G.R. No.

109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and
BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L. MISA,respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by
the Court of Appeals, dated 26 February 1993, in CA-G.R. SP No.
24638 and No. 24648 affirming in toto that of the Securities and
Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent
Commission and quoted at length by the appellate court in its
decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and
CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the
Securities and Exchange Commission on 4 August 1948.
The SEC records show that there were several
subsequent amendments to the articles of partnership
on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to
ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA;
on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to
DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977
to BITO, MISA & LOZADA; on 19 December 1980,
[Joaquin L. Misa] appellees Jesus B. Bito and Mariano M.
Lozada associated themselves together, as senior
partners with respondents-appellees Gregorio F.
Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro,
as junior partners.
On February 17, 1988, petitioner-appellant wrote the
respondents-appellees a letter stating:
I am withdrawing and retiring from
the firm of Bito, Misa and Lozada,
effective at the end of this month.
"I trust that the accountants will be
instructed to make the proper
liquidation of my participation in the
firm."
On the same day, petitioner-appellant wrote
respondents-appellees another letter stating:
"Further to my letter to you today, I
would like to have a meeting with all
of you with regard to the mechanics
of liquidation, and more particularly,
my interest in the two floors of this
building. I would like to have this
resolved soon because it has to do
with my own plans."
On 19 February 1988, petitioner-appellant wrote
respondents-appellees another letter stating:
"The partnership has ceased to be
mutually satisfactory because of the
working conditions of our employees
including the assistant attorneys. All
my efforts to ameliorate the below
subsistence level of the pay scale of
our employees have been thwarted
by the other partners. Not only have
they refused to give meaningful
increases to the employees, even
attorneys, are dressed down publicly
in a loud voice in a manner that
deprived them of their self-respect.
The result of such policies is the
formation of the union, including the
assistant attorneys."
On 30 June 1988, petitioner filed with this
Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and
order the immediate liquidation of
(the partnership of) Bito, Misa &
Lozada;
"2. Order the respondents to deliver
or pay for petitioner's share in the
partnership assets plus the profits,
rent or interest attributable to the
use of his right in the assets of the
dissolved partnership;
"3. Enjoin respondents from using
the firm name of Bito, Misa & Lozada
in any of their correspondence,
checks and pleadings and to pay
petitioners damages for the use
thereof despite the dissolution of the
partnership in the amount of at least
P50,000.00;
"4. Order respondents jointly and
severally to pay petitioner attorney's
fees and expense of litigation in such
amounts as maybe proven during the
trial and which the Commission may
deem just and equitable under the
premises but in no case less than ten
(10%) per cent of the value of the
shares of petitioner or P100,000.00;
"5. Order the respondents to pay
petitioner moral damages with the
amount of P500,000.00 and
exemplary damages in the amount of
P200,000.00.
"Petitioner likewise prayed for such
other and further reliefs that the
Commission may deem just and
equitable under the premises."
On 13 July 1988, respondents-appellees filed their
opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the
Opposition.
On 31 March 1989, the hearing officer rendered a
decision ruling that:
"[P]etitioner's withdrawal from the
law firm Bito, Misa & Lozada did not
dissolve the said law partnership.
Accordingly, the petitioner and
respondents are hereby enjoined to
abide by the provisions of the
Agreement relative to the matter
governing the liquidation of the
shares of any retiring or withdrawing
partner in the partnership interest."
1

On appeal, the SEC en banc reversed the decision of the Hearing
Officer and held that the withdrawal of Attorney Joaquin L. Misa
had dissolved the partnership of "Bito, Misa & Lozada." The
Commission ruled that, being a partnership at will, the law firm
could be dissolved by any partner at anytime, such as by his
withdrawal therefrom, regardless of good faith or bad faith, since
no partner can be forced to continue in the partnership against
his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order
of 31 March 1989 is hereby REVERSED insofar as it
concludes that the partnership of Bito, Misa & Lozada
has not been dissolved. The case is hereby REMANDED
to the Hearing Officer for determination of the
respective rights and obligations of the parties.
2

The parties sought a reconsideration of the above decision.
Attorney Misa, in addition, asked for an appointment of a receiver
to take over the assets of the dissolved partnership and to take
charge of the winding up of its affairs. On 4 April 1991,
respondent SEC issued an order denying reconsideration, as well
as rejecting the petition for receivership, and reiterating the
remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals
(docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals,
Attorney Jesus Bito and Attorney Mariano Lozada both died on,
respectively, 05 September 1991 and 21 December 1991. The
death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No. 24648). He
expressed concern over the need to preserve and care for the
partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of
respondent Commission, AFFIRMED in toto the SEC decision and
order appealed from. In fine, the appellate court held, per its
decision of 26 February 1993, (a) that Atty. Misa's withdrawal
from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such
withdrawal was not in bad faith; (c) that the liquidation should
be to the extent of Attorney Misa's interest or participation in the
partnership which could be computed and paid in the manner
stipulated in the partnership agreement; (d) that the case should
be remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the
partnership assets; and (e) that the appointment of a receiver
was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such danger of
being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court,
petitioners confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in
holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership at
will;
2. Whether or not the Court of Appeals has erred in
holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad
faith; and
3. Whether or not the Court of Appeals has erred in
holding that private respondent's demand for the
dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad
faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will.
That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada,
Ortega and Castillo," is indeed such a partnership need not be
unduly belabored. We quote, with approval, like did the appellate
court, the findings and disquisition of respondent SEC on this
matter; viz:
The partnership agreement (amended articles of 19
August 1948) does not provide for a specified period or
undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall
continue so long as mutually
satisfactory and upon the death or
legal incapacity of one of the
partners, shall be continued by the
surviving partners."
The hearing officer however opined that the
partnership is one for a specific undertaking and hence
not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which
the partnership is formed, is to act as
legal adviser and representative of
any individual, firm and corporation
engaged in commercial, industrial or
other lawful businesses and
occupations; to counsel and advise
such persons and entities with
respect to their legal and other
affairs; and to appear for and
represent their principals and client
in all courts of justice and
government departments and offices
in the Philippines, and elsewhere
when legally authorized to do so."
The "purpose" of the partnership is not the specific
undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose,
would all be considered as partnerships for a definite
undertaking. There would therefore be no need to
provide for articles on partnership at will as none
would so exist. Apparently what the law contemplates,
is a specific undertaking or "project" which has a
definite or definable period of completion.
3

The birth and life of a partnership at will is predicated on the
mutual desire and consent of the partners. The right to choose
with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law itself.
Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in
good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership
4
but that it can result in a liability
for damages.
5

In passing, neither would the presence of a period for its specific
duration or the statement of a particular purpose for its creation
prevent the dissolution of any partnership by an act or will of a
partner.
6
Among partners,
7
mutual agency arises and the
doctrine of delectus personae allows them to have the power,
although not necessarily the right, to dissolve the partnership. An
unjustified dissolution by the partner can subject him to a
possible action for damages.
The dissolution of a partnership is the change in the relation of
the parties caused by any partner ceasing to be associated in the
carrying on, as might be distinguished from the winding up of,
the business.
8
Upon its dissolution, the partnership continues
and its legal personality is retained until the complete winding up
of its business culminating in its termination.
9

The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil
Code;
10
however, an agreement of the partners, like any other
contract, is binding among them and normally takes precedence
to the extent applicable over the Code's general provisions. We
here take note of paragraph 8 of the "Amendment to Articles of
Partnership" reading thusly:
. . . In the event of the death or retirement of any
partner, his interest in the partnership shall be
liquidated and paid in accordance with the existing
agreements and his partnership participation shall
revert to the Senior Partners for allocation as the Senior
Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium
which the partnership is now acquiring, consisting of
the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila,
their true value at the time of such death or retirement
shall be determined by two (2) independent appraisers,
one to be appointed (by the partnership and the other
by the) retiring partner or the heirs of a deceased
partner, as the case may be. In the event of any
disagreement between the said appraisers a third
appraiser will be appointed by them whose decision
shall be final. The share of the retiring or deceased
partner in the aforementioned two (2) floor office
condominium shall be determined upon the basis of the
valuation above mentioned which shall be paid monthly
within the first ten (10) days of every month in
installments of not less than P20,000.00 for the Senior
Partners, P10,000.00 in the case of two (2) existing
Junior Partners and P5,000.00 in the case of the new
Junior Partner.
11

The term "retirement" must have been used in the articles, as we
so hold, in a generic sense to mean the dissociation by a partner,
inclusive of resignation or withdrawal, from the partnership that
thereby dissolves it.
On the third and final issue, we accord due respect to the
appellate court and respondent Commission on their common
factual finding, i.e., that Attorney Misa did not act in bad faith.
Public respondents viewed his withdrawal to have been spurred
by "interpersonal conflict" among the partners. It would not be
right, we agree, to let any of the partners remain in the
partnership under such an atmosphere of animosity; certainly,
not against their will.
12
Indeed, for as long as the reason for
withdrawal of a partner is not contrary to the dictates of justice
and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to
characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral
obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No
pronouncement on costs.
SO ORDERED.

G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO
PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.
CONCEPCION JR., J.:
Appeal from the decision of the Court of First Instanre of Manila,
dissolving the "U.P. Construction Company" and ordering the
defendant Bartolome Puzon to pay the plaintiff the amounts of:
(1) P115,102.13, with legal interest thereon from the date of the
filing of the complaint until fully paid; (2) P200,000.00, as
plaintiffs share in the unrealized profits of the "U.P. Construction
Company" and (3) P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract
with the Republic of the Philippines for the construction of the
Ganyangan Bato Section of the Pagadian Zamboanga City Road,
province of Zamboanga del Sur
1
and of five (5) bridges in the
Malangas-Ganyangan Road.
2
Finding difficulty in accomplishing
both projects, Bartolome Puzon sought the financial assistance of
the plaintiff, William Uy. As an inducement, Puzon proposed the
creation of a partnership between them which would be the sub-
contractor of the projects and the profits to be divided equally
between them. William Uy inspected the projects in question and,
expecting to derive considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the "U.P.
Construction Company"
3
which was subsequently engaged as
subcontractor of the construction projects.
4

The partners agreed that the capital of the partnership would be
P100,000.00 of which each partner shall contribute the amount
of P50,000.00 in cash.
5
But, as heretofore stated, Puzon was
short of cash and he promised to contribute his share in the
partnership capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00 shall have
been approved. However, before his loan application could be
acted upon, he had to clear his collaterals of its incumbrances
first. For this purpose, on October 24, 1956, Wilham Uy gave
Bartolome Puzon the amount of P10,000.00 as advance
contribution of his share in the partnership to be organized
between them under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by Puzon
to pay his obligations with the Philippine National Bank to effect
the release of his mortgages with the said Bank.
6
On October 29,
1956, William Uy again gave Puzon the amount of P30,000.00 as
his partial contribution to the proposed partnership and which
the said Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation.
7
Puzon promised William Uy
that the amount of P150,000.00 would be given to the
partnership to be applied thusly: P40,000.00, as reimbursement
of the capital contribution of William Uy which the said Uy had
advanced to clear the title of Puzon's property; P50,000.00, as
Puzon's contribution to the partnership; and the balance of
P60,000.00 as Puzon's personal loan to the partnership.
8

Although the partnership agreement was signed by the parties on
January 18, 1957,
9
work on the projects was started by the
partnership on October 1, 1956 in view of the insistence of the
Bureau of Public Highways to complete the project right
away.
10
Since Puzon was busy with his other projects, William
Uy was entrusted with the management of the projects and
whatever expense the latter might incur, would be considered as
part of his contribution.
11
At the end of December, 1957, William
Uy had contributed to the partnership the amount of
P115,453.39, including his capital.
12

The loan of Puzon was approved by the Philippine National Bank
in November, 1956 and he gave to William Uy the amount of
P60,000.00. Of this amount, P40,000.00 was for the
reimbursement of Uy's contribution to the partnership which
was used to clear the title to Puzon's property, and the
P20,000.00 as Puzon's contribution to the partnership capital.
13

To guarantee the repayment of the above-mentioned loan,
Bartolome Puzon, without the knowledge and consent of William
Uy,
14
assigned to the Philippine National Bank all the payments
to be received on account of the contracts with the Bureau of
Public Highways for the construction of the afore-mentioned
projects.
15
By virtue of said assignment, the Bureau of Public
Highways paid the money due on the partial accomplishments on
the government projects in question to the Philippine National
Bank which, in turn, applied portions of it in payment of Puzon's
loan. Of the amount of P1,047,181.07, released by the Bureau of
Public Highways in payment of the partial work completed by the
partnership on the projects, the amount of P332,539.60 was
applied in payment of Puzon's loan and only the amount of
P27,820.80 was deposited in the partnership funds,
16
which, for
all practical purposes, was also under Puzon's account since
Puzon was the custodian of the common funds.
As time passed and the financial demands of the projects
increased, William Uy, who supervised the said projects, found
difficulty in obtaining the necessary funds with which to pursue
the construction projects. William Uy correspondingly called on
Bartolome Puzon to comply with his obligations under the terms
of their partnership agreement and to place, at lest, his capital
contribution at the disposal of the partnership. Despite several
promises, Puzon, however, failed to do so.
17
Realizing that his
verbal demands were to no avail, William Uy consequently wrote
Bartolome Puzon pormal letters of demand,
18
to which Puzon
replied that he is unable to put in additional capital to continue
with the projects.
19

Failing to reach an agreement with William Uy, Bartolome Puzon,
as prime contractor of the construction projects, wrote the
subcontractor, U.P. Construction Company, on November 20,
1957, advising the partnership, of which he is also a partner, that
unless they presented an immediate solution and capacity to
prosecute the work effectively, he would be constrained to
consider the sub-contract terminated and, thereafter, to assume
all responsibilities in the construction of the projects in
accordance with his original contract with the Bureau of Public
Highways.
20
On November 27, 1957, Bartolome Puzon again
wrote the U.P.Construction Company finally terminating their
subcontract agreement as of December 1, 1957.
21

Thereafter, William Uy was not allowed to hold office in the U.P.
Construction Company and his authority to deal with the Bureau
of Public Highways in behalf of the partnership was revoked by
Bartolome Puzon who continued with the construction projects
alone.
22

On May 20, 1958, William Uy, claiming that Bartolome Puzon had
violated the terms of their partnership agreement, instituted an
action in court, seeking, inter alia, the dissolution of the
partnership and payment of damages.
Answering, Bartolome Puzon denied that he violated the terms of
their agreement claiming that it was the plaintiff, William Uy,
who violated the terms thereof. He, likewise, prayed for the
dissolution of the partnership and for the payment by the
plaintiff of his, share in the losses suffered by the partnership.
After appropriate proceedings, the trial court found that the
defendant, contrary to the terms of their partnership agreement,
failed to contribute his share in the capital of the partnership
applied partnership funds to his personal use; ousted the plaintiff
from the management of the firm, and caused the failure of the
partnership to realize the expected profits of at least
P400,000.00. As a consequence, the trial court dismissed the
defendant's counterclaim and ordered the dissolution of the
partnership. The trial court further ordered the defendant to pay
the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon
during the pendency of the appeal before this Court, the said
Bartolome Puzon died, and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19) assignment of
errors, involving questions of fact, which relates to the following
points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to
pay the appellee is not supported by the evidence and the law.
After going over the record, we find no reason for rejecting the
findings of fact below, justifying the reversal of the decision
appealed from.
The findings of the trial court that the appellant failed to
contribute his share in the capital of the partnership is clear
incontrovertible. The record shows that after the appellant's loan
the amount of P150,000.00 was approved by the Philippin
National Bank in November, 1956, he gave the amount
P60,000.00 to the appellee who was then managing the
construction projects. Of this amount, P40,000.00 was to be
applied a reimbursement of the appellee's contribution to the
partnership which was used to clear the title to the appellant's
property, and th balance of P20,000.00, as Puzon's contribution
to the partnership.
23
Thereafter, the appellant failed to make any
further contributions the partnership funds as shown in his
letters to the appellee wherein he confessed his inability to put in
additional capital to continue with the projects.
24

Parenthetically, the claim of the appellant that the appellee is
equally guilty of not contributing his share in the partnership
capital inasmuch as the amount of P40,000.00, allegedly given to
him in October, 1956 as partial contribution of the appellee is
merely a personal loan of the appellant which he had paid to the
appellee, is plainly untenable. The terms of the receipts signed by
the appellant are clear and unequivocal that the sums of money
given by the appellee are appellee's partial contributions to the
partnership capital. Thus, in the receipt for P10,000.00 dated
October 24, 1956,
25
the appellant stated:+.wph!1
Received from Mr. William Uy the sum of TEN
THOUSAND PESOS (P10,000.00) in Check No.
SC 423285 Equitable Banking Corporation,
dated October 24, 1956, as advance
contribution of the share of said William Uy in
the partnership to be organized between us
under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above
will be used by the undersigned to pay his
obligations with the Philippine National Bank
to effect the release of his mortgages with the
said bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29,
1956,
26
the appellant also said:+.wph!1
Received from William Uy the sum of THIRTY
THOUSAND PESOS (P30,000.00) in Check No.
SC423287, of the Equitable Banking
Corporation, as partial contribution of the
share of the said William Uy to the U.P.
CONSTRUCTION COMPANY for which the
undersigned will use the said amount in
payment of his obligation to the Rehabilitation
Finance Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied
partnership funds is, likewise, sustained by competent evidence.
It is of record that the appellant assigned to the Philippine
National Bank all the payments to be received on account of the
contracts with the Bureau of Public Highways for the
construction of the aforementioned projects to guarantee the
repayment of the bank.
27
By virtue of the said appeflant's
personal loan with the said bank assignment, the Bureau of
Public Highways paid the money due on the partial
accomplishments on the construction projects in question to the
Philippine National Bank who, in turn, applied portions of it in
payment of the appellant's loan.
28

The appellant claims, however, that the said assignment was
made with the consent of the appellee and that the assignment
not prejudice the partnership as it was reimbursed by the
appellant.
But, the appellee categorically stated that the assignment to the
Philippine National Bank was made without his prior knowledge
and consent and that when he learned of said assignment, he cal
the attention of the appellant who assured him that the
assignment was only temporary as he would transfer the loan to
the Rehabilitation Finance Corporation within three (3) months
time.
29

The question of whom to believe being a matter large dependent
on the trier's discretion, the findings of the trial court who had
the better opportunity to examine and appraise the fact issue,
certainly deserve respect.
That the assignment to the Philippine National Bank prejudicial
to the partnership cannot be denied. The record show that during
the period from March, 1957 to September, 1959, the appellant
Bartolome Puzon received from the Bureau of Public highways, in
payment of the work accomplished on the construction projects,
the amount of P1,047,181.01, which amount rightfully and legally
belongs to the partnership by virtue of the subcontract
agreements between the appellant and the U.P. Construction
Company. In view of the assignemt made by Puzon to the
Philippine National Bank, the latter withheld and applied the
amount of P332,539,60 in payment of the appellant's personal
loan with the said bank. The balance was deposited in Puzon's
current account and only the amount of P27,820.80 was
deposited in the current account of the partnership.
30
For sure, if
the appellant gave to the partnership all that were eamed and
due it under the subcontract agreements, the money would have
been used as a safe reserve for the discharge of all obligations of
the firm and the partnership would have been able to
successfully and profitably prosecute the projects it
subcontracted.
When did the appellant make the reimbursement claimed by
him?
For the same period, the appellant actually disbursed for the
partnership, in connection with the construction projects, the
amount of P952,839.77.
31
Since the appellant received from the
Bureau of Public Highways the sum of P1,047,181.01, the
appellant has a deficit balance of P94,342.24. The appellant,
therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted
from the management of the partnership is also based upon
persuasive evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's
contribution to the partnership capital, the said appellant did not
allow him to hold office in the U.P. Construction Company and his
authority to deal with the Bureau of Public Highways was
revoked by the appellant.
32

As the record stands, We cannot say, therefore, that the decis of
the trial court is not sustained by the evidence of record as
warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly
ordered him to reimburse the plaintiff-appellee whatever amount
latter had invested in or spent for the partnership on account of
construction projects.
How much did the appellee spend in the construction projects
question?
It appears that although the partnership agreement stated the
capital of the partnership is P100,000.00 of which each part shall
contribute to the partnership the amount of P50,000.00
cash
33
the partners of the U.P. Construction Company did
contribute their agreed share in the capitalization of the
enterprise in lump sums of P50,000.00 each. Aside from the
initial amount P40,000.00 put up by the appellee in October,
1956,
34
the partners' investments took, the form of cash
advances coveting expenses of the construction projects as they
were incurred. Since the determination of the amount of the
disbursements which each of them had made for the construction
projects require an examination of the books of account, the trial
court appointed two commissioners, designated by the parties,
"to examine the books of account of the defendant regarding the
U.P. Construction Company and his personal account with
particular reference to the Public Works contract for the
construction of the Ganyangan-Bato Section, Pagadian-
Zamboanga City Road and five (5) Bridges in Malangas-
Ganyangan Road, including the payments received by defendant
from the Bureau of Public Highways by virtue of the two projects
above mentioned, the disbursements or disposition made by
defendant of the portion thereof released to him by the
Philippine National Bank and in whose account these funds are
deposited .
35

In due time, the loners so appointed,
36
submitted their
report
37
they indicated the items wherein they are in agreement,
as well as their points of disagreement.
In the commissioners' report, the appellant's advances are listed
under Credits; the money received from the firm, under Debits;
and the resulting monthly investment standings of the partners,
under Balances. The commissioners are agreed that at the end of
December, 1957, the appellee had a balance of P8,242.39.
38
It is
in their respective adjustments of the capital account of the
appellee that the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge
the appellee with the sum of P24,239.48, representing the checks
isssued by the appellant,
39
and encashed by the appellee or his
brother, Uy Han so that the appellee would owe the partnership
the amount of P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand,
would credit the appellee the following additional amounts:
(1) P7,497.80 items omitted from the books of partnership but
recognized and charged to Miscellaneous Expenses by Mr.
Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount
P128,103.77 less payroll remittances from the appellant in
amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at
construction site.
With respect to the amount of P24,239.48, claimed by appellant,
we are hereunder adopting the findings of the trial which we find
to be in accord with the evidence:
To enhance defendant's theory that he should be credited
P24,239.48, he presented checks allegedly given to plaintiff and
the latter's brother, Uy Han, marked as Exhibits 2 to 11. However,
defendant admitted that said cheeks were not entered nor record
their books of account, as expenses for and in behalf of
partnership or its affairs. On the other hand, Uy Han testified that
of the cheeks he received were exchange for cash, while other
used in the purchase of spare parts requisitioned by defendant.
This testimony was not refuted to the satisfaction of the Court,
considering that Han's explanation thereof is the more plausible
because if they were employed in the prosecution of the partners
projects, the corresponding disbursements would have certainly
been recorded in its books, which is not the case. Taking into
account defendant is the custodian of the books of account, his
failure to so enter therein the alleged disbursements, accentuates
the falsity of his claim on this point.
40

Besides, as further noted by the trial court, the report
Commissioner Ablaza is unreliable in view of his proclivity to
favor the appellant and because of the inaccurate accounting
procedure adopted by him in auditing the books of account of the
partnership unlike Mr. Tayag's report which inspires faith and
credence.
41

As explained by Mr. Tayag, the amount of P7,497.80 represen
expenses paid by the appellee out of his personal funds which not
been entered in the books of the partnership but which been
recognized and conceded to by the auditor designated by the
appellant who included the said amount under Expenses.
42

The explanation of Mr. Tayag on the inclusion of the amount of
P65,103.77 is likewise clear and convincing.
43

As for the sum of of P26,027.04, the same represents the
expenses which the appelle paid in connection withe the projects
and not entered in the books of the partnership since all vouchers
and receipts were sent to the Manila office which were under the
control of the appellant. However, officer which were under the
control of the appellant. However, a list of these expenses are
incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:
Undisputed balance as of Dec. 1967
Add: Items omitted from the books
but
P 8,242.
recognized and charged to
Miscellaneous

Expenses by Mr. Ablaza 7,497.80
Add:
Payrolls
paid by the
appellee
P128,103.77
Less:
Payroll
remittances
received
63,000.00 65,103.77
Add: Other
expenses
incurred at
the

site (Exhs,
ZZ, ZZ-1 to
ZZ-4)
26,027.04
TOTAL P106,871.00
At the trial, the appellee presented a claim for the amounts of
P3,917.39 and P4,665.00 which he also advanced for the
construction projects but which were not included in the
Commissioner's Report.
44

Appellee's total investments in the partnership would, therefore,
be:
Appellee's
total credits
P106,871.00
Add:
unrecorded
balances for
3,917,39
the month of
Dec. 1957
(Exhs. KKK,
KK-1 to
KKK_19, KKK-
22)
Add:
Payments to
Munoz, as
subcontractor
of five,(5)
Bridges (p.
264 tsn; Exhs.
KKK-20, KKK-
21)
4,665.00
Total
Investments
Pl 15,453.39
Regarding the award of P200,000.00 as his share in the
unrealized profits of the partnership, the appellant contends that
the findings of the trial court that the amount of P400,000.00 as
reasonable profits of the partnership venture is without any basis
and is not supported by the evidence. The appemnt maintains
that the lower court, in making its determination, did not take
into consideration the great risks involved in business operations
involving as it does the completion of the projects within a
definite period of time, in the face of adverse and often
unpredictable circumstances, as well as the fact that the appellee,
who was in charge of the projects in the field, contributed in a
large measure to the failure of the partnership to realize such
profits by his field management.
This argument must be overruled in the light of the law and
evidence on the matter. Under Article 2200 of the Civil Code,
indemnification for damages shall comprehend not only the value
of the loss suffered, but also that of the profits which the obligee
failed to obtain. In other words lucrum cessans is also a basis for
indemnification.
Has the appellee failed to make profits because of appellant's
breach of contract?
There is no doubt that the contracting business is a profitable one
and that the U.P. Construction Company derived some profits
from' co io oa ects its sub ntracts in the construction of the road
and bridges projects its deficient working capital and the juggling
of its funds by the appellant.
Contrary to the appellant's claim, the partnership showed some
profits during the period from July 2, 1956 to December 31, 1957.
If the Profit and Loss Statement
45
showed a net loss of
P134,019.43, this was primarily due to the confusing accounting
method employed by the auditor who intermixed h and accthe
cas ruamethod of accounting and the erroneous inclusion of
certain items, like personal expenses of the appellant and afteged
extraordinary losses due to an accidental plane crash, in the
operating expenses of the partnership, Corrected, the Profit and
Loss Statement would indicate a net profit of P41,611.28.
For the period from January 1, 1958 to September 30, 1959, the
partnership admittedly made a net profit of P52,943.89.
46

Besides, as We have heretofore pointed out, the appellant
received from the Bureau of Public Highways, in payment of the
zonstruction projects in question, the amount of
P1,047,181.01
47
and disbursed the amount of
P952,839.77,
48
leaving an unaccounted balance of P94,342.24.
Obviously, this amount is also part of the profits of the
partnership.
During the trial of this case, it was discovered that the appellant
had money and credits receivable froin the projects in question,
in the custody of the Bureau of Public Highways, in the amount of
P128,669.75, representing the 10% retention of said
projects.
49
After the trial of this case, it was shown that the total
retentions Wucted from the appemnt amounted to
P145,358.00.
50
Surely, these retained amounts also form part of
the profits of the partnership.
Had the appellant not been remiss in his obligations as partner
and as prime contractor of the construction projects in question
as he was bound to perform pursuant to the partnership and
subcontract agreements, and considering the fact that the total
contract amount of these two projects is P2,327,335.76, it is
reasonable to expect that the partnership would have earned
much more than the P334,255.61 We have hereinabove
indicated. The award, therefore, made by the trial court of the
amount of P200,000.00, as compensatory damages, is not
speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the
said decision is hereby affirmed with costs against the appellant,
it being understood that the liability mentioned herein shall be
home by the estate of the deceased Bartolome Puzon,
represented in this instance by the administrator thereof, Franco
Puzon.
SO ORDERED.

