articles l698 and 1137 of the Civil Code, the
partners are not liable each for the whole debt of the partnership. The liability is pro rata and
in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that
the other partner, Jaime Palacios, had left the country cannot increase the liability of Pedro
Yulo.

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

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as to
costs. 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.
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

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 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
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.

Separate Opinions

VITUG, J., concurring opinion;

I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice Artemio V. Panganiban,
particularly the finding that Antonio Chua, Peter Yao and petitioner Lim Tong Lim have incurred the liabilities
of general partners. I merely would wish to elucidate a bit, albeit briefly, the liability of partners in a general
partnership.

When a person by his act or deed represents himself as a partner in an existing partnership or with one or
more persons not actual partners, he is deemed an agent of such persons consenting to such representation
and in the same manner, if he were a partner, with respect to persons who rely upon the
representation. 1 The association formed by Chua, Yao and Lim, should be, as it has been deemed, a de
facto partnership with all the consequent obligations for the purpose of enforcing the rights of third persons.
The liability of general partners (in a general partnership as so opposed to a limited partnership) is laid
down in Article 1816 2 which posits that all partners shall be liable pro rata beyond the partnership assets
for all the contracts which may have been entered into in its name, under its signature, and by a person
authorized to act for the partnership. This rule is to be construed along with other provisions of the Civil
Code which postulate that the partners can be held solidarily liable with the partnership specifically in these
instances — (1) where, by any wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-partners, loss or injury is caused to any person,
not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act; (2) where one partner acting within the scope of
his apparent authority receives money or property of a third person and misapplies it; and (3) where the
partnership in the course of its business receives money or property of a third person and the money or
property so received is misapplied by any partner while it is in the custody of the partnership 3 — consistently
with the rules on the nature of civil liability in delicts and quasi-delicts.

G.R. No. L-39780 November 11, 1985

ELMO MUÑASQUE, petitioner, vs. COURT OF APPEALS, CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS, respondents.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of Appeals
affirming the existence of a partnership between petitioner and one of the respondents, Celestino Galan and
holding both of them liable to the two intervenors which extended credit to their partnership. The petitioner
wants to be excluded from the liabilities of the partnership.

Petitioner Elmo Muñasque filed a complaint for payment of sum of money and damages against respondents
Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner
entered into a contract with respondent Tropical through its Cebu Branch Manager Pons for remodelling a
portion of its building without exchanging or expecting any consideration from Galan although the latter was
casually named as partner in the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical). Galan would receive some kind of compensation in the form of some
percentages or commission; that Tropical, under the terms of the contract, agreed to give petitioner the
amount of P7,000.00 soon after the construction began and thereafter, the amount of P6,000.00 every
fifteen (15) days during the construction to make a total sum of P25,000.00; that on January 9, 1967,
Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger to the contract,
Galan, who succeeded in getting petitioner's indorsement on the same check persuading the latter that the
same be deposited in a joint account; that on January 26, 1967 when the second check for P6,000.00 was
due, petitioner refused to indorse said cheek presented to him by Galan but through later manipulations,
respondent Pons succeeded in changing the payee's name from Elmo Muñasque to Galan and Associates,
thus enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial and Industrial Bank
(PCIB) placing the petitioner in great financial difficulty in his construction business and subjecting him to
demands of creditors to pay' for construction materials, the payment of which should have been made from
the P13,000.00 received by Galan; that petitioner undertook the construction at his own expense completing
it prior to the March 16, 1967 deadline;that because of the unauthorized disbursement by respondents
Tropical and Pons of the sum of P13,000.00 to Galan petitioner demanded that said amount be paid to him
by respondents under the terms of the written contract between the petitioner and respondent company.

The respondents answered the complaint by denying some and admitting some of the material averments
and setting up counterclaims.

During the pre-trial conference, the petitioners and respondents agreed that the issues to be resolved are:

(1) Whether or not there existed a partners between Celestino Galan and Elmo Muñasque;
and

(2) Whether or not there existed a justifiable cause on the part of respondent Tropical to
disburse money to respondent Galan.

The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were allowed to
intervene, both having legal interest in the matter in litigation.

