III.

OBLIGATIONS OF THE PARTNERS

Art. 1785- Duration of a Partnership:
-Ortega v. CA 245 SCRA 529
Art. 1786-Obligations of a partner with respect to
contribution of property
-Moran v. CA L-59956 Oct. 31, 1984
Art. 1788-Effect of failure to contribute and obligation
for conversion
-Uy v. Puzon 79 SCRA 598
Art. 1789-Obligations of an industrial partner
-Evangelista v. Abad-Santos 51 SCRA 416
Art. 1797- Rules for the distribution of profits and
losses
-Marsman Drysdale v. Philippine Geoanalytics
-Jarantilla v. Jarantilla GR No. 154486-Dec.1,2010
-Ramnani et al, v. CA GR No.85494 May 7, 1991
Art.1803-Rule when manner of management not
agreed
-Bachrach v. La Protectora 37 Phil. 441
Art. 1809- Right to demand a formal account
-Lim Tanhu v. Ramolete GR No. L-40098, Aug.29,
1975
-Fue Leung v. IAC GR No.70926 Jan. 31, 1989
-Emnace v. CA GR No. 126334 Nov. 23, 2001

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO,
JR., and BENJAMIN T. BACORRO, petitioners, vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L. MISA, respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered
by the Court of Appeals, dated 26 February 1993, in CA-G.R.

SP No. 24638 and No. 24648 affirming in toto that of the

Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by
respondent Commission and quoted at length by the
appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO
was duly registered in the Mercantile Registry on 4 January
1937 and reconstituted with the Securities and Exchange
Commission on 4 August 1948. The SEC records show that
there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm
[name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO,
DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO,
DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL
ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO,
MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with respondentsappellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and
Benjamin Bacorro, as junior partners. On February 17, 1988,
petitioner-appellant wrote the respondentsappellees a letter
stating:
I am withdrawing and retiring from the firm of
Bito, Misa and Lozada, effective at the end of
this month. "I trust that the accountants will be
instructed to make the proper liquidation of my
participation in the firm."
On the same day, petitioner-appellant wrote respondentsappellees another letter stating:
"Further to my letter to you today, I would like
to have a meeting with all of you with regard to
the mechanics of liquidation, and more
particularly, my interest in the two floors of this
building. I would like to have this resolved soon
because it has to do with my own plans."

On
19
February
1988,
petitioner-appellant
wrote
respondentsappellees another letter stating:
"The partnership has ceased to be mutually
satisfactory because of the working conditions
of our employees including the assistant
attorneys. All my efforts to ameliorate the below
subsistence level of the pay scale of our
employees have been thwarted by the other
partners. Not only have they refused to give
meaningful increases to the employees, even
attorneys, are dressed down publicly in a loud
voice in a manner that deprived them of their
self-respect. The result of such policies is the
formation of the union, including the assistant
attorneys."
On 30 June 1988, petitioner filed with this
Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and
order the immediate liquidation of (the
partnership of) Bito,
Misa & Lozada;
"2. Order the respondents to deliver or
pay for petitioner's share in the
partnership assets plus the profits, rent or
interest attributable to the use of his right
in the assets of the dissolved partnership;
"3. Enjoin respondents from using the
firm name of Bito, Misa & Lozada in any
of their correspondence, checks and
pleadings and to pay petitioners damages
for the use thereof despite the dissolution
of the partnership in the amount of at
least
P50,000.00;
"4. Order respondents jointly and
severally to pay petitioner attorney's fees
and expense of litigation in such amounts

as maybe proven during the trial and

which the Commission may deem just
and equitable under the premises but in
no case less than ten (10%) per cent of
the value of the shares of petitioner or
P100,000.00;
"5. Order the respondents to pay
petitioner moral damages with the amount of
P500,000.00 and exemplary damages in the amount
of P200,000.00. "Petitioner likewise prayed for such
other and further reliefs that the Commission may
deem just and equitable under the premises." On 13
July 1988, respondents-appellees filed their opposition
to the petition.
On 13 July 1988, petitioner filed his Reply to the
Opposition. On 31 March 1989, the hearing officer
rendered a decision ruling that:
"[P]etitioner's withdrawal from the law
firm Bito, Misa & Lozada did not dissolve
the said law partnership. Accordingly,
the petitioner and respondents are
hereby enjoined to abide by the
provisions of the Agreement relative to
the matter governing the liquidation of
the shares of any retiring or withdrawing
partner in the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the
Hearing Officer and held that the withdrawal of Attorney
Joaquin L. Misa had dissolved the partnership of "Bito, Misa &
Lozada." The Commission ruled that, being a partnership at
will, the law firm could be dissolved by any partner at
anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision,
dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order
of 31 March 1989 is hereby REVERSED insofar as it concludes
that the partnership of Bito, Misa & Lozada has not been
dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and
obligations of the parties. 2 The parties sought a

reconsideration of the above decision. Attorney Misa, in

addition, asked for an appointment of a receiver to take over
the assets of the dissolved partnership and to take charge of
the winding up of its affairs. On 4 April 1991, respondent SEC
issued an order denying reconsideration, as well as rejecting
the petition for receivership, and reiterating the remand of
the case to the Hearing Officer.
The parties filed with the appellate court separate appeals
(docketed CAG.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals,
Attorney Jesus
Bito and Attorney Mariano Lozada both died on, respectively,
05 September 1991 and 21 December 1991. The death of
the two partners, as well as the admission of new partners, in
the law firm prompted Attorney Misa to renew his application
for receivership (in CA G.R. SP No. 24648). He expressed
concern over the need to preserve and care for the
partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part
of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the appellate court
held, per its decision of 26 February 1993, (a) that Atty.
Misa's withdrawal from the partnership had changed the
relation of the parties and inevitably caused the dissolution
of the partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of
Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated
in the partnership agreement; (d) that the case should be
remanded to the SEC
Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and
(e) that the appointment of a receiver was unnecessary as no
sufficient proof had been shown to indicate that the
partnership assets were in any such danger of being lost,
removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court,
petitioners confine themselves to the following issues:

1. Whether or not the Court of Appeals has erred in

holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega &
Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in
holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad
faith; and
3. Whether or not the Court of Appeals has erred in
holding that private respondent's demand for the
dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad
faith;
to which matters we shall, accordingly, likewise limit
ourselves. A partnership that does not fix its term is a
partnership at will. That the law firm "Bito, Misa & Lozada,"
and now "Bito, Lozada, Ortega and Castillo," is indeed such
a partnership need not be unduly belabored. We quote, with
approval, like did the appellate court, the findings and
disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19
August 1948) does not provide for a specified period
or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall
continue so long as mutually satisfactory and upon the
death or legal incapacity of one of the partners, shall
be continued by the surviving partners." The hearing
officer however opined that the partnership is one for
a specific undertaking and hence not a partnership at
will, citing paragraph 2 of the Amended Articles of
Partnership (19 August 1948):
"2. Purpose. The purpose for which the
partnership is formed, is to act as legal
adviser and representative of any
individual, firm and corporation engaged
in commercial, industrial or other lawful
businesses and occupations; to counsel
and advise such persons and entities with
respect to their legal and other affairs;
and to appear for and represent their

principals and client in all courts of justice

and government departments and offices
in the Philippines, and elsewhere when
legally authorized to do so."
The "purpose" of the partnership is not the specific
undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would
all be considered as partnerships for a definite undertaking.
There would therefore be no need to provide for articles on
partnership at will as none would so exist. Apparently what
the law contemplates, is a specific undertaking or "project"
which has a definite or definable period of completion. 3 The
birth and life of a partnership at will is predicated on the
mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy
of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided
by the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the partnership at will.
He must, however, act in good faith, not that the attendance
of bad faith can prevent the dissolution of the partnership 4
but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its
specific duration or the statement of a particular purpose for
its creation prevent the dissolution of any partnership by an
act or will of a partner. 6 Among partners, 7 mutual agency
arises and the doctrine of delectus personae allows them to
have the power, although not necessarily the right, to
dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation
of the parties caused by any partner ceasing to be
associated in the carrying on, as might be distinguished from
the winding up of, the business. 8 Upon its dissolution, the
partnership continues and its legal personality is retained
until the complete winding up of its business culminating in
its termination. 9 The liquidation of the assets of the
partnership following its dissolution is governed by various

provisions of the Civil Code; 10 however, an agreement of the

partners, like any other contract, is binding among them and
normally takes precedence to the extent applicable over the
Code's general provisions. We here take note of paragraph 8
of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any
partner, his interest in the partnership shall be
liquidated and paid in accordance with the existing
agreements and his partnership participation shall
revert to the Senior Partners for allocation as the
Senior Partners may determine; provided, however,
that with respect to the two (2) floors of office
condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap
Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such
death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the
partnership and the other by the) retiring partner or
the heirs of a deceased partner, as the case may be.
In the event of any disagreement between the said
appraisers a third appraiser will be appointed by them
whose decision shall be final. The share of the retiring
or deceased partner in the aforementioned two (2)
floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be
paid monthly within the first ten (10) days of every
month in installments of not less than P20,000.00 for
the Senior Partners,
P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles,
as we so hold, in a generic sense to mean the dissociation by
a partner, inclusive of resignation or withdrawal, from the
partnership that thereby dissolves it. On the third and final
issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e.,
that Attorney Misa did not act in bad faith. Public
respondents viewed his withdrawal to have been spurred by
"interpersonal conflict" among the partners. It would not be

right, we agree, to let any of the partners remain in the

partnership under such an atmosphere of animosity;
certainly, not against their will. 12Indeed, for as long as the
reason for withdrawal of a partner is not contrary to the
dictates of justice and fairness, nor for the purpose of unduly
visiting harm and damage upon the partnership, bad faith
cannot be said to characterize the act. Bad faith, in the
context here used, is no different from its normal concept of
a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No
pronouncement on costs.
SO ORDERED.

G.R. No. L-59956 October

31, 1984 ISABELO MORAN,
JR., petitioner, vs.
THE HON. COURT OF APPEALS
PECSON, respondents.

and

MARIANO

E.

GUTIERREZ, JR., J.:+.wph!1

This is a petition for review on certiorari of the decision of the
respondent Court of Appeals which ordered petitioner Isabelo
Moran, Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the
undisputed facts indicate that: t.hqw xxx xxx xxx
... on February 22, 1971 Pecson and Moran
entered into an agreement whereby both would
contribute P15,000 each for the purpose of
printing 95,000 posters (featuring the delegates
to the 1971 Constitutional Convention), with
Moran actually supervising the work; that
Pecson would receive a commission of P l,000 a
month starting on April 15, 1971 up to
December 15, 1971; that on December 15,
1971, a liquidation of the accounts in the
distribution and printing of the 95,000 posters
would be made, that Pecson gave Moran
P10,000 for which the latter issued a receipt;

that only a few posters were printed; that on or

about May 28, 1971, Moran executed in favor of
Pecson a promissory note in the amount of
P20,000 payable in two equal installments
(P10,000 payable on or before June 15, 1971
and P10,000 payable on or before June 30,
1971), the whole sum becoming due upon
default in the payment of the first installment
on the date due, complete with the costs of
collection.
Private respondent Pecson filed with the Court of First
Instance of Manila an action for the recovery of a sum of
money and alleged in his complaint three (3) causes of
action, namely: (1) on the alleged partnership agreement,
the return of his contribution of P10,000.00, payment of his
share in the profits that the partnership would have earned,
and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of
P20,000.00; and, (3) moral and exemplary damages and
attorney's fees.
After the trial, the Court of First Instance held that: t.
hqw From the evidence presented it is clear
in the mind of the court that by virtue of the
partnership agreement entered into by the
parties-plaintiff and defendant the plaintiff did
contribute P10,000.00, and another sum of
P7,000.00 for the Voice of the Veteran or
Delegate Magazine. Of the expected 95,000
copies of the posters, the defendant was able to
print 2,000 copies only authorized of which,
however, were sold at P5.00 each. Nothing more
was done after this and it can be said that the
venture did not really get off the ground. On the
other hand, the plaintiff failed to give his full
contribution of P15,000.00. Thus, each party is
entitled to rescind the contract which right is
implied in reciprocal obligations under Article
1385 of the Civil Code whereunder 'rescission
creates the obligation to return the things which
were the object of the contract ... WHEREFORE,

the court hereby renders judgment ordering

defendant Isabelo C. Moran, Jr. to return to
plaintiff Mariano E. Pecson the sum of
P17,000.00, with interest at the legal rate from
the filing of the complaint on June 19, 1972, and
the costs of the suit.
For insufficiency of evidence, the counterclaim
is hereby dismissed.
From this decision, both parties appealed to the respondent
Court of Appeals. The latter likewise rendered a decision
against the petitioner. The dispositive portion of the decision
reads: t.hqw PREMISES CONSIDERED, the decision
appealed from is hereby SET ASIDE, and a new one is
hereby rendered, ordering defendant-appellant Isabelo C.
Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson: (a)
Forty-seven thousand five hundred (P47,500) (the amount
that could have accrued to Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission
for eight months);
(c) Seven thousand (P7,000) (as a return of
Pecson's investment for the Veteran's
Project); (d) Legal interest on (a), (b) and
(c) from the date the complaint was filed
(up to the time payment is made) The
petitioner contends that the respondent
Court of Appeals decided questions of
substance in a way not in accord with law
and with Supreme Court decisions when it
committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500
AS THE SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000,
AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING
OUT OF PECSON'S INVESTMENT.

III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS
A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE
VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL
LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF
APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
NOT
GRANTING
THE
PETITIONER'S
COMPULSORY
COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of
P47,500.00 as the private respondent's share in the
unrealized profits of the partnership. The petitioner contends
that the award is highly speculative. The petitioner maintains
that the respondent court did not take into account the great
risks involved in the business undertaking.
We agree with the petitioner that the award of speculative
damages has no basis in fact and law.
There is no dispute over the nature of the agreement
between the petitioner and the private respondent. It is a
contract of partnership. The latter in his complaint alleged
that he was induced by the petitioner to enter into a
partnership with him under the following terms and
conditions: t.hqw
1. That the partnership will print colored posters
of the delegates to the Constitutional
Convention;
2. That they will invest the amount of Fifteen
Thousand
Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand
(95,000) copies of the said posters;
4. That plaintiff will receive a commission of One
Thousand

