G.R. No.

127405 September 20, 2001

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

The inherent powers of a Court to amend and control its processes and orders so as to make them conformable to
law and justice includes the right to reverse itself, especially when in its honest opinion it has committed an error or
mistake in judgment, and that to adhere to its decision will cause injustice to a party litigant.1

On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration of our
Decision dated October 4, 2000. They maintain that there was no partnership between petitioner Belo, on the one
hand, and respondent Nenita A. Anay, on the other hand; and that the latter being merely an employee of petitioner
Tocao.

After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted merely as
guarantor of Geminesse Enterprise. This was categorically affirmed by respondent's own witness, Elizabeth
Bantilan, during her cross-examination. Furthermore, Bantilan testified that it was Peter Lo who was the company's
financier. Thus:

Q - You mentioned a while ago the name William Belo. Now, what is the role of William Belo with
Geminesse Enterprise?

A - William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.

Q - What do you mean by guarantor?

A - He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us.
We can borrow money from him.

Q - You mentioned a certain Peter Lo. Who is this Peter Lo?

A - Peter Lo is based in Singapore.

Q - What is the role of Peter Lo in the Geminesse Enterprise?

A - He is the one fixing our orders that open the L/C.

Q - You mean Peter Lo is the financier?

A - Yes, he is the financier.

Q - And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct?

A - Yes, sir2

The foregoing was neither refuted nor contradicted by respondent's evidence. It should be recalled that the business
relationship created between petitioner Tocao and respondent Anay was an informal partnership, which was not
even recorded with the Securities and Exchange Commission. As such, it was understandable that Belo, who was
after all petitioner Tocao's good friend and confidante, would occasionally participate in the affairs of the business,
although never in a formal or official capacity.3 Again, respondent's witness, Elizabeth Bantilan, confirmed that
petitioner Belo's presence in Geminesse Enterprise's meetings was merely as guarantor of the company and to help
petitioner Tocao.4

Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business
enterprise. Respondent herself professed lack of knowledge that petitioner Belo received any share in the net
income of the partnership.5 On the other hand, petitioner Tocao declared that petitioner Belo was not entitled to any
share in the profits of Geminesse Enterprise.6 With no participation in the profits, petitioner Belo cannot be deemed
a partner since the essence of a partnership is that the partners share in the profits and losses.7

Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of
action against him and her complaint against him should accordingly be dismissed.

As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for failing to
account for stocks of Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her claim for damages
should be barred to that extent. We do not agree. Given the circumstances surrounding private respondent's sudden
ouster from the partnership by petitioner Tocao, her act of withholding whatever stocks were in her possession and
control was justified, if only to serve as security for her claims against the partnership. However, while we do not
agree that the same renders private respondent in bad faith and should bar her claim for damages, we find that the
said sum of P208,250.00 should be deducted from whatever amount is finally adjudged in her favor on the basis of
the formal account of the partnership affairs to be submitted to the Regional Trial Court.

WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY GRANTED.
The Regional Trial Court of Makati is hereby ordered to DISMISS the complaint, docketed as Civil Case No. 88-509,
as against petitioner William T. Belo only. The sum of P208,250.00 shall be deducted from whatever amount
petitioner Marjorie Tocao shall be held liable to pay respondent after the normal accounting of the partnership
affairs.

SO ORDERED.
G.R. No. 413 February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant,

vs.
FRANCISCO DE LA ROSA, defendant-appellee.

Vicente Miranda, for appellant.

Simplicio del Rosario, for appellee.

LADD, J.:

The object of this action is to obtain from the court a declaration that a partnership exists between the parties, that
the plaintiff has a consequent interested in certain cascoes which are alleged to be partnership property, and that
the defendant is bound to render an account of his administration of the cascoes and the business carried on with
them.

Judgment was rendered for the defendant in the court below and the plaintiff appealed.

The respective claims of the parties as to the facts, so far as it is necessary to state them in order to indicate the
point in dispute, may be briefly summarized. The plaintiff alleges that in January, 1900, he entered into a verbal
agreement with the defendant to form a partnership for the purchase of cascoes and the carrying on of the business
of letting the same for hire in Manila, the defendant to buy the cascoes and each partner to furnish for that purpose
such amount of money as he could, the profits to be divided proportionately; that in the same January the plaintiff
furnished the defendant 300 pesos to purchase a casco designated as No. 1515, which the defendant did purchase
for 500 pesos of Doña Isabel Vales, taking the title in his own name; that the plaintiff furnished further sums
aggregating about 300 pesos for repairs on this casco; that on the fifth of the following March he furnished the
defendant 825 pesos to purchase another casco designated as No. 2089, which the defendant did purchase for
1,000 pesos of Luis R. Yangco, taking the title to this casco also in his own name; that in April the parties undertook
to draw up articles of partnership for the purpose of embodying the same in an authentic document, but that the
defendant having proposed a draft of such articles which differed materially from the terms of the earlier verbal
agreement, and being unwillingly to include casco No. 2089 in the partnership, they were unable to come to any
understanding and no written agreement was executed; that the defendant having in the meantime had the control
and management of the two cascoes, the plaintiff made a demand for an accounting upon him, which the defendant
refused to render, denying the existence of the partnership altogether.

The defendant admits that the project of forming a partnership in the casco business in which he was already
engaged to some extent individually was discussed between himself and the plaintiff in January, 1900, and earlier,
one Marcos Angulo, who was a partner of the plaintiff in a bakery business, being also a party to the negotiations,
but he denies that any agreement was ever consummated. He denies that the plaintiff furnished any money in
January, 1900, for the purchase of casco No. 1515, or for repairs on the same, but claims that he borrowed 300
pesos on his individual account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and
Antonio Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he claims was for the
purchase of casco No. 1515, which he alleged was bought March 12, and he alleges that he never received
anything from the defendant toward the purchase of casco No. 2089. He claims to have paid, exclusive of repairs,
1,200 pesos for the first casco and 2,000 pesos for the second one.

The case comes to this court under the old procedure, and it is therefore necessary for us the review the evidence
and pass upon the facts. Our general conclusions may be stated as follows:

(1) Doña Isabel Vales, from whom the defendant bought casco No. 1515, testifies that the sale was made and the
casco delivered in January, although the public document of sale was not executed till some time afterwards. This
witness is apparently disinterested, and we think it is safe to rely upon the truth of her testimony, especially as the
defendant, while asserting that the sale was in March, admits that he had the casco taken to the ways for repairs in
January.

It is true that the public document of sale was executed March 10, and that the vendor declares therein that she is
the owner of the casco, but such declaration does not exclude proof as to the actual date of the sale, at least as
against the plaintiff, who was not a party to the instrument. (Civil Code, sec. 1218.) It often happens, of course, in
such cases, that the actual sale precedes by a considerable time the execution of the formal instrument of transfer,
and this is what we think occurred here.

(2) The plaintiff presented in evidence the following receipt: "I have this day received from D. Jose Fernandez eight
hundred and twenty-five pesos for the cost of a casco which we are to purchase in company. Manila, March 5, 1900.
Francisco de la Rosa." The authenticity of this receipt is admitted by the defendant. If casco No. 1515 was bought,
as we think it was, in January, the casco referred to in the receipt which the parties "are to purchase in company"
must be casco No. 2089, which was bought March 22. We find this to be the fact, and that the plaintiff furnished and
the defendant received 825 pesos toward the purchase of this casco, with the understanding that it was to be
purchased on joint account.

(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio Angulo give the defendant, in
the name of the plaintiff, a sum of money, the amount of which he is unable to state, for the purchase of a casco to
be used in the plaintiff's and defendant's business. Antonio Angulo also testifies, but the defendant claims that the
fact that Angulo was a partner of the plaintiff rendered him incompetent as a witness under the provisions of article
643 of the then Code of Civil Procedure, and without deciding whether this point is well taken, we have discarded
his testimony altogether in considering the case. The defendant admits the receipt of 300 pesos from Antonio
Angulo in January, claiming, as has been stated, that it was a loan from the firm. Yet he sets up the claim that the
825 pesos which he received from the plaintiff in March were furnished toward the purchase of casco No. 1515,
thereby virtually admitting that casco was purchased in company with the plaintiff. We discover nothing in the
evidence to support the claim that the 300 pesos received in January was a loan, unless it may be the fact that the
defendant had on previous occasions borrowed money from the bakery firm. We think all the probabilities of the
case point to the truth of the evidence of Antonio Fernandez as to this transaction, and we find the fact to be that the
sum in question was furnished by the plaintiff toward the purchase for joint ownership of casco No. 1515, and that
the defendant received it with the understanding that it was to be used for this purposed. We also find that the
plaintiff furnished some further sums of money for the repair of casco.

(4) The balance of the purchase price of each of the two cascoes over and above the amount contributed by the
plaintiff was furnished by the defendant.

(5) We are unable to find upon the evidence before us that there was any specific verbal agreement of partnership,
except such as may be implied from the fact as to the purchase of the casco.

(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more probable than otherwise that
no attempt was made to agree upon articles of partnership till about the middle of the April following the purchase of
the cascoes.

(7) At some time subsequently to the failure of the attempt to agree upon partnership articles and after the
defendant had been operating the cascoes for some time, the defendant returned to the plaintiff 1,125 pesos, in two
different sums, one of 300 and one of 825 pesos. The only evidence in the record as to the circumstances under
which the plaintiff received these sums is contained in his answer to the interrogatories proposed to him by the
defendant, and the whole of his statement on this point may properly be considered in determining the fact as being
in the nature of an indivisible admission. He states that both sums were received with an express reservation on his
part of all his rights as a partner. We find this to be the fact.

Two questions of law are raised by the foregoing facts: (1) Did a partnership exist between the parties? (2) If such
partnership existed, was it terminated as a result of the act of the defendant in receiving back the 1,125 pesos?

(1) "Partnership is a contract by which 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." (Civil Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of partnership are, therefore, (1)
mutual contribution to a common stock, and (2) a joint interest in the profits. If the contract contains these two
elements the partnership relation results, and the law itself fixes the incidents of this relation if the parties fail to do
so. (Civil Code, secs. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the defendant with the
understanding that it was to be used for the purchase of the cascoes in question. This establishes the first element
of the contract, namely, mutual contribution to a common stock. The second element, namely, the intention to share
profits, appears to be an unavoidable deduction from the fact of the purchase of the cascoes in common, in the
absence of any other explanation of the object of the parties in making the purchase in that form, and, it may be
added, in view of the admitted fact that prior to the purchase of the first casco the formation of a partnership had
been a subject of negotiation between them.

Under other circumstances the relation of joint ownership, a relation distinct though perhaps not essentially different
in its practical consequence from that of partnership, might have been the result of the joint purchase. If, for
instance, it were shown that the object of the parties in purchasing in company had been to make a more favorable
bargain for the two cascoes that they could have done by purchasing them separately, and that they had no ulterior
object except to effect a division of the common property when once they had acquired it, the affectio
societatis would be lacking and the parties would have become joint tenants only; but, as nothing of this sort
appears in the case, we must assume that the object of the purchase was active use and profit and not mere
passive ownership in common.

It is thus apparent that a complete and perfect contract of partnership was entered into by the parties. This contract,
it is true, might have been subject to a suspensive condition, postponing its operation until an agreement was
reached as to the respective participation of the partners in the profits, the character of the partnership as collective
or en comandita, and other details, but although it is asserted by counsel for the defendant that such was the case,
there is little or nothing in the record to support this claim, and that fact that the defendant did actually go on and
purchase the boat, as it would seem, before any attempt had been made to formulate partnership articles, strongly
discountenances the theory.

The execution of a written agreement was not necessary in order to give efficacy to the verbal contract of
partnership as a civil contract, the contributions of the partners not having been in the form of immovables or rights
in immovables. (Civil Code, art. 1667.) The special provision cited, requiring the execution of a public writing in the
single case mentioned and dispensing with all formal requirements in other cases, renders inapplicable to this
species of contract the general provisions of article 1280 of the Civil Code.

(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the money returned to him by
the defendant after the definitive failure of the attempt to agree upon partnership articles. The amount returned fell
short, in our view of the facts, of that which the plaintiff had contributed to the capital of the partnership, since it did
not include the sum which he had furnished for the repairs of casco No. 1515. Moreover, it is quite possible, as
claimed by the plaintiff, that a profit may have been realized from the business during the period in which the
defendant have been administering it prior to the return of the money, and if so he still retained that sum in his
hands. For these reasons the acceptance of the money by the plaintiff did not have the effect of terminating the legal
existence of the partnership by converting it into a societas leonina, as claimed by counsel for the defendant.

Did the defendant waive his right to such interest as remained to him in the partnership property by receiving the
money? Did he by so doing waive his right to an accounting of the profits already realized, if any, and a participation
in them in proportion to the amount he had originally contributed to the common fund? Was the partnership
dissolved by the "will or withdrawal of one of the partners" under article 1705 of the Civil Code? We think these
questions must be answered in the negative.

There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a partner, nor is
there any evidence that by anything that he said or by anything that he omitted to say he gave the defendant any
ground whatever to believe that he intended to relinquish them. On the contrary he notified the defendant that he
waived none of his rights in the partnership. Nor was the acceptance of the money an act which was in itself
inconsistent with the continuance of the partnership relation, as would have been the case had the plaintiff
withdrawn his entire interest in the partnership. There is, therefore, nothing upon which a waiver, either express or
implied, can be predicated. The defendant might have himself terminated the partnership relation at any time, if he
had chosen to do so, by recognizing the plaintiff's right in the partnership property and in the profits. Having failed to
do this he can not be permitted to force a dissolution upon his co-partner upon terms which the latter is unwilling to
accept. We see nothing in the case which can give the transaction in question any other aspect than that of the
withdrawal by one partner with the consent of the other of a portion of the common capital.

The result is that we hold and declare that a partnership was formed between the parties in January, 1900, the
existence of which the defendant is bound to recognize; that cascoes No. 1515 and 2089 constitute partnership
property, and that the plaintiff is entitled to an accounting of the defendant's administration of such property, and of
the profits derived therefrom. This declaration does not involve an adjudication as to any disputed items of the
partnership account.

The judgment of the court below will be reversed without costs, and the record returned for the execution of the
judgment now rendered. So ordered.

Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.

Willard, J., dissenting.

ON MOTION FOR A REHEARING.

MAPA, J.:

This case has been decided on appeal in favor of the plaintiff, and the defendant has moved for a rehearing upon
the following grounds:

1. Because that part of the decision which refers to the existence of the partnership which is the object of the
complaint is not based upon clear and decisive legal grounds; and

2. Because, upon the supposition of the existence of the partnership, the decision does not clearly determine
whether the juridical relation between the partners suffered any modification in consequence of the withdrawal by
the plaintiff of the sum of 1,125 pesos from the funds of the partnership, or if it continued as before, the parties being
thereby deprived, he alleges, of one of the principal bases for determining with exactness the amount due to each.

With respect to the first point, the appellant cites the fifth conclusion of the decision, which is as follows: "We are
unable to find from the evidence before us that there was any specific verbal agreement of partnership, except such
as may be implied from the facts as to the purchase of the cascoes."

Discussing this part of the decision, the defendant says that, in the judgment of the court, if on the one hand there is
no direct evidence of a contract, on the other its existence can only be inferred from certain facts, and the defendant
adds that the possibility of an inference is not sufficient ground upon which to consider as existing what may be
inferred to exist, and still less as sufficient ground for declaring its efficacy to produce legal effects.

This reasoning rests upon a false basis. We have not taken into consideration the mere possibility of an inference,
as the appellant gratuitously stated, for the purpose of arriving at a conclusion that a contract of partnership was
entered into between him and the plaintiff, but have considered the proof which is derived from the facts connected
with the purchase of the cascoes. It is stated in the decision that with the exception of this evidence we find no other
which shows the making of the contract. But this does not mean (for it says exactly the contrary) that this fact is not
absolutely proven, as the defendant erroneously appears to think. From this data we infer a fact which to our mind is
certain and positive, and not a mere possibility; we infer not that it is possible that the contract may have existed, but
that it actually did exist. The proofs constituted by the facts referred to, although it is the only evidence, and in spite
of the fact that it is not direct, we consider, however, sufficient to produce such a conviction, which may certainly be
founded upon any of the various classes of evidence which the law admits. There is all the more reason for its being
so in this case, because a civil partnership may be constituted in any form, according to article 1667 of the Civil
Code, unless real property or real rights are contributed to it — the only case of exception in which it is necessary
that the agreement be recorded in a public instrument.

It is of no importance that the parties have failed to reach an agreement with respect to the minor details of contract.
These details pertain to the accidental and not to the essential part of the contract. We have already stated in the
opinion what are the essential requisites of a contract of partnership, according to the definition of article 1665.
Considering as a whole the probatory facts which appears from the record, we have reached the conclusion that the
plaintiff and the defendant agreed to the essential parts of that contract, and did in fact constitute a partnership, with
the funds of which were purchased the cascoes with which this litigation deals, although it is true that they did not
take the precaution to precisely establish and determine from the beginning the conditions with respect to the
participation of each partner in the profits or losses of the partnership. The disagreements subsequently arising
between them, when endeavoring to fix these conditions, should not and can not produce the effect of destroying
that which has been done, to the prejudice of one of the partners, nor could it divest his rights under the partnership
which had accrued by the actual contribution of capital which followed the agreement to enter into a partnership,
together with the transactions effected with partnership funds. The law has foreseen the possibility of the
constitution of a partnership without an express stipulation by the partners upon those conditions, and has
established rules which may serve as a basis for the distribution of profits and losses among the partners. (Art. 1689
of the Civil Code. ) We consider that the partnership entered into by the plaintiff and the defendant falls within the
provisions of this article.

With respect to the second point, it is obvious that upon declaring the existence of a partnership and the right of the
plaintiff to demand from the defendant an itemized accounting of his management thereof, it was impossible at the
same time to determine the effects which might have been produced with respect to the interest of the partnership
by the withdrawal by the plaintiff of the sum of 1,125 pesos. This could only be determined after a liquidation of the
partnership. Then, and only then, can it be known if this sum is to be charged to the capital contributed by the
plaintiff, or to his share of the profits, or to both. It might well be that the partnership has earned profits, and that the
plaintiff's participation therein is equivalent to or exceeds the sum mentioned. In this case it is evident that,
notwithstanding that payment, his interest in the partnership would still continue. This is one case. It would be easy
to imagine many others, as the possible results of a liquidation are innumerable. The liquidation will finally determine
the condition of the legal relations of the partners inter se at the time of the withdrawal of the sum mentioned. It was
not, nor is it possible to determine this status a priori without prejudging the result, as yet unknown, of the litigation.
Therefore it is that in the decision no direct statement has been made upon this point. It is for the same reason that
it was expressly stated in the decision that it "does not involve an adjudication as to any disputed item of the
partnership account."

