Agency, Trusts, and Partnerships Session 7 Page |1

[No. 22825. February 14, 1925] APPEAL from a judgment of the Court of First Instance of Occidental Negros.
Gutierrez David, J.
TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., plaintiffs and
appellants, vs. SALVADOR SERRA, defendant and appellee. The facts are stated in the opinion of the court.

1.OBLIGATIONS; CONTRACTS; NOVATION; CONSENT OF CREDITOR.—In Eduardo Gutierrez Repide for appellants.
order that there may be a novation of a contract by the substitution of the
Hilado & Hilado, Fisher, DeWitt, Perkins & Brady, Araneta & Zaragoza,
debtor, the express consent of the creditor is necessary.
Antonio Sanz and Jose Galan y Blanco for appellee.
2.ID.; ID.; ID.; ID.; TIME AND FORM OF CONSENT.—It is not necessary that
VlLLAMOR, J.:
the creditor should give his consent simultaneously with the execution of the
new contract. He may do so afterwards, provided it is given in an indubitable On February 1, 1919, plaintiffs and defendant entered into a contract of
manner. partnership, marked Exhibit A, for the construction and exploitation of a
3.ID.; ID.; ID.; ID.; EVIDENCE.—The mere fact that the creditor has dealt railroad line from the "San Isidro" and "Palma" centrals to the place known
as "Nandong." The original capital stipulated was P150,000. It was
with the person who is alleged to have been substituted in the place of the
covenanted that the parties should pay this amount in equal parts and the
original debtor on matters different from the obligation incurred does not
plaintiffs were entrusted with the administration of the partnership. The
prove that said creditor has consented to the substitution so as to liberate
agreed capital of P150,000, however, did not prove sufficient, as the
the original debtor from his obligations, it not appearing that the creditor has
expenses up to May 15,1920, had reached the amount of P226,092.92, as
taken part in the agreement of substitution or that he has waived his right
per statement Exhibit B, presented by the administrator and O. K.'d by the
against the original debtor.
defendant.
4.ID.; ID.; CONFUSION.—The rights of creditor and debtor are not merged
January 29, 1920, the defendant entered into a contract of sale with
in one same person by the fact that the things pertaining to said creditor and
Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga,
debtor which were the subject of the obligation were transferred to him
whereby he sold to the latter the estate and central known as "Palma" with
where said transfer did not include, among the rights and obligations
its running business, as well as all the improvements, machineries and
transferred, the credit that the creditor had against the debtor.
buildings, real and personal properties, rights, choses in action and interests,
5.ID.; ID.; PARTNERSHIP; DISSOLUTION; EFFECTS OF.—The dissolution of including the sugar plantation of the harvest year of 1920 to 1921, covering
a partnership does not extinguish its obligations already incurred, and the all the property of the vendor. This contract was executed before a notary
partnership continues until they are liquidated, although it may not incur new public of Iloilo and is evidenced by Exhibit 1 of the defendant, paragraph 5 of
obligations. which reads as follows:

6.ID.; ID.; ID.; ID.; ID.; PERIOD.—Obligations contracted by a partner with "5.The party of the first part hereby states that he has entered into a
his copartners, for the fulfillment of which a period was fixed, become pure contract with the owners of the 'San Isidro' Central for the construction,
obligations upon the immediate dissolution of the partnership by agreement operation, and exploitation of a railroad line of about 10 kilometers extending
of the members, and the partner entitled to enforce them may bring an from the 'Palma' Central and 'San Isidro' Central to a point known as
action for the purpose after the dissolution agreed upon by the parties, 'Nandong/ the expenses until the termination of which shall be for the
without the necessity of waiting for the expiration of the period originally account of the 'San Isidro' Central, and of which expenses, one-half shall be
fixed. borne by the 'Palma' Central with the obligation to reimburse same within
five (5) years with interest at the rate of 10 per cent per annum to the said
 Agency, Trusts, and Partnerships Session 7 Page |2

'San Isidro' Central. The vendee hereby obligates himself to respect the that the said partnership agreement should be totally cancelled and of no
aforesaid contract and all obligations arising therefrom." force and effect whatever.

Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. So it results that the "Hacienda Palma," with the entire railroad, the subject-
de Luzuriaga renounced all his rights under the contract of January 29, 1920, matter of the contract of partnership between plaintiffs and defendant,
in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. This gave rise became the property of Whitaker and Concepcion. Phil. C. Whitaker and
to the fact that on July 17, 1920, Venancio Concepcion and Phil. C. Whitaker Venancio Concepcion having failed to pay to the defendant a part of the
and the herein defendant executed before Mr. Antonio Sanz, a notary public purchasprice, that is, P750,000, the vendor, the herein defendant, foreclosed
in and for the City of Manila, another deed of absolute sale of the said the mortgage upon the said hacienda, which was adjudicated to him at the
"Palma" Estate for the amount of P1,695,961.90, of which the vendor public sale held by the sheriff for the amount of P500,000, and the
received at the time of executing the deed the amount of P945,861.90, and defendant put in possession thereof, including what was planted at the time,
the balance was payable by installments in the f orm and manner stipulated together with all the improvements made by Messrs. Phil. C. Whitaker and
in the contract. The purchasers guaranteed the unpaid balance of the Venancio Concepcion.
purchase price by a first and special mortgage in favor of the vendor upon
Since the defendant Salvador Serra failed to pay onehalf of the amount
the hacienda and the central with all the improvements, buildings,
expended by the plaintiffs upon the construction of the railroad line, that is,
machineries, and appurtenances then existing on the said hacienda.
P1 13,046.46, as well as Phil. C. Whitaker and Venancio Concepcion, the
Clause 6 of the deed of July 17, 1920, contains the following stipulations: plaintiffs instituted the present action praying: (1) That the deed of February
1,1919, be declared valid and binding; (2) that after the execution of the
"6.Messrs. Phil. C. Whitaker and Venancio Concepcion hereby state that they
said document the defendant improved economically so as to be able to pay
are aware of the contract that Mr. Salvador Serra has with the proprietors of
the plaintiffs the amount owed, but that he refused to pay either in part or in
the 'San Isidro' Central for the operation and exploitation of a railroad line
whole the said amount notwithstanding the several demands made on him
about 10 kilometers long from the 'Palma' and 'San Isidro' centrals to the
for the purpose; and (3) that the defendant be sentenced to pay the
place known as 'Nandong;' and hereby obligate themselves to respect the
plaintiffs the aforesaid sum of P1 13,046.46, with the stipulated interest at
said contract and subrogate themselves into the rights and obligations
10 per cent per annum beginning June 4, 1920, until full payment thereof,
thereunder. They also bind themselves to comply with all the contracts
with the costs of the present action.
heretofore entered by the vendor with the customers, coparceners on shares
and employees." Defendant set up three special defenses: (1) The novation of the contract by
the substitution of the debtor with the conformity of the creditors; (2) the
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker
confusion of the rights of the creditor and debtor; and (3) the
bought from the plaintiffs the onehalf of the railroad line pertaining to the
extinguishment of the contract, Exhibit A.
latter, executing therefor the document Exhibit 5. The price of this sale was
P237,722.15, excluding any amount which the defendant might be owing to The court a quo in its decision held that there was a novation of the contract
the plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. by the substitution of the debtor, and therefore absolved the defendant from
Whitaker paid the sum of P47,544.43 only. In the deed Exhibit 5, the the complaint with costs against the plaintiffs. With regard to the prayer that
plaintiffs and Concepcion and Whitaker agreed, among other things, that the the said contract be declared valid and binding, the court held that there was
partnership "Palma" and "San Isidro," formed by the agreement of February no way of reviving the contract which the parties themselves in interest had
1, 1919, between Serra, Lazaro Mota, now deceased, and Juan J. spontaneously and voluntarily extinguished. (Exhibit 5.)
Vidaurrazaga for himself and in behalf of his brothers, Felix and Dionisio
Vidaurrazaga, should be dissolved upon the execution of this contract, and
 Agency, Trusts, and Partnerships Session 7 Page |3

Plaintiffs have appealed f rom this judgment and as causes for the review, that after the sale of the "Hacienda Palma" to- Messrs. Phil. C. Whitaker and
they allege that the trial court erred: (a) In holding that Messrs. Whitaker Venancio Concepcion, the latter f rom then on would bear the cost of the
and Concepcion, upon purchasing the "Palma" Central, were subrogated in repairs and maintenance of the railroad line and of the construction of
the place of the defendant in all his rights and obligations under the contract whatever addition thereto might be necessary. So the plaintiffs by their letter
relating to the railroad line existing between the "Palma" and the "San of August 14th, submitted a statement of account to Phil. C. Whitaker and
Isidro" centrals and that the plaintiffs agreed to this subrogation; (b) in Venancio Concepcion containing the accounts of the "San Isidro" Central, as
holding that the deed Exhibit A of February 1, 1919, had been extinguished stated June 30, 1920, saying that they had already explained previously the
in its entirety and made null and void by the agreement Exhibit 5 dated reason for the increase in the expenses and since the retiring partner, Mr.
December 16, 1920; (c) in absolving the defendant from the complaint and Serra, had already given his conformity with the accounts, as stated May
in sentencing the plaintiffs to pay the costs; and (d) in not sentencing the 15,1920, it remained only to hear the conformity of the new purchasers for
defendant to pay the plaintiffs the sum of P11 13,046.46, with legal interest the accounts covering the period from May 15 to June 30, 1920, and their
at 10 per cent per annum from June 4, 1920, until full payment, with costs authority for future investments, or their objection, if any, to the amounts
against the defendant. previously expended. Neither can the testimony of Julio Infante in connection
with Exhibit 7 be taken as evidence of the consent of the plaintiffs to the
Taking for granted that the defendant was under obligation to pay the
change of the person of the debtor for that of Messrs. Phil. C. Whitaker and
plaintiffs one-half of the cost of the construction of the railroad line in
Venancio Concepcion. This witness testified, in substance, that he is
question, by virtue of the contract of partnership Exhibit A, the decisive point
acquainted with the partnership f ormed by the owners of the "Hacienda
here to determine is whether there was a novation of the contract by the
Palma" and "Hacienda San Isidro" for the construction of the railroad line;
substitution of the debtor with the consent of the creditor, as required by
that the cost of the construction thereof was originally estimated at
article 1205 of the Civil Code. If so, it is clear that the obligation of the
P150,000; that the owner of the "Hacienda Palma" would pay one-half of this
defendant was, in accordance with article 1156 of the same code,
amount; that when the "Hacienda Palma" was sold to Messrs. Phil. C.
extinguished.
Whitaker and Venancio Concepcion, the latter agreed to pay one-half of the
It should be noted that in order to give novation its legal effect, the law cost of P150,000; that as the cost of construction exceeded P200,000, he, as
requires that the creditor should consent to the substitution of a new debtor. an employee of Messrs. Phil. C. Whitaker and Venancio Concepcion, could
This consent must be given expressly for the reason that, since novation not O. K. the accounts as presented by the plaintiffs, and suggested that
extinguishes the personality of the first debtor who is to be substituted by a they take up in writing their points of view directly with Messrs. Phil. C.
new one, it implies on the part of the creditor a waiver of the right that he Whitaker and Venancio Concepcion. Then the plaintiffs did as suggested, and
had before the novation, which waiver must be express under the principle wrote the letter Exhibit 7 in which they asked the new owners of the
that renuntiatio non præsumitur, recognized by the law in declaring that a "Hacienda Palma" their decision upon the following three questions: 1. Will
waiver of right may not be performed unless the will to waive is indisputably the "Palma" Central accept the statement of account as presented by the
shown by him who holds the right. "San Isidro" Central regarding the actual cost of the railroad line "Palma-San
IsidroNandong? " 2. Is the "Palma" Central willing to continue as co-
The fact that Phil. C. Whitaker and Venancio Concepcion were willing to proprietor of the railroad line for the exploitation of the sugar-cane business
assume the defendant's obligation to the plaintiffs is of no avail, if the latter of "Nandong" and neighboring barrios, and therefore to pay 50 per cent of
have not expressly consented to the substitution of the first debtor. Neither the expenses that may be incurred in completing the line?
can the letter, Exhibit 6, on page 87 of the record be considered as proof of
the consent of the plaintiffs to the substitution of the debtor, because that It was but natural that the plaintiffs should have done this. Defendant
exhibit is a letter written by plaintiffs to Phil. C. Whitaker and Venancio transferred his hacienda to Messrs. Phil. C. Whitaker and Venancio
Concepcion for the very reason that the defendant had told them (plaintiffs) Concepcion and made it known to the plaintiffs that the new owners would
 Agency, Trusts, and Partnerships Session 7 Page |4

hold themselves liable for the cost of constructing the said railroad line. "Since it is necessary that the third person should become a debtor in the
Plaintiffs could not prevent the defendant from selling to Phil. C. Whitaker same position as the debtor whom he substitutes, this change and the
and Venancio Concepcion his "Hacienda Palma" with the rights that he had resulting novation may be respected as to the whole debt, thus untying the
over the railroad in question. The defendant ceased to be a partner in the debtor from his obligation, except the eventual responsibilities of which we
said line and, therefore, the plaintiffs had to take the vendees as their new shall speak later, or he may continue with the character of such debtor and
partners. Plaintiffs had to come to an understanding with the new owners of also allow the third person to participate in the obligation. In the first case,
the "Hacienda Palma" in connection with the railroad line "Palma-San there is a complete and perfect novation; in the second, there is a change
IsidroNandong." But in all of this, there was nothing to show the express that does not free the debtor nor authorize the extinguishment of the
consent, the manifest and deliberate intention of the plaintiffs to exempt the accessory obligations of the latter. In this last hypothesis, if there has been
defendant from his obligation and to transfer it to his successors in interest, no agreement as to solidarity, the first and the new debtor should be
Messrs. Phil. C. Whitaker and Venancio Concepcion. considered as obligated severally.

The plaintiffs were not a party to the document Exhibit 1. Neither in this "The provisions of article 1205 which require the consent of the creditor as
document, nor in others in the record, do we find any stipulation whereby an indispensable requisite in this kind of novation and not always that of the
the obligation of the defendant was novated with the consent of the creditor, debtor, while not making it impossible to express the same, imply the
and as it has been held in the case of Martinez vs. Cavives (25 Phil., 581), distinction between these two forms of novation and it is based on the
the oral evidence tending to prove such a fact as this is not in law sufficient. simple consideration of justice that since the consequences of the
substitution may be prejudicial to the creditor, but not to the debtor, the
As has been said, in all contracts of novation consisting in the change of the
consent of the creditor alone is necessary.
debtor, the consent of the creditor is indispensable, pursuant to article 1205
of the Civil Code which reads as follows: "The two forms of this novation, also impliedly recognized by article 1206
which employs the word 'delegate' as applied to the debt, are the
"Novation which consists in the substitution of a new debtor in the place of
expromission and the delegation. Between these, there is a marked
the original one may be made without the knowledge of the latter, but not
difference of meaning and, as a consequence, a logical difference of requisite
without the consent of the creditor."
and another clear difference as to their effects, of which we shall speak later.
Mr. Manresa in his commentaries on articles 1205 and 1206 of the Civil Code
"In the expromission, the initiative of the change does not emanate from the
(vol. 8, 1907 ed., pp. 424-426) says as follows: debtor and may be made even without his consent, since it consists in a third
"Article 1205 clearly says in what this kind of novation must consist, because person assuming his obligation; it logically requires the consent of this third
in stating that another person must be substituted in lieu of the debtor, it man and of the creditor and in this last requisite lies the difference between
means that it is not enough to extend the juridical relation to that other novation and payment, as the latter can be effected by a third person even
person, but that it is necessary to place the latter in the same position against the will of the creditor, whereas in the former case it cannot.
occupied by the original debtor.
"In the delegation, the debtor offers and the creditor accepts a third person
"Consequently, the obligation contracted by a third person to answer for the who consents to the substitution so that the intervention and the consent of
debtor, as in the case of suretyship, in the last analysis, does not work as a these three persons are necessary and they are respectively known as
true novation, because the third person is not put in the same position as the delegante, delegatario, and delegado. It must be noted that the consent
debtor—the latter continues in his same place and with the same obligation need not be given simultaneously and that it may be given afterwards, as for
which is guaranteed by the former. example, that of the creditor delegatario to the proposition of the debtor
accepted by the delegado.
 Agency, Trusts, and Partnerships Session 7 Page |5

"Delegation notably differs from the mere indication made by the debtor that "* * * The consent Of the new debtor is as essential to the novation
a third person shall pay the debt; in this case, there is no novation and the as is that of the creditor. * * *
former is not acquitted of his obligation and his relations with the third
"There is no express stipulation in any of the documents of record that the
person are regulated by the rules of agency. The French Code in article 1276
expressly provides for this case, as well as the inverse one where the debtor obligation of the defendant was novated, and the parol evidence tending to
show that it was novated is not sufficient in law to establish that fact."
points out somebody else to answer f or the payment, declaring that there is
no novation in either case. The same sound criterion is impliedly accepted by The same doctrine was upheld in the case of Vaca vs. Kosca (26 Phil., 388):
our Code."
"A new debtor cannot be substituted for the original obligor in the first
In the case of E. C. McCullough & Co. vs. Veloso and Serna (46 Phil., 1), it contract without the creditor's consent."
appears that McCullough & Co., Inc., sold to Veloso a real estate worth
P700,000 on account of which Veloso paid P50,000, promising to pay the The supreme court of Spain has constantly laid down the same doctrine with
balance at the times and manner stipulated in the contract. He further bound regard to novation of contracts:
himself to pay 10 per cent of the amount of the debt as attorney's fees in
"The obligations and rights in a contract cannot be novated with regard to a
case of litigation. To secure the unpaid balance of the purchase price he
third person who has not intervened in the execution thereof." (Decision of
executed a first mortgage upon the property in favor of the vendor.
June 28, 1860.)
Subsequently, Veloso sold the property for P100,000 to Joaquin Serna who
bound himself to respect the mortgage in favor of McCullough & Co., Inc., "Novation by the change of debtors cannot be effected without the express
and to assume Veloso's obligation to pay the unpaid balance of the purchase approval of the creditor." (Decisions of February 8, 1862 and June 12, 1867.)
price of the property at the times agreed upon in the contract between
Veloso and McCullough & Co., Inc. "Novation should not be established by presumptions but by the express will
of the parties." (Decisions of February 14, 1876 and June 16, 1883.)
Veloso had paid on account of the price the amount of P50,000, and Serna
also made several payments aggregating the total amount of P250,000. But "In order that novation of a contract by subrogation of the debtor may take
after this, neither Veloso nor Serna made further payments and thus gave effect and thus liberate the first debtor from the obligation, it is necessary
cause for a litigation. The court in deciding the case said: that the subrogation be made with the consent of the creditor." (Decision of
March 2, 1897.)
"The defendant contends that having sold the property to Serna, and the
latter having assumed the obligation to pay the plaintiff the unpaid balance "It is undeniable that obligations judicially declared, as well as those acquired
of the price secured by the mortgage upon the property, he was relieved by any other title, can be novated by substituting a new debtor in place of
from this obligation and it then devolved upon Serna to pay the plaintiff. This the primitive, only when the creditor gives his consent to the substitution."
means that as a consequence of the contract between the defendant and (Decision of November 15, 1899.)
Serna, the contract between the defendant and the plaintiff was novated by "Novation can in no case be presumed in contracts, but it is necessary that it
the substitution of Serna as a new debtor. This is untenable. In order that should result from the will of the parties, or that the old and the new one be
this novation may take place, the law requires the consent of the creditor altogether incompatible." (Decision of December 31, 1904.)
(art. 1205 of the Civil Code). The plaintiff did not intervene in the contract
between Veloso and Serna and did not expressly give his consent to this "An obligation cannot be deemed novated by means of modifications which
substitution. Novation must be express, and cannot be presumed." do not substantially change the essence thereof, nor when it is not
extinguished by another obligation, nor when the debtor is not substituted."
In Martinez vs. Cavives (25 Phil., 581), it was held that: (Decision of March 14, 1908.)
 Agency, Trusts, and Partnerships Session 7 Page |6

"The consent of the creditor required in a novation consisting of the change and the delegating debtor was not in open failure or insolvency at the time.
of debtors (art. 1205, Civil Code) must appear in an express and positive The mere indication by a debtor of a person who is to pay in his place does
manner and must be given with the deliberate intention of exonerating the not operate a novation. Delegatus debitor est odiosus in lege.
primitive debtor of his obligations and transfer them wholly upon the new
debtor." (Decision of June 22, 1911.) " The most that could be inferred would be that the bank in the exercise of a
sound discretion, proposed to better its condition by accepting an additional
In the decision in the case of Martinez vs. Cavives, supra, the following debtor to be and remain bound with the original one.'
decisions of the several courts of the United States are cited, wherein this
"In Fidelity L. & T. Co. vs. Engleby (99 Va., 168), the court said: 'Whether or
question was decided in the same manner:
not a debt has been novated is a question of fact and depends entirely upon
"In Latiolais, admrx. vs. Citizens' Bank of Louisiana (33 La. Ann., 1444), one the intention of the parties to the particular transaction claimed to be
Duclozel mortgaged property to the defendant bank for the triple purpose of novated. In the absence of satisfactory proof to the contrary, the
obtaining shares in the capital stock of the bank, bonds which the bank was presumption is that the debt has not been extinguished by taking the new
authorized to issue, and loans to him as a stockholder. Duclozel subsequently evidence in the absence of an intention expressed or implied, being treated
sold this mortgaged property to one Sproule, who, as one of the terms of the as a conditional payment merely.'
sale, assumed the liabilities of his vendor to the bank. Sproule sold part of
"In Hamlin vs. Drummond (91 Me., 175; 39 A., 551), it was said that
the property to Graff and Chalfant. The debt becoming due, the bank
novation is never presumed but must always be proven. In Netterstorn vs.
brought suit against the last two named and Sproule as owners. Duclozel
was not made a party. The bank discontinued these proceedings and Gallistel (110 111. App., 352), it was said that the burden of establishing a
novation is on the party who asserts its existence; that novation is not easily
subsequently brought suit against Latiolais, administratrix of Duclozel, who
presumed; and that it must clearly appear before the court will recognize it."
had died.
Notwithstanding the doctrines above quoted, defendant's counsel calls our
"The court said: 'But the plaintiff insists that in its petition in the proceeding
attention to the decision of the supreme court of Spain of June 16, 1908,
first brought the bank ratified the sale made by Duclozel to Sproule, and by
wherein it was held that the provisions of article 1205 of the Code do not
the latter to other parties, in treating them as owners. Be that so, but it does
mean nor require that the consent of the creditor to the change of a debtor
not follow in the absence of either a formal and express or of an implied
must be given just at the time when the debtors agree on the substitution,
consent to novate, which should be irresistibly inferred from surrounding
circumstances, that it has discharged Duclozel unconditionally, and has because its evident object being the full protection of the rights of the
creditor, it is sufficient if the latter manifests his consent in any form and at
accepted those parties as new delegated debtors in his place. Nemo
any time as long as the agreement among the debtors holds good. And
presumitur donare.
defendant insists that the acts performed by the plaintiffs after the
" 'Novation is a contract, the object of which is: either to extinguish an "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and Venancio
existing obligation and to substitute a new one in its place; or to discharge Concepcion constitute evidence of the consent of the creditor. First of all, we
an old debtor and substitute a new one to him; or to substitute a new should have an idea of the facts upon which that decision was rendered by
creditor to an old creditor with regard to whom the debtor is discharged. the supreme court of Spain.

