G.R. No. 136448 November 3, 1999 No.

14413
for
LIM TONG LIM, petitioner, P146,868.0
vs. 0 dated
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent. February
13, 1990;

iii. Accrued
interest of
PANGANIBAN, J.: P12,920.00
on Invoice
A partnership may be deemed to exist among parties who agree to No. 14426
borrow money to pursue a business and to divide the profits or for
losses that may arise therefrom, even if it is shown that they have P68,000.00
not contributed any capital of their own to a "common fund." Their dated
contribution may be in the form of credit or industry, not February
necessarily cash or fixed assets. Being partner, they are all liable 19, 1990;
for debts incurred by or on behalf of the partnership. The liability
for a contract entered into on behalf of an unincorporated c. P50,000.00 as and for
association or ostensible corporation may lie in a person who may attorney's fees, plus
not have directly transacted on its behalf, but reaped benefits from P8,500.00 representing
that contract. P500.00 per appearance in
court;
The Case
d. P65,000.00 representing
In the Petition for Review on Certiorari before us, Lim Tong Lim P5,000.00 monthly rental for
assails the November 26, 1998 Decision of the Court of Appeals in storage charges on the nets
CA-GR CV counted from September 20,
1
41477, which disposed as follows: 1990 (date of attachment) to
September 12, 1991 (date of
WHEREFORE, [there being] no reversible error auction sale);
in the appealed decision, the same is hereby
2
affirmed. e. Cost of suit.

The decretal portion of the Quezon City Regional Trial Court
(RTC) ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of
preliminary attachment issued by this Court on
September 20, 1990;
2. That defendants are jointly liable to plaintiff for
the following amounts, subject to the
modifications as hereinafter made by reason of
the special and unique facts and circumstances
and the proceedings that transpired during the
trial of this case;
a. P532,045.00 representing
[the] unpaid purchase price of
the fishing nets covered by the
Agreement plus P68,000.00
representing the unpaid price
of the floats not covered by
said Agreement;
b. 12% interest per
annum counted from date of
plaintiff's invoices and
computed on their respective
amounts as follows:
i. Accrued
interest of
P73,221.00
on Invoice
No. 14407
for
P385,377.8
0 dated
February 9,
1990;
ii. Accrued
interest for
P27,904.02
on Invoice
With respect to the joint liability of
defendants for the principal obligation
or for the unpaid price of nets and
floats in the amount of P532,045.00
and P68,000.00, respectively, or for the
total amount P600,045.00, this Court
noted that these items were attached to
guarantee any judgment that may be
rendered in favor of the plaintiff but,
upon agreement of the parties, and, to
avoid further deterioration of the nets
during the pendency of this case, it was
ordered sold at public auction for not
less than P900,000.00 for which the
plaintiff was the sole and winning
bidder. The proceeds of the sale paid
for by plaintiff was deposited in court. In
effect, the amount of P900,000.00
replaced the attached property as a
guaranty for any judgment that plaintiff
may be able to secure in this case with
the ownership and possession of the
nets and floats awarded and delivered
by the sheriff to plaintiff as the highest
bidder in the public auction sale. It has
also been noted that ownership of the
nets [was] retained by the plaintiff until
full payment [was] made as stipulated
in the invoices; hence, in effect, the
plaintiff attached its own properties. It
[was] for this reason also that this Court
earlier ordered the attachment bond
filed by plaintiff to guaranty damages to
defendants to be cancelled and for the
P900,000.00 cash bidded and paid for
by plaintiff to serve as its bond in favor
of defendants.
From the foregoing, it would appear
therefore that whatever judgment the
plaintiff may be entitled to in this case
will have to be satisfied from the
amount of P900,000.00 as this amount
replaced the attached nets and floats.
Considering, however, that the total
judgment obligation as computed
above would amount to only
 P840,216.92, it would be inequitable, b) If the four (4) vessel[s] and
unfair and unjust to award the excess the fishing net will be sold at a
to the defendants who are not entitled higher price than
to damages and who did not put up a P5,750,000.00 whatever will
single centavo to raise the amount of be the excess will be divided
P900,000.00 aside from the fact that into 3: 1/3 Lim Tong Lim; 1/3
they are not the owners of the nets and Antonio Chua; 1/3 Peter Yao;
floats. For this reason, the defendants
are hereby relieved from any and all c) If the proceeds of the sale
liabilities arising from the monetary the vessels will be less than
judgment obligation enumerated above P5,750,000.00 whatever the
and for plaintiff to retain possession deficiency shall be shouldered
and ownership of the nets and floats and paid to JL Holding
and for the reimbursement of the Corporation by 1/3 Lim Tong
P900,000.00 deposited by it with the Lim; 1/3 Antonio Chua; 1/3
Clerk of Court. Peter Yao.