After trial, the court rendered judgment, the dispositive portion of which states:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and severally the
intervenors Cebu and Southern Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively;

(2) absolving the defendants Tropical Commercial Company and Ramon Pons from any
liability,

No damages awarded whatsoever.

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for
reconsideration.

On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as follows:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and severally the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace the amount
of P6,229.34 and P2,213.51, respectively,

(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware
Company and Tan Siu jointly and severally interest at 12% per annum of the sum of P6,229.34
until the amount is fully paid;

(3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's fees jointly
and severally to Intervenor Cebu Southern Hardware Company:

(4) absolving the defendants Tropical Commercial Company and Ramon Pons from any
liability,
No damages awarded whatsoever.

On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification that the
liability imposed in the dispositive part of the decision on the credit of Cebu Southern Hardware and Blue
Diamond Glass Palace was changed from "jointly and severally" to "jointly."

Not satisfied, Mr. Muñasque filed this petition.

The present controversy began when petitioner Muñasque in behalf of the partnership of "Galan and
Muñasque" as Contractor entered into a written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract for the
entire services of the Contractor. The terms of payment were as follows: thirty percent (30%) of the whole
amount upon the signing of the contract and the balance thereof divided into three equal installments at
the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.

The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the name of the
petitioner.Petitioner, however, indorsed the check in favor of respondent Galan to enable the latter to deposit
it in the bank and pay for the materials and labor used in the project.

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when the
second check in the amount of P6,000.00 came and Galan asked the petitioner to indorse it again, the
petitioner refused.

The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that there
was a"misunderstanding" between him and petitioner, respondent Tropical changed the name of the payee
in the second check from Muñasque to "Galan and Associates" which was the duly registered name of the
partnership between Galan and petitioner and under which name a permit to do construction business was
issued by the mayor of Cebu City. This enabled Galan to encash the second check.

Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He stated that
he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses had reached the
amount of P29,000.00 because of the failure of Galan to pay what was partly due the laborers and partly
due for the materials, the construction work was finished ahead of schedule with the total expenditure
reaching P34,000.00.

The two remaining checks, each in the amount of P6,000.00,were subsequently given to the petitioner alone
with the last check being given pursuant to a court order.

As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against the
respondents,seeking to recover the following: the amounts covered by the first and second checks which
fell into the hands of respondent Galan, the additional expenses that the petitioner incurred in the
construction, moral and exemplary damages, and attorney's fees.

Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager, Pons, from
any liability but they also held the petitioner together with respondent Galan, hable to the intervenors Cebu
Southern Hardware Company and Blue Diamond Glass Palace for the credit which the intervenors extended
to the partnership of petitioner and Galan

In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the appellate
court erred in holding that a partnership existed between petitioner and respondent Galan. (2) Assuming
that there was such a partnership, whether or not the court erred in not finding Galan guilty of malversing
the P13,000.00 covered by the first and second checks and therefore, accountable to the petitioner for the
said amount; and (3) Whether or not the court committed grave abuse of discretion in holding that the
payment made by Tropical through its manager Pons to Galan was "good payment, "

Petitioner contends that the appellate court erred in holding that he and respondent Galan were partners,
the truth being that Galan was a sham and a perfidious partner who misappropriated the amount of
P13,000.00 due to the petitioner.Petitioner also contends that the appellate court committed grave abuse
of discretion in holding that the payment made by Tropical to Galan was "good" payment when the same
gave occasion for the latter to misappropriate the proceeds of such payment.

The contentions are without merit.

The records will show that the petitioner entered into a con-tract with Tropical for the renovation of the
latter's building on behalf of the partnership of "Galan and Muñasque." This is readily seen in the first
paragraph of the contract where it states:

This agreement made this 20th day of December in the year 1966 by Galan and Muñasque
hereinafter called the Contractor, and Tropical Commercial Co., Inc., hereinafter called the
owner do hereby for and in consideration agree on the following: ... .

There is nothing in the records to indicate that the partner-ship organized by the two men was not a genuine
one. If there was a falling out or misunderstanding between the partners, such does not convert the
partnership into a sham organization.

Likewise, when Muñasque received the first payment of Tropical in the amount of P7,000.00 with a check
made out in his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had every
right to presume that the petitioner and Galan were true partners. If they were not partners as petitioner
claims, then he has only himself to blame for making the relationship appear otherwise, not only to Tropical
but to their other creditors as well. The payments made to the partnership were, therefore, valid payments.

