V. DISSOLUTION, WINDING UP AND TERMINATION (Arts.

1828-31)
Concept and Definition
Cases:
G.R. No. 110782 September 25, 1998
IRMA IDOS, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her
accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the
complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to the
accused-appellant Irma L. Idos for use in the latter's business of
manufacturing leather. In 1985, he joined the accused-appellant's
business and formed with her a partnership under the style "Tagumpay
Manufacturing," with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties
agreed to terminate their partnership. Upon liquidation of the business the
partnership had as of May 1986 receivables and stocks worth
P1,800,000.00. The complainant's share of the assets was P900,000.00 to
pay for which the accused-appellant issued the following postdated
checks, all drawn against Metrobank Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01

The complainant was able to encash the first, second, and fourth checks,
but the third check (Exh. A) which is the subject of this case, was
dishonored on October 14, 1986 for insufficiency of funds. The
complainant demanded payment from the accused-appellant but the latter
failed to pay. Accordingly, on December 18, 1986, through counsel, he
made a formal demand for payment. (Exh. B) In a letter dated January 2,
1987, the accused-appellant denied liability. She claimed that the check
had been given upon demand of complainant in May 1986 only as
"assurance" of his share in the assets of the partnership and that it was
not supposed to be deposited until the stocks had been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal
of Bulacan which on August 22, 1988 filed an information for violation of
BP Blg. 22 against accused-appellant.
Complainant danied that the checks issued to him by accused-appellant
were subject to the disposition of the stocks and the collection of
receivables of the business. But the accused-appellant insisted that the
complainant had known that the checks were to be funded from the
proceeds of the sale of the stocks and the collection of receivables. She
claimed that the complainant himself asked for the checks because he did
not want to continue in the tannery business and had no use for a share of
the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp.
12, 16, 20, Feb. 14, 1990; id, p. 14, June 4, 1990).
On February 15, 1992, the trial court rendered judgment finding the
accused-appellant guilty of the crime charged. The accused-appellant's
motion for annulment of the decision and for reconsideration was denied
by the trial court in its order dated April 12, 1991. 6
Herein respondent court thereafter affirmed on appeal the decision of the trial court.
Petitioner timely moved for a reconsideration, but this was subsequently denied by
respondent court in its Resolution 7 dated June 11, 1993. Petitioner has now appealed to
us by way of a petition for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolutions 8 dated August 30, 1993,
took note of the compromise agreement executed between the parties, regarding the
civil aspect of the case, as manifested by petitioner in a Motion to Render Judgment
based on Compromise Agreement 9 filed on August 5, 1993. After submission of the
Comment 10 by the Solicitor General, and the Reply 11 by petitioner, this case was
deemed submitted for decision.

Contending that the Court of Appeals erred in its affirmance of the trial court's decision,
petitioner cites the following reasons to justify the review of her case:
1. The Honorable Court of Appeals has decided against the
innocence of the accused based on mere probabilities
which, on the contrary, should have warranted her acquittal
on reasonable doubt. Even then, the conclusion of the trial
court is contrary to the evidence on record, including private
complainant's judicial admission that there was no
consideration for the check.
2 The Honorable Court of Appeals has confused and merged
into one the legal concepts of dissolution, liquidation and
termination of a partnership and on the basis of such
misconception of the law, disregarded the fact of absence of
consideration of the check and convicted the accused.
3 While this appeal was pending, the parties submitted for
the approval of the Honorable Court a compromise
agreement on the civil liability. The accused humbly submits
that this supervening event, which by its terms puts to rest
any doubt the Court of Appeals had entertained against the
defense of lack of consideration, should have a legal effect
favorable to the accused, considering that the dishonored
check constitutes a private transaction between partners
which does not involve the public interest, and considering
further that the offense is not one involving moral turpitude.
4 The Honorable Court of Appeals failed to appreciate the
fact that the accused had warned private complainant that
the check was not sufficiently funded, which should have
exonerated the accused pursuant to the ruling in the recent
case of Magno vs. Court of Appeals, 210 SCRA 471, which
calls for a more flexible and less rigid application of the
Bouncing Checks law. 12
For a thorough consideration of the merits of petitioner's appeal, we find pertinent and
decisive the following issues:
1. Whether respondent court erred in holding that the subject check was issued by
petitioner to apply on account or for value, that is, as part of the consideration of a "buy-

out" of said complainant's interest in the partnership, and not merely as a commitment
on petitioner's part to return the investment share of complainant, along with any profit
pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject
check knowing at the time of issue that she did not have sufficient funds in or credit with
the drawee bank and without communicating this fact of insufficiency of funds to the
complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming
the trial court's judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally in
favor of the accused, it bears stressing that for an act to be punishable under the B.P.
22, it "must come clearly within both the spirit and the letter of the statue. 13 Otherwise,
the act has to be declared outside the law's ambit and a plea of innocence by the
accused must be sustained.
The relevant provisions of B.P. 22 state that:
Sec. 1. Checks without sufficient funds. Any person who makes or
draws and issues any check to apply on account or for value, knowing at
the time of issue that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment,
which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the
same reason had not the drawer, without any valid reason, ordered the
bank to stop payment, shall be punished by imprisonment of not less than
thirty days but not more than one (1) year or by a fine of not less than but
not more than double the amount of the check which fine shall in no case
exceed Two hundred thousand pesos, or both such fine and imprisonment
at the discretion of the court.
The same penalty shall be imposed upon any person who having
sufficient funds in or credit with the drawee bank when he makes or draws
and issues a check, shall fail to keep sufficient funds or to maintain a
credit or to cover the full amount of the check if presented within a period
of ninety (90) days from the date appearing thereon, for which reason it is
dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person

or persons who actually signed the check in behalf of such drawer shall be
liable under this Act.
Sec. 2. Evidence of knowledge of insufficient funds. The making,
drawing and issuance of a check payment of which is refused by the
drawee because of insufficient funds in or credit with such bank, when
presented within ninety (90) days from the date of the check, shall
be prima facie evidence of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the holder thereof the amount
due thereon or makes arrangements for payment in full by the drawee of
such check within five (5) banking days after receiving notice that such
check has not been paid by the drawee. (Emphasis supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as
follows: "(1) the making, drawing and issuance of any check to apply to account or for
value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment; and (3) subsequent dishonor of the check by the
drawee bank for insufficiency of funds or credit or dishonor for the same reason had not
the drawer, without any valid cause, ordered the bank to stop payment. 14
In the present case, with regard to the first issue, evidence on record would show that
the subject check was to be funded from receivables to be collected and goods to be
sold by the partnership, and only when such collection and sale were realized. 15 Thus,
there is sufficient basis for the assertion that the petitioner issued the subject check
(Metrobank Check No. 103115490 dated October 30, 1986, in the amount of
P135,828.87) to evidence only complainant's share or interest in the partnership, or at
best, to show her commitment that when receivables are collected and goods are sold,
she would give to private complainant the net amount due him representing his interest
in the partnership. It did not involve a debt of or any account due and payable by the
petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by
complainant; only one (the third) was not. But eventually even this one was redeemed
by petitioner. Secondly, even private complainant admitted that there was no
consideration whatsoever for the issuance of the check, whose funding was dependent
on future sales of goods and receipts of payment of account receivables.
Now, it could not be denied that though the parties petitioner and complainant had
agreed to dissolve the partnership, such ageement did not automatically put an end to

the partnership, since they still had to sell the goods on hand and collect the receivables
from debtors. In short, they were still in the process of "winding up" the affairs of the
partnership, when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2)
winding-up; and (3) termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of the
partners caused by any partner ceasing to be
associated in the carrying on of the business
(Art. 1828). It is that point of time the time the
partners cease to carry on the business
tonether. (Citation omitted).
(2) Winding Up Defined
Winding up is the process of settling business
affairs of dissolution.
(NOTE: Examples of winding up: the paying of
previous obligations; the collecting of assets
previously demandable; even new business if
needed to wind up, as the contracting with a
demolition company for the demolition of the
garage used in a "used car" partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership affairs have been wound
up. 16 [Citation omitted] (Emphasis supplied).
These final stages in the life of a partnership are recognized under the Civil Code that
explicitly declares that upon dissolution, the partnership is not terminated, to wit:
Art 1828. The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business.