The contentions advanced by the moving party are so evidently unfounded that we can not see the necessity or
convenience of granting the rehearing prayed for, and the motion is therefore denied.

Arellano, C.J., Torres, Cooper, and Ladd, JJ., concur.

BALGAMELO CABILING MA, FELIX CABILING MA, JR., AND VALERIANO CABILING MA, Petitioners,
vs.
COMMISSIONER ALIPIO F. FERNANDEZ, JR., ASSOCIATE COMMISSIONER ARTHEL B. CARONOÑGAN,
ASSOCIATE COMMISSIONER JOSE DL. CABOCHAN, ASSOCIATE COMMISSIONER TEODORO B.
DELARMENTE AND ASSOCIATE COMMISSIONER FRANKLIN Z. LITTAUA, in their capacities as Chairman
and Members of the Board of Commissioners (Bureau of Immigration), and MAT G. CATRAL, Respondents.

DECISION

PEREZ, J.:

Should children born under the 1935 Constitution of a Filipino mother and an alien father, who executed an affidavit
of election of Philippine citizenship and took their oath of allegiance to the government upon reaching the age of
majority, but who failed to immediately file the documents of election with the nearest civil registry, be considered
foreign nationals subject to deportation as undocumented aliens for failure to obtain alien certificates of registration?

Positioned upon the facts of this case, the question is translated into the inquiry whether or not the omission negates
their rights to Filipino citizenship as children of a Filipino mother, and erase the years lived and spent as Filipinos.

The resolution of these questions would significantly mark a difference in the lives of herein petitioners.

The Facts

Balgamelo Cabiling Ma (Balgamelo), Felix Cabiling Ma, Jr. (Felix, Jr.), Valeriano Cabiling Ma (Valeriano), Lechi Ann
Ma (Lechi Ann), Arceli Ma (Arceli), Nicolas Ma (Nicolas), and Isidro Ma (Isidro) are the children of Felix (Yao Kong)
Ma,1 a Taiwanese, and Dolores Sillona Cabiling, a Filipina.2

Records reveal that petitioners Felix, Jr., Balgamelo and Valeriano were all born under aegis of the 1935 Philippine
Constitution in the years 1948, 1951, and 1957, respectively.3

They were all raised in the Philippines and have resided in this country for almost sixty (60) years; they spent their
whole lives, studied and received their primary and secondary education in the country; they do not speak nor
understand the Chinese language, have not set foot in Taiwan, and do not know any relative of their father; they
have not even traveled abroad; and they have already raised their respective families in the Philippines.4

During their age of minority, they secured from the Bureau of Immigration their Alien Certificates of Registration
(ACRs). 5

Immediately upon reaching the age of twenty-one, they claimed Philippine citizenship in accordance with Section
1(4), Article IV, of the 1935 Constitution, which provides that "(t)hose whose mothers are citizens of the Philippines
and, upon reaching the age of majority, elect Philippine citizenship" are citizens of the Philippines. Thus, on 15
August 1969, Felix, Jr. executed his affidavit of election of Philippine citizenship and took his oath of allegiance
before then Judge Jose L. Gonzalez, Municipal Judge, Surigao, Surigao del Norte.6 On 14 January 1972, Balgamelo
did the same before Atty. Patrocinio C. Filoteo, Notary Public, Surigao City, Surigao del Norte.7 In 1978, Valeriano
took his oath of allegiance before then Judge Salvador C. Sering, City Court of Surigao City, the fact of which the
latter attested to in his Affidavit of 7 March 2005.8

Having taken their oath of allegiance as Philippine citizens, petitioners, however, failed to have the necessary
documents registered in the civil registry as required under Section 1 of Commonwealth Act No. 625 (An Act
Providing the Manner in which the Option to Elect Philippine Citizenship shall be Declared by a Person whose
Mother is a Filipino Citizen). It was only on 27 July 2005 or more than thirty (30) years after they elected Philippine
citizenship that Balgamelo and Felix, Jr. did so.9 On the other hand, there is no showing that Valeriano complied
with the registration requirement.

Individual certifications10 all dated 3 January 2005 issued by the Office of the City Election Officer, Commission on
Elections, Surigao City, show that all of them are registered voters of Barangay Washington, Precinct No. 0015A
since June 1997, and that records on previous registrations are no longer available because of the mandatory
general registration every ten (10) years. Moreover, aside from exercising their right of suffrage, Balgamelo is one of
the incumbent Barangay Kagawads in Barangay Washington, Surigao City.11

Records further reveal that Lechi Ann and Arceli were born also in Surigao City in 195312 and 1959,13 respectively.
The Office of the City Civil Registrar issued a Certification to the effect that the documents showing that Arceli
elected Philippine citizenship on 27 January 1986 were registered in its Office on 4 February 1986. However, no
other supporting documents appear to show that Lechi Ann initially obtained an ACR nor that she subsequently
elected Philippine citizenship upon reaching the age of majority. Likewise, no document exists that will provide
information on the citizenship of Nicolas and Isidro.

The Complaint

On 16 February 2004, the Bureau of Immigration received the Complaint-Affidavit14 of a certain Mat G. Catral (Mr.
Catral), alleging that Felix (Yao Kong) Ma and his seven (7) children are undesirable and overstaying aliens. Mr.
Catral, however, did not participate in the proceedings, and the Ma family could not but believe that the complaint
against them was politically motivated because they strongly supported a candidate in Surigao City in the 2004
National and Local Elections.15

On 9 November 2004, the Legal Department of the Bureau of Immigration charged them for violation of Sections
37(a)(7)16 and 45(e)17 of Commonwealth Act No. 613, otherwise known as the Philippine Immigration Act of 1940, as
amended. The Charge Sheet18 docketed as BSI-D.C. No. AFF-04-574 (OC-STF-04-09/23-1416) reads, in part:

That Respondents x x x, all Chinese nationals, failed and continuously failed to present any valid document to show
their respective status in the Philippines. They likewise failed to produce documents to show their election of
Philippines (sic) citizenship, hence, undocumented and overstaying foreign nationals in the country.

That respondents, being aliens, misrepresent themselves as Philippine citizens in order to evade the requirements
of the immigration laws.

Ruling of the Board of Commissioners, Bureau of Immigration

After Felix Ma and his seven (7) children were afforded the opportunity to refute the allegations, the Board of
Commissioners (Board) of the Bureau of Immigration (BI), composed of the public respondents, rendered a
Judgment dated 2 February 2005 finding that Felix Ma and his children violated Commonwealth Act No. 613,
Sections 37(a)(7) and 45(e) in relation to BI Memorandum Order Nos. ADD-01-031 and ADD-01-035 dated 6 and 22
August 2001, respectively.19

The Board ruled that since they elected Philippine citizenship after the enactment of Commonwealth Act No. 625,
which was approved on 7 June 1941, they were governed by the following rules and regulations:

1. Section 1 of Commonwealth Act No. 625, providing that the election of Philippine citizenship embodied in
a statement sworn before any officer authorized to administer oaths and the oath of allegiance shall be filed
with the nearest civil registry;20 and Commission of Immigration and Deportation (CID, now Bureau of
Immigration [BI]) Circular dated 12 April 1954,21 detailing the procedural requirements in the registration of
the election of Philippine citizenship.

2. Memorandum Order dated 18 August 195622 of the CID, requiring the filing of a petition for the
cancellation of their alien certificate of registration with the CID, in view of their election of Philippine
citizenship;

3. Department of Justice (DOJ) Opinion No. 182, 19 August 1982; and DOJ Guidelines, 27 March 1985,
requiring that the records of the proceedings be forwarded to the Ministry (now the Department) of Justice
for final determination and review.23

As regards the documentation of aliens in the Philippines, Administrative Order No. 1-93 of the Bureau of
Immigration24 requires that ACR, E-series, be issued to foreign nationals who apply for initial registration, finger
printing and issuance of an ACR in accordance with the Alien Registration Act of 1950.25 According to public
respondents, any foreign national found in possession of an ACR other than the E-series shall be considered
improperly documented aliens and may be proceeded against in accordance with the Immigration Act of 1940 or the
Alien Registration Act of 1950, as amended.26

Supposedly for failure to comply with the procedure to prove a valid claim to Philippine citizenship via election
proceedings, public respondents concluded that Felix, Jr. Balgamelo, Arceli, Valeriano and Lechi Ann are
undocumented and/or improperly documented aliens.27

Nicolas and Isidro, on the other hand, did not submit any document to support their claim that they are Philippine
citizens. Neither did they present any evidence to show that they are properly documented aliens. For these
reasons, public respondents likewise deemed them undocumented and/or improperly documented aliens.28

The dispositive portion29 of the Judgment of 2 February 2005 reads:

1. Subject to the submission of appropriate clearances, summary deportation of Felix (Yao Kong) Ma, Felix
Ma, Jr., Balgamelo Ma, Valeriano Ma, Lechi Ann Ma, Nicolas Ma, Arceli Ma and Isidro Ma, Taiwanese
[Chinese], under C.A. No. 613, Sections 37(a)(7), 45(e) and 38 in relation to BI M.O. Nos. ADD-01-031 and
ADD-01-035 dated 6 and 22 August 2001, respectively;

2. Issuance of a warrant of deportation against Felix (Yao Kong) Ma, Felix Ma, Jr., Balgamelo Ma, Valeriano
Ma, Lechi Ann Ma, Nicolas Ma, Arceli Ma and Isidro Ma under C.A. No. 613, Section 37(a);

3. Inclusion of the names of Felix (Yao Kong) Ma, Felix Ma, Jr., Balgamelo Ma, Valeriano Ma, Lechi Ann Ma,
Nicolas Ma, Arceli Ma and Isidro Ma in the Immigration Blacklist; and

4. Exclusion from the Philippines of Felix (Yao Kong) Ma, Felix Ma, Jr., Balgamelo Ma, Valeriano Ma, Lechi
Ann Ma, Nicolas Ma, Arceli Ma and Isidro Ma under C.A. No. 613, Section 29(a)(15). (Emphasis supplied.)

In its Resolution30 of 8 April 2005, public respondents partially reconsidered their Judgment of 2 February 2005.
They were convinced that Arceli is an immigrant under Commonwealth Act No. 613, Section 13(g).31 However, they
denied the Motion for Reconsideration with respect to Felix Ma and the rest of his children.32

Ruling of the Court of Appeals

On 3 May 2005, only Balgamelo, Felix, Jr., and Valeriano filed the Petition for Certiorari under Rule 65 of the 1997
Rules of Civil Procedure before the Court of Appeals, which was docketed as CA-G.R. SP No. 89532. They sought
the nullification of the issuances of the public respondents, to wit: (1) the Judgment dated 2 February 2005, ordering
the summary deportation of the petitioners, issuance of a warrant of deportation against them, inclusion of their
names in the Immigration Blacklist, and exclusion of the petitioners from the Philippines; and (2) the Resolution
dated 8 April 2005, denying the petitioners’ Motion for Reconsideration.

On 29 August 2007, the Court of Appeals dismissed the petition33 after finding that the petitioners "failed to comply
with the exacting standards of the law providing for the procedure and conditions for their continued stay in the
Philippines either as aliens or as its nationals."34

On 29 May 2008, it issued a Resolution35 denying the petitioners’ Motion for Reconsideration dated 20 September
2007.

To reiterate, a person’s continued and uninterrupted stay in the Philippines, his being a registered voter or an
elected public official cannot vest in him Philippine citizenship as the law specifically lays down the requirements for
acquisition of Philippine citizenship by election. The prescribed procedure in electing Philippine citizenship is
certainly not a tedious and painstaking process. All that is required of the elector is to execute an affidavit of election
of Philippine citizenship and, thereafter, file the same with the nearest civil registry. The constitutional mandate
concerning citizenship must be adhered to strictly. Philippine citizenship can never be treated like a commodity that
can be claimed when needed and suppressed when convenient. One who is privileged to elect Philippine citizenship
has only an inchoate right to such citizenship. As such, he should avail of the right with fervor, enthusiasm and
promptitude.36
 Our Ruling

The 1935 Constitution declares as citizens of the Philippines those whose mothers are citizens of the Philippines
and elect Philippine citizenship upon reaching the age of majority. The mandate states:

Section 1. The following are citizens of the Philippines:

(1) xxx;

xxxx

(4) Those whose mothers are citizens of the Philippines and, upon reaching the age of majority,
elect Philippine citizenship.37

In 1941, Commonwealth Act No. 625 was enacted. It laid down the manner of electing Philippine citizenship, to wit:

Section 1. The option to elect Philippine citizenship in accordance with subsection (4), Section 1, Article IV, of the
Constitution shall be expressed in a statement to be signed and sworn to by the party concerned before any officer
authorized to administer oaths, and shall be filed with the nearest civil registry. The said party shall accompany the
aforesaid statement with the oath of allegiance to the Constitution and the Government of the Philippines.

The statutory formalities of electing Philippine citizenship are: (1) a statement of election under oath; (2) an oath of
allegiance to the Constitution and Government of the Philippines; and (3) registration of the statement of election
and of the oath with the nearest civil registry.

In Re:Application for Admission to the Philippine Bar, Vicente D. Ching,38 we determined the meaning of the period
of election described by phrase "upon reaching the age of majority." Our references were the Civil Code of the
Philippines, the opinions of the Secretary of Justice, and the case of Cueco v. Secretary of Justice.39 We
pronounced:

x x x [T]he 1935 Constitution and C.A. No. 625 did not prescribe a time period within which the election of Philippine
citizenship should be made. The 1935 Charter only provides that the election should be made "upon reaching the
age of majority." The age of majority then commenced upon reaching twenty-one (21) years.40 In the opinions of the
Secretary of Justice on cases involving the validity of election of Philippine citizenship, this dilemma was resolved by
basing the time period on the decisions of this Court prior to the effectivity of the 1935 Constitution. In these
decisions, the proper period for electing Philippine citizenship was, in turn, based on the pronouncements of the
Department of State of the United States Government to the effect that the election should be made within a
reasonable time after attaining the age of majority.41 The phrase "reasonable time" has been interpreted to mean
that the elections should be made within three (3) years from reaching the age of majority.42 However, we held in
Cue[n]co vs. Secretary of Justice,43 that the three (3) year period is not an inflexible rule. We said:

It is true that this clause has been construed to mean a reasonable time after reaching the age of majority, and that
the Secretary of Justice has ruled that three (3) years is the reasonable time to elect Philippine citizenship under the
constitutional provision adverted to above, which period may be extended under certain circumstances, as when the
person concerned has always considered himself a Filipino.

However, we cautioned in Cue[n]co that the extension of the option to elect Philippine citizenship is not indefinite.

Regardless of the foregoing, petitioner was born on February 16, 1923. He became of age on February 16, 1944.
His election of citizenship was made on May 15, 1951, when he was over twenty-eight (28) years of age, or over
seven (7) years after he had reached the age of majority. It is clear that said election has not been made "upon
reaching the age of majority.44

We reiterated the above ruling in Go, Sr. v. Ramos,45 a case in which we adopted the findings of the appellate court
that the father of the petitioner, whose citizenship was in question, failed to elect Philippine citizenship within the
reasonable period of three (3) years upon reaching the age of majority; and that "the belated submission to the local
civil registry of the affidavit of election and oath of allegiance x x x was defective because the affidavit of election
was executed after the oath of allegiance, and the delay of several years before their filing with the proper office was
not satisfactorily explained."46

In both cases, we ruled against the petitioners because they belatedly complied with all the requirements. The acts
of election and their registration with the nearest civil registry were all done beyond the reasonable period of three
years upon reaching the age of majority.

The instant case presents a different factual setting. Petitioners complied with the first and second requirements
upon reaching the age of majority. It was only the registration of the documents of election with the civil registry that
was belatedly done.

We rule that under the facts peculiar to the petitioners, the right to elect Philippine citizenship has not been lost and
they should be allowed to complete the statutory requirements for such election.

Such conclusion, contrary to the finding of the Court of Appeals, is in line with our decisions in In Re:Florencio
Mallare,47 Co v. Electoral Tribunal of the House of Representatives,48 and Re:Application for Admission to the
Philippine Bar, Vicente D. Ching.49

In Mallare, Esteban’s exercise of the right of suffrage when he came of age was deemed to be a positive act of
election of Philippine citizenship.50 The Court of Appeals, however, said that the case cannot support herein
petitioners’ cause, pointing out that, unlike petitioner, Esteban is a natural child of a Filipina, hence, no other act
would be necessary to confer on him the rights and privileges of a Filipino citizen,51 and that Esteban was born in
192952 prior to the adoption of the 1935 Constitution and the enactment of Commonwealth Act No. 625.53

In the Co case, Jose Ong, Jr. did more than exercise his right of suffrage, as he established his life here in the
Philippines.54 Again, such circumstance, while similar to that of herein petitioners’, was not appreciated because it
was ruled that any election of Philippine citizenship on the part of Ong would have resulted in absurdity, because the
law itself had already elected Philippine citizenship for him55 as, apparently, while he was still a minor, a certificate of
naturalization was issued to his father.56

In Ching, it may be recalled that we denied his application for admission to the Philippine Bar because, in his case,
all the requirements, to wit: (1) a statement of election under oath; (2) an oath of allegiance to the Constitution and
Government of the Philippines; and (3) registration of the statement of election and of the oath with the nearest civil
registry were complied with only fourteen (14) years after he reached the age of majority. Ching offered no reason
for the late election of Philippine citizenship.57

In all, the Court of Appeals found the petitioners’ argument of good faith and "informal election" unacceptable and
held:

Their reliance in the ruling contained in Re:Application for Admission to the Philippine Bar, Vicente D. Ching, [which
was decided on 1 October 1999], is obviously flawed. It bears emphasis that the Supreme Court, in said case, did
not adopt the doctrine laid down in In Re: Florencio Mallare. On the contrary, the Supreme Court was emphatic in
pronouncing that "the special circumstances invoked by Ching, i.e., his continuous and uninterrupted stay in the
Philippines and his being a certified public accountant, a registered voter and a former elected public official, cannot
vest in him Philippine citizenship as the law specifically lays down the requirements for acquisition of Philippine
citizenship by election.58

We are not prepared to state that the mere exercise of suffrage, being elected public official, continuous and
uninterrupted stay in the Philippines, and other similar acts showing exercise of Philippine citizenship can take the
place of election of citizenship. What we now say is that where, as in petitioners’ case, the election of citizenship has
in fact been done and documented within the constitutional and statutory timeframe, the registration of the
documents of election beyond the frame should be allowed if in the meanwhile positive acts of citizenship have
publicly, consistently, and continuously been done. The actual exercise of Philippine citizenship, for over half a
century by the herein petitioners, is actual notice to the Philippine public which is equivalent to formal registration of
the election of Philippine citizenship.