In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the
appellees also 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.

No error was committed by the appellate court in holding that the payment made by Tropical to Galan was
a good payment which binds both Galan and the petitioner. Since the two were partners when the debts
were incurred, they, are also both liable to third persons who extended credit to their partnership. In the
case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:

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 Pan, 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.)

Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding Galan
liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that although this
was not one of the issues agreed upon by the parties during the pretrial, he, nevertheless, alleged the same
in his amended complaint which was, duly admitted by the court.

When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons in his
personal capacity. Although the petitioner made allegations as to the alleged malversations of Galan, these
were the same allegations in his original complaint. The malversation by one partner was not an issue
actually raised in the amended complaint but the alleged connivance of Pons with Galan as a means to serve
the latter's personal purposes.

The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial because he
himself agreed to the same. In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx

... The appellant is bound by the delimitation of the issues contained in the trial court's order
issued on the very day the pre-trial conference was held. Such an order controls the
subsequent course of the action, unless modified before trial to prevent manifest injustice.In
the case at bar, modification of the pre-trial order was never sought at the instance of any
party.

Petitioner could have asked at least for a modification of the issues if he really wanted to include the
determination of Galan's personal liability to their partnership but he chose not to do so, as he vehemently
denied the existence of the partnership. At any rate, the issue raised in this petition is the contention of
Muñasque that the amounts payable to the intervenors should be shouldered exclusively by Galan. We note
that the petitioner is not solely burdened by the obligations of their illstarred partnership. The records show
that there is an existing judgment against respondent Galan, holding him liable for the total amount of
P7,000.00 in favor of Eden Hardware which extended credit to the partnership aside from the P2, 000. 00
he already paid to Universal Lumber.

We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner and
Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and severally" is plain error
since the liability of partners under the law to third persons for contracts executed inconnection with
partnership business is only pro rata under Art. 1816, of the Civil Code.

While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall be
liable prorate with all their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into the name and fm the account cd the partnership, under its signature
and by a person authorized to act for the partner-ship. ...". this provision should be construed together with
Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners are
merely joint in transactions entered into by the partnership, a third person who transacted with said
partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls
under Articles 1822 or 1823.

Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course
of the business of the partner-ship or with the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the partnership or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so acting or omitting to act.

Art. 1823. The partnership is bound to make good:

(1) Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of a third
person and t he money or property so received is misapplied by any partner while it is in the
custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a
partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all
partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a partnership existed between
the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true partner
with real authority to transact on behalf of the partnership with which it was dealing. This is even more true
in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit
to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the
partners therein should be answered solidarily by all the partners and the partnership as a whole

However. as between the partners Muñasque and Galan,justice also dictates that Muñasque be reimbursed
by Galan for the payments made by the former representing the liability of their partnership to herein
intervenors, as it was satisfactorily established that Galan acted in bad faith in his dealings with Muñasque
as a partner.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the liability of
petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern Hardware is declared
to be joint and solidary. Petitioner may recover from respondent Galan any amount that he pays, in his
capacity as a partner, to the above intervenors, SO ORDERED.

[G.R. No. L-7991. May 21, 1956.]


PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY BANK OF NEW
YORK, Respondent.

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
“(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,
Serial No. 8869225 and with plate No. T-7222 (1949).
The mortgage deed was fully registered by the mortgagee on June 11, 1949, in the Office of the Register of
Deeds for the province of Rizal, at Pasig, (Exhibit A), and among other provisions it contained the following:
“‘(a) That the mortgagor shall not sell or otherwise dispose of the said chattels without the mortgagee’s
written consent; and
“‘(b) That the mortgagee may foreclose the mortgage at any time, after breach of any condition thereof,
the mortgagor waiving the 30- day notice of foreclosure.’
“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:
“WHEREFORE, the decision appealed from is hereby modified, relieving Appellant William Shaeffer of the
obligation of paying, jointly 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 sale of the said motor vehicles which
shall be undertaken upon the lapse of 90 days from the date this decision becomes final, if by
then Defendants Louis F. da Costa, Jr., and Alan W. Gorcey had not paid the amount of the judgment debt.
With this modification the decision appealed from is in all other respects affirmed, with costs
against Appellants. This decision is without prejudice to whatever action Louis F. da Costa, Jr., and Alan W.
Gorcey may take against their 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 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; 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.

