EN BANC includes the name of a deceased partner, at least where such firm name has
July 30, 1979 acquired the characteristics of a "trade name." 3
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP,
SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR,
FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO.
ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO
H. CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C.
IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and
ALICE V. PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE
FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J.
ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES,
JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F.
BUENAVENTURA, petitioners.
RESOLUTION
MELENCIO-HERRERA, J.: ñé+.£ªwph!1
Two separate Petitions were filed before this Court 1) by the surviving partners
of Atty. Alexander Sycip, who died on May 5, 1975, and 2) by the surviving
partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that
they be allowed to continue using, in the names of their firms, the names of
partners who had passed away. In the Court's Resolution of September 2, 1976,
both Petitions were ordered consolidated.
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing its business
under a firm name which includes the name of a deceased partner; in fact, Article
1840 of the Civil Code explicitly sanctions the practice when it provides in the last
paragraph that: têñ.£îhqwâ£
The use by the person or partnership continuing the business of
the partnership name, or the name of a deceased partner as
part thereof, shall not of itself make the individual property of
the deceased partner liable for any debts contracted by such
person or partnership. 1
2. In regulating other professions, such as accountancy and engineering, the
legislature has authorized the adoption of firm names without any restriction as
to the use, in such firm name, of the name of a deceased partner; 2 the legislative
authorization given to those engaged in the practice of accountancy — a
profession requiring the same degree of trust and confidence in respect of clients
as that implicit in the relationship of attorney and client — to acquire and use a
trade name, strongly indicates that there is no fundamental policy that is
offended by the continued use by a firm of professionals of a firm name which
1|Page
3. The Canons of Professional Ethics are not transgressed by the continued use
of the name of a deceased partner in the firm name of a law partnership because
Canon 33 of the Canons of Professional Ethics adopted by the American Bar
Association declares that: têñ.£îhqwâ£
... The continued use of the name of a deceased or former
partner when permissible by local custom, is not unethical but
care should be taken that no imposition or deception is
practiced through this use. ... 4
4. There is no possibility of imposition or deception because the deaths of their
respective deceased partners were well-publicized in all newspapers of general
circulation for several days; the stationeries now being used by them carry new
letterheads indicating the years when their respective deceased partners were
connected with the firm; petitioners will notify all leading national and
international law directories of the fact of their respective deceased partners'
deaths. 5
5. No local custom prohibits the continued use of a deceased partner's name in
a professional firm's name; 6 there is no custom or usage in the Philippines, or at
least in the Greater Manila Area, which recognizes that the name of a law firm
necessarily Identifies the individual members of the firm. 7
6. The continued use of a deceased partner's name in the firm name of law
partnerships has been consistently allowed by U.S. Courts and is an accepted
practice in the legal profession of most countries in the world.8
The question involved in these Petitions first came under consideration by this
Court in 1953 when a law firm in Cebu (the Deen case) continued its practice of
including in its firm name that of a deceased partner, C.D. Johnston. The matter
was resolved with this Court advising the firm to desist from including in their
firm designation the name of C. D. Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an incident in G. R. No. L-
11964, entitled Register of Deeds of Manila vs. China Banking Corporation. The
law firm of Perkins & Ponce Enrile moved to intervene as amicus curiae. Before
acting thereon, the Court, in a Resolution of April 15, 1957, stated that it "would
like to be informed why the name of Perkins is still being used although Atty. E.
A. Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm
of Perkins and Ponce Enrile, raising substantially the same arguments as those
now being raised by petitioners, prayed that the continued use of the firm name
"Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved: têñ.£îhqwâ£
After carefully considering the reasons given by Attorneys
Alfonso Ponce Enrile and Associates for their continued use of
 the name of the deceased E. G. Perkins, the Court found no
reason to depart from the policy it adopted in June 1953 when
it required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu
City to desist from including in their firm designation, the name
of C. D. Johnston, deceased. The Court believes that, in view of
the personal and confidential nature of the relations between
attorney and client, and the high standards demanded in the
canons of professional ethics, no practice should be allowed
which even in a remote degree could give rise to the possibility
of deception. Said attorneys are accordingly advised to drop the
name "PERKINS" from their firm name.
Petitioners herein now seek a re-examination of the policy thus far enunciated
by the Court.
The Court finds no sufficient reason to depart from the rulings thus laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta,
Romulo, De Leon, Mabanta and Reyes" are partnerships, the use in their
partnership names of the names of deceased partners will run counter to Article
1815 of the Civil Code which provides: têñ.£îhqwâ£
Art. 1815. Every partnership shall operate under a firm name,
which may or may not include the name of one or more of the
partners.
Those who, not being members of the partnership, include their
names in the firm name, shall be subject to the liability, of a
partner.
It is clearly tacit in the above provision that names in a firm name of a partnership
must either be those of living partners and. in the case of non-partners, should
be living persons who can be subjected to liability. In fact, Article 1825 of the Civil
Code prohibits a third person from including his name in the firm name under
pain of assuming the liability of a partner. The heirs of a deceased partner in a
law firm cannot be held liable as the old members to the creditors of a firm
particularly where they are non-lawyers. Thus, Canon 34 of the Canons of
Professional Ethics "prohibits an agreement for the payment to the widow and
heirs of a deceased lawyer of a percentage, either gross or net, of the fees
received from the future business of the deceased lawyer's clients, both because
the recipients of such division are not lawyers and because such payments will
not represent service or responsibility on the part of the recipient. " Accordingly,
neither the widow nor the heirs can be held liable for transactions entered into
after the death of their lawyer-predecessor. There being no benefits accruing,
there ran be no corresponding liability.
Prescinding the law, there could be practical objections to allowing the use by
law firms of the names of deceased partners. The public relations value of the
2|Page
use of an old firm name can tend to create undue advantages and disadvantages
in the practice of the profession. An able lawyer without connections will have to
make a name for himself starting from scratch. Another able lawyer, who can join
an old firm, can initially ride on that old firm's reputation established by deceased
partners.
B. In regards to the last paragraph of Article 1840 of the Civil Code cited by
petitioners, supra, the first factor to consider is that it is within Chapter 3 of Title
IX of the Code entitled "Dissolution and Winding Up." The Article primarily deals
with the exemption from liability in cases of a dissolved partnership, of the
individual property of the deceased partner for debts contracted by the person
or partnership which continues the business using the partnership name or the
name of the deceased partner as part thereof. What the law contemplates
therein is a hold-over situation preparatory to formal reorganization.
Secondly, Article 1840 treats more of a commercial partnership with a good will
to protect rather than of a professional partnership, with no saleable good will
but whose reputation depends on the personal qualifications of its individual
members. Thus, it has been held that a saleable goodwill can exist only in a
commercial partnership and cannot arise in a professional partnership consisting
of lawyers. 9têñ.£îhqwâ£
As a general rule, upon the dissolution of a commercial
partnership the succeeding partners or parties have the right to
carry on the business under the old name, in the absence of a
stipulation forbidding it, (s)ince the name of a commercial
partnership is a partnership asset inseparable from the good will
of the firm. ... (60 Am Jur 2d, s 204, p. 115) (Emphasis supplied)
On the other hand, têñ.£îhqwâ£
... a professional partnership the reputation of which depends
or; the individual skill of the members, such as partnerships of
attorneys or physicians, has no good win to be distributed as a
firm asset on its dissolution, however intrinsically valuable such
skill and reputation may be, especially where there is no
provision in the partnership agreement relating to good will as
an asset. ... (ibid, s 203, p. 115) (Emphasis supplied)
C. A partnership for the practice of law cannot be likened to partnerships formed
by other professionals or for business. For one thing, the law on accountancy
specifically allows the use of a trade name in connection with the practice of
accountancy.10 têñ.£îhqwâ£
A partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. ... It is
not a partnership formed for the purpose of carrying on trade
or business or of holding property." 11 Thus, it has been stated
 that "the use of a nom de plume, assumed or trade name in law
practice is improper. 12
The usual reason given for different standards of conduct being
applicable to the practice of law from those pertaining to
business is that the law is a profession.
Dean Pound, in his recently published contribution to the Survey
of the Legal Profession, (The Lawyer from Antiquity to Modern
Times, p. 5) defines a profession as "a group of men pursuing a
learned art as a common calling in the spirit of public service, —
no less a public service because it may incidentally be a means
of livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession
from business are:
1. A duty of public service, of which the emolument is a
byproduct, and in which one may attain the highest eminence
without making much money.
2. A relation as an "officer of court" to the administration of
justice involving thorough sincerity, integrity, and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor,
fairness, and unwillingness to resort to current business
methods of advertising and encroachment on their practice, or
dealing directly with their clients. 13
"The right to practice law is not a natural or constitutional right but is in the
nature of a privilege or franchise. 14 It is limited to persons of good moral
character with special qualifications duly ascertained and certified. 15 The right
does not only presuppose in its possessor integrity, legal standing and
attainment, but also the exercise of a special privilege, highly personal and
partaking of the nature of a public trust." 16
D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American
Bar Association" in support of their petitions.
It is true that Canon 33 does not consider as unethical the continued use of the
name of a deceased or former partner in the firm name of a law partnership
when such a practice is permissible by local custom but the Canon warns that
care should be taken that no imposition or deception is practiced through this
use.
It must be conceded that in the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name in the firm names of law
partnerships. Firm names, under our custom, Identify the more active and/or
more senior members or partners of the law firm. A glimpse at the history of the
3|Page
firms of petitioners and of other law firms in this country would show how their
firm names have evolved and changed from time to time as the composition of
the partnership changed. têñ.£îhqwâ£
The continued use of a firm name after the death of one or more
of the partners designated by it is proper only where sustained
by local custom and not where by custom this purports to
Identify the active members. ...
There would seem to be a question, under the working of the
Canon, as to the propriety of adding the name of a new partner
and at the same time retaining that of a deceased partner who
was never a partner with the new one. (H.S. Drinker, op.
cit., supra, at pp. 207208) (Emphasis supplied).
The possibility of deception upon the public, real or consequential, where the
name of a deceased partner continues to be used cannot be ruled out. A person
in search of legal counsel might be guided by the familiar ring of a distinguished
name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently allowed the continued use
of a deceased partner's name in the firm name of law partnerships. But that is so
because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733)
which petitioners Salazar, et al. quoted in their memorandum, the New York
Supreme Court sustained the use of the firm name Alexander & Green even if
none of the present ten partners of the firm bears either name because the
practice was sanctioned by custom and did not offend any statutory provision or
legislative policy and was adopted by agreement of the parties. The Court stated
therein:têñ.£îhqwâ£
The practice sought to be proscribed has the sanction of
custom and offends no statutory provision or legislative policy.
Canon 33 of the Canons of Professional Ethics of both the
American Bar Association and the New York State Bar
Association provides in part as follows: "The continued use of
the name of a deceased or former partner, when permissible by
local custom is not unethical, but care should be taken that no
imposition or deception is practiced through this use." There is
no question as to local custom. Many firms in the city use the
names of deceased members with the approval of other
attorneys, bar associations and the courts. The Appellate
Division of the First Department has considered the matter and
reached The conclusion that such practice should not be
prohibited. (Emphasis supplied)
xxx xxx xxx
 Neither the Partnership Law nor the Penal Law prohibits the
practice in question. The use of the firm name herein is also
sustainable by reason of agreement between the partners. 18
Not so in this jurisdiction where there is no local custom that sanctions the
practice. Custom has been defined as a rule of conduct formed by repetition of
acts, uniformly observed (practiced) as a social rule, legally binding and
obligatory. 19 Courts take no judicial notice of custom. A custom must be proved
as a fact, according to the rules of evidence. 20 A local custom as a source of right
cannot be considered by a court of justice unless such custom is properly
established by competent evidence like any other fact. 21 We find such proof of
the existence of a local custom, and of the elements requisite to constitute the
same, wanting herein. Merely because something is done as a matter of practice
does not mean that Courts can rely on the same for purposes of adjudication as
a juridical custom. Juridical custom must be differentiated from social custom.
The former can supplement statutory law or be applied in the absence of such
statute. Not so with the latter.
Moreover, judicial decisions applying or interpreting the laws form part of the
legal system. 22 When the Supreme Court in the Deen and Perkins cases issued its
Resolutions directing lawyers to desist from including the names of deceased
partners in their firm designation, it laid down a legal rule against which no
custom or practice to the contrary, even if proven, can prevail. This is not to speak
of our civil law which clearly ordains that a partnership is dissolved by the death
of any partner. 23 Custom which are contrary to law, public order or public policy
shall not be countenanced. 24
The practice of law is intimately and peculiarly related to the administration of
justice and should not be considered like an ordinary "money-making trade." têñ.£îhqwâ£
... It is of the essence of a profession that it is practiced in a spirit
of public service. A trade ... aims primarily at personal gain; a
profession at the exercise of powers beneficial to mankind. If,
as in the era of wide free opportunity, we think of free
competitive self assertion as the highest good, lawyer and
grocer and farmer may seem to be freely competing with their
fellows in their calling in order each to acquire as much of the
world's good as he may within the allowed him by law. But the
member of a profession does not regard himself as in
competition with his professional brethren. He is not bartering
his services as is the artisan nor exchanging the products of his
skill and learning as the farmer sells wheat or corn. There should
be no such thing as a lawyers' or physicians' strike. The best
service of the professional man is often rendered for no
equivalent or for a trifling equivalent and it is his pride to do
4|Page
what he does in a way worthy of his profession even if done with
no expectation of reward, This spirit of public service in which
the profession of law is and ought to be exercised is a
prerequisite of sound administration of justice according to law.
The other two elements of a profession, namely, organization
and pursuit of a learned art have their justification in that they
secure and maintain that spirit. 25
In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the
public must bow to legal and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and petitioners advised to
drop the names "SYCIP" and "OZAETA" from their respective firm names. Those
names may, however, be included in the listing of individuals who have been
partners in their firms indicating the years during which they served as such.
SO ORDERED.
Teehankee, Concepcion, Jr., Santos, Fernandez, Guerrero and De Castro, JJ.,
concur
Fernando, C.J. and Abad Santos, J., took no part.
THIRD DIVISION
G.R. No. 144214 July 14, 2003
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE,
petitioners, vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ, respondents.
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of the latter's
dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000
Decision1 and the July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-
GR CV No. 41026. The assailed Decision disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992
rendered by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE
and NULLIFIED and in lieu thereof a new decision is rendered ordering the
[petitioners] jointly and severally to pay and reimburse to [respondents] the
amount of P253,114.00. No pronouncement as to costs."4
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and
catering business under the name "Aquarius Food House and Catering
Services."5 Villareal was appointed general manager and Carmelito Jose,
operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business on
September 5, 1984. His capital contribution of P250,000 was paid by his parents,
Respondents Cesar and Carmelita Ramirez.6
After Jesus Jose withdrew from the partnership in January 1987, his capital
contribution of P250,000 was refunded to him in cash by agreement of the
partners.7
In the same month, without prior knowledge of respondents, petitioners closed
down the restaurant, allegedly because of increased rental. The restaurant
furniture and equipment were deposited in the respondents' house for storage.8
On March 1, 1987, respondent spouses wrote petitioners, saying that they were
no longer interested in continuing their partnership or in reopening the
restaurant, and that they were accepting the latter's offer to return their capital
contribution.9
On October 13, 1987, Carmelita Ramirez wrote another letter informing
petitioners of the deterioration of the restaurant furniture and equipment stored
in their house. She also reiterated the request for the return of their one-third
share in the equity of the partnership. The repeated oral and written requests
were, however, left unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents
subsequently filed a Complaint11 dated November 10, 1987, for the collection of
a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a desire
to withdraw from the partnership and had called for its dissolution under Articles
1830 and 1831 of the Civil Code; that respondents had been paid, upon the
turnover to them of furniture and equipment worth over P400,000; and that the
5|Page
latter had no right to demand a return of their equity because their share,
together with the rest of the capital of the partnership, had been spent as a result
of irreversible business losses.12
In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation were true,
then the loans incurred by petitioners should be regarded as purely personal and,
as such, not chargeable to the partnership. The former further averred that they
had not received any regular report or accounting from the latter, who had solely
managed the business. Respondents also alleged that they expected the
equipment and the furniture stored in their house to be removed by petitioners
as soon as the latter found a better location for the restaurant.13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of
Restaurant Furniture and Equipment14 on July 8, 1988. The furniture and the
equipment stored in their house were inventoried and appraised at P29,000.15
The display freezer was sold for P5,000 and the proceeds were paid to them.16
After trial, the RTC 17 ruled that the parties had voluntarily entered into a
partnership, which could be dissolved at any time. Petitioners clearly intended to
dissolve it when they stopped operating the restaurant. Hence, the trial court, in
its July 21, 1992 Decision, held there liable as follows:18
"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against
the [petitioners] ordering the [petitioners] to pay jointly and severally the
following:
(a) Actual damages in the amount of P250,000.00
(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand the return of
their capital contribution, the partnership was nonetheless dissolved when
petitioners lost interest in continuing the restaurant business with them. Because
petitioners never gave a proper accounting of the partnership accounts for
liquidation purposes, and because no sufficient evidence was presented to show
financial losses, the CA. computed their liability as follows:

"Consequently, since what has been proven is only the outstanding obligation of
the partnership in the amount of P240,658.00, although contracted by the
partnership before [respondents'] have joined the partnership but in accordance
with Article 1826 of the New Civil Code, they are liable which must have to be
deducted from the remaining capitalization of the said partnership which is in the
amount of P1,000,000.00 resulting in the amount of P759,342.00, and in order
to get the share of [respondents], this amount of P759,342.00 must be divided
into three (3) shares or in the amount of P253,114.00 for each share and which
is the only amount which [petitioner] will return to [respondents'] representing
the contribution to the partnership minus the outstanding debt thereof."19
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the following issues for our
consideration:
"9.1. Whether the Honorable Court of Appeals' decision ordering the
distribution of the capital contribution, instead of the net capital after the
dissolution and liquidation of a partnership, thereby treating the capital
contribution like a loan, is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the
petitioners to jointly and severally pay and reimburse the amount of
[P]253,114.00 is supported by the evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to
respondents for the latter's share in the partnership; (2) whether the CA's
computation of P253,114 as respondents' share is correct; and (3) whether the
CA was likewise correct in not assessing costs.
This Court's Ruling
The Petition has merit.
First Issue:
6|Page
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed
existed, and that it was dissolved on March 1, 1987. They found that the
dissolution took place when respondents informed petitioners of the intention
to discontinue it because of the former's dissatisfaction with, and loss of trust in,
the latter's management of the partnership affairs. These findings were amply
supported by the evidence on record. Respondents consequently demanded
from petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the return
of their equity share. Except as managers of the partnership, petitioners did not
personally hold its equity or assets. "The partnership has a juridical personality
separate and distinct from that of each of the partners."23 Since the capital was
contributed to the partnership, not to petitioners, it is the partnership that must
refund the equity of the retiring partners.24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the
shares of the partners, the amount to be refunded is necessarily limited to its
total resources. In other words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be paid their shares,
the creditors of the partnership must first be compensated.25 After all the
creditors have been paid, whatever is left of the partnership assets becomes
available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to
respondents' one-third share in the partnership cannot be determined until all
the partnership assets will have been liquidated — in other words, sold and
converted to cash — and all partnership creditors, if any, paid. The CA's
computation of the amount to be refunded to respondents as their share was
thus erroneous.
First, it seems that the appellate court was under the misapprehension that the
total capital contribution was equivalent to the gross assets to be distributed to
the partners at the time of the dissolution of the partnership. We cannot sustain
the underlying idea that the capital contribution at the beginning of the
partnership remains intact, unimpaired and available for distribution or return to
the partners. Such idea is speculative, conjectural and totally without factual or
legal support.
Generally, in the pursuit of a partnership business, its capital is either increased
by profits earned or decreased by losses sustained. It does not remain static and
unaffected by the changing fortunes of the business. In the present case, the
financial statements presented before the trial court showed that the business
had made meager profits.26 However, notable therefrom is the omission of any
provision for the depreciation27 of the furniture and the equipment. The
amortization of the goodwill28 (initially valued at P500,000) is not reflected
either. Properly taking these non-cash items into account will show that the
partnership was actually sustaining substantial losses, which consequently
decreased the capital of the partnership. Both the trial and the appellate courts
in fact recognized the decrease of the partnership assets to almost nil, but the
latter failed to recognize the consequent corresponding decrease of the capital.
Second, the CA's finding that the partnership had an outstanding obligation in
the amount of P240,658 was not supported by evidence. We sustain the contrary
finding of the RTC, which had rejected the contention that the obligation
belonged to the partnership for the following reason:
"x x x [E]vidence on record failed to show the exact loan owed by the partnership
to its creditors. The balance sheet (Exh. '4') does not reveal the total loan. The
Agreement (Exh. 'A') par. 6 shows an outstanding obligation of P240,055.00
which the partnership owes to different creditors, while the Certification issued
by Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party defendant in the
instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the original
partnership was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000, which was the
amount paid by the partnership to Jesus Jose when he withdrew from the
partnership.
Because of the above-mentioned transactions, the partnership capital was
actually reduced. When petitioners and respondents ventured into business
together, they should have prepared for the fact that their investment would
either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had invested
could no longer be returned to them, because one third of the partnership
properties at the time of dissolution did not amount to that much.
7|Page
It is a long established doctrine that the law does not relieve parties from the
effects of unwise, foolish or disastrous contracts they have entered into with all
the required formalities and with full awareness of what they were doing. Courts
have no power to relieve them from obligations they have voluntarily assumed,
simply because their contracts turn out to be disastrous deals or unwise
investments.29
Petitioners further argue that respondents acted negligently by permitting the
partnership assets in their custody to deteriorate to the point of being almost
worthless. Supposedly, the latter should have liquidated these sole tangible
assets of the partnership and considered the proceeds as payment of their net
capital. Hence, petitioners argue that the turnover of the remaining partnership
assets to respondents was precisely the manner of liquidating the partnership
and fully settling the latter's share in the partnership.
We disagree. The delivery of the store furniture and equipment to private
respondents was for the purpose of storage. They were unaware that the
restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their capital
investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise
provided in these rules, costs shall be allowed to the prevailing party as a matter
of course, but the court shall have power, for special reasons, to adjudge that
either party shall pay the costs of an action, or that the same be divided, as may
be equitable. No costs shall be allowed against the Republic of the Philippines
unless otherwise provided by law."
Although, as a rule, costs are adjudged against the losing party, courts have
discretion, "for special reasons," to decree otherwise. When a lower court is
reversed, the higher court normally does not award costs, because the losing
party relied on the lower court's judgment which is presumed to have been
issued in good faith, even if found later on to be erroneous. Unless shown to be
patently capricious, the award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution
SET ASIDE. This disposition is without prejudice to proper proceedings for the
accounting, the liquidation and the distribution of the remaining partnership
assets, if any. No pronouncement as to costs.
SO ORDERED.
Puno, Corona and Carpio-Morales, JJ ., concur.
Sandoval-Gutierrez, J ., on official leave.
EN BANC
G.R. No. L-3704 December 12, 1907
LA COMPAÑIA MARITIMA, plaintiff-appellant,
vs.
FRANCISCO MUÑOZ, ET AL., defendants-appellees.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Cohn and Williams, for appellees.
WILLARD, J.:
The plaintiff brought this action in the Court of First Instance of Manila against
the partnership of Franciso Muñoz & Sons, and against Francisco Muñoz de
Bustillo, Emilio Muñoz de Bustillo, and Rafael Naval to recover the sum of
P26,828.30, with interest and costs. Judgment was rendered in the court below
acquitting Emilio Muñoz de Bustillo and Rafael Naval of the complaint, and in
favor of the plaintiff and against the defendant partnership, Francisco Muñoz &
Sons, and Francisco Muñoz de Bustillo form the sum of P26,828.30 with interest
at the rate of 8 per cent per annum from the 31st day of March, 1905, and costs.
From this judgment the plaintiff appealed.
On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio Muñoz,
and Rafael Naval formed on ordinary general mercantile partnership under the
name of Francisco Muñoz & Sons for the purpose of carrying on the mercantile
business in the Province of Albay which had formerly been carried on by
Francisco Muñoz. Francisco Muñoz was a capitalist partner and Emilio Muñoz and
Rafael Naval were industrial partners.
It is said in the decision of the court below that in the articles of partnership it
was called an ordinary, general mercantile partnership, but that from the article
it does not appear to be such a partnership. In the brief of the appellees it is also
claimed that it is not an ordinary, general commercial partnership. We see
nothing in the case to support either the statement of the court below in its
decision or the claim of the appellees in their brief. In the articles of partnership
8|Page
signed by the partners it is expressly stated that they have agreed to form, and
do form, an ordinary, general mercantile partnership. The object of the
partnership, as stated in the fourth paragraph of the articles, is a purely
mercantile one and all the requirements of the Code of Commerce in reference
to such partnership were complied with. The articles of partnership were
recorded in the mercantile registry in the Province of Albay. If it should be held
that the contract made in this case did not create an ordinary, general mercantile
partnership we do not see how one could be created.
The claim of the appellees that Emilio Muñoz contributed nothing to the
partnership, either in property, money, or industry, can not be sustained. He
contributed as much as did the other industrial partner, Rafael Naval, the
difference between the two being that Rafael Naval was entitled by the articles
of agreement to a fixed salary of P2,500 as long as he was in charge of the branch
office established at Ligao. If he had left that branch office soon after the
partnership was organized, he would have been in the same condition then that
Emilio Muñoz was from the beginning. Such a change would have deprived him
of the salary P2,500, but would not have affected in any way the partnership nor
have produced the effect of relieving him from liability as a partner. The
argument of the appellees seems to be that, because no yearly or monthly salary
was assigned to Emilio Muñoz, he contributed nothing to the partnership and
received nothing from it. By the articles themselves he was to receive at the end
of five years one-eighth of the profits. It can not be said, therefore, that he
received nothing from the partnership. The fact that the receipt of this money
was postponed for five years is not important. If the contention of the appellees
were sound, it would result that, where the articles of partnership provided for a
distribution of profits at the end of each year, but did not assign any specific
salary to an industrial partner during that time, he would not be a member of the
partnership. Industrial partners, by signing the articles, agree to contribute their
work to the partnership and article 138 of the Code of Commerce prohibits them
from engaging in other work except by the express consent of the partnership.
With reference to civil partnerships, section 1683 of the Civil Code relates to the
same manner.
It is also said in the brief of the appellees that Emilio Muñoz was entirely excluded
from the management of the business. It rather should be said that he excluded
himself from such management, for he signed the articles of partnership by the
terms of which the management was expressly conferred by him and the others
upon the persons therein named. That partners in their articles can do this,
admits of no doubt. Article 125 of the Code of Commerce requires them to state
the partners to whom the management is intrusted. This right is recognized also
in article 132. In the case of Reyes vs. The Compania Maritima (3 Phil. Rep., 519)
the articles of association provided that the directors for the first eight years
should be certain persons named therein. This court not only held that such
provision was valid but also held that those directors could not be removed from
office during the eight years, even by a majority vote of all the stockholders of
the company.
Emilio Muñoz was, therefore, a general partner, and the important question in
the case is whether, as such general partner, he is liable to third persons for the
obligations contracted by the partnership, or whether he relieved from such
liability, either because he is an industrial partner or because he was so relieved
by the express terms of the articles of partnership.
Paragraph 12 of the articles of partnership is as follows:
Twelfth. All profits arising from mercantile transactions carried on, as well as such
as may be obtained from the sale of property and other assets which constitute
the corporate capital, shall be distributed, on completion of the term of five years
agreed to for the continuation of the partnership, in the following manner:
Three-fourths thereof for the capitalist partner Francisco Muñoz de Bustillo and
one-eighth thereof for the industrial partner Emilio Muñoz de Bustillo y Carpiso,
and the remaining one-eighth thereof for the partner Rafael Naval y Garcia. If, in
lieu of profits, losses should result in the winding up of the partnership, the same
shall be for the sole and exclusive account of the capitalist partner Francisco
Muñoz de Bustillo, without either of the two industrial partners participating in
such losses.
Articles 140 and 141 of the Code of Commerce are as follows:
ART. 140. Should there not have been stated in the articles of
copartnership the portion of the profits to be received by each partner, said
profits shall be divided pro rata, in accordance with the interest each one has on
the copartnership, partners who have not contributed any capital, but giving
their services, receiving in the distribution the same amount as the partner who
contributed the smallest capital.
ART. 141. Losses shall be charged in the same proportion among the
partners who have contributed capital, without including those who have not,
unless by special agreement the latter have been constituted as participants
therein.
9|Page
A comparison of these articles with the twelfth paragraph above quoted will
show that the latter is simply a statement of the rule laid down in the former.
The article do not, therefore, change the rights of the industrial partners as they
are declared by the code, and the question may be reduced to the very simple
one namely, Is an industrial partner in an ordinary, general mercantile
partnership liable to third persons for the debts and obligations contracted by
the partnership?
In limited partnership the Code of Commerce recognizes a difference between
general and special partners, but in a general partnership there is no such
distinction-- all the members are general partners. The fact that some may be
industrial and some capitalist partners does not make the members of either of
these classes alone such general partners. There is nothing in the code which says
that the industrial partners shall be the only general partners, nor is there
anything which says that the capitalist partners shall be the only general partners.
Article 127 of the Code of Commerce is as follows:
All the members of the general copartnership, be they or be they not managing
partners of the same, are liable personally and in solidum with all their property
for the results of the transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person authorized to
make use thereof.
Do the words "all the partners" found in this article include industrial partners?
The same expression is found in other articles of the code. In article 129 it is said
that, if the management of the partnership has not been limited by special act to
one of the partners, all shall have the right to participate in the management.
Does this mean that the capitalist partners are the only ones who have that right,
or does it include also industrial partners? Article 132 provides that, when in the
articles of partnership the management has been intrusted to a particular
person, he can not be deprived of such management, but that in certain cases
the remaining partners may appoint a comanager. Does the phrase "remaining
partners" include industrial partners, or is it limited to capitalist partners, and do
industrial partners have no right to participate in the selection of the comanager?
Article 133 provides that all the partners shall have the right to examine the
books of the partnership. Under this article are the capitalist partners the only
ones who have such right? Article 135 provides that the partners can not use the
firm name in their private business. Does this limitation apply only to capitalist
partners or does it extend also to industrial partners? Article 222 provides that a
general partnership shall be dissolve by the death of one of the general partners
unless it is otherwise provided in the articles. Would such a partnership continue
if all the industrial partners should die? Article 229 provides that upon a
dissolution of a general partnership it shall be liquidated by the former managers,
but, if all the partners do not agree to this, a general meeting shall be called,
which shall determine to whom the settlement of the affairs shall be intrusted.
Does this phrase "all the partners" include industrial partners, or are the capitalist
partners the only ones who have a voice in the selection of a manager during a
period of liquidation? Article 237 provides that the private property of the
general partners shall not be taken in payment of the obligations of the
partnership until its property has been exhausted. Does the phrase "the general
partners" include industrial partners?
In all of these articles the industrial partners must be included. It can not have
been intended that, in such a partnership as the one in question, where there
were two industrial and only one capitalist partner, the industrial partners should
have no voice in the management of the business when the articles of
partnership were silent on that subject; that when the manager appointed
mismanages the business the industrial partners should have no right to appoint
a comanager; that they should have no right to examine the books; that they
might use the firm name in their private business; or that they have no voice in
the liquidation of the business after dissolution. To give a person who
contributed no more than, say, P500, these rights and to take them away from a
person who contributed his services, worth, perhaps, infinitely more than P500,
would be discriminate unfairly against industrial partners.
If the phrase "all the partners" as found in the articles other than article 127
includes industrial partners, then article 127 must include them and they are
liable by the terms thereof for the debts of the firm.
But it is said that article 141 expressly declares to the contrary. It is to be noticed
in the first place that this article does not say that they shall not be liable for
losses. Article 140 declares how the profits shall be divided among the partners.
This article simply declares how the losses shall be divided among the partners.
The use of the words se imputaran is significant. The verb means abonar una
partida a alguno en su cuenta o deducirla de su debito. Article 141 says nothing
about third persons and nothing about the obligations of the partnership.
While in this section the word "losses" stand's alone, yet in other articles of the
code, where it is clearly intended to impose the liability to third persons, it is not
considered sufficient, but the word "obligations" is added. Thus article 148, in
speaking of the liability of limited partners, uses the phrase las obligaciones y
10 | P a g e
perdidas. There is the same use of the two same words in article 153, relating to
anonymous partnership. In article 237 the word "obligations" is used and not the
word "losses."
The claim of the appellees is that this article 141 fixes the liability of the industrial
partners to third persons for the obligations of the company. If it does, then it
also fixes the liability of the capitalist partners to the same persons for the same
obligations. If this article says that industrial partners are not liable for the debts
of the concern, it also says that the capitalist partners shall be only liable for such
debts in proportion to the amount of the money which they have contributed to
the partnership; that is to say, that if there are only two capitalist partners, one
of whom has contributed two-thirds of the capital and the other one-third, the
latter is liable to a creditor of the company for only one-third of the debt and the
former for only two-thirds. It is apparent that, when given this construction,
article 141 is directly in conflict with article 127. It is not disputed by the appellees
that by the terms of article 127 each one of the capitalist partners is liable for all
of the debts, regardless of the amount of his contribution, but the construction
which they put upon article 141 makes such capitalist partners liable for only a
proportionate part of the debts.
There is no injustice in imposing this liability upon the industrial partners. They
have a voice in the management of the business, if no manager has been named
in the articles; they share in the profits and as to third persons it is no more than
right that they should share in the obligations. It is admitted that if in this case
there had been a capitalist partner who had contributed only P100 he would be
liable for this entire debt of P26,000.
Our construction of the article is that it relates exclusively to the settlement of
the partnership affairs among the partners themselves and has nothing to do
with the liability of the partners to third persons; that each one of the industrial
partners is liable to third persons for the debts of the firm; that if he has paid
such debts out of his private property during the life of the partnership, when its
affairs are settled he is entitled to credit for the amount so paid, and if it results
that there is not enough property in the partnership to pay him, then the
capitalist partners must pay him. In this particular case that view is strengthened
by the provisions of article 12, above quoted. There it is stated that if, when the
affairs of the partnership are liquidated — that is, at the end of five years — it
turns out that there had been losses instead of gains, then the capitalist partner,
Francisco Muñoz, shall pay such losses — that is, pay them to the industrial
partners if they have been compelled to disburse their own money in payment
of the debts of the partnership.
While this is a commercial partnership and must be governed therefore by the
rules of the Code of Commerce, yet an examination of the provisions of the Civil
Code in reference to partnerships may throw some light upon the question here
to be resolved. Articles 1689 and 1691 contain, in substance, the provisions of
articles 140 and 141 of the Code of Commerce. It is to be noticed that these
articles are found in section 1 of Chapter II [Title VIII] of Book IV. That section
treats of the obligations of the partners between themselves. The liability of the
partners as to third persons is treated in a distinct section, namely, section 2,
comprising articles from 1697 to 1699.
If industrial partners in commercial partnerships are not responsible to third
persons for the debts of the firm, then industrial partners in civil partnerships are
not. Waiving the question as to whether there can be a commercial partnership
composed entirely of industrial partners, it seems clear that there can be such
civil partnership, for article 1678 of the Civil Code provides as follows:
A particular partnership has for its object specified things only, their use of
profits, or a specified undertaking, or the exercise of a profession or art.
It might very easily happen, therefor, that a civil partnership could be composed
entirely of industrial partners. If it were, according to the claim of the appellees,
there would be no personal responsibility whatever for the debts of the
partnership. Creditors could rely only upon the property which the partnership
had, which in the case of a partnership organized for the practice of any art or
profession would be practically nothing. In the case of Agustin vs. Inocencio, 1
just decided by this court, it was alleged in the complaint, and admitted by the
answer —
That is partnership has been formed without articles of association or capital
other than the personal work of each one of the partners, whose profits are to
be equally divided among themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the partners may acquire by their
by their industry or work during the continuation of the partnership.
Personal or real property which each of the partners may possess at the time of
the celebration of the agreement shall continue to be their private property, the
usufruct only passing to the partnership.
11 | P a g e
It might very well happen in partnership of this kind that no one of the partners
would have any private property and that if they did the usufruct thereof would
be inconsiderable.
Having in mind these different cases which may arise in the practice, that
construction of the law should be avoided which would enable two persons, each
with a large amount of private property, to form and carry on a partnership and,
upon the bankruptcy of the latter, to say to its creditors that they contributed no
capital to the company but only their services, and that their private property is
not, therefore, liable for its debts.
But little light is thrown upon this question by the authorities. No judgment of
the supreme court of Spain has been called to our attention, and we have been
able to find none which refers in any way to this question. There is, therefore, no
authority from the tribunal for saying that an industrial partner is not liable to
third persons for the debts of the partnership.
In a work published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil)
it is said that industrial partners are not liable for debts. The author, at page 127,
divides general partnership into ordinary and irregular. The irregular partnership
are those which include one or more industrial partners. It may be said in passing
that his views can not apply to this case because the articles of partnership
directly state that it is an ordinary partnership and do not state that it is an
irregular one. But his view of the law seems to be derived from something other
than the Code of Commerce now in force. He says:
. . . but it has not been very fortunate in sketching the characters of a regular
collective partnership (since it says nothing conclusive in reference to the
irregular partnership) . . . . (p. 127.)
And again:
This article would not need to be commented upon were it not because the
writer entirely overlooked the fact that there might exist industrial partners who
did not contribute with capital in money, credits, or goods, which partners
generally participate in the profits but not in the losses, and whose position must
also be determined in the articles of copartnership. (p. 128.)
And again: lawphil.net
The only defect that can be pointed out in this article is the fact that it has been
forgotten that in collective partnerships there are industrial partners who, not
being jointly liable for the obligations of the copartnership, should not include
their names in that of the firm. (p. 129.)
As a logical result of his theory he says that an industrial partner has no right to
participate in the administration of the partnership and that his name can not
appear in the firm name. In this last respect his view is opposed to that of
Manresa, who says (Commentaries on the Spanish Civil Code, vol. 11, p. 330):
It only remains to us to state that a partner who contributes his industry to the
concern can also confer upon it the name or the corporate name under which
such industry should be carried on. In this case, so long as the copartnership lasts,
it can enjoy the credit, reputation, and name or corporate name under which
such industry is carried on; but upon dissolution thereof the aforesaid name or
corporate name pertains to the partner who contributed the same, and he alone
is entitled to use it, because such a name or style is an accessory to the work of
industrial partner, and upon recovering his work or his industry he also recovers
his name or the style under which he exercised his activity. It has thus been
decided by the French court of cassation in a decision dated June 6, 1859.
In speaking of limited partnerships Benito says (p. 144) that here are found two
kinds of partners, one with unlimited responsibility and the other with limited
responsibility, but adopting his view as to industrial partners, it should be said
that there are three kinds of partners, one with unlimited responsibility, another
with limited responsibility, and the third, the industrial partner, with no
responsibility at all. In Estasen's recent publication on mercantile partnerships
(Tratado de las Sociedades Mercantiles) he quotes from the work of Benito, but
we do not understand that he commits himself to the doctrines therein laid
down. In fact, in his former treatise, Instituciones de Derecho Mercantil (vol. 3,
pp. 1-99), we find nothing which recognizes the existence of these irregular
general partnerships, or the exemption from the liability to third persons of the
industrial partners. He says in his latter work (p. 186) that according to Dr. Benito
the irregular general partner originated from the desire of the partnership to
associate with itself some old clerk or employee as a reward for his services and
the interest which he had shown in the affairs of the partnership, giving him in
place of a fixed salary a proportionate part of the profits of the business. Article
269 of the Code of Commerce of 1829 relates to this subject and apparently
provides that such partners shall not be liable for debts. If this article was the
basis for Dr. Benito's view, it can be so no longer, for it does not appear in the
12 | P a g e
present code. We held in the case of Fortis vs. Gutirrez Hermanos (6 Phil. Rep.,
100) that a mere agreement of that kind does not make the employee a partner.
An examination of the works of Manresa and Sanchez Roman on the Civil Code,
and of Blanco's Mercantile Law, will shows that no one of these mentions in any
way the irregular general partnership spoken of by Dr. Benito, nor is there
anything found in any one of these commentaries which in any way indicates that
an industrial partner is not liable to third persons for the debts of the partnership.
An examination of the French law will also show that no distinction of that kind
is therein anywhere made and nothing can be found therein which indicates that
the industrial partners are not liable for the debts of the partnership. (Fuzier-
Herman, Repertoire de Droit Francais, vol. 34, pp. 256, 361, 510, and 512.)
Our conclusion is upon this branch of the case that neither on principle nor on
authority can the industrial partner be relieved from liability to third persons for
the debts of the partnership.
It is apparently claimed by the appellee in his brief that one action can not be
maintained against the partnership and the individual partners, this claim being
based upon the provisions of article 237 of the Code of Commerce which
provides that the private property of the partners shall not be taken until the
partnership property has been exhausted. But this article furnishes to argument
in support of the appellee's claim. An action can be maintained against the
partnership and partners, but the judgment should recognize the rights of the
individual partners which are secured by said article 237.lawphil.net
The judgment of the court below is reversed and judgment is ordered against all
of the defendants for the sum of P26,828.30, with interest thereon at the rate of
8 per cent per annum since the 31st day of March, 1905, and for the cost of this
action. Execution of such judgment shall not issue against the private property of
the defendants Francisco Muñoz, Emilio Muñoz, or Rafael Naval until the
property of the defendant Francisco Muñoz & Sons is exhausted. No costs will be
allowed to their party in this court. So ordered.
Torres, Johnson and Tracey, JJ., concur.
EN BANC
G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., petitioner-appellee.
SANTIAGO JO CHUNG, ET AL., partners,
vs.
 PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.
Del Rosario & Del Rosario and Block, Johnston and Greenbaum for appellants.
F. V. Arias for appellants Jo Ibec and Go Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici curiae.
las leyes vigentes en las Islas Filipinas y para ser registrada de acuerdo con los
reglamentos vigentes del Codigo de Comercio en Filipinas.
Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su domicilio
principal en la Calle Magallanes No. 94, de la Ciudad de Cebu, Provincia de Cebu,
Islas Filipinas.

