VOL. 54, DECEMBER 26, 1973 379 Abong vs. Workmens Compensation Commission No. L-32347-53.

December 26, 1973.* AGUSTIN ABONG, petitioner, vs. THE WORKMENS COMPENSATION COMMISSION,NELLY BALLARES,ANACORITA DAHIL-DAHIL,MANUEL LAHAO-LAHAO,CONCHITA MONTEROYO,SHIRLEY LOZADA and ROSARIO ALOVA, respondents.
Workmens Compensation Commission; Findings of facts of Commission conclusive and binding upon Supreme Court.This case is an appeal from the decision of the Workmens Compensation Commission. And in this class of proceedings, only questions of law should be raised, the findings of fact made by the Commission being conclusive and binding upon this Court. Although this Court is authorized to inquire into the facts, it only does so when the conclusions therefrom are not supported by the evidence. Same; Same; Determination of whether or not employer-employee relationship exists involves findings of fact.It is well settled that employer-employee relationship involves findings of fact which are conclusive and binding and not subject to review by this Court. Same; Same; Determination relative to wages involves findings of fact.The Commissions findings relative to the wages of the decedents are findings of facts which are not open to review by this Court as the same are supported by substantial evidence on record. Same; Failure of employer to controvert claim for compensation; Effect of.Proper notices and claims for compensation together with a formal letter to accomplish WCC Form No. 3Employers Report of Accident or Sicknesswere duly served upon petitioner at his place of business in Sagay, Negros Occidental. His failure to claim his mail and to answer the claims or controvert the same, and to accomplish WCC Form No. 3, are fatal errors which cannot be repaired at this time. Workmens Compensation Act; Liberal construction of the statute. The Workmens Compensation Act is a social legislation designed to give relief to the workman who has been the victim of an accident in the pursuit of his employment, and the law must be

380 380 SUPREME COURT REPORTS ANNOTATED Abong vs. Workmens Compensation Commission liberally construed to attain the purpose for which it was enacted. Pleading and practice; When service by registered mail deemed completed.It needs no argument to show that service by registered mail is deemed completed upon petitioners failure to claim his mail from the post office within five (5) days from the first notice sent by the postmaster. APPEAL from a decision of the Workmens Compensation Commission. The facts are stated in the opinion of the Court. Pelaez, Jalandoni & Jamir for petitioner. Paciano C. Villavieja for respondent Workmens Compensation Commission. Labaton & Labaton for private respondents. ESGUERRA, J.: I. STATEMENT OF THE CASE Appeal by certiorari from the decision of the Workmens Compensation Commission, awarding compensation to the private respondents. II. FACTS OF THE CASE The undisputed facts as borne out by the record are as follows: Aladino Dionson, Filomeno Umbria, Noel Lahao-lahao, Juanito Monteroyo and Wilfredo Monteroyo and Demetrio Escoreal, all deceased, were members of a fishing outfit, the IWAG or more popularly called the ALEX, owned by the petitioner herein, Dr. Agustino R. Abong. On May 15, 1966, this fishing outfit set out to sea somewhere off the coast of Northern Negros. The decedents were among the 70 crew members who were loaded on two big bancas, 8 381

_______________ * FIRST DIVISION.

VOL. 54, DECEMBER 26, 1973 381 Abong vs. Workmens Compensation Commission small fishing boats locally known as lawagan and one towing motorboat. While they were, thus, fishing, typhoon IRMA passed along their way, scattering the boats and blowing them far out into the open sea. The tragedy netted eight (8) dead while some sixty (60) men survived the disaster.1 As a consequence of the incident seven (7) notices and claims for death compensation were filed with the Bacolod SubRegional Office (or Regional Office No. VII) of the Department of Labor by herein private respondents on June 1, 1966. A copy of the notices and claims were sent to petitioner Dr. Agustino R. Abong by registered mail at his place of business, but the envelopes containing said notices and claims were returned unclaimed, although petitioner was personally notified thrice. Thereafter, counsel for private respondents on July 6, 1966, and July 14, 1966, respectively, filed an ex-parte motion with the Bacolod Sub-Regional Office of the Workmens Compensation Commission to declare petitioner in default, which motion was granted. Thereupon, claimants were allowed to present their evidence. Finding the claims of the private respondents to be allied in nature, the cases were consolidated.2

Respondent herein has also failed to submit a report of this accident as soon as _______________ 1 Record, p. 20. 2 Record, pp. 19-20. 382

382 SUPREME COURT REPORTS ANNOTATED Abong vs. Workmens Compensation Commission possible after the occurence of an injury resulting in absence from work for a day or more; nor registered himself or his business enterprise in accordance with Sections 37 and 56 of the Workmens Compensation Act, otherwise known as Republic Act No. 3428. Section 4-A of the Workmens Compensation Act provides for payment of an additional compensation equal to fifty percentum of the compensation to be awarded, in case of failure of the employer to comply with any order, rule or regulation of the Workmens Compensation Act in the event of the death of the employee or employees concerned. Wherefore, under the law, the claimants are entitled to compensation and respondent is hereby ordered: 1. To pay to claimant, ANACORITA DAHIL-DAHIL, the sum of SIX THOUSAND PESOS (P6,000.00), plus 50% penalty in the After due hearing before Acting Referee, Bertito D. Dadivas, he sum of THREE THOUSAND PESOS (P3,000.00), plus the further rendered on August 1, 1966, a decision granting the claims, sum of TWO HUNDRED PESOS as burial expenses, through this the pertinent portions of which are quoted as follows: Office; 2. To pay to claimant, NELLY BALLARES, the sum of SIX In the light of the testimonies of herein claimants and their principal THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of witness, Filomeno Pason, who is a survivor of that unfortunate THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE tragedy and who personally witnessed the deaths of all eight (8) THOUSAND PESOS (P9,000.00) plus the further sum of TWO deceased workers of respondent, there is no doubt at all that their HUNDRED PESOS (P200.00), as burial expenses through this deaths arose out of and in the course of their employment as Office; washing or helpers and light tenders of respondent Dr. Agustino R. Abong. Under Sections 2 and 8 of the Workmens Compensation Act, 3. To pay to claimant, MANUEL LAHAO-LAHAO, the sum of TWO THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% as amended, the deaths of above deceased persons are, therefore, penalty in the sum of ONE THOUSAND THREE HUNDRED PESOS compensable. (P1,300.00), or the total sum of THREE THOUSAND NINE In granting this awardit should be considered that two of the HUNDRED PESOS (P3,900.00), plus burial expenses in the sum of TWO HUNDRED PESOS (P200.00), through this Office; eight deceased workersNoel Lahao-lahao and Wilfredo Monteroyowere minors at the time of employment.

4. To pay to claimant, SHIRLEY LOZADA, the sum of FIVE THOUSAND ONE HUNDRED TWENTY PESOS (P5,120.00) plus 50% penalty in the sum of TWO THOUSAND FIVE HUNDRED SIXTY PESOS (P2,560.00) or the total sum of SEVEN THOUSAND SIX HUNDRED EIGHTY PESOS (P7,680.00), plus burial expenses of TWO HUNDRED PESOS (P200.00), through this Office; 5. To pay to claimant, ROSARIO ALOVA, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS (P9,000.00), plus the further sum of TWO 383 VOL. 54, DECEMBER 26, 1973 383 Abong vs. Workmens Compensation Commission HUNDRED PESOS (P200.00) for burial expenses, through this Office; 6. To pay to claimant, CONCHITA MONTEROYO, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) representing compensation for the death of her husband, Juanito; and TWO THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE HUNDRED PESOS (P1,300.00) or the total sum of THREE THOUSAND NINE HUNDRED PESOS (P3,900.00) representing compensation for the death of her son, Wilfredo; plus the further sum of FOUR HUNDRED PESOS (P400.00) for burial expenses of Juanito and Wilfredo Monteroyo; or a grand total for these two cases of THIRTEEN THOUSAND THREE HUNDRED PESOS (P13,300.00), through this Office; 7. To pay to counsel for claimants, Atty. Angel F. Lobaton, Sr. the sum of TWO THOUSAND SIX HUNDRED FORTY-FOUR PESOS (P2,644.00) as attorneys fees; and 8. To pay to the Workmens Compensation Fund, through this Office, the sum of FIVE HUNDRED TWENTY PESOS (P520.00), pursuant to Section 55 of the Workmens Compensation Act, as amended.3 On September 14, 1966, herein petitioner filed a (1) motion to set aside the order declaring him in default and a (2) separate motion to set aside the Decision of the Acting Referee, to which seasonable oppositions were interposed by private respondents on September 26, 1966.4

On October 25, 1966, Acting Referee Bertito D. Dadivas issued an Order denying both motions of petitioner.5 A motion for reconsideration was then filed by petitioner on November 4, 1966, raising, inter alia, the fundamental question of jurisdiction and denial of due process.6 An opposition thereto _______________ 3 Record, pp. 31-33. 4 Id., p. 34; 37; 41; 47. 5 Id., p. 57. 6 Id., pp. 58-65. 384 384 SUPREME COURT REPORTS ANNOTATED Abong vs. Workmens Compensation Commission was interposed by private respondents on November 10, 1966.7 On March 23, 1970, Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., of the Workmens Compensation Commission rendered a decision affirming the earlier decision of the referee.8 On April 17, 1970, petitioner sought the review of the decision of Associate (Medical) Commission Castelo-Sotto by the respondent Workmens Compensation Commission sitting en banc, but the latter however affirmed the decision with the modification that the 50% additional compensation earlier imposed as penalty was eliminated, in its resolution of July 7, 1970.9 Dissatisfied with the verdict, petitioner came to this Court for reversal of the adverse decision against him. III. ISSUES OF THE CASE In his brief before this Court the petitioner imputes five (5) errors committed by respondent Workmens Compensation Commission, viz: 1. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN HOLDING THAT THERE WAS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PETITIONER AND THE DECEASED CREW MEMBERS OF THE IWAG FISHING OUTFIT. 2. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN NOT DECLARING ITSELF

WITHOUT JURISDICTION OVER THE CLAIMS FOR DEATH BENEFITS. 3. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN FINDING THAT THE DEATH OF THE DECEASED CREW MEMBER IS _______________ 7 Id., pp. 66-72. 8 Record, pp. 82-90. 9 Id., pp. 83-90; 92-93. 385 VOL. 54, DECEMBER 26, 1973 385 Abong vs. Workmens Compensation Commission COMPENSABLE UNDER THE WORKMENS COMPENSATION ACT, AS AMENDED, IN FINDING PETITIONER LIABLE FOR THE PAYMENT OF SUCH COMPENSATION. 4. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN DENYING PETITIONER HIS RIGHT TO BE HEARD. 5. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN GRANTING EXCESSIVE AWARDS TO THE CLAIMANTS. The pivotal issue requiring determination is who is the statutory employer of the decedents and who should be liable for their death compensation. Nevertheless, We take up the merits of the points raised ad seriatim. IV. DISCUSSION As regards the first three interrelated assigned errors, there is a faint attempt by petitioner Agustino R. Abong to evade liability by advancing the theory that he had absolutely no voice or intervention in the choice, hiring, dismissing, control, supervision and compensation of the fishermen-crew members, and that these matters, which are the essence of employeremployee relationship, are the sole responsibility of the teamleader, Simplicio Panganiban, and the team-members or crew pursuant to their Agreement (Exhibit G).10 The contention of petitioner is devoid of merit. It should be pointed out that this case is an appeal from the decision of the Workmens Compensation Commission. And in this class of

proceedings, only questions of law should be raised, the findings of facts made by the Commission being conclusive and binding upon this Court.11 Although this Court is authorized to inquire into the facts, it only does so when the conclusions therefrom are not supported by the evidence. In the case at bar, however, this Court finds the findings of fact made by ________________ 10 Record, p. 13. 11 Bernardo v. Pascual, 109 Phil. 936, 939. 386 386 SUPREME COURT REPORTS ANNOTATED Abong vs. Workmens Compensation Commission Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., and concurred in by the Commission en banc to be fully supported by the evidence on record which clearly points out that petitioner Agustino R. Abong is the statutory employer of the decedents. In ruling for the deceased workers, the Commission said: x x x After a careful review of the evidence and the records, We are inclined to agree with the proposition, advanced by the claimants counsel that there existed an employer-employee relationship between the respondent and the decedents. Not only that the said deceased workers worked for and in the interest of the business of the herein respondent. But that they were subject to the control, supervision, and dismissal of the respondent, thru its agent, Simplicio Panganiban, the alleged partner of herein respondent. And while these workers were paid in kind, or by pakiao basis still that fact did not alter the character of their relationship with the respondent as employees of the latter. The intervention of Simplicio Panganiban, in this case, is merely that of an agent or intermediary between the owner of the fishing boat and the members of its crew. In short, Panganiban is merely the person charged by Dr. Abong to recruit the said fishermen to work for and for the enforcement of the business venture of herein respondent. The proposition, on the other hand, of the respondents counsel, that Dr. Abong was not the employer of the decedents, simply because of an alleged partnership

