G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,

vs.

THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch office. In the said contract the party of the third part held herself solidarily liable with the party of the part for the prompt payment of the monthly rental agreed on. When the branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service considered closing down its office. This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint wall filed by the herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that her relationship with TWS was one of a joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist as well as a imediately columnist had been in the travel business prior to the establishment of the joint business venture with appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering the premises at A. Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own, separate office located at the Trade & Commerce Building; nor was she an employee thereof, having no participation in nor connection with said business at the Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7% commissions given by the airline companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from desicion the office furniture and supplying some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and other expenses in consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc. and as such was designated manager. 1

The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of Appeal 5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:

I

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between parties was one of joint venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end." 10 Subsequently, however, we have considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. 11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that would be like claims of a master-servant relationship. True the respondent Court would later minimize her participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said, employment is determined by the right-of-control test and certain economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed 15 and where each party exercises equal rights in the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals.

She continued the business, using her own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch office. 20 Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without notice to its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. 24

ART. 2219. Moral damages 25 may be recovered in the following and analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, 25 and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.

Costs against said private respondents.

SO ORDERED.

R. No. L-49982 April 27, 1988

ELIGIO ESTANISLAO, JR., petitioner,

vs.

THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO, respondents.

Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.

GANCAYCO, J.:

By this petition for certiorari the Court is asked to determine if a partnership exists between members of the same family arising from their joint ownership of certain properties.

Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were then being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to open and operate a gas station thereat to be known as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from the advance rentals due to them from SHELL for the occupancy of the said lots owned in common by them. A joint affidavit was executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles 1 They agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical purposes and in order not to run counter to the company's policy of appointing only one dealer, it was agreed that petitioner would apply for the dealership. Respondent Remedios helped in managing the bussiness with petitioner from May 3, 1966 up to February 16, 1967.

On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the co-owners." 2

For sometime, the petitioner submitted financial statements regarding the operation of the business to private respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty. Angeles, a demand was made on petitioner to render an accounting of the profits.

The financial report of December 31, 1968 shows that the business was able to make a profit of P 87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was realized. 3

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against petitioner praying among others that the latter be ordered:

1. to execute a public document embodying all the provisions of the partnership agreement entered into between plaintiffs and defendant as provided in Article 1771 of the New Civil Code;

2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time the order is issued and that the same be subject to proper audit;

3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an amount of no less than P l50,000.00 with interest at the rate of 1% per month from date of demand until full payment thereof for the entire duration of the business; and

4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14 Record on Appeal.)

After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding judge of Branch IV of the trial court, rendered judgment dismissing the complaint and counterclaim and ordering private respondents to pay petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a motion for

reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who was the newly appointed presiding judge of the same branch, set aside the aforesaid derision and rendered another decision in favor of said respondents.

The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new judgment is hereby rendered in favor of the plaintiffs and as against the defendant:

(1) Ordering the defendant to execute a public instrument embodying all the provisions of the partnership agreement entered into between plaintiffs and defendant as provided for in Article 1771, Civil Code of the Philippines;

(2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up to the time this order is issued, the same to be subject to examination and audit by the plaintiff,

(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of the business in the amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent per month from date of demand until full payment thereof;

(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record on Appeal).

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly committed by the trial court. In due course, a decision was rendered by the Court of Appeals on November 28,1978 affirming in toto the decision of the lower court with costs against petitioner. *

A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not satisfied therewith, the petitioner now comes to this court by way of this petition for certiorari alleging that the respondent court erred:

1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash Pledge Agreement (Exhs. "B-2","6", and "L"); and

2. In declaring that a partnership was established by and among the petitioner and the private respondents as regards the ownership and or operation of the gasoline service station business.

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced-

(a) The joint Affidavit of April 11, 1966, Exhibit A reads:

(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED a corporation duly licensed to do business in the Philippines;

(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we can use the said amount to augment our capital investment in the operation of that gasoline station constructed ,by the said company on our two lots aforesaid by virtue of an outstanding Lease Agreement we have entered into with the said company;

(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and desire to help us in aumenting our capital investment in the operation of the said gasoline station, has agreed to give us the said amount of P 15,000.00, which amount will partake the nature of ADVANCED RENTALS;

(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be

applied as monthly rentals for the sai two lots under our Lease Agreement starting on the 25th of May, 1966 until such time that the said of P 15,000.00 be applicable, which time to our estimate and one-half months from May 25, 1966 or until the 10th of October, 1966 more or less;

(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES LIMITED execute an instrument for us to sign embodying our conformity that the said amount that it will generously grant us as requested be applied as ADVANCED RENTALS; and

(6) FURTHER AFFIANTS SAYETH NOT.,

(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:

WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag, respectively) executed in favour of SHELL by the herein CO-OWNERS and another Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining portions of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;

WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased land, and as Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to SHELL in cash the amount of PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of Shell petroleum products; . . .

WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured the conformity of his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of them to accumulate the equivalent amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as additional cash deposit to SHELL under the same terms and conditions of the aforementioned Cash Pledge Agreement dated llth May 1966.

NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants among the CO-OWNERS herein and SHELL, said parties have agreed and hereby agree as follows:

l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all CO-OWNERS, collectively, under the above describe two Lease Agreements, one dated 13th November 1963 and the other dated 19th March 1964 to enable DEALER to increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for such purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign to SHELL the monthly rental of P 3,382.29 payable to them respectively as they fall due, monthly, commencing 24th May 1966, until such time that the monthly rentals accumulated, shall be equal to P l5,000.

2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement, therefore, cancels and supersedes the Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.

3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from SHELL petroleum products, on credit, up to the amount of P 25,000.

4. This increase in the credit shall also be subject to the same terms and conditions of the above-mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P 15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in the operation of the gasoline station, which advance rentals shall be credited as rentals from May 25, 1966 up to four and one-half months or until 10 October 1966, more or less covering said P 15,000.00.

In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL the monthly rentals due them commencing the 24th of May 1966 until such time that the monthly rentals accumulated equal P 15,000.00 which private respondents agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit as dealer. As above-stated it provided therein that "This agreement, therefore, cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint Affidavit, whatever partnership agreement there was in said previous agreement had thereby been abrogated. We find no merit in this argument. Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to the P 15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the previous one. True it is that in the latter document, it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of the parties in the gasoline station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter document SHELL was a signatory and it would be against its policy if in the agreement it should be stated that the business is a partnership with private respondents and not a sole proprietorship of petitioner.

Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested by the testimonies of private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the business. 4 Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the books of their "common business' aming negosyo). 5 Respondent Remedios assisted in the running of the business. There is no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the intention of dividing the profits among themselves. 6 The sole dealership by the petitioner and the issuance of all government permits and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of the SHELL products.

Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion based on the said facts are in accordance with the applicable law.

WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This decision is immediately executory and no motion for extension of time to file a motion for reconsideration shag beentertained.

SO ORDERED.

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,

vs.

HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

John L. Uy for petitioner.

Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed P4,000.00 to its initial establishment.

The private respondents evidence is summarized as follows:

About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters so that the trial court commissioned an interpreter in the person of Ms. Florence Yap to translate its contents into English. Florence Yap issued a certification and testified that the translation to the best of her knowledge and belief was correct. The private respondent identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (private respondents') presence. Witnesses So Sia and Antonio Ah Heng corroborated the private respondents testimony to the effect that they were both present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery of his own investment in another amount of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of the trial court granting the private respondents motion for examination of certain documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature of the petitioner appearing in the pay envelopes of employees of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts were indeed the signatures of the petitioner.

Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check No. 13389470-B from the profits of the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the China Banking Corporation testified that said check (Exhibit B) was deposited by and duly credited to the private respondents savings account with the bank after it was cleared by the drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation testified that the check in question was in fact and in truth drawn by the petitioner and debited against his own account in said bank. This fact was clearly shown and indicated in the petitioner's

statement of account after the check (Exhibit B) was duly cleared. Rana further testified that upon clearance of the check and pursuant to normal banking procedure, said check was returned to the petitioner as the maker thereof.

The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His evidence is summarized as follows:

The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he was the sole owner of the restaurant, the petitioner presented various government licenses and permits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit G) and the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).

As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to deliver and pay to the former, the sum equivalent to 22% of the annual profit derived from the operation of Sun Wah Panciteria from October, 1955, until fully paid, and attorney's fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)

The private respondent filed a verified motion for reconsideration in the nature of a motion for new trial and, as supplement to the said motion, he requested that the decision rendered should include the net profit of the Sun Wah Panciteria which was not specified in the decision, and allow private respondent to adduce evidence so that the said decision will be comprehensively adequate and thus put an end to further litigation.

The motion was granted over the objections of the petitioner. After hearing the trial court rendered an amended decision, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the plaintiff, which was granted earlier by the Court, is hereby reiterated and the decision rendered by this Court on September 30, 1980, is hereby amended. The dispositive portion of said decision should read now as follows:

WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the defendant, ordering the latter to pay the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo)

The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The questioned decision was further modified by the appellate court. The dispositive portion of the appellate court's decision reads:

WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading as follows:

1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net profit of P2,000.00 a day from judicial demand to May 15, 1971;

2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971 to August 30, 1975;

3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a day.

Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102, Rollo)

Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's decision. The dispositive portion of the resolution reads:

WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant, ordering the latter to pay to the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit.

is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).

In the same resolution, the motion for reconsideration filed by petitioner was denied.

Both the trial court and the appellate court found that the private respondent is a partner of the petitioner in the setting up and operations of the panciteria. While the dispositive portions merely ordered the payment of the respondents share, there is no question from the factual findings that the respondent invested in the business as a partner. Hence, the two courts declared that the private petitioner is entitled to a share of the annual profits of the restaurant. The petitioner, however, claims that this factual finding is erroneous. Thus, the petitioner argues: "The complaint avers that private respondent extended 'financial assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in return of which private respondent allegedly will receive a share in the profits of the restaurant. The same complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious error for the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe 'financial assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo)

The pertinent portions of the complaint state:

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2. That on or about the latter (sic) of September, 1955, defendant sought the financial assistance of plaintiff in operating the defendant's eatery known as Sun Wah Panciteria, located in the given address of defendant; as a return for such financial assistance. plaintiff would be entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria;

3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand pesos (P4,000.00), Philippine Currency, of which copy for the receipt of such amount, duly acknowledged by the defendant is attached hereto as Annex "A", and form an integral part hereof; (p. 11, Rollo)

In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two percent (22%) of the annual profit derived from the operation of the said panciteria. These allegations, which were proved, make the private respondent and the petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves".

Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the appellate court's observation to the effect that "... given its ordinary meaning, financial assistance is the giving out of money to another without the expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for such financial assistance, plaintiff (private respondent) would be entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case was whether or not the private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria.

The petitioner also contends that the respondent court gravely erred in giving probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens used by the PC Crime Laboratory in arriving at the conclusion were never testified to by any witness nor has any witness identified the handwriting in the standards or specimens belonging to the petitioner. The supposed standards or specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the private respondent over the vigorous objection of the petitioner's counsel.

The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures in the two receipts issued separately by the petitioner to the private respondent and So Sia (Exhibits "A" and "D") and compared the signatures on them with the signatures of the petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual examination conducted on the questioned documents, the PC Crime Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D") were the signatures of the petitioner.

The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented by the private respondent for marking as exhibits, the petitioner did not interpose any objection. Neither did the petitioner file an opposition to the motion of the private respondent to have these exhibits together with the two receipts examined by the PC Crime Laboratory despite due notice to him. Likewise, no explanation has been offered for his silence nor was any hint of objection registered for that purpose.

Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The records sufficiently establish that there was a partnership.

The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were ever made by private respondent.

The petitioner's argument is based on Article 1144 of the Civil Code which provides:

Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extra-judicial demand by the creditor, and when there is any written acknowledgment of the debt by the debtor.'

The argument is not well-taken.

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

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article 1842 states:

The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence or any agreement to the contrary.

Regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as long as the partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final accounting is done.

Finally, the petitioner assails the appellate court's monetary awards in favor of the private respondent for being excessive and unconscionable and above the claim of private respondent as embodied in his complaint and testimonial evidence presented by said private respondent to support his claim in the complaint.

Apart from his own testimony and allegations, the private respondent presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.

Mrs. Licup stated:

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

Q Mrs. Witness, you stated that among your duties was that you were in charge of the custody of the cashier's box, of the money, being the cashier, is that correct?

A Yes, sir.

Q So that every time there is a customer who pays, you were the one who accepted the money and you gave the change, if any, is that correct?

A Yes.

Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the money?

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

ATTY. HIPOLITO:

I see.

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

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

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

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

Q What about the catering service, will you please tell the Honorable Court how many times a week were there catering services?

A Sometimes three times a month; sometimes two times a month or more.

xxx xxx xxx

Q Now more or less, do you know the cost of the catering service?

A Yes, because I am the one who receives the payment also of the catering.

Q How much is that?

A That ranges from two thousand to six thousand pesos, sir.

Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of P7,000.00 in a regular day?

A Yes.

Q And ten thousand pesos during pay day.?

A Yes.

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

xxx xxx xxx

COURT: Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128)

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

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

The records show that the trial court went out of its way to accord due process to the petitioner.

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

On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-working holiday, so much so, the hearing was reset to December 7 and 22, 1981. On December 7, 1981, on motion of defendant's counsel, the same was again reset to December 22, 1981 as previously scheduled which hearing was understood as intransferable in character. Again on December 22, 1981, the defendant's counsel asked for postponement on the ground that the defendant was sick. the Court, after much tolerance and judicial magnanimity, denied said motion and ordered that the case be submitted for resolution based on the evidence on record and gave the parties 30 days from December 23, 1981, within which to file their simultaneous memoranda. (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in the heart of Chinatown where people who buy and sell jewelries, businessmen, brokers, manager, bank employees, and people from all walks of life converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings of the trial court and the appellate court. If the respondent court awarded damages only from judicial demand in 1978 and not from the opening of the restaurant in 1955, it is because of the petitioner's contentions that all profits were being plowed back into the expansion of the business. There is no basis in the records to sustain the petitioners contention that the damages awarded are excessive. Even if the Court is minded to modify the factual findings of both the trial court and the appellate court, it cannot refer to any portion of the records for such modification. There is no basis in the records for this Court to change or set aside the factual findings of the trial court and the appellate court. The petitioner was given every opportunity to refute or rebut the respondent's submissions but, after promising to do so, it deliberately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation shows that the same continues until fully paid. The question now arises as to whether or not the payment of a share of profits shall continue into the future with no fixed ending date.

Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil Code which, in part, provides:

Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;

(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution because the continuation of the partnership has become inequitable.

WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the partnership of the parties is ordered dissolved.

SO ORDERED.

53 Phil 489

G.R. No. 31057 September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,

vs.

VICENTE POLISTICO, ET AL., defendants-appellants.

Marcelino Lontok and Manuel dela Rosa for appellants.

Sumulong & Lavides for appellees.

VILLAMOR, J.:

This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as president-treasurer, directors and secretary of said association.

It is well to remember that this case is now brought before the consideration of this court for the second time. The first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions, it is not necessary that all members of the association be made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of origin, both parties amend, respectively, their complaint and their answer, and by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to present.

The commissioner rendered his report, which is attached to the record, with the following resume:

Income:

Member's shares............................ 97,263.70

Credits paid................................ 6,196.55

Interest received........................... 4,569.45

Miscellaneous............................... 1,891.00

P109,620.70

Expenses:

Premiums to members....................... 68,146.25

Loans on real-estate....................... 9,827.00

Loans on promissory notes.............. 4,258.55

Salaries.................................... 1,095.00

Miscellaneous............................... 1,686.10

85,012.90

Cash on hand........................................ 24,607.80

The defendants objected to the commissioner's report, but the trial court, having examined the reasons for the objection, found the same sufficiently explained in the report and the evidence, and accepting it, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of the said association represented by said plaintiffs, with costs against the defendants.

The defendants assigned several errors as grounds for their appeal, but we believe they can all be reduced to two points, to wit: (1) That not all persons having an interest in this association are included as plaintiffs or defendants; (2) that the objection to the commissioner's report should have been admitted by the court below.

As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed.

With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we are of opinion that, the trial court having examined all the evidence touching the grounds for the objection and having found that they had been explained away in the commissioner's report, the conclusion reached by the court below, accepting and adopting the findings of fact contained in said report, and especially those referring to the disposition of the association's money, should not be disturbed.

In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of facts made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure stand upon the same basis, when approved by the Court, as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil., 474), the court held: "Under section 140 of the Code of Civil Procedure it is made the duty of the court to render judgment in accordance with the report of the referee unless the court shall unless for cause shown set aside the report or recommit it to the referee. This provision places upon the litigant parties of the duty of discovering and exhibiting to the court any error that may be contained therein." The appellants stated the grounds for their objection. The trial examined the evidence and the commissioner's report, and accepted the findings of fact made in the report. We find no convincing arguments on the appellant's brief to justify a reversal of the trial court's conclusion admitting the commissioner's findings.

There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code, which provides:

A partnership must have a lawful object, and must be established for the common benefit of the partners.

When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

Appellant's contention on this point is untenable. According to said article, no charitable institution is a necessary party in the present case of determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case. The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution.

We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear explanation of the scope and spirit of the provision of the Civil Code which we are concerned. Commenting on said article Manresa, among other things says:

When the subscriptions of the members have been paid to the management of the partnership, and employed by the latter in transactions consistent with the purposes of the partnership may the former demand the return of the reimbursement thereof from the manager or administrator withholding them?

Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically non-existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an action in favor of the partners to judicially demand from the manager or the administrator of the partnership capital, each one's contribution?

The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling all doubts thereon. He holds that the partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his action. And he adds in explanation that the partner makes his contribution, which passes to the managing partner for the purpose of carrying on the business or industry which is the object of the partnership; or in other words, to breathe the breath of life into a partnership contract with an objection forbidden by law. And as said contrast does not exist in the eyes of the law, the purpose from which the contribution was made has not come into existence, and the administrator of the partnership holding said contribution retains what belongs to others, without any consideration; for which reason he is not bound to return it and he who has paid in his share is entitled to recover it.

But this is not the case with regard to profits earned in the course of the partnership, because they do not constitute or represent the partner's contribution but are the result of the industry, business or speculation which is the object of the partnership, and therefor, in order to demand the proportional part of the said profits, the partner would have to base his action on the contract which is null and void, since this partition or distribution of the profits is one of the juridical effects thereof. Wherefore considering this contract as non-existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it.

Hence the distinction made in the second paragraph of this article of this Code, providing that the profits obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former law, which did not describe the purpose to which those profits denied the partners were to be applied, nor state what to be done with them.

The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different.

Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned by the partners, because it only deals with the disposition of the profits; but the fact that said contributions are not included in the disposal prescribed profits, shows that in consequences of said exclusion, the general law must be followed, and hence the partners should reimburse the amount of their respective contributions. Any other solution is immoral, and the law will not consent to the latter remaining in the possession of the manager or administrator who has refused to return them, by denying to the partners the action to demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)

The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with costs against the appellants; provided, however, the defendants shall pay the legal interest on the sum of P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk of the trial court, in order that said court may distribute them among the members of said association, upon being duly identified in the manner that it may deem proper. So ordered.

Avanceña, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur.

Arbes Vs. Polistico

53 Phil 489

Facts:

This case has been brought for the second time to the SC. The first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as defendants. This court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions, it is not necessary that all members of the association be made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) Hence, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to present. The defendants objected to the commissioner's report, but the trial court, having examined the reasons for the objection, found the same sufficiently explained and rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the

rest of the members of the said association represented by said plaintiffs, with costs against the defendants. The defendants contend that because "Turnuhan Polistico & Co.," is unlawful, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code, which provides: A partnership must have a lawful object, and must be established for the common benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

Issue:

Should the charitable institutions be considered as necessary parties for the total disposition of this case?

Ruling:

No. Appellant's contention on this point is untenable. According to said article, no charitable institution is a necessary party in the present case of determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case. The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution.

The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different.

Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property.

59 Phil 453

G.R. No. L-39607 February 6, 1934

ENCARNACION MAGALONA, ET AL., plaintiffs-appellees,

vs.

JUAN PESAYCO, defendant-appellant.

Manuel Polido and Pedro V. Jimenez for appellant.

Lutero and Lutero and Ramon Maza for appellee.

GODDARD, J.:

In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan Sermeno, and the defendant, Juan Pesayco, formed a partnership for the purpose of catching "semillas de bañgus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose, Antique Province, for the year 1931. It was agreed that the defendant should put in a bid for this privilege and that the partners should each supply one third of the capital in case the defendant was awarded the desired privilege. The defendant, having had experience in this line, was to be the manager in case his bid was accepted. The defendant offered the sum of P5,550.09 for the year ending December 31, 1931. As a deposit of one-fourth of the amount of the bid was required each of the partners put up one third of this amount. This bid, being the highest, was accepted by the municipality and the privilege was awarded to the defendant. The latter entered upon his duties under the contract and gave an account of two sales of "semillas de bañgus", to Tiburcio Lutero as representative of the plaintiff Magalona. As the defendant, on April 21, 1931, had on hand only P410 he wired, Exhibit A, Lutero for sufficient money to complete the payment of the first quarter which was to be paid within the first twenty days of the second quarter of the year 1931. This telegram reads as follows: "Hemos conseguido plazo hasta esta tarde tenemos aqui cuatrocientos diez gira telegraficamente restante." Lutero immediately sent P1,000 to the municipal treasurer of San Jose, Antique (Exhibit D).

The defendant managed the business from January 1,1931, and with the exception of the two sales above-mentioned, never gave any account of his catches or sales to his partners, the plaintiffs. In view of this the herein complaint was filed April 21, 1931, in which it was prayed that a receiver be appointed by the court to take charge of the funds of the partnership and the management of its affairs; that the defendant be ordered to render an account of his management and to pay to the plaintiff their participation in the profits thereof; that the defendant be required to turn over to the receiver all of the funds of the partnership and that the defendant be condemned to pay the costs.

The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up a bond for the same amount.

The receiver took over the management and took possession of all the devices and implements used in the catching of "semillas de bañgus".

At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total of 975,000 "semillas de bañgus" the market value of which was P3 per thousand. The defendant made no report of this nor did he pay the plaintiffs any part of the P2,925 realized by him on the sales thereof. This was not denied.

In his two counter-complaints the defendant prays that he be awarded damages in the sum of P34,700. He denies that there was a partnership and depends principally upon the fact that the partnership agreement was not in writing.

The partnership was conclusively proven by the oral testimony of the plaintiffs and other witnesses, two of whom were Attorneys Lutero and Maza. The defense made no objection to the questions asked with regard to the forming of this partnership. This court has held that if a party permits a contract, which the law provides shall be in writing, to be proved, without objection as to the form of the proof, it is just as binding as if the statute had been complied with.