MALCOLM, J.: Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las Islas
Filipinas, dividido en cinco acciones de a P6,000 como sigue:
Following the presentation of an application to be adjudged an insolvent by the
"Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Santiago Jo Chung Cang . . . . . . . . . . . . .
Commercial Company, Piñol & Company, Riu Hermanos, and W. H. Anderson &
Company, filed a motion in which the Court was prayed to enter an order: "(A) P6,000.00
Declaring the individual partners as described in paragraph 5 parties to this
proceeding; (B) to require each of said partners to file an inventory of his Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . .
property in the manner required by section 51 of Act No. 1956; and (C) that each
of said partners be adjudicated insolvent debtors in this proceeding." The trial 6,000.00
judge first granted the motion, but, subsequently, on opposition being renewed,
denied it. It is from this last order that an appeal was taken in accordance with Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . .
section 82 of the Insolvency Law.
6,000.00
There has been laid before us for consideration and decision a question of some
importance and of some intricacy. The issue in the case relates to a Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . .
determination of the nature of the mercantile establishment which operated
under the name of Teck Seing & co., Ltd., and this issue requires us to look into, 6,000.00
and analyze, the document constituting Teck Seing & Co., Ltd. It reads:
Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . .
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
6,000.00
Sepan todos por la presente:
Total . . . . . . . . . . . . . . . . . . . . . .
Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino y
residente del municipio de Tabogon Provincia de Cebu, Islas Filipinas, Go Tayco, 30,000.00
mayor de edad, comerciante, vecino y residente del municipio de Cebu Provincia
de Cebu, Islas Filipinas, Yap Gueco, mayor de edad, comerciante, vecino y Que la duracion de la sociedad sera la de seis años, a contar de la fecha de esta
residente del municipio y Provincia de Cebu, Islas Filipinas, Lim Yogsing, mayor escritura, pudiendo prorrogarse este tiempo a discrecion unanime de todos los
de edad comerciante, vecino y residente del municipio de Cebu, Provincia de accionistas.
Cebu, Islas Filipinas, y Jo Ybec, mayor de edad, comerciante, vecino y residente
del municipio de Jagna, Provincia de Bohol, Islas Filipinas, hacemos constar por El objeto de la sociedad sera la compra y venta de mercaderias en general.
la presente, que constituimos y formamos una sociedad mercantil limitada, bajo

13 | P a g e
El administrador o administradores de la sociedad podran, previa conformidad
de los accionistas, establecer cuantas sucursales o establecimientos considere
necesarios para facilitar sus negocios y el mayor desarrollo del comercio a que se
dedica la sociedad, verificando todas las operaciones que crean convenientes
para el fomento de su capital.
Las ganancias o perdidas que resultaren durante cada año comercial, se
distribuiran proporcionalmente entre los accionistas, de acuerdo con el capital
aportado por cada uno de los mismos.
Las ganancias que resultaren en cada año comercial, si resultaren algunas
ganancias, no podran ser retiradas pors los accionistas hasta dentro del termino
de tres años a contar de la fecha del primer balance anual del negocio, quedadno
por tanto estas ganancias en reserva, para ampliar el capital aportado opor los
accionistas y ampliar por tanto la esfera de accion emprendida por la misma
sociedad. Al pasar o expirar el termino de tres años, cada accionista podra retirar
o depositar en poder de la sociedad, las ganancias que le debiera corresponder
durante dicho termino de tres años.
Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquiera
cantidad o cantidades de la sociedad, que haya sido aportado por los mismos,
para atender sus gastos particulares ni aun pagando redito alguno sobre la
cantidad que intenen disponer o extraer de dicha sociedad.
El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo,
la administracion de la Compañia, quienes podran usar indistintamente la firma
social, quedando por consiguiente autorizados amobs para hacer en nombre de
ella toda calse de operaciones, negocios y especulaciones mercantiles,
practicando judicial y extra-judicialment cuantos actos se requieran para el bien
de la sociedad, nombrar procuradores o abogados para reclamaciones y cobro
de creditos y proponer ante los tribunales las demandas, convenios,
transacciones y excepciones procdentes. En caso de ausencia, enfermedad o
cualquier otro impedimento del accionista administrador Sr. Lim Yogsing, este
podra conferir poder general o especial al accionista que crea conveniente para
que en union del administrador auxiliar Sr. Vicente Jocson Jo, pudieran ambos
administrar convenientemente los negocios de la sociedad. Que los
administradores podran tener los empleados necesarios para el mejor que
debieran percibir dichos empleados por servicios rendidos a la sociedad.
Que ambos administradores podran disponer de mil discientos pesos (P1,200)
moneda filipina, anualmente, para sus gastos particulares, siendo dicha cantidad
14 | P a g e
de P1,200 la que corresponde a cada uno de dichos administradores, como
emolumentos o salarios que se les asigna a cas uno, por sus trabajos en la
administracion de la sociedad. Entendiendose, que, los accionistas podran
disponer cada fin de añola gratificacion quese concedera a cada administrador,
si los negocios del año fueran boyantes y justifiquen la concesion de una
gratificacion especial, aparte del salario aqui dispuesto y especificado.
Que pasado el termino de seis años, y es de la conveniencia de los accionistas la
continuacion del negocio de esta sociedad, dicho termino sera prorrogado por
igual numero de años, sin necesidas del otorgamiento de ulteriores escrituras,
quedando la presente en vigor hasta el termino dispuesto por todos los
accionistas.
Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por
razon de lo estipulado en esta en ella comprendidos, se procurara arreglar entre
los mismos amistosa y extrajudicialmente, y si no se consiguiere un arreglo de
este modo, dichos accionistas nombraran un arbitro, cuya resolucion estan todos
obligados y por la presente se comprometen y se obligan a acatarla en todas sus
partes, renunciando ulteriores recursos.
En cuyos terminos dejamos formalizada esta escritura de sociedad
mercantillimitada, y prometemos cumplirla fiel y estrictamente segun los pactos
que hemos establecido.
En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu,
Islas Filipinas, hoy 31 de octubre de mil novecientos diez y nueve.
(Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firnando en presencia de:
(Fdos.) "ATILANO LEYSON
"JULIO DIAZ
"ESTADOS UNIDOS DE AMERCA
"ISLAS FILIPINAS
"PROVINCIA DE CEBU
En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de
octubre de 1919, A.D., ante mi, Notario Publico que subscribe, comprecieron
personalmente Santiago Jo Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo
Ybec, representado este ultimo por Ho Seng Sian, segun autorizacion hecha en
telegrama de fecha 27 de septiembre de 1919 que se me ha presentado en este
mismo acto, de quienes doy fe de que les conozco por ser las mismas personas
que otorgaron el preinserto documento, ratificando ant emi su contenido y
manifestando ser el mismo un acto de su libre y voluntario otorgamiento. El Sr.
Santiago Jo Chung Cang me exhibio su cedula personal expedida en Cebu, Cebu,
I.F. el dia 19 de septiembre de 1919 bajo el No. H77742, Go Tayco tambien me
exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9 de octubre de 1919 bajo el
No. G2042490, Yap Gueco tambien me exhibio la suya expedida en Cebu, Cebu,
I.F. el dia 20 de enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me
exhibio la suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de 1919 bajo el
No. F1455662, y Ho Seng Sian representante de Jo Ybec, me exhibio su cedula
personal expedida en Cebu, Cebu, I.f. el dia 4 de febrero de 1919 bajo el No.
F1453733.
Ante mi,
(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1.º de enero de 1920
"Asiento No. 157
Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.º
Presentado a las diez y cuarenta y tres minutos de la mañana de hoy, segun el
asiento No. 125, pagina 9 del Tomo 1.º del Libro Diario. Cebu, 11 de febrero de
1920.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del
Tomo 3.º del Libro Registro de Sociedades Mercantiles. Cebu, 11 de febrero de
1920. Honorarios treinta pesos con cincuenta centavos. Art. 197, Ley No. 2711,
Codigo Administrativo.
15 | P a g e
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd.,
is not a corporation. Neither is it contended by any one that Teck Seing & Co.,
Ltd., is accidental partnership denominated cuenta en participacion (joint
account association).
Counsel for the petitioner and appellee described his client in once place in his
opposition to the motion of the creditors as "una verdadera sociedad anonima"
(a true sociedad anonima). The provisions of the Code of Commerce relating to
sociedades anonimas were, however, repealed by section 191 of the Corporation
Law (Act No. 1459), with the exceptions the sociedades anonimas lawfully
organized at the time of the passage of the Corporation Law were recognized,
which is not our case.
The document providing for the partnership contract purported to form "una
sociedad mercantil limitada," and counsel for the petitioner's first contention
was that Teck Seing & Co., Ltd., was not "una sociedad regular colectiva, ni
siquiera comanditaria, sino una sociedad mercantil limitada." Let us see if the
partnership contract created a "sociedad en comandita," or, as it is known in
English, and will hereafter be spoken of, "a limited partnership."
To establish a limited partnership there must be, at least, one general partner
and the name of the least one of the general partners must appear in the firm
name. (Code of Commerce, arts. 122 [2], 146, 148.) But neither of these
requirements have been fulfilled. The general rule is, that those who seek to avail
themselves of the protection of laws permitting the creation of limited
partnerships must show a substantially full compliance with such laws. A limited
partnership that has not complied with the law of its creation is not considered
a limited partnership at all, but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp.
499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that the partnership contract
established a general partnership.
Article 125 of the Code of Commerce provides that the articles of general
copartnership must estate the names, surnames, and domiciles of the partners;
the firm name; the names, and surnames of the partners to whom the
management of the firm and the use of its signature is instrusted; the capital
which each partner contributes in cash, credits, or property, stating the value
given the latter or the basis on which their appraisement is to be made; the
duration of the copartnership; and the amounts which, in a proper case, are to
be given to each managing partner annually for his private expenses, while the
succeeding article of the Code provides that the general copartnership must
transact business under the name of all its members, of several of them, or of
one only. Turning to the document before us, it will be noted that all of the
requirements of the Code have been met, with the sole exception of that relating
to the composition of the firm name. We leave consideration of this phase of the
case for later discussion.
The remaining possibility is the revised contention of counsel for the petitioners
to the effect that Teck Seing & Co., Ltd., is "una sociedad mercantil "de facto"
solamente" (only a de facto commercial association), and that the decision of the
Supreme court in the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6
Phil., 498), is controlling. It was this argument which convinced the trial judge,
who gave effect to his understanding of the case last cited and which here must
be given serious attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the
firm Kieng-Chiong-Seng was not organized by means of any public document;
that the partnership had not been recorded in the mercantile registry; and that
Kieng-Chiong-Seng was not proven to be the firm name, but rather the
designation of the partnership. The conclusion then was, that the partnership in
question was merely de facto and that, therefore, giving effect to the provisions
of article 120 of the Code of Commerce, the right of action was against the
persons in charge of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side
by side with the facts before us, a marked difference is at once disclosed. In the
cited case, the organization of the partnership was not evidenced by any public
document; here, it is by a public document. In the cited case, the partnership
naturally could not present a public instrument for record in the mercantile
registry; here, the contract of partnership has been duly registered. But the two
cases are similar in that the firm name failed to include the name of any of the
partners.
We come then to the ultimate question, which is, whether we should follow the
decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should
differentiate the two cases, holding Teck Seing & Co., Ltd., a general
16 | P a g e
copartnership, notwithstanding the failure of the firm name to include the name
of one of the partners. Let us now notice this decisive point in the case.
Article 119 of the Code of Commerce requires every commercial association
before beginning its business to state its article, agreements, and conditions in a
public instrument, which shall be presented for record in the mercantile registry.
Article 120, next following, provides that the persons in charge of the
management of the association who violate the provisions of the foregoing
article shall be responsible in solidum to the persons not members of the
association with whom they may have transacted business in the name of the
association. Applied to the facts before us, it would seem that Teck Seing & Co.,
Ltd. has fulfilled the provisions of article 119. Moreover, to permit the creditors
only to look to the person in charge of the management of the association, the
partner Lim Yogsing, would not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to the general
copartnership transacting business under the name of all its members or of
several of them or of one only, is wisely included in our commercial law. It would
appear, however, that this provision was inserted more for the protection of the
creditors than of the partners themselves. A distinction could well be drawn
between the right of the alleged partnership to institute action when failing to
live up to the provisions of the law, or even the rights of the partners as among
themselves, and the right of a third person to hold responsible a general
copartnership which merely lacks a legal firm name in order to make it a
partnership de jure.
The civil law and the common law alike seem to point to a difference between
the rights of the partners who have failed to comply with the law and the rights
of third persons who have dealt with the partnership.
The supreme court of Spain has repeatedly held that notwithstanding the
obligation of the members to register the articles of association in the
commercial registry, agreements containing all the essential requisites are valid
as between the contracting parties, whatever the form adopted, and that, while
the failure to register in the commercial registry necessarily precludes the
members from enforcing rights acquired by them against third persons, such
failure cannot prejudice the rights of third persons. (See decisions of December
6, 1887, January 25, 1888, November 10, 1890, and January 26, 1900.) The same
reasoning would be applicable to the less formal requisite pertaining to the firm
name.
The common law is to the same effect. The State of Michigan had a statute
prohibiting the transaction of business under an assumed name or any other than
the real name of the individual conducting the same, unless such person shall file
with the county clerk a certificate setting forth the name under which the
business is to be conducted and the real name of each of the partners, with their
residences and post-office addresses, and making a violation thereof a
misdemeanor. The supreme Court of Michigan said:
The one object of the act is manifestly to protect the public against imposition
and fraud, prohibiting persons from concealing their identity by doing business
under an assumed name, making it unlawful to use other than their real names
in transacting business without a public record of who they are, available for use
in courts, and to punish those who violate the prohibition. The object of this act
is not limited to facilitating the collection of debts, or the protection of those
giving credit to persons doing business under an assumed name. It is not
unilateral in its application. It applies to debtor and creditor, contractor and
contractee, alike. Parties doing business with those acting under an assumed
name, whether they buy or sell, have a right, under the law, to know who they
are, and who to hold responsible, in case the question of damages for failure to
perform or breach of warranty should arise.
The general rule is well settled that, where statutes enacted to protect the public
against fraud or imposition, or to safeguard the public health or morals, contain
a prohibition and impose a penalty, all contracts in violation thereof are void. . .
. partners guarantees to another certain profits or secures him from losses, is valid
As this act involves purely business transactions, and affects only money
interests, we think it should be construed as rendering contracts made in
violation of it unlawful and unforceable at the instance of the offending party
only, but not as designed to take away the rights of innocent parties who may
have dealt with the offenders in ignorance of their having violated the statute.
(Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs.
Hernandez [1903], 1 Phil., 705), contains the following pertinent observations:
Another case may be supposed. A partnership is organized for commercial
purposes. It fails to comply with the requirements of article 119. A creditor sues
the partnership for a debt contracted by it, claiming to hold the partners
severally. They answer that their failure to comply with the Code of Commerce
makes them a civil partnership and that they are in accordance with article 1698
17 | P a g e
of the Civil Code only liable jointly. To allow such liberty of action would be to
permit the parties by a violation of the Code to escape a liability which the law
has seen fit to impose upon persons who organized commercial partnership;
"Because it would be contrary to all legal principles that the nonperformance of
a duty should redound to the benefit of the person in default either intentional
or unintentional." (Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco
vs. Lichauco [1916], 33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following
comment after articles 121 and 126 of the Code:
From the decisions cited in this and in the previous comments, the following is
deduced: 1st. Defects in the organization cannot affect relations with third
persons. 2d. Members who contract with other persons before the association is
lawfully organized are liable to these persons. 3d. The intention to form an
association is necessary, so that if the intention of mutual participation in the
profits and losses in a particular business is proved, and there are no articles of
association, there is no association. 4th. An association, the articles of which have
not been registered, is valid in favor of third persons. 5th. The private pact or
agreement to form a commercial association is governed not by the commercial
law but by the civil law. 6th. Secret stipulations expressed in a public instrument,
but not inserted in the articles of association, do not affect third persons, but are
binding on the parties themselves. 7th. An agreement made in a public
instrument, other than the articles of association, by means of which one of the
between them, without affecting the association. 8th. Contracts entered into by
commercial associations defectively organized are valid when they are
voluntarily executed by the parties, if the only controversy relates to whether or
not they complied with the agreement.
xxx xxx xxx
The name of the collective merchant is called firm name. By this name, the new
being is distinguished from others, its sphere of action fixed, and the juridical
personality better determined, without constituting an exclusive character of the
general partnership to such an extent as to serve the purpose of giving a
definition of said kind of a mercantile partnership, as is the case in our Code.
Having in mind that these partnerships are prevailingly of a personal character,
article 126 says that they must transact business under the name of all its
members, of some of them, or of one only, the words "and company" to be added
in the latter two cases.
It is rendered impossible for the general partnership to adopt a firm name
appropriate to its commercial object; the law wants to link, and does link, the
solidary and unlimited responsibility of the members of this partnership with the
formation of its name, and imposes a limitation upon personal liberty in its
selection, not only by prescribing the requisites, but also by prohibiting persons
not members of the company from including their names in its firm name under
penalty of civil solidary responsibility.
Of course, the form required by the Code for the adoption of the firm name does
not prevent the addition thereto of any other title connected with the
commercial purpose of the association. The reader may see our commentaries
on the mercantile registry about the business names and firm names of
associations, but it is proper to establish here that, while the business name may
be alienated by any of the means admitted by the law, it seems impossible to
separate the firm names of general partnerships from the juridical entity for the
creation of which it was formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "Teck Seing & Co., Ltd."
does not contain the name of all or any of the partners as prescribed by the Code
of Commerce prevents the creation of a general partnership, Professor Jose A.
Espiritu, as amicus curiæ, states:
My opinion is that such a fact alone cannot and will not be a sufficient cause of
preventing the formation of a general partnership, especially if the other
requisites are present and the requisite regarding registration of the articles of
association in the Commercial Registry has been complied with, as in the present
case. I do not believe that the adoption of a wrong name is a material fact to be
taken into consideration in this case; first, because the mere fact that a person
uses a name not his own does not prevent him from being bound in a contract or
an obligation he voluntarily entered into; second, because such a requirement of
the law is merely a formal and not necessarily an essential one to the existence
of the partnership, and as long as the name adopted sufficiently identity the firm
or partnership intended to use it, the acts and contracts done and entered into
under such a name bind the firm to third persons; and third, because the failure
of the partners herein to adopt the correct name prescribed by law cannot shield
them from their personal liabilities, as neither law nor equity will permit them to
utilize their own mistake in order to put the blame on third persons, and much
less, on the firm creditors in order to avoid their personal possibility.
18 | P a g e
The legal intention deducible from the acts of the parties controls in determining
the existence of a partnership. If they intend to do a thing which in law
constitutes a partnership, they are partners, although their purpose was to avoid
the creation of such relation. Here, the intention of the persons making up Teck
Seing & co., Ltd. was to establish a partnership which they erroneously
denominated a limited partnership. If this was their purpose, all subterfuges
resorted to in order to evade liability for possible losses, while assuming their
enjoyment of the advantages to be derived from the relation, must be
disregarded. The partners who have disguised their identity under a designation
distinct from that of any of the members of the firm should be penalized, and not
the creditors who presumably have dealt with the partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the members of the
general copartnership liable personally and in solidum with all their property for
the results of the transactions made in the name and for the account of the
partnership. Section 51 of the Insolvency Law, likewise, makes all the property of
the partnership and also all the separate property of each of the partners liable.
In other words, if a firm be insolvent, but one or more partners thereof are
solvent, the creditors may proceed both against the firm and against the solvent
partner or partners, first exhausting the assets of the firm before seizing the
property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los Reyes vs.
Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda
& Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found in the document
hereinbefore quoted established a general partnership or, to be more exact, a
partnership as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be returned
to the court of origin for further proceedings pursuant to the motion presented
by the creditors, in conformity with the provisions of the Insolvency Law. Without
special findings as to the costs in this instance, it is ordered.
Araullo, C.J., Johnson, Street, Avanceña, Villamor, Johns and Romualdez, JJ.,
concur.
SECOND DIVISION
[G.R. No. L-22493. July 31, 1975.]
 ISLAND SALES, INC., Plaintiff-Appellee, v. UNITED PIONEERS GENERAL
CONSTRUCTION COMPANY, ET AL, Defendants. BENJAMIN C. DACO,
Defendant-Appellant.
Grey, Buenaventura & Santiago for Plaintiff-Appellee.
Anacleto D. Badoy, Jr., for Defendant-Appellant.
SYNOPSIS
The defendant company, a general partnership, purchased from Island Sales, Inc.
a motor vehicle, executing for that purpose a promissory note for the entire
price, payable in twelve monthly installments. Having failed to receive the third
installment, Island Sales sued the company, including its general partners as co-
defendants. On motion of plaintiff, the complaint was later dismissed insofar as
one of the partners was concerned. After trial, judgment was entered sentencing
the defendant to pay the sum due, with interest, and expressly stating that the
four of the five partners would pay in case the company has no properties with
which to satisfy judgment. One of the partners appealed claiming that the liability
of each partner should not exceed 1/5 of the obligation due inasmuch as there
are five partners in the company.
The Supreme Court ruled that under Art. 1816 of the Civil Code, the liability of
partners shall be pro-rata; that the dismissal of the complaint to favor one of the
general partners results in the condonation of the debt of that partner’s
individual share and that appellant’s share in the obligation shall not be increased
thereby but shall be limited to 1/5 of the obligation of defendant company.
Decision affirmed as clarified.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; LIABILITY OF GENERAL PARTNERS, PRO-
RATA; CONDONATION OF INDIVIDUAL LIABILITY DOES NOT AFFECT THE OTHER’S
SHARE IN THE OBLIGATION. — Where there was five general partners when the
promissory note in question executed for and in behalf of the partnership, and
the complaint against one of them was dismissed upon motion of the plaintiff,
the general partner’s share in the obligation remains limited to only 1/5 of the
amount due and demandable, their liability being pro-rata.
19 | P a g e
DECISION
CONCEPCION, JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from the decision
of the Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the
dispositive portion of which reads:jgc:chanrobles.com.ph
"WHEREFORE, the Court sentences defendant United Pioneer General
Construction Company to pay plaintiff the sum of P7,119.07 with interest at the
rate of 12% per annum until it is fully paid, plus attorney’s fees which the Court
fixes in the sum of Eight Hundred Pesos (P800.00) and costs.
"The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto
Palisoc are sentenced to pay the plaintiff in this case with the understanding that
the judgment against these individual defendants shall be enforced only if the
defendant company has no more leviable properties with which to satisfy the
judgment against it.
"The individual defendants shall also pay the costs."cralaw virtua1aw library
On April 22, 1961, the defendant company a general partnership duly registered
under the laws of the Philippines, purchased from the plaintiff a motor vehicle
on the installment basis and for this purpose executed a promissory note for
P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first
installment payable on or before May 22, 1961 and the subsequent installments
on the 22nd day of every month thereafter, until fully paid, with the condition
that failure to pay any of said installments as they fall due would render the
whole unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued
the defendant company for the unpaid balance amounting to P7,119.07.
Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and
Augusto Palisoc were included as co-defendants in their capacity as general
partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in
default. 1
Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as
the defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their counsels failed
to appear notwithstanding the notices sent to them. Consequently, the trial court
authorized the plaintiff to present its evidence ex-parte 3 , after which the trial
court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the
decision claiming that since there are five (5) general partners, the joint and
subsidiary liability of each partner should not exceed one-fifth (1/5) of the
obligations of the defendant company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit the liability of the
defendants Daco and Sim to only one-fifth (1/5) of the obligations of the
defendant company 4 . Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint to
favor one of the general partners of a partnership increases the joint and
subsidiary liability of each of the remaining partners for the obligations of the
partnership.
Article 1816 of the Civil Code provides:jgc:chanrobles.com.ph
"Art. 1816. All partners including industrial ones, shall be liable pro rata
with all their property and after all the partnership assets have been exhausted,
for the contracts which may be entered into in the name and for the account of
the partnership. under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to
perform a partnership contract."cralaw virtua1aw library
In the case of Co-Pitco v. Yulo (8 Phil. 544) this Court held:jgc:chanrobles.com.ph
"The partnership of Yulo and Palacios was engaged in the operation of a sugar
estate in Negros. It was, therefore, a civil partnership as distinguished from a
mercantile partnership. Being a civil partnership, by the express provisions of
articles 1698 and 1137 of the Civil Code, the partners are not liable each for the
whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo
is responsible to plaintiff for only one-half of the debt. The fact that the other
20 | P a g e
partner, Jaime Palacios, had left the country cannot increase the liability of Pedro
Yulo."cralaw virtua1aw library
In the instant case, there were five (5) general partners when the promissory
note in question was executed for and in behalf of the partnership. Since the
liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco
shall be limited to only one-fifth (1/5) of the obligations of the defendant
company. The fact that the complaint against the defendant Romulo B. Lumauig
was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig
as a general partner in the defendant company. In so moving to dismiss the
complaint, the plaintiff merely condoned Lumauig’s individual liability to the
plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED,
without pronouncement as to costs.
SO ORDERED.
Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.
EN BANC
G.R. No. L-11840 December 10, 1963
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-
appellees.
Jose C. Calayco for plaintiffs-appellants..
RESOLUTION
REYES, J.B.L., J.:
The matter now pending is the appellant's motion for reconsideration of our
main decision, wherein we have upheld the validity of the sale of the lands owned
by the partnership Goquiolay & Tan Sin An, made in 1949 by the widow of the
managing partner, Tan Sin An (Executed in her dual capacity as Administratrix of
the husband's estate and as partner in lieu of the husband), in favor of the buyers
Washington Sycip and Betty Lee for the following consideration:

Cash paid P37,000.00
Debts assumed by purchaser:
To Yutivo 62,415.91
To Sing Yee Cuan & Co., 54,310.13
TOTAL
P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to
our holding, Kong Chai Pin, widow of the deceased partner Tan Sin An, never
became more than a limited partner, incapacitated by law to manage the affairs
of partnership; that the testimony of her witness Young and Lim belies that she
took over the administration of the partnership property; and that, in any event,
the sale should be set aside because it was executed with the intent to defraud
appellant of his share in the properties sold.
Three things must be always held in mind in the discussion of this motion to
reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by
one partner, acting in behalf of the firm, to a stranger. There is no question
between partners inter se, and this aspect to the case was expressly reserved in
the main decision of 26 July 1960;
(b) That partnership was expressly organized: "to engage in real estate
business, either by buying and selling real estate". The Articles of co-partnership,
in fact, expressly provided that:
IV. The object and purpose of the copartnership are as follows:
1. To engage in real estate business, either by buying and selling real
estates; to subdivide real estates into lots for the purpose of leasing and selling
them.;
(c) That the properties sold were not part of the contributed capital (which
was in cash) but land precisely acquired to be sold, although subject to a
mortgage in favor of the original owners, from whom the partnership had
acquired them.
With these points firmly in mind, let us turn to the points insisted upon by
appellant.
21 | P a g e
It is first averred that there is "not one iota of evidence" that Kong Chai Pin
managed and retained possession of the partnership properties. Suffice it to
point out that appellant Goquiolay himself admitted that —
... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage
the properties (as) she had no other means of income. Then I said, because I
wanted to help Mrs. Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of the properties in
order to help her and because I believe in God and — wanted to help her.
Q — So the answer to my question is you did not take any steps?
A — I did not.
Q — And this conversation which you had with Mrs. Yu Eng Lai was few months
after 1945?
A — In the year 1945. (Emphasis supplied).
The appellant subsequently ratified this testimony in his deposition of 30 June
1956, pages 8-9, wherein he stated:
that plantation was being occupied at that time by the widow, Mrs. Tan Sin An,
and of course they are receiving quiet a lot benefit from the plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are
certainly entitled to greater weight than those of Hernando Young and Rufino
Lim, having been made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that
the witness found the properties "abandoned and undeveloped", omits to
mention that said part of the testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs.
Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the
partnership were undeveloped, and the family of the widow (Kong Chai Pin) did
not receive any income from the partnership properties, was given in answer to
the question:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin an and his
family lived on the plantation of the partnership and derived their subsistence
from that plantation. What can you say to that? (Dep. 19 July 1956, p. 8).
And also —
What can you say as to the development of these other properties of the
partnership which you saw during the occupation? (Dep. p. 13, Emphasis
supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in
Tigato is about eleven (11) hectares and planted with abaca seedlings planted by
Mr. Sin An. When I went there with Hernando Young we saw all the abaca
destroyed. The place was occupied by the Japanese Army. They planted camotes
and vegetables to feed the Japanese Army. Of course they never paid any money
to Tan Sin An or his family. (Dep., Lim, pp. 13-14. Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's
admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e.,
continue to manage the properties). Witnesses Lim and Young referred to the
period of Japanese occupation; but Goquiolay's authority was, in fact, given to
the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin
carried out no acts of management during the Japanese occupation (1942-1944)
does not mean that she did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and Young;
he actually manifested his willingness that the widow should manage the
partnership properties. Whether or not she complied with this authority is a
question between her and the appellant, and is not here involved. But the
authority was given, and she did have it when she made the questioned sale,
because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was
only to manage the property, and that it did not include the power to alienate,
citing Article 1713 of the Civil Code of 1889. What this argument overlooks is that
the widow was not a mere agent, because she had become a partner upon her
husband's death, as expressly provided by the articles of copartnership. Even
22 | P a g e
more, granting that by succession to her husband, Tan Sin An, the widow only
became a limited partner, Goquiolay's authorization to manage the partnership
property was proof that he considered and recognized her as general partner, at
least since 1945. The reason is plain: Under the law (Article 148, last paragraph,
Code of Commerce), appellant could not empower the widow, if she were only a
limited partner, to administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the
interests of the copartnership, not even in the capacity of agents of the managing
partners. (Emphasis supplied).
By seeking authority to manage partnership property, Tan Sin An's widow
showed that she desired to be considered a general partner. By authorizing the
widow to manage partnership property (which a limited partner could not be
authorized to do), Goquiolay recognized her as such partner, and is now in
estoppel to deny her position as a general partner, with authority to administer
and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did
not say "necessarily") becomes a limited partner for his own protection, because
he would normally prefer to avoid any liability in excess of the value of the estate
inherited so as not to jeopardize his personal assets. But this statutory limitation
of responsibility being designed to protect the heir, the latter may disregard it
and instead elect to become a collective or general partner, with all the rights
and privileges of one, and answering for the debts of the firm not only with the
inheritance but also with the heir's personal fortune. This choice pertains
exclusively to the heir, and does not require the assent of the surviving partner.
It must be remember that the articles of co-partnership here involved expressly
stipulated that:
In the event of the death of any of the partners at any time before the expiration
of said term, the co-partnership shall not be dissolved but will have to be
continued and the deceased partner shall be represented by his heirs or assigns
in said co-partnership (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely
limited partners; on the contrary, they expressly stipulated that in case of death
of either partner "the co-partnership ... will have to be continued" with the heirs
or assigns. It certainly could not be continued if it were to be converted from a
general partnership into a limited partnership, since the difference between the
two kinds of associations is fundamental; and specially because the conversion
into a limited association would have the heirs of the deceased partner without
a share in the management. Hence, the contractual stipulation does actually
contemplate that the heirs would become general partners rather than limited
ones.
Of course, the stipulation would not bind the heirs of the deceased partner
should they refuse to assume personal and unlimited responsibility for the
obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so
compellable, it does not legitimately follow that they may not voluntarily choose
to become general partners, waiving the protective mantle of the general laws
of succession. And in the latter event, it is pointless to discuss the legality of any
conversion of a limited partner into a general one. The heir never was a limited
partner, but chose to be, and became, a general partner right at the start.
It is immaterial that the heir's name was not included in the firm name, since no
conversion of status is involved, and the articles of co-partnership expressly
contemplated the admission of the partner's heirs into the partnership.
It must never be overlooked that this case involved the rights acquired by
strangers, and does not deal with the rights existing between partners Goquiolay
and the widow of Tan Sin An. The issues between the partners inter se were
expressly reserved in our main decision. Now, in determining what kind of
partner the widow of partner Tan Sin an Had elected to become, strangers had
to be guided by her conduct and actuations and those of appellant Goquiolay.
Knowing that by law a limited partner is barred from managing the partnership
business or property, third parties (like the purchasers) who found the widow
possessing and managing the firm property with the acquiescence (or at least
without apparent opposition) of the surviving partners were perfectly justified in
assuming that she had become a general partner, and, therefore, in negotiating
with her as such a partner, having authority to act for, and in behalf of the firm.
This belief, be it noted, was shared even by the probate court that approved the
sale by the widow of the real property standing in the partnership name. That
belief was fostered by the very inaction of appellant Goquiolay. Note that for
seven long years, from partner Tan Sin An's death in 1942 to the sale in 1949,
there was more than ample time for Goquiolay to take up the management of
these properties, or at least ascertain how its affairs stood. For seven years
Goquiolay could have asserted his alleged rights, and by suitable notice in the
commercial registry could have warned strangers that they must deal with him
alone, as sole general partner. But he did nothing of the sort, because he was not
23 | P a g e
interested (supra), and he did not even take steps to pay, or settle the firm debts
that were overdue since before the outbreak of the last war. He did not even take
steps, after Tan Sin An died, to cancel, or modify, the provisions of the
partnership articles that he (Goquiolay) would have no intervention in the
management of the partnership. This laches certainly contributed to confirm the
view that the widow of Tan Sin An had, or was given, authority to manage and
deal with the firm's properties apart from the presumption that a general partner
dealing with partnership property has to requisite authority from his co-partners
(Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the consent
of the other, undoubtedly creates on obligation between the two partners, which
consists in asking the other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the
partnership. Neither it is necessary for the third person to ascertain if the
managing partner with whom he contracts has previously obtained the consent
of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the
consent of his copartner; for otherwise he would not enter into the contract. The
third person would naturally not presume that the partner with whom he enters
into the transaction is violating the articles of partnership, but on the contrary is
acting in accordance therewith. And this finds support in the legal presumption
that the ordinary course of business has been followed (No. 18, section 334, Code
of Civil Procedure), and that the law has been obeyed (No. 31, section 334). This
last presumption is equally applicable to contracts which have the force of law
between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis
supplied.)
It is next urged that the widow, even as a partner, had no authority to sell the
real estate of the firm. This argument is lamentably superficial because it fails to
differentiate between real estate acquired and held as stock-in-trade and real
estate held merely as business site (Vivante's "taller o banco social") for the
partnership. Where the partnership business is to deal in merchandise and
goods, i.e., movable property, the sale of its real property (immovables) is not
within the ordinary powers of a partner, because it is not in line with the normal
business of the firm. But where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the present case), the immovables
thus acquired by the firm from part of its stock-in-trade, and the sale thereof is
in pursuance of partnership purposes, hence within the ordinary powers of the
partner. This distinction is supported by the opinion of Gay de Montella1 , in the
very passage quoted in the appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerante, cuando es conforme
a los fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme
a los fines sociales, viene limitada a los objetos de comercio o a los productos de
la fabrica para explotacion de los cuales se ha constituido la Sociedad. Ocurrira
una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que
fuere necesario. (Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the
legal right to sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner
has ample power, as a general agent of the firm, to enter into an executory
contract for the sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and selling real estate
can not bind the firm by purchases or sales of such property made in the regular
course of business, then they are incapable of exercising the essential rights and
powers of general partners and their association is not really a partnership at all,
but a several agency.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles
of Copartnership), it can not be maintained that the sale was made in excess of
her power as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio
in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are
vastly different from the one before us. In the McGrath case, the Court expressly
found that:
24 | P a g e
The firm was then, and for some time had been, insolvent, in the sense that its
property was insufficient to pay its debts, though it still had good credit, and was
actively engaged in the prosecution of its business. On that day, which was
Saturday, the plaintiff caused to be prepared, ready for execution, the four
chattel mortgages in question, which cover all the tangible property then
belonging to the firm, including the counters, shelving, and other furnishings and
fixtures necessary for, and used in carrying on, its business, and signed the same
in this form: "In witness whereof, the said Cowen & McGrath, a firm, and Owen
McGrath, surviving partner, of said firm, and Owen McCrath, individually, have
hereunto set their hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by
Owen McGrath. Owen McGrath, Surviving partner of Cowen & McGrath. Owen
McGrath." At the same time, the plaintiff had prepared, ready for filing, the
petition for the dissolution of the partnership and appointment of a receiver
which he subsequently filed, as hereinafter stated. On the day the mortgages
were signed, they were placed in the hands of the mortgagees, which was the
first intimation to them that there was any intention to make them. At the time
none of the claims secured by the mortgages were due, except, it may be, a small
part of one of them, and none of the creditors to whom the mortgages were
made had requested security, or were pressing for the payment of their debts. ...
The mortgages appear to be without a sufficient condition of defiance, and
contain a stipulation authorizing the mortgagees to take immediate possession
of the property, which they did as soon as the mortgages were filed through the
attorney who then represented them, as well as the plaintiff; and the stores were
at once closed, and possession delivered by them to the receiver appointed upon
the filing of the petition. The avowed purposes of the plaintiff, in the course
pursued by him, was to terminate the partnership, place its properly beyond the
control of the firm, and insure the preference of the mortgagees, all of which was
known to them at the time; .... (Cas cit., p. 343, Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw the
conclusion that the conveyances were made with intent to terminate the
partnership, and that they were not within the powers of McGrath as a partner.
But there is no similarity between those acts and the sale by the widow of Tan
Sin An. In the McGrath case, the sale included even the fixtures used in the
business; in our case, the lands sold were those acquired to be sold. In the
McGrath case, none of the creditors were pressing for payment; in our case, the
creditors had been unpaid for more than seven years, and their claims had been
approved by the probate court for payment. In the McGrath case, the partnership
received nothing beyond the discharge of its debts; in the present case, not only
were its debts assumed by the buyers, but the latter paid, in addition, P37,000.00
in cash to the widow, to the profit of the partnership. Clearly, the McGrath ruling
is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but
appellant point out, as indicia thereof, the allegedly low price paid for the
property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a total
of P153,726.04, of which P37,000.00 was in cash, and the rest in partnership
debts assumed by the purchaser. These debts (62,415.91 to Yutivo, and
P54,310.13 to Sing Ye Cuan & Co.) are not questioned; they were approved by
the court, and its approval is now final. The claims were, in fact, for the balance
on the original purchase price of the land sold (sue first to La Urbana, later to the
Banco Hipotecario) plus accrued interests and taxes, redeemed by the two
creditors-claimants. To show that the price was inadquate, appellant relies on
the testimony of the realtor Mata, who is 1955, six years after the sale in
question, asserted that the land was worth P312,000.00. Taking into account the
continued rise of real estate values since liberation, and the fact that the sale in
question was practically a forced sale because the partnership had no other
means to pay its legitimate debts, this evidence certainly does not show such
"gross inadequacy" as to justify recission of the sale. If at the time of the sale
(1949) the price of P153,726.04 was really low, how is it that appellant was not
able to raise the amount, even if the creditor's representative, Yu Khe Thai, had
already warned him four years before (1945) that the creditors wanted their
money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to
discharge the debts. But the lands were already mortgaged, and had been
mortgaged since 1940, first to La Urbana, and then to the Banco Hipotecario. Was
it reasonable to expect that other persons would loan money to the partnership
when it was unable even to pay the taxes on the property, and the interest on
the principal since 1940? If it had been possible to find lenders willing to take a
chance on such a bad financial record, would not Goquiolay have taken
advantage of it? But the fact is clear on the record that since liberation until 1949
Goquiolay never lifted a finger to discharge the debts of the partnership. Is he
entitled now to cry fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that the
Supreme Court has ruled that relationship alone is not a badge of fraud (Oria
Hnos. vs. McMicking, 21 Phil. 243; also Hermandad del Smo. Nombre de Jesus vs.
25 | P a g e
Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original buyers,
Washington Sycip and Betty Lee, were without independent means to purchase
the property. That the Yutivos should be willing to extend credit to them, and not
to appellant, is neither illegal nor immoral; at the very least, these buyers did not
have a record of inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy
between the Yutivo firm and their component members. But no proof is adduced.
If he was such a victim, he could have easily defeated the conspirators by raising
money and paying off the firm's debts between 1945 and 1949; but he did not;
he did not even care to look for a purchaser of the partnership assets. Were it
true that the conspiracy to defraud him arose (as he claims) because of his refusal
to sell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly
strange that the conspirators should wait 4 years, until 1949, to have the sale
effected by the widow of Tan Sin An, and that the sale should have been routed
through the probate court taking cognizance of Tan Sin An's estate, all of which
increased the risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee
Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings for the
settlement of the estate of Tan Sin An. This for two reasons: First, Tan Sin An and
the partnership "Tan Sin An & Goquiolay" were solidary (Joint and
several)debtors (Exhibits "N", mortgage to the Banco Hipotecario), and Rule 87,
section 6 is the effect that:
Where the obligation of the decedent is joint and several with another debtor,
the claim shall be filed against the decedent as if he were the only debtor,
without prejudice to the right of the estate to recover contribution from the
other debtor. (Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the
properties of the partnership and those of Tan Sim An personally, and a mortgage
is indivisible, in the sense that each and every parcel under mortgage answers for
the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code, Art.
2089).
A final and conclusive consideration: The fraud charged not being one used to
obtain a party's consent to a contract (i.e., not being deceit or dolus in
contrahendo), if there is fraud at al, it can only be a fraud of creditors that gives
rise to a rescission of the offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New Civil Code) "the action for
rescission is subsidiary; it can not be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same". Since there
is no allegation, or evidence, that Goquiolay can not obtain reparation from the
widow and heirs of Tan Sin An, the present suit to rescind the sale in question is
not maintainable, even if the fraud charged actually did exist.
PREMISES CONSIDERED, the motion for reconsideration is denied.
Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.
Regala, J., took no part.
SECOND DIVISION
[G.R. No. L-11840. July 26, 1960.]
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO
C. GOQUIOLAY", Plaintiffs-Appellants, v. WASHINGTON Z. SYCIP, ET AL.,
Defendants-Appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for Appellants.
Sycip, Quisumbing, Salazar & Associates for Appellees.
REYES, J.B.L., J.:
Direct appeal from the decision of the Court of First Instance of Davao (the
amount involved being more than P200,000) dismissing the plaintiffs-appellants’
complaint.
From the stipulation of facts of the parties and the evidence on record, it would
appear that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay entered into
a general commercial partnership under the partnership name "Tan Sin An and
Antonio C. Goquiolay", for the purpose of dealing in real estate. The partnership
had a capital of P30,000.00, P18,000.00 of which was contributed by Goquiolay
and P12,000.00 by Tan Sin An. The agreement lodged upon Tan Sin An the sole
management of the partnership affairs, stipulating that —
"III. The co-partnership shall be composed of said Tan Sin An as sole managing
and partner (sic), and Antonio C. Goquiolay as co-partner.
"VIII. The affairs of the co-partnership shall be managed exclusively by the
managing and partner (sic) or by his authorized agent, and it is expressly
26 | P a g e
stipulated that the managing and partner (sic) may delegate the entire
management of the affairs of the co- partnership by irrevocable power of
attorney to any person, firm or corporation he may select upon such terms as
regards compensation as he may deem proper, and vest in such person, firm or
corporation full power and authority, as the agent of the co-partnership and in
his name, place and stead to do anything for it or on his behalf which he as such
managing and partner (sic) might do or cause to be done.
"IX. The co-partner shall have no voice or participation in the management of the
affairs of the co-partnership; but he may examine its accounts once every six (6)
months at any time during ordinary business hours, and in accordance with the
provisions of the Code of Commerce." (Articles of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that —
"In the event of the death of any of the partners at any time before the expiration
of said term, the co-partnership shall not be dissolved but will have to be
continued and the deceased partner shall be represented by his heirs or assigns
in said co-partnership" (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time
upon mutual agreement in writing of the partners (Art. XIII, articles of Co-
Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to
this effect:jgc:chanrobles.com.ph
"That besides the powers and duties granted the said Tan Sin An by the articles
of co-partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", the
said Tan Sin An should act as my Manager for said co-partnership for the full
period of the term for which said co-partnership was organized or until the whole
period that the said capital of P30,000.00 of the co-partnership should last, to
carry on to the best advantage and interest of the said co-partnership, to make
and execute, sign, seal and deliver for the co-partnership, and in its name, all bills,
bonds, notes, specialties, and trust receipts or other instruments or documents
in writing whatsoever kind or nature which shall be necessary to the proper
conduction of the said businesses, including the power to mortgage and pledge
real and personal properties, to secure the obligation of the co-partnership, to
buy real or personal properties for cash or upon such terms as he may deem
advisable, to sell personal or real properties, such as lands and buildings of the
co-partnership in any manner he may deem advisable for the best interest of said
co-partnership, to borrow money on behalf of the co-partnership and to issue
promissory notes for the repayment thereof, to deposit the funds of the co-
partnership in any local bank or elsewhere and to draw checks against funds so
deposited . . .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased
the three (3) parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral
Survey of Davao, subject-matter of the instant litigation, assuming the payment
of a mortgage obligation of P25,000.00, payable to "La Urbana Sociedad Mutua
de Construcción y Prestamos" for a period of ten (10) years, with 10% interest
per annum. Another 46 parcels were purchased by Tan Sin An in his individual
capacity, and he assumed payment of a mortgage debt thereon for P35,000.00,
with interest. The down payment and the amortization were advanced by Yutivo
and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an
instrument executed by the partnership and Tan Sin An, whereby the entire 49
lots were mortgaged in favor of the "Banco Hipotecario de Filipinas" (as successor
to "La Urbana") and the covenantors bound themselves to pay, jointly and
severally, the remaining balance of their unpaid accounts amounting to
P52,282.80 within eight 8 years, with 8% annual interest, payable in 96 equal
monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai
Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and
Tan K. Chuan. Defendant Kong Chai Pin was appointed administratrix of the
intestate estate of her deceased husband.
In the meantime, repeated demands for payment were made by the Banco
Hipotecario on the partnership and on Tan Sin An. In March, 1944, the defendant
Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sons Hardware
Co., paid the remaining balance of the mortgage debt, and the mortgage was
cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their
claims in the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13,
respectively, as alleged obligations of the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interests and taxes paid in amortizing
and discharging their obligations to "La Urbana" and the "Banco Hipotecario."
Disclaiming knowledge of said claims at first, Kong Chai Pin later admitted the
claims in her amended answer and they were accordingly approved by the Court.
27 | P a g e
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for
authority to sell all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee,
for the purpose primarily of settling the aforesaid debts of Tan Sin An and the
partnership. Pursuant to a court order of April 2, 1949, the administratrix
executed on April 4, 1949, a deed of sale 1 of the 49 parcels of land to the
defendants Washington Sycip and Betty Lee in consideration of P37,000.00 and
of vendees’ assuming payment of the claims filed by Yutivo Sons Hardware Co.
and Sing Yee and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and Betty
Lee executed in favor of the Insular Development Co., Inc. a deed of transfer
covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay
filed, on or about July 25, 1949, a petition in the intestate proceedings seeking to
set aside the order of the probate court approving the sale in so far as his interest
over the parcels of land sold was concerned. In its order of December 29, 1949,
the probate court annulled the sale executed by the administratrix with respect
to the 60% interest of Antonio Goquiolay over the properties sold. King Chai Pin
appealed to the Court of Appeals, which court later certified the case to us (93
Phil., 413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision setting
aside the orders of the probate court complained of and remanding the case for
new trial, due to the non-inclusion of indispensable parties. Thereafter, new
pleadings were filed.
The second amended complaint in the case at bar prays, among other things, for
the annulment of the sale in favor of Washington Sycip and Betty Lee, and their
subsequent conveyance in favor of the Insular Development Co., Inc., in so far as
the three (3) lots owned by the plaintiff partnership are concerned. The answer
averred the validity of the sale by Kong Chai Pin as successor partner, in lieu of
the late Tan Sin An. After hearing, the complaint was dismissed by the lower court
in its decision dated October 30, 1956; hence, this appeal taken directly to us by
the plaintiffs, as the amount involved is more than P200,000.00. Plaintiffs-
appellants assign as errors that —
"I. — The lower court erred in holding that Kong Chai Pin became the managing
partner of the partnership upon the death of her husband, Tan Sin An, by virtue
of the articles of Partnership executed between the Tan Sin An and Antonio
Goquiolay, and the general power of attorney granted by Antonio Goquiolay.
II — The lower court erred in holding that Kong Chai Pin could act alone as sole
managing partner in view of the minority of the other heirs.