Pesos (P1,000.00) a month starting April 15,

1971 up to
December 15, 1971;
5. That upon the termination of the partnership
on December 15, 1971, a liquidation of the
account pertaining to the distribution and
printing of the said 95,000 posters shall be
made.
The petitioner on the other hand admitted in his answer the
existence of the partnership.
The rule is, when a partner who has undertaken to contribute
a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and
damages from the time he should have complied with his
obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79
SCRA 598), which interpreted
Art. 2200 of the Civil Code of the Philippines, we allowed a
total of P200,000.00 compensatory damages in favor of the
appellee because the appellant therein was remiss in his
obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a
particular set of facts. We awarded compensatory damages
in the Uy case because there was a finding that the
constructing business is a profitable one and that the UP
construction company derived some profits from its
contractors in the construction of roads and bridges despite
its deficient capital." Besides, there was evidence to show
that the partnership made some profits during the periods
from July 2, 1956 to December 31, 1957 and from January 1,
1958 up to September 30, 1959. The profits on two
government contracts worth P2,327,335.76 were not
speculative. In the instant case, there is no evidence
whatsoever that the partnership between the petitioner and
the private respondent would have been a profitable venture.
In fact, it was a failure doomed from the start. There is
therefore no basis for the award of speculative damages in
favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full
contribution while Uy contributed much more than what was

expected of him. In this case, however, there was mutual

breach. Private respondent failed to give his entire
contribution in the amount of P15,000.00. He contributed
only P10,000.00. The petitioner likewise failed to give any of
the amount expected of him. He further failed to comply with
the agreement to print 95,000 copies of the posters. Instead,
he printed only 2,000 copies.
Article 1797 of the Civil Code provides: t.hqw
The losses and profits shall be distributed in
conformity with the agreement. If only the share
of each partner in the profits has been agreed
upon, the share of each in the losses shall be in
the same proportion.
Being a contract of partnership, each partner must share in
the profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits, in
the absence of fraud, the other partner cannot claim a right
to recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an
investment of P15,000.00, the respondent was supposed to
earn a guaranteed P1,000.00 a month for eight months and
around P142,500.00 on 95,000 posters costing P2.00 each
but 2,000 of which were sold at P5.00 each. The fantastic
nature of expected profits is obvious. We have to take
various factors into account. The failure of the Commission
on Elections to proclaim all the 320 candidates of the
Constitutional Convention on time was a major factor. The
petitioner undesirable his best business judgment and felt
that it would be a losing venture to go on with the printing of
the agreed 95,000 copies of the posters. Hidden risks in any
business venture have to be considered. It does not follow
however that the private respondent is not entitled to
recover any amount from the petitioner. The records show
that the private respondent gave P10,000.00 to the
petitioner. The latter used this amount for the printing of
2,000 posters at a cost of P2.00 per poster or a total printing
cost of P4,000.00. The records further show that the 2,000
copies were sold at P5.00 each. The gross income therefore
was P10,000.00. Deducting the printing costs of P4,000.00

from the gross income of P10,000.00 and with no evidence

on the cost of distribution, the net profits amount to only
P6,000.00. This net profit of P6,000.00 should be divided
between the petitioner and the private respondent. And since
only P4,000.00 was undesirable by the petitioner in printing
the 2,000 copies, the remaining P6,000.00 should therefore
be returned to the private respondent.
Relative to the second alleged error, the petitioner submits
that the award of P8,000.00 as Pecson's supposed
commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner
would give the private respondent a monthly commission of
Pl,000.00 from April 15, 1971 to December 15, 1971 for a
total of eight (8) monthly commissions. The agreement does
not state the basis of the commission. The payment of the
commission could only have been predicated on relatively
extravagant profits. The parties could not have intended the
giving of a commission inspite of loss or failure of the
venture. Since the venture was a failure, the private
respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that
the respondent Court of Appeals erred in holding him liable
to the private respondent in the sum of P7,000.00 as a
supposed return of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his
supposed return of investment in the "Voice of the Veterans"
magazine venture, the respondent court ruled that: t.
hqw
xxx xxx xxx
... Moran admittedly signed the promissory
note of P20,000 in favor of Pecson. Moran does
not question the due execution of said note.
Must Moran therefore pay the amount of
P20,000? The evidence indicates that the
P20,000 was assigned by Moran to cover the
following: t.hqw
(a) P 7,000 the
amount of the PNB
check
given
by

Pecson
to
Moran
representing Pecson's
investment in Moran's
other
project
(the
publication
and
printing of the 'Voice
of the Veterans'); (b)
P10,000 to cover
the return of Pecson's
contribution in the
project of the Posters;
(c)
P3,000

representing Pecson's
commission for three
months (April, May,
June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a
return of Pecson's investment for the Veterans'
project, for this project never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are
final and conclusive and cannot be reviewed on appeal to
this Court (Amigo v. Teves, 96 Phil. 252), provided they are
borne out by the record or are based on substantial evidence
(Alsua-Betts v. Court of Appeals, 92 SCRA 332). However,
this rule admits of certain exceptions. Thus, inCarolina
Industries
Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we
held that this
Court retains the power to review and rectify the findings of
fact of the Court of Appeals when (1) the conclusion is a
finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly
mistaken absurd and impossible; (3) where there is grave
abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making
its findings, went beyond the issues of the case and the same
are contrary to the admissions of both the appellant and the
appellee.
In this case, there is misapprehension of facts. The evidence
of the private respondent himself shows that his investment

in the "Voice of Veterans" project amounted to only

P3,000.00. The remaining P4,000.00 was the amount of profit
that the private respondent expected to receive.
The records show the following exhibits- t.hqw
E Xerox copy of PNB Manager's Check No.
234265 dated March 22, 1971 in favor of
defendant. Defendant admitted the authenticity
of this check and of his receipt of the proceeds
thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This
exhibit is being offered for the purpose of
showing plaintiff's capital investment in the
printing of the "Voice of the Veterans" for which
he was promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit
of P8,000 are covered by defendant's
promissory note for P14,000 dated March 31,
1971 marked by defendant as Exhibit 2 (t.s.n.,
pp. 20-21, Nov. 29, 1972), and by plaintiff as
Exhibit P. Later, defendant returned P3,000.00
of
the
P6,000.00
investment
thereby
proportionately reducing the promised profit to
P4,000. With the balance of P3,000 (capital) and
P4,000 (promised profit), defendant signed and
executed the promissory note for P7,000
marked Exhibit 3 for the defendant and Exhibit
M for plaintiff. Of this P7,000, defendant paid
P4,000 representing full return of the capital
investment and P1,000 partial payment of the
promised profit. The P3,000 balance of the
promised profit was made part consideration of
the P20,000 promissory note (t.s.n., pp. 22-24,
Nov. 29, 1972). It is, therefore, being presented
to show the consideration for the P20,000
promissory note. F Xerox copy of PNB
Manager's check dated May 29, 1971 for P7,000
in favor of defendant. The authenticity of the
check and his receipt of the proceeds thereof
were admitted by the defendant (t.s.n., pp. 3-4,
Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000

promissory note (t.s.n., p. 25, Nov. 29, 1972),

and it is being presented to show the
consideration for the P20,000 note and the
existence and validity of the obligation. xxx xxx
xxx
L-Book entitled "Voice of the Veterans" which is
being offered for the purpose of showing the
subject matter of the other partnership
agreement and in which plaintiff invested the
P6,000 (Exhibit E) which, together with the
promised profit of P8,000 made up for the
consideration of the P14,000 promissory note
(Exhibit 2; Exhibit P). As explained in connection
with Exhibit E. the P3,000 balance of the
promised
profit
was
later
made
part
consideration of the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30,
1971. This is also defendant's Exhibit E. This
document is being offered for the purpose of
further showing the transaction as explained in
connection with Exhibits E and L. N-Receipt of
plaintiff dated March 30, 1971 for the return of
his P3,000 out of his capital investment of
P6,000 (Exh. E) in the P14,000 promissory note
(Exh. 2; P). This is also defendant's Exhibit 4.
This document is being offered in support of
plaintiff's explanation in connection with
Exhibits E, L, and M to show the transaction
mentioned therein. xxx xxx xxx
P-Promissory note for P14,000.00. This is also
defendant's Exhibit 2. It is being offered for the
purpose of showing the transaction as explained
in connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson
testified that: t.hqw
Q During the pre-trial of this case,
Mr.
Pecson,
the
defendant
presented a promissory note in the
amount of P14,000.00 which has

been marked as Exhibit 2. Do you

know this promissory note?
A Yes, sir.
Q What is this promissory note, in
connection with your transaction
with the defendant?
A This promissory note is for the
printing of the "Voice of the
Veterans".
Q What is this "Voice of the
Veterans", Mr.
Pecson?
A It is a book.t.hqw
(T.S.N., p. 19, Nov. 29,
1972)
Q And what does the amount of
P14,000.00
indicated
in
the
promissory
note,
Exhibit
2,
represent?
A It represents the P6,000.00 cash
which I gave to Mr. Moran, as
evidenced
by
the
Philippine
National Bank Manager's check
and the P8,000.00 profit assured
me by Mr. Moran which I will derive
from the printing of this "Voice of
the Veterans" book. Q You said that
the P6,000.00 of this P14,000.00 is
covered by, a Manager's check. I
show you Exhibit E, is this the
Manager's check that mentioned?
A Yes, sir.
Q
What
happened
to
this
promissory note of P14,000.00
which
you
said
represented
P6,000.00 of your investment and
P8,000.00 promised profits?
A Latter, Mr. Moran returned to me
P3,000.00 which represented one-

half (1/2) of the P6,000.00 capital I

gave to him.
Q As a consequence of the return
by Mr. Moran of one-half (1/2) of
the P6,000.00 capital you gave to
him, what happened to the
promised profit of P8,000.00? A It
was reduced to one-half (1/2)
which is P4,000.00.
Q Was there any document
executed by Mr.
Moran in connection with the
Balance of P3,000.00 of your
capital
investment
and
the
P4,000.00 promised profits? A Yes,
sir, he executed a promissory
note. Q I show you a promissory
note in the amount of P7,000.00
dated March 30, 1971 which for
purposes
of
Identification
I
request the same to be marked as
Exhibit
M. . .
Court t.hqw Mark it as
Exhibit M. Q (continuing) is this
the promissory note which you
said was executed by Mr. Moran in
connection with your transaction
regarding the printing of the
"Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov.
29, 1972). Q What happened to
this promissory note executed by
Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out
of the P7,000.00 as shown by the
promissory note. Q Was there a
receipt issued by you covering this
payment of P4,000.00 in favor of
Mr. Moran?

A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972). Q
You stated that Mr. Moran paid
the amount of P4,000.00 on
account of the P7,000.00 covered
by the promissory note, Exhibit
M. What does this P4,000.00
covered by Exhibit N represent? A
This P4,000.00 represents the
P3,000.00 which he has returned
of
my
P6,000.00
capital
investment and the P1,000.00
represents partial payment of the
P4,000.00
profit
that
was
promised to me by Mr.
Moran.
Q And what happened to the
balance of P3,000.00 under the
promissory note, Exhibit M?
A The balance of P3,000.00 and the
rest of the profit was applied as
part of the consideration of the
promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the
project never left the ground because the project did take
place. Only it failed. It was the private respondent himself
who presented a copy of the book entitled "Voice of the
Veterans" in the lower court as Exhibit "L". Therefore, it
would be error to state that the project never took place and
on this basis decree the return of the private respondent's
investment.
As already mentioned, there are risks in any business venture
and the failure of the undertaking cannot entirely be blamed
on the managing partner alone, specially if the latter
exercised his best business judgment, which seems to be
true in this case. In view of the foregoing, there is no reason
to pass upon the fourth and fifth assignments of errors raised
by the petitioner. We likewise find no valid basis for the grant
of the counterclaim. WHEREFORE, the petition is GRANTED.

The decision of the respondent Court of Appeals (now

Intermediate Appellate Court) is hereby SET ASIDE and a new
one is rendered ordering the petitioner Isabelo Moran, Jr., to
pay private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private
respondent's contribution to the partnership but which
remained unused; and THREE THOUSAND (P3,000.00) PESOS
representing one half (1/2) of the net profits gained by the
partnership in the sale of the two thousand (2,000) copies of
the posters, with interests at the legal rate on both amounts
from the date the complaint was filed until full payment is
made.
SO ORDERED.1wph1.t
Teehankee (Chairman), Melencio-Herrera, Plana and Relova,
JJ., concur.
De la Fuente J., took no part.

G.R. No. L-19819 October 26, 1977 WILLIAM UY,

plaintiff-appellee, vs.
BARTOLOME PUZON, substituted by FRANCO PUZON,
defendant-appellant. R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.
CONCEPCION JR., J.:t.hqw
Appeal from the decision of the Court of First Instanre of
Manila, dissolving the "U.P. Construction Company" and
ordering the defendant Bartolome Puzon to pay the plaintiff
the amounts of: (1) P115,102.13, with legal interest thereon
from the date of the filing of the complaint until fully paid; (2)
P200,000.00, as plaintiffs share in the unrealized profits of
the "U.P. Construction Company" and (3) P5,000.00, as and
for attorney's fees.
It is of record that the defendant Bartolome Puzon had a
contract with the
Republic of the Philippines for the construction of the
Ganyangan Bato
Section of the Pagadian Zamboanga City Road, province of
Zamboanga del Sur 1 and of five (5) bridges in the MalangasGanyangan Road. 2 Finding difficulty in accomplishing both

projects, Bartolome Puzon sought the financial assistance of

the plaintiff, William Uy. As an inducement, Puzon proposed
the creation of a partnership between them which would be
the sub-contractor of the projects and the profits to be
divided equally between them. William Uy inspected the
projects in question and, expecting to derive considerable
profits therefrom, agreed to the proposition, thus resulting in
the formation of the "U.P. Construction Company" 3 which
was subsequently engaged as subcontractor of the
construction projects. 4 The partners agreed that the capital
of the partnership would be
P100,000.00 of which each partner shall contribute the
amount of P50,000.00 in cash. 5 But, as heretofore stated,
Puzon was short of cash and he promised to contribute his
share in the partnership capital as soon as his application for
a loan with the Philippine National Bank in the amount of
P150,000.00 shall have been approved. However, before his
loan application could be acted upon, he had to clear his
collaterals of its incumbrances first. For this purpose, on
October 24, 1956, Wilham Uy gave Bartolome Puzon the
amount of P10,000.00 as advance contribution of his share in
the partnership to be organized between them under the firm
name U.P. CONSTRUCTION COMPANY which amount
mentioned above will be used by Puzon to pay his obligations
with the Philippine National Bank to effect the release of his
mortgages with the said Bank. 6 On October 29, 1956,
William Uy again gave Puzon the amount of P30,000.00 as
his partial contribution to the proposed partnership and
which the said Puzon was to use in payment of his obligation
to the Rehabilitation Finance Corporation. 7 Puzon promised
William Uy that the amount of P150,000.00 would be given to
the partnership to be applied thusly: P40,000.00, as
reimbursement of the capital contribution of William Uy
which the said Uy had advanced to clear the title of Puzon's
property; P50,000.00, as Puzon's contribution to the
partnership; and the balance of P60,000.00 as Puzon's
personal loan to the partnership. 8
Although the partnership agreement was signed by the
parties on January

18, 1957,9 work on the projects was started by the

partnership on October 1, 1956 in view of the insistence of
the Bureau of Public Highways to complete the project right
away. 10 Since Puzon was busy with his other projects, William
Uy was entrusted with the management of the projects and
whatever expense the latter might incur, would be
considered as part of his contribution. 11 At the end of
December, 1957, William Uy had contributed to the
partnership the amount of P115,453.39, including his capital.
12

The loan of Puzon was approved by the Philippine National

Bank in November, 1956 and he gave to William Uy the
amount of P60,000.00. Of this amount, P40,000.00 was for
the reimbursement of Uy's contribution to the partnership
which was used to clear the title to Puzon's property, and
the P20,000.00 as Puzon's contribution to the partnership
capital. 13
To guarantee the repayment of the above-mentioned loan,
Bartolome
Puzon, without the knowledge and consent of William Uy, 14
assigned to the Philippine National Bank all the payments to
be received on account of the contracts with the Bureau of
Public Highways for the construction of the afore-mentioned
projects. 15 By virtue of said assignment, the Bureau of Public
Highways
paid
the
money
due
on
the
partial
accomplishments on the government projects in question to
the Philippine National Bank which, in turn, applied portions
of it in payment of Puzon's loan. Of the amount of
P1,047,181.07, released by the Bureau of Public Highways in
payment of the partial work completed by the partnership on
the projects, the amount of P332,539.60 was applied in
payment of Puzon's loan and only the amount of P27,820.80
was deposited in the partnership funds, 16 which, for all
practical purposes, was also under Puzon's account since
Puzon was the custodian of the common funds.
As time passed and the financial demands of the projects
increased, William Uy, who supervised the said projects,
found difficulty in obtaining the necessary funds with which
to
pursue
the
construction
projects.
William
Uy
correspondingly called on Bartolome Puzon to comply with

his obligations under the terms of their partnership

agreement and to place, at lest, his capital contribution at
the disposal of the partnership. Despite several promises,
Puzon, however, failed to do so. 17 Realizing that his verbal
demands were to no avail, William Uy consequently wrote
Bartolome Puzon pormal letters of demand, 18 to which Puzon
replied that he is unable to put in additional capital to
continue with the projects. 19
Failing to reach an agreement with William Uy, Bartolome
Puzon, as prime contractor of the construction projects, wrote
the subcontractor, U.P. Construction Company, on November
20, 1957, advising the partnership, of which he is also a
partner, that unless they presented an immediate solution
and capacity to prosecute the work effectively, he would be
constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the construction
of the projects in accordance with his original contract with
the Bureau of Public Highways. 20 On November 27, 1957,
Bartolome Puzon again wrote the U.P.Construction Company
finally terminating their subcontract agreement as of
December 1, 1957. 21 Thereafter, William Uy was not allowed
to hold office in the U.P.
Construction Company and his authority to deal with the
Bureau of Public Highways in behalf of the partnership was
revoked by Bartolome Puzon who continued with the
construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome Puzon
had violated the terms of their partnership agreement,
instituted an action in court, seeking, inter alia, the
dissolution of the partnership and payment of damages.
Answering, Bartolome Puzon denied that he violated the
terms of their agreement claiming that it was the plaintiff,
William Uy, who violated the terms thereof. He, likewise,
prayed for the dissolution of the partnership and for the
payment by the plaintiff of his, share in the losses suffered
by the partnership.
After appropriate proceedings, the trial court found that the
defendant, contrary to the terms of their partnership
agreement, failed to contribute his share in the capital of the
partnership applied partnership funds to his personal use;