For what purpose is registration?

In Pascua v. Court of Appeals,59 we elucidated the principles of civil law on registration:

To register is to record or annotate. American and Spanish authorities are unanimous on the meaning of the term
"to register" as "to enter in a register; to record formally and distinctly; to enroll; to enter in a list."60 In general,
registration refers to any entry made in the books of the registry, including both registration in its ordinary and strict
sense, and cancellation, annotation, and even the marginal notes. In strict acceptation, it pertains to the entry made
in the registry which records solemnly and permanently the right of ownership and other real rights.61 Simply stated,
registration is made for the purpose of notification.62

Actual knowledge may even have the effect of registration as to the person who has knowledge thereof. Thus, "[i]ts
purpose is to give notice thereof to all persons (and it) operates as a notice of the deed, contract, or instrument to
others."63 As pertinent is the holding that registration "neither adds to its validity nor converts an invalid instrument
into a valid one between the parties."64 It lays emphasis on the validity of an unregistered document.

Comparable jurisprudence may be consulted.

In a contract of partnership, we said that the purpose of registration is to give notice to third parties; that failure to
register the contract does not affect the liability of the partnership and of the partners to third persons; and that
neither does such failure affect the partnership’s juridical personality.65 An unregistered contract of partnership is
valid as among the partners, so long as it has the essential requisites, because the main purpose of registration is to
give notice to third parties, and it can be assumed that the members themselves knew of the contents of their
contract.66 The non-registration of a deed of donation does not also affect its validity. Registration is not a
requirement for the validity of the contract as between the parties, for the effect of registration serves chiefly to bind
third persons.67

Likewise relevant is the pronouncement that registration is not a mode of acquiring a right. In an analogous case
involving an unrecorded deed of sale, we reiterated the settled rule that registration is not a mode of acquiring
ownership.

Registration does not confer ownership. It is not a mode of acquiring dominion, but only a means of confirming the
fact of its existence with notice to the world at large.68

Registration, then, is the confirmation of the existence of a fact. In the instant case, registration is the confirmation of
election as such election. It is not the registration of the act of election, although a valid requirement under
Commonwealth Act No. 625, that will confer Philippine citizenship on the petitioners. It is only a means of confirming
the fact that citizenship has been claimed.

Indeed, we even allow the late registration of the fact of birth and of marriage.69 Thus, has it been admitted through
existing rules that the late registration of the fact of birth of a child does not erase the fact of birth. Also, the fact of
marriage cannot be declared void solely because of the failure to have the marriage certificate registered with the
designated government agency.

Notably, the petitioners timely took their oath of allegiance to the Philippines. This was a serious undertaking. It was
commitment and fidelity to the state coupled with a pledge "to renounce absolutely and forever all allegiance" to any
other state. This was unqualified acceptance of their identity as a Filipino and the complete disavowal of any other
nationality.

Petitioners have passed decades of their lives in the Philippines as Filipinos. Their present status having been
formed by their past, petitioners can no longer have any national identity except that which they chose upon
reaching the age of reason.

Corollary to this fact, we cannot agree with the view of the Court of Appeals that since the ACR presented by the
petitioners are no longer valid on account of the new requirement to present an E-series ACR, they are deemed not
properly documented.70 On the contrary, petitioners should not be expected to secure E-series ACR because it
would be inconsistent with the election of citizenship and its constructive registration through their acts made public,
among others, their exercise of suffrage, election as public official, and continued and uninterrupted stay in the
Philippines since birth. The failure to register as aliens is, obviously, consistent with petitioners’ election of Philippine
citizenship.

The leanings towards recognition of the citizenship of children of Filipino mothers have been indicated not alone by
the jurisprudence that liberalized the requirement on time of election, and recognized positive acts of Philippine
citizenship.

The favor that is given to such children is likewise evident in the evolution of the constitutional provision on
Philippine citizenship.

Thus, while the 1935 Constitution requires that children of Filipino mothers elect Philippine citizenship upon reaching
their age of majority,71 upon the effectivity of the 1973 Constitution, they automatically become Filipinos72 and need
not elect Philippine citizenship upon reaching the age of majority. The 1973 provision reads:

Section 1. The following are citizens of the Philippines:

(1) xxx.

(2) Those whose fathers and mothers are citizens of the Philippines.73

Better than the relaxation of the requirement, the 1987 Constitution now classifies them as natural-born citizens
upon election of Philippine citizenship. Thus, Sec. 2, Article IV thereof provides:

Section 2. Natural-born citizens are those who are citizens of the Philippines from birth without having to perform
any act to acquire or perfect their Philippine citizenship. Those who elect Philippine citizenship in accordance with
paragraph (3), Section 1 hereof74 shall be deemed natural-born citizens. (Emphasis supplied.)

The constitutional bias is reflected in the deliberations of the 1986 Constitutional Commission.

MR. CONCEPCION. x x x.

xxxx

x x x x As regards those born of Filipino mothers, the 1935 Constitution merely gave them the option to choose
Philippine citizenship upon reaching the age of majority, even, apparently, if the father were an alien or unknown.
Upon the other hand, under the 1973 Constitution, children of mixed marriages involving an alien father and a
Filipino mother are Filipino citizens, thus liberalizing the counterpart provision in the 1935 Constitution by dispensing
with the need to make a declaration of intention upon reaching the age of majority. I understand that the committee
would further liberalize this provision of the 1935 Constitution. The Committee seemingly proposes to further
liberalize the policy of the 1935 Constitution by making those who became citizens of the Philippines through a
declaration of intention to choose their mother’s citizenship upon reaching the majority age by declaring that such
children are natural-born citizens of the Philippines.75

xxxx

xxx Why does the draft resolution adopt the provision of the 1973 Constitution and not that of the 1935? 76

xxxx

FR. BERNAS. x x x Precisely, the reason behind the modification of the 1935 rule on citizenship was a recognition
of the fact that it reflected a certain male chauvinism, and it was for the purpose of remedying that this proposed
provision was put in. The idea was that we should not penalize the mother of a child simply because she fell in love
with a foreigner. Now, the question on what citizenship the child would prefer arises. We really have no way of
guessing the preference of the infant. But if we recognize the right of the child to choose, then let him choose when
he reaches the age of majority. I think dual citizenship is just a reality imposed on us because we have no control of
the laws on citizenship of other countries. We recognize a child of a Filipino mother. But whether or not she is
considered a citizen of another country is something completely beyond our control. But certainly it is within the
jurisdiction of the Philippine government to require that [at] a certain point, a child be made to choose. But I do not
think we should penalize the child before he is even able to choose. I would, therefore, support the retention of the
modification made in 1973 of the male chauvinistic rule of the 1935 Constitution.77

xxxx

MR. REGALADO. With respect to a child who became a Filipino citizen by election, which the Committee is now
planning to consider a natural-born citizen, he will be so the moment he opts for Philippine citizenship. Did the
Committee take into account the fact that at the time of birth, all he had was just an inchoate right to choose
Philippine citizenship, and yet, by subsequently choosing Philippine citizenship, it would appear that his choice
retroacted to the date of his birth so much so that under the Gentleman’s proposed amendment, he would be a
natural-born citizen?78

FR. BERNAS. But the difference between him and the natural-born who lost his status is that the natural-born who
lost his status, lost it voluntarily; whereas, this individual in the situation contemplated in Section 1, paragraph 3
never had the chance to choose.79

xxxx

[on the period within which to elect Philippine citizenship]

MR. RODRIGO. [T]his provision becomes very, very important because his election of Philippine citizenship makes
him not only a Filipino citizen but a natural-born Filipino citizen, entitling him to run for Congress, to be a Justice of
the Supreme Court x x x.80

We are guided by this evolvement from election of Philippine citizenship upon reaching the age of majority under the
1935 Philippine Constitution to dispensing with the election requirement under the 1973 Philippine Constitution to
express classification of these children as natural-born citizens under the 1987 Constitution towards the conclusion
that the omission of the 1941 statutory requirement of registration of the documents of election should not result in
the obliteration of the right to Philippine citizenship.
1avvphi 1

Having a Filipino mother is permanent. It is the basis of the right of the petitioners to elect Philippine citizenship.
Petitioners elected Philippine citizenship in form and substance. The failure to register the election in the civil
registry should not defeat the election and resultingly negate the permanent fact that they have a Filipino mother.
The lacking requirements may still be complied with subject to the imposition of appropriate administrative penalties,
if any. The documents they submitted supporting their allegations that they have already registered with the civil
registry, although belatedly, should be examined for validation purposes by the appropriate agency, in this case, the
Bureau of Immigration. Other requirements embodied in the administrative orders and other issuances of the
Bureau of Immigration and the Department of Justice shall be complied with within a reasonable time.

WHEREFORE, the Decision dated 29 August 2007, and the Resolution dated 29 May 2008 of the Court of Appeals
in CA-G.R. SP No. 89532 affirming the Judgment dated 2 February 2005, and the Resolution dated 8 April 2005 of
the Bureau of Immigration in BSI-D.C. No. AFF-04-574 OC-STF-04-09/23-1416 are hereby SET ASIDE with respect
to petitioners Balgamelo Cabiling Ma, Felix Cabiling Ma, Jr., and Valeriano Cabiling Ma. Petitioners are given ninety
(90) days from notice within which to COMPLY with the requirements of the Bureau of Immigration embodied in its
Judgment of 2 February 2005. The Bureau of Immigration shall ENSURE that all requirements, including the
payment of their financial obligations to the state, if any, have been complied with subject to the imposition of
appropriate administrative fines; REVIEW the documents submitted by the petitioners; and ACT thereon in
accordance with the decision of this Court.

SO ORDERED.
G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn
out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an
inventory of real property will not ipso facto release the contracting partners from their respective obligations to each
other arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of Appeals 2 (CA) in
CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the
ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against
the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are
likewise ordered dismissed. No pronouncement as to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they
executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his
name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the
Joint Venture Agreement, was to be used for the development of the subdivision. 4 All three of them also agreed to
share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add
that respondent used the loan not for the development of the subdivision, but in furtherance of his own company,
Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he
was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of
the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs
and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing
units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of
P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had
separately caused the annotations of adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him
to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the
trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for
further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the
CA.
Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for
the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement
that losses as well as profits in a joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil
Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion
to what he may have contributed, but the industrial partner shall not be liable for the losses. As for
the profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright
the provision of Article 1769, and other related provisions of the Civil Code of the Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and
the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to
implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of
the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the
property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969,
by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B.
TORRES, and MISS EMETERIA BARING, . . . the SECOND PARTY:

WITNESSETH:
 That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at
Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained
the respective parties hereto do hereby stipulate and agree as follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the
amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50)
Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount
of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and
this particular amount will serve as an advance payment from the FIRST PARTY for the property
mentioned to be sub-divided and to be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the
principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, until the sub-division project is terminated and ready for sale to any interested parties, and
the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be
paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after
the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the
SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally according to the . . . percentage
[agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all
improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property
mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency,
borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary
improvements spent by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to
turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and
voluntarily for the uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to
Article 1767 of the Civil Code, which provides:

Art. 1767. 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.
Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land
which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount
needed for general expenses and other costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a
partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to
facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be
mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he
developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost
housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but
also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract
they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and
insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the
contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their
obligations. They cannot now disavow the relationship formed from such agreement due to their supposed
misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public
instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real
property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino
states that under the aforecited provision which is a complement of Article 1771, 12 "The execution of a public
instrument would be useless if there is no inventory of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such
inventory is made." The case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should
pay them 60 percent of the value of the property. 13 They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in
regard to a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement
an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code, because it
is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the
expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take
different forms, such as the prestation or promise of a thing or service by another. 15

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the
expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the
trial court, "the land was in effect given to the partnership as [petitioner's] participation therein. . . . There was
therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into
fruition, they [would] get sixty percent of the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that he
should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the
profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the
project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him
of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners
have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this
doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

SO ORDERED
 SECOND DIVISION
[G.R. No. 30616 : December 10, 1990.]
192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA, Defendant-Appellee.

DECISION

PARAS, J.:

This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao, Seventh
Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called
Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with
an indefinite term of existence was duly registered on January 21, 1955 with the Securities and Exchange
Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests
products licenses and concessions over public and/or private forest lands and to operate, develop and
promote such forests rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a timber concession
covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved
and Timber License No. 35-56 was duly issued and became the basis of subsequent renewals made for and
in behalf of the duly registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the
partnership, including marketing and handling of cash and is authorized to sign all papers and instruments
relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the
logging operations of the partnership. It is also provided in the said articles of co-partnership that all profits
and losses of the partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership
(Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang
as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership
(Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside
from the slight difference in the purpose of the second partnership which is to hold and secure renewal of
timber license instead of to secure the license as in the first partnership and the term of the second
partnership is fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able
to ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of
P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE
OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D")
agreeing among themselves that Maglana and Rojas shall purchase the interest, share and participation in
the Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said
instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan
secured by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners
of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name
also given to the second partnership, be dissolved. Pahamotang was paid in fun on August 31, 1957. No
other rights and obligations accrued in the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the
benefit of any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A.
948).
On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS
Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area
(Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was transferred to
CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash
or in equipment, to the capital investments of the partnership as well as his obligation to perform his duties
as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share
will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute
(Decision, R.A. 949).: nad

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated
February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the
recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and
voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by
Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year
1961 in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the
commissioners started examining the records and supporting papers of the partnership as well as the
information furnished them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim,
attaching thereto the amended answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p.
336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the
report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed
upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of
the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership
(Decision, R.A. pp. 895-896). - nad

After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads
as follows:
 "WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court
declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang
retired from the second partnership, that is, after August 31, 1957, when Pahamotang was finally
paid his share — the partnership of the defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio
and proportion of their respective contributions, or on the basis of share and share alike — this
covered by actual contributions of the plaintiff and the defendant and by their verbal agreement;
that the sharing of profits and losses is on the basis of actual contributions; that from 1957 to 1959,
the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of the profits, but from
1960 to the date of dissolution, February 23, 1961, the plaintiff's share will be on the basis of his
actual contribution and, considering his indebtedness to the partnership, the plaintiff is not entitled
to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's
name were acquired with partnership funds or with funds of the defendant and — the Court declares
that there is no evidence that these properties were acquired by the partnership funds, and therefore
the same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who
should be liable for them — the Court declares that neither parties is entitled to damages, for as
already stated above it is not a wise policy to place a price on the right of a person to litigate and/or
to come to Court for the assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961;
did it dissolve the partnership or not — the Court declares that the letter of the defendant to the
plaintiff dated February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise
to the laborers and employees of the Eastcoast Development Enterprises, — the COURT DECLARES
THE SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David — is
VALID AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the
amount of P69,000.00 the profits he received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which
according to him he is still entitled to receive from the CMS Estate, Inc. is hereby denied considering
that it has not yet been actually received, and further the receipt is merely based upon an expectancy
and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal
account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have
received as logging superintendent, and which was not paid to him, and this should be considered
as part of Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff. : rd

"SO ORDERED." Decision, Record on Appeal, pp. 985-989).

Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after
Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second
partnership was dissolved there was no written contract of co-partnership; there was no reconstitution as
provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was
carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership
and at will. It was considered as a partnership at will because there was no term, express or implied; no
period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast
Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit
"A") has not been novated, superseded and/or dissolved by the unregistered articles of co-partnership
among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and
accordingly, the terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should
govern the relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the
unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A") continues to
govern the relations between them and it was legal error to consider a de facto partnership between said
two partners or a partnership at will. Hence, the letter of appellee Maglana dated February 23, 1961, did
not legally dissolve the registered partnership between them, being in contravention of the partnership
agreement agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is
entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them
of "share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident
that it was not the intention of the partners to dissolve the first partnership, upon the constitution of the
second one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-
Appellee, pp. 24-25). Except for the fact that they took in one industrial partner; gave him an equal share
in the profits and fixed the term of the second partnership to thirty (30) years, everything else was the
same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the
same purposes and the capital contributions of Rojas and Maglana as stipulated in both partnerships call for
the same amounts. Just as important is the fact that all subsequent renewals of Timber License No. 35-36
were secured in favor of the First Partnership, the original licensee. To all intents and purposes therefore,
the First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-Partnership
(Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during
the existence of the second partnership, all business transactions were carried out under the duly registered
articles. As found by the trial court, it is an admitted fact that even up to now, there are still subsisting
obligations and contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in the
name of the second partnership except in favor of Pahamotang which was fully paid by the duly registered
partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas
agreed to purchase the interest, share and participation in the second partnership of Pahamotang and that
thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even
more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his
obligation to contribute either in cash or in equipment, to the capital investment of the partnership as well
as his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other
but to the provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that
he will not be able to comply with the promised contributions and he will not work as logging superintendent.
By such statements, it is obvious that Roxas understood what Maglana was referring to and left no room for
doubt that both considered themselves governed by the articles of the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can
neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an
existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar,
the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in
effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership
shall be divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished by
the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961
are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while
Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is
a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute (Article 1786, Civil
Code) and for interests and damages from the time he should have complied with his obligation (Article
1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership,
each partner must share in the profits and losses of the venture. That is the essence of a partnership (Ibid.,
p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous
reports which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the
amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital
contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which
is unquestionably a continuation of the duly registered partnership and the sharing of profits and losses
which should be on the basis of share and share alike as provided for in the duly registered Articles of Co-
Partnership, no plausible reason could be found to disturb the findings and conclusions of the trial court. : nad

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the
CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment,
refused to contribute either in cash or in equipment to the capital investment and to perform his duties as
logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas not
only abandoned the partnership but also took funds in an amount more than his contribution (Decision,
R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby
MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued
to exist until liquidated and that the sharing basis of the partners should be on share and share alike as
provided for in its Articles of Partnership, in accordance with the computation of the commissioners. We also
hereby AFFIRM the decision of the trial court in all other respects.: nad

SO ORDERED.
E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee.

Harvey & O'Brien for appellant.

DeWitt, Perkins & Brandy for appellee.