G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E.
PECSON, respondents.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the decision of the
respondent Court of Appeals which ordered petitioner Isabelo
Moran, Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed
facts indicate that: t.hqw
xxx xxx xxx
... on February 22, 1971 Pecson and Moran
entered into an agreement whereby both
would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional
Convention), with Moran actually supervising
the work; that Pecson would receive a
commission of P l,000 a month starting on
April 15, 1971 up to December 15, 1971; that
on December 15, 1971, a liquidation of the
accounts in the distribution and printing of the
95,000 posters would be made, that Pecson
gave Moran P10,000 for which the latter
issued a receipt; that only a few posters were
printed; that on or about May 28, 1971, Moran
executed in favor of Pecson a promissory note
in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before
June 15, 1971 and P10,000 payable on or
before June 30, 1971), the whole sum
becoming due upon default in the payment of
the first installment on the date due, complete
with the costs of collection.
Private respondent Pecson filed with the Court of First Instance
of Manila an action for the recovery of a sum of money and
alleged in his complaint three (3) causes of action, namely: (1) on
the alleged partnership agreement, the return of his contribution
of P10,000.00, payment of his share in the profits that the
partnership would have earned, and, payment of unpaid
commission; (2) on the alleged promissory note, payment of the
sum of P20,000.00; and, (3) moral and exemplary damages and
attorney's fees.
After the trial, the Court of First Instance held that: t.hqw
From the evidence presented it is clear in the
mind of the court that by virtue of the
partnership agreement entered into by the
parties-plaintiff and defendant the plaintiff did
contribute P10,000.00, and another sum of
P7,000.00 for the Voice of the Veteran or
Delegate Magazine. Of the expected 95,000
copies of the posters, the defendant was able
to print 2,000 copies only authorized of which,
however, were sold at P5.00 each. Nothing
more was done after this and it can be said
that the venture did not really get off the
ground. On the other hand, the plaintiff failed
to give his full contribution of P15,000.00.
Thus, each party is entitled to rescind the
contract which right is implied in reciprocal
obligations under Article 1385 of the Civil
Code whereunder 'rescission creates the
obligation to return the things which were the
object of the contract ...
WHEREFORE, the court hereby renders
judgment ordering defendant Isabelo C.
Moran, Jr. to return to plaintiff Mariano E.
Pecson the sum of P17,000.00, with interest at
the legal rate from the filing of the complaint
on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim
is hereby dismissed.
From this decision, both parties appealed to the respondent
Court of Appeals. The latter likewise rendered a decision against
the petitioner. The dispositive portion of the decision
reads: t.hqw
PREMISES CONSIDERED, the decision
appealed from is hereby SET ASIDE, and a new
one is hereby rendered, ordering defendant-
appellant Isabelo C. Moran, Jr. to pay plaintiff-
appellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred
(P47,500) (the amount that could have
accrued to Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission
for eight months);
(c) Seven thousand (P7,000) (as a return of
Pecson's investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the
date the complaint was filed (up to the time
payment is made)
The petitioner contends that the respondent Court of Appeals
decided questions of substance in a way not in accord with law
and with Supreme Court decisions when it committed the
following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS
THE SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT
OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL
LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF
APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
NOT GRANTING THE PETITIONER'S COMPULSORY
COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of
P47,500.00 as the private respondent's share in the unrealized
profits of the partnership. The petitioner contends that the award
is highly speculative. The petitioner maintains that the
respondent court did not take into account the great risks
involved in the business undertaking.
We agree with the petitioner that the award of speculative
damages has no basis in fact and law.
There is no dispute over the nature of the agreement between the
petitioner and the private respondent. It is a contract of
partnership. The latter in his complaint alleged that he was
induced by the petitioner to enter into a partnership with him
under the following terms and conditions: t.hqw
1. That the partnership will print colored
posters of the delegates to the Constitutional
Convention;
2. That they will invest the amount of Fifteen
Thousand Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand
(95,000) copies of the said posters;
4. That plaintiff will receive a commission of
One Thousand Pesos (P1,000.00) a month
starting April 15, 1971 up to December 15,
1971;
5. That upon the termination of the
partnership on December 15, 1971, a
liquidation of the account pertaining to the
distribution and printing of the said 95,000
posters shall be made.
The petitioner on the other hand admitted in his answer the
existence of the partnership.
The rule is, when a partner who has undertaken to contribute a
sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute
(Art. 1786, Civil Code) and for interests and damages from the
time he should have complied with his obligation (Art. 1788, Civil
Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art.
2200 of the Civil Code of the Philippines, we allowed a total of
P200,000.00 compensatory damages in favor of the appellee
because the appellant therein was remiss in his obligations as a
partner and as prime contractor of the construction projects in
question. This case was decided on a particular set of facts. We
awarded compensatory damages in the Uy case because there
was a finding that the constructing business is a profitable one
and that the UP construction company derived some profits from
its contractors in the construction of roads and bridges despite
its deficient capital." Besides, there was evidence to show that the
partnership made some profits during the periods from July 2,
1956 to December 31, 1957 and from January 1, 1958 up to
September 30, 1959. The profits on two government contracts
worth P2,327,335.76 were not speculative. In the instant case,
there is no evidence whatsoever that the partnership between
the petitioner and the private respondent would have been a
profitable venture. In fact, it was a failure doomed from the start.
There is therefore no basis for the award of speculative damages
in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full
contribution while Uy contributed much more than what was
expected of him. In this case, however, there was mutual breach.
Private respondent failed to give his entire contribution in the
amount of P15,000.00. He contributed only P10,000.00. The
petitioner likewise failed to give any of the amount expected of
him. He further failed to comply with the agreement to print
95,000 copies of the posters. Instead, he printed only 2,000
copies.
Article 1797 of the Civil Code provides:
The losses and profits shall be distributed in
conformity with the agreement. If only the
share of each partner in the profits has been
agreed upon, the share of each in the losses
shall be in the same proportion.
Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits, in the
absence of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an
investment of P15,000.00, the respondent was supposed to earn
a guaranteed P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of
which were sold at P5.00 each. The fantastic nature of expected
profits is obvious. We have to take various factors into account.
The failure of the Commission on Elections to proclaim all the
320 candidates of the Constitutional Convention on time was a
major factor. The petitioner undesirable his best business
judgment and felt that it would be a losing venture to go on with
the printing of the agreed 95,000 copies of the posters. Hidden
risks in any business venture have to be considered.
It does not follow however that the private respondent is not
entitled to recover any amount from the petitioner. The records
show that the private respondent gave P10,000.00 to the
petitioner. The latter used this amount for the printing of 2,000
posters at a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000 copies were
sold at P5.00 each. The gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00 from the gross income
of P10,000.00 and with no evidence on the cost of distribution,
the net profits amount to only P6,000.00. This net profit of
P6,000.00 should be divided between the petitioner and the
private respondent. And since only P4,000.00 was undesirable by
the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private
respondent.
Relative to the second alleged error, the petitioner submits that
the award of P8,000.00 as Pecson's supposed commission has no
justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would
give the private respondent a monthly commission of Pl,000.00
from April 15, 1971 to December 15, 1971 for a total of eight (8)
monthly commissions. The agreement does not state the basis of
the commission. The payment of the commission could only have
been predicated on relatively extravagant profits. The parties
could not have intended the giving of a commission inspite of loss
or failure of the venture. Since the venture was a failure, the
private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the
respondent Court of Appeals erred in holding him liable to the
private respondent in the sum of P7,000.00 as a supposed return
of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed
return of investment in the "Voice of the Veterans" magazine
venture, the respondent court ruled that: t.hqw
xxx xxx xxx
... Moran admittedly signed the promissory
note of P20,000 in favor of Pecson. Moran does
not question the due execution of said note.
Must Moran therefore pay the amount of
P20,000? The evidence indicates that the
P20,000 was assigned by Moran to cover the
following: t.hqw
(a) P 7,000 the amount of the PNB
check given by Pecson to Moran
representing Pecson's investment in
Moran's other project (the
publication and printing of the 'Voice
of the Veterans');
(b) P10,000 to cover the return of
Pecson's contribution in the project
of the Posters;
(c) P3,000 representing Pecson's
commission for three months (April,
May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a
return of Pecson's investment for the
Veterans' project, for this project never left the
ground) ...
As a rule, the findings of facts of the Court of Appeals are final and
conclusive and cannot be reviewed on appeal to this Court
(Amigo v. Teves, 96 Phil. 252), provided they are borne out by the
record or are based on substantial evidence (Alsua-Betts v. Court
of Appeals, 92 SCRA 332). However, this rule admits of certain
exceptions. Thus, inCarolina Industries Inc. v. CMS Stock
Brokerage, Inc., et al., (97 SCRA 734), we held that this Court
retains the power to review and rectify the findings of fact of the
Court of Appeals when (1) the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken absurd and impossible;
(3) where there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; and (5) when
the court, in making its findings, went beyond the issues of the
case and the same are contrary to the admissions of both the
appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of
the private respondent himself shows that his investment in the
"Voice of Veterans" project amounted to only P3,000.00. The
remaining P4,000.00 was the amount of profit that the private
respondent expected to receive.
The records show the following exhibits-
E Xerox copy of PNB Manager's Check No.
234265 dated March 22, 1971 in favor of
defendant. Defendant admitted the
authenticity of this check and of his receipt of
the proceeds thereof (t.s.n., pp. 3-4, Nov. 29,
1972). This exhibit is being offered for the
purpose of showing plaintiff's capital
investment in the printing of the "Voice of the
Veterans" for which he was promised a fixed
profit of P8,000. This investment of P6,000.00
and the promised profit of P8,000 are covered
by defendant's promissory note for P14,000
dated March 31, 1971 marked by defendant as
Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and
by plaintiff as Exhibit P. Later, defendant
returned P3,000.00 of the P6,000.00
investment thereby proportionately reducing
the promised profit to P4,000. With the
balance of P3,000 (capital) and P4,000
(promised profit), defendant signed and
executed the promissory note for P7,000
marked Exhibit 3 for the defendant and
Exhibit M for plaintiff. Of this P7,000,
defendant paid P4,000 representing full return
of the capital investment and P1,000 partial
payment of the promised profit. The P3,000
balance of the promised profit was made part
consideration of the P20,000 promissory note
(t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the
consideration for the P20,000 promissory
note.
F Xerox copy of PNB Manager's check dated
May 29, 1971 for P7,000 in favor of defendant.
The authenticity of the check and his receipt of
the proceeds thereof were admitted by the
defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This
P 7,000 is part consideration, and in cash, of
the P20,000 promissory note (t.s.n., p. 25, Nov.
29, 1972), and it is being presented to show
the consideration for the P20,000 note and the
existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which
is being offered for the purpose of showing the
subject matter of the other partnership
agreement and in which plaintiff invested the
P6,000 (Exhibit E) which, together with the
promised profit of P8,000 made up for the
consideration of the P14,000 promissory note
(Exhibit 2; Exhibit P). As explained in
connection with Exhibit E. the P3,000 balance
of the promised profit was later made part
consideration of the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30,
1971. This is also defendant's Exhibit E. This
document is being offered for the purpose of
further showing the transaction as explained
in connection with Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for
the return of his P3,000 out of his capital
investment of P6,000 (Exh. E) in the P14,000
promissory note (Exh. 2; P). This is also
defendant's Exhibit 4. This document is being
offered in support of plaintiff's explanation in
connection with Exhibits E, L, and M to show
the transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also
defendant's Exhibit 2. It is being offered for
the purpose of showing the transaction as
explained in connection with Exhibits E, L, M,
and N above.
Explaining the above-quoted exhibits, respondent Pecson
testified that:
Q During the pre-trial of this case, Mr. Pecson, the
defendant presented a promissory note in the amount
of P14,000.00 which has been marked as Exhibit 2. Do
you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with your
transaction with the defendant?
A This promissory note is for the printing of the "Voice
of the Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.
(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00 indicated in
the promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr.
Moran, as evidenced by the Philippine National Bank
Manager's check and the P8,000.00 profit assured me
by Mr. Moran which I will derive from the printing of
this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is
covered by, a Manager's check. I show you Exhibit E, is
this the Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00
which you said represented P6,000.00 of your
investment and P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which
represented one-half (1/2) of the P6,000.00 capital I
gave to him.
Q As a consequence of the return by Mr. Moran of one-
half (1/2) of the P6,000.00 capital you gave to him,
what happened to the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in
connection with the Balance of P3,000.00 of your capital
investment and the P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of
P7,000.00 dated March 30, 1971 which for purposes of
Identification I request the same to be marked as
Exhibit M. . .
Court
Mark it as Exhibit M.
Q (continuing) is this the promissory note which you
said was executed by Mr. Moran in connection with
your transaction regarding the printing of the "Voice of
the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by
Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as
shown by the promissory note.
Q Was there a receipt issued by you covering this
payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of
P4,000.00 on account of the P7,000.00 covered by the
promissory note, Exhibit M. What does this P4,000.00
covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he has
returned of my P6,000.00 capital investment and the
P1,000.00 represents partial payment of the P4,000.00
profit that was promised to me by Mr. Moran.
Q And what happened to the balance of P3,000.00 under
the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit
was applied as part of the consideration of the
promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project
never left the ground because the project did take place. Only it
failed. It was the private respondent himself who presented a
copy of the book entitled "Voice of the Veterans" in the lower
court as Exhibit "L". Therefore, it would be error to state that the
project never took place and on this basis decree the return of the
private respondent's investment.
As already mentioned, there are risks in any business venture
and the failure of the undertaking cannot entirely be blamed on
the managing partner alone, specially if the latter exercised his
best business judgment, which seems to be true in this case. In
view of the foregoing, there is no reason to pass upon the fourth
and fifth assignments of errors raised by the petitioner. We
likewise find no valid basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the
respondent Court of Appeals (now Intermediate Appellate Court)
is hereby SET ASIDE and a new one is rendered ordering the
petitioner Isabelo Moran, Jr., to pay private respondent Mariano
Pecson SIX THOUSAND (P6,000.00) PESOS representing the
amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND
(P3,000.00) PESOS representing one half (1/2) of the net profits
gained by the partnership in the sale of the two thousand (2,000)
copies of the posters, with interests at the legal rate on both
amounts from the date the complaint was filed until full payment
is made.
SO ORDERED.

G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR.,
CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD
SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name
of "Evangelista & Co." On June 7, 1955 the Articles of Co-
partnership was amended as to include herein respondent,
Estrella Abad Santos, as industrial partner, with herein
petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad
Santos and Conchita P. Navarro, the original capitalist partners,
remaining in that capacity, with a contribution of P17,500 each.
The amended Articles provided, inter alia, that "the contribution
of Estrella Abad Santos consists of her industry being an
industrial partner", and that the profits and losses "shall be
divided and distributed among the partners ... in the proportion
of 70% for the first three partners, Domingo C. Evangelista, Jr.,
Conchita P. Navarro and Leonardo Atienza Abad Santos to be
divided among them equally; and 30% for the fourth partner
Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the
three other partners in the Court of First Instance of Manila,
alleging that the partnership, which was also made a party-
defendant, had been paying dividends to the partners except to
her; and that notwithstanding her demands the defendants had
refused and continued to refuse and let her examine the
partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends declared
by the partnership. She therefore prayed that the defendants be
ordered to render accounting to her of the partnership business
and to pay her corresponding share in the partnership profits
after such accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared
dividends or distributed profits of the partnership; denied
likewise that the plaintiff ever demanded that she be allowed to
examine the partnership books; and byway of affirmative defense
alleged that the amended Articles of Co-partnership did not
express the true agreement of the parties, which was that the
plaintiff was not an industrial partner; that she did not in fact
contribute industry to the partnership; and that her share of 30%
was to be based on the profits which might be realized by the
partnership only until full payment of the loan which it had
obtained in December, 1955 from the Rehabilitation Finance
Corporation in the sum of P30,000, for which the plaintiff had
signed a promisory note as co-maker and mortgaged her
property as security.
The parties are in agreement that the main issue in this case is
"whether the plaintiff-appellee (respondent here) is an industrial
partner as claimed by her or merely a profit sharer entitled to
30% of the net profits that may be realized by the partnership
from June 7, 1955 until the mortgage loan from the Rehabilitation
Finance Corporation shall be fully paid, as claimed by appellants
(herein petitioners)." On that issue the Court of First Instance
found for the plaintiff and rendered judgement "declaring her an
industrial partner of Evangelista & Co.; ordering the defendants
to render an accounting of the business operations of the (said)
partnership ... from June 7, 1955; to pay the plaintiff such
amounts as may be due as her share in the partnership profits
and/or dividends after such an accounting has been properly
made; to pay plaintiff attorney's fees in the sum of P2,000.00 and
the costs of this suit."
The defendants appealed to the Court of Appeals, which
thereafter affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned the
following errors:
I. The Court of Appeals erred in the finding
that the respondent is an industrial partner of
Evangelista & Co., notwithstanding the
admitted fact that since 1954 and until after
promulgation of the decision of the appellate
court the said respondent was one of the
judges of the City Court of Manila, and despite
its findings that respondent had been paid for
services allegedly contributed by her to the
partnership. In this connection the Court of
Appeals erred:
(A) In finding that the
"amended Articles of Co-
partnership," Exhibit "A" is
conclusive evidence that
respondent was in fact
made an industrial partner
of Evangelista & Co.
(B) In not finding that a
portion of respondent's
testimony quoted in the
decision proves that said
respondent did not bind
herself to contribute her
industry, and she could not,
and in fact did not, because
she was one of the judges of
the City Court of Manila
since 1954.
(C) In finding that
respondent did not in fact
contribute her industry,
despite the appellate
court's own finding that she
has been paid for the
services allegedly rendered
by her, as well as for the
loans of money made by her
to the partnership.
II. The lower court erred in not finding that in
any event the respondent was lawfully
excluded from, and deprived of, her alleged
share, interests and participation, as an
alleged industrial partner, in the partnership
Evangelista & Co., and its profits or net
income.
III. The Court of Appeals erred in affirming in
toto the decision of the trial court whereby
respondent was declared an industrial partner
of the petitioner, and petitioners were ordered
to render an accounting of the business
operation of the partnership from June 7,
1955, and to pay the respondent her alleged
share in the net profits of the partnership plus
the sum of P2,000.00 as attorney's fees and
the costs of the suit, instead of dismissing
respondent's complaint, with costs, against the
respondent.
It is quite obvious that the questions raised in the first assigned
errors refer to the facts as found by the Court of Appeals. The
evidence presented by the parties as the trial in support of their
respective positions on the issue of whether or not the
respondent was an industrial partner was thoroughly analyzed
by the Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of the
witnesses.
It is not the function of the Supreme Court to analyze or weigh
such evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been commited by the
lower court. It should be observed, in this regard, that the Court
of Appeals did not hold that the Articles of Co-partnership,
identified in the record as Exhibit "A", was conclusive evidence
that the respondent was an industrial partner of the said
company, but considered it together with other factors,
consisting of both testimonial and documentary evidences, in
arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised
in the first assignment of error are hereunder reproduced if only
to demonstrate that the same were made after a through analysis
of then evidence, and hence are beyond this Court's power of
review.
The aforequoted findings of the lower Court
are assailed under Appellants' first assigned
error, wherein it is pointed out that
"Appellee's documentary evidence does not
conclusively prove that appellee was in fact
admitted by appellants as industrial partner of
Evangelista & Co." and that "The grounds
relied upon by the lower Court are untenable"
(Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1,
J, N and S, appellants' complaint being that "In
finding that the appellee is an industrial
partner of appellant Evangelista & Co., herein
referred to as the partnership the lower
court relied mainly on the appellee's
documentary evidence, entirely disregarding
facts and circumstances established by
appellants" evidence which contradict the said
finding' (Page 21, Appellants' Brief). The lower
court could not have done otherwise but rely
on the exhibits just mentioned, first, because
appellants have admitted their genuineness
and due execution, hence they were admitted
without objection by the lower court when
appellee rested her case and, secondly the said
exhibits indubitably show the appellee is an
industrial partner of appellant company.
Appellants are virtually estopped from
attempting to detract from the probative force
of the said exhibits because they all bear the
imprint of their knowledge and consent, and
there is no credible showing that they ever
protested against or opposed their contents
prior of the filing of their answer to appellee's
complaint. As a matter of fact, all the appellant
Evangelista, Jr., would have us believe as
against the cumulative force of appellee's
aforesaid documentary evidence is the
appellee's Exhibit "A", as confirmed and
corroborated by the other exhibits already
mentioned, does not express the true intent
and agreement of the parties thereto, the real
understanding between them being the
appellee would be merely a profit sharer
entitled to 30% of the net profits that may be
realized between the partners from June 7,
1955, until the mortgage loan of P30,000.00 to
be obtained from the RFC shall have been fully
paid. This version, however, is discredited not
only by the aforesaid documentary evidence
brought forward by the appellee, but also by
the fact that from June 7, 1955 up to the filing
of their answer to the complaint on February
8, 1964 or a period of over eight (8) years
appellants did nothing to correct the
alleged false agreement of the parties
contained in Exhibit "A". It is thus reasonable
to suppose that, had appellee not filed the
present action, appellants would not have
advanced this obvious afterthought that
Exhibit "A" does not express the true intent
and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also
make much of the argument that 'there is an
overriding fact which proves that the parties
to the Amended Articles of Partnership,
Exhibit "A", did not contemplate to make the
appellee Estrella Abad Santos, an industrial
partner of Evangelista & Co. It is an admitted
fact that since before the execution of the
amended articles of partnership, Exhibit "A",
the appellee Estrella Abad Santos has been,
and up to the present time still is, one of the
judges of the City Court of Manila, devoting all
her time to the performance of the duties of
her public office. This fact proves beyond
peradventure that it was never contemplated
between the parties, for she could not lawfully
contribute her full time and industry which is
the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's
testimony on this point, quoting it in the decision, and then
concluded as follows:
One cannot read appellee's testimony just
quoted without gaining the very definite
impression that, even as she was and still is a
Judge of the City Court of Manila, she has
rendered services for appellants without
which they would not have had the
wherewithal to operate the business for which
appellant company was organized. Article
1767 of the New Civil Code which provides
that "By 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, 'does not specify the kind of
industry that a partner may thus contribute,
hence the said services may legitimately be
considered as appellee's contribution to the
common fund. Another article of the same
Code relied upon appellants reads:
'ART. 1789. An industrial
partner cannot engage in
business for himself, unless
the partnership expressly
permits him to do so; and if
he should do so, the
capitalist partners may
either exclude him from the
firm or avail themselves of
the benefits which he may
have obtained in violation
of this provision, with a
right to damages in either
case.'
It is not disputed that the provision against the
industrial partner engaging in business for
himself seeks to prevent any conflict of
interest between the industrial partner and
the partnership, and to insure faithful
compliance by said partner with this
prestation. There is no pretense, however,
even on the part of the appellee is engaged in
any business antagonistic to that of appellant
company, since being a Judge of one of the
branches of the City Court of Manila can hardly
be characterized as a business. That appellee
has faithfully complied with her prestation
with respect to appellants is clearly shown by
the fact that it was only after filing of the
complaint in this case and the answer thereto
appellants exercised their right of exclusion
under the codal art just mentioned by alleging
in their Supplemental Answer dated June 29,
1964 or after around nine (9) years from
June 7, 1955 subsequent to the filing of
defendants' answer to the complaint,
defendants reached an agreement whereby
the herein plaintiff been excluded from, and
deprived of, her alleged share, interests or
participation, as an alleged industrial partner,
in the defendant partnership and/or in its net
profits or income, on the ground plaintiff has
never contributed her industry to the
partnership, instead she has been and still is a
judge of the City Court (formerly Municipal
Court) of the City of Manila, devoting her time
to performance of her duties as such judge and
enjoying the privilege and emoluments
appertaining to the said office, aside from
teaching in law school in Manila, without the
express consent of the herein defendants'
(Record On Appeal, pp. 24-25). Having always
knows as a appellee as a City judge even
before she joined appellant company on June
7, 1955 as an industrial partner, why did it
take appellants many yearn before excluding
her from said company as aforequoted
allegations? And how can they reconcile such
exclusive with their main theory that appellee
has never been such a partner because "The
real agreement evidenced by Exhibit "A" was
to grant the appellee a share of 30% of the net
profits which the appellant partnership may
realize from June 7, 1955, until the mortgage
of P30,000.00 obtained from the
Rehabilitation Finance Corporal shall have
been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold
with the lower Court that appellee is an
industrial partner of appellant company, with
the right to demand for a formal accounting
and to receive her share in the net profit that
may result from such an accounting, which
right appellants take exception under their
second assigned error. Our said holding is
based on the following article of the New Civil
Code:
'ART. 1899. Any partner
shall have the right to a
formal account as to
partnership affairs:
(1) If he is wrongfully excluded from the
partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it
just and reasonable.
We find no reason in this case to depart from the rule which
limits this Court's appellate jurisdiction to reviewing only errors
of law, accepting as conclusive the factual findings of the lower
court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.