11

3
SO ORDERED. The trial court noted that the Compromise Agreement was silent
as to the nature of their obligations, but that joint liability could be
21
The Facts presumed from the equal distribution of the profit and loss.

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
and Peter Yao entered into a Contract dated February 7, 1990, for
the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed
that they were engaged in a business venture with Petitioner Lim
Tong Lim, who however was not a signatory to the agreement.
The total price of the nets amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also sold to the Corporation.
4 of Chua and Yao in a fishing business and may thus be held liable
The buyers, however, failed to pay for the fishing nets and the
floats; hence, private respondents filed a collection suit against
Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three in
their capacities as general partners, on the allegation that "Ocean
Quest Fishing Corporation" was a nonexistent corporation as
shown by a Certification from the Securities and Exchange
5
Commission. On September 20, 1990, the lower court issued a
Writ of Preliminary Attachment, which the sheriff enforced by
attaching the fishing nets on board F/B Lourdes which was then
docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within
which to pay. He also turned over to respondent some of the nets
which were in his possession. Peter Yao filed an Answer, after
which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his
failure to appear in subsequent hearings. Lim Tong Lim, on the
other hand, filed an Answer with Counterclaim and Crossclaim and
6
moved for the lifting of the Writ of Attachment. The trial court
maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction. Philippine
Fishing Gear Industries won the bidding and deposited with the
7 I THE COURT OF APPEALS ERRED IN
said court the sales proceeds of P900,000.
On November 18, 1992, the trial court rendered its Decision, ruling
that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners,
8
were jointly liable to pay respondent.
Lim appealed to the Court of Appeals (CA) which, as already
stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner
as a such for the fishing nets and floats purchased by and for the
use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants
including herein appellant Lim Tong Lim
undertook a partnership for a specific
undertaking, that is for commercial fishing . . . .
Oviously, the ultimate undertaking of the
defendants was to divide the profits among
themselves which is what a partnership
essentially is . . . . By a contract of partnership,
two or more persons bind themselves to
contribute money, property or industry to a
common fund with the intention of dividing the
profits among themselves (Article 1767, New
Civil Code).
13
14
Hence, petitioner brought this recourse before this Court.
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse
the assailed Decision on the following grounds:
HOLDING, BASED ON A COMPROMISE
AGREEMENT THAT CHUA, YAO AND
PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP
AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO

The trial court ruled that a partnership among Lim, Chua and Yao
existed based (1) on the testimonies of the witnesses presented
9
and (2) on a Compromise Agreement executed by the three in
Civil Case No. 1492-MN which Chua and Yao had brought against
Lim in the RTC of Malabon, Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a reformation of contracts; (c)
a declaration of ownership of fishing boats; (d) an injunction and
10
(e) damages. The Compromise Agreement provided:
a) That the parties plaintiffs &
Lim Tong Lim agree to have
the four (4) vessels sold in the
amount of P5,750,000.00
including the fishing net. This
P5,750,000.00 shall be
applied as full payment for
P3,250,000.00 in favor of JL
Holdings Corporation and/or
Lim Tong Lim;
REPRESENTED THAT HE WAS ACTING FOR
OCEAN QUEST FISHING CORPORATION
WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF
APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY
ORDERED THE SEIZURE AND ATTACHMENT
OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing
nets and floats from respondent, the Court must resolve this key
issue: whether by their acts, Lim, Chua and Yao could be deemed
to have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit. Antonio Chua and Peter Yao against Lim Tong
Lim for (a) declaration of nullity of commercial
First and Second Issues: documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4)
injunction; and (e) damages.