Art. 1829. On dissolution the partnership is not terminated, but continues

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

immaterial, the offense being malum

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

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

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

of fact, he openly intimated this to the vital conduit of the transaction, Joey
Gomez, to whom petitioner was introduced by Mrs. Teng. It would have
been different if this predicament was not communicated to all the parties
he dealt with regarding the lease agreement the financing or which was
covered by L.S. Finance Management. " 27
In the instant case, petitioner intimated to private complainant the possibility that funds
might be insufficient to cover the subject check, due to the fact that the partnership's
goods were yet to be sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the interest
of the banking system and the legitimate public checking account user. It
did not intend to shelter or favor nor encourage users of the system to
enrich themselves through manipulations and circumvention of the noble
purpose and objective of the law. Least should it be used also as a means
of jeopardizing honest-to-goodness transactions with some color of "getrich" scheme to the prejudice of well-meaning businessmen who are the
pillars of society.
xxx xxx xxx
Thus, it behooves upon a court of law that in applying the punishment
imposed upon the accused, the objective of retribution of a wronged
society, should be directed against the "actual and potential wrongdoers".
In the instant case, there is no doubt that petitioner's four (4) checks were
used to collateralize an accommodation, and not to cover the receipt of an
actual "account or credit for value" as this was absent, and therefore
petitioner should not be punished for mere issuance of the checks in
question. Following the aforecited theory, in petitioner's stead the
"potential wrongdoer," whose operation could be a menace to society,
should not be glorified by convicting the petitioner. 28
Under the circumstances obtaining in this case, we find the petitioner to have issued the
check in good faith, with every intention of abiding by her commitment to return, as soon
as able, the investments of complainant in the partnership. Evidently, petitioner issued
the check with benign considerations in mind, and not for the purpose of committing
fraud, deceit, or violating public policy.

To recapitulate, we find the petition impressed with merit. Petitioner may not be held
liable for violation of B.P. 22 for the following reasons: (1) the subject check was not
made, drawn and issued by petitioner in exchange for value received as to qualify it as
a check on account or for value; (2) there is no sufficient basis to conclude that
petitioner, at the time of issue of the check, had actual knowledge of the insufficiency of
funds; and (3) there was no notice of dishonor of said check actually served on
petitioner, thereby depriving her of the opportunity to pay or make arrangements for the
payment of the check, to avoid criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious, we
no longer need to pass upon the validity and legality or necessity of the purported
compromise agreement on civil liability between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER
ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No.
11960 is hereby REVERSED and the Decision of Regional Trial Court in Criminal Case
No. 1395-M-88 is hereby SET ASIDE.
NO COSTS.
SO ORDERED.

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

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

FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the judgment of the Court of First
Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel G. Singson, et
all vs. Isabela Sawmill, et al.,", the dispositive portion of which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1)

that the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A",
has not created a chattel mortgage lien on the machineries and other
chattels mentioned therein, all of which are property of the defendant
partnership "Isabela Sawmill", (2) that the plaintiffs, as creditors of the
defendant partnership, have a preferred right over the assets of the said
partnership and over the proceeds of their sale at public auction, superior
to the right of the defendant Margarita G. Saldajeno, as creditor of the
partners Leon Garibay and Timoteo Tubungbanua; (3) that the defendant
Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the
amount of P1,288.89, with legal interest thereon from the filing of the
complaint on June 5, 1959; (4) that the same defendant is indebted to the
plaintiff Manuel G. Singsong in the total amount of P5,723.50, with interest
thereon at the rate of 1 % per month from May 6, 1959, (the date of the
statements of account, Exhs. "L" and "M"), and 25% of the total
indebtedness at the time of payment, for attorneys' fees, both interest and
attorneys fees being stipulated in Exhs. "I" to "17", inclusive; (5) that the
same defendant is indebted to the plaintiff Agustin E. Tonsay in the
amount of P933.73, with legal interest thereon from the filing of the
complaint on June 5, 1959; (6) that the same defendant is indebted to the
plaintiff Jose L. Espinos in the amount of P1,579.44, with legal interest
thereon from the filing of the complaint on June 5, 1959; (7) that the same
defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the
amount of Pl,048.78, with legal interest thereon from the filing of the
complaint on June 5, 1959; (8) that the same defendant is indebted to the
plaintiff Jose Belzunce in the amount of P2,052.10, with legal interest
thereon from the filing of the complaint on June 5. 1959; (9) that the
defendant Margarita G. Saldajeno, having purchased at public auction the
assets of the defendant partnership over which the plaintiffs have a
preferred right, and having sold said assets for P 45,000.00, is bound to
pay to each of the plaintiffs the respective amounts for which the
defendant partnership is held indebted to, them, as above indicated and
she is hereby ordered to pay the said amounts, plus attorneys fees
equivalent to 25% of the judgment in favor of the plaintiff Manuel G.
Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20% of the
respective judgments in favor of the other plaintiffs, pursuant to. Art. 2208,
pars. (5) and (11), of the Civil Code of the Philippines; (10) The defendants
Leon Garibay and Timoteo Tibungbanua are hereby ordered to pay to the
plaintiffs the respective amounts adjudged in their favor in the event that
said plaintiffs cannot recover them from the defendant Margarita G.

Saldajeno and the surety on the bond that she has filed for the lifting of the
injunction ordered by this court upon the commencement of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against the
defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed
Margarita G. Saldajeno shall pay the costs.
SO ORDERED. 1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the
records of this case to the Supreme Court "considering that the resolution of this appeal
involves purely questions or question of law over which this Court has no jurisdiction ... 2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L.
Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of
first Instance of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G.
Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua
and the Provincial Sheriff of Negros Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued restraining the defendant
Provincial Sheriff of Negros Occidental from proceeding with the sales at
public auction that he advertised in two notices issued by him on May 18,
1959 in connection with Civil Case No. 5223 of this Honorable Court, until
further orders of this Court; and to make said injunction permanent after
hearing on the merits:
(2) That after hearing, the defendant partnership be ordered; to pay to the
plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest
thereon and 25% attorney's fees, and costs; to pay to the plaintiff
JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and
25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay
the sum of P993.73 plus 6% annual interest thereon and 25% attorney's
fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the
sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's
fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of
P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and
costs:

(3) That the so-called Chattel Mortgage executed by the defendant Leon
Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G.
Saldajeno on May 26, 1958 be declared null and void being in fraud of
creditors of the defendant partnership and without valuable consideration
insofar as the said defendant is concerned:
(4) That the Honorable Court order the sale of public auction of the assets
of the defendnat partnership in case the latter fails to pay the judgment
that the plaintiffs may recover in the action, with instructions that the
proceeds of the sale b e applied in payment of said judgment before any
part of saod proceeds is paid to the defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and
Margarita G. Saldajeno be declared jointly liable to the plaintifs for
whatever deficiency may remain unpaid after the proceeds of the sale of
the assets of the defendnt partnership are supplied in payment of the
judgment that said plaintiffs may recover in this action;
(6) The plaintiffs further pray for all other remedies to which the Honorable
Court will find them entitled to, with costs to the defendants.
Bacolod City, June 4, 1959. 3
The action was docketed as Civil Case No. 5343 of said court.
In their amended answer, the defendants Margarita G. Saldajeno and her husband,
Cecilio Saldajeno, alleged the following special and affirmative defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill has been dissolved by virtue of an
action entitled "In the matter of: Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al.,
Civil Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court of
First Instance of Negros Occidental in the aforesaid case, the other
defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua
became the successors-in-interest to the said defunct partnership and
have bound themselves to answere for any and all obligations of the
defunct partnership to its creditors and third persons;