G.R. No. L-5236 January 10, 1910
PEDRO MARTINEZ, plaintiff-appellee,
vs.
ONG PONG CO and ONG LAY, defendants.
ONG PONG CO., appellant.
ARELLANO, C.J.:
On the 12th of December, 1900, the plaintiff herein delivered
P1,500 to the defendants who, in a private document,
acknowledged that they had received the same with the
agreement, as stated by them, "that we are to invest the amount
in a store, the profits or losses of which we are to divide with the
former, in equal shares."
The plaintiff filed a complaint on April 25, 1907, in order to
compel the defendants to render him an accounting of the
partnership as agreed to, or else to refund him the P1,500 that he
had given them for the said purpose. Ong Pong Co alone appeared
to answer the complaint; he admitted the fact of the agreement
and the delivery to him and to Ong Lay of the P1,500 for the
purpose aforesaid, but he alleged that Ong Lay, who was then
deceased, was the one who had managed the business, and that
nothing had resulted therefrom save the loss of the capital of
P1,500, to which loss the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila who
tried the case ordered Ong Pong Co to return to the plaintiff one-
half of the said capital of P1,500 which, together with Ong Lay, he
had received from the plaintiff, to wit, P750, plus P90 as one-half
of the profits, calculated at the rate of 12 per cent per annum for
the six months that the store was supposed to have been open,
both sums in Philippine currency, making a total of P840, with
legal interest thereon at the rate of 6 per cent per annum, from
the 12th of June, 1901, when the business terminated and on
which date he ought to have returned the said amount to the
plaintiff, until the full payment thereof with costs.
From this judgment Ong Pong Co appealed to this court, and
assigned the following errors:
1. For not having taken into consideration the fact that
the reason for the closing of the store was the ejectment
from the premises occupied by it.
2. For not having considered the fact that there were
losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. and 6. For holding that the capital ought to have
yielded profits, and that the latter should be calculated
12 per cent per annum; and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the store was
closed by virtue of ejectment proceedings is of no importance for
the effects of the suit. The whole action is based upon the fact
that the defendants received certain capital from the plaintiff for
the purpose of organizing a company; they, according to the
agreement, were to handle the said money and invest it in a store
which was the object of the association; they, in the absence of a
special agreement vesting in one sole person the management of
the business, were the actual administrators thereof; as such
administrators they were the agent of the company and incurred
the liabilities peculiar to every agent, among which is that of
rendering account to the principal of their transactions, and
paying him everything they may have received by virtue of
the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of them
has rendered such account nor proven the losses referred to by
Ong Pong Co; they are therefore obliged to refund the money that
they received for the purpose of establishing the said store the
object of the association. This was the principal pronouncement
of the judgment.
With regard to the second and third assignments of error, this
court, like the court below, finds no evidence that the entire
capital or any part thereof was lost. It is no evidence of such loss
to aver, without proof, that the effects of the store were ejected.
Even though this were proven, it could not be inferred therefrom
that the ejectment was due to the fact that no rents were paid,
and that the rent was not paid on account of the loss of the capital
belonging to the enterprise.
With regard to the possible profits, the finding of the court below
are based on the statements of the defendant Ong Pong Co, to the
effect that "there were some profits, but not large ones." This
court, however, does not find that the amount thereof has been
proven, nor deem it possible to estimate them to be a certain
sum, and for a given period of time; hence, it can not admit the
estimate, made in the judgment, of 12 per cent per annum for the
period of six months.
Inasmuch as in this case nothing appears other than the failure to
fulfill an obligation on the part of a partner who acted as agent in
receiving money for a given purpose, for which he has rendered
no accounting, such agent is responsible only for the losses
which, by a violation of the provisions of the law, he incurred.
This being an obligation to pay in cash, there are no other losses
than the legal interest, which interest is not due except from the
time of the judicial demand, or, in the present case, from the filing
of the complaint. (Arts. 1108 and 1100, Civil Code.) We do not
consider that article 1688 is applicable in this case, in so far as it
provides "that the partnership is liable to every partner for the
amounts he may have disbursed on account of the same and for
the proper interest," for the reason that no other money than that
contributed as is involved.
As in the partnership there were two administrators or agents
liable for the above-named amount, article 1138 of the Civil Code
has been invoked; this latter deals with debts of a partnership
where the obligation is not a joint one, as is likewise provided by
article 1723 of said code with respect to the liability of two or
more agents with respect to the return of the money that they
received from their principal. Therefore, the other errors
assigned have not been committed.
In view of the foregoing judgment appealed from is hereby
affirmed, provided, however, that the defendant Ong Pong Co
shall only pay the plaintiff the sum of P750 with the legal interest
thereon at the rate of 6 per cent per annum from the time of the
filing of the complaint, and the costs, without special ruling as to
the costs of this instance. So ordered.

G.R. No. L-2484 April 11, 1906
JOHN FORTIS, plaintiff-appellee,
vs.
GUTIERREZ HERMANOS, defendants-appellants.
Hartigan, Rohde and Gutierrez, for appellants.
W. A. Kincaid, for appellee.
WILLARD, J.:
Plaintiff, an employee of defendants during the years 1900, 1901,
and 1902, brought this action to recover a balance due him as
salary for the year 1902. He alleged that he was entitled, as
salary, to 5 per cent of the net profits of the business of the
defendants for said year. The complaint also contained a cause of
action for the sum of 600 pesos, money expended by plaintiff for
the defendants during the year 1903. The court below, in its
judgment, found that the contract had been made as claimed by
the plaintiff; that 5 per cent of the net profits of the business for
the year 1902 amounted to 26,378.68 pesos, Mexican currency;
that the plaintiff had received on account of such salary
12,811.75 pesos, Mexican currency, and ordered judgment
against the defendants for the sum 13,566.93 pesos, Mexican
currency, with interest thereon from December 31, 1904. The
court also ordered judgment against the defendants for the 600
pesos mentioned in the complaint, and intereat thereon. The total
judgment rendered against the defendants in favor of the
plaintiff, reduced to Philippine currency, amounted to
P13,025.40. The defendants moved for a new trial, which was
denied, and they have brought the case here by bill of exceptions.
(1) The evidence is sufifcient to support the finding of the court
below to the effect that the plaintiff worked for the defendants
during the year 1902 under a contract by which he was to receive
as compensation 5 per cent of the net profits of the business. The
contract was made on the part of the defendants by Miguel
Alonzo Gutierrez. By the provisions of the articles of partnership
he was made one of the managers of the company, with full
power to transact all of the business thereof. As such manager he
had authority to make a contract of employment with the
plaintiff.
(2) Before answering in the court below, the defendants
presented a motion that the complaint be made more definite
and certain. This motion was denied. To the order denying it the
defendants excepted, and they have assigned as error such ruling
of the court below. There is nothing in the record to show that
the defendants were in any way prejudiced by this ruling of the
court below. If it were error it was error without prejudice, and
not ground for reversal. (Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the
complaint made the plaintiff a copartner of the defendants in the
business which they were carrying on. This contention can not bo
sustained. It was a mere contract of employnent. The plaintiff had
no voice nor vote in the management of the affairs of the
company. The fact that the compensation received by him was to
be determined with reference to the profits made by the
defendants in their business did not in any sense make by a
partner therein. The articles of partnership between the
defendants provided that the profits should be divided among the
partners named in a certain proportion. The contract made
between the plaintiff and the then manager of the defendant
partnership did not in any way vary or modify this provision of
the articles of partnership. The profits of the business could not
be determined until all of the expenses had been paid. A part of
the expenses to be paid for the year 1902 was the salary of the
plaintiff. That salary had to be deducted before the net profits of
the business, which were to be divided among the partners, could
be ascertained. It was undoubtedly necessary in order to
determine what the salary of the plaintiff was, to determine what
the profits of the business were, after paying all of the expenses
except his, but that determination was not the final
determination of the net profits of the business. It was made for
the purpose of fixing the basis upon which his compensation
should be determined.
(4) It was no necessary that the contract between the plaintiff
and the defendants should be made in writing. (Thunga Chui vs.
Que Bentec,
1
1 Off. Gaz., 818, October 8, 1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with whom the
plaintiff had made the contract, had died prior to the trial of the
action, and the defendants claim that by reasons of the provisions
of section 383, paragraph 7, of the Code of Civil Procedure,
plaintiff could not be a witness at the trial. That paragraph
provides that parties to an action against an executor or
aministrator upon a claim or demand against the estate of a
deceased person can not testify as to any matter of fact occurring
before the death of such deceased person. This action was not
brought against the administrator of Miguel Alonzo, nor was it
brought upon a claim against his estate. It was brought against a
partnership which was in existence at the time of the trial of the
action, and which was juridical person. The fact that Miguel
Alonzo had been a partner in this company, and that his interest
therein might be affected by the result of this suit, is not sufficient
to bring the case within the provisions of the section above cited.
(6) The plaintiff was allowed to testify against the objection and
exception of the defendants, that he had been paid as salary for
the year 1900 a part of the profits of the business. This evidence
was competent for the purpose of corroborating the testimony of
the plaintiff as to the existence of the contract set out in the
complaint.
(7) The plaintiff was allowed to testify as to the contents of a
certain letter written by Miguel Glutierrez, one of the partners in
the defendant company, to Miguel Alonzo Gutierrez, another
partner, which letter was read to plaintiff by Miguel Alonzo. It is
not necessary to inquire whether the court committed an error in
admitting this evidence. The case already made by the plaintiff
was in itself sufficient to prove the contract without reference to
this letter. The error, if any there were, was not prejudicial, and is
not ground for revesal. (Sec. 503, Code of Civil Procedure.)
(8) For the purpose of proving what the profits of the defendants
were for the year 1902, the plaintiff presented in evidence the
ledger of defendants, which contained an entry made on the 31st
of December, 1902, as follows:
Perdidas y Ganancias ...................................... a Varios Ps.
527,573.66 Utilidades liquidas obtenidas durante el ano
y que abonamos conforme a la proporcion que hemos
establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject of profits
Miguel Gutierrez, one of the defendants, who testiffied, among
other things, that there were no profits during the year 1902, but,
on the contrary, that the company suffered considerable loss
during that year. We do not think the evidence of this witnees
sufficiently definite and certain to overcome the positive
evidence furnished by the books of the defendants themselves.
(9) In reference to the cause of action relating to the 600 pesos, it
appears that the plaintiff left the employ of the defendants on the
19th of Macrh, 1903; that at their request he went to Hongkong,
and was there for about two months looking after the business of
the defendants in the matter of the repair of a certain steamship.
The appellants in their brief say that the plaintiff is entitled to no
compensation for his services thus rendered, because by the
provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to
be gratuitous. That article i not applicable to this case, because
the amount of 600 pesos not claimed as compensation for
services but as a reimbursment for money expended by the
plaintiff in the business of the defendants. The article of the code
that is applicable is article 1728.
The judgment of the court below is affirmed, with the costs, of
this instance against the appellants. After the expiration of
twenty days from the date of this decision let final judgment be
entered herein, and ten days thereafter let the case be remanded
to the lower court for execution. So ordered.

G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner,
vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-
INDEMNITY CORPORATION, respondents.
GANCAYCO, J.:
This petition for review on certiorari seeks the reversal of the
decision of the Insurance Commission in IC Case
#367
1
dismissing the complaint
2
for recovery of the alleged
unpaid balance of the proceeds of the Fire Insurance Policies
issued by herein respondent insurance company in favor of
petitioner-intervenor.
The facts of the case as found by respondent Insurance
Commission are as follows:
Complainants acquired from a certain Rolando
Gonzales a parcel of land and a building
located at San Rafael Village, Davao City.
Complainants assumed the mortgage of the
building in favor of S.S.S., which building was
insured with respondent S.S.S. Accredited
Group of Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a
loan from Tai Tong Chuache Inc. in the amount
of P100,000.00. To secure the payment of the
loan, a mortgage was executed over the land
and the building in favor of Tai Tong Chuache
& Co. (Exhibit "1" and "1-A"). On April 25,
1975, Arsenio Chua, representative of Thai
Tong Chuache & Co. insured the latter's
interest with Travellers Multi-Indemnity
Corporation for P100,000.00 (P70,000.00 for
the building and P30,000.00 for the contents
thereof) (Exhibit "A-a," contents thereof)
(Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire
Insurance Policy No. F- 02500 (Exhibit "A"),
covering the building for P50,000.00 with
respondent Zenith Insurance Corporation. On
July 16, 1975, another Fire Insurance Policy
No. 8459 (Exhibit "B") was procured from
respondent Philippine British Assurance
Company, covering the same building for
P50,000.00 and the contents thereof for
P70,000.00.
On July 31, 1975, the building and the contents
were totally razed by fire.
Adjustment Standard Corporation submitted a
report as follow
xxx xxx xxx
... Thus the apportioned share of each
company is as follows:
Policy
No..
Company Risk Insures Pays
MIRO Zenith Building P50,000 P17,610.93
F-
02500
Insurance
Corp.
F-
84590
Phil. Household 70,000 24,655.31
British
Assco. Co.
Inc. FFF & F5 50,000 39,186.10
Policy
No.
Company Risk Insures Pays
FIC-
15381
SSSAccre
dited
Group

of
Insurers
Building P25,000 P8,805.47
Totals P195,000 P90,257.81
We are showing hereunder another apportionment of the loss
which includes the Travellers Multi-Indemnity policy for
reference purposes.
Policy
No.
Company Risk Injures Pays
MIRO/ Zenith
F-
02500
Insurance
Corp. Building P50,000 P11,877.14
F-
84590
Phil.
British
Assco. Co. I-Building 70,000 16,628.00
II-
Building

FFF & PE 50,000 24,918.79
PVC-
15181
SSS Accredited
Group of
Insurers Building 25,000 5,938.50
F-599
DV
Insurers I-Ref 30,000 14,467.31
Multi II-Building 70,000 16,628.00
Totals P295.000 P90,257.81
Based on the computation of the loss,
including the Travellers Multi- Indemnity,
respondents, Zenith Insurance, Phil. British
Assurance and S.S.S. Accredited Group of
Insurers, paid their corresponding shares of
the loss. Complainants were paid the
following: P41,546.79 by Philippine British
Assurance Co., P11,877.14 by Zenith Insurance
Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers (Par. 6. Amended
Complaint). Demand was made from
respondent Travellers Multi-Indemnity for its
share in the loss but the same was refused.
Hence, complainants demanded from the
other three (3) respondents the balance of
each share in the loss based on the
computation of the Adjustment Standards
Report excluding Travellers Multi-Indemnity
in the amount of P30,894.31 (P5,732.79-
Zenith Insurance: P22,294.62, Phil. British:
and P2,866.90, SSS Accredited) but the same
was refused, hence, this action.
In their answers, Philippine British Assurance
and Zenith Insurance Corporation admitted
the material allegations in the complaint, but
denied liability on the ground that the claim of
the complainants had already been waived,
extinguished or paid. Both companies set up
counterclaim in the total amount of P
91,546.79.
Instead of filing an answer, SSS Accredited
Group of Insurers informed the Commission in
its letter of July 22, 1977 that the herein claim
of complainants for the balance had been paid
in the amount of P 5,938.57 in full, based on
the Adjustment Standards Corporation Report
of September 22, 1975.
Travellers Insurance, on its part, admitted the
issuance of the Policy No. 599 DV and alleged
as its special and affirmative defenses the
following, to wit: that Fire Policy No. 599 DV,
covering the furniture and building of
complainants was secured by a certain Arsenio
Chua, mortgage creditor, for the purpose of
protecting his mortgage credit against the
complainants; that the said policy was issued
in the name of Azucena Palomo, only to
indicate that she owns the insured premises;
that the policy contains an endorsement in
favor of Arsenio Chua as his mortgage interest
may appear to indicate that insured was
Arsenio Chua and the complainants; that the
premium due on said fire policy was paid by
Arsenio Chua; that respondent Travellers is
not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed
a complaint in intervention claiming the
proceeds of the fire Insurance Policy No. F-559
DV, issued by respondent Travellers Multi-
Indemnity.
Travellers Insurance, in answer to the
complaint in intervention, alleged that the
Intervenor is not entitled to indemnity under
its Fire Insurance Policy for lack of insurable
interest before the loss of the insured
premises and that the complainants, spouses
Pedro and Azucena Palomo, had already paid
in full their mortgage indebtedness to the
intervenor.
3

As adverted to above respondent Insurance Commission
dismissed spouses Palomos' complaint on the ground that the
insurance policy subject of the complaint was taken out by Tai
Tong Chuache & Company, petitioner herein, for its own interest
only as mortgagee of the insured property and thus complainant
as mortgagors of the insured property have no right of action
against herein respondent. It likewise dismissed petitioner's
complaint in intervention in the following words:
We move on the issue of liability of
respondent Travellers Multi-Indemnity to the
Intervenor-mortgagee. The complainant
testified that she was still indebted to
Intervenor in the amount of P100,000.00. Such
allegation has not however, been sufficiently
proven by documentary evidence. The
certification (Exhibit 'E-e') issued by the Court
of First Instance of Davao, Branch 11, indicate
that the complainant was Antonio Lopez Chua
and not Tai Tong Chuache & Company.
4

From the above decision, only intervenor Tai Tong Chuache filed
a motion for reconsideration but it was likewise denied hence,
the present petition.
It is the contention of the petitioner that respondent Insurance
Commission decided an issue not raised in the pleadings of the
parties in that it ruled that a certain Arsenio Lopez Chua is the
one entitled to the insurance proceeds and not Tai Tong Chuache
& Company.
This Court cannot fault petitioner for the above erroneous
interpretation of the decision appealed from considering the
manner it was written.
5
As correctly pointed out by respondent
insurance commission in their comment, the decision did not
pronounce that it was Arsenio Lopez Chua who has insurable
interest over the insured property. Perusal of the decision reveals
however that it readily absolved respondent insurance company
from liability on the basis of the commissioner's conclusion that
at the time of the occurrence of the peril insured against
petitioner as mortgagee had no more insurable interest over the
insured property. It was based on the inference that the credit
secured by the mortgaged property was already paid by the
Palomos before the said property was gutted down by fire. The
foregoing conclusion was arrived at on the basis of the
certification issued by the then Court of First Instance of Davao,
Branch II that in a certain civil action against the Palomos,
Antonio Lopez Chua stands as the complainant and not petitioner
Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well
known postulate that the case of a party is constituted by his own
affirmative allegations. Under Section 1, Rule 131
6
each party
must prove his own affirmative allegations by the amount of
evidence required by law which in civil cases as in the present
case is preponderance of evidence. The party, whether plaintiff or
defendant, who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence as
required by law to obtain favorable judgment.
7
Thus, petitioner
who is claiming a right over the insurance must prove its case.
Likewise, respondent insurance company to avoid liability under
the policy by setting up an affirmative defense of lack of insurable
interest on the part of the petitioner must prove its own
affirmative allegations.
It will be recalled that respondent insurance company did not
assail the validity of the insurance policy taken out by petitioner
over the mortgaged property. Neither did it deny that the said
property was totally razed by fire within the period covered by
the insurance. Respondent, as mentioned earlier advanced an
affirmative defense of lack of insurable interest on the part of the
petitioner that before the occurrence of the peril insured against
the Palomos had already paid their credit due the petitioner.
Respondent having admitted the material allegations in the
complaint, has the burden of proof to show that petitioner has no
insurable interest over the insured property at the time the
contingency took place. Upon that point, there is a failure of
proof. Respondent, it will be noted, exerted no effort to present
any evidence to substantiate its claim, while petitioner did. For
said respondent's failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance
Commission absolved respondent insurance company from
liability on the basis of the certification issued by the then Court
of First Instance of Davao, Branch II, that in a certain civil action
against the Palomos, Arsenio Lopez Chua stands as the
complainant and not Tai Tong Chuache. From said evidence
respondent commission inferred that the credit extended by
herein petitioner to the Palomos secured by the insured property
must have been paid. Such is a glaring error which this Court
cannot sanction. Respondent Commission's findings are based
upon a mere inference.
The record of the case shows that the petitioner to support its
claim for the insurance proceeds offered as evidence the contract
of mortgage (Exh. 1) which has not been cancelled nor released.
It has been held in a long line of cases that when the creditor is in
possession of the document of credit, he need not prove non-
payment for it is presumed.
8
The validity of the insurance policy
taken b petitioner was not assailed by private respondent.
Moreover, petitioner's claim that the loan extended to the
Palomos has not yet been paid was corroborated by Azucena
Palomo who testified that they are still indebted to herein
petitioner.
9

Public respondent argues however, that if the civil case really
stemmed from the loan granted to Azucena Palomo by petitioner
the same should have been brought by Tai Tong Chuache or by its
representative in its own behalf. From the above premise
respondent concluded that the obligation secured by the insured
property must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3,
Sec. 2
10
respondent pointed out that the action must be brought
in the name of the real party in interest. We agree. However, it
should be borne in mind that petitioner being a partnership may
sue and be sued in its name or by its duly authorized
representative. The fact that Arsenio Lopez Chua is the
representative of petitioner is not questioned. Petitioner's
declaration that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by respondent
insurance company.
11
Thus Chua as the managing partner of the
partnership may execute all acts of administration
12
including
the right to sue debtors of the partnership in case of their failure
to pay their obligations when it became due and demandable. Or
at the very least, Chua being a partner of petitioner Tai Tong
Chuache & Company is an agent of the partnership. Being an
agent, it is understood that he acted for and in behalf of the
firm.
13
Public respondent's allegation that the civil case flied by
Arsenio Chua was in his capacity as personal creditor of spouses
Palomo has no basis.
The respondent insurance company having issued a policy in
favor of herein petitioner which policy was of legal force and
effect at the time of the fire, it is bound by its terms and
conditions. Upon its failure to prove the allegation of lack of
insurable interest on the part of the petitioner, respondent
insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is
hereby SET ASIDE and ANOTHER judgment is rendered order
private respondent Travellers Multi-Indemnity Corporation to
pay petitioner the face value of Insurance Policy No. 599-DV in
the amount of P100,000.00. Costs against said private
respondent.
SO ORDERED.

G.R. No. L-11624 January 21, 1918
E. M. BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Vicente Foz for appellants.
A. J. Burke for appellee.
STREET, J.:
In the year 1913, the individuals named as defendants in this
action formed a civil partnership, called "La Protectora," for the
purpose of engaging in the business of transporting passengers
and freight at Laoag, Ilocos Norte. In order to provide the
enterprise with means of transportation, Marcelo Barba, acting as
manager, came to Manila and upon June 23, 1913, negotiated the
purchase of two automobile trucks from the plaintiff, E. M.
Bachrach, for the agree price of P16,500. He paid the sum of
3,000 in cash, and for the balance executed promissory notes
representing the deferred payments. These notes provided for
the payment of interest from June 23, 1913, the date of the notes,
at the rate of 10 per cent per annum. Provision was also made in
the notes for the payment of 25 per cent of the amount due if it
should be necessary to place the notes in the hands of an attorney
for collection. Three of these notes, for the sum of P3,375 each,
have been made the subject of the present action, and there are
exhibited with the complaint in the cause. One was signed by
Marcelo Barba in the following manner:
P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
The other two notes are signed in the same way with the word
"By" omitted before the name of Marcelo Barba in the second line
of the signature. It is obvious that in thus signing the notes
Marcelo Barba intended to bind both the partnership and himself.
In the body of the note the word "I" (yo) instead of "we"
(nosotros) is used before the words "promise to
pay" (prometemos) used in the printed form. It is plain that the
singular pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants
Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano, upon June 12, 1913, executed in due form a document in
which they declared that they were members of the firm "La
Protectora" and that they had granted to its president full
authority "in the name and representation of said partnership to
contract for the purchase of two automobiles" (en nombre y
representacion de la mencionada sociedad contratante la compra
de dos automoviles). This document was apparently executed in
obedience to the requirements of subsection 2 of article 1697 of
the Civil Code, for the purpose of evidencing the authority of
Marcelo Barba to bind the partnership by the purchase. The
document in question was delivered by him to Bachrach at the
time the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba
purchased of the plaintiff various automobile effects and
accessories to be used in the business of "La Protectora." Upon
May 21, 1914, the indebtedness resulting from these additional
purchases amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he
had retained on the trucks in order to secure the purchase price.
The amount realized from this sale was P1,000. This was credited
unpaid. To recover this balance, together with the sum due for
additional purchases, the present action was instituted in the
Court of First Instance of the city of Manila, upon May 29, 1914,
against "La Protectora" and the five individuals Marcelo Barba,
Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano. No question has been made as to the propriety of
impleading "La Protectora" as if it were a legal entity. At the
hearing, judgment was rendered against all of the defendants.
From this judgment no appeal was taken in behalf either of "La
Protectora" or Marcelo Barba; and their liability is not here under
consideration. The four individuals who signed the document to
which reference has been made, authorizing Barba to purchase
the two trucks have, however, appealed and assigned errors. The
question here to be determined is whether or not these
individuals are liable for the firm debts and if so to what extent.
The amount of indebtedness owing to the plaintiff is not in
dispute, as the principal of the debt is agreed to be P7,037. Of this
amount it must now be assumed, in view of the finding of the trial
court, from which no appeal has been taken by the plaintiff, that
the unpaid balance of the notes amounts to P4,121, while the
remainder (P2,916) represents the amount due for automobile
supplies and accessories.
The business conducted under the name of "La Protectora" was
evidently that of a civil partnership; and the liability of the
partners to this association must be determined under the
provisions of the Civil Code. The authority of Marcelo Barba to
bind the partnership, in the purchase of the trucks, is fully
established by the document executed by the four appellants
upon June 12, 1913. The transaction by which Barba secured
these trucks was in conformity with the tenor of this document.
The promissory notes constitute the obligation exclusively of "La
Protectora" and of Marcelo Barba; and they do not in any sense
constitute an obligation directly binding on the four appellants.
Their liability is based on the fact that they are members of the
civil partnership and as such are liable for its debts. It is true that
article 1698 of the Civil Code declares that a member of a civil
partnership is not liable in solidum (solidariamente) with his
fellows for its entire indebtedness; but it results from this article,
in connection with article 1137 of the Civil Code, that each is
liable with the others (mancomunadamente) for his aliquot part
of such indebtedness. And so it has been held by this court. (Co-
Pitco vs. Yulo, 8 Phil. Rep., 544.)
The Court of First Instance seems to have founded its judgment
against the appellants in part upon the idea that the document
executed by them constituted an authority for Marcelo Barba to
bind them personally, as contemplated in the second clause of
article 1698 of the Civil Code. That cause says that no member of
the partnership can bind the others by a personal act if they have
not given him authority to do so. We think that the document
referred to was intended merely as an authority to enable Barba
to bind the partnership and that the parties to that instrument
did not intend thereby to confer upon Barba an authority to bind
them personally. It is obvious that the contract which Barba in
fact executed in pursuance of that authority did not by its terms
profess to bind the appellants personally at all, but only the
partnership and himself. It follows that the four appellants
cannot be held to have been personally obligated by that
instrument; but, as we have already seen, their liability rests
upon the general principles underlying partnership liability.
As to so much of the indebtedness as is based upon the claim for
automobile supplies and accessories, it is obvious that the
document of June 12, 1913, affords no authority for holding the
appellants liable. Their liability upon this account is, however, no
less obvious than upon the debt incurred by the purchase of the
trucks; and such liability is derived from the fact that the debt
was lawfully incurred in the prosecution of the partnership
enterprise.
There is no proof in the record showing what the agreement, if
any, was made with regard to the form of management. Under
these circumstances it is declared in article 1695 of the Civil Code
that all the partners are considered agents of the partnership.
Barba therefore must be held to have had authority to incur these
expenses. But in addition to this he is shown to have been in fact
the president or manager, and there can be no doubt that he had
actual authority to incur this obligation.
From what has been said it results that the appellants are
severally liable for their respective shares of the entire
indebtedness found to be due; and the Court of First Instance
committed no error in giving judgment against them. The amount
for which judgment should be entered is P7,037, to which shall
be added (1) interest at 10 per cent per annum from June 23,
1913, to be calculated upon the sum of P4.121; (2) interest at 6
per cent per annum from July 21, 1915, to be calculated upon the
sum of P2,961; (3) the further sum of P1,030.25, this being the
amount stipulated to be paid by way of attorney's fees. However,
it should be noted that any property pertaining to "La Protectora"
should first be applied to this indebtedness pursuant to the
judgment already entered in this case in the court below; and
each of the four appellants shall be liable only for the one-fifth
part of the remainder unpaid.
Let judgment be entered accordingly, without any express finding
of costs of this instance. So ordered.