Existence of a Partnership
(9) That the case was amicably settled through a
and Petitioner's Liability Compromise Agreement executed between the
parties-litigants the terms of which are already
In arguing that he should not be held liable for the equipment enumerated above.
purchased from respondent, petitioner controverts the CA finding
that a partnership existed between him, Peter Yao and Antonio From the factual findings of both lower courts, it is clear that Chua,
Chua. He asserts that the CA based its finding on the Compromise Yao and Lim had decided to engage in a fishing business, which
Agreement alone. Furthermore, he disclaims any direct they started by buying boats worth P3.35 million, financed by a
participation in the purchase of the nets, alleging that the loan secured from Jesus Lim who was petitioner's brother. In their
negotiations were conducted by Chua and Yao only, and that he Compromise Agreement, they subsequently revealed their
has not even met the representatives of the respondent company. intention to pay the loan with the proceeds of the sale of the boats,
Petitioner further argues that he was a lessor, not a partner, of and to divide equally among them the excess or loss. These boats,
Chua and Yao, for the "Contract of Lease " dated February 1, the purchase and the repair of which were financed with borrowed
1990, showed that he had merely leased to the two the main asset money, fell under the term "common fund" under Article 1767. The
of the purported partnership the fishing boat F/B Lourdes. The contribution to such fund need not be cash or fixed assets; it could
lease was for six months, with a monthly rental of P37,500 plus 25 be an intangible like credit or industry. That the parties agreed that
percent of the gross catch of the boat. any loss or profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed
We are not persuaded by the arguments of petitioner. The facts as formed a partnership.
found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of Moreover, it is clear that the partnership extended not only to the
the Civil Code which provides: purchase of the boat, but also to that of the nets and the floats.
The fishing nets and the floats, both essential to fishing, were
Art. 1767 By the contract of partnership, two obviously acquired in furtherance of their business. It would have
or more persons bind themselves to contribute been inconceivable for Lim to involve himself so much in buying
money, property, or industry to a common fund, the boat but not in the acquisition of the aforesaid equipment,
with the intention of dividing the profits among without which the business could not have proceeded.
themselves.
Given the preceding facts, it is clear that there was, among
Specifically, both lower courts ruled that a partnership among the petitioner, Chua and Yao, a partnership engaged in the fishing
15
three existed based on the following factual findings: business. They purchased the boats, which constituted the main
assets of the partnership, and they agreed that the proceeds from
(1) That Petitioner Lim Tong Lim requested the sales and operations thereof would be divided among them.
Peter Yao who was engaged in commercial
fishing to join him, while Antonio Chua was We stress that under Rule 45, a petition for review like the present
already Yao's partner; case should involve only questions of law. Thus, the foregoing
factual findings of the RTC and the CA are binding on this Court,
(2) That after convening for a few times, Lim, absent any cogent proof that the present action is embraced by
16
Chua, and Yao verbally agreed to acquire two one of the exceptions to the rule. In assailing the factual findings
fishing boats, the FB Lourdes and the FB of the two lower courts, petitioner effectively goes beyond the
Nelson for the sum of P3.35 million; bounds of a petition for review under Rule 45.

Compromise Agreement
(3) That they borrowed P3.25 million from Jesus
Lim, brother of Petitioner Lim Tong Lim, to
finance the venture. Not the Sole Basis of Partnership

(4) That they bought the boats from CMF
Fishing Corporation, which executed a Deed of
Sale over these two (2) boats in favor of
Petitioner Lim Tong Lim only to serve as security
for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the
refurbishing, re-equipping, repairing, dry docking
and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," partnership among the parties. In implying that the lower courts
Jesus Lim again extended a loan to the
partnership in the amount of P1 million secured
by a check, because of which, Yao and Chua
entrusted the ownership papers of two other
boats, Chua's FB Lady Anne Mel and Yao's
FB Tracy to Lim Tong Lim.
Petitioner argues that the appellate court's sole basis for assuming
the existence of a partnership was the Compromise Agreement.
He also claims that the settlement was entered into only to end the
dispute among them, but not to adjudicate their preexisting rights
and obligations. His arguments are baseless. The Agreement was
but an embodiment of the relationship extant among the parties
prior to its execution.
A proper adjudication of claimants' rights mandates that courts
must review and thoroughly appraise all relevant facts. Both lower
courts have done so and have found, correctly, a preexisting
have decided on the basis of one piece of document alone,
petitioner fails to appreciate that the CA and the RTC delved into
the history of the document and explored all the possible
consequential combinations in harmony with law, logic and
fairness. Verily, the two lower courts' factual findings mentioned
above nullified petitioner's argument that the existence of a
partnership was based only on the Compromise Agreement.

(7) That in pursuance of the business

agreement, Peter Yao and Antonio Chua bought
nets from Respondent Philippine Fishing Gear,
in behalf of "Ocean Quest Fishing Corporation,"
their purported business name.