" 'lt is never presumed. The intention must clearly result from the terms of A partnership known as "La Azucarera de Pravia" obtained a fire insurance
the agreement or by a full discharge of the original debt. Novation by the policy from the company "La Union y Fenix Español," by virtue of which, said
substitution of a new debtor can take place without the consent of the company insured in consideration of an annual premium of 3,000 pesetas,
debtor, but the delegation does not operate a novation, unless the creditor the buildings, machinery and other apparatuses pertaining to the "Pravia
has expressly declared that he intends to discharge with delegating debtor, Factory" for ten years and for half their value, and another insurance from
 Agency, Trusts, and Partnerships Session 7 Page |7

another insurance company insuring the same property and effects for the Azucarera de Pravia' accepted in general, with respect to the property ceded,
other half of their value. 'everything belonging to the same,' after making provisions about active and
passive easements, contracts for transportation and other matters."
Later, "La Azucarera de Pravia," with other sugar companies, ceded all its
property to another company known as "Sociedad General Azucarera de The supreme court held that by virtue of the words hereinabove quoted, the
España," in which in consideration of a certain amount of stock that the said "Sociedad General Azucarera de España" took over the obligation to pay the
"Sociedad General Azucarera de España" issued to the "La Azucarera de insurance premiums of the "La Azucarera de Pravia" inasmuch as said
Pravia," the latter was merged with the former. After the cession, "La Union insurance pertained to the property that was ceded.
y Fenix Español" sued the "Sociedad General Azucarera de España"
"2.While it is true that 'La Union y Fenix Español' insurance company did not
demanding the payment of the premium that should have been paid by the
give its consent to the contract of cession at the moment of its execution,
"La Azucarera de Pravia," which payment the "Sociedad General Azucarera
de España" refused to make on the ground that the "La Azucarera de Pravia" yet the mere fact that the said insurance company now sues the 'Sociedad
General Azucarera de España' is an incontrovertible proof that the said
was not merged with the "Sociedad General Azucarera de España," but
insurance company accepts the substitution of the new debtor."
merely transferred its properties to the latter in consideration of the stock
that was issued to the "La Azucarera de Pravia." It was further contended by By comparing the facts of that case with the defenses of the case at bar, it
the "Sociedad General Azucarera de España" that even if it were true that in will be seen that, whereas in the former case the creditor sued the new
the contract of cession it appeared that the "La Azucarera de Pravia" was debtor, in the instant case the creditor sues the original debtor. The supreme
merged with the "Sociedad General Azucarera de España," nevertheless, court of Spain in that case held that the fact that the creditor sued the new
there was no such merger in law, for in truth and in fact, the "La Azucarera debtor was proof incontrovertible of his assent to the substitution of the
de Pravia" had ceded only its property, but not its rights and obligations; that debtor. This would seem evident because the judicial dem land made on the
the existence of the partnership known as "La Azucarera de Pravia" was new debtor to comply with the obligation of the first debtor is the best proof
proven by its registration in the mercantile register, which was not cancelled, that the creditor accepts the change of the debtor. His complaint is an
nor did it contain any statement to the effect that the "La Azucarera de authentic document where his consent is given to the change of the debtor.
Pravia" had been extinguished or had ceased to do business even after the We are not holding that the creditor's consent must necessarily be given in
cession of properties to the "Sociedad General Azucarera de España." the same instrument between the first and the new debtor. The consent of
Another argument advanced by the "Sociedad General" was that at the time the creditor may be given subsequently, but in either case it must be
the "Azucarera de Pravia" ceded its properties to the "Sociedad General expressly manifested. In the present case, however, the creditor makes
Azucarera de España," the insurance company "La Union y Fenix Español" judicial demand upon the first debtor for the fulfillment of his obligation,
did not assent to the subrogation of the "Sociedad General Azucarera" into evidently showing by this act that he does not give his consent to the
the rights and obligations of the "Azucarera de Pravia," assuming that there substitution of the new debtor. We are of the opinion that the decision of the
had been such a subrogation or substitution of a debtor by another. supreme court of Spain of June 16, 1908, cannot be successfully invoked in
support of defendant's contention. Wherefore, we hold that in accordance
The supreme court of Spain gave judgment in favor of the "La Union y Fenix
with article 1205 of the Civil Code, in the instant case, there was no novation
Español" insurance company for the following reasons:
of the contract, by the change of the person of the debtor.
"1.While it is true that it cannot be strictly said that 'La Azucarera de Pravia'
was merged with the 'Sociedad General Azucarera de España,' the document Another defense urged by the defendant is the merger of the rights of debtor
and creditor, whereby under article 1192 of the Civil Code, the obligation,
whereby the property of the 'La Azucarera de Pravia' was ceded to the
the fulfillment of which is demanded in the complaint, became extinguished.
'Sociedad General Azucarera de España' clearly and expressly recites that
It is maintained in appellee's brief that the debt of the defendant was
this company upon taking charge of the immovable property of the 'La
 Agency, Trusts, and Partnerships Session 7 Page |8

transferred to Phil. C. Whitaker and Venancio Concepcion by the document Counsel for appellee in his brief and oral argument maintains that the
Exhibit 1. These in turn acquired the credit of the plaintiffs by virtue of the plaintiffs cannot enforce any right arising out of that contract of partnership,
debt, Exhibit 5; thus the rights of the debtor and creditor were merged in which has been annulled, such as the right to claim now a part of the cost of
one person. The argument would at first seem to be incontrovertible, but if the construction of the railroad line stipulated in that contract.
we bear in mind that the rights and titles which the plaintiffs sold to Phil. C.
Defendant's contention signifies that any person, who has contracted a valid
Whitaker and Venancio Concepcion refer only to one-half of the railroad line
obligation with a partnership, is exempt from complying with his obligation
in question, it will be seen that the credit which they had against the
by the mere fact of the dissolution of the partnership. Defendant's contention
defendant f or the amount of one-half of the cost of construction of the said
is untenable. The dissolution of a partnership must not be understood in the
line was not included in the sale contained in Exhibit 5. That the plaintiffs
absolute and strict sense so that at the termination of the object for which it
sold their rights and titles over one-half of the line, is evident from the very
was created the partnership is extinguished, pending. the winding up of
Exhibit 5. The purchasers, Phil. C. Whitaker and Venancio Concepcion, to
some incidents and obligations of the partnership, but in such case, the
secure the payment of the price, executed a mortgage in favor of the
partnership will be reputed as existing until the juridical relations arising out
plaintiffs on the same rights and titles that they had bought and also upon
what they had purchased from Mr. Salvador Serra. In other words, Phil. C. of the contract are dissolved. This doctrine has been upheld by the supreme
court; of Spain in its decision of February 6, 1903, in the following case:
Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they
There was a partnership formed between several persons to purchase some
had bought from the plaintiffs and also what they had bought from Salvador
lands sold by the state. The partnership paid the purchase price and
Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased
distributed among its members the lands so acquired, but after the lapse of
something from Mr. Salvador Serra, the herein defendant, regarding the
some time, one of the partners instituted an action in the court of Badajoz,
railroad line, it was undoubtedly the one-half thereof pertaining to Mr.
praying that he be accepted as a partner with the same rights and
Salvador Serra. This clearly shows that the rights and titles transferred by
obligations as the others, for the reason that he had not been allowed all
the plaintiffs to Phil. C. Whitaker and Venancio Concepcion were only those
that he had a right to. The court granted the petition. which judgment was
they had over the other half of the railroad line. Therefore, as already stated,
affirmed by the Audiencia de Caceres.
since there was no novation of the contract between the plaintiffs and the
defendant, as regards the obligation of the latter to pay the former one-half From that decision the defendant sued out a writ of error alleging
of the cost of the construction of the said railroad line, and since the infringement of articles 1680 and 1700 of the Civil Code, on the proposition
plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit that that all contracts are reputed consummated and therefore extinguished,
they had against the defendant, the allegation that the obligation of the when the contracting parties fulfill all the obligations arising therefrom and
defendant became extinguished by the merger of the rights of creditor and that by the payment of the money and the granting and distribution of the
debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio lands without any opposition, the juridical relations between the contracting
Concepcion is wholly untenable. parties become extinguished and none of the parties has any right of action
Appellants assign also as a ground of their appeal the holding of the court under the contract. The supreme court, holding that some corrections and
liquidations asked by the actor were still pending, denied the writ, ruling that
that by the termination of the partnership, as shown by the document Exhibit
the articles cited were not infringed because a partnership cannot be
5, no legal rights can be derived therefrom.
considered as extinguished until all the obligations pertaining to it are
By virtue of the contract Exhibit 5, the plaintiffs and Phil. C. Whitaker and fulfilled. (11 Manresa, page 312.)
Venancio Concepcion, by common consent, decided to dissolve the
The dissolution of a firm does not relieve any of its members from liability for
partnership between the "Hacienda Palma" and "Hacienda San Isidro," thus
cancelling the contract of partnership of February 1, 1919. existing obligations, although it does save them from new obligations to
which they have not expressly or impliedly assented, and any of them may
 Agency, Trusts, and Partnerships Session 7 Page |9

be discharged from old obligations by novation or other form of release. It is

often said that a partnership continues, even after dissolution, for the
purpose of winding up its affairs. (30 Cyc., page 659.)

Another question presented by appellee's counsel in his memorandum and

oral argument is that as in the partnership articles of February 1, 1919, it
was covenanted that the defendant would put up one-half of the cost of the
railroad line within five years from that date, that is, from February 1, 1919,
with interest at 10 per cent per annum, the present action is premature
since, from the execution of the contract until October 25, 1922, the date of
the complaint, the five years, within which the defendant could pay his part
of the cost of the construction of the line, had not yet elapsed. Suffice it to
say that the plaintiffs and the successors in interest of the defendant, by
mutual consent, dissolved the partnership on June 16, 1920, cancelling the
contract Exhibit A to all of which the defendant consented as evidence by his
allegations in his answer. If this is so, there is no reason for waiting for the
expiration of the five years which the parties themselves had seen fit to
stipulate and therefore the provisions of article 1113, regarding the
fulfillment of pure obligations, must be applied in this case.

For all of the foregoing, the judgment appealed from is reversed, and we
hold that the defendant Salvador Serra is indebted to the plaintiffs, the
Testate Estate of Lazaro Mota, et al., in the amount of P113,046.46, and said
defendant is hereby sentenced to pay the plaintiffs the said amount,
together with the agreed interest at the rate of 10 per cent per annum f rom
the date of the filing of the complaint.

Without special pronouncement as to costs, it is so ordered.

Johnson, Street, Malcolm, Ostrand, Johns, and Romualdez, JJ., concur.

Judgment reversed. Testate Estate of Mota vs. Serra, 47 Phil. 464, No.
22825 February 14, 1925
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 10

G.R. No. 127405. October 4, 2000.* another” be in writing.—Petitioner Belo’s denial that he financed the
partnership rings hollow in the face of the established fact that he presided
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF over meetings regarding matters affecting the operation of the business.
APPEALS and NENITA A. ANAY, respondents.
Moreover, his having authorized in writing on October 7, 1987, on a
Partnerships; Appeals; The issue of whether or not a partnership exists is a stationery of his own business firm, Wilcon Builders Supply, that private
factual matter which are within the exclusive domain of both the trial court respondent should receive thirty-seven (37%) of the proceeds of her
and the Court of Appeals.—The issue of whether or not a partnership exists personal sales, could not be interpreted otherwise than that he had a
is a factual matter which are within the exclusive domain of both the trial proprietary interest in the business. His claim that he was merely a guarantor
and appellate courts. This Court cannot set aside factual findings of such is belied by that personal act of proprietorship in the business. Moreover, if
courts absent any showing that there is no evidence to support the he was indeed a guarantor of future debts of petitioner Tocao under Article
conclusion drawn by the court a quo. In this case, both the trial court and 2053 of the Civil Code, he should have presented documentary evidence
the Court of Appeals are one in ruling that petitioners and private respondent therefor. While Article 2055 of the Civil Code simply provides that guaranty
established a business partnership. This Court finds no reason to rule must be “express,” Article 1403, the Statute of Frauds, requires that “a
otherwise. special promise to answer for the debt, default or miscarriage of another” be
in writing.
Same; Requisites for a Partnership to Have Juridical Personality; Since a
contract of partnership is consensual, an oral contract of partnership is as Same; Employer-Employee Relationship; While it is true that the receipt of a
good as a written one; Where no immovable property or real rights are percentage of net profits constitutes only prima facie evidence that the
involved, what matters is that the parties have complied with the requisites recipient is a partner in the business, the evidence in the instant case at bar
of a partnership.—To be considered a juridical personality, a partnership controverts an employer-employee relationship between the parties.—The
must fulfill these requisites: (1) two or more persons bind themselves to business venture operated under Geminesse Enterprise did not result in an
contribute money, property or industry to a common fund; and (2) intention employer-employee relationship between petitioners and private respondent.
on the part of the partners to divide the profits among themselves. It may be While it is true that the receipt of a percentage of net profits constitutes only
constituted in any form; a public instrument is necessary only where prima facie evidence that the recipient is a partner in the business, the
immovable property or real rights are contributed thereto. This implies that evidence in the case at bar controverts an employer-employee relationship
since a contract of partnership is consensual, an oral contract of partnership between the parties. In the first place, private respondent had a voice in the
is as good as a written one. Where no immovable property or real rights are management of the affairs of the cookware distributorship, including
involved, what matters is that the parties have complied with the requisites selection of people who would constitute the administrative staff and the
of a partnership. The fact that there appears to be no record in the Securities sales force. Secondly, petitioner Tocao’s admissions militate against an
and Exchange Commission of a public instrument embodying the partnership employer-employee relationship. She admitted that, like her who owned
agreement pursuant to Article 1772 of the Civil Code did not cause the Geminesse Enterprise, private respondent received only commissions and
nullification of the partnership. The pertinent provision of the Civil Code on transportation and representation allowances and not a fixed salary.
the matter states: Art. 1768. The partnership has a juridical personality
Same; Same; If indeed a person is employed by another, it is difficult to
separate and distinct from that of each of the partners, even in case of
believe that the former and the latter shall receive the same income in the
failure to comply with the requirements of article 1772, first paragraph.
business.—If indeed petitioner Tocao was private respondent’s employer, it
Same; Guaranty; While Article 2055 of the Civil Code simply provides that is difficult to believe that they shall receive the same income in the business.
guaranty must be “express,” Article 1403, the Statute of Frauds, requires In a partnership, each partner must share in the profits and losses of the
that “a special promise to answer for the debt, default or miscarriage of venture, except that the industrial partner shall not be liable for the losses.
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 11

As an industrial partner, private respondent had the right to demand for a to choose with whom a person wishes to associate himself is the very
formal accounting of the business and to receive her share in the net profit. foundation and essence of that partnership. Its continued existence is, in
turn, dependent on the constancy of that mutual resolve, along with each
Same; The best evidence of the existence of the partnership, which is not
partner’s capability to give it, and the absence of cause for dissolution
yet terminated (though in the winding up stage), are the unsold goods and provided by the law itself. Verily, any one of the partners may, at his sole
uncollected receivables.—Petitioners underscore the fact that the Court of
pleasure, dictate a dissolution of the partnership at will. He must, however,
Appeals did not return the “unaccounted and unremitted stocks of
act in good faith, not that the attendance of bad faith can prevent the
Geminesse Enterprise amounting to P208,250.00.” Obviously a ploy to offset
dissolution of the partnership but that it can result in a liability for damages.”
the damages awarded to private respondent, that claim, more than anything
An unjustified dissolution by a partner can subject him to action for damages
else, proves the existence of a partnership between them. In Idos v. Court of
because by the mutual agency that arises in a partnership, the doctrine of
Appeals, this Court said: “The best evidence of the existence of the
delectus personae allows the partners to have the power, although not
partnership, which was not yet terminated (though in the winding up stage),
necessarily the right to dissolve the partnership.
were the unsold goods and uncollected receivables, which were presented to
the trial court. Since the partnership has not been terminated, the petitioner Same; Same; Even if one partner had effected her own withdrawal from the
and private complainant remained as co-partners. x x x.” partnership and considered herself as having ceased to be associated with
the partnership in the carrying on of the business, the partnership was not
Same; Dissolution of Partnerships; A mere falling out or misunderstanding
terminated thereby—it continues until the winding up of the business.—
between partners does not convert the partnership into a sham
Petitioner Tocao’s unilateral exclusion of private respondent from the
organization—the partnership exists until dissolved under the law.—
partnership is shown by her memo to the Cubao office plainly stating that
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from
private respondent was, as of October 9, 1987, no longer the vice-president
the partnership to reap for herself and/or for petitioner Belo financial gains for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected
resulting from private respondent’s efforts to make the business venture a
her own withdrawal from the partnership and considered herself as having
success. Thus, as petitioner Tocao became adept in the business operation, ceased to be associated with the partnership in the carrying on of the
she started to assert herself to the extent that she would even shout at
business. Nevertheless, the partnership was not terminated thereby; it
private respondent in front of other people. Her instruction to Lina Torda
continues until the winding up of the business.
Cruz, marketing manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of her perception PETITION for review on certiorari of a decision of the Court of Appeals.
that private respondent was no longer necessary in the business operation,
The facts are stated in the opinion of the Court.
and resulted in a falling out between the two. However, a mere falling out or
misunderstanding between partners does not convert the partnership into a Fortunato M. Lira Law Office for petitioners.
sham organization. The partnership exists until dissolved under the law.
Rodolfo D. Mapile for private respondent.
Same; Same; Any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will, though he must, however, act in good YNARES-SANTIAGO, J.:
faith, not that the attendance of bad faith can prevent the dissolution of the
This is a petition for review of the Decision of the Court of Appeals in CA-
partnership but that it can result in a liability for damages; An unjustified
G.R. CV No. 41616,1 affirming the Decision of the Regional Trial Court of
dissolution by a partner can subject him to action for damages.——Since the
Makati, Branch 140, in Civil Case No. 88-509.2
partnership created by petitioners and private respondent has no fixed term
and is therefore a partnership at will predicated on their mutual desire and Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand,
consent, it may be dissolved by the will of a partner. Thus: “x x x. The right private respondent Nenita A. Anay met petitioner William T. Belo, then the
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 12

vice-president for operations of Ultra Clean Water Purifier, through her Marketing and a business partner of our company, will attend in response to
former employer in Bangkok. Belo introduced Anay to petitioner Marjorie the invitation.” (Italics supplied.)3
Tocao, who conveyed her desire to enter into a joint venture with her for the
Anay arrived from the U.S.A. in mid-August 1987, and immediately
importation and local distribution of kitchen cookwares. Belo volunteered to
finance the joint venture and assigned to Anay the job of marketing the undertook the task of saving the business on account of the unsatisfactory
sales record in the Makati and Cubao offices. On August 31, 1987, she
product considering her experience and established relationship with West
received a plaque of appreciation from the administrative and sales people
Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under
through Marjorie Tocao4 for her excellent job performance. On October 7,
the joint venture, Belo acted as capitalist, Tocao as president and general
1987, in the presence of Anay, Belo signed a memo5 entitling her to a thirty-
manager, and Anay as head of the marketing department and later, vice-
seven percent (37%) commission for her personal sales “up Dec 31/87.” Belo
president for sales. Anay organized the administrative staff and sales force
explained to her that said commission was apart from her ten percent (10%)
while Tocao hired and fired employees, determined commissions and/or
share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao
salaries of the employees, and assigned them to different branches. The
had signed a letter6 addressed to the Cubao sales office to the effect that
parties agreed that Belo’s name should not appear in any documents relating
to their transactions with West Bend Company. Instead, they agreed to use she was no longer the vice-president of Geminesse Enterprise. The following
day, October 10, she received a note from Lina T. Cruz, marketing manager,
Anay’s name in securing distributorship of cookware from that company. The
that Marjorie Tocao had barred her from holding office and conducting
parties agreed further that Anay would be entitled to: (1) ten percent (10%)
demonstrations in both Makati and Cubao offices.7 Anay attempted to
of the annual net profits of the business; (2) overriding commission of six
contact Belo. She wrote him twice to demand her overriding commission for
percent (6%) of the overall weekly production; (3) thirty percent (30%) of
the period of January 8, 1988 to February 5, 1988 and the audit of the
the sales she would make; and (4) two percent (2%) for her demonstration
company to determine her share in the net profits. When her letters were
services. The agreement was not reduced to writing on the strength of Belo’s
not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter.
assurances that he was sincere, dependable and honest when it came to
Still, that letter was not answered.
financial commitments.
Anay still received her five percent (5%) overriding commission up to
Anay having secured the distributorship of cookware products from the West
December 1987. The following year, 1988, she did not receive the same
Bend Company and organized the administrative staff and the sales force,
commission although the company netted a gross sales of P13,300,360.00.
the cookware business took off successfully. They operated under the name
of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao’s On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for
name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo sum of money with damages8 against Marjorie D. Tocao and William Belo
made good his monetary commitments to Anay. Thereafter, Roger before the Regional Trial Court of Makati, Branch 140.
Muencheberg of West Bend Company invited Anay to the distributor/dealer
meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to In her complaint, Anay prayed that defendants be ordered to pay her, jointly
the southwestern regional convention in Pismo Beach, California, U.S.A., and severally, the following: (1) P32,000.00 as unpaid overriding commission
from July 25-26, 1987. Anay accepted the invitation with the consent of from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral
Marjorie Tocao who, as president and general manager of Geminesse damages; and (3) P100,000.00 as exemplary damages. The plaintiff also
Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in prayed for an audit of the finances of Geminesse Enterprise from the
Manila on July 13, 1987. A portion of the letter reads: inception of its business operation until she was “illegally dismissed” to
determine her ten percent (10%) share in the net profits. She further prayed
“Ms. Nenita D. Anay (sic), who has been patronizing and supporting West that she be paid the five percent (5%) “overriding commission” on the
Bend Co. for twenty (20) years now, acquired the distributorship of Royal remaining 150 West Bend cookware sets before her “dismissal.”
Queen cookware for Geminesse Enterprise, is the Vice President Sales
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 13