III — The lower court erred in holding that Kong Chai Pin was the only heir
qualified to act as managing partner.
IV — The lower court erred in holding that Kong Chai Pin had authority to sell the
partnership properties by virtue of the articles of partnership and the general
power of attorney granted to Tan Sin An in order to pay the partnership
indebtedness.
V — The lower court erred in finding that the partnership did not pay its
obligation to the Banco Hipotecario.
VI — The lower court erred in holding that the consent of Antonio Goquiolay was
not necessary to consummate the sale of the partnership properties.
VII — The lower court erred in finding that Kong Chai Pin managed the business
of the partnership after the death of her husband, and that Antonio Goquiolay
knew it.
VIII — The lower court erred in holding that the failure of Antonio Goquiolay to
oppose the management of the partnership by Kong Chai Pin estops him now
from attacking the validity of the sale of the partnership properties.
IX — The lower court erred in holding that the buyers of the partnership
properties acted in good faith.
X — The lower court erred in holding that the sale was not fraudulent against the
partnership and Antonio Goquiolay.
XI — The lower court erred in holding that the sale was not only necessary but
beneficial to the partnership.
XII — The lower court erred in dismissing the complaint and in ordering Antonio
Goquiolay to pay the costs of suit."cralaw virtua1aw library
There is merit in the contention that the lower court erred in holding that the
widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole
management of the partnership, upon the latter’s death. While, as we previously
stated in our narration of facts, the Articles of Co-Partnership and the power of
attorney executed by Antonio Goquiolay conferred upon Tan Sin An the exclusive
management of the business, such power, premised as it is upon trust and
28 | P a g e
confidence, was a mere personal right that terminated upon Tan’s demise. The
provision in the articles stating that "in the event of death of any one of the
partners within the 10-year term of the partnership, the deceased partner shall
be represented by his heirs", could not have referred to the managerial right
given to Tan Sin An; more appropriately, it related to the succession in the
proprietary interest of each partner. The covenant that Antonio Goquiolay shall
have no voice or participation in the management of the partnership, being a
limitation upon his right as a general partner, must be held coextensive only with
Tan’s right to manage the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co- partnership providing for
the continuation of the firm notwithstanding the death of one of the partners,
the heirs of the deceased, by never repudiating or refusing to be bound under
the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan’s demise. The validity of like clauses in partnership
agreements is expressly sanctioned under Article 222 of the Code of Commerce.
1
Minority of the heirs is not a bar to the application of that clause in the articles
of co-partnership (2 Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite
Elementaire de Droit Civil, English translation by the Louisiana State Law
Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members’ liability in the
partnership was limited merely to the value of the share or estate left by the
deceased Tan Sin An, they became no more than limited partners and, as such,
were disqualified from the management of the business under Article 148 of the
Code of Commerce. Although ordinarily, this effect follows from the continuance
of the heirs in the partnership, 2 it was not so with respect to the widow Kong
Chai Pin, who, by her affirmative actions, manifested her intent to be bound by
the partnership agreement not only as a limited but as a general partner. Thus,
she managed and retained possession of the partnership properties and was
admittedly deriving income therefrom up to and until the same were sold to
Washington Sycip and Betty Lee. In fact, by executing the deed of sale of the
parcels of land in dispute in the name of the partnership, she was acting no less
than as a managing partner. Having thus preferred to act as such, she could be
held liable for the partnership debts and liabilities as a general partner, beyond
what she might have derived only from the estate of her deceased husband. By
allowing her to retain control of the firm’s property from 1942 to 1949, plaintiff
estopped himself to deny her legal representation of the partnership, with the
power to bind it by proper contracts.

