G.R. No.

70926 January 31, 1989

DAN
FUE
vs.
HON.
INTERMEDIATE
APPELLATE
YIU, respondents.

LEUNG, petitioner,
COURT

and

LEUNG

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the
then Court of First Instance of Manila, Branch II in Civil Case No. 116725
declaring private respondent Leung Yiu a partner of petitioner Dan Fue
Leung in the business of Sun Wah Panciteria and ordering the petitioner to
pay to the private respondent his share in the annual profits of the said
restaurant.
This case originated from a complaint filed by respondent Leung Yiu with
the then Court of First Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived from
the operation of Sun Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street,
Sta. Cruz, Manila, was established sometime in October, 1955. It was
registered as a single proprietorship and its licenses and permits were
issued to and in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent Leung Yiu adduced evidence during the trial of the case to
show that Sun Wah Panciteria was actually a partnership and that he was
one of the partners having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership.
This is evidenced by a receipt identified as Exhibit "A" wherein the
petitioner acknowledged his acceptance of the P4,000.00 by affixing his
signature thereto. The receipt was written in Chinese characters so that the
trial court commissioned an interpreter in the person of Ms. Florence Yap to
translate its contents into English. Florence Yap issued a certification and
testified that the translation to the best of her knowledge and belief was
correct. The private respondent identified the signature on the receipt as
that of the petitioner (Exhibit A-3) because it was affixed by the latter in his
(private respondents') presence. Witnesses So Sia and Antonio Ah Heng
corroborated the private respondents testimony to the effect that they

were both present when the receipt (Exhibit "A") was signed by the
petitioner. So Sia further testified that he himself received from the
petitioner a similar receipt (Exhibit D) evidencing delivery of his own
investment in another amount of P4,000.00 An examination was conducted
by the PC Crime Laboratory on orders of the trial court granting the private
respondents motion for examination of certain documentary exhibits. The
signatures in Exhibits "A" and 'D' when compared to the signature of the
petitioner appearing in the pay envelopes of employees of the restaurant,
namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings
Department of the China Banking Corporation testified that said check
(Exhibit B) was deposited by and duly credited to the private respondents
savings account with the bank after it was cleared by the drawee bank, the
Equitable Banking Corporation. Another witness Elvira Rana of the
Equitable Banking Corporation testified that the check in question was in
fact and in truth drawn by the petitioner and debited against his own
account in said bank. This fact was clearly shown and indicated in the
petitioner's statement of account after the check (Exhibit B) was duly
cleared. Rana further testified that upon clearance of the check and
pursuant to normal banking procedure, said check was returned to the
petitioner as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of the
receipt (Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the
Sun Wah Panciteria. He used his savings from his salaries as an employee
at Camp Stotsenberg in Clark Field and later as waiter at the Toho
Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was the
sole owner of the restaurant, the petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a
single proprietorship solely owned and operated by himself alone. Fue
Leung also flatly denied having issued to the private respondent the
receipt (Exhibit G) and the Equitable Banking Corporation's Check No.
13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the
private respondent. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the

plaintiff and against the defendant, ordering the latter to
deliver and pay to the former, the sum equivalent to 22%
of the annual profit derived from the operation of Sun Wah
Panciteria from October, 1955, until fully paid, and
attorney's fees in the amount of P5,000.00 and cost of suit.
(p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion, he
requested that the decision rendered should include the net profit of the
Sun Wah Panciteria which was not specified in the decision, and allow
private respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing
the trial court rendered an amended decision, the dispositive portion of
which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted
earlier by the Court, is hereby reiterated and the decision
rendered by this Court on September 30, 1980, is hereby
amended. The dispositive portion of said decision should
read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the
plaintiff (sic) and against the defendant, ordering the latter
to pay the former the sum equivalent to 22% of the net
profit of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as and
for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further
modified by the appellate court. The dispositive portion of the appellate
court's decision reads:
WHEREFORE, the decision appealed from is modified, the
dispositive portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of
temperate damages 22% of the net profit of P2,000.00 a
day from judicial demand to May 15, 1971;

2. Similarly, the sum equivalent to 22% of the net profit of

P8,000.00 a day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22%
of the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is
affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and
affirmed the lower court's decision. The dispositive portion of the resolution
reads:
WHEREFORE, the dispositive portion of the amended
judgment of the court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff
and against the defendant, ordering the latter to pay to the
former the sum equivalent to 22% of the net profit of
P8,000.00 per day from the time of judicial demand, until
fully paid, plus the sum of P5,000.00 as and for attorney's
fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the
date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner
was denied.
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and operations of
the panciteria. While the dispositive portions merely ordered the payment
of the respondents share, there is no question from the factual findings
that the respondent invested in the business as a partner. Hence, the two
courts declared that the private petitioner is entitled to a share of the
annual profits of the restaurant. The petitioner, however, claims that this
factual finding is erroneous. Thus, the petitioner argues: "The complaint
avers that private respondent extended 'financial assistance' to herein
petitioner at the time of the establishment of the Sun Wah Panciteria, in
return of which private respondent allegedly will receive a share in the
profits of the restaurant. The same complaint did not claim that private
respondent is a partner of the business. It was, therefore, a serious error
for the lower court and the Hon. Intermediate Appellate Court to grant a
relief not called for by the complaint. It was also error for the Hon.
Intermediate Appellate Court to interpret or construe 'financial assistance'

to mean the contribution of capital by a partner to a partnership;" (p. 75,

Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955,
defendant sought the financial assistance of plaintiff in
operating the defendant's eatery known as Sun Wah
Panciteria, located in the given address of defendant; as a
return for such financial assistance. plaintiff would be
entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said
panciteria;
3. That on October 1, 1955, plaintiff delivered to the
defendant the sum of four thousand pesos (P4,000.00),
Philippine Currency, of which copy for the receipt of such
amount, duly acknowledged by the defendant is attached
hereto as Annex "A", and form an integral part hereof; (p.
11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria
was established, he gave P4,000.00 to the petitioner with the
understanding that he would be entitled to twenty-two percent (22%) of
the annual profit derived from the operation of the said panciteria. These
allegations, which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah Panciteria because
Article 1767 of the Civil Code provides that "By the contract of partnership
two or more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits among
themselves".
Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria, notwithstanding
the use of the term financial assistance therein. We agree with the
appellate court's observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of money to another without
the expectation of any returns therefrom'. It connotes an ex gratia dole out
in favor of someone driven into a state of destitution. But this circumstance
under which the P4,000.00 was given to the petitioner does not obtain in
this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for
such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the

operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is
that the '"... nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the
instant case was whether or not the private respondent is a partner of the
petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the PC Crime Laboratory Report (Exhibit "J") on
the ground that the alleged standards or specimens used by the PC Crime
Laboratory in arriving at the conclusion were never testified to by any
witness nor has any witness identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed standards or
specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and
admitted as evidence for the private respondent over the vigorous
objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower
court examined the signatures in the two receipts issued separately by the
petitioner to the private respondent and So Sia (Exhibits "A" and "D") and
compared the signatures on them with the signatures of the petitioner on
the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah
Heng and Maria Wong, employees of the restaurant. After the usual
examination conducted on the questioned documents, the PC Crime
Laboratory submitted its findings (Exhibit J) attesting that the signatures
appearing in both receipts (Exhibits "A" and "D") were the signatures of the
petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to
"H-24") were presented by the private respondent for marking as exhibits,
the petitioner did not interpose any objection. Neither did the petitioner file
an opposition to the motion of the private respondent to have these
exhibits together with the two receipts examined by the PC Crime
Laboratory despite due notice to him. Likewise, no explanation has been
offered for his silence nor was any hint of objection registered for that
purpose.
Under these circumstances, we find no reason why Exhibit "J" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not resolving the

issue of prescription in favor of petitioner. The alleged receipt is dated

October 1, 1955 and the complaint was filed only on July 13, 1978 or after
the lapse of twenty-two (22) years, nine (9) months and twelve (12) days.
From October 1, 1955 to July 13, 1978, no written demands were ever
made by private respondent.

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.

The petitioner's argument is based on Article 1144 of the Civil Code which
provides:
Art. 1144. The following actions must be brought within ten
years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when
they are filed before the court, when there is a written
extra-judicial demand by the creditor, and when there is
any written acknowledgment of the debt by the debtor.'

Regarding the prescriptive period within which the private respondent may
demand an accounting, Articles 1806, 1807, and 1809 show that the right
to demand an accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership
when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in
favor of the private respondent for being excessive and unconscionable
and above the claim of private respondent as embodied in his complaint
and testimonial evidence presented by said private respondent to support
his claim in the complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup,
to testify on the income of the restaurant.

The argument is not well-taken.

Mrs. Licup stated:

The private respondent is a partner of the petitioner in Sun Wah Panciteria.

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

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

Q Mrs. Witness, you stated that among your duties was that you were in
charge of the custody of the cashier's box, of the money, being the cashier,
is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were the one who
accepted the money and you gave the change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said, what do
you do with the money?

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

A Yes.

ATTY. HIPOLITO: I see.

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

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

xxx xxx xxx

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

COURT: Any cross?

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

ATTY. UY (counsel for defendant): No cross-examination, Your Honor. (T.S.N.

p. 65, November 15, 1978). (Rollo, pp. 127-128)

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

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

Q What about the catering service, will you please tell the Honorable Court
how many times a week were there catering services?
A Sometimes three times a month; sometimes two times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the catering service?
A Yes, because I am the one who receives the payment also of the
catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a single day from
3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of
P7,000.00 in a regular day?
A Yes.

Counsel for the defendant admitted that the sales of Sun

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

Q And ten thousand pesos during pay day.?

The defendant was given all the chance to present all

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

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

On November 24, 1981, there being a typhoon prevailing in

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

Art. 1831. On application by or for a partner the court shall

decree a dissolution whenever:

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in
front of the Republic Supermarket. It is near the corner of Claro M. Recto
Street. According to the trial court, it is in the heart of Chinatown where
people who buy and sell jewelries, businessmen, brokers, manager, bank
employees, and people from all walks of life converge and patronize Sun
Wah.
There is more than substantial evidence to support the factual findings of
the trial court and the appellate court. If the respondent court awarded
damages only from judicial demand in 1978 and not from the opening of
the restaurant in 1955, it is because of the petitioner's contentions that all

The resolution of the Intermediate Appellate Court ordering the payment of

the petitioner's obligation shows that the same continues until fully paid.
The question now arises as to whether or not the payment of a share of
profits shall continue into the future with no fixed ending date.
Considering the facts of this case, the Court may decree a dissolution of
the partnership under Article 1831 of the Civil Code which, in part,
provides:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business that
it is not reasonably practicable to carry on the business in
partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit.
The decision of the respondent court is AFFIRMED with a MODIFICATION
that as indicated above, the partnership of the parties is ordered dissolved.

SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

G.R. No. 126334

November 23, 2001

EMILIO
EMNACE, petitioner,
vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN
TABANAO, VICENTE WILLIAM TABANAO, JANETTE TABANAO
DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO and
VINCENT TABANAO, respondents.
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were
partners in a business concern known as Ma. Nelma Fishing Industry.
Sometime in January of 1986, they decided to dissolve their partnership
and executed an agreement of partition and distribution of the partnership
properties among them, consequent to Jacinto Divinagracia's withdrawal
from the partnership.1 Among the assets to be distributed were five (5)
fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Nio
and Talisay, Negros Occidental, and cash deposits in the local branches of
the Bank of the Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente
Tabanao's untimely demise in 1994, petitioner failed to submit to Tabanao's
heirs any statement of assets and liabilities of the partnership, and to
render an accounting of the partnership's finances. Petitioner also reneged
on his promise to turn over to Tabanao's heirs the deceased's 1/3 share in
the total assets of the partnership, amounting to P30,000,000.00, or the
sum of P10,000,000.00, despite formal demand for payment thereof. 2
Consequently, Tabanao' s heirs, respondents herein, filed against petitioner
an action for accounting, payment of shares, division of assets and
damages.3 In their complaint, respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the
assets and liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered to
pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties,
dividends, cash, land(s), fishing vessels, trucks, motor
vehicles, and other forms and substance of treasures which
belong and/or should belong, had accrued and/or must
accrue to the partnership;

B. No less than Two Hundred

(P200,000.00) as moral damages;

Thousand

Pesos

C. Attorney's fees equivalent to Thirty Percent (30%) of the

entire share/amount/award which the Honorable Court may
resolve the plaintiffs as entitled to plus P1,000.00 for every
appearance in court.4
Petitioner filed a motion to dismiss the complaint on the grounds of
improper venue, lack of jurisdiction over the nature of the action or suit,
and lack of capacity of the estate of Tabanao to sue. 5 On August 30, 1994,
the trial court denied the motion to dismiss. It held that venue was
properly laid because, while realties were involved, the action was directed
against a particular person on the basis of his personal liability; hence, the
action is not only a personal action but also an action in personam. As
regards petitioner's argument of lack of jurisdiction over the action
because the prescribed docket fee was not paid considering the huge
amount involved in the claim, the trial court noted that a request for
accounting was made in order that the exact value of the partnership may
be ascertained and, thus, the correct docket fee may be paid. Finally, the
trial court held that the heirs of Tabanao had aright to sue in their own
names, in view of the provision of Article 777 of the Civil Code, which
states that the rights to the succession are transmitted from the moment
of the death of the decedent.6
The following day, respondents filed an amended complaint, 7 incorporating
the additional prayer that petitioner be ordered to "sell all (the
partnership's) assets and thereafter pay/remit/deliver/surrender/yield to
the plaintiffs" their corresponding share in the proceeds thereof. In due
time, petitioner filed a manifestation and motion to dismiss, 8arguing that
the trial court did not acquire jurisdiction over the case due to the
plaintiffs' failure to pay the proper docket fees. Further, in a supplement to
his motion to dismiss,9 petitioner also raised prescription as an additional
ground warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order, 10 denying the motion to
dismiss inasmuch as the grounds raised therein were basically the same as
the earlier motion to dismiss which has been denied. Anent the issue of
prescription, the trial court ruled that prescription begins to run only upon
the dissolution of the partnership when the final accounting is done.
Hence, prescription has not set in the absence of a final accounting.
Moreover, an action based on a written contract prescribes in ten years
from the time the right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals, 11 raising
the following issues:

I.
Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in taking cognizance of a case
despite the failure to pay the required docket fee;
II.
Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in insisting to try the case which
involve (sic) a parcel of land situated outside of its territorial
jurisdiction;
III.
Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in allowing the estate of the
deceased to appear as party plaintiff, when there is no intestate
case and filed by one who was never appointed by the court as
administratrix of the estates; and
IV.
Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in not dismissing the case on the
ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed
decision,12 dismissing the petition for certiorari, upon a finding that no
grave abuse of discretion amounting to lack or excess of jurisdiction was
committed by the trial court in issuing the questioned orders denying
petitioner's motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the
same issues resolved by the Court of Appeals, namely:
I.

Failure to pay the proper docket fee;

II.
Parcel of land subject of the case pending before the trial
court is outside the said court's territorial jurisdiction;
III.
Lack of capacity to sue on the part of plaintiff heirs of Vicente
Tabanao; and
IV.

Prescription of the plaintiff heirs' cause of action.

It can be readily seen that respondents' primary and ultimate objective in

instituting the action below was to recover the decedent's 1/3 share in the
partnership' s assets. While they ask for an accounting of the partnership' s
assets and finances, what they are actually asking is for the trial court to
compel petitioner to pay and turn over their share, or the equivalent value
thereof, from the proceeds of the sale of the partnership assets. They also
assert that until and unless a proper accounting is done, the exact value of

the partnership' s assets, as well as their corresponding share therein,

cannot be ascertained. Consequently, they feel justified in not having paid
the commensurate docket fee as required by the Rules of
Court.1wphi1.nt
We do not agree. The trial court does not have to employ guesswork in
ascertaining the estimated value of the partnership's assets, for
respondents themselves voluntarily pegged the worth thereof at Thirty
Million Pesos (P30,000,000.00). Hence, this case is one which is really not
beyond pecuniary estimation, but rather partakes of the nature of a simple
collection case where the value of the subject assets or amount demanded
is pecuniarily determinable.13 While it is true that the exact value of the
partnership's total assets cannot be shown with certainty at the time of
filing, respondents can and must ascertain, through informed and practical
estimation, the amount they expect to collect from the partnership,
particularly from petitioner, in order to determine the proper amount of
docket and other fees.14 It is thus imperative for respondents to pay the
corresponding docket fees in order that the trial court may acquire
jurisdiction over the action.15
Nevertheless, unlike in the case of Manchester Development Corp. v. Court
of Appeals,16 where there was clearly an effort to defraud the government
in avoiding to pay the correct docket fees, we see no attempt to cheat the
courts on the part of respondents. In fact, the lower courts have noted their
expressed desire to remit to the court "any payable balance or lien on
whatever award which the Honorable Court may grant them in this case
should there be any deficiency in the payment of the docket fees to be
computed by the Clerk of Court." 17 There is evident willingness to pay, and
the fact that the docket fee paid so far is inadequate is not an indication
that they are trying to avoid paying the required amount, but may simply
be due to an inability to pay at the time of filing. This consideration may
have moved the trial court and the Court of Appeals to declare that the
unpaid docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals
erred in condoning the non-payment of the proper legal fees and in
allowing the same to become a lien on the monetary or property judgment
that may be rendered in favor of respondents. There is merit in petitioner's
assertion. The third paragraph of Section 16, Rule 141 of the Rules of Court
states that:
The legal fees shall be a lien on the monetary or property
judgment in favor of the pauper-litigant.
Respondents cannot invoke the above provision in their favor because it
specifically applies to pauper-litigants. Nowhere in the records does it