In their answer,9 Marjorie Tocao and Belo asserted that the “alleged commissions: thirty-seven percent (37%) on personal sales; five percent
agreement” with Anay that was “neither reduced in writing, nor ratified,” was (5%) on gross sales; two percent (2%) on product demonstrations, and two
“either unenforceable or void or inexistent.” As far as Belo was concerned, percent (2%) for recruitment of personnel. Marjorie denied that they agreed
his only role was to introduce Anay to Marjorie Tocao. There could not have on a ten percent (10%) commission on the net profits. Marjorie claimed that
been a partnership because, as Anay herself admitted, Geminesse Enterprise she got the capital for the business out of the sale of the sewing machines
was the sole proprietorship of Marjorie Tocao. Because Anay merely acted as used in her garments business and from Peter Lo, a Singaporean friend-
marketing demonstrator of Geminesse Enterprise for an agreed financier who loaned her the funds with interest. Because she treated Anay
remuneration, and her complaint referred to either her compensation or as her “co-equal,” Marjorie received the same amounts of commissions as
dismissal, such complaint should have been lodged with the Department of her. However, Anay failed to account for stocks valued at P200,000.00.
Labor and not with the regular court.
On April 22, 1993, the trial court rendered a decision the dispositive part of
Petitioners (defendants therein) further alleged that Anay filed the complaint which is as follows:
on account of “ill-will and resentment” because Marjorie Tocao did not allow
“WHEREFORE, in view of the foregoing, judgment is hereby rendered:
her to lord it over in the Geminesse Enterprise.” Anay had acted like she
owned the enterprise because of her experience and expertise. Hence, 1.Ordering defendants to submit to the Court a formal account as to the
petitioners were the ones who suffered actual damages “including partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of the
unreturned and unaccounted stocks of Geminesse Enterprise,” and “serious Civil Code in order to determine the ten percent (10%) share of plaintiff in
anxiety, besmirched reputation in the business world, and various damages the net profits of the cookware business;
not less than P500,000.00.” They also alleged that, to “vindicate their
names,” they had to hire counsel for a fee of P23,000.00. 2.Ordering defendants to pay five percent (5%) overriding commission for
the one hundred and fifty (150) cookware sets available for disposition when
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was wrongfully excluded from the partnership by defendants;
plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b)
whether or not the parties are entitled to damages.10 3.Ordering defendants to pay plaintiff overriding commission on the total
production which for the period covering January 8, 1988 to February 5,
In their defense, Belo denied that Anay was supposed to receive a share in 1988 amounted to P32,000.00;
the profit of the business. He, however, admitted that the two had agreed
that Anay would receive a three to four percent (3-4%) share in the gross 4.Ordering defendants to pay P100,000.00 as moral damages and P
sales of the cookware. He denied contributing capital to the business or 100,000.00 as exemplary damages; and
receiving a share in its profits as he merely served as a guarantor of Marjorie
5.Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00
Tocao, who was new in the business. He attended and/or presided over
as costs of suit.
business meetings of the venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote the memo SO ORDERED.”
granting the plaintiff thirty-seven percent (37%) commission upon her
dismissal from the business venture at the request of Tocao, because Anay The trial court held that there was indeed an “oral partnership agreement
had no other income. between the plaintiff and the defendants,” based on the following: (a) there
was an intention to create a partnership; (b) a common fund was established
For her part, Marjorie Tocao denied having entered into an oral partnership through contributions consisting of money and industry; and (c) there was a
agreement with Anay. However, she admitted that Anay was an expert in the joint interest in the profits. The testimony of Elizabeth Bantilan, Anay’s
cookware business and hence, they agreed to grant her the following cousin and the administrative officer of Geminesse Enterprise from August
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 14

21, 1986 until it was absorbed by Royal International, Inc., buttressed the therefore, not entitled to the damages awarded to her by the Court of
fact that a partnership existed between the parties. The letter of Roger Appeals.
Muencheberg of West Bend Company stating that he awarded the
Petitioners Tocao and Belo contend that the Court of Appeals erroneously
distributorship to Anay and Marjorie Tocao because he was convinced that
with Marjorie’s financial contribution and Anay’s experience, the combination held that a partnership existed between them and private respondent Anay
because Geminesse Enterprise “came into being” exactly a year before the
of the two would be invaluable to the partnership, also supported that
“alleged partnership” was formed, and that it was very unlikely that
conclusion. Belo’s claim that he was merely a “guarantor” has no basis since
petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao
there was no written evidence thereof as required by Article 2055 of the Civil
contributing nothing, without any “memorandum whatsoever regarding the
Code. Moreover, his acts of attending and/or presiding over meetings of
alleged partnership.”13
Geminesse Enterprise plus his issuance of a memo giving Anay 37%
commission on personal sales belied this. On the contrary, it demonstrated The issue of whether or not a partnership exists is a factual matter which are
his involvement as a partner in the business. within the exclusive domain of both the trial and appellate courts. This Court
cannot set aside factual findings of such courts absent any showing that
The trial court further held that the payment of commissions did not preclude
there is no evidence to support the conclusion drawn by the court a quo,14
the existence of the partnership inasmuch as such practice is often resorted
In this case, both the trial court and the Court of Appeals are one in ruling
to in business circles as an impetus to bigger sales volume. It did not matter
that petitioners and private respondent established a business partnership.
that the agreement was not in writing because Article 1771 of the Civil Code
This Court finds no reason to rule otherwise.
provides that a partnership may be “constituted in any form.” The fact that
Geminesse Enterprise was registered in Marjorie Tocao’s name is not To be considered a juridical personality, a partnership must fulfill these
determinative of whether or not the business was managed and operated by requisites: (1) two or more persons bind themselves to contribute money,
a sole proprietor or a partnership. What was registered with the Bureau of property or industry to a common fund; and (2) intention on the part of the
Domestic Trade was merely the business name or style of Geminesse partners to divide the profits among themselves.15 It may be constituted in
Enterprise. any form; a public instrument is necessary only where immovable property
or real rights are contributed thereto.16 This implies that since a contract of
The trial court finally held that a partner who is excluded wrongfully from a
partnership is consensual, an oral contract of partnership is as good as a
partnership is an innocent partner. Hence, the guilty partner must give him
written one. Where no immovable property or real rights are involved, what
his due upon the dissolution of the partnership as well as damages or share
matters is that the parties have complied with the requisites of a partnership.
in the profits “realized from the appropriation of the partnership business
The fact that there appears to be no record in the Securities and Exchange
and goodwill.” An innocent partner thus possesses “pecuniary interest in
every existing contract that was incomplete and in the trade name of the co- Commission of a public instrument embodying the partnership agreement
pursuant to Article 1772 of the Civil Code17 did not cause the nullification of
partnership and assets at the time he was wrongfully expelled.”
the partnership. The pertinent provision of the Civil Code on the matter
Petitioners’ appeal to the Court of Appeals11 was dismissed, but the amount states:
of damages awarded by the trial court were reduced to P50,000.00 for moral
Art. 1768. The partnership has a juridical personality separate and distinct
damages and P50,000.00 as exemplary damages. Their Motion for
from that of each of the partners, even in case of failure to comply with the
Reconsideration was denied by the Court of Appends for lack of merit.12
Petitioners Belo and Marjorie Tocao are now before this Court on a petition requirements of article 1772, first paragraph.
for review on certiorari, asserting that there was no business partnership Petitioners admit that private respondent had the expertise to engage in the
between them and herein private respondent Nenita A. Anay who is, business of distributorship of cookware. Private respondent contributed such
expertise to the partnership and hence, under the law, she was the industrial
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 15

or managing partner. It was through her reputation with the West Bend must be “express,” Article 1403, the Statute of Frauds, requires that “a
Company that the partnership was able to open the business of special promise to answer for the debt, default or miscarriage of another” be
distributorship of that company’s cookware products; it was through the in writing.21
same efforts that the business was propelled to financial success. Petitioner
Tocao herself admitted private respondent’s indispensable role in putting up Petitioner Tocao, a former ramp model,22 was also a capitalist in the
partnership. She claimed that she herself financed the business. Her and
the business when, upon being asked if private respondent held the positions
petitioner Belo’s roles as both capitalists to the partnership with private
of marketing manager and vice-president for sales, she testified thus:
respondent are buttressed by petitioner Tocao’s admissions that petitioner
“A: Belo was her boyfriend and that the partnership was not their only business
venture together. They also established a firm that they called “Wiji,” the
No, sir at the start she was the marketing manager because there were no
combination of petitioner Belo’s first name, William, and her nickname, Jiji.23
one to sell yet, it’s only me there then her and then two (2) people, so about The special relationship between them dovetails with petitioner Belo’s claim
four (4). Now, after that when she recruited already Oscar Abella and Lina
that he was acting in behalf of petitioner Tocao. Significantly, in the early
Torda-Cruz these two (2) people were given the designation of marketing
stage of the business operation, petitioners requested West Bend Company
managers of which definitely Nita as superior to them would be the Vice
to allow them to “utilize their banking and trading facilities in Singapore” in
President.”18
the matter of importation and payment of the cookware products.24 The
By the set-up of the business, third persons were made to believe that a inevitable conclusion, therefore, was that petitioners merged their respective
partnership had indeed been forged between petitioners and private capital and infused the amount into the partnership of distributing cookware
respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of with private respondent as the managing partner.
West Bend Company to Roger Muencheberg of the same company states:
The business venture operated under Geminesse Enterprise did not result in
“Marge Tocao is president of Geminesse Enterprises. Geminesse will finance an employer-employee relationship between petitioners and private
the operations. Marge does not have cookware experience. Nita Anay has respondent. While it is true that the receipt of a percentage of net profits
started to gather former managers, Lina Torda and Dory Vista. She has also constitutes only prima facie evidence that the recipient is a partner in the
gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu business,25 the evidence in the case at bar controverts an employer-
Javier. They will continue to gather other key people and build up the employee relationship between the parties. In the first place, private
organization. All they need is the finance and the products to sell.”19 respondent had a voice in the management of the affairs of the cookware
distributorship,26 in-against the guarantor until the debt is liquidated. A
On the other hand, petitioner Belo’s denial that he financed the partnership conditional obligation may also be secured cluding selection of people who
rings hollow in the face of the established fact that he presided over would constitute the administrative staff and the sales force. Secondly,
meetings regarding matters affecting the operation of the business. petitioner Tocao’s admissions militate against an employer-employee
Moreover, his having authorized in writing on October 7, 1987, on a relationship. She admitted that, like her who owned Geminesse Enterprise,27
stationery of his own business firm, Wilcon Builders Supply, that private private respondent received only commissions and transportation and
respondent should receive thirty-seven (37%) of the proceeds of her representation allowances28 and not a fixed salary.29 Petitioner Tocao
personal sales, could not be interpreted otherwise than that he had a testified:
proprietary interest in the business. His claim that he was merely a guarantor
is belied by that personal act of proprietorship in the business. Moreover, if “Q:Of course. Now, I am showing to you certain documents already marked
he was indeed a guarantor of future debts of petitioner Tocao under Article as Exhs. ‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is denominated ‘Cubao
2053 of the Civil Code,20 he should have presented documentary evidence overrides’ 8-21-87 with ending August 21, 1987, will you please go over this
therefor. While Article 2055 of the Civil Code simply provides that guaranty
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 16

and tell the Honorable Court whether you ever came across this document Q:With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao
and know of your own knowledge the amount— P15,314.25’ the amount there you will acknowledge you have received that?

A:Yes, sir this is what I am talking about earlier. That’s the one I am telling A:Yes, sir.
you earlier a certain percentage for promotions, advertising, incentive.
Q:Again in concept of commission, representation, promotion, etc.?
Q:I see. Now, this promotion, advertising, incentive, there is a figure here
A:Yes, sir.
and words which I quote: ‘Overrides Marjorie Ann Tocao P21,410.50’ this
means that you have received this amount? Q:Okey. Below your name is the name of Nita Anay P15,314.25 that is also
an indication that she received the same amount?
A:Oh yes, sir.
A:Yes, sir.
Q:I see. And, by way of amplification this is what you are saying as one
representing commission, representation, advertising and promotion? Q:And, as in your previous statement it is not by coincidence that these two
(2) are the same?
A:Yes, sir.
A:No, sir.
Q:I see. Below your name is the words and figure and I quote ‘Nita D. Anay
P21,410.50’, what is this? Q:It is again in concept of you treating Miss Anay as your equal?
A:That’s her overriding commission. A:Yes, sir.” (Italics supplied.)30
Q:Overriding commission, I see. Of course, you are telling this Honorable If indeed petitioner Tocao was private respondent’s employer, it is difficult to
Court that there being the same P21,410.50 is merely by coincidence? believe that they shall receive the same income in the business. In a
partnership, each partner must share in the profits and losses of the venture,
A:No, sir, I made it a point that we were equal because the way I look at her
except that the industrial partner shall not be liable for the losses.31 As an
kasi, you know in a sense because of her expertise in the business she is
industrial partner, private respondent had the right to demand for a formal
vital to my business. So, as part of the incentive I offer her the same thing.
accounting of the business and to receive her share in the net profit.32
Q:So, in short you are saying that this you have shared together, I mean
The fact that the cookware distributorship was operated under the name of
having gotten from the company P21,140.50 is your way of indicating that
you were treating her as an equal? Geminesse Enterprise, a sole proprietorship, is of no moment. What was
registered with the Bureau of Domestic Trade on August 19, 1987 was
A:As an equal. merely the name of that enterprise.33 While it is true that in her undated
application for renewal of registration of that firm name, petitioner Tocao
Q:As an equal, I see. You were treating her as an equal?
indicated that it would be engaged in retail of “kitchenwares, cookwares,
A:Yes, sir. utensils, skillet,”34 she also admitted that the enterprise was only “60% to
70% for the cookware business,” while 20% to 30% of its business activity
Q:Iam calling again your attention to Exh. ‘Y’ ‘Overrides Makati the other one was devoted to the sale of water sterilizer or purifier.35 Indubitably then, the
is— business name Geminesse Enterprise was used only for practical reasons—it
was utilized as the common name for petitioner Tocao’s various business
A:That is the same thing, sir.
activities, which included the distributorship of cookware.
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 17

Petitioners underscore the fact that the Court of Appeals did not return the the dissolution of the partnership but that it can result in a liability for
“unaccounted and unremitted stocks of Geminesse Enterprise amounting to damages.”41
P208,250.00.”36 Obviously a ploy to offset the damages awarded to private
An unjustified dissolution by a partner can subject him to action for damages
respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said: because by the mutual agency that arises in a partnership, the doctrine of
delectus personae allows the partners to have the power, although not
“The best evidence of the existence of the partnership, which was not yet necessarily the right to dissolve the partnership.42
terminated (though in the winding up stage), were the unsold goods and
In this case, petitioner Tocao’s unilateral exclusion of private respondent
uncollected receivables, which were presented to the trial court. Since the
from the partnership is shown by her memo to the Cubao office plainly
partnership has not been terminated, the petitioner and private complainant
stating that private respondent was, as of October 9, 1987, no longer the
remained as co-partners, x x x.”37
vice-president for sales of Geminesse Enterprise.43 By that memo, petitioner
It is not surprising then that, even after private respondent had been Tocao effected her own withdrawal from the partnership and considered
unceremoniously booted out of the partnership in October 1987, she still herself as having ceased to be associated with the partnership in the carrying
received her overriding commission until December 1987. on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.44
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from
the partnership to reap for herself and/or for petitioner Belo financial gains The winding up of partnership affairs has not yet been undertaken by the
resulting from private respondent’s efforts to make the business venture a partnership. This is manifest in petitioners’ claim for stocks that had been
success. Thus, as petitioner Tocao became adept in the business operation, entrusted to private respondent in the pursuit of the partnership business.
she started to assert herself to the extent that she would even shout at
The determination of the amount of damages commensurate with the factual
private respondent in front of other people.38 Her instruction to Lina Torda
findings upon which it is based is primarily the task of the trial court.45 The
Cruz, marketing manager, not to allow private respondent to hold office in
Court of Appeals may modify that amount only when its factual findings are
both the Makati and Cubao sales offices concretely spoke of her perception
diametrically opposed to that of the lower court,46 or the award is palpably
that private respondent was no longer necessary in the business
or scandalously and unreasonably excessive.47 However, exemplary
operation,39 and resulted in a falling out between the two. However, a mere
damages that are awarded “by way of example or correction for the public
falling out or misunderstanding between partners does not convert the
partnership into a sham organization.40 The partnership exists until good,”48 should be reduced to P50,000.00, the amount correctly awarded by
the Court of Appeals. Concomitantly, the award of moral damages of
dissolved under the law. Since the partnership created by petitioners and
P100,000.00 was excessive and should be likewise reduced to P50,000.00.
private respondent has no fixed term and is therefore a partnership at will
Similarly, attorney’s fees that should be granted on account of the award of
predicated on their mutual desire and consent, it may be dissolved by the
exemplary damages and petitioners’ evident bad faith in refusing to satisfy
will of a partner. Thus:
private respondent’s plainly valid, just and demandable claims,49 appear to
“x x x. The right to choose with whom a person wishes to associate himself have been excessively granted by the trial court and should therefore be
is the very foundation and essence of that partnership. Its continued reduced to P25,000.00.
existence is, in turn, dependent on the constancy of that mutual resolve,
WHEREFORE, the instant petition for review on certiorari is DENIED. The
along with each partner’s capability to give it, and the absence of cause for
partnership among petitioners and private respondent is ordered dissolved,
dissolution provided by the law itself. Verily, any one of the partners may, at
and the parties are ordered to effect the winding up and liquidation of the
his sole pleasure, dictate a dissolution of the partnership at will. He must,
partnership pursuant to the pertinent provisions of the Civil Code. This case
however, act in good faith, not that the attendance of bad faith can prevent
is remanded to the Regional Trial Court for proper proceedings relative to
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 18

said dissolution. The appealed decisions of the Regional Trial Court and the
Court of Appeals are AFFIRMED with MODIFICATIONS, as follows—

1.Petitioners are ordered to submit to the Regional Trial Court a formal

account of the partnership affairs for the years 1987 and 1988, pursuant to
Article 1809 of the Civil Code, in order to determine private respondent’s ten
percent (10%) share in the net profits of the partnership;

2.Petitioners are ordered, jointly and severally, to pay private respondent five
percent (5%) overriding commission for the one hundred and fifty (150)
cookware sets available for disposition since the time private respondent was
wrongfully excluded from the partnership by petitioners;

3.Petitioners are ordered, jointly and severally, to pay private respondent

overriding commission on the total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to P32,000.00;

4.Petitioners are ordered, jointly and severally, to pay private respondent

moral damages in the amount of P50,000.00, exemplary damages in the
amount of P50,000.00 and attorney’s fees in the amount of P25,000.00.