(8) That subsequently, Civil Case No. 1492-MN
was filed in the Malabon RTC, Branch 72 by
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely
the lessor of the boats to Chua and Yao, not a partner in the
fishing venture. His argument allegedly finds support in the
Contract of Lease and the registration papers showing that he was On the other hand, a third party who, knowing an association to be
the owner of the boats, including F/B Lourdes where the nets were unincorporated, nonetheless treated it as a corporation and
found. received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation. In such
His allegation defies logic. In effect, he would like this Court to case, all those who benefited from the transaction made by the
believe that he consented to the sale of his own boats to pay a ostensible corporation, despite knowledge of its legal defects, may
debt of Chua and Yao, with the excess of the proceeds to be be held liable for contracts they impliedly assented to or took
divided among the three of them. No lessor would do what advantage of.
petitioner did. Indeed, his consent to the sale proved that there
was a preexisting partnership among all three. There is no dispute that the respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the nets it sold. The only
18
Verily, as found by the lower courts, petitioner entered into a question here is whether petitioner should be held jointly liable
business agreement with Chua and Yao, in which debts were with Chua and Yao. Petitioner contests such liability, insisting that
undertaken in order to finance the acquisition and the upgrading of only those who dealt in the name of the ostensible corporation
the vessels which would be used in their fishing business. The should be held liable. Since his name does not appear on any of
sale of the boats, as well as the division among the three of the the contracts and since he never directly transacted with the
balance remaining after the payment of their loans, proves beyond respondent corporation, ergo, he cannot be held liable.
cavil that F/B Lourdes, though registered in his name, was not his
own property but an asset of the partnership. It is not uncommon Unquestionably, petitioner benefited from the use of the nets found
to register the properties acquired from a loan in the name of the inside F/B Lourdes, the boat which has earlier been proven to be
person the lender trusts, who in this case is the petitioner himself. an asset of the partnership. He in fact questions the attachment of
After all, he is the brother of the creditor, Jesus Lim. the nets, because the Writ has effectively stopped his use of the
fishing vessel.
We stress that it is unreasonable indeed, it is absurd for
petitioner to sell his property to pay a debt he did not incur, if the It is difficult to disagree with the RTC and the CA that Lim, Chua
relationship among the three of them was merely that of lessor- and Yao decided to form a corporation. Although it was never
lessee, instead of partners. legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in
Corporation by Estoppel representation of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general
Petitioner argues that under the doctrine of corporation by partners.
estoppel, liability can be imputed only to Chua and Yao, and not to
him. Again, we disagree.
Technically, it is true that petitioner did not directly act on behalf of
the corporation. However, having reaped the benefits of the
Sec. 21 of the Corporation Code of the Philippines provides: contract entered into by persons with whom he previously had an
existing relationship, he is deemed to be part of said association
Sec. 21. Corporation by estoppel. All persons and is covered by the scope of the doctrine of corporation by
who assume to act as a corporation knowing it estoppel. We reiterate the ruling of the Court in Alonso
19
to be without authority to do so shall be liable as v. Villamor:
general partners for all debts, liabilities and
damages incurred or arising as a result A litigation is not a game of technicalities in
thereof: Provided however, That when any such which one, more deeply schooled and skilled in
ostensible corporation is sued on any the subtle art of movement and position, entraps
transaction entered by it as a corporation or on and destroys the other. It is, rather, a contest in
any tort committed by it as such, it shall not be which each contending party fully and fairly lays
allowed to use as a defense its lack of corporate before the court the facts in issue and then,
personality. brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of
One who assumes an obligation to an ostensible procedure, asks that justice be done upon the
corporation as such, cannot resist performance merits. Lawsuits, unlike duels, are not to be won
thereof on the ground that there was in fact no by a rapier's thrust. Technicality, when it deserts
corporation. its proper office as an aid to justice and
becomes its great hindrance and chief enemy,
Thus, even if the ostensible corporate entity is proven to be legally deserves scant consideration from courts. There
nonexistent, a party may be estopped from denying its corporate should be no vested rights in technicalities.
existence. "The reason behind this doctrine is obvious an
unincorporated association has no personality and would be Third Issue:
incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot create Validity of Attachment
agents or confer authority on another to act in its behalf; thus,
those who act or purport to act as its representatives or agents do
so without authority and at their own risk. And as it is an Finally, petitioner claims that the Writ of Attachment was
elementary principle of law that a person who acts as an agent improperly issued against the nets. We agree with the Court of
without authority or without a principal is himself regarded as the Appeals that this issue is now moot and academic. As previously
principal, possessed of all the right and subject to all the liabilities discussed, F/B Lourdes was an asset of the partnership and that it
of a principal, a person acting or purporting to act on behalf of a was placed in the name of petitioner, only to assure payment of
corporation which has no valid existence assumes such privileges the debt he and his partners owed. The nets and the floats were
and obligations and becomes personally liable for contracts specifically manufactured and tailor-made according to their own
entered into or for other acts performed as such agent.