4. That to secure the performance of the obligations of the other

defendants Leon Garibay and Timoteo Tubungbanua to the answering
defendant herein, the former have constituted a chattel mortgage over the
properties mentioned in the annexes to that instrument entitled
"Assignment of Rights with Chattel Mortgage" entered into on May 26,
1968 and duly registered in the Register of Deeds of Negros Occidental
on the same date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen,
Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo
Tubungbanua and not of the defunct Isabela Sawmill and as such they
have no cause of action against answering defendant herein and the
defendant Isabela Sawmill;
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc.
granted cash advances, gasoline, crude oil, motor oil, grease, rice and
nipa to the defendants Leon Garibay and Timoteo Tubungbanua with the
knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of
defendants Margarita G. Saldajeno, Leon Garibay and Timoteo
Tubungbanua, has already been dissolved;
7. That this Honorable Court has no jurisdictionover the claims of the
plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and
the Bacolod Southern Lumber Yard, it appearing that the amounts sought
to be recovered by them in this action is less than P2,000.00 each,
exclusive of interests;
8. That in so far as the claims of these alleged creditors plaintiffs are
concerned, there is a misjoinder of parties because this is not a class suit,
and therefore this Honorable Court cannot take jurisdictionof the claims for
payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go
beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil
Code, and are therefor unenforceable, even assuming that there were
such credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it is well
settled in law and in jurisprudence that a court of first instance has no
power or jurisdiction to annul judgments or decrees of a coordinate court

because other function devolves upon the proper appellate court; (Lacuna,
et al. vs. Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao
vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as
it appears from the complaint in this case to annul the decision of this
same court, but of another branch (Branch II, Judge Querubin presiding). 4
Said defendants interposed a cross-claim against the defendsants Leon Garibay and
Timoteo Tubungbanua praying "that in the event that judgment be rendered ordering
defendant cross claimant to pay to the plaintiffs the amount claimed in the latter's
complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in
accordance to the said judgment. ... 5
After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed
to the Court of Appeals assigning the following errors:
I
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE
CASE.
II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH
REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA
SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED
THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID
PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL
OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AS A
PARTNER THEREIN DISSOLVED THE PARTNERSHIP "ISABELA
SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY,
TIMOTEO TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO).
IV

THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY

INJUNCTION.
V
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL
MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE
JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED
IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE
OF NEGROS OCCIDENTAL) WAS NULL AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES
ACQUIRED BY DEFENDANT-APPELLANT MARGARITA G. SALDAJENO
IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED
'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.
VII
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANTAPPELLANT MARGARITA G. SALDAJENO BECAME PRIMARILY
LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED
THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE
CONDUCTED IN CONNECTION WITH CIVIL CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF
MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA,
INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA
SAWMILL', AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN
WHICH SAID MARGARITA G. SALDAJENO WAS A PARTNER.
IX
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES
FOR ATTORNEY'S FEES.
X

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF

THE PLAINTIFFS-APPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST
CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA. 6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on the merits the
plaintiffs and the defendant Cecilio and Margarita g. Saldajeno submittee
a Partial Stipulation of Facts that was marked as Exh. "A". Said stipulation
reads as folows:
1. That on January 30, 1951 the defendants Leon Garibay,
Margarita G. Saldejeno, and Timoteo Tubungbanua entered
into a Contract of Partnership under the firm name "Isabela
Sawmill", a copy of which is hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen, Esteban,
Inc. sold a Motor Truck and two Tractors to the partnership
Isabela Sawmill for the sum of P20,500.00. In order to pay
the said purcahse price, the said partnership agreed to make
arrangements with the International Harvester Company at
Bacolod City so that the latter would sell farm machinery to
Oppen, Esteban, Inc. with the understanding that the price
was to be paid by the partnership. A copy of the
corresponding contract of sle is attached hereto as Appendix
"B".
3. That through the method of payment stipulated in the
contract marked as Appendix "B" herein, the International
Harvester Company has been paid a total of P19,211.11,
leaving an unpaid balance of P1,288.89 as shown in the
statements hereto attached as Appendices "C", "C-1", and
"C-2".

4. That on April 25, 1958 Civil Case No. 4797 was filed by
the spouses Cecilio Saldajeno and Margarita G. Saldajeno
against the Isabela Sawmill, Leon Garibay, and Timoteo
Tubungbanua, a copy of which Complaint is attached as
Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay,
Timoteo Tubungbanua and Margarita G. Saldajeno entered
into a "Memorandum Agreement", a copy of which is hereto
attached as Appendix 'E' in Civil Case 4797 of the Court of
First Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay,
Timoteo Tubungbanua and Margarita G. Saldajeno executed
a document entitled "Assignment of Rights with Chattel
Mortgage", a copy of which documents and its Annexes "A"
to "A-5" forming a part of the record of the above mentioned
Civil Case No. 4797, which deed was referred to in the
Decision of the Court ofFirst Instance of Negros Occidental
in Civil Case No. 4797 dated May 29, 1958, a copy of which
is hereto attached as Appendix "F" and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and Timoteo
Tubungbanua did not divide the assets and properties of the
"Isabela Sawmill" between them, but they continued the
business of said partnership under the same firm name
"Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros
Occidental published two (2) notices that he would sell at
public auction on June 5, 1959 at Isabela, Negros Occidental
certain trucks, tractors, machinery, officeequipment and
other things that were involved in Civil Case No. 5223 of the
Court of First Instance of Negros Occidental, entitled
"Margarita G. Saldajeno vs. Leon Garibay, et al." See
Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff of Negros
Occidental executed a Certificate ofSale in favor of the
defendant Margarita G. Saldajeno, as a result of the sale
conducted by him on October 14 and 15, 1959 for the

enforcement of the judgment rendered in Civil Case No.

5223 of the Court of First Instance of Negros Occidental, a
certified copy of which certificte of sale is hereto attached as
Appendix "H".
10. That on October 20, 1959 the defendant Margarita G.
Saldajeno executed a deed of sale in favor of the Pan
Oriental Lumber Company transfering to the latter for the
sum of P45,000.00 the trucks, tractors, machinery, and other
things that she had purchashed at a public auction referred
to in the foregoing paragraph, a certified true copy of which
Deed of Sale is hereto attached as Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno and
Margarita G. Saldajeno reserve the right to present
additional evidence at the hearing of this case.
Forming parts of the above copied stipulation are documents that were
marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G",
"G-1", "H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno
presented additional evidence, mostly documentary, while the crossdefendants did not present any evidence. The case hardly involves
quetions of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff
Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of
an obligation of P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its
Appendices "B", "C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his
Exhs. "B" to"G" that from October 6, 1958 to November 8, 1958 he
advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist
the said advances said defendant delivered to Tonsay P3,266.27 worth of
lumber, leavng an unpaid balance of P933.73, which balance was
confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager
of the defendant partnership.