G.R. No. L-17526 June 30, 1962

GREGORIO MAGDUSA, ET AL., petitioners, vs. GERUNDIO ALBARAN, ET AL., respondents.

REYES, J.B.L., J.:

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.

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.

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.
Gregorio Magdusa then petitioned for a review of the decision, and we gave it due course.1äwphï1.ñët

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.

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.

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.

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No.
CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case
No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business
of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent his share in the annual
profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of
Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived
from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.

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

The private respondents evidence is summarized as follows:

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

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

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

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

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

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

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

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

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

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

The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The
questioned decision was further modified by the appellate court. The dispositive portion of the appellate
court's decision reads:

WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading
as follows:

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

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

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

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

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

WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as
follows:

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

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

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

The pertinent portions of the complaint state:

xxx xxx xxx

2. That on or about the latter (sic) of September, 1955, defendant sought the financial
assistance of plaintiff in operating the defendant's eatery known as Sun Wah Panciteria,
located in the given address of defendant; as a return for such financial assistance. plaintiff
would be entitled to twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria;

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

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

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

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

The petitioner also contends that the respondent court gravely erred in giving probative value to the PC
Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens used by the
PC Crime Laboratory in arriving at the conclusion were never testified to by any witness nor has any witness
identified the handwriting in the standards or specimens belonging to the petitioner. The supposed standards
or specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the
private respondent over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures in
the two receipts issued separately by the petitioner to the private respondent and So Sia (Exhibits "A" and
"D") and compared the signatures on them with the signatures of the petitioner on the various pay envelopes
(Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the restaurant. After the
usual examination conducted on the questioned documents, the PC Crime Laboratory submitted its findings
(Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D") were the signatures
of the petitioner.

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

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

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

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

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

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

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

The argument is not well-taken.

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

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article
1842 states:
The right to an account of his interest shall accrue to any partner, or his legal representative
as against the winding up partners or the surviving partners or the person or partnership
continuing the business, at the date of dissolution, in the absence or any agreement to the
contrary.

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

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

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

Mrs. Licup stated:

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

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

A Yes, sir.

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

A Yes.

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

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

ATTY. HIPOLITO:

I see.

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

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

Q Now, Mrs. Witness, in an average day, more or less, will you please tell us,
how much is the gross income of the restaurant?

A For regular days, I received around P7,000.00 a day during my shift alone
and during pay days I receive more than P10,000.00. That is excluding the
catering outside the place.

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

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


xxx xxx xxx

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

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

Q How much is that?

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

Q Per service?

A Per service, Per catering.

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

A Yes.

Q And ten thousand pesos during pay day.?

A Yes.

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

xxx xxx xxx

COURT:

Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo,


pp. 127-128)

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

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

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

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

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

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

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

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

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

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on
of the business;
(4) A partner willfully or persistently commits a breach of the partnership agreement, or
otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

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

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

G.R. No. 126334 November 23, 2001

EMILIO EMNACE, petitioner, vs. COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN
TABANAO, VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO
VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents.

YNARES-SANTIAGO, J.:

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern
known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they decided to dissolve their
partnership and executed an agreement of partition and distribution of the partnership properties among
them, consequent to Jacinto Divinagracia's withdrawal from the partnership. 1 Among the assets to be
distributed were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño and
Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of the Philippine Islands and
Prudential Bank.