agreement, executed on March 23, 1962, between the respondent, Dr. Agustino R. Abong, as Financier and Simplicio Panganiban, as his Teamleader, is intended certainly as a very clever device designed primarily to exempt the employer from answering any liability under the provisions of the Workmens Compensation Act, as amended. The said contract of partnership while it may be considered as valid and lawful, between the signatories thereto, the respondent Dr. Abong and his partner or agent, Simplicio Panganiban, nowhere in that said agreement did the decedents or their heirs in interests take any participation or manifested their conformity to the said covenant. Thus, even if we consider this contract as valid and enforceable between them, it cannot bind the non-signatories thereto, like the deceased fishermen. The case invoked by the respondent (Pajarillo, et al., vs. Social Security System, G.R. No. L-21930, August 31, 1966) can not be 387 VOL. 54, DECEMBER 26, 1973 387 Abong vs. Workmens Compensation Commission legally applied in the instant case, for the simple reason that the facts in that aforesaid case are not the same as those in the case at bar. Moreover, we are of the view, that the said Pajarillo case may be good only as far as the Social Security System, for purposes of membership thereat, is concerned and is not readily applicable to cases involving Workmens Compensation claims as the one at bar. For here, the contract of partnership, if valid, only binds the parties thereto, and the decedents in this case, as the records will show, were never a party signatory thereto. How then can we tie them to that partnership agreement when it only holds the two-party, Abong and Panganiban, as the sole partners in that agreement? Furthermore, even if Panganiban will be considered as an independent contractor, which he is not, his position as such will not relieve the employer, respondent Abong, from his liability under the Act. It is well-defined in the Act, that an employer includes every person or association of persons, incorporated or not, public or private, and the legal representatives of the deceased employer. It includes the owner or manager of the business carried on in the

establishment or place of work but who, for the reason that there is an independent contractor in the same, or for any other reason, is not the direct employer of laborers employed there. (Section 39, paragraph [s], Workmens Compensation Act, as amended). x x x x.12 As pointed out by the Commissions findings, the fundamental bases showing that petitioner, Dr. Agustino R. Abong, is the employer, are present, namely, the selection and engagement of the employee; the payment of wages; the power of dismissal and the employers power to control the employees conduct.13 These powers were lodged in petitioner Abong, thru his agent, Simplicio Panganiban, whom he alleges to be his partner. On this score alone, the petitioner for review must fail. It is well-settled that employer-employee relationship involves findings of fact which are conclusive and binding and not subject to review by this Court.14 _______________ 12 Record, pp. 79-81. 13 Id., De los Reyes v. Espineli, 30 SCRA 574. 14 Id., R.F. Sugay & Co., Inc. v. Reyes, et al., 30 SCRA 705. 388 388 SUPREME COURT REPORTS ANNOTATED Abong vs. Workmens Compensation Commission Petitioner also argues that he was denied his right to be heard.15 It is contended that petitioner was not properly notified of the proceedings against him. The assigned error merits scant consideration. Proper notices and claims for compensation together with a formal letter to accomplish WCC Form No. 3Employers Report of Accident or Sicknesswere duly served upon petitioner at his place of business in Sagay, Negros Occidental.16 His failure to claim his mail and to answer the claims or controvert the same, and to accomplish WCC Form No. 3, are fatal errors which cannot be repaired at this time. It needs no argument to show that service by registered mail is deemed completed upon petitioners failure to claim his mail from the post office within five (5) days from the first notice sent by the postmaster.17

The further contention that the notices should have been sent to his place of residence in Bacolod City is of no moment either. Section 26 of Republic Act No. 3428, as amended, provides: SEC. 26. Delivery of notice and claim x x x. The notices shall be served by personal delivery or by sending it by registered letter addressed to the employer at his last known residence or at his place of business. (Emphasis supplied) Clearly, there was no error in sending petitioners mails to his place of business at Sagay, Negros Occidental. And now We come to the last point. It is contended that respondent Commission erred in granting excessive awards to the claimants. We find this contention incorrect. The Commissions findings relative to the wages of the decedents are findings of _______________ 15 According to the constitutional provision in force at the time the hearing took place: No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws. Article III, Section 1, par. 1. Such a provision, identically worded, is now found in Section 1 of Article IV of the New Constitution. 16 Record, p. 14. 17 Rule 13, Sec. 8, Rules of Court. 389 VOL. 54, DECEMBER 26, 1973 389 Abong vs. Workmens Compensation Commission facts which are not open to review by this Court as the same are supported by substantial evidence on record.18 We, therefore, find no cogent reason to disturb the Commissions findings on this point. V. CONCLUSION Under the circumstances, private respondents claim should be upheld not only because they are supported by the evidence on record, but also because the Workmens Compensation Act is a social legislation designed to give relief to the workman who has been the victim of an accident in the pursuit of his employment, and the law must be liberally construed to attain the purpose for which it was enacted.19 Moreover, this

Tribunal finds no reason in this case to depart from the rule which limits its appellate jurisdiction to the review of errors of law only, accepting as conclusive the factual findings of the Workmens Compensation Commission which in this case are supported by substantial evidence. VI. JUDGMENT ACCORDINGLY, the assailed decision is hereby fully affirmed. Costs against the petitioner. Makalintal, C.J., Castro, Teehankee, Makasiar and Muoz Palma, JJ., concur. Decision affirmed. Notes.a) Effect of non-controversion in compensation cases. Non-controversion in compensation cases, as in the case of pleadings in ordinary civil cases, implies admission of facts but not conclusions of law (Aboitiz Shipping Corp. v. _______________ 18 Bardwill Bros. v. Philippine Labor Union, 70 Phil., 672, 673; International Oil Factory v. Martinez, et al., 109 Phil. 553, 554. 19 Abana v. Quisumbing, 22 SCRA 1278, 1283; Batangas Transportation Co. v. Perez, 11 SCRA 793, 799; Francisco v. Consing, 63 Phil. 354, 360. 390

Evangelista, et al. vs. Coll. of Int. Rev., et al. purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships.with the exception only of duly registered general partnershipswithin the purview of the term "corporation." Held: That the [No. L-9996. October 15, 1957] petitioners in the case at bar, who are engaged in real estate EUFEMIA EVANGELISTA, MANUELA EVANGELISTA and transactions for monetary gain and divide the same among FRANCISCA EVANGELISTA, petitioners, vs. THE COLLECTOR OF themselves, constitute a partnership, so far as the said Code is INTERNAL REVENUE and THE COURT OF TAX APPEALS, concerned, and are subject to the income tax for corporation. respondents. 5.ID.; CORPORATION; PARTNERSHIP WITHOUT LEGAL 1.TAXATION; TAX ON CORPORATIONS INCLUDES PERSONALITY SUBJECT TO RESIDENCE TAX ON CORPORATION. ORGANIZATIONS WHICH ARE NOT NECESSARILY PARTNERSHIP. The pertinent part of the provision of Section 2 of "Corporations" strictly speaking are distinct and different Commonwealth Act No. 465 which says: "The term corporation from "partnerships." When our Internal Revenue Code includes as used in this Act includes joint-stock company, partnership, "partnerships" among the entities subject to the tax on joint account (cuentas en participacin), association or "corporations", it must allude to organizations which are not insurance company, no matter how created or organized" is necessarily "partnerships" in the technical sense of the term. analogous to that of Sections 24 and 84 (b) of our National 2.ID.; DULY REGISTERED GENERAL PARTNERSHIPS ARE Internal Revenue Code, which was approved the day EXEMPTED FROM TAX UPON CORPORATIONS.Section 24 of immediately after the approval of said Commonwealth Act No. the Internal Revenue Code exempts from the tax imposed upon 465. Apparently, the terms "cor'poration" and "Partnership" are corporations "duly registered general partnerships", which used in both statutes with substantially the same meaning, constitute precisely one of the most typical forms of Held: That the petitioners are subject also to the residence tax partnerships in this jurisdiction. for corporations. 3.ID. ; CORPORATION INCLUDES PARTNERSHIPS NO MATTER PETITION for review by certiorari of a decision of the Court of HOW ORGANIZED.As defined in section 84 (b) of the Internal Tax Appeals. Revenue Code "the term corporation includes partnerships, no matter how created or organized," This qualifying expression The facts are stated in the opinion of the Court. clearly indicates that a joint venture need not be undertaken in Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner. any of the standard forms, or in conformity with the usual Solicitor General Ambrosio Padilla, Assistant Solicitor General requirements of the law on partnerships, in order that one Esmeraldo Umali and Solicitor Felicsimo R. Rosete for the could be deemed constituted for purposes of the tax on respondents. corporations. CONCEPCIN, J.: 4.ID.; CORPORATION INCLUDES "JOINT ACCOUNT" AND ASSOCIATIONS WITHOUT LEGAL PERSONALITY.Pursuant to This is a petition, filed by Eufemia Evangelista, Manuela Section 84 (b) of the Internal Revenue Code, the term Evangelista and Francisca Evangelista, for review of a decision "corporation" includes, among others, "joint accounts (cuenta of the Court of Tax Appeals, the dispositive part of which reads: en participacin)" and "associations", none of which has a legal "FOR ALL THE FOREGOING, we hold that the petitioners are personality of its own independent of that of its members. For liable for the income tax, real estate dealer's tax and the 141 residence tax for the years 1945 to 1949, inclusive, in accordance with the respondent's assessment for the same in VOL. 102, OCTOBER 15, 1957 the total amount of P6,878.34, which is hereby affirmed and 141

the petition for review filed by petitioners is hereby dismissed with costs against petitioners." 142 142 PHILIPPINE REPORTS ANNOTATED Evangelista, et al. vs. Coll. of Int. Rev., et al. It apears from the stipulation submitted by the parties: "1. That the petitioners borrowed from their father the sum of P59,140.00 which amount together with their personal monies was used by them for the purpose of buying real properties, "2. That on February 2, 1943 they bought from Mrs. Josefina Florentino a lot with an area of 8,718.40 sq. m. including improvements thereon for the sum of P100,000.00; this property has an assessed value of P57,517.00 as of 1948; "3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of 3,718.40 sq. m. including improvements thereon for P18,000.00; this property has an assessed value of P8,255.00 as of 1948; "4. That on April 23, 1944 they purchased from the Insular Investments, Inc., a lot of 4,353 sq. m. including improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1948; "5. That on April 28, 1944 they bought from Mrs. Valentin Afable a lot of 8,371 sq. m. including improvements thereon for P237,234.14. This property has an assessed value of P59,140.00 as of 1948; "6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to 'manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits against the defaulting tenant; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for them; "7. That after having bought the above-mentioned real properties, the petitioners had the same rented or leased to various tenants; "8. That from the month of March, 1945 up to and including December, 1945, the total amount collected as rents on their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33;

"9. That in 1946, they realized a gross rental income in the sum of P24,786.30, out of which amount was deducted the sum of P16,288.27 for expenses thereby leaving them a net rental income of P7,498.13; "10. That in 1948 they realized a gross rental income of P17,453.00 out of the which amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35." It further appears that on September 24, 1954, respondent Collector of Internal Revenue demanded the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 143 VOL. 102, OCTOBER 15, 1957 143 Evangelista, et al. vs. Coll. of Int. Rev., et al. 1945-1949, computed, according to the assessments made by said officer, as follows: INCOME TAXES 1945 ........................................................... P614.84 1946 ........................................................... 1,144.71 1947 .............................................................. 910.34 1948 ........................................................... 1,912.30 1949 ........................................................... 1,575.90 Total including surcharge and compromise .......