However, we cannot agree with the appellant that one of the requisites of a partnership agreement such as the one under consideration, is that it should be in writing.

Article 1667 of the Civil Code provides that "Civil partnerships may be established in any form whatever, unless real property or real rights are contributed to the same, in which case a public instrument shall be necessary."

Articles of partnership are not required to be in writing except in the cases mentioned in article 1667, Civil Code, which controls article 1280 of the same Code. (Fernandez vs. Dela Rosa, 1 Phil., 671.)

A verbal partnership agreement is valid between the parties even though more than 1,500 pesetas are involved and can be enforced without bringing action under article 1279, Civil Code, to compel execution of a written instrument. (Arts. 1261, 1278-1280, 1667, Civil Code; arts. 116-119, 51, Code of Commerce.) Thunga Chui vs. Que Bentec, 2 Phil., 561. (4 Phil. Digest, 3468.)

The dispositive part of the decision of the trial court reads as follows:

Habiendose probado, sin pruebas en contrario, de que el demandado obtuvo durante su administracion de este negocio, semillas de bañgus por valor de P2,925 que no dio cuenta ni participacion a sus consocios los demandantes, el Juzgado declara al demandado en deber a la sociedad, compuesta por demandantes y demandado, en la suma de P2,925, importe de 975,000 semillas de bañgus a P3 el millar, y ordena que entregue esta suma al depositario judicial nombrado, como fondos de dicha sociedad.

Se sobreseen las contrademandas y se condena en costas al demandado. Asi se ordena.

This decision is affirmed with costs in both instances against the defendant-appellant. So ordered.

Malcolm, Villa-Real, Hull, and Imperial, JJ., concur.

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,

vs.

SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

Angeles, Maskarino and Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil Code to the contract of partnership on which the complaint herein is based.

Alleging that he and defendant Severino Mabato are — pursuant to a public instrument dated August 29, 1952, copy of which is attached to the complaint as Annex "A" — partners in a fishpond business, to the capital of which Agad contributed P1,000, with the right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato had failed and refused to render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership, as well as the winding up of its affairs by a receiver to be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon the ground that the contract therefor had not been perfected, despite the execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and that the lower court had no jurisdiction over the subject matter of the case, because it involves principally the determination of rights over public lands. After due hearing, the court issued the order appealed from, granting the motion to dismiss the complaint for failure to state a cause of action. This conclusion was predicated upon the theory that the contract of partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not been attached thereto. A reconsideration of this order having been denied, Agad brought the matter to us for review by record on appeal.

Articles 1771 and 1773 of said Code provide:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

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

The issue before us hinges on whether or not "immovable property or real rights" have been contributed to the partnership under consideration. Mabato alleged and the lower court held that the answer should be in the affirmative, because "it is really inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being) contributed to the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was established "to operate a fishpond", not to "engage in a fishpond business". Moreover, none of the partners contributed either a fishpond or a real right to any fishpond. Their contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:

That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad.

x x x x x x x x x

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor a real right thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be, as it is hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance against defendant-appellee, Severino Mabato. It is so ordered.

99 Phil 156

[G.R. No. L-7991. May 21, 1956.]

PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY BANK OF NEW YORK, Respondent.

D E C I S I O N

PARAS, J.:

This is an appeal by certiorari from the decision of the Court of Appeals from which we are reproducing the following basic findings of fact:chanroblesvirtuallawlibrary

“STASIKINOCEY is a partnership doing business at No. 58, Aurora Boulevard, San Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da Costa, Jr., William Kusik and Emma Badong Gavino. This partnership was denied registration in the Securities and Exchange Commission, and while it is confusing to see in this case that the CARDINAL RATTAN, sometimes called the CARDINAL RATTAN FACTORY, is treated as a copartnership, of which Defendants Gorcey and da Costa are considered general partners, we are satisfied that, as alleged in various instruments appearing of record, said Cardinal Rattan is merely the business name or style used by the partnership Stasikinocey.

“Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account with The National City Bank of New York, a foreign banking association duly licensed to do business in the Philippines. On June 3, 1949, the overdraft showed a balance of P6,134.92 against the Defendant Stasikinocey or the Cardinal Rattan (Exhibit D), which account, due to the failure of the partnership to make the required payment, was converted into an ordinary loan for which the corresponding promissory ‘joint note non-negotiable’ was executed on June 3, 1949, by Louis F. da Costa for and in the name of the Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This promissory note was secured on June 7, 1949, by a chattel mortgage executed by Louis F. da Costa, Jr., General Partner for and in the name of Stasikinocey, alleged to be a duly registered Philippine partnership, doing business under the name and style of Cardinal Rattan, with principal office at 69 Riverside, San Juan, Rizal (Exhibit A). The chattels mortgaged were the following motor vehicles:chanroblesvirtuallawlibrary

“(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206 and with plate No. T-7333 (1949);

“(b) Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718 and with plate No. 10372; chan roblesvirtualawlibraryand

“(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,

Serial No. 8869225 and with plate No. T-7222 (1949).

The mortgage deed was fully registered by the mortgagee on June 11, 1949, in the Office of the Register of Deeds for the province of Rizal, at Pasig, (Exhibit A), and among other provisions it contained the following:chanroblesvirtuallawlibrary

“‘(a) That the mortgagor shall not sell or otherwise dispose of the said chattels without the mortgagee’s written consent; chan roblesvirtualawlibraryand

“‘(b) That the mortgagee may foreclose the mortgage at any time, after breach of any condition thereof, the mortgagor waiving the 30- day notice of foreclosure.’

“On June 7, 1949, the same day of the execution of the chattel mortgage aforementioned, Gorcey and Da Costa executed an agreement purporting to convey and transfer all their rights, title and participation in Defendant partnership to Shaeffer, allegedly in consideration of the cancellation of an indebtedness of P25,000 owed by them and Defendant partnership to the latter (Exhibit J), which transaction is said to be in violation of the Bulk Sales Law (Act No. 3952 of the Philippine Legislature).

“While the said loan was still unpaid and the chattel mortgage subsisting, Defendant partnership, through Defendants Gorcey and Da Costa transferred to Defendant McDonald the Fargo truck and Plymouth sedan on June 24, 1949 (Exhibit L). The Fargo pickup was also sold on June 28, 1949, by William Shaeffer to Paul McDonald.

“On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintiff’s existing mortgage lien, in turn transferred the Fargo truck and the Plymouth sedan to Benjamin Gonzales.”

The National City Bank of New York, Respondent herein, upon learning of the transfers made by the partnership Stasikinocey to William Shaeffer, from the latter to Paul McDonald, and from Paul McDonald to Benjamin Gonzales, of the vehicles previously pledged by Stasikinocey to the Respondent, filed an action against Stasikinocey and its alleged partners Gorcey and Da Costa, as well as Paul McDonald and Benjamin Gonzales, to recover its credit and to foreclose the corresponding chattel mortgage. McDonald and Gonzales were made Defendants because they claimed to have a better right over the pledged vehicle.

After trial the Court of First Instance of Manila rendered judgment in favor of the Respondent, annulling the sale of the vehicles in question to Benjamin Gonzales; chan roblesvirtualawlibrarysentencing Da Costa and Gorcey to pay to the Respondent jointly and severally the sum of P6,134.92, with legal interest from the debt of the promissory note involved; chan roblesvirtualawlibrarysentencing the Petitioner Gonzales to deliver the vehicles in question to the Respondent for sale at public auction if Da Costa and Gorcey should fail to pay the money judgment; chan roblesvirtualawlibraryand sentencing Da Costa, Gorcey and Shaeffers to pay to the Respondent jointly and severally any deficiency that may remain unpaid should the proceeds of the sale not be sufficient; chan roblesvirtualawlibraryand sentencing Gorcey, Da Costa, McDonald and Shaeffer to pay the costs. Only Paul McDonald and Benjamin Gonzales appealed to the Court of Appeals which rendered a decision the dispositive part of which reads as follows:chanroblesvirtuallawlibrary

“WHEREFORE, the decision appealed from is hereby modified, relieving Appellant William Shaeffer of the obligation of paying, jointly and severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any deficiency that may remain unpaid after applying the proceeds of the sale of the said motor vehicles which shall be undertaken upon the lapse of 90 days from the date this decision becomes final, if by then Defendants Louis F. da Costa, Jr., and Alan W.

Gorcey had not paid the amount of the judgment debt. With this modification the decision appealed from is in all other respects affirmed, with costs against Appellants. This decision is without prejudice to whatever action Louis F. da Costa, Jr., and Alan W. Gorcey may take against their co-partners in the Stasikinocey unregistered partnership.”

This appeal by certiorari was taken by Paul McDonald and Benjamin Gonzales, Petitioners herein, who have assigned the following errors:chanroblesvirtuallawlibrary

“I

“IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WHICH HAS NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A ‘DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT ‘DOMICILE’ WOULD BIND THIRD PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE.

“II

“IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE OF THE MEMBERS OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF ITS MEMBERS, IT NEED NOT BE REGISTERED IN THE ACTUAL RESIDENCE OF THE MEMBERS WHO EXECUTED SAME; chan roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF SAID CHATTEL MORTGAGOR, DESPITE APPELLANTS’ RAISING THAT QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING THEREON.

“III

IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF THE TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS VOID AND THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE; chan roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO WHERE THE DEED WAS IN FACT EXECUTED, DESPITE APPELLANTS’ RAISING THAT QUESTION PROPERLY BEFORE IT AND EXPRESSLY REQUESTING A RULING THEREON.

“IV

“IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP ‘TO MAKE ALL OFFICIAL AND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL CITY BANK OF NEW YORK IN ORDER TO SIMPLIFY ALL MATTERS RELATIVE TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER BANKING MEDIUMS,’ WAS SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO EXECUTE A CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK SECURITY FOR A PRE-EXISTING OVERDRAFT, GRANTED WITHOUT SECURITY. WHICH THE BANK HAD CONVERTED INTO A DEMAND LOAN UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL MORTGAGE WAS EXECUTED.’

This is the first question propounded by the Petitioners:chanroblesvirtuallawlibrary “Since an unregistered commercial partnership unquestionably has no juridical personality, can it have a domicile so that the registration of a chattel mortgage therein is notice to the world?”.

While an unregistered commercial partnership has no juridical personality, nevertheless, where two or more persons attempt to create a partnership failing to comply with all the legal formalities, the law considers them as partners and the association is a partnership in so far as it is a favorable to third persons, by reason of the equitable principle of estoppel. In Jo Chung Chang vs. Pacific Commercial Co., 45 Phil., 145, it was held “that although the partnership with the firm name of ‘Teck Seing and Co. Ltd.,’ could not be regarded as a partnership de jure, yet with respect to third persons it will be considered a partnership with all the consequent obligations for the purpose of enforcing the rights of such third persons.” Da Costa and Gorcey cannot deny that they are partners of the partnership Stasikinocey, because in all their transactions with the Respondent they represented themselves as such. Petitioner McDonald cannot disclaim knowledge of the partnership Stasikinocey because he dealt with said entity in purchasing two of the vehicles in question through Gorcey and Da Costa. As was held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a partnership not duly organized has been recognized as such in its dealings with certain persons, it shall be considered as “partnership by estoppel” and the persons dealing with it are estopped from denying its partnership existence. The sale of the vehicles in question being void as to Petitioner McDonald, the transfer from the latter to Petitioner Benjamin Gonzales is also void, as the buyer cannot have a better right than the seller.