G.R. No. 1011 May 13, 1903
JOSE MACHUCA, plaintiff-appellee,
vs.
CHUIDIAN, BUENAVENTURA & CO., defendants-appellants.
Simplicio del Rosario for appellants.
Joaquin Rodriguez Serra for appellee.
LADD, J.:
Most of the allegations of the complaint were admitted by the
defendant at the hearing, and the judgment of the court below is
based on the state of facts appearing from such admissions, no
evidence having been taken.
The defendants are a regular general partnership, organized in
Manila, December 29, 1882, as a continuation of a prior
partnership of the same name. The original partners constituting
the partnership of 1882 were D. Telesforo Chuidian, Doa
Raymunda Chuidian, Doa Candelaria Chuidian, and D. Mariano
Buenaventura. The capital was fixed in the partnership
agreement at 16,000 pesos, of which the first three partners
named contributed 50,000 pesos each, and the last named 10,000
pesos, and it was stipulated that the liability of the partners
should be "limited to the amounts brought in by them to form the
partnership stock."
In addition to the amounts contributed by the partners to the
capital, it appears from the partnership agreement that each one
of them had advanced money to the preexisting partnership,
which advances were assumed or accounts-current aggregated
something over 665,000 pesos, of which sum about 569,000
pesos represented the advances from the Chuidians and the
balance that balance that from D. Mariano Buenaventura.
Doa Raymunda Chuidian retired from the partnership
November 4, 1885. On January 1, 1888, the partnership went into
liquidation, and it does not appear that the liquidation had been
terminated when this action was brought.
Down to the time the partnership went into liquidation the
accounts-current of D. Telesforo Chuidian and Doa Candelaria
Chuidian had been diminished in an amount aggregating about
288,000 pesos, while that of D. Mariano Buenaventura had been
increased about 51,000 pesos. During the period from the
commencement of the liquidation down to January 1, 1896, the
account-current of each of the Chuidians had been still further
decreased, while that of D. Mariano Buenaventura had been still
further increased.
On January 1, 1894, D. Mariano Buenaventura died, his estate
passing by will to his children, among whom was D. Vicente
Buenaventura. Upon the partition of the estate the amount of the
interest of D. Vicente Buenaventura in his father's account-
current and in the capital was ascertained and recorded in the
books of the firm.
On December 15, 1898, D. Vicente Buenaventura executed a
public instrument in which for a valuable consideration he
"assigns to D. Jose Gervasio Garcia . . . a 25 per cent share in all
that may be obtained by whatever right in whatever form from
the liquidation of the partnership of Chuidian, Buenaventura &
Co., in the part pertaining to him in said partnership, . . . the
assignee, being expressly empowered to do in his own name, and
as a part owner, by virtue of this assignment in the assets of the
partnership, whatever things may be necessary for the purpose
of accelerating the liquidation, and of obtaining on judicially or
extrajudicially the payment of the deposits account-current
pertaining to the assignor, it being understood that D. Jose
Gervasio Garcia is to receive the 25 per cent assigned to him, in
the same form in which it may be obtained from said partnership,
whether in cash, credits, goods, movables or immovables, and on
the date when Messrs. Chuidian, Buenaventura & Co., in
liquidation, shall have effected the operations necessary in order
to satisfy the credits and the share in the partnership capital
hereinbefore mentioned."
The plaintiff claims under Garcia by virtue of a subsequent
assignment, which has been notified to the liquidator of the
partnership.
The liquidator of the partnership having declined to record in the
books of the partnership the plaintiff's claim under the
assignment as a credit due from the concern to him this action is
brought to compel such record to be made, and the plaintiff
further asks that he be adjudicated to be a creditor of the
partnership in an amount equal to 25 per cent of D. Vicente
Buenaventura's share in his father's account-current, as
ascertained when the record was made in the books of the
partnership upon the partition of the latters estate, with interest,
less the liability to which the plaintiff is subject by reason of his
share in the capital; that the necessary liquidation being first had,
the partnership pay to the plaintiff the balance which may be
found to be due him; and that if the partnership has no funds
with which to discharge this obligation an adjudication of
bankruptcy be made. He also asks to recover the damages caused
by reason of the failure of the liquidator to record his credit in the
books of partnership.
The judgment of the court below goes beyond the relief asked by
the plaintiff in the complaint, the plaintiff being held entitled not
only to have the credit assigned him recorded in the books of the
partnership but also to receive forthwith 25 per cent of an
amount representing the share of D. Vicente Buenaventura in the
account-current at the time of the partition of his father's estate,
with interest, the payment of the 25 percent of Buenaventura's
share in the capital to be postponed till the termination of the
liquidation. This point has not, however, been taken by counsel,
and we have therefore considered the case upon its merits.
The underlying question in the case relates to the construction of
clause 19 of the partnership agreement, by which it was
stipulated that "upon the dissolution of the company, the pending
obligations in favor of outside parties should be satisfied, the
funds of the minors Jose and Francisco Chuidian [it does not
appear what their interest in the partnership was or when or
how it was acquired] should be taken out, and afterwards the
resulting balance of the account-current of each one of those who
had put in money (imponentes) should be paid."
Our construction of this clause is that it establishes a a basis for
the final adjustment of the affairs of the partnership; that that
basis is that the liabilities to noncompartners are to be first
discharged; that the claims of the Chuidian minors are to be next
satisfied; and that what is due to the respective partners on
account of their advances to the firm is to be paid last of all,
leaving the ultimate residue, of course, if there be any, to be
distributed, among the partners in the proportions in which they
may be entitled thereto.
Although in a sense the partners, being at the same time
creditors, were "outside parties," it is clear that a distinction is
made in this clause between creditors who were partners and
creditors who were not partners, and that the expression
"outside parties" refers to the latter class. And the words
"pending obligations," we think, clearly comprehend outstanding
obligations of every kind in favor of such outside parties, and do
not refer merely, as claimed by counsel for the plaintiff, to the
completion of mercantile operations unfinished at the time of the
dissolution of the partnership, such as consignments of goods
and the like. As respects the claims of the Chuidian minors, the
suggestion of counsel is that the clause in question means that
their accounts are to be adjusted before those of the partners but
not paid first. Such a provision would have been of no practical
utility, and the language used that the funds should be "taken
out" (se dedujeran) does not admit of such a construction.
Such being the basis upon which by agreement of the partners
the assets of the partnership are to be applied to the discharge of
the various classes of the firm's liabilities, it follows that D.
Vicente Buenaventura, whose rights are those of his father, is in
no case entitled to receive any part of the assets until the
creditors who are nonpartners and the Chuidian minors are paid.
Whatever rights he had either as creditor or partner, he could
only transfer subject to this condition. And it is clear, from the
language of the instrument under which the plaintiff claims, that
this conditional interest was all that D. Vicente Buenaventura
ever intended to transfer. By that instrument he undertakes to
assign to Garcia not a present interest in the assets of the
partnership but an interest in whatever "may be obtained from
the liquidation of the partnership," which Garcia is to receive "in
the same form in which it may be obtained from said
partnership," and "on the date when Messrs. Chuidian,
Buenaventura & Co., in liquidation, shall have effected the
operations necessary in order to satisfy" the claims of D. Vicente
Buenaventura.
Upon this interpretation of the assignment, it becomes
unnecessary to inquire whether article 143 of the Code of
Commerce, prohibiting a partner from transferring his interest in
the partnership without the consent of the other partners,
applies to partnerships in liquidation, as contended by the
defendant. The assignment by its terms is not to take effect until
all the liabilities of the partnership have been discharged and
nothing remains to be done except to distribute the assets, if
there should be any, among the partners. Meanwhile the
assignor, Buenaventura, is to continue in the enjoyment of the
rights and is to remain subject to the liabilities of a partner as
though no assignment had been made. In other words, the
assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to 25 per cent of
such portion of the ultimate residue of the partnership property
as the assignor may become entitled to receive by virtue of his
proportionate interest in the capital.
There is nothing in the case to show either that the nonpartner
creditors of the partnership have been paid or that the claims of
the Chuidian minors have been satisfied. Such rights as the
plaintiff has acquired against the partnership under the
assignment still remain, therefore, subject to the condition which
attached to them in their origin, a condition wholly uncertain of
realization, since it may be that the entire assets of the
partnership will be exhausted in the payment of the creditors
entitled to preference under the partnership agreement, thus
extinguishing the plaintiff's right to receive anything from the
liquidation.
It is contended by the plaintiff that, as the partnership was
without authority to enter upon new mercantile operations after
the liquidation commenced, the increase in D. Mariano
Buenaventura's account-current during that period was the
result of a void transaction, and that therefore the plaintiff is
entitled to withdraw at once the proportion of such increase to
which he is entitled under the assignment. With reference to this
contention, it is sufficient to say that it nowhere appears in the
case that the increase in D. Mariano Buenaventura's account-
current during the period of liquidation was the result of new
advances to the firm, and the figures would appear to indicate
that it resulted from the accumulation of interest.
Counsel for the plaintiff have discussed at length in their brief the
meaning of the clause in the partnership agreement limiting the
liability of the partners to the amounts respectively brought into
the partnership by them, and the effect of this stipulation upon
their rights as creditors of the firm. These are questions which
relate to the final adjustment of the affairs of the firm, the
distribution of the assets remaining after all liabilities have been
discharged, or, on the other hand, the apportionment of the
losses if the assets should not be sufficient to meet the liabilities.
They are in no way involved in the determination of the present
case.
The plaintiff having acquired no rights under the assignment
which are now enforceable against the defendant, this action can
not be maintained. The liquidator of the defendant having been
notified of the assignment, the plaintiff will be entitled to receive
from the assets of the partnership, if any remain, at the
termination of the liquidation, 25 per cent of D. Vicente's
resulting interest, both as partner and creditor. The judgment in
this case should not affect the plaintiff's right to bring another
action against the partnership when the affairs of the same are
finally wound up. The proper judgment will be that the action be
dismissed. The judgment of the court below is reversed and the
case is remanded to that court with directions to enter a
judgment of dismissal. So ordered.

G.R. No. L-16318 October 21, 1921
PANG LIM and BENITO GALVEZ, plaintiffs-appellees,
vs.
LO SENG, defendant-appellant.
Cohn, Fisher and DeWitt for appellant.
No appearance for appellees.
STREET, J.:
For several years prior to June 1, 1916, two of the litigating
parties herein, namely, Lo Seng and Pang Lim, Chinese residents
of the City of Manila, were partners, under the firm name of Lo
Seng and Co., in the business of running a distillery, known as "El
Progreso," in the Municipality of Paombong, in the Province of
Bulacan. The land on which said distillery is located as well as the
buildings and improvements originally used in the business were,
at the time to which reference is now made, the property of
another Chinaman, who resides in Hongkong, named Lo Yao,
who, in September, 1911, leased the same to the firm of Lo Seng
and Co. for the term of three years.
Upon the expiration of this lease a new written contract, in the
making of which Lo Yao was represented by one Lo Shui as
attorney in fact, became effective whereby the lease was
extended for fifteen years. The reason why the contract was
made for so long a period of time appears to have been that the
Bureau of Internal Revenue had required sundry expensive
improvements to be made in the distillery, and it was agreed that
these improvements should be effected at the expense of the
lessees. In conformity with this understanding many thousands
of pesos were expended by Lo Seng and Co., and later by Lo Seng
alone, in enlarging and improving the plant.
Among the provisions contained in said lease we note the
following:
Know all men by these presents:
x x x x x x x x x
1. That I, Lo Shui, as attorney in fact in charge
of the properties of Mr. Lo Yao of Hongkong,
cede by way of lease for fifteen years more
said distillery "El Progreso" to Messrs. Pang
Lim and Lo Seng (doing business under the
firm name of Lo Seng and Co.), after the
termination of the previous contract, because
of the fact that they are required, by the
Bureau of Internal Revenue, to rearrange, alter
and clean up the distillery.
2. That all the improvements and betterments
which they may introduce, such as machinery,
apparatus, tanks, pumps, boilers and buildings
which the business may require, shall be, after
the termination of the fifteen years of lease, for
the benefit of Mr. Lo Yao, my principal, the
buildings being considered as improvements.
3. That the monthly rent of said distillery is
P200, as agreed upon in the previous contract
of September 11, 1911, acknowledged before
the notary public D. Vicente Santos; and all
modifications and repairs which may be
needed shall be paid for by Messrs. Pang Lim
and Lo Seng.
We, Pang Lim and Lo Seng, as partners in said distillery
"El Progreso," which we are at present conducting,
hereby accept this contract in each and all its parts, said
contract to be effective upon the termination of the
contract of September 11, 1911.
Neither the original contract of lease nor the agreement
extending the same was inscribed in the property registry, for the
reason that the estate which is the subject of the lease has never
at any time been so inscribed.
On June 1, 1916, Pang Lim sold all his interest in the distillery to
his partner Lo Seng, thus placing the latter in the position of sole
owner; and on June 28, 1918, Lo Shui, again acting as attorney in
fact of Lo Yao, executed and acknowledged before a notary public
a deed purporting to convey to Pang Lim and another Chinaman
named Benito Galvez, the entire distillery plant including the land
used in connection therewith. As in case of the lease this
document also was never recorded in the registry of property.
Thereafter Pang Lim and Benito Galvez demanded possession
from Lo Seng, but the latter refused to yield; and the present
action of unlawful detainer was thereupon initiated by Pang Lim
and Benito Galvez in the court of the justice of the peace of
Paombong to recover possession of the premises. From the
decision of the justice of the peace the case was appealed to the
Court of First Instance, where judgment was rendered for the
plaintiffs; and the defendant thereupon appealed to the Supreme
Court.
The case for the plaintiffs is rested exclusively on the provisions
of article 1571 of the Civil Code, which reads in part as follows:
ART. 1571. The purchaser of a leased estate shall be
entitled to terminate any lease in force at the time of
making the sale, unless the contrary is stipulated, and
subject to the provisions of the Mortgage Law.
In considering this provision it may be premised that a contract
of lease is personally binding on all who participate in it
regardless of whether it is recorded or not, though of course the
unrecorded lease creates no real charge upon the land to which it
relates. The Mortgage Law was devised for the protection of third
parties, or those who have not participated in the contracts
which are by that law required to be registered; and none of its
provisions with reference to leases interpose any obstacle
whatever to the giving of full effect to the personal obligations
incident to such contracts, so far as concerns the immediate
parties thereto. This is rudimentary, and the law appears to be so
understood by all commentators, there being, so far as we are
aware, no authority suggesting the contrary. Thus, in the
commentaries of the authors Galindo and Escosura, on the
Mortgage Law, we find the following pertinent observation: "The
Mortgage Law is enacted in aid of and in respect to third persons
only; it does not affect the relations between the contracting
parties, nor their capacity to contract. Any question affecting the
former will be determined by the dispositions of the special law
[i.e., the Mortgage Law], while any question affecting the latter
will be determined by the general law." (Galindo y Escosura,
Comentarios a la Legislacion Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as
regards the personal obligations expressed therein, the lease in
question was from the beginning, and has remained, binding
upon all the parties thereto among whom is to be numbered
Pang Lim, then a member of the firm of Lo Seng and Co. this
does not really solve the problem now before us, which is,
whether the plaintiffs herein, as purchasers of the estate, are at
liberty to terminate the lease, assuming that it was originally
binding upon all parties participating in it.
Upon this point the plaintiffs are undoubtedly supported, prima
facie, by the letter of article 1571 of the Civil Code; and the
position of the defendant derives no assistance from the mere
circumstance that the lease was admittedly binding as between
the parties thereto. 1awph!l.net
The words "subject to the provisions of the Mortgage Law,"
contained in article 1571, express a qualification which evidently
has reference to the familiar proposition that recorded
instruments are effective against third persons from the date of
registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from whence it
follows that a recorded lease must be respected by any purchaser
of the estate whomsoever. But there is nothing in the Mortgage
Law which, so far as we now see, would prevent a purchaser from
exercising the precise power conferred in article 1571 of the Civil
Code, namely, of terminating any lease which is unrecorded;
nothing in that law that can be considered as arresting the force
of article 1571 as applied to the lease now before us.
Article 1549 of the Civil Code has also been cited by the attorneys
for the appellant as supplying authority for the proposition that
the lease in question cannot be terminated by one who, like Pang
Lim, has taken part in the contract. That provision is practically
identical in terms with the first paragraph of article 23 of the
Mortgage Law, being to the effect that unrecorded leases shall be
of no effect as against third persons; and the same observation
will suffice to dispose of it that was made by us above in
discussing the Mortgage Law, namely, that while it recognizes the
fact that an unrecorded lease is binding on all persons who
participate therein, this does not determine the question
whether, admitting the lease to be so binding, it can be
terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which arise in
relation with the Mortgage Law, as well as article 1549 of the
Civil Coded all of which, as we have seen, are undecisive we
are brought to consider the aspect of the case which seems to us
conclusive. This is found in the circumstance that the plaintiff
Pang Lim has occupied a double role in the transactions which
gave rise to this litigation, namely, first, as one of the lessees; and
secondly, as one of the purchasers now seeking to terminate the
lease. These two positions are essentially antagonistic and
incompatible. Every competent person is by law bond to maintain
in all good faith the integrity of his own obligations; and no less
certainly is he bound to respect the rights of any person whom he
has placed in his own shoes as regards any contract previously
entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim
participated in the creation of this lease, and when he sold out his
interest in that firm to Lo Seng this operated as a transfer to Lo
Seng of Pang Lim's interest in the firm assets, including the lease;
and Pang Lim cannot now be permitted, in the guise of a
purchaser of the estate, to destroy an interest derived from
himself, and for which he has received full value.
The bad faith of the plaintiffs in seeking to deprive the defendant
of this lease is strikingly revealed in the circumstance that prior
to the acquisition of this property Pang Lim had been partner
with Lo Seng and Benito Galvez an employee. Both therefore had
been in relations of confidence with Lo Seng and in that position
had acquired knowledge of the possibilities of the property and
possibly an experience which would have enabled them, in case
they had acquired possession, to exploit the distillery with profit.
On account of his status as partner in the firm of Lo Seng and Co.,
Pang Lim knew that the original lease had been extended for
fifteen years; and he knew the extent of valuable improvements
that had been made thereon. Certainly, as observed in the
appellant's brief, it would be shocking to the moral sense if the
condition of the law were found to be such that Pang Lim, after
profiting by the sale of his interest in a business, worthless
without the lease, could intervene as purchaser of the property
and confiscate for his own benefit the property which he had sold
for a valuable consideration to Lo Seng. The sense of justice
recoils before the mere possibility of such eventuality.
Above all other persons in business relations, partners are
required to exhibit towards each other the highest degree of good
faith. In fact the relation between partners is essentially fiduciary,
each being considered in law, as he is in fact, the confidential
agent of the other. It is therefore accepted as fundamental in
equity jurisprudence that one partner cannot, to the detriment of
another, apply exclusively to his own benefit the results of the
knowledge and information gained in the character of partner.
Thus, it has been held that if one partner obtains in his own name
and for his own benefit the renewal of a lease on property used
by the firm, to commence at a date subsequent to the expiration
of the firm's lease, the partner obtaining the renewal is held to be
a constructive trustee of the firm as to such lease. (20 R. C. L.,
878-882.) And this rule has even been applied to a renewal taken
in the name of one partner after the dissolution of the firm and
pending its liquidation. (16 R. C. L., 906; Knapp vs.Reed, 88 Neb.,
754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am.
Rep., 252.)
An additional consideration showing that the position of the
plaintiff Pang Lim in this case is untenable is deducible from
articles 1461 and 1474 of the Civil Code, which declare that every
person who sells anything is bound to deliver and warrant the
subject-matter of the sale and is responsible to the vendee for the
legal and lawful possession of the thing sold. The pertinence of
these provisions to the case now under consideration is
undeniable, for among the assets of the partnership which Pang
Lim transferred to Lo Seng, upon selling out his interest in the
firm to the latter, was this very lease; and while it cannot be
supposed that the obligation to warrant recognized in the articles
cited would nullify article 1571, if the latter article had actually
conferred on the plaintiffs the right to terminate this lease,
nevertheless said articles (1461, 1474), in relation with other
considerations, reveal the basis of an estoppel which in our
opinion precludes Pang Lim from setting up his interest as
purchaser of the estate to the detriment of Lo Seng.
It will not escape observation that the doctrine thus applied is
analogous to the doctrine recognized in courts of common law
under the head of estoppel by deed, in accordance with which it
is held that if a person, having no title to land, conveys the same
to another by some one or another of the recognized modes of
conveyance at common law, any title afterwards acquired by the
vendor will pass to the purchaser; and the vendor is estopped as
against such purchaser from asserting such after-acquired title.
The indenture of lease, it may be further noted, was recognized
as one of the modes of conveyance at common law which created
this estoppel. (8 R. C. L., 1058, 1059.)
From what has been said it is clear that Pang Lim, having been a
participant in the contract of lease now in question, is not in a
position to terminate it: and this is a fatal obstacle to the
maintenance of the action of unlawful detainer by him. Moreover,
it is fatal to the maintenance of the action brought jointly by Pang
Lim and Benito Galvez. The reason is that in the action of
unlawful detainer, under section 80 of the Code of Civil
Procedure, the only question that can be adjudicated is the right
to possession; and in order to maintain the action, in the form in
which it is here presented, the proof must show that occupant's
possession is unlawful, i. e., that he is unlawfully withholding
possession after the determination of the right to hold
possession. In the case before us quite the contrary appears; for,
even admitting that Pang Lim and Benito Galvez have purchased
the estate from Lo Yao, the original landlord, they are, as between
themselves, in the position of tenants in common or owners pro
indiviso, according to the proportion of their respective
contribution to the purchase price. But it is well recognized that
one tenant in common cannot maintain a possessory action
against his cotenant, since one is as much entitled to have
possession as the other. The remedy is ordinarily by an action for
partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows that as Lo
Seng is vested with the possessory right as against Pang Lim, he
cannot be ousted either by Pang Lim or Benito Galvez. Having
lawful possession as against one cotenant, he is entitled to retain
it against both. Furthermore, it is obvious that partition
proceedings could not be maintained at the instance of Benito
Galvez as against Lo Seng, since partition can only be effected
where the partitioners are cotenants, that is, have an interest of
an identical character as among themselves. (30 Cyc., 178-180.)
The practical result is that both Pang Lim and Benito Galvez are
bound to respect Lo Seng's lease, at least in so far as the present
action is concerned.
We have assumed in the course of the preceding discussion that
the deed of sale under which the plaintiffs acquired the right of
Lo Yao, the owner of the fee, is competent proof in behalf of the
plaintiffs. It is, however, earnestly insisted by the attorney for Lo
Seng that this document, having never been recorded in the
property registry, cannot under article 389 of the Mortgage Law,
be used in court against him because as to said instrument he is a
third party. The important question thus raised is not absolutely
necessary to the decision of this case, and we are inclined to pass
it without decision, not only because the question does not seem
to have been ventilated in the Court of First Instance but for the
further reason that we have not had the benefit of any written
brief in this case in behalf of the appellees.
The judgment appealed from will be reversed, and the defendant
will be absolved from the complaint. It is so ordered, without
express adjudication as to costs.

