Dann Fue Leung V. Iac - Lichauco V. Lichauco.docx

G.R. No. 70926 January 31, 1989 DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents. John L. Uy for petitioner. Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.: The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent his share in the annual profits of the said restaurant. This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung. The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed P4,000.00 to its initial establishment. The private respondents evidence is summarized as follows: About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters so that the trial court commissioned an interpreter in the person of Ms. Florence Yap to translate its contents into English. Florence Yap issued a certification and testified that the translation to the best of her knowledge and belief was correct. The private respondent identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (private respondents') presence. Witnesses So Sia and Antonio Ah Heng corroborated the private respondents testimony

to the effect that they were both present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery of his own investment in another amount of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of the trial court granting the private respondents motion for examination of certain documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature of the petitioner appearing in the pay envelopes of employees of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts were indeed the signatures of the petitioner. Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's Equitable Banking Corporation Check No. 13389470B from the profits of the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the China Banking Corporation testified that said check (Exhibit B) was deposited by and duly credited to the private respondents savings account with the bank after it was cleared by the drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation testified that the check in question was in fact and in truth drawn by the petitioner and debited against his own account in said bank. This fact was clearly shown and indicated in the petitioner's statement of account after the check (Exhibit B) was duly cleared. Rana further testified that upon clearance of the check and pursuant to normal banking procedure, said check was returned to the petitioner as the maker thereof. The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His evidence is summarized as follows: The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he was the sole owner of the restaurant, the petitioner presented various government licenses and permits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit G) and the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B). As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive portion of the decision reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to deliver and pay to the former, the sum equivalent to 22% of the annual profit derived from the operation of Sun Wah Panciteria from October, 1955, until fully

1

paid, and attorney's fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)

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

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

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

The motion was granted over the objections of the petitioner. After hearing the trial court rendered an amended decision, the dispositive portion of which reads: FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the plaintiff, which was granted earlier by the Court, is hereby reiterated and the decision rendered by this Court on September 30, 1980, is hereby amended. The dispositive portion of said decision should read now as follows: WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the defendant, ordering the latter to pay the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo) The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The questioned decision was further modified by the appellate court. The dispositive portion of the appellate court's decision reads: WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading as follows: 1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net profit of P2,000.00 a day from judicial demand to May 15, 1971; 2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971 to August 30, 1975; 3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a day. Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102, Rollo)

is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is July 13, 1978. (pp. 105-106, Rollo). In the same resolution, the motion for reconsideration filed by petitioner was denied. Both the trial court and the appellate court found that the private respondent is a partner of the petitioner in the setting up and operations of the panciteria. While the dispositive portions merely ordered the payment of the respondents share, there is no question from the factual findings that the respondent invested in the business as a partner. Hence, the two courts declared that the private petitioner is entitled to a share of the annual profits of the restaurant. The petitioner, however, claims that this factual finding is erroneous. Thus, the petitioner argues: "The complaint avers that private respondent extended 'financial assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in return of which private respondent allegedly will receive a share in the profits of the restaurant. The same complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious error for the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe 'financial assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo) The pertinent portions of the complaint state: xxx xxx xxx 2. That on or about the latter (sic) of September, 1955, defendant sought the financial assistance of plaintiff in operating the defendant's eatery known as Sun Wah Panciteria, located in the given address of defendant; as a return for such financial assistance. plaintiff would be entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria;

2

3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand pesos (P4,000.00), Philippine Currency, of which copy for the receipt of such amount, duly acknowledged by the defendant is attached hereto as Annex "A", and form an integral part hereof; (p. 11, Rollo) In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two percent (22%) of the annual profit derived from the operation of the said panciteria. These allegations, which were proved, make the private respondent and the petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves". Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the appellate court's observation to the effect that "... given its ordinary meaning, financial assistance is the giving out of money to another without the expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for such financial assistance, plaintiff (private respondent) would be entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).

private respondent and So Sia (Exhibits "A" and "D") and compared the signatures on them with the signatures of the petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual examination conducted on the questioned documents, the PC Crime Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D") were the signatures of the petitioner. The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented by the private respondent for marking as exhibits, the petitioner did not interpose any objection. Neither did the petitioner file an opposition to the motion of the private respondent to have these exhibits together with the two receipts examined by the PC Crime Laboratory despite due notice to him. Likewise, no explanation has been offered for his silence nor was any hint of objection registered for that purpose. Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The records sufficiently establish that there was a partnership. The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were ever made by private respondent. The petitioner's argument is based on Article 1144 of the Civil Code which provides: Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract;

The appellate court did not err in declaring that the main issue in the instant case was whether or not the private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria. The petitioner also contends that the respondent court gravely erred in giving probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens used by the PC Crime Laboratory in arriving at the conclusion were never testified to by any witness nor has any witness identified the handwriting in the standards or specimens belonging to the petitioner. The supposed standards or specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the private respondent over the vigorous objection of the petitioner's counsel. The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures in the two receipts issued separately by the petitioner to the

(2) Upon an obligation created by law; (3) Upon a judgment. in relation to Article 1155 thereof which provides: Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extra-judicial demand by the creditor, and when there is any written acknowledgment of the debt by the debtor.' The argument is not well-taken.

3

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

cashier's box, of the money, being the cashier, is that correct?

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

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

A Yes, sir. Q So that every time there is a customer who pays, you were the one who accepted the money and you gave the change, if any, is that correct? A Yes. Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the money?

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

ATTY. HIPOLITO: I see. Q So, in other words, after your job, you huddle or confer together?

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

A Yes, count it all. I total it. We sum it up. Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much is the gross income of the restaurant?

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

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

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

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

Mrs. Licup stated: ATTY. HIPOLITO (direct examination to Mrs. Licup). Q Mrs. Witness, you stated that among your duties was that you were in charge of the custody of the

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

4

Q Now more or less, do you know the cost of the catering service? A Yes, because I am the one who receives the payment also of the catering. Q How much is that? A That ranges from two thousand to six thousand pesos, sir. Q Per service? A Per service, Per catering. Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of P7,000.00 in a regular day? A Yes. Q And ten thousand pesos during pay day.? A Yes. (TSN, pp. 53 to 59, inclusive, November 15,1978) xxx xxx xxx COURT: Any cross? ATTY. UY (counsel for defendant): No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128) The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the cross-examination on the matter of income but he failed to comply with his promise to produce pertinent records. When a subpoenaduces tecum was issued to the petitioner for the production of their records of sale, his counsel voluntarily offered to

bring them to court. He asked for sufficient time prompting the court to cancel all hearings for January, 1981 and reset them to the later part of the following month. The petitioner's counsel never produced any books, prompting the trial court to state: Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in the daily sales book. ledgers, journals and for this purpose, employed a bookkeeper. This inspired the Court to ask counsel for the defendant to bring said records and counsel for the defendant promised to bring those that were available. Seemingly, that was the reason why this case dragged for quite sometime. To bemuddle the issue, defendant instead of presenting the books where the same, etc. were recorded, presented witnesses who claimed to have supplied chicken, meat, shrimps, egg and other poultry products which, however, did not show the gross sales nor does it prove that the same is the best evidence. This Court gave warning to the defendant's counsel that if he failed to produce the books, the same will be considered a waiver on the part of the defendant to produce the said books inimitably showing decisive records on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse if produced." (Rollo, p. 145) The records show that the trial court went out of its way to accord due process to the petitioner. The defendant was given all the chance to present all conceivable witnesses, after the plaintiff has rested his case on February 25, 1981, however, after presenting several witnesses, counsel for defendant promised that he will present the defendant as his last witness. Notably there were several postponement asked by counsel for the defendant and the last one was on October 1, 1981 when he asked that this case be postponed for 45 days because said defendant was then in Hongkong and he (defendant) will be back after said period. The Court acting with great concern and understanding reset the hearing to November 17, 1981. On said date, the counsel for the defendant who again failed to present the defendant asked for another postponement, this time to November 24, 1981 in order to give said defendant another judicial magnanimity and substantial due process. It was however a condition in the order granting the postponement to said date that if the defendant cannot be presented, counsel is deemed to have waived the presentation of said witness and will submit his case for decision. On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-working holiday, so much so, the hearing was reset to December 7 and 22, 1981. On December 7, 1981, on motion of defendant's counsel, the same was again reset to

5

December 22, 1981 as previously scheduled which hearing was understood as intransferable in character. Again on December 22, 1981, the defendant's counsel asked for postponement on the ground that the defendant was sick. the Court, after much tolerance and judicial magnanimity, denied said motion and ordered that the case be submitted for resolution based on the evidence on record and gave the parties 30 days from December 23, 1981, within which to file their simultaneous memoranda. (Rollo, pp. 148-150) The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in the heart of Chinatown where people who buy and sell jewelries, businessmen, brokers, manager, bank employees, and people from all walks of life converge and patronize Sun Wah. There is more than substantial evidence to support the factual findings of the trial court and the appellate court. If the respondent court awarded damages only from judicial demand in 1978 and not from the opening of the restaurant in 1955, it is because of the petitioner's contentions that all profits were being plowed back into the expansion of the business. There is no basis in the records to sustain the petitioners contention that the damages awarded are excessive. Even if the Court is minded to modify the factual findings of both the trial court and the appellate court, it cannot refer to any portion of the records for such modification. There is no basis in the records for this Court to change or set aside the factual findings of the trial court and the appellate court. The petitioner was given every opportunity to refute or rebut the respondent's submissions but, after promising to do so, it deliberately failed to present its books and other evidence.

relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him; xxx xxx xxx (6) Other circumstances render a dissolution equitable. There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution because the continuation of the partnership has become inequitable. WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the partnership of the parties is ordered dissolved. SO ORDERED. Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation shows that the same continues until fully paid. The question now arises as to whether or not the payment of a share of profits shall continue into the future with no fixed ending date. Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil Code which, in part, provides: Art. 1831. On application by or for a partner the court shall decree a dissolution whenever: xxx xxx xxx (3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business; (4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters

6

G.R. No. 126334

November 23, 2001

EMILIO EMNACE, petitioner, vs. COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents. YNARES-SANTIAGO, J.: Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they decided to dissolve their partnership and executed an agreement of partition and distribution of the partnership properties among them, consequent to Jacinto Divinagracia's withdrawal from the partnership.1 Among the assets to be distributed were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of the Philippine Islands and Prudential Bank. Throughout the existence of the partnership, and even after Vicente Tabanao's untimely demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets and liabilities of the partnership, and to render an accounting of the partnership's finances. Petitioner also reneged on his 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 P10,000,000.00, despite formal demand for payment thereof.2 Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for accounting, payment of shares, division of assets and damages.3 In their complaint, respondents prayed as follows: 1. Defendant be ordered to render the proper accounting of all the assets and liabilities of the partnership at bar; and 2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to the plaintiffs the following: A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing vessels, trucks, motor vehicles, and other forms and substance of treasures which belong and/or should belong, had accrued and/or must accrue to the partnership; B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;

C. Attorney's fees equivalent to Thirty Percent (30%) of the entire share/amount/award which the Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every appearance in court.4 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 capacity of the estate of Tabanao to sue.5 On August 30, 1994, the trial court denied the motion to dismiss. It held that venue was properly laid because, while realties were involved, the action was directed against a particular person on the basis of his personal liability; hence, the action is not only a personal action but also an action in personam. As regards petitioner's argument of lack of jurisdiction over the action because the prescribed docket fee was not paid considering the huge amount involved in the claim, the trial court noted that a request for accounting was made in order that 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 had aright to sue in their own names, in view of the provision of Article 777 of the Civil Code, which states that the rights to the succession are transmitted from the moment of the death of the decedent.6 The following day, respondents filed an amended complaint,7 incorporating the additional prayer that petitioner be ordered to "sell all (the partnership's) assets and thereafter pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in the proceeds thereof. In due time, petitioner filed a manifestation and motion to dismiss,8arguing that the trial court did not acquire jurisdiction over the case due to the plaintiffs' failure to pay the proper docket fees. Further, in a supplement to his motion to dismiss,9 petitioner also raised prescription as an additional ground warranting the outright dismissal of the complaint. On June 15, 1995, the trial court issued an Order,10 denying the motion to dismiss inasmuch as the grounds raised therein were basically the same as the earlier motion to dismiss which has been denied. Anent the issue of prescription, the trial court ruled that prescription begins to run only upon the dissolution of the partnership when the final accounting is done. Hence, prescription has not set in the absence of a final accounting. Moreover, an action based on a written contract prescribes in ten years from the time the right of action accrues. Petitioner filed a petition for certiorari before the Court of Appeals,11 raising the following issues: I. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in taking cognizance of a case despite the failure to pay the required docket fee; II. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in insisting to try the case which involve (sic) a parcel of land situated outside of its territorial jurisdiction;

7

III. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in allowing the estate of the deceased to appear as party plaintiff, when there is no intestate case and filed by one who was never appointed by the court as administratrix of the estates; and IV. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in not dismissing the case on the ground of prescription. On August 8, 1996, the Court of Appeals rendered the assailed decision,12 dismissing the petition for certiorari, upon a finding that no grave abuse of discretion amounting to lack or excess of jurisdiction was committed by the trial court in issuing the questioned orders denying petitioner's motions to dismiss. Not satisfied, petitioner filed the instant petition for review, raising the same issues resolved by the Court of Appeals, namely: I.