appear that respondents are litigating as paupers, and as such are

exempted from the payment of court fees.18
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the
Rules of Court, which defines the two kinds of claims as: (1) those which
are immediately ascertainable; and (2) those which cannot be immediately
ascertained as to the exact amount. This second class of claims, where the
exact amount still has to be finally determined by the courts based on
evidence presented, falls squarely under the third paragraph of said
Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is
less or more in accordance with the appraisal of the court,
the difference of fee shall be refunded or paid as the case may
be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19 this Court
pronounced that the above-quoted provision "clearly contemplates an
Initial payment of the filing fees corresponding to the estimated amount of
the claim subject to adjustment as to what later may be
proved."20 Moreover, we reiterated therein the principle that the payment
of filing fees cannot be made contingent or dependent on the result of the
case. Thus, an initial payment of the docket fees based on an estimated
amount must be paid simultaneous with the filing of the complaint.
Otherwise, the court would stand to lose the filing fees should the
judgment later turn out to be adverse to any claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees
are necessary to defray court expenses in the handling of cases.
Consequently, in order to avoid tremendous losses to the judiciary, and to
the government as well, the payment of docket fees cannot be made
dependent on the outcome of the case, except when the claimant is a
pauper-litigant.
Applied to the instant case, respondents have a specific claim - 1/3 of the
value of all the partnership assets - but they did not allege a specific
amount. They did, however, estimate the partnership's total assets to be
worth Thirty Million Pesos (P30,000,000.00), in a letter 21 addressed to
petitioner. Respondents cannot now say that they are unable to make an
estimate, for the said letter and the admissions therein form part of the
records of this case. They cannot avoid paying the initial docket fees by
conveniently omitting the said amount in their amended complaint. This
estimate can be made the basis for the initial docket fees that respondents
should pay. Even if it were later established that the amount proved was
less or more than the amount alleged or estimated, Rule 141, Section 5(a)
of the Rules of Court specifically provides that the court may refund the
'excess or exact additional fees should the initial payment be insufficient. It

is clear that it is only the difference between the amount finally awarded
and the fees paid upon filing of this complaint that is subject to adjustment
and which may be subjected to alien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano
Asuncion,22 this Court held that when the specific claim "has been left for
the determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment and it shall be the responsibility of the
Clerk of Court or his duly authorized deputy to enforce said lien and assess
and collect the additional fee." Clearly, the rules and jurisprudence
contemplate the initial payment of filing and docket fees based on the
estimated claims of the plaintiff, and it is only when there is a deficiency
that a lien may be constituted on the judgment award until such additional
fee is collected.
Based on the foregoing, the trial court erred in not dismissing the
complaint outright despite their failure to pay the proper docket fees.
Nevertheless, as in other procedural rules, it may be liberally construed in
certain cases if only to secure a just and speedy disposition of an action.
While the rule is that the payment of the docket fee in the proper amount
should be adhered to, there are certain exceptions which must be strictly
construed.23
In recent rulings, this Court has relaxed the strict adherence to
the Manchester doctrine, allowing the plaintiff to pay the proper docket
fees within a reasonable time before the expiration of the applicable
prescriptive or reglementary period.24
In the recent case of National Steel Corp. v. Court of Appeals, 25 this Court
held that:
The court acquires jurisdiction over the action if the filing of the
initiatory pleading is accompanied by the payment of the requisite
fees, or, if the fees are not paid at the time of the filing of the
pleading, as of the time of full payment of the fees within such
reasonable time as the court may grant, unless, of course,
prescription has set in the meantime.
It does not follow, however, that the trial court should have
dismissed the complaint for failure of private respondent to pay the
correct amount of docket fees. Although the payment of the proper
docket fees is a jurisdictional requirement, the trial court may allow
the plaintiff in an action to pay the same within a reasonable time
before the expiration of the applicable prescriptive or reglementary
period. If the plaintiff fails to comply within this requirement, the
defendant should timely raise the issue of jurisdiction or else he

10

would be considered in estoppel. In the latter case, the balance

between the appropriate docket fees and the amount actually paid
by the plaintiff will be considered a lien or any award he may
obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper
docket fee based on the estimated amount that respondents seek to
collect from petitioner, and direct them to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary
period has not yet expired, Failure to comply therewith, and upon motion
by petitioner, the immediate dismissal of the complaint shall issue on
jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial
court and the Court of Appeals in holding that the case below is a personal
action which, under the Rules, may be commenced and tried where the
defendant resides or may be found, or where the plaintiffs reside, at the
election of the latter.26
Petitioner, however, insists that venue was improperly laid since the action
is a real action involving a parcel of land that is located outside the
territorial jurisdiction of the court a quo. This contention is not well-taken.
The records indubitably show that respondents are asking that the assets
of the partnership be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets of the
partnership are parcels of land does not materially change the nature of
the action. It is an action in personam because it is an action against a
person, namely, petitioner, on the basis of his personal liability. It is not an
action in rem where the action is against the thing itself instead of against
the person.27 Furthermore, there is no showing that the parcels of land
involved in this case are being disputed. In fact, it is only incidental that
part of the assets of the partnership under liquidation happen to be parcels
of land.
The time-tested case of Claridades v. Mercader, et al., 28 settled this issue
thus:
The fact that plaintiff prays for the sale of the assets of the
partnership, including the fishpond in question, did not change the
nature or character of the action, such sale being merely a
necessary incident of the liquidation of the partnership, which
should precede and/or is part of its process of dissolution.
The action filed by respondents not only seeks redress against petitioner. It
also seeks the enforcement of, and petitioner's compliance with, the
contract that the partners executed to formalize the partnership's

dissolution, as well as to implement the liquidation and partition of the

partnership's assets. Clearly, it is a personal action that, in effect, claims a
debt from petitioner and seeks the performance of a personal duty on his
part.29 In fine, respondents' complaint seeking the liquidation and partition
of the assets of the partnership with damages is a personal action which
may be filed in the proper court where any of the parties reside. 30 Besides,
venue has nothing to do with jurisdiction for venue touches more upon the
substance or merits of the case.31 As it is, venue in this case was properly
laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente
Tabanao has no legal capacity to sue since she was never appointed as
administratrix or executrix of his estate. Petitioner's objection in this regard
is misplaced. The surviving spouse does not need to be appointed as
executrix or administratrix of the estate before she can file the action. She
and her children are complainants in their own right as successors of
Vicente Tabanao. From the very moment of Vicente Tabanao' s death, his
rights insofar as the partnership was concerned were transmitted to his
heirs, for rights to the succession are transmitted from the moment of
death of the decedent.32
Whatever claims and rights Vicente Tabanao had against the partnership
and petitioner were transmitted to respondents by operation of law, more
particularly by succession, which is a mode of acquisition by virtue of
which the property, rights and obligations to the extent of the value of the
inheritance of a person are transmitted.33Moreover, respondents became
owners of their respective hereditary shares from the moment Vicente
Tabanao died.34
A prior settlement of the estate, or even the appointment of Salvacion
Tabanao as executrix or administratrix, is not necessary for any of the heirs
to acquire legal capacity to sue. As successors who stepped into the shoes
of their decedent upon his death, they can commence any action originally
pertaining to the decedent. 35 From the moment of his death, his rights as a
partner and to demand fulfillment of petitioner's obligations as outlined in
their dissolution agreement were transmitted to respondents. They,
therefore, had the capacity to sue and seek the court's intervention to
compel petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have dismissed the
complaint on the ground of prescription, arguing that respondents' action
prescribed four (4) years after it accrued in 1986. The trial court and the
Court of Appeals gave scant consideration to petitioner's hollow
arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) windingup; and (3) termination.36 The partnership, although dissolved, continues to

11

exist and its legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and distribution of the
net partnership assets to the partners. 37 For as long as the partnership
exists, any of the partners may demand an accounting of the partnership's
business. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done. 38
Contrary to petitioner's protestations that respondents' right to inquire into
the business affairs of the partnership accrued in 1986, prescribing four (4)
years thereafter, prescription had not even begun to run in the absence of
a final accounting. Article 1842 of the Civil Code provides:

Costs against petitioner. SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan, Pardo, JJ., concur.

G.R. No. 110782. September 25, 1998]

IRMA IDOS, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
DECISION

The right to an account of his interest shall accrue to any partner,

or his legal representative as against the winding up partners or
the surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence of any
agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty
to account, the above-cited provision states that the right to demand an
accounting accrues at the date of dissolution in the absence of any
agreement to the contrary. When a final accounting is made, it is only then
that prescription begins to run. In the case at bar, no final accounting has
been made, and that is precisely what respondents are seeking in their
action before the trial court, since petitioner has failed or refused to render
an accounting of the partnership's business and assets. Hence, the said
action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied
petitioner's motions to dismiss. Likewise, the Court of Appeals did not
commit reversible error in upholding the trial court's orders. Precious time
has been lost just to settle this preliminary issue, with petitioner
resurrecting the very same arguments from the trial court all the way up to
the Supreme Court. The litigation of the merits and substantial issues of
this controversy is now long overdue and must proceed without further
delay.
WHEREFORE, in view of all the foregoing, the instant petition
is DENIED for lack of merit, and the case isREMANDED to the Regional
Trial Court of Cadiz City, Branch 60, which is ORDERED to determine the
proper docket fee based on the estimated amount that plaintiffs therein
seek to collect, and direct said plaintiffs to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary
period has not yet expired. Thereafter, the trial court is ORDERED to
conduct the appropriate proceedings in Civil Case No. 416-C.

QUISUMBING, J.:
Before this Court is the petition for review of the Decision of respondent
Court of Appeals[1] dismissing petitioners appeal in CA-G.R. CR No. 11960;
and affirming her conviction as well as the sentence imposed on her by the
Regional Trial Court of Malolos, Bulacan, in Criminal Case No. 1395-M88[2] as follows:
WHEREFORE . . . the [c]ourt finds the accused Irma Idos guilty
beyond reasonable doubt and is hereby sentenced to suffer the
penalty of imprisonment of six (6) months and to pay a fine
ofP135,000.00 and to pay private complainant Eddie Alarilla the
amount of the check in question of P135,000.00 at 12% interest
from the time of the filing of the [i]nformation (August 10, 1988)
until said amount has been fully paid.
Elevated from the Third Division[3] of this Court, the case was accepted for
resolution en banc on the initial impression that here, a constitutional
question might be involved.[4] It was opined that petitioners sentence,
particularly six months imprisonment, might be in violation of the
constitutional guarantee against imprisonment for non-payment of a debt.
[5]
A careful consideration of the issues presented in the petition as well as
the comments thereon and the findings of fact by the courts below in the
light of applicable laws and precedents convinces us, however, that the
constitutional dimension need not be reached in order to resolve those
issues adequately. For, as herein discussed, the merits of the petition could
be determined without delving into aspects of the cited constitutional
guarantee vis--vis provisions of the Bouncing Checks Law (Batas Pambansa
Blg. 22). There being no necessity therefor, we lay aside discussions of the
constitutional challenge to said law in deciding this petition.

12

The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather

tanning. Her accuser for violation of B.P. 22 is her erstwhile supplier and
business partner, the complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as
follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to
the accused-appellant Irma L. Idos for use in the latters business of
manufacturing leather. In 1985, he joined the accused-appellants business
and formed with her a partnership under the style Tagumpay
Manufacturing, with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties
agreed to terminate their partnership. Upon liquidation of the business the
partnership
had
as
of
May
1986
receivables
and
stocks
worth P1,800,000.00. The
complainants
share
of
the
assets
was P900,000.00 to pay for which the accused-appellant issued the
following postdated checks, all drawn against Metrobank Branch in
Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks,
but the third check (Exh. A) which is the subject of this case, was
dishonored on October 14, 1986 for insufficiency of funds.The complainant
demanded payment from the accused-appellant but the latter failed to
pay. Accordingly, on December 18, 1986, through counsel, he made a
formal demand for payment. (Exh. B) In a letter dated January 2, 1987, the
accused-appellant denied liability. She claimed that the check had been
given upon demand of complainant in May 1986 only as assurance of his
share in the assets of the partnership and that it was not supposed to be
deposited until the stocks had been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal of
Bulacan which on August 22, 1988 filed an information for violation of BP
Blg. 22 against accused-appellant.
Complainant denied that the checks issued to him by accused-appellant
were subject to the disposition of the stocks and the collection of
receivables of the business. But the accused-appellant insisted that the

complainant had known that the checks were to be funded from the
proceeds of the sale of the stocks and the collection of receivables. She
claimed that the complainant himself asked for the checks because he did
not want to continue in the tannery business and had no use for a share of
the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp.
12, 16, 20, Feb. 14, 1990; id., p. 14, June 4, 1990).
On February 15, 1992, the trial court rendered judgment finding the
accused-appellant guilty of the crime charged. The accused-appellants
motion for annulment of the decision and for reconsideration was denied
by the trial court in its order dated April 12, 1991.[6]
Herein respondent court thereafter affirmed on appeal the decision of the
trial court. Petitioner timely moved for a reconsideration, but this was
subsequently denied by respondent court in its Resolution[7] dated June
11, 1993. Petitioner has now appealed to us by way of a petition
for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolution[8] dated
August 30, 1993, took note of the compromise agreement executed
between the parties, regarding the civil aspect of the case, as manifested
by petitioner in a Motion to Render Judgment based on Compromise
Agreement[9]filed on August 5, 1993. After submission of the
Comment[10] by the Solicitor General, and the Reply[11] by petitioner, this
case was deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial
courts decision, petitioner cites the following reasons to justify the review
of her case:
1. The Honorable Court of Appeals has decided against the
innocence of the accused based on mere probabilities which, on
the contrary, should have warranted her acquittal on reasonable
doubt. Even then, the conclusion of the trial court is contrary to the
evidence on record, including private complainants judicial
admission that there was no consideration for the check.
2. The Honorable Court of Appeals has confused and merged into
one the legal concepts of dissolution, liquidation and termination of
a partnership and, on the basis of such misconception of the law,
disregarded the fact of absence of consideration of the check and
convicted the accused.
3. While this appeal was pending, the parties submitted for the
approval of the Honorable Court a compromise agreement on the
civil liability. The accused humbly submits that this supervening
event, which by its terms puts to rest any doubt the Court of
Appeals had entertained against the defense of lack of
consideration, should have a legal effect favorable to the accused,

13

considering that the dishonored check constitutes a private

transaction between partners which does not involve the public
interest, and considering further that the offense is not one
involving moral turpitude.
4. The Honorable Court of Appeals failed to appreciate the fact that
the accused had warned private complainant that the check was
not sufficiently funded, which should have exonerated the accused
pursuant to the ruling in the recent case of Magno vs. Court of
Appeals, 210 SCRA 471, which calls for a more flexible and less
rigid application of the Bouncing Checks law.[12]
For a thorough consideration of the merits of petitioners appeal, we find
pertinent and decisive the following issues:
1. Whether respondent court erred in holding that the subject
check was issued by petitioner to apply on account or for value,
that is, as part of the consideration of a buy-out of said
complainants interest in the partnership, and not merely as a
commitment on petitioners part to return the investment share of
complainant, along with any profit pertaining to said share, in the
partnership.
2. Whether the respondent court erred in concluding that petitioner
issued the subject check knowing at the time of issue that she did
not have sufficient funds in or credit with the drawee bank and
without communicating this fact of insufficiency of funds to the
complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court
err in affirming the trial courts judgment that she violated Batas Pambansa
Blg. 22?
Considering that penal statutes are strictly construed against the state and
liberally in favor of the accused, it bears stressing that for an act to be
punishable under the B.P. 22, it must come clearly within both the spirit
and the letter of the statute.[13] Otherwise, the act has to be declared
outside the laws ambit and a plea of innocence by the accused must be
sustained.
The relevant provisions of B.P. 22 state that:
SECTION 1. Checks without sufficient funds. Any person who makes
or draws and issues any check to apply on account or for
value, knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such
check in full upon its presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of funds or credit
or would have been dishonored for the same reason had not the

drawer, without any valid reason, ordered the bank to stop

payment, shall be punished by imprisonment of not less than thirty
days but not more than one (1) year or by a fine of not less than
but not more than double the amount of the check which fine shall
in no case exceed Two hundred thousand pesos, or both such fine
and imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who having
sufficient funds in or credit with the drawee bank when he makes
or draws and issues a check, shall fail to keep sufficient funds or to
maintain a credit or to cover the full amount of the check if
presented within a period of ninety (90) days from the date
appearing thereon, for which reason it is dishonored by the drawee
bank.
Where the check is drawn by a corporation, company or entity, the
person or persons who actually signed the check in behalf of such
drawer shall be liable under this Act.
SECTION 2. Evidence of knowledge of insufficient funds. The
making, drawing and issuance of a check payment of which is
refused by the drawee because of insufficient funds in or credit
with such bank, when presented within ninety (90) days from the
date of the check, shall be prima facie evidence of knowledge of
such insufficiency of funds or credit unless such maker or drawer
pays the holder thereof the amount due thereon, or makes
arrangements for payment in full by the drawee of such check
within five (5) banking days after receiving notice that such check
has not been paid by the drawee. (Underscoring supplied)
As decided by this Court, the elements of the offense penalized under B.P.
22, are as follows: (1) the making, drawing and issuance of any check to
apply to account or for value; (2) the knowledge of the maker, drawer or
issuer that at the time of issue he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its
presentment; and (3) subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or dishonor for the same reason
had not the drawer, without any valid cause, ordered the bank to stop
payment.[14]
In the present case, with regard to the first issue, evidence on record would
show that the subject check was to be funded from receivables to be
collected and goods to be sold by the partnership, and only when such
collection and sale were realized.[15] Thus, there is sufficient basis for the
assertion that the petitioner issued the subject check (Metrobank Check
No. 103115490 dated October 30, 1986, in the amount of P135,828.87) to
evidence only complainants share or interest in the partnership, or at best,
to show her commitment that when receivables are collected and goods
are sold, she would give to private complainant the net amount due him

14

representing his interest in the partnership. It did not involve a debt of or

any account due and payable by the petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by
complainant; only one (the third) was not. But eventually even this one
was redeemed by petitioner. Secondly, even private complainant admitted
that there was no consideration whatsoever for the issuance of the check,
whose funding was dependent on future sales of goods and receipts of
payment of account receivables.
Now, it could not be denied that though the parties petitioners and
complainant had agreed to dissolve the partnership, such agreement did
not automatically put an end to the partnership, since they still had to sell
the goods on hand and collect the receivables from debtors. In short, they
were still in the process of winding up the affairs of the partnership, when
the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1)
dissolution; (2) winding-up; and (3) termination. These stages are
distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on of the
business (Art. 1828). It is that point of time the partners cease to
carry on the business together. [Citation omitted]
(2) Winding Up Defined
Winding up is the process of settling business affairs after
dissolution.
(NOTE: Examples of winding up: the paying of previous
obligations; the collecting of assets previously demandable; even
new business if needed to wind up, as the contracting with a
demolition company for the demolition of the garage used in a
used car partnership.)