ousted the plaintiff from the management of the firm, and

caused the failure of the partnership to realize the expected
profits of at least P400,000.00. As a consequence, the trial
court dismissed the defendant's counterclaim and ordered
the dissolution of the partnership. The trial court further
ordered the defendant to pay the plaintiff the sum of
P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon
during the pendency of the appeal before this Court, the said
Bartolome Puzon died, and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19)
assignment of errors, involving questions of fact,
which relates to the following points: (1) That the
appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order
to pay the appellee is not supported by the evidence and the
law.
After going over the record, we find no reason for rejecting
the findings of fact below, justifying the reversal of the
decision appealed from. The findings of the trial court that
the appellant failed to contribute his share in the capital of
the partnership is clear incontrovertible. The record shows
that after the appellant's loan the amount of P150,000.00
was approved by the Philippin National Bank in November,
1956, he gave the amount P60,000.00 to the appellee who
was then managing the construction projects. Of this
amount, P40,000.00 was to be applied a reimbursement of
the appellee's contribution to the partnership which was used
to clear the title to the appellant's property, and th balance
of P20,000.00, as Puzon's contribution to the partnership. 23
Thereafter, the appellant failed to make any further
contributions the partnership funds as shown in his letters to
the appellee wherein he confessed his inability to put in
additional capital to continue with the projects. 24
Parenthetically, the claim of the appellant that the appellee is
equally guilty of not contributing his share in the partnership
capital inasmuch as the amount of P40,000.00, allegedly
given to him in October, 1956 as partial contribution of the
appellee is merely a personal loan of the appellant which he
had paid to the appellee, is plainly untenable. The terms of

the receipts signed by the appellant are clear and

unequivocal that the sums of money given by the appellee
are appellee's partial contributions to the partnership capital.
Thus, in the receipt for P10,000.00 dated October 24, 1956,
25
the appellant stated:+.wph!1
Received from Mr. William Uy the sum of TEN
THOUSAND PESOS (P10,000.00) in Check No. SC
423285 Equitable Banking Corporation, dated
October 24, 1956, as advance contribution of
the share of said William Uy in the partnership
to be organized between us under the firm
name U.P. CONSTRUCTION COMPANY which
amount mentioned above will be used by the
undersigned to pay his obligations with the
Philippine National Bank to effect the release of
his mortgages with the said bank. (Emphasis
supplied)
In the receipt for the amount of P30,000.00 dated October
29, 1956, 26 the appellant also said:+.wph!1
Received from William Uy the sum of THIRTY
THOUSAND
PESOS (P30,000.00) in Check No. SC423287, of
the Equitable Banking Corporation, as partial contribution of
the share of the said William Uy to the U.P. CONSTRUCTION
COMPANY for which the undersigned will use the said amount
in payment of his obligation to the Rehabilitation Finance
Corporation. (Emphasis supplied) The findings of the trial
court that the appellant misapplied partnership funds is,
likewise, sustained by competent evidence. It is of record
that the appellant assigned to the Philippine National Bank all
the payments to be received on account of the contracts with
the Bureau of Public Highways for the construction of the
aforementioned projects to guarantee the repayment of the
bank. 27 By virtue of the said appeflant's personal loan with
the said bank assignment, the Bureau of Public Highways
paid the money due on the partial accomplishments on the
construction projects in question to the Philippine National
Bank who, in turn, applied portions of it in payment of the
appellant's loan. 28

The appellant claims, however, that the said assignment was

made with the consent of the appellee and that the
assignment not prejudice the partnership as it was
reimbursed by the appellant.
But, the appellee categorically stated that the assignment to
the Philippine National Bank was made without his prior
knowledge and consent and that when he learned of said
assignment, he cal the attention of the appellant who
assured him that the assignment was only temporary as he
would transfer the loan to the Rehabilitation Finance
Corporation within three (3) months time. 29
The question of whom to believe being a matter large
dependent on the trier's discretion, the findings of the trial
court who had the better opportunity to examine and
appraise the fact issue, certainly deserve respect.
That the assignment to the Philippine National Bank
prejudicial to the partnership cannot be denied. The record
show that during the period from March, 1957 to September,
1959, the appellant Bartolome Puzon received from the
Bureau of Public highways, in payment of the work
accomplished on the construction projects, the amount of
P1,047,181.01, which amount rightfully and legally belongs
to the partnership by virtue of the subcontract agreements
between the appellant and the U.P. Construction Company. In
view of the assignemt made by Puzon to the Philippine
National Bank, the latter withheld and applied the amount of
P332,539,60 in payment of the appellant's personal loan with
the said bank. The balance was deposited in Puzon's current
account and only the amount of P27,820.80 was deposited in
the current account of the partnership. 30 For sure, if the
appellant gave to the partnership all that were eamed and
due it under the subcontract agreements, the money would
have been used as a safe reserve for the discharge of all
obligations of the firm and the partnership would have been
able to successfully and profitably prosecute the projects it
subcontracted.
When did the appellant make the reimbursement claimed by
him? For the same period, the appellant actually disbursed
for the partnership, in connection with the construction

projects, the amount of P952,839.77. 31 Since the appellant

received from the Bureau of Public
Highways the sum of P1,047,181.01, the appellant has a
deficit balance of P94,342.24. The appellant, therefore, did
not make complete restitution. The findings of the trial court
that the appellee has been ousted from the management of
the partnership is also based upon persuasive evidence. The
appellee testified that after he had demanded from the
appellant payment of the latter's contribution to the
partnership capital, the said appellant did not allow him to
hold office in the U.P. Construction Company and his
authority to deal with the Bureau of Public Highways was
revoked by the appellant.32
As the record stands, We cannot say, therefore, that the decis
of the trial court is not sustained by the evidence of record as
warrant its reverw. Since the defendantappellant was at fauh,
the tral court properly ordered him to reimburse the plaintiffappellee whatever amount latter had invested in or spent for
the partnership on account of construction projects. How
much did the appellee spend in the construction projects
question? It appears that although the partnership
agreement stated the capital of the partnership is
P100,000.00 of which each part shall contribute to the
partnership the amount of P50,000.00 cash 33 the partners of
the U.P. Construction Company did contribute their agreed
share in the capitalization of the enterprise in lump sums of
P50,000.00 each. Aside from the initial amount P40,000.00
put up by the appellee in October, 1956, 34 the partners'
investments took, the form of cash advances coveting
expenses of the construction projects as they were incurred.
Since the determination of the amount of the disbursements
which each of them had made for the construction projects
require an examination of the books of account, the trial
court appointed two commissioners, designated by the
parties, "to examine the books of account of the defendant
regarding the U.P. Construction Company and his personal
account with particular reference to the Public Works
contract for the construction of the Ganyangan-Bato Section,
Pagadian-Zamboanga City Road and five (5) Bridges in
Malangas-Ganyangan Road, including the payments received

by defendant from the Bureau of Public Highways by virtue of

the two projects above mentioned, the disbursements or
disposition made by defendant of the portion thereof
released to him by the Philippine National Bank and in whose
account these funds are deposited . 35
In due time, the loners so appointed, 36 submitted their report
37
they indicated the items wherein they are in agreement, as
well as their points of disagreement.
In the commissioners' report, the appellant's advances are
listed under Credits; the money received from the firm,
under Debits; and the resulting monthly investment
standings
of
the
partners,
under
Balances.
The
commissioners are agreed that at the end of December,
1957, the appellee had a balance of P8,242.39. 38 It is in
their respective adjustments of the capital account of the
appellee that the commissioners had disagreed. Mr. Ablaza,
designated by the appellant, would want to charge the
appellee with the sum of P24,239.48, representing the
checks isssued by the appellant, 39 and encashed by the
appellee or his brother, Uy Han so that the appellee would
owe the partnership the amount of P15,997.09. Mr. Tayag,
designated by the appellee, upon the other hand, would
credit the appellee the following additional amounts:
(1) P7,497.80 items omitted from the books of
partnership but recognized and charged to Miscellaneous
Expenses by Mr. Ablaza; (2) P65,103.77 payrolls paid by
the appellee in the amount P128,103.77 less payroll
remittances from the appellant in amount of P63,000.00;
and (3) P26,027.04 other expeses incurred by the appellee
at construction site. With respect to the amount of
P24,239.48, claimed by appellant, we are hereunder
adopting the findings of the trial which we find to be in
accord with the evidence:
To enhance defendant's theory that he should be credited
P24,239.48, he presented checks allegedly given to plaintiff
and the latter's brother, Uy Han, marked as Exhibits 2 to 11.
However, defendant admitted that said cheeks were not
entered nor record their books of account, as expenses for
and in behalf of partnership or its affairs. On the other hand,
Uy Han testified that of the cheeks he received were

exchange for cash, while other used in the purchase of spare

parts requisitioned by defendant. This testimony was not
refuted to the satisfaction of the Court, considering that
Han's explanation thereof is the more plausible because if
they were employed in the prosecution of the partners
projects, the corresponding disbursements would have
certainly been recorded in its books, which is not the case.
Taking into account defendant is the custodian of the books
of account, his failure to so enter therein the alleged
disbursements, accentuates the falsity of his claim on this
point. 40
Besides, as further noted by the trial court, the report
Commissioner Ablaza is unreliable in view of his proclivity to
favor the appellant and because of the inaccurate accounting
procedure adopted by him in auditing the books of account of
the partnership unlike Mr. Tayag's report which inspires faith
and credence. 41
As explained by Mr. Tayag, the amount of P7,497.80 represen
expenses paid by the appellee out of his personal funds
which not been entered in the books of the partnership but
which been recognized and conceded to by the auditor
designated by the appellant who included the said amount
under
Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount
of P65,103.77 is likewise clear and convincing. 43
As for the sum of of P26,027.04, the same represents the
expenses which the appelle paid in connection withe the
projects and not entered in the books of the partnership
since all vouchers and receipts were sent to the Manila office
which were under the control of the appellant. However,
officer which were under the control of the appellant.
However, a list of these expenses are incorporated in Exhibits
ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as

as of Dec.
1967
Add: Items
omitted from
the books but
recognized and
charged
Miscellaneous

P 8,242.

to

Expenses by
Mr. Ablaza
Add: P128,1 Payrol
ls paid
by the
appell
ee

7,497.80
03.77

Less: 63,000 65,103 Payrol .00 .77 l

remitt
ances
receiv
ed
Add:
Other
expen
ses
incurr
ed
at
the
site
(Exhs,
ZZ, ZZ1 to
ZZ-4)

follows: +.wph!1
Undispute
d balance

26,027
.04

TOTAL
71.00

P106,8

At the trial, the appellee presented a claim for the amounts

of P3,917.39 and P4,665.00 which he also advanced for the
construction projects but which were not included in the
Commissioner's Report. 44 Appellee's total investments in
the partnership would, therefore, be:
Appellee's
total credits
Add:
unrecorded
balances for
the month of
Dec. 1957
(Exhs. KKK,
KK-1 to
KKK_19,
KKK22)
Add:
Payments to
Munoz,
as
subcontracto
r of five,(5)
Bridges (p.
264 tsn; Exhs.
KKK-20,
KKK21)

P106,871.00
3,917,39

4,665.00

Pl
Total
15,453.39
Investments
Regarding the award of P200,000.00 as his share in the
unrealized profits of the partnership, the appellant contends
that the findings of the trial court that the amount of
P400,000.00 as reasonable profits of the partnership venture
is without any basis and is not supported by the evidence.
The appemnt maintains that the lower court, in making its
determination, did not take into consideration the great risks
involved in business operations involving as it does the
completion of the projects within a definite period of time, in
the face of adverse and often unpredictable circumstances,
as well as the fact that the appellee, who was in charge of

the projects in the field, contributed in a large measure to the

failure of the partnership to realize such profits by his field
management.
This argument must be overruled in the light of the law and
evidence on the matter. Under Article 2200 of the Civil Code,
indemnification for damages shall comprehend not only the
value of the loss suffered, but also that of the profits which
the obligee failed to obtain. In other words lucrum cessans is
also a basis for indemnification.
Has the appellee failed to make profits because of appellant's
breach of contract?
There is no doubt that the contracting business is a
profitable one and that the U.P. Construction Company
derived some profits from' co io oa ects its sub ntracts in
the construction of the road and bridges projects its
deficient working capital and the juggling of its funds by the
appellant. Contrary to the appellant's claim, the partnership
showed some profits during the period from July 2, 1956 to
December 31, 1957. If the Profit and Loss Statement 45
showed a net loss of P134,019.43, this was primarily due to
the confusing accounting method employed by the auditor
who intermixed h and accthe cas ruamethod of accounting
and the erroneous inclusion of certain items, like personal
expenses of the appellant and afteged extraordinary losses
due to an accidental plane crash, in the operating expenses
of the partnership, Corrected, the Profit and Loss Statement
would indicate a net profit of P41,611.28.
For the period from January 1, 1958 to September 30, 1959,
the partnership admittedly made a net profit of P52,943.89.
46

Besides, as We have heretofore pointed out, the appellant

received from the Bureau of Public Highways, in payment of
the zonstruction projects in question, the amount of
P1,047,181.01 47 and disbursed the amount of P952,839.77,
48
leaving an unaccounted balance of P94,342.24. Obviously,
this amount is also part of the profits of the partnership.
During the trial of this case, it was discovered that the
appellant had money and credits receivable froin the projects
in question, in the custody of the Bureau of Public Highways,
in the amount of P128,669.75, representing the 10%

retention of said projects.49 After the trial of this case, it was

shown that the total retentions Wucted from the appemnt
amounted to P145,358.00. 50 Surely, these retained amounts
also form part of the profits of the partnership.
Had the appellant not been remiss in his obligations as
partner and as prime contractor of the construction projects
in question as he was bound to perform pursuant to the
partnership and subcontract agreements, and considering
the fact that the total contract amount of these two projects
is P2,327,335.76, it is reasonable to expect that the
partnership would have earned much more than the
P334,255.61 We have hereinabove indicated. The award,
therefore, made by the trial court of the amount of
P200,000.00, as compensatory damages, is not speculative,
but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from,
the said decision is hereby affirmed with costs against the
appellant, it being understood that the liability mentioned
herein shall be home by the estate of the deceased
Bartolome Puzon, represented in this instance by the
administrator thereof, Franco Puzon.
SO ORDERED.
Fernando (Chairman), Barredo, Antonio and Santos, JJ.,
concur.1wph1.t Aquino, J., concurs in the result.

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA,
JR., CONCHITA B. NAVARRO and LEONARDA
ATIENZA ABAD SABTOS, petitioners, vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the
name of "Evangelista & Co." On June 7, 1955 the Articles of
Co-partnership was amended as to include herein
respondent, Estrella Abad Santos, as industrial partner, with

herein petitioners Domingo C. Evangelista, Jr., Leonardo

Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a
contribution of P17,500 each. The amended Articles
provided, inter alia, that "the contribution of Estrella Abad
Santos consists of her industry being an industrial partner",
and that the profits and losses "shall be divided and
distributed among the partners ... in the proportion of 70%
for the first three partners, Domingo C. Evangelista, Jr.,
Conchita P. Navarro and Leonardo Atienza Abad Santos to be
divided among them equally; and 30% for the fourth partner
Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against
the three other partners in the Court of First Instance of
Manila, alleging that the partnership, which was also made a
party-defendant, had been paying dividends to the partners
except to her; and that notwithstanding her demands the
defendants had refused and continued to refuse and let her
examine the partnership books or to give her information
regarding the partnership affairs to pay her any share in the
dividends declared by the partnership. She therefore prayed
that the defendants be ordered to render accounting to her
of the partnership business and to pay her corresponding
share in the partnership profits after such accounting, plus
attorney's fees and costs.
The defendants, in their answer, denied ever having declared
dividends or distributed profits of the partnership; denied
likewise that the plaintiff ever demanded that she be allowed
to examine the partnership books; and byway of affirmative
defense alleged that the amended Articles of Copartnership
did not express the true agreement of the parties, which was
that the plaintiff was not an industrial partner; that she did
not in fact contribute industry to the partnership; and that
her share of 30% was to be based on the profits which might
be realized by the partnership only until full payment of the
loan which it had obtained in December, 1955 from the
Rehabilitation Finance Corporation in the sum of P30,000, for
which the plaintiff had signed a promisory note as co-maker
and mortgaged her property as security.