STREET, J.:

This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C. W.
Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of an appeal by the
executor from the allowance of the claim sued upon by the committee on claims in said estate. The purpose of the
action is to recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering & Co., Ltd., together
with the sum of about P125,000, representing the dividends which accrued on said stock prior to October 21, 1926,
with lawful interest. Upon hearing the cause the trial court absolved the defendant executor from the complaint, and
the plaintiff appealed.

Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he was
engaged during the years with which we are here concerned in buying, selling, and administering real estate. In
several ventures which he had made in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined
with him, the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular vocation was that of
a missionary, or missionary agent, of the Methodist Episcopal Church, went on leave to the United States and was
gone for nearly a year and a half, returning on September 21, 1920. On the eve of his departure Elser made a
written statements showing that Lyons was, at that time, half owner with Elser of three particular pieces of real
property. Concurrently with this act Lyons execute in favor of Elser a general power of attorney empowering him to
manage and dispose of said properties at will and to represent Lyons fully and amply, to the mutual advantage of
both. During the absence of Lyons two of the pieces of property above referred to were sold by Elser, leaving in his
hands a single piece of property located at 616-618 Carried Street, in the City of Manila, containing about 282
square meters of land, with the improvements thereon.

In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000 square meters,
near the City of Manila, and he discerned therein a fine opportunity for the promotion and development of a
suburban improvement. This property, which will be herein referred to as the San Juan Estate, was offered by its
owners for P570,000. To afford a little time for maturing his plans, Elser purchased an option on this property for
P5,000, and when this option was about to expire without his having been able to raise the necessary funds, he paid
P15,000 more for an extension of the option, with the understanding in both cases that, in case the option should be
exercised, the amounts thus paid should be credited as part of the first payment. The amounts paid for this option
and its extension were supplied by Elser entirely from his own funds. In the end he was able from his own means,
and with the assistance which he obtained from others, to acquire said estate. The amount required for the first
payment was P150,000, and as Elser had available only about P120,000, including the P20,000 advanced upon the
option, it was necessary to raise the remainder by obtaining a loan for P50,000. This amount was finally obtained
from a Chinese merchant of the city named Uy Siuliong. This loan was secured through Uy Cho Yee, a son of the
lender; and in order to get the money it was necessary for Elser not only to give a personal note signed by himself
and his two associates in the projected enterprise, but also by the Fidelity & Surety Company. The money thus
raised was delivered to Elser by Uy Siuliong on June 24, 1920. With this money and what he already had in bank
Elser purchased the San Juan Estate on or about June 28, 1920. For the purpose of the further development of the
property a limited partnership had, about this time, been organized by Elser and three associates, under the name
of J. K. Pickering & Company; and when the transfer of the property was effected the deed was made directly to this
company. As Elser was the principal capitalist in the enterprise he received by far the greater number of the shares
issued, his portion amount in the beginning to 3,290 shares.

While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be induced to
come in with him and supply part of the means necessary to carry the enterprise through. In this connection it
appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he had made an offer for a big
subdivision and that, if it should be acquired and Lyons would come in, the two would be well fixed. (Exhibit M-5.)
On June 3, 1920, eight days before the first option expired, Elser cabled Lyons that he had bought the San Juan
Estate and thought it advisable for Lyons to resign (Exhibit M-13), meaning that he should resign his position with
the mission board in New York. On the same date he wrote Lyons a letter explaining some details of the purchase,
and added "have advised in my cable that you resign and I hope you can do so immediately and will come and join
me on the lines we have so often spoken about. . . . There is plenty of business for us all now and I believe we have
started something that will keep us going for some time." In one or more communications prior to this, Elser had
sought to impress Lyons with the idea that he should raise all the money he could for the purpose of giving the
necessary assistance in future deals in real estate.

The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him averse from
joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United States a grave doubt
had arisen as to whether he would ever return to Manila, and it was only in the summer of 1920 that the board of
missions of his church prevailed upon him to return to Manila and resume his position as managing treasurer and
one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York thanking Elser for his offer to
take Lyons into his new project and adding that from the standpoint of making money, he had passed up a good
thing.

One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of this
venture, was that the board of mission was averse to his engaging in business activities other than those in which
the church was concerned; and some of Lyons' missionary associates had apparently been criticizing his
independent commercial activities. This fact was dwelt upon in the letter above-mentioned. Upon receipt of this letter
Elser was of course informed that it would be out of the question to expect assistance from Lyons in carrying out the
San Juan project. No further efforts to this end were therefore made by Elser.

When Elser was concluding the transaction for the purchase of the San Juan Estate, his book showed that he was
indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to Lyons from profits and earnings
derived from other properties; and when the J. K. Pickering & Company was organized and stock issued, Elser
indorsed to Lyons 200 of the shares allocated to himself, as he then believed that Lyons would be one of his
associates in the deal. It will be noted that the par value of these 200 shares was more than P8,000 in excess of the
amount which Elser in fact owed to Lyons; and when the latter returned to the Philippine Islands, he accepted these
shares and sold them for his own benefit. It seems to be supposed in the appellant's brief that the transfer of these
shares to Lyons by Elser supplies some sort of basis for the present action, or at least strengthens the
considerations involved in a feature of the case to be presently explained. This view is manifestly untenable, since
the ratification of the transaction by Lyons and the appropriation by him of the shares which were issued to him
leaves no ground whatever for treating the transaction as a source of further equitable rights in Lyons. We should
perhaps add that after Lyons' return to the Philippine Islands he acted for a time as one of the members of the board
of directors of the J. K. Pickering & Company, his qualification for this office being derived precisely from the
ownership of these shares.

We now turn to the incident which supplies the main basis of this action. It will be remembered that, when Elser
obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate, the
lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity & Surety Co. on the note to be given
for said loan. But before signing the note with Elser and his associates, the Fidelity & Surety Co. insisted upon
having security for the liability thus assumed by it. To meet this requirements Elser mortgaged to the Fidelity &
Surety Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street. This mortgage
was executed on June 30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San
Juan Estate. But when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to
come into this deal, Elser began to cast around for means to relieve the Carriedo property of the encumbrance
which he had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the Fidelity & Surety
Co., asking it to permit him to substitute a property owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000
shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co.
agreed to the proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new
mortgage on the M. H. del Pillar property and delivered the same, with 1,000 shares of J. K. Pickering & Company,
to said company. The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and
delivered it to Elser. But notwithstanding the fact that these documents were executed and delivered, the new
mortgage and the release of the old were never registered; and on September 25, 1920, thereafter, Elser returned
the cancellation of the mortgage on the Carriedo property and took back from the Fidelity & Surety Co. the new
mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he
had delivered to it.
The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived in Manila on
September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told him to let the Carriedo
mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in which
Lyons used the words above quoted, and as that conversation supplies the most reasonable explanation of Elser's
recession from his purpose of relieving the Carriedo property, the trial court was, in our opinion, well justified in
accepting as a proven fact the consent of Lyons for the mortgage to remain on the Carriedo property. This
concession was not only reasonable under the circumstances, in view of the abundant solvency of Elser, but in view
of the further fact that Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value
of nearly P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. The trial
court found in effect that the excess value of these shares over Elser's actual indebtedness was conceded by Elser
to Lyons in consideration of the assistance that had been derived from the mortgage placed upon Lyon's interest in
the Carriedo property. Whether the agreement was reached exactly upon this precise line of thought is of little
moment, but the relations of the parties had been such that it was to be expected that Elser would be generous; and
he could scarcely have failed to take account of the use he had made of the joint property of the two.

As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000 to Uy
Siuliong on January 18, 1921, although it was not due until more than five months later. It will thus be seen that the
mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of a single cent; and although
the court refused to allow the defendant to prove the Elser was solvent at this time in an amount much greater than
the entire encumbrance placed upon the property, it is evident that the risk imposed upon Lyons was negligible. It is
also plain that no money actually deriving from this mortgage was ever applied to the purchase of the San Juan
Estate. What really happened was the Elser merely subjected the property to a contingent liability, and no actual
liability ever resulted therefrom. The financing of the purchase of the San Juan Estate, apart from the modest
financial participation of his three associates in the San Juan deal, was the work of Elser accomplished entirely upon
his own account.

The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of redemption in
the Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily the owner of an
undivided interest in the property acquired partly by that money; and it is insisted for him that, in consideration of this
fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & Company, with the
earnings thereon, as claimed in his complaint.

Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in the manner
already explained had been used to held finance the purchase of the San Juan Estate. He seems to have supposed
that the Carried property had been mortgaged to aid in putting through another deal, namely, the purchase of a
property referred to in the correspondence as the "Ronquillo property"; and in this connection a letter of Elser of the
latter part of May, 1920, can be quoted in which he uses this language:

As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the money
for Ronquillo buy (P60,000) if the owner comes through.

Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and Lyons leads
us to infer that he thought that the money obtained by mortgaging the Carriedo property had been used in the
purchase of this property. It doubtedless appeared so to him in the retrospect, but certain consideration show that
he was inattentive to the contents of the quotation from the letter above given. He had already been informed that,
although Elser was angling for the Ronquillo property, its price had gone up, thus introducing a doubt as to whether
he could get it; and the quotation above given shows that the intended use of the money obtained by mortgaging the
Carriedo property was that only part of the P50,000 thus obtained would be used in this way, if the deal went
through. Naturally, upon the arrival of Lyons in September, 1920, one of his first inquiries would have been, if he did
not know before, what was the status of the proposed trade for the Ronquillo property.

Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to this effect;:
"I have mortgaged the property on Carriedo Street, secured by my personal note. You are amply protected. I wish
you to join me in the San Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram was
received by him, and we consider this point of fact of little moment, since the proof shows that Lyons knew that the
Carriedo mortgage had been executed, and after his arrival in Manila he consented for the mortgage to remain on
the property until it was paid off, as shortly occurred. It may well be that Lyons did not at first clearly understand all
the ramifications of the situation, but he knew enough, we think, to apprise him of the material factors in the
situation, and we concur in the conclusion of the trial court that Elser did not act in bad faith and was guilty of no
fraud.

In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser had used
any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of
the Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law
prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who
uses money belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of
course, if an actual relation of partnership had existed in the money used, the case might be difference; and much
emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed, existed. But there was
clearly no general relation of partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the San
Juan Estate, was not acting for any partnership composed of himself and Lyons, and the law cannot be distorted
into a proposition which would make Lyons a participant in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United
States with reference to trust supply a basis for this action. The doctrines referred to operate, however, only where
money belonging to one person is used by another for the acquisition of property which should belong to both; and it
takes but little discernment to see that the situation here involved is not one for the application of that doctrine, for
no money belonging to Lyons or any partnership composed of Elser and Lyons was in fact used by Elser in the
purchase of the San Juan Estate. Of course, if any damage had been caused to Lyons by the placing of the
mortgage upon the equity of redemption in the Carriedo property, Elser's estate would be liable for such damage.
But it is evident that Lyons was not prejudice by that act.

The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters that passed
between him and Elser while the latter was still alive. While the admission of this testimony was of questionable
propriety, any error made by the trial court on this point was error without injury, and the determination of the
question is not necessary to this decision. We therefore pass the point without further discussion.

The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant.
G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO),
CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,

vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and
HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO
MAGLANA, respondents.

Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.

Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.

Renato J. Robles for BORMAHECO, Inc. and Cervanteses.

Leonardo B. Lucena for Constancio Maglana.

GUTIERREZ, JR., J.:

The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195
which modified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs
complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but
in all other respects the trial court's decision was affirmed.

The dispositive portion of the trial court's decision reads as follows:

WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff
the amount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus
15% of the amount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is
made; plus P70,000.00 moral and exemplary damages.

It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses
aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required
to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the
amount of Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully
paid; plus moral and exemplary damages in the amount of P184,878.84 with interest from the filing
of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the
amount of P50,000.00 for each of the two Cervanteses.

Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as attorney's fees.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants
Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is required
to indemnify the defendants Bormaheco and the Cervanteses the amount of P20,000.00 as
attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate of interest up to the
time it is paid.
 Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as
attorney's fees and costs.

No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith.
The fact that the properties of the Bormaheco and the Cervanteses were attached and that they
were required to file a counterbond in order to dissolve the attachment, is not an act of bad faith.
When a man tries to protect his rights, he should not be saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for in the Rules of Court, and it was the court that
ordered it, in the exercise of its discretion.

No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it
only secured the attachment prayed for by the plaintiff Pioneer. If an insurance company would be
liable for damages in performing an act which is clearly within its power and which is the reason for
its being, then nobody would engage in the insurance business. No further claim or counter-claim for
or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of
Southern Air Lines (SAL) a single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales
contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare
parts for the total agreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No.
PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18,1965.

On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety
executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the
balance price of the aircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto
Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in
the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new
corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements
(Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL,
Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and
bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all
damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which
Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make
good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should
or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of
chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim
transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the
Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel
Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer
paid a total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao
City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the
aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary
attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were
not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to
litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's
complaint against all other defendants.

As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the
defendants was dismissed. In all other respects the trial court's decision was affirmed.

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers that:

RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL

OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THE
PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT
CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE
RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)

The petitioner questions the following findings of the appellate court:

We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of
liability under the surety bond in favor of JDA and subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute the
instant action as it does not stand to be benefited or injured by the judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from
defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did not even present any
evidence that it is the attorney-in-fact of the reinsurance company, authorized to institute an action
for and in behalf of the latter. To qualify a person to be a real party in interest in whose name an
action must be prosecuted, he must appear to be the present real owner of the right sought to be
enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has been held that
the real party in interest is the party who would be benefited or injured by the judgment or the party
entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real
party in interest is meant a present substantial interest as distinguished from a mere expectancy or a
future, contingent, subordinate or consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby v.
Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v.
City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).

Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest
as it has already been paid by the reinsurer the sum of P295,000.00 — the bulk of defendants'
alleged obligation to Pioneer.

In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, the
former was able to foreclose extra-judicially one of the subject airplanes and its spare engine,
realizing the total amount of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of
P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff
has been overpaid in the amount of P33,383.72 considering that the total amount it had paid to JDA
totals to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount in
excess of P298,666.28 would be tantamount to unjust enrichment as it has already been paid by the
reinsurance company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis
defendant Lim's liability to JDA. Well settled is the rule that no person should unjustly enrich himself
at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its
reinsurer in the aforesaid amount, as this matter has never been raised by any of the parties herein both in their
answers in the court below and in their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming
hypothetically that it was paid by its reinsurer, still none of the respondents had any interest in the matter since the
reinsurance is strictly between the petitioner and the re-insurer pursuant to section 91 of the Insurance Code; (3)
pursuant to the indemnity agreements, the petitioner is entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not applicable considering that whatever amount he would
recover from the co-indemnitor will be paid to the reinsurer.

The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the
parties.

A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:

xxx xxx xxx

1. Has Pioneer a cause of action against defendants with respect to so much of its obligations to
JDA as has been paid with reinsurance money?

2. If the answer to the preceding question is in the negative, has Pioneer still any claim against
defendants, considering the amount it has realized from the sale of the mortgaged properties?
(Record on Appeal, p. 359, Annex B of G.R. No. 84157).

In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor
of JDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said
amount the bulk of its alleged liability to JDA under the said surety bond, it is plain that on this score
it no longer has any right to collect to the extent of the said amount.

On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the
amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the latter,
Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall
pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to
recover the amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is
suing defendants as their attorney-in-fact.

But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as
attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has no
right to institute and maintain in its own name an action for the benefit of the reinsurers. It is well-
settled that an action brought by an attorney-in-fact in his own name instead of that of the principal
will not prosper, and this is so even where the name of the principal is disclosed in the complaint.

Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be
prosecuted in the name of the real party in interest.' This provision is mandatory. The
real party in interest is the party who would be benefitted or injured by the judgment
or is the party entitled to the avails of the suit.

This Court has held in various cases that an attorney-in-fact is not a real party in
interest, that there is no law permitting an action to be brought by an attorney-in-fact.
Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and
Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L-
22347,1968, 23 SCRA 706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00
from the reinsurers, the uninsured portion of what it paid to JDA is the difference between the two
amounts, or P3,666.28. This is the amount for which Pioneer may sue defendants, assuming that
 the indemnity agreement is still valid and effective. But since the amount realized from the sale of
the mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or
a total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more claim
against defendants. (Record on Appeal, pp. 360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this
admitted payment, the only issue that cropped up was the effect of payment made by the reinsurers to the
petitioner. Therefore, the petitioner's argument that the respondents had no interest in the reinsurance contract as
this is strictly between the petitioner as insured and the reinsuring company pursuant to Section 91 (should be
Section 98) of the Insurance Code has no basis.

In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired
in similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co.
C.C.A. La., 46 F 2nd 925).

The rules of practice in actions on original insurance policies are in general applicable to actions or
contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA.
380, 7 Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031
[1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals (154
SCRA 650 [1987]):

Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided
in said article that the insurer is deemed subrogated to the rights of the insured against the
wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved
party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party
in interest with regard to the portion of the indemnity paid is the insurer and not the insured.
(Emphasis supplied).

It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against
the respondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore,
has no cause of action against the respondents.

Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been
dismissed on the premise that the evidence on record shows that it is entitled to recover from the counter
indemnitors. It does not, however, cite any grounds except its allegation that respondent "Maglanas defense and
evidence are certainly incredible" (p. 12, Rollo) to back up its contention.

On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding that
the counter-indemnitors are not liable to the petitioner. The trial court stated:

Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after
the execution of the chattel mortgage.

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue
the bond provided that the same would be mortgaged to it, but this was not possible because the
planes were still in Japan and could not be mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover the
bond, and this indemnity agreement would be cancelled.

The following is averred under oath by Pioneer in the original complaint:

The various conflicting claims over the mortgaged properties have impaired and
rendered insufficient the security under the chattel mortgage and there is thus no
other sufficient security for the claim sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no other security for the claim
sought to be enforced by this action, which necessarily means that the indemnity agreement had
ceased to have any force and effect at the time this action was instituted. Sec 2, Rule 129, Revised
Rules of Court.

Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against the defendants as indemnitors to recover any
unpaid balance of the price. The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These defendants, as indemnitors, would be entitled to be
subrogated to the right of Pioneer should they make payments to the latter. Articles 2067 and 2080
of the New Civil Code of the Philippines.

Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes
any further action to recover any unpaid balance of the price.

SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as
surety having made of the payments to JDA, the alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code, known as the Recto Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure
and the instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer
shall have no further action against the purchaser to recover any unpaid balance and any agreement
to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May
27,1968, 23 SCRA 791, 795-6.

