G.R. No.

97212 June 30, 1993

BENJAMIN
YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HOFU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and
export business operated by a registered partnership with the firm name of "Jade Mountain Products
Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with
Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu
Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership business
consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz,
situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz
spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant
General Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually
received only half of his stipulated monthly salary, since he had accepted the promise of the partners
that the balance would be paid when the firm shall have secured additional operating funds from
abroad. Benjamin Yu actually managed the operations and finances of the business; he had overall
supervision of the workers at the marble quarry in Bulacan and took charge of the preparation of
papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and
Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co
and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest
in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy
Co acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy
Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved
the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry was entered into with the Cruz
spouses in February of 1988. 2 The actual operations of the business enterprise continued as before. All
the employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it
turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met
private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had
bought the business from the original partners and that it was for him to decide whether or not he was
responsible for the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner
was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries
remained unpaid. 3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid
salaries accruing from November 1984 to October 1988, moral and exemplary damages and attorney's
fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and
Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an
employee by the present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been
illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid
salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor
Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held
that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade
Mountain business, that the new partnership had not retained petitioner Yu in his original position as
Assistant General Manager, and that there was no law requiring the new partnership to absorb the
employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new
partnership which had simply declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against
the original members of the preceding partnership, but these though impleaded had, apparently, not
been served with summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and
annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or
excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has
a juridical personality separate and distinct from that of each of its members. Such independent legal
personality subsists, petitioner claims, notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain
could not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership
which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by
a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership
had come into existence, whether petitioner Yu could nonetheless assert his rights under his
employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect
of the changes in the membership of the partnership was the dissolution of the old partnership which
had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel
Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is found in the
Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx
(b) by the express will of any partner, who must act in
good faith, when no definite term or particular
undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the
partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82%
of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show
what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the
partnership interest by new partners, coupled with the retirement or withdrawal of the partners who
had originally owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do
not, however, automatically result in the termination of the legal personality of the old partnership.
Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to dissolution and winding up
of its business affairs. In other words, the new partnership simply took over the business enterprise
owned by the preceeding partnership, and continued using the old name of Jade Mountain Products
Company Limited, without winding up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful tax considerations which underlay
such an informal approach to business on the part of the retiring and the incoming partners. It is not,
however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described situation, not only the
retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the
business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson,
et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a
withdrawing partner remains liable to a third party creditor of the old partnership. 9 The liability of the new
partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is established in
Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved

are also creditors of the person or partnership continuing the business:

partnership

(1) When any new partner is admitted into an existing partnership, or when any partner
retires and assigns (or the representative of the deceased partner assigns) his rights
in partnership property to two or more of the partners, or to one or more of the partners
and one or more third persons, if the business is continued without liquidation of the
partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner,
who continues the business without liquidation of partnership affairs, either alone or
with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner, but without any assignment of
his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who continue
the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners continue
the businessunder the provisions of article 1837, second paragraph, No. 2, either
alone or with others, andwithout liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either
alone or with others without liquidation of the partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is continued under any conditions
set forth in this article the creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner against the person or partnership
continuing the business on account of the retired or deceased partner's interest in the
dissolved partnership or on account of any consideration promised for such interest or
for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment
on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade
Mountain which continued the business of the old one without liquidation of the partnership affairs.
Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for
unpaid wages, is entitled to priority vis-a-visany claim of any retired or previous partner insofar as such
retired partner's interest in the dissolved partnership is concerned. It is not necessary for the Court to
determine under which one or mare of the above six (6) paragraphs, the case at bar would fall, if only
because the facts on record are not detailed with sufficient precision to permit such determination. It
is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his
claim for unpaid salaries, as well as other claims relating to his employment with the previous
partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to appoint and
hire a new general or assistant general manager to run the affairs of the business enterprise take over.
An assistant general manager belongs to the most senior ranks of management and a new partnership
is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin
Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination
without just or authorized cause. We think that the precise authorized cause for termination in the case
at bar was redundancy. 10 The new partnership had its own new General Manager, apparently Mr. Willy
Co, the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's old
position as Assistant General Manager thus became superfluous or redundant. 11 It follows that petitioner
Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of service that he
had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ,
we consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership
certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble
quarrying, processing and exporting enterprise. His work constituted value-added to the business itself
and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of
note that the new partnership did not try to suggest that there was any cause consisting of some
blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate
his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the
business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the
assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his
claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and
cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may
legitimately be required to respond by paying moral damages. This Court, exercising its discretion and
in view of all the circumstances of this case, believes that an indemnity for moral damages in the
amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent
(6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date
of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled
Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees
in the amount of ten percent (10%) of the total amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the
Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new
Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company Limited
to pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six

(36) months (November 1984 to December 1987) in the total amount

of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay
multiplied by three (3) years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a)
and (b) above, commencing on 26 December 1989 and until fully paid;
and
(e) ten percent (10%) attorney's fees on the total amount due from
private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.

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 DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFSAPPELLEES 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 CROSSDEFENDANTS 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 cross-defendants 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 co-equal, concurrent
and coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or decrees of a court of concurrent
or coordinate jurisdiction having equal power to grant the relief sought by the
injunction.
The various branches of the Court of First Instance of Manila are in a sense coordinate
courts and cannot be allowed to interfere with each others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case 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 re-examine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's cause of action springs from
the alleged nullity of the judgment based on one ground or another, particularly fraud,
which fact affords the plaintiff a right to judicial interference in his behalf. In such a suit
the cause of action is entirely different from that in the actgion which grave rise to the
judgment sought to be annulled, for a direct attack against a final and executory
judgment is not a incidental to, but is the main object of the proceeding. The cause of
action in the two cases being distinct and separate from each other, there is no
plausible reason why the venue of the action to annul the judgment should necessarily
follow the venue of the previous action ...
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 memorandumagreement, 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.

