Obligations of the partners among business they co-owned without receiving any salary.
t receiving any salary. Her It is clear from the foregoing that a partner is entitled only to
themselves; Article 1784-1809
FEDERICO JARANTILLA, JR. V. ANTONIETA
JARANTILLA, ET AL.
651 PHIL. 13, GR 154486, DECEMBER 01, 2010
Facts:
Antonieta Jarantilla filed complaint against Buenaventura
and Cynthia Remotigue and the Jarantillas - Federico Jr.,
Doroteo and Tomas for the accounting of assets and
income of the coownership, for partition, delivery of her
share of 8% with damages.
She alleges that the initial contribution came from the heir’s
inheritance. She finds support in a 1957 document called
Acknowledgement of Participating Capital where the
spouses Remotigue acknowledged that while registered
only in Buenaventura’s name, they were not the only
owners of the capital of the businesses. They stated the
participating capital of Antonieta was P8K and Federico, Jr
as P5K. The companies listed under the 1957 document
are as follows: Remotigue Agro-Industrial Corporation,
Manila Athletic Supply, Inc., MAS Rubber Products, Inc.
and Buendia Recapping Corporation.
Trial court: The lower court found that an unregistered
partnership existed since 1946 which was affirmed in the
Acknowledgment and was used as basis for giving
Antonieta the 8% share of the business listed in it as well as
in other business and real properties the respondents
allegedly had acquired through such funds. [6% of
Federico, was not ruled]
Court of Appeals: CA while it agreed to the 8% share in the
three business listed in the Acknowledgment, but not as to
her share in other properties for the Acknowledgment was
specific as to its coverage. And since the claim of Federico,
Jr was same as Antonieta, the CA also ruled that his 6%
share is limited to those listed in the Acknowledgment.
Petitioner’s argument: the partners agreed to the formation
of the partnership in the year 1946 but the
"Acknowledgement of Participating Capital” document was
executed only on 1952. Moreover, she claimed that from
1946-1969, she had helped in the management of the
salary was supposedly rolled back into the business as
additional investments in her behalf. Antonieta further
claimed co-ownership of certain properties (the subject real
properties) in the name of the defendants since the only
way the defendants could have purchased these properties
were through the partnership as they had no other source of
income.
Respondent’s argument: they denied the existence of the
partnership. With regard to Antonieta’s claim in their other
corporations and businesses, the respondents said these
should also be limited to the number of her shares as
specified in the respective articles of incorporation. The
respondents denied using the partnership’s income to
purchase the subject real properties and said that the
certificates of title should be binding on her.
Both Federico and Antonieta characterize their relationship
with the respondent as (1) co-ownership, but in the same
breath, assert that a (2) verbal partnership was formed in
1946 affirmed by the 1957 Acknowledgment.
Issue:
WON the right of herein petitioner should be limited to
those stated in the 1957 document?
Held:
The Acknowledgement of Participating Capital is a duly
notarized document voluntarily executed by Conchita
Jarantilla-Remotigue and Buenaventura Remotigue in 1957.
Petitioner does not dispute its contents and is actually
relying on it to prove his participation in the partnership.
Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion to his
capital.
his share as agreed upon, or in the absence of any such
stipulations, then to his share in proportion to his
contribution to the partnership. The petitioner himself claims
his share to be 6%, as stated in the Acknowledgement of
Participating Capital.
However, petitioner fails to realize that this document
specifically enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue Trading in
Iloilo City and Remotigue Trading in Cotabato City.
Since there was a clear agreement that the capital the
partners contributed went to the three businesses, then
there is no reason to deviate from such agreement and go
beyond the stipulations in the document. Therefore, the
Court of Appeals did not err in limiting petitioner's share to
the assets of the businesses enumerated in the
Acknowledgement of Participating Capital.
*Re: Petitioner asserts entitlement to the property on the
concept of trust. He claims that since the subject real
properties were purchased using funds of the partnership,
wherein he has a 6% share, then "law and equity mandates
that he should be considered as a co-owner of those
properties in such proportion."
- Express trusts are created by the intention of the
trustor or of the parties, while implied trusts come into being
by operation of law, either through implication of an
intention to create a trust as a matter of law or through the
imposition of the trust irrespective of, and even contrary to,
any such intention. In turn, implied trusts are either resulting
or constructive trusts. Resulting trusts are based on the
equitable doctrine that valuable consideration and not legal
title determines the equitable title or interest and are
presumed always to have been contemplated by the
parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person
thereby becomes invested with legal title but is obligated in
equity to hold his legal title for the benefit of another.
On proving the existence of a trust, the court noted the need
to prove the existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is
on the party asserting its existence, and such proof must be
clear and satisfactorily show the existence of the trust and
its elements. While implied trusts may be proved by oral
evidence, the evidence must be trustworthy and received by
the courts with extreme caution, and should not be made to
rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral evidence
can easily be fabricated."
The petitioner has failed to prove that there exists a trust
over the subject real properties. Aside from his bare
allegations, he has failed to show that the respondents used
the partnership’s money to purchase the said properties.
Even assuming arguendo that some partnership income
was used to acquire these properties, the petitioner should
have successfully shown that these funds came from his
share in the partnership profits. After all, by his own
admission, and as stated in the Acknowledgement of
Participating Capital, he owned a mere 6% equity in the
partnership.
Petitioner has not presented evidence, other than these
unsubstantiated testimonies, to prove that the respondents
did not have the means to fund their other businesses and
real properties without the partnership’s income. On the
other hand, the respondents have not only, by testimonial
evidence, proven their case against the petitioner, but have
also presented sufficient documentary evidence to
substantiate their claims, allegations and defenses. They
presented preponderant proof on how they acquired and
funded such properties in addition to tax receipts and tax
declarations. It has been held that "while tax declarations
and realty tax receipts do not conclusively prove ownership,
they may constitute strong evidence of ownership when
accompanied by possession for a period sufficient for
prescription."
Lim Tong Lim v. Philippine Fishing Gear Industries 376
Phil. 76, GR 136448, November 3, 1999
Facts:
Antonio Chua and Peter Yao on behalf of Ocean Quest
Fishing Corporation entered into a Contract in 1990 for
purchase of fishing nets of various sizes from Philippine
Fishing Gears. Chua and Yao claimed that they were
engaged in a business venture with Lim Tong Lim but the
latter was not signatory to the agreement.
The buyers failed to pay for the net and the floats prompting
the respondent to file a collection suit against Chua, Yao
and Lim Tong Lim as general partners finding Ocean Quest
Fishing Corp. was a non-existent corporation in a
Certification from SEC.
the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent.
The CA held that petitioner was a partner of Chua and Yao
in a fishing business and may thus be held liable as a such
for the fishing nets and floats purchased by and for the use
of the partnership.
Chua admitted liability and requested reasonable time to
pay. Yao filed answer and waived his right to cross examine
and present evidence for failure to appear in hearing. Lim
filed an Answer and averred that he should not be held
liable because CA based on the Compromise Agreement
alone and that he did not have direct participation in
negotiations.
He further argues that he was just a lessor not a partner of
Chua and Yao for the Contract of Lease showing that he
only leased to the two the fishing boat.
Trial Court ruled that there was a partnership based on the
testimonies of the witnesses and on a Compromise
Agreement that was executed by the three. It noted that
while it was silent as to the nature of obligation, that joint
liability could be presumed from the equal distribution of the
profit and loss.
Issue:
Whether or not Lim can be made liable as a general
partner under the doctrine of estoppel?
Held:
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as
a result thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact no
corporation.
The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law
that a person who acts as an agent without authority or
without a principal is himself regarded as the principal,
possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such
agent.
The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance,
an unincorporated association, which represented itself to
be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person who
relied in good faith on such representation. It cannot allege
lack of personality to be sued to evade its responsibility for
a contract it entered into and by virtue of which it received
advantages and benefits.
On the other hand, a third party who, knowing an
association to be unincorporated, nonetheless treated it as
a corporation and received benefits from it, may be barred
from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be
held liable for contracts they impliedly assented to or took
advantage of.
It is difficult to disagree with the RTC and the CA that Lim,
Chua and Yao decided to form a corporation. Although it
was never legally formed for unknown reasons, this fact
alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the
law on estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on
behalf of the corporation. However, having reaped the
benefits of the contract entered into by persons with whom
he previously had an existing relationship, he is deemed to
be part of said association and is covered by the scope of
the doctrine of corporation by estoppel.
EVANGELISTA & CO. v. ABAD SANTOS
G.R. No. L-31684; June 28, 1973
Facts:
On October 9, 1954 a co-partnership was formed under the
name of "Evangelista & Co." On June 7, 1955 the Articles of
Co-partnership were amended so as to include herein
respondent, Estrella Abad Santos, as industrial partner, with
herein petitioners Domingo C. Evangelista, Jr., Leonarda
Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a
contribution of P17,500 each.
The amended Articles provided, inter alia, that "the
contribution of Estrella Abad Santos consists of her industry
being an industrial partner", and that the profits and losses
"shall be divided and distributed among the partners ... in
the proportion of 70% for the first three partners, Domingo
C. Evangelista, Jr., Conchita P. Navarro and Leonardo
Atienza Abad Santos to be divided among them equally;
and 30% for the fourth partner Estrella Abad Santos."
Respondent then filed a suit against the three other
partners, alleging that the partnership, which was also
made a party-defendant, had been paying dividends to the
partners except to her; and that notwithstanding her
demands the defendants had refused and continued to
refuse to let her examine the partnership books or to give
her information regarding the partnership affairs or to pay
her any share in the dividends declared by the partnership.
In their answer, the defendants claim that plaintiff was not
an industrial partner; that she did not in fact contribute
industry to the partnership; and that her share of 30% was
to be based on the profits which might be realized by the
partnership only until full payment of the loan which it had
obtained in December, 1955 from the Rehabilitation
Finance Corporation in the sum of P30,000, for which the
plaintiff had signed a promisory note as co-maker and
mortgaged her property as security.
The RTC found that Estrella was an industrial partner and
ordered defendants to render accounting. The CA affirmed
the RTC’s decision.
Issue:
WON the respondent is entitled to see the partnership
books because she is an industrial partner?
Held:
Estrella was industrial partner. As such, ART. 1299.
Provides that:
Any partner shall have the right to a formal account as to partnership
affairs:
(1)If he is wrongfully excluded from the partnership business or possession
of its property by his co-partners;
(2)If the right exists under the terms of any agreement;
(3)As provided by article 1807;
(4)Whenever other circumstances render it just and reasonable."
In the case at hand, the company is estopped from denying
Abad Santos as an industrial partner because it has been 8
years and the company never corrected their agreement in
order to show their true intentions. The company never
bothered to correct those up until Abad Santos filed a
complaint.
*Re: Estoppel: They are estopped because the fact that
from June 7, 1955 up to the filing of their answer to the
complaint on February 8, 1964 — or a period of over eight
(8) years — appellants did nothing to correct the alleged
false agreement of the parties contained in Exhibit "A". It is
thus reasonable to suppose that, had appellee not filed the
present action, appellants would not have advanced this
obvious afterthought that Exhibit "A" does not express the
true intent and agreement of the parties thereto. Moreover,
the article relied upon by the parties under ART. 1789. An
industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm or avail themselves
of the benefits which he may have obtained in violation of this provision,
with a right to damages in either case.'
Has no merit because there is no pretense even on the part
of the appellee is engaged in any business antagonistic to
that of appellant company, since being a Judge of one of
the branches of the City Court of Manila can hardly be
characterized as a business. That appellee has faithfully
complied with her prestation with respect to appellants as
can be shown by the fact that it was only after the filling of
this complaint did the appellants question the appellee’s
profession as being a judge and at the same time an
industrial partner.
Placido Pideli v. People, G.R. No. 163437,
[February 13, 2008], 568 PHIL 793-809
Facts:
Placido Cancio (Placido) and Wilson Pideli (Wilson) entered
into a verbal partnership agreement to subcontract a rip-
rapping and spillway project at Benguet. Placido and Wilson
agreed to undertake the project in favor of ACL
Construction (ACL). Ernesto Pideli (petitioner), brother to
Wilson and neighbor and friend to Placido, offered the duo
the use of his credit line with the Mt. Trail Farm Supply and
Hardware (MTFSH).
ACL withheld the final payment of the work. It was learned
that they failed to settle the accountabilities with MTFSH.
The parties arrived at the net income of 130,000 pesos, half
of which was claimed by Placido as partner. However,
Petitioner advised the two to first settle their accountabilities
for the construction materials taken from the hardware
store. Placido and Wilson did as told and entrusted the full
amount to petitioner, with express instructions to pay
MTFSH and deliver the remaining balance to them.
However, after payment petitioner informed them that
nothing was left of the proceeds after paying off the
supplier.
Petitioner posits that he cannot be held liable for theft of the
unaccounted funds. The monies subject matter of the
complaint pertain to the partnership. As an agent of partner
Wilson, intent to gain cannot be imputed against petitioner.
The RTC found him guilt beyond reasonable doubt and the
Issue:
Can petitioner be made held liable for Estafa or Theft?
Held:
There is, here, a confluence of the elements of theft.
Petitioner received the final payment due the partners
Placido and Wilson under the pretext of paying off their
obligation with the MTFSH. Under the terms of their
agreement, petitioner was to account for the remaining
balance of the said funds and give each of the partners their
respective shares. He, however, failed to give private
complainant Placido what was due him under the
construction contract. When appellant received the
disbursement, he had only physical custody of private
complainant's money, which was supposed to be applied to
a particular purpose, i.e. settle the account with the
supplier. Appellant's failure to do so or to return the money
to the private complainant renders him guilty of the crime of
theft.
In US vs. De Vera, “if the accused has possession of the
property. If he was entrusted only with the material or
physical (natural) or de facto possession of the thing, his
misappropriation of the same constitutes theft, but if he has
the juridical possession of the thing, his conversion of the
same constitutes embezzlement or estafa.”
*Purely criminal case ra sya guyssss, basi ang point lang
diri is if partner ka ang gi gamit nimo ang money other than
for partnership purposes is ma liable ka for estafa*
Mauro Lozana v. Serafin Depakakibo, G.R. No. L-13680,
[April 27, 1960], 107 PHIL 728-733
Facts:
Lozana and Depakakibo established a partnership for the
purpose of maintaining, operating, and distributing electric
light and power in the Municipality of Dumangas under the
franchise of Mrs. Piadosa Buenaflor.. The partnership is
capitalized at the sum of P30, 000.00 where Lozana agreed
to furnish 60% while Depakakibo, 40%.
However, the said franchise venture was cancelled and
revoked by the Public Service Commission. Thereafter,
Lozana sold Generator Buda to the new grantee Olimpia D.
Decolongon which was Lozana’s contribution to the
partnership though no liquidation was made to Decolongon.
Depakakibo also sold one Crossly Diesel Engine which was
his contribution to the partnership to Spouses Jimenea and
Harder. There was no liquidation at the time of the sale and
the defendant was the manager thereof.
Lozana brought action against Depakakibo alleging that he
is the owner of the Generator Buda (Diesel), valued at
P8,000 and 70 wooden posts with the wires connecting the
generator to the different houses supplied by electric
current in the Municipality of Dumangas, and that he is
entitled to the possession thereof, but that the defendant
has wrongfully detained them as a consequence of which
plaintiff suffered damages. Lozano prayed the properties be
delivered back to him. CFI ordered sheriff to take
possession of the properties and the delivery thereof to
Lozano.
3 days after, Judge Pantaleon A. Pelayo issued an order in
said case authorizing the sheriff to take possession of the
generator and 70 wooden posts, upon plaintiff's filing of a
bond in the amount of P16,000 in favor of the defendant (for
subsequent delivery to the plaintiff).
Depakakibo alleged properties have been contributed to the
partnership and therefor he is not unlawfully detaining them.
In addition, Lozano sold his contribution to partnership in
violation of terms of their agreement.
CFI declared Lozano owner of and entitled to the
equipment. Depakakibo appealed decision to the Supreme
Court.
Issue:
WON the contract of partnership became null and void
for furnishing electric current to the franchise holder
without previous approval of Public Service
Commission?
Held:
Partnership is valid. The fact of furnishing the current to the
holder of the franchise alone, without the previous approval
of the Public Service Commission, does not per se make
the contract of partnership null and void from the beginning
and render the partnership entered into by the parties for
the purpose also void and non-existent. Under the
circumstances, therefore, the court erred in declaring that
the contract was illegal from the beginning and that parties
to the partnership are not bound therefor, such that the
contribution of the plaintiff to the partnership did not pass to
it as its property. It also follows that the claim of the
defendant in his counterclaim that the partnership be
dissolved and its assets liquidated is the proper remedy, not
for each contributing partner to claim back what he had
contributed.
*Re the properties in the partnership
Facts show that parties entered into the contract of
partnership, Lozana contributing the amount of P18, 000,
and there has not been liquidation prior to the sale of the
contributed properties: Buda Diesel Engine and 70 posts. It
necessarily follows that the Buda diesel engine contributed
by the plaintiff had become the property of the partnership.
As properties of the partnership, the same could not be
disposed of by the party contributing the same without the
consent or approval of the partnership or of the other
partner.
*Mao ni ang gist sa case, the importance of determining if a
partnership exists or wala kay if a partnership exists,
recission is not the proper remedy to obtain the properties
contributed by thru liquidation.
Alfredo Aguila v. CA and Vda. de Abrogar
377 Phil. 257, GR 127347, November 25, 1999
Facts:
Alfredo Aguilar is the manager of AC Aguila & Sons Co., a
partnership engaged in lending. Respondent Felicidad
Abrogar and her late husband were owners of a house and
lot in Marikina. Felicidad then entered into a MOA with AC
Aguila & Sons Co., where the property shall be bought by
the partnership for P200K with an option to repurchase
within 90 days from MOA for P230K.

There was failure to redeem the property within the 90 day
period. She was demanded to vacate and Aguila filed an
ejectment suit against her. Abrogar then contends that he is
not real party in interest but AC Aguila & Sons, Co. against
which the case should have been brought.
The RTC rendered a decision finding for the AC Aguila
while the CA reversed the said decision and found the deed
of sale void for being in the nature of a pactum
commissorium.
Issue:
WON Aguila is the real party in interest?
Held:
No. Every action must be prosecuted and defended in the
name of the real party in interest." A real party in interest is
one who would be benefited or injured by the judgment, or
who is entitled to the avails of the suit. Any decision
rendered against a person who is not a real party in interest
in the case cannot be executed. Hence, a complaint filed
against such a person should be dismissed for failure to
state a cause of action. Under Art. 1768 of the Civil Code, a
partnership "has a juridical personality separate and distinct
from that of each of the partners." The partners cannot be
held liable for the obligations of the partnership unless it is
shown that the legal fiction of a different juridical personality
is being used for fraudulent, unfair, or illegal purposes.
In this case, private respondent has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being
used for fraudulent, unfair, or illegal purposes. Moreover,
the title to the subject property is in the name of A.C. Aguila
& Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with the consent of
her late husband, and A. C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not
its officers or agents, which should be impleaded in any
litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the
complaint.
G.R. No. L-33580 February 6, 1931
MAXIMILIANO SANCHO
vs.
SEVERIANO LIZARRAGA
Facts:
The plaintiff brought an action for the rescission of a
partnership contract between himself and the defendant,
entered into on October 15, 1920, the reimbursement by the
latter of his 50,000 pesos investment therein.
The Court of First Instance of Manila, having heard the
cause, and finding it duly proved that the defendant had not
contributed all the capital he had bound himself to invest,
and that the plaintiff had demanded that the defendant
liquidate the partnership, declared it dissolved on account of
the expiration of the period for which it was constituted, and
ordered the defendant, as managing partner, to proceed
without delay to liquidate it.
In the appellee’s brief, it was contended that the appeal
made is premature. The point is based on the contention
that inasmuch as the liquidation ordered by the trial court,
and the consequent accounts, have not been made and
submitted, the case cannot be deemed terminated in said
court and its ruling is not yet appealable.
Issue:
WON appellee’s contention is tenable?
WON plaintiff can demand recission?
Held:
This contention is well founded. Until the accounts have
been rendered as ordered by the trial court, and until they
have been either approved or disapproved, the litigation
involved in this action cannot be considered as completely
decided; and, as it was held in said case of Natividad vs
.Villarica, also with reference to an appeal taken from a
decision ordering the rendition of accounts following the
dissolution of partnership, the appeal in the instant case
must be deemed premature.
But even going into the merits of the case, the affirmation of
the judgment appealed from is inevitable. In view of the
lower court's findings referred to above, which we cannot
revise because the parol evidence has not been forwarded
to this court, articles 1681 and 1682 of the Civil Code have
been properly applied. Owing to the defendant's failure to
pay to the partnership the whole amount which he bound
himself to pay, he became indebted to it for the remainder,
with interest and any damages occasioned thereby, but the
plaintiff did not thereby acquire the right to demand
rescission of the partnership contract according to article
1124 of the Code.
This article cannot be applied to the case in question,
because it refers to the resolution of obligations in general,
whereas article 1681 and 1682 specifically refer to the
contract of partnership in particular. And it is a well known
principle that special provisions prevail over general
provisions.
*This case emphasized the rule that:
1. A partner can be indebted to the partnership for failure to
pay what he promised to the latter (Art. 1786)
2. the remedy of general does not apply to partnerships
since the law is specific in providing a different remedy for
partners and special provisions prevail over general ones.*
G.R. No. L-19819 October 26, 1977
WILLIAM UY vs. BARTOLOME PUZON, substituted by
FRANCO PUZON
Facts:
Puzon had a contract with the Republic of the Philippines
for the construction of Ganyangan Bato Section of the
Pagadian Zamboanga City Road, province of Zamboanga
del Sur 1 and of five (5) bridges in the Malangas-
Ganyangan Road.
Finding difficulty in accomplishing both projects, Bartolome
Puzon sought the financial assistance of the plaintiff,
William Uy. As an inducement, Puzon proposed the creation
of a partnership between them which would be the sub-
contractor of the projects and the profits to be divided
equally between them, thus, resulting in the formation of the
"U.P. Construction Company"
The parties agreed on a capital of 100,000 with each
partner contributing 50/50 each. However, Puzon failed to
pay but promised to contribute his share as soon as his
application of loan with the PNB shall be approved. Uy gave
Puzon the amount of P10,000.00 as advance contribution of
his share in the partnership which amount will be used by
Puzon to pay his obligations with the Philippine National
Bank to effect the release of his mortgages with the said
Bank. Uy again gave Puzon the amount of P30,000.00 as
his partial contribution to the proposed partnership and
which the said Puzon was to use in payment of his
obligation to the Rehabilitation Finance Corporation. Puzon
promised William Uy that the amount of P150,000.00 would
be given to the partnership to be applied thusly:
P40,000.00, as reimbursement of the capital contribution of
William Uy which the said Uy had advanced to clear the title
of Puzon's property; P50,000.00, as Puzon's contribution to
the partnership; and the balance of P60,000.00 as Puzon's
personal loan to the partnership.