The plaintiff Manuel G. Singsong proved by his own testimony and by his
Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on
credit to the defendnat "Isabela Sawmill" rice and bran, on account of
which business transaction there remains an unpaid balance of
P3,580.50. The same plaintiff also proved that the partnership ownes him
the sum of P143.00 for nipa shingles bought from him on credit and
unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his witness
Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia
Lumber Yard", that on October 11, 1958 said lumber yard advanced the
sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said
cash advance, the defendant partnership delivered to Guia Lumber Yard
P920.56 worth of lumber, leaving an outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the testimony
of the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on
October 11, 1958 said plaintiff advanced the sum of P1,500.00 to the
defendsant 'Isabela Sawmill', that against the said cash advance, the
defendant partnership delivered to the said plaintiff on November 19, 1958
P377.72 worth of lumber, and P73.54 worth of lumber on January 27,
1959, leaving an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay
whom he called as his witness, and through the Exhs. "R" to "E" that from
September 14, 1958 to November 27, 1958 he sold to the defedant
"Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on
account of said transactions, the defendant partnersip ownes him an
unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14,
1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendsant "Isabela Sawmill" which the
defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to
her, and said purchase price was applied to the judgment that she has
obtained against he said mortgagors in Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows that on October 20,
1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL
LUMBER COMPANY for P45,000.00 part of the said properties that she
had bought at public aucton one week before.

xxx xxx xxx 7

It is contended by the appellants that the Court of First Instance of Negros Occidental
had no jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban,
Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought
to collect sums of moeny, the biggest amount of which was less than P2,000.00 and,
therefore, within the jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the nullity of
the assignment of right with chattel mortgage entered into by and between Margarita G.
Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This
cause of action is not capable of pecuniary estimation and falls under the jurisdiction of
the Court of First Instnace. Where the basic issue is something more than the right to
recover a sum of money and where the money claim is purely incidental to or a
consequence of the principal relief sought, the action is as a case where the subject of
the litigation is not capable of pecuniary estimation and is cognizable exclusively by the
Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends
upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which
courts of first instance shall have exclusive original jurisdiction over any case the
subject matter of which is not capable of pecuniary estimation. An action for the
annulment of a judgment and an order of a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the nature
of the principal action or remedy sought. If it is primarily for the recovery of a sum of
money, the cliam is considered capable of pecuniary estimation, and whether
jurisdiciton is in the municipal courts or in the courts of first instance would depend on
the amount of the claim. However, where the basic issue is something other than the
right to recover a sum of money, where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has considered such actions as
cases where the subject ogf the litigation may not be estimated in terms of money, and
are cognizable exclusively by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held:
Actions for specific performance of contracts have been expressly
prounounced to be exclusively cognizable by courts of first instance: De
Jesus vs. Judge Garcia, L-26816, February 28, 1967;Manufacturers'
Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent

reason appears, and none is here advanced by the parties, why an actin
for rescission (or resolution) should be differently treated, a "rescission"
being a counterpart, so to speak, of "specific performance'. In both cases,
the court would certainly have to undertake an investigation into facts that
would justify one act of the other. No award for damages may be had in an
action for resicssion without first conducting an inquiry into matters which
would justify the setting aside of a contract, in the same manner that
courts of first instance would have to make findings of fact and law in
actions not capable of pecuniary estimnation espressly held to be so by
this Court, arising from issues like those arised in Arroz v. Alojado, et al.,
L-22153, March 31, 1967 (the legality or illegality of the conveyance
sought for and the determination of the validity of the money deposit
made); De Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a
judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of a
mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of
the parties, the right to support created by the relation, etc., in actions for
support); De Rivera, et al. v. Halili, L-15159, September 30, 1963 (the
validity or nullity of documents upon which claims are predicated). Issues
of the same nature may be raised by a party against whom an action for
rescission has been brought, or by the plaintiff himself. It is, therefore,
difficult to see why a prayer for damages in an action for rescission should
be taken as the basis for concluding such action for resiccison should be
taken as the basis for concluding such action as one cpable of pecuniary
estimation - a prayer which must be included in the main action if plaintiff
is to be compensated for what he may have suffered as a result of the
breach committed by defendant, and not later on precluded from
recovering damages by the rule against splitting a cause of action and
discouraging multiplicitly of suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs.
Tutaan, 10 where this Court held:
On the issue of which court has jurisdiction, the case of SENO vs.
Pastolante, et al., is in point. It was ruled therein that although the
purposes of an action is to recover an amount plus interest which comes
within the original jurisidction of the Justice of the Peace Court, yet when
said action involves the foreclosure of a chattel mortgage covering
personal properties valued at more than P2,000, (now P10,000.00) the
action should be instituted before the Court of First Instance.

In the instanct, case, the action is to recover the amount of P1,520.00 plus
interest and costs, and involves the foreclosure of a chattel mortgage of
personal properties valued at P15,340.00, so that it is clearly within the
competence of the respondent court to try and resolve.
In the light of the foregoing recent rulings, the Court of First Instance of Negros
Occidental did no err in exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage may no longer be annulled
because it had been judicially approved in Civil Case No. 4797 of the Court of First
Instance of Negros Occidental and said chattel mortgage had been ordered foreclosed
in Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a final judgment of another court of coequal, concurrent and coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or decrees of a court
of concurrent or coordinate jurisdiction having equal power to grant the
relief sought by the injunction.
The various branches of the Court of First Instance of Manila are in a
sense coordinate courts and cannot be allowed to interfere with each
others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case

12

where this Court said:

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

The power to open, modify or vacant a judgment is not only possessed by

but restricted to the court in which the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment of a court of
competent jurisdiction may not be interfered with by any court concurrrent
jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of
the court of First Instance belongs solely to the very same branch which rendered the
judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment case. 15
In December 1971, however, this court re-examined and reversed its earlier doctrine on
the matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice
Villamor declared:
... the underlying philosophy expressed in the Dumara-og case, the policy
of judicial stability, to the end that the judgment of a court of competent
jurisdiction may not be interfered with by any court of concurrent
jurisdiction may not be interfered with by any court of concurrent
jurisdiciton, this Court feels that this is as good an occasion as any to reexamine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's cause of action
springs from the alleged nullity of the judgment based on one ground or
another, particularly fraud, which fact affords the plaintiff a right to judicial
interference in his behalf. In such a suit the cause of action is entirely
different from that in the actgion which grave rise to the judgment sought
to be annulled, for a direct attack against a final and executory judgment is
not a incidental to, but is the main object of the proceeding. The cause of
action in the two cases being distinct and separate from each other, there
is no plausible reason why the venue of the action to annul the judgment
should necessarily follow the venue of the previous action ...
The present doctrine which postulate that one court or one branch of a
court may not annul the judgment of another court or branch, not only
opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court)
but also limit the opportunity for the application of said rule.

Our conclusion must therefore be that a court of first instance or a branch

thereof has the authority and jurisdiction to take cognizance of, and to act
in, suit to annul final and executory judgment or order rendered by another
court of first instance or by another branch of the same court...
In February 1974 this Court reiterated the ruling in the Dulap case. 17
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of
the Court of First Instance of Negros Occidental can take cognizance of an action to
nullify a final judgment of the other two branches of the same court.
It is true that the dissolution of a partnership is caused by any partner ceasing to be
associated in the carrying on of the business. 18 However, on dissolution, the
partnershop is not terminated but continuous until the winding up to the business. 19
The remaining partners did not terminate the business of the partnership "Isabela
Sawmill". Instead of winding up the business of the partnership, they continued the
business still in the name of said partnership. It is expressly stipulated in the
memorandum-agreement that the remaining partners had constituted themselves as the
partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon
Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in
the name of "Isabela Sawmill". They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon
Garibay and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The
appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because
she purchased at public auction the properties of the partnership which were mortgaged
to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership
was published in the newspapers. The appellees and the public in general had a right to
expect that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua
doing the business in the name of the partnership "Isabela Sawmill" could be enforced
against the proeprties of said partnership. The judicial foreclosure of the chattel
mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to
the creditors of the partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not
insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon

Garibay and Timoteo Tubungbanua continue doing the business of the partnership
"Isabela Sawmill" by entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the
appellees aslo acted in good faith in extending credit to the partnership. Where one of
two innocent persons must suffer, that person who gave occasion for the damages to be
caused must bear the consequences. Had Margarita G. Saldajeno not entered into the
memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue
doing the business of the aprtnership, the applees would not have been misled into
thinking that they were still dealing with the partnership "Isabela Sawmill". Under the
facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was
dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was
not terminated and it continued doping business through the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to annul the
chattel mortgage of the propertiesof the partnership executed by Leon Garibay and
Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However,
when a contract prejudices the rights of a third person, he may file an action to annul
the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily
under a contract, may exercised an action for nullity of the contract if he is prejudiced in
his rights with respect to one of the contracting parties, and can show detriment which
would positively result to him from the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel
mortgage over the properties of the partnership "Isabela Sawmill" in favopr of Margarita
G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua.
Hence, said appelees have a right to file the action to nullify the chattel mortgage in
question.
The portion of the decision appealed from ordering the appellants to pay attorney's fees
to the plaintiffs-appellees cannot be sustained. There is no showing that the appellants
displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants
believed in good faith, albeit erroneously, that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall
pay the appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In
the memorandum-agreement, Leon Garibay and Timoteo Tubungbaun undertook to

release Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third

persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the
portion ordering appellants to pay attorney's fees and with the modification that the
defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the
defendants-appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno,
whatever they shall pay to the plaintiffs-appellees, without pronouncement as to costs.
SO ORDERED.

Causes of Dissolution

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.

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. 13389470B 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. L-21906

December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the
order of May 21, 1956, all of the Court of First Instance of Davao, in civil case 629. The
basic action is for specific performance, and damages resulting from an alleged breach
of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the
then Sitio of Malalag (now the Municipality of Malalag), Municipality of Padada, Davao.
No action was taken thereon by the authorities concerned. During the Japanese
occupation, he filed another fishpond application for the same area, but because of the
conditions then prevailing, it was not acted upon either. On December 12, 1945 he filed
a third fishpond application for the same area, which, after a survey, was found to
contain 178.76 hectares. Upon investigation conducted by a representative of the
Bureau of Forestry, it was discovered that the area applied for was still needed for
firewood production. Hence on May 13, 1946 this third application was disapproved.

Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the
district forester of Davao City that no further action would be taken on his motion, unless
he filed a new application for the area concerned. So he filed on May 27, 1947 his
fishpond application 1717.
Meanwhile, several applications were submitted by other persons for portions of the
area covered by Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10
hectares of land found inside the area applied for by Casteel; he was later granted
fishpond permit F-289-C covering 9.3 hectares certified as available for fishpond
purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of
the land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed on
December 26, 1946, was given due course on December 9, 1947 with the issuance to
him of fishpond permit F-539-C to develop 30 hectares of land comprising a portion of
the area applied for by Casteel, upon certification of the Bureau of Forestry that the area
was likewise available for fishpond purposes. On November 17, 1948 Felipe Deluao
filed his own fishpond application for the area covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who entered
upon and spread themselves within the area, Casteel realized the urgent necessity of
expanding his occupation thereof by constructing dikes and cultivating marketable
fishes, in order to prevent old and new squatters from usurping the land. But lacking
financial resources at that time, he sought financial aid from his uncle Felipe Deluao
who then extended loans totalling more or less P27,000 with which to finance the
needed improvements on the fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed the corresponding protests.
Consequently, two administrative cases ensued involving the area in question, to wit:
DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel,
applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-appellant"; and
DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel,
applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No.
539-C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative
cases that Casteel had already introduced improvements on portions of the area
applied for by him in the form of dikes, fishpond gates, clearings, etc., the Director of
Fisheries nevertheless rejected Casteel's application on October 25, 1949, required him
to remove all the improvements which he had introduced on the land, and ordered that
the land be leased through public auction. Failing to secure a favorable resolution of his

motion for reconsideration of the Director's order, Casteel appealed to the Secretary of
Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken
up in our discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first
part, and Nicanor Casteel as party of the second part, executed a contract
denominated a "contract of service" the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and
agreements made herein to the Party of the Second Part, hereby enter into a
contract of service, whereby the Party of the First Part hires and employs the
Party of the Second Part on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the sum
of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to
the Party of the Second Part who renders only his services for the construction
and improvements of a fishpond at Barrio Malalag, Municipality of Padada,
Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all the
produce of the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she having
financed the construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into between the
Parties sometime in the month of November, 1947, with all the above-mentioned
conditions enumerated; ...
On the same date the above contract was entered into, Inocencia Deluao executed a
special power of attorney in favor of Jesus Donesa, extending to the latter the authority
"To represent me in the administration of the fishpond at Malalag, Municipality of
Padada, Province of Davao, Philippines, which has been applied for fishpond permit by
Nicanor Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand,
receive, and collect the value of the fish that is being periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim
over the same area in the two administrative cases (DANR Cases 353 and 353-B) and
asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond.
However, by letter dated March 15, 1950 sent to the Secretary of Commerce and
Agriculture and Natural Resources (now Secretary of Agriculture and Natural
Resources), Deluao withdrew his petition for reinvestigation.

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a
decision in DANR Case 353, the dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717)
of Nicanor Casteel should be, as hereby it is, reinstated and given due course for
the area indicated in the sketch drawn at the back of the last page hereof; and
Fp. A. No. 762 of Victorio D. Carpio shall remain rejected.
On the same date, the same official issued a decision in DANR Case 353-B, the
dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond
Permit No. F-539-C of Alejandro Cacam, should be, as they are hereby cancelled
and revoked; Nicanor Casteel is required to pay the improvements introduced
thereon by said permittees in accordance with the terms and dispositions
contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado), Jesus
Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia
Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed
an action in the Court of First Instance of Davao for specific performance and damages
against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to
violate his contract), praying inter alia, (a) that Casteel be ordered to respect and abide
by the terms and conditions of said contract and that Inocencia Deluao be allowed to
continue administering the said fishpond and collecting the proceeds from the sale of
the fishes caught from time to time; and (b) that the defendants be ordered to pay jointly
and severally to plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary
injunction, praying among other things, that during the pendency of the case and upon
their filling the requisite bond as may be fixed by the court, a preliminary injunction be
issued to restrain Casteel from doing the acts complained of, and that after trial the said
injunction be made permanent. The lower court on April 26, 1951 granted the motion,
and, two days later, it issued a preliminary mandatory injunction addressed to Casteel,
the dispositive portion of which reads as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el
demandado y todos usu abogados, agentes, mandatarios y demas personas que
obren en su ayuda, desista de impedir a la demandante Inocencia R. Deluao que
continue administrando personalmente la pesqueria objeto de esta causa y que
la misma continue recibiendo los productos de la venta de los pescados
provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho
demandado Nicanor Casteel a desahuciar mediante fuerza al encargado de los

demandantes llamado Jesus Donesa de la pesqueria objeto de la demanda de

autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among
others, that he was the owner, lawful applicant and occupant of the fishpond in question.
This motion, opposed by the plaintiffs on June 15, 1951, was denied by the lower court
in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on
January 8, 1952, denying the material averments of the plaintiffs' complaint. A reply to
the defendants' amended answer was filed by the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him.
On June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the
plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion,
opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower
court in its order of October 22, 1951. The defendants' motion for reconsideration filed
on October 31, 1951 suffered the same fate when it was likewise denied by the lower
court in its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A. Fernandez)
finally issued on March 21, 1956 an order in open court, reading as follows: .
Upon petition of plaintiffs, without any objection on the part of defendants, the
hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in
the morning.
This case was filed on April 3, 1951 and under any circumstance this Court will
not entertain any other transfer of hearing of this case and if the parties will not
be ready on that day set for hearing, the court will take the necessary steps for
the final determination of this case. (emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21,
1956, issued by the office of the Clerk of Court (thru the special deputy Clerk of Court)
of the Court of First Instance of Davao, setting the hearing of the case for May 2 and 3,
1956 before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April
26, 1956 filed a motion for postponement. Acting on this motion, the lower court (Branch
II, presided by Judge Gomez) issued an order dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2 and 3,
1956. The motion is filed by the counsel for the defendants and has the
conformity of the counsel for the plaintiffs.