SO ORDERED.

Davide, Jr. (C.J., Chairman), Puno, Kapunan and Pardo, JJ., concur.

Petition denied, judgments of the trial court and the Court of Appeals
affirmed with modifications.

Notes.—The issue as to whether there is still a partnership between the

parties is a factual matter. (Alicbusan vs. Court of Appeals, 269 SCRA 336
[1997])

A partnership may be deemed to exist among parties who agree to borrow

money to pursue a business and to divide the profits or losses that may arise
therefrom, even if it is shown that they have not contributed any capital of
their own to a “common fund,” as their contribution to such fund could be an
intangible like credit or industry. (Lim Tong Lim vs. Philippine Fishing Gear
Industries, Inc., 317 SCRA 728 [1999])

——o0o—— Tocao vs. Court of Appeals, 342 SCRA 20, G.R. No. 127405
October 4, 2000
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 19

G.R. No. 30616. December 10, 1990.* PARAS, J.:

EUFRACIO D. ROJAS, plaintiff-appellant, vs. CONSTANCIO B. This is a direct appeal to this Court from a decision** of the then Court of
MAGLANA, defendant-appellee. First Instance of Davao, Seventh Judicial District, Branch III, in Civil Case No.
3518, dismissing appellant's complaint.
Partnership; Withdrawing partner is liable for damages if the cause of
withdrawal is not justified or no cause was given but in no case can he be As found by the trial court, the antecedent facts of the case are as follows:
compelled to be in the firm.—Under Article 1830, par. 2 of the Civil Code,
On January 14, 1955, Maglana and Rojas executed their Articles of Co-
even if there is a specified term, one partner can cause its dissolution by
expressly withdrawing even before the expiration of the period, with or Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE)
with only the two of them as partners. The partnership EDE with an
without justifiable cause. Of course, if the cause is not justified or no cause
indefinite term of existence was duly registered on January 21, 1955 with the
was given, the withdrawing partner is liable for damages but in no case can
Securities and Exchange Commission.
he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in whatever way we may One of the purposes of the duly-registered partnership was to "apply or
view the situation, the conclusion is inevitable that Rojas and Maglana shall secure timber and/or minor forests products licenses and concessions over
be guided in the liquidation of the partnership by the provisions of its duly public and/or private forest lands and to operate, develop and promote such
registered Articles of Co-Partnership; that is, all profits and losses of the forests rights and concessions." (Rollo, p. 114)
partnership shall be divided "share and share alike" between the partners.
A duly registered Articles of Co-Partnership was filed together with an
Same; Same; A party who has undertaken to contribute a sum of money fails application for a timber concession covering the area located at Cateel and
to do so, he becomes a debtor of the partnership for whatever he promised Baganga, Davao with the Bureau of Forestry which was approved and
to contribute.—On the basis of the Commissioners' Report, the Timber License No. 35-56 was duly issued and became the basis of
corresponding contribution of the partners from 19561961 are as follows: subsequent renewals made for and in behalf of the duly registered
Eufracio Rojas who should have contributed P158,158.00, contributed only partnership EDE. Under the said Articles of Co-Partnership, appellee Maglana
P18,750.00 while Maglana who should have contributed P160,984.00, shall manage the business affairs of the partnership, including marketing and
contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that handling of cash and is authorized to sign all papers and instruments relating
when a partner who has undertaken to contribute a sum of money fails to do to the partnership, while appellant Rojas shall be the logging superintendent
so, he becomes a debtor of the partnership for whatever he may have and shall manage the logging operations of the partnership. It is also
promised to contribute (Article 1786, Civil Code) and for interests and provided in the said articles of co-partnership that all profits and losses of
damages from the time he should have complied with his obligation (Article the partnership shall be divided share and share alike between the partners.
1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]).
Being a contract of partnership, each partner must share in the profits and During the period from January 14, 1955 to April 30, 1956, there was no
losses of the venture. That is the essence of a partnership (Ibid., p. 95). operation of said partnership (Record on Appeal [R.A.] p. 946).

DIRECT APPEAL from the decision of the then Court of First Instance of Because of the difficulties encountered, Rojas and Maglana decided to avail
Davao, Br. 3. Reyes, J. of the services of Pahamotang as industrial partner.

The facts are stated in the opinion of the Court. On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their
Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name
Ambrosio Padilla, Mempin & Reyes Law Offices for plaintiff-appellant. EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight
difference in the purpose of the second partnership which is to hold and
Occeña Law Office for defendant-appellee.
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 20

secure renewal of timber license instead of to secure the license as in the Maglana that lie will not be able to comply with the promised contributions
first partnership and the term of the second partnership is fixed to thirty (30) and be will not work as logging superintendent. Maglana then told Rojas that
years, everything else is the same. the latter's share will just be 20% of the net profits. Such was the sharing
from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).
The partnership formed by Maglana, Pahamotang and Rojas started
operation on May 1, 1956, and was able to ship logs and realize profits. An Meanwhile, Rojas took funds from the partnership more than his
income was derived from the proceeds of the logs in the sum of P643,633.07 contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10")
(Decision, R.A. 919). Maglana notified Rojas that he dissolved the partnership (R.A. 949).

On October 25, 1956, Pahamotang, Maglana and Rojas executed a document On April 7, 1961, Rojas filed an action before the Court of First Instance of
entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, Davao against Maglana for the recovery of properties, accounting,
EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing receivership and damages, docketed as Civil Case No. 3518 (Record on
among themselves that Maglana and Rojas shall purchase the interest, share Appeal, pp. 1-26).
and participation in the Partnership of Pahamotang assessed in the amount
Rojas' petition for appointment of a receiver was denied (R.A. 894).
of P31,501.12. It was also agreed in the said instrument that after payment
of the sum of P31,501.12 to Pahamotang including the amount of loan Upon motion of Rojas on May 23, 1961, Judge Romero appointed
secured by Pahamotang in favor of the partnership, the two (Maglana and commissioners to examine the long and voluminous accounts of the
Rojas) shall become the owners of all equipment contributed by Pahamotang Eastcoast Development Enterprises (Ibid., pp. 894-895).
and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to
the second partnership, be dissolved. Pahamotang was paid in full on August The motion to dismiss the complaint filed by Maglana on June 21,1961
31, 1957. No other rights and obligations accrued in the name of the second (Ibid., pp. 102-114) was denied by Judge Romero for want of merit (Ibid., p.
partnership (R.A. 921). 125). Judge Romero also required the inclusion of the entire year 1961 in the
report to be submitted by the commissioners (Ibid., pp. 138-143).
After the withdrawal of Pahamotang, the partnership was continued by Accordingly, the commissioners started examining the records and
Maglana and Rojas without the benefit of any written agreement or supporting papers of the partnership as well as the information furnished
reconstitution of their written Articles of Partnership (Decision, R.A. 948). them by the parties, which were compiled in three (3) volumes. On May
11,1964, Maglana filed his motion for leave of court to amend his answer
On January 28, 1957, Rojas entered into a management contract with
with counterclaim, attaching thereto the amended answer (Ibid., pp. 26-
another logging enterprise, the CMS Estate, Inc. He left and abandoned the
336), which was granted on May 22, 1964 (Ibid., p. 336).
partnership (Decision, R.A. 947). On February 4, 1957, Rojas withdrew his
equipment from the partnership for use in the newly acquired area (Decision, On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners'
R.A. 948). Report (Ibid., p. 337).
The equipment withdrawn were his supposed contributions to the first On June 29, 1965, Rojas filed his motion for reconsideration of the order
partnership and was transferred to CMS Estate, Inc. by way of chattel dated May 27, 1964 approving the report of the commissioners which was
mortgage (Decision, R.A. p. 948). opposed by the appellee.
On March 17, 1957, Maglana wrote Rojas reminding the latter of his On September 19, 1964, appellant's motion for reconsideration was denied
obligation to contribute, either in cash or in equipment, to the capital (Ibid., pp. 446-451).
investments of the partnership as well as his obligation to perform his duties
as logging superintendent. Two weeks after March 17, 1957, Rojas told
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 21

A mandatory pre-trial was conducted on September 8 and 9, 1964 and the with funds of the defendant and—the Court declares that there is no
following issues were agreed upon to be submitted to the trial court: evidence that these properties were acquired by the partnership funds, and
therefore the same should not belong to the partnership;
(a)The nature of partnership and the legal relations of Maglana and Rojas
after the dissolution of the second partnership; "4.As to whether damages were suffered and, if so, how much, and who
caused them and who should be liable for them—the Court declares that
(b)Their sharing basis: whether in proportion to their contribution or share
neither parties is entitled to damages, for as already stated above it is not a
and share alike;
wise policy to place a price on the right of a person to litigate and/or to come
(c)The ownership of properties bought by Maglana in his wife's name; to Court for the assertion of the rights they believe they are entitled to;

115 "5.As to what is the legal effect of the letter of defendant to the plaintiff
dated February 23, 1961; did it dissolve the partnership or not—the Court
(d)The damages suffered and who should be liable for them; and declares that the letter of the defendant to the plaintiff dated February 23,
1961, in effect dissolved the partnership;
(e)The legal effect of the letter dated February 23, 1961 of Maglana
dissolving the partnership (Decision, R.A. pp. 895-896). "6.Further, the Court relative to the canteen, which sells foodstuffs, supplies,
and other merchandise to the laborers and employees of the Eastcoast
After trial, the lower court rendered its decision on March 11, 1968, the
Development Enterprises,—the COURT DECLARES THE SAME AS NOT
dispositive portion of which reads as follows:
BELONGING TO THE PARTNERSHIP;
"WHEREFORE, the above facts and issues duly considered, judgment is
"7.That the alleged sale of forest concession Exhibit 9-B, executed by Pablo
hereby rendered by the Court declaring that:
Angeles David—is VALID AND BINDING UPON THE PARTIES AND SHOULD
"1.The nature of the partnership and the legal relations of Maglana and BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE
Rojas after Pahamotang retired from the second partnership, that is, after PARTNERSHIP;
August 31, 1957, when Pahamotang was finally paid his share—the
"8.Further, the Court orders and directs plaintiff Rojas to pay or turn over to
partnership of the defendant and the plaintiff is one of a de facto and at will;
the partnership the amount of P69,000.00 the profits he received from the
"2.Whether the sharing of partnership profits should be on the basis of CMS Estate, Inc. operated by him;
computation, that is the ratio and proportion of their respective
"9.The claim that plaintiff Rojas should be ordered to pay the further sum of
contributions, or on the basis of share and share alike—this covered by
P85,000.00 which according to him he is still entitled to receive from the
actual contributions of the plaintiff and the defendant and by their verbal
CMS Estate, Inc. is hereby denied considering that it has not yet been
agreement; that the sharing of profits and losses is on the basis of actual
actually received, and further the receipt is merely based upon an
contributions; that from 1957 to 1959, the sharing is on the basis of 80% for
expectancy and/or still speculative;
the defendant and 20% for the plaintiff of the profits, but from 1960 to the
date of dissolution, February 23, 1961, the plaintiff's share will be on the "10.The Court also directs and orders plaintiff Rojas to pay the sum of
basis of his actual contribution and, considering his indebtedness to the P62,988.19 his personal account to the partnership;
partnership, the plaintiff is not entitled to any share in the profits of the said
partnership; "11.The Court also credits the defendant the amount of P85,000.00 the
amount he should have received as logging superintendent, and which was
"3.As to whether the properties which were bought by the defendant and not paid to him, and this should be considered as part of Maglana's
placed in his or in his wife's name were acquired with partnership funds or contribution likewise to the partnership; and
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 22

"12.The complaint is hereby dismissed with costs against the plaintiff. After a careful study of the records as against the conflicting claims of Rojas
and Maglana, it appears evident that it was not the intention of the partners
"SO ORDERED." (Decision, Record on Appeal, pp. 985-989). to dissolve the first partnership, upon the constitution of the second one,
Rojas interposed the instant appeal. which they unmistakably called an "Additional Agreement" (Exhibit "9-B")
(Brief for Defendant-Appellee, pp. 24-25). Except for the fact that they took
The main issue in this case is the nature of the partnership and legal in one industrial partner; gave him an equal share in the profits and fixed the
relationship of the Maglana-Rojas after Pahamotang retired from the second term of the second partnership to thirty (30) years, everything else was the
partnership. same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT
ENTERPRISES, they pursued the same purposes and the capital contributions
The lower court is of the view that the second partnership superseded the
of Rojas and Maglana as stipulated in both partnerships call for the same
first, so that when the second partnership was dissolved there was no
amounts. Just as important is the fact that all subsequent renewals of
written contract of co-partnership; there was no reconstitution as provided
Timber License No. 35-36 were secured in favor of the First Partnership, the
for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the
original licensee. To all intents and purposes therefore, the First Articles of
partnership which was carried on by Rojas and Maglana after the dissolution
Partnership were only amended, in the form of Supplementary Articles of Co-
of the second partnership was a de facto partnership and at will. It was
Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-
considered as a partnership at will because there was no term, express or
Appellant, p. 5). Otherwise stated, even during the existence of the second
implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-
partnership, all business transactions were carried out under the duly
963).
registered articles. As found by the trial court, it is an admitted fact that even
On the other hand, Rojas insists that the registered partnership under the up to now, there are still subsisting obligations and contracts of the latter
firm name of Eastcoast Development Enterprises (EDE) evidenced by the (Decision, R.A. pp. 950-957). No rights and obligations accrued in the name
Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been of the second partnership except in favor of Pahamotang which was fully
novated, superseded and/or dissolved by the unregistered articles of co- paid by the duly registered partnership (Decision, R.A., pp. 919-921).
partnership among appellant Rojas, appellee Maglana and Agustin
On the other hand, there is no dispute that the second partnership was
Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms
dissolved by common consent. Said dissolution did not affect the first
and stipulations of said registered Articles of Co-Partnership (Exhibit "A")
partnership which continued to exist. Significantly, Maglana and Rojas
should govern the relations between him and Maglana. Upon withdrawal of
agreed to purchase the interest, share and participation in the second
Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the
partnership of Pahamotang and that thereafter, the two (Maglana and Rojas)
legally constituted partnership EDE (Exhibit "A") continues to govern the
became the owners of equipment contributed by Pahamotang. Even more
relations between them and it was legal error to consider a de facto
convincing, is the fact that Maglana on March 17, 1957, wrote Rojas,
partnership between said two partners or a partnership at will. Hence, the
reminding the latter of his obligation to contribute either in cash or in
letter of appellee Maglana dated February 23, 1961, did not legally dissolve
equipment, to the capital investment of the partnership as well as his
the registered partnership between them, being in contravention of the
obligation to perform his duties as logging superintendent. This reminder
partnership agreement agreed upon and stipulated in their Articles of Co-
cannot refer to any other but to the provisions of the duly registered Articles
Partnership (Exhibit "A"). Rather, appellant is entitled to the rights
of CoPartnership. As earlier stated, Rojas replied that he will not be able to
enumerated in Article 1837 of the Civil Code and to the sharing profits
comply with the promised contributions and he will not work as logging
between them of "share and share alike" as stipulated in the registered
superintendent. By such statements, it is obvious that Roxas understood
Articles of Co-Partnership (Exhibit "A").
what Maglana was referring to and left no room for doubt that both
considered themselves gov"erned by the articles of the duly registered
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 23

partnership. Under the circumstances, the relationship of Rojas and Maglana they showed that on 50-50% basis, Rojas will be liable in the amount of
after the withdrawal of Pahamotang can neither be considered as a De Facto P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the
Partnership, nor a Partnership At Will, for as stressed, there is an existing basis of actual capital contribution, he will be liable for P52,040.31.
partnership, duly registered. As to the question of whether or not Maglana
can unilaterally dissolve the partnership in the case at bar, the answer is in Consequently, except as to the legal relationship of the partners after the
withdrawal of Pahamotang which is unquestionably a continuation of the
the affirmative.
duly registered partnership and the sharing of profits and losses which
Hence, as there are only two parties when Maglana notified Rojas that he should be on the basis of share and share alike as provided for in the duly
dissolved the partnership, it is in effect a notice of withdrawal. registered Articles of Co-Partnership, no plausible reason could be found to
disturb the findings and conclusions of the trial court. As to whether Maglana
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term,
is liable for damages because of such withdrawal, it will be recalled that after
one partner can cause its dissolution by expressly withdrawing even before the withdrawal of Pahamotang, Rojas entered into a management contract
the expiration of the period, with or without justifiable cause. Of course, if
with another logging enterprise, the CMS Estate, Inc., a company engaged in
the cause is not justified or no cause was given, the withdrawing partner is
the same business as the partnership. He withdrew his equipment, refused
liable for damages but in no case can he be compelled to remain in the firm.
to contribute either in cash or in equipment to the capital investment and to
With his withdrawal, the number of members is decreased, hence, the
perform his duties as logging superintendent, as stipulated in their
dissolution. And in whatever way he may view the situation, the conclusion is
partnership agreement. The records also show that Rojas not only
inevitable that Rojas and Maglana shall be guided in the liquidation of the
abandoned the partnership but also took funds in an amount more than his
partnership by the provisions of its duly registered Articles of Co-Partnership;
contribution (Decision, R.A., p. 949).
that is, all profits and losses of the partnership shall be divided "share and
share alike" between the partners. In the given situation Maglana cannot be said to be in bad faith nor can he
be liable for damages.
But an accounting must first be made and which in fact was ordered by the
trial court and accomplished by the commissioners appointed for the PREMISES CONSIDERED, the assailed decision of the Court of First Instance
purpose. of Davao, Branch III, is hereby MODIFIED in the sense that the duly
registered partnership of Eastcoast Development Enterprises continued to
On the basis of the Commissioners' Report, the corresponding contribution of
exist until liquidated and that the sharing basis of the partners should be on
the partners from 1956-1961 are as follows: Eufracio Rojas who should have share and share alike as provided for in its Articles of Partnership, in
contributed P158,158.00, contributed only P18,750.00 while Maglana who
accordance with the computation of the commissioners. We also hereby
should have contributed P160,984.00, contributed P267,541.44 (Decision,
AFFIRM the decision of the trial court in all other respects.
R.A. p. 976). It is a settled rule that when a partner who has undertaken to
contribute a sum of money fails to do so, he becomes a debtor of the SO ORDERED.
partnership for whatever he may have promised to contribute (Article 1786,
Melencio-Herrera (Chairman), Sarmiento and Regalado, JJ., concur.
Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Padilla, J., No part, related to petitioner's counsel.
Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner
must share in the profits and losses of the venture. That is the essence of a Decision modified.
partnership (Ibid., p. 95).
Notes.—The sharing of returns does not of itself establish a partnership nor
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any do the isolated sales transactions. (Pascual vs. Commission of lnternal
profits. In their voluminous reports which was approved by the trial court, Revenue, 166 SCRA 560.)
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 24

A corporation cannot enter into a partnership contract but may enter into a
joint venture. (Aurbach vs. Sanitary Wares Manufacturing Corporation, 180
SCRA 130).