Because Puzon was busy with his other projects, William
Uy was enstrusted with the management of the projects and
whatever expense the latter might incur shall be considered
as part of his contribution. Upon approval of Puzon’s loan,
he gave Uy P60,000. Of this amount, P40,000.00 was for
the reimbursement of Uy's contribution to the partnership,
and the P20,000.00 as Puzon's contribution to the
partnership capital.
To guarantee the payment of the loan, Puzon assigned to
PNB all payments to be received on account of the
contracts with the Bureau of Public Highways for the
construction; this was done without the knowledge and
consent of Uy. By virtue of said assignment, the Bureau of
Public Highways paid the money due on the partial
accomplishments on the government projects in question to
the Philippine National Bank which, in turn, applied portions
of it in payment of Puzon's loan. Of the amount of
P1,047,181.07, released by the Bureau of Public Highways
in payment of the partial work completed by the partnership
on the projects, the amount of P332,539.60 was applied in
payment of Puzon's loan and only the amount of
P27,820.80 was deposited in the partnership funds, which,
for all practical purposes, was also under Puzon's account
since Puzon was the custodian of the common funds.
The financial demands of the projects increased, thus, Uy
called on Puzon to place his capital contribution; Puzon
failed to do so. Uy thereafter sent letters of demand to
which Puzon replied that he’s not capable of putting
additional capital. Puzon wrote UP Construction Company
terminating their subcontract agreement. Thereafter, Uy
was not allowed to hold office in the U.P. Construction
Company and his authority behalf of the partnership was
revoked by Puzon.
Hence, he instituted an action against Puzon seeking the
dissolution of the partnership and payment of damages for
the violation of the latter of the terms of their partnership
agreement.
The Trial court found that defendant failed to contribute to
the partnership and used the partnership funds for his
personal use.
Pending appeal, Bartolome died and was substituted by
Franco Puzon.
Issue:
WON the appellant is guilty of breach of contract?
Held:
The record shows that after the appellant's loan the amount
of P150,000.00 was approved by the Philippine National
Bank in November, 1956, he gave the amount P60,000.00
to the appellee who was then managing the construction
projects. Of this amount, P40,000.00 was to be applied a
reimbursement of the appellee's contribution to the
partnership which was used to clear the title to the
appellant's property, and the balance of P20,000.00, as
Puzon's contribution to the partnership. Thereafter, the
appellant failed to make any further contributions the
partnership funds as shown in his letters to the appellee
wherein he confessed his inability to put in additional capital
to continue with the projects.
The findings of the trial court that the appellant misapplied
partnership funds is, likewise, sustained by competent
evidence. It is of record that the appellant assigned to the
Philippine National Bank all the payments to be received on
account of the contracts with the Bureau of Public Highways
for the construction of the aforementioned projects to
guarantee the repayment of the bank. By virtue of the said
appeflant's personal loan with the said bank assignment,
the Bureau of Public Highways paid the money due on the
partial accomplishments on the construction projects in
question to the Philippine National Bank who, in turn,
applied portions of it in payment of the appellant's loan.
That the assignment to the Philippine National Bank
prejudicial to the partnership cannot be denied. The record
show that during the period from March, 1957 to
September, 1959, the appellant Bartolome Puzon received
from the Bureau of Public highways, in payment of the work
accomplished on the construction projects, the amount of
P1,047,181.01, which amount rightfully and legally belongs
to the partnership by virtue of the subcontract agreements
between the appellant and the U.P. Construction Company.
In view of the assignemt made by Puzon to the Philippine
National Bank, the latter withheld and applied the amount of
P332,539,60 in payment of the appellant's personal loan
with the said bank. The balance was deposited in Puzon's
current account and only the amount of P27,820.80 was
deposited in the current account of the partnership. For
sure, if the appellant gave to the partnership all that were
eamed and due it under the subcontract agreements, the
money would have been used as a safe reserve for the
discharge of all obligations of the firm and the partnership
would have been able to successfully and profitably
prosecute the projects it subcontracted.
When did the appellant make the reimbursement claimed
by him?
For the same period, the appellant actually disbursed for the
partnership, in connection with the construction projects, the
amount of P952,839.77. 31 Since the appellant received
from the Bureau of Public Highways the sum of
P1,047,181.01, the appellant has a deficit balance of
P94,342.24. The appellant, therefore, did not make
complete restitution.
The findings of the trial court that the appellee has been
ousted from the management of the partnership is also
based upon persuasive evidence. The appellee testified that
after he had demanded from the appellant payment of the
latter's contribution to the partnership capital, the said
appellant did not allow him to hold office in the U.P.
Construction Company and his authority to deal with the
Bureau of Public Highways was revoked by the appellant.
*Was the award of damages proper?
The award of P200,000.00 as his share in the unrealized
profits of the partnership is proper. Under Article 2200 of the
Civil Code, indemnification for damages shall comprehend
not only the value of the loss suffered, but also that of the
profits which the obligee failed to obtain. In other words
lucrum cessans is also a basis for indemnification. There is
no doubt Uy failed to make profits because of Puzon's
breach of contract. The partnership showed some profits
even though the profit and loss statement showed net loss;
it may be due to error in accounting.
Had the appellant not been remiss in his obligations as
partner and as prime contractor of the construction projects
in question as he was bound to perform pursuant to the
partnership and subcontract agreements, The award,
therefore, made by the trial court of the amount of
P200,000.00, as compensatory damages, is not
speculative, but based on reasonable estimate.
*Bantay mo dri guys kay basi I compare ni na case ni atty
sa Moran Jr. vs. CA and Pecson na case regarding the
award of damages*
Ramnani vs. Court of Appeals
G.R. No. 85494 July 10, 2001
Facts:
In the latter part of 1965, spouses Ishwar Jethmal Ramnani,
an American citizen, and Sonya Jethmal Ramnani, both
from New York (hereinafter referred to as spouses Ishwar),
invested substantial amount of money for a profitable
business venture in the Philippines. Since they could not
personally manage their investments, they appointed two of
Ishwar's brothers, Choithram Jethmal Ramnani and
Navalrai Jethmal Ramnani, as their attorneys-in-fact.
Choithram invested in real estate. He bought two parcels of
land in Barrio Ugong, Pasig, Rizal from Ortigas & Co., Ltd.
And had buildings constructed thereon. Through the
industry and genius of Choithram, Ishwar's property was
developed and improved into a valuable asset worth
millions of pesos.
Unfortunately, Choithram, without the spouses’ knowledge,
Choithram started to appropriate his brother's property and
other assets as his own. The deed of sale of the lots he
purchased from Ortigas was executed in favor of his
daughter-in-law, Nirmla. Choithram also donated 2,500
shares of stock in a garment corporation to his children. He
also fraudulently mortgaged $3,000,000.00 worth of the
spouses' property to "Overseas Holding Co." Records show
that the $3,000,000.00 mortgage was executed on June 20,
1989, or 6 days before the corporation was organized.
Spouses Ishwar learned what Choithram was doing. Hence,
they asked him to render an accounting, but there was none
forthcoming. They then revoked Choithram's general power
of attorney. He earnestly pleaded in writing to Ishwar to
issue another power of attorney, but to no avail.
The spouses then filed a complaint for reconveyance,
damages against choithram, his son, and daughter in law.
The CFI dismissed the complaint and recognized the full
ownership of Choithram. On appeal, the Ca reversed the
said decision.
Subsequently, the Court of Appeals modified its earlier
decision by dismissing the case against Ortigas. Both
parties appealed to this Court. In G.R. No. 85494, the
Choithram family vigorously asserted their right of
ownership over the disputed lots, while in G.R. No. 85496,
spouses Ishwar faulted the Court of Appeals in dismissing
the case against Ortigas.
The parties then entered into a Compromise Agreement
which was denominated as a Tripartite Agreement. In the
said agreement, it was provided that the Choithram family,
together with the Ortigas, shall pay the spouses; 40 million
upon the signing by the parties, 10 million from July 5,
1993-September 5, 1993; 15 million from July 5, 1993 –
September 3, 1993. There was also a specific agreement
on the default of the Choithram Family, proceddings for the
execution, ncluding hearings on valuation, shall immediately
resume and plaintiff shall be entitled to enforce and execute
the Supreme Court's judgment against the defendants in
accordance with the terms thereof.
The Choithram family also employed dilatory tactics. Hence
the appeal before the court.
Issue:
WON the compromise agreement can be enforced?
Held:
A compromise is defined in the Civil Code as:
"Art. 2028. A compromise is a contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put an end to one already
commenced."
A compromise is intended to prevent or put an end to a
lawsuit. The parties adjust their difficulties by mutual
consent. Each of the parties prefers the terms of the
compromise to their earlier hope of gaining, balanced by the
danger of losing. It is intended to end litigation because of
the uncertainty of its result. Prolonging a litigation is
anathema to a compromise agreement.
By way of conclusion, it is elementary that if a party fails or
refuses to abide by a compromise agreement, the other
party may either enforce the compromise or regard it as
rescinded and insist upon his original demand.5 This rule
must be followed. For indeed, "it is not the province of the
court to alter a contract by construction or to make a new
contract for the parties; its duty is confined to the
interpretation of the one which they have made for
themselves without regard to its wisdom or folly as the court
cannot supply material stipulations or read into the contract
words which it does not contain.
*Re: partnership part*
Nevertheless, under the peculiar circumstances of this case
and despite the fact that Choithram, et al., have committed
acts which demonstrate their bad faith and scheme to
defraud spouses Ishwar and Sonya of their rightful share in
the properties in litigation, the Court cannot ignore the fact
that Choithram must have been motivated by a strong
conviction that as the industrial partner in the acquisition of
said assets he has as much claim to said properties as
Ishwar, the capitalist partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital
of $150,000.00 for the business.1âwphi1 They entrusted the
money to Choithram to invest in a profitable business
venture in the Philippines. For this purpose they appointed
Choithram as their attorney-in-fact.
Choithram in turn decided to invest in the real estate
business. He bought the two (2) parcels of land in question
from Ortigas as attorney-in-fact of Ishwar- Instead of paying
for the lots in cash, he paid in installments and used the
balance of the capital entrusted to him, plus a loan, to build
two buildings. Although the buildings were burned later,
Choithram was able to build two other buildings on the
property. He rented them out and collected the rentals.
Through the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is now—
a valuable asset worth millions of pesos. As of the last
estimate in 1985, while the case was pending before the
trial court, the market value of the properties is no less than
P22,304,000.00.39 It should be worth much more today.
We have a situation where two brothers engaged in a
business venture. One furnished the capital, the other
contributed his industry and talent. Justice and equity
dictate that the two share equally the fruit of their joint
investment and efforts. Perhaps this Solomonic solution
may pave the way towards their reconciliation. Both would
stand to gain. No one would end up the loser. After all,
blood is thicker than water.
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E.
PECSON
Facts:
Pecson and Moran entered into an agreement whereby
both would contribute P15, 000 each for the purpose of
printing 95,000 posters, with Moran actually supervising the
work; that Pecson would receive a commission of Pl,000 a
month. Pecson gave Moran P10, 000 for which the latter
issued a receipt. However, only 2,000 posters were printed.
Moran executed in favor of Pecson a promissory note in the
amount of P20,000 payable in two equal
instalments(P10,000 payable on or before June 15, 1971
and P10,000 payable on or before June 30, 1971). The
whole sum becoming due upon default in the payment of
the first installment on the date due, complete with the costs
of collection.
Private respondent Pecson filed with the Court of First
Instance of Manila an action for the return of 10,000 on the
alleged partnership agreement, return of his contribution,
payment of the shares of his share in the partnership profts
and for the unpaid commission.
The CFI renders judgement and rationed that for failure of
the plaintiff to pay his contribution of 15,000, thus each
party was entitled to rescind the contract which right is
implied in reciprocal obligations under Article 1385 of the
Civil Code whereunder “rescission creates the obligation to
return the things which were the object of the contract …”
Both parties appealed to the respondent Court of Appeals.
The CA awarded P47, 500.00 to Pecson for his share in
unrealized profits and P8,000.00 commission. Thus, Moran
Jr. appealed that the award his highly speculative and
should be avoided and that the award of the commission
has no basis in law.
ISSUE: WON Moran is obliged to give Pecson the
amount of expected profits from their partnership.
HELD: NO. The rule is, when a partner who has undertaken
to contribute a sum of money fails to do so, he becomes a
debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for
interests and damages from the time he should have
complied with his obligation (Art. 1788, Civil Code).
Article 1797 of the Civil Code provides:
The losses and profits shall be distributed in conformity with
the agreement. If only the share of each partner in the
profits has been agreed upon, the share of each in the
losses shall be in the same proportion.
Being a contract of partnership, each partner must share in
the profits and losses of the venture. That is the essence of
a partnership.
A prtner is entitled to receive only his share of the profits
actually realized by the venture. Even when an assurance
was made by a partner that they would earn a huge amount
of profits, in the absence of fraud, the other party cannot
claim a right to recover the profits promised where the
business was highly speculative and turned out to be a
failure. Hidden risk in any business venture have to be
considered.
It does not follow however that the private respondent is not
entitled to recover any amount from the petitioner. The
records show that the private respondent gave P10,000.00
to the petitioner. The latter used this amount for the printing
of 2,000 posters at a cost of P2.00 per poster or a total
printing cost of P4,000.00. The records further show that the
2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of
P4,000.00 from the gross income of P10,000.00 and with no
evidence on the cost of distribution, the net profits amount
to only P6,000.00. This net profit of P6,000.00 should be
divided between the petitioner and the private respondent.
And since only P4,000.00 was undesirable by the petitioner
in printing the 2,000 copies, the remaining P6,000.00 should
therefore be returned to the private respondent.
*Re the promised monthly commission of 1,000 pesos per
month
- The agreement does not state the basis of the
commission. The payment of the commission could only
have been predicated on relatively extravagant profits. The
parties could not have intended the giving of a commission
inspite of loss or failure of the venture. Since the venture
was a failure, the private respondent is not entitled to the
P8,000.00 commission.
*Re the supposed return of investment in the amount of
8,000 pesos*
- The respondent court erred when it concluded that the
project never left the ground because the project did take
place. Only it failed. It was the private respondent himself
who presented a copy of the book entitled "Voice of the
Veterans" in the lower court as Exhibit "L". Therefore, it
would be error to state that the project never took place and
on this basis decree the return of the private respondent's
investment.
As already mentioned, there are risks in any business
venture and the failure of the undertaking cannot entirely be
blamed on the managing partner alone, specially if the latter
exercised his best business judgment, which seems to be
true in this case.
*Uy vs. Puzon VERSUS this case
Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of
the Civil Code of the Philippines, we allowed a total of
P200,000.00 compensatory damages in favor of the
appellee because the appellant therein was remiss in his
obligations as a partner and as prime contractor of the
construction projects in question. Compensatory damages
were awarded in the Uy case because there was a finding
that the constructing business is a profitable one and that
the UP construction company derived some profits from its
contractors in the construction of roads and bridges despite
its deficient capital." The profits on two government
contracts worth P2,327,335.76 were not speculative. In the
instant case, there is no evidence whatsoever that the
partnership between the petitioner and the private
respondent would have been a profitable venture. In fact, it
was a failure doomed from the start. There is therefore no
basis for the award of speculative damages in favor of the
private respondent.
Furthermore, in the Uy case, only Puzon failed to give his
full contribution while Uy contributed much more than what
was expected of him. In this case, however, there was
mutual breach. Private respondent failed to give his entire
contribution in the amount of P15,000.00. He contributed
only P10,000.00. The petitioner likewise failed to give any of
the amount expected of him. He further failed to comply
with the agreement to print 95,000 copies of the posters.
Instead, he printed only 2,000 copies.
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.
Facts:
The Sun Wah Panciteria, a restaurant, a single
proprietorship and its licenses and permits were issued to
and in favor of petitioner Dan Fue Leung as the sole
proprietor. About the time the Sun Wah Panciteria started to
become operational, the private respondent gave P4,000.00
as his contribution to the partnership. This is evidenced by a
receipt wherein the petitioner acknowledged his acceptance
of the P4,000.00 by affixing his signature thereto.
Private respondent now alleges petitioner failed to give him
the agreed profits in the operation of Sun Wa Panciteria.
petitioner denied having received from the private
respondent the amount of P4,000.00. He contested and
impugned the genuineness of the receipt. He alleged that
he used his savings from his salaries as capital in
establishing Sun Wah Panciteria. To bolster his contention
that he was the sole owner of the restaurant, the petitioner
presented various government licenses and permits
showing the Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself alone.
The trial court gave credence to that of the plaintiffs and
ruled in favor of respondents, ordering the delivery og 22%
of the annual profit derived from the operation of the
panicteria.
Issue:
WON the right to demand an accounting in an existing
partnership extinguishes?
Held:
NO. The obligation to account is one which rests especially
on the shoulder of a managing or active partner, and is one
of the special task of a liquidating or surviving partner.
Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the partnership
exists. Prescription begins to run only upon the dissolution
of the partnership when the final accounting is done.
The right to an account of his interest shall accrue to any
partner, or his legal representative as against the winding
up partners or the surviving partners or the person or
partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the
contrary. (Article 1842 of the Civil Code)
TOPIC: Rights and Obligations of a Partner
It is Article 1842 of the Civil Code in conjunction with
Articles 1144 and 1155 which is applicable. Article 1842
states:
The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date
of dissolution, in the absence or any agreement to the contrary.
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806,
1807, and 1809 show that the right to demand an
accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership
when the final accounting is done.
Considering the facts of this case, the Court may decree a
dissolution of the partnership under Article 1831 of the Civil Code
which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
*Re the question of whether or not the payment of a share
of profits shall continue into the future with no fixed ending
date.
Considering the facts of this case, the Court may decree a
dissolution of the partnership under Article 1831 of the Civil
Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership
affairs, return of capital, and other incidents of dissolution
because the continuation of the partnership has become
inequitable.
G.R. No. L-47823 July 26, 1943
JOSE ORNUM and EMERENCIANA ORNUM vs
MARIANO, LASALA, et al.,
Facts:
Pedro Lasala, father of the respondents, and Emerenciano
Ornum formed a partnership, whereby the former, as
capitalist, delivered the sum of P1,000 to the latter who, as
industrial partner, was to conduct a business at his place of
residence in Romblon. When the assets of the partnership
consisted of outstanding accounts and old stock of
merchandise, Emerenciano Ornum, following the wishes of
his wife, asked for the dissolution of the Lasala,
Emerenciano Ornum looked for someone who could take
his place and he suggested the names of the petitioners
who accordingly became the new partners. Upon joining the
business, the petitioners, contributed P505.54 as their
capital with the result that in the new partnership Pedro
Lasala had a capital of P1,000, appraised value of the
assets of the former partnership, plus the said P505.54
invested by the petitioners.
After the death of Pedro Lasala, his children (the
respondents) succeeded to all his rights and interest in the
partnership. The partners never knew each other
personally. No formal partnership agreement was ever
executed.
After twenty years the business had grown to such an
extent that is total value, including profits, amounted to
P44,618.67. Statements of accounts were periodically
prepared by the petitioners and sent to the respondents
who invariably did not make any objection thereto. The last
and final statement of accounts, and prepared by the
petitioners after the respondents had announced their
desire to dissolve the partnership. Pursuant to the request
contained in this letter, the petitioners remitted and paid to
the respondents the total amount corresponding to them
under the above-quoted statement of accounts which,
however, was not signed by the latter. Hereafter the
complaint in this case was filed by the respondents, praying
for an accounting and final liquidation of the assets of the
partnership
The CFI held that the last and final statement of accounts
prepared by the petitioners was tacitly approved and
accepted by the respondents who, by virtue of the letter of
Father Mariano Lasala, lost their right to a further
accounting from the moment they received and accepted
their shares as itemized in said statement.
This judgment was reversed by the Court of Appeals
principally on the ground that as the final statement of
accounts remains unsigned by the respondents, the same
stands disapproved.
ISSUE: Whether or not respondent is entitled to further
liquidation.
HELD: NO. After such shares had been paid by the
petitioners and accepted by the respondents without any
reservation, the approval of the statement of accounts was
virtually confirmed and its signing thereby became a mere
formality to be complied with by the respondents
exclusively. Their refusal to sign, after receiving their
shares, amounted to a waiver to that formality in favor of the
petitioners who has already performed their obligation.
This approval precludes any right on the part of the
respondents to a further liquidation, unless the latter can
show that there was fraud, deceit, error or mistake in said
approval.
The Court is reversing the appealed decision on the legal
ground that the petitioners' final statement of accounts had
been approved by the respondents and no justifiable reason
(fraud, deceit, error or mistake) has been positively and
unmistakably found by the Court of Appeals so as to
warrant the liquidations sought by the respondents.
G.R. No. L-5953 February 24, 1912
ANTONIO M. PABALAN,
vs.
FELICIANO VELEZ
Facts:
Antonio M. Pabalan, was the owner in fee simple of a rural
estate consisting of an hacienda known by the name of
"Pantayani," which was devoted to agricultural purposes.
the plaintiff, desiring to make use of the two properties
described, and lacking the required means for the purpose,
entered into an agreement with the said Walter A. Fitton
whereby they formed a regular mercantile partnership for
the development of the said properties and for the
manufacture and sale of their products and other business
pertinent thereto.
The sum of 9,000 pesos Mexican currency was fixed as the
amount of the capital stock of the partnership, of which
3,000 pesos, in cash, were to be contributed by the plaintiff
and 6,000 pesos, in real property, by the said Fitton; that,
for the purpose of obtaining the said 3,000 pesos, the
plaintiff sold his two aforementioned real properties to
Walter A. Fitton. The latter, bound himself to pay into the
funds of the said partnership, as the plaintiff's capital, the
remaining 3,000 pesos of the selling price; that it was
furthermore agreed that the two said real properties should
constitute the capital of Walter A. Fitton in the partnership,
which would be known by the name of "A. M. Pabalan and
Company". When the partner Fitton died, the latter failed to
pay into the partnership funds the said 3,000 pesos, the
remainder of the price of the properties purchased by him,
or any part thereof, and did not pay the said sum or any part
of the same to the plaintiff;
Owing to the failure of Fitton to comply with his obligation,
the properties in question had been entirely unproductive
and losses and damages had been occasioned to the
plaintiff in the sum of 2,000 pesos Philippine currency.