17 design, and were bought and used in the fishing venture they
agreed upon. Hence, the issuance of the Writ to assure the
payment of the price stipulated in the invoices is proper. Besides,
The doctrine of corporation by estoppel may apply to the alleged by specific agreement, ownership of the nets remained with
corporation and to a third party. In the first instance, an Respondent Philippine Fishing Gear, until full payment thereof.
unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such WHEREFORE, the Petition is DENIED and the assailed Decision
representation. It cannot allege lack of personality to be sued to AFFIRMED. Costs against petitioner.
evade its responsibility for a contract it entered into and by virtue
of which it received advantages and benefits. SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur. became the basis of subsequent renewals made for and in behalf
of the duly registered partnership EDE.
Vitug, J., pls. see concurring opinion. Under the said Articles of Co-Partnership, appellee Maglana shall
manage the business affairs of the partnership, including
Separate Opinions marketing and handling of cash and is authorized to sign all
papers and instruments relating to the partnership, while appellant
Rojas shall be the logging superintendent and shall manage the
VITUG, J., concurring opinion;
logging operations of the partnership. It is also provided in the said
articles of co-partnership that all profits and losses of the
I share the views expressed in the ponencia of an esteemed partnership shall be divided share and share alike between the
colleague, Mr. Justice Artemio V. Panganiban, particularly the partners.
finding that Antonio Chua, Peter Yao and petitioner Lim Tong Lim
have incurred the liabilities of general partners. I merely would During the period from January 14, 1955 to April 30, 1956, there
wish to elucidate a bit, albeit briefly, the liability of partners in a was no operation of said partnership (Record on Appeal [R.A.] p.
general partnership. 946).
Because of the difficulties encountered, Rojas and Maglana
When a person by his act or deed represents himself as a partner decided to avail of the services of Pahamotang as industrial
in an existing partnership or with one or more persons not actual partner.
partners, he is deemed an agent of such persons consenting to
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang
such representation and in the same manner, if he were a partner,
with respect to persons who rely upon the representation. The
1 executed their Articles of Co-Partnership (Exhibit "B" and Exhibit
"C") under the firm name EASTCOAST DEVELOPMENT
association formed by Chua, Yao and Lim, should be, as it has
been deemed, a de facto partnership with all the consequent ENTERPRISES (EDE). Aside from the slight difference in the
purpose of the second partnership which is to hold and secure
obligations for the purpose of enforcing the rights of third persons.
renewal of timber license instead of to secure the license as in the
The liability of general partners (in a general partnership as so
first partnership and the term of the second partnership is fixed to
opposed to a limited partnership) is laid down in Article
2
1816 which posits that all partners shall be liable pro rata beyond thirty (30) years, everything else is the same.
the partnership assets for all the contracts which may have been The partnership formed by Maglana, Pahamotang and Rojas
entered into in its name, under its signature, and by a person started operation on May 1, 1956, and was able to ship logs and
authorized to act for the partnership. This rule is to be construed realize profits. An income was derived from the proceeds of the
along with other provisions of the Civil Code which postulate that logs in the sum of P643,633.07 (Decision, R.A. 919).
the partners can be held solidarily liable with the partnership
specifically in these instances (1) where, by any wrongful act or On October 25, 1956, Pahamotang, Maglana and Rojas executed
omission of any partner acting in the ordinary course of the a document entitled "CONDITIONAL SALE OF INTEREST IN THE
business of the partnership or with the authority of his co-partners, PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE"
loss or injury is caused to any person, not being a partner in the (Exhibits "C" and "D") agreeing among themselves that Maglana
partnership, or any penalty is incurred, the partnership is liable and Rojas shall purchase the interest, share and participation in
therefor to the same extent as the partner so acting or omitting to the Partnership of Pahamotang assessed in the amount of
act; (2) where one partner acting within the scope of his apparent P31,501.12. It was also agreed in the said instrument that after
authority receives money or property of a third person and payment of the sum of P31,501.12 to Pahamotang including the
misapplies it; and (3) where the partnership in the course of its amount of loan secured by Pahamotang in favor of the
business receives money or property of a third person and the partnership, the two (Maglana and Rojas) shall become the
money or property so received is misapplied by any partner while it owners of all equipment contributed by Pahamotang and the
3
is in the custody of the partnership consistently with the rules EASTCOAST DEVELOPMENT ENTERPRISES, the name also
on the nature of civil liability in delicts and quasi-delicts. given to the second partnership, be dissolved. Pahamotang was
paid in fun on August 31, 1957. No other rights and obligations
accrued in the name of the second partnership (R.A. 921).