It results that if the law recognizes a defectively organized partnership as de facto as far as third persons are concerned, for purposes of its de facto existence it should have such attribute of a partnership as domicile. In Hung-Man Yoc vs. Kieng-Chiong-Seng, 6 Phil., 498, it was held that although “it has no legal standing, it is a partnership de facto and the general provisions of the Code applicable to all partnerships apply to it.” The registration of the chattel mortgage in question with the Office of the Register of Deeds of Rizal, the residence or place of business of the partnership Stasikinocey being San Juan, Rizal, was therefore in accordance with section 4 of the Chattel Mortgage Law.

The second question propounded by the Petitioners is:chanroblesvirtuallawlibrary “If not, is a chattel mortgage executed by only one of the ‘partners’ of an unregistered commercial partnership validly registered so as to constitute notice to the world if it is not registered at the place where the aforesaid ‘partner’ actually resides but only in the place where the deed states that he resides, which is not his real residence?” And the third question is as follows:chanroblesvirtuallawlibrary “If the actual residence of the chattel mortgagor — not the residence stated in the deed of chattel mortgage — is controlling, may the Court of Appeals refuse to make a finding of fact as to where the mortgagor resided despite your Petitioners’ having properly raised that question before it and expressly requested a ruling thereon?”

These two questions have become academic by reason of the answer to the first question, namely, that as a de facto partnership, Stasikinocey had its domicile in San Juan, Rizal.

The fourth question asked by the Petitioners is as follows:chanroblesvirtuallawlibrary “Is a chattel mortgage executed by only one of the ‘partners’ of an unregistered commercial partnership valid as to third persons when that ‘partner’ executed the affidavit of good faith in Quezon City before a notary public whose appointment is only for the City of Manila? If not, may the Court of Appeals refuse to make a finding of fact as to where the deed was

executed, despite your Petitioners’ having properly raised that issue before it and expressly requested a ruling thereon?”

It is noteworthy that the chattel mortgage in question is in the form required by law, and there is therefore the presumption of its due execution which cannot be easily destroyed by the biased testimony of the one who executed it. The interested version of Da Costa that the affidavit of good faith appearing in the chattel mortgage was executed in Quezon City before a notary public for and in the City of Manila was correctly rejected by the trial court and the Court of Appeals. Indeed, cumbersome legal formalities are imposed to prevent fraud. As aptly pointed out in El Hogar Filipino vs. Olviga, 60 Phil., 17, “If the biased and interested testimony of a grantor and the vague and uncertain testimony of his son are deemed sufficient to overcome a public instrument drawn up with all the formalities prescribed by the law then there will have been established a very dangerous doctrine which would throw wide open the doors to fraud.”

The last question raised by the Petitioners is as follows:chanroblesvirtuallawlibrary “Does only one of several ‘partners’ of an unregistered commercial partnership have authority, by himself alone, to execute a valid chattel mortgage over property owned by the unregistered commercial partnership in order to guarantee a pre-existing overdraft previously granted, without guaranty, by the bank?”

In view of the conclusion that Stasikinocey is a de facto partnership, and Da Costa appears as a co-manager in the letter of Gorcey to the Respondent and in the promissory note executed by Da Costa, and that even the partners considered him as such, as stated in the affidavit of April 21, 1948, to the effect that “That we as the majority partners hereby agree to appoint Louis da Costa co-managing partner of Alan W. Gorcey, duly approved managing partner of the said firm,” the “partner” who executed the chattel mortgage in question must be deemed to be so fully authorized. Section 6 of the Chattel Mortgage Law provides that when a partnership is a party to the mortgage, the affidavit may be made and subscribed by one member thereof. In this case the affidavit was executed and subscribed by Da Costa, not only as a partner but as a managing partner.

There is no merit in Petitioners’ pretense that the motor vehicles in question are the common property of Da Costa and Gorcey. Petitioners invoke article 24 of the Code of Commerce in arguing that an unregistered commercial partnership has no juridical personality and cannot execute any act that would adversely affect innocent third persons. Petitioners forget that the Respondent is a third person with respect to the partnership, and the chattel mortgage executed by Da Costa cannot therefore be impugned by Gorcey on the ground that there is no partnership between them and that the vehicles in question belonged to them in common. As a matter of fact, the Respondent and the Petitioners are all third persons as regards the partnership Stasikinocey; chan roblesvirtualawlibraryand even assuming that the Petitioners are purchasers in good faith and for value, the Respondent having transacted with Stasikinocey earlier than the Petitioners, it should enjoy and be given priority.

Wherefore, the appealed decision of the Court of Appeals is affirmed with costs against the Petitioners.

Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo Labrador, Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.

G.R. No. L-25007 March 2, 1926

PACIFIC COMMERCIAL COMPANY, plaintiff-appellee,

vs.

ABOITIZ & MARTINEZ, ET AL., defendants.

JOSE MARTINEZ, defendant-appellant.

Espina & Espina for appellant.

Block, Johnston & Greenbaum for appellee.

OSTRAND, J.:

In April, 1919 Arnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose Martinez formed a "regular, collective, merchantile partnership" with a capital of P40,000 of which each of the partners Aboitiz and De Silva furnished one-third. The partner Jose Martinez was an industrial partner and furnished no capital; it was provided in the partnership article that he was to receive 30 per cent of the profits and that his responsibility for losses should not exceed the amount of the profits received by him.

On April 27, 1922, the partnership, through its duly authorized representative, Guillermo Aboitiz, executed a promissory note in favor of the plaintiff the Pacific Commercial Company for the sum of P23,168.71, with interest at 12 per cent per annum until fully paid as additional sum of 10 per cent as attorney's fees and costs of collection in the event it became necessary to resort to judicial proceedings. As security for the payment of the note, the partnership executed a chattel mortgage in favor of the plaintiff on certain personal property therein described.

For failure of the partnership to pay the debt the chattel mortgage was foreclosed the mortgages property sold and the proceeds of the sale, P2,000 was paid over to the plaintiff on December 28, 1923. No further payment on the note appears to have been made and January 4, 1924, the present action was brought for the recovery of the unpaid balance with interest. Upon trial the court below rendered judgment in favor of the plaintiff and against the partnership for the sum of P27,951.68 and for the payment of interest on the capital of P21,168.71 at the rate of 10

per cent per annum from the 31st October, 1924, until paid, together with 10 per cent on the amount due for fees for collection in accordance with the terms of the aforesaid note. The judgment further provided that execution should first issue against the property of the partnership should first issue against the insolvency of the partnership, it might issue against the property of the partners De Silva and Aboitiz and in the event of their insolvency, then against the property of the industrial partner Jose Martinez. From this judgment Martinez appealed to this court and here maintains that under article 141 of the Code of Commerce he, as a mere industrial partner, cannot be held responsible for the partnership's debt.

The case is practically identical with that of the Compania Maritima vs. Munoz (9 Phil., 326), in which this court held the industrial partners secondarily liable for the debts of the partnership but on the strength of the vigorous dissenting opinion of Chief Justice Arellano in that case, that appellant argues that the decision therein was erroneous and should now be overruled. With all due respect for the legal acumen of the first Chief Justice of this Court, we are still of the opinion that the case was correctly decided. Article 127 of the Code of Commerce reads as follows:

All the members of the general copartnership, be they or be they not managing partners of the same are liable personally and in solidum with all their property for the results of the transaction made in the name and for the account of the partnership, under the signature of the later, and by a person authorized to make use thereof.

The language of this article is clear and specific that all the members of a general copartnership are liable with all their property for the results of the duly authorized transactions made in the name and for the account of the partnership. On the other hand, article 141, upon which the appellants relies and which provides that "losses shall be computed in the same proportion among the capitalist partners without including the industrial partners, unless by special agreement the latter have been constituted as participants therein," is susceptible of two different interpretations of which that given it in the Compania Maritima case, supra, i. e., that it relates merely to the distribution of losses among the partners themselves in the settlement of the partnership affairs and has no reference to partnership obligations to third parties, appears to us to be the more logical.

There is a marked distinction between a liability and a loss and the inability of a partnership to pay a debt to a third party at a particular time does not necessarily mean that the partnership business as a whole, has been operated at a loss. The partnership may have outstanding credits which for the moment may have be unavailable for the payment of debts, but which eventually may be realized upon and yield profits more than sufficient to cover all losses. Bearing this in mind it will be found that there in reality is no conflict between the two articles quoted; one speaks of liabilities, the other of losses.

The judgment appealed from is affirmed with the costs against the appellant. So ordered.

Avanceña, C. J., Street, Malcolm, Villamor, Johns, Romualdez, and Villa-Real, JJ., concur.

G.R. No. L-59956 October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.

THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:ñé+.£ªwph!1

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.

As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqwâ£

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention), with Moran actually supervising the work; that Pecson would receive a commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the payment of the first installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees.

After the trial, the Court of First Instance held that: têñ.£îhqwâ£

From the evidence presented it is clear in the mind of the court that by virtue of the partnership agreement entered into by the parties-plaintiff and defendant the plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the defendant was able to print 2,000 copies only authorized of which, however, were sold at P5.00 each. Nothing more was done after this and it can be said that the venture did not really get off the ground. On the other hand, the plaintiff failed to give his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract which right is implied in reciprocal obligations under Article 1385 of the Civil Code whereunder 'rescission creates the obligation to return the things which were the object of the contract ...

WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the complaint on June 19, 1972, and the costs of the suit.

For insufficiency of evidence, the counterclaim is hereby dismissed.

From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise rendered a decision against the petitioner. The dispositive portion of the decision reads: têñ.£îhqwâ£

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson:

(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under their agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project);

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is made)

The petitioner contends that the respondent Court of Appeals decided questions of substance in a way not in accord with law and with Supreme Court decisions when it committed the following errors:

I

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.

II

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.

III

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.

IV

ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN.

V

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.

The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the unrealized profits of the partnership. The petitioner contends that the award is highly speculative. The petitioner maintains that the respondent court did not take into account the great risks involved in the business undertaking.

We agree with the petitioner that the award of speculative damages has no basis in fact and law.

There is no dispute over the nature of the agreement between the petitioner and the private respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced by the petitioner to enter into a partnership with him under the following terms and conditions: têñ.£îhqwâ£

1. That the partnership will print colored posters of the delegates to the Constitutional Convention;

2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;

3. That they will print Ninety Five Thousand (95,000) copies of the said posters;

4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15, 1971 up to December 15, 1971;

5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account pertaining to the distribution and printing of the said 95,000 posters shall be made.

The petitioner on the other hand admitted in his answer the existence of the partnership.

The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79

SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee because the appellant therein was remiss in his obligations as a partner and as prime contractor of the construction projects in question. This case was decided on a particular set of facts. We awarded compensatory damages in the Uy case because there was a finding that the constructing business is a profitable one and that the UP construction company derived some profits from its contractors in the construction of roads and bridges despite its deficient capital." Besides, there was evidence to show that the partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative damages in favor of the private respondent.

Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much more than what was expected of him. In this case, however, there was mutual breach. Private respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies.

Article 1797 of the Civil Code provides: têñ.£îhqwâ£

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

Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. In this case, on an investment of P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of expected profits is obvious. We have to take various factors into account. The failure of the Commission on Elections to proclaim all the 320 candidates of the Constitutional Convention on time was a major factor. The petitioner undesirable his best business judgment and felt that it would be a losing venture to go on with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture have to be considered.

It does not follow however that the private respondent is not entitled to recover any amount from the petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and the private respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining P6,000.00 should therefore be returned to the private respondent.

Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's supposed commission has no justifiable basis in law.

Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly commissions. The agreement does not state the basis of the commission. The payment of the commission could only have been predicated on relatively extravagant profits. The parties could not have intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a failure, the private respondent is not entitled to the P8,000.00 commission.

Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of the Veterans" magazine venture, the respondent court ruled that: têñ.£îhqwâ£

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does not question the due execution of said note. Must Moran therefore pay the amount of P20,000? The evidence indicates that the P20,000 was assigned by Moran to cover the following: têñ.£îhqwâ£

(a) P 7,000 — the amount of the PNB check given by Pecson to Moran representing Pecson's investment in Moran's other project (the publication and printing of the 'Voice of the Veterans');

(b) P10,000 — to cover the return of Pecson's contribution in the project of the Posters;

(c) P3,000 — representing Pecson's commission for three months (April, May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the Veterans' project, for this project never left the ground) ...

As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule admits of certain exceptions. Thus, in

Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and rectify the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and (5) when the court, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both the appellant and the appellee.

In this case, there is misapprehension of facts. The evidence of the private respondent himself shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit that the private respondent expected to receive.

The records show the following exhibits- têñ.£îhqwâ£

E — Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of defendant. Defendant admitted the authenticity of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for the purpose of showing plaintiff's capital investment in the printing of the "Voice of the Veterans" for which he was promised a fixed profit of P8,000. This investment of P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00 investment thereby proportionately reducing the promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised profit), defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000 representing full return of the capital investment and P1,000 partial payment of the promised profit. The P3,000 balance of the promised profit was made part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore, being presented to show the consideration for the P20,000 promissory note.

F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant. The authenticity of the check and his receipt of the proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show the consideration for the P20,000 note and the existence and validity of the obligation.

xxx xxx xxx

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the subject matter of the other partnership agreement and in which plaintiff invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000 made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the promised profit was later made part consideration of the P20,000 promissory note.

M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This document is being offered for the purpose of further showing the transaction as explained in connection with Exhibits E and L.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This document is being offered in support of plaintiff's explanation in connection with Exhibits E, L, and M to show the transaction mentioned therein.

xxx xxx xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the purpose of showing the transaction as explained in connection with Exhibits E, L, M, and N above.

Explaining the above-quoted exhibits, respondent Pecson testified that: têñ.£îhqwâ£

Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory note in the amount of P14,000.00 which has been marked as Exhibit 2. Do you know this promissory note?

A Yes, sir.

Q What is this promissory note, in connection with your transaction with the defendant?

A This promissory note is for the printing of the "Voice of the Veterans".

Q What is this "Voice of the Veterans", Mr. Pecson?

A It is a book.têñ.£îhqwâ£

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the promissory note, Exhibit 2, represent?

A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the Philippine National Bank Manager's check and the P8,000.00 profit assured me by Mr. Moran which I will derive from the printing of this "Voice of the Veterans" book.

Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I show you Exhibit E, is this the Manager's check that mentioned?

A Yes, sir.

Q What happened to this promissory note of P14,000.00 which you said represented P6,000.00 of your investment and P8,000.00 promised profits?

A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the P6,000.00 capital I gave to him.

Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital you gave to him, what happened to the promised profit of P8,000.00?

A It was reduced to one-half (1/2) which is P4,000.00.

Q Was there any document executed by Mr. Moran in connection with the Balance of P3,000.00 of your capital investment and the P4,000.00 promised profits?

A Yes, sir, he executed a promissory note.

Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which for purposes of Identification I request the same to be marked as Exhibit M. . .

Court têñ.£îhqwâ£

Mark it as Exhibit M.

Q (continuing) is this the promissory note which you said was executed by Mr. Moran in connection with your transaction regarding the printing of the "Voice of the Veterans"?

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?

A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note.

Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr. Moran?

A Yes, sir.

(T.S.N., p. 23, Nov. 29, 1972).

Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00 covered by the promissory note, Exhibit M. What does this P4,000.00 covered by Exhibit N represent?

A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00 capital investment and the P1,000.00 represents partial payment of the P4,000.00 profit that was promised to me by Mr. Moran.

Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M?

A The balance of P3,000.00 and the rest of the profit was applied as part of the consideration of the promissory note of P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground because the project did take place. Only it failed. It was the private respondent himself who presented a copy of the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error to state that the project never took place and on this basis decree the return of the private respondent's investment.

As already mentioned, there are risks in any business venture and the failure of the undertaking cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best business judgment, which seems to be true in this case. In view of the foregoing, there is no reason to pass upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no valid basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS representing the amount of the private respondent's contribution to the partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits gained by the partnership in the sale of the two thousand (2,000)

copies of the posters, with interests at the legal rate on both amounts from the date the complaint was filed until full payment is made.

SO ORDERED.1äwphï1.ñët

Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.

De la Fuente J., took no part.

55 Phil 601

G.R. No. L-33580 February 6, 1931

MAXIMILIANO SANCHO, plaintiff-appellant,

vs.

SEVERIANO LIZARRAGA, defendant-appellee.

Jose Perez Cardenas and Jose M. Casal for appellant.

Celso B. Jamora and Antonio Gonzalez for appellee.

ROMUALDEZ, J.:

The plaintiff brought an action for the rescission of a partnership contract between himself and the defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso investment therein, with interest at 12 per cent per annum form October 15, 1920, with costs, and any other just and equitable remedy against said defendant.

The defendant denies generally and specifically all the allegations of the complaint which are incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter and asking for the dissolution of the partnership, and the payment to him as its manager and administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest, one-half of said amount to be charged to the plaintiff. He also prays for any other just and equitable remedy.

The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had demanded that the defendant liquidate the partnership, declared it dissolved on account of the expiration of the period for which it was constituted, and ordered the defendant, as managing partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation together with the accounts and vouchers within the period of thirty days from receipt of notice of said judgment, without costs.

The plaintiff appealed from said decision making the following assignments of error:

1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present case.

2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest from October 15, 1920, until fully paid.

3. In denying the motion for a new trial.

In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that this appeal is premature and therefore will not lie. The point is based on the contention that inasmuch as the liquidation ordered by the trial court, and the consequent accounts, have not been made and submitted, the case cannot be deemed terminated in said court and its ruling is not yet appealable. In support of this contention counsel cites section 123 of the Code of Civil Procedure, and the decision of this court in the case of Natividad vs. Villarica (31 Phil., 172).

This contention is well founded. Until the accounts have been rendered as ordered by the trial court, and until they have been either approved or disapproved, the litigation involved in this action cannot be considered as completely decided; and, as it was held in said case of Natividad vs .Villarica, also with reference to an appeal taken from a decision ordering the rendition of accounts following the dissolution of partnership, the appeal in the instant case must be deemed premature.

But even going into the merits of the case, the affirmation of the judgment appealed from is inevitable. In view of the lower court's findings referred to above, which we cannot revise because the parol evidence has not been forwarded to this court, articles 1681 and 1682 of the Civil Code have been properly applied. Owing to the defendant's failure to pay to the partnership the whole amount which he bound himself to pay, he became indebted to it for the remainder, with interest and any damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand rescission of the partnership contract according to article 1124 of the Code. This article cannot be applied to the case in question, because it refers to the resolution of obligations in general, whereas article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well known principle that special provisions prevail over general provisions.

By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full force, without special pronouncement of costs. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.

17 Phil 84

G.R. No. 5840 September 17, 1910

THE UNITED STATES, plaintiff-appellee,

vs.

EUSEBIO CLARIN, defendant-appellant.

Francisco Dominguez, for appellant.

Attorney-General Villamor, for appellee.

ARELLANO, C.J.:

Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes, and, believing that he could make some money in this business, the said Larin made an agreement with the three men by which the profits were to be divided equally between him and them.

Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and obtained P203 from the business, but did not comply with the terms of the contract by delivering to Larin his half of the profits; neither did they render him any account of the capital.

Larin charged them with the crime of estafa, but the provincial fiscal filed an information only against Eusebio Clarin in which he accused him of appropriating to himself not only the P172 but also the share of the profits that belonged to Larin, amounting to P15.50.

Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed that the facts presented concerned the defendant and themselves together.

The trial court, that of First Instance of Pampanga, sentenced the defendant, Eusebio Clarin, to six months' arresto mayor, to suffer the accessory penalties, and to return to Pedro Larin P172, besides P30.50 as his share of the profits, or to subsidiary imprisonment in case of insolvency, and to pay the costs. The defendant appealed, and in deciding his appeal we arrive at the following conclusions:

When 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, a contract is formed which is called partnership. (Art. 1665, Civil Code.)

When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman, he invested his capital in the risks or benefits of the business of the purchase and sale of mangoes, and, even though he had reserved the capital and conveyed only the usufruct of his money, it would not devolve upon of his three partners to return his capital to him, but upon the partnership of which he himself formed part, or if it were to be done by one of the three specifically, it would be Tarug, who, according to the evidence, was the person who received the money directly from Larin.

The P172 having been received by the partnership, the business commenced and profits accrued, the action that lies with the partner who furnished the capital for the recovery of his money is not a criminal action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership and a levy on its assets if there should be any.

No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the prejudice of another, shall appropriate or misapply any money, goods, or any kind of personal property which they may have received as a deposit on commission for administration or in any other character producing the obligation to deliver or return the same," (as, for example, in commodatum, precarium, and other unilateral contracts which require the return of the same thing received) does not include money received for a partnership; otherwise the result would be that, if the partnership, instead of obtaining profits, suffered losses, as it could not be held liable civilly for the share of the capitalist partner who reserved the ownership of the money brought in by him, it would have to answer to the charge of estafa, for which it would be sufficient to argue that the partnership had received the money under obligation to return it.

We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for estafa is dismissed without prejudice to the institution of a civil action.

Torres, Johnson, Moreland and Trent, JJ., concur.

53 Phil 504

G.R. No. 30286 September 12, 1929

M. TEAGUE, plaintiff-appellant,

vs.

H. MARTIN, J. T. MADDY and L.H. GOLUCKE, defendants-appellees.

Abad Santos, Camu and Delgado, for appellant.

J.W. Ferrier for appellees.

STATEMENT

Plaintiff alleges that about December 23, 1926, he and the defendants formed a partnership for the operation of a fish business and similar commercial transactions, which by mutual contest was called "Malangpaya Fish Co," with a capital of P35,000, of which plaintiff paid P25,000, the defendant Martin P5,000, P2,500, and Golucke P2,500. That

as such partnership, they agreed to share in the profits and losses of the business in proportion to the amount of capital which each contributed. That the plaintiff was named the general manager to take charge of the business, with full power to do and perform all acts necessary to carry out of the purposes of the partnership. That there was no agreement as to the duration of the partnership. That plaintiff wants to dissolve it, but that the defendants refused to do so. A statement marked Exhibit A, which purports to be a cash book, is made a part of the complaint. That the partnership purchased and now owns a lighter called Lapu-Lapu, and a motorship called Barracuda, and other properties. That the lighter and the motorship are in the possession of the defendants who are making use of them, to the damage and prejudice of the plaintiff, for any damage which plaintiff may sustain. That it is for the best interest of the parties to have a receiver appointed pending this litigation, to take possession of the properties, and he prays that the Philippine Trust Company be appointed receiver, and for judgment dissolving the partnership, with costs.

Each of the defendants filed a separate answer, but the same nature, in which they admit that about December 10, 1926, the plaintiff and the defendants formed a partnership for the purpose of the equipment of the Manila Fish Co., Inc., and the conduct of a fish business. That the terms of the partnership were never evidenced by a truth and in fact, the partnership was formed under a written plan, of which each member received a copy and to which all agreed. That by its terms the amount of the capital was P45,000, of which the plaintiff agreed to contribute P35,000. That P20,000 of the capital was to be used for the purchase of the equipment of the Manila Fish Co., Inc. and the balance placed to the checking account o the new company.