G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG
SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI,
Cebu and TAN PUT, respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain
actuations of respondent Court of First Instance of Cebu Branch
III in its Civil Case No. 12328, an action for accounting of
properties and money totalling allegedly about P15 million pesos
filed with a common cause of action against six defendants, in
which after declaring four of the said defendants herein
petitioners, in default and while the trial as against the two
defendants not declared in default was in progress, said court
granted plaintiff's motion to dismiss the case in so far as the non-
defaulted defendants were concerned and thereafter proceeded
to hear ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default against the defaulted
defendants, with the particularities that notice of the motion to
dismiss was not duly served on any of the defendants, who had
alleged a compulsory counterclaim against plaintiff in their joint
answer, and the judgment so rendered granted reliefs not prayed
for in the complaint, and (2) prohibition to enjoin further
proceedings relative to the motion for immediate execution of the
said judgment.
Originally, this litigation was a complaint filed on February 9,
1971 by respondent Tan Put only against the spouses-petitioners
Antonio Lim Tanhu and Dy Ochay. Subsequently, in an amended
complaint dated September 26, 1972, their son Lim Teck Chuan
and the other spouses-petitioners Alfonso Leonardo Ng Sua and
Co Oyo and their son Eng Chong Leonardo were included as
defendants. In said amended complaint, respondent Tan alleged
that she "is the widow of Tee Hoon Lim Po Chuan, who was a
partner in the commercial partnership, Glory Commercial
Company ... with Antonio Lim Tanhu and Alfonso Ng Sua that
"defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim
Teck Chuan, and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants managed to
use the funds of the partnership to purchase lands and building's
in the cities of Cebu, Lapulapu, Mandaue, and the municipalities
of Talisay and Minglanilla, some of which were hidden, but the
description of those already discovered were as follows: (list of
properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan,
the defendants, without liquidation continued
the business of Glory Commercial Company by
purportedly organizing a corporation known as
the Glory Commercial Company, Incorporated,
with paid up capital in the sum of P125,000.00,
which money and other assets of the said Glory
Commercial Company, Incorporated are
actually the assets of the defunct Glory
Commercial Company partnership, of which the
plaintiff has a share equivalent to one third
(/
3
) thereof;
14. (P)laintiff, on several occasions after the
death of her husband, has asked defendants of
the above-mentioned properties and for the
liquidation of the business of the defunct
partnership, including investments on real
estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just
told plaintiff to
15. (S)ometime in the month of November,
1967, defendants, Antonio Lim Tanhu, by means
of fraud deceit and misrepresentations did then
and there, induce and convince the plaintiff to
execute a quitclaim of all her rights and
interests, in the assets of the partnership of
Glory Commercial Company, which is null and
void, executed through fraud and without any
legal effect. The original of said quitclaim is in
the possession of the adverse party defendant
Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of
said quitclaim, defendant Antonio Lim Tanhu
offered to pay the plaintiff the amount
P65,000.00 within a period of one (1) month,
for which plaintiff was made to sign a receipt
for the amount of P65,000.00 although no such
amount was given and plaintiff was not even
given a copy of said document;
17. (T)hereafter, in the year 1968-69, the
defendants who had earlier promised to
liquidate the aforesaid properties and assets in
favor among others of plaintiff and until the
middle of the year 1970 when the plaintiff
formally demanded from the defendants the
accounting of real and personal properties of
the Glory Commercial Company, defendants
refused and stated that they would not give
the share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed
that judgment be rendered:
a) Ordering the defendants to render an
accounting of the real and personal properties
of the Glory Commercial Company including
those registered in the names of the
defendants and other persons, which
properties are located in the Philippines and in
Hong Kong;
b) Ordering the defendants to deliver to the
plaintiff after accounting, one third (/
3
) of the
total value of all the properties which is
approximately P5,000,000.00 representing the
just share of the plaintiff;
c) Ordering the defendants to pay the attorney
of the plaintiff the sum of Two Hundred Fifty
Thousand Pesos (P250,000.00) by way of
attorney's fees and damages in the sum of One
Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other
remedies and reliefs consistent with law and
equity and order the defendants to pay the
costs. (Page 38, Record.)
The admission of said amended complaint was opposed by
defendants upon the ground that there were material
modifications of the causes of action previously alleged, but
respondent judge nevertheless allowed the amendment
reasoning that:
The present action is for accounting of real
and personal properties as well as for the
recovery of the same with damages.
An objective consideration of pars. 13 and 15
of the amended complaint pointed out by the
defendants to sustain their opposition will
show that the allegations of facts therein are
merely to amplify material averments
constituting the cause of action in the original
complaint. It likewise include necessary and
indispensable defendants without whom no
final determination can be had in the action
and in order that complete relief is to be
accorded as between those already parties.
Considering that the amendments sought to be
introduced do not change the main causes of
action in the original complaint and the reliefs
demanded and to allow amendments is the
rule, and to refuse them the exception and in
order that the real question between the
parties may be properly and justly threshed
out in a single proceeding to avoid multiplicity
of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their
common counsel, defendants denied specifically not only the
allegation that respondent Tan is the widow of Tee Hoon
because, according to them, his legitimate wife was Ang Siok Tin
still living and with whom he had four (4) legitimate children, a
twin born in 1942, and two others born in 1949 and 1965, all
presently residing in Hongkong, but also all the allegations of
fraud and conversion quoted above, the truth being, according to
them, that proper liquidation had been regularly made of the
business of the partnership and Tee Hoon used to receive his just
share until his death, as a result of which the partnership was
dissolved and what corresponded to him were all given to his
wife and children. To quote the pertinent portions of said
answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE
DEFENSES,
defendants hereby incorporate all facts
averred and alleged in the answer, and further
most respectfully declare:
1. That in the event that plaintiff is filing the
present complaint as an heir of Tee Hoon Lim
Po Chuan, then, she has no legal capacity to
sue as such, considering that the legitimate
wife, namely: Ang Siok Tin, together with their
children are still alive. Under Sec. 1, (d), Rule
16 of the Revised Rules of Court, lack of legal
capacity to sue is one of the grounds for a
motion to dismiss and so defendants prays
that a preliminary hearing be conducted as
provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that
plaintiff is filing the present case under Art.
144 of the Civil Code, then, her claim or
demand has been paid, waived abandoned or
otherwise extinguished as evidenced by the
'quitclaim' Annex 'A' hereof, the ground cited
is another ground for a motion to dismiss (Sec.
1, (h), Rule 16) and hence defendants pray
that a preliminary hearing be made in
connection therewith pursuant to Section 5 of
the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally
married to Ang Siok Tin and were blessed with
the following children, to wit: Ching Siong Lim
and Ching Hing Lim (twins) born on February
16, 1942; Lim Shing Ping born on March 3,
1949 and Lim Eng Lu born on June 25, 1965
and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim
Po Chuan, the plaintiff was no longer his
common law wife and even though she was
not entitled to anything left by Tee Hoon Lim
Po Chuan, yet, out of the kindness and
generosity on the part of the defendants,
particularly Antonio Lain Tanhu, who, was
inspiring to be monk and in fact he is now a
monk, plaintiff was given a substantial amount
evidenced by the 'quitclaim' (Annex 'A');
5. That the defendants have acquired
properties out of their own personal fund and
certainly not from the funds belonging to the
partnership, just as Tee Hoon Lim Po Chuan
had acquired properties out of his personal
fund and which are now in the possession of
the widow and neither the defendants nor the
partnership have anything to do about said
properties;
6. That it would have been impossible to buy
properties from funds belonging to the
partnership without the other partners
knowing about it considering that the amount
taken allegedly is quite big and with such big
amount withdrawn the partnership would
have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan
were not blessed with children who would
have been lawfully entitled to succeed to the
properties left by the latter together with the
widow and legitimate children;
8. That despite the fact that plaintiff knew that
she was no longer entitled to anything of the
shares of the late Tee Hoon Lim Po Chuan, yet,
this suit was filed against the defendant who
have to interpose the following
C O U N T E R C L A I M
A. That the defendants hereby reproduced, by
way of reference, all the allegations and
foregoing averments as part of this
counterclaim; .
B. That plaintiff knew and was aware she was
merely the common-law wife of Tee Hoon Lim
Po Chuan and that the lawful and legal is still
living, together with the legitimate children,
and yet she deliberately suppressed this fact,
thus showing her bad faith and is therefore
liable for exemplary damages in an amount
which the Honorable Court may determine in
the exercise of its sound judicial discretion. In
the event that plaintiff is married to Tee Hoon
Lim Po Chuan, then, her marriage is bigamous
and should suffer the consequences thereof;
C. That plaintiff was aware and had knowledge
about the 'quitclaim', even though she was not
entitled to it, and yet she falsely claimed that
defendants refused even to see her and for
filing this unfounded, baseless, futile and
puerile complaint, defendants suffered mental
anguish and torture conservatively estimated
to be not less than P3,000.00;
D. That in order to defend their rights in court,
defendants were constrained to engage the
services of the undersigned counsel, obligating
themselves to pay P500,000.00 as attorney's
fees;
E. That by way of litigation expenses during
the time that this case will be before this
Honorable Court and until the same will be
finally terminated and adjudicated, defendants
will have to spend at least P5,000.00. (Pp. 44-
47. Record.)
After unsuccessfully trying to show that this counterclaim is
merely permissive and should be dismissed for non-payment of
the corresponding filing fee, and after being overruled by the
court, in due time, plaintiff answered the same, denying its
material allegations.
On February 3, 1973, however, the date set for the pre-trial, both
of the two defendants-spouses the Lim Tanhus and Ng Suas, did
not appear, for which reason, upon motion of plaintiff dated
February 16, 1973, in an order of March 12, 1973, they were all
"declared in DEFAULT as of February 3, 1973 when they failed to
appear at the pre-trial." They sought to hive this order lifted thru
a motion for reconsideration, but the effort failed when the court
denied it. Thereafter, the trial started, but at the stage thereof
where the first witness of the plaintiff by the name of Antonio
Nuez who testified that he is her adopted son, was up for re-
cross-examination, said plaintiff unexpectedly filed on October
19, 1974 the following simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned
counsel, unto the Honorable Court most
respectfully moves to drop from the complaint
the defendants Lim Teck Chuan and Eng
Chong Leonardo and to consider the case
dismissed insofar as said defendants Lim Teck
Chuan and Eng Chong Leonardo are
concerned.
WHEREFORE, it is most respectfully prayed of
the Honorable Court to drop from the
complaint the defendants Lim Teck Chuan and
Eng Chong Leonardo and to dismiss the case
against them without pronouncement as to
costs. (Page 50, Record.)
which she set for hearing on December 21,
1974. According to petitioners, none of the
defendants declared in default were notified of
said motion, in violation of Section 9 of Rule
13, since they had asked for the lifting of the
order of default, albeit unsuccessfully, and as
regards the defendants not declared in default,
the setting of the hearing of said motion on
October 21, 1974 infringed the three-day
requirement of Section 4 of Rule 15, inasmuch
as Atty. Adelino Sitoy of Lim Teck Chuan was
served with a copy of the motion personally
only on October 19, 1974, while Atty.
Benjamin Alcudia of Eng Chong Leonardo was
served by registered mail sent only on the
same date.
Evidently without even verifying the notices of
service, just as simply as plaintiff had couched
her motion, and also without any legal
grounds stated, respondent court granted the
prayer of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying
for the dismissal of the complaint as against
defendants Lim Teck Chuan and Eng Chong
Leonardo.
The same is hereby GRANTED. The complaint
as against defendant Lim Teck Chuan and Eng
Chong Leonardo is hereby ordered DISMISSED
without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim
Tanhu and his spouse Dy Ochay as well as
defendants Alfonso Ng Sua and his spouse Co
Oyo have been declared in default for failure
to appear during the pre-trial and as to the
other defendants the complaint had already
been ordered dismissed as against them.
Let the hearing of the plaintiff's evidence ex-
parte be set on November 20, 1974, at 8:30
A.M. before the Branch Clerk of Court who is
deputized for the purpose, to swear in
witnesses and to submit her report within ten
(10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page
52, Record.)
But, in connection with this last order, the scheduled ex-parte
reception of evidence did not take place on November 20, 1974,
for on October 28, 1974, upon verbal motion of plaintiff, the court
issued the following self-explanatory order: .
Acting favorably on the motion of the plaintiff
dated October 18, 1974, the Court deputized
the Branch Clerk of Court to receive the
evidence of the plaintiff ex-parte to be made on
November 20, 1974. However, on October 28,
1974, the plaintiff, together with her
witnesses, appeared in court and asked, thru
counsel, that she be allowed to present her
evidence.
Considering the time and expenses incurred
by the plaintiff in bringing her witnesses to the
court, the Branch Clerk of Court is hereby
authorized to receive immediately the
evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page
53. Record.)
Upon learning of these orders on October 23, 1973, the defendant
Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a motion for
reconsideration thereof, and on November 1, 1974, defendant
Eng Chong Leonardo, thru counsel Atty. Alcudia, filed also his
own motion for reconsideration and clarification of the same
orders. These motions were denied in an order dated December
6, 1974 but received by the movants only on December 23, 1974.
Meanwhile, respondent court rendered the impugned decision on
December 20, 1974. It does not appear when the parties were
served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru
counsel, filed a motion to quash the order of October 28, 1974.
Without waiting however for the resolution thereof, on January
13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to the
Court of Appeals with a petition for certiorari seeking the
annulment of the above-mentioned orders of October 21, 1974
and October 28, 1974 and decision of December 20, 1974. By
resolution of January 24, 1975, the Court of Appeals dismissed
said petition, holding that its filing was premature, considering
that the motion to quash the order of October 28, 1974 was still
unresolved by the trial court. This holding was reiterated in the
subsequent resolution of February 5, 1975 denying the motion
for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants,
petitioners herein, filed their notice of appeal, appeal bond and
motion for extension to file their record on appeal, which was
granted, the extension to expire after fifteen (15) days from
January 26 and 27, 1975, for defendants Lim Tanhu and Ng Suas,
respectively. But on February 7, 1975, before the perfection of
their appeal, petitioners filed the present petition with this Court.
And with the evident intent to make their procedural position
clear, counsel for defendants, Atty. Manuel Zosa, filed with
respondent court a manifestation dated February 14, 1975
stating that "when the non-defaulted defendants Eng Chong
Leonardo and Lim Teck Chuan filed their petition in the Court of
Appeals, they in effect abandoned their motion to quash the
order of October 28, 1974," and that similarly "when Antonio Lim
Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo, filed their
petition for certiorari and prohibition ... in the Supreme Court,
they likewise abandoned their motion to quash." This
manifestation was acted upon by respondent court together with
plaintiffs motion for execution pending appeal in its order of the
same date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the
order of October 28, 1974 and the motion for
execution pending appeal were called for
hearing today, counsel for the defendants-
movants submitted their manifestation
inviting the attention of this Court that by
their filing for certiorari and prohibition with
preliminary injunction in the Court of Appeals
which was dismissed and later the defaulted
defendants filed with the Supreme Court
certiorari with prohibition they in effect
abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is
ordered ABANDONED. The resolution of the
motion for execution pending appeal shall be
resolved after the petition for certiorari and
prohibition shall have been resolved by the
Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975.
(Page 216, Record.)
Upon these premises, it is the position of petitioners that
respondent court acted illegally, in violation of the rules or with
grave abuse of discretion in acting on respondent's motion to
dismiss of October 18, 1974 without previously ascertaining
whether or not due notice thereof had been served on the
adverse parties, as, in fact, no such notice was timely served on
the non-defaulted defendants Lim Teck Chuan and Eng Chong
Leonardo and no notice at all was ever sent to the other
defendants, herein petitioners, and more so, in actually ordering
the dismissal of the case by its order of October 21, 1974 and at
the same time setting the case for further hearing as against the
defaulted defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of December
20, 1974 granting respondent Tan even reliefs not prayed for in
the complaint. According to the petitioners, to begin with, there
was compulsory counterclaim in the common answer of the
defendants the nature of which is such that it cannot be decided
in an independent action and as to which the attention of
respondent court was duly called in the motions for
reconsideration. Besides, and more importantly, under Section 4
of Rule 18, respondent court had no authority to divide the case
before it by dismissing the same as against the non-defaulted
defendants and thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the defaulted
defendants, considering that in their view, under the said
provision of the rules, when a common cause of action is alleged
against several defendants, the default of any of them is a mere
formality by which those defaulted are not allowed to take part in
the proceedings, but otherwise, all the defendants, defaulted and
not defaulted, are supposed to have but a common fate, win or
lose. In other words, petitioners posit that in such a situation,
there can only be one common judgment for or against all the
defendant, the non-defaulted and the defaulted. Thus, petitioners
contend that the order of dismissal of October 21, 1974 should be
considered also as the final judgment insofar as they are
concerned, or, in the alternative, it should be set aside together
with all the proceedings and decision held and rendered
subsequent thereto, and that the trial be resumed as of said date,
with the defendants Lim Teck Chuan and Eng Chong Leonardo
being allowed to defend the case for all the defendants.
On the other hand, private respondent maintains the contrary
view that inasmuch as petitioners had been properly declared in
default, they have no personality nor interest to question the
dismissal of the case as against their non-defaulted co-defendants
and should suffer the consequences of their own default.
Respondent further contends, and this is the only position
discussed in the memorandum submitted by her counsel, that
since petitioners have already made or at least started to make
their appeal, as they are in fact entitled to appeal, this special civil
action has no reason for being. Additionally, she invokes the point
of prematurity upheld by the Court of Appeals in regard to the
above-mentioned petition therein of the non-defaulted
defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent
court are errors of judgment and may be reviewed only in an
appeal.
After careful scrutiny of all the above-related proceedings, in the
court below and mature deliberation, the Court has arrived at the
conclusion that petitioners should be granted relief, if only to
stress emphatically once more that the rules of procedure may
not be misused and abused as instruments for the denial of
substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative
instance of how some members of the bar, availing of their
proficiency in invoking the letter of the rules without regard to
their real spirit and intent, succeed in inducing courts to act
contrary to the dictates of justice and equity, and, in some
instances, to wittingly or unwittingly abet unfair advantage by
ironically camouflaging their actuations as earnest efforts to
satisfy the public clamor for speedy disposition of litigations,
forgetting all the while that the plain injunction of Section 2 of
Rule 1 is that the "rules shall be liberally construed in order to
promote their object and to assist the parties in obtaining not
only 'speedy' but more imperatively, "just ... and inexpensive
determination of every action and proceeding." We cannot simply
pass over the impression that the procedural maneuvers and
tactics revealed in the records of the case at bar were deliberately
planned with the calculated end in view of depriving petitioners
and their co-defendants below of every opportunity to properly
defend themselves against a claim of more than substantial
character, considering the millions of pesos worth of properties
involved as found by respondent judge himself in the impugned
decision, a claim that appears, in the light of the allegations of the
answer and the documents already brought to the attention of
the court at the pre-trial, to be rather dubious. What is most
regrettable is that apparently, all of these alarming circumstances
have escaped respondent judge who did not seem to have
hesitated in acting favorably on the motions of the plaintiff
conducive to the deplorable objective just mentioned, and which
motions, at the very least, appeared to be 'of highly controversial'
merit, considering that their obvious tendency and immediate
result would be to convert the proceedings into a one-sided
affair, a situation that should be readily condemnable and
intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to
lean more on the contentions of private respondent may be
discerned from the manner it resolved the attempts of
defendants Dy Ochay and Antonio Lim Tanhu to have the earlier
order of default against them lifted. Notwithstanding that Dy
Ochay's motion of October 8, 1971, co-signed by her with their
counsel, Atty. Jovencio Enjambre (Annex 2 of respondent answer
herein) was over the jurat of the notary public before whom she
took her oath, in the order of November 2, 1971, (Annex 3 id.) it
was held that "the oath appearing at the bottom of the motion is
not the one contemplated by the abovequoted pertinent
provision (See. 3, Rule 18) of the rules. It is not even a
verification. (See. 6, Rule 7.) What the rule requires as
interpreted by the Supreme Court is that the motion must have to
be accompanied by an affidavit of merits that the defendant has a
meritorious defense, thereby ignoring the very simple legal point
that the ruling of the Supreme Court in Ong Peng vs. Custodio, 1
SCRA 781, relied upon by His Honor, under which a separate
affidavit of merit is required refers obviously to instances where
the motion is not over oath of the party concerned, considering
that what the cited provision literally requires is no more than a
"motion under oath." Stated otherwise, when a motion to lift an
order of default contains the reasons for the failure to answer as
well as the facts constituting the prospective defense of the
defendant and it is sworn to by said defendant, neither a formal
verification nor a separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to lift
the order of default "is an admission that there was a valid
service of summons" and that said motion could not amount to a
challenge against the jurisdiction of the court over the person of
the defendant. Such a rationalization is patently specious and
reveals an evident failure to grasp the import of the legal
concepts involved. A motion to lift an order of default on the
ground that service of summons has not been made in
accordance with the rules is in order and is in essence verily an
attack against the jurisdiction of the court over the person of the
defendant, no less than if it were worded in a manner specifically
embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting
at last the order of default as against defendant Lim Tanhu, His
Honor posited that said defendant "has a defense (quitclaim)
which renders the claim of the plaintiff contentious." We have
read defendants' motion for reconsideration of November 25,
1971 (Annex 5, id.), but We cannot find in it any reference to a
"quitclaim". Rather, the allegation of a quitclaim is in the
amended complaint (Pars. 15-16, Annex B of the petition herein)
in which plaintiff maintains that her signature thereto was
secured through fraud and deceit. In truth, the motion for
reconsideration just mentioned, Annex 5, merely reiterated the
allegation in Dy Ochay's earlier motion of October 8, 1971, Annex
2, to set aside the order of default, that plaintiff Tan could be but
the common law wife only of Tee Hoon, since his legitimate wife
was still alive, which allegation, His Honor held in the order of
November 2, 1971, Annex 3, to be "not good and meritorious
defense". To top it all, whereas, as already stated, the order of
February 19, 1972, Annex 6, lifted the default against Lim Tanhu
because of the additional consideration that "he has a defense
(quitclaim) which renders the claim of the plaintiff contentious,"
the default of Dy Ochay was maintained notwithstanding that
exactly the same "contentions" defense as that of her husband
was invoked by her.
Such tenuous, if not altogether erroneous reasonings and
manifest inconsistency in the legal postures in the orders in
question can hardly convince Us that the matters here in issue
were accorded due and proper consideration by respondent
court. In fact, under the circumstances herein obtaining, it seems
appropriate to stress that, having in view the rather substantial
value of the subject matter involved together with the obviously
contentious character of plaintiff's claim, which is discernible
even on the face of the complaint itself, utmost care should have
been taken to avoid the slightest suspicion of improper
motivations on the part of anyone concerned. Upon the
considerations hereunder to follow, the Court expresses its grave
concern that much has to be done to dispel the impression that
herein petitioners and their co-defendants are being railroaded
out of their rights and properties without due process of law, on
the strength of procedural technicalities adroitly planned by
counsel and seemingly unnoticed and undetected by respondent
court, whose orders, gauged by their tenor and the citations of
supposedly pertinent provisions and jurisprudence made therein,
cannot be said to have proceeded from utter lack of juridical
knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the
record is the seeming alacrity with which the motion to dismiss
the case against non-defaulted defendants Lim Teck Chuan and
Eng Chong Leonardo was disposed of, which definitely ought not
to have been the case. The trial was proceeding with the
testimony of the first witness of plaintiff and he was still under
re-cross-examination. Undoubtedly, the motion to dismiss at that
stage and in the light of the declaration of default against the rest
of the defendants was a well calculated surprise move, obviously
designed to secure utmost advantage of the situation, regardless
of its apparent unfairness. To say that it must have been entirely
unexpected by all the defendants, defaulted and non-defaulted , is
merely to rightly assume that the parties in a judicial proceeding
can never be the victims of any procedural waylaying as long as
lawyers and judges are imbued with the requisite sense of equity
and justice.
But the situation here was aggravated by the indisputable fact
that the adverse parties who were entitled to be notified of such
unanticipated dismissal motion did not get due notice thereof.
Certainly, the non-defaulted defendants had the right to the
three-day prior notice required by Section 4 of Rule 15. How
could they have had such indispensable notice when the motion
was set for hearing on Monday, October 21, 1974, whereas the
counsel for Lim Teck Chuan, Atty. Sitoy was personally served
with the notice only on Saturday, October 19, 1974 and the
counsel for Eng Chong Leonardo, Atty. Alcudia, was notified by
registered mail which was posted only that same Saturday,
October 19, 1974? According to Chief Justice Moran, "three days
at least must intervene between the date of service of notice and
the date set for the hearing, otherwise the court may not validly
act on the motion." (Comments on the Rules of Court by Moran,
Vol. 1, 1970 ed. p. 474.) Such is the correct construction of
Section 4 of Rule 15. And in the instant case, there can be no
question that the notices to the non-defaulted defendants were
short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but
what is incomprehensible is the seeming inattention of
respondent judge to the explicit mandate of the pertinent rule,
not to speak of the imperatives of fairness, considering he should
have realized the far-reaching implications, specially from the
point of view he subsequently adopted, albeit erroneously, of his
favorably acting on it. Actually, he was aware of said
consequences, for simultaneously with his order of dismissal, he
immediately set the case for the ex-parte hearing of the evidence
against the defaulted defendants, which, incidentally, from the
tenor of his order which We have quoted above, appears to have
been done by him motu propio As a matter of fact, plaintiff's
motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974
further ignores or is inconsistent with a number of known
juridical principles concerning defaults, which We will here take
occasion to reiterate and further elucidate on, if only to avoid a
repetition of the unfortunate errors committed in this case.
Perhaps some of these principles have not been amply projected
and elaborated before, and such paucity of elucidation could be
the reason why respondent judge must have acted as he did. Still,
the Court cannot but express its vehement condemnation of any
judicial actuation that unduly deprives any party of the right to
be heard without clear and specific warrant under the terms of
existing rules or binding jurisprudence. Extreme care must be the
instant reaction of every judge when confronted with a situation
involving risks that the proceedings may not be fair and square to
all the parties concerned. Indeed, a keen sense of fairness, equity
and justice that constantly looks for consistency between the
letter of the adjective rules and these basic principles must be
possessed by every judge, If substance is to prevail, as it must,
over form in our courts. Literal observance of the rules, when it is
conducive to unfair and undue advantage on the part of any
litigant before it, is unworthy of any court of justice and equity.
Withal, only those rules and procedure informed, with and
founded on public policy deserve obedience in accord with their
unequivocal language or words..
Before proceeding to the discussion of the default aspects of this
case, however, it should not be amiss to advert first to the patent
incorrectness, apparent on the face of the record, of the
aforementioned order of dismissal of October 21, 1974 of the
case below as regards non-defaulted defendants Lim and
Leonardo. While it is true that said defendants are not petitioners
herein, the Court deems it necessary for a full view of the
outrageous procedural strategy conceived by respondent's
counsel and sanctioned by respondent court to also make
reference to the very evident fact that in ordering said dismissal
respondent court disregarded completely the existence of
defendant's counterclaim which it had itself earlier held if
indirectly, to be compulsory in nature when it refused to dismiss
the same on the ground alleged by respondent Tan that he
docketing fees for the filing thereof had not been paid by
defendants.
Indeed, that said counterclaim is compulsory needs no extended
elaboration. As may be noted in the allegations hereof
aforequoted, it arose out of or is necessarily connected with the
occurrence that is the subject matter of the plaintiff's claim,
(Section 4, Rule 9) namely, plaintiff's allegedly being the widow
of the deceased Tee Hoon entitled, as such, to demand accounting
of and to receive the share of her alleged late husband as partner
of defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua
in Glory Commercial Company, the truth of which allegations all
the defendants have denied. Defendants maintain in their
counterclaim that plaintiff knew of the falsity of said allegations
even before she filed her complaint, for she had in fact admitted
her common-law relationship with said deceased in a document
she had jointly executed with him by way of agreement to
terminate their illegitimate relationship, for which she received
P40,000 from the deceased, and with respect to her pretended
share in the capital and profits in the partnership, it is also
defendants' posture that she had already quitclaimed, with the
assistance of able counsel, whatever rights if any she had thereto
in November, 1967, for the sum of P25,000 duly receipted by her,
which quitclaim was, however, executed, according to
respondent herself in her amended complaint, through fraud.
And having filed her complaint knowing, according to defendants,
as she ought to have known, that the material allegations thereof
are false and baseless, she has caused them to suffer damages.
Undoubtedly, with such allegations, defendants' counterclaim is
compulsory, not only because the same evidence to sustain it will
also refute the cause or causes of action alleged in plaintiff's
complaint, (Moran, supra p. 352) but also because from its very
nature, it is obvious that the same cannot "remain pending for
independent adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a
counterclaim has been pleaded by a defendant prior to the
service upon him of the plaintiff's motion to dismiss, the action
shall not be dismissed against the defendant's objection unless
the counterclaim can remain pending for independent
adjudication by the court." Defendants Lim and Leonardo had no
opportunity to object to the motion to dismiss before the order
granting the same was issued, for the simple reason that they
were not opportunity notified of the motion therefor, but the
record shows clearly that at least defendant Lim immediately
brought the matter of their compulsory counterclaim to the
attention of the trial court in his motion for reconsideration of
October 23, 1974, even as the counsel for the other defendant,
Leonardo, predicated his motion on other grounds. In its order of
December 6, 1974, however, respondent court not only upheld
the plaintiffs supposed absolute right to choose her adversaries
but also held that the counterclaim is not compulsory, thereby
virtually making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration why the
motion to dismiss should not have been granted. As the plaintiff's
complaint has been framed, all the six defendants are charged
with having actually taken part in a conspiracy to
misappropriate, conceal and convert to their own benefit the
profits, properties and all other assets of the partnership Glory
Commercial Company, to the extent that they have allegedly
organized a corporation, Glory Commercial Company, Inc. with
what they had illegally gotten from the partnership. Upon such
allegations, no judgment finding the existence of the alleged
conspiracy or holding the capital of the corporation to be the
money of the partnership is legally possible without the presence
of all the defendants. The non-defaulted defendants are alleged to
be stockholders of the corporation and any decision depriving
the same of all its assets cannot but prejudice the interests of said
defendants. Accordingly, upon these premises, and even
prescinding from the other reasons to be discussed anon it is
clear that all the six defendants below, defaulted and non-
defaulted, are indispensable parties. Respondents could do no
less than grant that they are so on page 23 of their answer. Such
being the case, the questioned order of dismissal is exactly the
opposite of what ought to have been done. Whenever it appears
to the court in the course of a proceeding that an indispensable
party has not been joined, it is the duty of the court to stop the
trial and to order the inclusion of such party. (The Revised Rules
of Court, Annotated & Commented by Senator Vicente J.
Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs. Avila, 101
Phil. 705.) Such an order is unavoidable, for the "general rule
with reference to the making of parties in a civil action requires
the joinder of all necessary parties wherever possible, and the
joinder of all indispensable parties under any and all conditions,
the presence of those latter being a sine qua non of the exercise of
judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is
precisely " when an indispensable party is not before the court
(that) the action should be dismissed." (People v. Rodriguez, 106
Phil. 325, at p. 327.) The absence of an indispensable party
renders all subsequent actuations of the court null and void, for
want of authority to act, not only as to the absent parties but even
as to those present. In short, what respondent court did here was
exactly the reverse of what the law ordains it eliminated those
who by law should precisely be joined.
As may he noted from the order of respondent court quoted
earlier, which resolved the motions for reconsideration of the
dismissal order filed by the non-defaulted defendants, His Honor
rationalized his position thus:
It is the rule that it is the absolute prerogative
of the plaintiff to choose, the theory upon
which he predicates his right of action, or the
parties he desires to sue, without dictation or
imposition by the court or the adverse party. If
he makes a mistake in the choice of his right of
action, or in that of the parties against whom
he seeks to enforce it, that is his own concern
as he alone suffers therefrom. The plaintiff
cannot be compelled to choose his defendants,
He may not, at his own expense, be forced to
implead anyone who, under the adverse
party's theory, is to answer for defendant's
liability. Neither may the Court compel him to
furnish the means by which defendant may
avoid or mitigate their liability. (Vao vs. Alo,
95 Phil. 495-496.)
This being the rule this court cannot compel
the plaintiff to continue prosecuting her cause
of action against the defendants-movants if in
the course of the trial she believes she can
enforce it against the remaining defendants
subject only to the limitation provided in
Section 2, Rule 17 of the Rules of Court. ...
(Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal
terminology as in plaintiff's motion of October 18, 1974 by
referring to the action he had taken as being "dismissal of the
complaint against them or their being dropped therefrom",
without perceiving that the reason for the evidently intentional
ambiguity is transparent. The apparent idea is to rely on the
theory that under Section 11 of Rule 3, parties may be dropped
by the court upon motion of any party at any stage of the action,
hence "it is the absolute right prerogative of the plaintiff to
choosethe parties he desires to sue, without dictation or
imposition by the court or the adverse party." In other words, the
ambivalent pose is suggested that plaintiff's motion of October
18, 1974 was not predicated on Section 2 of Rule 17 but more on
Section 11 of Rule 3. But the truth is that nothing can be more
incorrect. To start with, the latter rule does not comprehend
whimsical and irrational dropping or adding of parties in a
complaint. What it really contemplates is erroneous or mistaken
non-joinder and misjoinder of parties. No one is free to join
anybody in a complaint in court only to drop him
unceremoniously later at the pleasure of the plaintiff. The rule
presupposes that the original inclusion had been made in the
honest conviction that it was proper and the subsequent
dropping is requested because it has turned out that such
inclusion was a mistake. And this is the reason why the rule
ordains that the dropping be "on such terms as are just" just to
all the other parties. In the case at bar, there is nothing in the
record to legally justify the dropping of the non-defaulted
defendants, Lim and Leonardo. The motion of October 18, 1974
cites none. From all appearances, plaintiff just decided to ask for
it, without any relevant explanation at all. Usually, the court in
granting such a motion inquires for the reasons and in the
appropriate instances directs the granting of some form of
compensation for the trouble undergone by the defendant in
answering the complaint, preparing for or proceeding partially to
trial, hiring counsel and making corresponding expenses in the
premises. Nothing of these, appears in the order in question. Most
importantly, His Honor ought to have considered that the
outright dropping of the non-defaulted defendants Lim and
Leonardo, over their objection at that, would certainly be unjust
not only to the petitioners, their own parents, who would in
consequence be entirely defenseless, but also to Lim and
Leonardo themselves who would naturally correspondingly
suffer from the eventual judgment against their parents.
Respondent court paid no heed at all to the mandate that such
dropping must be on such terms as are just" meaning to all
concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its
order of dismissal of October 21, 1974 as well as its order of
December 6, 1974 denying reconsideration of such dismissal. As
We make this ruling, We are not oblivious of the circumstance
that defendants Lim and Leonardo are not parties herein. But
such consideration is inconsequential. The fate of the case of
petitioners is inseparably tied up with said order of dismissal, if
only because the order of ex-parte hearing of October 21, 1974
which directly affects and prejudices said petitioners is
predicated thereon. Necessarily, therefore, We have to pass on
the legality of said order, if We are to decide the case of herein
petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer
pursuing further their questioning of the dismissal is from
another point of view understandable. On the one hand, why
should they insist on being defendants when plaintiff herself has
already release from her claims? On the other hand, as far as their
respective parents-co-defendants are concerned, they must have
realized that they (their parents) could even be benefited by such
dismissal because they could question whether or not plaintiff
can still prosecute her case against them after she had secured
the order of dismissal in question. And it is in connection with
this last point that the true and correct concept of default
becomes relevant.
At this juncture, it may also be stated that the decision of the
Court of Appeals of January 24, 1975 in G. R. No. SP-03066
dismissing the petition for certiorari of non-defaulted defendants
Lim and Leonardo impugning the order of dismissal of October
21, 1974, has no bearing at all in this case, not only because that
dismissal was premised by the appellate court on its holding that
the said petition was premature inasmuch as the trial court had
not yet resolved the motion of the defendants of October 28,
1974 praying that said disputed order be quashed, but
principally because herein petitioners were not parties in that
proceeding and cannot, therefore, be bound by its result. In
particular, We deem it warranted to draw the attention of private
respondent's counsel to his allegations in paragraphs XI to XIV of
his answer, which relate to said decision of the Court of Appeals
and which have the clear tendency to make it appear to the Court
that the appeals court had upheld the legality and validity of the
actuations of the trial court being questioned, when as a matter of
indisputable fact, the dismissal of the petition was based solely
and exclusively on its being premature without in any manner
delving into its merits. The Court must and does admonish
counsel that such manner of pleading, being deceptive and
lacking in candor, has no place in any court, much less in the
Supreme Court, and if We are adopting a passive attitude in the
premises, it is due only to the fact that this is counsel's first
offense. But similar conduct on his part in the future will
definitely be dealt with more severely. Parties and counsel would
be well advised to avoid such attempts to befuddle the issues as
invariably then will be exposed for what they are, certainly
unethical and degrading to the dignity of the law profession.
Moreover, almost always they only betray the inherent weakness
of the cause of the party resorting to them.
2
Coming now to the matter itself of default, it is quite apparent
that the impugned orders must have proceeded from inadequate
apprehension of the fundamental precepts governing such
procedure under the Rules of Court. It is time indeed that the
concept of this procedural device were fully understood by the
bench and bar, instead of being merely taken for granted as being
that of a simple expedient of not allowing the offending party to
take part in the proceedings, so that after his adversary shall
have presented his evidence, judgment may be rendered in favor
of such opponent, with hardly any chance of said judgment being
reversed or modified.
The Rules of Court contain a separate rule on the subject of
default, Rule 18. But said rule is concerned solely with default
resulting from failure of the defendant or defendants to answer
within the reglementary period. Referring to the simplest form of
default, that is, where there is only one defendant in the action
and he fails to answer on time, Section 1 of the rule provides that
upon "proof of such failure, (the court shall) declare the
defendant in default. Thereupon the court shall proceed to
receive the plaintiff's evidence and render judgment granting him
such relief as the complaint and the facts proven may warrant."
This last clause is clarified by Section 5 which says that "a
judgment entered against a party in default shall not exceed the
amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do
not readily convey the full import of what they contemplate. To
begin with, contrary to the immediate notion that can be drawn
from their language, these provisions are not to be understood as
meaning that default or the failure of the defendant to answer
should be "interpreted as an admission by the said defendant
that the plaintiff's cause of action find support in the law or that
plaintiff is entitled to the relief prayed for." (Moran, supra, p. 535
citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with
approval Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12
Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111.
328; Ken v. Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v.
Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights
except that of being heard and of presenting evidence in the trial
court. According to Section 2, "except as provided in Section 9 of
Rule 13, a party declared in default shall not be entitled to notice
of subsequent proceedings, nor to take part in the trial." That
provision referred to reads: "No service of papers other than
substantially amended pleadings and final orders or judgments
shall be necessary on a party in default unless he files a motion to
set aside the order of default, in which event he shall be entitled
to notice of all further proceedings regardless of whether the
order of default is set aside or not." And pursuant to Section 2 of
Rule 41, "a party who has been declared in default may likewise
appeal from the judgment rendered against him as contrary to
the evidence or to the law, even if no petition for relief to set
aside the order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out
of court. While in a sense it may be said that by defaulting he
leaves himself at the mercy of the court, the rules see to it that
any judgment against him must be in accordance with law. The
evidence to support the plaintiff's cause is, of course, presented
in his absence, but the court is not supposed to admit that which
is basically incompetent. Although the defendant would not be in
a position to object, elementary justice requires that, only legal
evidence should be considered against him. If the evidence
presented should not be sufficient to justify a judgment for the
plaintiff, the complaint must be dismissed. And if an unfavorable
judgment should be justifiable, it cannot exceed in amount or be
different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present
widespread practice of trial judges, as was done by His Honor in
this case, of delegating to their clerks of court the reception of the
plaintiff's evidence when the defendant is in default. Such a
Practice is wrong in principle and orientation. It has no basis in
any rule. When a defendant allows himself to be declared in
default, he relies on the faith that the court would take care that
his rights are not unduly prejudiced. He has a right to presume
that the law and the rules will still be observed. The proceedings
are held in his forced absence, and it is but fair that the plaintiff
should not be allowed to take advantage of the situation to win
by foul or illegal means or with inherently incompetent evidence.
Thus, in such instances, there is need for more attention from the
court, which only the judge himself can provide. The clerk of
court would not be in a position much less have the authority to
act in the premises in the manner demanded by the rules of fair
play and as contemplated in the law, considering his comparably
limited area of discretion and his presumably inferior
preparation for the functions of a judge. Besides, the default of
the defendant is no excuse for the court to renounce the
opportunity to closely observe the demeanor and conduct of the
witnesses of the plaintiff, the better to appreciate their
truthfulness and credibility. We therefore declare as a matter of
judicial policy that there being no imperative reason for judges to
do otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this point is that
it is preferable to leave enough opportunity open for possible
lifting of the order of default before proceeding with the
reception of the plaintiff's evidence and the rendition of the
decision. "A judgment by default may amount to a positive and
considerable injustice to the defendant; and the possibility of
such serious consequences necessitates a careful and liberal
examination of the grounds upon which the defendant may seek
to set it aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24
Phil. 446; 449-450.) The expression, therefore, in Section 1 of
Rule 18 aforequoted which says that "thereupon the court shall
proceed to receive the plaintiff's evidence etc." is not to be taken
literally. The gain in time and dispatch should the court
immediately try the case on the very day of or shortly after the
declaration of default is far outweighed by the inconvenience and
complications involved in having to undo everything already
done in the event the defendant should justify his omission to
answer on time.
The foregoing observations, as may be noted, refer to instances
where the only defendant or all the defendants, there being
several, are declared in default. There are additional rules
embodying more considerations of justice and equity in cases
where there are several defendants against whom a common
cause of action is averred and not all of them answer opportunely
or are in default, particularly in reference to the power of the
court to render judgment in such situations. Thus, in addition to
the limitation of Section 5 that the judgment by default should
not be more in amount nor different in kind from the reliefs
specifically sought by plaintiff in his complaint, Section 4 restricts
the authority of the court in rendering judgment in the situations
just mentioned as follows:
Sec. 4. Judgment when some defendants answer,
and other make difficult. When a complaint
states a common cause of action against several
defendant some of whom answer, and the
others fail to do so, the court shall try the case
against all upon the answer thus filed and
render judgment upon the evidence presented.
The same proceeding applies when a common
cause of action is pleaded in a counterclaim,
cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision
and the controlling jurisprudence explanatory thereof this wise:
Where a complaint states a common cause of
action against several defendants and some
appear to defend the case on the merits while
others make default, the defense interposed by
those who appear to litigate the case inures to
the benefit of those who fail to appear, and if
the court finds that a good defense has been
made, all of the defendants must be absolved.
In other words, the answer filed by one or
some of the defendants inures to the benefit of
all the others, even those who have not
seasonably filed their answer. (Bueno v. Ortiz,
L-22978, June 27, 1968, 23 SCRA 1151.) The
proper mode of proceeding where a complaint
states a common cause of action against
several defendants, and one of them makes
default, is simply to enter a formal default
order against him, and proceed with the cause
upon the answers of the others. The defaulting
defendant merely loses his standing in court,
he not being entitled to the service of notice in
the cause, nor to appear in the suit in any way.
He cannot adduce evidence; nor can he be
heard at the final hearing, (Lim Toco v. Go Fay,
80 Phil. 166.) although he may appeal the
judgment rendered against him on the merits.
(Rule 41, sec. 2.) If the case is finally decided in
the plaintiff's favor, a final decree is then
entered against all the defendants; but if the
suit should be decided against the plaintiff, the
action will be dismissed as to all the
defendants alike. (Velez v. Ramas, 40 Phil. 787-
792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed.
60.) In other words the judgment will affect
the defaulting defendants either favorably or
adversely. (Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if
judgment is in his favor. (Castro v.
Pea, supra.) (Moran, Rules of Court, Vol. 1, pp.
538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the
numerous cases cited by Moran, this Court
elaborated on the construction of the same
rule when it sanctioned the execution, upon
motion and for the benefit of the defendant in
default, of a judgment which was adverse to
the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her