P6,157.09 REAL ESTATE DEALER'S FIXED TAX 1946 ............................................................. P37.50 1947 ............................................................. 150.00 1948 ............................................................. 150.00 1949 ............................................................. 150.00 Total including penalty ........................................ P527.50 RESIDENCE TAXES OF CORPORATION 1945 ............................................................. P38.75 1946 ............................................................. 38.75 1947 ............................................................. 38.75 1948 ............................................................. 38.75 1949 ............................................................. 38.75

Total including surchage ........................................ P193.75 TOTAL TAXES DUE ........................................ P6,878.34 Said letter of demand and the corresponding assessments were delivered to petitioners on December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained in his letter of demand dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes in question, with costs against the respondent. After appropriate proceedings, the Court of Tax Appeals rendered the above-mentioned decision for the respondent, 144 144 PHILIPPINE REPORTS ANNOTATED Evangelista, et al. vs. Coll. of Int. Rev., et al. and, a petition for reconsideration and new trial having been subsequently denied, the case is now before Us for review at the instance of the petitioners. The issue in this case is whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax for corporations and the real estate dealers' fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the terms "corporation" and "partnership", as used in sections 24 and 84 of said Code, the pertinent parts of which read: "SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships. (compaias colectivas), a tax upon such income equal to the sum of the following: * * *." "SEC. 84(6). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock companies, joint

accounts (cuentas en participacin), associations or insurance companies, but does not include duly registered general copartnerships (companias colectivas)." Article 1767 of the Civil Code of the Philippines provides: "By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves." Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and 145 VOL. 102, OCTOBER 15, 1957 145 Evangelista, et al. vs. Coll. of Int. Rev., et al. circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves, because: 1. Said common fund was not something they found already in existence. It was not a property inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to establish said common fund. 2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a lot for ?100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.000. This was soon followed, on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned

common fund or even of the property acquired by petitioners in February, 1943. In other words, one cannot but perceive a character of habituality peculiar to business transactions engaged in for purposes of gain. 3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there has been any change in the utilization thereof. 4. Since August, 1945, the properties have been under the management of one person, namely, Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and 146 146 PHILIPPINE REPORTS ANNOTATED Evangelista, et al. vs. Coll. of Int. Rev., et al. to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation or business enterprise operated for profit. 5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista became the manager. 6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor. Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those cases are not in point. Petitioners insist, however, that they are mere coowners, not copartners, for, in consequence of the acts performed by them, a legal entity, with a personality independent of that of its

members, did not come into existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court of Tax Appeals. To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships", which constitute precisely one of the most typical forms 147 VOL, 102, OCTOBER 15, 1957 147 Evangelista, et al. vs. Coll of Int. Rev., et al. of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section 84(b), the term 'corporation" includes, among other, "joint accounts, (cuentas en participacin)" and "associations", none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships"which are possessed of the aforementioned personalityhave been expressly excluded by law (sections 24 and 84 [b]) from the connotation of the term "corporation." It may not be amiss to add that petitioners' allegation to the effect that their liability in connection with the leasing of the lots above referred to, under the management of one personeven if true, on which we express no opiniontends to increase the similarity between the nature of their venture and that of corporations,

and is, therefore, an additional argument in favor of the imposition of said tax on corporations. Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from "partnerships". By specific provision of said laws, such "corporations" include "associations, joint-stock companies and insurance companies." However, the term "association" is not used in the aforementioned laws "* * * in any narrow or technical sense. It includes any organization, created for the transaction of designated affairs, or the attainment of some object, which, like a corporation, continues notwithstanding that its members or participants change, and the affairs of which like corporate affairs. are conducted by a single 148 148 PHILIPPINE REPORTS ANNOTATED Evangelista, et al. vs. Coll. of Int. Rev., et al. individual, a committee, a board, or some other group, acting in a representative capacity. It is immaterial whether such organization is created by an agreement, a declaration of trust, a statute, or otherwise. It includes a voluntary association, a joint-stock corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the management type), an interinsurance exchange operating through an attorney in fact, a partnership association, and *any other type of organization (by whatever name known) which is not, within the meaning of the Code, a trust or an estate, or a partnership." (7A Merten's Law of Federal Income Taxation, p. 788; italics ours.) Similarly, the American Law. "* * * provides its own concept of a partnership. Under the term 'partnership' it includes not only a partnership as known at common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated organization which carries on any business, financial operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a corporation. * * *." (7A Merten's Law of Federal Income Taxation, p. 789; italics ours.) "The term 'partnership' includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by

means of which any business, financial operation, or venture is carried on, * * *." (8 Merten's Law of Federal Income Taxation, p. 562 Note 63; italics ours.) For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships with the exception only of duly registered general copartnershipswithin the purview of the term "corporation" It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations. As regards the residence tax for corporations, "section 2 of Commonwealth Act No. 465 provides in part: "Entities liable to residence tax.Every corporation, no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual residence tax of five pesos and an annual additional tax which, in no case, shall exceed one thousand pesos, in accordance with the following schedule: * * * 149 VOL. 102, OCTOBER 15, 1957 149 Evangelista, et al. vs. Coll. of Int. Rev., et al. "The term 'corporation' as used in this Act includes joint-stock company, partnership, joint account (cuentas en participacin), association or insurance company, no matter how created or organized." (italics ours.) Considering that the pertinent part of this provision is analogous to that of sections 24 and 84(b) of our National Internal Revenue Code (Commonwealth Act No. 466), and that the latter was approved on June 15, 1939, the day immediately after the approval of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" and "partnership" are used in both statutes with substantially the same meaning. Consequently, petitioners are .subject, also, to the residence tax for corporations. Lastly, the records show that petitioners have habitually engaged in leasing the properties above mentioned for a period of over twelve years, and that the yearly gross rentals of said properties from 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to the tax provided in section

193 (q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to section 194 (s) thereof: " 'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or renting property or his own account as principal and holding himself out as a full or parttime dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year. * * *." (Italics ours.) Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed with costs against the petitioners herein. It is so ordered. Pars, C. J., Bengzon, Padilla, Reyes, A., Reyes, J. B. L., Endencia and Felix, JJ., concur. BAUTISTA ANGELO, J., concurring: I agree with the opinion that petitioners have actually contributed money to a common fund with express 150 150 PHILIPPINE REPORTS ANNOTATED Evangelista, et al. vs. Coll. of Int. Rev., et al. purpose of engaging in real estate business for profit. The series of transactions which they had undertaken attest to this. This appears in the following portion of of the decision: "2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a lot for P100,000. On April 3, 1944, they purchased 21 lots for P18,000. This was soon followed on April 23, 1944, by the acquisition of another real estate for P108,825. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the afore-mentioned common fund or even of the property acquired by petitioner in February, 1943. In other words, one cannot but perceive a character of habituality peculiar to business transactions engaged in for purposes of gain."

I wish however to make the following observation: Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a coownership. Said article paragraphs 2 and 3, provides: "(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property; "(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common interest in any property from which the From the above it appears that the fact that those who agree to form a co-ownership share or do not share any profits made by the use of the property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. means that, aside from the circumstance of profit, the presence of other elements constituting 151 VOL. 102, OCTOBER 15, 1957 151 Evangelista, et al. vs. Coll. of Int. Rev., et al. partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical personality different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636). It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership. "Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself which the proceeds derived." (Elements of the

law of Partnership by Floyd R. Mechem, 2n Ed., section 83, p. 74.) "A joint purchase of land, by two, does not constitute a copartnership in respect thereto; nor does an agreement to share the profits and losses on the sale of land create a partnership; the parties are only tenants in common." (Clark vs. Sideway, 142 U. S. 682, 12 S. Ct. 327, 35 L. Ed., 1157.) "Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiff's commissions, no partnership existed as between the three parties, whatever their relation may have been as to third parties." (Magee vs. Magee, 123 N. E. 673, 233 Mass. 341.) "In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally a participating in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party to make contract, manage the business, and dispose of the whole property." (Municipal Paving Co. vs Herring, 150 P. 1067, 50 111. 470.) "The common ownership of property does not itself create a partnership between .the owners, though they may use it for purpose of making gains; and they may, without becoming partners, 152

VOL. 222, MAY 27, 1993 675 Navarro vs. Court of Appeals G.R. No. 101847. May 27, 1993.* LOURDES NAVARRO AND MENARDO NAVARRO, petitioners, vs. COURT OF APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B. YANSON, respondents. Remedial Law; Annulment of Judgments; Judgments may be annulled only on grounds of extrinsic or collateral fraud. Having lost their right of appeal, petitioners resorted to

annulment proceedings to justify a belated judicial review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial courts decision. We respect the appellate courts finding in this regard. Civil Law; Partnerships; Co-ownership or co-possession or any sharing of proceeds not an indicia of the existence of partnership.While there may have been co-ownership or copossession of some items and/ or any sharing of proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and supportive of the existence of any partnership between them. PETITION for review of the decision of the Court of Appeals. The facts are stated in the opinion of the Court. George L. Howard Law Office for petitioners. Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for private respondents. _______________ * THIRD DIVISION. 676 676 SUPREME COURT REPORTS ANNOTATED Navarro vs. Court of Appeals MELO, J.:

3. The petitioners remedy against the judgment enforcement of which is sought to be stopped should have been appeal. SO ORDERED. (pp. 24-25, Rollo.) The antecedent facts of the case are as follows: On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner Lourdes Navarro for Delivery of Personal Properties With Damages. The complaint incorporated an application for a writ of replevin. The complaint was later docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and was subsequently amended to include private respondents husband, Ricardo B. Yanson, as co-plaintiff, and petitioners husband, as co-defendant. On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as Presiding Justice of the Court of Appeals) approved private respondents application for a writ of replevin. The Sheriffs Return of Service dated March 3, 1978 affirmed receipt by private respondents of all the pieces of personal property sought to be recovered from petitioners. On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as follows: Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of the Writ of Replevin and as 677

VOL. 222, MAY 27, 1993 677 Assailed and sought to be set aside by the petition before us is Navarro vs. Court of Appeals the Resolution of the Court of Appeals dated June 20, 1991 listed in the complaint are hereby sustained to belong to which dismissed the petition for annulment of judgment filed plaintiff being the owner of these properties; the motor vehicle, by the Spouses Lourdes and Menardo Navarro, thusly: particularly that Ford Fiera Jeep registered in and which had The instant petition for annulment of decision is DISMISSED. remain in the possession of the defendant is likewise declared 1. Judgments may be annulled only on the ground of extrinsic to belong to her, however, said defendant is hereby ordered to or collateral fraud, as distinguished from intrinsic fraud (Canlas reimburse plaintiff the sum of P6,500.00 representing the vs. Court of Appeals, 164 SCRA 160, 170). No such ground is amount advanced to pay part of the price therefor; and said alleged in the petition. defendant is likewise hereby ordered to return to plaintiff such 2. Even if the judgment rendered by the respondent Court were other equipment[s] as were brought by the latter to and during erroneous, it is not necessarily void (Chereau vs. Fuentebella, the operation of their business as were listed in the complaint 43 Phil. 216). Hence, it cannot be annulled by the proceeding and not recovered as yet by virtue of the previous Writ of sought to be commenced by the petitioners. Replevin. (p. 12, Rollo.)

Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its rendition) and filed on January 16, 1991 a Motion for Extension of Time to File a Motion for Reconsideration. This was granted on January 18, 1991. Private respondents filed their opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986]) proscribing the filing of any motion for extension of time to file a motion for new trial or reconsideration. The trial judge vacated the order dated January 18, 1991 and declared the decision of April 30, 1990 as final and executory. (Petitioners motion for reconsideration was subsequently filed on February 1, 1991 or 22 days after the receipt of the decision). On February 4, 1991, the trial judge issued a writ of execution (Annex 5, p. 79, Rollo). The Sheriffs Return of Service (Annex 6, p. 82, Rollo) declared that the writ was duly served and satisfied. A receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was likewise submitted by the Sheriff (Annex 7, p. 83, Rollo). On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial courts decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to the evidence on record. The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or collateral fraud, observing further that an appeal was the proper remedy. In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the parties clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the business of Air Freight Service Agency in Bacolod; 678 678 SUPREME COURT REPORTS ANNOTATED Navarro vs. Court of Appeals and that the decision sustaining the writ of replevin is void since the properties belonging to the partnership do not actually belong to any of the parties until the final disposition and winding up of the partnership (p. 15, Rollo). These issues, however, were extensively discussed by the trial judge in her 16-page, single-spaced decision.