An examination of the records of this case shows that this case was initiated as
early as April 1951 and that the same has been under advisement of the
Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since
September 24, 1953, and that various incidents have already been considered
and resolved by Judge Fernandez on various occasions. The last order issued by
Judge Fernandez on this case was issued on March 21, 1956, wherein he
definitely states that the Court will not entertain any further postponement of the
hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the
consideration and termination of any incident referring to this case should be
referred back to Branch I, so that the same may be disposed of therein.
(emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4,
1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I,
with Judge Fernandez presiding), when informed about the defendants' motion for
postponement filed on April 26, 1956, issued an order reiterating its previous order
handed down in open court on March 21, 1956 and directing the plaintiffs to introduce
their evidence ex parte, there being no appearance on the part of the defendants or
their counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May
4, 1956 the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en
contra del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;
(b) Ordena al demandado entregue la demandante la posesion y administracion
de la mitad () del "fishpond" en cuestion con todas las mejoras existentes
dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00
mensualmente en concepto de danos a contar de la fecha de la expiracion de los
30 dias de la promulgacion de esta decision hasta que entregue la posesion y
administracion de la porcion del "fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00
valor de los pescado beneficiados, mas los intereses legales de la fecha de la
incoacion de la demanda de autos hasta el completo pago de la obligacion
principal;
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por
gastos incurridos por aquella durante la pendencia de esta causa;

(f) Condena al demandado a pagar a la demandante, en concepto de honorarios,

la suma de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en
tanto en cuanto se refiere al demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de
pruebas;
(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision,
alleging, inter alia, lack of knowledge of the order of the court a quo setting the case for
trial. The petition, however, was denied by the lower court in its order of May 21, 1956,
the pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial
of this case has been transferred or not, but to inquire from the presiding Judge,
particularly because his motion asking the transfer of this case was not set for
hearing and was not also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956,
which reads as follows:
Upon petition of the plaintiff without any objection on the part of the
defendants, the hearing of this case is hereby transferred to May 2 and 3,
1956, at 8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under any circumstance this
Court will not entertain any other transfer of the hearing of this case, and if
the parties will not be ready on the day set for hearing, the Court will take
necessary steps for the final disposition of this case.
In view of the order above-quoted, the Court will not accede to any transfer of
this case and the duty of Atty. Ruiz is no other than to be present in the Sala of
this Court and to call the attention of the same to the existence of his motion for
transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not
well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which
certified the case to us for final determination on the ground that it involves only
questions of law.
Casteel raises the following issues:

(1) Whether the lower court committed gross abuse of discretion when it ordered
reception of the appellees' evidence in the absence of the appellant at the trial on
May 2, 1956, thus depriving the appellant of his day in court and of his property
without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it denied
the verified petition for relief from judgment filed by the appellant on May 11,
1956 in accordance with Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of a writ of
preliminary injunction against defendant-appellant, and in not dismissing
appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21, 1956,
the lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the
morning and empathically stated that, since the case had been pending since April 3,
1951, it would not entertain any further motion for transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very date and
time of promulgation,1 and amounts to a legal notification for all legal purposes. 2 The
order of March 21, 1956, given in open court, was a valid notice to the parties, and the
notice of hearing dated April 21, 1956 or one month thereafter, was a superfluity.
Moreover, as between the order of March 21, 1956, duly promulgated by the lower
court, thru Judge Fernandez, and the notice of hearing signed by a "special deputy clerk
of court" setting the hearing in another branch of the same court, the former's order was
the one legally binding. This is because the incidents of postponements and
adjournments are controlled by the court and not by the clerk of court, pursuant to
section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the court or to
transfer the cage from one sala to another without authority or order from the court
where the case originated and was being tried. He had neither the duty nor prerogative
to re-assign the trial of the case to a different branch of the same court. His duty as
such clerk of court, in so far as the incident in question was concerned, was simply to
prepare the trial calendar. And this duty devolved upon the clerk of court and not upon
the "special deputy clerk of court" who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the appellees'
counsel. The postponement of hearings does not depend upon agreement of the
parties, but upon the court's discretion.3
The record further discloses that Casteel was represented by a total of 12 lawyers, none
of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March
21, 1956 intransferably setting the case for hearing for May 2 and 3, 1956, was

sufficient notice to all the appellant's eleven other counsel of record. This is a wellsettled rule in our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the
appellant himself, to appear before Judge Fernandez on the scheduled dates of hearing
Parties and their lawyers have no right to presume that their motions for postponement
will be granted.5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance
of the recorded fact that since September 24, 1953 until the trial held on May 2, 1956,
the case was under the advisement of Judge Fernandez who presided over Branch I.
There was, therefore, no necessity to "re-assign" the same to Branch II because Judge
Fernandez had exclusive control of said case, unless he was legally inhibited to try the
case and he was not.
There is truth in the appellant's contention that it is the duty of the clerk of court not of
the Court to prepare the trial calendar. But the assignment or reassignment of cases
already pending in one sala to another sala, and the setting of the date of trial after the
trial calendar has been prepared, fall within the exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office
of the clerk of court of the Court of First Instance of Davao was located directly below
Branch I. If the appellant and his counsel had exercised due diligence, there was no
impediment to their going upstairs to the second storey of the Court of First Instance
building in Davao on May 2, 1956 and checking if the case was scheduled for hearing in
the said sala. The appellant after all admits that on May 2, 1956 his counsel went to the
office of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice of trial, is
correct. But he was properly accorded this right. He was notified in open court on March
21, 1956 that the case was definitely and intransferably set for hearing on May 2 and 3,
1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs.
Tirona,6 his counsel was entitled to a timely notice of the denial of his motion for
postponement. In the cited case the motion for postponement was the first one filed by
the defendant; in the case at bar, there had already been a series of postponements.
Unlike the case at bar, the Siochi case was not intransferably set for hearing. Finally,
whereas the cited case did not spend for a long time, the case at bar was only finally
and intransferably set for hearing on March 21, 1956 after almost five years had
elapsed from the filing of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample
time to prepare for trial is unacceptable because between March 21, 1956 and May 2,
1956, they had one month and ten days to do so. In effect, the appellant had waived his
right to appear at the trial and therefore he cannot be heard to complain that he has
been deprived of his property without due process of law.7 Verily, the constitutional
requirements of due process have been fulfilled in this case: the lower court is a
competent court; it lawfully acquired jurisdiction over the person of the defendant