counsel, also was a movant in the petition for
execution Annex 1. Did she have a right to be
such, having been declared in default? In Frow
vs. De la Vega,supra, cited as authority in Velez
vs. Ramas, supra, the Supreme Court of the
United States adopted as ground for its own
decision the following ruling of the New York
Court of Errors in Clason vs. Morris, 10 Jons.,
524:
It would be unreasonable to hold that because
one defendant had made default, the plaintiff
should have a decree even against him, where
the court is satisfied from the proofs offered
by the other, that in fact the plaintiff is not
entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be
consistent. The complaint stating a common
cause of action against several defendants, the
complainant's rights or lack of them in
the controversy have to be the same, and not
different, as against all the defendant's
although one or some make default and the
other or others appear, join issue, and enter
into trial. For instance, in the case of Clason vs.
Morris above cited, the New York Court of
Errors in effect held that in such a case if the
plaintiff is not entitled to a decree, he will not
be entitled to it, not only as against the
defendant appearing and resisting his action
but also as against the one who made default.
In the case at bar, the cause of action in the
plaintiff's complaint was common against the
Mayor of Manila, Emilia Matanguihan, and the
other defendants in Civil Case No. 1318 of the
lower court. The Court of First Instance in its
judgment found and held upon the evidence
adduced by the plaintiff and the defendant
mayor that as between said plaintiff and
defendant Matanguihan the latter was the one
legally entitled to occupy the stalls; and it
decreed, among other things, that said plaintiff
immediately vacate them. Paraphrasing the
New York Court of Errors, it would be
unreasonable to hold now that because
Matanguihan had made default, the said
plaintiff should be declared, as against her,
legally entitled to the occupancy of the stalls,
or to remain therein, although the Court of
First Instance was so firmly satisfied, from the
proofs offered by the other defendant, that the
same plaintiff was not entitled to such
occupancy that it peremptorily ordered her to
vacate the stalls. If in the cases of Clason vs.
Morris, supra, Frow vs. De la Vega, supra,
and Velez vs. Ramas, supra the decrees entered
inured to the benefit of the defaulting
defendants, there is no reason why that
entered in said case No. 1318 should not be
held also to have inured to the benefit of the
defaulting defendant Matanguihan and the
doctrine in said three cases plainly implies
that there is nothing in the law governing
default which would prohibit the court from
rendering judgment favorable to the
defaulting defendant in such cases. If it inured
to her benefit, it stands to reason that she had
a right to claim that benefit, for it would not be
a benefit if the supposed beneficiary were
barred from claiming it; and if the benefit
necessitated the execution of the decree, she
must be possessed of the right to ask for the
execution thereof as she did when she, by
counsel, participated in the petition for
execution Annex 1.
Section 7 of Rule 35 would seem to afford a
solid support to the above considerations. It
provides that when a complaint states a
common cause of action against several
defendants, some of whom answer, and the
others make default, 'the court shall try the
case against all upon the answer thus filed and
render judgment upon the evidence presented
by the parties in court'. It is obvious that under
this provision the case is tried jointly not only
against the defendants answering but also
against those defaulting, and the trial is held
upon the answer filed by the former; and the
judgment, if adverse, will prejudice the
defaulting defendants no less than those who
answer. In other words, the defaulting
defendants are held bound by the answer filed
by their co-defendants and by the judgment
which the court may render against all of
them. By the same token, and by all rules of
equity and fair play, if the judgment should
happen to be favorable, totally or partially, to
the answering defendants, it must
correspondingly benefit the defaulting ones,
for it would not be just to let the judgment
produce effects as to the defaulting defendants
only when adverse to them and not when
favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision
under discussion in the following words:
In answer to the charge that respondent Judge
had committed a grave abuse of discretion in
rendering a default judgment against the PC,
respondents allege that, not having filed its
answer within the reglementary period, the PC
was in default, so that it was proper for
Patanao to forthwith present his evidence and
for respondent Judge to render said judgment.
It should be noted, however, that in entering
the area in question and seeking to prevent
Patanao from continuing his logging
operations therein, the PC was merely
executing an order of the Director of Forestry
and acting as his agent. Patanao's cause of
action against the other respondents in Case
No. 190, namely, the Director of Forestry, the
District Forester of Agusan, the Forest Officer
of Bayugan, Agusan, and the Secretary of
Agriculture and Natural Resources. Pursuant
to Rule 18, Section 4, of the Rules of Court,
'when a complaint states a common cause of
action against several defendants some of
whom answer and the others fail to do so, the
court shall try the case against all upon the
answer thus filed (by some) and render
judgment upon the evidence presented.' In
other words, the answer filed by one or some
of the defendants inures to the benefit of all
the others, even those who have not
seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets
forth a common cause of action against all of
the respondents therein, a decision in favor of
one of them would necessarily favor the
others. In fact, the main issue, in said case, is
whether Patanao has a timber license to
undertake logging operations in the disputed
area. It is not possible to decide such issue in
the negative, insofar as the Director of
Forestry, and to settle it otherwise, as regards
the PC, which is merely acting as agent of the
Director of Forestry, and is, therefore, his alter
ego, with respect to the disputed forest area.
Stated differently, in all instances where a common cause of
action is alleged against several defendants, some of whom
answer and the others do not, the latter or those in default
acquire a vested right not only to own the defense interposed in
the answer of their co- defendant or co-defendants not in default
but also to expect a result of the litigation totally common with
them in kind and in amount whether favorable or unfavorable.
The substantive unity of the plaintiff's cause against all the
defendants is carried through to its adjective phase as ineluctably
demanded by the homogeneity and indivisibility of justice itself.
Indeed, since the singleness of the cause of action also inevitably
implies that all the defendants are indispensable parties, the
court's power to act is integral and cannot be split such that it
cannot relieve any of them and at the same time render judgment
against the rest. Considering the tenor of the section in question,
it is to be assumed that when any defendant allows himself to be
declared in default knowing that his defendant has already
answered, he does so trusting in the assurance implicit in the rule
that his default is in essence a mere formality that deprives him
of no more than the right to take part in the trial and that the
court would deem anything done by or for the answering
defendant as done by or for him. The presumption is that
otherwise he would not -have seen to that he would not be in
default. Of course, he has to suffer the consequences of whatever
the answering defendant may do or fail to do, regardless of
possible adverse consequences, but if the complaint has to be
dismissed in so far as the answering defendant is concerned it
becomes his inalienable right that the same be dismissed also as
to him. It does not matter that the dismissal is upon the evidence
presented by the plaintiff or upon the latter's mere desistance,
for in both contingencies, the lack of sufficient legal basis must be
the cause. The integrity of the common cause of action against all
the defendants and the indispensability of all of them in the
proceedings do not permit any possibility of waiver of the
plaintiff's right only as to one or some of them, without including
all of them, and so, as a rule, withdrawal must be deemed to be a
confession of weakness as to all. This is not only elementary
justice; it also precludes the concomitant hazard that plaintiff
might resort to the kind of procedural strategem practiced by
private respondent herein that resulted in totally depriving
petitioners of every opportunity to defend themselves against
her claims which, after all, as will be seen later in this opinion, the
record does not show to be invulnerable, both in their factual and
legal aspects, taking into consideration the tenor of the pleadings
and the probative value of the competent evidence which were
before the trial court when it rendered its assailed decision
where all the defendants are indispensable parties, for which
reason the absence of any of them in the case would result in the
court losing its competency to act validly, any compromise that
the plaintiff might wish to make with any of them must, as a
matter of correct procedure, have to await until after the
rendition of the judgment, at which stage the plaintiff may then
treat the matter of its execution and the satisfaction of his claim
as variably as he might please. Accordingly, in the case now
before Us together with the dismissal of the complaint against the
non-defaulted defendants, the court should have ordered also the
dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity
and indivisibility of the action just discussed because all the
defendants here have already joined genuine issues with plaintiff.
Their default was only at the pre-trial. And as to such absence of
petitioners at the pre-trial, the same could be attributed to the
fact that they might not have considered it necessary anymore to
be present, since their respective children Lim and Leonardo,
with whom they have common defenses, could take care of their
defenses as well. Anything that might have had to be done by
them at such pre-trial could have been done for them by their
children, at least initially, specially because in the light of the
pleadings before the court, the prospects of a compromise must
have appeared to be rather remote. Such attitude of petitioners is
neither uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and irrevocably in
default was not an absolute necessity. Practical considerations
and reasons of equity should have moved respondent court to be
more understanding in dealing with the situation. After all,
declaring them in default as respondent court did not impair
their right to a common fate with their children.
3
Another issue to be resolved in this case is the question of
whether or not herein petitioners were entitled to notice of
plaintiff's motion to drop their co-defendants Lim and Leonardo,
considering that petitioners had been previously declared in
default. In this connection, the decisive consideration is that
according to the applicable rule, Section 9, Rule 13, already
quoted above, (1) even after a defendant has been declared in
default, provided he "files a motion to set aside the order of
default, he shall be entitled to notice of all further proceedings
regardless of whether the order of default is set aside or not" and
(2) a party in default who has not filed such a motion to set aside
must still be served with all "substantially amended or
supplemented pleadings." In the instant case, it cannot be denied
that petitioners had all filed their motion for reconsideration of
the order declaring them in default. Respondents' own answer to
the petition therein makes reference to the order of April 3, 1973,
Annex 8 of said answer, which denied said motion for
reconsideration. On page 3 of petitioners' memorandum herein
this motion is referred to as "a motion to set aside the order of
default." But as We have not been favored by the parties with a
copy of the said motion, We do not even know the excuse given
for petitioners' failure to appear at the pre-trial, and We cannot,
therefore, determine whether or not the motion complied with
the requirements of Section 3 of Rule 18 which We have held to
be controlling in cases of default for failure to answer on time.
(The Philippine-British Co. Inc. etc. et al. vs. The Hon. Walfrido de
los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default
for failure to answer but one for failure to appear at the pre-trial.
We reiterate, in the situation now before Us, issues have already
been joined. In fact, evidence had been partially offered already
at the pre-trial and more of it at the actual trial which had already
begun with the first witness of the plaintiff undergoing re-cross-
examination. With these facts in mind and considering that issues
had already been joined even as regards the defaulted
defendants, it would be requiring the obvious to pretend that
there was still need for an oath or a verification as to the merits
of the defense of the defaulted defendants in their motion to
reconsider their default. Inasmuch as none of the parties had
asked for a summary judgment there can be no question that the
issues joined were genuine, and consequently, the reason for
requiring such oath or verification no longer holds. Besides, it
may also be reiterated that being the parents of the non-
defaulted defendants, petitioners must have assumed that their
presence was superfluous, particularly because the cause of
action against them as well as their own defenses are common.
Under these circumstances, the form of the motion by which the
default was sought to be lifted is secondary and the requirements
of Section 3 of Rule 18 need not be strictly complied with, unlike
in cases of default for failure to answer. We can thus hold as We
do hold for the purposes of the revival of their right to notice
under Section 9 of Rule 13, that petitioner's motion for
reconsideration was in substance legally adequate regardless of
whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo
from plaintiff's amended complaint was virtually a second
amendment of plaintiffs complaint. And there can be no doubt
that such amendment was substantial, for with the elimination
thereby of two defendants allegedly solidarily liable with their
co-defendants, herein petitioners, it had the effect of increasing
proportionally what each of the remaining defendants, the said
petitioners, would have to answer for jointly and severally.
Accordingly, notice to petitioners of the plaintiff's motion of
October 18, 1974 was legally indispensable under the rule above-
quoted. Consequently, respondent court had no authority to act
on the motion, to dismiss, pursuant to Section 6 of Rule 15, for
according to Senator Francisco, "(t) he Rules of Court clearly
provide that no motion shall be acted upon by the Court without
the proof of service of notice thereof, together with a copy of the
motion and other papers accompanying it, to all parties
concerned at least three days before the hearing thereof, stating
the time and place for the hearing of the motion. (Rule 26, section
4, 5 and 6, Rules of Court (now Sec. 15, new Rules). When the
motion does not comply with this requirement, it is not a motion.
It presents no question which the court could decide. And the
Court acquires no jurisdiction to consider it. (Roman Catholic
Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil
vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R. No.
7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic Bishop of
Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla,
42 Phil., 81.) (Francisco. The Revised Rules of Court in the
Philippines, pp. 861-862.) Thus, We see again, from a different
angle, why respondent court's order of dismissal of October 21,
1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is respondents'
position that certiorari is not the proper remedy of petitioners. It
is contended that inasmuch as said petitioners have in fact made
their appeal already by filing the required notice of appeal and
appeal bond and a motion for extension to file their record on
appeal, which motion was granted by respondent court, their
only recourse is to prosecute that appeal. Additionally, it is also
maintained that since petitioners have expressly withdrawn their
motion to quash of January 4, 1975 impugning the order of
October 28, 1974, they have lost their right to assail by certiorari
the actuations of respondent court now being questioned,
respondent court not having been given the opportunity to
correct any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion,
the proceedings in the court below have gone so far out of hand
that prompt action is needed to restore order in the entangled
situation created by the series of plainly illegal orders it had
issued. The essential purpose of certiorari is to keep the
proceedings in lower judicial courts and tribunals within legal
bounds, so that due process and the rule of law may prevail at all
times and arbitrariness, whimsicality and unfairness which
justice abhors may immediately be stamped out before graver
injury, juridical and otherwise, ensues. While generally these
objectives may well be attained in an ordinary appeal, it is
undoubtedly the better rule to allow the special remedy of
certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far
reaching in its consequences that the long and cumbersome
procedure of appeal will only further aggravate the situation of
the aggrieved party because other untoward actuations are likely
to materialize as natural consequences of those already
perpetrated. If the law were otherwise, certiorari would have no
reason at all for being.
No elaborate discussion is needed to show the urgent need for
corrective measures in the case at bar. Verily, this is one case that
calls for the exercise of the Supreme Court's inherent power of
supervision over all kinds of judicial actions of lower courts.
Private respondent's procedural technique designed to disable
petitioners to defend themselves against her claim which appears
on the face of the record itself to be at least highly controversial
seems to have so fascinated respondent court that none would be
surprised should her pending motion for immediate execution of
the impugned judgment receive similar ready sanction as her
previous motions which turned the proceedings into a one-sided
affair. The stakes here are high. Not only is the subject matter
considerably substantial; there is the more important aspect that
not only the spirit and intent of the rules but even the basic
rudiments of fair play have been disregarded. For the Court to
leave unrestrained the obvious tendency of the proceedings
below would be nothing short of wittingly condoning inequity
and injustice resulting from erroneous construction and
unwarranted application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the
decision here in question is legally anomalous. It is predicated on
two fatal malactuations of respondent court namely (1) the
dismissal of the complaint against the non-defaulted defendants
Lim and Leonardo and (2) the ex-parte reception of the evidence
of the plaintiff by the clerk of court, the subsequent using of the
same as basis for its judgment and the rendition of such
judgment.
For at least three reasons which We have already fully discussed
above, the order of dismissal of October 21, 1974 is unworthy of
Our sanction: (1) there was no timely notice of the motion
therefor to the non-defaulted defendants, aside from there being
no notice at all to herein petitioners; (2) the common answer of
the defendants, including the non-defaulted, contained a
compulsory counterclaim incapable of being determined in an
independent action; and (3) the immediate effect of such
dismissal was the removal of the two non-defaulted defendants
as parties, and inasmuch as they are both indispensable parties in
the case, the court consequently lost the" sine qua non of the
exercise of judicial power", per Borlasa vs. Polistico, supra. This is
not to mention anymore the irregular delegation to the clerk of
court of the function of receiving plaintiff's evidence. And as
regards the ex-parte reception of plaintiff's evidence and
subsequent rendition of the judgment by default based thereon,
We have seen that it was violative of the right of the petitioners,
under the applicable rules and principles on default, to a common
and single fate with their non-defaulted co-defendants. And We
are not yet referring, as We shall do this anon to the numerous
reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two
fundamental flaws in respondent court's actuations do not call
for a common corrective remedy. We cannot simply rule that all
the impugned proceedings are null and void and should be set
aside, without being faced with the insurmountable obstacle that
by so doing We would be reviewing the case as against the two
non-defaulted defendants who are not before Us not being
parties hereto. Upon the other hand, for Us to hold that the order
of dismissal should be allowed to stand, as contended by
respondents themselves who insist that the same is already final,
not only because the period for its finality has long passed but
also because allegedly, albeit not very accurately, said 'non-
defaulted defendants unsuccessfully tried to have it set aside by
the Court of Appeals whose decision on their petition is also
already final, We would have to disregard whatever evidence had
been presented by the plaintiff against them and, of course, the
findings of respondent court based thereon which, as the assailed
decision shows, are adverse to them. In other words, whichever
of the two apparent remedies the Court chooses, it would
necessarily entail some kind of possible juridical imperfection.
Speaking of their respective practical or pragmatic effects, to
annul the dismissal would inevitably prejudice the rights of the
non-defaulted defendants whom We have not heard and who
even respondents would not wish to have anything anymore to
do with the case. On the other hand, to include petitioners in the
dismissal would naturally set at naught every effort private
respondent has made to establish or prove her case thru means
sanctioned by respondent court. In short, We are confronted with
a legal para-dilemma. But one thing is certain this difficult
situations has been brought about by none other than private
respondent who has quite cynically resorted to procedural
maneuvers without realizing that the technicalities of the
adjective law, even when apparently accurate from the literal
point of view, cannot prevail over the imperatives of the
substantive law and of equity that always underlie them and
which have to be inevitably considered in the construction of the
pertinent procedural rules.
All things considered, after careful and mature deliberation, the
Court has arrived at the conclusion that as between the two
possible alternatives just stated, it would only be fair, equitable
and proper to uphold the position of petitioners. In other words,
We rule that the order of dismissal of October 21, 1974 is in law a
dismissal of the whole case of the plaintiff, including as to
petitioners herein. Consequently, all proceedings held by
respondent court subsequent thereto including and principally
its decision of December 20, 1974 are illegal and should be set
aside.
This conclusion is fully justified by the following considerations
of equity:
1. It is very clear to Us that the procedural maneuver resorted to
by private respondent in securing the decision in her favor was
ill-conceived. It was characterized by that which every principle
of law and equity disdains taking unfair advantage of the rules
of procedure in order to unduly deprive the other party of full
opportunity to defend his cause. The idea of "dropping" the non-
defaulted defendants with the end in view of completely
incapacitating their co-defendants from making any defense,
without considering that all of them are indispensable parties to
a common cause of action to which they have countered with a
common defense readily connotes an intent to secure a one-sided
decision, even improperly. And when, in this connection, the
obvious weakness of plaintiff's evidence is taken into account,
one easily understands why such tactics had to be availed of. We
cannot directly or indirectly give Our assent to the commission of
unfairness and inequity in the application of the rules of
procedure, particularly when the propriety of reliance thereon is
not beyond controversy.
2. The theories of remedial law pursued by private respondents,
although approved by His Honor, run counter to such basic
principles in the rules on default and such elementary rules on
dismissal of actions and notice of motions that no trial court
should be unaware of or should be mistaken in applying. We are
at a loss as to why His Honor failed to see through counsel's
inequitous strategy, when the provisions (1) on the three-day
rule on notice of motions, Section 4 of Rule 15, (2) against
dismissal of actions on motion of plaintiff when there is a
compulsory counterclaim, Section 2, Rule 17, (3) against
permitting the absence of indispensable parties, Section 7, Rule 3,
(4) on service of papers upon defendants in default when there
are substantial amendments to pleadings, Section 9, Rule 13, and
(5) on the unity and integrity of the fate of defendants in default
with those not in default where the cause of action against them
and their own defenses are common, Section 4, Rule 18, are so
plain and the jurisprudence declaratory of their intent and
proper construction are so readily comprehensible that any error
as to their application would be unusual in any competent trial
court.
3. After all, all the malactuations of respondent court are
traceable to the initiative of private respondent and/or her
counsel. She cannot, therefore, complain that she is being made to
unjustifiably suffer the consequences of what We have found to
be erroneous orders of respondent court. It is only fair that she
should not be allowed to benefit from her own frustrated
objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis
of its own recitals, the decision in question cannot stand close
scrutiny. What is more, the very considerations contained therein
reveal convincingly the inherent weakness of the cause of the
plaintiff. To be sure, We have been giving serious thought to the
idea of merely returning this case for a resumption of trial by
setting aside the order of dismissal of October 21, 1974, with all
its attendant difficulties on account of its adverse effects on
parties who have not been heard, but upon closer study of the
pleadings and the decision and other circumstances extant in the
record before Us, We are now persuaded that such a course of
action would only lead to more legal complications incident to
attempts on the part of the parties concerned to desperately
squeeze themselves out of a bad situation. Anyway, We feel
confident that by and large, there is enough basis here and now
for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would
immediately reveal that it is littered on its face with deficiencies
and imperfections which would have had no reason for being
were there less haste and more circumspection in rendering the
same. Recklessness in jumping to unwarranted conclusions, both
factual and legal, is at once evident in its findings relative
precisely to the main bases themselves of the reliefs granted. It is
apparent therein that no effort has been made to avoid glaring
inconsistencies. Where references are made to codal provisions
and jurisprudence, inaccuracy and inapplicability are at once
manifest. It hardly commends itself as a deliberate and
consciencious adjudication of a litigation which, considering the
substantial value of the subject matter it involves and the
unprecedented procedure that was followed by respondent's
counsel, calls for greater attention and skill than the general run
of cases would.
Inter alia, the following features of the decision make it highly
improbable that if We took another course of action, private
respondent would still be able to make out any case against
petitioners, not to speak of their co-defendants who have already
been exonerated by respondent herself thru her motion to
dismiss:
1. According to His Honor's own statement of plaintiff's case, "she
is the widow of the late Tee Hoon Po Chuan (Po Chuan, for short)
who was then one of the partners in the commercial partnership,
Glory Commercial Co. with defendants Antonio Lim Tanhu (Lim
Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for
short) as co-partners; that after the death of her husband on
March 11, 1966 she is entitled to share not only in the capital and
profits of the partnership but also in the other assets, both real
and personal, acquired by the partnership with funds of the latter
during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the
following effect: .
That the herein plaintiff Tan Put and her late
husband Po Chuan married at the Philippine
Independent Church of Cebu City on
December, 20, 1949; that Po Chuan died on
March 11, 1966; that the plaintiff and the late
Po Chuan were childless but the former has a
foster son Antonio Nuez whom she has
reared since his birth with whom she lives up
to the present; that prior to the marriage of
the plaintiff to Po Chuan the latter was already
managing the partnership Glory Commercial
Co. then engaged in a little business in
hardware at Manalili St., Cebu City; that prior
to and just after the marriage of the plaintiff to
Po Chuan she was engaged in the drugstore
business; that not long after her marriage,
upon the suggestion of Po Chuan the plaintiff
sold her drugstore for P125,000.00 which
amount she gave to her husband in the
presence of defendant Lim Tanhu and was
invested in the partnership Glory Commercial
Co. sometime in 1950; that after the
investment of the above-stated amount in the
partnership its business flourished and it
embarked in the import business and also
engaged in the wholesale and retail trade of
cement and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who
actively managed the business of the
partnership Glory Commercial Co. he was the
one who made the final decisions and
approved the appointments of new personnel
who were taken in by the partnership; that the
late Po Chuan and defendants Lim Tanhu and
Ng Sua are brothers, the latter two (2) being
the elder brothers of the former; that
defendants Lim Tanhu and Ng Sua are both
naturalized Filipino citizens whereas the late
Po Chuan until the time of his death was a
Chinese citizen; that the three (3) brothers
were partners in the Glory Commercial Co. but
Po Chuan was practically the owner of the
partnership having the controlling interest;
that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere
employees of Po Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is
not clear in the decision whether or not in making its findings of
fact the court took into account the allegations in the pleadings of
the parties and whatever might have transpired at the pre-trial.
All that We can gather in this respect is that references are made
therein to pre-trial exhibits and to Annex A of the answer of the
defendants to plaintiff's amended complaint. Indeed, it was
incumbent upon the court to consider not only the evidence
formally offered at the trial but also the admissions, expressed or
implied, in the pleadings, as well as whatever might have been
placed before it or brought to its attention during the pre-trial. In
this connection, it is to be regretted that none of the parties has
thought it proper to give Us an idea of what took place at the pre-
trial of the present case and what are contained in the pre-trial
order, if any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the
parties every opportunity to compromise or settle their
differences, is for the court to be apprised of the unsettled issues
between the parties and of their respective evidence relative
thereto, to the end that it may take corresponding measures that
would abbreviate the trial as much as possible and the judge may
be able to ascertain the facts with the least observance of
technical rules. In other words whatever is said or done by the
parties or their counsel at the pre- trial serves to put the judge on
notice of their respective basic positions, in order that in
appropriate cases he may, if necessary in the interest of justice
and a more accurate determination of the facts, make inquiries
about or require clarifications of matters taken up at the pre-trial,
before finally resolving any issue of fact or of law. In brief, the
pre-trial constitutes part and parcel of the proceedings, and
hence, matters dealt with therein may not be disregarded in the
process of decision making. Otherwise, the real essence of
compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent
court just quoted, it will be observed that the court's conclusion
about the supposed marriage of plaintiff to the deceased Tee
Hoon Lim Po Chuan is contrary to the weight of the evidence
brought before it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and wife
"shall be set forth in an instrument" signed by the parties as well
as by their witnesses and the person solemnizing the marriage.
Accordingly, the primary evidence of a marriage must be an
authentic copy of the marriage contract. While a marriage may
also be proved by other competent evidence, the absence of the
contract must first be satisfactorily explained. Surely, the
certification of the person who allegedly solemnized a marriage
is not admissible evidence of such marriage unless proof of loss
of the contract or of any other satisfactory reason for its non-
production is first presented to the court. In the case at bar, the
purported certification issued by a Mons. Jose M. Recoleto,
Bishop, Philippine Independent Church, Cebu City, is not,
therefore, competent evidence, there being absolutely no
showing as to unavailability of the marriage contract and, indeed,
as to the authenticity of the signature of said certifier, the jurat
allegedly signed by a second assistant provincial fiscal not being
authorized by law, since it is not part of the functions of his office.
Besides, inasmuch as the bishop did not testify, the same is
hearsay.
As regards the testimony of plaintiff herself on the same point
and that of her witness Antonio Nuez, there can be no question
that they are both self-serving and of very little evidentiary value,
it having been disclosed at the trial that plaintiff has already
assigned all her rights in this case to said Nuez, thereby making
him the real party in interest here and, therefore, naturally as
biased as herself. Besides, in the portion of the testimony of
Nuez copied in Annex C of petitioner's memorandum, it appears
admitted that he was born only on March 25, 1942, which means
that he was less than eight years old at the supposed time of the
alleged marriage. If for this reason alone, it is extremely doubtful
if he could have been sufficiently aware of such event as to be
competent to testify about it.
Incidentally, another Annex C of the same memorandum
purports to be the certificate of birth of one Antonio T. Uy
supposed to have been born on March 23, 1937 at Centro
Misamis, Misamis Occidental, the son of one Uy Bien, father, and
Tan Put, mother. Significantly, respondents have not made any
adverse comment on this document. It is more likely, therefore,
that the witness is really the son of plaintiff by her husband Uy
Kim Beng. But she testified she was childless. So which is which?
In any event, if on the strength of this document, Nuez is
actually the legitimate son of Tan Put and not her adopted son, he
would have been but 13 years old in 1949, the year of her alleged
marriage to Po Chuan, and even then, considering such age, his
testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had
before it, two documents of great weight belying the pretended
marriage. We refer to (1) Exhibit LL, the income tax return of the
deceased Tee Hoon Lim Po Chuan indicating that the name of his
wife was Ang Sick Tin and (2) the quitclaim, Annex A of the
answer, wherein plaintiff Tan Put stated that she had been living
with the deceased without benefit of marriage and that she was
his "common-law wife". Surely, these two documents are far
more reliable than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial
evidence. But it is evidence offered to the judge himself, not to the
clerk of court, and should have at least moved him to ask plaintiff
to explain if not rebut it before jumping to the conclusion
regarding her alleged marriage to the deceased, Po Chuan. And in
regard to the quitclaim containing the admission of a common-
law relationship only, it is to be observed that His Honor found
that "defendants Lim Tanhu and Ng Sua had the plaintiff execute
a quitclaim on November 29, 1967 (Annex "A", Answer) where
they gave plaintiff the amount of P25,000 as her share in the
capital and profits of the business of Glory Commercial Co. which
was engaged in the hardware business", without making mention
of any evidence of fraud and misrepresentation in its execution,
thereby indicating either that no evidence to prove that
allegation of the plaintiff had been presented by her or that
whatever evidence was actually offered did not produce
persuasion upon the court. Stated differently, since the existence
of the quitclaim has been duly established without any
circumstance to detract from its legal import, the court should
have held that plaintiff was bound by her admission therein that
she was the common-law wife only of Po Chuan and what is
more, that she had already renounced for valuable consideration
whatever claim she might have relative to the partnership Glory
Commercial Co.
And when it is borne in mind that in addition to all these
considerations, there are mentioned and discussed in the
memorandum of petitioners (1) the certification of the Local Civil
Registrar of Cebu City and (2) a similar certification of the
Apostolic Prefect of the Philippine Independent Church, Parish of
Sto. Nio, Cebu City, that their respective official records
corresponding to December 1949 to December 1950 do not show
any marriage between Tee Hoon Lim Po Chuan and Tan Put,
neither of which certifications have been impugned by
respondent until now, it stands to reason that plaintiff's claim of
marriage is really unfounded. Withal, there is still another
document, also mentioned and discussed in the same
memorandum and unimpugned by respondents, a written
agreement executed in Chinese, but purportedly translated into
English by the Chinese Consul of Cebu, between Tan Put and Tee
Hoon Lim Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA
Cebu City, Philippines
T R A N S L A T I O N
This is to certify that 1, Miss Tan Ki Eng Alias
Tan Put, have lived with Mr. Lim Po Chuan
alias TeeHoon since 1949 but it recently
occurs that we are incompatible with each
other and are not in the position to keep living
together permanently. With the mutual
concurrence, we decided to terminate the
existing relationship of common law-marriage
and promised not to interfere each other's
affairs from now on. The Forty Thousand
Pesos (P40,000.00) has been given to me by
Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the
54th year of the Republic of China
(corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp.
283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation
to the deceased was that of a common-law wife but that they had
settled their property interests with the payment to her of
P40,000.
In the light of all these circumstances, We find no alternative but
to hold that plaintiff Tan Put's allegation that she is the widow of
Tee Hoon Lim Po Chuan has not been satisfactorily established
and that, on the contrary, the evidence on record convincingly
shows that her relation with said deceased was that of a
common-law wife and furthermore, that all her claims against the
company and its surviving partners as well as those against the
estate of the deceased have already been settled and paid. We
take judicial notice of the fact that the respective counsel who
assisted the parties in the quitclaim, Attys. H. Hermosisima and
Natalio Castillo, are members in good standing of the Philippine
Bar, with the particularity that the latter has been a member of
the Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they had
allowed themselves to be parties to a fraudulent document His
Honor did right in recognizing its existence, albeit erring in not
giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as
legitimate wife of Po Chuan is not only unconvincing but has been
actually overcome by the more competent and weighty evidence
in favor of the defendants, her attempt to substantiate her main
cause of action that defendants Lim Tanhu and Ng Sua have
defrauded the partnership Glory Commercial Co. and converted
its properties to themselves is even more dismal. From the very
evidence summarized by His Honor in the decision in question, it
is clear that not an iota of reliable proof exists of such alleged
misdeeds.
Of course, the existence of the partnership has not been denied, it
is actually admitted impliedly in defendants' affirmative defense
that Po Chuan's share had already been duly settled with and
paid to both the plaintiff and his legitimate family. But the
evidence as to the actual participation of the defendants Lim
Tanhu and Ng Sua in the operation of the business that could
have enabled them to make the extractions of funds alleged by
plaintiff is at best confusing and at certain points manifestly
inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as
widow of Po Chuan she is entitled to /
3
share of the assets and
properties of the partnership. In fact, her prayer in said
complaint is, among others, for the delivery to her of such
/
3
share. His Honor's statement of the case as well as his
findings and judgment are all to that same effect. But what did
she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had
money of her own when she "married" Po Chuan and "that prior
to and just after the marriage of the plaintiff to Po Chuan, she was
engaged in the drugstore business; that not long after her
marriage, upon the suggestion of Po Chuan, the plaintiff sold her
drugstore for P125,000 which amount she gave to her husband in
the presence of Tanhu and was invested in the partnership Glory
Commercial Co. sometime in 1950; that after the investment of
the above-stated amount in the partnership, its business
flourished and it embarked in the import business and also
engaged in the wholesale and retail trade of cement and GI sheets
and under (sic) huge profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000
to the capital of the partnership by reason of which the business
flourished and amassed all the millions referred to in the decision
has not been alleged in the complaint, and inasmuch as what was
being rendered was a judgment by default, such theory should
not have been allowed to be the subject of any evidence. But
inasmuch as it was the clerk of court who received the evidence,
it is understandable that he failed to observe the rule. Then, on
the other hand, if it was her capital that made the partnership
flourish, why would she claim to be entitled to only to /
3
of its
assets and profits? Under her theory found proven by respondent
court, she was actually the owner of everything, particularly
because His Honor also found "that defendants Lim Tanhu and
Ng Sua were partners in the name but they were employees of Po
Chuan that defendants Lim Tanhu and Ng Sua had no means of
livelihood at the time of their employment with the Glory
Commercial Co. under the management of the late Po Chuan
except their salaries therefrom; ..." (p. 27, id.) Why then does she
claim only /
3
share? Is this an indication of her generosity
towards defendants or of a concocted cause of action existing
only in her confused imagination engendered by the death of her
common-law husband with whom she had settled her common-
law claim for recompense of her services as common law wife for
less than what she must have known would go to his legitimate
wife and children?
Actually, as may be noted from the decision itself, the trial court
was confused as to the participation of defendants Lim Tanhu
and Ng Sua in Glory Commercial Co. At one point, they were
deemed partners, at another point mere employees and then
elsewhere as partners-employees, a newly found concept, to be
sure, in the law on partnership. And the confusion is worse
comfounded in the judgment which allows these "partners in
name" and "partners-employees" or employees who had no
means of livelihood and who must not have contributed any
capital in the business, "as Po Chuan was practically the owner of
the partnership having the controlling interest", /
3
each of the
huge assets and profits of the partnership. Incidentally, it may be
observed at this juncture that the decision has made Po Chuan
play the inconsistent role of being "practically the owner" but at
the same time getting his capital from the P125,000 given to him
by plaintiff and from which capital the business allegedly
"flourished."
Anent the allegation of plaintiff that the properties shown by her
exhibits to be in the names of defendants Lim Tanhu and Ng Sua
were bought by them with partnership funds, His Honor
confirmed the same by finding and holding that "it is likewise
clear that real properties together with the improvements in the
names of defendants Lim Tanhu and Ng Sua were acquired with
partnership funds as these defendants were only partners-
employees of deceased Po Chuan in the Glory Commercial Co.
until the time of his death on March 11, 1966." (p. 30, id.) It Is Our
considered view, however, that this conclusion of His Honor is
based on nothing but pure unwarranted conjecture. Nowhere is it
shown in the decision how said defendants could have extracted
money from the partnership in the fraudulent and illegal manner
pretended by plaintiff. Neither in the testimony of Nuez nor in
that of plaintiff, as these are summarized in the decision, can
there be found any single act of extraction of partnership funds
committed by any of said defendants. That the partnership might
have grown into a multi-million enterprise and that the
properties described in the exhibits enumerated in the decision
are not in the names of Po Chuan, who was Chinese, but of the
defendants who are Filipinos, do not necessarily prove that Po
Chuan had not gotten his share of the profits of the business or
that the properties in the names of the defendants were bought
with money of the partnership. In this connection, it is decisively
important to consider that on the basis of the concordant and
mutually cumulative testimonies of plaintiff and Nuez,
respondent court found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who
actively managed the business of the
partnership Glory Commercial Co. he was the
one who made the final decisions and
approved the appointments of new Personnel
who were taken in by the partnership; that the
late Po Chuan and defendants Lim Tanhu and
Ng Sua are brothers, the latter to (2) being the
elder brothers of the former; that defendants
Lim Tanhu and Ng Sua are both naturalized
Filipino citizens whereas the late Po Chuan
until the time of his death was a Chinese
citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the
partnership having the controlling interest;
that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere
employees of Po Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the
partnership, how could the defendants have defrauded him of
such huge amounts as plaintiff had made his Honor believe? Upon
the other hand, since Po Chuan was in control of the affairs of the
partnership, the more logical inference is that if defendants had
obtained any portion of the funds of the partnership for
themselves, it must have been with the knowledge and consent of
Po Chuan, for which reason no accounting could be demanded
from them therefor, considering that Article 1807 of the Civil
Code refers only to what is taken by a partner without the
consent of the other partner or partners. Incidentally again, this
theory about Po Chuan having been actively managing the
partnership up to his death is a substantial deviation from the
allegation in the amended complaint to the effect that
"defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim
Teck Chuan and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Co., defendants managed to use the
funds of the partnership to purchase lands and buildings etc.
(Par. 4, p. 2 of amended complaint, Annex B of petition) and
should not have been permitted to be proven by the hearing
officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax
declarations and land titles listed in the decision, most if not all of
the properties supposed to have been acquired by the defendants
Lim Tanhu and Ng Sua with funds of the partnership appear to
have been transferred to their names only in 1969 or later, that
is, long after the partnership had been automatically dissolved as
a result of the death of Po Chuan. Accordingly, defendants have
no obligation to account to anyone for such acquisitions in the
absence of clear proof that they had violated the trust of Po
Chuan during the existence of the partnership. (See Hanlon vs.
Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor
to readily disbelieve plaintiffs' pretensions. Nuez testified that
"for about 18 years he was in charge of the GI sheets and
sometimes attended to the imported items of the business of
Glory Commercial Co." Counting 18 years back from 1965 or
1966 would take Us to 1947 or 1948. Since according to Exhibit
LL, the baptismal certificate produced by the same witness as his
birth certificate, shows he was born in March, 1942, how could he
have started managing Glory Commercial Co. in 1949 when he
must have been barely six or seven years old? It should not have
escaped His Honor's attention that the photographs showing the
premises of Philippine Metal Industries after its organization "a
year or two after the establishment of Cebu Can Factory in 1957
or 1958" must have been taken after 1959. How could Nuez
have been only 13 years old then as claimed by him to have been
his age in those photographs when according to his "birth
certificate", he was born in 1942? His Honor should not have
overlooked that according to the same witness, defendant Ng Sua
was living in Bantayan until he was directed to return to Cebu
after the fishing business thereat floundered, whereas all that the
witness knew about defendant Lim Teck Chuan's arrival from
Hongkong and the expenditure of partnership money for him
were only told to him allegedly by Po Chuan, which testimonies
are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck
Chuan. Neither should His Honor have failed to note that
according to plaintiff herself, "Lim Tanhu was employed by her
husband although he did not go there always being a mere
employee of Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua
had no known income except their salaries. Actually, it is not
stated, however, from what evidence such conclusion was
derived in so far as Ng Sua is concerned. On the other hand, with
respect to Lim Tanhu, the decision itself states that according to
Exhibit NN-Pre trial, in the supposed income tax return of Lim
Tanhu for 1964, he had an income of P4,800 as salary from
Philippine Metal Industries alone and had a total assess sable net
income of P23,920.77 that year for which he paid a tax of
P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-Pretrial in the
year, he had a net income of P32,000 for which be paid a tax of
P3,512.40. (id.) As early as 1962, "his fishing business in
Madridejos Cebu was making money, and he reported "a net gain
from operation (in) the amount of P865.64" (id., per Exhibit VV-
Pre-trial.) From what then did his Honor gather the conclusion
that all the properties registered in his name have come from
funds malversed from the partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co. without the aid of
any accountant or without the same being explained by any
witness who had prepared them or who has knowledge of the
entries therein. This must be the reason why there are apparent
inconsistencies and inaccuracies in the conclusions His Honor
made out of them. In Exhibit SS-Pre-trial, the reported total
assets of the company amounted to P2,328,460.27 as of
December, 1965, and yet, Exhibit TT-Pre-trial, according to His
Honor, showed that the total value of goods available as of the
same date was P11,166,327.62. On the other hand, per Exhibit
XX-Pre-trial, the supposed balance sheet of the company for
1966, "the value of inventoried merchandise, both local and
imported", as found by His Honor, was P584,034.38. Again, as of
December 31, 1966, the value of the company's goods available
for sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then,
per Exhibit II-3-Pre-trial, the supposed Book of Account,
whatever that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation that
His Honor, unless he is a certified public accountant, was hardly
qualified to read such exhibits and draw any definite conclusions
therefrom, without risk of erring and committing an injustice. In
any event, there is no comprehensible explanation in the decision
of the conclusion of His Honor that there were P12,223,182.55
cash money defendants have to account for, particularly when it
can be very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6-
Pre-trial, Glory Commercial Co. had accounts payable as of
December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.)
Under the circumstances, We are not prepared to permit anyone
to predicate any claim or right from respondent court's unaided
exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding
regarding the allegation in the amended complaint that a
corporation denominated Glory Commercial Co., Inc. was
organized after the death of Po Chuan with capital from the funds
of the partnership. We note also that there is absolutely no
finding made as to how the defendants Dy Ochay and Co Oyo
could in any way be accountable to plaintiff, just because they
happen to be the wives of Lim Tanhu and Ng Sua, respectively.
We further note that while His Honor has ordered defendants to
deliver or pay jointly and severally to the plaintiff P4,074,394.18
or /
3
of the P12,223,182.55, the supposed cash belonging to the
partnership as of December 31, 1965, in the same breath, they
have also been sentenced to partition and give /
3
share of the
properties enumerated in the dispositive portion of the decision,
which seemingly are the very properties allegedly purchased
from the funds of the partnership which would naturally include
the P12,223,182.55 defendants have to account for. Besides,
assuming there has not yet been any liquidation of the
partnership, contrary to the allegation of the defendants, then
Glory Commercial Co. would have the status of a partnership in
liquidation and the only right plaintiff could have would be to
what might result after such liquidation to belong to the deceased
partner, and before this is finished, it is impossible to determine,
what rights or interests, if any, the deceased had (Bearneza vs.
Dequilla 43 Phil. 237). In other words, no specific amounts or
properties may be adjudicated to the heir or legal representative
of the deceased partner without the liquidation being first
terminated.
Indeed, only time and the fear that this decision would be much
more extended than it is already prevent us from further pointing
out the inexplicable deficiencies and imperfections of the
decision in question. After all, what have been discussed should
be more than sufficient to support Our conclusion that not only
must said decision be set aside but also that the action of the
plaintiff must be totally dismissed, and, were it not seemingly
futile and productive of other legal complications, that plaintiff is
liable on defendants' counterclaims. Resolution of the other
issues raised by the parties albeit important and perhaps pivotal
has likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All
proceedings held in respondent court in its Civil Case No. 12328
subsequent to the order of dismissal of October 21, 1974 are
hereby annulled and set aside, particularly the ex-
parte proceedings against petitioners and the decision on
December 20, 1974. Respondent court is hereby ordered to enter
an order extending the effects of its order of dismissal of the
action dated October 21, 1974 to herein petitioners Antonio Lim
Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And
respondent court is hereby permanently enjoined from taking
any further action in said civil case gave and except as herein
indicated. Costs against private respondent.