Failure to pay the proper docket fee;

II. Parcel of land subject of the case pending before the trial court is outside the said court's territorial jurisdiction; III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and IV.

amount of docket and other fees.14 It is thus imperative for respondents to pay the corresponding docket fees in order that the trial court may acquire jurisdiction over the action.15 Nevertheless, unlike in the case of Manchester Development Corp. v. Court of Appeals,16 where there was clearly an effort to defraud the government in avoiding to pay the correct docket fees, we see no attempt to cheat the courts on the part of respondents. In fact, the lower courts have noted their expressed desire to remit to the court "any payable balance or lien on whatever award which the Honorable Court may grant them in this case should there be any deficiency in the payment of the docket fees to be computed by the Clerk of Court."17 There is evident willingness to pay, and the fact that the docket fee paid so far is inadequate is not an indication that they are trying to avoid paying the required amount, but may simply be due to an inability to pay at the time of filing. This consideration may have moved the trial court and the Court of Appeals to declare that the unpaid docket fees shall be considered a lien on the judgment award. Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning the non-payment of the proper legal fees and in allowing the same to become a lien on the monetary or property judgment that may be rendered in favor of respondents. There is merit in petitioner's assertion. The third paragraph of 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.

Prescription of the plaintiff heirs' cause of action.

It can be readily seen that respondents' primary and ultimate objective in instituting the action below was to recover the decedent's 1/3 share in the partnership' s assets. While they ask for an accounting of the partnership' s assets and finances, what they are actually asking is for the trial court to compel petitioner to pay and turn over their share, or the equivalent value thereof, from the proceeds of the sale of the partnership assets. They also assert that until and unless a proper accounting is done, the exact value of the partnership' s assets, as well as their corresponding share therein, cannot be ascertained. Consequently, they feel justified in not having paid the commensurate docket fee as required by the Rules of Court.1âwphi1.nêt We do not agree. The trial court does not have to employ guesswork in ascertaining the estimated value of the partnership's assets, for respondents themselves voluntarily pegged the worth thereof at Thirty Million Pesos (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 case where the value of the subject assets or amount demanded is pecuniarily determinable.13 While it is true that the exact value of the partnership's total assets cannot be shown with certainty at the time of filing, respondents can and must ascertain, through informed and practical estimation, the amount they expect to collect from the partnership, particularly from petitioner, in order to determine the proper

Respondents cannot invoke the above provision in their favor because it specifically applies to pauper-litigants. Nowhere in the records does it appear that respondents are litigating as paupers, and as such are exempted from the payment of court fees.18 The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which defines the two kinds of claims as: (1) those which are immediately ascertainable; and (2) those which cannot be immediately ascertained as to the exact amount. This second class of claims, where the exact amount still has to be finally determined by the courts based on evidence presented, falls squarely under the third paragraph of said Section 5(a), which provides: In case the value of the property or estate or the sum claimed is less or more in accordance with the appraisal of the court, the difference of fee shall be refunded or paid as the case may be. (Underscoring ours) In Pilipinas Shell Petroleum Corporation v. Court of Appeals,19 this Court pronounced that the above-quoted provision "clearly contemplates an Initial payment of the filing fees corresponding to the estimated amount of the claim subject to adjustment as to what later may be proved."20 Moreover, we reiterated therein the principle that the payment of filing fees cannot be made contingent or dependent on the result of the case. Thus, an

8

initial payment of the docket fees based on an estimated amount must be paid simultaneous with the filing of the complaint. Otherwise, the court would stand to lose the filing fees should the judgment later turn out to be adverse to any claim of the respondent heirs. The matter of payment of docket fees is not a mere triviality. These fees are necessary to defray court expenses in the handling of cases. Consequently, in order to avoid tremendous losses to the judiciary, and to the government as well, the payment of docket fees cannot be made dependent on the outcome of the case, except when the claimant is a pauper-litigant. Applied to the instant case, respondents have a specific claim - 1/3 of the value of all the partnership assets - but they did not allege a specific amount. They did, however, estimate the partnership's total assets to be worth Thirty Million Pesos (P30,000,000.00), in a letter21 addressed to petitioner. Respondents cannot now say that they are unable to make an estimate, for 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 omitting the said amount in their amended complaint. This estimate can be made the basis for the initial docket fees that respondents should pay. Even if it were later established that the amount proved was less or more than the amount alleged or estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that the court may refund the 'excess or exact additional fees should the initial payment be insufficient. It is clear that it is only the difference between the amount finally awarded and the fees paid upon filing of this complaint that is subject to adjustment and which may be subjected to alien. In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,22 this Court held that when the specific claim "has been left for the determination by the court, the additional filing fee therefor shall constitute a lien on the judgment and it shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate the initial payment of filing and docket fees based on the estimated claims of the plaintiff, and it is only when there is a deficiency that a lien may be constituted on the judgment award until such additional fee is collected. 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 construed in certain cases if only to secure a just and speedy disposition of an action. While the rule is that the payment of the docket fee in the proper amount should be adhered to, there are certain exceptions which must be strictly construed.23 In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine, allowing the plaintiff to pay the proper docket fees within a reasonable time before the expiration of the applicable prescriptive or reglementary period.24

In the recent case of National Steel Corp. v. Court of Appeals,25 this Court held that: The court acquires jurisdiction over the action if the filing of the initiatory pleading is accompanied by the payment of the requisite fees, or, if the fees are not paid at the time of the filing of the pleading, as of the time of full payment of the fees within such reasonable time as the court may grant, unless, of course, prescription has set in the meantime. It does not follow, however, that the trial court should have dismissed the complaint for failure of private respondent to pay the correct amount of docket fees. Although the payment of the proper docket fees is a jurisdictional requirement, the trial court may allow the plaintiff in an action to pay the same within a reasonable time before the expiration of the applicable prescriptive or reglementary period. If the plaintiff fails to comply 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 balance between the appropriate docket fees and the amount actually paid by the plaintiff will be considered a lien or any award he may obtain in his favor. (Underscoring ours) Accordingly, the trial court in the case at bar should determine the proper docket fee based on the estimated amount that respondents seek to collect from petitioner, and direct them to pay the same within a reasonable time, provided the applicable prescriptive or reglementary period has not yet expired, Failure to comply therewith, and upon motion by petitioner, the immediate dismissal of the complaint shall issue on jurisdictional grounds. On the matter of improper venue, we find no error on the part of the trial court and the Court of Appeals in holding that the case below is a personal action which, under the Rules, may be commenced and tried where the defendant resides or may be found, or where the plaintiffs reside, at the election of the latter.26 Petitioner, however, insists that venue was improperly laid since the action is a real action involving a parcel of land that is located outside the territorial jurisdiction of the court a quo. This contention is not well-taken. The records indubitably show that respondents are asking that the assets of the partnership be accounted for, sold and distributed according to the 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 an action in personam because it is an action against a person, namely, petitioner, on the basis of his personal liability. It is not an action in rem where the action is against the thing itself instead of against the person.27 Furthermore, there is no showing that the parcels of land involved in this case are being disputed. In fact, it is only incidental that part of the assets of the partnership under liquidation happen to be parcels of land. The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus:

9

The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in question, did not change the nature or character of the action, such sale being merely a necessary incident of the liquidation of the partnership, which should precede and/or is part of its process of dissolution. The action filed by respondents not only seeks redress against petitioner. It also seeks the enforcement of, and petitioner's compliance with, the contract that the partners executed to formalize the partnership's dissolution, as well 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 and seeks the performance of a personal duty on his part.29 In fine, respondents' complaint seeking the liquidation and partition of the assets of the partnership with damages is a personal action which may be filed in the proper court where any of the parties reside.30 Besides, venue has nothing to do with jurisdiction for venue touches more upon the substance or merits of the case.31 As it is, venue in this case was properly laid and the trial court correctly ruled so. On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity to sue since she was never appointed as administratrix or executrix of his estate. Petitioner's objection in this regard is 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 children are complainants in their own right as successors of Vicente Tabanao. From the very moment of Vicente Tabanao' s death, his rights insofar as the partnership was concerned were transmitted to his heirs, for rights to the succession are transmitted from the moment of death of the decedent.32 Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were transmitted to respondents by operation of law, more particularly by succession, which is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance of a person are transmitted.33Moreover, respondents became owners of their respective hereditary shares from the moment Vicente Tabanao died.34 A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix or administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As successors who stepped into the shoes of their decedent upon his death, they can commence any action originally pertaining to the decedent.35 From the moment of his death, his rights as a partner and to demand fulfillment of petitioner's obligations as outlined in their dissolution agreement were transmitted to respondents. They, therefore, had the capacity to sue and seek the court's intervention to compel petitioner to fulfill his obligations. Finally, petitioner contends that the trial court should have dismissed the complaint on the ground of prescription, arguing that respondents' action prescribed four (4) years after it accrued in 1986. The trial court and the Court of Appeals gave scant consideration to petitioner's hollow arguments, and rightly so.

The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination.36 The partnership, although dissolved, continues to exist and its legal personality is retained, at which time it completes the 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, any of the partners may demand an accounting of the partnership's business. Prescription of the said right starts to run only upon the dissolution of the partnership when the final accounting is done.38 Contrary to petitioner's protestations that respondents' right to inquire into the business affairs of the partnership accrued in 1986, prescribing four (4) years thereafter, prescription had not even begun to run in the absence of a final accounting. Article 1842 of the Civil Code provides: The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited provision states that the right to demand an accounting accrues at the date of dissolution in the absence of any agreement to the contrary. When a final accounting is made, it is only then that prescription begins to run. In the case at bar, no final accounting has been made, and that is precisely what respondents are seeking in their action before the trial court, since petitioner has failed or refused to render an accounting of the partnership's business and assets. Hence, the said action is not barred by prescription. In fine, the trial court neither erred nor abused its discretion when it denied petitioner's motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in upholding the trial court's orders. Precious time has been lost just to settle this preliminary issue, with petitioner resurrecting the very same arguments from the trial court all the way up to the Supreme Court. The litigation of the merits and substantial issues of this controversy is now long overdue and must proceed without further delay. WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit, and the case isREMANDED to the Regional Trial Court of Cadiz City, Branch 60, which is ORDERED to determine the proper docket fee based on the estimated amount that plaintiffs therein seek to collect, and 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.1âwphi1.nêt SO ORDERED. Davide, Jr., C.J., Puno, Kapunan, Pardo, JJ., concur.

10

G.R. No. 110782. September 25, 1998]

IRMA

IDOS, petitioner, vs. COURT PHILIPPINES, respondents.

OF

APPEALS

and

PEOPLE

OF

THE

DECISION QUISUMBING, J.: Before this Court is the petition for review of the Decision of respondent Court of Appeals[1] dismissing petitioners appeal in CA-G.R. CR No. 11960; and affirming her conviction as well as the sentence imposed on her by the Regional Trial Court of Malolos, Bulacan, in Criminal Case No. 1395-M-88[2] as follows: WHEREFORE . . . the [c]ourt finds the accused Irma Idos guilty beyond reasonable doubt and is hereby sentenced to suffer the penalty of imprisonment of six (6) months and to pay a fine ofP135,000.00 and to pay private complainant Eddie Alarilla the amount of the check in question of P135,000.00 at 12% interest from the time of the filing of the [i]nformation (August 10, 1988) until said amount has been fully paid. Elevated from the Third Division[3] of this Court, the case was accepted for resolution en banc on the initial impression that here, a constitutional question might be involved.[4] It was opined that petitioners sentence, particularly six months imprisonment, might be in violation of the constitutional guarantee against imprisonment for non-payment of a debt.[5] A careful consideration of the issues presented in the petition as well as the comments thereon and the findings of fact by the courts below in the light of applicable laws and precedents convinces us, however, that the constitutional dimension need not be reached in order to resolve those issues adequately. For, as herein discussed, the merits of the petition could be determined without delving into aspects of the cited constitutional guarantee vis--vis provisions of the Bouncing Checks Law (Batas Pambansa Blg. 22). There being no necessity therefor, we lay aside discussions of the constitutional challenge to said law in deciding this petition. The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the complainant below, Eddie Alarilla. As narrated by the Court of Appeals, the background of this case is as follows: The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-appellant Irma L. Idos for use in the latters business of manufacturing leather. In 1985, he joined the accused-appellants business and formed with her a partnership under the style Tagumpay Manufacturing, with offices in Bulacan and Cebu City.