The parties are in agreement that the main issue in this case
is "whether the plaintiff-appellee (respondent here) is an
industrial partner as claimed by her or merely a profit sharer
entitled to 30% of the net profits that may be realized by the
partnership from June 7, 1955 until the mortgage loan from
the Rehabilitation Finance Corporation shall be fully paid, as
claimed by appellants (herein petitioners)." On that issue the
Court of First Instance found for the plaintiff and rendered
judgement "declaring her an industrial partner of Evangelista
& Co.; ordering the defendants to render an accounting of
the business operations of the (said) partnership ... from June
7, 1955; to pay the plaintiff such amounts as may be due as
her share in the partnership profits and/or dividends after
such an accounting has been properly made; to pay plaintiff
attorney's fees in the sum of P2,000.00 and the costs of this
suit."
The defendants appealed to the Court of Appeals, which
thereafter affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned the
following errors: I. The Court of Appeals erred in
the finding that the respondent is an industrial
partner of Evangelista & Co., notwithstanding
the admitted fact that since 1954 and until after
promulgation of the decision of the appellate
court the said respondent was one of the judges
of the City Court of Manila, and despite its
findings that respondent had been paid for
services allegedly contributed by her to the
partnership. In this connection the Court of
Appeals erred:
(A) In finding that the "amended
Articles of Co-partnership," Exhibit
"A" is conclusive evidence that
respondent was in fact made an
industrial partner of Evangelista &
Co. (B) In not finding that a portion
of respondent's testimony quoted
in the decision proves that said
respondent did not bind herself to
contribute her industry, and she

could not, and in fact did not,

because she was one of the judges
of the City Court of Manila since
1954.
(C)
In
finding
that
respondent
did
not
in
fact
contribute her industry, despite the
appellate court's own finding that
she has been paid for the services
allegedly rendered by her, as well
as for the loans of money made by
her to the partnership. II. The lower
court erred in not finding that in
any event the respondent was
lawfully
excluded
from,
and
deprived of, her alleged share,
interests and participation, as an
alleged industrial partner, in the
partnership Evangelista & Co., and
its profits or net income.
III. The Court of Appeals erred in affirming in
toto the decision of the trial court whereby respondent was
declared an industrial partner of the petitioner, and
petitioners were ordered to render an accounting of the
business operation of the partnership from June 7, 1955, and
to pay the respondent her alleged share in the net profits of
the partnership plus the sum of P2,000.00 as attorney's fees
and the costs of the suit, instead of dismissing respondent's
complaint, with costs, against the respondent. It is quite
obvious that the questions raised in the first assigned errors
refer to the facts as found by the Court of Appeals. The
evidence presented by the parties as the trial in support of
their respective positions on the issue of whether or not the
respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to the
extent of reproducing verbatim therein the lengthy testimony
of the witnesses. It is not the function of the Supreme Court
to analyze or weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law that might
have been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did not

hold that the Articles of Co-partnership, identified in the

record as Exhibit "A", was conclusive evidence that the
respondent was an industrial partner of the said company,
but considered it together with other factors, consisting of
both testimonial and documentary evidences, in arriving at
the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points
raised in the first assignment of error are hereunder
reproduced if only to demonstrate that the same were made
after a through analysis of then evidence, and hence are
beyond this Court's power of review.
The aforequoted findings of the lower Court are
assailed under Appellants' first assigned error,
wherein it is pointed out that "Appellee's
documentary evidence does not conclusively
prove that appellee was in fact admitted by
appellants as industrial partner of Evangelista &
Co." and that "The grounds relied upon by the
lower Court are untenable" (Pages 21 and 26,
Appellant's Brief). The first point refers to
Exhibit A, B, C, K, K-1, J, N and S, appellants'
complaint being that "In finding that the
appellee is an industrial partner of appellant
Evangelista & Co., herein referred to as the
partnership the lower court relied mainly on
the appellee's documentary evidence, entirely
disregarding
facts
and
circumstances
established by appellants" evidence which
contradict the said finding' (Page 21, Appellants'
Brief). The lower court could not have done
otherwise but rely on the exhibits just
mentioned, first, because appellants have
admitted their genuineness and due execution,
hence they were admitted without objection by
the lower court when appellee rested her case
and, secondly the said exhibits indubitably show
the appellee is an industrial partner of appellant
company. Appellants are virtually estopped from
attempting to detract from the probative force
of the said exhibits because they all bear the

imprint of their knowledge and consent, and

there is no credible showing that they ever
protested against or opposed their contents
prior of the filing of their answer to appellee's
complaint. As a matter of fact, all the appellant
Evangelista, Jr., would have us believe as
against the cumulative force of appellee's
aforesaid documentary evidence is the
appellee's Exhibit "A", as confirmed and
corroborated by the other exhibits already
mentioned, does not express the true intent and
agreement of the parties thereto, the real
understanding between them being the
appellee would be merely a profit sharer
entitled to 30% of the net profits that may be
realized between the partners from June 7,
1955, until the mortgage loan of P30,000.00 to
be obtained from the RFC shall have been fully
paid. This version, however, is discredited not
only by the aforesaid documentary evidence
brought forward by the appellee, but also by the
fact that from June 7, 1955 up to the filing of
their answer to the complaint on February 8,
1964 or a period of over eight (8) years
appellants did nothing to correct the alleged
false agreement of the parties contained in
Exhibit "A". It is thus reasonable to suppose
that, had appellee not filed the present action,
appellants would not have advanced this
obvious afterthought that Exhibit "A" does not
express the true intent and agreement of the
parties thereto. At pages 32-33 of appellants'
brief, they also make much of the argument
that 'there is an overriding fact which proves
that the parties to the Amended Articles of
Partnership, Exhibit "A", did not contemplate to
make the appellee
Estrella Abad Santos, an industrial partner of
Evangelista & Co. It is an admitted fact that
since before the execution of the amended

articles of partnership, Exhibit "A", the appellee

Estrella Abad Santos has been, and up to the
present time still is, one of the judges of the
City Court of Manila, devoting all her time to the
performance of the duties of her public office.
This fact proves beyond peradventure that it
was never contemplated between the parties,
for she could not lawfully contribute her full
time and industry which is the obligation of an
industrial partner pursuant to Art. 1789 of the
Civil Code.
The Court of Appeals then proceeded to consider appellee's
testimony on this point, quoting it in the decision, and then
concluded as follows: One cannot read appellee's testimony
just quoted without gaining the very definite impression that,
even as she was and still is a Judge of the City Court of
Manila, she has rendered services for appellants without
which they would not have had the wherewithal to operate
the business for which appellant company was organized.
Article 1767 of the New Civil Code which provides that "By
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, 'does not specify the kind of
industry that a partner may thus contribute,
hence the said services may legitimately be
considered as appellee's contribution to the
common fund. Another article of the same Code
relied upon appellants reads:
'ART. 1789. An industrial partner
cannot engage in business for
himself, unless the partnership
expressly permits him to do so;
and if he should do so, the
capitalist partners may either
exclude him from the firm or avail
themselves of the benefits which
he may have obtained in violation

of this provision, with a right to

damages in either case.'
It is not disputed that the provision against the
industrial partner engaging in business for
himself seeks to prevent any conflict of interest
between the industrial partner and the
partnership, and to insure faithful compliance
by said partner with this prestation. There is no
pretense, however, even on the part of the
appellee
is
engaged
in
any
business
antagonistic to that of appellant company, since
being a Judge of one of the branches of the City
Court of Manila can hardly be characterized as a
business. That appellee has faithfully complied
with her prestation with respect to appellants is
clearly shown by the fact that it was only after
filing of the complaint in this case and the
answer thereto appellants exercised their right
of exclusion under the codal art just mentioned
by alleging in their Supplemental Answer dated
June 29, 1964 or after around nine (9) years
from June 7, 1955 subsequent to the filing of
defendants'
answer
to
the
complaint,
defendants reached an agreement whereby the
herein plaintiff been excluded from, and
deprived of, her alleged share, interests or
participation, as an alleged industrial partner, in
the defendant partnership and/or in its net
profits or income, on the ground plaintiff has
never contributed her industry to the
partnership, instead she has been and still is a
judge of the City Court (formerly Municipal
Court) of the City of Manila, devoting her time
to performance of her duties as such judge and
enjoying
the
privilege
and
emoluments
appertaining to the said office, aside from
teaching in law school in Manila, without the
express consent of the herein defendants'
(Record On Appeal, pp. 24-25). Having always
knows as a appellee as a City judge even before

she joined appellant company on June 7, 1955

as an industrial partner, why did it take
appellants many yearn before excluding her
from said company as aforequoted allegations?
And how can they reconcile such exclusive with
their main theory that appellee has never been
such a partner because "The real agreement
evidenced by Exhibit "A" was to grant the
appellee a share of 30% of the net profits which
the appellant partnership may realize from June
7, 1955, until the mortgage of P30,000.00
obtained from the Rehabilitation Finance
Corporal shall have been fully paid." (Appellants
Brief, p. 38).
What has gone before persuades us to hold with
the lower Court that appellee is an industrial
partner of appellant company, with the right to
demand for a formal accounting and to receive
her share in the net profit that may result from
such an accounting, which right appellants take
exception under their second assigned error.
Our said holding is based on the following
article of the New Civil Code:
'ART. 1899. Any partner shall have
the right to a formal account as to
partnership affairs:
(1) If he is wrongfully excluded from the
partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just
and reasonable.
We find no reason in this case to depart from the rule which
limits this Court's appellate jurisdiction to reviewing only
errors of law, accepting as conclusive the factual findings of
the lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.

Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar,

Antonio and Esguerra, JJ., concur.

Third Division
MARSMAN DRYSDALE LAND, INC.,
Petitioner,
- versus PHILIPPINE GEOANALYTICS, INC.
PROPERTIES, INC.,
Respondents.
x--------------------------------------------x
GOTESCO PROPERTIES, INC.,
Petitioner,

AND

GOTESCO

- versus MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE

GEOANALYTICS, INC.,
Respondents.
G.R. No. 183374
Present:
CARPIO,*
CARPIO MORALES, Chairperson,
BRION,
ABAD,** and
VILLARAMA, JR., JJ.
G.R. No. 183376

Promulgated:
June 29, 2010
x--------------------------------------- - - - -x
DECISION
CARPIO MORALES, J.:
On February 12, 1997, Marsman Drysdale Land, Inc.
(Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco)
entered into a Joint Venture Agreement (JVA) for the
construction and development of an office building on a land
owned by Marsman Drysdale in Makati City.[1]

4.2.
Contribution of [Gotesco]- [Gotesco] shall contribute
the amount of PESOS: FOUR HUNDRED TWENTY MILLION
(P420,000,000.00) in cash which shall be payable as follows:
4.2.1.
The amount of PESOS: FIFTY MILLION
(P50,000,000.00) upon signing of this Agreement.
4.2.2.
The balance of PESOS: THREE HUNDRED SEVENTY
MILLION (P370,000,000.00) shall be paid based on progress
billings, relative to the development and construction of the
Building, but shall in no case exceed ten (10) months from
delivery of the Property in a Buildable condition as defined in
section 4.1.
A joint account shall be opened and maintained by both
Parties for handling of said balance, among other Project
concerns.

The JVA contained the following pertinent provisions:

4.3. Funding and Financing

SECTION 4. CAPITAL OF THE JV

4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale]

shall contribute the Property.

4.3.1
Construction funding for the Project shall be
obtained from the cash contribution of [Gotesco].
4.3.2
Subsequent funding shall be obtained from the
pre-selling of units in the Building or, when necessary, from
loans from various banks or financial institutions. [Gotesco]
shall arrange the required funding from such banks or
financial institutions, under such terms and conditions which
will provide financing rates favorable to the Parties.

The total appraised value of the Property is PESOS: FOUR

HUNDRED TWENTY MILLION (P420,000,000.00).

4.3.3
[Marsman Drysdale] shall not be obligated to fund
the Project as its contribution is limited to the Property.

For this purpose, [Marsman Drysdale] shall deliver the

Property in a buildable condition within ninety (90) days from
signing of this Agreement barring any unforeseen
circumstances over which [Marsman Drysdale] has no
control. Buildable condition shall mean that the old
building/structure which stands on the Property is
demolished and taken to ground level.

4.3.4
If the cost of the Project exceeds the cash
contribution of [Gotesco], the proceeds obtained from the
pre-selling of units and proceeds from loans, the Parties shall
agree on other sources and terms of funding such excess as
soon as practicable.

It is the desire of the Parties herein to implement this

Agreement by investing in the PROJECT on a FIFTY (50%)
PERCENT- FIFTY (50%) PERCENT basis.

4.3.5

x x x x.

4.3.6

x x x x.

4.3.7

x x x x.

4.3.8
All funds advanced by a Party (or by third parties
in substitution for advances from a Party) shall be repaid by
the JV.
4.3.9
If any Party agrees to make an advance to the
Project but fails to do so (in whole or in part) the other party
may advance the shortfall and the Party in default shall
indemnify the Party making the substitute advance on
demand for all of its losses, costs and expenses incurred in
so doing. (emphasis supplied; underscoring in the original)
Via Technical Services Contract (TSC) dated July 14, 1997,[2]
the joint venture engaged the services of Philippine
Geoanalytics, Inc. (PGI) to provide subsurface soil
exploration,
laboratory
testing,
seismic
study
and
geotechnical engineering for the project. PGI, was, however,
able to drill only four of five boreholes needed to conduct its
subsurface soil exploration and laboratory testing, justifying
its failure to drill the remaining borehole to the failure on the
part of the joint venture partners to clear the area where the
drilling was to be made.[3] PGI was able to complete its
seismic study though.
PGI then billed the joint venture on November 24, 1997 for
P284,553.50 representing the cost of partial subsurface soil
exploration; and on January 15, 1998 for P250,800
representing the cost of the completed seismic study.[4]
Despite repeated demands from PGI,[5] the joint venture
failed to pay its obligations.
Meanwhile, due to unfavorable economic conditions at the
time, the joint venture was cut short and the planned
building project was eventually shelved.[6]

PGI subsequently filed on November 11, 1999 a complaint

for collection of sum of money and damages at the Regional
Trial Court (RTC) of Quezon City against Marsman Drysdale
and Gotesco.
In its Answer with Counterclaim and Cross-claim, Marsman
Drysdale passed the responsibility of paying PGI to Gotesco
which, under the JVA, was solely liable for the monetary
expenses of the project.[7]
Gotesco, on the other hand, countered that PGI has no cause
of action against it as PGI had yet to complete the services
enumerated in the contract; and that Marsman Drysdale
failed to clear the property of debris which prevented PGI
from completing its work.[8]
By Decision of June 2, 2004,[9] Branch 226 of the Quezon
City RTC rendered judgment in favor of PGI, disposing as
follows:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered in favor of plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale] are
ordered to pay plaintiff, jointly:
(1)
the sum of P535,353.50 with legal interest from
the date of this decision until fully paid;
(2)
(3)
fees; and
(4)

the sum of P200,000.00 as exemplary damages;

the sum of P200,000.00 as and for attorneys
costs of suit.