Plaintiff, therefore, prayed for the rescission of the contract
entered into, by himself, and Walter A. Fitton, the
dissolution of the partnership "A. M. Pabalan and
Company," and the annulment of the sale of the said
properties, by returning to the defendant a sum in Philippine
currency equivalent to the 3,000 pesos in Mexican currency
received from Walter A. Fitton, and that the defendant be
sentenced to pay to the plaintiff, as losses and damages,
the sum of 2,000 pesos, and to the payment of the cost of
the suit, in addition to the other remedies sought.
ISSUE: Whether or not plaintiff may for the rescission of the
contract.
Held: YES, In case one of the parties to a contract does not
fulfill his obligation as stipulated therein, the other
contracting party, is entitled to demand the rescission of the
contract, as such obligations are mutual, and the court must
order the rescission demanded. Thus, Article 1124 provides
among others:
The right to rescind the obligations is considered as implied
in mutual ones, in case one of the obligated persons does
not comply with what is incumbent upon him.
The person prejudiced may choose between exacting the
fulfillment of the obligation or its rescission, with indemnity
for damages and the payment of interest in either case. He
may also demand the rescission, even after having
requested its fulfillment, should the latter appear impossible.
It was duly proved, that the partner Walter A. Fitton failed to
observe the stipulations of the two aforesaid contracts; hat
he did not pay any part of the price of the sale of the two
parcels of land which he had purchased from his partner,
Antonio M. Pabalan, and, consequently, did not turn into the
company funds, as capital of the said Pabalan, the sum of
which the said price consisted; it is therefore
unquestionable that he did not comply with his two principal
obligations.
Idlefonso Dela Rosa vs. Enrique Ortega Go-Cotay G.R.
No. L-24243 January 15, 1926
Facts:
During the Spanish regime the Chinamen Go-Lio and
Vicente Go-Sengco formed a society for the purchase and
sale of articles of commerce, and for this purpose they
opened a store in the town of San Isidro, Nueva Ecija. Later
Go-Lio went to China. Vicenyte Go-Sengco died and his
son Enrique Ortega Go-Cotay took charge of the
businesses. Go-Lio died in China in October, 1916, leaving
a widow and three children, one of whom came to the
Philippines and filed a petition for the appointment of
Ildefonso de la Rosa as administrator of the intestate estate
of his deceased father, which petition was granted by the
Court of First Instance of Nueva Ecija.
Dela Rosa, in his capacity as the administrator, requested
for the winding up of the business and to deliver to him the
portion corresponding to the deceased Go-Lio. Enrique
Ortega Go-Cotay denied the petition, alleging that the
business was his exclusively.
Dela Rosa then instituted an action before the CFI of Nueva
Ecija wherein he prayed that the defendant be sentenced to
deliver to the plaintiff one-half of all the property of the
partnership formed by Go-lIo and Vicente Go-Sengco.
Defendant denied the allegations in the complaint and said
that more than ten years had elapsed before the filing of the
complaint and that he should be absolved.
Court of First Instance of Nueva Ecija appointed Justo
Cabo-Chan, Francisco T. Tantengco and Go-Tiao, as
commissioners to make an inventory, liquidate and
determine the one-half belonging to the plaintiff of all the
property of the store in question. Under the date of
November 15, 1920, the said commissioners submitted to
the court their report, showing the net profits of the business
between the period from 1913 to 1917, which amounted to
the total sum of P25,038.70
In view of the appeal taken by defendant the parties on
December 7, 1921, entered into an agreement whereby
they agreed to suspend the liquidation ordered by the court
until the appeal to the Supreme Court was decided, and
whereby the defendant was authorized to continue in the
possession of the property in litigation, upon the giving of a
bond in the amount of P25,000, and cancelling the former
bond for P10,000.
This court in deciding case R. G. No. 18919, on October 5,
1922, held that the appeal was premature and ordered that
the record be remanded to the court of origin with
instruction to enter a final order in accordance with the
liquidation made by the commissioners. The later
commissioner examined all books and stated in his report
that the business had suffered a net loss amounting to the
sum of P89,099.22.
After trial and the parties having introduced all their
evidence, the lower court, by order of December 13, 1924,
disapproved the report of the commissioners Tantengco
and Cua Poco, but approved, with slight modifications, the
report of commissioner Cabo-Chan, holding that the result
of the liquidation showed liabilities to the amiount of
P89,690.45 in view of which plaintiff had nothing to recover
from defendant, as there was no profit to divide.
From this decision, plaintiff appealed and raised the
argument that the lower court erred in holding that the
partnership had incurred debts and suffered losses, as
shown in the report of Justo Cabo-Cahn from 1918.
Issue: WON the argument of plaintiff is meritorious? / Or
WON the partnership should be held liable for the losses
incurred when the defendant became a receiver after he
objected the appointment of a receiver by plaintiff?
Held:
From the evidence it appears that the partnership capital
was P4,779.39, and the net profits until the year 1915
amounted to P5,551.40. Because some books of account
had been destroyed by white ants (anay), the liquidation of
the business of the partnership for the period from 1906 to
1912 could not be made. But knowing the net profit for the
period between 1904 and 1905, which is P5,551.40, and
findng the average of the profits for each of these years,
which is P2,775.70; and knowing the net profit for the year
1913, which is P2,979, we can find the average between
the net profit for 1905, namely, P2,979. Said average is the
sum of P2,877.35, which may be considered as the average
of the net annual profits for the period between 1906 an
1912, which in seven years make a total of P20,141.45. The
assets of the partnership, as well as the value of its
property, could not be determined when making the
liquidation because there was no inventory and for this
reason it was not possible to determine the capital of the
partnership. The plaintiff, however, seems to be agreeable
to considering the initial partnership capital as the capital at
the time of the winding up of the business.
August 3, 1918, defendant assumed complete responsibility
for the business by objecting to the appointment of a
receiver as prayed for by plaintiff, and giving a bond
therefor. Until that date his acts were those of a managing
partner, binding against the partnership; but thereafter his
acts were those of a receiver whose authority is contained
in section 175 of the Code of Civil Procedure.
A receiver has no right to carry on and conduct a business
unless he is authorized or directed by the court to do some,
and such authority is not derived from an order of
appointment to take and preserve the property (34 Cyc.,
283; 23 R. C. L., 73). It does not appear that the defendant
as a receiver was authorized by the court to continue the
business of the partnership in liquidation. This being so, he
is personally liable for the losses that the business amy
have sustained. (34 Cyc., 296.) The partnership must not,
therefore, be liable for the acts of the defendant in
connection with the management of the business until
August 3, 1918, the date when he ceased to be a member
and manager in order to become receiver.
After due computations, P30,299.14 pertains to the plaintiff
as administrator of the intestate estate of Go-Lio.
Soncuya vs. De Luna G.R. No. L-45464 April 28,
1939
Facts:
On September 11, 1936, plaintiff Josue Soncuya filed with
the Court of First Instance of Manila an amended complaint
against Carmen de Luna in her own name and as co-
administratrix of the intestate estate of Librada Avelino, in
which, upon the facts therein alleged, he prayed that
defendant be sentenced to pay him the sum of P700,432 as
damages and costs.
Such damages were allegedly due to Carmen De Luna’s
administration, said to be fraudulent, of the partnership,
"Centro Escolar de Senoritas", of which plaintiff, defendant
and the deceased Librada Avelino were members.
The CFI of Manila ordered the dismissal of the complaint
and from this order of dismissal the plaintiff took an appeal.
Issue: Whether or not plaintiff is entitled to damages.
Ruling: No. For the purpose of adjudicating to plaintiff
damages which he alleges to have suffered as a partner by
reason of the supposed fraudulent management of the
partnership referred to, it is first necessary that a liquidation
of the business thereof be made to the end that the profits
and losses may be known and the causes of the latter and
the responsibility of the defendant as well as the damages
which each partner may have suffered, may be determined.
It is not alleged in the complaint that such a liquidation has
been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff to
institute the action for damages which he claims from the
managing partner Carmen de Luna (Po Yeng Cheo vs. Lim
Ka Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged in the
complaint are not sufficient to constitute a cause of action
on the part of plaintiff as member of the partnership "Centro
Escolar de Senoritas" to collect damages from defendant as
managing partner thereof, without a previous liquidation, we
do not deem it necessary to discuss the remaining question
of whether or not the complaint is ambiguous, unintelligible
and vague.
Goquiolay vs. Sycip G.R. No. L-11840 July 26,
1960
Facts:
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 state. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by
Goquiolay and P12,000.00 by Tan Sin An. The agreement
lodged upon Tan Sin An the sole management of the
partnership affairs. It was also agreed that the partnership
was fixed at 10 years, it was stipulated that in the event of
death of any of the partners before the expiration of the
term, the partnership will not be dissolved but will be
continued by the heirs or assigns of the deceased partner.
The partnership purchased three (3) parcels of land,
assuming the payment of a mortgage obligation payable to
"La Urbana Sociedad Mutua de Construccion y Prestamos".
Another 46 parcels were purchased by Tan Sin An in his
individual capacity, and he assumed payment of a
mortgage debt thereon. The downpayment and the
amortization were advanced by Yutivo and Co., for the
account of the purchasers. 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").
Tan Sin An died, leaving as surviving heirs his widow, Kong
Chai Pin, and 4 minor children. Defendant Kong Chai Pin
was appointed administratrix of the intestate estate of her
deceased husband. On the other hand, repeated demands
were made by Banco Hipotecario on the partnership and
Tan Sin An. Defendant Sing Yee, upon request of
defendant Yutivo Sons, paid the remaining balance of the
mortgage debt. Yutivo Sons and Sing Yee filed their claim
in the intestate proceedings of Tan Sin An for advances,
interest and taxes paid in amortizing and discharging their
obligations to “Banco Hipotecario.” Kong Chai Pin filed a
petition with the probate court for authority to sell all the 49
parcels of land and sold it to Sycip and Lee in consideration
of P37,000 and of the vendees assuming payment of the
claims filed by Yutivo Sons and Sing Yee.
When Goquiolay learned about the sale, he filed a petition
to set aside the order approving the sale in so far as his
interest over the parcels of land sold was concerned.
Probate court annulled the sale executed by the
administratrix with respect to Goquiolay’s interest thereon.
Issue: Whether or not Kong Chai Pin became a general
partner.
Ruling: Yes. 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.
The Articles did not provide that the heirs of the deceased
would be merely limited partner; on the contrary they
expressly stipulated that in case of death of either partner
"the co-partnership ... will have to be continued" with the
heirs or assigns. It certainly could not be continued if it were
to be converted from a general partnership into a limited
partnership, since the difference between the two kinds of
associations is fundamental; and specially because the
conversion into a limited association would leave the heirs
of the deceased partner without a share in the
management. Hence, the contractual stipulation does
actually contemplate that the heirs would become general
partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the
deceased partner should they refuse to assume personal
and unlimited responsibility for the obligations of the firm.
The heirs, in other words, cannot 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.
*Re 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
- No. 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.
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.
Article 129 of the Code of Commerce to the effect that —
If the management of the general partnership has not been
limited by special agreement to any of the members, all
shall have the power to take part in the direction and
management of the common business, and the members
present shall come to an agreement for all contracts or
obligations which may concern the association. (Emphasis
supplied)
but this obligation is one imposed by law on the partners
among themselves, that does not necessarily affect the
validity of the acts of a partner, while acting within the scope
of the ordinary course of business of the partnership, as
regards third persons without notice. The latter may
rightfully assume that the contracting partner was duly
authorized to contract for and in behalf of the firm and that,
furthermore, he would not ordinarily act to the prejudice of
his co-partners. The regular course of business procedure
does not require that each time a third person contracts with
one of the managing partners, he should inquire as to the
latter's authority to do so, or that he should first ascertain
whether or not the other partners had given their consent
thereto.
Buenaventura vs. David G.R. No. 12151, January
19, 1918
Facts:
A partnership was formed by David and Buenaventura for
the conduct of the business of real estate brokers under the
firm name of "Abelido & Co." The first named party was the
capitalist member of the firm and its manager, while the last
named, was the industrial member and bookkeeper. The
firm maintained a feeble external existence for a few
months, during which period the capitalist associate placed
P209.86 in the enterprise. Only two profitable transactions
were ever accomplished by the firm during its existence.
These produced a total income of P42. It was agreed in the
articles that the partnership should be liquidated upon April
20, 1907 but upon February 1,1908, it was agreed in writing
that the partnership should not be liquidated until the sale of
"Hacienda de Guitan" in which the firm had become
interested should be effected with profit.
Long before the firm had come into existence David had
been the creditor of the owners. They agreed to convey the
Hacienda de Guitan to Abelido and Buenaventura to settle
the debt to David. The conveyance was executed and the
grantee named in the deed was David; and no reference
was made in this instrument to the firm of Abelido & Co., or
to Buenaventura as a partner therein. It further appears that
David proceeded to procure the registration of the hacienda
in his own name and a Torrens title was in due course
issued to him.
Allegedly, the property was sold to David for P7,170 and
that of this amount the sum of P3,370 had been advanced
by Abelido & Co., while P3,800 had been paid by David
individually. A further statement was added to the effect that
Buenaventura should have the option to advance half of the
sum paid out by David in the event Buenaventura should
desire to have a half interest in the property in his own
name. More than seven years after the day upon which the
deed to the property had been executed to David,
Buenaventura filed the complaint in this action.
Issue: Whether or not Buenaventura is entitled to his
share in Hacienda de Guitan by virtue of the
partnership.
Ruling: No. It is in our opinion clear upon the oral
testimony and other proof adduced in the cause that every
cent of the consideration for the purchase of this property
was supplied by David; and it consisted, as we have seen,
mostly of money previously loaned. Buenaventura had no
resources, and it was evidently quite beyond his power to
raise the funds necessary to participate in a business
transaction of the size of that in question. His pretension
that he supplied P1,025 or half of the consideration named
in the original contract was rightly rejected by the court.
Furthermore it appears that the firm of Abelido & Co., as
distinguished from the individual David Abelido, never in
fact advanced a single peso in the transaction, although the
"declaration" of January 30, 1908, states that the firm
advanced P3,370.
The situation then, as regards the title to the hacienda is
this: David, who suppied all the funds, has obtained the
legal title in his own individual name. This was
accomplished with knowledge on the part of Buenaventura.
Furthermore he has registered his title by means of legal
proceedings which were probably known to Buenaventura.
Still later, the latter is seen acting as broker for David in
securing a loan on the hacienda and receives a fee for his
services. Meanwhile the original partnership enterprise is
abandoned.
 
Emnace vs. CA G.R. No. 126334 November 23,
2001
Facts: Petitioner Emilio Emnace, Vicente Tabanao and
Jacinto Divinagracia were partners in a business concern
known as Ma. Nelma Fishing Industry. Sometime in
January of 1986, they decided to dissolve their partnership
and executed an agreement of partition and distribution of
the partnership properties among them, consequent to
Jacinto Divinagracia's withdrawal from the partnership.
Among the assets to be distributed were five (5) fishing
boats, six (6) vehicles, two (2) parcels of land located at
Sto. Niño and Talisay, Negros Occidental, and cash
deposits in the local branches of the Bank of the Philippine
Islands and Prudential Bank.
Throughout the existence of the partnership, and even after
Vicente Tabanao's untimely demise in 1994, petitioner
failed to submit to Tabanao's heirs any statement of assets
and liabilities of the partnership, and to render an
accounting of the partnership's finances. Petitioner also
reneged on his promise to turn over to Tabanao's heirs the
deceased's 1/3 share in the total assets of the partnership,
amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment
thereof.
Consequently, Tabanao' s heirs, respondents herein, filed
against petitioner an action for accounting, payment of
shares, division of assets and damages. Among the
defenses raised by petitioner was that prescription has
already set.
Issue: (1) Whether or not Vicente Tabanao’s spouse
had a legal capacity to sue;
(2) Whether or not the action is barred by prescription.
Ruling: (1) Yes. Whatever claims and rights Vicente
Tabanao had against the partnership and petitioner were
transmitted to respondents by operation of law, more
particularly by succession, which is a mode of acquisition by
virtue of which the property, rights and obligations to the
extent of the value of the inheritance of a person are
transmitted. Moreover, respondents became owners of
their respective hereditary shares from the moment Vicente
Tabanao died.
(2) No. The three (3) final stages of a partnership are: (1)
dissolution; (2) winding-up; and (3) termination. 36 The
partnership, although dissolved, continues to exist and its
legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners. For
as long as the partnership exists, any of the partners may
demand an accounting of the partnership’s business.
Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is
done.
Contrary to petitioner’s protestations that respondents’ right
to inquire into the business affairs of the partnership
accrued in 1986, prescribing four (4) years thereafter,
prescription had not even begun to run in the absence of a
final accounting. Article 1842 of the Civil Code provides:
The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date
of dissolution, in the absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also
deal with the duty to account, the above-cited provision
states that the right to demand an accounting accrues at the
date of dissolution in the absence of any agreement to the
contrary. When a final accounting is made, it is only then
that prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely what
respondents are seeking in their action before the trial court,
since petitioner has failed or refused to render an
accounting of the partnership’s business and assets.
Hence, the said action is not barred by prescription.
G.R. No. 159333 July 31, 2006
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS
COMMISSION, PACIFIC FOREST RESOURCES, PHILS.,
INC. and/or CELLMARK AB
Facts:
Arsenio Mendiola entered into a side agreement on
Representative Office known as Pacific Forest Resources
(Phils.), Inc. with Pacific Forest Resources, Phils., Inc.
(Pacfor), a corporation organized and existing under the
laws of California, USA. It is a subsidiary of Cellulose
Marketing International, a corporation duly organized under
the laws of Sweden, with principal office in Gothenburg,
Sweden.
The Side Agreement outlines the business relationship of
the parties with regard to the Philippine operations of
Pacfor. Private respondent will establish a Pacfor
representative office in the Philippines, to be known as
Pacfor Phils, and petitioner ATM will be its President.
Petitioner's base salary and the overhead expenditures of
the company shall be borne by the representative office and
funded by Pacfor/ATM, since Pacfor Phils. is equally owned
on a 50-50 equity by ATM and Pacfor-usa.
In March 1997, the Side Agreement was amended through
a "Revised Operating and Profit Sharing Agreement for the
Representative Office Known as Pacific Forest Resources
(Philippines)," where the salary of petitioner was increased
to $78,000 per annum. Both agreements show that the
operational expenses will be borne by the representative
office and funded by all parties "as equal partners," while
the profits and commissions will be shared among them.
Petitioner wrote to Kevin Daley, Vice President for Asia of
Pacfor, seeking confirmation of his 50% equity of Pacfor
Phils. Private respondent Pacfor, through William Gleason,
its President, replied that petitioner is not a part-owner of
Pacfor Phils. because the latter is merely Pacfor-USA's
representative office and not an entity separate and distinct
from Pacfor-USA. "It's simply a 'theoretical company' with
the purpose of dividing the income 50-50." Petitioner
presumably knew of this arrangement from the start, having
been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch
office" in the Philippines to save on taxes.
Due to increasing animosities between them, Mendiola was
made to believe that he was being constructively dismissed
hence he lodged a complaint before the Labor Arbiter for
illegal dismissal and separation pay.
PACFOR appealed to the CA and the NLRC ruled in its
favor finding that it has no jurisdiction over the said case.
Petitioner insists that an industrial partner may at the same
time be an employee of the partnership, provided there is
such an agreement, which, in this case, is the "Side
Agreement" and the "Revised Operating and Profit Sharing
Agreement."
Issue:
WON there exists between the parties a co-ownership
or partnership?
Held:
In a partnership, the members become co-owners of what is
contributed to the firm capital and of all property that may
be acquired thereby and through the efforts of the
members. The property or stock of the partnership forms a
community of goods, a common fund, in which each party
has a proprietary interest.
In fact, the New Civil Code regards a partner as a co-owner
of specific partnership property. Each partner possesses a
joint interest in the whole of partnership property. If the
relation does not have this feature, it is not one of
partnership. This essential element, the community of
interest, or co-ownership of, or joint interest in partnership
property is absent in the relations between petitioner and
private respondent Pacfor. Petitioner is not a part-owner of
Pacfor Phils.
William Gleason, private respondent Pacfor's President
established this fact when he said that Pacfor Phils. is
simply a "theoretical company" for the purpose of dividing
the income 50-50. He stressed that petitioner knew of this
arrangement from the very start, having been the one to
propose to private respondent Pacfor the setting up of a
representative office, and "not a branch office" in the
Philippines to save on taxes. Thus, the parties in this case,
merely shared profits. This alone does not make a
partnership.
*Can a corporation become a member of a partnership?*
Besides, a corporation cannot become a member of a
partnership in the absence of express authorization by
statute or charter.
This doctrine is based on the following considerations:
(1) that the mutual agency between the partners, whereby
the corporation would be bound by the acts of persons who
are not its duly appointed and authorized agents and
officers, would be inconsistent with the policy of the law that
the corporation shall manage its own affairs separately and
exclusively; and,
(2) that such an arrangement would improperly allow
corporate property to become subject to risks not
contemplated by the stockholders when they originally
invested in the corporation. No such authorization has been
proved in the case at bar.
Be that as it may, we hold that on the basis of the evidence,
an employer-employee relationship is present in the case at
bar. The elements to determine the existence of an
employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to
control the employee's conduct. The most important
element is the employer's control of the employee's
conduct, not only as to the result of the work to be done, but
also as to the means and methods to accomplish it.
G.R. No. 160347; November 29, 2006
ARCADIO and MARIA LUISA CARANDANG, Petitioners,
vs. HEIRS OF QUIRINO A. DE GUZMAN, namely:
MILAGROS DE GUZMAN, VICTOR DE GUZMAN,
REYNALDO DE GUZMAN, CYNTHIA G. RAGASA and
QUIRINO DE GUZMAN, JR., Respondents.
FACTS:
Spouses Carandang and the decedent Quirino de Guzman
were stockholders and corporate officers of Mabuhay
Broadcasting System (MBS). The Carandangs have
equities at 54 % while Quirino has 46%.
When the capital stock of MBS was increased on November
26, 1983, the Carandangs subscribed P345,000 from it,
P293,250 from the said amount was loaned by Quirino to
the Carandangs. In the subsequent increase in MBS’ capital
stock on March 3, 1989, the Carandangs subscribed again
to the increase in the amount of P93,750. But, P43,125 out
of the mentioned amount was again loaned by Quirino.
When Quirino sent a demand letter to the Carandangs for
the payment of the loan, the Carandangs refused to pay.