However, the partnership was short lived. In January, 1986 the parties agreed to terminate their partnership. Upon liquidation of the business the partnership had as of May 1986 receivables and stocks worth P1,800,000.00. The complainants share of the assets was P900,000.00 to pay for which the accused-appellant issued the following postdated checks, all drawn against Metrobank Branch in Mandaue, Cebu: CHECK NO. DATE AMOUNT 1) 103110295 8-15-86 P135,828.87 2) 103110294 P135,828.87 3) 103115490 9-30-86 P135,828.87 4) 103115491 10-30-86 P126,656.01 The complainant was able to encash the first, second, and fourth checks, but the third check (Exh. A) which is the subject of this case, was dishonored on October 14, 1986 for insufficiency of funds.The complainant demanded payment from the accused-appellant but the latter failed to pay. Accordingly, on December 18, 1986, through counsel, he made a formal demand for payment. (Exh. B) In a letter dated January 2, 1987, the accused-appellant denied liability. She claimed that the check had been given upon demand of complainant in May 1986 only as assurance of his share in the assets of the partnership and that it was not supposed to be deposited until the stocks had been sold. Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan which on August 22, 1988 filed an information for violation of BP Blg. 22 against accused-appellant. Complainant denied that the checks issued to him by accused-appellant were subject to the disposition of the stocks and the collection of receivables of the business. But the accused-appellant insisted that the complainant had known that the checks were to be funded from the proceeds of the sale of the stocks and the collection of receivables. She claimed that the complainant himself asked for the checks because he did not want to continue in the tannery business and had no use for a share of the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb. 14, 1990; id., p. 14, June 4, 1990). On February 15, 1992, the trial court rendered judgment finding the accusedappellant guilty of the crime charged. The accused-appellants motion for annulment of the decision and for reconsideration was denied by the trial court in its order dated April 12, 1991.[6] Herein respondent court thereafter affirmed on appeal the decision of the trial court. Petitioner timely moved for a reconsideration, but this was subsequently denied by respondent court in its Resolution[7] dated June 11, 1993. Petitioner has now appealed to us by way of a petition for certiorari under Rule 45 of the Rules of Court.

11

During the pendency of this petition, this Court by a resolution[8] dated August 30, 1993, took note of the compromise agreement executed between the parties, regarding the civil aspect of the case, as manifested by petitioner in a Motion to Render Judgment based on Compromise Agreement[9]filed on August 5, 1993. After submission of the Comment[10] by the Solicitor General, and the Reply[11] by petitioner, this case was deemed submitted for decision. Contending that the Court of Appeals erred in its affirmance of the trial courts decision, petitioner cites the following reasons to justify the review of her case: 1. The Honorable Court of Appeals has decided against the innocence of the accused based on mere probabilities which, on the contrary, should have warranted her acquittal on reasonable doubt. Even then, the conclusion of the trial court is contrary to the evidence on record, including private complainants judicial admission that there was no consideration for the check. 2. The Honorable Court of Appeals has confused and merged into one the legal concepts of dissolution, liquidation and termination of a partnership and, on the basis of such misconception of the law, disregarded the fact of absence of consideration of the check and convicted the accused. 3. While this appeal was pending, the parties submitted for the approval of the Honorable Court a compromise agreement on the civil liability. The accused humbly submits that this supervening event, which by its terms puts to rest any doubt the Court of Appeals had entertained against the defense of lack of consideration, should have a legal effect favorable to the accused, considering that the dishonored check constitutes a private transaction between partners which does not involve the public interest, and considering further that the offense is not one involving moral turpitude. 4. The Honorable Court of Appeals failed to appreciate the fact that the accused had warned private complainant that the check was not sufficiently funded, which should have exonerated the accused pursuant to the ruling in the recent case of Magno vs. Court of Appeals, 210 SCRA 471, which calls for a more flexible and less rigid application of the Bouncing Checks law.[12] For a thorough consideration of the merits of petitioners appeal, we find pertinent and decisive the following issues: 1. Whether respondent court erred in holding that the subject check was issued by petitioner to apply on account or for value, that is, as part of the consideration of a buyout of said complainants interest in the partnership, and not merely as a commitment on petitioners part to return the investment share of complainant, along with any profit pertaining to said share, in the partnership.

2. Whether the respondent court erred in concluding that petitioner issued the subject check knowing at the time of issue that she did not have sufficient funds in or credit with the drawee bank and without communicating this fact of insufficiency of funds to the complainant. Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the trial courts judgment that she violated Batas Pambansa Blg. 22? Considering that penal statutes are strictly construed against the state and liberally in favor of the accused, it bears stressing that for an act to be punishable under the B.P. 22, it must come clearly within both the spirit and the letter of the statute.[13] Otherwise, the act has to be declared outside the laws ambit and a plea of innocence by the accused must be sustained. The relevant provisions of B.P. 22 state that: SECTION 1. Checks without sufficient funds. Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion of the court. The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit or to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. SECTION 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. (Underscoring supplied) As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows: (1) the making, drawing and issuance of any check to apply to account or for

12

value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.[14]

(3) Termination Defined

In the present case, with regard to the first issue, evidence on record would show that the subject check was to be funded from receivables to be collected and goods to be sold by the partnership, and only when such collection and sale were realized.[15] Thus, there is sufficient basis for the assertion that the petitioner issued the subject check (Metrobank Check No. 103115490 dated October 30, 1986, in the amount of P135,828.87) to evidence only complainants share or interest in the partnership, or at best, to show her commitment that when receivables are collected and goods are sold, she would give to private complainant the net amount due him representing his interest in the partnership. It did not involve a debt of or any account due and payable by the petitioner.

These final stages in the life of a partnership are recognized under the Civil Code that explicitly declares that upon dissolution, the partnership is not terminated, to wit:

Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only one (the third) was not. But eventually even this one was redeemed by petitioner. Secondly, even private complainant admitted that there was no consideration whatsoever for the issuance of the check, whose funding was dependent on future sales of goods and receipts of payment of account receivables. Now, it could not be denied that though the parties petitioners and complainant had agreed to dissolve the partnership, such agreement did not automatically put an end to the partnership, since they still had to sell the goods on hand and collect the receivables from debtors. In short, they were still in the process of winding up the affairs of the partnership, when the check in question was issued. Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and (3) termination. These stages are distinguished, to wit: (1) Dissolution Defined Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business (Art. 1828). It is that point of time the partners cease to carry on the business together. [Citation omitted] (2) Winding Up Defined Winding up is the process of settling business affairs after dissolution. (NOTE: Examples of winding up: the paying of previous obligations; the collecting of assets previously demandable; even new business if needed to wind up, as the contracting with a demolition company for the demolition of the garage used in a used car partnership.)

Termination is the point in time after all the partnership affairs have been wound up.[16] [Citation omitted] (Underscoring supplied.)

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. (Underscoring supplied.) The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, the petitioner and private complainant remained as co-partners. The check was thus issued by the petitioner to complainant, as would a partner to another, and not as payment from a debtor to a creditor. The more tenable view, one in favor of the accused, is that the check was issued merely to evidence the complainants share in the partnership property, or to assure the latter that he would receive in time his due share therein. The alternative view that the check was in consideration of a buy out is but a theory, favorable to the complainant, but lacking support in the record; and must necessarily be discarded. For there is nothing on record which even slightly suggests that petitioner ever became interested in acquiring, much less keeping, the shares of the complainant. What is very clear therefrom is that the petitioner exerted her best efforts to sell the remaining goods and to collect the receivables of the partnership, in order to come up with the amount necessary to satisfy the value of complainants interest in the partnership at the dissolution thereof. To go by accepted custom of the trade, we are more inclined to the view that the subject check was issued merely to evidence complainants interest in the partnership.Thus, we are persuaded that the check was not intended to apply on account or for value; rather it should be deemed as having been drawn without consideration at the time of issue. Absent the first element of the offense penalized under B.P. 22, which is the making, drawing and issuance of any check to apply on account or for value, petitioners issuance of the subject check was not an act contemplated in nor made punishable by said statute. As to the second issue, the Solicitor General contends that under the Bouncing Checks Law, the elements of deceit and damage are not essential or required to constitute a violation thereof. In his view, the only essential element is the knowledge on

13

the part of the maker or drawer of the check of the insufficiency of his/her funds at the time of the issuance of said check.

sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment.

The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special offense punishable by law. Malice or intent in issuing the worthless check is immaterial, the offense beingmalum prohibitum,[17] so goes the argument for the public respondents.

In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the proportionate share of complainant in the partnership assets upon its dissolution. Payment of that share in the partnership was conditioned on the subsequent realization of profits from the unsold goods and collection of the receivables of the firm. This condition must be satisfied or complied with before the complainant can actually encash the check. The reason for the condition is that petitioner has no independent means to satisfy or discharge the complainants share, other than by the future sale and collection of the partnership assets. Thus, prior to the selling of the goods and collecting of the receivables, the complainant could not, as of yet, demand his proportionate share in the business. This situation would hold true until after the winding up, and subsequent termination of the partnership. For only then, when the goods were already sold and receivables paid that cash money could be availed of by the erstwhile partners.

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

Complainant did not present any evidence that petitioner signed and issued four checks actually knowing that funds therefor would be insufficient at the time complainant would present them to the drawee bank. For it was uncertain at the time of issuance of the checks whether the unsold goods would have been sold, or whether the receivables would have been collected by the time the checks would be encashed. As it turned out, three were fully funded when presented to the bank; the remaining one was settled only later on. Since petitioner issued these four checks without actual knowledge of the insufficiency of funds, she could not be held liable under B.P. 22 when one was not honored right away. For it is basic doctrine that penal statutes such as B.P. 22 must be construed with such strictness as to carefully safeguard the rights of the defendant x x x.[24] The element of knowledge of insufficiency of funds has to be proved by the prosecution; absent said proof, petitioner could not be held criminally liable under that law. Moreover, the presumption of prima facie knowledge of such insufficiency in this case was actually rebutted by petitioners evidence. Further, we find that the prosecution also failed to prove adequate notice of dishonor of the subject check on petitioners part, thus precluding any finding of prima facie evidence of knowledge of insufficiency of funds. There is no proof that notice of dishonor was actually sent by the complainant or by the drawee bank to the petitioner. On this point, the record is bereft of evidence to the contrary. But in fact, while the subject check initially bounced, it was later made good by petitioner. In addition, the terms of the parties compromise agreement, entered into during the pendency of this case, effectively invalidates the allegation of failure to pay or to make arrangement for the payment of the check in full. Verily, said compromise agreement constitutes an arrangement for the payment in full of the subject check. The absence of notice of dishonor is crucial in the present case. As held by this Court in prior cases:

14

Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a bum check; there must also be a showing that, within five banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or to make arrangement for its payment in full by the drawee of such check.[25] [Underscoring supplied.]

Thus, it behooves upon a court of law that in applying the punishment imposed upon the accused, the objective of retribution of a wronged society, should be directed against the actual and potential wrongdoers. In the instant case, there is no doubt that petitioners four (4) checks were used to collateralize an accommodation, and not to cover the receipt of an actual account or credit for value as this was absent, and therefore petitioner should not be punished for mere issuance of the checks in question. Following the aforecited theory, in petitioners stead the potential wrongdoer, whose operation could be a menace to society, should not be glorified by convicting the petitioner.[28]

The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand and the basic postulates of fairness require that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under B.P. 22. [26]

Under the circumstances obtaining in this case, we find the petitioner to have issued the check in good faith, with every intention of abiding by her commitment to return, as soon as able, the investments of complainant in the partnership. Evidently, petitioner issued the check with benign considerations in mind, and not for the purpose of committing fraud, deceit, or violating public policy

Further, what militates strongly against public respondents stand is the fact that petitioner repeatedly notified the complainant of the insufficiency of funds. Instructive is the following pronouncement of this Court in Magno v. Court of Appeals: Furthermore, the element of knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason x x x is inversely applied in this case. From the very beginning, petitioner never hid the fact that he did not have the funds with which to put up the warranty deposit and as a matter of fact, he openly intimated this to the vital conduit of the transaction, Joey Gomez, to whom petitioner was introduced by Mrs. Teng. It would have been different if this predicament was not communicated to all the parties he dealt with regarding the lease agreement the financing of which was covered by L.S. Finance Management.[27] In the instant case, petitioner intimated to private complainant the possibility that funds might be insufficient to cover the subject check, due to the fact that the partnerships goods were yet to be sold and receivables yet to be collected.