——o0o—— Rojas vs. Maglana, 192 SCRA 110, G.R. No. 30616 December
10, 1990
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 25

G.R. No. 167379. June 27, 2006.* committed a breach of the JVA, the court thereby dissolved/cancelled the
partnership. With the rescission of the JVA on account of petitioners’
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and fraudulent acts, all authority of any partner to act for the partnership is
RAFAELITO W. LOPEZ, petitioners, vs. MA. CLARITA T. LAZATIN-
terminated except so far as may be necessary to wind up the partnership
MAGAT, JOSE SERAFIN T. LAZA-TIN, JAIME TEODORO T. LAZATIN affairs or to complete transactions begun but not yet finished. On dissolution,
and JOSE MARCOS T. LAZATIN, respondents.
the partnership is not terminated but continues until the winding up of
Actions; Pleadings and Practice; A pleading may add as general prayer for partnership affairs is completed. Winding up means the administration of the
such further or other relief as may be deemed just and equitable—the prayer assets of the partnership for the purpose of terminating the business and
in the complaint for other reliefs equitable and just in the premises justifies discharging the obligations of the partnership.
the grant of a relief not otherwise specifically prayed for.—We agree with
petitioners that respondents did not specifically pray in their complaint below
that possession of the improvements on the parcels of land which they Same; Same; Same; Unless otherwise agreed, the parties who have not
contributed to the JVA be transferred to them. Respondents made a specific wrongfully dissolved the partnership have the right to wind up the
prayer in their complaint that, upon the rescission of the JVA, they be placed partnership affairs.—The transfer of the possession of the parcels of land and
in possession of the parcels of land subject of the agreement, and for other the improvements thereon to respondents was only for a specific purpose:
“reliefs and such other remedies as are just and equitable in the premises.” the winding up of partnership affairs, and the partition and distribution of the
However, the trial court was not precluded from awarding possession of the net partnership assets as provided by law. After all, Article 1836 of the New
improvements on the parcels of land to respondents in its decision. Section Civil Code provides that unless otherwise agreed by the parties in their JVA,
2(c), Rule 7 of the Rules of Court provides that a pleading shall specify the respondents have the right to wind up the partnership affairs: Art. 1836.
relief sought but it may add as general prayer for such further or other relief Unless otherwise agreed, the partners who have not wrongfully dissolved the
as may be deemed just and equitable. Even without the prayer for a specific partnership or the legal representative of the last surviving partner, not
remedy, proper relief may be granted by the court if the facts alleged in the insolvent, has the right to wind up the partnership affairs, provided,
complaint and the evidence introduced so warrant. The court shall grant however, that any partner, his legal representative or his assignee, upon
relief warranted by the allegations and the proof even if no such relief is cause shown, may obtain winding up by the court.
prayed for. The prayer in the complaint for other reliefs equitable and just in
Same; Same; Same; Until the partnership accounts are determined, it cannot
the premises justifies the grant of a relief not otherwise specifically prayed
be ascertained how much any of the parties is entitled to, if at all.—It must
for.
be stressed, too, that although respondents acquired possession of the lands
Partnerships; Joint Venture Agreements (JVAs); A JVA is a form of and the improvements thereon, the said lands and improvements remained
partnership, and as such is to be governed by the laws on partnership.—We partnership property, subject to the rights and obligations of the parties,
agree with the CA ruling that petitioner Primelink and respondents entered inter se, of the creditors and of third parties under Articles 1837 and 1838 of
into a joint venture as evidenced by their JVA which, under the Court’s ruling the New Civil Code, and subject to the outcome of the settlement of the
in Aurbach, is a form of partnership, and as such is to be governed by the accounts between the parties as provided in Article 1839 of the New Civil
laws on partnership. Code, absent any agreement of the parties in their JVA to the contrary. Until
the partnership accounts are determined, it cannot be ascertained how much
Same; Same; Dissolution of Partnerships; On dissolution, the partnership is any of the parties is entitled to, if at all. It was thus premature for petitioner
not terminated but continues until the winding up of partnership affairs is
Primelink to be demanding that it be indemnified for the value of the
completed.—When the RTC rescinded the JVA on complaint of respondents
improvements on the parcels of land owned by the joint venture/partnership.
based on the evidence on record that petitioners willfully and persistently
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 26

Notably, the JVA of the parties does not contain any provision designating personnel, machineries, equipment, contractor’s pool, marketing activities,
any party to wind up the affairs of the partnership. managerial expertise and other needed resources to develop the property
and construct therein the units for sale to the public. Specifically, Primelink
PETITION for review on certiorari of the decision and resolution of the Court bound itself to accomplish the following, upon the execution of the deed:
of Appeals.
a.) Survey the land, and prepare the projects master plans,
The facts are stated in the opinion of the Court.
engineering designs, structural and architectural plans, site
Padilla, Reyes & De la Torre Law Office for petitioners. development plans, and such other need plans in accordance with
existing laws and the rules and regulations of appropriate
J. Barte Law Office for respondents. Primelink Properties and Development government institutions, firms or agencies;
Corporation vs. Lazatin-Magat, 493 SCRA 444, G.R. No. 167379 June 27,
2006 b.) Secure and pay for all the licenses, permits and clearances
needed for the projects;
DECISION
c.) Furnish all materials, equipment, labor and services for the
CALLEJO, SR., J.: development of the land in preparation for the construction and sale
of the different types of units (single-detached, duplex/twin, cluster
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 and row house);
Rules of Civil Procedure of the Decision1 of the Court of Appeals (CA) in CA-
G.R. CV No. 69200 and its Resolution2 denying petitioners’ motion for d.) Guarantee completion of the land development work if not
reconsideration thereof. prevented by force majeure or fortuitous event or by competent
authority, or other unavoidable circumstances beyond the
The factual and procedural antecedents are as follows: DEVELOPER’S control, not to exceed three years from the date of
the signing of this Joint Venture Agreement, except the installation
of the electrical facilities which is solely MERALCO’S responsibility;
Primelink Properties and Development Corporation (Primelink for brevity) is a
domestic corporation engaged in real estate development. Rafaelito W.
Lopez is its President and Chief Executive Officer.3 e.) Provide necessary manpower resources, like executive and
managerial officers, support personnel and marketing staff, to
handle all services related to land and housing development
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime
(administrative and construction) and marketing (sales, advertising
T. Lazatin and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-
and promotions).6
owners of two (2) adjoining parcels of land, with a combined area of 30,000
square meters, located in Tagaytay City and covered by Transfer Certificate
of Title (TCT) No. T-108484 of the Register of Deeds of Tagaytay City. The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his
capacity as President, entered into a Joint Venture Agreement5 (JVA) for the 1. During the first two years of the Project, the DEVELOPER and the
development of the aforementioned property into a residential subdivision to LANDOWNER can draw allowances or make advances not exceeding
be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings a total of twenty percent (20%) of the net revenue for that period,
obliged themselves to contribute the two parcels of land as their share in the on the basis of sixty percent (60%) for the DEVELOPER and forty
joint venture. For its part, Primelink undertook to contribute money, labor, percent (40%) for the LANDOWNERS.
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 27

The drawing allowances/advances are limited to twenty percent C1 2,100,000 x

(20%) of the net revenue for the first two years, in order to have - C2 1,400,000 = = 33,600,000.00
3,500,000 16
sufficient reserves or funds to protect and/or guarantee the
construction and completion of the different types of units ROW-TYPE TOWNHOMES:
mentioned above. D1 900,000 x
- D2 700,000 = = 21,600,000.00
1,600,000 24
2. After two years, the DEVELOPER and the LANDOWNERS shall be
entitled to drawing allowances and/or advances equivalent to sixty ₱138,720,000.00
percent (60%) and forty percent (40%), respectively, of the total net
revenue or income of the sale of the units.7 Total Cash Price
(GROSS) = ₱231,200,000.00
(A1+B1+C1+D1)
They also agreed to share in the profits from the joint venture, thus: Total Building Expense
= 92,480,000.00
(A2+B2+C2+D2)
1. The DEVELOPER shall be entitled to sixty percent (60%) of the COMPUTATION OF ADD’L. INCOME ON INTEREST
net revenue or income of the Joint Venture project, after deducting
all expenses incurred in connection with the land development (such TCP x 30%
= P 69,360,000 P 69,360,000.00
as administrative management and construction expenses), and D/P
marketing (such as sales, advertising and promotions), and Balance =
= 161,840,000
70%
2. The LANDOWNERS shall be entitled to forty percent (40%) of the x .03069 x
net revenue or income of the Joint Venture project, after deducting = P238,409,740 238,409,740.00
48
all the above-mentioned expenses.8
Total Amount (TCP + int. earn.) P307,769,740.00
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of EXPENSES:
the project: less: A Building expenses P 92,480,000.00

SALES-INCOME-COST PROJECTION B Commission (8% of TCP) 18,496,000.00

Admin. & Mgmt. expenses (2% of
C 4,624,000.00
lawphil.net TCP)
SELLING COST PRICE DIFFERENCE INCOME Advertising & Promo exp. (2% of
PRICE D 4,624,000.00
TCP)
CLUSTER: E Building expenses for the open
A1 1,940,000 x spaces and Amenities (Development
- A2 1,260,000 = = P 46,560,000.00 cost not incl. Housing) 400 x 30,000
3,200,000 24
sqms. 12,000,000.00
TWIN:
B1 1,540,000 x TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00
- B2 960,000 = = 36,960,000.00
2,500,000 24
RECONCILIATION OF INCOME VS. EXPENSES
SINGLE:
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 28

Total Projected Income (incl. income from P307,769,740.00 detached, one completed and two units uncompleted; (bb) cluster houses,
interest earn.) one unit nearing completion; (cc) duplex, two units completed and two units
unfinished; and (dd) row houses, two units, completed; (b) in Phase II
less: 132,224,000.00 thereof, all that was done by the defendants was to grade the area; the units
Total Expenses P175,545,740.009 so far constructed had been the object of numerous complaints by their
owners/purchasers for poor workmanship and the use of sub-standard
The parties agreed that any unsettled or unresolved misunderstanding or materials in their construction, thus, undermining the project’s marketability.
conflicting opinions between the parties relative to the interpretation, scope Plaintiffs also alleged that defendants had, without justifiable reason,
and reach, and the enforcement/implementation of any provision of the completely disregarded previously agreed accounting and auditing
agreement shall be referred to Voluntary Arbitration in accordance with the procedures, checks and balances system installed for the mutual protection
Arbitration Law.10 of both parties, and the scheduled regular meetings were seldom held to the
detriment and disadvantage of plaintiffs. They averred that they sent a letter
through counsel, demanding compliance of what was agreed upon under the
The Lazatins agreed to subject the title over the subject property to an
agreement but defendants refused to heed said demand. After a succession
escrow agreement. Conformably with the escrow agreement, the owner’s
of letters with still no action from defendants, plaintiffs sent a letter on
duplicate of the title was deposited with the China Banking
October 22, 1997, a letter formally rescinding the JVA.
Corporation.11 However, Primelink failed to immediately secure a
Development Permit from Tagaytay City, and applied the permit only on
August 30, 1995. On October 12, 1995, the City issued a Development Plaintiffs also claimed that in a sales-income-costs projection prepared and
Permit to Primelink.12 submitted by defendants, they (plaintiffs) stood to receive the amount
of P70,218,296.00 as their net share in the joint venture project; to date,
however, after almost four (4) years and despite the undertaking in the JVA
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded
that plaintiffs shall initially get 20% of the agreed net revenue during the
that Primelink comply with its obligations under the JVA, otherwise the
first two (2) years (on the basis of the 60%-40% sharing) and their full 40%
appropriate action would be filed against it to protect their rights and
share thereafter, defendants had yet to deliver these shares to plaintiffs
interests. This impelled the officers of Primelink to meet with the Lazatins
which by conservative estimates would amount to no less
and enabled the latter to review its business records/papers. In another
than P40,000,000.00.15
Letter14 dated October 22, 1997, the Lazatins informed Primelink that they
had decided to rescind the JVA effective upon its receipt of the said letter.
The Lazatins demanded that Primelink cease and desist from further Plaintiffs prayed that, after due proceedings, judgment be rendered in their
developing the property. favor, thus:

Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial WHEREFORE, it is respectfully prayed of this Honorable Court that a
Court (RTC) of Tagaytay City, Branch 18, a complaint for rescission temporary restraining order be forthwith issued enjoining the defendants to
accounting and damages, with prayer for temporary restraining order and/or immediately stop their land development, construction and marketing of the
preliminary injunction against Primelink and Lopez. The case was docketed housing units in the aforesaid project; after due proceedings, to issue a writ
as Civil Case No. TG-1776. Plaintiffs alleged, among others, that, despite the of preliminary injunction enjoining and prohibiting said land development,
lapse of almost four (4) years from the execution of the JVA and the delivery construction and marketing of housing units, pending the disposition of the
of the title and possession of the land to defendants, the land development instant case.
aspect of the project had not yet been completed, and the construction of
the housing units had not yet made any headway, based on the following After trial, a decision be rendered:
facts, namely: (a) of the 50 housing units programmed for Phase I, only the
following types of houses appear on the site in these condition: (aa) single
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 29

1. Rescinding the Joint Venture Agreement executed between the b) requiring the plaintiffs to make initiatory step for arbitration by
plaintiffs and the defendants; filing the demand to arbitrate, and then asking the parties to resolve
their controversies, pursuant to the Arbitration Law, or in the
2. Immediately restoring to the plaintiffs possession of the subject alternative;
parcels of land;
c) staying or suspending the proceedings in captioned case until the
3. Ordering the defendants to render an accounting of all income completion of the arbitration, and
generated as well as expenses incurred and disbursement made in
connection with the project; d) denying the plaintiffs’ prayer for the issuance of a temporary
restraining order or writ of preliminary injunction.
4. Making the Writ of Preliminary Injunction permanent;
Other reliefs and remedies just and equitable in the premises are prayed
5. Ordering the defendants, jointly and severally, to pay the plaintiffs for.17
the amount Forty Million Pesos (P40,000,000.00) in actual and/or
compensatory damages; In the meantime, before the expiration of the reglementary period to answer
the complaint, defendants, invoking their counsel’s heavy workload, prayed
6. Ordering the defendants, jointly and severally, to pay the plaintiffs for a 15-day extension18 within which to file their answer. The additional time
the amount of Two Million Pesos (P2,000,000.00) in exemplary prayed for was granted by the RTC.19 However, instead of filing their answer,
damages; defendants prayed for a series of 15-day extensions in eight (8) successive
motions for extensions on the same justification. 20 The RTC again granted
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the additional time prayed for, but in granting the last extension, it warned
the amount equivalent to ten percent (10%) of the total amount due against further extension.21 Despite the admonition, defendants again moved
as and for attorney’s fees; and for another 15-day extension,22 which, this time, the RTC denied. No answer
having been filed, plaintiffs moved to declare the defendants in
default,23 which the RTC granted in its Order24 dated June 24, 1998.
8. To pay the costs of this suit.

On June 25, 1998, defendants filed, via registered mail, their "Answer with
Other reliefs and remedies as are just and equitable are likewise being
Counterclaim and Opposition to the Prayer for the Issuance of a Writ of
prayed for.16
Preliminary Injunction."25 On July 8, 1998, defendants filed a Motion to Set
Aside the Order of Default.26 This was opposed by plaintiffs.27 In an
Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the Order28 dated July 14, 1998, the RTC denied defendants’ motion to set aside
ground that plaintiffs’ complaint was premature, due to their failure to refer the order of default and ordered the reception of plaintiffs’ evidence ex
their complaint to a Voluntary Arbitrator pursuant to the JVA in relation to parte. Defendants filed a motion for reconsideration29 of the July 14, 1998
Section 2 of Republic Act No. 876 before filing their complaint in the RTC. Order, which the RTC denied in its Order30 dated October 21, 1998.
They prayed for the dismissal of the complaint under Section 1(j), Rule 16 of
the Rules of Court:
Defendants thereafter interposed an appeal to the CA assailing the Order
declaring them in default, as well as the Order denying their motion to set
WHEREFORE, it is respectfully prayed that an Order be issued: aside the order of default, alleging that these were contrary to facts of the
case, the law and jurisprudence.31 On September 16, 1999, the appellate
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of court issued a Resolution32 dismissing the appeal on the ground that the
the aforecited Rules of Court, or, in the alternative, Orders appealed from were interlocutory in character and, therefore, not
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 30

appealable. No motion for reconsideration of the Order of the dismissal was undertakings, as well as paragraph III and paragraph V of the JVA. These
filed by defendants. violations are not limited to those made against the plaintiffs alone as it
appears that some of the unit buyers themselves have their own separate
In the meantime, plaintiffs adduced ex parte their testimonial and gripes against the defendants as typified by the letters (Exhibits "G" and "H")
documentary evidence. On April 17, 2000, the RTC rendered a Decision, the of Mr. Emmanuel Enciso.
dispositive part of which reads:
xxxx
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants as follows: Rummaging through the evidence presented in the course of the testimony
of Mrs. Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as
1. Ordering the rescission of the Joint Venture Agreement as of the well as submarkings, pp. 60 to 62, TSN August 6, 1998) this court has
date of filing of this complaint; observed, and is thus convinced, that a pattern of what appears to be a
scheme or plot to reduce and eventually blot out the net income generated
2. Ordering the defendants to return possession, including all from sales of housing units by defendants, has been established. Exhibit "P-
improvements therein, of the real estate property belonging to the 2" is explicit in declaring that, as of September 30, 1995, the joint venture
plaintiffs which is described in, and covered by Transfer Certificate of project earned a net income of about P2,603,810.64. This amount, however,
Title No. T-10848 of the Register of Deeds of Tagaytay City, and was drastically reduced in a subsequent financial report submitted by the
located in Barangay Anulin, City of Tagaytay; defendants to P1,954,216.39. Shortly thereafter, and to the dismay of the
plaintiffs, the defendants submitted an income statement and a balance
sheet (Exhibits "R" and "R-1") indicating a net loss of P5,122,906.39 as of
3. Ordering the defendants to turn over all documents, records or
June 30, 1997.
papers that have been executed, prepared and retained in
connection with any contract to sell or deed of sale of all lots/units
sold during the effectivity of the joint venture agreement; Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs
should have received the sum of P1,041,524.26 representing their 40%
share under paragraph II and V of the JVA. But this was not to be so. Even
4. Ordering the defendants to pay the plaintiffs the sum
before the plaintiffs could get hold of their share as indicated above, the
of P1,041,524.26 representing their share of the net income of
defendants closed the chance altogether by declaring a net loss. The court
the P2,603,810.64 as of September 30, 1995, as stipulated in the
perceives this to be one calculated coup-de-grace that would put to thin air
joint venture agreement;
plaintiffs’ hope of getting their share in the profit under the JVA.
5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the
That this matter had reached the court is no longer a cause for speculation.
amount of P104,152.40;
The way the defendants treated the JVA and the manner by which they
handled the project itself vis-à-vis their partners, the plaintiffs herein, there
6. Ordering the defendants to pay the costs. is bound to be certain conflict as the latter repeatedly would received the
losing end of the bargain.
SO ORDERED.33
Under the intolerable circumstances, the plaintiffs could not have opted for
The trial court anchored its decision on the following findings: some other recourse but to file the present action to enforce their rights. x x
x34
x x x Evidence on record have shown patent violations by the defendants of
the stipulations particularly paragraph II covering Developer’s (defendant)
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 31

On May 15, 2000, plaintiffs filed a Motion for Execution Pending DESPITE APPELLEES’ FAILURE TO PRESENT SUFFICIENT EVIDENCE
Appeal35 alleging defendants’ dilatory tactics for its allowance. This was JUSTIFYING THE SAID RESCISSION.
opposed by defendants.36
V
On May 22, 2000, the RTC resolved the motion for execution pending appeal
in favor of plaintiffs.37 Upon posting a bond of P1,000,000.00 by plaintiffs, a THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE
writ of execution pending appeal was issued on June 20, 2000. 38 RIGHT TO TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR
THEMSELVES ALL THE EXISTING IMPROVEMENTS INTRODUCED THEREIN
Defendants appealed the decision to the CA on the following assignment of BY PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER ALLEGED NOR
errors: PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX
PARTE HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST
I REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE
MARKET VALUE OF APPELLEES’ RAW, UNDEVELOPED AND UNPRODUCTIVE
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS
REFERRING THE COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE
CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY
THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE
PORTLAND CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION EXPENSE OF PRIMELINK.39
COMPANY OF FLORIDA" (19 SCRA 814-815).
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
II
On August 9, 2004, the appellate court rendered a decision affirming, with
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING modification, the appealed decision. The fallo of the decision reads:
APPEAL EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO
JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINK’S STRONG OPPOSITION WHEREFORE, in view of the foregoing, the assailed decision of the Regional
THERETO. Trial Court of Tagaytay City, Branch 18, promulgated on April 17, 2000 in
Civil Case No. TG-1776, is hereby AFFIRMED. Accordingly, Transfer
III Certificate of Title No. T-10848 held for safekeeping by Chinabank pursuant
to the Escrow Agreement is ordered released for return to the plaintiffs-
appellees and conformably with the affirmed decision, the cancellation by the
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION
Register of Deeds of Tagaytay City of whatever annotation in TCT No. 10848
TO QUASH THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION
by virtue of the Joint Venture Agreement, is now proper.
FOR RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS
JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.
SO ORDERED.40
IV
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation,41 the appellate court ruled that, under Philippine law, a joint
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE
venture is a form of partnership and is to be governed by the laws of
AGREEMENT ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE
partnership. The aggrieved parties filed a motion for reconsideration, 42 which
PROJECT AND HAS SPENT MORE OR LESS FORTY MILLION PESOS, AND
the CA denied in its Resolution43 dated March 7, 2005.
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 32

Petitioners thus filed the instant Petition for Review on Certiorari, alleging petitioners argue, that respondents were not entitled to the improvements
that: although petitioner Primelink was declared in default.