Throughout the existence of the partnership, and even after Vicente Tabanao's untimely demise in 1994,
petitioner failed to submit to Tabanao's heirs any statement of assets and liabilities of the partnership, and
to render an accounting of the partnership's finances. Petitioner also reneged on his promise to turn over to
Tabanao's heirs the deceased's 1/3 share in the total assets of the partnership, amounting to
P30,000,000.00, or the sum of P10,000,000.00, despite formal demand for payment thereof. 2

Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for accounting,
payment of shares, division of assets and damages. 3 In their complaint, respondents prayed as follows:

1. Defendant be ordered to render the proper accounting of all the assets and liabilities of the
partnership at bar; and

2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to the


plaintiffs the following:

A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing
vessels, trucks, motor vehicles, and other forms and substance of treasures which belong
and/or should belong, had accrued and/or must accrue to the partnership;

B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;

C. Attorney's fees equivalent to Thirty Percent (30%) of the entire share/amount/award which
the Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every
appearance in court.4
Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of jurisdiction over
the nature of the action or suit, and lack of capacity of the estate of Tabanao to sue. 5 On August 30, 1994,
the trial court denied the motion to dismiss. It held that venue was properly laid because, while realties
were involved, the action was directed against a particular person on the basis of his personal liability;
hence, the action is not only a personal action but also an action in personam. As regards petitioner's
argument of lack of jurisdiction over the action because the prescribed docket fee was not paid considering
the huge amount involved in the claim, the trial court noted that a request for accounting was made in order
that the exact value of the partnership may be ascertained and, thus, the correct docket fee may be paid.
Finally, the trial court held that the heirs of Tabanao had aright to sue in their own names, in view of the
provision of Article 777 of the Civil Code, which states that the rights to the succession are transmitted from
the moment of the death of the decedent.6

The following day, respondents filed an amended complaint, 7 incorporating the additional prayer that
petitioner be ordered to "sell all (the partnership's) assets and thereafter pay/remit/deliver/surrender/yield
to the plaintiffs" their corresponding share in the proceeds thereof. In due time, petitioner filed a
manifestation and motion to dismiss,8 arguing that the trial court did not acquire jurisdiction over the case
due to the plaintiffs' failure to pay the proper docket fees. Further, in a supplement to his motion to
dismiss,9 petitioner also raised prescription as an additional ground warranting the outright dismissal of the
complaint.

On June 15, 1995, the trial court issued an Order,10 denying the motion to dismiss inasmuch as the grounds
raised therein were basically the same as the earlier motion to dismiss which has been denied. Anent the
issue of prescription, the trial court ruled that prescription begins to run only upon the dissolution of the
partnership when the final accounting is done. Hence, prescription has not set in the absence of a final
accounting. Moreover, an action based on a written contract prescribes in ten years from the time the right
of action accrues.

Petitioner filed a petition for certiorari before the Court of Appeals,11 raising the following issues:

I. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion
in taking cognizance of a case despite the failure to pay the required docket fee;

II. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion
in insisting to try the case which involve (sic) a parcel of land situated outside of its territorial
jurisdiction;

III. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion
in allowing the estate of the deceased to appear as party plaintiff, when there is no intestate case
and filed by one who was never appointed by the court as administratrix of the estates; and

IV. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion
in not dismissing the case on the ground of prescription.

On August 8, 1996, the Court of Appeals rendered the assailed decision, 12 dismissing the petition for
certiorari, upon a finding that no grave abuse of discretion amounting to lack or excess of jurisdiction was
committed by the trial court in issuing the questioned orders denying petitioner's motions to dismiss.

Not satisfied, petitioner filed the instant petition for review, raising the same issues resolved by the Court
of Appeals, namely:

I. Failure to pay the proper docket fee;

II. Parcel of land subject of the case pending before the trial court is outside the said court's
territorial jurisdiction;

III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and
IV. Prescription of the plaintiff heirs' cause of action.

It can be readily seen that respondents' primary and ultimate objective in instituting the action below was
to recover the decedent's 1/3 share in the partnership' s assets. While they ask for an accounting of the
partnership' s assets and finances, what they are actually asking is for the trial court to compel petitioner
to pay and turn over their share, or the equivalent value thereof, from the proceeds of the sale of the
partnership assets. They also assert that until and unless a proper accounting is done, the exact value of
the partnership' s assets, as well as their corresponding share therein, cannot be ascertained. Consequently,
they feel justified in not having paid the commensurate docket fee as required by the Rules of
Court.1âwphi1.nêt