(3) Termination Defined

Termination is the point in time after all the partnership affairs
have been wound up.[16] [Citation omitted] (Underscoring
supplied.)

These final stages in the life of a partnership are recognized under the Civil
Code that explicitly declares that upon dissolution, the partnership is not
terminated, to wit:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up
of the business.
Art. 1829. On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is
completed. (Underscoring supplied.)
The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private
complainant remained as co-partners. The check was thus issued by the
petitioner to complainant, as would a partner to another, and not as
payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was
issued merely to evidence the complainants share in the partnership
property, or to assure the latter that he would receive in time his due share
therein. The alternative view that the check was in consideration of a buy
out is but a theory, favorable to the complainant, but lacking support in the
record; and must necessarily be discarded.
For there is nothing on record which even slightly suggests that petitioner
ever became interested in acquiring, much less keeping, the shares of the
complainant. What is very clear therefrom is that the petitioner exerted her
best efforts to sell the remaining goods and to collect the receivables of
the partnership, in order to come up with the amount necessary to satisfy
the value of complainants interest in the partnership at the dissolution
thereof. To go by accepted custom of the trade, we are more inclined to the
view that the subject check was issued merely to evidence complainants
interest in the partnership.Thus, we are persuaded that the check was not
intended to apply on account or for value; rather it should be deemed as
having been drawn without consideration at the time of issue.
Absent the first element of the offense penalized under B.P. 22, which is
the making, drawing and issuance of any check to apply on account or for
value, petitioners issuance of the subject check was not an act
contemplated in nor made punishable by said statute.
As to the second issue, the Solicitor General contends that under the
Bouncing Checks Law, the elements of deceit and damage are not
essential or required to constitute a violation thereof. In his view, the only
essential element is the knowledge on the part of the maker or drawer of

15

the check of the insufficiency of his/her funds at the time of the issuance of
said check.
The Bouncing Checks Law makes the mere act of issuing a bad or
worthless check a special offense punishable by law. Malice or intent in
issuing the worthless check is immaterial, the offense beingmalum
prohibitum,[17] so goes the argument for the public respondents.
But of course this could not be an absolute proposition without descending
to absurdity. For if a check were issued by a kidnap victim to a kidnapper
for ransom, it would be absurd to hold the drawer liable under B.P. 22, if
the check is dishonored and unpaid. That would go against public policy
and common sense.
Public respondents further contend that since petitioner issued the check
in favor of complainant Alarilla and when notified that it was returned for
insufficiency of funds, failed to make good the check, then petitioner is
liable for violation of B.P. 22.[18] Again, this matter could not be all that
simple. For while the makers knowledge of the insufficiency of funds is
legally presumed from the dishonor of his checks for insufficiency of funds,
[19] this presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not
preclude the presentation of contrary evidence.[20] In fact, such contrary
evidence on two points could be gleaned from the record concerning (1)
lack of actual knowledge of insufficiency of funds; and (2) lack of adequate
notice of dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in
the drawee bank for the payment of a check upon its presentment is an
essential element of the offense.[21] It must be proved, particularly where
the prima facie presumption of the existence of this element has been
rebutted. The prima facie presumption arising from the fact of drawing,
issuing or making a check, the payment of which was subsequently refused
for insufficiency of funds is, moreover, not sufficient proof of guilt by the
issuer.
In the case of Nieva v. Court of Appeals,[22] it was held that the
subsequent dishonor of the subject check issued by accused merely
engendered the prima facie presumption that she knew of the insufficiency
of funds, but did not render the accused automatically guilty under B.P. 22.
[23]
The prosecution has a duty to prove all the elements of the crime,
including the acts that give rise to the prima facie presumption; petitioner,
on
the
other
hand,
has
a
right
to
rebut
the prima
facie presumption.Therefore, if such knowledge of insufficiency of funds is
proven to be actually absent or non-existent, the accused should not be
held liable for the offense defined under the first paragraph of Section 1 of

B.P. 22. Although the offense charged is a malum prohibitum, the

prosecution is not thereby excused from its responsibility of proving
beyond reasonable doubt all the elements of the offense, one of which is
knowledge of the insufficiency of funds.
Section 1 of B.P. 22 specifically requires that the person in making, drawing
or issuing the check, be shown that he knows at the time of issue, that he
does not have sufficient funds in or credit with the drawee bank for the
payment of such check in full upon its presentment.
In the case at bar, as earlier discussed, petitioner issued the check merely
to evidence the proportionate share of complainant in the partnership
assets upon its dissolution. Payment of that share in the partnership was
conditioned on the subsequent realization of profits from the unsold goods
and collection of the receivables of the firm. This condition must be
satisfied or complied with before the complainant can actually encash the
check. The reason for the condition is that petitioner has no independent
means to satisfy or discharge the complainants share, other than by the
future sale and collection of the partnership assets. Thus, prior to the
selling of the goods and collecting of the receivables, the complainant
could not, as of yet, demand his proportionate share in the business. This
situation would hold true until after the winding up, and subsequent
termination of the partnership. For only then, when the goods were already
sold and receivables paid that cash money could be availed of by the
erstwhile partners.
Complainant did not present any evidence that petitioner signed and
issued four checks actually knowing that funds therefor would be
insufficient at the time complainant would present them to the drawee
bank. For it was uncertain at the time of issuance of the checks whether
the unsold goods would have been sold, or whether the receivables would
have been collected by the time the checks would be encashed. As it
turned out, three were fully funded when presented to the bank; the
remaining one was settled only later on.
Since petitioner issued these four checks without actual knowledge of the
insufficiency of funds, she could not be held liable under B.P. 22 when one
was not honored right away. For it is basic doctrine that penal statutes such
as B.P. 22 must be construed with such strictness as to carefully safeguard
the rights of the defendant x x x.[24] The element of knowledge of
insufficiency of funds has to be proved by the prosecution; absent said
proof, petitioner could not be held criminally liable under that
law. Moreover, the presumption of prima facie knowledge of such
insufficiency in this case was actually rebutted by petitioners evidence.
Further, we find that the prosecution also failed to prove adequate notice
of dishonor of the subject check on petitioners part, thus precluding any
finding of prima facie evidence of knowledge of insufficiency of
funds. There is no proof that notice of dishonor was actually sent by the

16

complainant or by the drawee bank to the petitioner. On this point, the

record is bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made
good by petitioner. In addition, the terms of the parties compromise
agreement, entered into during the pendency of this case, effectively
invalidates the allegation of failure to pay or to make arrangement for the
payment of the check in full. Verily, said compromise agreement
constitutes an arrangement for the payment in full of the subject check.
The absence of notice of dishonor is crucial in the present case. As held by
this Court in prior cases:
Because no notice of dishonor was actually sent to and received by the
petitioner, the prima facie presumption that she knew about the
insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides
that this presumption arises not from the mere fact of drawing, making and
issuing a bum check; there must also be a showing that, within five
banking days from receipt of the notice of dishonor, such maker or drawer
failed to pay the holder of the check the amount due thereon or to make
arrangement for its payment in full by the drawee of such check.
[25] [Underscoring supplied.]
The absence of a notice of dishonor necessarily deprives an accused an
opportunity to preclude a criminal prosecution. Accordingly, procedural due
process clearly enjoins that a notice of dishonor be actually served on
petitioner. Petitioner has a right to demand and the basic postulates of
fairness require that the notice of dishonor be actually sent to and received
by her to afford her the opportunity to avert prosecution under B.P. 22.[26]
Further, what militates strongly against public respondents stand is the
fact that petitioner repeatedly notified the complainant of the insufficiency
of funds. Instructive is the following pronouncement of this Court in Magno
v. Court of Appeals:
Furthermore, the element of knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee bank for
the payment of such check in full upon its presentment, which
check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for
the same reason x x x is inversely applied in this case. From the
very beginning, petitioner never hid the fact that he did not have
the funds with which to put up the warranty deposit and as a
matter of fact, he openly intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was introduced by
Mrs. Teng. It would have been different if this predicament was not
communicated to all the parties he dealt with regarding the lease
agreement the financing of which was covered by L.S. Finance
Management.[27]

In the instant case, petitioner intimated to private complainant the

possibility that funds might be insufficient to cover the subject check, due
to the fact that the partnerships goods were yet to be sold and receivables
yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the
interest of the banking system and the legitimate public checking
account user. It did not intend to shelter or favor nor encourage
users of the system to enrich themselves through manipulations
and circumvention of the noble purpose and objective of the
law. Least should it be used also as a means of jeopardizing
honest-to-goodness transactions with some color of get-rich
scheme to the prejudice of well-meaning businessmen who are the
pillars of society.
xxx
Thus, it behooves upon a court of law that in applying the
punishment imposed upon the accused, the objective of retribution
of a wronged society, should be directed against the actual and
potential wrongdoers. In the instant case, there is no doubt that
petitioners four (4) checks were used to collateralize an
accommodation, and not to cover the receipt of an actual account
or credit for value as this was absent, and therefore petitioner
should not be punished for mere issuance of the checks in
question. Following the aforecited theory, in petitioners stead the
potential wrongdoer, whose operation could be a menace to
society, should not be glorified by convicting the petitioner.[28]
Under the circumstances obtaining in this case, we find the petitioner to
have issued the check in good faith, with every intention of abiding by her
commitment to return, as soon as able, the investments of complainant in
the partnership. Evidently, petitioner issued the check with benign
considerations in mind, and not for the purpose of committing fraud,
deceit, or violating public policy
To recapitulate, we find the petition impressed with merit. Petitioner may
not be held liable for violation of B.P. 22 for the following reasons: (1) the
subject check was not made, drawn and issued by petitioner in exchange
for value received as to qualify it as a check on account or for value;
(2) there is no sufficient basis to conclude that petitioner, at the time of
issue of the check, had actual knowledge of the insufficiency of funds; and
(3) there was no notice of dishonor of said check actually served on
petitioner, thereby depriving her of the opportunity to pay or make
arrangements for the payment of the check, to avoid criminal prosecution.

17

Having resolved the foregoing principal issues, and finding the petition
meritorious, we no longer need to pass upon the validity and legality or
necessity of the purported compromise agreement on civil liability between
the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE
PETITIONER ACQUITTED. The Decision of the respondent Court of
Appeals in CA-G.R. CR No. 11960 is hereby REVERSED and the Decision
of Regional Trial Court in Criminal Case No. 1395-M-88 is hereby SET
ASIDE.
NO COSTS.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug,
Kapunan, Panganiban, Martinez, and Purisima, JJ., concur.
Mendoza, J., no part, being ponente of appealed decision.

18

G.R. No. L-27343 February 28, 1979

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE
L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN,
ESTEBAN,
INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband
CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and
THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants,
MARGARITA
G.
SALDAJENO
and
her
husband
CECILIO
SALDAJENO, defendants-appellants.

FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the judgment of the Court of
First Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel
G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of
which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held.
(1) that the contract, Appendix "F", of the Partial Stipulation of
Facts, Exh. "A", has not created a chattel mortgage lien on the
machineries and other chattels mentioned therein, all of which are
property of the defendant partnership "Isabela Sawmill", (2) that
the plaintiffs, as creditors of the defendant partnership, have a
preferred right over the assets of the said partnership and over the
proceeds of their sale at public auction, superior to the right of the
defendant Margarita G. Saldajeno, as creditor of the partners Leon
Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela
Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the
amount of P1,288.89, with legal interest thereon from the filing of
the complaint on June 5, 1959; (4) that the same defendant is
indebted to the plaintiff Manuel G. Singsong in the total amount of
P5,723.50, with interest thereon at the rate of 1 % per month from
May 6, 1959, (the date of the statements of account, Exhs. "L" and
"M"), and 25% of the total indebtedness at the time of payment,
for attorneys' fees, both interest and attorneys fees being
stipulated in Exhs. "I" to "17", inclusive; (5) that the same
defendant is indebted to the plaintiff Agustin E. Tonsay in the
amount of P933.73, with legal interest thereon from the filing of
the complaint on June 5, 1959; (6) that the same defendant is
indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44,
with legal interest thereon from the filing of the complaint on June
5, 1959; (7) that the same defendant is indebted to the plaintiff
Bacolod Southern Lumber Yard in the amount of Pl,048.78, with

legal interest thereon from the filing of the complaint on June 5,

1959; (8) that the same defendant is indebted to the plaintiff Jose
Belzunce in the amount of P2,052.10, with legal interest thereon
from the filing of the complaint on June 5. 1959; (9) that the
defendant Margarita G. Saldajeno, having purchased at public
auction the assets of the defendant partnership over which the
plaintiffs have a preferred right, and having sold said assets for P
45,000.00, is bound to pay to each of the plaintiffs the respective
amounts for which the defendant partnership is held indebted to,
them, as above indicated and she is hereby ordered to pay the said
amounts, plus attorneys fees equivalent to 25% of the judgment in
favor of the plaintiff Manuel G. Singson, as stipulated in Exhs. "I"
"to I-17", inclusive, and 20% of the respective judgments in favor
of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of
the Civil Code of the Philippines; (10) The defendants Leon Garibay
and Timoteo Tibungbanua are hereby ordered to pay to the
plaintiffs the respective amounts adjudged in their favor in the
event that said plaintiffs cannot recover them from the defendant
Margarita G. Saldajeno and the surety on the bond that she has
filed for the lifting of the injunction ordered by this court upon the
commencement of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against
the defendants Leon Garibay arid Timoteo Tubungbanua is hereby
discussed Margarita G. Saldajeno shall pay the costs. SO
ORDERED. 1
In a resolution promulgated on February 3, 1967, the Court of Appeals
certified the records of this case to the Supreme Court "considering that
the resolution of this appeal involves purely questions or question of law
over which this Court has no jurisdiction ... 2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay,
Jose L. Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc.
filed in the Court of first Instance of Negros Occidental, Branch I, against
"Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio
Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff
of Negros Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued
restraining the defendant Provincial Sheriff of Negros Occidental
from proceeding with the sales at public auction that he advertised
in two notices issued by him on May 18, 1959 in connection with
Civil Case No. 5223 of this Honorable Court, until further orders of

19

this Court; and to make said injunction permanent after hearing on

the merits
(2) That after hearing, the defendant partnership be
ordered; to pay to the plaintiff Manuel G. Singson the sum of
P3,723.50 plus 1% monthly interest thereon and 25% attorney's
fees, and costs; to pay to the plaintiff JoseBelzunce the sum of
P2,052.10, plus 6% annual interest thereon and 25% for attorney's
fees, and costs;to pay to the plaintiff Agustin E. Tonsay the sum of
P993.73 plus 6% annual interest thereon and 25% attorney's fees,
and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the
sum of P1,048.78, plus 6% annual interest thereon and 25%
attorney's fees, and costs; and to pay to the plaintiff Oppen,
Esteban, Inc. the sum of P1,350.89, plus 6% annual interest
thereon and 25% attorney's fees and costs:
(3) That the so-called Chattel Mortgage executed by the
defendant Leon Garibay and Timoteo Tubungbanua in favor of the
defendant Margarita G. Saldajeno on May 26, 1958 be declared null
and void being in fraud of creditors of the defendant partnership
and without valuable consideration insofar as the said defendant is
concerned:
(4) That the Honorable Court order the sale of public
auction of the assets of the defendnat partnership in case the
latter fails to pay the judgment that the plaintiffs may recover in
the action, with instructions that the proceeds of the sale b e
applied in payment of said judgment before any part of saod
proceeds is paid to the defendant Margarita G. Saldajeno
(5) That the defendant Leon Garibay, Timoteo
Tubungbanua, and Margarita G. Saldajeno be declared jointly liable
to the plaintifs for whatever deficiency may remain unpaid after
the proceeds of the sale of the assets of the defendnt partnership
are supplied in payment of the judgment that said plaintiffs may
recover in this action
(6) The plaintiffs further pray for all other remedies to
which the Honorable Court will find them entitled to, with costs to
the defendants.

xxx xxx xxx

2. That the defendant Isabela Sawmill has been dissolved by virtue
of an action entitled "In the matter of: Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al.,
Civil Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the
Court of First Instance of Negros Occidental in the aforesaid case, the other
defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua
became the successors-in-interest to the said defunct partnership and
have bound themselves to answere for any and all obligations of the
defunct partnership to its creditors and third persons;
4. That to secure the performance of the obligations of the other
defendants Leon Garibay and Timoteo Tubungbanua to the answering
defendant herein, the former have constituted a chattel mortgage over the
properties mentioned in the annexes to that instrument entitled
"Assignment of Rights with Chattel Mortgage" entered into on May 26,
1968 and duly registered in the Register of Deeds of Negros Occidental on
the same date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff
Oppen, Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo
Tubungbanua and not of the defunct Isabela Sawmill and as such they have
no cause of action against answering defendant herein and the defendant
Isabela Sawmill;
6. That all the plaintiffs herein, except for the plaintiff Oppen,
Esteban, Inc. granted cash advances, gasoline, crude oil, motor oil, grease,
rice and nipa to the defendants Leon Garibay and Timoteo Tubungbanua
with the knowledge and notice that the Isabela Sawmill as a former
partnership of defendants Margarita G. Isabela Sawmill as a former
partnership of defendants Margarita G. Saldajeno, Leon Garibay and
Timoteo Tubungbanua, has already been dissolved;
7. That this Honorable Court has no jurisdictionover the claims of
the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and
the Bacolod Southern Lumber Yard, it appearing that the amounts sought
to be recovered by them in this action is less than P2,000.00 each,
exclusive of interests;

Bacolod City, June 4, 1959. 3

The action was docketed as Civil Case No. 5343 of said court. In their
amended answer, the defendants Margarita G. Saldajeno and her husband,
Cecilio Saldajeno, alleged the following special and affirmative defenses:

8. That in so far as the claims of these alleged creditors plaintiffs

are concerned, there is a misjoinder of parties because this is not a class
suit, and therefore this Honorable Court cannot take jurisdictionof the
claims for payment;

20

9. That the claims of plaintiffs-creditors, except Oppen, Esteban,

Inc. go beyond the limit mentioned inthe statute of frauds, Art. 1403 of the
Civil Code, and are therefor unenforceable, even assuming that there were
such credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it
is well settled in law and in jurisprudence that a court of first instance has
no power or jurisdiction to annul judgments or decrees of a coordinate
court because other function devolves upon the proper appellate court;
(Lacuna, et al. vs. Ofilada, et al., G.R. No. L-13548, September 30, 1959;
Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1,
p.124), as it appears from the complaint in this case to annul the decision
of this same court, but of another branch (Branch II, Judge Querubin
presiding). 4
Said defendants interposed a cross-claim against the defendsants Leon
Garibay and Timoteo Tubungbanua praying "that in the event that
judgment be rendered ordering defendant cross claimant to pay to the
plaintiffs the amount claimed in the latter's complaint, that the cross
claimant whatever amount is paid by the latter to the plaintiff in
accordance to the said judgment. ... 5

IV.