(appellant) and the subject matter of the action; the defendant (appellant) was given an
opportunity to be heard; and judgment was rendered upon lawful hearing. 8
2. Finally, the appellant contends that the lower court incurred an error in ordering the
issuance ex parte of a writ of preliminary injunction against him, and in not dismissing
the appellee's complaint. We find this contention meritorious.
Apparently, the court a quo relied on exhibit A the so-called "contract of service"
and the appellees' contention that it created a contract of co-ownership and partnership
between Inocencia Deluao and the appellant over the fishpond in question.
Too well-settled to require any citation of authority is the rule that everyone is
conclusively presumed to know the law. It must be assumed, conformably to such rule,
that the parties entered into the so-called "contract of service" cognizant of the
mandatory and prohibitory laws governing the filing of applications for fishpond permits.
And since they were aware of the said laws, it must likewise be assumed in fairness
to the parties that they did not intend to violate them. This view must perforce negate
the appellees' allegation that exhibit A created a contract of co-ownership between the
parties over the disputed fishpond. Were we to admit the establishment of a coownership violative of the prohibitory laws which will hereafter be discussed, we shall be
compelled to declare altogether the nullity of the contract. This would certainly not serve
the cause of equity and justice, considering that rights and obligations have already
arisen between the parties. We shall therefore construe the contract as one of
partnership, divided into two parts namely, a contract of partnership to exploit the
fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a contract of
partnership to divide the fishpond between them after such award. The first is valid, the
second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant entered into
the so-called "contract of service" on November 25, 1949, there were two pending
applications over the fishpond. One was Casteel's which was appealed by him to the
Secretary of Agriculture and Natural Resources after it was disallowed by the Director of
Fisheries on October 25, 1949. The other was Felipe Deluao's application over the
same area which was likewise rejected by the Director of Fisheries on November 29,
1949, refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to
the Secretary of Agriculture and Natural Resources. Clearly, although the fishpond was
then in the possession of Casteel, neither he nor, Felipe Deluao was the holder of a
fishpond permit over the area. But be that as it may, they were not however precluded
from exploiting the fishpond pending resolution of Casteel's appeal or the approval of
Deluao's application over the same area whichever event happened first. No law, rule
or regulation prohibited them from doing so. Thus, rather than let the fishpond remain
idle they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the parties
was not to form a co-ownership but to establish a partnership Inocencia Deluao as
capitalist partner and Casteel as industrial partner the ultimate undertaking of which

was to divide into two equal parts such portion of the fishpond as might have been
developed by the amount extended by the plaintiffs-appellees, with the further provision
that Casteel should reimburse the expenses incurred by the appellees over one-half of
the fishpond that would pertain to him. This can be gleaned, among others, from the
letter of Casteel to Felipe Deluao on November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will redound to
your benefit because you are the ones interested in half of the work we have
done so far, besides I did not insist on our being partners in my fishpond permit,
but it was you "Tatay" Eping the one who wanted that we be partners and it so
happened that we became partners because I am poor, but in the midst of my
poverty it never occurred to me to be unfair to you. Therefore so that each of us
may be secured, let us have a document prepared to the effect that we are
partners in the fishpond that we caused to be made here in Balasinon, but it
does not mean that you will treat me as one of your "Bantay" (caretaker) on
wage basis but not earning wages at all, while the truth is that we are partners. In
the event that you are not amenable to my proposition and consider me as
"Bantay" (caretaker) instead, do not blame me if I withdraw all my cases and be
left without even a little and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn
evidencing their partnership, the appellee Inocencia Deluao and the appellant executed
exhibit A which, although denominated a "contract of service," was actually the
memorandum of their partnership agreement. That it was not a contract of the services
of the appellant, was admitted by the appellees themselves in their letter 10 to Casteel
dated December 19, 1949 wherein they stated that they did not employ him in his
(Casteel's) claim but because he used their money in developing and improving the
fishpond, his right must be divided between them. Of course, although exhibit A did not
specify any wage or share appertaining to the appellant as industrial partner, he was so
entitled this being one of the conditions he specified for the execution of the
document of partnership.11
Further exchanges of letters between the parties reveal the continuing intent to divide
the fishpond. In a letter,12dated March 24, 1950, the appellant suggested that they divide
the fishpond and the remaining capital, and offered to pay the Deluaos a yearly
installment of P3,000 presumably as reimbursement for the expenses of the
appellees for the development and improvement of the one-half that would pertain to
the appellant. Two days later, the appellee Felipe Deluao replied, 13expressing his
concurrence in the appellant's suggestion and advising the latter to ask for a
reconsideration of the order of the Director of Fisheries disapproving his (appellant's)
application, so that if a favorable decision was secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no
further need to maintain his petition for the reinvestigation of Casteel's application. Thus
by letter14 dated March 15, 1950 addressed to the Secretary of Agriculture and Natural

Resources, he withdrew his petition on the alleged ground that he was no longer
interested in the area, but stated however that he wanted his interest to be protected
and his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions
both dated September 15, 1950 were issued by the Secretary of Agriculture and Natural
Resources in DANR Cases 353 and 353-B. This development, by itself, brought about
the dissolution of the partnership. Moreover, subsequent events likewise reveal the
intent of both parties to terminate the partnership because each refused to share the
fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a
partnership, "... any event which makes it unlawful for the business of the partnership to
be carried on or for the members to carry it on in partnership." The approval of the
appellant's fishpond application by the decisions in DANR Cases 353 and 353-B
brought to the fore several provisions of law which made the continuation of the
partnership unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the
permittee) from transferring or subletting the fishpond granted to him, without the
previous consent or approval of the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3 of the fishpond permit which states
that "The permittee shall not transfer or sublet all or any area herein granted or any
rights acquired therein without the previous consent and approval of this Office."
Parenthetically, we must observe that in DANR Case 353-B, the permit granted to one
of the parties therein, Leoncio Aradillos, was cancelled not solely for the reason that his
permit covered a portion of the area included in the appellant's prior fishpond
application, but also because, upon investigation, it was ascertained thru the admission
of Aradillos himself that due to lack of capital, he allowed one Lino Estepa to develop
with the latter's capital the area covered by his fishpond permit F-289-C with the
understanding that he (Aradillos) would be given a share in the produce thereof. 16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise
provides that
The lessee shall not assign, encumber, or sublet his rights without the consent of
the Secretary of Agriculture and Commerce, and the violation of this condition
shall avoid the contract; Provided, That assignment, encumbrance, or subletting
for purposes of speculation shall not be permitted in any case:Provided, further,
That nothing contained in this section shall be understood or construed to permit
the assignment, encumbrance, or subletting of lands leased under this Act, or
under any previous Act, to persons, corporations, or associations which under
this Act, are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and
Natural Resources issued in August 1937, prohibits a transfer or sublease unless first

approved by the Director of Lands and under such terms and conditions as he may
prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed. If the
permittee or lessee had, unless otherwise specifically provided, held the permit
or lease and actually operated and made improvements on the area for at least
one year, he/she may request permission to sub-lease or transfer the area and
improvements under certain conditions.
(a) Transfer subject to approval. A sub-lease or transfer shall only be valid
when first approved by the Director under such terms and conditions as may be
prescribed, otherwise it shall be null and void. A transfer not previously approved
or reported shall be considered sufficient cause for the cancellation of the permit
or lease and forfeiture of the bond and for granting the area to a qualified
applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two equal parts of the fishpond
between the appellees and the appellant after it shall have been awarded to the latter,
and therefore it envisaged the unauthorized transfer of one-half thereof to parties other
than the applicant Casteel, it was dissolved by the approval of his application and the
award to him of the fishpond. The approval was an event which made it unlawful for the
business of the partnership to be carried on or for the members to carry it on in
partnership.
The appellees, however, argue that in approving the appellant's application, the
Secretary of Agriculture and Natural Resources likewise recognized and/or confirmed
their property right to one-half of the fishpond by virtue of the contract of service, exhibit
A. But the untenability of this argument would readily surface if one were to consider
that the Secretary of Agriculture and Natural Resources did not do so for the simple
reason that he does not possess the authority to violate the aforementioned prohibitory
laws nor to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application,
coupled with the foregoing prohibitory laws, was not enough to cause the
dissolution ipso facto of their partnership, succeeding events reveal the intent of both
parties to terminate the partnership by refusing to share the fishpond with the other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his
desire to divide the fishpond so that he could administer his own share, such division to
be subject to the approval of the Secretary of Agriculture and Natural Resources. By
letter dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's
proposition because there were allegedly no appropriate grounds to support the same
and, moreover, the conflict over the fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter 19 to the appellee Felipe Deluao
wherein the former expressed his determination to administer the fishpond himself