[G.R. No. 30616 : December 10, 1990.]
After the withdrawal of Pahamotang, the partnership was
192 SCRA 110 continued by Maglana and Rojas without the benefit of any written
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO agreement or reconstitution of their written Articles of Partnership
B. MAGLANA,Defendant-Appellee. (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract
with another logging enterprise, the CMS Estate, Inc. He left and
DECISION abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the
PARAS, J.: partnership for use in the newly acquired area (Decision, R.A.
948).
The equipment withdrawn were his supposed contributions to the
This is a direct appeal to this Court from a decision ** of the then first partnership and was transferred to CMS Estate, Inc. by way of
Court of First Instance of Davao, Seventh Judicial District, Branch chattel mortgage (Decision, R.A. p. 948).
III, in Civil Case No. 3518, dismissing appellant's complaint.
On March 17, 1957, Maglana wrote Rojas reminding the latter of
As found by the trial court, the antecedent facts of the case are as his obligation to contribute, either in cash or in equipment, to the
follows: capital investments of the partnership as well as his obligation to
perform his duties as logging superintendent.
On January 14, 1955, Maglana and Rojas executed their Articles
of Co-Partnership (Exhibit "A") called Eastcoast Development Two weeks after March 17, 1957, Rojas told Maglana that he will
Enterprises (EDE) with only the two of them as partners. The not be able to comply with the promised contributions and he will
partnership EDE with an indefinite term of existence was duly not work as logging superintendent. Maglana then told Rojas that
registered on January 21, 1955 with the Securities and Exchange the latter's share will just be 20% of the net profits. Such was the
Commission. sharing from 1957 to 1959 without complaint or dispute (Decision,
R.A. 949).: nad
One of the purposes of the duly-registered partnership was to
"apply or secure timber and/or minor forests products licenses and Meanwhile, Rojas took funds from the partnership more than his
concessions over public and/or private forest lands and to operate, contribution. Thus, in a letter dated February 21, 1961 (Exhibit
develop and promote such forests rights and concessions." (Rollo, "10") Maglana notified Rojas that he dissolved the partnership
p. 114). (R.A. 949).
A duly registered Articles of Co-Partnership was filed together with On April 7, 1961, Rojas filed an action before the Court of First
an application for a timber concession covering the area located at Instance of Davao against Maglana for the recovery of properties,
Cateel and Baganga, Davao with the Bureau of Forestry which accounting, receivership and damages, docketed as Civil Case
was approved and Timber License No. 35-56 was duly issued and No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A.
894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed
commissioners to examine the long and voluminous accounts of
the Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21,
1961 (Ibid., pp. 102-114) was denied by Judge Romero for want of
merit (Ibid., p. 125). Judge Romero also required the inclusion of
the entire year 1961 in the report to be submitted by the
commissioners (Ibid., pp. 138-143). Accordingly, the
commissioners started examining the records and supporting
papers of the partnership as well as the information furnished them
by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to
amend his answer with counterclaim, attaching thereto the
amended answer (Ibid., pp. 26-336), which was granted on May
22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted
Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the
order dated May 27, 1964 approving the report of the
commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration
was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964
and the following issues were agreed upon to be submitted to the
trial court:
(a) The nature of partnership and the legal relations of
Maglana and Rojas after the dissolution of the second
partnership;
(b) Their sharing basis: whether in proportion to their
contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his
wife's name;
(d) The damages suffered and who should be liable for
them; and
(e) The legal effect of the letter dated February 23, 1961
of Maglana dissolving the partnership (Decision, R.A. pp.
895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968,
the dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly The main issue in this case is the nature of the partnership and
considered, judgment is hereby rendered by the Court legal relationship of the Maglana-Rojas after Pahamotang retired
declaring that: from the second partnership.