THE COURT A QUO ERRED

PRELIMINARY INJUNCTION.

V.

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL

MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE
JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS
FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF
FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS NULL AND
VOID.

VI.

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES

ACQUIRED
BY
DEFENDANT-APPELLANT
MARGARITA
G.
SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO.
5223 CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT
PARTNERSHIP.

VII.

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANTAPPELLANT MARGARITA G. SALDAJENO BECAME PRIMARILY
LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED
THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE
CONDUCTED IN CONNECTION WITH CIVIL CASE NO. 5223.

VIII.

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF
MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA,
INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA
SAWMILL', AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP
IN WHICH SAID MARGARITA G. SALDAJENO WAS A PARTNER.

IX.

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFSAPPELLEES FOR ATTORNEY'S FEES.

X.

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT

OF THE PLAINTIFFS-APPELLEES.

XI.

THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF

DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST
CROSS-DEFENDANTS
LEON
GARIBAY
AND
TIMOTEO
TUBUNGBANUA. 6

After trial, judgment was rendered in favor of the plaintiffs and against the
defendants.
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno,
appealed to the Court of Appeals assigning the following errors:
I.

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER

THE CASE.

II.

THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH

REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA
SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL
CAUSED THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION"
OF SAID PARTNERSHIP.

III.

THE COURT A QUO ERRED IN OT HOLDING THAT THE

WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO AS A PARTNER THEREIN DISSOLVED THE
PARTNERSHIP "ISABELA SAWMILL" (FORMED ON JAN. 30, 1951
AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID
MARGARITA G. SALDAJENO).

IN ISSUING

THE

WRIT OF

The facts, as found by the trial court, are:

21

At the commencement of the hearing of the case on the merits the

plaintiffs and the defendant Cecilio and Margarita g. Saldajeno submittee a
Partial Stipulation of Facts that was marked as Exh. "A". Said stipulation
reads as folows:
1. That on January 30, 1951 the defendants Leon Garibay, Margarita G.
Saldejeno, and Timoteo Tubungbanua entered into a Contract of
Partnership under the firm name "Isabela Sawmill", a copy of which is
hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor
Truck and two Tractors to the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purcahse price, the said partnership
agreed to make arrangements with the International Harvester Company at
Bacolod City so that the latter would sell farm machinery to Oppen,
Esteban, Inc. with the understanding that the price was to be paid by the
partnership. A copy of the corresponding contract of sle is attached hereto
as Appendix "B".
3. That through the method of payment stipulated in the contract marked
as Appendix "B" herein, the International Harvester Company has been
paid a total of P19,211.11, leaving an unpaid balance of P1,288.89 as
shown in the statements hereto attached as Appendices "C", "C-1", and "C2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses
Cecilio Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill,
Leon Garibay, and Timoteo Tubungbanua, a copy of which Complaint is
attached as Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay, Timoteo
Tubungbanua and Margarita G. Saldajeno entered into a "Memorandum
Agreement", a copy of which is hereto attached as Appendix 'E' in Civil
Case 4797 of the Court of First Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay, Timoteo
Tubungbanua and Margarita G. Saldajeno executed a document entitled
"Assignment of Rights with Chattel Mortgage", a copy of which documents
and its Annexes "A" to "A-5" forming a part of the record of the above
mentioned Civil Case No. 4797, which deed was referred to in the Decision
of the Court ofFirst Instance of Negros Occidental in Civil Case No. 4797
dated May 29, 1958, a copy of which is hereto attached as Appendix "F"
and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua
did not divide the assets and properties of the "Isabela Sawmill" between

them, but they continued the business of said partnership under the same
firm name "Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental
published two (2) notices that he would sell at public auction on June 5,
1959 at Isabela, Negros Occidental certain trucks, tractors, machinery,
officeequipment and other things that were involved in Civil Case No. 5223
of the Court of First Instance of Negros Occidental, entitled "Margarita G.
Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental
executed a Certificate ofSale in favor of the defendant Margarita G.
Saldajeno, as a result of the sale conducted by him on October 14 and 15,
1959 for the enforcement of the judgment rendered in Civil Case No. 5223
of the Court of First Instance of Negros Occidental, a certified copy of which
certificte of sale is hereto attached as Appendix "H".
10. That on October 20, 1959 the defendant Margarita G. Saldajeno
executed a deed of sale in favor of the Pan Oriental Lumber Company
transfering to the latter for the sum of P45,000.00 the trucks, tractors,
machinery, and other things that she had purchashed at a public auction
referred to in the foregoing paragraph, a certified true copy of which Deed
of Sale is hereto attached as Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G.
Saldajeno reserve the right to present additional evidence at the hearing of
this case.
Forming parts of the above copied stipulation are documents that were
marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G",
"G-1", "H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno
presented additional evidence, mostly documentary, while the crossdefendants did not present any evidence. The case hardly involves
quetions of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff
Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of
an obligation of P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its
Appendices "B", "C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs.
"B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a
total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said

22

advances said defendant delivered to Tonsay P3,266.27 worth of lumber,

leavng an unpaid balance of P933.73, which balance was confirmed on
May 15, 1959 by the defendant Leon Garibay, as Manager of the defendant
partnership.
The plaintiff Manuel G. Singsong proved by his own testimony and by his
Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on
credit to the defendnat "Isabela Sawmill" rice and bran, on account of
which business transaction there remains an unpaid balance of P3,580.50.
The same plaintiff also proved that the partnership ownes him the sum of
P143.00 for nipa shingles bought from him on credit and unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his witness
Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia
Lumber Yard", that on October 11, 1958 said lumber yard advanced the
sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said
cash advance, the defendant partnership delivered to Guia Lumber Yard
P920.56 worth of lumber, leaving an outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the testimony
of the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October
11, 1958 said plaintiff advanced the sum of P1,500.00 to the defendsant
'Isabela Sawmill', that against the said cash advance, the defendant
partnership delivered to the said plaintiff on November 19, 1958 P377.72
worth of lumber, and P73.54 worth of lumber on January 27, 1959, leaving
an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay
whom he called as his witness, and through the Exhs. "R" to "E" that from
September 14, 1958 to November 27, 1958 he sold to the defedant
"Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on
account of said transactions, the defendant partnersip ownes him an
unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14,
1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendsant "Isabela Sawmill" which the
defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to
her, and said purchase price was applied to the judgment that she has
obtained against he said mortgagors in Civil Case No. 5223 of this Court.

xxx xxx xxx 7

It is contended by the appellants that the Court of First Instance of Negros
Occidental had no jurisdiction over Civil Case No. 5343 because the
plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the
Bacolod Southern Lumber Yard sought to collect sums of moeny, the
biggest amount of which was less than P2,000.00 and, therefore, within the
jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for
the nullity of the assignment of right with chattel mortgage entered into by
and between Margarita G. Saldajeno and her former partners Leon Garibay
and Timoteo Tubungbanua. This cause of action is not capable of pecuniary
estimation and falls under the jurisdiction of the Court of First Instnace.
Where the basic issue is something more than the right to recover a sum of
money and where the money claim is purely incidental to or a
consequence of the principal relief sought, the action is as a case where
the subject of the litigation is not capable of pecuniary estimation and is
cognizable exclusively by the Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority
thereof depends upon the nature of litigation, is defined in the amended
Judiciary Act, pursuant to which courts of first instance shall have exclusive
original jurisdiction over any case the subject matter of which is not
capable of pecuniary estimation. An action for the annulment of a
judgment and an order of a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not
capable of pecuniary estimation this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of money, the cliam is considered
capable of pecuniary estimation, and whether jurisdiciton is in the
municipal courts or in the courts of first instance would depend on the
amount of the claim. However, where the basic issue is something other
than the right to recover a sum of money, where the money claim is purely
incidental to, or a consequence of, the principal relief sought, this Court
has considered such actions as cases where the subject ogf the litigation
may not be estimated in terms of money, and are cognizable exclusively
by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held:

Appendix "I" of the same stipulation Exh. "A" shows that on October 20,
1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL
LUMBER COMPANY for P45,000.00 part of the said properties that she had
bought at public aucton one week before.

Actions for specific performance of contracts have been expressly

prounounced to be exclusively cognizable by courts of first instance: De
Jesus vs. Judge Garcia, L-26816, February 28, 1967;Manufacturers'
Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent

23

reason appears, and none is here advanced by the parties, why an actin for
rescission (or resolution) should be differently treated, a "rescission" being
a counterpart, so to speak, of "specific performance'. In both cases, the
court would certainly have to undertake an investigation into facts that
would justify one act of the other. No award for damages may be had in an
action for resicssion without first conducting an inquiry into matters which
would justify the setting aside of a contract, in the same manner that
courts of first instance would have to make findings of fact and law in
actions not capable of pecuniary estimnation espressly held to be so by
this Court, arising from issues like those arised in Arroz v. Alojado, et al., L22153, March 31, 1967 (the legality or illegality of the conveyance sought
for and the determination of the validity of the money deposit made); De
Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog
v. Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v.
Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right
to support created by the relation, etc., in actions for support); De Rivera,
et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of
documents upon which claims are predicated). Issues of the same nature
may be raised by a party against whom an action for rescission has been
brought, or by the plaintiff himself. It is, therefore, difficult to see why a
prayer for damages in an action for rescission should be taken as the basis
for concluding such action for resiccison should be taken as the basis for
concluding such action as one cpable of pecuniary estimation - a prayer
which must be included in the main action if plaintiff is to be compensated
for what he may have suffered as a result of the breach committed by
defendant, and not later on precluded from recovering damages by the
rule against splitting a cause of action and discouraging multiplicitly of
suits.
The foregoing doctrine was reiterated in The
Corporation vs. Tutaan, 10 where this Court held:

Good

Development

On the issue of which court has jurisdiction, the case of SENO vs.
Pastolante, et al., is in point. It was ruled therein that although the
purposes of an action is to recover an amount plus interest which comes
within the original jurisidction of the Justice of the Peace Court, yet when
said action involves the foreclosure of a chattel mortgage covering
personal properties valued at more than P2,000, (now P10,000.00) the
action should be instituted before the Court of First Instance.
In the instanct, case, the action is to recover the amount of
P1,520.00 plus interest and costs, and involves the foreclosure of a chattel
mortgage of personal properties valued at P15,340.00, so that it is clearly
within the competence of the respondent court to try and resolve.

In the light of the foregoing recent rulings, the Court of First Instance of
Negros Occidental did no err in exercising jurisidction over Civil Case No.
5343.
The appellants also contend that the chattel mortgage may no longer be
annulled because it had been judicially approved in Civil Case No. 4797 of
the Court of First Instance of Negros Occidental and said chattel mortgage
had been ordered foreclosed in Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a final judgment of another
court of co-equal, concurrent and coordinate jusridiction, this Court
originally ruled that:
A court has no power to interfere with the judgments or decrees of
a court of concurrent or coordinate jurisdiction having equal power to grant
the relief sought by the injunction.
The various branches of the Court of First Instance of Manila are in
a sense coordinate courts and cannot be allowed to interfere with each
others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case
said:

12

where this Court

The rule which prohibits a Judge from intertering with the

actuations of the Judge of another branch of the same court is not infringed
when the Judge who modifies or annuls the order isued by the other Judge
acts in the same case and belongs to the same court (Eleazar vs.
Zandueta, 48 Phil. 193. But the rule is infringed when the Judge of a branch
of the court issues a writ of preliminary injunction in a case to enjoint the
sheriff from carrying out an order by execution issued in another case by
the Judge of another branch of the same court. (Cabigao and Izquierdo vs.
Del Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment
sought to be annulled was rendered by the Court of First Instance of Iloilo
and the action for annullment was filed with the Court of First Instance of
Antique, both courts belonging to the same Judicial District. This Court held
that:
The power to open, modify or vacant a judgment is not
only possessed by but restricted to the court in which the
judgment was rendered.
The reason of this Court was:

24

Pursuant to the policy of judicial stability, the judgment of

a court of competent jurisdiction may not be interfered
with by any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of
a branch of the court of First Instance belongs solely to the very same
branch which rendered the judgement. 14
Two years later, the same doctrine was laid down in the Sterling
Investment case. 15
In December 1971, however, this court re-examined and reversed its
earlier doctrine on the matter. In Dupla v. Court of Appeals, 16 this Tribunal,
speaking through Mr. Justice Villamor declared:
... the underlying philosophy expressed in the Dumara-og
case, the policy of judicial stability, to the end that the
judgment of a court of competent jurisdiction may not be
interfered with by any court of concurrent jurisdiction may
not be interfered with by any court of concurrent
jurisdiciton, this Court feels that this is as good an occasion
as any to re-examine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's
cause of action springs from the alleged nullity of the
judgment based on one ground or another, particularly
fraud, which fact affords the plaintiff a right to judicial
interference in his behalf. In such a suit the cause of action
is entirely different from that in the actgion which grave
rise to the judgment sought to be annulled, for a direct
attack against a final and executory judgment is not a
incidental to, but is the main object of the proceeding. The
cause of action in the two cases being distinct and
separate from each other, there is no plausible reason why
the venue of the action to annul the judgment should
necessarily follow the venue of the previous action ...

annul final and executory judgment or order rendered by

another court of first instance or by another branch of the
same court...
In February 1974 this Court reiterated the ruling in the Dulap case. 17
In the light of the latest ruling of the Supreme Court, there is no doubt that
one branch of the Court of First Instance of Negros Occidental can take
cognizance of an action to nullify a final judgment of the other two
branches of the same court.
It is true that the dissolution of a partnership is caused by any partner
ceasing to be associated in the carrying on of the business. 18 However, on
dissolution, the partnershop is not terminated but continuous until the
winding up to the business. 19
The remaining partners did not terminate the business of the partnership
"Isabela Sawmill". Instead of winding up the business of the partnership,
they continued the business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement that the remaining
partners had constituted themselves as the partnership entity, the "Isabela
Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining
partners, Leon Garibay and Timoteo Tubungbanua, continued doing the
business of the partnership in the name of "Isabela Sawmill". They used
the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining
partners, Leon Garibay and Timoteo Tubungbanua, belonged to the
partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was
correctly held liable by the trial court because she purchased at public
auction the properties of the partnership which were mortgaged to her.

The present doctrine which postulate that one court or one

branch of a court may not annul the judgment of another
court or branch, not only opens the door to a violation of
Section 2 of Rule 4, (of the Rules of Court) but also limit the
opportunity for the application of said rule.

It does not appear that the withdrawal of Margarita G. Saldajeno from the
partnership was published in the newspapers. The appellees and the public
in general had a right to expect that whatever, credit they extended to
Leon Garibay and Timoteo Tubungbanua doing the business in the name of
the partnership "Isabela Sawmill" could be enforced against the proeprties
of said partnership. The judicial foreclosure of the chattel mortgage
executed in favor of Margarita G. Saldajeno did not relieve her from liability
to the creditors of the partnership.

Our conclusion must therefore be that a court of first

instance or a branch thereof has the authority and
jurisdiction to take cognizance of, and to act in, suit to

The appellant, margrita G. Saldajeno, cannot complain. She is partly to

blame for not insisting on the liquidaiton of the assets of the partnership.
She even agreed to let Leon Garibay and Timoteo Tubungbanua continue

25

doing the business of the partnership "Isabela Sawmill" by entering into

the memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in
good faith, the appellees aslo acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the
consequences. Had Margarita G. Saldajeno not entered into the
memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua
to continue doing the business of the aprtnership, the applees would not
have been misled into thinking that they were still dealing with the
partnership "Isabela Sawmill". Under the facts, it is of no moment that
technically speaking the partnership "Isabela Sawmill" was dissolved by
the withdrawal therefrom of Margarita G. Saldajeno. The partnership was
not terminated and it continued doping business through the two
remaining partners.

and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay

and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from
any obligation of "Isabela Sawmill" to third persons.22
WHEREFORE, the decision appealed from is hereby affirmed with the
elimination of the portion ordering appellants to pay attorney's fees and
with the modification that the defendsants, Leon Garibay and Timoteo
Tubungbanua, should reimburse the defendants-appellants, Margarita G.
Saldajeno and her husband Cecilio Saldajeno, whatever they shall pay to
the plaintiffs-appellees, without pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero, De Castro and MelencioHerrera, JJ., concur.