They contend that a pre-incorporation agreement was
executed between Arcadio Carandang and Quirino,
whereby Quirino promised to pay for the stock subscriptions
of the Arcadio without cost, in consideration for Arcadio’s
technical expertise, his newly purchased equipment, and his
skill in repairing and upgrading radio/communication
equipment therefore, there is no indebtedness on the part of
the Carandangs.
Spouses Carandang alleged that three of the four checks
used to pay their stock subscriptions were issued in the
name of Milagros de Guzman, the decedent’s wife. Thus,
Milagros should be considered as an indispensable party in
the complaint. Being such, the failure to join Milagros as a
party in the case should cause the dismissal of the action by
reason of a jurisprudence stating that: “(i)f a suit is not
brought in the name of or against the real party in interest, a
motion to dismiss may be filed on the ground that the
complaint states no cause of action."
ISSUE: WON Milagros de Guzman is a co-owner hence
should be impleaded
RULING:
Assuming that the four checks created a debt for which the
spouses Carandang are liable, such credits are presumed
to be conjugal property. There being no evidence to the
contrary, such presumption subsists. As such, Quirino de
Guzman, being a co-owner of specific partnership property,
is certainly a real party in interest. Dismissal on the ground
of failure to state a cause of action, by reason that the suit
was allegedly not brought by a real party in interest, is
therefore unwarranted.
In this connection, Article 1811 of the Civil Code provides
that "[a] partner is a co-owner with the other partners of
specific partnership property." Taken with the presumption
of the conjugal nature of the funds used to finance the four
checks used to pay for petitioners’ stock subscriptions, and
with the presumption that the credits themselves are part of
conjugal funds, Article 1811 makes Quirino and Milagros de
Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros
de Guzman may separately bring an action for the recovery
thereof. In the fairly recent cases of Baloloy v. Hular28 and
Adlawan v. Adlawan, we held that, in a co-ownership, co-
owners may bring actions for the recovery of co-owned
property without the necessity of joining all the other co-
owners as co-plaintiffs because the suit is presumed to
have been filed for the benefit of his co-owners. In the latter
case and in that of De Guia v. Court of Appeals, we also
held that Article 487 of the Civil Code, which provides that
any of the co-owners may bring an action for ejectment,
covers all kinds of action for the recovery of possession
G.R. No. 3186 March 7, 1907
THE GREAT COUNCIL OF THE UNITED STATES OF
THE IMPROVED ORDER OF RED MEN
vs.
THE VETERAN ARMY OF THE PHILIPPINES
Facts:
Pursuant to the Constitution of the Veteran Army of the
Phils, several posts were organized.
Among the posts thus organized is the General Henry W.
Lawton Post, No. 1. On the 1st day of March, 1903, a
contract of lease of parts of a certain buildings in the city of
Manila was signed by W.W. Lewis, E.C. Stovall, and V.O.,
Hayes, as trustees of the Apache Tribe, No. 1, Improved
Order of Red Men, as lessors, and Albert E. McCabe, citing
for and on behalf of Lawton Post, Veteran Army of the
Philippines as lessee.
The lease was for the term of two years commencing
February 1, 903, and ending February 28, 1905. The
Lawton Post occupied the premises in controversy for
thirteen months, and paid the rent for that time. It them
abandoned them and this action was commenced to
recover the rent for the unexpired term. Judgment was
rendered also against the Veteran Army of the Philippines
for P1,738.50, and the costs. From this judgment, the last
named defendant has appealed.
It is claimed by the appellant that the action can not be
maintained by the plaintiff, The Great Council of the United
States of the Improved Order of Red Men, as this
organization did not make the contract of lease.
It is also claimed that the action can not be maintained
against the Veteran Army of the Philippines because it
never contradicted, either with the plaintiff or with Apach
Tribe, No. 1, and never authorized anyone to so contract in
its name.
ISSUE: WON there was a partnership created by a
contract
RULING:
The view most favorable to the appellee is the one that
makes the appellant a civil partnership. Assuming that is
such, and is covered by the provisions of title 8, book 4 of
the Civil Code, it is necessary for the appellee to prove
that the contract in question was executed by some
authorized to so by the Veteran Army of the Philippines.
Article 1695 of the Civil Code provides as follows:
Should no agreement have been made with regard to the
form of management, the following rules shall be observed:
1 All the partners shall be considered as agents, and
whatever any one of them may do by himself shall bind the
partnership; but each one may oppose the act of the others
before they may have produced any legal effect.
One partner, therefore, is empowered to contract in the
name of the partnership only when the articles of
partnership make no provision for the management of the
partnership business. In the case at bar we think that the
articles of the Veteran Army of the Philippines do so
provide.
hey declare what the duties of the several officers are. In
these various provisions there is nothing said about the
power of making contracts, and that faculty is not expressly
given to any officer. We think that it was, therefore, reserved
to the department as a whole; that is, that in any case not
covered expressly by the rules prescribing the duties of the
officers, the department were present. It is hardly
conceivable that the members who formed this organization
should have had the intention of giving to any one of the
sixteen or more persons who composed the department the
power to make any contract relating to the society which
that particular officer saw fit to make, or that a contract
when so made without consultation with, or knowledge of
the other members of the department should bind it.
G.R. No. L-14832 January 28, 1961
NG CHO CIO ET AL., vs. NG DIONG, C. N. HODGES, ET
AL.,
FACTS:
Ng Diong et. al entered into a contract of general co-
partnership under the name NG CHIN BENG HERMANOS.
The partnership was to exist for a period of 10 years from
May 23, 1925 and Ng Diong was named as managing
partner. On May 10, 1935, the articles of co-partnership
were amended by extending its life to 16 years more to be
counted from May 23, 1925, or up to May 2.
When partnership was declared insolvent upon petition of
its creditors, Crispino Melocoton was elected as assignee.
As a consequence, the titles to the seven parcels of land
abovementioned were issued in his name as assignee. In
due time, the creditors filed their claims in said proceeding
which totalled P192,901.12.
The partners of the insolvent firm and Julian Go, who
acquired most of the claims of the creditors, filed a petition
with the insolvency court praying at the insolvency
proceedings be closed or terminated cause the composition
agreement the creditors had submitted relative to the
settlement of the claims. The court, acting favorably on the
petition, ordered, closure of the proceedings directing the
assignee to turn and reconvey all the properties of the
partnership back to the latter as required by law.
The indebtedness of the partnership to C. N. Hodges which
was the subject of the foreclosure proceedings in a
separate case. In order to pay off the same and raise
necessary funds to pay the other obligations of the
partnership, it was deemed proper and wise by Ng Diong,
who continued to be the manager of the partnership, to sell
all its properties mortgaged to Hodges in order that the
excess may be applied to the Payment of said other
obligations, and to that effect Ng Diong executed on a deed
of sale thereof in favor of Hodges.
ISSUE: WON the sale of Ng Diong to CN Hodges was
valid
RULING:
Since then partnership became, restored to its status quo. It
again reacquired its personality as such with Ng Diong as
its general manager. From that date on its properties
ceased to be in custodia legis. Such being the case, it is
obvious that when Ng Diong as manager of the partnership
sold the seven parcels of land to C. N. Hodges on by virtue
of a deed of sale, the properties were already was at liberty
to do what it may deem convenient and proper to protect its
interest. And acting accordingly, Ng Diong made the sale in
the exercise of the power granted to him by the partnership
in its articles of co-partnership. We do not, therefore, find
anything irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had
already expired, the question may be fixed: Who shall wind
up it business affairs? May its manager still execute the
sale of its properties to C. N. Hodges as was done by Ng
Diong? The answer to this question cannot but be in the were complied with. The articles of partnership were
affirmative because Ng Diong was still the managing recorded in the mercantile registry in the Province of Albay.
partner of the partnership and he had the necessary If it should be held that the contract made in this case did
authority to liquidate its affairs under its articles of co- not create an ordinary, general mercantile partnership we
partnership. (CFI) do not see how one could be created.
The claim of the appellees that Emilio Muñoz contributed
BEAS PART!!!! nothing to the partnership, either in property, money, or
industry, cannot be sustained. He contributed as much as
X did the other industrial partner, Rafael Naval, the difference
between the two being that Rafael Naval was entitled by the
X articles of agreement to a fixed salary of P2,500 as long as
he was in charge of the branch office established at Ligao.
X The argument of the appellees seems to be that, because
no yearly or monthly salary was assigned to Emilio Muñoz,
X he contributed nothing to the partnership and received
nothing from it. By the articles themselves he was to receive
X at the end of five years one-eighth of the profits. It cannot
be said, therefore, that he received nothing from the
X partnership. The fact that the receipt of this money was
postponed for five years is not important. Industrial partners,
by signing the articles, agree to contribute their work to the
CASE #3 - G.R. No. L-3704 December 12, 1907 partnership and article 138 of the Code of Commerce
LA COMPAÑIA MARITIMA vs. FRANCISCO MUÑOZ, prohibits them from engaging in other work except by the
ET AL. express consent of the partnership. With reference to civil
partnerships, section 1683 of the Civil Code relates to the
Facts: The plaintiff brought this action in the CFI against same manner.
the partnership of Franciso Muñoz & Sons, and against
Francisco Muñoz de Bustillo, Emilio Muñoz de Bustillo, and It is also said in the brief of the appellees that Emilio Muñoz
Rafael Naval to recover the sum of P26,828.30, with was entirely excluded from the management of the
interest and costs. In 1905, the defendants Francisco business. It rather should be said that he excluded himself
Muñoz, Emilio Muñoz, and Rafael Naval formed on ordinary from such management, for he signed the articles of
general mercantile partnership under the name of Francisco partnership by the terms of which the management was
Muñoz & Sons for the purpose of carrying on the mercantile expressly conferred by him and the others upon the persons
business in the Province of Albay which had formerly been therein named. Article 125 of the Code of Commerce
carried on by Francisco Muñoz. Francisco Muñoz was a requires them to state the partners to whom the
capitalist partner and Emilio Muñoz and Rafael Naval were management is intrusted. This right is recognized also in
industrial partners. article 132. In the case of Reyes vs. The Compania
Maritima (3 Phil. Rep., 519) the articles of association
Appellees claimed that it is not an ordinary, general provided that the directors for the first eight years should be
commercial partnership. In the articles of partnership signed certain persons named therein. This court not only held that
by the partners it is expressly stated that they have agreed such provision was valid but also held that those directors
to form, and do form, an ordinary, general mercantile could not be removed from office during the eight years,
partnership. The object of the partnership, as stated in the even by a majority vote of all the stockholders of the
articles, is a purely mercantile one and all the requirements company. Emilio Muñoz was, therefore, a general partner.
of the Code of Commerce in reference to such partnership
Issue: WON Emilio Munoz 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.
Whether or not an industrial partner in an ordinary,
general mercantile partnership liable to third persons
for the debts and obligations contracted by the
partnership.
Held: No. The article under consideration is Article 127 of
the Code of Commerce is as follows:
All the members of the general co-partnership, 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.
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, 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.
The court criticized the work of one Lorenzo Benito in 1889
(Lecciones de derecho mercantil) wherein he said that
industrial partners are not liable for debts. 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, therefore, 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.
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.
CASE #4 - G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO. vs. THE INSURANCE
COMMISSION and TRAVELLERS MULTI-INDEMNITY
CORPORATION
Facts: On April 19, 1975, Azucena Palomo obtained a loan
from Tai Tong Chuache Inc. in the amount of P100,000.00.
To secure the payment of the loan, a mortgage was
executed over the land and the building in favor of Tai Tong
Chuache & Co.
On April 25, 1975, Arsenio Chua, representative of Thai
Tong Chuache & Co. insured the latter's interest with
Travellers Multi-Indemnity Corporation for P100,000.00
(P70,000.00 for the building and P30,000.00 for the
contents thereof).
On June 11, 1975, Pedro Palomo secured a Fire Insurance
Policy No. F- 02500, covering the building for P50,000.00
with respondent Zenith Insurance Corporation. On July 16,
1975, another Fire Insurance Policy No. 8459 was procured
from respondent Philippine British Assurance Company,
covering the same building for P50,000.00 and the contents
thereof for P70,000.00.
On July 31, 1975, the building and the contents were totally
razed by fire.
Complainants were paid the following: P41,546.79 by
Philippine British Assurance Co., P11,877.14 by Zenith
Insurance Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers. Demand was made from respondent
Travellers Multi-Indemnity for its share in the loss but the
same was refused. Hence, complainants demanded from
the other three (3) respondents the balance of each share in
the loss based on the computation of the Adjustment
Standards Report excluding Travellers Multi-Indemnity in
the amount of P30,894.31 (P5,732.79-Zenith Insurance:
P22,294.62, Phil. British: and P2,866.90, SSS Accredited)
but the same was refused, hence, this action.
Travellers Insurance, on its part, admitted the issuance of
the Policy No. 599 DV and alleged as its special and
affirmative defenses the following, to wit: that Fire Policy
No. 599 DV, covering the furniture and building of
complainants was secured by a certain Arsenio Chua,
mortgage creditor, for the purpose of protecting his
mortgage credit against the complainants; that the said
policy was issued in the name of Azucena Palomo, only to
indicate that she owns the insured premises; that the policy
contains an endorsement in favor of Arsenio Chua as his
mortgage interest may appear to indicate that insured was
Arsenio Chua and the complainants; that the premium due
on said fire policy was paid by Arsenio Chua; that
respondent Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a
complaint in intervention claiming the proceeds of the fire
Insurance Policy No. F-559 DV, issued by respondent
Travellers Multi-Indemnity. Travellers Insurance, in answer
to the complaint in intervention, alleged that the Intervenor
is not entitled to indemnity under its Fire Insurance Policy
for lack of insurable interest before the loss of the insured
premises and that the complainants, spouses Pedro and
Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor. Furthermore, it alleged that
the action must be brought in the name of the real party in
interest.
Issue: Whether or not the contention of Travellers Multi-
Indemnity correct that Tai Tong Chuache is not entitled
to indemnity and that Chua was not a real party in
interest
Held: No. Respondent insurance company has the burden
of proof to show that petitioner has no insurable interest
over the insured property at the time the contingency took
place. However, as adverted to earlier, respondent
Insurance Commission absolved respondent insurance
company from liability on the basis of the certification issued
by the then CFI of Davao, Branch II, that in a certain civil
action against the Palomos, Arsenio Lopez Chua stands as
the complainant and not Tai Tong Chuache. From said
evidence respondent commission inferred that the credit
extended by herein petitioner to the Palomos secured by
the insured property must have been paid. Such is a glaring
error which this Court cannot sanction. Respondent
Commission's findings are based upon a mere inference.
Public respondent argues however, that if the civil case
really stemmed from the loan granted to Azucena Palomo
by petitioner the same should have been brought by Tai
Tong Chuache or by its representative in its own behalf.
From the above premise respondent concluded that the
obligation secured by the insured property must have been
paid.
The premise is correct but the conclusion is wrong. Citing
Rule 3, Sec. 2 10 respondent pointed out that the action
must be brought in the name of the real party in interest.
We agree. However, it should be borne in mind that
petitioner being a partnership may sue and be sued in
its name or by its duly authorized representative. The
fact that Arsenio Lopez Chua is the representative of
petitioner is not questioned. Petitioner's declaration that
Arsenio Lopez Chua acts as the managing partner of the
partnership was corroborated by respondent insurance
company. Thus, Chua as the managing partner of the
partnership may execute all acts of administration
including the right to sue debtors of the partnership in
case of their failure to pay their obligations when it
became due and demandable. Or at the very least, Chua
being a partner of petitioner Tai Tong Chuache & Company
is an agent of the partnership. Being an agent, it is
understood that he acted for and in behalf of the firm.
Public respondent's allegation that the civil case filed by
Arsenio Chua was in his capacity as personal creditor of
spouses Palomo has no basis.
CASE #5 - G.R. No. 1184; April 22, 1904
THE COMPAÑIA AGRICOLA DE ULTRAMAR v.
ANACLETO REYES, ET AL.
*dili main issue ang liability sa third person diri ata. Kay
segway lang ang topic about didto.
Facts: In 1902, the representative of the plaintiff, a
partnership legally organized in Madrid, Spain, domiciled in
the city of Manila, presented a complaint in the justice’s
court of the town of Quingua, Province of Bulacan, against
Anacleto Reyes and others, setting forth that the
defendants were tenants of the estate called Tabang, San
Marcos, and Dampol, the property of the plaintiff company,
located in the said town, each one of whom were occupying
the land without having paid the rent for the years 1899,
1900, and 1901, notwithstanding the fact that said payment
had been demanded several times at the end of each year.
Therefore the plaintiff company prayed that judgment be
rendered against said defendants, ordering them to vacate
the lands occupied by them and to restore the possession
thereof to the plaintiff.
Upon notice, the defendants appeared, with the exception
of the Chinaman Mariano Yniguez. The justice of the
peace, on the supposition that said plaintiff--company as a
commercial partnership, and subject to the provisions of the
Code of Commerce, and had not registered in the
commercial registry, denied the petition of the plaintiff.
On appeal, CFI of Bulacan rendered judgment confirming
the decision of the justice’s court of Quingua, and declared
the Compañia Agricola de Ultramar a commercial
partnership, and therefore that its registry in the commercial
register was necessary in order to appear in an action.
Plaintiff company prayed that the decision before mentioned
should be annulled. The judge declared that the Compañia
Agricola dle Ultramar was a civil partnership, to which are
applicable the provisions of the Code of Commerce in
conformity with article 1670 of the Civil Code, and that said
partnership should be registered in the commercial registry
before it could appear in an action against the defendants.
The plaintiff excepted to this judgment.
In the bill of exceptions appears the articles of incorporation
executed on the 6th of February, 1893, before a notary in
the court of Madrid, Spain, by various residents of the same
place, organizing a partnership, entitled Compañia Agricola
de Ultramar, which expressed the organization of the
partnership and its statutes, that the parties therein
organized a special civil partnership to exploit the
agricultural industry in the Philippine Islands and other
Spanish colonies, in accordance with the present Civil
Code.
In the bill of exceptions presented to this court by the
Compañia Agricola de Ultramar, it appears that the principal
object is to obtain a judicial declaration that the plaintiff
herein is a civil partnership, and is not therefore under the
obligation of registering in the commercial registry in order
to have juridical personality with the power to appear in an
action against the defendants.
We must therefore decide whether this plaintiff was a
mercantile or a civil corporation by the purposes declared in
its articles of association, and the law governing in such
cases. Mercantile associations, purely, are governed by the
mercantile code. Civil associations are governed by the Civil
Code.
The Commercial Code for the Philippines does not attempt
anywhere, as some other codes do, to define what are In the present case, the property was contributed and a
commercial transactions. In the absence of proof to the public instrument was duly executed before Manuel de
contrary, therefore, we must be governed as to the Bofarull, one of the most famous notaries of all Europe.
purposes of the association by the form adopted by its
organization and the purposes declared in its articles of Article 1670 provides that civil partnerships, on account of
association. the objects to which they are devoted, may adopt all the
forms recognized by the Commercial Code. In such cases
Issue: Whether or not an association is mercantile or civil its (Commercial Code) provisions shall be applicable in so
simply by the form of its organization. far as they do not conflict with the provisions of this code.
Ruling: No. The Commercial Code provides how It will be seen from this provision that whether or not
mercantile associations shall be organized. Article 116 partnerships shall adopt the forms provided for by the Civil
defines a commercial association and provides that — or Commercial Codes is left entirely to their discretion. And
furthermore, that such civil partnerships shall only be
"Articles of association by which two or more persons governed by the forms and provisions of the Commercial
obligate themselves to place in a common fund any Code when they expressly adopt them, and then only in so
property, industry, or any of these things, in order to obtain far as they (rules of the Commercial Code) do not conflict
profit, shall be commercial, no matter what its nature may with the provisions of the Civil Code. In this provision the
be, provided it has been established in accordance with the legislature expressly indicates that there may exist two
provisions of this code. classes of commercial associations, depending not upon
the business in which they are engaged but upon the
"After a commercial association has been established, it particular form adopted in their organization. The definition
shall have the right to operate as a juristic person in all its of the partnership found in article 1665 clearly includes
acts and contracts." associations organized for the purpose of gain growing out
of commercial transactions.
Article 122 provides that commercial associations may
become a general or limited co-partnership or a corporation, Articles 1671-1678 provide for general and particular
according to the particular form of the organization which it partnerships, and give the rules governing the division of
may adopt. the profits.
Article 1665 defines a partnership as follows: It will be seen from these provisions of the codes that
the Civil Code has expressly provided for the existence
"Partnership is a contract by which two or more persons of commercial associations, giving them juristic
bind themselves to contribute money, property, or industry personality and certain rights and privileges. In these
to a common fund, with the intention of dividing the profits provisions no reference is made to the provisions of
among themselves.” virtua1aw library the Commercial Code. It is contended that
notwithstanding this fact, such associations are
Article 1666 provides that such partnerships must have nevertheless governed by the provisions of the latter
lawful objects, and be established for the common interest code. The Commercial Code was enacted and went into
of all their members. effect on the 1st day of December, 1888. The Civil Code
was enacted and took effect on the 31st day of July,
Article 1667 provides that such partnerships may be 1889. Had it been the intention of the legislature to
established in any form whatever, except when real provide that all commercial associations, of whatever
property or property rights are contributed, in which case a class, should be governed by the provisions of the
public instrument shall be necessary. Commercial Code, it certainly would not have provided,
at a later date, other rules, rights, privileges, and
regulations. It is our opinion that associations
organized under the different codes are governed by
the provisions of the respective codes.
From the articles of association it will be seen that the
plaintiff company was organized expressly under the
provisions of the Civil Code, on the 6th day of February,
1893.
From the petition of the plaintiff and the bill of exceptions it
appears that the defendants failed and refused to pay the
rent for the years 1899, 1900, and 1901. It does not appear
whether or not the defendants had failed or refused to pay
the rent for any of the years previous to 1899. Assuming,
without finding it to be a fact, that the defendants had paid
the rent for previous years, then they thereby recognized
the plaintiff company as an entity and are thereby now
estopped from setting up the contrary.
While conditions precedent must always be performed,
in order that a corporation may have a legal existence,
it does not by any means follow that objection to the
existence of a corporation on this ground alone can be
raised by any and every person, and in every
proceeding. This objection can always, with few
exceptions, be raised by the State. (Attorney-General v.
Hanchett, 42 Mich., 436; People v. Water Co., 97 Cal., 276.)