G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.
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.
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.'
The argument is not well-taken.
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.
It is Article 1842 of the Civil Code in conjunction with Articles
1144 and 1155 which is applicable. Article 1842 states:
The right to an account of his interest shall
accrue to any partner, or his legal
representative as against the winding up
partners or the surviving partners or the
person or partnership continuing the business,
at the date of dissolution, in the absence or any
agreement to the contrary.
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807, and
1809 show that the right to demand an accounting exists as long
as the partnership exists. Prescription begins to run only upon
the dissolution of the partnership when the final accounting is
done.
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.
Mrs. Licup stated:
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.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or
confer together?
A Yes, count it all. I total it. We sum it up.
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.
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.
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.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65,
November 15, 1978). (Rollo, pp. 127-128)
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:
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.
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.
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)
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 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.
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:
Art. 1831. On application by or for a partner
the court shall decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct
as tends to affect prejudicially the carrying on
of the business;
(4) A partner willfully or persistently commits
a breach of the partnership agreement, or
otherwise so conducts himself in matters
relating to the partnership business that it is
not reasonably practicable to carry on the
business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution
equitable.
There shall be a liquidation and winding up of partnership affairs,
return of capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.
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.

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 Thousand Pesos
(P200,000.00) as moral damages;
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,
8
arguing
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
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.
33
Moreover, 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)
winding-up; and (3) termination.
36
The partnership, although
dissolved, continues to exist and its legal personality is retained,
at which time it completes the winding up of its affairs, including
the partitioning and distribution of the net partnership assets to
the partners.
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:
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.
Costs against petitioner.
SO ORDERED.