"1. The nature of the partnership and the legal relations of
Maglana and Rojas after Pahamotang retired from the
second partnership, that is, after August 31, 1957, when
Pahamotang was finally paid his share the partnership
of the defendant and the plaintiff is one of a de facto and
at will;
"2. Whether the sharing of partnership profits should be
on the basis of computation, that is the ratio and
proportion of their respective contributions, or on the
basis of share and share alike this covered by actual
contributions of the plaintiff and the defendant and by
their verbal agreement; that the sharing of profits and
losses is on the basis of actual contributions; that from
1957 to 1959, the sharing is on the basis of 80% for the
defendant and 20% for the plaintiff of the profits, but from
1960 to the date of dissolution, February 23, 1961, the
plaintiff's share will be on the basis of his actual
contribution and, considering his indebtedness to the
partnership, the plaintiff is not entitled to any share in the
profits of the said partnership;
"3. As to whether the properties which were bought by the
defendant and placed in his or in his wife's name were
acquired with partnership funds or with funds of the
defendant and the Court declares that there is no
evidence that these properties were acquired by the
partnership funds, and therefore the same should not
belong to the partnership;
"4. As to whether damages were suffered and, if so, how
much, and who caused them and who should be liable for
them the Court declares that neither parties is entitled
to damages, for as already stated above it is not a wise
policy to place a price on the right of a person to litigate
and/or to come to Court for the assertion of the rights
they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant
to the plaintiff dated February 23, 1961; did it dissolve the
partnership or not the Court declares that the letter of
the defendant to the plaintiff dated February 23, 1961, in
effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells
foodstuffs, supplies, and other merchandise to the
laborers and employees of the Eastcoast Development
Enterprises, the COURT DECLARES THE SAME AS
NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B,
executed by Pablo Angeles David is VALID AND
BINDING UPON THE PARTIES AND SHOULD BE
CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to
pay or turn over to the partnership the amount of
P69,000.00 the profits he received from the CMS Estate,
Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay
the further sum of P85,000.00 which according to him he
is still entitled to receive from the CMS Estate, Inc. is
hereby denied considering that it has not yet been
actually received, and further the receipt is merely based
upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to
pay the sum of P62,988.19 his personal account to the
partnership;
"11. The Court also credits the defendant the amount of
P85,000.00 the amount he should have received as
logging superintendent, and which was not paid to him,
and this should be considered as part of Maglana's
contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against
the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-
989).
Rojas interposed the instant appeal.
The lower court is of the view that the second partnership
superseded the first, so that when the second partnership was
dissolved there was no written contract of co-partnership; there
was no reconstitution as provided for in the Maglana, Rojas and
Pahamotang partnership contract. Hence, the partnership which
was carried on by Rojas and Maglana after the dissolution of the
second partnership was a de facto partnership and at will. It was
considered as a partnership at will because there was no term,
express or implied; no period was fixed, expressly or impliedly
(Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership
under the firm name of Eastcoast Development Enterprises (EDE)
evidenced by the Articles of Co-Partnership dated January 14,
1955 (Exhibit "A") has not been novated, superseded and/or
dissolved by the unregistered articles of co-partnership among
appellant Rojas, appellee Maglana and Agustin Pahamotang,
dated March 4, 1956 (Exhibit "C") and accordingly, the terms and
stipulations of said registered Articles of Co-Partnership (Exhibit
"A") should govern the relations between him and Maglana. Upon
withdrawal of Agustin Pahamotang from the unregistered
partnership (Exhibit "C"), the legally constituted partnership EDE
(Exhibit "A") continues to govern the relations between them and it
was legal error to consider a de facto partnership between said
two partners or a partnership at will. Hence, the letter of appellee
Maglana dated February 23, 1961, did not legally dissolve the
registered partnership between them, being in contravention of the
partnership agreement agreed upon and stipulated in their Articles
of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the
rights enumerated in Article 1837 of the Civil Code and to the
sharing profits between them of "share and share alike" as p. 976). It is a settled rule that when a partner who has undertaken
stipulated in the registered Articles of Co-Partnership (Exhibit "A"). to contribute a sum of money fails to do so, he becomes a debtor
of the partnership for whatever he may have promised to
After a careful study of the records as against the conflicting contribute (Article 1786, Civil Code) and for interests and damages
claims of Rojas and Maglana, it appears evident that it was not the from the time he should have complied with his obligation (Article
intention of the partners to dissolve the first partnership, upon the 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94
constitution of the second one, which they unmistakably called an [1984]). Being a contract of partnership, each partner must share
"Additional Agreement" (Exhibit "9-B") (Brief for Defendant- in the profits and losses of the venture. That is the essence of a
Appellee, pp. 24-25). Except for the fact that they took in one partnership (Ibid., p. 95).
industrial partner; gave him an equal share in the profits and fixed
the term of the second partnership to thirty (30) years, everything Thus, as reported in the Commissioners' Report, Rojas is not
else was the same. Thus, they adopted the same name, entitled to any profits. In their voluminous reports which was
EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the approved by the trial court, they showed that on 50-50% basis,
same purposes and the capital contributions of Rojas and Maglana Rojas will be liable in the amount of P131,166.00; on 80-20%, he
as stipulated in both partnerships call for the same amounts. Just will be liable for P40,092.96 and finally on the basis of actual
as important is the fact that all subsequent renewals of Timber capital contribution, he will be liable for P52,040.31.