Persons who assume to form a corporation or business
association, and exercise corporate functions, and
enter into business relations with third persons, are
estopped from denying that they constitute a
corporation. So also are the third persons who deal
with such a de facto association or corporation,
recognizing it as such and thereby incurring liabilities,
estopped, when an action is brought on such
obligations, from denying the juristic personality of
such corporations or associations. (Scheufler v. Grand
Lodge, 45 Minn., 256; Farmers’ Loan and Trust Co. v. Ann
Arbor Ry. Co., 67 Fed. Rep., 49.)
Where there is a corporation de facto, with no want of
legislative power to its due and legal existence, when it is
proceeding in the performance of a corporate function, and
third persons are dealing with it on the supposition that it is
what it professes to be, and the questions are only whether Facts: The plaintiff alleges that he entered into that contract
the law has been strictly followed in its organization, it is with the defendant company which the name of Manuel de
plainly a dictate alike of justice and public policy, that in Garay was made to appear as the tenant on shares for the
controversies between the de facto corporation and those sole purposes of satisfying the scruples of one of the
who have entered into contractual relations with it, as directors of the company, but with the understanding
corporations or otherwise, such questions should not be between the parties that the plaintiff was to be the real
suffered to be raised. (Swarthout v. Michigan, etc., Ry. Co., tenant on shares; that by virtue of that mutual
224 Mich., 390.) understanding, and in order to carry it into effect, he entered
with the defendant Manuel de Garay with the consent of the
Where a shareholder of an association is called upon to
representatives of the defendant company, into a contract in
respond to a liability as such, and where a party has
which the said Manuel de Garay admitted that he was
contracted with a corporation and issued upon the
contract, neither is permitted to deny the existence or merely a subordinate of the plaintiff, with a right to only 10
the legal validity of such corporation. To hold otherwise per cent of the plaintiff's share in the profits which as tenant
would be contrary to the plainest principles of reason he might receive from the Hacienda de Bucal, which the
and good faith. Parties must take the consequences of defendant had in Calamba, Laguna; and that, said
the position they assume. (Casey v. Galli, 94 U. S., 673; defendant Manuel de Garay, conniving with the defendant
Bliss on Code Pleading, secs. 252-254.) company, attempted to defraud him, claiming to be the true
tenant, for which reason he lost his right to the share
From the foregoing considerations, the provisions of the otherwise accruing to him under said contract.
articles of association of the plaintiff company, and the
quoted provisions of the Civil and Commercial Codes, we The defendant corporation denied Mendezona’s claims,
are justified in reaching the following alleging that the defendant company had not entered into
conclusions:chanrob1es virtual 1aw library any rental contract on shares with the plaintiff and that the
latter intervened in the work of cultivation of the Hacienda
First. That the plaintiff company had statutory authority to de Bucal as a mere attorney in fact of the defendant Manuel
organize under the Civil Code for the purposes indicated in de Garay, who was discharged from that place when the
its articles of association. company learned that the plaintiff had entered it in violation
of the rental contract on shares which the defendant Manuel
Second. That it did effect its organization under the Civil de Garay had with the defendant company.
Code in force in these Islands.
The plaintiff lays stress upon the alleged attitude of the
Third. The defendants having recognized the existence of president Miguel Garcia Grande and of the manager Jose
the plaintiff as an entity capable of dealing with private Ma. Suarez in consenting to the contract of partnership
persons, they are thereby estopped from denying that executed between the plaintiff Mendezona and the
fact. defendant Manuel de Garay, in which contract Manuel de
Garay was recognized as a mere subordinate of Secundino
Fourth. That the plaintiff company, having complied with the Mendezona.
forms required for the organization of associations of its
class under the Civil Code, is a juristic person recognized Issue: WON Mendezona was correct in alleging that
by law, and has capacity to maintain the present action. contract of partnership entered into between
Mendezona and De Garay indicates that the latter is a
subordinate/fictitious tenant.
CASE #6 - Mendezona v. Philippine Sugar Estates
Development Company, Ltd.
Ruling: No. With respect to this, it should be noted, in the
G.R. No. 13659, March 22, 1921
first place, that the contract of partnership between
Mendezona and De Garay contains no indication that
said Garay was a fictitious tenant; on the contrary, it is
stated therein that in order to effect the rental contract which
De Garay had executed with the defendant corporation, he
and Mendezona associated themselves, and in order that
Mendezona might supervise the work on the field, De Garay
gave him ample powers and recognized himself as a
subordinate of Mendezona. It here expressly appears that
the real tenant was De Garay, and that Mendezona was
a mere subordinate. That De Garay recognized
Mendezona as technician is perfectly compatible with the
proposition that De Garay was the real tenant, for although
Mendezona was the one to superintend the work in the
field, nevertheless, it appears in the same contract, that
Mendezona was a mere agent of De Garay and that the
latter was the tenant. The fact that De Garay was the
subordinate of Mendezona because of the nature of the
work which each had to do does not prove that De Garay
was not the tenant; and the fact that the company permitted
the services of Mendezona on the hacienda does not
prevent this conclusion, for it is proved that said company,
having no confidence that Mendezona would fulfill his
obligations to whom it would have to make advances in
great sums, it did not like to deal with him but with Manuel
de Garay, who, according to its information, was a person of
responsibility.
In the second place, it is hard to believe that said officers of
the corporation, if they had any intervention in this contract
between Mendezona and De Garay, should have made it to
be understood that the real tenant was Mendezona and not
De Garay, because the letter signed by president Garcia,
addressed to manager Suarez, read by Mendezona and
approved by Manuel de Garay, clearly states that the
hacienda was to be delivered to Manuel de Garay as
tenant. These two officers of the corporation had full
knowledge that the board of directors did not like to contract
with Mendezona and if it adjudicated the rental contract to
De Garay, it was merely because of the good information
which the company received as to him which was furnished
by the manager himself, and which must have brought to
their knowledge the fact that the board of directors wanted
to contract with De Garay and not with Mendezona; and
therefore it cannot be believed that, as they acted contrary
to the will of the board of directors, they had made it
understood that Mendezona was the real, and De Garay the
fictitious, tenant. But supposing that they had acted
against the will of the board, then their conduct does
not bind the corporation, because “The declarations of
an individual director relating to the affairs of the
corporation, but not made in the course of, or
connected with, the performance of the authorized
duties of such director, are held not binding on the
corporation. So, false statements made by a single
director, for the purpose of defrauding the creditors of
the corporation, including the corporation itself, could
not affect or bind it. The general rule is that officers of
corporations acting within the scope of their authority
may bind the corporation in the same way and to the
same extent as if they were the agents of natural
persons, unless the charter or by-laws otherwise
provide: They cannot, in general, bind the corporation
by acts in excess of the authority with which they are
clothed unless such acts are ratified. . . .” (Article 1818?)
Under these well-settled principles of law, whatever be the
nature of the acts performed by president Garcia Grande
and manager Suarez, they cannot prejudice the
corporation in the sense that it is estopped to deny that
they ever contracted with Mendezona, because said
officers, in executing such acts, acted outside of their
sphere of action and contrary to the resolutions of the
board of directors of the defendant corporation, the
terms of which are so clear and explicit as not to leave any
doubt that they wanted to enter into a contract with Manuel
de Garay and not with Secundino Mendezona.
CASE #7 - Benguet Consolidated Mining Co. v.
Pineda
G.R. No. L-7231, March 28, 1956
Facts: Petitioner was organized in 1903 as a sociedad
anonima under the Spanish Code of Commerce, then in
force in the Philippines. Under its articles of association,
Benguet was organized for a term of fifty (50) years. In
1906, Act 1459 or the Corporation Law was enacted,
establishing the American type of juridical entities known as
Corporation. The evident purpose of such enactment was to
introduce the American corporation into the Philippine
Islands as the standard commercial entity and to hasten the
day when the sociedad anonima of the Spanish Law would
be obsolete.
Under Section 75 of the Corporation Law, existing
sociedad anonimas were given the option to either
continue its business as such, or to reform and
reorganize under the said law. Further, Section 191 of
the same law provided that existing corporations or
sociedades anonimas which elect to continue as such
instead of reforming and reorganizing under said law,
shall continue to be governed by the laws that were in
force prior to the passage of the Act in relation to their
organization and method of transacting business and
to the rights of their members as among themselves,
but their relations to the public and public officials shall
be governed by the provisions of the Corporation Law.
In 1946, when the expiration of its original 50-year term
approached, petitioner amended its articles of association in
order to extend its business life for another 50 years.
However, the same was denied by the SEC upon advice of
the Secretary of Justice that such extension was contrary to
law. In the present appeal, Benguet contends that its right
to extend its existence as a sociedad anonimas under the
Spanish Code of Commerce is still operative, since it is “in
relation to their organization and method of transacting
business and to the rights of their members as among
themselves”, pursuant to the aforestated Section 191 of the
Corporation Law.
Issue: WON a sociedad anonima may still extend its
corporate existence as such, notwithstanding the
enactment of Act No. 1459 or the Corporation Law.
WON the period of corporate life relates to its
organization and the rights of its members inter se, and
not to its relations to the public or public official.
Ruling: No. The prohibition contained in section 18 of Act
No. 1459, against extending the period of corporate
existence by amendment of the original articles, was
intended to apply, and does apply, to sociedades anonimas,
already formed, organized and existing at the time of the
effectivity of the Corporation Law (Act 1459) in 1906.
The term of existence of association (partnership or
sociedad anonima) is coterminous with their
possession of an independent legal personality,
distinct from that of their component members. When
the period expires, the sociedad anonima loses the
power to deal and enter into further legal relations with
other persons. By the same token, its officers and
agents can no longer represent it after the expiration of
the life term prescribed, save for settling its business.
Necessarily, therefore, third persons or strangers have
an interest in knowing the duration of the juridical
personality of the sociedad anonima, since the latter
cannot be dealt with after that period; wherefore its
prolongation or cessation is a matter directly involving
the company's relations to the public at large. The State
and its officers also have an obvious interest in the term of
life of associations, since the conferment of juridical
capacity upon them during such period is a privilege that is
derived from statute.
Furthermore, the Court interpreted the prohibition under
Section 18 of the Corporation Law against extension of
corporate life by amendment of the original articles was
designed and intended to apply to existing “compañias
anonimas”. This conclusion is consistent with the policy of
the law to hasten the day when compañias anonimas would
be extinct, and replace them with the American type of
corporation (Harden vs. Benguet Consolidated Mining Co.),
for the indefinite prorogation of the corporate life of
sociedades anonimas would maintain the unnecessary
duality of organizational types, instead of reducing them into
a single one. To conclude otherwise would give these
sociedades anonimas, whose obsolescence was
sought, the advantageous privilege of perpetual
existence that the new corporations could not possess.
Therefore, the Court affirmed the order of the SEC
denying the extension of the existence of Benguet as a
sociedad anonimas.
CASE #8 - Ormachea Tin-Congco v. Trillana
G.R. No. 4776, March 18, 1909
Facts: Plaintiff Manuel Ormachea Tin-Congco and Luis
Vizmanos Ong Queco were engaged in business in
Hagonoy, Malolos. Defendant Santiago Trillana purchased
from them merchandise amounting to P4,000. The
partnership was later on dissolved and the business was
divided up between the partners and all the accounts and
debts belonging to defendant were allotted to plaintiff.
Plaintiff filed a complaint against defendant praying that he
be ordered to pay the amount plus interest which makes the
total debt to P5,500. The indebtedness was proven by
documents signed by defendant and his agents in favor of
the partnership or their agent named Lawa.
Defendant contended that he had already settled his
obligations by means of periodical payments in tuba or the
liquor of nipa palm. Defendant used as evidence the
document execute by Jose R. Lopez (Lawa), who used to
be the manager of the partnership, declaring that defendant
has no outstanding debt with the distillery which used to be
under his management. Lawa admitted that he executed
the document but because the latter was not indebted to
him but to Manuel Ormachea, to whom the credits standing
against Trillana was transferred.
After hearing the evidence presented by the parties, the
trial judge 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 co-partnership for the working
of the distillery of Luis Vizmanos and the late Chinaman
Manuel Ormachea.
Issue: WON Trillana’s liability to the partnership was
terminated because of the concurrence of its manager that
the former has no outstanding debt with the distillery.
Ruling: Article 1820. No. After the close of the business,
the management of which was entrusted to a certain
person, and after expiration of two years from the date of
his withdrawal, he could not legally issue a document of
warrant which would fatally exempt the debtor from the
payment of the debt existing in favor of the partner to
whom the credit claimed to have been extinguished
may belong, because he has no authority for such an
act. Therefore, an admission made by a partner who
was no longer a partner at the time of the declaration is continued to possess the property, improved it, and earned
not admissible in evidence against the partnership. income from it. He acquired exclusive rights over it when
Telesfora conveyed her interest to him. He sold the property
CASE #9 - Cristobal v. Gomez with pacto de retro to Bañas, redeemable within five years.
G.R. No. 27014, October 5, 1927
He was able to redeem such property.
Facts: This action was instituted in the CFI of the Province
Thereafter, Paulina and children filed action to recover
of Cavite by Paulina Cristobal, Luis Gomez, Josefa Gomez,
property from Marcelino. They claimed that the capital had
Paciencia Gomez and Jose Gomez, for the purpose of
been covered by the property’s income, hence, the same
recovering from Marcelino Gomez two parcels of land
should be returned to them. The lower court granted their
located in the sitio of Jabay, municipality of Bacoor,
petition. Marcelino appealed. Hence the present case.
Province of Cavite, and lot located in the town of Bacoor,
Cavite and for the purpose of compelling the defendant to
Issue: WON the Heirs of Epifanio entitled to recover the
pay to the plaintiffs the income received by him from said
property.
property since 1918. Upon hearing the cause the trial court
found that the property in question belongs to the plaintiffs,
Ruling: Yes. person who redeems property belonging to
as co-owners, and he therefore ordered the defendant to
another which has been sold under contract with pacto
surrender the property to them and execute an appropriate
de retro, with the understanding that the income of the
deed of transfer as well as to pay the costs of the
property shall be applied to the reimbursement of the
proceeding. From this judgment the defendant appealed.
capital, with interest, and other expenses incidental to
the administration of the property, until the whole shall
Epifanio Gomez owns two parcels of land located in the
be liquidated, whereupon the property shall be restored
Jabay, Municipality of Bacoor, Cavite and a lot located in
to the owner, occupies the position of trustee; and
town of Bacoor, Cavite. He sold the property with pacto de
when the purpose of such a trust has been
retro to Luis Yangco, redeemable in five years. The period
accomplished, the trustee is bound to surrender the
to redeem expired but Yangco extended it. Gomez
property to the owner or his successors.
approached Bibiano Bañas, a relative, to secure a loan. The
latter only agreed if Gomez’s brother Marcelino and sister
A trust constituted between two contracting parties for
Telesfora would also be responsible for the loan.
the benefit of a third person is not subject to the rules
governing donations of real property. The beneficiary of
Marcelino and Telesfora entered into a “private partnership
a trust may demand performance of the obligation
in participation” for the purpose of redeeming the property
without having formally accepted the benefit of the
from Yangco. Epifanio was present when said agreement
trust in a public document, upon mere acquiescence in
was discussed and assented to. The capital consisted of
the formation of the trust and under the second
₱7000, of which ₱1500 came from Marcelino, and ₱5500
paragraph of article 1257 of the Civil Code.
from Telesfora. The agreement provided that the property
redeemed will be placed in the name of Marcelino and
CASE #10 - Sison v. David
Telesfora, the income, rent, and produce of the property
G.R. No. L-11268, January 28, 1961
would go to the two and that the property shall be returned
to their brother as soon as the capital employed have been Facts: Margarita David executed a will constituting several
covered. legacies in favor of specified persons and naming her
grandnieces Narcisa de la Fuente de Teodoro and her
Subsequently, Epifanio Gomez died, leaving Paulina sister Priscilla de la Fuente de Sison — hereafter referred to
Cristobal and their four children. Marcelino Gomez as Mrs. Teodoro and Mrs. Sison, respectively — as heirs of
the residue of her estate, subject, however, to the condition
that, if Mrs. Teodoro and Mrs. Sison should die leaving no
descendants, the properties inherited by these sisters shall
pass one-half to the heirs of the father of the testatrix and
the other half to the heirs of her mother. Herein defendant
Gonzalo D. David is one of such heirs of the parents of
Margarita David. Subseuqently, Mrs. Teodoro and Mrs.
Sison were legally adopted by Margarita David as her
children. Soon later, Margarita David, donated to said
sisters practically the same properties bequeathed to them
in her aforementioned will. Upon the demise of Margarita
David, a special proceeding was instituted for the
settlement of her estate, and Jose Teodoro, Sr., was
originally appointed executor of the aforementioned will,
whereas Gonzalo D. David, who is a member of the Bar,
acted as his counsel. Subsequently, Mr. Teodoro and Mrs.
Sison extrajudicially partitioned among themselves the
properties bequeathed and donated to them by Margarita
David. Plaintiff herein, Carlos Moran Sison, is the husband
of Mrs. Sison.
It turned, however, that said properties were assigned by
Mrs. Sison to Priscila Estate, Inc. — a corporation
organized on that date by her and plaintiff herein, aside —
in exchange for shares of stock thereof. Hence, said
corporation filed an "Urgent Petition Ex-Parte" to lift
defendant's adverse claim, insofar as one of the
abovementioned properties upon the ground that said
property belonged already to the corporation which wanted
to sell it, and that there were other properties of the estate
of Margarita David which sufficed to answer for said
adverse claim. The motion was granted. Thereafter,
defendant herein filed in said cadastral proceedings, on his
behalf and that of Jose Teodoro, Sr., a "Petition for Bond",
praying that the sale of the property at Sto. Cristo street be
disapproved "and/or a bond of P12,000 be forthwith
furnished" by the Priscila Estate, Inc. In support of this
petition. Movants herein object to the urgent petition ex
parte on the ground that the property to be sold herein is
one of the few properties inherited from Da. Margarita David
which is not encumbered, because practically all of the
properties of the heiress Priscila F. de Sison are
mortgaged, and the Priscila Estate, Inc., is operating on an
overdraft, which is the reason why these properties are to
be sold; and that the reason there is an overdraft is that
new buildings or improvements have been made as
conjugal properties of Carlos Sison and Priscila de la
Fuente, and now, the paraphernal properties inherited from
Da. Margarita David is being sold to pay for the obligations
of these conjugal properties”
Plaintiff alleged that the averment was made with malice
and evident intent to put him in ridicule, for defendant knew
him (plaintiff) to be the president of Priscila Estate, Inc. and,
by the statements contained in said paragraph, the
defendant, "in effect, implied with clear malevolence and
malignity that plaintiff is incompetent and unfit to manage
the affairs of the Priscila Estate, Inc.
Issue: WON defendant’s allegations is without merit.
Ruling: No. At any rate, the allegations in question in
defendant's petition for bond were neither malicious nor
unfounded. Thus, it is a fact that most, or at least, several of
the most valuable properties transmitted by Margarita David
to Mrs. Sison were mortgaged. Those subsequently
assigned by Mrs. Sison to Priscila Estate, Inc. were
encumbered altogether for P397,717.00. In order to
construct the Priscila Building No. 3 on a paraphernal land
of Mrs. Sison, it had been necessary to borrow ONE
MILLION PESOS (P1,000,000.00) from the RFC. The
Priscila Estate, Inc., of which plaintiff is the president, began
its operations with an overdraft line of P236,517.00. Most of
the paraphernal properties of Mrs. Sison were transferred to
said corporation. In fact, the same asked that the
annotation, on the certificate of title of one of those
properties, of the adverse claims of the defendant and Jose
Teodoro Sr., be cancelled, upon the ground that said
property now belongs to the corporation, not to Mrs. Sison.
What is more, plaintiff and his wife organized a corporation,
entitled CMS Estate, Inc., to which some properties of
Priscila Estate, Inc. (most of which had been originally
inherited by Mrs. Sison from Margarita David) were
transferred. The CMS Estate, Inc. had a capital stock of one
million pesos (P1,000,000.00), divided into 1,000 shares of
the par value of P1,000 each, of which 950 non- voting
preferred shares, and 50 are common voting shares. All of
these common voting shares, in addition to 50 non-voting
preferred shares, were subscribed by the plaintiff, whereas
his wife had 96 non-voting preferred shares and no
common shares. Four (4) other persons had each a
nominal holding of one (1) non-voting preferred share. As
the sole holder of all the voting common shares,
plaintiff had absolute, exclusive and permanent control
over the management of this new corporation. In fact,
the letters "CMS", which are the initials of his name,
Carlos Moran Sison, appear in the corporate name
"CMS Estate, Inc.," for the seeming purpose of
representing to the public that plaintiff was, for all
intents and purposes, the corporation itself.
CASE #11 - G.R. No. 118585 September 14, 1995
AJAX MARKETING & DEVELOPMENT
CORPORATION, ANTONIO TAN, ELISA TAN, TAN
YEE, and SPS. MARCIAL SEE and LILIAN
TAN, petitioners, vs. HON. COURT OF APPEALS,
METROPOLITAN BANK AND TRUST COMPANY, and
THE SHERIFF OF MANILA, respondents.
FACTS: Public respondent CA affirmed the trial court's
judgment upholding the validity of the extra-judicial
foreclosure of the real estate property of petitioners —
spouses Marcial See and Lilian Tan, located at Paco
District, Manila by private respondent Metrobank.
The partnership (Ajax Marketing Company) which was later
on converted into a corporation denominated as Ajax
Marketing and Development Corporation, with the original
partners (Angelita Rodriguez and Antonio Tan) as
incorporators and three (3) additional incorporators, namely,
Elisa Tan, the wife of Antonio Tan, and Jose San Diego and
Tessie San Diego. Ajax Marketing and Development
Corporation obtained from Metropolitan Bank and Trust
Company a loan of P600,000.00 and two other loans, the
payment of which was secured by a real estate mortgage
executed by spouses Marcial See and Lilian Tan in favor of
said bank over the same realty located in the District of
Paco, Manila. The real estate mortgage was annotated at
the back of TCT No. 105233.
In December 1980, the three (3) loans with an aggregate
amount of P1,000,000.00 were re-structured and
consolidated into one (1) loan and Ajax Marketing and
Development Corporation, represented by Antonio Tan as
Board Chairman/President and in his personal capacity as
solidary co-obligor, and Elisa Tan as Vice-
President/Treasurer and in her personal capacity as
solidary co-obligor, executed a Promissory Note (PN) No.
BDS-3605.
Petitioners argue that a novation occurred when there was
a change, or substitution in the persons of either the
creditor (Metrobank) or more specifically the debtors
(petitioners) upon the consolidation of the loans in PN No.
BDS 3605 and upon the conversion from a partnership to a
corporation.
ISSUE: Whether or not the obligation is extinguished by
novation?
RULING: No, the obligation is not extinguished because
there was no novation that occurred.
Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a
subsequent one which extinguishes or modifies the
first, either by changing the object or principal
conditions, or by substituting another in place of the
debtor, or by subrogating a third person in the rights of
the creditor. Novation, unlike other modes of extinction of
obligations, is a juridical act with a dual function, namely, it
extinguishes an obligation and creates a new one in lieu of
the old. It can be objective, subjective, or mixed. Objective
novation occurs when there is a change of the object or
principal conditions of an existing obligation while
subjective novation occurs when there is a change of
either the person of the debtor, or of the creditor in an
existing obligation. When the change of the object or
principal conditions of an obligation occurs at the same
time with the change of either in the person of the
debtor or creditor a mixed novation occurs.
The well settled rule is that novation is never
presumed. Novation will not be allowed unless it is
clearly shown by express agreement, or by acts of
equal import. Thus, to effect an objective novation it is
imperative that the new obligation expressly declare that the
old obligation is thereby extinguished, or that the new
obligation be on every point incompatible with the new one.
Neither can it be validly contended that there was a
change, or substitution in the persons of either the
creditor (Metrobank) or more specifically the debtors
(petitioners) upon the consolidation of the loans in PN
No. BDS 3605. The bare fact of petitioners' conversion
from a partnership to a corporation, without sufficient
evidence, either testimonial or documentary, that they
were expressly released from their obligations, did not
make petitioner AJAX, with its new corporate
personality, a third person or new debtor within the
context of a subjective novation. If at all, petitioner AJAX
only became a co-debtor or surety. Without express
release of the debtor from the obligation, any third
party who may thereafter assume the obligation shall
be considered merely as co-debtor or surety. Novation
arising from a purported change in the person of the debtor
must be clear and express because, to repeat, it is never
presumed. Clearly then, from the aforediscussed points,
neither objective nor subjective novation occurred here.
CASE #12 - G.R. No. 163720             December 16,
2004
GENEVIEVE LIM, petitioner, vs. FLORENCIO
SABAN, respondents.
Facts: The late Ybañez, owner of a lot in Cebu City,
entered into an Agency Agreement with respondent in
1994. Under the Agreement, Ybañez authorized Saban to
look for a buyer of the lot and to mark up the selling price to
include the amounts needed for payment of taxes, transfer
of title and other expenses incident to the sale, as well as
Saban’s commission for the sale.
Through Saban’s efforts, the lot was sold to the petitioner
and the spouses Lim in 1994. After the sale, Lim remitted to
Saban the amounts for payment of taxes due on the
transaction as well as broker’s commission.  Lim also issued
in the name of Saban four post-dated checks. In a letter,
Ybañez asked Lim to cancel all the checks issued by her in
Saban’s favor and to "extend another partial payment" for
the lot in his favor.
After the four checks in his favor were dishonored upon
presentment, Saban filed a Complaint for collection of sum
of money and damages against Ybañez and Lim. In
his Answer, Ybañez claimed that Saban was not entitled to
any commission because he concealed the actual selling
price from him and because he was not a licensed real
estate broker.
RTC dismissed Saban’s complaint. Saban appealed to the
CA. The appellate court reversed the trial court’s ruling. It
held that Saban was entitled to his commission. The CA
ruled that Ybañez’s revocation of his contract of agency with
Saban was invalid because the agency was coupled with an
interest and Ybañez effected the revocation in bad faith in
order to deprive Saban of his commission and to keep the
profits for himself.
Issue: Whether or not Saban is entitled to receive his
commission from the sale; and, assuming that Saban is
entitled thereto, whether or not it is Lim who is liable to
pay Saban his sales commission.
Ruling: Yes. The agency was not revoked since Ybañez
requested that Lim make stop payment orders for the
checks payable to Saban only after the consummation of
the sale. At that time, Saban had already performed his
obligation as Ybañez’s agent when, through his efforts,
Ybañez executed the Deed of Absolute Sale of the lot with
Lim and the Spouses Lim. To deprive Saban of his
commission subsequent to the sale which was
consummated through his efforts would be a breach of his
contract of agency with Ybañez which expressly states that
Saban would be entitled to any excess in the purchase
price.
In Macondray & Co. v. Sellner, the Court held that it
would be in the height of injustice to permit the
principal to terminate the contract of agency to the
prejudice of the broker when he had already reaped the
benefits of the broker’s efforts. In Infante v. Cunanan, et
al., the Court ruled that the seller’s withdrawal in bad
faith of the brokers’ authority cannot unjustly deprive
the brokers of their commissions as the seller’s duly
constituted agents.
Applying to the present case, Saban had completely
performed his obligations under his contract of agency with
Ybañez by finding a suitable buyer to preparing the Deed of
Absolute Sale between Ybañez and Lim and her co-
vendees. Moreover, the contract of agency very clearly
states that Saban is entitled to the excess of the mark-up of
the price of the lot after deducting Ybañez’s share and the
taxes and other incidental expenses of the sale.
Saban’s right to receive compensation for negotiating
as broker for Ybañez arises from the Agency
Agreement between them. Lim is not a party to the
contract. However, the record reveals that she had
knowledge of the fact that Ybañez set the price of the lot
at P200,000.00 and that the P600,000.00—the price agreed
upon by her and Saban—was more than the amount set by
Ybañez because it included the amount for payment of
taxes and for Saban’s commission as broker for Ybañez.
Lim’s act of issuing the four checks amounting in Saban’s
favor belies her claim that she and her co-vendees did not
agree to purchase the lot at P600,000.00. The only logical
conclusion is that Lim changed her mind about agreeing to
purchase the lot at P600,000.00 after talking to Ybañez and
ultimately realizing that Saban’s commission is even more
than what Ybañez received as his share of the purchase
price as vendor. Obviously, this change of mind resulted to
the prejudice of Saban whose efforts led to the completion
of the sale between the latter, and Lim and her co-vendees.
This the Court cannot countenance.
The appellate court therefore had sufficient basis for
concluding that Ybañez and Lim connived to deprive Saban
of his commission by dealing with each other directly and
reducing the purchase price of the lot and leaving nothing to
compensate Saban for his efforts. Considering the
circumstances surrounding the case, and the undisputed
fact that Lim had not yet paid the balance of the purchase
price, it is just and proper for her to pay Saban the balance
of P200,000.00.
CASE #13 - G.R. No. 213054, June 15, 2016
TERESITA TAN, Petitioner, v. JOVENCIO F. CINCO,
SIMON LORI HOLDINGS, INC., PENTACAPITAL
INVESTMENT CORPORATION, FORTUNATO G. PE,
RAYMUNDO G. PE, JOSE REVILLA REYES, JR., AND
DEPUTY SHERIFF ROMMEL IGNACIO, Respondents.
Facts: In 2001, respondents extended a loan to one Dante
Tan in the amount of P50,000,000.00. The loan was
facilitated by PentaCapital Investment Corporation and was
secured by Dante's shares in Best World Resources
Corporation. When Dante failed to pay the loan upon
maturity, he proposed to settle the same by selling his
shares in BWRC and assigning the proceeds to SLHI, the
individual lenders, and PentaCapital.
Dante disappeared, leaving his obligations unpaid. Hence,
respondents filed an action for sum of money against him.
Makati RTC ordered Dante to pay respondents the sum of
P100,100,000.00. Deputy Sheriff Ignacio levied on a
property registered in Dante's name. An auction sale was
then conducted. Consequently, Dante sought the quashal of
the writ by presenting an affidavit executed by his wife,
herein petitioner attesting to the conjugal nature of the
subject property. Meanwhile, the period to redeem the
subject property lapsed without redemption having been
made.
Dante filed an Omnibus Motion alleging that the subject
property was a family home and therefore, exempt from
execution, and that being a conjugal property, it cannot be
made to answer for his personal obligations without any
showing that it had redounded to the benefit of the family.
The Makati RTC denied the Motion, ruling that Dante had
belatedly raised the issues respecting the conjugal nature of
the subject property. Moreover, he had contracted the
obligation while engaged in his business; hence, it can be
presumed that the conjugal partnership was benefited.
Dante's MR was denied.
In 2007, petitioner filed before the Parañaque RTC a
complaint against respondents, Sheriff Ignacio, and the
Register of Deeds of Parañaque City, for the nullification of
the auction sale and the cancellation of the certificate of
sale issued in favor of respondents.
Parañaque RTC initially dismissed the nullification
case. However, upon Teresita's MR, the Parañaque RTC
reversed its initial disposition and instead, nullified the
auction sale, the certificate of sale, and the Final Deed of
Sale in favor of respondents. It held that Teresita was
considered a third party in the collection case before the
Makati RTC, not having been impleaded therein together
with her husband Dante, and that the submission of her
Affidavit before the Makati RTC did not make her a party to
the said case.
Respondents' MR was denied. Aggrieved, respondents filed
a petition for certiorari before the CA. CA granted the
petition and directed the Parañaque RTC to allow
respondents' Notice of Appeal. 
Issue: Whether or not the Parañaque RTC violated the
doctrine of judicial stability when it took cognizance of
the nullification case filed by Teresita and declared as
null and void the auction sale, the certificate of sale,
and the Final Deed of Sale in favor of respondents.
Ruling: Yes. The doctrine of judicial stability or non-
interference in the regular orders or judgments of a co-equal
court is an elementary principle in the administration of
justice: no court can interfere by injunction with the
judgments or orders of another court of concurrent
jurisdiction having the power to grant the relief sought by
the injunction. The rationale for the rule is founded on the
concept of jurisdiction: a court that acquires jurisdiction
over the case and renders judgment therein has
jurisdiction over its judgment, to the exclusion of all
other coordinate courts, for its execution and over all
its incidents, and to control, in furtherance of justice,
the conduct of ministerial officers acting in connection
with this judgment.
In this case, Court finds that the Parañaque RTC violated
the doctrine of judicial stability when it took cognizance of
Teresita's nullification case despite the fact that the
collection case from which it emanated falls within the
jurisdiction of the Makati RTC. Verily, the nullification case
ought to have been dismissed at the outset for lack of
jurisdiction, as the Parañaque RTC is bereft of authority to
nullify the levy and sale of the subject property that was
legitimately ordered by the Makati RTC, a coordinate and
co-equal court. In fact, the Parañaque RTC was already on
the right track when it initially dismissed the nullification
case. However, it changed its stance and reconsidered its
disposition upon Teresita's MR, thereby committing
reversible error. To reiterate, the determination of
whether or not the levy and sale of a property in the
execution of a judgment was valid properly falls within
the jurisdiction of the court that rendered the judgment
and issued the writ of execution.
Thus, Teresita's nullification case filed before the
Parañaque RTC was improper and in glaring violation of the
doctrine of judicial stability. The judgment rendered by the
Makati RTC in the collection case, as well as the execution
thereof, and all other incidents arising therefrom, may not
be interfered with by the Parañaque RTC.
A judgment rendered by a court without jurisdiction is
null and void and may be attacked anytime. It creates
no rights and produces no effect. It remains a basic fact
in law that the choice of the proper forum is crucial, as
the decision of a court or tribunal without jurisdiction is
a total nullity. A void judgment for want of jurisdiction
is no judgment at all. All acts performed pursuant to it
and all claims emanating from it have no legal effect.
CASE #14 - G.R. No. 1133. March 29, 1904.
RAFAEL REYES ET AL., Plaintiffs-Appellees, v. THE
COMPAÑIA MARITIMA, a corporation, Defendant-
Appellant.
Facts: In 1895, in the city of Manila, there were five
steamship companies, represented respectively by Messrs.
Aldecoa & Co., and Francisco L. Roxas, and by the
plaintiffs, Don Rafael Reyes and Don Francisco Reyes.
These companies owned among others the steamships.
The partners or stockholders of these firms having received
to pool their respective interests in the said steamers for the
purpose of forming an anonymous partnership or
corporation under the name of "Compañia Maritima,", they
executed a public instrument by which they organized the
said company for a term of twenty years, with a capital of
2,500,000 pesos, divided into 5,000 nominal shares of the
par value of 500 pesos each. Part of this capital, up to the
sum of 1,508,000 pesos, represented the estimated value
of the said steamers which the parties to the agreement in
question contributed to the new company, transferring to it
the ownership of the vessels to the extent of their respective
participation therein and receiving in payment therefor
3,600 shares of the 5,000 which represented the entire
capital stock. The plaintiffs were among the founders of the
Compania Maritima. Don Rafael Reyes contributed the
steamers Luzon and Salvadora, and steamer España. Don
Francisco Reyes contributed his interest in the steamers
Castellano, Nuestra Señora del Rosario, Nuestra Señora
del Carmen, and España. The company was organized
subject to the terms and conditions included in its articles of
incorporation, By virtue of this appointment made in the fifth
transitory provision, the plaintiffs at once became directors
of the Compania Maritima, together with the three other
gentlemen named therein.
In a general meeting of shareholders, it was resolved to add
one more director to the five already in office, and to confer
upon him the powers of the general administrator of the
company. Mr. Macleod was appointed to this office. Another
general meeting of shareholders was held. In this meeting it
was resolved (1) to reduce to five the number of directors,
one of them to act as administrator or manger of the
company; (2) to reduce to 1 per cent of the total receipts the
compensation to be paid the board of directors, the sum to
be divided among the five directors in equal parts; (3) to
eliminate all the transitory provisions inserted at the end of
the general articles of the company; and (4) to immediately
remove from office the gentlemen who at that time
composed the board of directors of the company.
This resolution was passed by a majority vote. The plaintiffs
voted against it, and the minutes show a protest made by
Don Rafael Reyes to the effect that he would not assume
any of the responsibility which might devolve upon the
company by reason of the said resolution.
In consequence of the resolution to remove the gentlemen
who at the time composed the board of directors, a vote
was immediately taken for the election of those who were to
succeed them in the office. The vote resulted in the
appointment as directors of Messrs. Aldecoa & Co.,
Macleod & Co. Echeita & Portuonado, Ynchausti & Co., and
Don Juan T. Macleod, the latter to be also the manager of
the company. The result was that two years and a month
after the plaintiffs had been appointed to the office of
directors of the company, which office they were to hold for
a term of eight years, they were removed therefrom.
The plaintiffs brought this action in the CFI. The court
considered that the principal question at issue was whether
the plaintiffs were entitled to compel the company to respect
and maintain their appointments during the said period of
time in conformity with the terms of the transitory provisions.
The court decided in favor of the plaintiffs and rendered
judgment against the Compania Maritima for the payment of
the amount demanded in the complaint, and the cost of suit.
The court based his decision in part upon the conclusion
that the transitory provisions referred to constituted a lawful
and binding agreement between the parties who executed
the articles of incorporation of the Compania Maritima, and
also between the plaintiffs and the company, and that they
could not therefore be altered without the consent of all
concerned.
The appellant company contends that the judgment of the
court below is contrary to the provisions of articles 117 and
122, paragraph 3, and article 151 of the Code of Commerce
in force in the Philippines.
Article 117 reads as follows: "The contract of a mercantile
partnership, entered into with the essential legal requisites,
shall be valid and binding upon the parties thereto,
whatever may be the form, conditions, and lawful and
honest combinations subject to which the contract is
entered into, provided they are not expressly prohibited in
this code."
Issue: Whether or not the plaintiffs were entitled to
compel the company to respect and maintain their
appointments during the said period of time in
conformity with the terms of the transitory provisions
Ruling: No. It does not disregard the validity of the contract
of partnership by which the Compania Maritima was
created. On the contrary, the judgment is based upon the
assumption that it was a valid and binding contract, and
declares that the transitory provisions included in the
articles of incorporation of the company are valid and
binding upon those who took part in the execution of that
contract, and upon the defendant company itself. Nor is the
judgment contrary to the provisions of paragraph 3 of article
122. According to this theory the removal of a director is an
act which is wholly discretionary and which may be
performed at any time by the company by which he may
have been appointed.
The removability of managers and anonymous
partnerships or corporations is not a new principle in
the law merchant. Article 265 of this code provided that
such administrators might be removed "at the will of
the partners." Notwithstanding the breadth of the
wording of the law — which by the way has been
stricken from the text of article 122 of the present code
— it has never been considered that the partners could
remove the administrators at their caprice, whenever
they might see fit do so; it has always been considered
necessary that there should be some lawful cause
justifying the removal.
"As provided in article 265 of the Code of Commerce (of
1829), the administrators of the anonymous stock
companies are removable at the will of the partners
when there are just and legal grounds for removal, or in
accordance with whatever may have been agreed upon
in this respect in the articles of the company."
This provision, which to a certain extent was an explanation
of the true legal meaning of the removability of the
administrators of anonymous partnerships or corporations,
is in itself sufficient to show that the power vested in the
shareholders to remove such administrators from office is
not and should not be considered as being omnipotent and
arbitrary, but limited solely to cases in which some cause
for removal exists.
Article 283 of the Code of Commerce is explicit upon this
point. "The manager," it says, "of a manufacturing
establishment or commercial concern, authorized to
manage it and to make contracts connected therewith with
such limited or extended powers as the owner may have
seen fit to confer upon him [and this is unquestionably the
status of the directors or administrators of anonymous
partnerships] shall be regarded in law as a factor, and shall
be subject to the provisions contained in this section."
In accordance with the provisions of articles 299 to 302,
inclusive, contained in the section above cited, a factor
whose contract with his principal has been made for a
fixed period cannot without just cause be discharged
before the expiration of the term agreed upon, under
penalty, in case of wrongful discharged, of payment by
the principal to him of such damage as he may have
suffered thereby. For the reasons which we have stated
we consider this provision applicable to managing directors
of anonymous partnerships or corporations, and
consequently we hold that they can ot be removed before
the expiration of the period for which they appointed without
just cause therefor. There is no reason for considering such
administrators as less advantageously situated them are
factors, in view of the analogy existing between them, which
we have demonstrated.
The Compañia Maritima, as appears from its answer
passed a resolution which resulted in the removal of the
plaintiffs from the offices as directors of the company before
the expiration of the agreed period of eight years. There is
no proof of any other ground which might have justified the
removal, nor is it even alleged. The only reason was one of
convenience. It is very obvious that the mere
convenience of one of the contracting parties is not and
cannot be a just cause for the rescission of the
contractual obligations assumed in favor of the other,
and the premature removal of the plaintiffs from their
office was in effect a rescission of the contract.
Nor is the judgment appealed in conflict with article 151 of
the Code of Commerce. The submission of the vote of the
majority of the stockholders in general meeting provided by
that article is limited solely to such matters as may be
proper for the deliberation of that meeting, and the limitation
is expressly stated in the article cited.
The defendant company alleges that the removal of the
plaintiffs was merely a consequence of the modification of
the articles of the company resolved by the general meeting
of shareholders. Assuming the existence of this power, We
cannot assent to this interpretation. The shareholders of
an anonymous company or corporation could not, for
example, resolve by a majority vote that it should be
changed into a general partnership and bind the
minority to submit to such a resolution which, by
making them general partners, would necessarily result
in increasing their liability for the company debts. Nor
could such a majority, against the will of the minority,
change the principal purpose for which the company
was formed, as, for instance, by investing in mining
operations the capital of the company, which,
according to the second of the articles of incorporation
in this case, was to be used exclusively for purchasing
and chartering vessels, in writing marine insurance,
and entering into other contracts and business
operations proper to maritime commerce.
The reason for this is that in every contracts of
partnership there is always something fundamental and
unalterable which is beyond the power of the majority,
and which, constituting the rule controlling their
resolutions, prevents the will of the greater number
from becoming the absolute arbiter of the interests of
the minority. Without this necessary limitation the power of
members in anonymous partnerships, which to a certain
extent it may be said that numbers are everything, would be
absolute and irresistible, and might easily degenerate into
an arbitrary tyranny. The minority would be completely
wiped out and their rights would be wholly at the mercy of
the abuses of the majority, for they would have no means
whatever of defending themselves against its impositions if
the resolutions of the majority, as contended for by the
appellant, were in every case to be binding, even though
manifestly unjust and injurious to the interests of the
minority. This rule, which must be observed, this limit which
cannot be passed by the mere will of the majority and upon
which it acts as a veto, is to be found in the essential
compacts of the partnership which have served as a basis
upon which the members have united and without which it is
not probable that they would have entered the association.
The judgment of the supreme court of Spain of June 30,
1888, cited by the court in its decision, fully confirms the
doctrine expressed by declaring that in order that
"resolutions passed by a general meeting of
stockholders be valid and binding upon dissenting
members, it is an indispensable requisite that they
conform absolutely to the compacts and conditions of
the articles of association, which are to be strictly
construed."
As the court below correctly stated: "It is to be supposed
that the defendants contributed their vessels in
consideration of the benefits conceded to them by the
articles of association, and that without these benefits they
would not have become partners, nor would they have
contributed their vessels to the enterprise. No one can
complain of the appointment of administrators during the
first period of eight years, for this was the agreement
between the founders of the company, which was assented
to by those who subsequently became interested therein."
From this it follows that the judgment below is not in conflict
with the articles of association of the Compania Maritima, or
of it articles or resolutions legally passed, as alleged by the
appellant, in the second assignment of error.
CASE #15 - G.R. No. 70403 July 7, 1989
SANTIAGO SYJUCO, INC., petitioner, vs. HON. JOSE
P. CASTRO, AS PRESIDING JUDGE OF THE
REGIONAL TRIAL COURT OF THE NATIONAL
CAPITAL JUDICIAL REGION, BRANCH LXXXV,
QUEZON CITY et. al, respondents.
Facts: In 1964, Eugenio Lim, the widow Maria Moreno (now
deceased) and together with his other brothers, and his
sister, all hereinafter collectively called the Lim’s, borrowed
from petitioner the sum of P800,000.00. The loan was given
on the security of a first mortgage on property registered in
the names of said borrowers as owners in common.
Thereafter additional loans on the same security were
obtained by the Lim’s from Syjuco.
Lim’s failed to pay it despite demands therefore; that Syjuco
consequently caused extra-judicial proceedings for the
foreclosure of the mortgage. To stop the foreclosure, the
Lim’s filed in the CFI of Manila. They alleged that their
mortgage was void. An order restraining the auction sale
was issued two days later. CFI rendered judgment finding
that usury tainted the mortgage without, however, rendering
it void, declaring the amount due to be only Pl,136,235.00
and allowing the foreclosure to proceed for satisfaction of
the obligation.
Thereafter, and on the basis of the additional evidence
adduced by Syjuco, the Trial Court reversing its previous
holding that usury had flawed the Lims' loan obligation.
Syjuco then resumed its efforts to proceed with the
foreclosure. It caused the auction sale of the mortgaged
property, only to be frustrated again by another action filed
by the Lims.