The question now arises as to whether or not the consent of the other partners
was necessary to perfect the sale of the partnership properties to Washington
Sycip and Betty Lee. The answer is, we believe, in the negative. Strangers dealing
with a partnership have the right to assume, in the absence of restrictive clauses
in the co-partnership agreement, that every general partner has power to bind
the partnership, specially those partners acting with ostensible authority. And so,
we held in one case:jgc:chanrobles.com.ph
". . . Third persons, like the plaintiff, are not bound in entering into a contract
with any of the two partners, to ascertain whether or not this partner with whom
the transaction is made has the consent of the other partner. The public need
not make inquiries as to the agreements had between the partners. Its
knowledge is enough that it is contracting with the partnership which is
represented by one of the managing partners.
‘There is a general presumption that each individual partner is an agent for the
firm and that he has authority to bind the firm in carrying on the partnership
transactions.’ [Mills v. Riggle, 112 Pac., 617]
‘The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of the members of the firm acting apparently in
its behalf and within the scope of his authority.’ [Le Roy v. Johnson, 7 U.S. Law,
Ed., 391](George Litton v. Hill & Ceron, Et Al., 67 Phil., 513-514)."cralaw
virtua1aw library
We are not unaware of the provision of Article 129 of the Code of Commerce to
the effect that —
"If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the
direction and management of the common business, and the members present
shall come to an agreement for all contracts or obligations which may concern
the association." (Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that
does not necessarily affect the validity of the acts of a partner, while acting within
the scope of the ordinary course of business of the partnership, as regards third
persons without notice. The latter may rightfully assume that the contracting
partner was duly authorized to contract for and in behalf of the firm and that,
furthermore, he would not ordinarily act to the prejudice of his co- partners. The
29 | P a g e
regular course of business procedure does not require that each time a third
person contracts with one of the managing partners, he should inquire as to the
latter’s authority to do so, or that he should first ascertain whether or not the
other partners had given their consent thereto. In fact, Article 130 of the same
Code of Commerce provides that even if a new obligation was contracted against
the express will of one of the managing partners, "it shall not be annulled for
such reason, and it shall produce its effects without prejudice to the
responsibility of the member or members who contracted it, for the damages
they may have caused to the common fund."cralaw virtua1aw library
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points
out:jgc:chanrobles.com.ph
"367. Primera hipotesis. — A falta de factos especiales, la facultad de administrar
corresponde a cada socio personalmente. No hay que esperar ciertamente
concordia con tantas cabezas, y para cuando no vayan de acuerdo, la disciplina
del Código no ofrece un sistema eficaz que evite los inconvenientes. Pero, ante
el silencio del contrato, debia quiza el legislador privar de la administración a uno
de los socios en beneficio del otro? Seria una arbitrariedad. Debera quiza declarar
nula la Sociedad que no haya elegido Administrador? El remedio seria peor que
el mal. Debera, tal vez, pretender que todos los socios concurran en todo acto de
la Sociedad? Pero este concurso de todos habria reducido a la impotencia la
administración, que es asunto de todos los dias y de todas horas. Hubieran sido
disposiciones menos oportunas que lo adoptado por el Código, el cual se confia
al espiritu de reciproca confianza que deberia animar la colaboración de los
socios, y en la ley inflexible de responsabilidad que implica comunidad en los
intereses de los mismos.
En esta hipótesis, cada socio puede ejercer todos los negocios comprendidos en
el contrato social sin dar de ello noticia a los otros, porque cada uno de ellos
ejerce la administración en la totalidad de sus relaciones, salvo su
responsabilidad en el caso de una administración culpable. Si debiera dar noticia,
el beneficio de su simultania actividad, frecuentemente distribuida en lugares y
en tiempos diferentes, se echaria a perder. Se objetara el que de esta forma, el
derecho de oposición de cada uno de los socios puede quedar frustrado. Pero se
puede contestar que este derecho de oposición concedido por la ley como un
remedio excepcional, debe subordinarse al derecho de ejercer el oficio de
Administrador, que el Código concede sin limite: ‘se presume que los socios se
han concedido reciprocamente la facultad de administrar uno para otro.’ Se haria
precipitar esta hipótesis en la otra de una administración colectiva (art. 1.721,
Código Civil) y se acabaria con pedir el consentimiento, a lo menos tacito, de
todos los socios — lo que el Código excluye . . ., si se obligase al socio
Administrador a dar noticia previa del negocio a los otros, a fin de que pudieran
oponerse si no consintieran."cralaw virtua1aw library
Commenting on the same subject, Gay de Montella (Código de Comercio, Tomo
II, 147-148) opines:jgc:chanrobles.com.ph
"Para obligar a las Compañias enfrente de terceros (art. 128 del Código), no es
bastante que los actos y contratos hayan sido ejecutados por un socio o varios
en nombre colectivo, sino que es preciso el concurso de estos dos elementos,
uno, que el socio o socios tengan reconocida la facultad de administrar la
Compañia, y otro, que el acto o contrato haya sido ejecutado en nombre de la
Sociedad y usando de su firma social. Asi es que toda obligación contraida bajo
la razon social, se presume contraida por la Compañia. Esta presuncion es
impuesta por motivos de necesidad practica. El tercero no puede cada vez que
trata con la Compañia, inquirir si realmente el negocio concierne a la Sociedad.
La presuncion es juris tantum y no juris et de jure, de modo que si el gerente
suscribe bajo la razón social una obligación que no interesa a la Sociedad, éste
podra rechazar la acción del tercero probando que el acreedor conocia que la
obligación no tenia ninguna relación con ella. Si tales actos y contratos no
comportasen la concurrencia de ambos elementos, serian nulos y podria
decretarse la responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la
Compañia, o contabilizados en sus libros, si el acto o contrato ha sido convalidado
sin protesta y se trata de acto o contrato que ha producido beneficio social,
tendria plena validez, aun cuando le faltase algunos o ambos de aquellos
requisitos antes señalados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa
al nombramiento o designación de uno o mas de un socio para administrar la
Compañia (art. 129 del Código) todos tienen por un igual el derecho de concurir
a la decisión y manejo de los negocios comunes . . ."cralaw virtua1aw library
Although the partnership under consideration is a commercial partnership and,
therefore, to be governed by the Code of Commerce, the provisions of the old
Civil Code may give us some light on the right of one partner to bind the
partnership. States Art. 1695 thereof:jgc:chanrobles.com.ph
"Should no agreement have been made with respect to the form of management,
the following rules shall be observed:chanrob1es virtual 1aw library
30 | P a g e
1. All the partners shall be considered agents, and whatever any one of them may
do individually shall bind the partnership; but each one may oppose any act of
the others before it has become legally binding."cralaw virtua1aw library
The records fail to disclose that appellant Goquiolay made any opposition to the
sale of the partnership realty to Washington Z. Sycip and Betty Lee; on the
contrary, it appears that he (Goquiolay) only interposed his objections after the
deed of conveyance was executed and approved by the probate court, and,
consequently, his opposition came too late to be effective.
Appellants assail the correctness of the amounts paid for the account of the
partnership as found by the trial court. This question, however, need not be
resolved here, as in the deed of conveyance executed by Kong Chai Pin, the
purchasers Washington Sycip and Betty Lee assumed, as part consideration of
the purchase, the full claims of the two creditors, Sing Yee and Cuan Co., Inc. and
Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm realty,
on the ground that it, in effect, threw the partnership into dissolution, which
requires consent of all the partners. This view is untenable. That the partnership
was left without the real property it originally had will not work its dissolution,
since the firm was not organized to exploit these precise lots but to engage in
buying and selling real estate, and "in general real estate agency and brokerage
business." Incidentally, it is to be noted that the payment of the solidary
obligation of both the partnership and the late Tan Sin An, leaves open the
question of accounting and contribution between the co-debtors, that should be
ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was only a
fraudulent device by the appellees, with the connivance of Kong Chai Pin, to ease
out Antonio Goquiolay from the partnership. The "devise", according to the
appellants, started way back sometime in 1945, when one Yu Khe Thai sounded
out Antonio Goquiolay on the possibility of selling his share in the partnership;
and upon his refusal to sell, was followed by the filing of the claims of Yutivo Sons
Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate proceedings
of Tan Sin An. As creditors of Tan Sin An and the plaintiff partnership (whose
liability was alleged to be joint and several), Yutivo Sons Hardware Co. and Sing
Yee and Cuan Co., Inc. had every right to file their claims in the intestate
proceedings. The denial of the claims at first by Kong Chai Pin (for lack of
sufficient knowledge) negatives any conspiracy on her part in the alleged
fraudulent scheme, even if she subsequently decided to admit their validity after
studying the claims and finding it best to admit the same. It may not be amiss to
remark that the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the
properties were sold was unreasonably low, or in any way unfair, since appellants
presented no evidence of the market value of the lots as of the time of their sale
to appellees Sycip and Lee. The alleged value of P31,056.58 in May of 1955 is no
proof of the market value in 1949, specially because in the interval, the new
owners appear to have converted the land into a subdivision, which they could
not do without opening roads and otherwise improving the property at their own
expense. Upon the other hand, Kong Chai Pin hardly had any choice but to
execute the questioned sale, as it appears that the partnership had neither cash
nor other properties with which to pay its obligations. Anyway, we cannot
consider seriously the inferences freely indulged in by the appellants as allegedly
indicating fraud in the questioned transactions, leading to the conveyance of the
lots in dispute to the appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm the
same, with costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera
and Gutierrez David, JJ., concur.
EN BANC
G.R. No. L-4776 March 18, 1909
MANUEL ORMACHEA TIN-CONGCO, deceased, represented by the Chinaman
Tiu Tusay, judicial administrator of his estate, plaintiff-appellee,
vs.
SANTIAGO TRILLANA, defendant-appellant.
A. Velarde, and E. Paguia for appellant.
T. L. McGirr for appellee.
TORRES, J.:
On the 15th of January, 1904, Manuel Ormachea Tin-Congco, a Chinaman,
presented an amended complaint against Santiago Trillana, alleging that the
plaintiff Ormachea and Luis Vizmanos Ong Queco were engaged in business in
the pueblos of Hagonoy, Malolos, and other places in the Province of Bulacan,
31 | P a g e
and that in the course thereof the defendant purchased from them merchandise
to the value of 4,000 pesos, local currency; that two years prior to that date, a
little more or less, the partnership was dissolved and the business was divided
up between the partners, all accounts and debts of the defendant were alloted
to the plaintiff, and became the individual property of Ormachea Tin-Congco; the
indebtedness is proven by the documents signed by the defendant or his agents
in favor of Ormachea or of Vizmanos Ong Queco or their agent named Lawa in
charge of the business, The documents of indebtedness are inserted in the
complaint and duly numbered. They aggregate 135 documents, some of which
are written in Tagalog with corresponding translations; that the legal interest on
the said 4,000 pesos is 1,500 pesos which makes the total debt amount to 5,500
pesos, and the same has not been paid by the defendant. Therefore, the plaintiff
prays that judgment be entered ordering the defendant, Santiago Trillana, to pay
the said 5,500 pesos with costs.
The defendant filed a written answer on November 15, 1904, setting forth: That
he admitted the first statement of the complaint, but had no knowledge as to the
second as it appears therein; that he did not admit the same, nor the other
allegations in the complaint in the sense in which they are set out; that as a
special defense, the defendant alleges that he had already settled his accounts
and obligations contracted in the business to which the complaint refers, by
means of periodical payments in tuba or the liquor of the nipa palm, and that if
any accounts are still pending, the same should, owing to their character and the
manner in which they were constituted, be paid in kind and not in money as the
plaintiff claims in his complaint, and should be paid at the time and under the
circumstances which, as is customary in Hagonoy, such class of obligations are
settled; he therefore asked the court below to enter judgment absolving the
defendant of the complaint, with the costs against the plaintiff.
After hearing the evidence presented by the parties, the trial judge, on February
27, 1907, rendered judgment ordering the defendant, Santiago Trillana, to pay to
the Chinaman Florentino Tiu Tusay, the judicial administrator of the estate of the
deceased plaintiff, Ormachea Tin-Congco, the sum of P2,832.22, in tuba, under
the same conditions stipulated between the debtor and the copartnership for
the working of the distillery of Luis Vizmanos and the late Chinaman Manuel
Ormachea, with costs.
The representative of the defendant excepted to the above judgment, and
announced his intention to appeal by means of a bill of exceptions; and by a
writing dated March 22, 1907, he prayed the lower court to revoke or amend its
former decision of the 27th of February, and to order a new trial as the evidence
adduced at the hearing was not sufficient to justify said decision, because the
vale No. 88 is subscribed by another person who is not the defendant, and for
said reason its value can not be demanded from him; that vales numbered 31,
87, 91, 93, 94, 96, and 97 are in the same condition; that the vales Nos. 5, 6, 7,
32, 33, 35, 40, 41, 44, 48, 54, 63, 104, 105, 127, 132, and 133 offered by the
plaintiff in evidence and signed by the defendant, clearly express on whose
account they were issued, and for said reason the obligations contained in said
vales are not those of the defendant, Santiago Trillana, and can not stand as
evidence against him; that the vales Nos. 109, 112, 113, 115, 116, 118, 12, and
15 by themselves do not prove, nor can they prove that the amount of money
which they represent should form part of the defendant's debt, because it does
not appear that there was ever a lawful transfer, cession or indorsement made
between the person in whose favor they are made out and the so-called creditor,
nor between said person and the successor of the said entity, that is to say, the
representative of the plaintiff; that vale No. 113 is made out as a mere
recommendation of the defendant, and for account of a third person; that vale
No. 1 does not state the year, and No. 135 bears no date at all, therefore, they
do not constitute sufficient proof to justify the condemnatory judgment with
respect to the amount which they represent because the time when said
respective obligations were contracted is not determined; that the vales which
are date previously to vale No. 98 are invalidated by the note of general
liquidation between the creditor Manuel Ormachea, and the debtor Santiago
Trillana written on the back of the said vale No. 98 in Chinese characters and
explained by the witness Jose R. Lopez Lawa, and, notwithstanding said
liquidation, the said vales are reputed as unpaid; and finally, that if the debt is
payable in tuba, unless it is shown and it does not so appear that the defendant
refused to pay it in that manner or has failed to comply with his obligations, there
is no reason to compel him to pay, therefore he should not be ordered to do so,
much less to pay the costs.
At the hearing, the trial judge, on the 7th of May, 1907, overruled the motion to
modify his former decision as far as it referred to the amount of the indebtedness
found against the defendant and the said judgment was modified by adding the
provision that the defendant should make payment in tuba which he should
deliver at the plaintiff's distillery in the town of Hagonoy within the term of six
months, but that, if said term should expire without such payment, whatever
might be the cause, he should be obliged to pay his debt in cash.
The defendant requested a decision in his motion for a new trial in which he
contended that the evidence was not sufficient to justify the judgment of
February 27, and on the 12th of November the court below held that, by its order
32 | P a g e
of May 7, last, the motion for a new trial was denied, and said denial was
reproduced as explanation of the ruling of May 7. The defendant excepted to the
foregoing decision and presented the corresponding amended bill of exceptions;
when approving the bill of exceptions, the court below ordered the suspension
of the execution providing that the defendant furnish bond in the sum of P4,000.
As Manuel Ormachea Tin-Congco claimed from Santiago Trillana the payment of
the sum which, as capital and interest thereon, he owed the former for amounts
in cash and in goods which he took from the creditor and his partner, Luis
Vizmanos Ong Queco, as shown by the 135 vales which are attached to the
complaint and which were admitted as authentic by the defendant, with the
exception of eight of them signed by the other persons, aggregating P173, the
court below, in view of the evidence, found that the debt which could be claimed
from the defendant, after deducting the said P173, amounted only to P2,832.22
4/8.
The record shows that the amounts advanced to the debtor, Santiago Trillana,
and to the others by means of the said vales, and most of which were addressed
to Lopez Lawa, and some to other persons, were delivered by the said Lopez Lawa
who, from the years 1894 or by 1895 to 1901, was the manager of the distillery
situated in the barrio of San Sebastian, municipality of Hagonoy, Bulacan, and
owned in partnership by Ormachea and Vizmanos, but the money furnished by
the manager to Trillana and to the others on account of the tuba or liquor of the
nipa palm which the defendant had engaged to supply to said distillery belonged
to the two owners of the same, not to the manager, Jose Lopez Lawa.
It has also been fully proven that, when in June or July, 1901, the aforesaid
Ormachea Tin-Congco and Vizmanos Ong Queco withdrew from the business,
Lawa ceased to act as manager of the distillery, and then, among other things
that belonged to the two partners, they divided between them the credits that
they held against third persons, those that stood against Santiago Trillana as
evidenced by the said 135 vales, having gone to Manuel Ormachea Tin-Congco.
This is affirmed by Luis Vizmanos Ong Queco, Syo Bunchad, by Jose R. Lopez Lawa
himself, and, as stipulated between the parties, by Tiu Langco, a Chinaman who
was at the time employed as mixer in said distillery. It should be noted that, while
this litigation was pending, the plaintiff, Manuel Ormachea, died, and Florentino
Tiu Tusay was appointed administrator of his estate; letters of administration in
favor of the latter were issued on the 9th of October, 1905. (Folio 56.)
As has been seen, the defendant stated that he had already paid his accounts and
obligations contracted in favor of the said Ormachea and Vizmanos by means of
periodical deliveries of tuba or liquor of the nipa palm, and alleged that, if any
amount was still pending payment, it should be paid not in money but in tuba, at
such time and under such circumstances as are customary in the town of
Hagonoy. In evidence of this, while testifying under oath, he introduced the
following document marked "A" which appears at folio 248:
I, Jose R. Lopez (Lawa), a Christian Chinese, do hereby declare that D. Santiago
Trillana has no outstanding debt whatever with the distillery situated in the
barrio of San Sebastian in this town, which in past times was under my
management. What I have stated is the truth. — Hagonoy, November 19, 1903.
— Jose R. Lopez.
The debtor explained how and in what manner he obtained the foregoing
document from Lawa, and stated: That in November, 1903, he received a letter
from Mr. McGirr, the plaintiff's attorney, requesting him to settle his account
with Lawa, for which reason he called on the latter and asked him whether he
still owed him anything on account of the distillery in San Sebastian; Lawa replied
that he no longer owed anything; thereupon the requested Lawa to issue the said
document, and under Lawa's direction the debtor wrote out the document, and
the former, upon being informed of its contents, signed it; for said reason the
witness believed that he no longer owed anything.
However, Lopez Lawa affirms that he gave the said document marked as Exhibit
A" to the debtor, Santiago Trillana, because the latter was indebted to him but
to Manuel Ormachea, to whom the credits standing against Trillana were
transferred when Ormachea withdrew from the above-mentioned partnership
with Vizmanos Ong Queco. When drawing up the preinserted document, it was
not his intention to annul and set aside the vales which represented the
indebtedness of the defendant, Trillana.
If the business jointly carried on by Ormachea and Vizmanos was dissolved, and
its transactions ceased in 1901 Jose Lopez Lawa, who managed the distillery on
behalf of the owners of the same, also ceased to act as such manager in said year,
and for said reason the document Exhibit A, which he issued to the debtor on the
19th of November, 1903, two years after ceasing to be manager, can not serve
to relieve the debtor from paying what he owed by virtue of the documents or
vales that he had issued in order to obtain money from the owners of the said
distillery; that is to say, as agreed upon by them, the right to recover the debts
of the defendant still belonged to Ormachea when the business was dissolved,
as Lawa was not authorized by Ormachea to deliver to the debtor an acquittance
releasing him from the obligations that he had contracted, to the prejudice of the
33 | P a g e
real creditor, the only person entitled to condone a debt in the event of waiving
the right to recover the same.
If the document marked "A" had been issued by Jose Lopez Lawa while still at the
head of the business of the distillery, as representative of the owners thereof,
the aforesaid Ormachea and Vizmanos, prior to their withdrawal from business,
perhaps it might have served as a foundation for the debtor to allege that his
obligations evidenced by said vales had been settled, although, if such was the
case, the said vales should have been returned to him by Lawa, or by the owners
of the distillery; but, as the document was made out and issued two years
afterwards, without a previous payment of the amounts secured on the said
vales, when the business no longer existed, when the owners had entirely
withdrawn from it, and when Lawa, who then acted as manager of the distillery,
had no express authority to issue such a document, with the further circumstance
of its being written in Spanish, a language with which the Chinaman who signed
it was probably not well acquainted and the fact that it was written by the
defendant, Santiago Trillana himself; it is not proper nor lawful to admit the said
document as possessing a force and effect that would fully exempt the defendant
from the payment of his obligation, and with greater reason if it is considered
that it has not been shown that Lawa was authorized to liquidate accounts, or
issue an acquittance releasing the debtor from the payment of his debt. (Arts.
1714 and 1719, Civil Code.)
Article 1162 of said code reads:
Payment must be made to the person in whose favor an obligation is constituted,
or to another authorized to receive it in his name.
After the close of the business of the distillery owned by Ormachea and
Vizmanos, and after Lawa had ceased for two years to act in the administration
and management thereof, he was not authorized to sign the document marked
"A," made out by the debtor, by which the credit of Ormachea should be
considered as settled, and the obligation contracted by Santiago Trillana, as
shown by the vales which appear in the record, extinguished.
Since the vales existed, and were in the possession of the creditor, it was because
the amounts they called for had not presumed to have been fulfilled when the
proofs of its existence have been returned to the debtor. (Sec. 334, par. 8, Code
of Civil Procedure.) Seeing that the amounts stated in the vales acknowledged by
the debtor were advanced to him in part payment of the price of certain
quantities of tuba or liquor of the nipa palm which he had contracted to deliver
at the distillery, and as long as he is able to comply with these stipulations within
a reasonable time, the defendant can not be compelled to pay his debt in cash.
The amounts stated in the vales were advanced under the condition that the
same would be paid or satisfied with the value of the tuba received by the
distillery; therefore, the decision of the court below, which moreover appears to
have been acquiesced in by the appellee for the reason that it was undoubtedly
so stipulated, is in accordance with the law. (Art. 1278, Civil Code.)
In view of the forgoing, and accepting the conclusions contained in the judgment
of February 27, 1907, appealed from, it is our opinion that the same should be
affirmed, and we hereby affirm it, with the addition made in the order of May 7
of the same year, with the costs against the appellant. So ordered.
Arellano, C. J., Mapa, Johnson, Carson, and Willard, JJ., concur.
EN BANC
G.R. No. L-12164 May 22, 1959
BENITO LIWANAG and MARIA LIWANAG REYES, petitioners-appellants,
vs.
WORKMEN'S COMPENSATION COMMISSION, ET AL., respondents-
appellees.
J. de Guia for appellants.
Estanislao R. Bayot for appellees.
ENDENCIA, J.:
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of
Liwanag Auto Supply, a commercial guard who while in line of duty, was
skilled by criminal hands. His widow Ciriaca Vda. de Balderama and minor
children Genara, Carlos and Leogardo, all surnamed Balderama, in due time
filed a claim for compensation with the Workmen's Compensation
Commission, which was granted in an award worded as follows:
WHEREFORE, the order of the referee under consideration should be, as it is
hereby, affirmed and respondents Benito Liwanag and Maria Liwanag Reyes,
ordered.
34 | P a g e
1. To pay jointly and severally the amount of three thousand Four Hundred
Ninety Four and 40/100 (P3,494.40) Pesos to the claimants in lump sum; and
To pay to the Workmen's Compensation Funds the sum of P4.00 (including
P5.00 for this review) as fees, pursuant to Section 55 of the Act.
In appealing the case to this Tribunal, appellants do not question the right of
appellees to compensation nor the amount awarded. They only claim that,
under the Workmen's Compensation Act, the compensation is divisible,
hence the commission erred in ordering appellants to pay jointly and
severally the amount awarded. They argue that there is nothing in the
compensation Act which provides that the obligation of an employer arising
from compensable injury or death of an employee should be solidary
obligation, the same should have been specifically provided, and that, in
absence of such clear provision, the responsibility of appellants should not be
solidary but merely joint.
At first blush appellants' contention would seem to be well, for ordinarily, the
liability of the partners in a partnership is not solidary; but the law governing
the liability of partners is not applicable to the case at bar wherein a claim for
compensation by dependents of an employee who died in line of duty is
involved. And although the Workmen's Compensation Act does not contain
any provision expressly declaring solidary obligation of business partners like
the herein appellants, there are other provisions of law from which it could
be gathered that their liability must be solidary. Arts. 1711 and 1712 of the
new Civil Code provide:
ART. 1711. Owners of enterprises and other employers are obliged to pay
compensation for the death of or injuries to their laborers, workmen,
mechanics or other employees, even though the event may have been purely
accidental or entirely due to a fortuitous cause, if the death or personal injury
arose out of and in the course of the employment. . . . .
ART. 1712. If the death or injury is due to the negligence of a fellow-worker,
the latter and the employer shall be solidarily liable for compensation. . . . .
And section 2 of the Workmen's Compensation Act, as amended reads in part
as follows:
. . . The right to compensation as provided in this Act shall not be defeated or
impaired on the ground that the death, injury or disease was due to the
negligence of a fellow servant or employee, without prejudice to the right of
the employer to proceed against the negligence party.
The provisions of the new Civil Code above quoted taken together with those
of Section 2 of the Workmen's Compensation Act, reasonably indicate that in
compensation cases, the liability of business partners, like appellants, should
be solidary; otherwise, the right of the employee may be defeated, or at least
crippled. If the responsibility of appellants were to be merely joint and
solidary, and one of them happens to be insolvent, the amount awarded to
the appellees would only be partially satisfied, which is evidently contrary to
the intent and purposes of the Act. In the previous cases we have already held
that the Workmen's Compensation Act should be construed fairly, reasonably
and liberally in favor of and for the benefit of the employee and his
dependents; that all doubts as to the right of compensation resolved in his
favor; and that it should be interpreted to promote its purpose. Accordingly,
the present controversy should be decided in favor of the appellees.
Moreover, Art. 1207 of the new Civil Code provides:
. . . . There is solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full protection
to the employee, reason demands that the nature of the obligation of the
employers to pay compensation to the heirs of their employee who died in
line of duty, should be solidary; otherwise, the purpose of the law could not
be attained.
Wherefore, finding no error in the award appealed from, the same is hereby
affirmed, with costs against appellants.
35 | P a g e
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, and
Concepcion, JJ., concur.
FIRST DIVISION
G.R. No. L-39780 November 11, 1985
ELMO MUÑASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY
and RAMON PONS, respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.
GUTTIERREZ, JR., J.:
In this petition for certiorari, the petitioner seeks to annul and set added the
decision of the Court of Appeals affirming the existence of a partnership
between petitioner and one of the respondents, Celestino Galan and holding
both of them liable to the two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from the liabilities of the
partnership.
Petitioner Elmo Muñasque filed a complaint for payment of sum of money
and damages against respondents Celestino Galan, Tropical Commercial, Co.,
Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered into a
contract with respondent Tropical through its Cebu Branch Manager Pons for
remodelling a portion of its building without exchanging or expecting any
consideration from Galan although the latter was casually named as partner
in the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical). Galan would receive some kind of
compensation in the form of some percentages or commission; that Tropical,
under the terms of the contract, agreed to give petitioner the amount of
P7,000.00 soon after the construction began and thereafter, the amount of
P6,000.00 every fifteen (15) days during the construction to make a total sum
of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a
check for P7,000.00 not to the plaintiff but to a stranger to the contract,
Galan, who succeeded in getting petitioner's indorsement on the same check
persuading the latter that the same be deposited in a joint account; that on
January 26, 1967 when the second check for P6,000.00 was due, petitioner
refused to indorse said cheek presented to him by Galan but through later
manipulations, respondent Pons succeeded in changing the payee's name
from Elmo Muñasque to Galan and Associates, thus enabling Galan to cash
the same at the Cebu Branch of the Philippine Commercial and Industrial
Bank (PCIB) placing the petitioner in great financial difficulty in his
construction business and subjecting him to demands of creditors to pay' for
construction materials, the payment of which should have been made from
the P13,000.00 received by Galan; that petitioner undertook the construction
at his own expense completing it prior to the March 16, 1967 deadline;that
because of the unauthorized disbursement by respondents Tropical and Pons
of the sum of P13,000.00 to Galan petitioner demanded that said amount be
paid to him by respondents under the terms of the written contract between
the petitioner and respondent company.
The respondents answered the complaint by denying some and admitting
some of the material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed that
the issues to be resolved are:
(1) Whether or not there existed a partners between Celestino Galan
and Elmo Muñasque; and
(2) Whether or not there existed a justifiable cause on the part of
respondent Tropical to disburse money to respondent Galan.
36 | P a g e
The business firms Cebu Southern Hardware Company and Blue Diamond
Glass Palace were allowed to intervene, both having legal interest in the
matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which
states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and
severally the intervenors Cebu and Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company and Ramon
Pons from any liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its proprietor,
Tan Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its
judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and
severally the intervenors Cebu Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally interest at 12%
per annum of the sum of P6,229.34 until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00 representing
attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company:
(4) absolving the defendants Tropical Commercial Company and Ramon
Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with
the sole modification that the liability imposed in the dispositive part of the
decision on the credit of Cebu Southern Hardware and Blue Diamond Glass
Palace was changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muñasque filed this petition.
The present controversy began when petitioner Muñasque in behalf of the
partnership of "Galan and Muñasque" as Contractor entered into a written
contract with respondent Tropical for remodelling the respondent's Cebu
branch building. A total amount of P25,000.00 was to be paid under the
contract for the entire services of the Contractor. The terms of payment were
as follows: thirty percent (30%) of the whole amount upon the signing of the
contract and the balance thereof divided into three equal installments at the
lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a check
for P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the
check in favor of respondent Galan to enable the latter to deposit it in the
bank and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
personal use so that when the second check in the amount of P6,000.00 came
and Galan asked the petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu
branch of Tropical that there was a"misunderstanding" between him and
37 | P a g e
petitioner, respondent Tropical changed the name of the payee in the second
check from Muñasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and petitioner and under
which name a permit to do construction business was issued by the mayor of
Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through
his sole efforts. He stated that he borrowed some P12,000.00 from his friend,
Mr. Espina and although the expenses had reached the amount of P29,000.00
because of the failure of Galan to pay what was partly due the laborers and
partly due for the materials, the construction work was finished ahead of
schedule with the total expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were
subsequently given to the petitioner alone with the last check being given
pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of
money and damages against the respondents,seeking to recover the
following: the amounts covered by the first and second checks which fell into
the hands of respondent Galan, the additional expenses that the petitioner
incurred in the construction, moral and exemplary damages, and attorney's
fees.
Both the trial and appellate courts not only absolved respondents Tropical
and its Cebu Manager, Pons, from any liability but they also held the
petitioner together with respondent Galan, hable to the intervenors Cebu
Southern Hardware Company and Blue Diamond Glass Palace for the credit
which the intervenors extended to the partnership of petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows: (1)
Whether or not the appellate court erred in holding that a partnership existed
between petitioner and respondent Galan. (2) Assuming that there was such
a partnership, whether or not the court erred in not finding Galan guilty of
malversing the P13,000.00 covered by the first and second checks and
therefore, accountable to the petitioner for the said amount; and (3)
Whether or not the court committed grave abuse of discretion in holding that
the payment made by Tropical through its manager Pons to Galan was "good
payment, "
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham and
a perfidious partner who misappropriated the amount of P13,000.00 due to
the petitioner.Petitioner also contends that the appellate court committed
grave abuse of discretion in holding that the payment made by Tropical to
Galan was "good" payment when the same gave occasion for the latter to
misappropriate the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-tract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muñasque." This is readily seen in the first
paragraph of the contract where it states:
This agreement made this 20th day of December in the year 1966 by Galan
and Muñasque hereinafter called the Contractor, and Tropical Commercial
Co., Inc., hereinafter called the owner do hereby for and in consideration
agree on the following: ... .
There is nothing in the records to indicate that the partner-ship organized by
the two men was not a genuine one. If there was a falling out or
misunderstanding between the partners, such does not convert the
partnership into a sham organization.
Likewise, when Muñasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed the
check in favor of Galan. Respondent Tropical therefore, had every right to
presume that the petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to blame for making
the relationship appear otherwise, not only to Tropical but to their other
38 | P a g e
creditors as well. The payments made to the partnership were, therefore,
valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno had acted in good
faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the
consequences.
No error was committed by the appellate court in holding that the payment
made by Tropical to Galan was a good payment which binds both Galan and
the petitioner. Since the two were partners when the debts were incurred,
they, are also both liable to third persons who extended credit to their
partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513,
514), we ruled:
There is a general presumption that each individual partner is an authorized
agent for the firm and that he has authority to bind the firm in carrying on
the partnership transactions. (Mills vs. Riggle,112 Pan, 617).
The presumption is sufficient to permit third persons to hold the firm liable
on transactions entered into by one of members of the firm acting apparently
in its behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S.
(Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave abuse of
discretion in not holding Galan liable for the amounts which he "malversed"
to the prejudice of the petitioner. He adds that although this was not one of
the issues agreed upon by the parties during the pretrial, he, nevertheless,
alleged the same in his amended complaint which was, duly admitted by the
court.
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner
made allegations as to the alleged malversations of Galan, these were the
same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged
connivance of Pons with Galan as a means to serve the latter's personal
purposes.
The petitioner, therefore, should be bound by the delimitation of the issues
during the pre-trial because he himself agreed to the same. In Permanent
Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues contained in the
trial court's order issued on the very day the pre-trial conference was held.
Such an order controls the subsequent course of the action, unless modified
before trial to prevent manifest injustice.In the case at bar, modification of
the pre-trial order was never sought at the instance of any party.
Petitioner could have asked at least for a modification of the issues if he really
wanted to include the determination of Galan's personal liability to their
partnership but he chose not to do so, as he vehemently denied the existence
of the partnership. At any rate, the issue raised in this petition is the
contention of Muñasque that the amounts payable to the intervenors should
be shouldered exclusively by Galan. We note that the petitioner is not solely
burdened by the obligations of their illstarred partnership. The records show
that there is an existing judgment against respondent Galan, holding him
liable for the total amount of P7,000.00 in favor of Eden Hardware which
extended credit to the partnership aside from the P2, 000. 00 he already paid
to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial
court's ordering petitioner and Galan to pay the credits of Blue Diamond and
Cebu Southern Hardware"jointly and severally" is plain error since the liability
of partners under the law to third persons for contracts executed
inconnection with partnership business is only pro rata under Art. 1816, of
the Civil Code.
39 | P a g e
While it is true that under Article 1816 of the Civil Code,"All partners,
including industrial ones, shall be liable prorate with all their property and
after all the partnership assets have been exhausted, for the contracts which
may be entered into the name and fm the account cd the partnership, under
its signature and by a person authorized to act for the partner-ship. ...". this
provision should be construed together with Article 1824 which provides
that: "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while
the liability of the partners are merely joint in transactions entered into by
the partnership, a third person who transacted with said partnership can hold
the partners solidarily liable for the whole obligation if the case of the third
person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner acting
in the ordinary course of the business of the partner-ship or with the
authority of his co-partners, loss or injury is caused to any person, not being
a partner in the partnership or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money
or property of a third person and t he money or property so received is
misapplied by any partner while it is in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the partnership,
are solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a
partnership existed between the petitioner and Galan and no fault or error
can be imputed against it for making payments to "Galan and Associates" and
delivering the same to Galan because as far as it was concerned, Galan was a
true partner with real authority to transact on behalf of the partnership with
which it was dealing. This is even more true in the cases of Cebu Southern
Hardware and Blue Diamond Glass Palace who supplied materials on credit
to the partnership. Thus, it is but fair that the consequences of any wrongful
act committed by any of the partners therein should be answered solidarily
by all the partners and the partnership as a whole
However. as between the partners Muñasque and Galan,justice also dictates
that Muñasque be reimbursed by Galan for the payments made by the former
representing the liability of their partnership to herein intervenors, as it was
satisfactorily established that Galan acted in bad faith in his dealings with
Muñasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to
be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors,
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ.,
concur.
Plana, J., took no part.
Relova, J., is on leave.
THIRD DIVISION
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
40 | P a g e
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB
S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and
MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of the Court
of Appeals in CA-G.R. CV No. 66195 which modified the decision of the then
Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs
complaint (petitioner in G.R. No. 84197) against all defendants (respondents
in G.R. No. 84197) was dismissed but in all other respects the trial court's
decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring
Lim to pay plaintiff the amount of P311,056.02, with interest at the rate of
12% per annum compounded monthly; plus 15% of the amount awarded to
plaintiff as attorney's fees from July 2,1966, until full payment is made; plus
P70,000.00 moral and exemplary damages.