We do not agree. The trial court does not have to employ guesswork in ascertaining the estimated value of
the partnership's assets, for respondents themselves voluntarily pegged the worth thereof at Thirty Million
Pesos (P30,000,000.00). Hence, this case is one which is really not beyond pecuniary estimation, but rather
partakes of the nature of a simple collection case where the value of the subject assets or amount demanded
is pecuniarily determinable.13 While it is true that the exact value of the partnership's total assets cannot be
shown with certainty at the time of filing, respondents can and must ascertain, through informed and
practical estimation, the amount they expect to collect from the partnership, particularly from petitioner, in
order to determine the proper amount of docket and other fees. 14 It is thus imperative for respondents to
pay the corresponding docket fees in order that the trial court may acquire jurisdiction over the action. 15

Nevertheless, unlike in the case of Manchester Development Corp. v. Court of Appeals,16 where there was
clearly an effort to defraud the government in avoiding to pay the correct docket fees, we see no attempt
to cheat the courts on the part of respondents. In fact, the lower courts have noted their expressed desire
to remit to the court "any payable balance or lien on whatever award which the Honorable Court may grant
them in this case should there be any deficiency in the payment of the docket fees to be computed by the
Clerk of Court."17 There is evident willingness to pay, and the fact that the docket fee paid so far is
inadequate is not an indication that they are trying to avoid paying the required amount, but may simply
be due to an inability to pay at the time of filing. This consideration may have moved the trial court and the
Court of Appeals to declare that the unpaid docket fees shall be considered a lien on the judgment award.

Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning the non-payment
of the proper legal fees and in allowing the same to become a lien on the monetary or property judgment
that may be rendered in favor of respondents. There is merit in petitioner's assertion. The third paragraph
of Section 16, Rule 141 of the Rules of Court states that:

The legal fees shall be a lien on the monetary or property judgment in favor of the pauper-litigant.

Respondents cannot invoke the above provision in their favor because it specifically applies to pauper-
litigants. Nowhere in the records does it appear that respondents are litigating as paupers, and as such are
exempted from the payment of court fees.18

The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which defines the
two kinds of claims as: (1) those which are immediately ascertainable; and (2) those which cannot be
immediately ascertained as to the exact amount. This second class of claims, where the exact amount still
has to be finally determined by the courts based on evidence presented, falls squarely under the third
paragraph of said Section 5(a), which provides:

In case the value of the property or estate or the sum claimed is less or more in accordance with the
appraisal of the court, the difference of fee shall be refunded or paid as the case may
be. (Underscoring ours)

In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19 this Court pronounced that the above-quoted
provision "clearly contemplates an Initial payment of the filing fees corresponding to the estimated amount
of the claim subject to adjustment as to what later may be proved."20 Moreover, we reiterated therein the
principle that the payment of filing fees cannot be made contingent or dependent on the result of the case.
Thus, an initial payment of the docket fees based on an estimated amount must be paid simultaneous with
the filing of the complaint. Otherwise, the court would stand to lose the filing fees should the judgment later
turn out to be adverse to any claim of the respondent heirs.

The matter of payment of docket fees is not a mere triviality. These fees are necessary to defray court
expenses in the handling of cases. Consequently, in order to avoid tremendous losses to the judiciary, and
to the government as well, the payment of docket fees cannot be made dependent on the outcome of the
case, except when the claimant is a pauper-litigant.

Applied to the instant case, respondents have a specific claim - 1/3 of the value of all the partnership assets
- but they did not allege a specific amount. They did, however, estimate the partnership's total assets to be
worth Thirty Million Pesos (P30,000,000.00), in a letter21 addressed to petitioner. Respondents cannot now
say that they are unable to make an estimate, for the said letter and the admissions therein form part of
the records of this case. They cannot avoid paying the initial docket fees by conveniently omitting the said
amount in their amended complaint. This estimate can be made the basis for the initial docket fees that
respondents should pay. Even if it were later established that the amount proved was less or more than the
amount alleged or estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that the
court may refund the 'excess or exact additional fees should the initial payment be insufficient. It is clear
that it is only the difference between the amount finally awarded and the fees paid upon filing of this
complaint that is subject to adjustment and which may be subjected to alien.

In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,22 this Court held that
when the specific claim "has been left for the determination by the court, the additional filing fee therefor
shall constitute a lien on the judgment and it shall be the responsibility of the Clerk of Court or his duly
authorized deputy to enforce said lien and assess and collect the additional fee." Clearly, the rules and
jurisprudence contemplate the initial payment of filing and docket fees based on the estimated claims of the
plaintiff, and it is only when there is a deficiency that a lien may be constituted on the judgment award until
such additional fee is collected.