The contention of the appellant that the appleees cannot bring an action to
annul the chattel mortgage of the propertiesof the partnership executed by
Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno
has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto.
However, when a contract prejudices the rights of a third person, he may
file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or
subsidiarily under a contract, may exercised an action for nullity of the
contract if he is prejudiced in his rights with respect to one of the
contracting parties, and can show detriment which would positively result
to him from the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of
the chattel mortgage over the properties of the partnership "Isabela
Sawmill" in favopr of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right
to file the action to nullify the chattel mortgage in question.
The portion of the decision appealed from ordering the appellants to pay
attorney's fees to the plaintiffs-appellees cannot be sustained. There is no
showing that the appellants displayed a wanton disregard of the rights of
the plaintiffs. Indeed, the appellants believed in good faith, albeit
erroneously, that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever
amounts they shall pay the appellees by their co-defendants Leon Garibay

26

G.R. No. 97212 June 30, 1993

BENJAMIN
YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN
PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL,
LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the
marble quarrying and export business operated by a registered partnership
with the firm name of "Jade Mountain Products Company Limited" ("Jade
Mountain"). The partnership was originally organized on 28 June 1984 with
Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng,
Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as
limited partners. The partnership business consisted of exploiting a marble
deposit found on land owned by the Sps. Ricardo and Guillerma Cruz,
situated in Bulacan Province, under a Memorandum Agreement dated 26
June 1984 with the Cruz spouses. 1 The partnership had its main office in
Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14
March 1985, as Assistant General Manager with a monthly salary of
P4,000.00. According to petitioner Yu, however, he actually received only
half of his stipulated monthly salary, since he had accepted the promise of
the partners that the balance would be paid when the firm shall have
secured additional operating funds from abroad. Benjamin Yu actually
managed the operations and finances of the business; he had overall
supervision of the workers at the marble quarry in Bulacan and took charge
of the preparation of papers relating to the exportation of the firm's
products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their
interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and
transferred his interest in the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy Co acquired the
great bulk of the partnership interest. The partnership now constituted
solely by Willy Co and Emmanuel Zapanta continued to use the old firm
name of Jade Mountain, though they moved the firm's main office from

Makati to Mandaluyong, Metropolitan Manila. A Supplement to the

Memorandum Agreement relating to the operation of the marble quarry
was entered into with the Cruz spouses in February of 1988. 2 The actual
operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save
petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main
office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the
Mandaluyong office for work and there met private respondent Willy Co for
the first time. Petitioner was informed by Willy Co that the latter had
bought the business from the original partners and that it was for him to
decide whether or not he was responsible for the obligations of the old
partnership, including petitioner's unpaid salaries. Petitioner was in fact not
allowed to work anymore in the Jade Mountain business enterprise. His
unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal
and recovery of unpaid salaries accruing from November 1984 to October
1988, moral and exemplary damages and attorney's fees, against Jade
Mountain, Mr. Willy Co and the other private respondents. The partnership
and Willy Co denied petitioner's charges, contending in the main that
Benjamin Yu was never hired as an employee by the present or new
partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision
holding that petitioner had been illegally dismissed. The Labor Arbiter
decreed his reinstatement and awarded him his claim for unpaid salaries,
backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the
decision of the Labor Arbiter and dismissed petitioner's complaint in a
Resolution dated 29 November 1990. The NLRC held that a new
partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had
bought the Jade Mountain business, that the new partnership had not
retained petitioner Yu in his original position as Assistant General Manager,
and that there was no law requiring the new partnership to absorb the
employees of the old partnership. Benjamin Yu, therefore, had not been
illegally dismissed by the new partnership which had simply declined to
retain him in his former managerial position or any other position. Finally,
the NLRC held that Benjamin Yu's claim for unpaid wages should be
asserted against the original members of the preceding partnership, but
these though impleaded had, apparently, not been served with summons
in the proceedings before the Labor Arbiter. 6

27

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari,

asking us to set aside and annul the Resolution of the NLRC as a product of
grave abuse of discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the
principle that a partnership has a juridical personality separate and distinct
from that of each of its members. Such independent legal personality
subsists, petitioner claims, notwithstanding changes in the identities of the
partners. Consequently, the employment contract between Benjamin Yu
and the partnership Jade Mountain could not have been affected by
changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar:
(1) whether the partnership which had hired petitioner Yu as Assistant
General Manager had been extinguished and replaced by a new
partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if
indeed a new partnership had come into existence, whether petitioner Yu
could nonetheless assert his rights under his employment contract as
against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC,
that is, that the legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co
and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite
unaware is found in the Civil Code provisions relating to partnerships.
Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding
up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the
partners;
xxx xxx xxx (b) by the express will of any partner, who
must act in good faith, when no definite term or particular
undertaking is specified; xxx xxx xxx

(2) in contravention of the agreement between the

partners, where the circumstances do not permit a
dissolution under any other provision of this article, by the
express will of any partner at any time; xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership
interests (amounting to 82% of the total partnership interest) to Mr. Willy
Co and Emmanuel Zapanta. The record does not show what happened to
the remaining 18% of the original partnership interest. The acquisition of
82% of the partnership interest by new partners, coupled with the
retirement or withdrawal of the partners who had originally owned such
82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of
dissolution of a partnership do not, however, automatically result in the
termination of the legal personality of the old partnership. Article 1829 of
the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring
partnership persists for the limited purpose of winding up and closing of
the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing the
procedures relating to dissolution and winding up of its business affairs. In
other words, the new partnership simply took over the business enterprise
owned by the preceeding partnership, and continued using the old name of
Jade Mountain Products Company Limited, without winding up the business
affairs of the old partnership, paying off its debts, liquidating and
distributing its net assets, and then re-assembling the said assets or most
of them and opening a new business enterprise. There were, no doubt,
powerful tax considerations which underlay such an informal approach to
business on the part of the retiring and the incoming partners. It is not,
however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described
situation, not only the retiring partners (Rhodora Bendal, et al.)
but also the new partnership itself which continued the business of the old,
dissolved, one, are liable for the debts of the preceding partnership.
In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts
very similar to those in the case at bar, a withdrawing partner remains
liable to a third party creditor of the old partnership. 9 The liability of the
new partnership, upon the other hand, in the set of circumstances

28

obtaining in the case at bar, is established in Article 1840 of the Civil Code
which reads as follows:
Art. 1840. In the following cases creditors of the dissolved
partnership are also creditors of the person or partnership
continuing the business:
(1) When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or the
representative of the deceased partner assigns) his rights in
partnership property to two or more of the partners, or to one or
more of the partners and one or more third persons, if the business
is continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights in
partnership property to the remaining partner, who continues the
business without liquidation of partnership affairs, either alone or
with others;
(3) When any Partner retires or dies and the business of
the dissolved partnership is continued as set forth in Nos. 1 and 2
of this Article, with the consent of the retired partners or the
representative of the deceased partner, but without any
assignment of his right in partnership property;
(4) When all the partners or their representatives assign
their rights in partnership property to one or more third
persons who promise to pay the debts and who continue the
business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and
remaining partners continue the businessunder the provisions of
article 1837, second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or with others without
liquidation of the partnership affairs;
The
partnership
creditors of
partnership
contrary.

liability of a third person becoming a partner in

continuing the business, under this article, to
the dissolved partnership shall be satisfied out of
property only, unless there is a stipulation to

the
the
the
the

When the business of a partnership after dissolution is

continued under any conditions set forth in this article the creditors
of the retiring or deceased partner or the representative of the
deceased partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner against the
person or partnership continuing the business on account of the
retired or deceased partner's interest in the dissolved partnership
or on account of any consideration promised for such interest or for
his right in partnership property.
Nothing in this article shall be held to modify any right of
creditors to set assignment on the ground of fraud. xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also
creditors of the new Jade Mountain which continued the business of the old
one without liquidation of the partnership affairs. Indeed, a creditor of the
old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for
unpaid wages, is entitled to priority vis-a-vis any claim of any retired or
previous partner insofar as such retired partner's interest in the dissolved
partnership is concerned. It is not necessary for the Court to determine
under which one or mare of the above six (6) paragraphs, the case at bar
would fall, if only because the facts on record are not detailed with
sufficient precision to permit such determination. It is, however, clear to
the Court that under Article 1840 above, Benjamin Yu is entitled to enforce
his claim for unpaid salaries, as well as other claims relating to his
employment with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership
was entitled to appoint and hire a new general or assistant general
manager to run the affairs of the business enterprise take over. An
assistant general manager belongs to the most senior ranks of
management and a new partnership is entitled to appoint a top manager
of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful
termination, or termination without just or authorized cause. We think that
the precise authorized cause for termination in the case at bar
was redundancy. 10 The new partnership had its own new General
Manager, apparently Mr. Willy Co, the principal new owner himself, who
personally ran the business of Jade Mountain. Benjamin Yu's old position as
Assistant General Manager thus became superfluous or redundant. 11 It
follows that petitioner Benjamin Yu is entitled to separation pay at the rate
of one month's pay for each year of service that he had rendered to the old
partnership, a fraction of at least six (6) months being considered as a
whole year.

29

While the new Jade Mountain was entitled to decline to retain petitioner
Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily
treated by the new partnership. The old partnership certainly benefitted
from the services of Benjamin Yu who, as noted, previously ran the whole
marble quarrying, processing and exporting enterprise. His work
constituted value-added to the business itself and therefore, the new
partnership similarly benefitted from the labors of Benjamin Yu. It is worthy
of note that the new partnership did not try to suggest that there was any
cause consisting of some blameworthy act or omission on the part of Mr. Yu
which compelled the new partnership to terminate his services.
Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade
Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co
of control of operations. The treatment (including the refusal to honor his
claim for unpaid wages) accorded to Assistant General Manager Benjamin
Yu was so summary and cavalier as to amount to arbitrary, bad faith
treatment, for which the new Jade Mountain may legitimately be required
to respond by paying moral damages. This Court, exercising its discretion
and in view of all the circumstances of this case, believes that an
indemnity for moral damages in the amount of P20,000.00 is proper and
reasonable.

(d) six percent (6%) per annum legal interest computed on items (a) and
(b) above, commencing on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private
respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

In addition, we consider that petitioner Benjamin Yu is entitled to interest

at the legal rate of six percent (6%) per annum on the amount of unpaid
wages, and of his separation pay, computed from the date of promulgation
of the award of the Labor Arbiter. Finally, because the new Jade Mountain
compelled Benjamin Yu to resort to litigation to protect his rights in the
premises, he is entitled to attorney's fees in the amount of ten percent
(10%) of the total amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED
DUE COURSE, the Comment filed by private respondents is treated as their
Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29
November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is
hereby ENTERED requiring private respondent Jade Mountain Products
Company Limited to pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six (36)
months (November 1984 to December 1987) in the total amount of
P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay
multiplied by three (3) years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;

30

31

G.R. No. 167379

June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and

RAFAELITO
W.
LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME
TEODORO T. LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
DECISION

existing laws and the rules and regulations of appropriate

government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances
needed for the projects;
c.) Furnish all materials, equipment, labor and services for the
development of the land in preparation for the construction and
sale of the different types of units (single-detached, duplex/twin,
cluster and row house);

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997
Rules of Civil Procedure of the Decision 1of the Court of Appeals (CA) in CAG.R. CV No. 69200 and its Resolution 2 denying petitioners motion for
reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is
a domestic corporation engaged in real estate development. Rafaelito W.
Lopez is its President and Chief Executive Officer. 3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime
T. Lazatin and Jose Marcos T. Lazatin (the Lazatins for brevity), are coowners of two (2) adjoining parcels of land, with a combined area of 30,000
square meters, located in Tagaytay City and covered by Transfer Certificate
of Title (TCT) No. T-108484 of the Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in
his capacity as President, entered into a Joint Venture Agreement 5 (JVA) for
the development of the aforementioned property into a residential
subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the
Lazatin siblings obliged themselves to contribute the two parcels of land as
their share in the joint venture. For its part, Primelink undertook to
contribute money, labor, personnel, machineries, equipment, contractors
pool, marketing activities, managerial expertise and other needed
resources to develop the property and construct therein the units for sale
to the public. Specifically, Primelink bound itself to accomplish the
following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans,
engineering designs, structural and architectural plans, site
development plans, and such other need plans in accordance with

d.) Guarantee completion of the land development work if not

prevented by force majeure or fortuitous event or by competent
authority, or other unavoidable circumstances beyond the
DEVELOPERS control, not to exceed three years from the date of
the signing of this Joint Venture Agreement, except the installation
of the electrical facilities which is solely MERALCOS responsibility;
e.) Provide necessary manpower resources, like executive and
managerial officers, support personnel and marketing staff, to
handle all services related to land and housing development
(administrative and construction) and marketing (sales, advertising
and promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the
LANDOWNER can draw allowances or make advances not
exceeding a total of twenty percent (20%) of the net revenue for
that period, on the basis of sixty percent (60%) for the DEVELOPER
and forty percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent
(20%) of the net revenue for the first two years, in order to have
sufficient reserves or funds to protect and/or guarantee the
construction and completion of the different types of units
mentioned above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be
entitled to drawing allowances and/or advances equivalent to sixty
percent (60%) and forty percent (40%), respectively, of the total
net revenue or income of the sale of the units.7

32

They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the
net revenue or income of the Joint Venture project, after deducting
all expenses incurred in connection with the land development
(such as administrative management and construction expenses),
and marketing (such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the
net revenue or income of the Joint Venture project, after deducting
all the above-mentioned expenses.8

COMPUTATION OF ADDL. INCOME ON INTEREST

TCP
D/P

30%

Balance
70%

= P 69,360,000

P 69,360,000.00

= 161,840,000

x .03069 x 48 = P238,409,740

238,409,740.00

Total Amount (TCP + int. earn.)

P307,769,740.0
0

EXPENSES:
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost
of the project:
SALES-INCOME-COST PROJECTION
lawphil.net
SELLING PRICE

COST PRICE

DIFFERENCE

INCOME

less: A

Building expenses

P 92,480,000.00

Commission (8% of TCP)

18,496,000.00

Admin. & Mgmt. expenses (2% of TCP)

4,624,000.00

Advertising & Promo exp. (2% of TCP)

4,624,000.00

Building expenses for the open

spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000
sqms.
12,000,000.00

CLUSTER:
A1 3,200,000

A2 1,260,000

1,940,000
24

= P 46,560,000.00

TWIN:
B1 2,500,000

B2 960,000

1,540,000
24

C2 1,400,000

2,100,000
=
16

= 36,960,000.00

SINGLE:
C1 3,500,000

= 33,600,000.00

ROW-TYPE TOWNHOMES:
D1 1,600,000

D2 700,000

= 900,000 x 24

= 21,600,000.00
P138,720,000.0
0

(GROSS)

P231,200,000.0
0

Total Cash Price (A1+B1+C1+D1)

Total
Building
(A2+B2+C2+D2)

= 92,480,000.00

Expense

TOTAL EXPENSES (A+B+C+D+E)

P132,224,000.0
0

RECONCILIATION OF INCOME VS. EXPENSES

Total Projected Income (incl. income from interest P307,769,740.0
earn.)
0
less:

132,224,000.00

Total Expenses

P175,545,740.0
09

The parties agreed that any unsettled or unresolved misunderstanding or

conflicting opinions between the parties relative to the interpretation,
scope and reach, and the enforcement/implementation of any provision of
the agreement shall be referred to Voluntary Arbitration in accordance with
the Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an
escrow agreement. Conformably with the escrow agreement, the owners

33

duplicate of the title was deposited with the China Banking

Corporation.11 However, Primelink failed to immediately secure a
Development Permit from Tagaytay City, and applied the permit only on
August 30, 1995. On October 12, 1995, the City issued a Development
Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded
that Primelink comply with its obligations under the JVA, otherwise the
appropriate action would be filed against it to protect their rights and
interests. This impelled the officers of Primelink to meet with the Lazatins
and enabled the latter to review its business records/papers. In another
Letter14 dated October 22, 1997, the Lazatins informed Primelink that they
had decided to rescind the JVA effective upon its receipt of the said letter.
The Lazatins demanded that Primelink cease and desist from further
developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional
Trial Court (RTC) of Tagaytay City, Branch 18, a complaint for rescission
accounting and damages, with prayer for temporary restraining order
and/or preliminary injunction against Primelink and Lopez. The case was
docketed as Civil Case No. TG-1776. Plaintiffs alleged, among others, that,
despite the lapse of almost four (4) years from the execution of the JVA and
the delivery of the title and possession of the land to defendants, the land
development aspect of the project had not yet been completed, and the
construction of the housing units had not yet made any headway, based on
the following facts, namely: (a) of the 50 housing units programmed for
Phase I, only the following types of houses appear on the site in these
condition: (aa) single detached, one completed and two units
uncompleted; (bb) cluster houses, one unit nearing completion; (cc)
duplex, two units completed and two units unfinished; and (dd) row
houses, two units, completed; (b) in Phase II thereof, all that was done by
the defendants was to grade the area; the units so far constructed had
been the object of numerous complaints by their owners/purchasers for
poor workmanship and the use of sub-standard materials in their
construction, thus, undermining the projects marketability. Plaintiffs also
alleged that defendants had, without justifiable reason, completely
disregarded previously agreed accounting and auditing procedures, checks
and balances system installed for the mutual protection of both parties,
and the scheduled regular meetings were seldom held to the detriment
and disadvantage of plaintiffs. They averred that they sent a letter through
counsel, demanding compliance of what was agreed upon under the
agreement but defendants refused to heed said demand. After a
succession of letters with still no action from defendants, plaintiffs sent a
letter on October 22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and
submitted by defendants, they (plaintiffs) stood to receive the amount

of P70,218,296.00 as their net share in the joint venture project; to date,

however, after almost four (4) years and despite the undertaking in the JVA
that plaintiffs shall initially get 20% of the agreed net revenue during the
first two (2) years (on the basis of the 60%-40% sharing) and their full 40%
share thereafter, defendants had yet to deliver these shares to plaintiffs
which by conservative estimates would amount to no less
than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their
favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a
temporary restraining order be forthwith issued enjoining the defendants
to immediately stop their land development, construction and marketing of
the housing units in the aforesaid project; after due proceedings, to issue a
writ of preliminary injunction enjoining and prohibiting said land
development, construction and marketing of housing units, pending the
disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the
plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject
parcels of land;
3. Ordering the defendants to render an accounting of all income
generated as well as expenses incurred and disbursement made in
connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the
plaintiffs the amount Forty Million Pesos (P40,000,000.00) in actual
and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the
plaintiffs the amount of Two Million Pesos (P2,000,000.00) in
exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the
plaintiffs the amount equivalent to ten percent (10%) of the total
amount due as and for attorneys fees; and

34

8. To pay the costs of this suit.

Other reliefs and remedies as are just and equitable are likewise being
prayed for.16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on
the ground that plaintiffs complaint was premature, due to their failure to
refer their complaint to a Voluntary Arbitrator pursuant to the JVA in
relation to Section 2 of Republic Act No. 876 before filing their complaint in
the RTC. They prayed for the dismissal of the complaint under Section 1(j),
Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of
the aforecited Rules of Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by
filing the demand to arbitrate, and then asking the parties to
resolve their controversies, pursuant to the Arbitration Law, or in
the alternative;
c) staying or suspending the proceedings in captioned case until
the completion of the arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary
restraining order or writ of preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed
for.17
In the meantime, before the expiration of the reglementary period to
answer the complaint, defendants, invoking their counsels heavy
workload, prayed for a 15-day extension 18 within which to file their answer.
The additional time prayed for was granted by the RTC. 19 However, instead
of filing their answer, defendants prayed for a series of 15-day extensions
in eight (8) successive motions for extensions on the same
justification.20 The RTC again granted the additional time prayed for, but in
granting the last extension, it warned against further extension. 21 Despite
the admonition, defendants again moved for another 15-day
extension,22 which, this time, the RTC denied. No answer having been filed,
plaintiffs moved to declare the defendants in default, 23 which the RTC
granted in its Order24dated June 24, 1998.