To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable for violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn and issued by petitioner in exchange for value received as to qualify it as a check on account or for value; (2) there is no sufficient basis to conclude that petitioner, at the time of issue of the check, had actual knowledge of the insufficiency of funds; and (3) there was no notice of dishonor of said check actually served on petitioner, thereby depriving her of the opportunity to pay or make arrangements for the payment of the check, to avoid criminal prosecution. Having resolved the foregoing principal issues, and finding the petition meritorious, we no longer need to pass upon the validity and legality or necessity of the purported compromise agreement on civil liability between the petitioner and the complainant. WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-M88 is hereby SET ASIDE. NO COSTS. SO ORDERED.

As Magno had well observed: For all intents and purposes, the law was devised to safeguard the interest of the banking system and the legitimate public checking account user. It did not intend to shelter or favor nor encourage users of the system to enrich themselves through manipulations and circumvention of the noble purpose and objective of the law. Least should it be used also as a means of jeopardizing honest-to-goodness transactions with some color of get-rich scheme to the prejudice of well-meaning businessmen who are the pillars of society.

Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Panganiban, Martinez, and Purisima, JJ., concur. Mendoza, J., no part, being ponente of appealed decision.

xxx

15

G.R. No. L-27343 February 28, 1979 MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffsappellees, vs. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, defendants-appellants.

FERNANDEZ, J.: This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of which reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has not created a chattel mortgage lien on the machineries and other chattels mentioned therein, all of which are property of the defendant partnership "Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant partnership, have a preferred right over the assets of the said partnership and over the proceeds of their sale at public auction, superior to the right of the defendant Margarita G. Saldajeno, as creditor of the partners Leon Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with legal interest thereon from the filing of the complaint on June 5, 1959; (4) that the same defendant is indebted to the plaintiff Manuel G. Singsong in the total amount of P5,723.50, with interest thereon at the rate of 1 % per month from May 6, 1959, (the date of the statements of account, Exhs. "L" and "M"), and 25% of the total indebtedness at the time of payment, for attorneys' fees, both interest and attorneys fees being stipulated in Exhs. "I" to "17", inclusive; (5) that the same defendant is indebted to the plaintiff Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from the filing of the complaint on June 5, 1959; (6) that the same defendant is indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with legal interest thereon from the filing of the complaint on June 5, 1959; (7) that the same defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the filing of the complaint on June 5, 1959; (8) that the same defendant is indebted to the plaintiff Jose Belzunce in the amount of P2,052.10,

with legal interest thereon from the filing of the complaint on June 5. 1959; (9) that the defendant Margarita G. Saldajeno, having purchased at public auction the assets of the defendant partnership over which the plaintiffs have a preferred right, and having sold said assets for P 45,000.00, is bound to pay to each of the plaintiffs the respective amounts for which the defendant partnership is held indebted to, them, as above indicated and she is hereby ordered to pay the said amounts, plus attorneys fees equivalent to 25% of the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in Exhs. "I" "to I17", inclusive, and 20% of the respective judgments in favor of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The defendants Leon Garibay and Timoteo Tibungbanua are hereby ordered to pay to the plaintiffs the respective amounts adjudged in their favor in the event that said plaintiffs cannot recover them from the defendant Margarita G. Saldajeno and the surety on the bond that she has filed for the lifting of the injunction ordered by this court upon the commencement of this case. The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs. SO ORDERED. 1 In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the Supreme Court "considering that the resolution of this appeal involves purely questions or question of law over which this Court has no jurisdiction ... 2 On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidental a complaint the prayer of which reads: WHEREFORE, the plaintiffs respectfully pray: (1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of Negros Occidental from proceeding with the sales at public auction that he advertised in two notices issued by him on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until further orders of this Court; and to make said injunction permanent after hearing on the merits: (2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G. Singson the sum of P3,723.50 plus 1%

16

monthly interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and costs:

partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al., Civil Case No. 4787, Court of First Instance of Negros Occidental;

(3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and void being in fraud of creditors of the defendant partnership and without valuable consideration insofar as the said defendant is concerned:

4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo Tubungbanua to the answering defendant herein, the former have constituted a chattel mortgage over the properties mentioned in the annexes to that instrument entitled "Assignment of Rights with Chattel Mortgage" entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros Occidental on the same date:

(4) That the Honorable Court order the sale of public auction of the assets of the defendnat partnership in case the latter fails to pay the judgment that the plaintiffs may recover in the action, with instructions that the proceeds of the sale b e applied in payment of said judgment before any part of saod proceeds is paid to the defendant Margarita G. Saldajeno; (5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared jointly liable to the plaintifs for whatever deficiency may remain unpaid after the proceeds of the sale of the assets of the defendnt partnership are supplied in payment of the judgment that said plaintiffs may recover in this action; (6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them entitled to, with costs to the defendants. Bacolod City, June 4, 1959. 3 The action was docketed as Civil Case No. 5343 of said court. In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged the following special and affirmative defenses:

3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became the successors-in-interest to the said defunct partnership and have bound themselves to answere for any and all obligations of the defunct partnership to its creditors and third persons;

5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such they have no cause of action against answering defendant herein and the defendant Isabela Sawmill; 6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of defendants Margarita G. Isabela Sawmill as a former partnership of defendants Margarita G. Saldajeno, Leon Garibay and Timoteo Tubungbanua, has already been dissolved; 7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the amounts sought to be recovered by them in this action is less than P2,000.00 each, exclusive of interests;

xxx xxx xxx

8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of parties because this is not a class suit, and therefore this Honorable Court cannot take jurisdictionof the claims for payment;

2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the matter of: Dissolution of Isabela Sawmill as

9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned inthe statute of frauds, Art. 1403 of the

17

Civil Code, and are therefor unenforceable, even assuming that there were such credits and claims;

GARIBAY, TIMOTEO TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO).

10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in jurisprudence that a court of first instance has no power or jurisdiction to annul judgments or decrees of a coordinate court because other function devolves upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as it appears from the complaint in this case to annul the decision of this same court, but of another branch (Branch II, Judge Querubin presiding). 4

IV

Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo Tubungbanua praying "that in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs the amount claimed in the latter's complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in accordance to the said judgment. ... 5 After trial, judgment was rendered in favor of the plaintiffs and against the defendants. The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals assigning the following errors:

THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION. V THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS NULL AND VOID. VI THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.

I

VII

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANTAPPELLANT MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION WITH CIVIL CASE NO. 5223.

II THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP. III THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE PARTNERSHIP "ISABELA SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON

VIII THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS A PARTNER. IX

18

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES. X THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-APPELLEES. XI THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO TUBUNGBANUA. 6 The facts, as found by the trial court, are: At the commencement of the hearing of the case on the merits the plaintiffs and the defendant Cecilio and Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh. "A". Said stipulation reads as folows: 1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua entered into a Contract of Partnership under the firm name "Isabela Sawmill", a copy of which is hereto attached Appendix "A". 2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the partnership Isabela Sawmill for the sum of P20,500.00. In order to pay the said purcahse price, the said partnership agreed to make arrangements with the International Harvester Company at Bacolod City so that the latter would sell farm machinery to Oppen, Esteban, Inc. with the understanding that the price was to be paid by the partnership. A copy of the corresponding contract of sle is attached hereto as Appendix "B". 3. That through the method of payment stipulated in the contract marked as Appendix "B" herein, the International Harvester Company has been paid a total of P19,211.11, leaving an unpaid balance of

P1,288.89 as shown in the statements hereto attached as Appendices "C", "C-1", and "C-2". 4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua, a copy of which Complaint is attached as Appendix 'D'. 5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and Margarita G. Saldajeno entered into a "Memorandum Agreement", a copy of which is hereto attached as Appendix 'E' in Civil Case 4797 of the Court of First Instance of Negros Occidental. 6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno executed a document entitled "Assignment of Rights with Chattel Mortgage", a copy of which documents and its Annexes "A" to "A-5" forming a part of the record of the above mentioned Civil Case No. 4797, which deed was referred to in the Decision of the Court ofFirst Instance of Negros Occidental in Civil Case No. 4797 dated May 29, 1958, a copy of which is hereto attached as Appendix "F" and "F-1" respectively. 7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the assets and properties of the "Isabela Sawmill" between them, but they continued the business of said partnership under the same firm name "Isabela Sawmill". 8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices that he would sell at public auction on June 5, 1959 at Isabela, Negros Occidental certain trucks, tractors, machinery, officeequipment and other things that were involved in Civil Case No. 5223 of the Court of First Instance of Negros Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1".

19

9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a Certificate ofSale in favor of the defendant Margarita G. Saldajeno, as a result of the sale conducted by him on October 14 and 15, 1959 for the enforcement of the judgment rendered in Civil Case No. 5223 of the Court of First Instance of Negros Occidental, a certified copy of which certificte of sale is hereto attached as Appendix "H". 10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in favor of the Pan Oriental Lumber Company transfering to the latter for the sum of P45,000.00 the trucks, tractors, machinery, and other things that she had purchashed at a public auction referred to in the foregoing paragraph, a certified true copy of which Deed of Sale is hereto attached as Appendix "I". 11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve the right to present additional evidence at the hearing of this case. Forming parts of the above copied stipulation are documents that were marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F1", "G", "G-1", "H", and "I". The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence, mostly documentary, while the crossdefendants did not present any evidence. The case hardly involves quetions of fact at all, but only questions of law. The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3, 10956 is expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1", and "C-2". The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leavng an unpaid balance of P933.73,

which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager of the defendant partnership. The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on credit to the defendnat "Isabela Sawmill" rice and bran, on account of which business transaction there remains an unpaid balance of P3,580.50. The same plaintiff also proved that the partnership ownes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid for. The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber yard advanced the sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash advance, the defendant partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance of P1,579.44. The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of P1,500.00 to the defendsant 'Isabela Sawmill', that against the said cash advance, the defendant partnership delivered to the said plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of lumber on January 27, 1959, leaving an outstanding balance of P1,048.78. The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness, and through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he sold to the defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of said transactions, the defendant partnersip ownes him an unpaid balance of P2,052.10. Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendsant "Isabela Sawmill" which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and said purchase price was applied to the judgment that she has obtained against he said mortgagors in Civil Case No. 5223 of this Court. Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said properties that she had bought at public aucton one week before.

20

xxx xxx xxx 7 It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of moeny, the biggest amount of which was less than P2,000.00 and, therefore, within the jurisdiction of the municipal court. This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of First Instnace. Where the basic issue is something more than the right to recover a sum of money and where the money claim is purely incidental to or a consequence of the principal relief sought, the action is as a case where the subject of the litigation is not capable of pecuniary estimation and is cognizable exclusively by the Court of First Instance. The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary estimation. An action for the annulment of a judgment and an order of a court of justice belongs to th category. 8 In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases where the subject ogf the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance. In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held: Actions for specific performance of contracts have been expressly prounounced to be exclusively cognizable by courts of first instance: De Jesus vs. Judge Garcia, L-26816, February 28, 1967;Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent reason appears, and none is here advanced by the parties, why an actin for rescission (or resolution) should be differently treated, a "rescission" being a counterpart, so to speak, of "specific performance'. In both cases, the court would certainly have to undertake an investigation into facts that would justify one act of

the other. No award for damages may be had in an action for resicssion without first conducting an inquiry into matters which would justify the setting aside of a contract, in the same manner that courts of first instance would have to make findings of fact and law in actions not capable of pecuniary estimnation espressly held to be so by this Court, arising from issues like those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or illegality of the conveyance sought for and the determination of the validity of the money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right to support created by the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of documents upon which claims are predicated). Issues of the same nature may be raised by a party against whom an action for rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a prayer for damages in an action for rescission should be taken as the basis for concluding such action for resiccison should be taken as the basis for concluding such action as one cpable of pecuniary estimation - a prayer which must be included in the main action if plaintiff is to be compensated for what he may have suffered as a result of the breach committed by defendant, and not later on precluded from recovering damages by the rule against splitting a cause of action and discouraging multiplicitly of suits. The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan, 10 where this Court held: On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was ruled therein that although the purposes of an action is to recover an amount plus interest which comes within the original jurisidction of the Justice of the Peace Court, yet when said action involves the foreclosure of a chattel mortgage covering personal properties valued at more than P2,000, (now P10,000.00) the action should be instituted before the Court of First Instance. In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and involves the foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it is clearly within the competence of the respondent court to try and resolve. In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in exercising jurisidction over Civil Case No. 5343.