License No. 35-36 were secured in favor of the First Partnership,
the original licensee. To all intents and purposes therefore, the Consequently, except as to the legal relationship of the partners
First Articles of Partnership were only amended, in the form of after the withdrawal of Pahamotang which is unquestionably a
Supplementary Articles of Co-Partnership (Exhibit "C") which was continuation of the duly registered partnership and the sharing of
never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise profits and losses which should be on the basis of share and share
stated, even during the existence of the second partnership, all alike as provided for in the duly registered Articles of Co-
business transactions were carried out under the duly registered Partnership, no plausible reason could be found to disturb the
articles. As found by the trial court, it is an admitted fact that even findings and conclusions of the trial court.: nad
up to now, there are still subsisting obligations and contracts of the As to whether Maglana is liable for damages because of such
latter (Decision, R.A. pp. 950-957). No rights and obligations withdrawal, it will be recalled that after the withdrawal of
accrued in the name of the second partnership except in favor of Pahamotang, Rojas entered into a management contract with
Pahamotang which was fully paid by the duly registered another logging enterprise, the CMS Estate, Inc., a company
partnership (Decision, R.A., pp. 919-921). engaged in the same business as the partnership. He withdrew his
On the other hand, there is no dispute that the second partnership equipment, refused to contribute either in cash or in equipment to
was dissolved by common consent. Said dissolution did not affect the capital investment and to perform his duties as logging
the first partnership which continued to exist. Significantly, superintendent, as stipulated in their partnership agreement. The
Maglana and Rojas agreed to purchase the interest, share and records also show that Rojas not only abandoned the partnership
participation in the second partnership of Pahamotang and that but also took funds in an amount more than his contribution
thereafter, the two (Maglana and Rojas) became the owners of (Decision, R.A., p. 949).
equipment contributed by Pahamotang. Even more convincing, is In the given situation Maglana cannot be said to be in bad faith nor
the fact that Maglana on March 17, 1957, wrote Rojas, reminding can he be liable for damages.
the latter of his obligation to contribute either in cash or in
equipment, to the capital investment of the partnership as well as PREMISES CONSIDERED, the assailed decision of the Court of
his obligation to perform his duties as logging superintendent. This First Instance of Davao, Branch III, is hereby MODIFIED in the
reminder cannot refer to any other but to the provisions of the duly sense that the duly registered partnership of Eastcoast
registered Articles of Co-Partnership. As earlier stated, Rojas Development Enterprises continued to exist until liquidated and
replied that he will not be able to comply with the promised that the sharing basis of the partners should be on share and
contributions and he will not work as logging superintendent. By share alike as provided for in its Articles of Partnership, in
such statements, it is obvious that Roxas understood what accordance with the computation of the commissioners. We also
Maglana was referring to and left no room for doubt that both hereby AFFIRM the decision of the trial court in all other respects.:
considered themselves governed by the articles of the duly nad
registered partnership. SO ORDERED.
Under the circumstances, the relationship of Rojas and Maglana
after the withdrawal of Pahamotang can neither be considered as
a De Facto Partnership, nor a Partnership at Will, for as stressed,
there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally
dissolve the partnership in the case at bar, the answer is in the
affirmative.
Hence, as there are only two parties when Maglana notified Rojas
that he dissolved the partnership, it is in effect a notice of
withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a
specified term, one partner can cause its dissolution by expressly
withdrawing even before the expiration of the period, with or
without justifiable cause. Of course, if the cause is not justified or
no cause was given, the withdrawing partner is liable for damages
but in no case can he be compelled to remain in the firm. With his
withdrawal, the number of members is decreased, hence, the
dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in
the liquidation of the partnership by the provisions of its duly
registered Articles of Co-Partnership; that is, all profits and losses
of the partnership shall be divided "share and share alike" between
the partners.
But an accounting must first be made and which in fact was
ordered by the trial court and accomplished by the commissioners
appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding
contribution of the partners from 1956-1961 are as follows:
Eufracio Rojas who should have contributed P158,158.00,
contributed only P18,750.00 while Maglana who should have
contributed P160,984.00, contributed P267,541.44 (Decision, R.A.