We agree with respondents that the decision in this case has become final. In fact a writ of execution had been issued and was promptly satisfied by the payment of P6,500.00 to private respondents. Having lost their right of appeal, petitioners resorted to annulment proceedings to justify a belated judicial review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial courts decision. We respect the appellate courts finding in this regard. Petitioners have come to us in a petition for review. However, the petition is focused solely on factual issues which can no longer be entertained. Petitioners arguments are all directed against the decision of the regional trial court; not a word is said in regard to the appellate courts disposition of their petition for annulment of judgment. Verily, petitioners keep on pressing the idea that a partnership exists on account of the so-called admissions in judicio. But the factual premises of the trial court were more than enough to suppress and negate petitioners submissions along this line: To be resolved by this Court factually involved the issue of whether there was a partnership that existed between the parties based on their verbal contention; whether the properties that were commonly used in the operation of Allied Air Freight belonged to this alleged partnership business; and the status of the parties in this transaction of alleged partnership. On the other hand, the legal issue revolves on the dissolution and winding up in case a partnership so existed as well as the issue of ownership over the properties subject matter of recovery. As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote: 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 proceeds 679 VOL. 222, MAY 27, 1993 679 Navarro vs. Court of Appeals

among themselves. xxx xxx xxx. Corollary to this definition is the provision in determining whether a partnership exist as so provided under Article 1769, to wit: xxx xxx xxx Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted in any form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if the partnership involves a capitalization of P3,000.00 or more in money or property, the same must appear in a public instrument which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with these requirements shall only affect liability of the partners to third persons. In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made admission to have entered into an agreement of operating this Allied Air Freight Agency of which the plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the necessary equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant the Cashier. It was also admitted that part of this agreement was an equal sharing of whatever proceeds realized. Consequently, the plaintiff brought into this transaction certain chattels in compliance with her obligation. The same has been done by the herein brother and the herein defendant who started to work in the business. A cursory examination of the evidences presented no proof that a partnership, whether oral or written had been constituted at the inception of this transaction. True it is that even up to the filing of this complaint those movables brought by plaintiff for the use in the operation of the business remain registered in her name. While there may have been co-ownership or co-possession of some items and/or any sharing of proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and supportive of the existence of any partnership between them. Article 1769 of the New Civil Code is explicit. Even the books and records retrieved by the Commissioner appointed by the Court did not show proof of the existence of a partnership as conceptualized by law. Such that if assuming that there were profits realized in 1975 after the two-year

deficits were compensated, this could only be subject to an equal sharing consonant to the agreement to equally divide any profit realized. However, this Court cannot overlook the fact that the Audit Report of the appointed Commissioner was not highly reliable in the sense that it was more of his personal estimate of what is available on hand. Besides, the alleged profits was a difference found after valuating the assets and not arising from the real operation of the business. In 680 680 SUPREME COURT REPORTS ANNOTATED Navarro vs. Court of Appeals accounting procedures, strictly, this could not be profit but a net worth. In view of the above factual findings of the Court it follows inevitably therefore that there being no partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff herself had summarily ceased from her contract of agency and it is a personal prerogative to desist. On the other hand, the assumption by the defendant in negotiating for herself the continuance of the Agency with the principal in Manila is comparable to plaintiffs. Any account of plaintiff with the principal as alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00 assumption specifically, as would have been testified to by the defendants husband remain a mere allegation. As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which appeared registered in the name of the defendant, and to which even she admitted that part of the purchase price came from the business claimed mutually operated, although the Court have not as much considered all entries in the Audit report as totally reliable to be sustained insofar as the operation of the business is concerned, nevertheless, with this admission of the defendant and the fact that as borne out in said Report there has been disbursed and paid for this vehicle out of the business funds in the total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be sustained as true (Exhs. M-1 to M-3, p.

180, Records). In this connection and taking into account the earlier agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this cost if only to allow the defendant continuous possession of the vehicle in question. It is a fundamental, moral and civil injunction that no one shall enrich himself at the expense of another. (pp. 71-75, Rollo.) Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue raised therein having been directly litigated in, and passed upon by, the trial court. WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991 is AFFIRMED in all respects. No special pronouncements is made as to costs. SO ORDERED. Feliciano (Chairman), Bidin, Davide, Jr. and Romero, JJ., concur. 681

The facts are stated in the opinion of the Court. Angeles, Maskario & Associates for plaintiff-appeldant. Victorio S. Advincula for defendants-appellees. CONCEPCION, C.J.: In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil Code to the contract of partnership on which the complaint herein is based. Alleging that he and defendant Severino Mabato arepursuant to a public instrument dated August 29, 1952, copy of which is attached to the complaint as Annex Apartners in a fishpond business, to the capital of which Agad contributed P1,000, with the right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato had failed and refused to render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the partnership for the period from 1957 to 1963, in addition to P1,000 as attorneys fees, and ordering the dissolution of the partnership, as well as the winding up of its affairs by a receiver to be appointed therefor. In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon the ground that the contract therefor had not been perfected, despite the execution of Annex A, because Agad had allegedly failed to give his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex A be declared void and initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorneys fess. Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and 1225 VOL. 23, JUNE 28, 1968 1225

VOL. 23, JUNE 28, 1968 1223 Agad vs. Mabato No. L-24193. June 28, 1968. MAURICIO AGAD, plaintiff-appellant, vs. SEVERINO MABATO & MABATO & AGAD COMPANY, defendants-appellees. Civil law; Partnership; How partnership may be constituted.A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary (Art. 1771, Civil Code). A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties, and attached to the public instrument (Art. 1773, Id.). 1224 1224 SUPREME COURT REPORTS ANNOTATED Agad vs. Mabato APPEAL from an order of the Court of First Instance of Davao.

Agad vs. Mabato that the lower court had no jurisdiction over the subject matter of the case, because it involves principally the determination of rights over public lands. After due hearing, the court issued the order appealed from, granting the motion to dismiss the complaint for failure to state a cause of action. This conclusion was predicated upon the theory that the contract of partnership, Annex A, is null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not been attached thereto. A reconsideration of this order having been denied, Agad brought the matter to us for review by record on appeal. Articles 1771 and 1773 of said Code provide: Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties, and attached to the public instrument. The issue before us hinges on whether or not immovable property or real rights have been contributed to the partnership under consideration. Mabato alleged and the lower court held that the answer should be in the affirmative, because it is really inconceivable how a partnership engaged in the fishpond business could -exist without said fishpond property (being) contributed to the partnership. It should be noted, however, that, as stated in Annex A the partnership was established to operate a fishpond, not to engage in a fishpond business. Moreover, none of the partners contributed either a f ishpond or a real right to any fishpond. Their contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex A provides: That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad. x x x x 1226

1226 SUPREME COURT REPORTS ANNOTATED Republic vs. Vda. de Garcia The operation of the fishpond mentioned in Annex A was the purpose of the partnership. Neither said f ishpond nor a real right thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto could become part of its assets. WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be, as it is hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance against defendant-appellee, Severino Mabato. It is so ordered. Reyes, J.B.L.. Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Order set aside and case remanded to lower court for further proceedings. Note.In the absence of a valid cause, a partner cannot withdraw from a partnership agreement (before its expiration) for his own personal profit at the expense of the partnership (Lichauco v. Soriano, 26 Phil. 593). As to how partnership profits are determined, see De la Rosa v. Ortega Gocotay, 48 Phil. 605. _______________ Copyright 2012 Central Book Supply, Inc. All rights reserved. [Agad vs. Mabato, 23 SCRA 1223(1968)]

VOL. 88, FEBRUARY 28, 1979 623 Singsong vs. Isabela Sawmill No. L-27343. February 28, 1979. MANUEL G. SINGSONG JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees, vs. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, defendants-appellants.

Remedial Law; Jurisdiction; Question of nullity of assignment of rights with chattel mortgage is not capable of pecuniary estimation and falls within the jurisdiction of the Court of First InstanceJurisdiction of all courts defined in Judiciary Act; Courts of First Instance have exclusive original jurisdiction over all cases whose subject matters are not capable of pecuniary estimation.This content tion is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of First Instance. Where the basic issue is something more than the right to recover a sum of money and where the money claim is purely incidental to or a consequence of the principal relief sought, the action is as a case where the subject of the litigation is not capable of pecuniary estimation and is cognizable exclusively by _______________ * FIRST DIVISION. 624 624 SUPREME COURT REPORTS ANNOTATED Singsong vs. Isabela Sawmill Philippines, in so far as the authority thereof depends upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary estimation. An action for the annulment of a judgment and an order of a court of justice belongs to this category. Same; Same; Same; Criterion in determining whether an action is one the subject matter of which is not capable of pecuniary estimation to vest jurisdiction in Court of First Instance or another court.In determining whether an action is one the subject matter of which is not capable of pecuniary estimation, this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and whether jurisdiction is in

the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases where the subject of the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance. Same; Same; Court of First Instance or a branch thereof has authority and jurisdiction to take cognizance of and to act in suits to annul final and executory judgments rendered by another Court of First Instance or by another branch of the same court; Old doctrines on the matter re-examined and reversed.In December 1971, however, this Court reexamined and reversed its earlier doctrine on the matter. In Dulap vs. Court of Appeals, this Tribunal, speaking through Mr. Justice Villamor declared: xxx The present doctrine which postulate that one court or one branch of a court may not annul the judgment of another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the rules of Court) but also limit the opportunity for the application of said rule. Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order rendered by another court of first instance or by another branch of the same court. . . In February 1974 this Court reiterated the ruling in the Dulap case. In the light of the latest ruling of the Supreme Court, 625 VOL. 88, FEBRUARY 28, 1979 625 Singsong vs. Isabela Sawmill there is no doubt that one branch of the Court of First Instance of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two branches of the same court. Civil Law; Partnership; Dissolution; When the partnership is dissolved, the partnership is not terminated but continues until winding up of business.It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of the business. However, on dissolution, the partnership is not terminated but continuous until the winding

up of the business. The remaining partners did not terminate the business of the partnership Isabela Sawmill. Instead of winding up the business of the partnership, they continued the business still in the name of said partnership. It is expressly stipulated in the memorandumagreement that the remaining partners had constituted themselves as the partnership entity, the Isabela Sawmill. Same; Same; Properties is dissolved but unliquidated partnership which was mortgaged, judicially foreclosed and then sold at public auction to the partner who had withdrawn still belong to partnership and the said properties as well as of the withdrawn partner are answerable to liabilities of partnership and to innocent third persons.There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua. continued doing the business of the partnership in the name of Isabela Sawmill. They used the properties of said partnership. The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua, belonged, to the partnership Isabela Sawmill. The appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at public auction the properties of the partnership which were mortgaged to her. Same; Same; Same; Partner who had withdraw from partnership is relieved from partnership liability only when there is liquidation of assets of partnership and his withdrawal had been published; Where a former partner entered into agreement with remaining partners to continue business of partnership and third parties were misled into believing that they are dealing with, the same old partnership, that partner who withdrawn is still liable to partnership liabilities; Where 626

Tubungbanua doing the business in the name of the partnership Isabela Sawmill could be enforced against the properties of said partnership. The judicial foreclosure of the chattel mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership. The appellant, Margarita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidation of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the business of the partnership Isabela Sawmill by entering into the memorandum-agreement with them. Although it may be presumed that Margarita G. Saldajeno had 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. Had Margarita G. Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of the partnership, the appellees would not have been misled into thinking that they were still dealing with the partnership Isabela Sawmill. Under the facts, it is of no moment that technically speaking the partnership Isabela Sawmill was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued doing business through the two remaining partners. Same; Contracts; General rule is that a person not a party to a contract cannot assail the contract; Exception to the rule is when although not a party his rights are prejudiced with respect to one of the contracting parties; Case at bar.As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the rights of a third person, he may file an action to annul the contract. This 626 Court has held that a person, who is not a party obliged SUPREME COURT REPORTS ANNOTATED principally or subsidiarily under a contract, may exercise an Singsong vs. Isabela Sawmill action for nullity of the contract if he is prejudiced in his rights one of two persons must suffer, that person who gave occasion with respects to one of the contracting parties, and can show for the damages to be caused must hear consequences.It detriment which would positively result to him from the does not appear that the withdrawal of Margarita G. Saldajeno contract in which he has no intervention. The plaintiffsfrom the partnership was published in the newspapers. The appellees were prejudiced in their rights by the execution of appellees and the public in general had a right to expect that the chattel mortgage over the properties of the partnership whatever credit they extended to Leon Garibay and Timoteo Isabela Sawmill in favor of Margarita G. Salda-