The operation of the foregoing provision cannot be escaped from through the contention that
Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA
as vendor, having subrogated it in such rights. Nor may the application of the provision be validly
opposed on the ground that these defendants and defendant Maglana are not the vendee but
indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61
SCRA 124.

The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged
these defendants from any liability as alleged indemnitors. The change of the maturity dates of the
obligations of Lim, or SAL extinguish the original obligations thru novations thus discharging the
indemnitors.

The principal hereof shall be paid in eight equal successive three months interval
installments, the first of which shall be due and payable 25 August 1965, the
remainder of which ... shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due and payable 26th May
1967.

However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and
JDA, modifying the maturity dates of the obligations, as follows:
 The principal hereof shall be paid in eight equal successive three month interval
installments the first of which shall be due and payable 4 September 1965, the
remainder of which ... shall be due and payable on the 4th day ... of each succeeding
months and the last of which shall be due and payable 4th June 1967.

Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates
different from that fixed in the aforesaid memorandum; the due date of the first installment appears
as October 15, 1965, and those of the rest of the installments, the 15th of each succeeding three
months, that of the last installment being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates, effected twice, were done
without the knowledge, much less, would have it believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it believed that these defendants and defendant
Maglana knew of and consented to the modification of the obligations. But if that were so, there
would have been the corresponding documents in the form of a written notice to as well as written
conformity of these defendants, and there are no such document. The consequence of this was the
extinguishment of the obligations and of the surety bond secured by the indemnity agreement which
was thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court in the
case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co.
v. Hizon David, 45 Phil. 532, 538.

Art. 2079. An extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty The mere failure on the part of the creditor
to demand payment after the debt has become due does not of itself constitute any
extension time referred to herein, (New Civil Code).'

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v.
Climacom et al. (C.A.) 36 O.G. 1571.

Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to recover from these defendants, as supposed
indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety bond, the
failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every
installment, released Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.

Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from
his co-debtors if such payment is made after the obligation has prescribed or became
illegal.

These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety
by reason of the filing of the instant case against them and the attachment and garnishment of their
properties. The instant action is clearly unfounded insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

l. What legal rules govern the relationship among co-investors whose agreement was to do business
through the corporate vehicle but who failed to incorporate the entity in which they had chosen to
invest? How are the losses to be treated in situations where their contributions to the intended
 'corporation' were invested not through the corporate form? This Petition presents these
fundamental questions which we believe were resolved erroneously by the Court of Appeals ('CA').
(Rollo, p. 6).

These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco,
Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was
created, and that as a consequence of such relationship all must share in the losses and/or gains of the venture in
proportion to their contribution. The petitioner, therefore, questions the appellate court's findings ordering him to
reimburse certain amounts given by the respondents to the petitioner as their contributions to the intended
corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total
amount of P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-
complaints until the amount is fully paid. Defendant Lim should pay one-half of the said amount to
Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in
the records that defendant Lim had duly received the amount of Pl51,000.00 from defendants
Bormaheco and Maglana representing the latter's participation in the ownership of the subject
airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional
expenses, hence, the total sum of P 184,878.74.

We first state the principles.

While it has been held that as between themselves the rights of the stockholders in a defectively
incorporated association should be governed by the supposed charter and the laws of the state
relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96
Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a
corporation and who carry on business under the corporate name occupy the position of partners
inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons
associate themselves together under articles to purchase property to carry on a business, and their
organization is so defective as to come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as members of the company to the property
acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109
Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a
corporation for the development of land for irrigation purposes, and each conveyed land to the
corporation, and two of them contracted to pay a third the difference in the proportionate value of the
land conveyed by him, and no stock was ever issued in the corporation, it was treated as a trustee
for the associates in an action between them for an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed among them in proportion to the value of the
property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not
necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as
between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v.
Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when
necessary to do justice between the parties; thus, one who takes no part except to subscribe for
stock in a proposed corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation, so as to be liable
as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127
Mass. 24). A partnership relation between certain stockholders and other stockholders, who were
also directors, will not be implied in the absence of an agreement, so as to make the former liable to
contribute for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79
Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).

In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the
pretrial despite notification. In his answer, the petitioner denied having received any amount from respondents
Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit
58, that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty.
Constancio B. Maglana in the ownership of the subject airplanes and spare parts. The record shows that defendant
Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his
representations to them. This gives credence to the cross-claims of the respondents to the effect that they were
induced and lured by the petitioner to make contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement. Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand
his airline business. Lim was to procure two DC-3's from Japan and secure the necessary
certificates of public convenience and necessity as well as the required permits for the operation
thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim
which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share
of the undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to
incorporate his airline in accordance with their agreement and proceeded to acquire the planes on
his own account. Since then up to the filing of this answer, Lim has refused, failed and still refuses to
set up the corporation or return the money of Maglana. (Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third
party complaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two
airplanes and spare parts from Japan which the latter considered as their lawful contribution and
participation in the proposed corporation to be known as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the
defendants, defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel
mortgage and surety bond agreement in his personal capacity as the alleged proprietor of the SAL.
The answering defendants learned for the first time of this trickery and misrepresentation of the
other, Jacob Lim, when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant
Lim, thereby forcing them to file an adverse claim in the form of third party claim. Notwithstanding
repeated oral demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to
surrender the possession of the two planes and their accessories and or return the amount
advanced by the former amounting to an aggregate sum of P 178,997.14 as evidenced by a
statement of accounts, the latter ignored, omitted and refused to comply with them. (Record on
Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was
created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the
proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other
would-be incorporators in transacting the sale of the airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is
AFFIRMED.

SO ORDERED.
G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,

vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to
divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of
their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or
fixed assets. Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a
contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who
may not have directly transacted on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the
Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby
affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as
follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20,
1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications
as hereinafter made by reason of the special and unique facts and circumstances and the
proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered
by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's invoices and computed on
their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for

P385,377.80 dated February 9, 1990;

ii. Accrued interest for P27,904.02 on Invoice No. 14413 for

P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for

P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per
appearance in court;
 d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets
counted from September 20, 1990 (date of attachment) to September 12, 1991 (date
of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid
price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for
the total amount P600,045.00, this Court noted that these items were attached to guarantee
any judgment that may be rendered in favor of the plaintiff but, upon agreement of the
parties, and, to avoid further deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the
sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court.
In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any
judgment that plaintiff may be able to secure in this case with the ownership and possession
of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership of the nets [was] retained by
the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the
plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered
the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and
for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of
defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be
entitled to in this case will have to be satisfied from the amount of P900,000.00 as this
amount replaced the attached nets and floats. Considering, however, that the total judgment
obligation as computed above would amount to only P840,216.92, it would be inequitable,
unfair and unjust to award the excess to the defendants who are not entitled to damages and
who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact
that they are not the owners of the nets and floats. For this reason, the defendants are
hereby relieved from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets and floats
and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated
February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection
suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was
brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange
Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas,
Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable
time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter
Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to
present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other
hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. 6 The
trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of
P900,000. 7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. 8

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the
witnesses presented and (2) on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which
Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an
injunction and (e) damages. 10 The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in
the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or
Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than
P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint
liability could be presumed from the equal distribution of the profit and loss. 21

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may
thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The
appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook
a partnership for a specific undertaking, that is for commercial fishing . . . . Oviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a
partnership essentially is . . . . By a 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 (Article 1767, New Civil Code). 13

Hence, petitioner brought this recourse before this Court. 14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT

THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING,
 THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS
WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIM'S GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must
resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership.

This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership

and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the
CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its
finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of
the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua
and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the
main asset of the purported partnership — the fishing boat F/B Lourdes. The lease was for six months, with a
monthly rental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed
that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which
provides:

Art. 1767 — 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.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual
findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to
join him, while Antonio Chua was already Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing
boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance
the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan
extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and
other expenses for the boats would be shouldered by Chua and Yao;
 (6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership
in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the
ownership papers of two other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong
Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported
business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e)
damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the
parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who
was petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under
Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets
and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of
their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the
fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed
that the proceeds from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus,
the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the
present action is embraced by one of the exceptions to the rule. 16 In assailing the factual findings of the two lower
courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement

Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them,
but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but
an embodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In
implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to
appreciate that the CA and the RTC delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings
mentioned above nullified petitioner's argument that the existence of a partnership was based only on the
Compromise Agreement.
 Petitioner Was a Partner,

Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a
partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration
papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own
boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No
lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership
among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which
debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in
their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after
the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own
property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not
incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao,
and not to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation knowing it to
be without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it
shall not be allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from
denying its corporate existence. "The reason behind this doctrine is obvious — an unincorporated association has
no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation
as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations
and becomes personally liable for contracts entered into or for other acts performed as such agent. 17

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first
instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying
its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold.
The only question here is whether petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests
such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable.
Since his name does not appear on any of the contracts and since he never directly transacted with the respondent
corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier
been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has
effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it
was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation
and those benefited by it, knowing it to be without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the
benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed
to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate
the ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the
subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which
each contending party fully and fairly lays before the court the facts in issue and then, brushing aside
as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that
justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust.
Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no vested rights in
technicalities.

Third Issue:

Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the
Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of
the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his
partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own
design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to
assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of
the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. L-45624 April 25, 1939

GEORGE LITTON, petitioner-appellant,

vs.
HILL & CERON, ET AL., respondents-appellees.

George E. Reich for appellant.

Roy and De Guzman for appellees.
Espeleta, Quijano and Liwag for appellee Hill.

CONCEPCION, J.:

This is a petition to review on certiorari the decision of the Court of Appeals in a case originating from the Court of
First Instance of Manila wherein the herein petitioner George Litton was the plaintiff and the respondents Hill &
Ceron, Robert Hill, Carlos Ceron and Visayan Surety & Insurance Corporation were defendants.

The facts are as follows: On February 14, 1934, the plaintiff sold and delivered to Carlos Ceron, who is one of the
managing partners of Hill & Ceron, a certain number of mining claims, and by virtue of said transaction, the
defendant Carlos Ceron delivered to the plaintiff a document reading as follows:

Feb. 14, 1934

Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699 for 5,000, 5,000 and 7,000
shares respectively — total 17,000 shares of Big Wedge Mining Company, which we have sold at P0.11
(eleven centavos) per share or P1,870.00 less 1/2 per cent brokerage.

HILL & CERON

By: (Sgd.) CARLOS CERON

Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720, and unable to collect this sum
either from Hill & Ceron or from its surety Visayan Surety & Insurance Corporation, Litton filed a complaint in the
Court of First Instance of Manila against the said defendants for the recovery of the said balance. The court, after
trial, ordered Carlos Ceron personally to pay the amount claimed and absolved the partnership Hill & Ceron, Robert
Hill and the Visayan Surety & Insurance Corporation. On appeal to the Court of Appeals, the latter affirmed the
decision of the court on May 29, 1937, having reached the conclusion that Ceron did not intend to represent and did
not act for the firm Hill & Ceron in the transaction involved in this litigation.

Accepting, as we cannot but accept, the conclusion arrived at by the Court of Appeals as to the question of fact just
mentioned, namely, that Ceron individually entered into the transaction with the plaintiff, but in view, however, of
certain undisputed facts and of certain regulations and provisions of the Code of Commerce, we reach the
conclusion that the transaction made by Ceron with the plaintiff should be understood in law as effected by Hill &
Ceron and binding upon it.

In the first place, it is an admitted fact by Robert Hill when he testified at the trial that he and Ceron, during the
partnership, had the same power to buy and sell; that in said partnership Hill as well as Ceron made the transaction
as partners in equal parts; that on the date of the transaction, February 14, 1934, the partnership between Hill and
Ceron was in existence. After this date, or on February 19th, Hill & Ceron sold shares of the Big Wedge; and when
the transaction was entered into with Litton, it was neither published in the newspapers nor stated in the commercial
registry that the partnership Hill & Ceron had been dissolved.

Hill testified that a few days before February 14th he had a conversation with the plaintiff in the course of which he
advised the latter not to deliver shares for sale or on commission to Ceron because the partnership was about to be
dissolved; but what importance can be attached to said advice if the partnership was not in fact dissolved on
February 14th, the date when the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a commercial association shall not cause any
prejudice to third parties until it has been recorded in the commercial registry. (See also Cardell vs. Mañeru, 14
Phil., 368.) The Supreme Court of Spain held that the dissolution of a partnership by the will of the partners which is
not registered in the commercial registry, does not prejudice third persons. (Opinion of March 23, 1885.)

Aside from the aforecited legal provisions, the order of the Bureau of Commerce of December 7, 1933, prohibits
brokers from buying and selling shares on their own account. Said order reads:

The stock and/or bond broker is, therefore, merely an agent or an intermediary, and as such, shall not be
allowed. . . .

(c) To buy or to sell shares of stock or bonds on his own account for purposes of speculation and/or for
manipulating the market, irrespective of whether the purchase or sale is made from or to a private individual,
broker or brokerage firm.

In its decision the Court of Appeals states:

But there is a stronger objection to the plaintiff's attempt to make the firm responsible to him. According to
the articles of copartnership of 'Hill & Ceron,' filed in the Bureau of Commerce.

Sixth. That the management of the business affairs of the copartnership shall be entrusted to both
copartners who shall jointly administer the business affairs, transactions and activities of the copartnership,
shall jointly open a current account or any other kind of account in any bank or banks, shall jointly sign all
checks for the withdrawal of funds and shall jointly or singly sign, in the latter case, with the consent of the
other partner. . . .

Under this stipulation, a written contract of the firm can only be signed by one of the partners if the other
partner consented. Without the consent of one partner, the other cannot bind the firm by a written contract.
Now, assuming for the moment that Ceron attempted to represent the firm in this contract with the plaintiff
(the plaintiff conceded that the firm name was not mentioned at that time), the latter has failed to prove that
Hill had consented to such contract.

It follows from the sixth paragraph of the articles of partnership of Hill &n Ceron above quoted that the management
of the business of the partnership has been entrusted to both partners thereof, but we dissent from the view of the
Court of Appeals that for one of the partners to bind the partnership the consent of the other is necessary. Third
persons, like the plaintiff, are not bound in entering into a contract with any of the two partners, to ascertain whether
or not this partner with whom the transaction is made has the consent of the other partner. The public need not
make inquires as to the agreements had between the partners. Its knowledge, is enough that it is contracting with
the partnership which is represented by one of the managing partners.

There is a general presumption that each individual partner is an authorized agent for the firm and that he
has authority to bind the firm in carrying on the partnership transactions. (Mills vs. Riggle, 112 Pac., 617.)

The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by
one of members of the firm acting apparently in its behalf and within the scope of his authority. (Le
Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)

The second paragraph of the articles of partnership of Hill & Ceron reads in part:

Second: That the purpose or object for which this copartnership is organized is to engage in the business of
brokerage in general, such as stock and bond brokers, real brokers, investment security brokers, shipping
brokers, and other activities pertaining to the business of brokers in general.

The kind of business in which the partnership Hill & Ceron is to engage being thus determined, none of the two
partners, under article 130 of the Code of Commerce, may legally engage in the business of brokerage in general as
stock brokers, security brokers and other activities pertaining to the business of the partnership. Ceron, therefore,
could not have entered into the contract of sale of shares with Litton as a private individual, but as a managing
partner of Hill & Ceron.

The respondent argues in its brief that even admitting that one of the partners could not, in his individual capacity,
engage in a transaction similar to that in which the partnership is engaged without binding the latter, nevertheless
there is no law which prohibits a partner in the stock brokerage business for engaging in other transactions different
from those of the partnership, as it happens in the present case, because the transaction made by Ceron is a mere
personal loan, and this argument, so it is said, is corroborated by the Court of Appeals. We do not find this alleged
corroboration because the only finding of fact made by the Court of Appeals is to the effect that the transaction
made by Ceron with the plaintiff was in his individual capacity.

The appealed decision is reversed and the defendants are ordered to pay to the plaintiff, jointly and severally, the
sum of P720, with legal interest, from the date of the filing of the complaint, minus the commission of one-half per
cent (½%) from the original price of P1,870, with the costs to the respondents. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

RESOLUTION

July 13, 1939

CONCEPCION, J.:

A motion has been presented in this case by Robert Hill, one of the defendants sentenced in our decision to pay to
the plaintiff the amount claimed in his complaint. It is asked that we reconsider our decision, the said defendant
insisting that the appellant had not established that Carlos Ceron, another of the defendants, had the consent of his
copartner, the movant, to enter with the appellant into the contract whose breach gave rise to the complaint. It is
argued that, it being stipulated in the articles of partnership that Hill and Ceron, only partners of the firm Hill &
Ceron, would, as managers, have the management of the business of the partnership, and that either may contract
and sign for the partnership with the consent of the other; the parties of partnership having been, so it is said,
recorded in the commercial registry, the appellant could not ignore the fact that the consent of the movant was
necessary for the validity of the contract which he had with the other partner and defendant, Ceron, and there being
no evidence that said consent had been obtained, the complaint to compel compliance with the said contract had to
be, as it must be in fact, a procedural failure.

Although this question has already been considered and settled in our decision, we nevertheless take cognizance of
the motion in order to enlarge upon our views on the matter.

The stipulation in the articles of partnership that any of the two managing partners may contract and sign in the
name of the partnership with the consent of the other, undoubtedly creates an obligation between the two partners,
which consists in asking the other's consent before contracting for the partnership. This obligation of course is not
imposed upon a third person who contracts with the partnership. Neither is it necessary for the third person to
ascertain if the managing partner with whom he contracts has previously obtained the consent of the other. A third
person may and has a right to presume that the partner with whom he contracts has, in the ordinary and natural
course of business, the consent of his copartner; for otherwise he would not enter into the contract. The third person
would naturally not presume that the partner with whom he enters into the transaction is violating the articles of
partnership but, on the contrary, is acting in accordance therewith. And this finds support in the legal presumption
that the ordinary course of business has been followed (No. 18, section 334, Code of Civil Procedure), and that the
law has been obeyed (No. 31, section 334). This last presumption is equally applicable to contracts which have the
force of law between the parties.

Wherefore, unless the contrary is shown, namely, that one of the partners did not consent to his copartner entering
into a contract with a third person, and that the latter with knowledge thereof entered into said contract, the aforesaid
presumption with all its force and legal effects should be taken into account.