Based on the foregoing, the trial court erred in not dismissing the complaint outright despite their failure to
pay the proper docket fees. Nevertheless, as in other procedural rules, it may be liberally construed in
certain cases if only to secure a just and speedy disposition of an action. While the rule is that the payment
of the docket fee in the proper amount should be adhered to, there are certain exceptions which must be
strictly construed.23

In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine, allowing the
plaintiff to pay the proper docket fees within a reasonable time before the expiration of the applicable
prescriptive or reglementary period.24

In the recent case of National Steel Corp. v. Court of Appeals,25 this Court held that:

The court acquires jurisdiction over the action if the filing of the initiatory pleading is accompanied
by the payment of the requisite fees, or, if the fees are not paid at the time of the filing of the
pleading, as of the time of full payment of the fees within such reasonable time as the court may
grant, unless, of course, prescription has set in the meantime.

It does not follow, however, that the trial court should have dismissed the complaint for failure of
private respondent to pay the correct amount of docket fees. Although the payment of the proper
docket fees is a jurisdictional requirement, the trial court may allow the plaintiff in an action to pay
the same within a reasonable time before the expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to comply within this requirement, the defendant should
timely raise the issue of jurisdiction or else he would be considered in estoppel. In the latter case,
the balance between the appropriate docket fees and the amount actually paid by the plaintiff will
be considered a lien or any award he may obtain in his favor. (Underscoring ours)

Accordingly, the trial court in the case at bar should determine the proper docket fee based on the estimated
amount that respondents seek to collect from petitioner, and direct them to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary period has not yet expired, Failure to
comply therewith, and upon motion by petitioner, the immediate dismissal of the complaint shall issue on
jurisdictional grounds.

On the matter of improper venue, we find no error on the part of the trial court and the Court of Appeals in
holding that the case below is a personal action which, under the Rules, may be commenced and tried where
the defendant resides or may be found, or where the plaintiffs reside, at the election of the latter. 26

Petitioner, however, insists that venue was improperly laid since the action is a real action involving a parcel
of land that is located outside the territorial jurisdiction of the court a quo. This contention is not well-taken.
The records indubitably show that respondents are asking that the assets of the partnership be accounted
for, sold and distributed according to the agreement of the partners. The fact that two of the assets of the
partnership are parcels of land does not materially change the nature of the action. It is an action in
personam because it is an action against a person, namely, petitioner, on the basis of his personal liability.
It is not an action in rem where the action is against the thing itself instead of against the
person.27 Furthermore, there is no showing that the parcels of land involved in this case are being disputed.
In fact, it is only incidental that part of the assets of the partnership under liquidation happen to be parcels
of land.

The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus:

The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in
question, did not change the nature or character of the action, such sale being merely a necessary
incident of the liquidation of the partnership, which should precede and/or is part of its process of
dissolution.

The action filed by respondents not only seeks redress against petitioner. It also seeks the enforcement of,
and petitioner's compliance with, the contract that the partners executed to formalize the partnership's
dissolution, as well as to implement the liquidation and partition of the partnership's assets. Clearly, it is a
personal action that, in effect, claims a debt from petitioner and seeks the performance of a personal duty
on his part.29 In fine, respondents' complaint seeking the liquidation and partition of the assets of the
partnership with damages is a personal action which may be filed in the proper court where any of the
parties reside.30 Besides, venue has nothing to do with jurisdiction for venue touches more upon the
substance or merits of the case.31 As it is, venue in this case was properly laid and the trial court correctly
ruled so.