On June 25, 1998, defendants filed, via registered mail, their "Answer with
Counterclaim and Opposition to the Prayer for the Issuance of a Writ of
Preliminary Injunction."25 On July 8, 1998, defendants filed a Motion to Set
Aside the Order of Default. 26 This was opposed by plaintiffs. 27 In an
Order28 dated July 14, 1998, the RTC denied defendants motion to set
aside the order of default and ordered the reception of plaintiffs evidence
ex parte. Defendants filed a motion for reconsideration 29 of the July 14,
1998 Order, which the RTC denied in its Order 30dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order
declaring them in default, as well as the Order denying their motion to set
aside the order of default, alleging that these were contrary to facts of the
case, the law and jurisprudence. 31 On September 16, 1999, the appellate
court issued a Resolution32 dismissing the appeal on the ground that the
Orders appealed from were interlocutory in character and, therefore, not
appealable. No motion for reconsideration of the Order of the dismissal was
filed by defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and
documentary evidence. On April 17, 2000, the RTC rendered a Decision,
the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the
date of filing of this complaint;
2. Ordering the defendants to return possession, including all
improvements therein, of the real estate property belonging to the
plaintiffs which is described in, and covered by Transfer Certificate
of Title No. T-10848 of the Register of Deeds of Tagaytay City, and
located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or
papers that have been executed, prepared and retained in
connection with any contract to sell or deed of sale of all lots/units
sold during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum
of P1,041,524.26 representing their share of the net income of
the P2,603,810.64 as of September 30, 1995, as stipulated in the
joint venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in
the amount of P104,152.40;

35

6. Ordering the defendants to pay the costs.

SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants
of the stipulations particularly paragraph II covering Developers
(defendant) undertakings, as well as paragraph III and paragraph V of the
JVA. These violations are not limited to those made against the plaintiffs
alone as it appears that some of the unit buyers themselves have their
own separate gripes against the defendants as typified by the letters
(Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony
of Mrs. Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as
well as submarkings, pp. 60 to 62, TSN August 6, 1998) this court has
observed, and is thus convinced, that a pattern of what appears to be a
scheme or plot to reduce and eventually blot out the net income generated
from sales of housing units by defendants, has been established. Exhibit
"P-2" is explicit in declaring that, as of September 30, 1995, the joint
venture project earned a net income of aboutP2,603,810.64. This amount,
however, was drastically reduced in a subsequent financial report
submitted by the defendants to P1,954,216.39. Shortly thereafter, and to
the dismay of the plaintiffs, the defendants submitted an income
statement and a balance sheet (Exhibits "R" and "R-1") indicating a net
loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs
should have received the sum ofP1,041,524.26 representing their 40%
share under paragraph II and V of the JVA. But this was not to be so. Even
before the plaintiffs could get hold of their share as indicated above, the
defendants closed the chance altogether by declaring a net loss. The court
perceives this to be one calculated coup-de-grace that would put to thin air
plaintiffs hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for
speculation. The way the defendants treated the JVA and the manner by
which they handled the project itself vis--vis their partners, the plaintiffs
herein, there is bound to be certain conflict as the latter repeatedly would
received the losing end of the bargain.

Under the intolerable circumstances, the plaintiffs could not have opted for
some other recourse but to file the present action to enforce their rights. x
x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending
Appeal35 alleging defendants dilatory tactics for its allowance. This was
opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending
appeal in favor of plaintiffs. 37 Upon posting a bond of P1,000,000.00 by
plaintiffs, a writ of execution pending appeal was issued on June 20,
2000.38
Defendants appealed the decision to the CA on the following assignment of
errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST
REFERRING THE COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876),
CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER
THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO
PORTLAND CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION
COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING
APPEAL EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO
JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINKS STRONG OPPOSITION
THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO
QUASH THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR
RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS
JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT
ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND
HAS SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE

36

APPELLEES FAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE

SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE
RIGHT TO TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR
THEMSELVES ALL THE EXISTING IMPROVEMENTS INTRODUCED THEREIN BY
PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED
FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE
HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST
REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE
MARKET VALUE OF APPELLEES RAW, UNDEVELOPED AND UNPRODUCTIVE
LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS
FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE
HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY
ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE
OF PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with
modification, the appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional
Trial Court of Tagaytay City, Branch 18, promulgated on April 17, 2000 in
Civil Case No. TG-1776, is hereby AFFIRMED. Accordingly, Transfer
Certificate of Title No. T-10848 held for safekeeping by Chinabank pursuant
to the Escrow Agreement is ordered released for return to the plaintiffsappellees and conformably with the affirmed decision, the cancellation by
the Register of Deeds of Tagaytay City of whatever annotation in TCT No.
10848 by virtue of the Joint Venture Agreement, is now proper.

1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND

REVERSIBLE LEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION
IN ORDERING THE RETURN TO THE RESPONDENTS OF THE
PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT
ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY OR
REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN
DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL
VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS
FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY,
OPPRESSIVE AND UNCONSCIONABLE, CONTRARY TO THE TENETS
OF GOOD HUMAN RELATIONS AND VIOLATIVE OF EXISTING LAWS
AND JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT, UNJUST
ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES
MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OF
PROPERTY BELONGING TO ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which
unconditionally awards to respondents "all improvements" on the project
without requiring them to pay the value thereof or to reimburse Primelink
for all expenses incurred therefore is inherently and essentially illegal and
confiscatory, oppressive and unconscionable, contrary to the tenets of
good human relations, and will allow respondents to unjustly enrich
themselves at Primelinks expense. At the time respondents contributed
the two parcels of land, consisting of 30,000 square meters to the joint
venture project when the JVA was signed on March 10, 1994, the said
properties were worth not more than P500.00 per square meter, the "price
tag" agreed upon the parties for the purpose of the JVA. Moreover, before
respondents rescinded the JVA sometime in October/November 1997, the
property had already been substantially developed as improvements had
already been introduced thereon; petitioners had likewise incurred
administrative and marketing expenses, among others, amounting to more
or less P40,000,000.00.45

SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation,41 the appellate court ruled that, under Philippine law, a joint
venture is a form of partnership and is to be governed by the laws of
partnership.
The
aggrieved
parties
filed
a
motion
for
reconsideration,42 which the CA denied in its Resolution 43 dated March 7,
2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging
that:

Petitioners point out that respondents did not pray in their complaint that
they be declared the owners and entitled to the possession of the
improvements made by petitioner Primelink on the property; neither did
they adduce evidence to prove their entitlement to said improvements. It
follows, petitioners argue, that respondents were not entitled to the
improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission
shall be only to the extent necessary to cover the damages caused and
that, under Article 1385 of the same Code, rescission creates the obligation
to return the things which were not object of the contract, together with
their fruits, and the price with its interest; consequently, it can be effected

37

only when respondents can return whatever they may be obliged to return.
Respondents who sought the rescission of the JVA must place petitioner
Primelink in the status quo. They insist that respondents cannot rescind
and, at the same time, retain the consideration, or part of the
consideration received under the JVA. They cannot have the benefits of
rescission without assuming its burden. All parties must be restored to
their original positions as nearly as possible upon the rescission of a
contract. In the event that restoration to the status quo is impossible,
rescission may be granted if the Court can balance the equities and fashion
an appropriate remedy that would be equitable to both parties and afford
complete relief.
Petitioners insist that being defaulted in the court a quo would in no way
defeat their claim for reimbursement because "[w]hat matters is that the
improvements exist and they cannot be denied." 46 Moreover, they point
out, the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein
(plaintiffs below) did not specifically pray for their takeover of the property
and for the possession of the improvements on the parcels of land,
nevertheless, respondents were entitled to said relief as a necessary
consequence of the ruling of the trial court ordering the rescission of the
JVA. The appellate court cited the ruling of this Court in the Aurbach case
and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed
by their agreement. When the agreement is silent on any particular issue,
the general principles of partnership may be resorted to. 48
Respondents, for their part, assert that Articles 1380 to 1389 of the New
Civil Code deal with rescissible contracts. What applies is Article 1191 of
the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons

who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the
improvements because, as found by the RTC and the CA, it was petitioner
Primelink that enriched itself at the expense of respondents. Respondents
reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did
not prove and did not pray that they are and should be entitled to take
over the development of the project, and that the improvements and
existing structures which were introduced by PRIMELINK after spending
more or less Forty Million Pesos be awarded to them. They merely asked
in the complaint that the joint venture agreement be rescinded, and that
the parcels of land they contributed to the project be returned to them.
PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to
return possession of the real estate property belonging to the LAZATINs
including all improvements thereon was not a judgment that was different
in kind than what was prayed for by the LAZATINs. The order to return the
property with all the improvements thereon is just a necessary
consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed
by their agreement. When the agreement is silent on any particular issue,
the general principles of partnership may be resorted to. In Aurbach v.
Sanitary Wares Manufacturing Corporation, the Supreme Court discussed
the following points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership,
since elements are similar community of interest in the business, sharing
of profits and losses, and a mutual right of control. (Blackner v. McDermott,
176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley
v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main
distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App.
170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74
[1947]; Gates v. Megargel, 266 Fed. 811 [1920]) This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership
may have for its object a specific undertaking. (Art. 1783, Civil Code). It

38

would seem therefore that, under Philippine law, a joint venture is a form of
partnership and should thus be governed by the laws of partnership. The
Supreme Court has, however, recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into
a partnership contract, it may, however, engage in a joint venture with
others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]; Campos and
Lopez Campos Comments, Notes and Selected Cases, Corporation Code
1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which,
in the words of the court a quo, was a pattern of what appears to be a
scheme or plot to reduce and eventually blot out the net incomes
generated from sales of housing units by the defendants. Under Article
1838 of the Civil Code, where the partnership contract is rescinded on the
ground of the fraud or misrepresentation of one of the parties thereto, the
party entitled to rescind is, without prejudice to any other right is entitled
to a lien on, or right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to third persons for any
sum of money paid by him for the purchase of an interest in the
partnership and for any capital or advance contributed by him. In the
instant case, the joint venture still has outstanding liabilities to third
parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is
now held by Chinabank for safekeeping pursuant to the Escrow Agreement
executed between Primelink Properties and Development Corporation and
Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as a
necessary consequence of the order of rescission of contract. The reason
for the existence of the Escrow Agreement has ceased to exist when the
joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they
may have suffered. They likewise stress that they did not enrich
themselves at the expense of petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents
to retain the improvements even if their share in the P1,041,524.26 of the
net income of the property and the sale of the land were to be deducted
from the value of the improvements, plus administrative and marketing
expenses in the total amount of P40,000,000.00. Petitioners will still be
entitled to an accounting from respondents. Respondents cannot deny the
existence and nature of said improvements as they are visible to the naked
eye.
The threshold issues are the following: (1) whether respondents are
entitled to the possession of the parcels of land covered by the JVA and the
improvements thereon introduced by petitioners as their contribution to

the JVA; (2) whether petitioners are entitled to reimbursement for the value
of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not
specifically pray in their complaint below that possession of the
improvements on the parcels of land which they contributed to the JVA be
transferred to them. Respondents made a specific prayer in their complaint
that, upon the rescission of the JVA, they be placed in possession of the
parcels of land subject of the agreement, and for other "reliefs and such
other remedies as are just and equitable in the premises." However, the
trial court was not precluded from awarding possession of the
improvements on the parcels of land to respondents in its decision. Section
2(c), Rule 7 of the Rules of Court provides that a pleading shall specify the
relief sought but it may add as general prayer for such further or other
relief as may be deemed just and equitable. Even without the prayer for a
specific remedy, proper relief may be granted by the court if the facts
alleged in the complaint and the evidence introduced so warrant. 50 The
court shall grant relief warranted by the allegations and the proof even if
no such relief is prayed for. 51 The prayer in the complaint for other reliefs
equitable and just in the premises justifies the grant of a relief not
otherwise specifically prayed for.52
The trial court was not proscribed from placing respondents in possession
of the parcels of land and the improvements on the said parcels of land. It
bears stressing that the parcels of land, as well as the improvements made
thereon, were contributed by the parties to the joint venture under the JVA,
hence, formed part of the assets of the joint venture. 53 The trial court
declared that respondents were entitled to the possession not only of the
parcels of land but also of the improvements thereon as a consequence of
its finding that petitioners breached their agreement and defrauded
respondents of the net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink
and respondents entered into a joint venture as evidenced by their JVA
which, under the Courts ruling in Aurbach, is a form of partnership, and as
such is to be governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the
evidence on record that petitioners willfully and persistently committed a
breach of the JVA, the court thereby dissolved/cancelled the
partnership.54With the rescission of the JVA on account of petitioners
fraudulent acts, all authority of any partner to act for the partnership is
terminated except so far as may be necessary to wind up the partnership
affairs or to complete transactions begun but not yet finished. 55 On
dissolution, the partnership is not terminated but continues until the

39

winding up of partnership affairs is completed. 56 Winding up means the

administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the
partnership.
The transfer of the possession of the parcels of land and the improvements
thereon to respondents was only for a specific purpose: the winding up of
partnership affairs, and the partition and distribution of the net partnership
assets as provided by law. 57 After all, Article 1836 of the New Civil Code
provides that unless otherwise agreed by the parties in their JVA,
respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving
partner, not insolvent, has the right to wind up the partnership affairs,
provided, however, that any partner, his legal representative or his
assignee, upon cause shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of
the lands and the improvements thereon, the said lands and improvements
remained partnership property, subject to the rights and obligations of the
parties, inter se, of the creditors and of third parties under Articles 1837
and 1838 of the New Civil Code, and subject to the outcome of the
settlement of the accounts between the parties as provided in Article 1839
of the New Civil Code, absent any agreement of the parties in their JVA to
the contrary.58 Until the partnership accounts are determined, it cannot be
ascertained how much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be
indemnified for the value of the improvements on the parcels of land
owned by the joint venture/partnership. Notably, the JVA of the parties
does not contain any provision designating any party to wind up the affairs
of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties
when dissolution is caused in contravention of the partnership agreement
are as follows:
(1) Each partner who has not caused dissolution wrongfully shall
have:
(a) All the rights specified in the first paragraph of this
article, and

(b) The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the
agreement.
(2) The partners who have not caused the dissolution wrongfully, if
they all desire to continue the business in the same name either by
themselves or jointly with others, may do so, during the agreed
term for the partnership and for that purpose may possess the
partnership property, provided they secure the payment by bond
approved by the court, or pay to any partner who has caused the
dissolution wrongfully, the value of his interest in the partnership
at the dissolution, less any damages recoverable under the second
paragraph, No. 1(b) of this article, and in like manner indemnify
him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of
the second paragraph, No. 2, all the rights of a partner
under the first paragraph, subject to liability for damages
in the second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second
paragraph, No. 2, of this article, the right as against his copartners and all claiming through them in respect of their
interests in the partnership, to have the value of his
interest in the partnership, less any damage caused to his
co-partners by the dissolution, ascertained and paid to him
in cash, or the payment secured by a bond approved by
the court, and to be released from all existing liabilities of
the partnership; but in ascertaining the value of the
partners interest the value of the good-will of the business
shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind
is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for the purchase of
an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied,
in the place of the creditors of the partnership for any payments
made by him in respect of the partnership liabilities; and

40

(3) To be indemnified by the person guilty of the fraud or making

the representation against all debts and liabilities of the
partnership.
The accounts between the parties after dissolution have to be settled as
provided in Article 1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the
following rules shall be observed, subject to any agreement to the
contrary:
(1) The assets of the partnership are:

(7) The individual property of a deceased partner shall be liable for

the contributions specified in No. 4.
(8) When partnership property and the individual properties of the
partners are in possession of a court for distribution, partnership
creditors shall have priority on partnership property and separate
creditors on individual property, saving the rights of lien or secured
creditors.
(9) Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall rank in the
following order:

(a) The partnership property,

(a) Those owing to separate creditors;

(b) The contributions of the partners necessary for the

payment of all the liabilities specified in No. 2.

(b) Those owing to partnership creditors;

(c) Those owing to partners by way of contribution.

(2) The liabilities of the partnership shall rank in order of payment,

as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and
profits,

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed

Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 69200
are AFFIRMED insofar as they conform to this Decision of the Court.
Costs against petitioners.
SO ORDERED.

(c) Those owing to partners in respect of capital,

(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in
No. 1 of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the
amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed
by the court shall have the right to enforce the contributions
specified in the preceding number.
(6) Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the
amount which he has paid in excess of his share of the liability.