1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL They also aver that, under Article 1384 of the New Civil Code, rescission shall
AND REVERSIBLE LEGAL ERROR AND/OR GRAVE ABUSE OF be only to the extent necessary to cover the damages caused and that,
DISCRETION IN ORDERING THE RETURN TO THE RESPONDENTS under Article 1385 of the same Code, rescission creates the obligation to
OF THE PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN return the things which were not object of the contract, together with their
WITHOUT ORDERING/REQUIRING THE RESPONDENTS TO FIRST fruits, and the price with its interest; consequently, it can be effected only
PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN when respondents can return whatever they may be obliged to return.
DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL Respondents who sought the rescission of the JVA must place petitioner
VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS Primelink in the status quo. They insist that respondents cannot rescind and,
FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT? at the same time, retain the consideration, or part of the consideration
received under the JVA. They cannot have the benefits of rescission without
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, assuming its burden. All parties must be restored to their original positions as
OPPRESSIVE AND UNCONSCIONABLE, CONTRARY TO THE TENETS nearly as possible upon the rescission of a contract. In the event that
OF GOOD HUMAN RELATIONS AND VIOLATIVE OF EXISTING LAWS restoration to the status quo is impossible, rescission may be granted if the
AND JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT, UNJUST Court can balance the equities and fashion an appropriate remedy that would
ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES be equitable to both parties and afford complete relief.
MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OF
PROPERTY BELONGING TO ANOTHER?44 Petitioners insist that being defaulted in the court a quo would in no way
defeat their claim for reimbursement because "[w]hat matters is that the
Petitioners maintain that the aforesaid portion of the decision which improvements exist and they cannot be denied."46 Moreover, they point out,
unconditionally awards to respondents "all improvements" on the project the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
without requiring them to pay the value thereof or to reimburse Primelink for Corporation47 cited by the CA is not in point.
all expenses incurred therefore is inherently and essentially illegal and
confiscatory, oppressive and unconscionable, contrary to the tenets of good On the other hand, the CA ruled that although respondents therein (plaintiffs
human relations, and will allow respondents to unjustly enrich themselves at below) did not specifically pray for their takeover of the property and for the
Primelink’s expense. At the time respondents contributed the two parcels of possession of the improvements on the parcels of land, nevertheless,
land, consisting of 30,000 square meters to the joint venture project when respondents were entitled to said relief as a necessary consequence of the
the JVA was signed on March 10, 1994, the said properties were worth not ruling of the trial court ordering the rescission of the JVA. The appellate court
more than P500.00 per square meter, the "price tag" agreed upon the cited the ruling of this Court in the Aurbach case and Article 1838 of the New
parties for the purpose of the JVA. Moreover, before respondents rescinded Civil Code, to wit:
the JVA sometime in October/November 1997, the property had already
been substantially developed as improvements had already been introduced As a general rule, the relation of the parties in joint ventures is governed by
thereon; petitioners had likewise incurred administrative and marketing their agreement. When the agreement is silent on any particular issue, the
expenses, among others, amounting to more or less P40,000,000.00.45 general principles of partnership may be resorted to.48

Petitioners point out that respondents did not pray in their complaint that Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil
they be declared the owners and entitled to the possession of the Code deal with rescissible contracts. What applies is Article 1191 of the New
improvements made by petitioner Primelink on the property; neither did they Civil Code, which reads:
adduce evidence to prove their entitlement to said improvements. It follows,
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 33

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in The legal concept of a joint venture is of common law origin. It has no
case one of the obligors should not comply with what is incumbent upon precise legal definition, but it has been generally understood to mean an
him. organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership,
The injured party may choose between the fulfillment and the rescission of since elements are similar – community of interest in the business, sharing of
the obligation, with the payment of damages in either case. He may also profits and losses, and a mutual right of control. (Blackner v. McDermott,
seek rescission, even after he has chosen fulfillment, if the latter should 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley
become impossible. v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main
distinction cited by most opinions in common law jurisdictions is that the
The court shall decree the rescission claimed, unless there be just cause partnership contemplates a general business with some degree of continuity,
authorizing the fixing of a period. while the joint venture is formed for the execution of a single transaction,
and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d
500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates v.
This is understood to be without prejudice to the rights of third persons who
Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in
have acquired the thing, in accordance with articles 1385 and 1388 and the
this jurisdiction, since under the Civil Code, a partnership may be particular
Mortgage Law.
or universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that, under
They insist that petitioners are not entitled to rescission for the Philippine law, a joint venture is a form of partnership and should thus be
improvements because, as found by the RTC and the CA, it was petitioner governed by the laws of partnership. The Supreme Court has, however,
Primelink that enriched itself at the expense of respondents. Respondents recognized a distinction between these two business forms, and has held
reiterate the ruling of the CA, and argue as follows: that although a corporation cannot enter into a partnership contract, it may,
however, engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos,
PRIMELINK argued that the LAZATINs in their complaint did not allege, did 95 Phil. 906 [1954]; Campos and Lopez – Campos Comments, Notes and
not prove and did not pray that they are and should be entitled to take over Selected Cases, Corporation Code 1981) (Emphasis Supplied)
the development of the project, and that the improvements and existing
structures which were introduced by PRIMELINK after spending more or less The LAZATINs were able to establish fraud on the part of PRIMELINK which,
Forty Million Pesos – be awarded to them. They merely asked in the in the words of the court a quo, was a pattern of what appears to be a
complaint that the joint venture agreement be rescinded, and that the scheme or plot to reduce and eventually blot out the net incomes generated
parcels of land they contributed to the project be returned to them. from sales of housing units by the defendants. Under Article 1838 of the Civil
Code, where the partnership contract is rescinded on the ground of the fraud
PRIMELINK’s argument lacks merit. The order of the court for PRIMELINK to or misrepresentation of one of the parties thereto, the party entitled to
return possession of the real estate property belonging to the LAZATINs rescind is, without prejudice to any other right is entitled to a lien on, or right
including all improvements thereon was not a judgment that was different in of retention of, the surplus of the partnership property after satisfying the
kind than what was prayed for by the LAZATINs. The order to return the partnership liabilities to third persons for any sum of money paid by him for
property with all the improvements thereon is just a necessary consequence the purchase of an interest in the partnership and for any capital or advance
to the order of rescission. contributed by him. In the instant case, the joint venture still has
outstanding liabilities to third parties or the buyers of the property.
As a general rule, the relation of the parties in joint ventures is governed by
their agreement. When the agreement is silent on any particular issue, the It is not amiss to state that title to the land or TCT No. T-10848 which is now
general principles of partnership may be resorted to. In Aurbach v. Sanitary held by Chinabank for safekeeping pursuant to the Escrow Agreement
Wares Manufacturing Corporation, the Supreme Court discussed the executed between Primelink Properties and Development Corporation and
following points regarding joint ventures and partnership: Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as a
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 34

necessary consequence of the order of rescission of contract. The reason for The trial court was not proscribed from placing respondents in possession of
the existence of the Escrow Agreement has ceased to exist when the joint the parcels of land and the improvements on the said parcels of land. It
venture agreement was rescinded.49 bears stressing that the parcels of land, as well as the improvements made
thereon, were contributed by the parties to the joint venture under the JVA,
Respondents stress that petitioners must bear any damages or losses they hence, formed part of the assets of the joint venture.53 The trial court
may have suffered. They likewise stress that they did not enrich themselves declared that respondents were entitled to the possession not only of the
at the expense of petitioners. parcels of land but also of the improvements thereon as a consequence of its
finding that petitioners breached their agreement and defrauded respondents
In reply, petitioners assert that it is unjust and inequitable for respondents to of the net income under the JVA.
retain the improvements even if their share in the P1,041,524.26 of the net
income of the property and the sale of the land were to be deducted from On the second issue, we agree with the CA ruling that petitioner Primelink
the value of the improvements, plus administrative and marketing expenses and respondents entered into a joint venture as evidenced by their JVA
in the total amount of P40,000,000.00. Petitioners will still be entitled to an which, under the Court’s ruling in Aurbach, is a form of partnership, and as
accounting from respondents. Respondents cannot deny the existence and such is to be governed by the laws on partnership.
nature of said improvements as they are visible to the naked eye.
When the RTC rescinded the JVA on complaint of respondents based on the
The threshold issues are the following: (1) whether respondents are entitled evidence on record that petitioners willfully and persistently committed a
to the possession of the parcels of land covered by the JVA and the breach of the JVA, the court thereby dissolved/cancelled the
improvements thereon introduced by petitioners as their contribution to the partnership.54 With the rescission of the JVA on account of petitioners’
JVA; (2) whether petitioners are entitled to reimbursement for the value of fraudulent acts, all authority of any partner to act for the partnership is
the improvements on the parcels of land. terminated except so far as may be necessary to wind up the partnership
affairs or to complete transactions begun but not yet finished. 55 On
The petition has no merit. dissolution, the partnership is not terminated but continues until the winding
up of partnership affairs is completed.56 Winding up means the
administration of the assets of the partnership for the purpose of terminating
On the first issue, we agree with petitioners that respondents did not
the business and discharging the obligations of the partnership.
specifically pray in their complaint below that possession of the
improvements on the parcels of land which they contributed to the JVA be
transferred to them. Respondents made a specific prayer in their complaint The transfer of the possession of the parcels of land and the improvements
that, upon the rescission of the JVA, they be placed in possession of the thereon to respondents was only for a specific purpose: the winding up of
parcels of land subject of the agreement, and for other "reliefs and such partnership affairs, and the partition and distribution of the net partnership
other remedies as are just and equitable in the premises." However, the trial assets as provided by law.57 After all, Article 1836 of the New Civil Code
court was not precluded from awarding possession of the improvements on provides that unless otherwise agreed by the parties in their JVA,
the parcels of land to respondents in its decision. Section 2(c), Rule 7 of the respondents have the right to wind up the partnership affairs:
Rules of Court provides that a pleading shall specify the relief sought but it
may add as general prayer for such further or other relief as may be deemed Art. 1836. Unless otherwise agreed, the partners who have not wrongfully
just and equitable. Even without the prayer for a specific remedy, proper dissolved the partnership or the legal representative of the last surviving
relief may be granted by the court if the facts alleged in the complaint and partner, not insolvent, has the right to wind up the partnership affairs,
the evidence introduced so warrant.50 The court shall grant relief warranted provided, however, that any partner, his legal representative or his assignee,
by the allegations and the proof even if no such relief is prayed for.51 The upon cause shown, may obtain winding up by the court.
prayer in the complaint for other reliefs equitable and just in the premises
justifies the grant of a relief not otherwise specifically prayed for. 52
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 35

It must be stressed, too, that although respondents acquired possession of (3) A partner who has caused the dissolution wrongfully shall have:
the lands and the improvements thereon, the said lands and improvements
remained partnership property, subject to the rights and obligations of the (a) If the business is not continued under the provisions of
parties, inter se, of the creditors and of third parties under Articles 1837 and the second paragraph, No. 2, all the rights of a partner
1838 of the New Civil Code, and subject to the outcome of the settlement of under the first paragraph, subject to liability for damages in
the accounts between the parties as provided in Article 1839 of the New Civil the second paragraph, No. 1(b), of this article.
Code, absent any agreement of the parties in their JVA to the
contrary.58 Until the partnership accounts are determined, it cannot be (b) If the business is continued under the second paragraph,
ascertained how much any of the parties is entitled to, if at all. No. 2, of this article, the right as against his co-partners and
all claiming through them in respect of their interests in the
It was thus premature for petitioner Primelink to be demanding that it be partnership, to have the value of his interest in the
indemnified for the value of the improvements on the parcels of land owned partnership, less any damage caused to his co-partners by
by the joint venture/partnership. Notably, the JVA of the parties does not the dissolution, ascertained and paid to him in cash, or the
contain any provision designating any party to wind up the affairs of the payment secured by a bond approved by the court, and to
partnership. be released from all existing liabilities of the partnership; but
in ascertaining the value of the partner’s interest the value
Thus, under Article 1837 of the New Civil Code, the rights of the parties of the good-will of the business shall not be considered.
when dissolution is caused in contravention of the partnership agreement are
as follows: And under Article 1838 of the New Civil Code, the party entitled to rescind is,
without prejudice to any other right, entitled:
(1) Each partner who has not caused dissolution wrongfully shall
have: (1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership liabilities to third
(a) All the rights specified in the first paragraph of this persons for any sum of money paid by him for the purchase of an
article, and interest in the partnership and for any capital or advances
contributed by him;
(b) The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the (2) To stand, after all liabilities to third persons have been satisfied,
agreement. in the place of the creditors of the partnership for any payments
made by him in respect of the partnership liabilities; and
(2) The partners who have not caused the dissolution wrongfully, if
they all desire to continue the business in the same name either by (3) To be indemnified by the person guilty of the fraud or making
themselves or jointly with others, may do so, during the agreed term the representation against all debts and liabilities of the partnership.
for the partnership and for that purpose may possess the partnership
property, provided they secure the payment by bond approved by The accounts between the parties after dissolution have to be settled as
the court, or pay to any partner who has caused the dissolution provided in Article 1839 of the New Civil Code:
wrongfully, the value of his interest in the partnership at the
dissolution, less any damages recoverable under the second Art. 1839. In settling accounts between the partners after dissolution, the
paragraph, No. 1(b) of this article, and in like manner indemnify him following rules shall be observed, subject to any agreement to the contrary:
against all present or future partnership liabilities.
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 36

(1) The assets of the partnership are: creditors on individual property, saving the rights of lien or secured
creditors.
(a) The partnership property,
(9) Where a partner has become insolvent or his estate is insolvent,
(b) The contributions of the partners necessary for the the claims against his separate property shall rank in the following
payment of all the liabilities specified in No. 2. order:

(2) The liabilities of the partnership shall rank in order of payment, (a) Those owing to separate creditors;
as follows:
(b) Those owing to partnership creditors;
(a) Those owing to creditors other than partners,
(c) Those owing to partners by way of contribution.
(b) Those owing to partners other than for capital and
profits, IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are
(c) Those owing to partners in respect of capital, AFFIRMED insofar as they conform to this Decision of the Court.

(d) Those owing to partners in respect of profits. Costs against petitioners.

(3) The assets shall be applied in the order of their declaration in No. SO ORDERED.
1 of this article to the satisfaction of the liabilities.
ROMEO J. CALLEJO, SR.
(4) The partners shall contribute, as provided by article 1797, the Associate Justice
amount necessary to satisfy the liabilities.

(5) An assignee for the benefit of creditors or any person appointed

by the court shall have the right to enforce the contributions
specified in the preceding number.

(6) Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the
amount which he has paid in excess of his share of the liability.

(7) The individual property of a deceased partner shall be liable for

the contributions specified in No. 4.

(8) When partnership property and the individual properties of the

partners are in possession of a court for distribution, partnership
creditors shall have priority on partnership property and separate
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 37

G.R. No. 97212. June 30, 1993.* (Rhodora Bendal, et al.) but also the new partnership itself which continued
the business of the old, dissolved, one, are liable for the debts of the
BENJAMIN YU, petitioner, vs. NATIONAL LABOR RELATIONS preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, the Court
COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
held that under facts very similar to those in the case at bar, a withdrawing
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU partner remains liable to a third party creditor of the old partnership.
SHIAN JENG and CHEN HO-FU, respondents.
Same; Same; Same; Creditors of the old Jade Mountain are also creditors of
Labor Law; Corporation Law; Partnership; Court agrees with the result
the New Jade Mountain which continued the business of the old one without
reached by the NLRC that the legal effect of the changes in the membership
liquidation of the partnership affairs.—Under Article 1840 above, creditors of
of the partnership was the dissolution of the old partnership.—In respect of
the old Jade Mountain are also creditors of the new Jade Mountain which
the first issue, we agree with the result reached by the NLRC, that is, that
continued the business of the old one without liquidation of the partnership
the legal effect of the changes in the membership of the partnership was the affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin
dissolution of the old partnership which had hired petitioner in 1984 and the
Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis
emergence of a new firm composed of Willy Co and Emmanuel Zapanta in
any claim of any retired or previous partner insofar as such retired partner’s
1987.
interest in the dissolved partnership is concerned.
Same; Same; Same; Occurrence of events which precipitate the legal
Same; Same; Same; The new partnership is entitled to appoint and hire a
consequence of dissolution of a partnership do not automatically result in the
new general or assistant general manager to run the affairs of the business
termination of the legal personality of the old partnership.—The occurrence enterprise taken over.—It is at the same time also evident to the Court that
of events which precipitate the legal consequence of dissolution of a
the new partnership was entitled to appoint and hire a new general or
partnership do not, however, automatically result in the termination of the
assistant general manager to run the affairs of the business enterprise taken
legal personality of the old partnership.
over. An assistant general manager belongs to the most senior ranks of
Same; Same; Same; The legal personality of the expiring partnership persists management and a new partnership is entitled to appoint a top manager of
for the limited purpose of winding up and closing of the affairs of the its own choice and confidence. The non-retention of Benjamin Yu as
partnership.—In the ordinary course of events, the legal personality of the Assistant General Manager did not therefore constitute unlawful termination,
expiring partnership persists for the limited purpose of winding up and or termination without just or authorized cause. We think that the precise
closing of the affairs of the partnership. In the case at bar, it is important to authorized cause for termination in the case at bar was redundancy.
underscore the fact that the business of the old partnership was simply
PETITION for certiorari to review the resolution of the National Labor
continued by the new partners, without the old partnership undergoing the
Relations Commission.
procedures relating to dissolution and winding up of its business affairs. In
other words, the new partnership simply took over the business enterprise The facts are stated in the opinion of the Court.
owned by the preceding partnership, and continued using the old name of
Jose C. Guico, Jr. for petitioner.
Jade Mountain Products Company Limited, without winding up the business
affairs of the old partnership, paying off its debts, liquidating and distributing Wilfredo Cortez for private respondents.
its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. FELICIANO, J.:

Same; Same; Same; A withdrawing partner remains liable to a third party Petitioner Benjamin Yu was formerly the Assistant General Manager of the
creditor of the old partnership.—What is important for present purposes is marble quarrying and export business operated by a registered partnership
that, under the above described situation, not only the retiring partners with the firm name of “Jade Mountain Products Company Limited” (“Jade
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 38

Mountain”). The partnership was originally organized on 28 June 1984 with including petitioner’s unpaid salaries. Petitioner was in fact not allowed to
Lea Bendal and Rhodora Bendal as general partners and Chiu Shian Jeng, work anymore in the Jade Mountain business enterprise. His unpaid salaries
Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as remained unpaid.3
limited partners. The partnership business consisted of exploiting a marble
deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal
and recovery of unpaid salaries accruing from November 1984 to October
situated in Bulacan Province, under a Memorandum Agreement dated 26
1988, moral and exemplary damages and attorney’s fees, against Jade
June 1984 with the Cruz spouses.1 The partnership had its main office in
Mountain, Mr. Willy Co and the other private respondents. The partnership
Makati, Metropolitan Manila.
and Willy Co denied petitioner’s charges, contending in the main that
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March Benjamin Yu was never hired as an employee by the present or new
1985, as Assistant General Manager with a monthly salary of P4,000.00. partnership.4
According to petitioner Yu, however, he actually received only half of his
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision
stipulated monthly salary, since he had accepted the promise of the partners
holding that petitioner had been illegally dismissed. The Labor Arbiter
that the balance would be paid when the firm shall have secured additional
decreed his reinstatement and awarded him his claim for unpaid salaries,
operating funds from abroad. Benjamin Yu actually managed the operations
backwages and attorney’s fees.5
and finances of the business; he had overall supervision of the workers at
the marble quarry in Bulacan and took charge of the preparation of papers On Appeal, the National Labor Relations Commission (“NLRC”) reversed the
relating to the exportation of the firm’s products. decision of the Labor Arbiter and dismissed petitioner’s complaint in a
Resolution dated 29 November 1990. The NLRC held that a new partnership
Sometime in 1988, without the knowledge of Benjamin Yu, the general
consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade
partners Lea Bendal and Rhodora Bendal sold and transferred their interests
Mountain business, that the new partnership had not retained petitioner Yu
in the partnership to private respondent Willy Co and to one Emmanuel
in his original position as Assistant General Manager, and that there was no
Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his
law requiring the new partnership to absorb the employees of the old
interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and
partnership. Benjamin Yu, therefore, had not been illegally dismissed by the
himself, private respondent Willy Co acquired the great bulk of the
new partnership which had simply declined to retain him in his former
partnership interest. The partnership now constituted solely by Willy Co and
managerial position or any other position. Finally, The NLRC held that
Emmanuel Zapanta continued to use the old firm name of Jade Mountain,
Benjamin Yu’s claim for unpaid wages should be asserted against the original
though they moved the firm’s main office from Makati to Mandaluyong,
members of the preceding partnership, but these though impleaded had,
Metropolitan Manila. A Supplement to the Memorandum Agreement relating
to the operation of the marble quarry was entered into with the Cruz spouses apparently, not been served with summons in the proceedings before the
Labor Arbiter.6
in February of 1988.2 The actual operations of the business enterprise
continued as before. All the employees of the partnership continued working Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari,
in the business, all, save petitioner Benjamin Yu as it turned out. asking us to set aside and annul the Resolution of the NLRC as a product of
grave abuse of discretion amounting to lack or excess of jurisdiction.
On 16 November 1987, having learned of the transfer of the firm’s main
office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the The basic contention of petitioner is that the NLRC has overlooked the
Mandaluyong office for work and there met private respondent Willy Co for principle that a partnership has a juridical personality separate and distinct
the first time. Petitioner was informed by Willy Co that the latter had bought from that of each of its members. Such independent legal personality
the business from the original partners and that it was for him to decide subsists, petitioner claims, notwithstanding changes in the identities of the
whether or not he was responsible for the obligations of the old partnership, partners. Consequently, the employment contract between Benjamin Yu and
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 39