because the decision of the Government was in his favor and the only reason why
administration had been granted to the Deluaos was because he was indebted to them.
In the same letter, the appellant forbade Felipe Deluao from sending the
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao
wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the
administration of the fishpond to the appellant, stating as a ground his belief "that only
the competent agencies of the government are in a better position to render any
equitable arrangement relative to the present case; hence, any action we may privately
take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective
resolutions not to share the fishpond with each other in direct violation of the
undertaking for which they have established their partnership each must be deemed
to have expressly withdrawn from the partnership, thereby causing its dissolution
pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that dissolution is
caused "by the express will of any partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses
executive and administrative powers with regard to the survey, classification, lease, sale
or any other form of concession or disposition and management of the lands of the
public domain, and, more specifically, with regard to the grant or withholding of licenses,
permits, leases and contracts over portions of the public domain to be utilized as
fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and
reiterated in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural
Resources) by law regarding the disposition of public lands such as granting of
licenses, permits, leases, and contracts, or approving, rejecting, reinstating, or
cancelling applications, or deciding conflicting applications, are all executive and
administrative in nature. It is a well-recognized principle that purely
administrative and discretionary functions may not be interfered with by the
courts (Coloso v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In
general, courts have no supervising power over the proceedings and action of
the administrative departments of the government. This is generally true with
respect to acts involving the exercise of judgment or discretion, and findings of
fact. (54 Am. Jur. 558-559) Findings of fact by an administrative board or official,
following a hearing, are binding upon the courts and will not be disturbed except
where the board or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to his duty
or with grave abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due course
to the appellant's fishpond application 1717 and awarded to him the possession of the
area in question. In view of the finality of the Secretary's decision in DANR Cases 353
and 353-B, and considering the absence of any proof that the said official exceeded his

statutory authority, exercised unconstitutional powers, or acted with arbitrariness and in

disregard of his duty, or with grave abuse of discretion, we can do no less than respect
and maintain unfettered his official acts in the premises. It is a salutary rule that the
judicial department should not dictate to the executive department what to do with
regard to the administration and disposition of the public domain which the law has
entrusted to its care and administration. Indeed, courts cannot superimpose their
discretion on that of the land department and compel the latter to do an act which
involves the exercise of judgment and discretion. 22
Therefore, with the view that we take of this case, and even assuming that the injunction
was properly issued because present all the requisite grounds for its issuance, its
continuation, and, worse, its declaration as permanent, was improper in the face of the
knowledge later acquired by the lower court that it was the appellant's application over
the fishpond which was given due course. After the Secretary of Agriculture and Natural
Resources approved the appellant's application, he became to all intents and purposes
the legal permittee of the area with the corresponding right to possess, occupy and
enjoy the same. Consequently, the lower court erred in issuing the preliminary
mandatory injunction. We cannot overemphasize that an injunction should not be
granted to take property out of the possession and control of one party and place it in
the hands of another whose title has not been clearly established by law.23
However, pursuant to our holding that there was a partnership between the parties for
the exploitation of the fishpond before it was awarded to Casteel, this case should be
remanded to the lower court for the reception of evidence relative to an accounting from
November 25, 1949 to September 15, 1950, in order for the court to determine (a) the
profits realized by the partnership, (b) the share (in the profits) of Casteel as industrial
partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d) whether the
amounts totalling about P27,000 advanced by Deluao to Casteel for the development
and improvement of the fishpond have already been liquidated. Besides, since the
appellee Inocencia Deluao continued in possession and enjoyment of the fishpond even
after it was awarded to Casteel, she did so no longer in the concept of a capitalist
partner but merely as creditor of the appellant, and therefore, she must likewise submit
in the lower court an accounting of the proceeds of the sales of all the fishes harvested
from the fishpond from September 16, 1950 until Casteel shall have been finally given
the possession and enjoyment of the same. In the event that the appellee Deluao has
received more than her lawful credit of P27,000 (or whatever amounts have been
advanced to Casteel), plus 6% interest thereon per annum, then she should reimburse
the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is
hereby rendered: (1) dissolving the injunction issued against the appellant, (2) placing
the latter back in possession of the fishpond in litigation, and (3) remanding this case to
the court of origin for the reception of evidence relative to the accounting that the parties
must perforce render in the premises, at the termination of which the court shall render
judgment accordingly. The appellant's counterclaim is dismissed. No pronouncement as
to costs.

G.R. No. 17024

March 24, 1922

DOMINGO BEARNEZA, plaintiff-appelle,

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

Proceedings having been held as usual, the court below rendered judgment, declaring
the plaintiff owner of one-half of the fish pond, which was composed of the portions
known as "Alimango" and "Dalusan," but without awarding him any of the damages
claimed by him, the same not having been proven, in the opinion of the court, and
ordering the defendant to pay the costs.
From this judgment the defendant appeals, making various assignments of error. The
plaintiff did not appeal from that part of the judgment denying his claim for damages;
hence the only question we are called upon to decide is whether or not the plaintiff has
any right to maintain an action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence
of which the proof contained in the record is conclusive and there is no dispute, was of a
civil nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it
having had for its subject-matter a specified thing, to with, the exploitation of the
aforementioned fish pond. Although, as the trial court says in its decision, the defendant,
in his letters to Perpetua or her husband, makes reference to the fish pond, calling it
"our," or "your fish pond," this reference cannot be held to include the land on which the
said fish pond was built. It has not been proven that Perpetua Bearneza participated in
the ownership of said land, and Exhibits 2 and 3 of the defendant show that he has
been paying, as exclusive owner of the fish pond, the land tax thereon, although in
Exhibit X he says that the said land belongs to the State. The conclusion, therefore,
from the evidence is that the land on which the fish pond was constructed did not
constitute a part of the subject- matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership,
and, therefore, the provisions of the Code of Commerce not being applicable thereto
(article 1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza,
and falls under the provisions of article 1700, subsection 3, of the same Code, and not
under the exception established in the last paragraph of said article 1700 of the Civil
Code.
Neither can it be maintained that the partnership continued to exist after the death of
Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever
been made by her and the defendant, pursuant to the provisions of article 1704 of the
Code last cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its
subsequent legal status was that of a partnership in liquidation, and the only rights
inherited by her testamentary heir, the herein plaintiff, were those resulting from the said
liquidation in favor of the deceased partner, and nothing more. Before this liquidation is

made, which up to the present has not been effected, it is impossible to determine what
rights or interests, if any, the deceased had, the partnership bond having been
dissolved.
There is no sufficient ground for holding that a community of property existed between
the plaintiff and the defendant, it not being known whether the deceased still had any
interest in the partnership property which could have been transmitted by will to the
plaintiff. There being no community of property, article 395 of the Civil Code cited by the
plaintiff in support of his contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the
defendant. It is true that the latter's act in requiring the heirs of Perpetua to contribute to
the payment of the expenses of exploitation of the aforesaid fishing industry was an
attempt to continue the partnership, but it is also true that neither the said heirs
collectively, nor the plaintiff individually, took any action in response to that requirement,
nor made any promise to that effect, and therefore no new contract of partnership
existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as it denies
the plaintiff's claim for damages, and reversed insofar as it declares the said plaintiff
owner of one-half of the fish pond, "Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.