The cross-claim of defendant [Marsman Drysdale] against

defendant [Gotesco] is hereby GRANTED as follows:

a)
Defendant [Gotesco] is ordered to reimburse
co-defendant [Marsman Drysdale] in the amount of
P535,353.[50] in accordance with the [JVA].
b)
Defendant [Gotesco] is further ordered to pay
co-defendant [Marsman Drysdale] the sum of P100,000.00
as and for attorneys fees.
SO ORDERED. (underscoring in the original; emphasis
supplied)
Marsman Drysdale moved for partial reconsideration,
contending that it should not have been held jointly liable
with Gotesco on PGIs claim as well as on the awards of
exemplary damages and attorneys fees. The motion was, by
Resolution of October 28, 2005, denied.
Both Marsman Drysdale and Gotesco appealed to the Court
of Appeals which, by Decision of January 28, 2008,[10]
affirmed with modification the decision of the trial court.
Thus the appellate court disposed:

the joint venture cannot avoid payment of PGIs claim since

[the JVA] could not affect third persons like [PGI] because of
the basic civil law principle of relativity of contracts which
provides that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third
person, even if he is aware of such contract and has acted
with knowledge thereof.[11]
Their motions for partial reconsideration having been denied,
[12] Marsman Drysdale and Gotesco filed separate petitions
for review with the Court which were docketed as G.R. Nos.
183374 and 183376, respectively. By Resolution of
September 8, 2008, the Court consolidated the petitions.
In G.R. No. 183374, Marsman Drysdale imputes error on the
appellate court in
A. ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY
AFTER CONCEDING THAT [GOTESCO] SHOULD ULTIMATELY BE
SOLELY LIABLE TO [PGI].
B. AWARDING ATTORNEYS FEES IN FAVOR OF [PGI]

WHEREFORE, premises considered, the instant appeal is

PARTLY GRANTED. The assailed Decision dated June 2, 2004
and the Resolution dated October 28, 2005 of the RTC of
Quezon City, Branch 226, in Civil Case No. Q99-39248 are
hereby AFFIRMED with MODIFICATION deleting the award of
exemplary damages in favor of [PGI] and the P100,000.00
attorneys fees in favor of [Marsman Drysdale] and ordering
defendant-appellant [Gotesco] to REIMBURSE [Marsman
Drysdale] 50% of the aggregate sum due [PGI], instead of
the lump sum P535,353.00 awarded by the RTC. The rest of
the Decision stands.
SO ORDERED. (capitalization and emphasis in the original;
underscoring supplied)
In partly affirming the trial courts decision, the appellate
court ratiocinated that notwithstanding the terms of the JVA,

C. IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH

THE REQUIREMENT OF SATISFACTORY PERFORMANCE OF ITS
PRESTATION WHICH, PURSUANT TO THE TECHNICAL
SERVICES CONTRACT, IS THE CONDITION SINE QUA NON TO
COMPENSATION.
D. DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN
DRYSDALES] ENTITLEMENT TO AN AWARD OF ATTORNEYS
FEES.[13]
On the other hand, in G.R. No. 183376, Gotesco peddles that
the appellate court committed error when it
ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE
WORK PERFORMED BY [PGI] AND P100,000.00 [AS]
ATTORNEYS FEES [AND] TO REIMBURSE [MARSMAN
DRYSDALE] 50% OF P535,353.50 AND PAY [MARSMAN
DRYSDALE] P100,000.00 AS ATTORNEYS FEES. [14]

On the issue of whether PGI was indeed entitled to the

payment of services it rendered, the Court sees no
imperative to re-examine the congruent findings of the trial
and appellate courts thereon. Undoubtedly, the exercise
involves an examination of facts which is normally beyond
the ambit of the Courts functions under a petition for review,
for it is well-settled that this Court is not a trier of facts.
While this judicial tenet admits of exceptions, such as when
the findings of facts of the appellate court are contrary to
those of the trial courts, or when the judgment is based on a
misapprehension of facts, or when the findings of facts are
contradicted by the evidence on record,[15] these
extenuating grounds find no application in the present
petitions.
AT ALL EVENTS, the Court is convinced that PGI had more
than sufficiently established its claims against the joint
venture. In fact, Marsman Drysdale had long recognized PGIs
contractual claims when it (PGI) received a Certificate of
Payment[16] from the joint ventures project manager[17]
which was endorsed to Gotesco for processing and payment.
[18]
The core issue to be resolved then is which between joint
venturers Marsman Drysdale and Gotesco bears the liability
to pay PGI its unpaid claims.
To Marsman Drysdale, it is Gotesco since, under the JVA,
construction funding for the project was to be obtained from
Gotescos cash contribution, as its (Marsman Drysdales)
participation in the venture was limited to the land.
Gotesco maintains, however, that it has no liability to pay
PGI since it was due to the fault of Marsman Drysdale that
PGI was unable to complete its undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable
to PGI.

PGI executed a technical service contract with the joint

venture and was never a party to the JVA. While the JVA
clearly spelled out, inter alia, the capital contributions of
Marsman Drysdale (land) and Gotesco (cash) as well as the
funding and financing mechanism for the project, the same
cannot be used to defeat the lawful claim of PGI against the
two joint venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale
and Gotesco as the beneficial owner of the project,[19] and
all billing invoices indicated the consortium therein as the
client.
As the appellate court held, Articles 1207 and 1208 of the
Civil Code, which respectively read:
Art. 1207. The concurrence of two or more creditors or of two
or more debtors in one and the same obligation does not
imply that each one of the former has a right to demand, or
that each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary liability
only when the obligation expressly so states, or when the
law or nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary
does not appear, the credit or debt shall be presumed to be
divided into as many equal shares as there are creditors or
debtors, the credits or debts being considered distinct from
one another, subject to the Rules of Court governing the
multiplicity of suits. (emphasis and underscoring supplied),
presume that the obligation owing to PGI is joint between
Marsman Drysdale and Gotesco.
The only time that the JVA may be made to apply in the
present petitions is when the liability of the joint venturers to
each other would set in.

A joint venture being a form of partnership, it is to be

governed by the laws on partnership.[20] Article 1797 of the
Civil Code provides:
Art. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each in the profits
and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for
the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in
proportion to his capital. (emphasis and underscoring
supplied)
In the JVA, Marsman Drysdale and Gotesco agreed on a 5050 ratio on the proceeds of the project.[21] They did not
provide for the splitting of losses, however. Applying the
above-quoted provision of Article 1797 then, the same ratio
applies in splitting the P535,353.50 obligation-loss of the
joint venture.
The appellate courts decision must be modified, however.
Marsman Drysdale and Gotesco being jointly liable, there is
no need for Gotesco to reimburse Marsman Drysdale for 50%
of the aggregate sum due to PGI.
Allowing Marsman Drysdale to recover from Gotesco what it
paid to PGI would not only be contrary to the law on
partnership on division of losses but would partake of a clear
case of unjust enrichment at Gotescos expense. The grant by
the lower courts of Marsman Drysdale cross-claim against
Gotesco was thus erroneous.

compelled to litigate or that the civil action or proceeding

against it was clearly unfounded, for the JVA provided that, in
the event a party advances funds for the project, the joint
venture shall repay the advancing party. [22]
Marsman Drysdale was thus not precluded from advancing
funds to pay for PGIs contracted services to abate any legal
action against the joint venture itself. It was in fact hardline
insistence on Gotesco having sole responsibility to pay for
the obligation, despite the fact that PGIs services redounded
to the benefit of the joint venture, that spawned the legal
action against it and Gotesco.
Finally, an interest of 12% per annum on the outstanding
obligation must be imposed from the time of demand[23] as
the delay in payment makes the obligation one of
forbearance of money, conformably with this Courts ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals.[24]
Marsman Drysdale and Gotesco should bear legal interest on
their respective obligations.
WHEREFORE, the assailed Decision and Resolution of the
Court of Appeals are AFFIRMED with MODIFICATION in that
the order for Gotesco to reimburse Marsman Drysdale is
DELETED, and interest of 12% per annum on the respective
obligations of Marsman Drysdale and Gotesco is imposed,
computed from the last demand or on January 5, 1999 up to
the finality of the Decision.
If the adjudged amount and the interest remain unpaid
thereafter, the interest rate shall be 12% per annum
computed from the time the judgment becomes final and
executory until it is fully satisfied. The appealed decision is,
in all other respects, affirmed.
Costs against petitioners Marsman Drysdale and Gotesco.
SO ORDERED.

Marsman Drysdales supplication for the award of attorneys

fees in its favor must be denied. It cannot claim that it was

G.R. No. 154486

December 1, 2010
FEDERICO
JARANTILLA,
Petitioner,
vs.

JR.,

ANTONIETA
JARANTILLA,
BUENAVENTURA
REMOTIGUE, substituted by CYNTHIA REMOTIGUE,
DOROTEO JARANTILLA and TOMAS JARANTILLA,
Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari1 seeks to modify the
Decision2 of the Court of Appeals dated July 30, 2002 in CAG.R. CV No. 40887, which set aside the Decision 3 dated
December 18, 1992 of the Regional Trial Court (RTC) of
Quezon City, Branch 98 in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived
by eight children: Federico, Delfin, Benjamin, Conchita,
Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico
Jarantilla, Jr. is the grandchild of the late
Jarantilla spouses by their son Federico Jarantilla, Sr. and his
wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo and
Tomas Jarantilla.
Petitioner was one of the defendants in the complaint before
the RTC while Antonieta Jarantilla, his aunt, was the plaintiff
therein. His co-respondents before he joined his aunt
Antonieta in her complaint, were his late aunt Conchita
Jarantillas husband Buenaventura Remotigue, who died
during the pendency of the case, his cousin Cynthia
Remotigue, the adopted daughter of Conchita Jarantilla and
Buenaventura Remotigue, and his brothers
Doroteo and Tomas Jarantilla.6

In 1948, the Jarantilla heirs extrajudicially partitioned

amongst themselves the real properties of their deceased
parents.7 With the exception of the real property adjudicated
to Pacita Jarantilla, the heirs also agreed to allot the produce
of the said real properties for the years 1947-1949 for the
studies of Rafael and Antonieta Jarantilla. 8
In the same year, the spouses Rosita Jarantilla and Vivencio
Deocampo entered into an agreement with the spouses
Buenaventura Remotigue and Conchita Jarantilla to provide
mutual assistance to each other by way of financial support
to any commercial and agricultural activity on a joint
business arrangement. This business relationship proved to
be successful as they were able to establish a manufacturing
and trading business, acquire real properties, and construct
buildings, among other things.9 This partnership ended in
1973 when the parties, in an
"Agreement,"10 voluntarily agreed to completely dissolve
their "joint business relationship/arrangement." 11
On April 29, 1957, the spouses Buenaventura and Conchita
Remotigue executed a document wherein they acknowledged
that while registered only in Buenaventura Remotigues
name, they were not the only owners of the capital of the
businesses Manila Athletic Supply (712 Raon Street, Manila),
Remotigue Trading (Calle Real, Iloilo City) and Remotigue
Trading (Cotabato City). In this same "Acknowledgement of
Participating Capital," they stated the participating capital of
their co-owners as of the year 1952, with Antonieta
Jarantillas stated as eight thousand pesos (P8,000.00) and
Federico Jarantilla, Jr.s as five thousand pesos (P5,000.00).12
The present case stems from the amended complaint 13 dated
April 22, 1987 filed by Antonieta Jarantilla against
Buenaventura Remotigue, Cynthia Remotigue, Federico
Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the
accounting of the assets and income of the co-ownership, for
its partition and the delivery of her share corresponding to
eight percent (8%), and for damages. Antonieta claimed that
in 1946, she had entered into an agreement with Conchita
and Buenaventura Remotigue, Rafael Jarantilla, and Rosita
and Vivencio Deocampo to engage in business. Antonieta
alleged that the initial contribution of property and money

came from the heirs inheritance, and her subsequent annual

investment of seven thousand five hundred pesos
(P7,500.00) as additional capital came from the proceeds of
her farm. Antonieta also alleged that from 1946-1969, she
had helped in the management of the business they coowned without receiving any salary. Her salary was
supposedly rolled back into the business as additional
investments in her behalf. Antonieta further claimed coownership of certain properties14 (the subject real properties)
in the name of the defendants since the only way the
defendants could have purchased these properties were
through the partnership as they had no other source of
income.
The respondents, including petitioner herein, in their
Answer,15 denied having formed a partnership with Antonieta
in 1946. They claimed that she was in no position to do so as
she was still in school at that time. In fact, the proceeds of
the lands they partitioned were devoted to her studies. They
also averred that while she may have helped in the
businesses that her older sister Conchita had formed with
Buenaventura Remotigue, she was paid her due salary. They
did not deny the existence and validity of the
"Acknowledgement of Participating Capital" and in fact used
this as evidence to support their claim that Antonietas 8%
share was limited to the businesses enumerated therein.
With regard to Antonietas claim in their other corporations
and businesses, the respondents said these should also be
limited to the number of her shares as specified in the
respective articles of incorporation. The respondents denied
using the partnerships income to purchase the subject real
properties and said that the certificates of title should be
binding on her.16
During the course of the trial at the RTC, petitioner Federico
Jarantilla, Jr., who was one of the original defendants, entered
into a compromise agreement17 with Antonieta Jarantilla
wherein he supported Antonietas claims and asserted that
he too was entitled to six percent (6%) of the supposed
partnership in the same manner as Antonieta was. He prayed
for a favorable judgment in this wise:

Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs

prayer for an accounting from the other defendants, and the
partition of the properties of the co-ownership and the
delivery to the plaintiff and to defendant Federico Jarantilla,
Jr. of their rightful share of the assets and properties in the
coownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the
Joint Motion to Approve Compromise Agreement 20and on
December 18, 1992, decided in favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders
judgment in favor of the plaintiff Antonieta Jarantilla and
against defendants Cynthia Remotigue, Doroteo Jarantilla
and Tomas Jarantilla ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent
amount on the real properties covered by TCT Nos.
35655, 338398, 338399 & 335395, all of the Registry
of Deeds of Quezon City; TCT Nos. (18303)23341,
142882 & 490007(4615), all of the Registry of Deeds
of Rizal; and TCT No. T-6309 of the Registry of Deeds
of Cotabato based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent
amount on the Remotigue Agro-Industrial Corporation,
Manila Athletic Supply, Inc., MAS Rubber Products, Inc.
and Buendia Recapping
Corporation based on the shares of stocks present
book value; 3. to account for the assets and
income of the co-ownership and deliver to plaintiff
her rightful share thereof equivalent to 8%; 4. to
pay plaintiff, jointly and severally, the sum of
P50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of P50,000.00 as
attorneys fees; and
6. to pay, jointly and severally, the costs of the suit. 21
Both the petitioner and the respondents appealed this
decision to the Court of Appeals. The petitioner
claimed that the RTC "erred in not rendering a
complete judgment and ordering the partition of the
co-ownership and giving to [him] six per centum (6%)
of the properties."22

While the Court of Appeals agreed to some of the RTCs

factual findings, it also established that Antonieta Jarantilla
was not part of the partnership formed in 1946, and that her
8% share was limited to the businesses enumerated in the
Acknowledgement of Participating Capital. On July 30, 2002,
the Court of Appeals rendered the herein challenged decision
setting aside the RTCs decision, as follows:
WHEREFORE, the decision of the trial court, dated 18
December 1992 is SET ASIDE and a new one is hereby
entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be
given her share of 8% in the assets and profits of
Manila Athletic Supply, Remotigue Trading in Iloilo City
and Remotigue Trading in Cotabato City; (2) after
accounting, defendant Federico Jarantilla, Jr. be given
his share of 6% of the assets and profits of the abovementioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the
following corporations to the extent stated in their
Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development
Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for
Partial Reconsideration but the Court of Appeals denied this
in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for
review on certiorari25 dated September 16, 2002, assailing
the Court of Appeals decision on "similar grounds and similar
assignments of errors as this present case" 26 but it was
dismissed on November 20, 2002 for failure to file the appeal
within the reglementary period of fifteen (15) days in
accordance with Section 2, Rule 45 of the Rules of Court. 27
Petitioner filed before us this petition for review on the sole
ground that: THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN NOT RULING