There is nothing in the case at bar which destroys this presumption; the only thing appearing in he findings of fact of
the Court of Appeals is that the plaintiff "has failed to prove that Hill had consented to such contract". According to
this, it seems that the Court of Appeals is of the opinion that the two partners should give their consent to the
contract and that the plaintiff should prove it. The clause of the articles of partnership should not be thus understood,
for it means that one of the two partners should have the consent of the other to contract for the partnership, which
is different; because it is possible that one of the partners may not see any prospect in a transaction, but he may
nevertheless consent to the realization thereof by his copartner in reliance upon his skill and ability or otherwise.
And here we have to hold once again that it is not the plaintiff who, under the articles of partnership, should obtain
and prove the consent of Hill, but the latter's partner, Ceron, should he file a complaint against the partnership for
compliance with the contract; but in the present case, it is a third person, the plaintiff, who asks for it. While the said
presumption stands, the plaintiff has nothing to prove.

Passing now to another aspect of the case, had Ceron in any way stated to the appellant at the time of the
execution of the contract, or if it could be inferred by his conduct, that he had the consent of Hill, and should it turn
out later that he did not have such consent, this alone would not annul the contract judging from the provisions of
article 130 of the Code of Commerce reading as follows:

No new obligation shall be contracted against the will of one of the managing partners, should he have
expressly stated it; but if, however, it should be contracted it shall not be annulled for this reason, and shall
have its effects without prejudice to the liability of the partner or partners who contracted it to reimburse the
firm for any loss occasioned by reason thereof. (Emphasis supplied.)

Under the aforequoted provisions, when, not only without the consent but against the will of any of the managing
partners, a contract is entered into with a third person who acts in good faith, and the transaction is of the kind of
business in which the partnership is engaged, as in the present case, said contract shall not be annulled, without
prejudice to the liability of the guilty partner.

The reason or purpose behind these legal provisions is no other than to protect a third person who contracts with
one of the managing partners of the partnership, thus avoiding fraud and deceit to which he may easily fall a victim
without this protection which the Code of Commerce wisely provides.

If we are to interpret the articles of partnership in question by holding that it is the obligation of the third person to
inquire whether the managing copartner of the one with whom he contracts has given his consent to said contract,
which is practically casting upon him the obligation to get such consent, this interpretation would, in similar cases,
operate to hinder effectively the transactions, a thing not desirable and contrary to the nature of business which
requires promptness and dispatch one the basis of good faith and honesty which are always presumed.

In view of the foregoing, and sustaining the other views expressed in the decision, the motion is denied. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
G.R. No. L-11840 July 26, 1960

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C. GOQUIOLAY, plaintiffs-
appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.
Sycip, Quisumbing, Salazar and Associates for appellees.

REYES, J. B. L., J.:

Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being more than
P200,00) dismissing the plaintiffs-appellants' complaint.

From the stipulation of facts of the parties and the evidence on record, it would appear that on May 29, 1940, Tan
Sin An and Antonio C. Goquiolay", entered into a general commercial partnership under the partnership name "Tan
Sin An and Antonio C. Goquiolay", for the purpose in dealing in real state. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by Goquiolay and P12,000.00 by Tan Sin An. The agreement
lodge upon Tan Sin An the sole management of the partnership affairs, stipulating that —

III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner (sic),
and Antonio C. Goquiolay as co-partner.

IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and partner (sic) or by his
authorized agent, and it is expressly stipulated that the managing and partner (sic) may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select upon such terms as regards compensation as he may deem proper, and vest in
such persons, firm or corporation full power and authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his behalf which he as such managing and partner (sic)
might do or cause to be done.

V. The co-partner shall have no voice or participation in the management of the affairs of the co-partnership;
but he may examine its accounts once every six (6) months at any time during ordinary business hours, and
in accordance with the provisions of the Code of Commerce. (Article of Co-Partnership).

The lifetime of the partnership was fixed at ten (10) years and also that —

In the event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership).

However, the partnership could be dissolved and its affairs liquidated at any time upon mutual agreement in writing
of the partners (Art. XIII, articles of Co-Partnership).

On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:

That besides the powers and duties granted the said Tan Sin An by the articles of co-partnership of said co-
partnership "Tan Sin An and Antonio Goquiolay", that said Tan Sin An should act as the Manager for said
co-partnership for the full period of the term for which said co-partnership was organized or until the whole
period that the said capital of P30,000.00 of the co-partnership should last, to carry on to the best advantage
and interest of the said co-partnership, to make and execute, sign, seal and deliver for the co-partnership,
and in its name, all bills, bonds, notes, specialties, and trust receipts or other instruments or documents in
writing whatsoever kind or nature which shall be necessary to the proper conduction of the said businesses,
including the power to mortgage and pledge real and personal properties, to secure the obligation of the co-
partnership, to buy real or personal properties for cash or upon such terms as he may deem advisable, to
sell personal or real properties, such as lands and buildings of the co-partnership in any manner he may
 deem advisable for the best interest of said co-partnership, to borrow money on behalf of the co-partnership
and to issue promissory notes for the repayment thereof, to deposit the funds of the co-partnership in any
local bank or elsewhere and to draw checks against funds so deposited ... .

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3) parcels of land,
known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-matter of the instant litigation,
assuming the payment of a mortgage obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de
Construccion y Prestamos" for a period of ten (10) years, with 10% interest per annum. Another 46 parcels were
purchased by Tan Sin An in his individual capacity, and he assumed payment of a mortgage debt thereon for
P35,000.00 with interest. The downpayment and the amortization were advanced by Yutivo and Co., for the account
of the purchasers.

On September 25, 1940, the two separate obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments.

On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor children,
namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin was appointed
administratrix of the intestate estate of her deceased husband.

In the meantime, repeated demands for payment were made by the Banco Hipotecario on the partnership and on
Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sans
Hardware Co., paid the remaining balance of the mortgage debt, and the mortgage was cancelled.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the intestate
proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged obligations of the partnership
"Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said claims at
first, Kong Chai Pin later admitted the claims in her amended answer and they were accordingly approved by the
Court.

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land
to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the aforesaid debts of Tan Sin An
and the partnership. Pursuant to a court order of April 2, 1949, the administratrix executed on April 4, 1949, a deed
of sale1 of the 49 parcels of land to the defendants Washington Sycip and Betty Lee in consideration of P37,000.00
and of vendees' assuming payments of the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co.,
Inc. Later, in July, 1949, defendants Sycip and Betty Lee executed in favor of the Insular Development Co., Inc. a
deed of transfer covering the said 49 parcels of land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about July 25, 1949, a
petition in the intestate proceedings seeking to set aside the order of the probate court approving the sale in so far
as his interest over the parcels of land sold was concerned. In its order of December 29, 1949, the probate court
annulled the sale executed by the administratrix with respect to the 60% interest of Antonio Goquiolay over the
properties sold. Kong Chai Pin appealed to the Court of Appeals, which court later certified the case to us (93 Phil.,
413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision setting aside the orders of the probate court
complained of and remanding the case for new trial, due to the non-inclusion of indispensable parties. Thereafter,
new pleadings were filed.

The second amended complaint in the case at bar prays, among other things, for the annulment of the sale in favor
of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of Insular Development Co., Inc., in
so far as the three (3) lots owned by the plaintiff partnership are concerned. The answer averred the validity of the
sale by Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the complaint was
dismissed by the lower court in its decision dated October 30, 1956; hence, this appeal taken directly to us by the
plaintiffs, as the amount involved is more than P200,000.00. Plaintiffs-appellants assign as errors that —
 I — The lower court erred in holding that Kong Chai Pin became the managing partner of the partnership
upon the death of her husband, Tan Sin An, by virtue of the articles of Partnership executed between Tan
Sin An and Antonio Goquiolay, and the general power of attorney granted by Antonio Goquiolay.

II — The lower court erred in holding that Kong Chai Pin could act alone as sole managing partner in view of
the minority of the other heirs.

III — The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as managing
partner.

IV — The lower court erred in holding that Kong Chai Pin had authority to sell the partnership properties by
virtue of the articles of partnership and the general power of attorney granted to Tan Sin An in order to pay
the partnership indebtedness.

V — The lower court erred in finding that the partnership did not pay its obligation to the Banco Hipotecario.

VI — The lower court erred in holding that the consent of Antonio Goquiolay was not necessary to
consummate the sale of the partnership properties.

VII — The lower court erred in finding that Kong Chai Pin managed the business of the partnership after the
death of her husband, and that Antonio Goquiolay knew it.

VIII — The lower court erred in holding that the failure of Antonio Goquiolay to oppose the management of
the partnership by Kong Chai Pin estops him now from attacking the validity of the sale of the partnership
properties.

IX — The lower court erred in holding that the buyers of the partnership properties acted in good faith.

X — The lower court erred in holding that the sale was not fraudulent against the partnership and Antonio
Goquiolay.

XI — The lower court erred in holding that the sale was not only necessary but beneficial to the partnership.

XII — The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay to pay the costs
of suit.

There is a merit in the contention that the lower court erred in holding that the widow, Kong Chai Pin, succeeded her
husband, Tan Sin An, in the sole management of the partnership, upon the latter's death. While, as we previously
stated in our narration of facts, the Articles of Co-Partnership and the power of attorney executed by Antonio
Goquiolay, conferred upon Tan Sin An the exclusive management of the business, such power, premised as it is
upon trust and confidence, was a mere personal right that terminated upon Tan's demise. The provision in the
articles stating that "in the event of death of any one of the partners within the 10-year term of the partnership, the
deceased partner shall be represented by his heirs", could not have referred to the managerial right given to Tan Sin
An; more appropriately, it related to the succession in the proprietary interest of each partner. The covenant that
Antonio Goquiolay shall have no voice or participation in the management of the partnership, being a limitation upon
his right as a general partner, must be held coextensive only with Tan's right to manage the affairs, the contrary not
being clearly apparent.

Upon the other hand, consonant with the articles of co-partnership providing for the continuation of the firm
notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or refusing to be
bound under the said provision in the articles, became individual partners with Antonio Goquiolay upon Tan's
demise. The validity of like clauses in partnership agreements is expressly sanctioned under Article 222 of the Code
of Commerce.2

Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership (2 Vivante, Tratado
de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English translation by the Louisiana State Law
Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the partnership was limited merely to the value
of the share or estate left by the deceased Tan Sin An, they became no more than limited partners and, as such,
were disqualified from the management of the business under Article 148 of the Code of Commerce. Although
ordinarily, this effect follows from the continuance of the heirs in the partnership,3 it was not so with respect to the
widow Kong Chai Pin, who, by her affirmative actions, manifested her intent to be bound by the partnership
agreement not only as a limited but as a general partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income therefrom up to and until the same were sold to
Washington Sycip and Betty Lee. In fact, by executing the deed of sale of the parcels of land in dispute in the name
of the partnership, she was acting no less than as a managing partner. Having thus preferred to act as such, she
could be held liable for the partnership debts and liabilities as a general partner, beyond what she might have
derived only from the estate of her deceased husband. By allowing her to retain control of the firm's property from
1942 to 1949, plaintiff estopped himself to deny her legal representation of the partnership, with the power to bind it
by the proper contracts.

The question now arises as to whether or not the consent of the other partners was necessary to perfect the sale of
the partnership properties to Washington Sycip and Betty Lee. The answer is, we believe, in the negative. Strangers
dealing with a partnership have the right to assume, in the absence of restrictive clauses in the co-partnership
agreement, that every general partner has power to bind the partnership, specially those partners acting with
ostensible authority. And so, we held in one case:

. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two partners, to
ascertain whether or not this partner with whom the transaction is made has the consent of the other
partner. The public need not make inquiries as to the agreements had between the partners. Its knowledge
is enough that it is contracting with the partnership which is represented by one of the managing partners.

"There is a general presumption that each individual partner is an agent for the firm and that he has authority
to bind the firm in carrying on the partnership transactions." [Mills vs. Riggle, 112 Pac., 617]

"The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by
one of the members of the firm acting apparently in its behalf and within the scope of his authority." [Le
Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).

We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that —

If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern the
association. (Emphasis supplied)

but this obligation is one imposed by law on the partners among themselves, that does not necessarily affect the
validity of the acts of a partner, while acting within the scope of the ordinary course of business of the partnership,
as regards third persons without notice. The latter may rightfully assume that the contracting partner was duly
authorized to contract for and in behalf of the firm and that, furthermore, he would not ordinarily act to the prejudice
of his co-partners. The regular course of business procedure does not require that each time a third person
contracts with one of the managing partners, he should inquire as to the latter's authority to do so, or that he should
first ascertain whether or not the other partners had given their consent thereto. In fact, Article 130 of the same
Code of Commerce provides that even if a new obligation was contracted against the express will of one of the
managing partners, "it shall not be annulled for such reason, and it shall produce its effects without prejudice to the
responsibility of the member or members who contracted it, for the damages they may have caused to the common
fund."

Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:

367. Primera hipotesis. — A falta de pactos especiales, la facultad de administrar corresponde a cada socio
personalmente. No hay que esperar ciertamente concordia con tantas cabezas, y para cuando no vayan de
acuerdo, la disciplina del Codigo no ofrece un sistema eficaz que evite los inconvenientes. Pero, ante el
silencio del contrato, debia quiza el legislador privar de la administracion a uno de los socios en beneficio
del otro? Seria una arbitrariedad. Debera quiza declarar nula la Sociedad que no haya elegido
 Administrador? El remedio seria peor que el mal. Debera, tal vez, pretender que todos los socios concurran
en todo acto de la Sociedad? Pero este concurso de todos habria reducido a la impotencia la
administracion, que es asunto d todos los dias y de todas horas. Hubieran sido disposiciones menos
oportunas que lo adoptado por el Codigo, el cual se confia al espiritu de reciproca confianza que deberia
animar la colaboracion de los socios, y en la ley inflexible de responsabilidad que implica comunidad en los
intereses de los mismos.

En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el contrato social sin dar
de ello noticia a los otros, porque cada uno de ellos ejerce la administracion en la totalidad de sus
relaciones, salvo su responsabilidad en el caso de una administracion culpable. Si debiera dar noticia, el
beneficio de su simultania actividad, frecuentemente distribuida en lugares y en tiempos diferentes, se
echaria a perder. Se objetara el que de esta forma, el derecho de oposicion de cada uno de los socios
puede quedar frustrado. Pero se puede contestar que este derecho de oposicion concedido por la ley como
un remedio excepcional, debe subordinarse al derecho de ejercer el oficio de Administrador, que el Codigo
concede sin limite: "se presume que los socios se han concedido reciprocamente la facultad de
administrar uno para otro." Se haria precipitar esta hipotesis en la otra de una administracion colectiva (art.
1,721, Codigo Civil) y se acabaria con pedir el consentimiento, a lo menos tacito, de todos los socios — lo
que el Codigo excluye ........, si se obligase al socio Administrador a dar noticia previa del negocio a los
otros, a fin de que pudieran oponerse si no consintieran.

Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148) opines:

Para obligar a las Compañias enfrente de terceros (art. 128 del Codigo), no es bastante que los actos y
contratos hayan sido ejecutados por un socio o varios en nombre colectivo, sino que es preciso el concurso
de estos dos elementos, uno, que el socio o socios tengan reconocida la facultad de administrar la
Compañia, y otro, que el acto o contrato haya sido ejecutado en nombre de la Sociedad y usando de su
firma social. Asi se que toda obligacion contraida bajo la razon social, se presume contraida por la
Compañia. Esta presunion es impuesta por motivos de necesidad practica. El tercero no puede cada vez
que trata con la Compañia, inquirir si realmente el negocio concierne a la Sociedad. La presuncion es juris
tantum y no juris et de jure, de modo que si el gerente suscribe bajo la razon social una obligacion que no
interesa a la Sociedad, este podra rechazar la accion del tercero probando que el acreedor conocia que la
obligacion no tenia ninguna relacion con ella. Si tales actos y contratos no comportasen la concurrencia de
ambos elementos, seria nulos y podria decretarse la responsabilidad civil o penal contra sus autores.

En el caso que tales actos o contratos hayan sido tacitamente aprobados por la Compañia, o contabilizados
en sus libros, si el acto o contrato ha sido convalidado sin protesta y se trata de acto o contrato que ha
producido beneficio social, tendria plena validez, aun cuando le faltase algunos o ambos de aquellos
requisitos antes señalados.

Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al nombramiento o
designacion de uno o mas de un socio para administrar la Compañia (art. 129 del Codigo) todos tienen por
un igual el derecho de concurir a la decision y manejo de los negocios comunes. . . .

Although the partnership under consideration is a commercial partnership and, therefore, to be governed by the
Code of Commerce, the provisions of the old Civil Code may give us some light on the right of one partner to bind
the partnership. States Art. 1695 thereof:

Should no agreement have been made with respect to the form of management, the following rules shall be
observed:

1. All the partners shall be considered agents, and whatever any one of the may do individually shall bind
the partnership; but each one may oppose any act of the others before it has become legally binding.

The records fail to disclose that appellant Goquiolay made any opposition to the sale of the partnership realty to
Washington Z. Sycip and Betty Lee; on the contrary, it appears that he (Goquiolay) only interposed his objections
after the deed of conveyance was executed and approved by the probate court, and, consequently, his opposition
came too late to be effective.
Appellants assails the correctness of the amounts paid for the account of the partnership as found by the trial court.
This question, however, need not be resolved here, as in the deed of conveyance executed by Kong Chai Pin, the
purchasers Washington Sycip and Betty Lee assumed, as part consideration of the purchase, the full claims of the
two creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware Co.

Appellants also question the validity of the sale covering the entire firm realty, on the ground that it, in effect, threw
the partnership into dissolution, which requires consent of all the partners. This view is untenable. That the
partnership was left without the real property it originally had will not work its dissolution, since the firm was not
organized to exploit these precise lots but to engage in buying and selling real estate, and "in general real estate
agency and brokerage business". Incidentally, it is to be noted that the payment of the solidary obligation of both the
partnership and the late Tan Sin An, leaves open the question of accounting and contribution between the co-
debtors, that should be ventilated separately.

Lastly, appellants point out that the sale of the partnership properties was only a fraudulent device by the appellees,
with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay from the partnership. The "devise", according
to the appellants, started way back sometime in 1945, when one Yu Khe Thai sounded out Antonio Goquiolay on
the possibility of selling his share in the partnership; and upon his refusal to sell, was followed by the filing of the
claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin
An. As creditors of Tan Sin An and the plaintiff partnership (whose liability was alleged to be joint and several),
Yutivo Sons Hardware Co., and Sing Yee Cuan Co., Inc. had every right to file their claims in the intestate
proceedings. The denial of the claims at first by Kong Chai Pin ( for lack of sufficient knowledge) negatives any
conspiracy on her part in the alleged fraudulent scheme, even if she subsequently decided to admit their validity
after studying the claims and finding it best to admit the same. It may not be amiss to remark that the probate court
approved the questioned claims.