On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity to
sue since she was never appointed as administratrix or executrix of his estate. Petitioner's objection in this
regard is misplaced. The surviving spouse does not need to be appointed as executrix or administratrix of
the estate before she can file the action. She and her children are complainants in their own right as
successors of Vicente Tabanao. From the very moment of Vicente Tabanao' s death, his rights insofar as the
partnership was concerned were transmitted to his heirs, for rights to the succession are transmitted from
the moment of death of the decedent.32

Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were transmitted to
respondents by operation of law, more particularly by succession, which is a mode of acquisition by virtue
of which the property, rights and obligations to the extent of the value of the inheritance of a person are
transmitted.33 Moreover, respondents became owners of their respective hereditary shares from the
moment Vicente Tabanao died.34

A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As successors who
stepped into the shoes of their decedent upon his death, they can commence any action originally pertaining
to the decedent.35 From the moment of his death, his rights as a partner and to demand fulfillment of
petitioner's obligations as outlined in their dissolution agreement were transmitted to respondents. They,
therefore, had the capacity to sue and seek the court's intervention to compel petitioner to fulfill his
obligations.
Finally, petitioner contends that the trial court should have dismissed the complaint on the ground of
prescription, arguing that respondents' action prescribed four (4) years after it accrued in 1986. The trial
court and the Court of Appeals gave scant consideration to petitioner's hollow arguments, and rightly so.

The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination.36 The
partnership, although dissolved, continues to exist and its legal personality is retained, at which time it
completes the winding up of its affairs, including the partitioning and distribution of the net partnership
assets to the partners.37 For as long as the partnership exists, any of the partners may demand an
accounting of the partnership's business. Prescription of the said right starts to run only upon the dissolution
of the partnership when the final accounting is done. 38

Contrary to petitioner's protestations that respondents' right to inquire into the business affairs of the
partnership accrued in 1986, prescribing four (4) years thereafter, prescription had not even begun to run
in the absence of a final accounting. Article 1842 of the Civil Code provides:

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

Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited
provision states that the right to demand an accounting accrues at the date of dissolution in the absence of
any agreement to the contrary. When a final accounting is made, it is only then that prescription begins to
run. In the case at bar, no final accounting has been made, and that is precisely what respondents are
seeking in their action before the trial court, since petitioner has failed or refused to render an accounting
of the partnership's business and assets. Hence, the said action is not barred by prescription.

In fine, the trial court neither erred nor abused its discretion when it denied petitioner's motions to dismiss.
Likewise, the Court of Appeals did not commit reversible error in upholding the trial court's orders. Precious
time has been lost just to settle this preliminary issue, with petitioner resurrecting the very same arguments
from the trial court all the way up to the Supreme Court. The litigation of the merits and substantial issues
of this controversy is now long overdue and must proceed without further delay.

WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit, and the case
is REMANDED to the Regional Trial Court of Cadiz City, Branch 60, which is ORDERED to determine the
proper docket fee based on the estimated amount that plaintiffs therein seek to collect, and direct said
plaintiffs to pay the same within a reasonable time, provided the applicable prescriptive or reglementary
period has not yet expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings
in Civil Case No. 416-C. Costs against petitioner. SO ORDERED.

G.R. No. 5840 September 17, 1910

THE UNITED STATES, plaintiff-appellee, vs. EUSEBIO CLARIN, defendant-appellant.

ARELLANO, C.J.:

Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio Clarin and
Carlos de Guzman, might buy and sell mangoes, and, believing that he could make some money in this
business, the said Larin made an agreement with the three men by which the profits were to be divided
equally between him and them.

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 administration or in any other character producing the
obligation to deliver or return the same," (as, for example, in commodatum, precarium, and other unilateral
contracts which require the return of the same thing received) does not include money received for a
partnership; otherwise the result would be that, if the partnership, instead of obtaining profits, suffered
losses, as it 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 have to answer to the charge of estafa, for which it would be
sufficient to argue that the partnership had received the money under obligation to return it.

We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for estafa is dismissed
without prejudice to the institution of a civil action.

G.R. No. L-3745 October 26, 1907

JUAN AGUSTIN, ET AL., plaintiffs; VICTOR DEL ROSARIO, appellant, vs. BARTOLOME
INOCENCIO, defendant-appellee.

TRACEY, J.:

The parties to this controversy, who had been conducting a 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.
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.

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.

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. lawphil.net

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

On the theory on which the action was disposed of, the trial court committed no error in the computation of
the various shares.

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 him the judgment of the trial court must be affirmed, with costs of this instance.
So ordered.

G.R. No. L-5236 January 10, 1910

PEDRO MARTINEZ, plaintiff-appellee, vs. ONG PONG CO and ONG LAY, defendants. ONG PONG
CO., appellant.

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.