21

The appellants also contend that the chattel mortgage may no longer be annulled because it had been judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court. On the question of whether a court may nullify a final judgment of another court of coequal, concurrent and coordinate jusridiction, this Court originally ruled that: A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by the injunction. The various branches of the Court of First Instance of Manila are in a sense coordinate courts and cannot be allowed to interfere with each others' judgments or decrees. 11 The foregoing doctrine was reiterated in a 1953 case 12 where this Court said: The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch of the same court is not infringed when the Judge who modifies or annuls the order isued by the other Judge acts in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule is infringed when the Judge of a branch of the court issues a writ of preliminary injunction in a case to enjoint the sheriff from carrying out an order by execution issued in another case by the Judge of another branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182). This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was rendered by the Court of First Instance of Iloilo and the action for annullment was filed with the Court of First Instance of Antique, both courts belonging to the same Judicial District. This Court held that: The power to open, modify or vacant a judgment is not only possessed by but restricted to the court in which the judgment was rendered. The reason of this Court was: Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not be interfered with by any court concurrrent jurisdiction. Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First Instance belongs solely to the very same branch which rendered the judgement. 14

Two years later, the same doctrine was laid down in the Sterling Investment case. 15 In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor declared: ... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end that the judgment of a court of competent jurisdiction may not be interfered with by any court of concurrent jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this Court feels that this is as good an occasion as any to re-examine the doctrine laid down ... In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged nullity of the judgment based on one ground or another, particularly fraud, which fact affords the plaintiff a right to judicial interference in his behalf. In such a suit the cause of action is entirely different from that in the actgion which grave rise to the judgment sought to be annulled, for a direct attack against a final and executory judgment is not a incidental to, but is the main object of the proceeding. The cause of action in the two cases being distinct and separate from each other, there is no plausible reason why the venue of the action to annul the judgment should necessarily follow the venue of the previous action ... The present doctrine which postulate that one court or one branch of a court may not annul the judgment of another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court) but also limit the opportunity for the application of said rule. Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order rendered by another court of first instance or by another branch of the same court... In February 1974 this Court reiterated the ruling in the Dulap case. 17 In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First Instance of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two branches of the same court. It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of the business. 18 However, on dissolution, the partnershop is not terminated but continuous until the winding up to the business. 19

22

The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding up the business of the partnership, they continued the business still in the name of said partnership. It is expressly stipulated in the memorandum-agreement that the remaining partners had constituted themselves as the partnership entity, the "Isabela Sawmill". 20 There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill". They used the properties of said partnership. The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at public auction the properties of the partnership which were mortgaged to her. It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership "Isabela Sawmill" could be enforced against the proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership. The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by entering into the memorandum-agreement with them. Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. Had Margarita G. Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of the aprtnership, the applees would not have been misled into thinking that they were still dealing with the partnership "Isabela Sawmill". Under the facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued doping business through the two remaining partners.

As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the rights of a third person, he may file an action to annul the contract. This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may exercised an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from the contract in which he has no intervention. 21 The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the properties of the partnership "Isabela Sawmill" in favopr of Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to file the action to nullify the chattel mortgage in question. The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-appellees cannot be sustained. There is no showing that the appellants displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable to pay the claims. The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons.22 WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering appellants to pay attorney's fees and with the modification that the defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendantsappellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as to costs. SO ORDERED. Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio-Herrera, JJ., concur.

The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of the propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit.

23

G.R. No. 97212 June 30, 1993 BENJAMIN YU, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents. Jose C. Guico for petitioner. Wilfredo Cortez for private respondents.

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

partnership continued working in the business, all, save petitioner Benjamin Yu as it turned out. On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had bought the business from the original partners and that it was for him to decide whether or not he was responsible for the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid. 3 On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new partnership. 4 In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5 On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new partnership had not retained petitioner Yu in his original position as Assistant General Manager, and that there was no law requiring the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had simply declined to retain him in his former managerial position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against the original members of the preceding partnership, but these though impleaded had, apparently, not been served with summons in the proceedings before the Labor Arbiter. 6 Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess of jurisdiction. The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical personality separate and distinct from that of each of its members. Such independent legal personality subsists, petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in the latter's membership. 7

24

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership. In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes in the membership of the partnership was the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987. The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows: Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (Emphasis supplied) Article 1830 of the same Code must also be noted: Art. 1830. Dissolution is caused: (1) without violation of the agreement between the partners; xxx xxx xxx (b) by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified; xxx xxx xxx (2) in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time;

xxx xxx xxx (Emphasis supplied) In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to constitute a new partnership. The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that: [o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the business enterprise owned by the preceeding partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business enterprise. There were, no doubt, powerful tax considerations which underlay such an informal approach to business on the part of the retiring and the incoming partners. It is not, however, necessary to inquire into such matters. What is important for present purposes is that, under the above described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party creditor of the old partnership. 9 The liability of the new partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as follows: Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business: (1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the

25

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

xxx xxx xxx (Emphasis supplied) Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's interest in the dissolved partnership is concerned. It is not necessary for the Court to determine under which one or mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not detailed with sufficient precision to permit such determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain. It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise take over. An assistant general manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy. 10 The new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole year. While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing and exporting enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying moral damages. This Court, exercising its

26

discretion and in view of all the circumstances of this case, believes that an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable. In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total amount due from private respondent Jade Mountain. WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following amounts: (a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to December 1987) in the total amount of P72,000.00; (b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3) years of service or a total of P12,000.00; (c) indemnity for moral damages in the amount of P20,000.00; (d) six percent (6%) per annum legal interest computed on items (a) and (b) above, commencing on 26 December 1989 and until fully paid; and (e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade Mountain. Costs against private respondents. SO ORDERED. Bidin, Davide, Jr., Romero and Melo, JJ., concur.

27

G.R. No. 167379

June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W. LOPEZ, Petitioners, vs. MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN and JOSE MARCOS T. LAZATIN, Respondents. DECISION CALLEJO, SR., J.: Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the Decision1of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners’ motion for reconsideration thereof. The factual and procedural antecedents are as follows: 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 Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-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. 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 development of the aforementioned property into a residential subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels of land as their share in the joint venture. For its part, Primelink undertook to contribute money, labor, personnel, machineries, equipment, contractor’s pool, marketing activities, managerial expertise and other needed resources to develop the property and construct therein the units for sale to the public. Specifically, Primelink bound itself to accomplish the following, upon the execution of the deed: a.) Survey the land, and prepare the projects master plans, engineering designs, structural and architectural plans, site development plans, and such other need plans in accordance with existing laws and the rules and regulations of appropriate government institutions, firms or agencies;

c.) Furnish all materials, equipment, labor and services for the development of the land in preparation for the construction and sale of the different types of units (single-detached, duplex/twin, cluster and row house); d.) Guarantee completion of the land development work if not prevented by force majeure or fortuitous event or by competent authority, or other unavoidable circumstances beyond the 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; 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 (administrative and construction) and marketing (sales, advertising and promotions).6 The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as follows: 1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw allowances or make advances not exceeding a total of twenty percent (20%) of the net revenue for that period, on the basis of sixty percent (60%) for the DEVELOPER and forty percent (40%) for the LANDOWNERS. The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the first two years, in order to have sufficient reserves or funds to protect and/or guarantee the construction and completion of the different types of units mentioned above. 2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances and/or advances equivalent to sixty percent (60%) and forty percent (40%), respectively, of the total net revenue or income of the sale of the units.7 They also agreed to share in the profits from the joint venture, thus: 1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the Joint Venture project, after deducting all expenses incurred in connection with the land development (such as administrative management and construction expenses), and marketing (such as sales, advertising and promotions), and

b.) Secure and pay for all the licenses, permits and clearances needed for the projects;

28

2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the Joint Venture project, after deducting all the abovementioned expenses.8

4,624,000.00

D Advertising & Promo exp. (2% of TCP)

4,624,000.00

E Building expenses for the open spaces and Amenities (Development cost not incl. Housing) 400 x 30,000 sqms.

Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project: SALES-INCOME-COST PROJECTION

C Admin. & Mgmt. expenses (2% of TCP)

TOTAL EXPENSES (A+B+C+D+E)

lawphil.net

12,000,000.00 P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES

SELLING PRICE

COST PRICE

DIFFERENCE

INCOME

Total Projected Income (incl. income from interest earn.)

P307,769,740.00

CLUSTER: A1 3,200,000

-

A2 1,260,000

=

1,940,000 x 24 =

P 46,560,000.00

less: Total Expenses

TWIN: B1 2,500,000

-

B2 960,000

=

1,540,000 x 24 =

36,960,000.00

-

C2 1,400,000

=

2,100,000 x 16 =

33,600,000.00

=

900,000 x 24 =

21,600,000.00

SINGLE: C1 3,500,000

132,224,000.00 P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between the parties relative to the interpretation, scope and reach, and the enforcement/implementation of any provision of the agreement shall be referred to Voluntary Arbitration in accordance with the Arbitration Law.10

ROW-TYPE TOWNHOMES: D1 1,600,000

-

D2 700,000

P138,720,000.00 (GROSS)

Total Cash Price (A1+B1+C1+D1)

=

P231,200,000.00

Total Building Expense (A2+B2+C2+D2)

=

92,480,000.00

COMPUTATION OF ADD’L. INCOME ON INTEREST TCP x 30% D/P

=

P 69,360,000

Balance = 70% =

161,840,000

x .03069 x 48 =

P238,409,740

Total Amount (TCP + int. earn.)

P 69,360,000.00

238,409,740.00 P307,769,740.00

EXPENSES: less: A Building expenses B Commission (8% of TCP)

P 92,480,000.00 18,496,000.00

The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably with the escrow agreement, the owner’s duplicate of the title was deposited with the China Banking 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 Permit to Primelink.12 In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with its obligations under the JVA, otherwise the appropriate action would be filed against it to protect their rights and interests. This impelled the officers of Primelink to meet with the Lazatins and enabled the latter to review its business records/papers. In another 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 developing the property. Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay City, Branch 18, a complaint for rescission accounting and damages, with prayer for temporary restraining order and/or preliminary injunction against Primelink and Lopez. The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from the execution of the JVA and the delivery of the title and possession of the land to defendants, the land development aspect of the project had not yet been completed, and the construction of

29

the housing units had not yet made any headway, based on the following 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 detached, one completed and two units uncompleted; (bb) cluster houses, one unit nearing completion; (cc) duplex, two units completed and two units unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that was done by the defendants was to grade the area; the units so far constructed had been the object of numerous complaints by their owners/purchasers for poor workmanship and the use of sub-standard materials in their construction, thus, undermining the project’s marketability. Plaintiffs also alleged that defendants had, without justifiable reason, completely disregarded previously agreed accounting and auditing procedures, checks and balances system installed for the mutual protection 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 agreement but defendants refused to heed said demand. After a succession of letters with still no action from defendants, plaintiffs sent a letter on October 22, 1997, a letter formally rescinding the JVA. Plaintiffs also claimed that in a sales-income-costs projection prepared and 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 that plaintiffs shall initially get 20% of the agreed net revenue during the first two (2) years (on the basis of the 60%-40% sharing) and their full 40% share thereafter, defendants had yet to deliver these shares to plaintiffs which by conservative estimates would amount to no less than P40,000,000.00.15 Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus: WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be forthwith issued enjoining the defendants to immediately stop their land development, construction and marketing of the housing units in the aforesaid project; after due proceedings, to issue a writ of preliminary injunction enjoining and prohibiting said land development, construction and marketing of housing units, pending the disposition of the instant case. After trial, a decision be rendered: 1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants; 2. Immediately restoring to the plaintiffs possession of the subject parcels of land; 3. Ordering the defendants to render an accounting of all income generated as well as expenses incurred and disbursement made in connection with the project;

4. Making the Writ of Preliminary Injunction permanent; 5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million Pesos (P40,000,000.00) in actual and/or compensatory damages; 6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million Pesos (P2,000,000.00) in exemplary damages; 7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten percent (10%) of the total amount due as and for attorney’s fees; and 8. To pay the costs of this suit. Other reliefs and remedies as are just and equitable are likewise being prayed for.16 Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the ground that plaintiffs’ complaint was premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They prayed for the dismissal of the complaint under Section 1(j), Rule 16 of the Rules of Court: WHEREFORE, it is respectfully prayed that an Order be issued: a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court, or, in the alternative, b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate, and then asking the parties to resolve their controversies, pursuant to the Arbitration Law, or in the alternative; c) staying or suspending the proceedings in captioned case until the completion of the arbitration, and d) denying the plaintiffs’ prayer for the issuance of a temporary restraining order or writ of preliminary injunction. Other reliefs and remedies just and equitable in the premises are prayed for.17 In the meantime, before the expiration of the reglementary period to answer the complaint, defendants, invoking their counsel’s heavy workload, prayed for a 15-day extension18 within which to file their answer. The additional time prayed for was granted by the RTC.19 However, instead of filing their answer, defendants prayed for a series of