627 VOL. 88, FEBRUARY 28, 1979 627 Singsong vs. Isabela Sawmill jeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appellees have a right to file the action to nullify the chattel mortgage in question. Attorneys Fees; Attorneys fees not awarded when absent a showing of wanton disregard of rights of affected parties; Case at bar.The portion of the decision appealed from ordering the appellants to pay attorneys fees to the plaintiffs-appellees cannot be sustained. There is no showing that the appellants displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable to pay the claims. FERNANDEZ, J.: This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental in Civil Case No. 5343, entitled Manuel G. Singson, et al., vs. Isabela Sawmill, et al., the dispositive portion of which reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held: (1) that the contract, Appendix F, of the Partial Stipulation of Facts, Exh. A, has not created a chattel mortgage lien on the machineries and other chattels mentioned therein, all of which are property of the defendant partnership Isabela Sawmill, (2) that the plaintiffs, as creditors of the defendant partnership, have a preferred right over the assets of the said partnership and over the proceeds of their sale at public auction, superior to the right of the defendant Margarita G. Saldajeno, as creditor of the partners Leon Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with legal interest thereon from the filing of the complaint on June 5, 1959; (4) that the same defendant is indebted to the plaintiff Manuel G. Singsong in the total amount of P3,723.50, with interest thereon at the rate of 1% per month from May 6, 1959, (the date of the statements of account, Exhs. L and M), and 25% of the total indebtedness at the time of payment, for attorneys fees, both interest and attorneys fees being stipulated in Exhs. I to I-17,

inclusive; (5) that the same defendant is indebted to the plaintiff Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from the filing of the complaint on June 5, 1959; (6) that the same defendant is indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with legal interest thereon from the filing of the 628 628 SUPREME COURT REPORTS ANNOTATED Singsong vs. Isabela Sawmill complaint on June 5, 1959; (7) that the same defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the amount of P1,048.78, with legal interest thereon from the filing of the complaint on June 5, 1959; (8) that the same defendant is indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with legal interest thereon from the filing of the complaint on June 5, 1959; (9) that the defendant Margarita G. Saldajeno, having purchased at public auction the assets of the defendant partnership over which the plaintiffs have a preferred right, and having sold said assets for P45,000.00, is bound to pay to each of the plaintiffs the respective amounts for which the defendant partnership is held indebted to them, as above indicated, and she is hereby ordered to pay the said amounts, plus attorneys fees equivalent to 25% of the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in Exhs. I to I-17, inclusive, and 20% of the respective judgments in favor of the other plaintiffs, pursuant to Art. 2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The defendants Leon Garibay and Timoteo Tubungbanua are hereby ordered to pay to the plaintiffs the respective amounts adjudged in their favor in the event that said plaintiffs cannot recover them from the defendant Margarita G. Saldajeno and the surety on the bond that she lies filed for the lifting of the injunction ordered by this court upon the commencement of this case. The cross-claim of the defendant Margarita G. Saldajeno against the defendants Leon Garibay and Timoteo Tubungbanua is hereby dismissed. Margarita G. Saldajeno shall pay the costs. SO ORDERED.1

In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the Supreme Court considering that the resolution of this appeal involves purely questions or question of law over which this Court has no jurisdiction x x x.2 On June 5, 1959, Manuel G. Singsong, Jose Belzunce. Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of First Instance of Negros Occidental, Branch I, against Isabela Sawmill, Margarita G. Saldajeno and her husband _______________

plus 6% annual interest thereon and 25% attorneys fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and 25% attorneys fees and costs: (3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and void being in fraud of creditors of the defendant partnership and without valuable consideration insofar as the said defendant is concerned: (4) That the Honorable Court order the sale at public auction of the assets of the defendant partnership in case the latter 1 Record on Appeal, pp. 202-205, Rollo, pp. 122-124. fails to pay the judgment that the plaintiff is may recover in the 2 Resolution, Court of Appeals. Written by Mr. Justice Antonio action, with instructions that the proceeds of the sale be Caizares and Mr. Justice Nicasio A. Yatco, Rollo, p. 321. applied in payment of said judgment before any part of said 629 proceeds is paid to the defendant Margarita G. Saldajeno; (5) That the defendant Leon Garibay, Timoteo Tubungbanua, VOL. 88, FEBRUARY 28, 1979 and Margarita G. Saldajeno be declared jointly liable to the 629 plaintiffs for whatever deficiency may remain unpaid after the Singsong vs. Isabela Sawmill proceeds of the sale of the assets of the defendant partnership Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the are applied in payment of the judgment that said plaintiffs may Provincial Sheriff of Negros Occidental a complaint the prayer recover in this action; of which reads: 630 WHEREFORE, the plaintiffs respectfully pray: (1) That a writ of preliminary injunction be issued restraining 630 the defendant Provincial Sheriff of Negros Occidental from SUPREME COURT REPORTS ANNOTATED proceeding with the sales at public auction that he advertised Singsong vs. Isabela Sawmill in two notices issued by him on May 18, 1959 in connection (6) The plaintiffs further pray for all other remedies to which with Civil Case No. 5223 of this Honorable Court, until further the Honorable Court will find them entitled to, with costs to the orders of this Court; and to make said injunction permanent defendants. after hearing on the merits: Bacolod City, June 4, 1959.3 (2) That after hearing, the defendant partnership be ordered; The action was docketed as Civil Case No. 5343 of said court. to pay to the plaintiff Manuel G. Singson the sum of P3,723.50 In their amended answer, the defendants Margarita G. plus 1% monthly interest thereon and 25% attorneys fees, and Saldajeno and her husband, Cecilio Saldajeno, alleged the costs; to pay to the plaintiff Jose Belzunce the sum of following special and affirmative defenses: P2,052.10, plus 6% annual interest thereon and 25% for x x x attorneys fees, and costs; to pay to the plaintiff Agustin E. 2. That the defendant Isabela Sawmill has bean dissolved by Tonsay the sum of P933.73 plus 6% annual interest thereon virtue of an action entitled In the matter of: Dissolution of and 25% attorneys fees, and costs; to pay to the plaintiff Jose Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et L. Espinos the sum of P1,579.44, plus 6% annual interest al. vs. Isabela Sawmill, et al., Civil Case No. 4797, Court of First thereon and 25% attorneys fees, and costs; to pay to the Instance of Negros Occidental; plaintiff Bacolod Southern Lumber Yard the sum of P1,043.78,

3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became the successors-in-interest to the said defunct partnership and have bound themselves to answer for any and all obligations of the defunct partnership to its creditors and third persons; 4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo Tubunghanua to the answering defendant herein, the former have constituted a chattel mortgage over the properties mentioned in the annexes to that instrument entitled Assignment of Rights with Chattel Mortgage entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros Occidental on the same date; 5. That all the plaintiffs herein, with the exception of the plaintiff Oppen, Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such they have no cause of action against answering defendant herein and the defendant Isabela Sawmill; 6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of defendants Margarita G. _______________ 3 Record on Appeal, Rollo, pp. 25-26. 631 VOL. 88, FEBRUARY 28, 1979 631 Singsong vs. Isabela Sawmill Saldajeno, Leon Garibay and Timoteo Tubungbanua, has alreadybeen dissolved; 7. That this Honorable Court has no jurisdiction over the claims of the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the amounts sought to be recovered by them in this action is less than P2,000.00 each, exclusive of interests;

8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of parties because this is not a class suit, and therefore this Honorable Court cannot take jurisdiction of the claims for payment; 9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned in the statute of frauds, Art. 1403 of the Civil Code, and are therefor unenforceable, even assuming that there were such credits and claims; 10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in jurisprudence that a court of first instance has no power or jurisdiction to annul judgments or decrees of a coordinate court because other function devolves upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et al., G. R. No. L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p. 124), as it appears from the complaint in this case that a judgment is sought by the plaintiffs which will in effect try to annul the decision of this same court, but of another branch (Branch II, Judge Querubin presiding).4 Said defendants interposed a cross-claim against the defendants Leon Garibay and Timoteo Tubungbanua praying that in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs the amount claimed in the latters complaint, that the cross defendants be simultaneously ordered to pay back to the cross claimant whatever amount is paid by the latter to the plaintiff in accordance to the said judgment x x x5 After trial, judgment was rendered in favor of the plaintiffs and against the defendants. The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals assigning _______________ 4 Record on Appeal, Rollo, pp. 55-56. 5 Rollo, p. 58. 632 632 SUPREME COURT REPORTS ANNOTATED Singsong vs. Isabela Sawmill the following errors:

I THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE. II

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANTAPPELLANT MARGARITA G. SALDAJENO 633

VOL. 88, FEBRUARY 28, 1979 633 THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH Singsong vs. Isabela Sawmill REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT BECAME PRIMARILY LIABLE TO THE PLAINTIFFS-APPELLEES FOR MARGARITA G. SALDAJENO FROM THE PARTNERSHIP ISABELA HAVING ACQUIRED THE MORTGAGED CHATTELS IN THE SAWMILL WAS WHETHER OR NOT SUCH WITHDRAWAL FORECLOSURE SALE CONDUCTED IN CONNECTION WITH CIVIL CAUSED THE COMPLETE DISAPPEARANCE OR EXTINCTION OF CASE NO. 5223. SAID PARTNERSHIP. VIII III THE COURT A QUO ERRED IN HOLDING DEFENDANTTHE COURT A QUO ERRED IN NOT HOLDING THAT THE APPELLANT MARGARITA G. SALDAJENO LIABLE FOR THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO SALDAJENO AS A PARTNER THEREIN DISSOLVED THE TUBUNGBANUA, INCURRED BY THE LATTER AS PARTNERS IN PARTNERSHIP ISABELA SAWMILL (FORMED ON JAN. 30, 1951 THE NEW ISABELA SAWMILL, AFTER THE DISSOLUTION OF THE AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO MARGARITA G. SALDAJENO). WAS A PARTNER. IV IX THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION. V THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS NULL AND VOID. VI THE COURT A QUO ERRED IN HOLDING THAT THE CHATTELS ACQUIRED BY DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED ALL THE ASSETS OF THE DEFENDANT PARTNERSHIP. VII THE COURT A QUO ERRED IN HOLDING DEFENDANTAPPELLANT MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEYS FEES. X THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-APPELLEES. XI THE COURT A QUO ERRED IN DISMISSING THE CROSSCLAIM OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON ARIBAY AND TIMOTEO TUBUNGBANUA.6 The facts, as found by the trial court, are: At the commencement of the bearing of the case on the merits the plaintiffs and the defendants Cecilio and Margarita G. Saldajeno submitted a Partial Stipulation of Facts that was marked as Exh. A. Said stipulation reads as follows: 1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldajeno, and Timoteo Tubungbanua entered

into a Contract of Partnership under the firm name Isabela Sawmill, a copy of which is hereto attached Appendix A. 2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the part _______________ 6 Brief for defendants-appellants, Rollo, pp. 161-162. 634 634 SUPREME COURT REPORTS ANNOTATED Singsong vs. Isabela Sawmill nership Isabela Sawmill for the sum of P20,500.00. In order to pay the said purchase price, the said partnership agreed to make arrangements with the International Harvester Company at Bacolod City so that the latter would sell farm machinery to Oppen, Esteban, Inc. with the understanding that the price was to be paid by the partnership. A copy of the corresponding contract of sale is attached hereto as Appendix B. 3. That through the method of payment stipulated in the contract marked as Appendix B herein, the International Harvester Company has been paid a total of P19,211.11, leaving an unpaid balance of P1,288.89 as shown in the statements hereto attached as Appendices C, C-1, and C-2. 4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua, a copy of which Complaint is attached as Appendix D. 5. That on April 27, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno entered into a Memorandum Agreement, a copy of which is hereto attached as Appendix E in Civil Case 4797 of the Court of First Instance of Negros Occidental. 6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno executed a document entitled Assignment of Rights with Chattel Mortgage, a copy of which documents and its Annexes A to A-5 forming a part of the record of the above mentioned Civil Case No. 4797, which deed was referred to in the Decision of the Cout of First Instance of Negros Occidental in Civil Case No. 4797 dated May 29, 1958, a copy of which is hereto attached as Appendix F and F-1 respectively.