THAT PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED TO

A SIX PER
CENTUM (6%) SHARE OF THE OWNERSHIP OF THE REAL
PROPERTIES
ACQUIRED BY THE OTHER DEFENDANTS USING COMMON
FUNDS FROM THE
BUSINESSES WHERE HE HAD OWNED SUCH SHARE. 28
Petitioner asserts that he was in a partnership with the
Remotigue spouses, the Deocampo spouses, Rosita Jarantilla,
Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos,
as evidenced by the Acknowledgement of Participating
Capital the Remotigue spouses executed in 1957. He
contends that from this partnership, several other
corporations and businesses were established and several
real properties were acquired. In this petition, he is
essentially asking for his 6% share in the subject real
properties. He is relying on the Acknowledgement of
Participating Capital, on his own testimony, and Antonieta
Jarantillas testimony to support this contention.
The core issue is whether or not the partnership subject of
the Acknowledgement of Participating Capital funded the
subject real properties. In other words, what is the
petitioners right over these real properties?
It is a settled rule that in a petition for review on certiorari
under Rule 45 of the Rules of Civil Procedure, only questions
of law may be raised by the parties and passed upon by this
Court.29
A question of law arises when there is doubt as to what the
law is on a certain state of facts, while there is a question of
fact when the doubt arises as to the truth or falsity of the
alleged facts. For a question to be one of law, the same must
not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear
that the issue invites a review of the evidence presented, the
question posed is one of fact. Thus, the test of whether a
question is one of law or of fact is not the appellation given
to such question by the party raising the same; rather, it is
whether the appellate court can determine the issue raised

without reviewing or evaluating the evidence, in which case,

it is a question of law; otherwise it is a question of fact. 30
Since the Court of Appeals did not fully adopt the factual
findings of the RTC, this Court, in resolving the questions of
law that are now in issue, shall look into the facts only in so
far as the two courts a quo differed in their appreciation
thereof.
The RTC found that an unregistered partnership existed since
1946 which was affirmed in the 1957 document, the
"Acknowledgement of Participating Capital." The RTC used
this as its basis for giving Antonieta Jarantilla an 8% share in
the three businesses listed therein and in the other
businesses and real properties of the respondents as they
had supposedly acquired these through funds from the
partnership.31
The Court of Appeals, on the other hand, agreed with the RTC
as to Antonietas 8% share in the business enumerated in the
Acknowledgement of Participating Capital, but not as to her
share in the other corporations and real properties. The Court
of Appeals ruled that Antonietas claim of 8% is based on the
"Acknowledgement of Participating Capital," a duly notarized
document which was specific as to the subject of its
coverage. Hence, there was no reason to pattern her share in
the other corporations from her share in the partnerships
businesses. The Court of Appeals also said that her claim in
the respondents real properties was more "precarious" as
these were all covered by certificates of title which served as
the best evidence as to all the matters contained therein. 32
Since petitioners claim was essentially the same as
Antonietas, the Court of Appeals also ruled that petitioner be
given his 6% share in the same businesses listed in the
Acknowledgement of Participating Capital. Factual findings of
the trial court, when confirmed by the Court of Appeals, are
final and conclusive except in the following cases: (1) when
the inference made is manifestly mistaken, absurd or
impossible; (2) when there is a grave abuse of discretion; (3)
when the finding is grounded entirely on speculations,
surmises or conjectures; (4) when the judgment of the Court
of Appeals is based on misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when the Court of

Appeals, in making its findings, went beyond the issues of

the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings of the Court of
Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the Court of
Appeals manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly considered,
would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on
record.33
In this case, we find no error in the ruling of the Court of
Appeals. Both the petitioner and Antonieta Jarantilla
characterize their relationship with the respondents as a coownership, but in the same breath, assert that a verbal
partnership was formed in 1946 and was affirmed in the
1957 Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or right
belongs to different persons. 34 It is a partnership when two or
more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of
dividing the profits among themselves. 35 The Court, in
Pascual v. The Commissioner of Internal Revenue, 36 quoted
the concurring opinion of Mr. Justice Angelo Bautista in
Evangelista v. The Collector of Internal Revenue 37 to further
elucidate on the distinctions between a coownership and a
partnership, to wit:
I wish however to make the following observation: Article
1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and
3, provides;
(2) Co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or copossessors do or do not share any profits made by the
use of the property;
(3) The sharing of gross returns does not of itself establish
a partnership, whether or not the persons sharing

them have a joint or common right or interest in any

property from which the returns are derived;
From the above it appears that the fact that those who agree
to form a co- ownership share or do not share any profits
made by the use of the property held in common does not
convert their venture into a partnership. Or the sharing of
the gross returns does not of itself establish a partnership
whether or not the persons sharing therein have a joint or
common right or interest in the property. This only means
that, aside from the circumstance of profit, the presence of
other elements constituting partnership is necessary, such
as the clear intent to form a partnership, the existence of a
juridical personality different from that of the individual
partners, and the freedom to transfer or assign any interest
in the property by one with the consent of the others.
It is evident that an isolated transaction whereby two or
more persons contribute funds to buy certain real estate for
profit in the absence of other circumstances showing a
contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common
enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who
severally retain the title to their respective contribution, are
not thereby rendered partners. They have no common stock
or capital, and no community of interest as principal
proprietors in the business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a copartnership in respect thereto; nor does an agreement to
share the profits and losses on the sale of land create a
partnership; the parties are only tenants in common.
Where plaintiff, his brother, and another agreed to become
owners of a single tract of realty, holding as tenants in
common, and to divide the profits of disposing of it, the
brother and the other not being entitled to share in plaintiffs
commission, no partnership existed as between the three
parties, whatever their relation may have been as to third
parties.
In order to constitute a partnership inter sese there must be:
(a) An intent to form the same; (b) generally participating in
both profits and losses; (c) and such a community of

interest, as far as third persons are concerned as enables

each party to make contract, manage the business, and
dispose of the whole property. x x x.
The common ownership of property does not itself create a
partnership between the owners, though they may use it for
the purpose of making gains; and they may, without
becoming partners, agree among themselves as to the
management, and use of such property and the application
of the proceeds therefrom.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential
elements in a contract of partnership: (a) an agreement to
contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case
at bar, for, admittedly, all the parties in this case have
agreed to, and did, contribute money and property to a
common fund. Hence, the issue narrows down to their
intent in acting as they did.39 It is not denied that all the
parties in this case have agreed to contribute capital to a
common fund to be able to later on share its profits. They
have admitted this fact, agreed to its veracity, and even
submitted one common documentary evidence to prove
such partnership - the Acknowledgement of Participating
Capital. As this case revolves around the legal effects of the
Acknowledgement of Participating Capital, it would be
instructive to examine the pertinent portions of this
document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita
Jarantilla de Remotigue, both of legal age, Filipinos and
residents of Loyola Heights, Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the
Remotigue Trading of Calle Real, Iloilo City and the
Remotigue Trading, Cotabato Branch, Cotabato, P.I., all
dealing in athletic goods and equipments, and general
merchandise are recorded in their respective books with
Buenaventura Remotigue as the registered owner and are
being operated by them as such: That they are not the only

owners of the capital of the three establishments and their

participation in the capital of the three establishments
together with the other co-owners as of the year 1952 are
stated as follows:
1. Buenaventura
Remotigue
(TWENTY-FIVE
THOUSAND)P25,000.00
2. Conchita
Jarantilla
de
Remotigue
(TWENTY-FIVE
THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)... 2,000.00
That aside from the persons mentioned in the next preceding
paragraph, no other person has any interest in the abovementioned three establishments. IN WITNESS WHEREOF,
they sign this instrument in the City of Manila, P.I., this 29th
day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly
notarized document voluntarily executed by Conchita
Jarantilla-Remotigue and Buenaventura Remotigue in 1957.
Petitioner does not dispute its contents and is actually relying
on it to prove his participation in the partnership. Article
1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion. In the
absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may
have contributed, but the industrial partner shall not be
liable for the losses. As for the profits, the industrial partner
shall receive such share as may be just and equitable
under the circumstances. If besides his services he has

contributed capital, he shall also receive a share in the

profits in proportion to his capital.
(Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to
his share as agreed upon, or in the absence of any such
stipulations, then to his share in proportion to his
contribution to the partnership. The petitioner himself claims
his share to be 6%, as stated in the Acknowledgement of
Participating Capital. However, petitioner fails to realize that
this document specifically enumerated the businesses
covered by the partnership: Manila Athletic Supply,
Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear agreement that the
capital the partners contributed went to the three
businesses, then there is no reason to deviate from such
agreement and go beyond the stipulations in the document.
Therefore, the Court of Appeals did not err in limiting
petitioners share to the assets of the businesses
enumerated in the Acknowledgement of Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a
partnership is a separate juridical entity, the shares to be
paid out to the partners is necessarily limited only to its total
resources, to wit:
Since it is the partnership, as a separate and distinct entity,
that must refund the shares of the partners, the amount to
be refunded is necessarily limited to its total resources. In
other words, it can only pay out what it has in its coffers,
which consists of all its assets. However, before the partners
can be paid their shares, the creditors of the partnership
must first be compensated. After all the creditors have been
paid, whatever is left of the partnership assets becomes
available for the payment of the partners shares. 42
There is no evidence that the subject real properties were
assets of the partnership referred to in the Acknowledgement
of Participating Capital. The petitioner further asserts that he
is entitled to respondents properties based on the concept of
trust. He claims that since the subject real properties were
purchased using funds of the partnership, wherein he has a
6% share, then "law and equity mandates that he should be

considered as a co-owner of those properties in such

proportion."43 In Pigao v.
Rabanillo,44 this Court explained the concept of trusts, to
wit: Express trusts are created by the intention of the
trustor or of the parties, while implied trusts come into
being by operation of law, either through implication of an
intention to create a trust as a matter of law or through the
imposition of the trust irrespective of, and even contrary to,
any such intention. In turn, implied trusts are either
resulting or constructive trusts. Resulting trusts are based
on the equitable doctrine that valuable consideration and
not legal title determines the equitable title or interest and
are presumed always to have been contemplated by the
parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person
thereby becomes invested with legal title but is obligated in
equity to hold his legal title for the benefit of another. 45 On
proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust
was created.
Noting the need to prove the existence of a trust, this Court
has held thus: "As a rule, the burden of proving the existence
of a trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the existence of
the trust and its elements. While implied trusts may be
proved by oral evidence, the evidence must be trustworthy
and received by the courts with extreme caution, and should
not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral
evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust
over the subject real properties. Aside from his bare
allegations, he has failed to show that the respondents used
the partnerships money to purchase the said properties.
Even assuming arguendo that some partnership income was
used to acquire these properties, the petitioner should have
successfully shown that these funds came from his share in
the partnership profits. After all, by his own admission, and
as stated in the Acknowledgement of Participating Capital, he
owned a mere 6% equity in the partnership. In essence, the

petitioner is claiming his 6% share in the subject real

properties, by relying on his own self-serving testimony and
the equally biased testimony of Antonieta Jarantilla.
Petitioner has not presented evidence, other than these
unsubstantiated testimonies, to prove that the respondents
did not have the means to fund their other businesses and
real properties without the partnerships income. On the
other hand, the respondents have not only, by testimonial
evidence, proven their case against the petitioner, but have
also presented sufficient documentary evidence to
substantiate their claims, allegations and defenses. They
presented preponderant proof on how they acquired and
funded such properties in addition to tax receipts and tax
declarations.47 It has been held that "while tax declarations
and realty tax receipts do not conclusively prove ownership,
they may constitute strong evidence of ownership when
accompanied by possession for a period sufficient for
prescription."48Moreover, it is a rule in this jurisdiction that
testimonial evidence cannot prevail over documentary
evidence.49 This Court had on several occasions, expressed
our disapproval on using mere self-serving testimonies to
support ones claim. In Ocampo v. Ocampo, 50 a case on
partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the
property was sufficiently proved by their witnesses -- Luisa
Ocampo-Llorin and Melita Ocampo. We disagree. Their
testimonies cannot prevail over the array of documents
presented by Belen. A claim of ownership cannot be based
simply on the testimonies of witnesses; much less on those
of interested parties, self-serving as they are. 51
It is true that a certificate of title is merely an evidence of
ownership or title over the particular property described
therein. Registration in the Torrens system does not create or
vest title as registration is not a mode of acquiring
ownership; hence, this cannot deprive an aggrieved party of
a remedy in law.52 However, petitioner asserts ownership
over portions of the subject real properties on the strength of
his own admissions and on the testimony of Antonieta
Jarantilla.1avvphi1 As held by this Court in Republic of the
Philippines v. Orfinada, Sr.53:

Indeed, a Torrens title is generally conclusive evidence of

ownership of the land referred to therein, and a strong
presumption exists that a Torrens title was regularly issued
and valid. A Torrens title is incontrovertible against
anyinformacion possessoria, of other title existing prior to the
issuance thereof not annotated on the Torrens title.
Moreover, persons dealing with property covered by a
Torrens certificate of title are not required to go beyond what
appears on its face.54
As we have settled that this action never really was for
partition of a coownership, to permit petitioners claim on
these properties is to allow a collateral, indirect attack on
respondents admitted titles. In the words of the Court of
Appeals,
"such
evidence
cannot
overpower
the
conclusiveness of these certificates of title, more so since
plaintiffs [petitioners] claims amount to a collateral attack,
which is prohibited under Section 48 of Presidential Decree
No. 1529, the Property Registration Decree." 55 SEC. 48.
Certificate not subject to collateral attack. A certificate of
title shall not be subject to collateral attack. It cannot be
altered, modified, or cancelled except in a direct proceeding
in accordance with law. This Court has deemed an action or
proceeding to be "an attack on a title when its objective is
to nullify the title, thereby challenging the judgment
pursuant to which the title was decreed." 56 In Aguilar v.
Alfaro,57 this Court further distinguished between a direct
and an indirect or collateral attack, as follows:
A collateral attack transpires when, in another action to
obtain a different relief and as an incident to the present
action, an attack is made against the judgment granting the
title. This manner of attack is to be distinguished from a
direct attack against a judgment granting the title, through
an action whose main objective is to annul, set aside, or
enjoin the enforcement of such judgment if not yet
implemented, or to seek recovery if the property titled under
the judgment had been disposed of. x x x.
Petitioners only piece of documentary evidence is the
Acknowledgement of Participating Capital, which as
discussed above, failed to prove that the real properties he is
claiming co-ownership of were acquired out of the proceeds

of the businesses covered by such document. Therefore,

petitioners theory has no factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision
of the Court of Appeals in CA-G.R. CV No. 40887, dated July
30, 2002 is AFFIRMED.
SO ORDERED.

G.R. No. 85494

May 7, 1991
CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V.
RAMNANI and MOTI G. RAMNANI, petitioners, vs.
COURT OF APPEALS, SPOUSES ISHWAR JETHMAL
RAMNANI, SONYA JETHMAL RAMNANI and OVERSEAS
HOLDING CO., LTD., respondents.
G.R. No. 85496
May 7, 1991
SPOUSES ISHWAR JETHMAL RAMNANI
AND SONYA JET RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO.,
LTD. PARTNERSHIP, and OVERSEAS HOLDING CO., LTD.,
respondents.
Quasha, Asperilla Ancheta, Pea and Nolasco for petitioners
Ishwar Jethmal Ramnani & Sonya Ramnani.
Salonga, Andres, Hernandez & Allado for Choithram Jethmal
Ramnani, Nirmla Ramnani & Moti Ramnani.
Rama Law Office for private respondents in collaboration
with Salonga, Andres, Hernandez & Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.

GANCAYCO, J.:
This case involves the bitter quarrel of two brothers over two
(2) parcels of land and its improvements now worth a
fortune. The bone of contention is the apparently conflicting
factual findings of the trial court and the appellate court, the
resolution of which will materially affect the result of the
contest.

The following facts are not disputed.