30

15-day extensions in eight (8) successive motions for extensions on the same justification.20 The RTC again granted the additional time prayed for, but in granting the last extension, it warned against further extension.21 Despite the admonition, defendants again moved 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 Order24dated June 24, 1998. On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and Opposition to the Prayer for the Issuance of a Writ of 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 Order28 dated July 14, 1998, the RTC denied defendants’ motion to set aside the order of default and ordered the reception of plaintiffs’ evidence ex parte. Defendants filed a motion for reconsideration 29 of the July 14, 1998 Order, which the RTC denied in its Order30dated October 21, 1998. 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 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 court issued a Resolution 32 dismissing the appeal on the ground that the Orders appealed from were interlocutory in character and, therefore, not appealable. No motion for reconsideration of the Order of the dismissal was filed by defendants. In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17, 2000, the RTC rendered a Decision, the dispositive part of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows: 1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint; 2. Ordering the defendants to return possession, including all improvements therein, of the real estate property belonging to the plaintiffs which is described in, and covered by Transfer Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City, and located in Barangay Anulin, City of Tagaytay; 3. Ordering the defendants to turn over all documents, records or 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; 4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share of the net income of the P2,603,810.64 as of September 30, 1995, as stipulated in the joint venture agreement;

5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the amount of P104,152.40; 6. Ordering the defendants to pay the costs. SO ORDERED.33 The trial court anchored its decision on the following findings: x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly paragraph II covering Developer’s (defendant) undertakings, as well as paragraph III and paragraph V of the JVA. These 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 gripes against the defendants as typified by the letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso. xxxx 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 well as submarkings, pp. 60 to 62, TSN August 6, 1998) this court has 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 from sales of housing units by defendants, has been established. Exhibit "P-2" is explicit in declaring that, as of September 30, 1995, the joint venture project earned a net income of aboutP2,603,810.64. This amount, however, was drastically reduced in a subsequent financial report submitted by the 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 June 30, 1997. Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum ofP1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But this was not to be so. Even before the plaintiffs could get hold of their share as indicated above, the defendants closed the chance altogether by declaring a net loss. The court perceives this to be one calculated coup-de-grace that would put to thin air plaintiffs’ hope of getting their share in the profit under the JVA. That this matter had reached the court is no longer a cause for speculation. The way the defendants treated the JVA and the manner by which they handled the project itself visà-vis their partners, the plaintiffs herein, there is bound to be certain conflict as the latter repeatedly would received the losing end of the bargain. Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to file the present action to enforce their rights. x x x34

31

On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal 35 alleging defendants’ dilatory tactics for its allowance. This was opposed by defendants.36 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 writ of execution pending appeal was issued on June 20, 2000.38

APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE MARKET VALUE OF APPELLEES’ RAW, UNDEVELOPED AND UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF PRIMELINK.39

Defendants appealed the decision to the CA on the following assignment of errors:

The appeal was docketed in the CA as CA-G.R. CV No. 69200.

I THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815). II THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINK’S STRONG OPPOSITION THERETO. III THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO QUASH THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION. IV THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE APPELLEES’ FAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.

On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed decision. The fallo of the decision reads: WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED. Accordingly, Transfer 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 Register of Deeds of Tagaytay City of whatever annotation in TCT No. 10848 by virtue of the Joint Venture Agreement, is now proper. SO ORDERED.40 Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation,41 the appellate court ruled that, under Philippine law, a joint venture is a form of partnership and is to be governed by the laws of partnership. The aggrieved parties filed a motion for reconsideration,42 which the CA denied in its Resolution43 dated March 7, 2005. Petitioners thus filed the instant Petition for Review on Certiorari, alleging that: 1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?

V THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE HEARING, AND EVEN WITHOUT ORDERING

2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER?44

32

Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to respondents "all improvements" on the project without requiring them to pay the value thereof or to reimburse Primelink for all expenses incurred therefore is inherently and essentially illegal and confiscatory, oppressive and unconscionable, contrary to the tenets of good human relations, and will allow respondents to unjustly enrich themselves at Primelink’s expense. At the time respondents contributed the two parcels of land, consisting of 30,000 square meters to the joint venture project when the JVA was signed on March 10, 1994, the said properties were worth not more than P500.00 per square meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before respondents rescinded the JVA sometime in October/November 1997, the property had already been substantially developed as improvements had already been introduced thereon; petitioners had likewise incurred administrative and marketing expenses, among others, amounting to more or less P40,000,000.00.45 Petitioners point out that respondents did not pray in their complaint that they be declared the owners and entitled to the possession of the improvements made by petitioner Primelink on the property; neither did they adduce evidence to prove their entitlement to said improvements. It follows, petitioners argue, that respondents were not entitled to the improvements although petitioner Primelink was declared in default. They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent necessary to cover the damages caused and that, under Article 1385 of the same Code, rescission creates the obligation to return the things which were not object of the contract, together with their fruits, and the price with its interest; consequently, it can be effected only when respondents can return whatever they may be obliged to return. Respondents who sought the rescission of the JVA must place petitioner Primelink in the status quo. They insist that respondents cannot rescind and, at the same time, retain the consideration, or part of the consideration received under the JVA. They cannot have the benefits of rescission without assuming its burden. All parties must be restored to their original positions as nearly as possible upon the rescission of a contract. In the event that restoration to the status quo is impossible, rescission may be granted if the Court can balance the equities and fashion an appropriate remedy that would be equitable to both parties and afford complete relief. 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 improvements exist and they cannot be denied."46 Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation47 cited by the CA is not in point. On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically pray for their takeover of the property and for the possession of the improvements on the parcels of land, nevertheless, respondents were entitled to said relief as a necessary consequence of the ruling of the trial court ordering the rescission of the JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article 1838 of the New Civil Code, to wit:

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 general principles of partnership may be resorted to.48 Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible contracts. What applies is Article 1191 of the New Civil Code, which reads: ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. They insist that petitioners are not entitled to rescission for the improvements because, as found by the RTC and the CA, it was petitioner Primelink that enriched itself at the expense of respondents. Respondents reiterate the ruling of the CA, and argue as follows: PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray that they are and should be entitled to take over the development of the project, and that the improvements and existing structures which were introduced by PRIMELINK after spending more or less Forty Million Pesos – be awarded to them. They merely asked in the complaint that the joint venture agreement be rescinded, and that the parcels of land they contributed to the project be returned to them. PRIMELINK’s argument lacks merit. The order of the court for PRIMELINK to return possession of the real estate property belonging to the LAZATINs including all improvements thereon was not a judgment that was different in kind than what was prayed for by the LAZATINs. The order to return the property with all the improvements thereon is just a necessary consequence to the order of rescission. 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 general principles of partnership may be resorted to. In Aurbach v. Sanitary Wares Manufacturing Corporation, the Supreme Court discussed the following points regarding joint ventures and partnership:

33

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership, since elements are similar – community of interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley 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 partnership contemplates a general business with some degree of continuity, 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. Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that, under Philippine law, a joint venture is a form of partnership and should thus be governed by the laws of partnership. The Supreme Court has, however, recognized a distinction between these two business forms, and has held 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, 95 Phil. 906 [1954]; Campos and Lopez – Campos Comments, Notes and Selected Cases, Corporation Code 1981) (Emphasis Supplied) The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a quo, was a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net incomes generated 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 or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right is entitled to a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advance contributed by him. In the instant case, the joint venture still has outstanding liabilities to third parties or the buyers of the property. It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for safekeeping pursuant to the Escrow Agreement executed between Primelink Properties and Development Corporation and Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as a necessary consequence of the order of rescission of contract. The reason for the existence of the Escrow Agreement has ceased to exist when the joint venture agreement was rescinded.49 Respondents stress that petitioners must bear any damages or losses they may have suffered. They likewise stress that they did not enrich themselves at the expense of petitioners. In reply, petitioners assert that it is unjust and inequitable for respondents to 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 the value of the improvements, plus administrative and marketing expenses in the total amount of P40,000,000.00. Petitioners will still be entitled to an accounting from respondents. Respondents cannot deny the existence and nature of said improvements as they are visible to the naked eye. The threshold issues are the following: (1) whether respondents are entitled to the possession of the parcels of land covered by the JVA and the improvements thereon introduced by petitioners as their contribution to the JVA; (2) whether petitioners are entitled to reimbursement for the value of the improvements on the parcels of land. The petition has no merit. On the first issue, 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 contributed to the JVA be transferred to them. Respondents made a specific prayer in their complaint that, upon the rescission of the JVA, they be placed in possession of the parcels of land subject of the agreement, and for other "reliefs and such other remedies as are just and equitable in the premises." However, the trial court was not precluded from awarding possession of the improvements on the parcels of land to respondents in its decision. Section 2(c), Rule 7 of the 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 just and equitable. Even without the prayer for a specific remedy, proper relief may be granted by the court if the facts alleged in the complaint and the evidence introduced so warrant.50 The court shall grant relief warranted by the allegations and the proof even if no such relief is prayed for.51 The 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 The trial court was not proscribed from placing respondents in possession of the parcels of land and the improvements on the said parcels of land. It 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, hence, formed part of the assets of the joint venture.53 The trial court declared that respondents were entitled to the possession not only of the parcels of land but also of the improvements thereon as a consequence of its finding that petitioners breached their agreement and defrauded respondents of the net income under the JVA. On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered into a joint venture as evidenced by their JVA which, under the Court’s ruling in Aurbach, is a form of partnership, and as such is to be governed by the laws on partnership. When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that petitioners willfully and persistently committed a breach of the JVA, the court thereby dissolved/cancelled the partnership.54With the rescission of the JVA on account of petitioners’ fraudulent acts, all authority of any partner to act for the partnership is

34

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 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 the business and discharging the obligations of the partnership. The transfer of the possession of the parcels of land and the improvements thereon to respondents was only for a specific purpose: the winding up of partnership affairs, and the partition and distribution of the net partnership assets as provided by law.57 After all, Article 1836 of the New Civil Code provides that unless otherwise agreed by the parties in their JVA, respondents have the right to wind up the partnership affairs: Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court. It must be stressed, too, that although respondents acquired possession of the lands and the improvements thereon, the said lands and improvements remained partnership property, subject to the rights and obligations of the parties, inter se, of the creditors and of third parties under Articles 1837 and 1838 of the New Civil Code, and subject to the outcome of the settlement of the accounts between the parties as provided in Article 1839 of the New Civil Code, absent any agreement of the parties in their JVA to the contrary.58 Until the partnership accounts are determined, it cannot be ascertained how much any of the parties is entitled to, if at all.

jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay to any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1(b) of this article, and in like manner indemnify him against all present or future partnership liabilities. (3) A partner who has caused the dissolution wrongfully shall have: (a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1(b), of this article. (b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner’s interest the value of the goodwill of the business shall not be considered. And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any other right, entitled:

It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of the parties does not contain any provision designating any party to wind up the affairs of the partnership.

(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him;

Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in contravention of the partnership agreement are as follows:

(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and

(1) Each partner who has not caused dissolution wrongfully shall have: (a) All the rights specified in the first paragraph of this article, and (b) The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the agreement. (2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or

(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the New Civil Code: Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary:

35

(1) The assets of the partnership are:

(b) Those owing to partnership creditors;

(a) The partnership property, (b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.

(c) Those owing to partners by way of contribution. 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 AFFIRMED insofar as they conform to this Decision of the Court.

(2) The liabilities of the partnership shall rank in order of payment, as follows: Costs against petitioners. (a) Those owing to creditors other than partners, SO ORDERED. (b) Those owing to partners other than for capital and profits, (c) Those owing to partners in respect of capital, (d) Those owing to partners in respect of profits. (3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities. (4) The partners shall contribute, as provided by article 1797, the 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 creditors on individual property, saving the rights of lien or secured creditors. (9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order: (a) Those owing to separate creditors;

36

[G.R. No. 30616 : December 10, 1990.]

the second partnership which is to hold and secure renewal of timber license instead of to secure the license as in the first partnership and the term of the second partnership is fixed to thirty (30) years, everything else is the same.

192 SCRA 110 EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,DefendantAppellee.

DECISION PARAS, J.:

This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint. As found by the trial court, the antecedent facts of the case are as follows: On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with an indefinite term of existence was duly registered on January 21, 1955 with the Securities and Exchange Commission. One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests products licenses and concessions over public and/or private forest lands and to operate, develop and promote such forests rights and concessions." (Rollo, p. 114). A duly registered Articles of Co-Partnership was filed together with an application for a timber concession covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued and became the basis of subsequent renewals made for and in behalf of the duly registered partnership EDE. Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the partnership, including marketing and handling of cash and is authorized to sign all papers and instruments relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the logging operations of the partnership. It is also provided in the said articles of co-partnership that all profits and losses of the partnership shall be divided share and share alike between the partners. During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record on Appeal [R.A.] p. 946). Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner. On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of CoPartnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of

The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919). On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that Maglana and Rojas shall purchase the interest, share and participation in the Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be dissolved. Pahamotang was paid in fun on August 31, 1957. No other rights and obligations accrued in the name of the second partnership (R.A. 921). After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A. 948). On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947). On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area (Decision, R.A. 948). The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948). On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in equipment, to the capital investments of the partnership as well as his obligation to perform his duties as logging superintendent. Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).: nad Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949). On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26). Rojas' petition for appointment of a receiver was denied (R.A. 894).