G.R. No. L-6304 December 29, 1953
SERGIO V. SISON, plaintiff-appellant,
vs.
HELEN J. MCQUAID, defendant-appellee.
Manansala and Manansala for appellant.
J.C. Orendain for appllee.

REYES, J.:
On March 28, 1951, plaintiff brought an action in the Court of
First Instance of Manila against defendant, alleging that during
the year 1938 the latter borrowed from him various sums of
money, aggregating P2,210, to enable her to pay her obligation to
the Bureau of Forestry and to add to her capital in her lumber
business, receipt of the amounts advanced being acknowledged
in a document, Exhibit A, executed by her on November 10, 1938
and attached to the complaint; that as defendant was not able to
pay the loan in 1938, as she had promised, she proposed to take
in plaintiff as a partner in her lumber business, plaintiff to
contribute to the partnership the said sum of P2,210 due him
from defendant in addition to his personal services; that plaintiff
agreed to defendant's proposal and, as a result, there was formed
between them, under the provisions of the Civil Code, a
partnership in which they were to share alike in the income or
profits of the business, each to get one-half thereof; that in
accordance with said contract, plaintiff, together with defendant,
rendered services to the partnership without compensation from
June 15, 1938 to December, 1941; that before the last World War,
the partnership sold to the United States Army 230,000 board
feet of lumber for P13,800, for the collection of which sum
defendant, as manager of the partnership, filed the corresponding
claim with the said army after the war; that the claim was
"finally" approved and the full amount paid the complaint does
not say when but defendant has persistently refused to deliver
one-half of it, or P6,900, to plaintiff notwithstanding repeated
demands, investing the whole sum of P13,800 for her own
benefit. Plaintiff, therefore, prays for judgment declaring the
existence of the alleged partnership and requiring the defendant
to pay him the said sum of P6,900, in addition to damages and
costs.
Notified of the action, defendant filed a motion to dismiss on the
grounds that plaintiff's action had already prescribed, that
plaintiff's claim was not provable under the Statute of Frauds,
and that the complaint stated no cause of action. Sustaining the
first ground, the court dismissed the case, whereupon, plaintiff
appealed to the Court of Appeals; but that court has certified the
case here on the ground that the appeal involved only questions
of law.
It is not clear from the allegations of the complaint just when
plaintiff's cause of action accrued. Consequently, it cannot be
determined with certainty whether that action has already
prescribed or not. Such being the case, the defense of
prescription can not be sustained on a mere motion to dismiss
based on what appears on the face of the complaint.
But though the reason given for the order of dismissal be
untenable, we find that the said order should be upheld on the
ground that the complaint states no cause of action, which is also
one of the grounds on which defendant's motion to dismiss was
based. Plaintiff seeks to recover from defendant one-half of the
purchase price of lumber sold by the partnership to the United
States Army. But his complaint does not show why he should be
entitled to the sum he claims. It does not allege that there has
been a liquidation of the partnership business and the said sum
has been found to be due him as his share of the profits. The
proceeds from the sale of a certain amount of lumber cannot be
considered profits until costs and expenses have been deducted.
Moreover, the profits of the business cannot be determined by
taking into account the result of one particular transaction
instead of all the transactions had. Hence, the need for a general
liquidation before a member of a partnership may claim a specific
sum as his share of the profits.
In view of the foregoing, the order of dismissal is affirmed, but on
the ground that the complaint states no cause of action and
without prejudice to the filing of an action for accounting or
liquidation should that be what plaintiff really wants. Without
costs in this instance.

[G.R. No. 47825. July 16, 1943.]

JOSE ORNUM and EMERENCIANA ORNUM, Petitioners, v.
MARIANO LASALA ET AL.,Respondents.

Marcelino Lontok, for Petitioners.

Duran, Lim & Bausa and Augusto Francisco for Respondents.

SYLLABUS
1. PARTNERSHIP; ACCOUNTS AND ACCOUNTING; WHEN
STATEMENT OF ACCOUNTS IS DEEMED APPROVED. Held:
That the last and final statement of accounts quoted in the
decision had been approved by the respondents. This approval
resulted, by virtue of the letter of Father Mariano Lasala of July
19, 1932, from the failure of the respondents to object to the
statement and from their promise to sign the same as soon as
they received their shares as shown in said statement. After such
shares had been paid by the petitioners and accepted by the
respondents without any reservation, the approval of the
statement of accounts was virtually confirmed and its signing
thereby became a mere formality to be complied with by the
respondents exclusively. Their refusal to sign, after receiving
their shares, amounted to a waiver of that formality in favor of
the petitioners who had already performed their obligation.

2. ID.; ID.; ID.; APPROVAL OF STATEMENT OF ACCOUNTS
PRECLUDES RIGHT TO FURTHER LIQUIDATION. This
approval precludes any right on the part of the respondents to a
further liquidation, unless the latter can show that there was
fraud, deceit, error or mistake in said approval. The Court of
Appeals did not make any finding that there was fraud, and on
the matter of error or mistake, its pronouncement that the
evidence tends to prove that there were mistakes in the
petitioners statements of accounts, without specifying the
mistakes, merely intimates, in the opinion of this court, a
suspicion and is not such a positive and unmistakable finding of
fact as to justify a revision, especially because the Court of
Appeals has relied on the bare allegations of the parties. Even
admitting that, as alleged by the petitioners in the counterclaim,
they overpaid the respondents in the sum of P575.12, this error
is essentially fatal to the latters theory that they are entitled to
more than what the statement of accounts shows, and is
therefore not the kind of error that calls for another accounting
which will serve the purpose of the respondents suit. Moreover,
as the petitioners did not appeal from the decision of the Court of
First Instance of Manila, they have abandoned such allegation in
the Court of Appeals.


D E C I S I O N


PARAS, J.:


The following facts are practically admitted in the pleadings and
briefs of the parties: The respondents (plaintiffs below) are
natives of Taal, Batangas, and resided therein or in Manila. The
petitioners (defendants below) are also natives of Taal, but
resided in the barrio of Tan-agan, municipality of Tablas,
Province of Romblon. In 1908 Pedro Lasala, father of the
respondents, and Emerenciano Ornum formed a partnership,
whereby the former, as capitalist, delivered the sum of P1,000 to
the latter who, as industrial partner, was to conduct a business at
his place of residence in Romblon. In 1912, when the assets of the
partnership consisted of outstanding accounts and old stock of
merchandise, Emerenciano Ornum, following the wishes of his
wife, asked for the dissolution of the partnership. At the instance
of Pedro Lasala, Emerenciano Ornum looked for some one who
could take his place and he suggested the names of the
petitioners who accordingly became the new partners. Upon
joining the business, the petitioners contributed P505.54 as their
capital, with the result that in the new partnership Pedro Lasala
had a capital of P1,000, appraised value of the assets of the
former partnership, plus the said P505.54 invested by the
petitioners who, as industrial partners, were to run the business
in Romblon. After the death of Pedro Lasala, his children (the
respondents) succeeded to all his rights and interest in the
partnership. The partners never knew each other personally. No
formal partnership agreement was ever executed. The
petitioners, as managing partners, were to receive one-half of the
net gains, and the other half was to be divided between them and
the Lasala group in proportion to the capital put in by each group.
During the course of the business, profits were declared and
divided, but the partners were given the election, as evidenced by
the statements of accounts referred to in the decision of the Court
of Appeals, to invest their respective shares in such profits as
additional capital. The petitioners accordingly let a greater part
of their profits as additional investment in the partnership. After
twenty years the business had grown to such an extent that its
total value, including profits, amounted to P44,618.67.
Statements of accounts were periodically prepared by the
petitioners and sent to the respondents who invariably did not
make any objection thereto. Before the last statement of accounts
was made, the respondents had received P5,387.29 by way of
profits. The last and final statement of accounts, dated May 27,
1932, and prepared by the petitioners after the respondents had
announced their desire to dissolve the partnership, reads as
follows:


Ganancia total desde el ultimo balance hasta

la fecha P575.45

"Participacion del capital de los her-

manos Lasala en la ganancia P55.39

"Participacion del capital de Jose

Ornum enla ganancia 125.79

"Participacion de Jose Ornum como

socio industrial 143.86

"Participacion del capital de Emeren-

ciana Ornum en la ganancia 106.54

"Participacion de Emerenciana Or-

num como socia industrial 143.86.

"Siendo este el balance final lo siguiente es la cantidad que debe
corresponder a cada socio:jgc:chanrobles.com.ph

"Capital de los hermanos

Lasala segun el ultimo

balance P4,393.08

"Ganancia de este capital 55.39 P4,448.47

"Pero se debe deducir la

cantidad tomada por los

hermanos Lasala 1,730.00

"Cantidad neta que debe

corresponder a los her-

manos Lasala P2,718.47

"Capital de Jose Ornum

segun el ultimo balance P9,975.13

"Ganancia de este capital 125.79

"Participacion de Jose

Ornum como socio industrial 143.86 P10,244.65

"Pero se debe deducir la

cantidad tomada por

Jose Ornum 1,650.00

"Cantidad neta que debe

corresponder a Jose Ornum P8,594.65

"Capital de Emerenciana

Ornum segun el ultimo

balance P8,448.00

"Ganancia de este capital 106.54

"Participacion de Eme-

renciana Ornum como

socia industrial 143.86 P8,698.40

"Pero se debe deducir la

cantidad tomada por

Emerenciana Ornum 1,850.90

"Cantidad neta que debe

corresponder a Emeren-

ciana Ornum P6,848.40"


After the receipt of the foregoing statement of accounts, Father
Mariano Lasala spokesman for the respondents, wrote the
following letter to the petitioners on July 19, 1932:

"Ya te manifestamos francamente aqui, como consocio, y te
autorizamos tambien para que lo repitas a tu hermana Mering,
viuda, que el motivo porque recogemos el capital y utilidades de
nuestra sociedad en todo nuestro negocio que esta al cuidado
vosotros dos, es que tenemos un grande compromiso que casi no
podemos evitarlo. Por esto volvemos a rogarles que por cualquier
medio antes de terminar este mes de julio, 1932, nosotros
esperamos vuestra consideracion. Gracias.

"En cuanto hayamos recibido esto, entonces firmaremos el
balance que habeis hecho alli, cuya copia has dejado aqui.

"Recuerdos a todos alli y mandar."cralaw virtua1aw library

Pursuant to the request contained in this letter, the petitioners
remitted and paid to the respondents the total amount
corresponding to them under the abovequoted statement of
accounts which, however, was not signed by the latter. Thereafter
the complaint in this case was filed by the respondents, praying
for an accounting and final liquidation of the assets of the
partnership. The Court of First Instance of Manila held that the
last and final statement of accounts prepared by the petitioners
was tacitly approved and accepted by the respondents who, by
virtue of the above-quoted letter of Father Mariano Lasala, lost
their right to a further accounting from the moment they
received and accepted their shares as itemized in said statement.
This judgment was reversed by the Court of Appeals principally
on the ground that, as the final statement of accounts remains
unsigned by the respondents, the same stands disapproved. The
decision appealed by the petitioners thus
said:jgc:chanrobles.com.ph

"To support a plea of a stated account so as to conclude the
parties in relation to all dealings between them, the accounting
must be shown to have been final. (1 Cyc. 366.) All the first nine
statements which the defendants sent the plaintiffs were partial
settlements, while the last, although intended to be final, has not
been signed."cralaw virtua1aw library

We hold that the last and final statement of accounts hereinabove
quoted, had been approved by the respondents. This approval
resulted, by virtue of the letter of Father Mariano Lasala of July
19, 1932, quoted in part in the appealed decision, from the failure
of the respondents to object to the statement and from their
promise to sign the same as soon as they received their shares as
shown in said statement. After such shares had been paid by the
petitioners and accepted by the respondents without any
reservation, the approval of the statement of accounts was
virtually confirmed and its signing thereby became a mere
formality to be complied with by the respondents exclusively.
Their refusal to sign, after receiving their shares, amounted to a
waiver of that formality in favor of the petitioners who had
already performed their obligation.

This approval precludes any right on the part of the respondents
to a further liquidation, unless the latter can show that there was
fraud, deceit, error or mistake in said approval. (Pastor v. Nicasio,
6 Phil., 152; Aldecoa & Co., v. Warner, Barnes & Co., 16 Phil., 423;
Gonzalez v. Harty, 32 Phil., 328.) The Court of Appeals did not
make any finding that there was fraud, and on the matter of error
or mistake it merely said:

"The question then is, have mistakes been committed in the
statements sent appellants? Not only do plaintiffs so allege, and
not only does the evidence so tend to prove, but the charge is
seconded by the defendants themselves when in their
counterclaims they said:

"(a) Que recientemente se ha hecho una acabada revision de las
cuentas y libros del negocio, y, se ha descubierto que los
demandados cometieron un error al hacer las entregas de las
varias cantidades en efectivo a los demandantes, entregando en
total mayor cantidades a la que tenian derecho estos por su
participacion y ganancias en dicho negocio;

"(b) Que el exceso entregado a los demandantes, asciende a la
suma de quinientos setenta y cinco pesos con doce centimos
(P575.12), y que los demandados reclaman ahora de aquellos su
devolucion o pago en la presente contrademanda;"

In our opinion, the pronouncement that the evidence tends to
prove that there were mistakes in the petitioners statements of
accounts, without specifying the mistakes, merely intimates a
suspicion and is not such a positive and unmistakable finding of
fact (Cf. Concepcion v. People, G. R. No. 48169, promulgated
December 28, 1942) as to justify a revision, especially because
the Court of Appeals has relied on the bare allegations of the
parties. Even admitting that, as alleged by the petitioners in their
counterclaim, they overpaid the respondents in the sum of
P575.12, this error is essentially fatal to the latters theory that
they are entitled to more than what the statement of accounts
shows, and is therefore not the kind of error that calls for another
accounting which will serve the purpose of the respondents suit.
Moreover, as the petitioners did not appeal from the decision of
the Court of First Instance of Manila, they have abandoned such
allegation in the Court of Appeals.

If the liquidation is ordered in the absence of any particular error,
found as a fact, simply because no damage will be suffered by the
petitioners in case the latters final statement of accounts proves
to be correct, we shall be assuming a fundamentally inconsistent
position. If there is no mistake, the only reason for a new
accounting disappears. The petitioners may not be prejudiced in
the sense that they will be required to pay anything to the
respondents, but they will have to go to the trouble of itemizing
accounts covering a period of twenty years mostly from memory,
it appearing that no regular books of accounts were kept. Stated
more emphatically, they will be told to do what seems to be
hardly possible. When it is borne in mind that this case has been
pending for nearly nine years and that, if another accounting is
ordered, a costly action or proceeding may arise which may not
be disposed of within a similar period, it is not improbable that
the intended relief may in fact be the respondents funeral.

We are reversing the appealed decision on the legal ground that
the petitioners final statement of accounts had been approved by
the respondents and no justifiable reason (fraud, deceit, error or
mistake) has been positively and unmistakably found by the
Court of Appeals so as to warrant the liquidation sought by the
respondents. In justice to the petitioners, however, we may add
that, considering that they ran the business of the partnership for
about twenty years at a place far from the residence of the
respondents and without the latters intervention; that the
partners did not even know each other personally; that no formal
partnership agreement was entered into which bound the
petitioners under specific conditions; that the petitioners could
have easily and freely alleged that the business became a partial,
or even a total, loss for any plausible reason which they could
have concocted, it appearing that the partnership engaged in
such uncertain ventures as agriculture, cattle raising, and
operation of rice mill, and the petitioners did not keep any
regular books of accounts; that the petitioners were still frank
enough to disclose that the original capital of P1,505.54
amounted, as of the date of the dissolution of the partnership, to
P44,618.67, and that the respondents had received a total of
P8,105.76 out of their capital of P1,000, without any effort on
their part, we are reluctant even to make the conjecture that the
petitioners had ever intended to, or actually did, take undue
advantage of the absence and confidence of the respondents.
Indeed, we feel justified in stating that the petitioners have here
given a remarkable demonstration of the legendary honesty,
good faith and industry with which the natives of Taal pursue
business arrangements similar to the partnership in question,
and we would hate, in the absence of any sufficient reason, to let
such a beautiful legend have a distasteful ending.

The appealed decision is hereby reversed and the petitioners
(defendants below) absolved from the complaint of the
respondents (plaintiffs below), with costs against the latter.