Ishwar, Choithram and Navalrai, all surnamed Jethmal
Ramnani, are brothers of the full blood. Ishwar and his
spouse Sonya had their main business based in New York.
Realizing the difficulty of managing their investments in the
Philippines they executed a general power of attorney on
January 24, 1966 appointing Navalrai and Choithram as
attorneys-in-fact, empowering them to manage and conduct
their business concern in the
Philippines. 1
On February 1, 1966 and on May 16, 1966, Choithram, in his
capacity as aforesaid attorney-in-fact of Ishwar, entered into
two agreements for the purchase of two parcels of land
located in Barrio Ugong, Pasig, Rizal, from Ortigas &
Company, Ltd. Partnership (Ortigas for short) with a total
area of approximately 10,048 square meters. 2Per
agreement, Choithram paid the down payment and
installments on the lot with his personal checks. A building
was constructed thereon by Choithram in 1966 and this was
occupied and rented by Jethmal Industries and a wardrobe
shop called Eppie's Creation. Three other buildings were built
thereon by Choithram through a loan of P100,000.00
obtained from the Merchants Bank as well as the income
derived from the first building. The buildings were leased out
by Choithram as attorney-in-fact of Ishwar. Two of these
buildings were later burned.
Sometime in 1970 Ishwar asked Choithram to account for the
income and expenses relative to these properties during the
period 1967 to 1970. Choithram failed and refused to render
such accounting. As a consequence, on February 4, 1971,
Ishwar revoked the general power of attorney. Choithram and
Ortigas were duly notified of such revocation on April 1, 1971
and May 24, 1971, respectively. 3 Said notice was also
registered with the Securities and Exchange Commission on
March 29, 1971 4 and was published in the April 2, 1971 issue
of The Manila Timesfor the information of the general public.
5

Nevertheless, Choithram as such attorney-in-fact of Ishwar,

transferred all rights and interests of Ishwar and Sonya in
favor of his daughter-in-law, Nirmla Ramnani, on February 19,

1973. Her husband is Moti, son of Choithram. Upon complete

payment of the lots, Ortigas executed the corresponding
deeds of sale in favor of Nirmla. 6Transfer Certificates of Title
Nos. 403150 and 403152 of the Register of Deeds of Rizal
were issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar
for short) filed a complaint in the Court of First Instance of
Rizal against Choithram and/or spouses Nirmla and Moti
(Choithram et al. for brevity) and Ortigas for reconveyance
of said properties or payment of its value and damages. An
amended complaint for damages was thereafter filed by said
spouses. After the issues were joined and the trial on the
merits, a decision was rendered by the trial court on
December 3, 1985 dismissing the complaint and
counterclaim. A motion for reconsideration thereof filed by
spouses Ishwar was denied on March 3, 1986.
An appeal therefrom was interposed by spouses Ishwar to the
Court of Appeals wherein in due course a decision was
promulgated on March 14, 1988, the dispositive part of which
reads as follows:
WHEREFORE, judgment is hereby rendered reversing
and setting aside the appealed decision of the lower
court dated December 3, 1985 and the Order dated
March 3, 1986 which denied plaintiffsappellants'
Motion for Reconsideration from aforesaid decision. A
new decision is hereby rendered sentencing
defendants- appellees Choithram Jethmal Ramnani,
Nirmla V. Ramnani, Moti C. Ramnani, and Ortigas and
Company Limited Partnership to pay, jointly and
severally, plaintiffs-appellants the following:
1. Actual or compensatory damages to the extent of
the fair market value of the properties in question
and all improvements thereon covered by Transfer
Certificate of Title No. 403150 and Transfer
Certificate of Title No. 403152 of the Registry of
Deeds of Rizal, prevailing at the time of the
satisfaction of the judgment but in no case shall
such damages be less than the value of said
properties as appraised by Asian Appraisal, Inc. in its

Appraisal Report dated August 1985 (Exhibits T to T14, inclusive).

2. All rental incomes paid or ought to be paid for the
use and occupancy of the properties in question and
all improvements thereon consisting of buildings,
and to be computed as follows:
a) On Building C occupied by Eppie's Creation and
Jethmal Industries from 1967 to 1973, inclusive,
based on the 1967 to 1973 monthly rentals paid
by Eppie's Creation;
b) Also on Building C above, occupied by Jethmal
Industries and Lavine from 1974 to 1978, the
rental incomes based on then rates prevailing
as shown under Exhibit "P"; and from 1979 to
1981, based on then prevailing rates as
indicated under Exhibit "Q";
c) On Building A occupied by Transworld Knitting
Mills from 1972 to 1978, the rental incomes
based upon then prevailing rates shown under
Exhibit "P", and from 1979 to
1981, based on prevailing rates per Exhibit "Q";
d) On the two Bays Buildings occupied by SigmaMariwasa from 1972 to 1978, the rentals based
on the Lease Contract, Exhibit "P", and from
1979 to 1980, the rentals based on the
Lease Contract, Exhibit "Q", and thereafter
commencing 1982, to account for and turn over the
rental incomes paid or ought to be paid for the use
and occupancy of the properties and all improvements
totalling 10,048 sq. m based on the rate per square
meter prevailing in 1981 as indicated annually
cumulative up to 1984. Then, commencing 1985 and
up to the satisfaction of the judgment, rentals shall be
computed at ten percent (10%) annually of the fair
market values of the properties as appraised by the
Asian Appraisal, Inc. in August 1985 (Exhibits T to
T-14, inclusive.)
3. Moral damages in the sum of P200,000.00;
4. Exemplary damages in the sum of P100,000.00;

5. Attorney's fees equivalent to 10% of the award

herein made;
6. Legal interest on the total amount awarded
computed from first demand in 1967 and until the
full amount is paid and satisfied; and
7. The cost of suit. 7
Acting on a motion for reconsideration filed by Choithram, et
al. and
Ortigas, the appellate court promulgated an amended
decision on October 17, 1988 granting the motion for
reconsideration of Ortigas by affirming the dismissal of the
case by the lower court as against Ortigas but denying the
motion for reconsideration of Choithram, et al. 8
Choithram, et al. thereafter filed a petition for review of said
judgment of the appellate court alleging the following
grounds:
1. The Court of Appeals gravely abused its discretion in
making a factual finding not supported by and
contrary, to the evidence presented at the Trial Court.
2. The Court of Appeals acted in excess of jurisdiction in
awarding damages based on the value of the real
properties in question where the cause of action of
private respondents is recovery of a sum of money.
ARGUMENTS
I
THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF
ITS DISCRETION
IN MAKING A FACTUAL FINDING THAT PRIVATE
RESPONDENT
ISHWAR REMITTED THE AMOUNT OF US $150,000.00
TO PETITIONER CHOITHRAM IN THE ABSENCE OF
PROOF OF SUCH REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE
OF DISCRETION
AND MANIFEST PARTIALITY IN DISREGARDING THE
TRIAL COURTS
FINDINGS BASED ON THE DIRECT DOCUMENTARY AND
TESTIMONIAL EVIDENCE PRESENTED BY CHOITHRAM IN
THE TRIAL

COURT ESTABLISHING THAT THE PROPERTIES WERE

PURCHASED WITH PERSONAL FUNDS OF PETITIONER
CHOITHRAM AND NOT WITH MONEY ALLEGEDLY
REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS OF
JURISDICTION IN
AWARDING DAMAGES BASED ON THE VALUE OF THE
PROPERTIES
AND THE FRUITS OF THE IMPROVEMENTS THEREON. 9
Similarly, spouses Ishwar filed a petition for review of said
amended decision of the appellate court exculpating Ortigas
of liability based on the following assigned errors
I
THE RESPONDENT HONORABLE COURT OF APPEALS
COMMITTED
GRAVE ERROR AND HAS DECIDED A QUESTION OF
SUBSTANCE NOT
IN ACCORD WITH LAW AND/OR WITH APPLICABLE
DECISIONS OF
THIS HONORABLE COURT
A) IN
PROMULGATING
THE
QUESTIONED
AMENDED
DECISION (ANNEX "A") RELIEVING RESPONDENT
ORTIGAS
FROM LIABILITY AND DISMISSING PETITIONERS'
AMENDED
COMPLAINT IN CIVIL CASE NO. 534-P, AS
AGAINST SAID
RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION
THAT AT ANY
RATE NO ONE EVER TESTIFIED THAT ORTIGAS
WAS A
SUBSCRIBER
TO
THE
MANILA
TIMES
PUBLICATION OR THAT ANY OF ITS OFFICERS
READ THE NOTICE AS PUBLISHED IN
THE MANILA TIMES, THEREBY ERRONEOUSLY
CONCLUDING

THAT FOR RESPONDENT ORTIGAS TO BE

CONSTRUCTIVELY
BOUND BY THE PUBLISHED NOTICE OF
REVOCATION,
ORTIGAS AND/OR ANY OF ITS OFFICERS MUST
BE A
SUBSCRIBER AND/OR THAT ANY OF ITS
OFFICERS SHOULD
READ THE NOTICE AS ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION
THAT ORTIGAS COULD NOT BE HELD LIABLE
JOINTLY AND SEVERALLY WITH
THE
DEFENDANTS-APPELLEES
CHOITHRAM,
MOTI AND
NIRMLA RAMNANI, AS ORTIGAS RELIED ON THE
WORD OF
CHOITHRAM THAT ALL ALONG HE WAS ACTING
FOR AND IN
BEHALF OF HIS BROTHER ISHWAR WHEN IT
TRANSFERRED
THE RIGHTS OF THE LATTER TO NIRMLA V.
RAMNANI;
D) IN
IGNORING
THE
EVIDENCE
DULY
PRESENTED AND
ADMITTED DURING THE TRIAL THAT ORTIGAS
WAS
PROPERLY NOTIFIED OF THE NOTICE OF
REVOCATION OF
THE GENERAL POWER OF ATTORNEY GIVEN TO
CHOITHRAM, EVIDENCED BY THE PUBLICATION
IN THE
MANILA TIMES ISSUE OF APRIL 2, 1971 (EXH. F)
WHICH
CONSTITUTES NOTICE TO THE WHOLE WORLD;
THE RECEIPT OF THE NOTICE OF SUCH
REVOCATION WHICH WAS SENT TO ORTIGAS ON
MAY 22, 1971 BY ATTY. MARIANO P.
MARCOS AND RECEIVED BY ORTIGAS ON MAY
24, 1971

(EXH. G) AND THE FILING OF THE NOTICE WITH

THE
SECURITIES AND EXCHANGE COMMISSION ON
MARCH
29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN
ITS
DECISION OF 14 MARCH 1988 (ANNEX B) THAT
ORTIGAS
WAS DULY NOTIFIED OF THE REVOCATION OF
THE POWER
OF ATTORNEY OF CHOITHRAM, HENCE ORTIGAS
ACTED IN BAD FAITH IN EXECUTING THE DEED
OF SALE TO THE PROPERTIES IN QUESTION IN
FAVOR OF NIRMLA V.
RAMNANI;
F) IN
SUSTAINING
RESPONDENT
ORTIGAS
VACUOUS REHASHED ARGUMENTS IN ITS
MOTION FOR
RECONSIDERATION THAT IT WOULD NOT GAIN
ONE
CENTAVO MORE FROM CHOITHRAM FOR THE
SALE OF SAID
LOTS AND THE SUBSEQUENT TRANSFER OF THE
SAME TO
THE MATTER'S DAUGHTER-IN-LAW, AND THAT IT
WAS IN GOOD FAITH WHEN IT TRANSFERRED
ISHWAR'S RIGHTS TO THE LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF APPEALS
HAS SO FAR
DEPARTED FROM THE ACCEPTED AND USUAL COURSE
OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE QUESTIONED
AMENDED
DECISION OF 17 NOVEMBER 1988 (ANNEX A) THAT
RESPONDENT
ORTIGAS & CO., LTD., IS NOT JOINTLY AND SEVERALLY
LIABLE WITH

DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND

NIRMLA
RAMNANI IN SPITE OF ITS ORIGINAL DECISION OF 14
MARCH 1988
THAT ORTIGAS WAS DULY NOTIFIED OF THE
REVOCATION OF THE
POWER OF ATTORNEY OF CHOITHRAM RAMNANI. 10
The center of controversy is the testimony of Ishwar that
during the latter part of 1965, he sent the amount of US
$150,000.00 to Choithram in two bank drafts of
US$65,000.00 and US$85,000.00 for the purpose of
investing the same in real estate in the Philippines. The trial
court considered this lone testimony unworthy of faith and
credit. On the other hand, the appellate court found that the
trial court misapprehended the facts in complete disregard
of the evidence, documentary and testimonial. Another
crucial issue is the claim of Choithram that because he was
then a British citizen, as a temporary arrangement, he
arranged the purchase of the properties in the name of
Ishwar who was an American citizen and who was then
qualified to purchase property in the Philippines under the
then Parity Amendment. The trial court believed this account
but it was debunked by the appellate court.
As to the issue of whether of not spouses Ishwar actually sent
US$150,000.00 to Choithram precisely to be used in the real
estate business, the trial court made the following
disquisition After a careful, considered and conscientious
examination of the evidence adduced in the case at bar,
plaintiff Ishwar Jethmal Ramanani's main evidence, which
centers on the alleged payment by sending through
registered mail from New York two (2) US$ drafts of
$85,000.00 and $65,000.00 in the latter part of 1965 (TSN 28
Feb. 1984, p. 10-11). The sending of these moneys were
before the execution of that General Power of Attorney,
which was dated in New York, on January 24, 1966. Because
of these alleged remittances of US $150,000.00 and the
subsequent acquisition of the properties in question,
plaintiffs averred that they constituted a trust in favor of
defendant Choithram Jethmal Ramnani. This Court can be in
full agreement if the plaintiffs were only able to prove

preponderantly these remittances. The entire record of this

case is bereft of even a shred of proof to that effect. It is
completely barren. His uncorroborated testimony that he
remitted these amounts in the "later part of 1965" does not
engender enough faith and credence. Inadequacy of details
of such remittance on the two (2) US dollar drafts in such big
amounts is completely not positive, credible, probable and
entirely not in accord with human experience. This is a
classic situation, plaintiffs not exhibiting any commercial
document or any document and/or paper as regard to these
alleged remittances. Plaintiff Ishwar Ramnani is not an
ordinary businessman in the strict sense of the word.
Remember his main business is based in New York, and he
should know better how to send these alleged remittances.
Worst, plaintiffs did not present even a scum of proof, that
defendant Choithram Ramnani received the alleged two US
dollar drafts. Significantly, he does not know even the bank
where these two (2) US dollar drafts were purchased. Indeed,
plaintiff Ishwar Ramnani's lone testimony is unworthy of faith
and credit and, therefore, deserves scant consideration, and
since the plaintiffs' theory is built or based on such
testimony, their cause of action collapses or falls with it.
Further, the rate of exchange that time in 1966 was P4.00
to $1.00.
The alleged two US dollar drafts amounted to $150,000.00
or about
P600,000.00. Assuming the cash price of the two (2)
lots was only P530,000.00 (ALTHOUGH he said: "Based
on my knowledge I have no evidence," when asked if
he even knows the cash price of the two lots). If he
were really the true and bonafide investor and
purchaser for profit as he asserted, he could have paid
the price in full in cash directly and obtained the title
in his name and not thru "Contracts To Sell" in
installments paying interest and thru an attorney-in
fact (TSN of May 2, 1984, pp. 10-11) and, again,
plaintiff Ishwar Ramnani told this Court that he does
not know whether or not his late father-in-law
borrowed the two US dollar drafts from the Swiss Bank
or whether or not his late father-in-law had any debit

memo from the Swiss Bank (TSN of May 2, 1984, pp.