37

Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895). The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102114) was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year 1961 in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and supporting papers of the partnership as well as the information furnished them by the parties, which were compiled in three (3) volumes. On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336). On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337). On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the report of the commissioners which was opposed by the appellee. On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451). A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to be submitted to the trial court: (a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second partnership; (b) Their sharing basis: whether in proportion to their contribution or share and share alike; (c) The ownership of properties bought by Maglana in his wife's name; (d) The damages suffered and who should be liable for them; and (e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision, R.A. pp. 895-896).- nad After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as follows: "WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court declaring that: "1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the second partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share — the partnership of the defendant and the plaintiff is one of a de facto and at will; "2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and proportion of their respective contributions, or on the basis of share and share alike — this covered by actual contributions of the plaintiff and the defendant and by their verbal agreement; that the

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

38

"12. The complaint is hereby dismissed with costs against the plaintiff.: rd "SO ORDERED." Decision, Record on Appeal, pp. 985-989). Rojas interposed the instant appeal. The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang retired from the second partnership. The lower court is of the view that the second partnership superseded the first, so that when the second partnership was dissolved there was no written contract of copartnership; there was no reconstitution as provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and at will. It was considered as a partnership at will because there was no term, express or implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963). On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved by the unregistered articles of co-partnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A") continues to govern the relations between them and it was legal error to consider a de facto partnership between said two partners or a partnership at will. Hence, the letter of appellee Maglana dated February 23, 1961, did not legally dissolve the registered partnership between them, being in contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A"). After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it was not the intention of the partners to dissolve the first partnership, upon the constitution of the second one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial partner; gave him an equal share in the profits and fixed the term of the second partnership to thirty (30) years, everything else was the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just as important is the fact that all subsequent renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the original licensee. To all intents and purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence of the second partnership, all business transactions were carried out under the duly registered articles. As found by the trial court, it is an admitted fact that even up to now, there are still subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No

rights and obligations accrued in the name of the second partnership except in favor of Pahamotang which was fully paid by the duly registered partnership (Decision, R.A., pp. 919-921). On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute either in cash or in equipment, to the capital investment of the partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the promised contributions and he will not work as logging superintendent. By such statements, it is obvious that Roxas understood what Maglana was referring to and left no room for doubt that both considered themselves governed by the articles of the duly registered partnership. Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly registered. As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer is in the affirmative. Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal. Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners. But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for the purpose. On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals,

39

133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95). Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which was approved by the trial court, they showed that on 5050% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital contribution, he will be liable for P52,040.31. Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which should be on the basis of share and share alike as provided for in the duly registered Articles of Co-Partnership, no plausible reason could be found to disturb the findings and conclusions of the trial court.: nad As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment and to perform his duties as logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only abandoned the partnership but also took funds in an amount more than his contribution (Decision, R.A., p. 949). In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages. PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership, in accordance with the computation of the commissioners. We also hereby AFFIRM the decision of the trial court in all other respects.: nad SO ORDERED. Melencio-Herrera, Sarmiento and Regalado, JJ., concur. Padilla, J., took no part.

40

G.R. No. 17024

March 24, 1922

DOMINGO BEARNEZA, plaintiff-appelle, vs. BALBINO DEQUILLA, defendant-appellant. C. Lozano and Cecilio I. Lim for appellant. Montinola, Montinola & Hontiveros for appellee. ROMUALDEZ, J.: In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a partnership for the purpose of exploiting a fish pond situated in the barrio of Talisay, municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to contribute to the payment of the expenses of the business, which obligation she made good, and both agreeing to divide the profits between themselves, which they had been doing until the death of the said Perpetua in the year 1912. The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the herein plaintiff, as her heir to succeed to all her rights and interests in the fish pond in question. Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of the part of the fish pond belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza brought this action to recover said part of the fish pond belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza brought this action recover said part of the fish pond and one-half of the profits received by the defendant from the fish pond from the year 1913 to 1919, as damages (the amended complaint was filed on April 12, 1920), amounting, according to plaintiff, to the sum of thirteen thousand one hundred pesos (13,100). In his answer, the defendant denies generally and specifically the allegations of the complaint, and alleges, as special defense, that "the formation of the supposed partnership between the plaintiff and the defendant for the exploitation of the aforesaid fish pond was not carried into effect, on account of the plaintiff having refused to defray the expenses of reconstruction and exploitation of said fish pond." As another special defense, the defendant alleges "that in the event that the court should hold the plaintiff to be entitled to the undivided one-half of the fish pond, claimed in the complaint, the plaintiff's action has prescribed, the time for bringing the same having elapsed." Proceedings having been held as usual, the court below rendered judgment, declaring the plaintiff owner of one-half of the fish pond, which was composed of the portions known as "Alimango" and "Dalusan," but without awarding him any of the damages claimed by him, the same not having been proven, in the opinion of the court, and ordering the defendant to pay the costs.

From this judgment the defendant appeals, making various assignments of error. The plaintiff did not appeal from that part of the judgment denying his claim for damages; hence the only question we are called upon to decide is whether or not the plaintiff has any right to maintain an action for the recovery of one-half of the said fish pond. The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of which the proof contained in the record is conclusive and there is no dispute, was of a civil nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it having had for its subject-matter a specified thing, to with, the exploitation of the aforementioned fish pond. Although, as the trial court says in its decision, the defendant, in his letters to Perpetua or her husband, makes reference to the fish pond, calling it "our," or "your fish pond," this reference cannot be held to include the land on which the said fish pond was built. It has not been proven that Perpetua Bearneza participated in the ownership of said land, and Exhibits 2 and 3 of the defendant show that he has been paying, as exclusive owner of the fish pond, the land tax thereon, although in Exhibit X he says that the said land belongs to the State. The conclusion, therefore, from the evidence is that the land on which the fish pond was constructed did not constitute a part of the subject- matter of the aforesaid partnership. Now, this partnership not having been organized in the form of a mercantile partnership, and, therefore, the provisions of the Code of Commerce not being applicable thereto (article 1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza, and falls under the provisions of article 1700, subsection 3, of the same Code, and not under the exception established in the last paragraph of said article 1700 of the Civil Code. Neither can it be maintained that the partnership continued to exist after the death of Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever been made by her and the defendant, pursuant to the provisions of article 1704 of the Code last cited. The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal status was that of a partnership in liquidation, and the only rights inherited by her testamentary heir, the herein plaintiff, were those resulting from the said liquidation in favor of the deceased partner, and nothing more. Before this liquidation is made, which up to the present has not been effected, it is impossible to determine what rights or interests, if any, the deceased had, the partnership bond having been dissolved. There is no sufficient ground for holding that a community of property existed between the plaintiff and the defendant, it not being known whether the deceased still had any interest in the partnership property which could have been transmitted by will to the plaintiff. There being no community of property, article 395 of the Civil Code cited by the plaintiff in support of his contention can have no application to the case at bar. Neither can it be said that the partnership continued between the plaintiff and the defendant. It is true that the latter's act in requiring the heirs of Perpetua to contribute to

41

the payment of the expenses of exploitation of the aforesaid fishing industry was an attempt to continue the partnership, but it is also true that neither the said heirs collectively, nor the plaintiff individually, took any action in response to that requirement, nor made any promise to that effect, and therefore no new contract of partnership existed. We find that the plaintiff has not sufficiently shown his right of action. The judgment appealed from is modified, the same being affirmed insofar as it denies the plaintiff's claim for damages, and reversed insofar as it declares the said plaintiff owner of one-half of the fish pond, "Alimango" and "Dalusan," here in dispute. No special finding as to costs is made. So ordered. Araullo, C.J., Malcolm, Avanceña, Villamor, Ostrand and Johns, JJ., concur.

42

G.R. No. L-10040

January 31, 1916

EUGENIA LICHAUCO, ET AL., plaintiffs-appellants, vs. FAUSTINO LICHAUCO, defendant-appellant. Haussermann, Cohn and Fisher for plaintiffs. Gibbs, McDonough and Blanco for defendant. CARSON, J.: This action was brought by two of the partners of an enterprise of which the defendant was manager (gestor), to secure an accounting of its affairs, and the payment to the plaintiffs of their respective shares of capital and profits. The defendant admitted the allegations of the complaint as to the organization of the enterprise and the participation of the plaintiffs therein, but he contended that the plaintiffs could not maintain this action under the terms of the written contract by virtue of which the enterprise was organized. This contention having been overruled, an account of the affairs of the enterprise was submitted, and the parties having been given an opportunity to offer evidence for and against certain dispute items of the account, judgment was rendered for the balance shown to be due the plaintiffs, after allowing some of these disputed items and disallowing the rest. To this judgment, both plaintiffs and defendant excepted, and the record is now before us on their respective bills of exceptions. In October, 1901, a notarial instrument was executed in Manila, by the terms of which a partnership was duly organized for the purpose of carrying on a rice-cleaning business at Dagupan, and for the purchase and sale of "palay" and rice. The articles of association, which were not recorded in the mercantile registry, contain, among others, the following provisions: 2. The association will be named F. Lichauco Hermanos and will be domiciled in the center of its operations, that is, in the pueblo of Dagupan, Province of Pangasinan. 3. The association cannot be dissolved except by the consent and agreement of two-thirds of its partners and in the event of the death of any of the latter, the heirs of the deceased, if they be minors or otherwise incapacitated, shall be represented in the association by their legal representatives or if two-thirds of the surviving partners agree thereto, the participation of the deceased partner may be liquidated. 4. The management and direction of the association shall be in charged of Don Faustino Lichauco y Santos, who shall be domiciled in this city of Manila, with

ample powers to direct and manage the business; to carry out all manner of purchases and sales of "palay," rice, chattels, machinery and whatsoever may be necessary and proper for the business of the association; to make all contracts of every kind related to said business, either orally, in private documents or in public instruments, as he deems fit; to appoint subordinates and other employees such as may be necessary; and finally to perform whatever acts and things he may deem suitable to the interest of the association; and to appear before the courts of justice and other authorities and public offices in such matters as may concern the association and to appoint agents for those matters to which he cannot attend personally. The articles disclose that the capital invested in the enterprise was fixed at P100,000, of which amount P60,000 was contributed by the defendant and his brothers in the form of machinery in a mill at Dagupan and the good will of the milling business formerly conducted at the place, the balance of the capital being contributed by the plaintiffs and others in cash, in the following proportions: Eugenia Lichauco, P13,000; Catalino Arevalo, P8,000; Mariano Nable Jose, P5,000; Tomas Roux, P4,000; Julita Lichauco, P10,000. The business thus organized was carried on until May, 1904, when it was found to be unprofitable and discontinued by the defendant manager (gestor); and thereafter, the machinery of the rice mil was dismantled by his orders, and offered for sale. No accounting ever was made to his associates by the defendant until this action was instituted in October, 1912, although it appears that in the year 1905, Mariano Limjap, one of the participants in the venture, demanded a rendition of accounts; and that Eugenia Lichauco, one of the plaintiffs in this action, made repeated unsuccessful demands for the return of her share of the capital invested in the enterprise. And yet it further appears that during all that time the defendant manager of the defunct enterprise had in his possession not less than P20,000, the cash balance on hand, over and above all claims of indebtedness after suspending operations in 1904; and that since that time he received or should have received substantial sums of money from the sale of the machinery of the dismantled mill. There is evidence in the record tending to show that the defendant informed some of his associates, about the year 1906 or 1907, that the whole enterprise was bankrupt; and it appears that some months prior to the institution of this action, he rendered upon demand of counsel, a so-called account showing a balance to the credit of the enterprise of only P643.64; although at the trial, some six months afterwards, he expressly admitted the existence of a cash balance of some P23,131.53, and the amount by the trial judge as due by him on account of the venture was P29,549.99. The defendant explained that the account rendered to counsel for the plaintiffs showing a balance of P634.64 was mailed by one of his employees without his knowledge, and that it was a stupid blunder which he greatly regretted; and it would seem that his statement as to the bankruptcy of the enterprise were not intended to be understood as an assertion that there was no balance due the partners, but merely that the enterprise had not paid, and that the losses of operation had exceeded the profits.

43

Giving the defendant the benefit of the doubt, we are inclined to accept these explanations of these incidents, as it is hardly possible that he could have hoped to escape indefinitely the necessity of accounting for his management of the enterprise, and thus permanently retain in his own possession the substantial balance due to his associates. But it is to be observed that, viewed for many standpoint, these statements, made and rendered by the defendant as to the affairs of the association, taken together with the other evidence in the record, leave no room for doubt that from the time he concluded the operations of the business in 1904 until the date of the institution of this action in 1912 he made no attempt to account to his associates or to turn over to them the amount due them on a proper accounting.

said credit balance of the joint venture was unduly diminished by error in the conversion of gold currency.