It is found in the records that the cross party plaintiffs incurred additional
miscellaneous expenses aside from Pl51,000.00,,making a total of
P184,878.74. Defendant Jacob S. Lim is further required to pay cross party
plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half,
the amount of Pl84,878.74 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral and exemplary damages
in the amount of P184,878.84 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral and exemplary damages
in the amount of P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the
Cervanteses, and another P20,000.00 to Constancio B. Maglana as attorney's
fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against
defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is
dismissed. Instead, plaintiff is required to indemnify the defendants
Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's fees
and the amount of P4,379.21, per year from 1966 with legal rate of interest
up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the
amount of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action
was filed in good faith. The fact that the properties of the Bormaheco and the
Cervanteses were attached and that they were required to file a counterbond
in order to dissolve the attachment, is not an act of bad faith. When a man
tries to protect his rights, he should not be saddled with moral or exemplary
damages. Furthermore, the rights exercised were provided for in the Rules of
Court, and it was the court that ordered it, in the exercise of its discretion.
41 | P a g e
No damage is decided against Malayan Insurance Company, Inc., the third-
party defendant, for it only secured the attachment prayed for by the plaintiff
Pioneer. If an insurance company would be liable for damages in performing
an act which is clearly within its power and which is the reason for its being,
then nobody would engage in the insurance business. No further claim or
counter-claim for or against anybody is declared by this Court. (Rollo - G.R.
No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline
business as owner-operator of Southern Air Lines (SAL) a single
proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim
entered into and executed a sales contract (Exhibit A) for the sale and
purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare
parts for the total agreed price of US $109,000.00 to be paid in installments.
One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965
while the other aircraft, arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer,
petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond
No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the
balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and
Constancio Maglana (respondents in both petitions) contributed some funds
used in the purchase of the above aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation proposed by Lim to
expand his airline business. They executed two (2) separate indemnity
agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana
and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses.
The indemnity agreements stipulated that the indemnitors principally agree
and bind themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs, damages,
taxes, penalties, charges and expenses of whatever kind and nature which
Pioneer may incur in consequence of having become surety upon the
bond/note and to pay, reimburse and make good to Pioneer, its successors
and assigns, all sums and amounts of money which it or its representatives
should or may pay or cause to be paid or become liable to pay on them of
whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL
executed in favor of Pioneer as deed of chattel mortgage as security for the
latter's suretyship in favor of the former. It was stipulated therein that Lim
transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was
duly registered with the Office of the Register of Deeds of the City of Manila
and with the Civil Aeronautics Administration pursuant to the Chattel
Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776),
respectively.
Lim defaulted on his subsequent installment payments prompting JDA to
request payments from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said
chattel mortgage before the Sheriff of Davao City. The Cervanteses and
Maglana, however, filed a third party claim alleging that they are co-owners
of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and respondents,
the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims
against Lim alleging that they were not privies to the contracts signed by Lim
and, by way of counterclaim, sought for damages for being exposed to
litigation and for recovery of the sums of money they advanced to Lim for the
purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay
Pioneer but dismissed Pioneer's complaint against all other defendants.
42 | P a g e
As stated earlier, the appellate court modified the trial court's decision in that
the plaintiffs complaint against all the defendants was dismissed. In all other
respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED
THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD
ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN
FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO
RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS
DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer
had reinsured its risk of liability under the surety bond in favor of JDA and
subsequently collected the proceeds of such reinsurance in the sum of
P295,000.00. Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the recovery of the amount
of P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is
not the real party in interest to institute the instant action as it does not stand
to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover
the amount from defendants, hence, it instituted the action is utterly devoid
of merit. Plaintiff did not even present any evidence that it is the attorney-in-
fact of the reinsurance company, authorized to institute an action for and in
behalf of the latter. To qualify a person to be a real party in interest in whose
name an action must be prosecuted, he must appear to be the present real
owner of the right sought to be enforced (Moran, Vol. I, Comments on the
Rules of Court, 1979 ed., p. 155). It has been held that the real party in
interest is the party who would be benefited or injured by the judgment or
the party entitled to the avails of the suit (Salonga v. Warner Barnes & Co.,
Ltd., 88 Phil. 125, 131). By real party in interest is meant a present substantial
interest as distinguished from a mere expectancy or a future, contingent,
subordinate or consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby
v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans,
1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as
the real party in interest as it has already been paid by the reinsurer the sum
of P295,000.00 — the bulk of defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff
Pioneer from its reinsurer, the former was able to foreclose extra-judicially
one of the subject airplanes and its spare engine, realizing the total amount
of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of
P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it
is patent that plaintiff has been overpaid in the amount of P33,383.72
considering that the total amount it had paid to JDA totals to only
P298,666.28. To allow plaintiff Pioneer to recover from defendants the
amount in excess of P298,666.28 would be tantamount to unjust enrichment
as it has already been paid by the reinsurance company of the amount
plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's
liability to JDA. Well settled is the rule that no person should unjustly enrich
himself at the expense of another (Article 22, New Civil Code). (Rollo-84197,
pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based
its finding that petitioner was paid by its reinsurer in the aforesaid amount,
as this matter has never been raised by any of the parties herein both in their
answers in the court below and in their respective briefs with respondent
court; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its
reinsurer, still none of the respondents had any interest in the matter since
the reinsurance is strictly between the petitioner and the re-insurer pursuant
to section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents
Bormaheco and Maglana; and (4) the principle of unjust enrichment is not
43 | P a g e
applicable considering that whatever amount he would recover from the co-
indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the
reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the
issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so
much of its obligations to JDA as has been paid with reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still
any claim against defendants, considering the amount it has realized from the
sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R.
No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond
it had executed in favor of JDA, collected the proceeds of such reinsurance in
the sum of P295,000, and paid with the said amount the bulk of its alleged
liability to JDA under the said surety bond, it is plain that on this score it no
longer has any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is
suing defendants for the amount paid to it by the reinsurers, notwithstanding
that the cause of action pertains to the latter, Pioneer says: The reinsurers
opted instead that the Pioneer Insurance & Surety Corporation shall pursue
alone the case.. . . . Pioneer Insurance & Surety Corporation is representing
the reinsurers to recover the amount.' In other words, insofar as the amount
paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-
fact.
But in the first place, there is not the slightest indication in the complaint that
Pioneer is suing as attorney-in- fact of the reinsurers for any amount. Lastly,
and most important of all, Pioneer has no right to institute and maintain in its
own name an action for the benefit of the reinsurers. It is well-settled that an
action brought by an attorney-in-fact in his own name instead of that of the
principal will not prosper, and this is so even where the name of the principal
is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must
be prosecuted in the name of the real party in interest.' This provision is
mandatory. The real party in interest is the party who would be benefitted or
injured by the judgment or is the party entitled to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a real party
in interest, that there is no law permitting an action to be brought by an
attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco
v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v.
San Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has
collected P295,000.00 from the reinsurers, the uninsured portion of what it
paid to JDA is the difference between the two amounts, or P3,666.28. This is
the amount for which Pioneer may sue defendants, assuming that the
indemnity agreement is still valid and effective. But since the amount realized
from the sale of the mortgaged chattels are P35,000.00 for one of the
airplanes and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer
is still overpaid by P33,383.72. Therefore, Pioneer has no more claim against
defendants. (Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in
the appellate court. Considering this admitted payment, the only issue that
cropped up was the effect of payment made by the reinsurers to the
petitioner. Therefore, the petitioner's argument that the respondents had no
interest in the reinsurance contract as this is strictly between the petitioner
as insured and the reinsuring company pursuant to Section 91 (should be
Section 98) of the Insurance Code has no basis.
44 | P a g e
In general a reinsurer, on payment of a loss acquires the same rights by
subrogation as are acquired in similar cases where the original insurer pays a
loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general
applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines,
Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently
applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals
(154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity from
the insurer, it is provided in said article that the insurer is deemed subrogated
to the rights of the insured against the wrongdoer and if the amount paid by
the insurer does not fully cover the loss, then the aggrieved party is the one
entitled to recover the deficiency. Evidently, under this legal provision, the
real party in interest with regard to the portion of the indemnity paid is the
insurer and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in
dismissing the petitioner's complaint as against the respondents for the
reason that the petitioner was not the real party in interest in the complaint
and, therefore, has no cause of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the
evidence on record shows that it is entitled to recover from the counter
indemnitors. It does not, however, cite any grounds except its allegation that
respondent "Maglanas defense and evidence are certainly incredible" (p. 12,
Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the matter replete
with evidence to substantiate its finding that the counter-indemnitors are not
liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be
valid and effective after the execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts
involved, agreed to issue the bond provided that the same would be
mortgaged to it, but this was not possible because the planes were still in
Japan and could not be mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would be mortgaged to
Pioneer Insurance to cover the bond, and this indemnity agreement would
be cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged properties have impaired
and rendered insufficient the security under the chattel mortgage and there
is thus no other sufficient security for the claim sought to be enforced by this
action.
45 | P a g e
This is judicial admission and aside from the chattel mortgage there is no
other security for the claim sought to be enforced by this action, which
necessarily means that the indemnity agreement had ceased to have any
force and effect at the time this action was instituted. Sec 2, Rule 129, Revised
Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel
mortgage on the planes and spare parts, no longer has any further action
against the defendants as indemnitors to recover any unpaid balance of the
price. The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These defendants, as indemnitors,
would be entitled to be subrogated to the right of Pioneer should they make
payments to the latter. Articles 2067 and 2080 of the New Civil Code of the
Philippines.
Independently of the preceding proposition Pioneer's election of the remedy
of foreclosure precludes any further action to recover any unpaid balance of
the price.
SAL or Lim, having failed to pay the second to the eight and last installments
to JDA and Pioneer as surety having made of the payments to JDA, the
alternative remedies open to Pioneer were as provided in Article 1484 of the
New Civil Code, known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by
extrajudicial foreclosure and the instant suit. Such being the case, as provided
by the aforementioned provisions, Pioneer shall have no further action
against the purchaser to recover any unpaid balance and any agreement to
the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L-
24772, May 27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the
contention that Pioneer is not the vendor but JDA. The reason is that Pioneer
is actually exercising the rights of JDA as vendor, having subrogated it in such
rights. Nor may the application of the provision be validly opposed on the
ground that these defendants and defendant Maglana are not the vendee but
indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L-
27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their
maturity dates discharged these defendants from any liability as alleged
indemnitors. The change of the maturity dates of the obligations of Lim, or
SAL extinguish the original obligations thru novations thus discharging the
indemnitors.
The principal hereof shall be paid in eight equal successive three months
interval installments, the first of which shall be due and payable 25 August
1965, the remainder of which ... shall be due and payable on the 26th day x x
x of each succeeding three months and the last of which shall be due and
payable 26th May 1967.
However, at the trial of this case, Pioneer produced a memorandum executed
by SAL or Lim and JDA, modifying the maturity dates of the obligations, as
follows:
The principal hereof shall be paid in eight equal successive three month
interval installments the first of which shall be due and payable 4 September
1965, the remainder of which ... shall be due and payable on the 4th day ...
of each succeeding months and the last of which shall be due and payable 4th
June 1967.
Not only that, Pioneer also produced eight purported promissory notes
bearing maturity dates different from that fixed in the aforesaid
memorandum; the due date of the first installment appears as October 15,
1965, and those of the rest of the installments, the 15th of each succeeding
three months, that of the last installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates,
effected twice, were done without the knowledge, much less, would have it
believed that these defendants Maglana (sic). Pioneer's official Numeriano
Carbonel would have it believed that these defendants and defendant
Maglana knew of and consented to the modification of the obligations. But if
46 | P a g e
that were so, there would have been the corresponding documents in the
form of a written notice to as well as written conformity of these defendants,
and there are no such document. The consequence of this was the
extinguishment of the obligations and of the surety bond secured by the
indemnity agreement which was thereby also extinguished. Applicable by
analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar
Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v.
Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty The mere failure on the
part of the creditor to demand payment after the debt has become due does
not of itself constitute any extension time referred to herein, (New Civil
Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson
& Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid
the same. Consequently, Pioneer has no more cause of action to recover from
these defendants, as supposed indemnitors, what it has paid to JDA. By virtue
of an express stipulation in the surety bond, the failure of JDA to present its
claim to Pioneer within ten days from default of Lim or SAL on every
installment, released Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these
defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or became illegal.
These defendants are entitled to recover damages and attorney's fees from
Pioneer and its surety by reason of the filing of the instant case against them
and the attachment and garnishment of their properties. The instant action
is clearly unfounded insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No.
84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not
meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who failed
to incorporate the entity in which they had chosen to invest? How are the
losses to be treated in situations where their contributions to the intended
'corporation' were invested not through the corporate form? This Petition
presents these fundamental questions which we believe were resolved
erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of
the failure of respondents Bormaheco, Spouses Cervantes, Constancio
Maglana and petitioner Lim to incorporate, a de facto partnership among
them was created, and that as a consequence of such relationship all must
share in the losses and/or gains of the venture in proportion to their
contribution. The petitioner, therefore, questions the appellate court's
findings ordering him to reimburse certain amounts given by the respondents
to the petitioner as their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants'
cross-claims in the total amount of P184,878.74 as correctly found by the trial
court, with interest from the filing of the cross-complaints until the amount
is fully paid. Defendant Lim should pay one-half of the said amount to
Bormaheco and the Cervanteses and the other one-half to defendant
Maglana. It is established in the records that defendant Lim had duly received
the amount of Pl51,000.00 from defendants Bormaheco and Maglana
47 | P a g e
representing the latter's participation in the ownership of the subject
airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs
incurred additional expenses, hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be governed by
the supposed charter and the laws of the state relating thereto and not by
the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md.
446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail,
to form a corporation and who carry on business under the corporate name
occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29
Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate themselves
together under articles to purchase property to carry on a business, and their
organization is so defective as to come short of creating a corporation within
the statute, they become in legal effect partners inter se, and their rights as
members of the company to the property acquired by the company will be
recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555;
Whipple v. Parker, 29 Mich. 369). So, where certain persons associated
themselves as a corporation for the development of land for irrigation
purposes, and each conveyed land to the corporation, and two of them
contracted to pay a third the difference in the proportionate value of the land
conveyed by him, and no stock was ever issued in the corporation, it was
treated as a trustee for the associates in an action between them for an
accounting, and its capital stock was treated as partnership assets, sold, and
the proceeds distributed among them in proportion to the value of the
property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such
a relation does not necessarily exist, for ordinarily persons cannot be made
to assume the relation of partners, as between themselves, when their
purpose is that no partnership shall exist (London Assur. Corp. v. Drennen,
Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied
only when necessary to do justice between the parties; thus, one who takes
no part except to subscribe for stock in a proposed corporation which is never
legally formed does not become a partner with other subscribers who engage
in business under the name of the pretended corporation, so as to be liable
as such in an action for settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation
between certain stockholders and other stockholders, who were also
directors, will not be implied in the absence of an agreement, so as to make
the former liable to contribute for payment of debts illegally contracted by
the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum,
Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-
suited for his failure to appear during the pretrial despite notification. In his
answer, the petitioner denied having received any amount from respondents
Bormaheco, the Cervanteses and Maglana. The trial court and the appellate
court, however, found through Exhibit 58, that the petitioner received the
amount of P151,000.00 representing the participation of Bormaheco and
Atty. Constancio B. Maglana in the ownership of the subject airplanes and
spare parts. The record shows that defendant Maglana gave P75,000.00 to
petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them. This
gives credence to the cross-claims of the respondents to the effect that they
were induced and lured by the petitioner to make contributions to a
proposed corporation which was never formed because the petitioner
reneged on their agreement. Maglana alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes
and Maglana to expand his airline business. Lim was to procure two DC-3's
from Japan and secure the necessary certificates of public convenience and
necessity as well as the required permits for the operation thereof. Maglana
sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery
to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes,
likewise, delivered his share of the undertaking. Lim in an undertaking
sometime on or about August 9,1965, promised to incorporate his airline in
accordance with their agreement and proceeded to acquire the planes on his
own account. Since then up to the filing of this answer, Lim has refused, failed
48 | P a g e
and still refuses to set up the corporation or return the money of Maglana.
(Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer,
counterclaim, cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering
defendants to purchase two airplanes and spare parts from Japan which the
latter considered as their lawful contribution and participation in the
proposed corporation to be known as SAL. Arrangements and negotiations
were undertaken by defendant Lim. Down payments were advanced by
defendants Bormaheco and the Cervanteses and Constancio Maglana (Exh.
E- 1). Contrary to the agreement among the defendants, defendant Lim in
connivance with the plaintiff, signed and executed the alleged chattel
mortgage and surety bond agreement in his personal capacity as the alleged
proprietor of the SAL. The answering defendants learned for the first time of
this trickery and misrepresentation of the other, Jacob Lim, when the herein
plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby
forcing them to file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by defendants Bormaheco
and Cervanteses, to defendant Lim, to surrender the possession of the two
planes and their accessories and or return the amount advanced by the
former amounting to an aggregate sum of P 178,997.14 as evidenced by a
statement of accounts, the latter ignored, omitted and refused to comply
with them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which
would entitle the petitioner to a reimbursement of the supposed losses of
the proposed corporation. The record shows that the petitioner was acting
on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision
of the Court of Appeals is AFFIRMED.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.
SECOND DIVISION
G.R. No. 164401 June 25, 2008
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS; THE HONORABLE PRESIDING
JUDGE, Regional Trial Court, Branch 11, Sindangan, Zamboanga Del Norte;
THE REGIONAL TRIAL COURT SHERIFF, Branch 11, Sindangan, Zamboanga
Del Norte; THE CLERK OF COURT OF MANILA, as Ex-Officio Sheriff; and
LAMBERTO T. CHUA, respondents.
DECISION
VELASCO, JR., J.:
The Case
Before us is a petition for review under Rule 45, seeking to nullify and set
aside the Decision1 and Resolution dated November 6, 2003 and July 6, 2004,
respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 75688. The
impugned CA Decision and Resolution denied the petition for certiorari
interposed by petitioners assailing the Resolutions2 dated November 6, 2002
and January 7, 2003, respectively, of the Regional Trial Court (RTC), Branch
11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, a suit for
winding up of partnership affairs, accounting, and recovery of shares
commenced thereat by respondent Lamberto T. Chua.
The Facts
In 1977, Chua and Jacinto Sunga formed a partnership to engage in the
marketing of liquefied petroleum gas. For convenience, the business, pursued
under the name, Shellite Gas Appliance Center (Shellite), was registered as a
49 | P a g e
sole proprietorship in the name of Jacinto, albeit the partnership
arrangement called for equal sharing of the net profit.
After Jacinto’s death in 1989, his widow, petitioner Cecilia Sunga, and married
daughter, petitioner Lilibeth Sunga-Chan, continued with the business
without Chua’s consent. Chua’s subsequent repeated demands for
accounting and winding up went unheeded, prompting him to file on June 22,
1992 a Complaint for Winding Up of a Partnership Affairs, Accounting,
Appraisal and Recovery of Shares and Damages with Writ of Preliminary
Attachment, docketed as Civil Case No. S-494 of the RTC in Sindangan,
Zamboanga del Norte and raffled to Branch 11 of the court.
After trial, the RTC rendered, on October 7, 1997, judgment finding for Chua,
as plaintiff a quo. The RTC’s decision would subsequently be upheld by the
CA in CA-G.R. CV No. 58751 and by this Court per its Decision dated August
15, 2001 in G.R. No. 143340.3 The corresponding Entry of Judgment4 would
later issue declaring the October 7, 1997 RTC decision final and executory as
of December 20, 2001. The fallo of the RTC’s decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form under
accounting procedures and standards of the properties, assets, income and
profits of [Shellite] since the time of death of Jacinto L. Sunga, from whom
they continued the business operations including all businesses derived from
[Shellite]; submit an inventory, and appraisal of all these properties, assets,
income, profits, etc. to the Court and to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any and all
properties, assets, income and profits they misapplied and converted to their
own use and advantage that legally pertain to the plaintiff and account for
the properties mentioned in pars. A and B on pages 4-5 of this petition as
basis;
(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest
of the plaintiff in the partnership of the listed properties, assets and good will
in schedules A, B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and
profits from the partnership from 1988 to May 30, 1992, when the plaintiff
learned of the closure of the store the sum of P35,000.00 per month, with
legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate
its business activities pursuant to law, after delivering to the plaintiff all the
½ interest, shares, participation and equity in the partnership, or the value
thereof in money or money’s worth, if the properties are not physically
divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and
in bad faith and hold them liable to the plaintiff the sum of P50,000.00 as
moral and exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as
attorney’s [fee] and P25,000.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.5 (Emphasis supplied.)
Via an Order6 dated January 16, 2002, the RTC granted Chua’s motion for
execution. Over a month later, the RTC, acting on another motion of Chua,
issued an amended writ of execution.7
It seems, however, that the amended writ of execution could not be
immediately implemented, for, in an omnibus motion of April 3, 2002, Chua,
inter alia, asked the trial court to commission a certified public accountant
(CPA) to undertake the accounting work and inventory of the partnership
assets if petitioners refuse to do it within the time set by the court. Chua later
moved to withdraw his motion and instead ask the admission of an
50 | P a g e
accounting report prepared by CPA Cheryl A. Gahuman. In the report under
the heading, Computation of Claims,8 Chua’s aggregate claim, arrived at
using the compounding-of-interest method, amounted to PhP 14,277,344.94.
Subsequently, the RTC admitted and approved the computation of claims in
view of petitioners’ failure and refusal, despite notice, to appear and submit
an accounting report on the winding up of the partnership on the scheduled
hearings on April 29 and 30, 2002.9
After another lengthy proceedings, petitioners, on September 24, 2002,
submitted their own CPA-certified valuation and accounting report. In it,
petitioners limited Chua’s entitlement from the winding up of partnership
affairs to an aggregate amount of PhP 3,154,736.65 only.10 Chua, on the
other hand, submitted a new computation,11 this time applying simple
interest on the various items covered by his claim. Under this methodology,
Chua’s aggregate claim went down to PhP 8,733,644.75.
On November 6, 2002, the RTC issued a Resolution,12 rejecting the
accounting report petitioners submitted, while approving the new
computation of claims Chua submitted. The fallo of the resolution reads:
WHEREFORE, premises considered, this Court resolves, as it is hereby
resolved, that the Computation of Claims submitted by the plaintiff dated
October 15, 2002 amounting to P8,733,644.75 be APPROVED in all respects
as the final computation and accounting of the defendants’ liabilities in favor
of the plaintiff in the above-captioned case, DISAPPROVING for the purpose,
in its entirety, the computation and accounting filed by the defendants.
SO RESOLVED.13
Petitioners sought reconsideration, but their motion was denied by the RTC
per its Resolution of January 7, 2003.14
In due time, petitioners went to the CA on a petition for certiorari15 under
Rule 65, assailing the November 6, 2002 and January 7, 2003 resolutions of
the RTC, the recourse docketed as CA-G.R. SP No. 75688.
The Ruling of the CA
As stated at the outset, the CA, in the herein assailed Decision of November
6, 2003, denied the petition for certiorari, thus:
WHEREFORE, the foregoing considered, the Petition is hereby DENIED for lack
of merit.
SO ORDERED.16
The CA predicated its denial action on the ensuing main premises:
1. Petitioners, by not appearing on the hearing dates, i.e., April 29 and 30,
2002, scheduled to consider Chua’s computation of claims, or rendering, as
required, an accounting of the winding up of the partnership, are deemed to
have waived their right to interpose any objection to the computation of
claims thus submitted by Chua.
2. The 12% interest added on the amounts due is proper as the unwarranted
keeping by petitioners of Chua’s money passes as an involuntary loan and
forbearance of money.
3. The reiterative arguments set forth in petitioners’ pleadings below were
part of their delaying tactics. Petitioners had come to the appellate court at
least thrice and to this Court twice. Petitioners had more than enough time
to question the award and it is now too late in the day to change what had
become final and executory.
Petitioners’ motion for reconsideration was rejected by the appellate court
through the assailed Resolution17 dated July 6, 2004. Therein, the CA
explained that the imposition of the 12% interest for forbearance of credit or
money was proper pursuant to paragraph 1 of the October 7, 1997 RTC
decision, as the computation done by CPA Gahuman was made in "acceptable
form under accounting procedures and standards of the properties, assets,
income and profits of [Shellite]."18 Moreover, the CA ruled that the
imposition of interest is not based on par. 3 of the October 7, 1997 RTC
51 | P a g e
decision as the phrase "shares and interests" mentioned therein refers not to
an imposition of interest for use of money in a loan or credit, but to a legal
share or right. The appellate court also held that the imposition of interest on
the partnership assets falls under par. 2 in relation to par. 1 of the final RTC
decision as the restitution mentioned therein does not simply mean
restoration but also reparation for the injury or damage committed against
the rightful owner of the property.
Finally, the CA declared the partnership assets referred to in the final decision
as "liquidated claim" since the claim of Chua is ascertainable by mathematical
computation; therefore, interest is recoverable as an element of damage.
The Issues
Hence, the instant petition with petitioners raising the following issues for
our consideration:
I.
Whether or not the Regional Trial Court can [impose] interest on a final
judgment of unliquidated claims.
II.
Whether or not the Sheriff can enforce the whole divisible obligation under
judgment only against one Defendant.
III.
Whether or not the absolute community of property of spouses Lilibeth
Sunga Chan with her husband Norberto Chan can be lawfully made to answer
for the liability of Lilibeth Chan under the judgment.19
Significant Intervening Events
In the meantime, pending resolution of the instant petition for review and
even before the resolution by the CA of its CA-G.R. SP No. 75688, the
following relevant events transpired:
1. Following the RTC’s approval of Chua’s computation of claims in the
amount of PhP 8,733,644.75, the sheriff of Manila levied upon petitioner
Sunga-Chan’s property located along Linao St., Paco, Manila, covered by
Transfer Certificate of Title (TCT) No. 208782,20 over which a building leased
to the Philippine National Bank (PNB) stood. In the auction sale of the levied
lot, Chua, with a tender of PhP 8 million,21 emerged as the winning bidder.
2. On January 21, 2005, Chua moved for the issuance of a final deed of sale
and a writ of possession. He also asked the RTC to order the Registry of Deeds
of Manila to cancel TCT No. 208782 and to issue a new certificate. Despite
petitioners’ opposition on the ground of prematurity, a final deed of sale22
was issued on February 16, 2005.
3. On February 18, 2005, Chua moved for the confirmation of the sheriff’s
final deed of sale and for the issuance of an order for the cancellation of TCT
No. 208782. Petitioners again interposed an opposition in which they
informed the RTC that this Court had already granted due course to their
petition for review on January 31, 2005;
4. On April 11, 2005, the RTC, via a Resolution, confirmed the sheriff’s final
deed of sale, ordered the Registry of Deeds of Manila to cancel TCT No.
208782, and granted a writ of possession23 in favor of Chua.
5. On May 3, 2005, petitioners filed before this Court a petition for the
issuance of a temporary restraining order (TRO). On May 24, 2005, the sheriff
of Manila issued a Notice to Vacate24 against petitioners, compelling
petitioners to repair to this Court anew for the resolution of their petition for
a TRO.
6. On May 31, 2005, the Court issued a TRO,25 enjoining the RTC and the
sheriff from enforcing the April 11, 2005 writ of possession and the May 24,
52 | P a g e
2005 Notice to Vacate. Consequently, the RTC issued an Order26 on June 17,
2005, suspending the execution proceedings before it.
7. Owing to the clashing ownership claims over the leased Paco property,
coupled with the filing of an unlawful detainer suit before the Metropolitan
Trial Court (MeTC) in Manila against PNB, the Court, upon the bank’s motion,
allowed, by Resolution27 dated April 26, 2006, the consignation of the
monthly rentals with the MeTC hearing the ejectment case.
The Court’s Ruling
The petition is partly meritorious.
First Issue: Interest Proper in Forbearance of Credit
Petitioners, citing Article 221328 of the Civil Code, fault the trial court for
imposing, in the execution of its final judgment, interests on what they
considered as unliquidated claims. Among these was the claim for goodwill
upon which the RTC attached a monetary value of PhP 250,000. Petitioners
also question the imposition of 12% interest on the claimed monthly profits
of PhP 35,000, reckoned from 1988 to October 15, 1992. To petitioners, the
imposable rate should only be 6% and computed from the finality of the RTC’s
underlying decision, i.e., from December 20, 2001.
Third on the petitioners’ list of unliquidated claims is the yet-to-be
established value of the one-half partnership share and interest adjudicated
to Chua, which, they submit, must first be determined with reasonable
certainty in a judicial proceeding. And in this regard, petitioners, citing
Eastern Shipping Lines, Inc. v. Court of Appeals,29 would ascribe error on the
RTC for adding a 12% per annum interest on the approved valuation of the
one-half share of the assets, inclusive of goodwill, due Chua.
Petitioners are partly correct.
For clarity, we reproduce the summary valuations and accounting reports on
the computation of claims certified to by the parties’ respective CPAs. Chua P 8,733,644.75
claimed the following:
On the other hand, petitioners acknowledged the following to be due to
A 50% share on assets (exclusive of goodwill) at fair market value (Schedule Chua:
1)
Total Assets – Schedule 1
P 1,613,550.00
P2,431,956.35
B 50% share in the monetary value of goodwill (P500,000 x 50%)
50% due to Lamberto Chua
250,000.00
P1,215,978.16
C Legal interest on share of assets from June 1, 1992 to Oct. 15, 2002 at 12%
interest per year (Schedule 2) Total Alleged Profit, Net of Payments Made,
May 1992-Sch. 2
2,008,869.75
1,613,758.49
D Unreceived profits from 1988 to 1992 and its corresponding interest from
Jan. 1, 1988 to Oct. 15, 2002 (Schedule 3) 50% share in the monetary value of goodwill
(500,000 x 50%)
4,761,225.00
250,000.00
E Damages
Moral and Exemplary Damages
50,000.00
50,000.00
F Attorney’s fees
Attorney’s Fee
25,000.00
25,000.00
G Litigation fees
Litigation Fee
25,000.00
25,000.00
TOTAL AMOUNT
53 | P a g e
TOTAL AMOUNT
P3,154,736.65
As may be recalled, the trial court admitted and approved Chua’s
computation of claims amounting to PhP 8,733,644.75, but rejected that of
petitioners, who came up with the figure of only PhP 3,154,736.65. We
highlight the substantial differences in the accounting reports on the
following items, to wit: (1) the aggregate amount of the partnership assets
bearing on the 50% share of Chua thereon; (2) interests added on Chua’s
share of the assets; (3) amount of profits from 1988 through May 30, 1992,
net of alleged payments made to Chua; and (4) interests added on the
amount entered as profits.
From the foregoing submitted valuation reports, there can be no dispute
about the goodwill earned thru the years by Shellite. In fact, the parties, by
their own judicial admissions, agreed on the monetary value, i.e., PhP
250,000, of this item. Clearly then, petitioners contradict themselves when
they say that such amount of goodwill is without basis. Thus, the Court is
loathed to disturb the trial court’s approval of the amount of PhP 250,000,
representing the monetary value of the goodwill, to be paid to Chua.
Neither is the Court inclined to interfere with the CA’s conclusion as to the
total amount of the partnership profit, that is, PhP 1,855,000, generated for
the period January 1988 through May 30, 1992, and the total partnership
assets of PhP 3,227,100, 50% of which, or PhP 1,613,550, pertains to Chua as
his share. To be sure, petitioners have not adduced adequate evidence to
belie the above CA’s factual determination, confirmatory of the trial court’s
own. Needless to stress, it is not the duty of the Court, not being a trier of
facts, to analyze or weigh all over again the evidence or premises supportive
of such determination, absent, as here, the most compelling and cogent
reasons.
This brings us to the question of the propriety of the imposition of interest
and, if proper, the imposable rate of interest applicable.
54 | P a g e
In Reformina v. Tomol, Jr.,30 the Court held that the legal interest at 12% per
annum under Central Bank (CB) Circular No. 416 shall be adjudged only in
cases involving the loan or forbearance of money. And for transactions
involving payment of indemnities in the concept of damages arising from
default in the performance of obligations in general and/or for money
judgment not involving a loan or forbearance of money, goods, or credit, the
governing provision is Art. 2209 of the Civil Code prescribing a yearly 6%
interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per
annum.
The term "forbearance," within the context of usury law, has been described
as a contractual obligation of a lender or creditor to refrain, during a given
period of time, from requiring the borrower or debtor to repay the loan or
debt then due and payable.31
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of
interest, if proper, and the applicable rate, as follows: The 12% per annum
rate under CB Circular No. 416 shall apply only to loans or forbearance of
money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art.
2209 of the Civil Code applies "when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in
the performance of obligations in general,"32 with the application of both
rates reckoned "from the time the complaint was filed until the [adjudged]
amount is fully paid."33 In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the
condition "that the courts are vested with discretion, depending on the
equities of each case, on the award of interest."34
Otherwise formulated, the norm to be followed in the future on the rates and
application thereof is:
I. – When an obligation, regardless of its source, is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable damages.
II. – With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation breached consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation not constituting loans or forbearance of money is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.35
55 | P a g e
Guided by the foregoing rules, the award to Chua of the amount representing
earned but unremitted profits, i.e.. PhP 35,000 monthly, from January 1988
until May 30, 1992, must earn interest at 6% per annum reckoned from
October 7, 1997, the rendition date of the RTC decision, until December 20,
2001, when the said decision became final and executory. Thereafter, the
total of the monthly profits inclusive of the add on 6% interest shall earn 12%
per annum reckoned from December 20, 2001 until fully paid, as the award
for that item is considered to be, by then, equivalent to a forbearance of
credit. Likewise, the PhP 250,000 award, representing the goodwill value of
the business, the award of PhP 50,000 for moral and exemplary damages, PhP
25,000 attorney’s fee, and PhP 25,000 litigation fee shall earn 12% per annum
from December 20, 2001 until fully paid.
Anent the impasse over the partnership assets, we are inclined to agree with
petitioners’ assertion that Chua’s share and interest on such assets partake
of an unliquidated claim which, until reasonably determined, shall not earn
interest for him. As may be noted, the legal norm for interest to accrue is
"reasonably determinable," not, as Chua suggested and the CA declared,
determinable by mathematical computation.
The Court has certainly not lost sight of the fact that the October 7, 1997 RTC
decision clearly directed petitioners to render an accounting, inventory, and
appraisal of the partnership assets and then to wind up the partnership affairs
by restituting and delivering to Chua his one-half share of the accounted
partnership assets. The directive itself is a recognition that the exact share
and interest of Chua over the partnership cannot be determined with
reasonable precision without going through with the inventory and
accounting process. In fine, a liquidated claim cannot validly be asserted
without accounting. In net effect, Chua’s interest and share over the
partnership asset, exclusive of the goodwill, assumed the nature of a
liquidated claim only after the trial court, through its November 6, 2002
resolution, approved the assets inventory and accounting report on such
assets.
Considering that Chua’s computation of claim, as approved by the trial court,
was submitted only on October 15, 2002, no interest in his favor can be added (7) Moral and exemplary damages
to his share of the partnership assets. Consequently, the computation of
claims of Chua should be as follows: 50,000.00