41

42

[G.R. No. 30616 : December 10, 1990.]

192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant,
MAGLANA,Defendant-Appellee.

vs. CONSTANCIO

B.

DECISION
PARAS, J.:

This is a direct appeal to this Court from a decision ** of the then Court of
First Instance of Davao, Seventh Judicial District, Branch III, in Civil Case
No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of CoPartnership (Exhibit "A") called Eastcoast Development Enterprises (EDE)
with only the two of them as partners. The partnership EDE with an
indefinite term of existence was duly registered on January 21, 1955 with
the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or
secure timber and/or minor forests products licenses and concessions over
public and/or private forest lands and to operate, develop and promote
such forests rights and concessions." (Rollo, p. 114).

difference in the purpose of the second partnership which is to hold and

secure renewal of timber license instead of to secure the license as in the
first partnership and the term of the second partnership is fixed to thirty
(30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started
operation on May 1, 1956, and was able to ship logs and realize profits. An
income was derived from the proceeds of the logs in the sum of
P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a
document entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP,
EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing
among themselves that Maglana and Rojas shall purchase the interest,
share and participation in the Partnership of Pahamotang assessed in the
amount of P31,501.12. It was also agreed in the said instrument that after
payment of the sum of P31,501.12 to Pahamotang including the amount of
loan secured by Pahamotang in favor of the partnership, the two (Maglana
and Rojas) shall become the owners of all equipment contributed by
Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name
also given to the second partnership, be dissolved. Pahamotang was paid
in fun on August 31, 1957. No other rights and obligations accrued in the
name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by
Maglana and Rojas without the benefit of any written agreement or
reconstitution of their written Articles of Partnership (Decision, R.A. 948).

A duly registered Articles of Co-Partnership was filed together with an

application for a timber concession covering the area located at Cateel and
Baganga, Davao with the Bureau of Forestry which was approved and
Timber License No. 35-56 was duly issued and became the basis of
subsequent renewals made for and in behalf of the duly registered
partnership EDE.

On January 28, 1957, Rojas entered into a management contract with

another logging enterprise, the CMS Estate, Inc. He left and abandoned the
partnership (Decision, R.A. 947).

Under the said Articles of Co-Partnership, appellee Maglana shall manage

the business affairs of the partnership, including marketing and handling of
cash and is authorized to sign all papers and instruments relating to the
partnership, while appellant Rojas shall be the logging superintendent and
shall manage the logging operations of the partnership. It is also provided
in the said articles of co-partnership that all profits and losses of the
partnership shall be divided share and share alike between the partners.

The equipment withdrawn were his supposed contributions to the first

partnership and was transferred to CMS Estate, Inc. by way of chattel
mortgage (Decision, R.A. p. 948).

During the period from January 14, 1955 to April 30, 1956, there was no
operation of said partnership (Record on Appeal [R.A.] p. 946).

Two weeks after March 17, 1957, Rojas told Maglana that he will not be
able to comply with the promised contributions and he will not work as
logging superintendent. Maglana then told Rojas that the latter's share will
just be 20% of the net profits. Such was the sharing from 1957 to 1959
without complaint or dispute (Decision, R.A. 949).: nad

Because of the difficulties encountered, Rojas and Maglana decided to avail

of the services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their
Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name
EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight

On February 4, 1957, Rojas withdrew his equipment from the partnership

for use in the newly acquired area (Decision, R.A. 948).

On March 17, 1957, Maglana wrote Rojas reminding the latter of his
obligation to contribute, either in cash or in equipment, to the capital
investments of the partnership as well as his obligation to perform his
duties as logging superintendent.

43

Meanwhile, Rojas took funds from the partnership more than his
contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10")
Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of
Davao against Maglana for the recovery of properties, accounting,
receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed
commissioners to examine the long and voluminous accounts of the
Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961
(Ibid., pp. 102-114) was denied by Judge Romero for want of merit (Ibid., p.
125). Judge Romero also required the inclusion of the entire year 1961 in
the report to be submitted by the commissioners (Ibid., pp. 138-143).
Accordingly, the commissioners started examining the records and
supporting papers of the partnership as well as the information furnished
them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his
answer with counterclaim, attaching thereto the amended answer (Ibid.,
pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G.
Commissioners' Report (Ibid., p. 337).

Reyes

approved

the

submitted

On June 29, 1965, Rojas filed his motion for reconsideration of the order
dated May 27, 1964 approving the report of the commissioners which was
opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied
(Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the
following issues were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana
and Rojas after the dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution
or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's
name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of
Maglana dissolving the partnership (Decision, R.A. pp. 895-896).nad

After trial, the lower court rendered its decision on March 11, 1968, the
dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered,
judgment is hereby rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana
and Rojas after Pahamotang retired from the second partnership,
that is, after August 31, 1957, when Pahamotang was finally paid
his share the partnership of the defendant and the plaintiff is
one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the
basis of computation, that is the ratio and proportion of their
respective contributions, or on the basis of share and share alike
this covered by actual contributions of the plaintiff and the
defendant and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual contributions; that from
1957 to 1959, the sharing is on the basis of 80% for the defendant
and 20% for the plaintiff of the profits, but from 1960 to the date of
dissolution, February 23, 1961, the plaintiff's share will be on the
basis of his actual contribution and, considering his indebtedness
to the partnership, the plaintiff is not entitled to any share in the
profits of the said partnership;
"3. As to whether the properties which were bought by the
defendant and placed in his or in his wife's name were acquired
with partnership funds or with funds of the defendant and the
Court declares that there is no evidence that these properties were
acquired by the partnership funds, and therefore the same should
not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much,
and who caused them and who should be liable for them the
Court declares that neither parties is entitled to damages, for as
already stated above it is not a wise policy to place a price on the
right of a person to litigate and/or to come to Court for the
assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the
plaintiff dated February 23, 1961; did it dissolve the partnership or
not the Court declares that the letter of the defendant to the
plaintiff dated February 23, 1961, in effect dissolved the
partnership;
"6. Further, the Court relative to the canteen, which sells
foodstuffs, supplies, and other merchandise to the laborers and
employees of the Eastcoast Development Enterprises, the
COURT DECLARES THE SAME AS NOT BELONGING TO THE
PARTNERSHIP;

44

"7. That the alleged sale of forest concession Exhibit 9-B, executed
by Pablo Angeles David is VALID AND BINDING UPON THE
PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or
turn over to the partnership the amount of P69,000.00 the profits
he received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the
further sum of P85,000.00 which according to him he is still
entitled to receive from the CMS Estate, Inc. is hereby denied
considering that it has not yet been actually received, and further
the receipt is merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the
sum of P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of
P85,000.00 the amount he should have received as logging
superintendent, and which was not paid to him, and this should be
considered as part of Maglana's contribution likewise to the
partnership; and
"12. The complaint is hereby dismissed with costs against the
plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal
relationship of the Maglana-Rojas after Pahamotang retired from the
second partnership.
The lower court is of the view that the second partnership superseded the
first, so that when the second partnership was dissolved there was no
written contract of co-partnership; there was no reconstitution as provided
for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the
partnership which was carried on by Rojas and Maglana after the
dissolution of the second partnership was a de facto partnership and at
will. It was considered as a partnership at will because there was no term,
express or implied; no period was fixed, expressly or impliedly (Decision,
R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the
firm name of Eastcoast Development Enterprises (EDE) evidenced by the
Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not
been novated, superseded and/or dissolved by the unregistered articles of
co-partnership among appellant Rojas, appellee Maglana and Agustin
Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms
and stipulations of said registered Articles of Co-Partnership (Exhibit "A")

should govern the relations between him and Maglana. Upon withdrawal of
Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the
legally constituted partnership EDE (Exhibit "A") continues to govern the
relations between them and it was legal error to consider a de facto
partnership between said two partners or a partnership at will. Hence, the
letter of appellee Maglana dated February 23, 1961, did not legally dissolve
the registered partnership between them, being in contravention of the
partnership agreement agreed upon and stipulated in their Articles of CoPartnership (Exhibit "A"). Rather, appellant is entitled to the rights
enumerated in Article 1837 of the Civil Code and to the sharing profits
between them of "share and share alike" as stipulated in the registered
Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of
Rojas and Maglana, it appears evident that it was not the intention of the
partners to dissolve the first partnership, upon the constitution of the
second one, which they unmistakably called an "Additional Agreement"
(Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the fact
that they took in one industrial partner; gave him an equal share in the
profits and fixed the term of the second partnership to thirty (30) years,
everything else was the same. Thus, they adopted the same name,
EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same
purposes and the capital contributions of Rojas and Maglana as stipulated
in both partnerships call for the same amounts. Just as important is the
fact that all subsequent renewals of Timber License No. 35-36 were
secured in favor of the First Partnership, the original licensee. To all intents
and purposes therefore, the First Articles of Partnership were only
amended, in the form of Supplementary Articles of Co-Partnership (Exhibit
"C") which was never registered (Brief for Plaintiff-Appellant, p. 5).
Otherwise stated, even during the existence of the second partnership, all
business transactions were carried out under the duly registered articles.
As found by the trial court, it is an admitted fact that even up to now, there
are still subsisting obligations and contracts of the latter (Decision, R.A. pp.
950-957). No rights and obligations accrued in the name of the second
partnership except in favor of Pahamotang which was fully paid by the duly
registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was
dissolved by common consent. Said dissolution did not affect the first
partnership which continued to exist. Significantly, Maglana and Rojas
agreed to purchase the interest, share and participation in the second
partnership of Pahamotang and that thereafter, the two (Maglana and
Rojas) became the owners of equipment contributed by Pahamotang. Even
more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas,
reminding the latter of his obligation to contribute either in cash or in
equipment, to the capital investment of the partnership as well as his
obligation to perform his duties as logging superintendent. This reminder
cannot refer to any other but to the provisions of the duly registered
Articles of Co-Partnership. As earlier stated, Rojas replied that he will not

45

be able to comply with the promised contributions and he will not work as
logging superintendent. By such statements, it is obvious that Roxas
understood what Maglana was referring to and left no room for doubt that
both considered themselves governed by the articles of the duly registered
partnership.
Under the circumstances, the relationship of Rojas and Maglana after the
withdrawal of Pahamotang can neither be considered as a De Facto
Partnership, nor a Partnership at Will, for as stressed, there is an existing
partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the
partnership in the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he
dissolved the partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified
term, one partner can cause its dissolution by expressly withdrawing even
before the expiration of the period, with or without justifiable cause. Of
course, if the cause is not justified or no cause was given, the withdrawing
partner is liable for damages but in no case can he be compelled to remain
in the firm. With his withdrawal, the number of members is decreased,
hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the
liquidation of the partnership by the provisions of its duly registered
Articles of Co-Partnership; that is, all profits and losses of the partnership
shall be divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the
trial court and accomplished by the commissioners appointed for the
purpose.

Consequently, except as to the legal relationship of the partners after the

withdrawal of Pahamotang which is unquestionably a continuation of the
duly registered partnership and the sharing of profits and losses which
should be on the basis of share and share alike as provided for in the duly
registered Articles of Co-Partnership, no plausible reason could be found to
disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it
will be recalled that after the withdrawal of Pahamotang, Rojas entered into
a management contract with another logging enterprise, the CMS Estate,
Inc., a company engaged in the same business as the partnership. He
withdrew his equipment, refused to contribute either in cash or in
equipment to the capital investment and to perform his duties as logging
superintendent, as stipulated in their partnership agreement. The records
also show that Rojas not only abandoned the partnership but also took
funds in an amount more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he
be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance
of Davao, Branch III, is hereby MODIFIED in the sense that the duly
registered partnership of Eastcoast Development Enterprises continued to
exist until liquidated and that the sharing basis of the partners should be
on share and share alike as provided for in its Articles of Partnership, in
accordance with the computation of the commissioners. We also hereby
AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.
Melencio-Herrera, Sarmiento and Regalado, JJ., concur.
Padilla, J., took no part.

On the basis of the Commissioners' Report, the corresponding contribution

of the partners from 1956-1961 are as follows: Eufracio Rojas who should
have contributed P158,158.00, contributed only P18,750.00 while Maglana
who should have contributed P160,984.00, contributed P267,541.44
(Decision, R.A. p. 976). It is a settled rule that 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
(Article 1786, Civil Code) and for interests and damages from the time he
should have complied with his obligation (Article 1788, Civil Code) (Moran,
Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of
partnership, each partner must share in the profits and losses of the
venture. That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any
profits. In their voluminous reports which was approved by the trial court,
they showed that on 50-50% basis, Rojas will be liable in the amount of
P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the
basis of actual capital contribution, he will be liable for P52,040.31.

46

In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua
Bearneza formed a partnership for the purpose of exploiting a fish pond
situated in the barrio of Talisay, municipality of Barotac Nuevo, Province of
Iloilo, Perpetua obligating herself to contribute to the payment of the
expenses of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they had been
doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed
Domingo Bearnez, the herein plaintiff, as her heir to succeed to all her
rights and interests in the fish pond in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza
for the delivery of the part of the fish pond belonging to his decedent,
Perpetua, and delivery having been refused, Domingo Bearneza brought
this action to recover said part of the fish pond belonging to his decedent,
Perpetua, and delivery having been refused, Domingo Bearneza brought
this action recover said part of the fish pond and one-half of the profits
received by the defendant from the fish pond from the year 1913 to 1919,
as damages (the amended complaint was filed on April 12, 1920),
amounting, according to plaintiff, to the sum of thirteen thousand one
hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the
allegations of the complaint, and alleges, as special defense, that "the
formation of the supposed partnership between the plaintiff and the
defendant for the exploitation of the aforesaid fish pond was not carried
into effect, on account of the plaintiff having refused to defray the
expenses of reconstruction and exploitation of said fish pond." As another
special defense, the defendant alleges "that in the event that the court
should hold the plaintiff to be entitled to the undivided one-half of the fish
pond, claimed in the complaint, the plaintiff's action has prescribed, the
time for bringing the same having elapsed."

G.R. No. 17024

March 24, 1922

DOMINGO
BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.
C.
Lozano
and
Cecilio
I.
Lim
Montinola, Montinola & Hontiveros for appellee.

for

appellant.

Proceedings having been held as usual, the court below rendered

judgment, declaring the plaintiff owner of one-half of the fish pond, which
was composed of the portions known as "Alimango" and "Dalusan," but
without awarding him any of the damages claimed by him, the same not
having been proven, in the opinion of the court, and ordering the
defendant to pay the costs.
From this judgment the defendant appeals, making various assignments of
error. The plaintiff did not appeal from that part of the judgment denying
his claim for damages; hence the only question we are called upon to
decide is whether or not the plaintiff has any right to maintain an action for
the recovery of one-half of the said fish pond.

ROMUALDEZ, J.:

47

The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to

the existence of which the proof contained in the record is conclusive and
there is no dispute, was of a civil nature. It was a particular partnership, as
defined in article 1678 of the Civil Code, it having had for its subject-matter
a specified thing, to with, the exploitation of the aforementioned fish pond.
Although, as the trial court says in its decision, the defendant, in his letters
to Perpetua or her husband, makes reference to the fish pond, calling it
"our," or "your fish pond," this reference cannot be held to include the land
on which the said fish pond was built. It has not been proven that Perpetua
Bearneza participated in the ownership of said land, and Exhibits 2 and 3
of the defendant show that he has been paying, as exclusive owner of the
fish pond, the land tax thereon, although in Exhibit X he says that the said
land belongs to the State. The conclusion, therefore, from the evidence is
that the land on which the fish pond was constructed did not constitute a
part of the subject- matter of the aforesaid partnership.

Perpetua to contribute to the payment of the expenses of exploitation of

the aforesaid fishing industry was an attempt to continue the partnership,
but it is also true that neither the said heirs collectively, nor the plaintiff
individually, took any action in response to that requirement, nor made any
promise to that effect, and therefore no new contract of partnership
existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar
as it denies the plaintiff's claim for damages, and reversed insofar as it
declares the said plaintiff owner of one-half of the fish pond, "Alimango"
and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.

Now, this partnership not having been organized in the form of a

mercantile partnership, and, therefore, the provisions of the Code of
Commerce not being applicable thereto (article 1670 of the Civil Code), it
was dissolved by the death of Perpetua Bearneza, and falls under the
provisions of article 1700, subsection 3, of the same Code, and not under
the exception established in the last paragraph of said article 1700 of the
Civil Code.

Araullo, C.J., Malcolm, Avancea, Villamor, Ostrand and Johns, JJ., concur.

Neither can it be maintained that the partnership continued to exist after

the death of Perpetua, inasmuch as it does not appear that any stipulation
to that effect has ever been made by her and the defendant, pursuant to
the provisions of article 1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua Bearneza,
its subsequent legal status was that of a partnership in liquidation, and the
only rights inherited by her testamentary heir, the herein plaintiff, were
those resulting from the said liquidation in favor of the deceased partner,
and nothing more. Before this liquidation is made, which up to the present
has not been effected, it is impossible to determine what rights or
interests, if any, the deceased had, the partnership bond having been
dissolved.
There is no sufficient ground for holding that a community of property
existed between the plaintiff and the defendant, it not being known
whether the deceased still had any interest in the partnership property
which could have been transmitted by will to the plaintiff. There being no
community of property, article 395 of the Civil Code cited by the plaintiff in
support of his contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff
and the defendant. It is true that the latter's act in requiring the heirs of

48

G.R. No. L-10040

January 31, 1916

EUGENIA
LICHAUCO,
ET
vs.
FAUSTINO LICHAUCO, defendant-appellant.

AL., plaintiffs-appellants,

Haussermann,
Cohn
and
Fisher
Gibbs, McDonough and Blanco for defendant.

for

plaintiffs.