The assignments of error made by counsel for the defendant, as appellant, are as follows:

Error No. 5. — The court erred in declining to allow the joint venture account the sum of P564.34, as interest at the legal rate upon the sum of P5,500, for which the defendant has failed and refused to account.

Error No. 1. — The trial court erred in rendering judgment in favor of the plaintiffs and against the defendant for any sum, without first decreeing a dissolution of the association and final liquidation of its assets in accordance with paragraph 10 of the articles of association, and because such judgment is not within the issues joined.

Error No. 3. — The court erred in refusing to allow the joint venture account the sum of P17, 746, being the value of 3,736 cavanes of rice at P4.75 per cavan, for which the defendant has wholly failed to account. Error No. 4. — The court erred in declining to allow the joint venture account the sum of P8,943.98 as interest upon said last-mentioned sum at the legal rate.

Error No. 6. — The court erred in declining to credit the joint venture account with the sum of P2,498.46 as the amount due said account from Mariano Nable Jose, together with interest thereon at the legal rate, amounting to P1,259.22.

Error No. 2. — The trial court erred in charging the defendant with P5,500, the price of certain boilers and machinery sold to one Marciano Rivera by Crisanto Lichauco, which amount never came into the possession of defendant.

We shall first examine the contentions of counsel for the defendant in support of his principal assignment of error, as a ruling in this regard is necessary to the proper disposition of all the other assignments of error by both plaintiffs and defendant.

Error No. 3. — The trial court erred in disallowing the credit of P60.36, taken by defendant for that amount expended in an attempt to make good the sale and delivery to Marciano Rivera of the boilers and machinery mentioned in the second assignment of error.

Counsel for defendant says in his brief:

Error No. 4. — The court erred in charging the defendant with the P1,820, covered by stipulation of December 10, 1913, for the reason that the defendant's liability under that stipulation can only accrue on the final dissolution and liquidation of the association. Error No. 5. — The court erred in rendering judgment against the defendant for the costs of the action. The assignments of error made by refusing to condemn the defendant to the payment of interest at the legal rate from May 30, 1904, to date of payment. Error No. 1 — The court erred in refusing to condemn the defendant to the payment of interest at the legal rate of 6 per cent upon the credit balance of the joint venture from May 30, 1904, to date of payment. Error No. 2. — The court erred in refusing to allow interest at the legal rate of 6 per cent upon the sum of P1,147.44 from May 30, 1904, to date of payment,

It is our contention, and we believe it to be unanswerable, that the dissolution and liquidation, either in whole or in part, of the association is absolutely prohibited by paragraph 10 of the articles of association, except by and with the conformity and agreement of two-thirds of the partners, and that as a consequence thereof the court, without allegations or proof of compliance with that paragraph and without making the other partners parties to the action, had no power to decree a distribution either in whole or in part of the capital or assets of the association. It certainly cannot be seriously contended that part of the capital and assets of this association can be lawfully returned to and distributed between the plaintiffs who constitute one-fifth of the total number of partners, as required by paragraph 10 of the articles of association. It is elementary that no lawful liquidation and distribution of capital and assets of any company or association can ever take place except upon dissolution thereof. These contentions of counsels for the defendant take no account of the provisions of both the Civil and Commercial Codes for the dissolution and liquidation of the different classes of partnerships and mercantile associations upon the occurrence of certain

44

contingencies not within the control of the partners. The provisions of paragraph 10 of the articles of partnership prohibiting the dissolution of the association under review, except by the consent and agreement of two-thirds of its partners, denied the right to a less number of the partners to effect a dissolution of the partnership through judicial intervention or otherwise; but in no wise limited or restricted the rights of the individual partners in the event the dissolution of the association was effected, not by any act of theirs, but by the express mandate of statutory law. It would be absurd and unreasonable to hold that such an association could never be dissolved and liquidated without the consent and agreement of two-thirds of its partners notwithstanding that it had lost all its capital, or had become bankrupt, or that the enterprise for which it had been organized had been concluded or utterly abandoned. Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means by which partnership (sociedades) as defined in that code, may be terminated. The first article of that chapter is as follows: 1700. Partnership is extinguished: (1) When the term for which it was constituted expires. (2) When the thing is lost, or the business for which it was constituted ends. (3) By the natural death, civil interdiction, or insolvency of any of the partners, and in the case provided for in article 1699. (4) By the will of any of the partners, subject to the provisions of articles 1705 and 1707. Partnerships, to which article 1670 refers, are excepted from the provisions of Nos. 3 and 4 of this article, in the cases in which they should exist, according to the Code of Commerce. 1670. Civil partnerships, on account of the objects for which they are destined, may adopt all the forms accepted by the Code of Commerce. In this case, the provisions of the same shall be applicable, in so far as they are not in conflict with those of the present Code. Articles 221 and 222 of the Code of Commerce are as follows: 221. Associations of any kind whatsoever shall be completely dissolved for the following reasons: (1) The termination of the period fixed in the articles of association of the conclusion of the enterprise which constitutes its purpose.

(2) The entire loss of the capital. (3) The failure of the association. 222. General and limited copartnerships shall furthermore be totally dissolved for the following reasons: (1) The death of one of the general partners if the articles of copartnership do not contain an express agreement that the heirs of deceased partner are to continue in the copartnership, or an agreement to the effect that said copartnership will continue between the surviving partners. (2) The insanity of a managing partner or any other cause which renders him incapable of administering his property. (3) The failure of any of the general partners. It cannot be doubted that under these provisions of law the association of which the defendant was nominated manager (gestor) was totally dissolved in the year 1904, when the rice mill for the operation of which it was organized was dismantled, the machinery offered for sale and the whole enterprise concluded and abandoned. Upon the dissolution of the association in 1904 it became the duty of the defendant to liquidate its affairs and account to his associates for their respective shares in the capital invested — this not merely from the very nature of his relation to the enterprise and of his duties to those associated with him as partners, but also by the express mandate of the law. The association having been dissolved by the termination and abandonment of the enterprise for which it was organized, he owed this duty to liquidate and account to all and to each of his associates, and upon his failure to perform that duty, all or any of them had a clear legal right to compel him to fulfill it. Each of his associates had a perfect right to demand for himself a full, complete and satisfactory accounting, and in the event that he conceived himself aggrieved in this regard, to institute the appropriate judicial proceedings to secure relief. Doubtless, in order to avoid a multiplicity of actions, the defendant in such an action could require all the associates to be made parties, but the right of an individual member of the association to recover his share in the enterprise and to assert his individual claim for redress, wholly independent of the action or attitudes of his associates, could be in no wise affected thereby. The other associates would be proper, but not necessary, parties to an action of this kind; and when, as in the case at bar, the defendant proceeds to trial without objection on the express ground that all the associates in the enterprise have not been made parties to the action, he cannot thereafter be heard to raise such an objection for the purpose of challenging any judgment which may be rendered therein. Although the enterprise was organized in the year 1901 for the purpose of conducting mercantile operations, including the buying and selling of "palay" and rice, the articles of partnership or association were not registered in the mercantile registry in accordance

45

with the provisions of articles 17 and 119 of the Commercial Code. It was therefore a mere unregistered commercial partnership, and the association never became in the legal sense a juridical person, nor did it attain the dignity, rights or privileges accorded the different classes of compañias mercantiles (mercantile partnerships), discussed in Title 1 of Book 2 of the Commercial Code. Still, under the provisions of the above-cited article 1670 of the Civil Code, if it be found that the association is clothed with the forms of any of the commercial association or partnerships recognized in the Commercial Code, the provisions of that code, in so far as they are not in conflict with those of the Civil Code, may be relied upon in an attempt to define the legal relations of the association and its members. Though the unregistered articles of partnership gave the association a form of organization closely assimilated to that of a regular "compañia en comandita," as prescribed in the Commercial Code, except that the name designated in the articles did not include the words "y compañia" (and company) and the additional words "sociedad en comandita," it appears to have been organized and conducted in substantially the manner and form prescribed for "cuentas en participacion" (joint accounts) in articles 239-243 of that Code. The plaintiffs alleged in their complaint and the defendant admitted in his answer that the contract was one of a "sociedad de cuentas en participacion" (joint account partnership) of which the defendant was gestor (manager). In his brief on appeal, however, counsel for defendant intimates that under article 241 of the Commercial Code, the adoption in the articles of partnership of a firm name deprived the parties of the rights and privileges secured to those interested in cuentas en participacion under the provisions of the Commercial Code. But whatever effect the inclusion or omission of a firm name in the articles of partnership may have had as to third persons dealing with the partnership, we are of opinion that as between the associates themselves, their mutual rights, duties and obligations may properly be determined upon the authority of article 1670 of the Civil Code by the provisions of the Commercial Code touching partnerships, the form of which in all other respects, the partners have adopted in their articles of partnership. The duty of the defendant to liquidate the affairs of the enterprise and to account to his associates promptly upon the dissolution of the association in the year 1904 is expressly prescribed in the Commercial Code, whether we regard the association, so far as it affects the mutual rights and obligations of the partners, as clothed with the forms of a "sociedad de cuentas en participacion" (joint account partnership) or a "sociedad en comindata." Article 243 of the Code of Commerce prescribes with reference to "cuentas en participacion" (joint accounts) that: 243. The liquidation shall be effected by the manager, and after the transactions have been concluded he shall render a proper account of its results.

229. In general or limited copartnerships, should there be no opposition on the part of any of the partners, the persons who managed the common funds shall continue in charge of the liquidation; but should all the partners not agree thereto a general meeting shall be called without delay, and the decision adopted at the same shall be enforced with regard to the appointment of liquidators from among the members of the association or not, as well as in all that refers to the form and proceedings of the liquidation and the management of the common funds. 230. Under the penalty of removal the liquidators shall — (1) Draw up and communicate to the members, within the period of twenty days, an inventory of the common property, with a balance of the association in liquidation according to its books. (2) Communicate in the same manner to the members every month the condition of the liquidation. We conclude that an express statutory obligation imposed upon the defendant an imperative obligation to proceed without delay to the liquidation of the association in the year 1904 and the further duty to account to his associates for the result of that liquidation. While he appears to have gone forward with the liquidation far enough to collect all the cash resources of the association into his own hands, how utterly failed neglected to account therefor to his associates or to make any attempt so to do, and we are of opinion that the plaintiffs were clearly entitled to bring this action to compel an accounting, and the payment of their respective shares of the capital invested, together with damages resulting from the failure of the defendant to perform the duty expressly imposed upon him by statute. The damages arising from the failure to account consisted of the loss of the use of the money to which they would have been entitled upon a proper accounting, from the date at which it should have been turned over by the defendant until it is actually paid by him, that is to say, interest on that amount at the rate of six per centum per annum until paid. What has been said disposes adversely of the contentions of the defendant in support of his assignments of errors Nos. 1 and 5; and sustains the contentions of the plaintiffs in their assignments of errors Nos. 1 and 2, to the extent that interest at the rate of six per centum per annum should have been allowed upon the credit balance of the enterprise from May 30, 1904, the date when it should have been distributed among his associates by the defendant had he performed his statutory duty in that regard. This balance (including the item mentioned in plaintiff's assignment of error No. 2) we fix at P23, 131.53, adopting as a basis for our finding in this regard, the findings and conclusions of the trial judge, and disregarding the possibility that had defendant accounted promptly to his associates, interest might not have been chargeable on some of the smaller items in included in the account until some little time after the date just mentioned.

Articles 229 and 230 of the same Code are as follows:

46

As to the other assignments of error it must suffice to say that we have carefully examined the record and have arrived at the following conclusions: With relation to the item of account referred to in defendant's assignment of error No. 2 and plaintiff's assignment No. 5, we hold that the defendant's account was properly charged by the trial judge with the sum of P5,500, the purchase price of certain machinery sold by him and for which, under all the circumstances, he must account, together with interest at the rate of six per centum per annum from January 8, 1912, the date of sale to Marciano Rivera. With relation to the items mentioned in plaintiff's assignments of errors Nos. 3 and 4, we hold that the trial judge properly declines to charge the defendant's account with the amounts mentioned therein, the evidence of record not being sufficient to establish his liability therefor as manager or gestor of the enterprise. With relation to the matter referred to in plaintiff's assignment of error number 6 and defendant's assignment No. 4, we are of opinion that the trial judge properly disposed of the issues between the parties in this regard, as they were submitted to him and as they are disclosed by the record brought here on appeal. We find no merit in defendant's assignment of error numbered 3. Twenty days hereafter let judgment be entered reversing the judgment of the lower court, without special condemnation of the costs in this instance, and directing the return of the record to the trial court, wherein judgment will be entered in accordance herewith, and ten days thereafter let the record be remanded in confirmity therewith. So ordered. Arellano, C.J., Torres and Trent, JJ., concur. Per MORELAND, J.: Owing to the advisability of publishing this case as soon as possible I refrain from giving my views at this time, reserving the right to do so later.

47