There is complete failure of proof, moreover, that the price for which the properties were sold was unreasonably low,
or in any way unfair, since appellants presented no evidence of the market value of the lots as of the time of their
sale to appellees Sycip and Lee. The alleged value of P31,056.58 in May of 1955 is no proof of the market value in
1949, specially because in the interval, the new owners appear to have converted the land into a subdivision, which
they could not do without opening roads and otherwise improving the property at their own expense. Upon the other
hand, Kong Chai Pin hardly had any choice but to execute the questioned sale, as it appears that the partnership
had neither cash nor other properties with which to pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly indicating fraud in the questioned transactions, leading to
the conveyance of the lots in dispute to the appellee Insular Development Co., Inc.

Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with costs against appellant
Antonio Goquiolay.

Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and Gutierrez David, JJ., concur.

RESOLUTION

December 10, 1963

REYES, J. B. L., J.:

The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we have upheld
the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the widow of
the managing partner, Tan Sin An (executed in her dual capacity of Administratrix of her husband's estate and as
partner, in lieu of the husband), in favor of buyers Washington Sycip and Betty Lee for the following consideration:

Cash paid P37,000.00

Debts assumed by purchase:
To Yutivo 62,415.91
 To Sing Yee Cuan & 54,310.13
Co.
TOTAL P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our holding, Kong Chai Pin, widow of
the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by law to manage the
affairs of the partnership; that the testimony of her witnesses Young and Lim belies that she took over administration
of the partnership property; and that, in any event, the sale should be set aside because it was executed with the
intent to defraud appellant of his share in the properties sold.

Three things must be always held in mind in the discussion of this motion to reconsider, being basic and beyond
controversy:

(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of the firm, to
a stranger. There is no question between partners inter se, and this aspects of the case was expressly reserved in
the main decision of 26 July 1960;

(b) That the partnership was expressly organized "to engage in real estate business, either by buying and
selling real estate". The Article of co-partnership, in fact, expressly provided that:

IV. The object and purpose of the co-partnership are as follows:

1. To engage in real estate business, either by buying and selling real estates; to subdivide real estates into
lots for the purpose of leasing and selling them.;

(c) That the properties sold were not part of the contributed capital (which was in cash) but land precisely acquired
to be sold, although subject a mortgage in favor of the original owners, from whom the partnership had acquired
them.

With these points firmly in mind, let us turn to the points insisted upon by appellant.

It is first averred that there is "not one iota evidence" that Kong Chai Pin managed and retained possession of the
partnership properties. Suffice it to point out that appellant Goquiolay himself admitted that —

. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as) she
had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could just do
it and besides I am not interested in agricultural lands. I allowed her to take care of the properties in order to
help her and because I believe in God and I wanted to help her.

Q. — So the answer to my question is you did not take any steps?

A. — I did not.

Q. — And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945?

A. — In the year 1945. (Emphasis supplied)

The appellant subsequently ratified this testimony in his deposition of 30 June 1956, page 8-9, wherein he sated:

that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are
receiving quite a lot of benefit from that plantation.

Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater weight than
those of Hernando Young and Rufino Lim, having been made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the properties
"abandoned and undeveloped", omits to mention that said part of the testimony started with the question:

Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin there in
Davao at that time?

Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were undeveloped, and the
family of the widow (Kong Chai Pin) did not receive any income from the partnership properties, was given in
answer to the question:

According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his family lived on the
plantation of the partnership and derived their subsistence from that plantation. What can you say to that?
(Dep. 19 July 1956, p. 8)

And also —

What can you say so to the development of these other properties of the partnership which you saw during
the occupation?" (Dep., p. 13, Emphasis supplied)

to which witness gave the following answer:

I saw the properties in Mamay still undeveloped. The third property which is in Tigatto is about eleven (11)
hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando
Young we saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted
camotes and vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin An or
his family. (Dep., Lim. pp. 13-14.) (Emphasis supplied)

Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he told Mr. Yu Eng
Lai that the widow "could just do it" (i e., continue to manage the properties. Witnesses Lim and Young referred to
the period of Japanese occupation; but Goquiolay's authority was, in fact, given to the widow in 1945, after the
occupation.

Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of management
during the Japanese occupation (1942-1944) does not mean that she did not do so from 1945 to 1949.

We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested his
willingness that the widow should manage the partnership properties. Whether or not she complied with this
authority is a question between her and the appellant, and is not here involved. But the authority was given, and she
did have it when she made the questioned sale, because it has never revoked.

It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the property, and
that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889. What this argument
overlooks is that the widow was not a mere agent, because she had become a partner upon her husband's death,
as expressly provided by the articles of co-partnership. Even more, granting that by succession to her husband, Tan
Sin An, the widow only a became the limited partner, Goquiolay's authorization to manage the partnership property
was proof that he considered and recognized her has general partner, at least since 1945. The reason is plain:
Under the law (Article 148, last paragraph, Code of Commerce), appellant could not empower the widow, if she
were only a limited partner, to administer the properties of the firm, even as a mere agent:

Limited partners may not perform any act of administration with respect to the interests of the co-
partnership, not even in the capacity agents of the managing partners.(Emphasis supplied)

By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to be considered
a general partner. By authorizing the widow to manage partnership property (which a limited partner could not be
authorized to do), Goquiolay recognized her as such partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily") becomes a
limited partner for his own protection, because he would normally prefer to avoid any liability in excess of the value
of the estate inherited so as not to jeopardize his personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect to become a collective or general partner,
with all the rights and privileges of one, and answering for the debts of the firm not only with the inheritance bud also
with the heir's personal fortune. This choice pertains exclusively to the heir, and does not require the assent of the
surviving partner.

It must be remembered that the articles of co-partnership here involved expressly stipulated that:

In that event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).

The Articles did not provide that the heirs of the deceased would be merely limited partner; on the contrary they
expressly stipulated that in case of death of either partner "the co-partnership ... will have to be continued" with the
heirs or assigns. It certainly could not be continued if it were to be converted from a general partnership into a
limited partnership, since the difference between the two kinds of associations is fundamental; and specially
because the conversion into a limited association would leave the heirs of the deceased partner without a share in
the management. Hence, the contractual stipulation does actually contemplate that the heirs would become general
partners rather than limited ones.

Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume personal
and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so compellable, it does not legitimately
follow that they may not voluntarily choose to become general partners, waiving the protective mantle of the general
laws of succession. And in the latter event, it is pointless to discuss the legality of any conversion of a limited partner
into a general one. The heir never was a limited partner, but chose to be, and became, a general partner right at the
start.

It is immaterial that the heirs name was not included in the firm name, since no conversion of status is involved, and
the articles of co-partnership expressly contemplated the admission of the partner's heirs into the partnership.

It must never be overlooked that this case involves the rights acquired by strangers, and does not deal with the
rights arising between partners Goquiolay and the widow of Tan Sin An. The issues between the partners inter se
were expressly reversed in our main decision. Now, in determining what kind of partner the widow of partner Tan
Sin An had elected to become, strangers had to be guided by her conduct and actuations and those of appellant
Goquiolay. Knowing that by law a limited partner is barred from managing the partnership business or property, third
parties (like the purchasers) who found the widow possessing and managing the firm property with the
acquiescense (or at least without apparent opposition) of the surviving partners were perfectly justified in assuming
that she had become a general partner, and, therefore, in negotiating with her as such a partner, having authority to
act for, and in behalf of, the firm. This belief, be it noted, was shared even by the probate court that approved the
sale by the widow of the real property standing in the partnership name. That belief was fostered by the very
inaction of appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the sale
in 1949, there was more than ample time for Goquiolay to take up the management of these properties, or at least
ascertain how its affairs stood. For seven years Goquiolay could have asserted his alleged rights, and by suitable
notice in the commercial registry could have warned strangers that they must deal with him alone, as sole general
partner. But he did nothing of the sort, because he was not interested (supra), and he did not even take steps to
pay, or settle, the firm debts that were overdue since before the outbreak of the last war. He did not even take steps,
after Tan Sin An died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay) would
have no intervention in the management of the partnership. This laches certainly contributed to confirm the view that
the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's properties, apart from the
presumption that a general partner dealing with partnership property has the requisite authority from his co-partners
(Litton vs. Hill and Ceron, et al., 67 Phil., 513; quoted in our main decision, p. 11).

The stipulation in the articles of partnership that any of the two managing partners may contract and sign in
the name of the partnership with the consent of the other, undoubtedly creates an obligation between the
two partners, which consists in asking the other's consent before contracting for the partnership. This
 obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with whom
he contracts has, in the ordinary and natural course of business, the consent of his co-partner; for otherwise
he would not enter into the contract. The third person would naturally not presume that the partner with
whom he enters into the transaction is violating the articles of partnership, but on the contrary, is acting in
accordance therewith. And this finds support in the legal presumption that the ordinary course of business
has been followed (No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed (No.
31, section 334). This last presumption is equally applicable to contracts which have the force of law
between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil., 509, 516) (Emphasis supplied)

It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This argument
is lamentably superficial because it fails to differentiate between real estate acquired and held as stock-in-trade and
real state held merely as business site (Vivante's "taller o banco social") for the partnership. Where the partnership
business is to deal in merchandise and goods, i.e., movable property, the sale of its real property (immovables) is
not within the ordinary powers of a partner, because it is not in line with the normal business of the firm. But where
the express and avowed purpose of the partnership is to buy and sell real estate (as in the present case), the
immovables thus acquired by the firm form part of its stock-in-trade, and the sale thereof is in pursuance of
partnership purposes, hence within the ordinary powers of the partner. This distinction is supported by the opinion of
Gay de Montella1, in the very passage quoted in the appellant's motion for reconsideration:

La enajenacion puede entrar en las facultades del gerente: cuando es conforme a los fines sociales. Pero
esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los objetos de
comecio o a los productos de la fabrica para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario. (Montella)
(Emphasis supplied)

The same rule obtains in American law.

In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:

a partnership to deal in real estate may be created and either partner has the legal right to sell the firm real
estate

In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:

And hence, when the partnership business is to deal in real estate, one partner has ample power, as a
general agent of the firm, to enter into an executory contract for the sale of real estate.

And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:

If the several partners engaged in the business of buying and selling real estate can not bind the firm by
purchases or sales of such property made in the regular course of business, then they are incapable of
exercising the essential rights and powers of general partners and their association is not really a
partnership at all, but a several agency.

Since the sale by the widow was in conformity with the express objective of the partnership, "to engage * * * in
buying and selling real estate" (Art IV, No. 1, Articles of Copartnership), it can not be maintained that the sale was
made in excess of her powers as general partner.

Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs. Cowen, et
al., 49 N. E., 338. But the facts of that case are vastly different from the one before us. In the McGrath case, the
Court expressly found that:

The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient to
pay its debts, though it still had good credit, and was actively engaged in the prosecution of its business. On
 that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the four chattel
mortgages in question, which cover all the tangible property then belonging to the firm, including the
counters, shelving, and other furnishings and fixtures necessary for, and used in carrying on, its business,
and signed the same in this form: "In witness whereof, the said Cowen & McGrath, a firm, and Owen
McGrath, surviving partner of said firm, and Owen McGrath, individually, have here-unto set their hands, this
20th day of May, A. D. 1893. Cowen & McGrath, by Owen McGrath. Owen McGrath, Surviving partner of
Cowen & McGrath. Owen McGrath" At the same time, the plaintiff had prepared, ready for filing, the petition
for the dissolution of the partnership and appointment of a receiver, which he subsequently filed, as
hereinafter stated. On the day the mortgages were signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that there was any intention to make then. At that
time none of the claims secured by the mortgages were due, except, it may be, a small part of one of them,
and none of the creditors to whom the mortgages were made had requested security, or were pressing for
the payment of their debts. ... The mortgages appear to be without a sufficient condition of defeasance, and
contain a stipulation authorizing the mortgagees to take immediate possession of the property, which they
did as soon as the mortgages were filed, through the attorney who then represented them, as well as the
plaintiff; and the stores were at once closed, and possession delivered by them to the receiver appointed
upon the filing of the petition. The avowed purpose of the plaintiff in the course pursued by him, was to
terminate the partnership, place its property beyond the control of the firm, and insure the preference of the
mortgages, all of which was known to them at the time: ... . (Cas cit., p. 343, Emphasis supplied)

It is natural that from these facts the Supreme Court of Ohio should draw the conclusion that conveyances were
made with intent to terminate the partnership, and that they were not within the powers of McGrath as partner. But
there is no similarly between those acts and the sale by the widow of Tan Sin An. In the McGrath case, the sale
included even the fixtures used in the business, in our case, the lands sold were those acquired to be sold. In the
McGrath case, none of the creditors were pressing for payment; in our case, the creditors had been unpaid for more
than seven years, and their claims had been approved by the probate court for payment. In the McGrath case, the
partnership received nothing beyond the discharge of its debts; in the present case, not only were its debts assumed
by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the partnership.
Clearly, the McGrath ruling is not applicable.

We will now turn to the question to fraud. No direct evidence of it exists; but appellant points out, as indicia thereof,
the allegedly low price paid for the property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.

First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which
P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These debts (P62,415.91 to
Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they were approved by the Court, and its
approval is now final. The claims were, in fact, for the balance on the original purchase price of the land sold (due
first to La Urbana, later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the two creditors-
claimants. To show that the price was inadequate, appellant relies on the testimony of the realtor Mata, who in 1955,
six years after the sale in question, asserted that the land was worth P312,000.00. Taking into account the
continued rise of real estate values since liberation, and the fact that the sale in question was practically a forced
sale because the partnership had no other means to pay its legitimate debts, this evidence certainly does not show
such "gross inadequacy" as to justify rescission of the sale. If at the time of the sale (1949 the price of P153,726.04
was really low, how is it that appellant was not able to raise the amount, even if the creditor's representative, Yu Khe
Thai, had already warned him four years before (1946) that the creditors wanted their money back, as they were
justly entitled to?

It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts. But the lands
were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and then to the Banco
Hipotecario. Was it reasonable to expect that other persons would loan money to the partnership when it was
unable even to pay the taxes on the property, and the interest on the principal since 1940? If it had been possible to
find lenders willing to take a chance on such a bad financial record, would not Goquiolay have taken advantage of
it? But the fact is clear on the record that since liberation until 1949 Goquiolay never lifted a finger to discharge the
debts of the partnership. Is he entitled now to cry fraud after the debts were discharged with no help from him?

With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled that
relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil., 243; also Hermandad de Smo.
Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original buyers, Washington Sycip
and Betty Lee, were without independent means to purchase the property. That the Yutivos should be willing to
extend credit to them, and not to appellant, is neither illegal nor immoral; at the very least, these buyers did not have
a record of inveterate defaults like the partnership "Tan Sin An & Goquiolay".

Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo firm and their
component members. But no proof is adduced. If he was such a victim, he could have easily defeated the
conspirators by raising money and paying off the firm's debts between 1945 and 1949; but he did; he did not even
care to look for a purchaser of the partnership assets. Were it true that the conspiracy to defraud him arose (as he
claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly strange
that the conspirators should wait 4 years, until 1949, to have the sale effected by the widow of Tan Sin An, and that
the sale should have been routed through the probate court taking cognizance of Tan Sin An's estate, all of which
increased the risk that the supposed fraud should be detected.

Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as subrogees of the
Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This for two reasons: First, Tan
Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint and several) debtors (Exhibit "N" mortgage
to the Banco Hipotecario), and Rule 87, section 6, is to the effect that:

Where the obligation of the decedent is joint and several with another debtor, the claim shall be filed against
the decedent as if he were the only debtor, without prejudice to the right of the estate to recover contribution
from the other debtor. (Emphasis supplied)

Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership and those of
Tan Sin An personally, and a mortgage in indivisible, in the sense that each and every parcel under mortgage
answers for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089).

A final and conclusive consideration. The fraud charged not being one used to obtain a party's consent to a contract
(i.e., not being deceit or dolus in contrahendo), if there is fraud at all, it can only be a fraud of creditors that gives rise
to a rescission of the offending contract. But by express provision of law (Article 1294, Civil Code of 1889; Article
1383, New Civil Code), "the action for rescission is subsidiary; it can not be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same". Since there is no allegation, or
evidence, that Goquiolay can not obtain reparation from the widow and heirs of Tan Sin An, the present suit to
rescind the sale in question is not maintenable, even if the fraud charged actually did exist.

Premises considered, the motion for reconsideration is denied.

Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.

Separate Opinions

BAUTISTA ANGELO, J., dissenting:

This is an appeal from a decision of the Court of First Instance of Davao dismissing the complaint filed by Antonio C.
Goquiolay, et al., seeking to annul the sale made by Kong Chai Pin of three parcels of land to Washington Z. Sycip
and Betty Y. Lee on the ground that it was executed without proper authority and under fraudulent circumstances. In
a decision rendered on July 26, 1960, we affirmed this decision although on grounds different from those on which
the latter is predicated. The case is once more before us on a motion for reconsideration filed by appellants raising
both questions of fact and of law.

On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial partnership for a
period of ten years with a capital of P30,000.00 of which Goquiolay contributed P18,000.00 representing 60% while
Tan Sin An P12,000.00 representing 40%. The business of the partnership was to engage in buying real estate
properties for subdivision, resale and lease. The partnership was duly registered, and among the conditions agreed
upon in the partnership agreement which are material to this case are: (1) that Tan Sin An would be the exclusive
managing partner, and (2) in the event of the death of any of the partners the partnership would continue, the
deceased to be represented by his heirs. On May 31, 1940, Goquiolay executed a general power of attorney in favor
of Tan Sin An appointing the latter manager of the partnership and conferring upon him the usual powers of
management.

On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, 441 and 521 of the
cadastral survey of Davao, the only assets of the partnership, with the capital originally invested, financing the
balance of the purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de Construccion Prestamos"
in the amount of P25,000.00 payable in ten years. On the same date, Tan Sin An, in his individual capacity,
acquired 46 parcels of land executing a mortgage thereon in favor of the same company for the sum of P35,000.00.
On September 25, 1940, these two mortgage obligations were consolidated and transferred to the Banco
Hipotecario de Filipinas and as a result Tan Sin An, in his individual capacity, and the partnership bound themselves
to pay jointly and severally the total amount of P52,282.80, with 8% annual interest thereon within the period of eight
years mortgaging in favor of said entity the 3 parcels of land belonging to the partnership to Tan Sin An.

Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin, and four children, all of
whom are minors of tender age. On March 18, 1944, Kong Chai Pin was appointed administratrix of the intestate
estate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the
remaining unpaid balance of the mortgage obligation of the partnership amounting to P46,116.75 in Japanese
currency.

Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president and general manager of Yutivo Sons
Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay and the two had a conference in the office of
the former during which he offered to buy the interest of Goquiolay in the partnership. In 1948, Kong Chai Pin, the
widow, sent her counsel, Atty. Dominador Zuño, to ask Goquiolay to execute in her favor a power of attorney.
Goquiolay refused both to sell his interest in the partnership as well as to execute the power of attorney.

Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co., and Sing, Yee and
Cuan Co., Inc. filed in November, 1946 a claim each in the intestate proceedings of Tan Sin An for the sum of
P84,705.48 and P66,529.91, respectively, alleging that they represent obligations of both Tan Sin An and the
partnership. After first denying any knowledge of the claims, Kong Chai Pin, as administratrix, admitted later without
qualification the two claims in an amended answer she filed on February 28, 1947. The admission was predicated
on the ground that she and the creditors were closely related by blood, affinity and business ties. On due course,
these two claims were approved by the court.

On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed a petition in the
probate court to sell all the properties of the partnership as well as some of the conjugal properties left by Tan Sin
An for the purpose of paying the claims. Following approval by the court of the petition for authority to sell, Kong
Chai Pin, in her capacity as administratrix, and presuming to act as managing partner of the partnership, executed
on April 4, 1949 a deed of sale of the properties owned by Tan Sin An and by the partnership in favor of Betty Y.
Lee and Washington Z. Sycip in consideration of the payment to Kong Chai Pin of the sum of P37,000.00, and the
assumption by the buyers of the claims filed by Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in
whose favor the buyers executed a mortgage on the properties purchased. Betty Y. Lee and Washington Z. Sycip
subsequently executed a deed of sale of the same properties in favor of their co-defendant Insular Development
Company, Inc. It should be noted that these transactions took place without the knowledge of Goquiolay and it is
admitted that Betty Y. Lee and Washington Z. Sycip bought the properties on behalf of the ultimate buyer, the
Insular Development Company, Inc., with money given by the latter.

Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in the intestate proceedings
a petition to set aside the order of the court approving the sale. The court granted the petition. While the order was
pending appeal in the Supreme Court, Goquiolay filed the present case on January 15, 1953 seeking to nullify the
sale as stated in the early part of this decision. In the meantime, the Supreme Court remanded the original case to
the probate court for rehearing due to lack of necessary parties.

The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the partnership properties on the
ground that she had no authority to sell because even granting that she became a partner upon the death of Tan Sin
An the power of attorney granted in favor of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on the theory that she succeeded to all the rights
and prerogatives of Tan Sin An as managing partner.

The trial court sustained the validity of the sale on the ground that under the provisions of the articles of partnership
allowing the heirs of the deceased partner to represent him in the partnership after hid death Kong Chai Pin became
a managing partner, this being the capacity held by Tan Sin An when he died.

In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on different grounds, among
which the salient points are: (1) the power of attorney given by Goquiolay to Tan Sin An as manager of the
partnership expired after his death; (2) his widow Kong Chai Pin did not inherit the management of the partnership, it
being a personal right; (3) as a general rule, the heirs of a deceased general partner come into the partnership in the
capacity only of limited partners; (4) Kong Chai Pin, however, became a general partner because she exercised
certain alleged acts of management; and (5) the sale being necessary to pay the obligations of the partnership, she
was therefore authorized to sell the partnership properties without the consent of Goquiolay under the principle of
estoppel, the buyers having the right to rely on her acts of management and to believe her to be in fact the
managing partner.

Considering that some of the above findings of fact and conclusions of law are without legal or factual basis,
appellants have in due course filed a motion for reconsideration which because of the importance of the issues
therein raised has been the subject of mature deliberation.

In support of said motion, appellants advanced the following arguments:

1. If the conclusion of the Court is that heirs as a general rule enter the partnership as limited partners only,
therefore Kong Chai Pin, who must necessarily have entered the partnership as a limited partner originally,
could have not chosen to be a general partner by exercising the alleged acts of management, because
under Article 148 of the Code of Commerce a limited partner cannot intervene in the management of the
partnership even if given a power of attorney by the general partners. An Act prohibited by law cannot give
rise to any right and is void under the express provisions of the Civil Code.

2. The buyers were not strangers to Kong Chai Pin, all of them being members of the Yu (Yutivo) family, the
rest, members of the law firm which handles the Yutivo interests and handled the papers of sale. They did
not rely on the alleged acts of management — they believed (this was the opinion of their lawyers) that Kong
Chai Pin succeeded her husband as a managing partner and it was on this theory alone that they submitted
the case in the lower court.

3. The alleged acts of management were denied and repudiated by the very witnesses presented by the
defendants themselves.

The arguments advanced by appellants are in our opinion well-taken and furnish sufficient basis to reconsider our
decision if we want to do justice to Antonio C. Goquiolay. And to justify this conclusion, it is enough that we lay
stress on the following points: (1) there is no sufficient factual basis to conclude that Kong Chai Pin executed acts of
management to give her the character of general manager of the partnership, or to serve as basis for estoppel that
may benefit the purchasers of the partnership properties; (2) the alleged acts of management, even if proven, could
not give Kong Chai Pin the character of general manager for the same is contrary to law and well-known authorities;
(3) even if Kong Chai Pin acted as general manager she had no authority to sell the partnership properties as to
make it legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the
partnership and if she did so it was merely to favor the purchasers who were close relatives to the prejudice of
Goquiolay.

1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed to her our ruling we
apparently gave particular importance to the fact that it was Goquiolay himself who tried to prove the acts of
management. Appellants, however, have emphasized the fact, and with reason, that the appellees themselves are
the ones who denied and refuted the so-called acts of management imputed to Kong Chai Pin. To have a clear view
of this factual situation, it becomes necessary that we analyze the evidence of record.

Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation with one Hernando
Young in Manila in the year 1945 who informed him that Kong Chai Pin "was attending to the properties and
deriving some income therefrom and she had no other means of livelihood except those properties and some
rentals derived from the properties." He went on to say by way of remark that she could continue doing this because
he wanted to help her. On point that he emphasized was that he was "not interested in agricultural lands."

On the other hand, defendants presented Hernando Young, the same person referred to by Goquiolay, who was a
close friend of the family of Kong Chai Pin, for the purpose of denying the testimony of Goquiolay. Young testified
that in 1945 he was still in Davao, and insisted no less than six times during his testimony that he was not in Manila
in 1945, the year when he allegedly gave the information to Goquiolay, stating that he arrived in Manila for the first
time in 1947. He testified further that he had visited the partnership properties during the period covered by the
alleged information given by him to Goquiolay and that he found them "abandoned and underdeveloped," and that
Kong Chai Pin was not deriving any income from them.

The other witness for the defendants, Rufino Lim, also testified that he had seen the partnership properties and
corroborated the testimony of Hernando Young in all respects: "the properties in Mamay were underdeveloped, the
shacks were destroyed in Tigato, and the family of Kong Chai Pin did not receive any income from the partnership
properties." He specifically rebutted the testimony of Goquiolay in his deposition given on June 30, 1956 that Kong
Chai Pin and her family were living in the partnership properties and stated that the 'family never actually lived in the
properties of the partnership even before the war or after the war."

It is unquestionable that Goquiolay was merely repeating an information given to him by a third person, Hernando
Young — he stressed this point twice. A careful analysis of the substance of Goquiolay's testimony will show that he
merely had no objection to allowing Kong Chai Pin to continue attending to the properties in order to give her some
means of livelihood, because, according to the information given him by Hernando Young, which he assumed to be
true, Kong Chai Pin had no other means of livelihood. But certainly he made it very clear that he did not allow her
to manage the partnership when he explained his reason for refusing to sign a general power of attorney for Kong
Chai Pin which her counsel, Atty. Zuño, brought with him to his house in 1948. He said:

. . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuño and he asked me if I could execute a
general power of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuño what is the use of executing a
general power of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got that plantation
for agricultural purposes, I said for agricultural purposes she can use that plantation ... (T.s.n., p. 9, Hearing
on May 5, 1955)

It must be noted that in his testimony Goquiolay was categorically stating his opposition to the management of the
partnership by Kong Chai Pin and carefully made the distinction that his conformity was for her to attend to the
partnership properties in order to give her merely a means of livelihood. It should be stated that the period covered
by the testimony refers to the period of occupation when living condition was difficult and precarious. And Atty.
Zuño, it should also be stated, did not deny the statement of Goquiolay.

It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts of management of the
partnership properties is highly controverted. The most that we can say is that the alleged acts are doubtful more so
when they are disputed by the defendants themselves who later became the purchasers of the properties, and yet
these alleged acts, if at all, only refer to management of the properties and not to management of the partnership,
which are two different things.

In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be upheld on the
ground of estoppel, first, because the alleged acts of management have not been clearly proven; second, because
the record clearly shows that the defendants, or the buyers, were not misled nor did they rely on the acts of
management, but instead they acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect that she
succeeded her husband in the partnership as managing partner by operation of law; and third, because the
defendants are themselves estopped to invoke a defense which they tried to dispute and repudiate.

2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could such acts give her the
character of general manager of the partnership as we have concluded in our decision?

Out answer is in the negative because it is contrary to law and precedents. Garrigues, a well-known commentator, is
clearly of the opinion that mere acceptance of the inheritance does not make the heir of a general partner a general
partner himself. He emphasized that the heir must declare that he is entering the partnership as a general partner
unless the deceased partner has made it an express condition in his will that the heir accepts the condition of
entering the partnership as a prerequisite of inheritance, in which case acceptance of the inheritance is enough.1 But
here Tan Sin An died intestate.

Now, could Kong Chai Pin be deemed to have declared her intention to become general partner by exercising acts
of management? We believe not, for, in consonance with out ruling that as a general rule the heirs of a deceased
partner succeed as limited partners only by operation of law, it is obvious that the heir, upon entering the
partnership, must make a declaration of his character, otherwise he should be deemed as having succeeded as
limited partner by the mere acceptance of inheritance. And here Kong Chai Pin did not make such declaration.
Being then a limited partner upon the death of Tan Sin An by operation of law, the peremptory prohibition contained
in Article 1482 of the Code of Commerce became binding upon her and as a result she could not change her status
by violating its provisions not only under the general principle that prohibited acts cannot produce any legal effect,
but also because under the provisions of Article 1473 of the same Code she was precluded from acquiring more
rights than those pertaining to her as a limited partner. The alleged acts of management, therefore, did not give
Kong Chai Pin the character of general manager to authorize her to bind the partnership.

Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave her the character of a
general partner, could she sell the partnership properties without authority from the other partners?

Our answer is also in the negative in the light of the provisions of the articles of partnership and the pertinent
provisions of the Code of Commerce and the Civil Code. Thus, Article 129 of the Code of Commerce says:

If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern the
association.

And the pertinent portions of the Articles of partnership provides:

VII. The affairs of the co-partnership shall be managed exclusively by the managing partner or by his
authorized agent, and it is expressly stipulated that the managing partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select, upon such terms as regards compensation as he may deem proper, and vest in
such person, firm or corporation full power and authority, as the agent of the co-partnership and in his name,
place and stead to do anything for it or on his behalf which he as such managing partner might do or cause
to be done. (Page 23, Record on Appeal)

It would thus be seen that the powers of the managing partner are not defined either under the provisions of the
Code of Commerce or in the articles of partnership, a situation which, under Article 2 of the same Code, renders
applicable herein the provisions of the Civil Code, And since, according to well-known authorities, the relationship
between a managing partner and the partnership is substantially the same as that of the agent and his principal,4 the
extent of the power of Kong Chai Pin must, therefore, be determined under the general principles governing agency.
And, on this point, the law says that an agency created in general terms includes only acts of administration, but
with regard to the power to compromise, sell, mortgage, and other acts of strict ownership, an express power of
attorney is required.5 Here Kong Chai Pin did not have such power when she sold the properties of the partnership.

Of course, there is authority to the effect that a managing partner, even without express power of attorney, may
perform acts affecting ownership if the same are necessary to promote or accomplish a declared object of the
partnership, but here the transaction is not for this purpose. It was effected not to promote any avowed object of the
partnership.6 Rather, the sale was effected to pay an obligation of the partnership by selling its real properties which
Kong Chai Pin could not do without express authority. The authorities supporting this view are overwhelming.

La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los fines sociales. Pero
esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los objetos de
comercio, o los productos de la fabrica para explotacion de los cuales se ha constituido la Sociedad.
Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo
caso el gerente estaria facultado para otorgar las ventas que fuere necesario. Por el contrario, el gerente no
tiene atribuciones para vender las instalaciones del comercio ni la fabrica, ni las maquinarias, vehiculos de
 transporte, etc., que forman parte de la explotacion social. En todos estas casos, igualmente que si tratase
de la venta de una marca o procedimiento mecanico o quimico, etc., siendo actos de disposicion seria
necesario contar con la conformidad expresa de todos los socios. (R. Gay de Montella, id., pp. 223-224,
Emphasis supplied)

Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que los señalados
por el objeto de la Sociedad y, por consiguiente, pueden llevar a cabo todas las operaciones que sirven
para aquel ejercicio, incluso cambiando repetidas veces los propios acuerdos segun el interes convenido de
la Sociedad. Pueden contratar y despedir a los empleados, tomar en arriendo almacenas y tiendas, expedir
cambiales, girarlas, avalarlas, dar en prenda o en hipoteca los bienes de la sociedad y adquirir inmuebles
destinados a su explotacion o al empleo estable de sus capitales. Pero no podran ejecutar los actos que
estan en contradiccion con la explotacion que les fue confiada no podran cambiar el objeto, el domicilio la
razon social; fundir a la Sociedad en otra; ceder la accion, y por tanto, el uso de la firma social a otro
renunciar definitivamente el ejercicio de uno de otro ramo comercio que se les haya confiado y enajenar o
piqnorar el taller o el banco social excepto que la venta o piqnoracion tengan por el objeto procurar los
medios necesarios para la continuacion de la empresa social. (Cesar Vivante, Tratado de Derecho
Mercantil, pp. 124-125, Vol II, la. ed.; Emphasis supplied)

The act of one partner to bind the firm, must be necessary for the carrying on of its business. If all that can
be said of it was that it was convenient, or that it facilitated the transaction of the business of the firm, that is
not sufficient, in the absence of evidence of saction by other partners. Nor, it seems, will necessity itself be
sufficient if it be an extraordinary necessity. What is necessary for carrying on the business of the firm under
ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec. 126. While, within this rule, one
member of a partnership may, in the usual and ordinary course of its business, make a valid sale or pledge,
by way of mortgage or otherwise, of all or part of its effects intended for sale, to a bona fide purchaser or
mortgage, without the consent of the other members of the firm, it is not within the scope of his implied
authority to make a final disposition of all of its effects, including those employed as the means of carrying
on its business, the object and effect of which is to immediately terminate the partnership, and place its
property beyond its control. Such a disposition, instead of being within the scope of the partnership
business, or in the usual and ordinary way of carrying it on, is necessarily subversive of the object of the
partnership, and contrary to the presumed intention of the partnership in its formation. (McGrath, et al. vs.
Cowen, et al., 49 N.F. 338, 343; Emphasis supplied)

Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but to pay its
obligation without first obtaining the consent of the other partners, the sale is invalid being in excess of her authority.

4. Finally, the same under consideration was effected in a suspicious manner as may be gleaned from the following
circumstances:

(a) The properties subject of the instant sale which consist of three parcels of land situated in the City of Davao have
an area of 200 hectares more or less, or 2,000,000 square meters. These properties were purchased by the
partnership for purposes of subdivision. According to realtor Mata, who testified in court, these properties could
command at the time he testified a value of not less than P312,000.00, and according to Dalton Chen, manager of
the firm which took over the administration, since the date of sale no improvement was ever made thereon precisely
because of this litigation. And yet, for said properties, aside from the sum of P37,000.00 which was paid for the
properties of the deceased and the partnership, only the paltry sum of P66,529.91 was paid as a consideration
therefor, of which the sum of P46,116.75 was even paid in Japanese currency.

(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if her purpose was only to
pay the partnership's obligation. She could have negotiated a loan if she wanted to pay it by placing the properties
as security, but preferred to sell them even at such low prices because of her close relationship with the purchasers
and creditors who conveniently organized a partnership to exploit them, as may be seen from the following
relationship of their pedigree:

KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo, founder of the defendant Yutivo
Sons Hardware Co. YUTIVO SONS HARDWARE CO, and SIN YEE CUAN CO, INC., alleged creditors, are
owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan are the three children of Jose). YU KHE THAI is a
grandson of the same Jose P. Yutivo, and president of the two alleged creditors. He is the acknowledged
 head of the Yu families. WASHINGTON Z. SYCIP, one of the original buyers, is married to Ana Yu, a
daughter of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a daughter of Yu Khe Thai. The
INSULAR DEVELOPMENT CO., the ultimate buyer, was organized for the specific purpose of buying the
partnership properties. Its incorporators were: Ana Yu and Betty V. Lee, Atty. Quisumbing and Salazar the
lawyers who studied the papers of sale and have been counsel for the Yutivo interests; Dalton Chen a
brother-in-law of Yu Khe Thai and an executive of Sing Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh,
an executive of Yutivo Sons Hardware, and Simeon Daguiwag, a trusted employee of the Yutivos.

(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong Chai Pin, have
already conceived the idea of possessing the lands for purposes of subdivision, excluding Goquiolay from their plan,
and this is evident from the following sequence of events:

Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the creditors of the
partnership filed their claim against the partnership in the intestate proceedings. The creditors studied ways
and means of liquidating the obligation of the partnership, leading to the formation of the defendant Insular
Development Co., composed of members of the Yutivo family and the counsel of record of the defendants,
which subsequently bought the properties of the partnership and assumed the obligation of the latter in favor
of the creditors of the partnership, Yutivo Sons Hardware and Sing, Yee & Cuan, also of the Yutivo family.
The buyers took time to study the commercial potentialities of the partnership properties and their lawyers
carefully studied the document and other papers involved in the transaction. All these steps led finally to the
sale of the three partnership properties.

Upon the strength of the foregoing considerations, I vote to grant motion for reconsideration.

Labrador, Paredes, and Makalintal, JJ., concur.