the partnership Jade Mountain could not have been affected by changes in xxx xxx xxx”
the latter’s membership.7
(Emphasis supplied)
Two (2) main issues are thus posed for our consideration in the case at bar:
In the case at bar, just about all of the partners had sold their partnership
(1) whether the partnership which had hired petitioner Yu as Assistant
interests (amounting to 82% of the total partnership interest) to Mr. Willy Co
General Manager had been extinguished and replaced by a new partnerships
and Emmanuel Zapanta. The record does not show what happened to the
composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new
remaining 18% of the original partnership interest. The acquisition of 82% of
partnership had come into existence, whether petitioner Yu could
the partnership interest by new partners, coupled with the retirement or
nonetheless assert his rights under his employment contract as against the
withdrawal of the partners who had originally owned such 82% interest, was
new partnership.
enough to constitute a new partnership.
In respect of the first issue, we agree with the result reached by the NLRC,
The occurrence of events which precipitate the legal consequence of
that is, that the legal effect of the changes in the membership of the
dissolution of a partnership do not, however, automatically result in the
partnership was the dissolution of the old partnership which had hired
termination of the legal personality of the old partnership. Article 1829 of the
petitioner in 1984 and the emergence of a new firm composed of Willy Co
Civil Code states that:
and Emmanuel Zapanta in 1987.
“[o]n dissolution the partnership is not terminated, but continues until the
The applicable law in this connection—of which the NLRC seemed quite
winding up of partnership affairs is completed.”
unaware—is found in the Civil Code provisions relating to partnerships.
Article 1828 of the Civil Code provides as follows: In the ordinary course of events, the legal personality of the expiring
partnership persists for the limited purpose of winding up and closing of the
“Art. 1828. The dissolution of a partnership is the change in the relation of
affairs of the partnership. In the case at bar, it is important to underscore
the partners caused by any partner ceasing to be associated in the carrying
on as distinguished from the winding up of the business.” (Emphasis the fact that the business of the old partnership was simply continued by the
new partners, without the old partnership undergoing the procedures
supplied)
relating to dissolution and winding up of its business affairs. In other words,
Article 1830 of the same Code must also be noted: the new partnership simply took over the business enterprise owned by the
preceding partnership, and continued using the old name of Jade Mountain
Products Company Limited, without winding up the business affairs of the old
“Art. 1830. Dissolution is caused: partnership, paying off its debts, liquidating and distributing its net assets,
and then re-assembling the said assets or most of them and opening a new
(1) without violation of the agreement between the partners: business enterprise. There were, no doubt, powerful tax considerations
which underlay such an informal approach to business on the part of the
xxx xxx xxx
retiring and the incoming partners. It is not, however, necessary to inquire
(b) by the express will of any partner, who must act in good faith, when no into such matters.
definite term or particular undertaking is specified;
What is important for present purposes is that, under the above described
xxx xxx xxx situation, not only the retiring partners (Rhodora Bendal, et al.) but also the
new partnership itself which continued the business of the old, dissolved,
(2) in contravention of the agreement between the partners, where the one, are liable for the debts of the preceding partnership. In Singson, et al.
circumstances do not permit a dissolution under any other provision of this v. Isabela Saw Mill, et al.,8 the Court held that under facts very similar to
article, by the express will of any partner at any time;
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 40

those in the case at bar, a withdrawing partner remains liable to a third party When the business of a partnership after dissolution is continued under any
creditor of the old partnership.9 The liability of the new partnership, upon conditions set forth in this article the creditors of the retiring or deceased
the other hand, in the set of circumstances obtaining in the case at bar, is partner or the representative of the deceased partner, have a prior right to
established in Article 1840 of the Civil Code which reads as follows: any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business on account
“Art. 1840. In the following cases creditors of the dissolved partnership are
of the retired or deceased partner’s interest in the dissolved partnership or
also creditors of the person or partnership continuing the business:
on account of any consideration promised for such interest or for his right in
(1)When any new partner is admitted into an existing partnership, or when partnership property.
any partner retires and assigns (or the representative of the deceased
Nothing in this article shall be held to modify any right of creditors to set
partner assigns) his rights in partnership property to two or more of the
aside any assignment on the ground of fraud.
partners, or to one or more of the partners and one or more third persons, if
the business is continued without liquidation of the partnership affairs; xxx xxx xxx

(2)When all but one partner retire and assign (or the representative of a (Emphasis supplied)
deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of Under Article 1840 above, creditors of the old Jade Mountain are also
creditors of the new Jade Mountain which continued the business of the old
partnership affairs, either alone or with others;
one without liquidation of the partnership affairs. Indeed, a creditor of the
(3)When any partner retires or dies and the business of the dissolved old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for
partnership is continued as set forth in Nos. 1 and 2 of this Article, with the unpaid wages, is entitled to priority vis-a-vis any claim of any retired or
consent of the retired partners or the representative of the deceased previous partner insofar as such retired partner’s interest in the dissolved
partner, but without any assignment of his right in partnership property; partnership is concerned. It is not necessary for the Court to determine
under which one or more of the above six (6) paragraphs, the case at bar
(4)When all the partners or their representatives assign their rights in
would fall, if only because the facts on record are not detailed with sufficient
partnership property to one or more third persons who promise to pay the precision to permit such determination. It is, however, clear to the Court that
debts and who continue the business of the dissolved partnership;
under Article 1840 above, Benjamin Yu is entitled to enforce his claim for
(5)When any partner wrongfully causes a dissolution and remaining partners unpaid salaries, as well as other claims relating to his employment with the
continue the business under the provisions of article 1837, second previous partnership, against the new Jade Mountain.
paragraph, No. 2, either alone or with others, and without liquidation of the
It is at the same time also evident to the Court that the new partnership was
partnership affairs;
entitled to appoint and hire a new general or assistant general manager to
(6)When a partner is expelled and the remaining partners continue the run the affairs of the business enterprise taken over. An assistant general
business either alone or with others without liquidation of the partnership manager belongs to the most senior ranks of management and a new
affairs; partnership is entitled to appoint a top manager of its own choice and
confidence. The non-retention of Benjamin Yu as Assistant General Manager
The liability of a third person becoming a partner in the partnership did not therefore constitute unlawful termination, or termination without just
continuing the business, under this article, to the creditors of the dissolved or authorized cause. We think that the precise authorized cause for
partnership shall be satisfied out of the partnership property only, unless termination in the case at bar was redundancy.10 The new partnership had
there is a stipulation to the contrary. its own new General Manager, apparently Mr. Willy Co, the principal new
owner himself, who personally ran the business of Jade Mountain. Benjamin
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 41

Yu’s old position as Assistant General Manager thus became superfluous or November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is
redundant.11 It follows that petitioner Benjamin Yu is entitled to separation hereby ENTERED requiring private respondent Jade Mountain Products
pay at the rate of one month’s pay for each year of service that he had Company Limited to pay to petitioner Benjamin Yu the following amounts:
rendered to the old partnership, a fraction of at least six (6) months being
considered as a whole year. (a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six (36)
While the new Jade Mountain was entitled to decline to retain petitioner months (November 1984 to December 1987) in the total amount of
Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily P72,000.00;
treated by the new partnership. The old partnership certainly benefitted from
(b)separation pay computed at the rate of P4,000.00 monthly pay multiplied
the services of Benjamin
by three (3) years of service or a total of P12,000.00;
Yu who, as noted, previously ran the whole marble quarrying, processing
(c)indemnity for moral damages in the amount of P20,000.00;
and exporting enterprise. His work constituted value-added to the business
itself and therefore, the new partnership similarly benefitted from the labors (d)six percent (6%) per annum legal interest computed on items (a) and (b)
of Benjamin Yu. It is worthy of note that the new partnership did not try to above, commencing on 26 December 1989 and until fully paid; and
suggest that there was any cause consisting of some blameworthy act or
omission on the part of Mr. Yu which compelled the new partnership to (e)ten percent (10%) attorney’s fees on the total amount due from private
terminate his services. Nonetheless, the new Jade Mountain did not notify respondent Jade Mountain.
him of the change in ownership of the business, the relocation of the main
Costs against private respondents.
office of Jade Mountain from Makati to Mandaluyong and the assumption by
Mr. Willy Co of control of operations. The treatment (including the refusal to SO ORDERED.
honor his claim for unpaid wages) accorded to Assistant General Manager
Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad Bidin, Davide, Jr., Romero and Melo, JJ., concur.
faith treatment, for which the new Jade Mountain may legitimately be Petition granted due course. Assailed decision nullified and set aside.
required to respond by paying moral damages. This Court, exercising its
discretion and in view of all the circumstances of this case, believes that an
indemnity for moral damages in the amount of P20,000.00 is proper and
Note.—Withdrawing partner is liable for damages if the cause of withdrawal
reasonable.
is not justified or no cause was given but in no case can he be compelled to
In addition, we consider that petitioner Benjamin Yu is entitled to interest at be in the firm (Rojas vs. Maglana, 192 SCRA 110).
the legal rate of six percent (6%) per annum on the amount of unpaid
——o0o—— Yu vs. National Labor Relations Commission, 224 SCRA 75, G.R.
wages, and of his separation pay, computed from the date of promulgation
No. 97212 June 30, 1993
of the award of the Labor Arbiter. Finally, because the new Jade Mountain
compelled Benjamin Yu to resort to litigation to protect his rights in the
premises, he is entitled to attorneys fees in the amount often percent (10%)
of the total amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED
DUE COURSE, the Comment filed by private respondents is treated as their
Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 42

G.R. No. 126334. November 23, 2001.* Nowhere in the records does it appear that respondents are litigating as
paupers, and as such are exempted from the payment of court fees.
EMILIO EMNACE, petitioner, vs. COURT OF APPEALS, ESTATE OF
VICENTE TABANAO, SHERWIN TABANAO, VICENTE WILLIAM Same; Same; The provision of the third paragraph of Section 5(a), Rule 141
TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO of the Rules of Court clearly contemplates an initial payment of the filing fees
VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents. corresponding to the estimated amount of the claim subject to adjustment as
to what later may be proved.—The rule applicable to the case at bar is
Actions; Docket Fees; Even if the exact value of the partnership’s total assets
Section 5(a) of Rule 141 of the Rules of Court, which defines the two kinds
cannot be shown with certainty at the time of filing, the plaintiffs can and
of claims as: (1) those which are immediately ascertainable; and (2) those
must ascertain, through informed and practical estimation, the amount they
which cannot be immediately ascertained as to the exact amount. This
expect to collect from the partnership, in order to determine the proper
second class of claims, where the exact amount still has to be finally
amount of docket and other fees.—The trial court does not have to employ determined by the courts based on evidence presented, falls squarely under
guesswork in ascertaining the estimated value of the partnership’s assets, for
the third paragraph of said Section 5(a), which provides: In case the value of
respondents themselves voluntarily pegged the worth thereof at Thirty
the property or estate or the sum claimed is less or more in accordance with
Million Pesos (P30,000,000.00). Hence, this case is one which is really not
the appraisal of the court, the difference of fee shall be refunded or paid as
beyond pecuniary estimation, but rather partakes of the nature of a simple
the case may be. (Italics ours) In Pilipinas Shell Petroleum Corporation v.
collection case where the value of the subject assets or amount demanded is
Court of Appeals, this Court pronounced that the above-quoted provision
pecuniarily determinable. While it is true that the exact value of the
“clearly contemplates an initial payment of the filing fees corresponding to
partnership’s total assets cannot be shown with certainty at the time of filing,
the estimated amount of the claim subject to adjustment as to what later
respondents can and must ascertain, through informed and practical
may be proved.” Moreover, we reiterated therein the principle that the
estimation, the amount they expect to collect from the partnership, payment of filing fees cannot be made contingent or dependent on the result
particularly from petitioner, in order to determine the proper amount of
of the case. Thus, an initial payment of the docket fees based on an
docket and other fees. It is thus imperative for respondents to pay the estimated amount must be paid simultaneous with the filing of the
corresponding docket fees in order that the trial court may acquire
complaint. Otherwise, the court would stand to lose the filing fees should the
jurisdiction over the action.
judgment later turn out to be adverse to any claim of the respondent heirs.
Same; Same; Pauper Litigants; A party cannot invoke the third paragraph of
Same; Same; The matter of payment of docket fees is not a mere triviality—
Section 16, Rule 141 of the Rules of Court which allows that the legal fees
the payment of docket fees cannot be made dependent on the outcome of
shall be a lien on the monetary or property judgment that may be rendered
the case, except when the claimant is a pauper-litigant.—The matter of
in favor of such party if he is not a pauper-litigant.—Petitioner, however, payment of docket fees is not a mere triviality. These fees are necessary to
argues that the trial court and the Court of Appeals erred in condoning the
defray court expenses in the handling of cases. Consequently, in order to
non-payment of the proper legal fees and in allowing the same to become a
avoid tremendous losses to the judiciary, and to the government as well, the
lien on the monetary or property judgment that may be rendered in favor of
payment of docket fees cannot be made dependent on the outcome of the
respondents. There is merit in petitioner’s assertion. The third paragraph of
case, except when the claimant is a pauper-litigant.
Section 16, Rule 141 of the Rules of Court states that: The legal fees shall be
a lien on the monetary or property judgment in favor of the pauper-litigant. Same; Same; While the rule is that the payment of the docket fee in the
Respondents cannot invoke the above provision in their favor because it proper amount should be adhered to, there are certain exceptions which
specifically applies to pauper-litigants. must be strictly construed.—Based on the foregoing, the trial court erred in
not dismissing the complaint outright despite their failure to pay the proper
docket fees. Nevertheless, as in other procedural rules, it may be liberally
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 43

construed in certain cases if only to secure a just and speedy disposition of enforcement of, and petitioner’s compliance with, the contract that the
an action. While the rule is that the payment of the docket fee in the proper partners executed to formalize the partnership’s dissolution, as well as to
amount should be adhered to, there are certain exceptions which must be implement the liquidation and partition of the partnership’s assets. Clearly, it
strictly construed. In recent rulings, this Court has relaxed the strict is a personal action that, in effect, claims a debt from petitioner and seeks
adherence to the Manchester doctrine, allowing the plaintiff to pay the the performance of a personal duty on his part. In fine, respondents’
proper docket fees within a reasonable time before the expiration of the complaint seeking the liquidation and partition of the assets of the
applicable prescriptive or reglementary period. partnership with damages is a personal action which may be filed in the
proper court where any of the parties reside. Besides, venue has nothing to
Same; Venue; Partnerships; An action for accounting, payment of
do with jurisdiction for venue touches more upon the substance or merits of
partnership shares, division of assets and damages is a personal action
the case. As it is, venue in this case was properly laid and the trial court
which, under the Rules, may be commenced and tried where the defendant
correctly ruled so.
resides or may be found, or where the plaintiffs reside, at the election of the
latter.—On the matter of improper venue, we find no error on the part of the Same; Parties; Succession; The surviving spouse does not need to be
trial court and the Court of Appeals in holding that the case below is a appointed as executrix or administratrix of the estate before she can file an
personal action which, under the Rules, may be commenced and tried where action based on the rights of her deceased husband—she and her children
the defendant resides or may be found, or where the plaintiffs reside, at the are complainants in their own right as successors, the deceased’s rights
election of the latter. being transmitted to his heirs from the moment of death.—On the third
issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no
Same; Same; Same; If an action is against a partner, on the basis of his
legal capacity to sue since she was never appointed as administratrix or
personal liability, it is an action in personam, and the fact that two of the
executrix of his estate. Petitioner’s objection in this regard is misplaced. The
assets of the partnership are parcels of land does not materially change the surviving spouse does not need to be appointed as executrix or
nature of the action.—Petitioner, however, insists that venue was improperly
administratrix of the estate before she can file the action. She and her
laid since the action is a real action involving a parcel of land that is located children are complainants in their own right as successors of Vicente
outside the territorial jurisdiction of the court a quo. This contention is not
Tabanao. From the very moment of Vicente Tabanao’s death, his rights
well-taken. The records indubitably show that respondents are asking that
insofar as the partnership was concerned were transmitted to his heirs, for
the assets of the partnership be accounted for, sold and distributed
rights to the succession are transmitted from the moment of death of the
according to the agreement of the partners. The fact that two of the assets
decedent. Whatever claims and rights Vicente Tabanao had against the
of the partnership are parcels of land does not materially change the nature
partnership and petitioner were transmitted to respondents by operation of
of the action. It is an action in personam because it is an action against a
law, more particularly by succession, which is a mode of acquisition by virtue
person, namely, petitioner, on the basis of his personal liability. It is not an
of which the property, rights and obligations to the extent of the value of the
action in rem where the action is against the thing itself instead of against
inheritance of a person are transmitted. Moreover, respondents became
the person.Furthermore, there is no showing that the parcels of land owners of their respective hereditary shares from the moment Vicente
involved in this case are being disputed. In fact, it is only incidental that part
Tabanao died.
of the assets of the partnership under liquidation happen to be parcels of
land. Same; Same; Same; The heirs, as successors who stepped into the shoes of
their decedent upon his death, can commence any action originally
Same; Same; Same; A complaint seeking the liquidation and partition of the
pertaining to the decedent.—A prior settlement of the estate, or even the
assets of the partnership with damages is a personal action which may be
appointment of Salvacion Tabanao as executrix or administratrix, is not
filed in the proper court where any of the parties reside.—The action filed by necessary for any of the heirs to acquire legal capacity to sue. As successors
respondents not only seeks redress against petitioner. It also seeks the
who stepped into the shoes of their decedent upon his death, they can
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 44

commence any action originally pertaining to the decedent. From the Throughout the existence of the partnership, and even after Vicente
moment of his death, his rights as a partner and to demand fulfillment of Tabanao’s untimely demise in 1994, petitioner failed to submit to Tabanao’s
petitioner’s obligations as outlined in their dissolution agreement were heirs any statement of assets and liabilities of the partnership, and to render
transmitted to respondents. They, therefore, had the capacity to sue and an accounting of the partnership’s finances. Petitioner also reneged on his
seek the court’s intervention to compel petitioner to fulfill his obligations. promise to turn over to Tabanao’s heirs the deceased’s 1/3 share in the total
assets of the partnership, amounting to P30,000,000.00, or the sum of
Same; Partnerships; Accounting; Prescription; For as long as the partnership
P10,000,000.00, despite formal demand for payment thereof.2
exists, any of the partners may demand an accounting of the partnership’s
business, and prescription of the said right starts to run only upon the Consequently, Tabanao’s heirs, respondents herein, filed against petitioner
dissolution of the partnership when the final accounting is done.—The three an action for accounting, payment of shares, division of assets and
(3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) damages.3 In their complaint, respondents prayed as follows:
termination. The partnership, although dissolved, continues to exist and its
1.Defendant be ordered to render the proper accounting of all the assets and
legal personality is retained, at which time it completes the winding up of its
liabilities of the partnership at bar; and
affairs, including the partitioning and distribution of the net partnership
assets to the partners. For as long as the partnership exists, any of the 2.After due notice and hearing defendant be ordered to pay/
partners may demand an accounting of the partnership’s business. remit/deliver/surrender/yield to the plaintiffs the following:
Prescription of the said right starts to run only upon the dissolution of the
partnership when the final accounting is done. Contrary to petitioner’s A.No less than One Third (1/3) of the assets, properties, dividends, cash,
protestations that respondents’ right to inquire into the business affairs of land(s), fishing vessels, trucks, motor vehicles, and other forms and
the partnership accrued in 1986, prescribing four (4) years thereafter, substance of treasures which belong and/or should belong, had accrued
prescription had not even begun to run in the absence of a final accounting. and/or must accrue to the partnership;

PETITION for review on certiorari of a decision of the Court of Appeals. B.No less than Two Hundred Thousand Pesos (P200,000.00) as moral
damages;
The facts are stated in the opinion of the Court.
C.Attorney’s fees equivalent to Thirty Percent (30%) of the entire
Mirano, Mirano & Associates for petitioner. share/amount/award which the Honorable Court may resolve the plaintiffs as
entitled to plus P1,000.00 for every appearance in court.4
Ivan M. Solidum, Jr. and Renecito S. Novero for private respondents.

YNARES-SANTIAGO, J.: Petitioner filed a motion to dismiss the complaint on the grounds of improper
venue, lack of jurisdiction over the nature of the action or suit, and lack of
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divina-gracia were capacity of the estate of Tabanao to sue.5 On August 30, 1994, the trial
partners in a business concern known as Ma. Nelma Fishing Industry. court denied the motion to dismiss. It held that venue was properly laid
Sometime in January of 1986, they decided to dissolve their partnership and because, while realties were involved, the action was directed against a
executed an agreement of partition and distribution of the partnership particular personon the basis of his personal liability; hence, the action is not
properties among them, consequent to Jacinto Divinagracia’s withdrawal only a personal action but also an action in personam. As regards petitioner’s
from the partnership.1 Among the assets to be distributed were five (5) argument of lack of jurisdiction over the action because the prescribed
fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño docket fee was not paid considering the huge amount involved in the claim,
and Talisay, Negros Occidental, and cash deposits in the local branches of the trial court noted that a request for accounting was made in order that
the Bank of the Philippine Islands and Prudential Bank. the exact value of the partnership may be ascertained and, thus, the correct
docket fee may be paid. Finally, the trial court held that the heirs of Tabanao
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 45

had a right to sue in their own names, in view of the provision of Article 777 discretion amounting to lack or excess of jurisdiction was committed by the
of the Civil Code, which states that the rights to the succession are trial court in issuing the questioned orders denying petitioner’s motions to
transmitted from the moment of the death of the decedent.6 dismiss.