It is then alleged that "the new owners agree to duties as follows:

Capt. Maddy will have charger of the Barracuda and the navigating of the same. Salary P300 per month.

Mr. Martin will have charge of the southern station, cold stores, commissary and procuring fish. Salary P300 per month.

Mr. Teague will have charge of selling fish in Manila and purchasing supplies. No salary until business is on paying basis, then the same as Maddy or Martin.

The principal office shall be in Manila, each party doing any business shall keep books showing plainly all transactions, the books shall be available at all time for inspections of any member of the partnership.

If Mr. Martin or Mr. Maddy wishes at some future time to repurchase a larger share in the business Teague agrees to sell part of his shares to each on the basis double the amount originally invested by each or ten thousand to Martin and five thousand to Maddy.

This offer will expire after two years.

That no charge was ever made in the terms of said agreement of copartnership as set forth above except that it was later agreed among the partners that the business of the partnership should be conducted under the trade name "Malangpaya Fish Company."

That as shown by the foregoing quoted agreement the agreed capital of the copartnership was P45,000 and not P35,000 as stated in the third paragraph of plaintiff's amended complaint, and the plaintiff herein, M. Teague, bound himself and agreed to contribute to the said copartnership the sum of P35,000 and not the sum of P25,000 as stated in the third paragraph of his said amended complaint.

Defendant Martin specificaly denies the "plaintiff was named general manager of the partnership," and alleged "that all the duties and powers of the said plaintiff were specifically set forth in the above quoted written agreement and that no further or additional powers were ever given the said plaintiff." But he admits the purchase of the motorship Barracuda, by the partnership. He denies that Exhibit A is a true or correct statement of the cash received and paid out by or on behalf of the partnership, or that the partnership over purchased or that it now owns the lighter Lapu-Lapu, "And/ or any other properties" as mentioned in said ninth paragraph, except such motorship and a smoke in the house," or that the defendants are making use of any of the properties of the partnership, to the damage and prejudice of the plaintiff, or that they do not have any visible means to answer for any damages, and alleges that at the time of the filing of the complaint, partnership in cold storage, of the value of P6,000, for which he has never accounted on the books of the partnership or mentioned in the complaint, and defendant prays that plaintiff's complaint be dismissed, and that he be ordered and required to render an accounting , and to pay to partnership the balance of his unpaid subscription amounting to P10,000.

In his answer the defendant Maddy claimed and asserted that there is due and owing him from the plaintiff P1,385.53, with legal interest, and in his amended answer, the defendant Martin prays for judgment for P615.49.

To all which the plaintiff made a general and specific denial.

Upon such issues the lower court on April 30, 1928, rendered the following judgment:

In view of the foregoing considerations, the court decrees:

That the partnership, existing among the parties in this suit, is hereby declared dissolved; that all the existing properties of the said partnership are ordered to be sold at public auction; and that all the proceeds and other unexpended funds of the partnership be used, first, to pay he P529.48 tax to the Government of the Philippine Islands; second, to pay debts owing to third persons; third, to reimburse the partners for their advances and salaries due; and lastly, to return to the partners the amounts they contributed to the capital of the association and any other remaining such to be distributed proportionately among them as profits:

That the plaintiff immediately render a true and proper account of all the money due to and received by him for the partnership.

That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and adding machine belong exclusively to the plaintiff, M. Teague, but the said plaintiff must return to and reimburse the partnership the sum of P14,032.26 taken from its funds for the purchase and equipment of the said barge Lapu-Lapu; and also to return the sum of P1,230 and P228 used for buying the Ford truck and adding machine, respectively:

That the sum of P,1512.03 be paid to the defendant, J. T. Maddy, and the sum of P615.49 be paid to defendant, H. Martin, for their advances and their unpaid salaries, with legal interest from October 27, 1927, until paid; that the plaintiff pay the costs of this action.

So ordered.

May 16, 1928, plaintiff filed a motion praying for an order "directing the court's stenographic notes taken by them of the evidence presented in the present case, as soon as possible." This motion was denied on May 19th, and on May 16th, the court denied the plaintiff's motion for reconsideration. To all of which exceptions were duly taken.

June 7, 1928, plaintiff filed a petition praying, for the reasons therein stated, that the decision of the court in the case be set aside, and that the parties be permitted to again present their testimony and to have the case decided upon its merits. To which objections were duly made, and on June 28, 1928, the court denied plaintiff's motion for a new trial. To which exceptions were duly taken, and on July 10, 1928, the plaintiff filed a motion in which he prayed that the period for the appeal interposed by the plaintiff be suspended, and that the order of June 28, 1928, be set aside, "and that another be entered ordering the re-taking of the evidence in this case." To which objections were also filed and later overruled, from all of which the plaintiff appealed and assigns the following errors:

I. The trial court erred in not having confined itself, in the determination of this case, to the question as to whether or not it is proper to dissolve the partnership and to liquidate its assets, for all other issues raised by appellees are incidental with the process of liquidation provided for by law.

II. The trial court erred in not resolving the primary and most important question at issue in his case, namely, whether or not the appellant M. Teague was the manager of the unregistered partnership Malangpaya Fish Company.

III. The trial court erred in holding that the appellant had no authority to buy the Lapu-Lapu, the Ford truck and the adding machine without the consent of his copartners, for in accordance with article 131 of the Code of Commerce the managing partner of a partnership can make purchases for the partnership without the knowledge and/or consent of his copartners.

IV. The trial court erred in holding that the Lapu-Lapu, the Ford truck and the adding machine purchased by appellant, as manager of the Malangpaya Fish Company, for and with funds of the partnership, do not form part of the assets of the partnership.

V. The trial court erred in requiring the appellant to pay to the partnership the sum of P14,032.26, purchase price, cost of repairs and equipment of the barge Lapu-Lapu; P1,230 purchase price of the adding machine, for these properties were purchased for and they form part of the assets of the partnership.

VI. The trial court erred in disapproving appellant's claim for salary and expenses incurred by him for and in connection with the partnership's business.

VII. The trial court erred in approving the claims of appellees J.T. Maddy and H. Martin and in requiring the appellant to pay them the sum of P1,512.03 and P615.49 respectively.

VIII. The trial court erred in not taking cognizance of appellant's claim for reimbursement for advances made by him for the partnerships, as shown in the statement attached to the complaint marked Exhibit A, in which there is a balance in his favor and against the partnership amounting to over P16,000.

X. Lastly, considering the irregularities committed, the disappearance of the stenographic notes for a considerable length of time, during which time changes in the testimonies of the witnesses could have been made and the impossibility of having an accurate and complete transcript of the stenographic notes, the trial court erred in denying appellant's petition for the retaking of the evidence in this case.

JOHNS, J.:

By their respective pleadings, all parties agreed that there was a partnership between them, which appears at one time to have done a good business. In legal effect, plaintiff asked for its dissolution and the appointment of a receiver pendente lite. The defendants did not object to the dissolution of the partnership, but prayed for an accounting with the plaintiff. It was upon such issues that the evidence was taken and the case tried. Hence, there is no merit in the first in the first assignment of error. Complaint is made that the lower court did not specifically decide as to whether or not the plaintiff was the manager of the unregistered partnership. But upon that question the lower court, in legal effect, followed and approved the contention of the defendants that the duties of each partners were specified and defined in the "plans for formation of a limited partnership," in which it is stated that Captain Maddy would have charge of the Barracuda and its navigation, with a salary of P300 per month, and that Martin would have charge of the southern station, cold stores, commisary and procuring fish, with a salary of P300 per month, and that the plaintiff would have charge of selling fish in Manila and purchasing supplies, without salary until such time as the business is placed on a paying basis, when his salary would be the same as that of Maddy and Martin, and that the principal office of the partnership "shall keep books showing plainly all transactions," which shall be available at all time for inspection of any of the members.

It will thus be noted that the powers and duties of Maddy Martin, and the plaintiff are specifically defined, and that each of them was more or less the general manager in his particular part of the business. That is to say, that Maddy's power and duties are confined and limited to the charge of the Barracuda and its navigation, and Martin's to the southern station, cold stores, commissary and procuring fish, and that plaintiff's powers and duties are confined and limited to "selling fish in Manila and the purchase of supplies." In the selling of fish, plaintiff received a

substantial amount of money which he deposited to the credit of the company signed by him as manager, but it appears that was a requirement which the bank made in the ordinary course of business, as to who was authorized to sign checks for the partnership; otherwise, it would not cash the checks.

In the final analysis, the important question in this case is the ownership of the Lapu-Lapu, the Ford truck, and the adding machine. The proof is conclusive that they were purchased by the plaintiff and paid for him from and out of the money of the partnership. That at the time of their purchase, the Lapu-Lapu was purchased in the name of the plaintiff, and that he personally had it registered in the customs house in his own name, for which he made an affidavit that he was its owner. After the purchase, he also had the Ford truck registered in his won name. His contention that this was done as a matter of convenience is not tenable. The record shows that when the partnership purchased the Barracuda, it was registered in the customs house in the name of the partnership, and that it was a very simple process to have it so registered.

Without making a detailed analysis of the evidence, we agree with the trial court that the Lapu-Lapu, the Ford truck, and the adding machine were purchased by the plaintiff and paid for out of the funds of the partnership, and that by his own actions and conduct, and the taking of the title in his own name, he is now estopped to claim or assert that they are not his property or that they are the property of the company. Again, under his powers and duties as specified in the tentative, unsigned written agreement, his authority was confined and limited to the "selling of fish in Manila and the purchase of supplies." It must be conceded that, standing alone, the power to sell fish and purchase supplies does not carry with it or imply the authority to purchase the Lapu-Lapu, or the Ford truck, or the adding machine. From which it must follow that he had no authority to purchase the lighter Lapu-Lapu, the Ford truck, or the adding machine, as neither of them can be construed as supplies for the partnership business. While it is true that the tentative agreement was never personally signed by any member of the firm, the trial court found as a fact, and that finding is sustained by the evidence, that this unsigned agreement was acted upon and accepted by all parties as the basis of the partnership. It was upon that theory that the lower court allowed the defendant s Maddy and Martin a salary of P300 per month and the money which each of them paid out and advanced in the discharged of their respective duties, and denied any salary to the plaintiff, for the simple reason that the business was never on a paying basis.

Much could be said about this division of powers, and that Maddy and Martin's duties were confined and limited to the catching and procuring of fish, which were then shipped to the plaintiff who sold them on the Manila market and received the proceeds of the sales. In other words, Maddy and Martin were supplying the fish to plaintiff who sold them under an agreement that he would account for the money.

Upon the question of accounting, his testimony as to the entries which he made and how he kept the books of the partnership is very interesting:

Q. Then this salary does not take into consideration the fact that you claim the company is very badly in debt? —

A. Well, I put the salary in there.

Q. I am asking you if that is true? —

A. I do not think I will decide that, I think it will be decided by the court.

Q. I will ask you to answer the question? —

A. You asked me my opinion and I said that I am entitled to it.

xxx xxx xxx

I am not on trial as a bookkeeper; if my lawyers won't object to the question I will object myself; I am not on trial as a bookkeeper; I keep my books any way I want to, put in what I want to, and I leave out anything I don't choose to put in, —

xxx xxx xxx

Q. You have your own bookkeeping? —

A. Well, I run my business to suit myself, I put in the books what I want to, and I leave out what I want to, and I have a quarter of a million pesos to show for it, —

xxx xxx xxx

Q. Did you not say that you paid yourself a salary in August because you made a profit? —

A. Yes. This profit was made counting the stock on hand and equipment on hand, but as far as cash to pay this balance, I did not have it. when I wanted a salary I just took it. I ran things to suit myself.

xxx xxx xxx

Q. In other words in going against these partners you are going to tax them for the services of your attorney? —

A. You are mistaken; I am not against them. I paid this out for filing this complaint and if the honorable court strikes it out, all right. I think it was a just charge. When I want to sue them the Company can pay for my suit.