CARSON, J.:
This action was brought by two of the partners of an enterprise of which
the defendant was manager (gestor), to secure an accounting of its affairs,
and the payment to the plaintiffs of their respective shares of capital and
profits.
The defendant admitted the allegations of the complaint as to the
organization of the enterprise and the participation of the plaintiffs therein,
but he contended that the plaintiffs could not maintain this action under
the terms of the written contract by virtue of which the enterprise was
organized. This contention having been overruled, an account of the affairs
of the enterprise was submitted, and the parties having been given an
opportunity to offer evidence for and against certain dispute items of the
account, judgment was rendered for the balance shown to be due the
plaintiffs, after allowing some of these disputed items and disallowing the
rest. To this judgment, both plaintiffs and defendant excepted, and the
record is now before us on their respective bills of exceptions.
In October, 1901, a notarial instrument was executed in Manila, by the
terms of which a partnership was duly organized for the purpose of
carrying on a rice-cleaning business at Dagupan, and for the purchase and
sale of "palay" and rice. The articles of association, which were not
recorded in the mercantile registry, contain, among others, the following
provisions:
2. The association will be named F. Lichauco Hermanos and will be
domiciled in the center of its operations, that is, in the pueblo of
Dagupan, Province of Pangasinan.
3. The association cannot be dissolved except by the consent and
agreement of two-thirds of its partners and in the event of the
death of any of the latter, the heirs of the deceased, if they be
minors or otherwise incapacitated, shall be represented in the
association by their legal representatives or if two-thirds of the
surviving partners agree thereto, the participation of the deceased
partner may be liquidated.

49

4. The management and direction of the association shall be in

charged of Don Faustino Lichauco y Santos, who shall be domiciled
in this city of Manila, with ample powers to direct and manage the
business; to carry out all manner of purchases and sales of "palay,"
rice, chattels, machinery and whatsoever may be necessary and
proper for the business of the association; to make all contracts of
every kind related to said business, either orally, in private
documents or in public instruments, as he deems fit; to appoint
subordinates and other employees such as may be necessary; and
finally to perform whatever acts and things he may deem suitable
to the interest of the association; and to appear before the courts
of justice and other authorities and public offices in such matters
as may concern the association and to appoint agents for those
matters to which he cannot attend personally.
The articles disclose that the capital invested in the enterprise was fixed at
P100,000, of which amount P60,000 was contributed by the defendant and
his brothers in the form of machinery in a mill at Dagupan and the good
will of the milling business formerly conducted at the place, the balance of
the capital being contributed by the plaintiffs and others in cash, in the
following proportions: Eugenia Lichauco, P13,000; Catalino Arevalo,
P8,000; Mariano Nable Jose, P5,000; Tomas Roux, P4,000; Julita Lichauco,
P10,000.
The business thus organized was carried on until May, 1904, when it was
found to be unprofitable and discontinued by the defendant manager
(gestor); and thereafter, the machinery of the rice mil was dismantled by
his orders, and offered for sale. No accounting ever was made to his
associates by the defendant until this action was instituted in October,
1912, although it appears that in the year 1905, Mariano Limjap, one of the
participants in the venture, demanded a rendition of accounts; and that
Eugenia Lichauco, one of the plaintiffs in this action, made repeated
unsuccessful demands for the return of her share of the capital invested in
the enterprise. And yet it further appears that during all that time the
defendant manager of the defunct enterprise had in his possession not less
than P20,000, the cash balance on hand, over and above all claims of
indebtedness after suspending operations in 1904; and that since that time
he received or should have received substantial sums of money from the
sale of the machinery of the dismantled mill.
There is evidence in the record tending to show that the defendant
informed some of his associates, about the year 1906 or 1907, that the
whole enterprise was bankrupt; and it appears that some months prior to
the institution of this action, he rendered upon demand of counsel, a socalled account showing a balance to the credit of the enterprise of only
P643.64; although at the trial, some six months afterwards, he expressly
admitted the existence of a cash balance of some P23,131.53, and the

amount by the trial judge as due by him on account of the venture was
P29,549.99. The defendant explained that the account rendered to counsel
for the plaintiffs showing a balance of P634.64 was mailed by one of his
employees without his knowledge, and that it was a stupid blunder which
he greatly regretted; and it would seem that his statement as to the
bankruptcy of the enterprise were not intended to be understood as an
assertion that there was no balance due the partners, but merely that the
enterprise had not paid, and that the losses of operation had exceeded the
profits.
Giving the defendant the benefit of the doubt, we are inclined to accept
these explanations of these incidents, as it is hardly possible that he could
have hoped to escape indefinitely the necessity of accounting for his
management of the enterprise, and thus permanently retain in his own
possession the substantial balance due to his associates. But it is to be
observed that, viewed for many standpoint, these statements, made and
rendered by the defendant as to the affairs of the association, taken
together with the other evidence in the record, leave no room for doubt
that from the time he concluded the operations of the business in 1904
until the date of the institution of this action in 1912 he made no attempt
to account to his associates or to turn over to them the amount due them
on a proper accounting.
The assignments of error made by counsel for the defendant, as appellant,
are as follows:
Error No. 1. The trial court erred in rendering judgment in favor
of the plaintiffs and against the defendant for any sum, without
first decreeing a dissolution of the association and final liquidation
of its assets in accordance with paragraph 10 of the articles of
association, and because such judgment is not within the issues
joined.
Error No. 2. The trial court erred in charging the defendant with
P5,500, the price of certain boilers and machinery sold to one
Marciano Rivera by Crisanto Lichauco, which amount never came
into the possession of defendant.
Error No. 3. The trial court erred in disallowing the credit of
P60.36, taken by defendant for that amount expended in an
attempt to make good the sale and delivery to Marciano Rivera of
the boilers and machinery mentioned in the second assignment of
error.
Error No. 4. The court erred in charging the defendant with the
P1,820, covered by stipulation of December 10, 1913, for the

50

reason that the defendant's liability under that stipulation can only
accrue on the final dissolution and liquidation of the association.
Error No. 5. The court erred in rendering judgment against the
defendant for the costs of the action.
The assignments of error made by refusing to condemn the defendant to
the payment of interest at the legal rate from May 30, 1904, to date of
payment.

It is our contention, and we believe it to be unanswerable, that the

dissolution and liquidation, either in whole or in part, of the
association is absolutely prohibited by paragraph 10 of the articles
of association, except by and with the conformity and agreement
of two-thirds of the partners, and that as a consequence thereof
the court, without allegations or proof of compliance with that
paragraph and without making the other partners parties to the
action, had no power to decree a distribution either in whole or in
part of the capital or assets of the association.

Error No. 1 The court erred in refusing to condemn the

defendant to the payment of interest at the legal rate of 6 per cent
upon the credit balance of the joint venture from May 30, 1904, to
date of payment.

It certainly cannot be seriously contended that part of the capital

and assets of this association can be lawfully returned to and
distributed between the plaintiffs who constitute one-fifth of the
total number of partners, as required by paragraph 10 of the
articles of association.

Error No. 2. The court erred in refusing to allow interest at the

legal rate of 6 per cent upon the sum of P1,147.44 from May 30,
1904, to date of payment, said credit balance of the joint venture
was unduly diminished by error in the conversion of gold currency.

It is elementary that no lawful liquidation and distribution of capital

and assets of any company or association can ever take place
except upon dissolution thereof.

Error No. 3. The court erred in refusing to allow the joint venture
account the sum of P17, 746, being the value of 3,736 cavanes of
rice at P4.75 per cavan, for which the defendant has wholly failed
to account.
Error No. 4. The court erred in declining to allow the joint
venture account the sum of P8,943.98 as interest upon said lastmentioned sum at the legal rate.
Error No. 5. The court erred in declining to allow the joint
venture account the sum of P564.34, as interest at the legal rate
upon the sum of P5,500, for which the defendant has failed and
refused to account.
Error No. 6. The court erred in declining to credit the joint
venture account with the sum of P2,498.46 as the amount due said
account from Mariano Nable Jose, together with interest thereon at
the legal rate, amounting to P1,259.22.
We shall first examine the contentions of counsel for the defendant in
support of his principal assignment of error, as a ruling in this regard is
necessary to the proper disposition of all the other assignments of error by
both plaintiffs and defendant.

These contentions of counsels for the defendant take no account of the

provisions of both the Civil and Commercial Codes for the dissolution and
liquidation of the different classes of partnerships and mercantile
associations upon the occurrence of certain contingencies not within the
control of the partners. The provisions of paragraph 10 of the articles of
partnership prohibiting the dissolution of the association under review,
except by the consent and agreement of two-thirds of its partners, denied
the right to a less number of the partners to effect a dissolution of the
partnership through judicial intervention or otherwise; but in no wise
limited or restricted the rights of the individual partners in the event the
dissolution of the association was effected, not by any act of theirs, but by
the express mandate of statutory law. It would be absurd and unreasonable
to hold that such an association could never be dissolved and liquidated
without the consent and agreement of two-thirds of its partners
notwithstanding that it had lost all its capital, or had become bankrupt, or
that the enterprise for which it had been organized had been concluded or
utterly abandoned.
Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means by
which partnership (sociedades) as defined in that code, may be
terminated. The first article of that chapter is as follows:
1700. Partnership is extinguished:
(1) When the term for which it was constituted expires.

Counsel for defendant says in his brief:

51

(2) When the thing is lost, or the business for which it was
constituted ends.
(3) By the natural death, civil interdiction, or insolvency of any of
the partners, and in the case provided for in article 1699.
(4) By the will of any of the partners, subject to the provisions of
articles 1705 and 1707.
Partnerships, to which article 1670 refers, are excepted from the
provisions of Nos. 3 and 4 of this article, in the cases in which they
should exist, according to the Code of Commerce.
1670. Civil partnerships, on account of the objects for which they
are destined, may adopt all the forms accepted by the Code of
Commerce. In this case, the provisions of the same shall be
applicable, in so far as they are not in conflict with those of the
present Code.
Articles 221 and 222 of the Code of Commerce are as follows:
221. Associations of any kind whatsoever shall be completely
dissolved for the following reasons:
(1) The termination of the period fixed in the articles of association
of the conclusion of the enterprise which constitutes its purpose.
(2) The entire loss of the capital.
(3) The failure of the association.
222. General and limited copartnerships shall furthermore be
totally dissolved for the following reasons:
(1) The death of one of the general partners if the articles of
copartnership do not contain an express agreement that the heirs
of deceased partner are to continue in the copartnership, or an
agreement to the effect that said copartnership will continue
between the surviving partners.
(2) The insanity of a managing partner or any other cause which
renders him incapable of administering his property.
(3) The failure of any of the general partners.

It cannot be doubted that under these provisions of law the association of

which the defendant was nominated manager (gestor) was totally
dissolved in the year 1904, when the rice mill for the operation of which it
was organized was dismantled, the machinery offered for sale and the
whole enterprise concluded and abandoned.
Upon the dissolution of the association in 1904 it became the duty of the
defendant to liquidate its affairs and account to his associates for their
respective shares in the capital invested this not merely from the very
nature of his relation to the enterprise and of his duties to those associated
with him as partners, but also by the express mandate of the law. The
association having been dissolved by the termination and abandonment of
the enterprise for which it was organized, he owed this duty to liquidate
and account to all and to each of his associates, and upon his failure to
perform that duty, all or any of them had a clear legal right to compel him
to fulfill it. Each of his associates had a perfect right to demand for himself
a full, complete and satisfactory accounting, and in the event that he
conceived himself aggrieved in this regard, to institute the appropriate
judicial proceedings to secure relief. Doubtless, in order to avoid a
multiplicity of actions, the defendant in such an action could require all the
associates to be made parties, but the right of an individual member of the
association to recover his share in the enterprise and to assert his
individual claim for redress, wholly independent of the action or attitudes
of his associates, could be in no wise affected thereby. The other
associates would be proper, but not necessary, parties to an action of this
kind; and when, as in the case at bar, the defendant proceeds to trial
without objection on the express ground that all the associates in the
enterprise have not been made parties to the action, he cannot thereafter
be heard to raise such an objection for the purpose of challenging any
judgment which may be rendered therein.
Although the enterprise was organized in the year 1901 for the purpose of
conducting mercantile operations, including the buying and selling of
"palay" and rice, the articles of partnership or association were not
registered in the mercantile registry in accordance with the provisions of
articles 17 and 119 of the Commercial Code. It was therefore a mere
unregistered commercial partnership, and the association never became in
the legal sense a juridical person, nor did it attain the dignity, rights or
privileges
accorded
the
different
classes
of compaias
mercantiles (mercantile partnerships), discussed in Title 1 of Book 2 of the
Commercial Code. Still, under the provisions of the above-cited article
1670 of the Civil Code, if it be found that the association is clothed with the
forms of any of the commercial association or partnerships recognized in
the Commercial Code, the provisions of that code, in so far as they are not
in conflict with those of the Civil Code, may be relied upon in an attempt to
define the legal relations of the association and its members. Though the
unregistered articles of partnership gave the association a form of
organization closely assimilated to that of a regular "compaia en

52

comandita," as prescribed in the Commercial Code, except that the name

designated in the articles did not include the words "y compaia" (and
company) and the additional words "sociedad en comandita," it appears to
have been organized and conducted in substantially the manner and form
prescribed for "cuentas en participacion" (joint accounts) in articles 239243 of that Code.

the same shall be enforced with regard to the appointment of

liquidators from among the members of the association or not, as
well as in all that refers to the form and proceedings of the
liquidation and the management of the common funds.

The plaintiffs alleged in their complaint and the defendant admitted in his
answer that the contract was one of a "sociedad de cuentas en
participacion" (joint account partnership) of which the defendant
was gestor (manager). In his brief on appeal, however, counsel for
defendant intimates that under article 241 of the Commercial Code, the
adoption in the articles of partnership of a firm name deprived the parties
of the rights and privileges secured to those interested in cuentas en
participacion under the provisions of the Commercial Code.

(1) Draw up and communicate to the members, within the period

of twenty days, an inventory of the common property, with a
balance of the association in liquidation according to its books.

But whatever effect the inclusion or omission of a firm name in the articles
of partnership may have had as to third persons dealing with the
partnership, we are of opinion that as between the associates themselves,
their mutual rights, duties and obligations may properly be determined
upon the authority of article 1670 of the Civil Code by the provisions of the
Commercial Code touching partnerships, the form of which in all other
respects, the partners have adopted in their articles of partnership.
The duty of the defendant to liquidate the affairs of the enterprise and to
account to his associates promptly upon the dissolution of the association
in the year 1904 is expressly prescribed in the Commercial Code, whether
we regard the association, so far as it affects the mutual rights and
obligations of the partners, as clothed with the forms of a "sociedad de
cuentas en participacion" (joint account partnership) or a "sociedad en
comindata."
Article 243 of the Code of Commerce prescribes with reference to "cuentas
en participacion" (joint accounts) that:
243. The liquidation shall be effected by the manager, and after
the transactions have been concluded he shall render a proper
account of its results.
Articles 229 and 230 of the same Code are as follows:
229. In general or limited copartnerships, should there be no
opposition on the part of any of the partners, the persons who
managed the common funds shall continue in charge of the
liquidation; but should all the partners not agree thereto a general
meeting shall be called without delay, and the decision adopted at

230. Under the penalty of removal the liquidators shall

(2) Communicate in the same manner to the members every

month the condition of the liquidation.
We conclude that an express statutory obligation imposed upon the
defendant an imperative obligation to proceed without delay to the
liquidation of the association in the year 1904 and the further duty to
account to his associates for the result of that liquidation. While he appears
to have gone forward with the liquidation far enough to collect all the cash
resources of the association into his own hands, how utterly failed
neglected to account therefor to his associates or to make any attempt so
to do, and we are of opinion that the plaintiffs were clearly entitled to bring
this action to compel an accounting, and the payment of their respective
shares of the capital invested, together with damages resulting from the
failure of the defendant to perform the duty expressly imposed upon him
by statute. The damages arising from the failure to account consisted of
the loss of the use of the money to which they would have been entitled
upon a proper accounting, from the date at which it should have been
turned over by the defendant until it is actually paid by him, that is to say,
interest on that amount at the rate of six per centum per annum until paid.
What has been said disposes adversely of the contentions of the defendant
in support of his assignments of errors Nos. 1 and 5; and sustains the
contentions of the plaintiffs in their assignments of errors Nos. 1 and 2, to
the extent that interest at the rate of six per centum per annum should
have been allowed upon the credit balance of the enterprise from May 30,
1904, the date when it should have been distributed among his associates
by the defendant had he performed his statutory duty in that regard. This
balance (including the item mentioned in plaintiff's assignment of error
No. 2) we fix at P23, 131.53, adopting as a basis for our finding in this
regard, the findings and conclusions of the trial judge, and disregarding the
possibility that had defendant accounted promptly to his associates,
interest might not have been chargeable on some of the smaller items in
included in the account until some little time after the date just mentioned.

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As to the other assignments of error it must suffice to say that we have

carefully examined the record and have arrived at the following
conclusions:

regard, as they were submitted to him and as they are disclosed by the
record brought here on appeal.
We find no merit in defendant's assignment of error numbered 3.

With relation to the item of account referred to in defendant's assignment

of error No. 2 and plaintiff's assignment No. 5, we hold that the defendant's
account was properly charged by the trial judge with the sum of P5,500,
the purchase price of certain machinery sold by him and for which, under
all the circumstances, he must account, together with interest at the rate
of six per centum per annum from January 8, 1912, the date of sale to
Marciano Rivera.
With relation to the items mentioned in plaintiff's assignments of errors
Nos. 3 and 4, we hold that the trial judge properly declines to charge the
defendant's account with the amounts mentioned therein, the evidence of
record not being sufficient to establish his liability therefor as manager
or gestor of the enterprise.

Twenty days hereafter let judgment be entered reversing the judgment of

the lower court, without special condemnation of the costs in this instance,
and directing the return of the record to the trial court, wherein judgment
will be entered in accordance herewith, and ten days thereafter let the
record be remanded in confirmity therewith. So ordered.
Arellano, C.J., Torres and Trent, JJ., concur.
Per MORELAND, J.:
Owing to the advisability of publishing this case as soon as possible I
refrain from giving my views at this time, reserving the right to do so later.

With relation to the matter referred to in plaintiff's assignment of error

number 6 and defendant's assignment No. 4, we are of opinion that the
trial judge properly disposed of the issues between the parties in this

54