7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the assets and properties of the Isabela Sawmill between them, but they continued the business of said partnership under the same firm name Isabela Sawmill. 8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices that he would sell at public auction on June 5, 1959 at Isabela, Negros Occidental certain trucks, tractors, machinery, office equipment and other things that were involved in Civil Case No. 5223 of the Court of 635 VOL. 88, FEBRUARY 28, 1979 635 Singsong vs. Isabela Sawmill Saldajeno vs. Leon Garibay, et al. See Appendices G and G1. 9. That on October 16, 1959 the Provincial Sheriff of Negros Occidental executed a Certificate of Sale in favor of the defendant Margarita G. Saldajeno, as a result of the sale conducted by him on October 14 and 15, 1959 for the enforcement of the judgment rendered in Civil Case No. 5223 of the Court of First Instance of Negros Occidental, a certified copy of which certificate of sale is hereto attached as Appendix H. 10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in favor of the Pan Oriental Lumber Company transferring to the latter for the sum of P45,000.00 the trucks, tractors, machinery, and other things that she had purchased at a public auction referred to in the foregoing paragraph, a certified true copy of which Deed of Sale is hereto attached as Appendix I. 11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve the right to present additional evidence at the hearing of this case. Forming parts of the above copied stipulation are documents that were marked as Appendices A, B, C, C-1, C-2, D, E, F, F-1, G, G-1, H, and I. The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence, mostly documentary, while the cross-defendants did not present any evidence. The

case hardly involves questions of fact at all, but only questions of law. The fact that the defendant Isabela Sawmill is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3, 1956 is expressly admitted in paragraphs 2 and 3 of the Stipulation, Exh. A and its Appendices B, C, C-1, and C-2. The plaintiff Agustin E. Tonsay proved by his own testimony and his Exhs. B to G that from October 6, 1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant Isabela Sawmill. Against the said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leaving an unpaid balance of P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager of the defendant partnership. The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. J to L that from May 25, 1958 to January 13, 1959 he sold on credit to the defendant Isabela Sawmill rice and 636 636 SUPREME COURT REPORTS ANNOTATED Singsong vs. Isabela Sawmill bran, on account of which business transactions there remains an unpaid balance of P3,580.50. The same plaintiff also proved that the partnership owes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid for. The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his exhs. N to O-3 that he owns the Guia Lumber Yard, that on October 11, 1958 said lumber yard advanced the sum of P2,500.00 to the defendant Isabela Sawmill, that against the said cash advance, the defendant partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance of P1,579.44. The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano Palmares and its Exhs. P to Q-1 that on October 11, 1958 said plaintiff advanced the sum of P1,500.00 to the defendant Isabela Sawmill, that against the said cash advance, the defendant partnership delivered to the said plaintiff on November 19, 1958 P377.72

worth of lumber, and P73.54 worth of lumber on January 27, 1959, leaving an oustanding balance of P1,048.78. The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness, and through the Exhs. R to E that from September 14, 1958 to November 27, 1958 he sold to the defendant Isabela Sawmill gasoline, motor fuel, and lubricating oils, and that on account of said transactions, the defendant partnership owes him an unpaid balance of P2,052.10. Appendix H of the stipulation Exh. A shows that on October 13 and 14, 1959 the Provincial Sheriff sold to the defendant Margarita G. Saldajeno for P38,040.00 the assets of the defendant Isabela Sawmill which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and said purchase price was applied to the judgment that she has obtained against the said mortgagors in Civil Case No. 5223 of this Court. Appendix I of the same stipulation Exh, A shows that on October 20, 1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said properties that she had bought at public auction one week before. x x x x7 It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over Civil Case _______________ 7 Record on Appeal, pp. 182-189, Rollo, pp. 112-116. 637 VOL. 88, FEBRUARY 28, 1979 637 Singsong vs. Isabela Sawmill No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of money, the biggest amount of which was less than P2,000.00 and, therefore, within the jurisdiction of the municipal court. This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with chattel mortgage entered into by and between Margarita G. Saldajeno

and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of First Instance. Where the basic issue is something more than the right to recover a sum of money and where the money claim is purely incidental to or a consequence of the principal relief sought, the action is as a case where the subject of the litigation is not capable of pecuniary estimation and is cognizable exclusively by the Court of First Instance. The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary estimation. An action for the annulment of a judgment and an order of a court of justice belongs to this category.8 In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and whether jurisdiction is in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has con_______________

Actions for specific performance of contracts have been expressly pronounced to be exclusively cognizable by courts of first instance. De Jesus vs. Judge Garcia, L-26816, February 28, 1967; Manufacturers Distributors. Inc. vs. Yu Siu Liong, L21285, April 29, 1966. And no cogent reason appears, and none is here advanced by the parties, why an action for rescission (or resolution) should be differently treated, a rescission being a counterpart, so to speak, of specific performance. In both cases, the court would certainly have to undertake an investigation into facts that would justify one act of the other. No award for damages may be had in an action for rescission without first conducting an inquiry into matters which would justify the setting aside of a contract, in the same manner that courts of first instance would have to make findings of fact and law in actions not capable of pecuniary estimation expressly held to be so by this Court, arising from issues like those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or illegality of the conveyance sought for and the determination of the validity of the money deposit made); De Ursua v. Pelayo. L-13285, April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707, December 23, 1965 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right to support created by the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of documents upon which claims are predicated). Issues of the same nature may be raised by a party against whom an action for rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a prayer for damages in an action for rescission should be taken 8 Pedro Dulap, et al., vs. Hon. Court of Appeals, et al., G. R. No. as the basis for concluding such action as one capable of L-28306, Dec. 18, 1971, 42 SCRA 537, 545-546. pecuniary estimationa prayer which must be included in the 638 main action if plaintiff is to be compensated for what he may have suffered as a result of the breach committed by 638 defendant, and not later on precluded from recovering SUPREME COURT BEPORTS ANNOTATED damages by the rule against splitting a cause of action and Singsong vs. Isabela Sawmill discouraging multiplicity of suits. sidered such actions as cases where the subject of the _______________ litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance. 9 24 SCRA 479, 482-483. In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held: 639

VOL. 88, FEBRUARY 28, 1979 639 Singsong vs. Isabela Sawmill The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan,10 where this Court held: On the issue of which court has jurisdiction, the case of Seno vs. Pastolante, et al., is in point. It was ruled therein that although the purpose of an action is to recover an amount plus interest which comes within the original jurisdiction of the Justice of the Peace Court, yet when said action involves the foreclosure of a chattel mortgage covering personal properties valued at more than P2,000, (now P10,000.00) the action should be instituted before the Court of First Instance. In the instant case, the action is to recover the amount of P1,520.00 plus interest and costs, and involves the foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it is clearly within the competence of the respondent court to try and resolve. In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did not err in exercising jurisdiction over Civil Case No. 5343. The appellants also contend that the chattel mortgage may no longer be annulled because it had been judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court. On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and coordinate jurisdiction, this Court originally ruled that: A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by the injunction. The various branches of the Court of First Instance of Manila are in a sense coordinate courts and cannot be allowed to interfere with each others judgments or decrees.11 The foregoing doctrine was reiterated in a 1953 case12 where tins Court said: _______________ 10 73 SCRA 189, 191. 11 Cabigao and Izquierdo vs. Del Rosario, et al., 44 Phil. 182. 12 Philippine National Bank vs. Javellana, 92 Phil. 525.

640 640 SUPREME COURT REPORTS ANNOTATED Singsong vs. Isabela Sawmill The rule which prohibits a Judge from interfering with the actuations of the Judge of another branch of the same court is not infringed when the Judge who modifies or annuls the order issued by the other Judge acts in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule is infringed when the Judge of a branch of the court issues a writ of preliminary injunction in a case to enjoin the sheriff from carrying out an order by execution issued in another case by the Judge of another branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182). This ruling was maintained in 1964. In Mas vs. Dumaraog,13 the judgment sought to be annulled was rendered by the Court of First Instance of Iloilo and the action for annullment was filed with the Court of First Instance of Antique, both courts belonging to the same Judicial District. This Court held that: The power to open, modify or vacate a judgment is not only possessed by, but is restricted to the court in which the judgment was rendered. The reason of this Court was: Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not be interfered with by any court of concurrent jurisdiction. Again, in 1967 this Court ruled that the jurisdiction to annul a judgment of a branch of the Court of First Instance belongs solely to the very same branch which rendered the judgment.14 Two years later, the same doctrine was laid down in the Sterling Investment case.15 In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla vs. Court _______________ 13 Mas vs. Dumarag-og, G. R. No. L-16252, Sept. 29, 1964, 12 SCRA 34. 14 J. M. Tuason & Co. vs. Torres, etc., et al., G. R. No. L-24717, Dec. 4, 1967, 21 SCRA 1169.

15 Sterling Investment Corp. et al. vs. Ruiz, etc., et al., G. R. No. L-30694, Oct. 31, 1969, 30 SCRA 318. 641 VOL. 88, FEBRUARY 28, 1979 641 Singsong vs. Isabela Sawmill of Appeals,16 this Tribunal, speaking through Mr. Justice Villamor declared: . . . the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end that the judgment of a court of competent jurisdiction may not be interfered with by any court of concurrent jurisdiction, this Court feds that this is as good an occasion as any to reexamine the doctrine laid down. . . In an action to annul the judgment of a court, the plaintiffs cause of action springs from the alleged nullity of the judgment based on one ground or another, particularly fraud, which fact affords the plaintiff a right to judicial interference in his behalf. In such a suit the cause of action is entirely different from that in the action which gave rise to the judgment sought to be annulled, for a direct attack against a final and executory judgment is not a incidental to, but is the main object of the proceeding. The cause of action in the two cases being distinct and separate from each other, there is no plausible reason why the venue of the action to annul the judgment should necessarily follow the venue of the previous action. . . The present doctrine which postulate that one court or one branch of a court may not annul the judgment of another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court) but also limit the opportunity for the application of said rule. Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order rendered by another court of first instance or by another branch of the same court. . . In February 1974 this Court reiterated the ruling in the Dulap case.17 In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First Instance of

Negros Occidental can take cognizance of an action to nullify a final judgment of the other two branches of the same court. _______________ 16 Pedro Dulap & Colores Amparo vs. Court of Appeals and Asian Surety & Insurance Co., L-28306, Dec. 18, 1971, 42 SCRA 537. 17 Gianan vs. Hon. Imperial, et al., L-37963, Feb. 28, 1974, 55 SCRA 756, 760. 642 642 SUPREME COURT REPORTS ANNOTATED Singsong vs. Isabela Sawmill It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of the business.18 However, on dissolution, the partnership is not terminated but continuous until the winding up of the business.19 The remaining partners did not terminate the business of the partnership Isabela Sawmill. Instead of winding up the business of the partnership, they continued the business still in the name of said partnership. It is expressly stipulated in the memorandum-agreement that the remaining partners had constituted themselves as the partnership entity, the Isabela Sawmill.20 There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in the name of Isabela Sawmill. They used the properties of said partnership. The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua, belonged to the partnership Isabela Sawmill. The appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at public auction the properties of the partnership which were mortgaged to her. It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the business in the

name of the partnership Isabela Sawmill could be enforced against the properties of said partnership. The judicial foreclosure of the chattel mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership. The appellant, Margarita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidation of the assets of the partnership. She even agreed to let Leon Garibay _______________ 18 Article 1828, Civil Code of the Philippines. 19 Article 1829, Civil Code of the Philippines. 20 Record on Appeal, pp. 120-122, Rollo, pp. 82-83. 643 VOL. 88, FEBRUARY 28, 1979 643 Singsong vs. Isabela Sawmill and Timoteo Tubungbanua continue doing the business of the partnership Isabela Sawmill by entering into the memorandum-agreement with them. Although it may be presumed that Margarita G. Saldajeno had 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. Had Margarita G. Saldajeno not entered into the memorandumagreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of the partnership, the appellees would not have been misled into thinking that they were still dealing with the partnership Isabela Sawmill. Under the facts, it is of no moment that technically speaking the partnership Isabela Sawmill was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued doing business through the two remaining partners. The contention of the appellants that the appellees cannot bring an action to annul the chattel mortgage of the properties of the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit.

As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the rights of a third person, he may file an action to annul the contract. This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from the contract in which be has no intervention.21 The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the properties of the partnership Isabela Sawmill in favor of Margarita G. Saldajeno by the remaining partners, Leon Garibay and _______________ 21 Teves vs. Peoples Homesite & Housing Corporation, L21498, 23 SCRA 1141, 1147-1148; De Santos vs. City of Manila, 45 SCRA 409, 416. 644 644 SUPREME COURT REPORTS ANNOTATED Singsong vs. Isabela Sawmill Timoteo Tubungbanua. Hence, said appellees have a right to file the action to nullify the chattel mortage in question. The portion of the decision appealed from ordering the appellants to pay attorneys fees to the plaintiffs-appellees cannot be sustained. There is no showing that the appellants displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable to pay the claims. The defedants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by their codefendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay and Timoteo Tubungbanua undertook to release Margarita G. Saldajeno from any obligation of Isabela Sawmill to third persons.22 WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering appellants to pay attorneys fees and with the modification that the defendants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and her

husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as to costs. SO ORDERED. Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio-Herrera, JJ., concur. Decision affirmed. Notes.A contract of partnership immovable properties of real rights are contributed thereto, if inventory of said properties is not made, signed by the parties and attached to the public instrument as required by articles 1771 and 1773 of the New Civil Code. (Agad vs. Mabato, 23 SCRA 1223). A sale of land made by the general manager of a partnership, by virtue of the powers vested in him by the articles of partnership, which sale was effected after the insolvency proceeding involving the partnership was terminated, is valid. (Ng Cho Cio vs. Ng Diong, 1 SCRA 275). _______________ 22 Rollo, p. 82. 645 VOL. 88, FEBRUARY 28, 1979 645 Pascual vs. Court of Industrial Relations A remaining partner cannot be held liable for 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. (Magdusa vs. Albaran, 5 SCRA 511). An action for the liquidation of a partnership is a personal one, which may be brought in the place of residence of either the plaintiff or the defendant (Clariodades vs. Mercader, 17 SCRA 1). The mere acceptance of inheritance does not make the heir of a general partner a general partner himself. (Goquiolay vs. Sycip, 9 SCRA 663). A contract embraces only one cause of action because it may be violated only once even if it contains several stipulations. (Quiogue vs. Bautista, 4 SCRA 478.) To determine the nature of the contract, courts do not have or are not bound to reply upon the name or title given it by the contracting parties, should there be a controversy as to what they really had intended to enter into, but the way the

contracting parties do or perform their respective obligations stipulated or agreed upon be shown and inquired into, and should such performance conflict with the name or title given the contract by the parties the former must prevail over the latter. (Balbas vs. Domingo, 21 SCRA 444.) Contracts are binding in whatever form they may have been entered into. (Lopez vs. Auditor General, 20 SCRA 655. Contract entered into in name of another by one without authonty is unenforceable unless ratified by person on whose behalf contract is executed. (Frias vs. Esquivel, 66 SCRA 487.) o0o Copyright 2012 Central Book Supply, Inc. All rights reserved. [Singsong vs. Isabela Sawmill, 88 SCRA 623(1979)]