Q. Would you have any objection to their asking for their attorney's fees from the company as partners also in the business? —

A. Yes.

Q. You would object to your partners having their attorney's fees here paid out of the copartnership like you have had yours paid? —

A. Yes, that is the way I do my business.

To say the least, this kind of evidence does not appeal to the court. This case has been bitterly contested, and there is much feeling between the parties and even their respective attorneys. Be that as it may, we are clearly of the opinion that the findings of the lower court upon questions of fact are well sustained by the evidence. Plaintiff's case was tried on the theory that the partnership was the owner of the property in question, and no claim was made for the use of the Lapu-Lapu, and it appears that P14,032.26 of the partnership money was used in its purchase, overhauling, expenses and repairs. That in truth and in fact the partnership had the use and benefit of the Lapu-Lapu in its business from sometime in May until the receiver was appointed on November 11, 1927, or a period of about six months, and that the partnership has never paid anything for its use. it is true that there is no testimony as to the value of such use, but the cost of the Lapu-Lapu and the time of its use and the purpose for which it was used, all appear in the record. For such reason, in the interest of justice, plaintiff should be compensated for the reasonable value of the time which the partnership made use of the Lapu-Lapu.

All things considered, we are of the opinion that P2,000 is a reasonable, amount which the plaintiff should receive for its use.

In all things and respects, the judgment of the lower court as to the merits is affirmed, with the modification only that P2,000 shall be deducted from the amount of the judgment which was awarded against the plaintiff, such deduction to be made for and on account of such use of the Lapu-Lapu by the partnership, with costs against the appellant. So ordered.

Avanceña, C.J., Street, Villamor, Romualdez and Villa-Real, JJ. concur.

Johnson, J., reserves his vote.

G.R. No. L-3704 December 12, 1907

LA COMPAÑIA MARITIMA, plaintiff-appellant,

vs.

FRANCISCO MUÑOZ, ET AL., defendants-appellees.

Rosado, Sanz and Opisso, for appellant.

Haussermann, Cohn and Williams, for appellees.

WILLARD, J.:

The plaintiff brought this action in the Court of First Instance of Manila against the partnership of Franciso Muñoz & Sons, and against Francisco Muñoz de Bustillo, Emilio Muñoz de Bustillo, and Rafael Naval to recover the sum of P26,828.30, with interest and costs. Judgment was rendered in the court below acquitting Emilio Muñoz de Bustillo and Rafael Naval of the complaint, and in favor of the plaintiff and against the defendant partnership, Francisco Muñoz & Sons, and Francisco Muñoz de Bustillo form the sum of P26,828.30 with interest at the rate of 8 per cent per annum from the 31st day of March, 1905, and costs. From this judgment the plaintiff appealed.

On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio Muñoz, and Rafael Naval formed on ordinary general mercantile partnership under the name of Francisco Muñoz & Sons for the purpose of carrying on the mercantile business in the Province of Albay which had formerly been carried on by Francisco Muñoz. Francisco Muñoz was a capitalist partner and Emilio Muñoz and Rafael Naval were industrial partners.

It is said in the decision of the court below that in the articles of partnership it was called an ordinary, general mercantile partnership, but that from the article it does not appear to be such a partnership. In the brief of the appellees it is also claimed that it is not an ordinary, general commercial partnership. We see nothing in the case to support either the statement of the court below in its decision or the claim of the appellees in their brief. In the articles of partnership signed by the partners it is expressly stated that they have agreed to form, and do form, an ordinary, general mercantile partnership. The object of the partnership, as stated in the fourth paragraph of the articles, is a purely mercantile one and all the requirements of the Code of Commerce in reference to such partnership were complied with. The articles of partnership were recorded in the mercantile registry in the Province of Albay. If it should be held that the contract made in this case did not create an ordinary, general mercantile partnership we do not see how one could be created.

The claim of the appellees that Emilio Muñoz contributed nothing to the partnership, either in property, money, or industry, can not be sustained. He contributed as much as did the other industrial partner, Rafael Naval, the difference between the two being that Rafael Naval was entitled by the articles of agreement to a fixed salary of P2,500 as long as he was in charge of the branch office established at Ligao. If he had left that branch office soon after the partnership was organized, he would have been in the same condition then that Emilio Muñoz was from the beginning. Such a change would have deprived him of the salary P2,500, but would not have affected in any way the partnership nor have produced the effect of relieving him from liability as a partner. The argument of the appellees seems to be that, because no yearly or monthly salary was assigned to Emilio Muñoz, he contributed nothing to the partnership and received nothing from it. By the articles themselves he was to receive at the end of five years one-eighth of the profits. It can not be said, therefore, that he received nothing from the partnership. The fact that the receipt of this money was postponed for five years is not important. If the contention of the appellees were sound, it would result that, where the articles of partnership provided for a distribution of profits at the end of each year, but did not assign any specific salary to an industrial partner during that time, he would not be a member of the partnership. Industrial partners, by signing the articles, agree to contribute their work to the partnership and article 138 of the Code of Commerce prohibits them from engaging in other work except by the express consent of the partnership. With reference to civil partnerships, section 1683 of the Civil Code relates to the same manner.

It is also said in the brief of the appellees that Emilio Muñoz was entirely excluded from the management of the business. It rather should be said that he excluded himself from such management, for he signed the articles of partnership by the terms of which the management was expressly conferred by him and the others upon the persons therein named. That partners in their articles can do this, admits of no doubt. Article 125 of the Code of Commerce requires them to state the partners to whom the management is intrusted. This right is recognized also in article 132. In the case of Reyes vs. The Compania Maritima (3 Phil. Rep., 519) the articles of association provided that the directors for the first eight years should be certain persons named therein. This court not only held that such provision was valid but also held that those directors could not be removed from office during the eight years, even by a majority vote of all the stockholders of the company.

Emilio Muñoz was, therefore, a general partner, and the important question in the case is whether, as such general partner, he is liable to third persons for the obligations contracted by the partnership, or whether he relieved from

such liability, either because he is an industrial partner or because he was so relieved by the express terms of the articles of partnership.

Paragraph 12 of the articles of partnership is as follows:

Twelfth. All profits arising from mercantile transactions carried on, as well as such as may be obtained from the sale of property and other assets which constitute the corporate capital, shall be distributed, on completion of the term of five years agreed to for the continuation of the partnership, in the following manner: Three-fourths thereof for the capitalist partner Francisco Muñoz de Bustillo and one-eighth thereof for the industrial partner Emilio Muñoz de Bustillo y Carpiso, and the remaining one-eighth thereof for the partner Rafael Naval y Garcia. If, in lieu of profits, losses should result in the winding up of the partnership, the same shall be for the sole and exclusive account of the capitalist partner Francisco Muñoz de Bustillo, without either of the two industrial partners participating in such losses.

Articles 140 and 141 of the Code of Commerce are as follows:

ART. 140. Should there not have been stated in the articles of copartnership the portion of the profits to be received by each partner, said profits shall be divided pro rata, in accordance with the interest each one has on the copartnership, partners who have not contributed any capital, but giving their services, receiving in the distribution the same amount as the partner who contributed the smallest capital.

ART. 141. Losses shall be charged in the same proportion among the partners who have contributed capital, without including those who have not, unless by special agreement the latter have been constituted as participants therein.

A comparison of these articles with the twelfth paragraph above quoted will show that the latter is simply a statement of the rule laid down in the former. The article do not, therefore, change the rights of the industrial partners as they are declared by the code, and the question may be reduced to the very simple one namely, Is an industrial partner in an ordinary, general mercantile partnership liable to third persons for the debts and obligations contracted by the partnership?

In limited partnership the Code of Commerce recognizes a difference between general and special partners, but in a general partnership there is no such distinction-- all the members are general partners. The fact that some may be industrial and some capitalist partners does not make the members of either of these classes alone such general partners. There is nothing in the code which says that the industrial partners shall be the only general partners, nor is there anything which says that the capitalist partners shall be the only general partners.

Article 127 of the Code of Commerce is as follows:

All the members of the general copartnership, be they or be they not managing partners of the same, are liable personally and in solidum with all their property for the results of the transactions made in the name and for the account of the partnership, under the signature of the latter, and by a person authorized to make use thereof.

Do the words "all the partners" found in this article include industrial partners? The same expression is found in other articles of the code. In article 129 it is said that, if the management of the partnership has not been limited by special act to one of the partners, all shall have the right to participate in the management. Does this mean that the capitalist partners are the only ones who have that right, or does it include also industrial partners? Article 132 provides that, when in the articles of partnership the management has been intrusted to a particular person, he can not be deprived of such management, but that in certain cases the remaining partners may appoint a comanager. Does the phrase "remaining partners" include industrial partners, or is it limited to capitalist partners, and do industrial partners have no right to participate in the selection of the comanager? Article 133 provides that all the partners shall have the right to examine the books of the partnership. Under this article are the capitalist partners the only ones who have such right? Article 135 provides that the partners can not use the firm name in their private business. Does this limitation apply only to capitalist partners or does it extend also to industrial partners? Article 222 provides that a general partnership shall be dissolve by the death of one of the general partners unless it is otherwise provided in the articles. Would such a partnership continue if all the industrial partners should die? Article 229 provides that upon a dissolution of a general partnership it shall be liquidated by the former managers, but, if all the partners do not agree to this, a general meeting shall be called, which shall determine to whom the settlement of the affairs shall be intrusted. Does this phrase "all the partners" include industrial partners, or are the capitalist partners the only ones who have a voice in the selection of a manager during a period of liquidation? Article 237 provides that the private property of the general partners shall not be taken in payment of the obligations of the partnership until its property has been exhausted. Does the phrase "the general partners" include industrial partners?

In all of these articles the industrial partners must be included. It can not have been intended that, in such a partnership as the one in question, where there were two industrial and only one capitalist partner, the industrial partners should have no voice in the management of the business when the articles of partnership were silent on that subject; that when the manager appointed mismanages the business the industrial partners should have no right to appoint a comanager; that they should have no right to examine the books; that they might use the firm name in their private business; or that they have no voice in the liquidation of the business after dissolution. To give a person who contributed no more than, say, P500, these rights and to take them away from a person who contributed his services, worth, perhaps, infinitely more than P500, would be discriminate unfairly against industrial partners.

If the phrase "all the partners" as found in the articles other than article 127 includes industrial partners, then article 127 must include them and they are liable by the terms thereof for the debts of the firm.

But it is said that article 141 expressly declares to the contrary. It is to be noticed in the first place that this article does not say that they shall not be liable for losses. Article 140 declares how the profits shall be divided among the partners. This article simply declares how the losses shall be divided among the partners. The use of the words se imputaran is significant. The verb means abonar una partida a alguno en su cuenta o deducirla de su debito. Article 141 says nothing about third persons and nothing about the obligations of the partnership.

While in this section the word "losses" stand's alone, yet in other articles of the code, where it is clearly intended to impose the liability to third persons, it is not considered sufficient, but the word "obligations" is added. Thus article

148, in speaking of the liability of limited partners, uses the phrase las obligaciones y perdidas. There is the same use of the two same words in article 153, relating to anonymous partnership. In article 237 the word "obligations" is used and not the word "losses."