That very same claim — that there had been no
republication of the notice of sale, which was the foundation
of the Lims' action, the judgement authorizing the
foreclosure had been affirmed by both the Court of
Appeals and this Court, and had become final and
executory. And that motion sought exactly the same remedy
prayed, i.e., the prevention of the auction sale. The decision
consequently decreed that the Sheriff of Manila should
proceed with the mortgage sale, there being no further
impediment thereto. Notice of the decision was served on
the Lims. MR was filed, but the same was denied.
The Lims caused the filing with the RTC of Quezon City of
still another action to preclude enforcement of the mortgage
held by Syjuco. This time the complaint was presented, not
in their individual names, but in the name of a partnership of
which they themselves were the only partners: "Heirs of
Hugo Lim." The complaint advocated the theory that the
mortgage which they, together with their mother, had
individually constituted over lands standing in their names in
the Property Registry as owners pro indiviso, in fact no
longer belonged to them at that time, having been earlier
deeded over by them to the partnership, "Heirs of Hugo
Lim", hence, said mortgage was void because executed by
them without authority from the partnership.
Atty. Canlas filed an ex-parte motion to declare Syjuco in
default. Judgment by default was rendered, declaring void
the mortgage in question because executed by the Lims
without authority from the partnership which was and had
been since March 30,1959 the exclusive owner of the
mortgaged property, and making permanent an injunction
against the foreclosure sale that had issued on January
14,1983. Unaccountably, when the motion to declare
defendant Syjuco in default was filed-the case was
afterwards allowed by Atty. Canlas to remain dormant for
seventeen (17) months. He made no effort to have the
judgment executed, or to avail of it in other actions instituted
by him against Syjuco.
While the Lims, through their partnership ("Heirs of Hugo
Lim"), were prosecuting their action in the sala of Judge
Castro, Syjuco once again tried to proceed with the
foreclosure after entry of judgment had been made. It
scheduled the auction sale on. But once again it was
frustrated. Another obstacle was put up by the Lims and
their counsel, Atty. Canlas.
Syjuco once more resumed its efforts to effect the mortgage
sale which had already been stymied for more than fifteen
(15) years. At its instance, the sheriff once again set a date
for the auction sale. But on the date of the sale, a letter of
Atty. Canlas was handed to the sheriff drawing attention to
the permanent injunction of the sale. Judge Castro had on
July 16, 1984 granted Atty. Canlas' motion to declare
cancelled the titles to the Lims' mortgaged properties and
as nun and void the annotation of the mortgage and its
amendments on said titles, and to direct the Register of
Deeds of Manila to issue new titles, in lieu of the old, in the
name of the partnership, "Heirs of Hugo Lim." 
Respondent Judge Castro also filed a comment disclaiming
knowledge of previous controversies regarding the
mortgaged property. He asserted that Syjuco had been
properly declared in default for having failed to answer the
complaint despite service of summons upon it, and that his
decision in said case which was also properly served on
Syjuco became final when it was not timely appealed, after
which he lost jurisdiction to entertain the motion for
reconsideration and motion to dismiss.
Unwilling, however, to concede defeat, the Lims moved to
stop the foreclosure sale on the ground of lack of
republication. At about this time, Syjuco republished the
notice of sale in order, as it was later to manifest, to end all
further dispute. The Lims managed to persuade the judge.
This gave the Lims a convenient excuse for further
suspension of the foreclosure sale by introducing a new
wrinkle into their contentions-that the bond superseded the
mortgage which should, they claimed, therefore be
discharged instead of foreclosed.
Issue: Whether or not the mortgaged property had been
contributed to the respondent partnership and was
already property of said partnership when the
individual Lims unauthorizedly mortgaged it to Syjuco,
is of no better stripe, and this, too, is clear from the
undisputed facts and the legal conclusions to be drawn
therefrom
Ruling: Yes. The record shows that the respondent
partnership is composed exclusively of the individual Lims
in whose name all the cases herein referred to, were
brought and prosecuted, their contribution to the partnership
consisting chiefly, if not solely, of the property subject of the
Syjuco mortgage. It is also a fact that despite its having
been contributed to the partnership, the property was never
registered with the Register of Deeds in the name of the
partnership, but to this date remains registered in the
names of the Lims as owners in common. The original
mortgage deed was executed by the Lims as such owners,
as were all subsequent amendments of the mortgage.
There can be no dispute that in those circumstances,
the respondent partnership was chargeable with
knowledge of the mortgage from the moment of its
execution. The legal fiction of a separate juridical
personality and existence will not shield it from the
conclusion of having such knowledge which naturally
and irresistibly flows from the undenied facts. It would
violate all precepts of reason, ordinary experience and
common sense to propose that a partnership, as
commonly known to all the partners or of acts in which
all of the latter, without exception, have taken part,
where such matters or acts affect property claimed as
its own by said partnership.
If, therefore, the respondent partnership was
inescapably chargeable with knowledge of the
mortgage executed by all the partners thereof, its
silence and failure to impugn said mortgage within a
reasonable time, let alone a space of more than
seventeen years, brought into play the doctrine of
estoppel to preclude any attempt to avoid the mortgage
as allegedly unauthorized.
The right subsumed in that cause is the negation of the
mortgage, postulated on the claim that the parcels of land
mortgaged by the Lims to Syjuco did not in truth belong to
them but to the partnership. Assuming this to be so, the
right could have been asserted at the time that the Lims
instituted their first action, or when they filed their
subsequent actions. The claim could have been set up by
the Lims, as members composing the partnership, "Heirs of
Hugo Lim." It could very well have been put forth by the
partnership itself, as co-plaintiff in the corresponding
complaints, considering that the actions involved property
supposedly belonging to it and were being prosecuted by
the entire membership of the partnership, and therefore, the
partnership was in actuality, the real party in interest. There
is thus no reason to distinguish between the Lims, as
individuals, and the partnership itself, since the former
constituted the entire membership of the latter. In other
words, despite the concealment of the existence of the
partnership, for all intents and purposes and
consistently with the Lims' own theory, it was that
partnership which was the real party in interest in all
the actions; it was actually represented in said actions
by all the individual members thereof, and
consequently, those members' acts, declarations and
omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in law,
those of the partnership.
What was done by the Lims — or by the partnership of
which they were the only members-was to split their cause
of action in violation of the well known rule that only one suit
may be instituted for a single cause of action.  The right
sought to be enforced by them in all their actions was, at
bottom, to strike down the mortgage constituted in favor of
Syjuco, a right which, in their view, resulted from several
circumstances, namely that the mortgage was constituted
over property belonging to the partnership without the
latter's authority; that the principal obligation thereby
secured was usurious; that the publication of the notice of
foreclosure sale was fatally defective, circumstances which
had already taken place at the time of the institution of the
actions.
The undenied and undisputable facts make it perfectly
clear that the claim to the mortgaged property belatedly
and in apparent bad faith pressed by the respondent
partnership is foreclosed by both law and equity.
The Lims and their partnership acted in bad faith and with
intent to defraud is manifest in the record of their actuations,
presenting as they did, piecemeal and in one case after
another, defenses to the foreclosure or claims in derogation
thereof that were available to them from the very beginning
— actuations that were to stave off the liquidation of an
undenied debt for more than twenty years and culminated in
the clandestine filing and prosecution of the action subject
of the present petition.
CASE #16 - 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.
Facts: Petitioners are co-owners of Liwanag Auto Supply, a
commercial guard who while in line of duty, was skilled by
criminal hands. His widow Vda. de Balderama and minor
children, in due time filed a claim for compensation with the
Workmen's Compensation Commission which was granted.
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.
Issue: Whether or not petitioners can be held jointly
and severally liable for the claim of defendants
Ruling: Yes. 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.
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
Case # 17 - G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY
CORPORATION, petitioner, vs. THE HON. COURT OF
APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M.
MAGLANA and JACOB S. LIM, respondents.
FACTS: In 1965, Jacob S. Lim was engaged in the airline
business as owner-operator of Southern Air Lines (SAL), a
single proprietorship. On May 17, 1965, Japan Domestic
Airlines (JDA) and Lim entered into and executed a sales
contract for the sale and purchase of two aircrafts and one
set of necessary spare parts for the total agreed price of US
$109,000.00 to be paid in installments. On May 22, 1965,
Pioneer Insurance and Surety Corporation as surety
executed and issued its Surety Bond No. 6639in 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
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. 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.
However, Lim defaulted on his subsequent installment
payments prompting JDA to request payments from the
surety. Hence, Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure
of the said chattel mortgage. 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 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.
RTC held Lim liable to pay Pioneer but dismissed Pioneer's
complaint against Maglana, Bormaheco and the
Cervanteses. On appeal, the CA reversed the lower court’s
decision. Lim contends 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.
ISSUE: Whether or not Maglana, Bormaheco and the
Cervanteses must share in the loss of the venture in
proportion to their contribution.
RULING: No. Maglana, Bormaheco and the Cervanteses
will not share in the loss of the venture in proportion to their
contribution because there’s no de facto partnership.
Ordinarily, when co-investors agreed to do business
through a corporation but failed to incorporate, a de
facto partnership would have been formed, and as
such, all must share in the losses and/or gains of the
venture in proportion to their contribution. 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
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.
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.
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.
Case # 18 - G.R. No. 29182. October 24, 1928.
LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG
NAW), Appellee, v. JOSE S. Y. PENG,
assignee, Appellant.
FACTS: This is an appeal from a decision of the Court of
First Instance of Manila dismissing an insolvency
proceeding.
On June 13, 1925, the San Miguel Brewery, Porta Pueco &
Co., and Ruiz& Rementaria S. en C. instituted insolvency
proceedings against Leoncia Vda.de Chan Diaco (alias Lao
Liong Naw), alleged to be the owner of a grocery store on
Calle Nueva, Binondo, known as the store of "La Viuda de
G. G. Chan Diaco." The above-mentioned firms alleged,
among other things, that Leoncia was indebted to them in
the sum of P26,234.47.
On August 4, 1926, Leoncia Vda. de Chan Diaco, the
appellee, filed a motion asking the court to dismiss the
proceedings against her on the ground that they should
have been brought against the partnership "Lao Liong Naw
&Co.," of which she was only a member.
ISSUE: WON the creditor is entitled to collect
individually from the partners the amount of the debt of
the insolvent partnership
RULING: Yes, “all the members of the general co-
partnership, be they or be they not managing partners
of the same, are personally and severally liable with all
their properties 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 the person
authorized to make use thereof."
It is further to be noted that both the partnership and
the separate partners thereof may be joined in the same
action, though the private property of the latter cannot
be taken in payment of the partnership debts until the
common property of the concern is exhausted.
Key Notes:
1. PARTNERSHIPS; INSOLVENCY; LIABILITY OF THE
PARTNERS. — Where a partnership, as such, has no
visible assets, the partners individually must, jointly and
severally, respond for its debts (Code of Commerce, art.
127).
2. ID.; ID.; ID.; PARTNERSHIP AND SEPARATE
PARTNERS JOINED IN THE SAME ACTION. — Both the
partnership and the separate partners thereof may be
joined in the same action, though the private property of the
partners cannot be taken in payment of the partnership
debts until the common property of the concern is
exhausted.
Case # 19 - G.R. No. X92-1. July 30, 1979.
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.
FACTS: These are 2 petitions regarding the two law firms
mentioned in the title praying that they may retain the
names of their former partners “Sycip” and “Ozaeta” who
both passed away.
Petitioners base their petitions that Uunder 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:
"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." 
ISSUE: Whether or not the two law firms may retain the
names of their deceased partners.
RULING: 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."
Art 1815 of the Civil Code which states: Art. 1815.
Every partnership shall operate under a firm name,
which may or may not include the name of one ormore
of the partners. Those who, not being members of the
partnership, include their names in the firm name, shall
be subject to theliability, 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 all 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 can
be no corresponding liability.
OTHER ISSUE: Whether or not a partnership for the
practice of law can be likened to partnership for
business?
Ruling: NO. It 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.
"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."
Law is a profession, not a business. A professional
partnership rides on the individual skill of the members.
Profession - a group of men pursuing a learned art as a
common calling in the spirit of public service (def. by Dean
Pound).
Case #20 - G.R. No. 114398 October 24, 1997
CARMEN LIWANAG, petitioner, vs. THE HON. COURT
OF APPEALS and THE PEOPLE OF THE
PHILIPPINES, represented by the Solicitor
General, respondents.
FACTS: Petitioner Carmen Liwanag (Liwanag) and a
certain Thelma Tabligan went to the house of complainant
Isidora Rosales (Rosales) and asked her to join them in the
business of buying and selling cigarettes. Convinced of the
feasibility of the venture, Rosales readily agreed. Under
their agreement, Rosales would give the money needed to
buy the cigarettes while Liwanag and Tabligan would act as
her agents, with a corresponding 40% commission to her if
the goods are sold; otherwise the money would be returned
to Rosales. Consequently, Rosales gave several cash
advances to Liwanag and Tabligan amounting to
P633,650.00.
Alarmed by this development and believing that the
amounts she advanced were being misappropriated,
Rosales filed a case of estafa against Liwanag.
Both the lower court and the ca found the accused guilty
of estafa.
Liwanag advances the theory that the intention of the
parties was to enter into a contract of partnership, wherein
Rosales would contribute the funds while she would buy
and sell the cigarettes, and later divide the profits between
them. She also argues that the transaction can also be
interpreted as a simple loan, with Rosales lending to her the
amount stated on an installment basis.
ISSUE:
1. Whether or not accused is guilty of estafa?
2. Can a partner in a contract of partnership be
guilty of estafaby misappropriating the money
received for a specific purpose?
RULING:
1. Yes, accused is guilty of estafa. The language of
the receipt could not be any clearer. It indicates that
the money delivered to Liwanag was for a specific
purpose, that is, for the purchase of cigarettes, and
in the event the cigarettes cannot be sold, the
money must be returned to Rosales.
The receipt states: Received from Mrs. Isidora P. Rosales
the sum of FIVE HUNDRED TWENTY SIX THOUSAND
AND SIX HUNDRED FIFTY PESOS (P526,650.00)
Philippine Currency, to purchase cigarrets (sic) (Philip &
Marlboro) to be sold to customers. In the event the said
cigarrets (sic) are not sold, the proceeds of the sale or the
said products (shall) be returned to said Mrs. Isidora P.
Rosales the said amount of P526,650.00 or the said items
on or before August 30, 1988.
2. Yes, a partner in a contract of partnership can
be guilty of estafa. Thus, even assuming that a
contract of partnership was indeed entered into
by and between the parties, we have ruled that
when money or property have been received by
a partner for a specific purpose (such as that
obtaining in the instant case) and he later
misappropriated it, such partner is guilty of
estafa.
CASE #21 - G.R. No. 206147, January 13, 2016
MICHAEL C. GUY, Petitioner, v. ATTY. GLENN C.
GACOTT, Respondent.
FACTS: On March 3, 1997, Atty. Gacott purchased two (2)
brand new transreceivers from Quantech Systems
Corporation (QSC) in Manila through its employee Rey
Medestomas (Medestomas). On May 10, 1997, due to
major defects, Gacott personally returned the transreceivers
to QSC and requested that they be replaced. Medestomas
received the returned transreceivers and promised to send
him the replacement units within two (2) weeks from May
10, 1997.
Time passed and Gacott did not receive the replacement
units as promised. QSC informed him that there were no
available units and that it could not refund the purchased
price. Despite several demands, both oral and written,
Gacott was never given a replacement or a refund. The
demands caused Gacott to incur expenses. Thus, Gacott
filed a complaint for damages. In a Decision, the RTC found
that the two (2) transreceivers were defective and that QSC
and Medestomas failed to replace the same or return
Gacott's money. The decision became final as QSC and
Medestomas did not interpose an appeal.
During the execution stage, Gacott learned that QSC was
not a corporation, but was in fact a general partnership
registered with the SEC. In the articles of partnership, Guy
was appointed as General Manager of QSC.
To execute the judgment, Branch Sheriff Ronnie L. Felizarte
(Sheriff Felizarte) went to the main office of the Department
of Transportation and Communications, Land
Transportation Office (DOTC-LTO), Quezon City, and
verified whether Medestomas, QSC and Guy had personal
properties registered therein. Upon learning that Guy had
vehicles registered in his name, Gacott instructed the sheriff
to proceed with the attachment of one of the motor vehicles
of Guy. Sheriff Felizarte attached Guy's vehicle.
Thereafter, Guy filed his Motion to Lift Attachment Upon
Personalty, arguing that he was not a judgment debtor and,
therefore, his vehicle could not be attached.
RTC issued an order denying Guy's motion. It explained
that considering QSC was not a corporation, but a
registered partnership, Guy should be treated as a general
partner pursuant to Section 21 of the Corporation Code,
and he may be held jointly and severally liable with QSC
and Medestomas.
Not satisfied, Guy moved for reconsideration of the denial of
his motion. He argued that under Article 1824 of the Civil
Code, the partners were only solidarily liable for the
partnership liability under exceptional circumstances; and
that in order for a partner to be liable for the debts of the
partnership, it must be shown that all partnership assets
had first been exhausted. RTC denied his motion.
CA rendered the assailed decision dismissing Guy's appeal
for the same reasons given by the trial court. The CA
stressed that Guy, being a partner in QSC, was bound by
the summons served upon QSC based on Article 1821 of
the Civil Code. The CA further opined that the law did not
require a partner to be actually involved in a suit in order for
him to be made liable. He remained "solidarity liable
whether he participated or not, whether he ratified it or not,
or whether he had knowledge of the act or omission." 19
ISSUE: Whether or not the CA erred in holding that the
petitioner Guy is solidarily liable with the partnership
for damages arising from the breach of the contract of
sale with respondent Gacott
RULING: No. Although a partnership is based
on delectus personae or mutual agency, whereby any
partner can generally represent the partnership in its
business affairs, it is non sequitur that a suit against
the partnership is necessarily a suit impleading each
and every partner. It must be remembered that a
partnership is a juridical entity that has a distinct and
separate personality from the persons composing it.
In relation to the rules of civil procedure, decision rendered
on a complaint in a civil action or proceeding does not bind
or prejudice a person not impleaded therein, for no person
shall be adversely affected by the outcome of a civil action
or proceeding in which he is not a party. The principle that a
person cannot be prejudiced by a ruling rendered in an
action or proceeding in which he has not been made a party
conforms to the constitutional guarantee of due process of
law.
In Muñoz v. Yabut, Jr., the Court declared that a person not
impleaded and given the opportunity to take part in the
proceedings was not bound by the decision declaring as
null and void the title from which his title to the property had
been derived. The effect of a judgment could not be
extended to non-parties by simply issuing an alias writ of
execution against them, for no man should be prejudiced by
any proceeding to which he was a stranger.
In Aguila v. Court of Appeals the complainant had a cause
of action against the partnership. Nevertheless, it was the
partners themselves that were impleaded in the complaint.
The Court dismissed the complaint and held that it was the
partnership, not its partners, officers or agents, which
should be impleaded for a cause of action against the
partnership itself. The Court added that the partners could
not be held liable for the obligations of the partnership
unless it was shown that the legal fiction of a different
juridical personality was being used for fraudulent, unfair, or
illegal purposes.
Here, Guy was never made a party to the case. He did not
have any participation in the entire proceeding until his
vehicle was levied upon and he suddenly became QSC's
"co-defendant debtor" during the judgment execution stage.
It is a basic principle of law that money judgments are
enforceable only against the property incontrovertibly
belonging to the judgment debtor. Indeed, the power of
the court in executing judgments extends only to
properties unquestionably belonging to the judgment
debtor alone. An execution can be issued only against
a party and not against one who did not have his day in
court. The duty of the sheriff is to levy the property of
the judgment debtor not that of a third person. For, as
the saying goes, one man's goods shall not be sold for
another man's debts.
In the spirit of fair play, it is a better rule that a partner
must first be impleaded before he could be prejudiced
by the judgment against the partnership.
Further, Article 1821 of the Civil Code does not state that
there is no need to implead a partner in order to be
bound by the partnership liability. It provides that:
Notice to any partner of any matter relating to
partnership affairs, and the knowledge of the partner
acting in the particular matter, acquired while a partner or
then present to his mind, and the knowledge of any other
partner who reasonably could and should have
communicated it to the acting partner, operate as notice to
or knowledge of the partnership, except in the case of
fraud on the partnership, committed by or with the consent
of that partner.
A careful reading of the provision shows that notice to any
partner, under certain circumstances, operates as
notice to or knowledge to the partnership only. Unless
there is an unequivocal law which states that a partner is
automatically charged in a complaint against the
partnership, the constitutional right to due process takes
precedence and a partner must first be impleaded before he
can be considered as a judgment debtor.
Granting that Guy was properly impleaded in the complaint,
the execution of judgment would be improper. Article 1816
of the Civil Code governs the liability of the partners to third
persons, which states that:
Article 1816. All partners, including industrial ones, shall be
liable pro rata with all their property and after all the
partnership assets have been exhausted, for the
contracts which may be entered 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. [Emphasis supplied]

This provision clearly states that,  first, the partners'
obligation with respect to the partnership liabilities is
subsidiary in nature. It provides that the partners shall
only be liable with their property after all the
partnership assets have been exhausted. To say that
one's liability is subsidiary means that it merely
becomes secondary and only arises if the one primarily
liable fails to sufficiently satisfy the obligation. Resort
to the properties of a partner may be made only after
efforts in exhausting partnership assets have failed or
that such partnership assets are insufficient to cover
the entire obligation. The subsidiary nature of the
partners' liability with the partnership is one of the valid
defenses against a premature execution of judgment
directed to a partner.
In this case, had he been properly impleaded, Guy's
liability would only arise after the properties of QSC
would have been exhausted. The records, however,
miserably failed to show that the partnership's properties
were exhausted.
Clearly, no genuine efforts were made to locate the
properties of QSC that could have been attached to satisfy
the judgment - contrary to the clear mandate of Article
1816. Being subsidiarily liable, Guy could only be held
personally liable if properly impleaded and after all
partnership assets had been exhausted.
Second, Article 1816 provides that the partners' obligation
to third persons with respect to the partnership liability
is pro rata  or joint. Liability is joint when a debtor is liable
only for the payment of only a proportionate part of the debt.
In contrast, a solidary liability makes a debtor liable for the
payment of the entire debt. In the same vein, Article 1207
does not presume solidary liability unless: 1) the obligation
expressly so states; or 2) the law or nature
requires solidarity. With regard to partnerships, ordinarily,
the liability of the partners is not solidary. The joint liability of
the partners is a defense that can be raised by a partner
impleaded in a complaint against the partnership. In other
words, only in exceptional circumstances shall the partners'
liability be solidary in nature. Articles 1822, 1823 and 1824
of the Civil Code provide for these exceptional conditions, to
wit:
Article 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or
omitting to act.