[No. L-7991. May 21, 1956] PAUL MACDONALD, ET AL., petitioners, vs. THE NATIONAL CITY BANK OF NEW YORK, respondent. 1.PARTNERSHIP; UNREGISTERED PARTNERSHIP; PERSONS COMPOSING IT ARE PARTNERS; ASSOCIATION is PARTNERSHIP. While an uregistered 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 favorable to third persons, by reason of the equitable principle of estoppel. 2.ID.; ID.; ID.; "De Facto" EXISTENCE; DOMICILE AS TO THIRD PERSONS.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. Although it has no legal standing, it is a partnership de facto and the general provisions of the code applicable to all partnership apply to it. 3.CHATTEL MORTGAGE; VALIDITY GENERALLY; AFFIDAVIT IN GOOD FAITH; CANNOT BE DESTROYED BY BIASED TESTIMONY. 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 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. 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 law then there will have been established a very dangerous doctrine which would throw wide open the doors to fraud. 157 VOL. 99, MAY 21, 1956 157 MacDonald, et al. vs. Nat. City Bank of N.Y. PETITION for review by certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Jose W. Diokno for petitioners. Ross, Selph, Carrascoso & Janda for respondent PARS, C. J.:

partnership to make the required payment, was converted into an ordinary loan for which the corresponding promissory 'joint notenon-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-1 18-202839, 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 158

158 PHILIPPINE REPORTS ANNOTATED MacDonald, et al. vs. Nat. City Bank of N.Y. This is an appeal by certiorari from the decision of the Court of "(c) Fargo Pick-up FKI-16, with motor No. T-112800032, Appeals from which we are reproducing the following basic Serial No. 8869225 and with plate No. T-7222 (1949). The findings of fact: mortgage deed was fully registered by the mortgagee on June "STASIKINOCEY is a partnership doing business at No. 58, 11, 1949, in the Office of the Register of Deeds for the province Aurora Boulevard, San Juan, Rizal, and formed by Alan W. of Rizal, at Pasig, (Exhibit A), and among other provisions it Gorcey, Louis F. da Costa, Jr., William Kusik and Emma Badong contained the following: Gavino. This partnership was denied registration in the " '(a) That the mortgagor shall not sell or otherwise dispose of Securities and Exchange Commission, and while it is confusing the said chattels without the mortgagee's written consent; and to see in this case that the CARDINAL RATTAN, sometimes " '(b) That the mortgagee may foreclose the mortgage at any called the CARDINAL RATTAN FACTORY, is treated as a time, after breach of any condition thereof, the mortgagor copartnership, of which defendants Gorcey and da Costa are waiving the 30-day notice of foreclosure.' considered general partners, we are satisfied that, as alleged in "On June 7, 1949, the same day of the execution of the chattel various instruments appearing of record, said Cardinal Rattan mortgage aforementioned, Gorcey and Da Costa executed an is merely the business name or style used by the partnership agreement purporting to convey and transfer all their rights, Stasikinocey. title and participation in defendant partnership to Shaeffer, "Prior to June 3, 1949, defendant Stasikinocey had an overdraft allegedly in consideration of the cancellation of an account with The National City Bank of New York, a foreign indebtedness of P25,000 owed by them and defendant banking association duly licensed to do business in the partnership to the latter (Exhibit J), which transaction is said to Philippines. On June 3, 1949, the overdraft showed a balance of be in violation of the Bulk Sales Law (Act No. 3952 of the P6,134.92 against the defendant Stasikinocey or the Cardinal Philippine Legislature). Rattan (Exhibit D), which account, due to the failure of the

"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. 159 VOL. 99, MAY 21, 1956 159 MacDonald, et al. vs. Nat. City Bank of N.Y. 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 COPARTNERSHIP 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. 160 160 PHILIPPINE REPORTS ANNOTATED MacDonald, et al. vs. Nat. City Bank of N.Y. "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

161 MacDonald, et al. vs. Nat. City Bank of N.Y. "IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR Seing and Co. Ltd./ could not be regarded as a partnership de EXECUTES AN AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY jure, yet with respect to third persons it will be considered a PUBLIC OUTSIDE OF THE TERRITORIAL JURISDICTION OF THE partnership with all the consequent obligations for the purpose LATTER, THE AFFIDAVIT IS VOID AND THE CHATTEL, of enforcing the rights of such third persons." Da Costa and MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE Gorcey cannot deny that they are partners of the partnership INNOCENT PURCHASERS FOR VALUE; AND, AS A Stasikinocey, because in all their transactions with the CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF respondent they represented themselves as such. Petitioner FACT AS TO WHERE THE DEED WAS IN FACT EXECUTED, McDonald cannot disclaim knowledge of the partnership DESPITE APPELLANTS' RAISING THAT QUESTION PROPERLY Stasikinocey because he dealt with said entity in purchasing BEFORE IT AND EXPRESSLY REQUESTING A RULING THEREON. two of the vehicles in question through Gorcey and Da Costa. "IV As was held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a partnership not duly organized has been recognized as "IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN such in its dealings with certain persons, it shall be considered UNREGISTERED COMMERCIAL CO-PARTNERSHIP 'TO MAKE ALL as "partnership by estoppel" and the persons dealing with it OFFICIAL, AND BUSINESS ARRANGEMENTS . . . WITH THE are estopped from denying its partnership existence. The sale NATIONAL CITY BANK OF NEW YORK' IN ORDER 'TO SIMPLIFY of the vehicles in question being void as to petitioner ALL MATTERS RELATIVE TO LCS CABLE TRANSFERS. DRAFTS, McDonald, the transfer from the latter to petitioner Benjamin OR OTHER BANKING MEDIUMS,' WAS SUFFICIENT AUTHORITY Gonzales is also void, as the buyer cannot have a better right FOR THE SAID MEMBER TO EXECUTE A CHATTEL MORTGAGE IN than the seller. ORDER TO GIVE THE BANK SECURITY FOR A PRE-EXISTING It results that if the law recognizes a defectively organized OVERDRAFT, GRANTED WITHOUT SECURITY, WHICH THE BANK partnership as de facto as far as third persons are concerned, HAD CONVERTED INTO A DEMAND LOAN UPON FAILURE TO PAY for purposes of its de facto existence it should have such SAME AND BEFORE THE CHATTEL MORTGAGE WAS attribute of a partnership as domicile. In Hung-Man Yoc vs. EXECUTED." Kieng-Chiong-Seng, 6 Phil., 498, it was held that although "it This is the first question propounded by the petitioners: "Since has no legal standing, it is a partnership de facto and the an unregistered commercial partnership unquestionably has no general provisions of the Code applicable to all partnerships juridical personality, can it have a domicile so that the apply to it." The registration of the chattel mortgage in registration of a chattel mortgage therein is notice to the question with the Office of the Register of Deeds of Rizal, the world?" residence or place of business of the partnership Stasikinocey While an unregistered commercial partnership has no juridical being San Juan, Rizal, was therefore in accordance with section personality, nevertheless, where two or more persons attempt 4 of the Chattel Mortgage Law. to create a partnership failing to comply with all the legal The second question propounded by the petitioners is: "If not, formalities, the law considers them as partners and the is a chattel mortgage executed by only one of the 'partners' of association is a partnership in so far as it is a favorable to third an unregistered commercial partnership validly registered so persons, by reason of the equitable principle of estoppel. In Jo as to constitute notice to the world if Chung Chang vs. Pacific Commercial Co., 45 Phil., 145, it was 162 held "that although the partnership with the firm name of 'Teck 161 162 PHILIPPINE REPORTS ANNOTATED VOL. 99, MAY 21, 1956 MacDonald, et al. vs. Nat. City Bank of N.Y.

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 mortgagornot the residence stated in the deed of chattel mortgageis 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 163 VOL. 99, MAY 21, 1956 163 MacDonald, et al. vs. Nat. City Bank of N.Y. 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 part164 152 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. Suter No. L-25532. February 28, 1969. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents. Partnership; Where respondent company in the case at bar is considered a particular partnership and not universal.The respondent company was not a universal partnership, but a

particular one. As appears f rom Articles 1674 and 1675 of the Spanish Civil Code of 1889 (law in force when firm organized in 1947), a universal partnership requires either that the object of the association be all the present property of the partners, as contributed by them to the common fund, or else all that the partners may acquire by their industry or work during the existence of the partnership. Respondent company was not such a universal partnership, since the contributions of the partners were fixed sums of money and neither one of them was an industrial partner. It follows that respondent company was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce. Same; Where marriage of partners does not make the company a single proprietorship.The capital contributions of re153

can not be extended by mere implication to limited partnerships. Same; Taxation; Change in membership does not remove partnership from coverage of section 24.The limited partnership is not a mere business conduit of the partnerspouses; it was organized for legitimate business purposes; it conducted its own- dealings with its customers prior to appellees marriage, and had been filing its own income tax returns as such independent entity. The change in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest therein. is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the to laws. Regularity, not otherwise, is presumed. The limited partnership is taxable on its income and to require that income to be included in the indiviual tax return of respondent is to overstretch the letter and intent of the law. VOL. 27, FEBRUARY 28, 1969 Same; Same; Members and not firm are taxable in case of 153 compaias colectivas.In fact, it would even conflict with what Commissioner of Internal Revenue vs. Suter it specifically provides in its Section 24: for the appellants spondents-partners were separately owned and contributed by stand results in equal treatment, taxwise, of a general them before their marriage; and after they were joined in copartnership (compania colectiva) and a limited partnership, wedlock, such contributions remained their respective separate when the code plainly differentiates the two. Thus, the code property under the Spanish Civil Code. taxes the latter on its income, but not the former, because it is Same; Partnership has distinct and separate personality from in the case of compaias colectivas that the members, and not that of its partners; Section 24 of Internal Revenue Code is the firm, are taxable in their individual capacities for any exception to the rule.The basic tenet of ,the Spanish and dividend or share of the profit derived from the duly registered Philippine law is that the partnership has a juridical personality general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris of its own, distinct and separate from that of its partners, the on the N.I.R.C., As Amended, Vol. 1, pp. 8889). bypassing of the existence of the limited partnership as a 154 taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited 154 partnerships separate individuality makes it impossible to SUPREME COURT REPORTS ANNOTATED equate its income with that of the component members. True, Commissioner of Internal Revenue vs. Suter section 24 of the Internal Revenue Code merges registered Same; Same; Income of limited partnership forming part of the general copartnerships with the personality of the individual conjugal partnership is not wholly correct.That the income of partners for income tax purposes. But this rule is exceptional in the limited partnership is actually or constructively the income its disregard of a cardinal tenet of our partnership laws, and of the spouses and forms part of the conjugal partnership of

gains is not wholly correct. The fruits of the wifes paraphernal become conjugal only when no longer needed to defray ,the expenses for the administration and preservation of the paraphernal capital of the wife. Then again, the appellants argument erroneously conf ines itself to the question of the legal personality of the limited partnership since the law taxes the income of even joint accounts that have no personality of their own. (Agapito v. Molo, 59 Phil. 779; Peoples Bank v. Register of Deeds of Manila, 60 Phil. 167; V. Evangelista v. Collector of Internal Revenue, 102 Phil. 140; Collector v. Batangas Transportation Co., 102 Phil. 822.) Same; Same; What is taxable is income of both spouses, not the conjugal partnership.Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the income of both spouses (Section 45 [d]) in their individual capacities. Though the amount of income (income of the conjugal partnernership vis-a-vis the joint income of husband and wife) may be the same for a given taxable year, their consequences would ,be different, as their contributions in the business partnership are not .the same. Same; Same; Revenue code does not authorize consolidation of income of limited partnership and income of spouses.The diff erence in tax rates between the income of the limited partnership being consolidated with, and when split from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership .to pay tax on its own income. PETITION for review of a decision of the Court of Tax Appeals. The facts are stated in the opinion of the Court. Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa, Jr. for petitioner. A.S. Monzon, Gutierrez, Farrales & Ong for respondents. REYES, J.B.L., J.: A limited partnership, named William J. Suter Morcoin Co., Ltd.," was formed on 30 September 1947 by herein 155 VOL. 27, FEBRUARY 28, 1969