The claim of the appellees is that this article 141 fixes the liability of the industrial partners to third persons for the obligations of the company. If it does, then it also fixes the liability of the capitalist partners to the same persons for the same obligations. If this article says that industrial partners are not liable for the debts of the concern, it also says that the capitalist partners shall be only liable for such debts in proportion to the amount of the money which they have contributed to the partnership; that is to say, that if there are only two capitalist partners, one of whom has contributed two-thirds of the capital and the other one-third, the latter is liable to a creditor of the company for only one-third of the debt and the former for only two-thirds. It is apparent that, when given this construction, article 141 is directly in conflict with article 127. It is not disputed by the appellees that by the terms of article 127 each one of the capitalist partners is liable for all of the debts, regardless of the amount of his contribution, but the construction which they put upon article 141 makes such capitalist partners liable for only a proportionate part of the debts.

There is no injustice in imposing this liability upon the industrial partners. They have a voice in the management of the business, if no manager has been named in the articles; they share in the profits and as to third persons it is no more than right that they should share in the obligations. It is admitted that if in this case there had been a capitalist partner who had contributed only P100 he would be liable for this entire debt of P26,000.

Our construction of the article is that it relates exclusively to the settlement of the partnership affairs among the partners themselves and has nothing to do with the liability of the partners to third persons; that each one of the industrial partners is liable to third persons for the debts of the firm; that if he has paid such debts out of his private property during the life of the partnership, when its affairs are settled he is entitled to credit for the amount so paid, and if it results that there is not enough property in the partnership to pay him, then the capitalist partners must pay him. In this particular case that view is strengthened by the provisions of article 12, above quoted. There it is stated that if, when the affairs of the partnership are liquidated — that is, at the end of five years — it turns out that there had been losses instead of gains, then the capitalist partner, Francisco Muñoz, shall pay such losses — that is, pay them to the industrial partners if they have been compelled to disburse their own money in payment of the debts of the partnership.

While this is a commercial partnership and must be governed therefore by the rules of the Code of Commerce, yet an examination of the provisions of the Civil Code in reference to partnerships may throw some light upon the question here to be resolved. Articles 1689 and 1691 contain, in substance, the provisions of articles 140 and 141 of the Code of Commerce. It is to be noticed that these articles are found in section 1 of Chapter II [Title VIII] of Book IV. That section treats of the obligations of the partners between themselves. The liability of the partners as to third persons is treated in a distinct section, namely, section 2, comprising articles from 1697 to 1699.

If industrial partners in commercial partnerships are not responsible to third persons for the debts of the firm, then industrial partners in civil partnerships are not. Waiving the question as to whether there can be a commercial partnership composed entirely of industrial partners, it seems clear that there can be such civil partnership, for article 1678 of the Civil Code provides as follows:

A particular partnership has for its object specified things only, their use of profits, or a specified undertaking, or the exercise of a profession or art.

It might very easily happen, therefor, that a civil partnership could be composed entirely of industrial partners. If it were, according to the claim of the appellees, there would be no personal responsibility whatever for the debts of the partnership. Creditors could rely only upon the property which the partnership had, which in the case of a partnership organized for the practice of any art or profession would be practically nothing. In the case of Agustin vs. Inocencio, 1 just decided by this court, it was alleged in the complaint, and admitted by the answer —

That is partnership has been formed without articles of association or capital other than the personal work of each one of the partners, whose profits are to be equally divided among themselves.

Article 1675 of the Civil Code is as follows:

General partnership of profits include all that the partners may acquire by their by their industry or work during the continuation of the partnership.

Personal or real property which each of the partners may possess at the time of the celebration of the agreement shall continue to be their private property, the usufruct only passing to the partnership.

It might very well happen in partnership of this kind that no one of the partners would have any private property and that if they did the usufruct thereof would be inconsiderable.

Having in mind these different cases which may arise in the practice, that construction of the law should be avoided which would enable two persons, each with a large amount of private property, to form and carry on a partnership and, upon the bankruptcy of the latter, to say to its creditors that they contributed no capital to the company but only their services, and that their private property is not, therefore, liable for its debts.

But little light is thrown upon this question by the authorities. No judgment of the supreme court of Spain has been called to our attention, and we have been able to find none which refers in any way to this question. There is, therefore, no authority from the tribunal for saying that an industrial partner is not liable to third persons for the debts of the partnership.

In a work published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil) it is said that industrial partners are not liable for debts. The author, at page 127, divides general partnership into ordinary and irregular. The irregular partnership are those which include one or more industrial partners. It may be said in passing that his views can not apply to this case because the articles of partnership directly state that it is an ordinary partnership and do not state

that it is an irregular one. But his view of the law seems to be derived from something other than the Code of Commerce now in force. He says:

. . . but it has not been very fortunate in sketching the characters of a regular collective partnership (since it says nothing conclusive in reference to the irregular partnership) . . . . (p. 127.)

And again:

This article would not need to be commented upon were it not because the writer entirely overlooked the fact that there might exist industrial partners who did not contribute with capital in money, credits, or goods, which partners generally participate in the profits but not in the losses, and whose position must also be determined in the articles of copartnership. (p. 128.)

And again: lawphil.net

The only defect that can be pointed out in this article is the fact that it has been forgotten that in collective partnerships there are industrial partners who, not being jointly liable for the obligations of the copartnership, should not include their names in that of the firm. (p. 129.)

As a logical result of his theory he says that an industrial partner has no right to participate in the administration of the partnership and that his name can not appear in the firm name. In this last respect his view is opposed to that of Manresa, who says (Commentaries on the Spanish Civil Code, vol. 11, p. 330):

It only remains to us to state that a partner who contributes his industry to the concern can also confer upon it the name or the corporate name under which such industry should be carried on. In this case, so long as the copartnership lasts, it can enjoy the credit, reputation, and name or corporate name under which such industry is carried on; but upon dissolution thereof the aforesaid name or corporate name pertains to the partner who contributed the same, and he alone is entitled to use it, because such a name or style is an accessory to the work of industrial partner, and upon recovering his work or his industry he also recovers his name or the style under which he exercised his activity. It has thus been decided by the French court of cassation in a decision dated June 6, 1859.

In speaking of limited partnerships Benito says (p. 144) that here are found two kinds of partners, one with unlimited responsibility and the other with limited responsibility, but adopting his view as to industrial partners, it should be said that there are three kinds of partners, one with unlimited responsibility, another with limited responsibility, and the third, the industrial partner, with no responsibility at all. In Estasen's recent publication on mercantile partnerships (Tratado de las Sociedades Mercantiles) he quotes from the work of Benito, but we do not understand that he commits himself to the doctrines therein laid down. In fact, in his former treatise, Instituciones de Derecho Mercantil (vol. 3, pp. 1-99), we find nothing which recognizes the existence of these irregular general partnerships, or the exemption from the liability to third persons of the industrial partners. He says in his latter work (p. 186) that according to Dr. Benito the irregular general partner originated from the desire of the partnership to associate with itself some old clerk or employee as a reward for his services and the interest which he had shown in

the affairs of the partnership, giving him in place of a fixed salary a proportionate part of the profits of the business. Article 269 of the Code of Commerce of 1829 relates to this subject and apparently provides that such partners shall not be liable for debts. If this article was the basis for Dr. Benito's view, it can be so no longer, for it does not appear in the present code. We held in the case of Fortis vs. Gutirrez Hermanos (6 Phil. Rep., 100) that a mere agreement of that kind does not make the employee a partner.

An examination of the works of Manresa and Sanchez Roman on the Civil Code, and of Blanco's Mercantile Law, will shows that no one of these mentions in any way the irregular general partnership spoken of by Dr. Benito, nor is there anything found in any one of these commentaries which in any way indicates that an industrial partner is not liable to third persons for the debts of the partnership. An examination of the French law will also show that no distinction of that kind is therein anywhere made and nothing can be found therein which indicates that the industrial partners are not liable for the debts of the partnership. (Fuzier-Herman, Repertoire de Droit Francais, vol. 34, pp. 256, 361, 510, and 512.)

Our conclusion is upon this branch of the case that neither on principle nor on authority can the industrial partner be relieved from liability to third persons for the debts of the partnership.

It is apparently claimed by the appellee in his brief that one action can not be maintained against the partnership and the individual partners, this claim being based upon the provisions of article 237 of the Code of Commerce which provides that the private property of the partners shall not be taken until the partnership property has been exhausted. But this article furnishes to argument in support of the appellee's claim. An action can be maintained against the partnership and partners, but the judgment should recognize the rights of the individual partners which are secured by said article 237.lawphil.net

The judgment of the court below is reversed and judgment is ordered against all of the defendants for the sum of P26,828.30, with interest thereon at the rate of 8 per cent per annum since the 31st day of March, 1905, and for the cost of this action. Execution of such judgment shall not issue against the private property of the defendants Francisco Muñoz, Emilio Muñoz, or Rafael Naval until the property of the defendant Francisco Muñoz & Sons is exhausted. No costs will be allowed to their party in this court. So ordered.

Torres, Johnson and Tracey, JJ., concur.

G.R. No. L-11840 December 10, 1963

ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants,

vs.

WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-appellees.

Jose C. Calayco for plaintiffs-appellants..

R E S O L U T I O N

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 as Administratrix of the husband's estate and as partner in lieu of the husband), in favor of the buyers Washington Sycip and Betty Lee for the following consideration:

Cash paid P37,000.00Debts assumed by purchaser:To Yutivo 62,415.91To Sing Yee Cuan & Co., 54,310.13T O T A L P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insist 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 partnership; that the testimony of her witness Young and Lim belies that she took over the 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 aspect to the case was expressly reserved in the main decision of 26 July 1960;

(b) That partnership was expressly organized: "to engage in real estate business, either by buying and selling real estate". The Articles 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 to 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 of 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 — 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, pages 8-9, wherein he stated:

that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are receiving quiet a lot benefit from the 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 as 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 Tigato 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 find 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 was 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 copartnership. Even more, granting that by succession to her husband, Tan Sin An, the widow only became a limited partner, Goquiolay's authorization to manage the partnership property was proof that he considered and recognized her as 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 copartnership, not even in the capacity of 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 but 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 remember that the articles of co-partnership here involved expressly stipulated 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).

The Articles did not provide that the heirs of the deceased would be merely limited partners; 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 have 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 heir's 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 involved the rights acquired by strangers, and does not deal with the rights existing between partners Goquiolay and the widow of Tan Sin An. The issues between the partners inter se were expressly reserved 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 acquiescence (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 to 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 on 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 it is 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. (Litton vs. Hill & Ceron, et al., 67 Phil. 409, 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 estate 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 from 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 gerante, 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 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 Revelsky 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 power 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 McCrath, individually, have hereunto 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 them. At the 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 defiance, 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 purposes of the plaintiff, in the course pursued by him, was to terminate the partnership, place its properly beyond the control of the firm, and insure the preference of the mortgagees, all of which was known to them at the time; .... (Cas cit., p. 343, Emphasis supplied).

It is natural that form these facts the Supreme Court of Ohio should draw the conclusion that the conveyances were made with intent to terminate the partnership, and that they were not within the powers of McGrath as a partner. But there is no similarity 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 of fraud. No direct evidence of it exists; but appellant point 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 (62,415.91 to Yutivo, and P54,310.13 to Sing Ye 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 (sue 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 inadquate, appellant relies on the testimony of the realtor Mata, who is 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 recission 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 (1945) 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 del 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 not; 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 (Exhibits "N", mortgage to the Banco Hipotecario), and Rule 87, section 6 is 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 Sim An personally, and a mortgage is 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 maintainable, 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.

Regala, J., took no part.