Article 1823. The partnership is bound to make good the
loss:
(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 the money
or property so received is misapplied by any partner while it
is in the custody of the partnership.
Article 1824. All partners are liable solidarity with the
partnership for everything chargeable to the
partnership under Articles 1822 and 1823. [Emphases
Supplied]
In essence, these provisions articulate that it is the act of a
partner which caused loss or injury to a third person that
makes all other partners solidarity liable with the partnership
because of the words "any wrongful act or omission of any
partner acting in the ordinary course of the business, " "one
partner acting within the scope of his apparent authority"
and "misapplied by any partner while it is in the custody of
the partnership." The obligation is solidary because the law
protects the third person, who in good faith relied upon the
authority of a partner, whether such authority is real or
apparent.
In the case at bench, it was not shown that Guy or the other
partners did a wrongful act or misapplied the money or
property he or the partnership received from Gacott. A third
person who transacted with said partnership can hold the
partners solidarity liable for the whole obligation if the case
of the third person falls under Articles 1822 or 1823.
Gacott's claim stemmed from the alleged defective
transreceivers he bought from QSC, through the latter's
employee, Medestomas. It was for a breach of warranty in a
contractual obligation entered into in the name and for the
account of QSC, not due to the acts of any of the partners.
For said reason, it is the general rule under Article 1816
that governs the joint liability of such breach, and not
the exceptions under Articles 1822 to 1824. Thus, it was
improper to hold Guy solidarity liable for the obligation
of the partnership.
Finally, Section 21 of the Corporation Code, as invoked
by the RTC, cannot be applied to sustain Guy's liability. The
said provision states that a general partner shall be liable
for all debts, liabilities and damages incurred by an
ostensible corporation. It must be read, however, in
conjunction with Article 1816 of the Civil Code, which
governs the liabilities of partners against third persons.
Accordingly, whether QSC was an alleged ostensible
corporation or a duly registered partnership, the liability of
Guy, if any, would remain to be joint and subsidiary
because, as previously stated, all partners 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.
CASE #22 - G.R. No. 216023, October 05, 2016
DR. RESTITUTO C.
BUENVIAJE, Petitioner, v. SPOUSES JOVITO R. AND
LYDIA B. SALONGA, JEBSON HOLDINGS
CORPORATION AND FERDINAND JUAT
BAÑEZ, Respondent.
FACTS: In 1997, Jebson, an entity engaged in the real
estate business, through its Executive Vice President,
Bañez, entered into a JVA with Sps. Salonga. Under the
JVA, Sps. Salonga, who owned three (3) parcels of land
situated in Tagaytay City, agreed for Jebson to construct
thereon ten (10) high-end single detached residential units,
to be known as Brentwoods Tagaytay Villas (Brentwoods).
They likewise assumed to subdivide the property into
individual titles upon which Jebson shall assume the liability
to pay their mortgage loan with the Metropolitan Bank and
Trust Company. On the other hand, Jebson undertook to
construct the units at its own expense, secure the building
and development permits, and the license to sell from the
HLURB, as well as the other permits required. Out of the
ten (10) units, seven (7) units will belong to Jebson while
the remaining three (3) units will correspond to Sps.
Salonga's share. The units allocated to Sps. Salonga were
to be delivered within six (6) months after Jebson's receipt
of the down payment for the units allocated to it. Jebson
was also allowed to sell its allocated units under such terms
as it may deem fit, subject to the condition that the price
agreed upon was with the conformity of Sps. Salonga.
Jebson entered into a Contract to Sell with Buenviaje
without the conformity of Sps. Salonga. Out of the purchase
price, P7,800,000.00 was paid through a "swapping
arrangement," whereby Buenviaje conveyed to Jebson a
house and golf share, while the remaining balance was paid
periodically. An additional sum of P125,000.00 for the
retaining wall and air-conditioning system was likewise paid
for by Buenviaje.
However, despite full payment of the contract price, Jebson
was unable to complete Unit 5 in violation of its contractual
stipulation to finish the same within twelve (12) months from
the date of issuance of the building permit. Thus, in April
1999, Buenviaje formally demanded the immediate
completion and delivery of Unit 5, to which Jebson cited the
1997 financial crisis as the reason for the delay.
Accordingly, Jebson asked to be given until the early part of
the year 2000 to complete the same but still failed to do so.
In 2002, Buenviaje filed before the HLURB Regional Field
Office IV (HLURB-RIV) a Complaint for Specific
Performance, against Jebson, Bañez, and Sps. Salonga
(respondents), praying for the (a) completion of Unit 5, (b)
partition and subdivision of the property, (c) delivery of the
title to Unit 5, and (d) payment of damages and attorney's
fees. In the alternative, he prayed for the rescission of the
subject CTS, and the return of all payments made
thereunder, with interest at 24% per annum (p.a.), as well
as the house and lot, and golf share pursuant to the
"swapping arrangement."
In their defense, Jebson and Bañez claimed that they were
ready to comply with all their contractual obligations but
were not able to secure the necessary government permits
because Sps. Salonga stubbornly refused to cause the
consolidation of the parcels of land, and their partition into
ten (10) individual lots.
For their part, Sps. Salonga averred that they were not
liable to the complainants since there was no privity of
contract between them, adding that the contracts to sell
were unenforceable against them as they were entered into
by Jebson without their conformity, in violation of the JVA.
They maintained that they were ready to cause the
subdivision and individual titling of the subject property.
HLURB-RIV found that respondents were not legally
authorized to sell Brentwoods as they have not secured the
necessary Registration Certificate and License to Sell.
Furthermore, they failed to complete the construction of the
units as well as to deliver the units to the complainants on
time, entitling the latter to the refund of their payments,
including interests. It further found Sps. Salonga solidarily
liable with Jebson and Bañez as joint venture partners liable
to the general buying public.
Aggrieved, Sps. Salonga appealed to the HLURB-BOC.
HLURB-BOC reversed and set aside the HLURB-RIV's
ruling and held that there was no substantial breach but
only a slight or casual one, which did not justify a rescission
of the contracts to sell. Considering the accomplishment
level of the work done on the said units. Nonetheless, it
invalidated the "swapping arrangements" in the respective
contracts to sell of Jebson with Buenviaje and Beliz Realty,
which allowed the use of non-cash assets as substantial
downpayment, leaving Jebson with insufficient funds to
complete their units, and to construct and deliver the units
allocated to Sps. Salonga who were prejudiced thereby.
It also found no basis to hold Sps. Salonga solidarily liable
with Jebson and Bañez under the subject CTS, considering
that: (a) the JVA does not provide for solidarity for any act
or omission of either party and, in fact, expressly provides
that Sps. Salonga shall be free of any liability from any third
party as regards non-compliance with HLURB Rules and
Regulations; (b) the legal obligation to procure the required
development, permit, license to sell, and certificate of
registration from the HLURB devolved entirely and
exclusively on Jebson and Bañez; (c) Sps. Salonga were
not the ones in control of the project, but Bañez; and (d)
even assuming Sps. Salonga directly or indirectly controlled
Jebson, Section 40 of PD 957 exempts from its rule of
solidary liability one who has acted in good faith and did not
directly or indirectly induce the act or acts constituting the
violation or cause of action.
Buenviaje and complainants moved for reconsideration but
the same were denied. Dissatisfied, Buenviaje elevated the
matter to the Office of the President (OP). OP affirmed the
ruling of the HLURB-BOC. CA affirmed the OP ruling.
ISSUE: Whether or not the CA correctly ruled that Sps.
Salonga are not solidarily liable with Jebson and Banez
to Buenviaje for the completion of the construction and
delivery of the unit.
RULING: Yes. In this case, the HLURB-BOC, the OP, and
the CA all pointed out that Buenviaje primarily prayed for
the remedy of specific performance - i.e., the completion of
Unit 5, the subdivision of Sps. Salonga's property into
individual lots per unit, and the tum-over of Unit 5 as well as
the subdivided lot portion allocated to such unit to him and
only prayed for the remedy of rescission as an alternative
remedy. Thus, it remains apparent that as between the two
remedies made available to him, Buenviaje, had, in fact,
chosen the remedy of specific performance and therefore,
ought to be bound by the choice he had made.
Relatedly, it is observed that Buenviaje's alternative prayer
for resolution is textually consistent with that portion of
Article 1191 of the Civil Code which states that an injured
party "may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible."
Nevertheless, the impossibility of fulfillment was not
sufficiently demonstrated in the proceedings conducted in
this case. As the HLURB BOC pointed out, "There is no
finding that specific performance has become impossible or
that there are insuperable legal obstacles to the completion
of the constructed units so as to justify resolution."
With these in mind, the CA therefore correctly upheld the
directive for Jebson to comply with its obligations
under the subject CTS with Buenviaje as prayed for by
the latter. Failing to show any cogent reason to hold
otherwise, Buenviaje can no longer recant his primary
choice of relief.

With the propriety of specific performance having been
decreed, Buenviaje's claim to be restituted the alleged
purchase price for which Sps. Salonga were claimed to be
solidarily liable - thus, holds no basis. As above-intimated,
mutual restitution is the proper consequence of the remedy
of resolution. It cannot arise - as it is, in fact, theoretically
incompatible - with the remedy of specific performance,
which is the relief prayed for and consequently, granted to
the injured party herein.
In this relation, it is fitting to clarify that the obligations to be
fulfilled, i.e., the completion of Unit 5, the subdivision of
Sps. Salonga's property into individual lots per unit, and the
tum-over of Unit 5, as well as the subdivided lot portion
allocated to such unit, are obligations of Jebson to
Buenviaje under the subject CTS.
In this case, it is undisputed that Sps. Salonga were not
parties to the above-mentioned contract. Under Article
1311 of the Civil Code, it is a basic principle in civil law
on relativity of contracts, that contracts can only bind
the parties who had entered into it and it cannot favor
or prejudice third persons. Contracts take effect only
between the parties, their successors in interest, heirs
and assigns. Thus, absent any privity of contract as to
them, there is no basis to hold Sps. Salonga liable for
any of the obligations stated under the said contract to
sell.
At this juncture, it should be further made clear that the
imputation of joint or solidary liability against a
particular person- such as that insistently claimed
against Sps. Salonga by Buenviaje first presupposes
the existence of that person's obligation. On the active
side, the joint or solidary nature of an obligation is an aspect
of demandability; it pertains to the extent of a creditor's
entitlement to demand fulfillment against any or all of his
debtors under one particular obligation. Based on case law,
a solidary obligation is one in which each of the
debtors is liable for the entire obligation, and each of
the creditors is entitled to demand the satisfaction of
the whole obligation from any or all of the debtors. On
the other hand, a joint obligation is one in which each
debtors is liable only for a proportionate part of the
debt, and the creditor is entitled to demand only a
proportionate part of the credit from each debtor.
As already mentioned, no source of obligation under the
subject CTS can be traced to Sps. Salonga as they were
clearly non-parties thereto. Therefore, without such extant
obligation, the possibility of holding them liable in
solidum with Jebson under the said contract is out of the
question.
Neither has Buenviaje persuasively argued that Sps.
Salonga may be held solidarily liable pursuant to law, which
is a distinct source of obligation. More particularly,
Buenviaje attempts to establish that Section 40 of PD 957
as well as Articles 1822 and 1824 of the Civil Code, are
legal provisions which render Sps. Salonga solidarity liable
together with Jebson:
Section 40 of PD 957 reads: Section 40. Liability of
controlling persons. Every person who directly or indirectly
controls any person liable under any provision of this
Decree or of any rule or regulation issued thereunder shall
be liable jointly and severally with and to the same extent as
such controlled person unless the controlling person acted
in good faith and did not directly or indirectly induce the act
or acts constituting the violation or cause of action.
In this case, records are bereft of any showing that Sps.
Salonga had direct or indirect control over Jebson
throughout the course of the entire Brentwoods
Project. In fact, even if it is assumed that they had some
sort of control over Jebson, it was not shown that they acted
in bad faith and had a hand in inducing Jebson's acts from
which Buenviaje's cause of action arose. As such, the
foregoing provision cannot be invoked to hold Sps. Salonga
solidarily liable with Jebson.
Similarly, there is no perceptible legal basis to hold them
solidarily liable under Articles 1822 and 1824 of the Civil
Code. These provisions, which are found under Section 3,
Chapter 2, Title IX, Book IV of the Civil Code on
Partnership, respectively state:
Article 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or
omitting to act.
Article 1824. All partners are liable solidarily with the
partnership for everything chargeable to the partnership
under Articles 1822 and 1823.
Evidently, the foregoing legal provisions pertain to the
obligations of a co-partner in the event that the partnership
to which he belongs is held liable. In this case, Buenviaje
never dealt with any partnership constituted by and
between Jebson and Sps. Salonga. As previously
mentioned, the subject CTS, which was the source of
the obligations relative to the completion and delivery
of Unit 5, solely devolved upon the person of Jebson.
As there was no partnership privy to any obligation to
which Buenviaje is a creditor, Articles 1822 and 1824 of
the Civil Code do not apply.
While Jebson, as developer, and Sps. Salonga, as land
owner, entered into a joint venture, which - based on case
law may be considered as a form of partnership,  the fact
remains that their joint venture was never privy to any
obligation with Buenviaje; hence, liability cannot be
imputed against the joint venture based on the same
principle of relativity as above mentioned. Besides, it
should be pointed out that the JVA between Jebson and
Sps. Salonga was limited to the construction of the
residential units under the Brentwoods Project and that
Jebson had the sole hand in marketing the units
allocated to it to third persons, such as Buenviaje.
CASE # 23 – Alfredo Aguila v. CA and Vda. de
Abrogar
377 Phil. 257, GR 127347, November 25, 1999
Facts: Alfredo Aguilar is the manager of AC Aguila & Sons
Co., a partnership engaged in lending. Respondent
Felicidad Abrogar and her late husband were owners of a
house and lot in Marikina. Felicidad then entered into a
MOA with AC Aguila & Sons Co., where the property shall
be bought by the partnership for P200K with an option to
repurchase within 90 days from MOA for P230K.
On the same day April 18, 2001 they executed a DOAS
dated June 11, 1991 where the property was sold to the
partnership for P200K. An SPA was also made on the same
day, authorizing Alfredo to cancel the TCT and issue new
one in the name of the partnership in case she failed to
redeem the property. There was failure to redeem within the
90-dau period and thus pursuant to the SPA, Alfredo
caused the cancellation and issuance of new TCT. She was
demanded to vacate but refused which prompted AC Aguila
to file for ejectment which ruled in its favor. Later, she filed a
petition for declaration of nullity of deed of sale alleging that
the signature of her husband was a forgery because he was
dead when the deed was supposed to be executed on June
11, 1991.
It appears, however, that private respondent had filed a
criminal complaint for falsification against petitioner with the
Office of the Prosecutor of Quezon City which was
dismissed. RTC Marikina dismissed the action but CA
reversed find that the sale with repurchase was an
equitable mortgage and that it was in the nature of a
pactum commissorium which was void. Alfredo contends he
is not real party in interest but AC Aguila & Sons, Co.
against which the case should have been brought.
Issue: Whether or not there Alfredo was a real party in
interest?
Ruling: No. Every action must be prosecuted and defended
in the name of the real party in interest." A real party in
interest is one who would be benefited or injured by the
judgment, or who is entitled to the avails of the suit.
Any decision rendered against a person who is not a
real party in interest in the case cannot be executed.
Hence, a complaint filed against such a person should be
dismissed for failure to state a cause of action. Under Art.
1768 of the Civil Code, a partnership "has a juridical
personality separate and distinct from that of each of the
partners." The partners cannot be held liable for the
obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being used
for fraudulent, unfair, or illegal purposes.
In this case, private respondent has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being
used for fraudulent, unfair, or illegal purposes. Moreover,
the title to the subject property is in the name of A.C. Aguila
& Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with the consent of
her late husband, and A. C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not
its officers or agents, which should be impleaded in any
litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the
complaint. We cannot understand why both the Regional
Trial Court and the Court of Appeals sidestepped this issue
when it was squarely raised before them by petitioner. Our
conclusion that petitioner is not the real party in interest
against whom this action should be prosecuted makes it
unnecessary to discuss the other issues raised by him in
this appeal.
CASE #24 - G.R. No. 174149: September 08, 2010
J. TIOSEJO INVESTMENT CORP., PETITIONER, VS.
SPOUSES BENJAMIN AND ELEANOR ANG,
RESPONDENTS.
FACTS: In 1995, petitioner entered into a JVA with
Primetown Property Group, Inc. (PPGI) for the development
of a residential condominium project to be known as The
Meditel on the former's property along Samat St., Highway
Hills, Mandaluyong City. With petitioner contributing the
same property to the joint venture and PPGI undertaking to
develop the condominium, the JVA provided, among other
terms and conditions, that the developed units shall be
shared by the former and the latter at a ratio of 17%-83%,
respectively. While both parties were allowed, at their own
individual responsibility, to pre-sell the units pertaining to
them, PPGI further undertook to use all proceeds from the
pre-selling of its saleable units for the completion of the
Condominium Project."
In 1996, the HLURB issued License to Sell in favor of
petitioner and PPGI as project owners. By virtue of said
license, PPGI executed  Contract to Sell with Spouses
Benjamin and Eleanor Ang over the condominium unit and
over the parking space.
In 1999, respondents filed against petitioner and PPGI the
complaint for the rescission of the aforesaid Contracts to
Sell before the HLURB.  Contending that they were assured
by petitioner and PPGI that the subject condominium unit
and parking space would be available for turn-over and
occupancy in December 1998, respondents averred that in
view of the non-completion of the project according to said
representation, respondents instructed petitioner and PPGI
to stop depositing the post-dated checks they issued and to
cancel said Contracts to Sell;  and, that despite several
demands, petitioner and PPGI have failed and refused to
refund the P611,519.52 they already paid under the
circumstances.
PPGI filed its answer alleging that the delay in the
completion of the project was attributable to the economic
crisis which affected the country at the time; that the
unexpected and unforeseen inflation as well as increase in
interest rates and cost of building materials constitute force
majeure and were beyond its control; that aware of its
responsibilities, it offered several alternatives to its buyers
like respondents for a transfer of their investment to its other
feasible projects and for the amounts they already paid to
be considered as partial payment for the replacement
unit/s. 
Petitioner also specifically denied the material
allegations calling attention to the fact that its
prestation under the JVA consisted in contributing the
property on which The Meditel was to be constructed,
that by the terms of the JVA, each party was
individually responsible for the marketing and sale of
the units pertaining to its share; that not being privy to
the Contracts to Sell executed by PPGI and
respondents, it did not receive any portion of the
payments made by the latter; and, that without any
contributory fault and negligence on its part, PPGI
breached its undertakings under the JVA by failing to
complete the condominium project. 
Housing and Land Use (HLU) Arbiter Dunstan T. San
Vicente decided declaring the subject Contracts to Sell
cancelled and rescinded on account of the non-completion
of the condominium project.  On the ground that the JVA
created a partnership liability on their part, petitioner and
PPGI, as co-owners of the condominium project, were
ordered to pay respondents. HLURB Board of
Commissioners dismissed the petition for review of the
respondent Corporation.
Petitioner filed a Notice of Appeal before the Office of the
President (OP). OP rendered a decision dismissing
petitioner's appeal on the ground that the latter's appeal
memorandum was filed out of time and that the HLURB
Board committed no grave abuse of discretion in rendering
the appealed decision. Aggrieved by the denial of its MR,
petitioner filed before the CA. CA disposed the former's
pending motion for extension as well as the petition itself
ISSUES: Whether or not the HLURB Arbiter and Board
correctly held petitioner liable alongside PPGI for
respondents' claims and the P10,000.00 administrative
fine imposed pursuant to Section 20 in relation to
Section 38 of P.D. 957.
RULING: Yes. By the express terms of the JVA, it appears
that petitioner not only retained ownership of the
property pending completion of the condominium
project but had also bound itself to answer liabilities
proceeding from contracts entered into by PPGI with
third parties. Article VIII, Section 1 of the JVA distinctly
provides as follows:
"Sec. 1. Rescission and damages. Non-performance by
either party of its obligations under this Agreement shall be
excused when the same is due to Force Majeure.  In such
cases, the defaulting party must exercise due diligence to
minimize the breach and to remedy the same at the soonest
possible time.  In the event that either party defaults or
breaches any of the provisions of this Agreement other than
by reason of Force Majeure, the other party shall have the
right to terminate this Agreement by giving notice to the
defaulting party, without prejudice to the filing of a civil case
for damages arising from the breach of the defaulting party.
In the event that the Developer shall be rendered unable
to complete the Condominium Project, and such failure
is directly and solely attributable to the Developer, the
Owner shall send written notice to the Developer to
cause the completion of the Condominium Project.  If
the developer fails to comply within One Hundred
Eighty (180) days from such notice or, within such time,
indicates its incapacity to complete the Project, the
Owner shall have the right to take over the construction
and cause the completion thereof.  If the Owner
exercises its right to complete the Condominium
Project under these circumstances, this Agreement
shall be automatically rescinded upon written notice to
the Developer and the latter shall hold the former free
and harmless from any and all liabilities to third
persons arising from such rescission.  In any case, the
Owner shall respect and strictly comply with any
covenant entered into by the Developer and third
parties with respect to any of its units in the
Condominium Project.  To enable the owner to comply
with this contingent liability, the Developer shall furnish
the Owner with a copy of its contracts with the said
buyers on a month-to-month basis.  Finally, in case the
Owner would be constrained to assume the obligations
of the Developer to its own buyers, the Developer shall
lose its right to ask for indemnity for whatever it may
have spent in the Development of the Project.
Nevertheless, with respect to the buyers of the
Developer for the First Phase, the area intended for the
Second Phase shall not be bound and/or subjected to
the said covenants and/or any other liability incurred by
the Developer in connection with the development of
the first phase." (Underscoring supplied)
Viewed in the light of the foregoing provision of the JVA,
petitioner cannot avoid liability by claiming that it was
not in any way privy to the Contracts to Sell executed
by PPGI and respondents.  As correctly argued by the
latter, moreover, a joint venture is considered in this
jurisdiction as a form of partnership and is, accordingly,
governed by the law of partnerships. Under Article 1824 of
the Civil Code of the Philippines, all partners are solidarily
liable with the partnership for everything chargeable to the
partnership, including loss or injury caused to a third person
or penalties incurred due to any wrongful act or omission of
any partner acting in the ordinary course of the business of
the partnership or with the authority of his co-partners.
Whether innocent or guilty, all the partners are solidarily
liable with the partnership itself.