155 Commissioner of Internal Revenue vs. Suter respondent William J. Suter, as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited partnership was registered with the Securities and Exchange Commission. The firm engaged, among other activities, in the importation, marketing, distribution and operation of automatic phonographs, radios, television sets and amusement machines, their parts and accessories.- It had an office and held itself out as a limited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation with the Central Bank. In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded with the Securities and Exchange Commission on 20 December 1948. The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm and the individual incomes of the partnersspouses Suter and Spirig, resulting in a determination of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955. Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to the Court of Tax Appeals. which court, after trial, rendered a decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue. The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax courts aforesaid decision. It raises these issues: (a) Whether or not the corporate personality of the William J. Suter Morcoin Co., Ltd. should be disregarded 156 156

SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. Suter for income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter, actually formed a single taxable unit; and (b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and Julia Spirig Suter, and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00. The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the partnership dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership should be disregarded for income tax purposes because the spouses have exclusive ownership and control of the business; consequently, the income tax return of respondent Suter for the years in question should have included his and his wifes individual incomes and that of the limited partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, which provides as follows: "(d) Husband and wife.In the case of married persons, whether citizens, residents or non-residents, only one consolidated return for the taxable year shall be filed by either spouse to cover the income of both spouses; x x x. In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his marriage with limited partner Spirig and their acquisition of Carlsons interests in the partnership in 1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New Civil Code, and that since its juridical personality had not been affected and since, as a limited partnership, as contradistinguished from a duly registered general partnership, it is taxable on its income similarly with corporations, Suter was not bound to include in his individual return the income of the limited partnership. We find the Commissioners appeal unmeritorious. 157 VOL. 27, FEBRUARY 28, 1969 157

Commissioner of Internal Revenue vs. Suter The thesis that the limited partnership, William J. Suter Morcoin Co., Ltd., has been dissolved by operation of law because of the marriage of the only general partner, William J. Suter, to the originally limited partner, Julia Spirig, one year after the partnership was organized is rested by the appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows: A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are prohibited from entering into universal partnerships. (2 Echaverri, 196) It follows that the marriage of partners necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)' " The petitioner-appellant has evidently failed to observe the fact that William J. Suter Morcoin Co., Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil Code of 1889 (which was the law in force when the subject firm was organized in 1947), a universal partnership requires either that the object of the association be all the present property of the partners, as contributed by them to the common fund, or else all that the partners may acquire by their industry or work during the existence of the partnership. William J. Suter Morcoin Co., Ltd. was not such a universal partnership, since the contributions of the partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig, and neither one of them was an industrial partner. It follows that William J. Suter Morcoin Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. The former Chief Justice of the Spanish Supreme Court, D. Jos Casn, in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid Article 1677: Los cnyuges, segn esto, no pueden celebrar entre s el contrato de sociedad universal, pero 6 podrn constituir sociedad 158

159 158 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. Suter particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segn ! a que toda persona es capaz para contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccin de los Registros fue favorable a esta misma tesis en su resolucin de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943." Nor could the subsequent marriage of the partners ate to dissolve it, such marriage not being one of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce. The appellants view, that by the marriage of both partners the company became a single proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately owned and contributed by them before their marriage; and after they were joined in wedlock, such contributions remained their respective separate property under the Spanish Civil Code (Article 1396): The following shall be the exclusive property of each spouse: (a) That which is brought to the marriage as his or her own; x x x, Thus, the individual interest of each consort in William J. Suter Morcoin Co., Ltd. did not become common property of both after their marriage in 1948. It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct and separate from-that of its partners (unlike American and English law that does not recognize such separate juridical personality), the bypassing of the existence of the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law, The limited partnerships separate individuality makes it .impossible to equate its income with that of the component members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships (compaias colectivas) with the personality VOL. 27, FEBRUARY 28, 1969 159 Commissioner of Internal Revenue vs. Suter of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to limited partnerships. The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality of the corporations involved therein are not applicable to the present case. In the cited cases, the corporations were already subject to tax when the fiction of their corporate personality was pierced; in the present case, to do so would exempt the limited partnership from income taxation but would throw the tax burden upon the partnersspouses in their individual capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is not true in the present case. Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own dealings with its customers prior to appellees marriage, and had been filing its own income tax returns as such independent entity. The change in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed. As the limited partnership under consideration is taxable on its income, to require that income to be included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with what it specifically provides in

160 160 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. Suter its Section 24: for the appellant Commissioners stand results in equal treatment, taxwise, of a general copartnership (compaia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but not the f ormer, because it is in the case of compaias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 8889). But it is argued that the income of the limited partnership is actually or constructively the income of the spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo, 50 Phil. 779, and Peoples Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wifes parapherna become conjugal only when no longer needed to defray the expenses for the administration and preservation of the paraphernal capital of the wife. Then again, the appellants argument erroneously confines itself to the question of the legal personality of the limited partnership, which is not essential to the income taxability of the partnership since the law taxes the income of even joint accounts that have no personality of their own.1 Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the income of both spouses (Section 45 [d]) in their individual capacities. Though the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable year, their consequences would be different, as their contributions in the business partnership are not the same. The difference in tax rates between the income of the limited partnership being consolidated with, and when split from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it present________________

1 V. Evangelista vs. Collector of Internal Revenue, 102 Phil 140; Collector vs. Batangas Transportation Co., 102 Phil. 822. 161

VOL. 224, JUNE 30, 1993 75 Yu vs. National Labor Relations Commission G.R. No. 97212. June 30, 1993.* BENJAMIN YU, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents. Labor Law; Corporation Law; Partnership; Court agrees with the result reached by the NLRC that the legal effect of the changes in the _______________ * THIRD DIVISION. 76 76 SUPREME COURT REPORTS ANNOTATED Yu vs. National Labor Relations Commission membership of the partnership was the dissolution of the old partnership.In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes in the membership of the partnership was the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

Same; Same; Same; Occurrence of events which precipitate the legal consequence of dissolution of a partnership do not automatically result in the termination of the legal personality of the old partnership.The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the legal personality of the old partnership. Same; Same; Same; The legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership.In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the business enterprise owned by the preceding partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then reassembling the said assets or most of them and opening a new business enterprise. Same; Same; Same; A withdrawing partner remains liable to a third party creditor of the old partnership.What is important for present purposes is that, under the above described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party creditor of the old partnership. Same; Same; Same; Creditors of the old Jade Mountain are also creditors of the New Jade Mountain which continued the business of the old one without liquidation of the partnership affairs.Under Article 77 VOL. 224, JUNE 30, 1993 77

Yu vs. National Labor Relations Commission 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such retired partners interest in the dissolved partnership is concerned. Same; Same; Same; The new partnership is entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise taken over.It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise taken over. An assistant general manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy. PETITION for certiorari to review the resolution of the National Labor Relations Commission. The facts are stated in the opinion of the Court. Jose C. Guico, Jr. for petitioner. Wilfredo Cortez for private respondents. FELICIANO, J.: Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business operated by a registered partnership with the firm name of Jade Mountain Products Company Limited (Jade Mountain). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chiu Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan

Province, under a Memorandum Agreement dated 26 June 1984 with 78 78 SUPREME COURT REPORTS ANNOTATED Yu vs. National Labor Relations Commission the Cruz spouses.1 The partnership had its main office in Makati, Metropolitan Manila. Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half of his stipulated monthly salary, since he had accepted the promise of the partners that the balance would be paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed the operations and finances of the business; he had overall supervision of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the exportation of the firms products. Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved the firms main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in February of 1988.2 The actual operations of the business enterprise continued as before. All the employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it turned out. On 16 November 1987, having learned of the transfer of the firms main office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy Co for the first time.

Petitioner was informed by Willy Co that the latter had bought the business from the original partners and that it was for him to decide _______________ 1 Rollo, pp. 11, 28, 31, 35 and 43. 2 Id., pp. 31, 43 and 68. 79 VOL. 224, JUNE 30, 1993 79 Yu vs. National Labor Relations Commission whether or not he was responsible for the obligations of the old partnership, including petitioners unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid.3 On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing from November 1984 to October 1988, moral and exemplary damages and attorneys fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioners charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new partnership.4 In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries, backwages and attorneys fees.5 On Appeal, the National Labor Relations Commission (NLRC) reversed the decision of the Labor Arbiter and dismissed petitioners complaint in a Resolution dated 29 November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new partnership had not retained petitioner Yu in his original position as Assistant General Manager, and that there was no law requiring the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had simply declined to retain him in his former managerial position or any other position. Finally, The NLRC held that Benjamin Yus claim for unpaid wages should be asserted against the original members of the preceding

partnership, but these though impleaded had, apparently, not been served with summons in the proceedings before the Labor Arbiter.6 Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the Resolution of _______________ 3 Id., 4 Id., 5 Id., 6 Id., 80 pp. pp. pp. pp. 36 and 44. 40-41. 36-38. 45-46.

relating to partnerships. Article 1828 of the Civil Code provides as follows: Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (Emphasis supplied) Article 1830 of the same Code must also be noted: Art. 1830. Dissolution is caused: (1) without violation of the agreement between the partners: _______________ 7 Id., pp. 9-10. 81 VOL. 224, JUNE 30, 1993 81 Yu vs. National Labor Relations Commission xxx xxx xxx (b) by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified; xxx xxx xxx (2) in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; xxx xxx xxx (Emphasis supplied) In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to constitute a new partnership. The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the legal personality

80 SUPREME COURT REPORTS ANNOTATED Yu vs. National Labor Relations Commission the NLRC as a product of grave abuse of discretion amounting to lack or excess of jurisdiction. The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical personality separate and distinct from that of each of its members. Such independent legal personality subsists, petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in the latters membership.7 Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership. In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes in the membership of the partnership was the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987. The applicable law in this connectionof which the NLRC seemed quite unawareis found in the Civil Code provisions

of the old partnership. Article 1829 of the Civil Code states that: [o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the business enterprise owned by the preceding partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business enterprise. There were, no doubt, powerful tax considerations which underlay such an informal approach to business on the 82 82 SUPREME COURT REPORTS ANNOTATED Yu vs. National Labor Relations Commission part of the retiring and the incoming partners. It is not, however, necessary to inquire into such matters. What is important for present purposes is that, under the above described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al.,8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party creditor of the old partnership.9 The liability of the new partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as follows: Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs; (2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others; (3)When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property; (4)When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership; (5)When any partner wrongfully causes a dissolution and remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without _______________ 8 88 SCRA 623 (1979). 9 88 SCRA 642-643. 83 VOL. 224, JUNE 30, 1993 83 Yu vs. National Labor Relations Commission liquidation of the partnership affairs; (6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs; The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of

the partnership property only, unless there is a stipulation to the contrary. When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business on account of the retired or deceased partners interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property. Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. xxx xxx xxx (Emphasis supplied) Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such retired partners interest in the dissolved partnership is concerned. It is not necessary for the Court to determine under which one or more of the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not detailed with sufficient precision to permit such determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain. It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise taken over. An assistant general manager belongs to the most senior ranks of management and a new partnership is 84 84

SUPREME COURT REPORTS ANNOTATED Yu vs. National Labor Relations Commission entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy.10 The new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yus old position as Assistant General Manager thus became superfluous or redundant.11 It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one months pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole year. While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly benefitted from the services of Benjamin _______________ 10 Art. 283. Closure of establishment and reduction of personnel.The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this title, by serving written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses or in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6)

months shall be considered one (1) whole year. (This provision is identical with that existing in 1987, except that the provision was numerically designated in 1987 as Article 284), Labor Code. 11 See, in this connection, Wiltshire File Co., Inc. v. National Labor Relations Commission, et al., 193 SCRA 665 (1991). 85 VOL. 224, JUNE 30, 1993 85 Yu vs. National Labor Relations Commission Yu who, as noted, previously ran the whole marble quarrying, processing and exporting enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying moral damages. This Court, exercising its discretion and in view of all the circumstances of this case, believes that an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable. In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorneys fees in the amount often percent (10%) of the total amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following amounts: (a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 86