The following day, respondents filed an amended complaint,7 incorporating Not satisfied, petitioner filed the instant petition for review, raising the same
the additional prayer that petitioner be ordered to “sell all (the partnership’s) issues resolved by the Court of Appeals, namely:
assets and thereafter pay/remit/deliver/surrender/yield to the plaintiffs” their
I.Failure to pay the proper docket fee;
corresponding share in the proceeds thereof. In due time, petitioner filed a
manifestation and motion to dismiss,8 arguing that the trial court did not II.Parcel of land subject of the case pending before the trial court is outside
acquire jurisdiction over the case due to the plaintiffs’ failure to pay the the said court's territorial jurisdiction;
proper docket fees. Further, in a supplement to his motion to dismiss,9
petitioner also raised prescription as an additional ground warranting the III.Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao;
outright dismissal of the complaint. and

On June 15, 1995, the trial court issued an Order,10 denying the motion to IV.Prescription of the plaintiff heirs’ cause of action.
dismiss inasmuch as the grounds raised therein were basically the same as
It can be readily seen that respondents’ primary and ultimate objective in
the earlier motion to dismiss which has been denied. Anent the issue of
instituting the action below was to recover the decedent’s 1/3 share in the
prescription, the trial court ruled that prescription begins to run only upon
partnership’s assets. While they ask for an accounting of the partnership’s
the dissolution of the partnership when the final accounting is done. Hence,
assets and finances, what they are actually asking is for the trial court to
prescription has not set in the absence of a final accounting. Moreover, an
compel petitioner to pay and turn over their share, or the equivalent value
action based on a written contract prescribes in ten years from the time the
thereof, from the proceeds of the sale of the partnership assets. They also
right of action accrues.Petitioner filed a petition for certiorari before the
assert that until and unless a proper accounting is done, the exact value of
Court of Appeals,11raising the following issues:
the partnership’s assets, as well as their corresponding share therein, cannot
I.Whether or not respondent Judge acted without jurisdiction or with grave be ascertained. Consequently, they feel justified in not having paid the
abuse of discretion in taking cognizance of a case despite the failure to pay commensurate docket fee as required by the Rules of Court.
the required docket fee;
We do not agree. The trial court does not have to employ guesswork in
II.Whether or not respondent Judge acted without jurisdiction or with grave ascertaining the estimated value of the partnership’s assets, for respondents
abuse of discretion in insisting to try the case which involve (sic) a parcel of themselves voluntarily pegged the worth thereof at Thirty Million Pesos
land situated outside of its territorial jurisdiction; (P30,000,000.00). Hence, this case is one which is really not beyond
pecuniary estimation, but rather partakes of the nature of a simple collection
III.Whether or not respondent Judge acted without jurisdiction or with grave case where the value of the subject assets or amount demanded is
abuse of discretion in allowing the estate of the deceased to appear as party pecuniarily determinable.13 While it is true that the exact value of the
plaintiff, when there is no intestate case and filed by one who was never partnership’s total assets cannot be shown with certainty at the time of filing,
appointed by the court as administratrix of the estates; and respondents can and must ascertain, through informed and practical
estimation, the amount they expect to collect from the partnership,
IV.Whether or not respondent Judge acted without jurisdiction or with grave
particularly from petitioner, in order to determine the proper amount of
abuse of discretion in not dismissing the case on the ground of prescription.
docket and other fees.14 It is thus imperative for respondents to pay the
On August 8, 1996, the Court of Appeals rendered the assailed decision,12 corresponding docket fees in order that the trial court may acquire
dismissing the petition for certiorari, upon a finding that no grave abuse of jurisdiction over the action.15
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Nevertheless, unlike in the case of Manchester Development Corp. v. Court In Pilipinas Shell Petroleum Corporation v. Court of Appeals,19 this Court
of Appeals,16 where there was clearly an effort to defraud the government pronounced that the above-quoted provision “clearly contemplates an initial
in avoiding to pay the correct docket fees, we see no attempt to cheat the payment of the filing fees corresponding to the estimated amount of the
courts on the part of respondents. In fact, the lower courts have noted their claim subject to adjustment as to what later may be proved.”20 Moreover,
expressed desire to remit to the court “any payable balance or lien on we reiterated therein the principle that the payment of filing fees cannot be
whatever award which the Honorable Court may grant them in this case made contingent or dependent on the result of the case. Thus, an initial
should there be any deficiency in the payment of the docket fees to be payment of the docket fees based on an estimated amount must be paid
computed by the Clerk of Court.”17 There is evident willingness to pay, and simultaneous with the filing of the complaint. Otherwise, the court would
the fact that the docket fee paid so far is inadequate is not an indication that stand to lose the filing fees should the judgment later turn out to be adverse
they are trying to avoid paying the required amount, but may simply be due to any claim of the respondent heirs.
to an inability to pay at the time of filing. This consideration may have
The matter of payment of docket fees is not a mere triviality. These fees are
moved the trial court and the Court of Appeals to declare that the unpaid
necessary to defray court expenses in the handling of cases. Consequently,
docket fees shall be considered a lien on the judgment award.
in order to avoid tremendous losses to the judiciary, and to the government
Petitioner, however, argues that the trial court and the Court of Appeals as well, the payment of docket fees cannot be made dependent on the
erred in condoning the non-payment of the proper legal fees and in allowing outcome of the case, except when the claimant is a pauper-litigant.
the same to become a lien on the monetary or property judgment that may
Applied to the instant case, respondents have a specific claim—1/3 of the
be rendered in favor of respondents. There is merit in petitioner’s assertion.
value of all the partnership assets—but they did not allege a specific amount.
The third paragraph of Section 16, Rule 141 of the Rules of Court states
They did, however, estimate the partnership’s total assets to be worth Thirty
that:
Million Pesos (P30,000,000.00), in a letter21 addressed to petitioner.
The legal fees shall be a lien on the monetary or property judgment in favor Respondents cannot now say that they are unable to make an estimate, for
of the pauper-litigant. the said letter and the admissions therein form part of the records of this
case. They cannot avoid paying the initial docket fees by conveniently
Respondents cannot invoke the above provision in their favor because it
omitting the said amount in their amended complaint. This estimate can be
specifically applies to pauper-litigants. Nowhere in the records does it appear
made the basis for the initial docket fees that respondents should pay. Even
that respondents are litigating as paupers, and as such are exempted from
if it were later established that the amount proved was less or more than the
the payment of court fees.18
amount alleged or estimated, Rule 141, Section 5 (a) of the Rules of Court
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules specifically provides that the court may refund the excess or exact additional
of Court, which defines the two kinds of claims as: (1) those which are fees should the initial payment be insufficient. It is clear that it is only the
immediately ascertainable; and (2) those which cannot be immediately difference between the amount finally awarded and the fees paid upon filing
ascertained as to the exact amount. This second class of claims, where the of this complaint that is subject to adjustment and which may be subjected
exact amount still has to be finally determined by the courts based on to a lien.
evidence presented, falls squarely under the third paragraph of said Section
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano
5(a), which provides:
Asuncion,22 this Court held that when the specific claim “has been left for
In case the value of the property or estate or the sum claimed is less or the determination by the court, the additional filing fee therefor shall
more in accordance with the appraisal of the court, the difference of fee shall constitute a lien on the judgment and it shall be the responsibility of the
be refunded or paid as the case may be. (Italics ours) Clerk of Court or his duly authorized deputy to enforce said lien and assess
and collect the additional fee.” Clearly, the rules and jurisprudence
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 47

contemplate the initial payment of filing and docket fees based on the provided the applicable prescriptive or reglementary period has not yet
estimated claims of the plaintiff, and it is only when there is a deficiency that expired. Failure to comply therewith, and upon motion by petitioner, the
a lien may be constituted on the judgment award until such additional fee is immediate dismissal of the complaint shall issue on jurisdictional grounds.
collected.
On the matter of improper venue, we find no error on the part of the trial
Based on the foregoing, the trial court erred in not dismissing the complaint court and the Court of Appeals in holding that the case below is a personal
outright despite their failure to pay the proper docket fees. Nevertheless, as action which, under the Rules, may be commenced and tried where the
in other procedural rules, it may be liberally construed in certain cases if only defendant resides or may be found, or where the plaintiffs reside, at the
to secure a just and speedy disposition of an action. While the rule is that election of the latter.26
the payment of the docket fee in the proper amount should be adhered to,
Petitioner, however, insists that venue was improperly laid since the action is
there are certain exceptions which must be strictly construed.23
a real action involving a parcel of land that is located outside the territorial
In recent rulings, this Court has relaxed the strict adherence to the jurisdiction of the court a quo. This contention is not well-taken. The records
Manchester doctrine, allowing the plaintiff to pay the proper docket fees indubitably show that respondents are asking that the assets of the
within a reasonable time before the expiration of the applicable prescriptive partnership be accounted for, sold and distributed according to the
or reglementary period.24 agreement of the partners. The fact that two of the assets of the partnership
are parcels of land does not materially change the nature of the action. It is
In the recent case of National Steel Corp. v. Court of Appeals,25 this Court
an action in personam because it is an action against a person, namely,
held that: petitioner, on the basis of his personal liability. It is not an action in rem
The court acquires jurisdiction over the action if the filing of the initiatory where the action is against the thing itself instead of against the person.27
pleading is accompanied by the payment of the requisite fees, or, if the fees Furthermore, there is no showing that the parcels of land involved in this
are not paid at the time of the filing of the pleading, as of the time of full case are being disputed. In fact, it is only incidental that part of the assets of
payment of the fees within such reasonable time as the court may grant, the partnership under liquidation happen to be parcels of land.
unless, of course, prescription has set in the meantime.
The time-tested case of Claridades v. Mercader, et al.,28 settled this issue
It does not follow, however, that the trial court should have dismissed the thus:
complaint for failure of private respondent to pay the correct amount of
The fact that plaintiff prays for the sale of the assets of the partnership,
docket fees. Although the payment of the proper docket fees is a
including the fishpond in question, did not change the nature or character of
jurisdictional requirement, the trial court may allow the plaintiff in an action
the action, such sale being merely a necessary incident of the liquidation of
to pay the same within a reasonable time before the expiration of the
the partnership, which should precede and/or is part of its process of
applicable prescriptive or reglementary period. If the plaintiff fails to comply
dissolution.
within this requirement, the defendant should timely raise the issue of
jurisdiction or else he would be considered in estoppel. In the latter case, the The action filed by respondents not only seeks redress against petitioner. It
balance between the appropriate docket fees and the amount actually paid also seeks the enforcement of, and petitioner’s compliance with, the contract
by the plaintiff will be considered a lien on any award he may obtain in his that the partners executed to formalize the partnership’s dissolution, as well
favor. (Italics ours) as to implement the liquidation and partition of the partnership’s assets.
Clearly, it is a personal action that, in effect, claims a debt from petitioner
Accordingly, the trial court in the case at bar should determine the proper
and seeks the performance of a personal duty on his part.29 In fine,
docket fee based on the estimated amount that respondents seek to collect
respondents’ complaint seeking the liquidation and partition of the assets of
from petitioner, and direct them to pay the same within a reasonable time,
the partnership with damages is a personal action which may be filed in the
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proper court where any of the parties reside.30 Besides, venue has nothing The three (3) final stages of a partnership are: (1) dissolution; (2) winding-
to do with jurisdiction for venue touches more upon the substance or merits up; and (3) termination.36 The partnership, although dissolved, continues to
of the case.31 As it is, venue in this case was properly laid and the trial court exist and its legal personality is retained, at which time it completes the
correctly ruled so. winding up of its affairs, including the partitioning and distribution of the net
partnership assets to the partners.37 For as long as the partnership exists,
On the third issue, petitioner asserts that the surviving spouse of Vicente
any of the partners may demand an accounting of the partnership’s
Tabanao has no legal capacity to sue since she was never appointed as
business. Prescription of the said right starts to run only upon the dissolution
administratrix or executrix of his estate. Petitioner’s objection in this regard is
of the partnership when the final accounting is done.38
misplaced. The surviving spouse does not need to be appointed as executrix
or administratrix of the estate before she can file the action. She and her Contrary to petitioner’s protestations that respondents’ right to inquire into
children are complainants in their own right as successors of Vicente the business affairs of the partnership accrued in 1986, prescribing four (4)
Tabanao. From the very moment of Vicente Tabanao’s death, his rights years thereafter, prescription had not even begun to run in the absence of a
insofar as the partnership was concerned were transmitted to his heirs, for final accounting. Article 1842 of the Civil Code provides:
rights to the succession are transmitted from the moment of death of the
The right to an account of his interest shall accrue to any partner, or his
decedent.32
legal representative as against the winding up partners or the surviving
Whatever claims and rights Vicente Tabanao had against the partnership and partners or the person or partnership continuing the business, at the date of
petitioner were transmitted to respondents by operation of law, more dissolution, in the absence of any agreement to the contrary.
particularly by succession, which is a mode of acquisition by virtue of which
Applied in relation to Articles 1807 and 1809, which also deal with the duty
the property, rights and obligations to the extent of the value of the
to account, the above-cited provision states that the right to demand an
inheritance of a person are transmitted.33 Moreover, respondents became
accounting accrues at the date of dissolution in the absence of any
owners of their respective hereditary shares from the moment Vicente
agreement to the contrary. When a final accounting is made, it is only then
Tabanao died.34
that prescription begins to run. In the case at bar, no final accounting has
A prior settlement of the estate, or even the appointment of Salvacion been made, and that is precisely what respondents are seeking in their
Tabanao as executrix or administratrix, is not necessary for any of the heirs action before the trial court, since petitioner has failed or refused to render
to acquire legal capacity to sue. As successors who stepped into the shoes of an accounting of the partnership’s business and assets. Hence, the said
their decedent upon his death, they can commence any action originally action is not barred by prescription.
pertaining to the decedent.35 From the moment of his death, his rights as a
In fine, the trial court neither erred nor abused its discretion when it denied
partner and to demand fulfillment of petitioner’s obligations as outlined in
petitioner’s motions to dismiss. Likewise, the Court of Appeals did not
their dissolution agreement were transmitted to respondents. They,
commit reversible error in upholding the trial court’s orders. Precious time
therefore, had the capacity to sue and seek the court’s intervention to
has been lost just to settle this preliminary issue, with petitioner resurrecting
compel petitioner to fulfill his obligations.
the very same arguments from the trial court all the way up to the Supreme
Finally, petitioner contends that the trial court should have dismissed the Court. The litigation of the merits and substantial issues of this controversy is
complaint on the ground of prescription, arguing that respondents’ action now long overdue and must proceed without further delay.
prescribed four (4) years after it accrued in 1986. The trial court and the
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for
Court of Appeals gave scant consideration to petitioner’s hollow arguments,
lack of merit, and the case is REMANDED to the Regional Trial Court of Cadiz
and rightly so.
City, Branch 60, which is ORDERED to determine the proper docket fee
based on the estimated amount that plaintiffs therein seek to collect, and
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 49

direct said plaintiffs to pay the same within a reasonable time, provided the
applicable prescriptive or reglementary period has not yet expired.
Thereafter, the trial court is ORDERED to conduct the appropriate
proceedings in Civil Case No. 416-C.

Costs against petitioner.

SO ORDERED.

Davide, Jr. (C.J., Chairman), Puno, Kapunan and Pardo, JJ., concur.

Petition denied, case remanded to trial court.

Notes.—The Supreme Court has uniformly frowned upon appellate courts

entertaining petitions to litigate as pauper, holding that the question of
whether a party-litigant is so poor as to qualify him to litigate as a pauper is
a question of fact which is best determined by the trial court. (Martinez vs.
People, 332 SCRA 694 [2000])

A court acquires jurisdiction over any case only upon payment of the
prescribed docket fee. (Soller vs. Commission on Elections, 339 SCRA 685
[2000])

——o0o——

Emnace vs. Court of Appeals, 370 SCRA 431, G.R. No. 126334 November
23, 2001
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 50

[No. 17024. March 24,1922] recover said part of the fish pond and one-half of the profits received by the
defendant from the fish pond from the year 1913 to 1919, as damages (the
DOMINGO BEARNEZA, plaintiff and appellee, vs. BALBINO amended complaint was filed on April 12, 1920), amounting, according to
DEQUILLA, defendant and appellant.
plaintiff, to the sum of thirteen thousand one hundred pesos (P13,100).
1.PARTNERSHIPS ; DISSOLUTION.—When, in the organization of a
In his answer, the defendant denies generally and specifically the allegations
partnership, none of the mercantile forms has been adopted and, therefore,
of the complaint, and alleges, as special defense, that "the formation of the
the provisions of the Code of Commerce are not applicable to it, said
supposed partnership between the plaintiff and the defendant for the
partnership is dissolved by the death of any of the members, as provided in
exploitation of the aforesaid fish pond was not carried into effect, 6n account
subsection 3 of article 1700 of the Civil Code, unless there is a stipulation to
of the plaintiff having refused to defray the expenses of reconstruction and
the contrary, pursuant to the provisions of article 1704 of the same Code.
exploitation of said fish pond." As another special defense, the defendant
2.ID. ; ID. ; LIQUIDATION.—After the dissolution of a partnership by the alleges "that in the event that the court should hold the plaintiff to be
death of one of its members, its legal status is that of a partnership in entitled to the undivided one-half of the fish pond, claimed in the complaint,
liquidation, and the only rights and interests transmitted to the legal the plaintiff's action has prescribed, the time f or bringing the same having
successor or successors of the said deceased are those resulting in his favor elapsed."
from such liquidation.
Proceedings having been held as usual, the court below rendered judgment,
APPEAL f rom a judgment of the Court of First Instance of Iloilo. Camus, J. declaring the plaintiff owner of one-half of the fish pond, which was
composed of the portions known as "Alimango" and "Dalusan," but without
The facts are stated in the opinion of the court. awarding him any of the damages claimed by him, the same not having been
proven, in the opinion of the court, and ordering the defendant to pay the
C. Lozano and Cecilio I. Lim, for appellant.
costs.
Montinola, Montinola & Hontiveros for appellee.
From this judgment the defendant appeals, making various assignments of
ROMUALDEZ, J.: error. The plaintiff did not appeal from that part of the judgment denying his
claim for damages; hence the only question we are called upon to decide is
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua whether or not the plaintiff has any right to maintain an action for the
Bearneza formed a partnership for the purpose of exploiting a fish pond recovery of one-half of the. said fish pond.
situated in the barrio of Talisay, municipality of Barotac Nuevo, Province of
Iloilo, Perpetua obligating herself to contribute to the payment of the The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to
expenses of the business, which obligation she made good, and both the existence of which the proof contained in the record is conclusive and
agreeing to divide the profits between themselves, which they had been there is no dispute, was of a civil nature. It was a particular partnership, as
doing until the death of the said Perpetua in the year 1912. defined in article 1678 of the CiviJ Code, it having had for its subject-matter
a specified thing, to wit, the exploitation of the aforementioned fish pond.
The deceased left a will in one of the clauses of which she appointed Although, as the trial court says in its decision, the defendant, in his letters
Domingo Bearneza, the herein plaintiff, as her heir to succeed to all her to Perpetua or her husband, makes reference to the fish pond, calling it
rights and interests in the fish pond in question. "our," or "your fish pond," this reference cannot be held to include the land
Demand having been made upon Balbino Dequilla by Domingo Bearneza f or on which the said fish pond was built. It has not been proven that Perpetua
the delivery of the part of the fish pond belonging to his decedent, Perpetua, Bearneza participated in the ownership of said land, and Exhibits 2 and 3 of
and delivery having been refused, Domingo Bearneza brought this action to the defendant show that he has been paying, as exclusive owner of the fish
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 7 P a g e | 51

pond, the land tax thereon, although in Exhibit X he says that the said land The judgment appealed from is modified, the same being affirmed insofar as
belongs to the State. The conclusion, therefore, from the evidence is that the it denies the plaintiff's claim for damages, and reversed insofar as it declares
land on which the fish pond was constructed did not constitute a part of the the said plaintiff owner of one-half of the fish pond, "Alimango" and
subject-matter of the aforesaid partnership. "Dalusan," here in dispute.

Now, this partnership not having been organized in the f orm of a mercantile
partnership, and, theref ore, the provisions of the Code of Commerce not
No special finding as to costs is made. So ordered.
being applicable thereto (article 1670 of the Civil Code), it was dissolved by
the death of Perpetua Bearneza, and falls under the provisions of article Araullo, C. J., Malcolm, Avanceña, Villamor, Ostrand, and Johns, JJ.,
1700, subsection 3, of the same Code, and not under the exception concur.
established in the last paragraph of said article 1700 of the Civil Code.
Judgment modified.
Neither can it be maintained that the partnership continued to exist after the
death of Perpetua, inasmuch as it does not appear that any stipulation to ___________ Bearneza vs. Dequilla, 43 Phil., 237, No. 17024 March 24,
that effect has ever been made by her and the defendant, pursuant to the 1922
provisions of article 1704 of the Code last cited.

The partnership having been dissolved by the death of Perpetua Bearneza,

its subsequent legal status was that of a partnership in liquidation, and the
only rights inherited by her testamentary heir, the herein plaintiff, were those
resulting f rom the said liquidation in f avor of the deceased partner, and
nothing more. Before this liquidation is made, which up to the present has
not been effected, it is impossible to determine what rights or interests, if
any, the deceased had, the partnership bond having been dissolved.

There is no sufficient ground for holding that a community of property

existed between the plaintiff and the defendant, it not being known whether
the deceased still had any interest in the partnership property which could
have been transmitted by will to the plaintiff. There being no community of
property, article 395 of the Civil Code cited by the plaintiff in support of his
contention can have no application to the case at bar.

Neither can it be said that the partnership continued between the plaintiff
and the defendant. It is true that the latter's act in requiring the heirs of
Perpetua to contribute to the payment of the expenses of exploitation of the
aforesaid fishing industry was an attempt to continue the partnership, but it
is also true that neither the said heirs collectively, nor the plaintiff
individually, took any action in response to that requirement, nor made any
promise to that effect, and therefore no new contract of partnership existed.

We find that the plaintiff has not sufficiently shown his right of action.