DIGESTED
G.R. No. 97212 June 30, 1993
BENJAMIN
YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HOFU, respondents.

FACTS:
Petitioner Yu was hired as the Assistant General Manager of Jade Mountain Products Company Limited
primarily responsible for the overall operations of marble quarrying and export business of said
partnership. He was hired by a virtue of a Partnership Resolution in 1985 with a monthly salary of
P4,000.00. Initially he received only half of his stipulated monthly salary and was promised by the partners
that the balance would be paid upon securing additional operating funds from abroad. However, in 1988
without his knowledge the general partners as well as one of the limited partners sold and transferred
their interest to Willy Co and Emmanuel Zapanta. Thus the new major partners decided to transfer the
firms main office but opted to continue the operation of the old partnership under its old firm name and
with all its employees and workers except for the petitioner. Upon knowing of the changes in the
partnership, petitioner went to the new main office to meet the new partners and demand the payment
of his unpaid salaries, but the latter refused to pay him and instead informed him that since he bought
the business from the original partners, it was for him to decide whether or not he was responsible for
the obligations of the old partnership including petitioners unpaid salaries. Hence, petitioner was
dismissed from said partnership.

ISSUES:

1.
2.

Whether the partnership which had hired the petitioner as Asst. General Manager had been
extinguished and replaced by a new partnership composed of Willy Co and Emmanuel Zapanta.
Whether petitioner could assert his rights under his employment contract as against the new
partnership

HELD:
1. Yes. The legal effect of the changes in the membership of the partnership was the dissolution of the
old partnership which had hired the petitioner in 1984 and the emergence of the new firm composed of
Willy Co and Emmanuel Zapanta in 1988. This is based on the following provisions:
Art. 1828. The dissolution of partnership is the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on as a distinguished from the winding up of the business.
Art. 1830. Dissolution is caused:
1.

without violation of the agreement between the partners;

b. by the express will of any partner, who must act in good faith, when no definite term or
particular undertaking is specified.
2.
in contravention of the agreement between the partners, where the circumstances do not
permit a dissolution under any other provision of this article, by the express will of any partner
at
any time;
However, the legal consequence of dissolution of a partnership do not automatically result in the
termination of the legal personality of the old partnership as according to Art. 1829, on dissolution of
the partnership is not terminated, but continues until the winding up of the partnership affairs is
completed. The new partnership simply continued the operations of the old partnership under its old firm
name without winding up the business affairs of the old partnership.
2. Yes. Under Art. 1840, creditors of the old partnership are also creditors of the new partnership which
continued the business of former without liquidation of the partnership affairs. Thus, creditor of the old
Jade Mountain, such as the petitioner is entitled to enforce his claim for unpaid salaries, as well as other
claims relating to his employment with the old partnership against the new Jade Mountain.

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.

FACTS:
Isabela Sawmill was formed by partners Saldajeno, Lon and Timoteo. S withdrew from the partnership
and after dissolution, L and T continued the business still under the name Isabela Sawmill. The partnership
is indebted to various creditors and that Sheriff sold the assets of Isabela Sawmill to S and was
subsequently sold to a separate company.
ISSUE:
Whether or not Isabela Sawmill ceased to be a partnership and that creditors could no longer demand
payment.
RULING:
On dissolution, the partnership is not terminated but continues until the winding up of the business. It
does not appear that the withdrawal of S from the partnership was published in the newspapers. The
appellee and the public had a right to expect that whatever credit they extended to L and T doing business
in the name of Isabela Sawmill could be enforced against the properties of said partnership. The judicial
foreclosure of the chattel mortgage executed in favor of S did not relieve her from liability to the creditors
of the partnership.
It may be presumed that S acted in good faith, the appellees also acted in good faith in extending credit
to the partnership. Where one of the 2 innocent persons must suffer, that person who gave occasion for
the damages to be caused must bear the consequences.

Version 2
Facts: In 1951, defendants entered into a contract of partnership under the firm name Isabela Sawmill.
In 1956 the plaintiff sold to the partnership a motor truck and two tractors. The partnership was not able
to pay their whole balance even after demand was made. One of the partners withdrew from the
partnership but instead of terminating the said partnership it was continued by the two remaining
partners under the same firm name. Plaintiffs also seek the annulment of the assignment of right with
chattel mortgage entered into by the withdrawing partner and the remaining partners. The appellants
contend that the chattel mortgage may no longer be nullified because it had been judicially approved and
said chattel mortgage had been judicially foreclosed.
Issue: Whether the withdrawal of one of the partners dissolved the partnership.
Ruling: It does not appear that the withdrawal of the partner was not published in the newspapers. The
appellees and the public in general had a right to expect that whatever, credit they extended to the
remaining partners could be enforced against the properties of the partnership. The withdrawing partner
cannot be relieved from her liability to the creditor of the partnership due to her own fault by not insisting
on the liquidation of the partnership. Though she had acted in good faith, the appellees also acted in good
faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the consequences. Technically, the
partnership was dissolved by the withdrawal of one of the partners. Through her acts of entering into a
memorandum with the remaining partners misled the creditors that they were doing business with the

partnership. Hence, from the order of the lower court ordering the withdrawing partner to pay the
plaintiffs, she is thus entitled for reimbursement from the remaining partners.