(1) 50% share on assets (exclusive of goodwill) (8) Attorney’s fee

at fair market value
25,000.00
PhP 1,613,550.00
(9) Litigation fee
(2) 50% share in the monetary value of goodwill
(PhP 500,000 x 50%) 25,000.00

250,000.00 (10) 12% interest on moral and exemplary damages,

(3) 12% interest on share of goodwill from December 20, 2001 to October 15, attorney’s fee, and litigation fee from December 20, 2001 to October 15,
2000 2002
[PhP 250,000 x 0.12 x 299/365 days] [PhP 100,000 x 12% x 299/365 days]

24,575.34 9,830.14

(4) Unreceived profits from 1988 to May 30, 1992 TOTAL AMOUNT

1,855,000.00 PhP 5,529,392.52

(5) 6% interest on unreceived profits from January 1, 1988 to December 20, Second Issue: Petitioners’ Obligation Solidary
200136
Petitioners, on the submission that their liability under the RTC decision is
1,360,362.50 divisible, impugn the implementation of the amended writ of execution,
particularly the levy on execution of the absolute community property of
(6) 12% interest on unreceived profits from December spouses petitioner Sunga-Chan and Norberto Chan. Joint, instead of solidary,
liability for any and all claims of Chua is obviously petitioners’ thesis.
20, 2001 to October 15, 2002
[PhP 3,215,362.50 x 12% x 299/365 days] Under the circumstances surrounding the case, we hold that the obligation
of petitioners is solidary for several reasons.
316,074.54
56 | P a g e
For one, the complaint of Chua for winding up of partnership affairs,
accounting, appraisal, and recovery of shares and damages is clearly a suit to
enforce a solidary or joint and several obligation on the part of petitioners.
As it were, the continuance of the business and management of Shellite by
petitioners against the will of Chua gave rise to a solidary obligation, the acts
complained of not being severable in nature. Indeed, it is well-nigh impossible
to draw the line between when the liability of one petitioner ends and the
liability of the other starts. In this kind of situation, the law itself imposes
solidary obligation. Art. 1207 of the Civil Code thus provides:
Art. 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each of the latter is bound to render,
entire compliance with the prestation. There is solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation
requires solidarity. (Emphasis ours.)
Any suggestion that the obligation to undertake an inventory, render an
accounting of partnership assets, and to wind up the partnership affairs is
divisible ought to be dismissed.
For the other, the duty of petitioners to remit to Chua his half interest and
share of the total partnership assets proceeds from petitioners’ indivisible
obligation to render an accounting and inventory of such assets. The need for
the imposition of a solidary liability becomes all the more pronounced
considering the impossibility of quantifying how much of the partnership
assets or profits was misappropriated by each petitioner.
And for a third, petitioners’ obligation for the payment of damages and
attorney’s and litigation fees ought to be solidary in nature, they having
resisted in bad faith a legitimate claim and thus compelled Chua to litigate.
Third Issue: Community Property Liable
57 | P a g e
Primarily anchored as the last issue is the erroneous theory of divisibility of
petitioners’ obligation and their joint liability therefor. The Court needs to
dwell on it lengthily.
Given the solidary liability of petitioners to satisfy the judgment award,
respondent sheriff cannot really be faulted for levying upon and then selling
at public auction the property of petitioner Sunga-Chan to answer for the
whole obligation of petitioners. The fact that the levied parcel of land is a
conjugal or community property, as the case may be, of spouses Norberto
and Sunga-Chan does not per se vitiate the levy and the consequent sale of
the property. Verily, said property is not among those exempted from
execution under Section 13,37 Rule 39 of the Rules of Court.
And it cannot be overemphasized that the TRO issued by the Court on May
31, 2005 came after the auction sale in question.
Parenthetically, the records show that spouses Sunga-Chan and Norberto
were married on February 4, 1992, or after the effectivity of the Family Code
on August 3, 1988. Withal, their absolute community property may be held
liable for the obligations contracted by either spouse. Specifically, Art. 94 of
said Code pertinently provides:
Art. 94. The absolute community of property shall be liable for:
(1) x x x x
(2) All debts and obligations contracted during the marriage by the
designated administrator-spouse for the benefit of the community, or by
both spouses, or by one spouse with the consent of the other.
(3) Debts and obligations contracted by either spouse without the consent of
the other to the extent that the family may have been benefited. (Emphasis
ours.)
Absent any indication otherwise, the use and appropriation by petitioner
Sunga-Chan of the assets of Shellite even after the business was discontinued
on May 30, 1992 may reasonably be considered to have been used for her
and her husband’s benefit.
It may be stressed at this juncture that Chua’s legitimate claim against
petitioners, as readjusted in this disposition, amounts to only PhP
5,529,392.52, whereas Sunga-Chan’s auctioned property which Chua
acquired, as the highest bidder, fetched a price of PhP 8 million. In net effect,
Chua owes petitioner Sunga-Chan the amount of PhP 2,470,607.48,
representing the excess of the purchase price over his legitimate claims.
confirming the sheriff’s final deed of sale of the levied property, ordering the
Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of
possession in favor of respondent Chua, is AFFIRMED; and
The TRO issued by the Court on May 31, 2005 in the instant petition is LIFTED.
No pronouncement as to costs.
SO ORDERED.

Following the auction, the corresponding certificate of sale dated January 15,
2004 was annotated on TCT No. 208782. On January 21, 2005, Chua moved
for the issuance of a final deed of sale (1) to order the Registry of Deeds of
Manila to cancel TCT No. 208782; (2) to issue a new TCT in his name; and (3)
for the RTC to issue a writ of possession in his favor. And as earlier stated, the
RTC granted Chua’s motion, albeit the Court restrained the enforcement of
the RTC’s package of orders via a TRO issued on May 31, 2005.

Therefore, subject to the payment by Chua of PhP 2,470,607.48 to petitioner

Sunga-Chan, we affirm the RTC’s April 11, 2005 resolution, confirming the
sheriff’s final deed of sale of the levied property, ordering the Registry of
Deeds of Manila to cancel TCT No. 208782, and issuing a writ of possession in
favor of Chua.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the assailed

decision and resolution of the CA in CA-G.R. SP No. 75688 are hereby
AFFIRMED with the following MODIFICATIONS:

(1) The Resolutions dated November 6, 2002 and January 7, 2003 of the RTC,
Branch 11 in Sindangan, Zamboanga Del Norte in Civil Case No. S-494, as
effectively upheld by the CA, are AFFIRMED with the modification that the
approved claim of respondent Chua is hereby corrected and adjusted to cover
only the aggregate amount of PhP 5,529,392.52;

(2) Subject to the payment by respondent Chua of PhP 2,470,607.48 to

petitioner Sunga-Chan, the Resolution dated April 11, 2005 of the RTC,
58 | P a g e