9-10). 11
On the other hand, the appellate court, in giving credence to
the version of
Ishwar, had this to say
While it is true, that generally the findings of fact of
the trial court are binding upon the appellate courts,
said rule admits of exceptions such as when (1) the
conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when the
inferences made is manifestly mistaken, absurd and
impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts and when the court, in
making its findings, went beyond the issues of the
case and the same are contrary to the admissions of
both appellant and appellee (Ramos vs. Court of
Appeals, 63 SCRA 33; Philippine American Life
Assurance Co. vs. Santamaria, 31 SCRA 798; Aldaba
vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t court acted
under a misapprehension of facts and the inferences
made on the evidence palpably a mistake.
The trial court's observation that "the entire records of
the case is bereft of even a shred of proof" that
plaintiff-appellants have remitted to defendantappellee Choithram Ramnani the amount of US $
150,000.00 for investment in real estate in the
Philippines, is not borne by the evidence on record
and shows the trial court's misapprehension of the
facts if not a complete disregard of the evidence, both
documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani testifying in
his own behalf, declared that during the latter part of
1965, he sent the amount of US $150,000.00 to his
brother Choithram in two bank drafts of US $65,000.00
and US $85,000.00 for the purpose of investing the
same in real estate in the Philippines. His testimony is
as follows:
ATTY. MARAPAO:

Mr. Witness, you said that your attorney-in-fact

paid in your behalf. Can you tell this Honorable
Court where your attorney-in-fact got the
money to pay this property?
ATTY. CRUZ:
Wait. It is now clear it becomes incompetent or
hearsay.
COURT:
Witness can answer.
A I paid through my attorney-in-fact. I am the
one who gave him the money.
ATTY. MARAPAO:
Q You gave him the money?
A That's right.
Q How much money did you give him?
A US $ 150,000.00.
Q How was it given then?
A Through Bank drafts. US $65,000.00 and US
$85,000.00 bank drafts. The total amount which
is $ 150,000.00 (TSN,
28 February 1984, p. 10; Emphasis supplied.)
xxx
xxx
xxx
ATTY. CRUZ:
Q The two bank drafts which you sent I assume
you bought that from some banks in New York?
A No, sir.
Q But there is no question those two bank drafts
were for the purpose of paying down payment
and installment of the two parcels of land?
A Down payment, installment and to put up the
building. Q I thought you said that the buildings
were constructed . . . subject to our continuing
objection from rentals of first building?
ATTY. MARAPAO:
Your Honor, that is misleading.
COURT; Witness
(may) answer.
A Yes, the first building was immediately put up
after the purchase of the two parcels of land
that was in 1966 and the finds were used for the

construction of the building from the US

$150,000.00 (TSN, 7 March 1984, page 14;
Emphasis supplied.)
xxx
xxx
xxx
Q These two bank drafts which you mentioned and the
use for it you sent them by registered mail, did you
send them from New Your?
A That is right.
Q And the two bank drafts which were put in the
registered mail, the registered mail was addressed to whom?
A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15). On
cross-examination, the witness reiterated the remittance of
the money to his brother Choithram, which was sent to him
by his father-in-law, Rochiram L. Mulchandoni from
Switzerland, a man of immense wealth, which even
defendants-appellees' witness Navalrai Ramnani admits to
be so (tsn., p. 16, S. Oct. 13, 1985).
Thus, on cross-examination, Ishwar testified as follows: Q
How did you receive these two bank drafts from the
bank the name of which you cannot remember?
A I got it from my father-in-law.
Q From where did your father- in-law sent these two
bank drafts?
A From Switzerland.
Q He was in Switzerland.
A Probably, they sent out these two drafts from
Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis supplied.) This
positive and affirmative testimony of plaintiff-appellant that
he sent the two (2) bank drafts totalling US $ 150,000.00 to
his brother, is proof of said remittance. Such positive
testimony has greater probative force than defendantappellee's denial of receipt of said bank drafts, for a witness
who testifies affirmatively that something did happen should
be believed for it is unlikely that a witness will remember
what never happened (Underhill's Cr. Guidance, 5th Ed., Vol.
1, pp. 10-11).
That is not all. Shortly thereafter, plaintiff-appellant Ishwar
Ramnani executed a General Power of Attorney (Exhibit "A")
dated January 24, 1966 appointing his brothers, defendants-

appellees Navalrai and Choithram as attorney-in-fact

empowering the latter to conduct and manage plaintiffsappellants' business affairs in the Philippines and specifically

No. 14. To acquire, purchase for us, real estates and

improvements for the purpose of real estate business
anywhere in the Philippines and to develop, subdivide,
improve and to resell to buying public (individual, firm
or corporation); to enter in any contract of sale in oar
behalf and to enter mortgages between the vendees
and the herein grantors that may be needed to finance
the real estate business being undertaken.
Pursuant thereto, on February 1, 1966 and May 16,
1966, Choithram
Jethmal Ramnani entered into Agreements
(Exhibits "B' and "C") with the other defendant.
Ortigas and Company, Ltd., for the purchase of two (2)
parcels of land situated at Barrio Ugong, Pasig, Rizal,
with said defendant-appellee signing the Agreements
in his capacity as Attorney-in-fact of Ishwar Jethmal
Ramnani.
Again, on January 5, 1972, almost seven (7) years
after Ishwar sent the US $ 150,000.00 in 1965,
Choithram Ramnani, as attorney-in fact of Ishwar
entered into a Contract of Lease with SigmaMariwasa
(Exhibit "P") thereby re-affirming the ownership of
Ishwar over the disputed property and the trust
relationship between the latter as principal and
Choithram as attorney-in-fact of Ishwar. All of these
facts indicate that if plaintiff-appellant Ishwar had not
earlier sent the US $ 150,000.00 to his brother,
Choithram, there would be no purpose for him to
execute a power of attorney appointing his brothers
as s attorney-in-fact in buying real estate in the
Philippines.
As against Choithram's denial that he did not receive
the US $150,000.00 remitted by Ishwar and that the
Power of Attorney, as well as the Agreements entered
into with Ortigas & Co., were only temporary
arrangements, Ishwar's testimony that he did send the

bank drafts to Choithram and was received by the

latter, is the more credible version since it is natural,
reasonable and probable. It is in accord with the
common experience, knowledge and observation of
ordinary men (Gardner vs. Wentors 18 Iowa 533). And
in determining where the superior weight of the
evidence on the issues involved lies, the court may
consider the probability or improbability of the
testimony of the witness (Sec. 1, Rule 133, Rules of
Court).
Contrary, therefore, to the trial court's sweeping
observation that
'the entire records of the case is bereft of even a shred
of proof that
Choithram received the alleged bank drafts amounting
to US $ 150,000.00, we have not only testimonial
evidence but also documentary and circumstantial
evidence proving said remittance of the money and
the fiduciary relationship between the former and
Ishwar.12
The Court agrees. The environmental circumstances of this
case buttress the claim of Ishwar that he did entrust the
amount of US $ 150,000.00 to his brother, Choithram, which
the latter invested in the real property business subject of
this litigation in his capacity as attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession
of Ishwar to evidence the same, but it is not unusual among
brothers and close family members to entrust money and
valuables to each other without any formalities or receipt due
to the special relationship of trust between them. And
another proof thereof is the fact that Ishwar, out of
frustration when Choithram failed to account for the realty
business despite his demands, revoked the general power of
attorney he extended to Choithram and Navalrai. Thereafter,
Choithram wrote a letter to Ishwar pleading that the power of
attorney be renewed or another authority to the same effect
be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK

(1) Send power of Atty. immediately, because the

case has been postponed for two weeks. The
same way as it has been send before in favor of
both names. Send it immediately otherwise
everything will be lost unnecessarily, and then it
will take us in litigation. Now that we have gone
ahead with a case and would like to end it
immediately otherwise squatters will take the
entire land. Therefore, send it immediately.
(2) Ortigas also has sued us because we are
holding the installments, because they have
refused to give a rebate of P5.00 per meter
which they have to give us as per contract.
They have filed the law suit that since we have
not paid the installment they should get back
the land. The hearing of this case is in the
month of July. Therefore, please send the power
immediately. In one case DADA (Elder Brother)
will represent and in another one, I shall.
(3) In case if you do not want to give power then
make one letter in favor of Dada and the other
one in my favor showing that in any litigation
we can represent you and your wife, and
whatever the court decide it will be acceptable
by me. You can ask any lawyer, he will be able
to prepare these letters. After that you can have
these letters ratify before P.I. Consulate. It
should be dated April 15, 1971.
(4) Try to send the power because it will be more
useful. Make it in any manner whatever way you
have confident in it. But please send it
immediately.
You have cancelled the power. Therefore, you have lost your
reputation everywhere. What can I further write you about it.
I have told everybody that due to certain reasons I have
written you to do this that is why you have done this. This
way your reputation have been kept intact. Otherwise if I
want to do something about it, I can show you that inspite of
the power you have cancelled you can not do anything. You
can keep this letter because my conscience is clear. I do not

have anything in my mind. I should not be writing you this,

but because my conscience is clear do you know that if I had
predated papers what could you have done? Or do you know
that I have many paper signed by you and if had done
anything or do then what can you do about it? It is not
necessary to write further about this. It does not matter if
you have cancelled the power. At that time if I had predated
and done something about it what could you have done? You
do not know me. I am not after money. I can earn money
anytime. It has been ten months since I have not received a
single penny for expenses from Dada (elder brother). Why
there are no expenses? We can not draw a single penny from
knitting (factory). Well I am not going to write you further,
nor there is any need for it. This much I am writing you
because of the way you have conducted yourself. But
remember, whenever I hale the money I will not keep it
myself Right now I have not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he will
discontinue because he likes to keep his business very clean.
13

The said letter was in Sindhi language. It was translated to

English by the First Secretary of the Embassy of Pakistan,
which translation was verified correct by the Chairman,
Department of Sindhi, University of Karachi. 14
From the foregoing letter what could be gleaned is that
1. Choithram asked for the issuance of another power of
attorney in their favor so they can continue to
represent Ishwar as Ortigas has sued them for unpaid
installments. It also appears therefrom that Ortigas
learned of the revocation of the power of attorney so
the request to issue another.
2. Choithram reassured Ishwar to have confidence in him
as he was not after money, and that he was not
interested in Ishwar's money.
3. To demonstrate that he can be relied upon, he said
that he could have ante-dated the sales agreement of
the Ortigas lots before the issuance of the powers of
attorney and acquired the same in his name, if he
wanted to, but he did not do so.

4. He said he had not received a single penny for

expenses from Dada (their elder brother Navalrai).
Thus, confirming that if he was not given money by
Ishwar to buy the Ortigas lots, he could not have
consummated the sale.
5. It is important to note that in said letter Choithram
never claimed ownership of the property in question.
He affirmed the fact that he bought the same as mere
agent and in behalf of Ishwar. Neither did he mention
the alleged temporary arrangement whereby Ishwar,
being an American citizen, shall appear to be the
buyer of the said property, but that after Choithram
acquires Philippine citizenship, its ownership shall be
transferred to Choithram.
This brings us to this temporary arrangement theory of
Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the two parcels
of land for himself in 1966 but placed it in the name of
his younger brother, Ishwar, who is an American
citizen, as a temporary arrangement,' because as a
British subject he is disqualified under the 1935
Constitution to acquire real property in the Philippines,
which is not so with respect to American citizens in
view of the Ordinance Appended to the Constitution
granting them parity rights, there is nothing in the
records showing that Ishwar ever agreed to such a
temporary arrangement.
During the entire period from 1965, when the US $
150,000. 00 was transmitted to Choithram, and until
Ishwar filed a complaint against him in 1982, or over
16 years, Choithram never mentioned of a temporary
arrangement nor can he present any memorandum or
writing evidencing such temporary arrangement,
prompting plaintiff-appellant to observe:
The properties in question which are located in
a prime industrial site in Ugong, Pasig, Metro
Manila have a present fair market value of no
less than P22,364,000.00 (Exhibits T to T-14,
inclusive), and yet for such valuable pieces of

property, Choithram who now belatedly that he

purchased the same for himself did not
document in writing or in a memorandum the
alleged temporary arrangement with Ishwar'
(pp. 4-41, Appellant's Brief).
Such verbal allegation of a temporary arrangement is
simply improbable and inconsistent. It has repeatedly
been held that important contracts made without
evidence are highly improbable. The improbability of
such temporary arrangement is brought to fore when
we consider that Choithram has a son (Haresh Jethmal
Ramnani) who is an American citizen under whose
name the properties in question could be registered,
both during the time the contracts to sell were
executed and at the time absolute title over the same
was to be delivered. At the time the Agreements were
entered into with defendant Ortigas & Co. in 1966,
Haresh, was already 18 years old and consequently,
Choithram could have executed the deeds in trust for
his minor son. But, he did not do this. Three (3) years,
thereafter, or in 1968 after Haresh had attained the
age of 21, Choithram should have terminated the
temporary arrangement with Ishwar, which according
to him would be effective only pending the acquisition
of citizenship papers.
Again, he did not do anything.
Evidence to be believed, said Vice Chancellor
Van Fleet of New Jersey, must not only proceed
from the mouth of a credible witness, but it
must be credible in itselfsuch as the common
experience and observation of mankind can
approve as probable under the circumstances.
We have no test of the truth of human
testimony, except its conformity to our
knowledge,
observation
and
experience.
Whatever is repugnant to these belongs to the
miraculous and is outside of judicial cognizance.
(Daggers vs. Van Dyek 37 M.J. Eq.
130, 132).

Another factor that can be counted against the

temporary arrangement excuse is that upon the
revocation on February 4, 1971 of the Power of
attorney dated January 24, 1966 in favor of Navalrai
and Choithram by Ishwar, Choithram wrote (tsn, p. 21,
S. July 19, 1985) a letter dated June 25, 1971 (Exhibits
R, R-1, R-2 and R-3) imploring Ishwar to execute a
new power of attorney in their favor. That if he did not
want to give power, then Ishwar could make a letter in
favor of Dada and another in his favor so that in any
litigation involving the properties in question, both of
them could represent Ishwar and his wife. Choithram
tried to convince Ishwar to issue the power of
attorney in whatever manner he may want. In said
letter no mention was made at all of any temporary
arrangement.
On the contrary, said letter recognize(s) the existence of
principal and attorney-in-fact relationship between Ishwar
and himself. Choithram wrote: . . . do you know that if I had
predated papers what could you have done? Or do you know
that I have many papers signed by you and if I had done
anything or do then what can you do about it?' Choithram
was saying that he could have repudiated the trust and ran
away with the properties of Ishwar by predating documents
and Ishwar would be entirely helpless. He was bitter as a
result of Ishwar's revocation of the power of attorney but no
mention was made of any temporary arrangement or a claim
of ownership over the properties in question nor was he able
to present any memorandum or document to prove the
existence of such temporary arrangement.
Choithram is also estopped in pais or by deed from claiming
an interest over the properties in question adverse to that of
Ishwar. Section 3(a) of Rule 131 of the Rules of Court states
that whenever a party has, by his own declaration, act, or
omission intentionally and deliberately led another to believe
a particular thing true and act upon such belief, he cannot in
any litigation arising out of such declaration, act or omission
be permitted to falsify it.' While estoppel by deed is a bar
which precludes a party to a deed and his privies from
asserting as against the other and his privies any right of title

in derogation of the deed, or from denying the truth of any

material fact asserted in it (31 C.J.S. 195; 19 Am. Jur.
603).
Thus, defendants-appellees are not permitted to repudiate
their admissions and representations or to assert any right
or title in derogation of the deeds or from denying the truth
of any material fact asserted in the (1) power of attorney
dated January 24, 1966 (Exhibit A); (2) the Agreements of
February 1, 1966 and May 16, 1966 (Exhibits B and C); and
(3) the Contract of Lease dated January 5, 1972 (Exhibit P).
. . . The doctrine of estoppel is based upon the grounds
of public policy, fair dealing, good faith and justice,
and its purpose is to forbid one to speak against his
own act, representations, or commitments to the
injury of one to whom they were directed and who
reasonably relied thereon. The doctrine of estoppel
springs from equitable principles and the equities in
the case. It is designed to aid the law in the
administration of justice where without its aid injustice
might result. It has been applied by court wherever
and whenever special circumstances of a case so
demands' (Philippine National Bank vs. Court of
Appeals, 94 SCRA 357, 368 [1979]).
It was only after the services of counsel has been
obtained that
Choithram alleged for the first time in his Answer that
the General Power of attorney (Annex A) with the
Contracts to Sell (Annexes B and C) were made only
for the sole purpose of assuring defendants'
acquisition and ownership of the lots described
thereon in due time under the law; that said
instruments do not reflect the true intention of the
parties (par. 2, Answer dated May 30, 1983),
seventeen (17) long years from the time he received
the money transmitted to him by his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by
which he claimed purchasing the two (2) parcels in
question in 1966 and placing them in the name of
Ishwar who is an American citizen, to circumvent the
disqualification provision of aliens acquiring real

properties in the Philippines under the 1935 Philippine

Constitution, as Choithram was then a British subject,
show a palpable disregard of the law of the land and
to sustain the supposed "temporary arrangement"
with Ishwar would be sanctioning the perpetration of
an illegal act and culpable violation of the
Constitution. Defendants-appellees likewise violated
the Anti-Dummy Law (Commonwealth Act 108, as
amended), which provides in Section 1 thereof that:
In all cases in which any constitutional or legal
provision requires Philippine or any other
specific citizenship as a requisite for the
exercise or enjoyment of a right, franchise or
privilege, . . . any alien or foreigner profiting
thereby, shall be punished . . . by
imprisonment . . . and of a fine of not less than
the value of the right, franchise or privileges,
which is enjoyed or acquired in violation of the
provisions hereof . . .
Having come to court with unclean hands, Choithram
must not be permitted foist his 'temporary
arrangement' scheme as a defense before this court.
Being in delicto, he does not have any right
whatsoever being shielded from his own wrong-doing,
which is not so with respect to Ishwar, who was not a
party to such an arrangement.
The falsity of Choithram's defense is further aggravated by
the material inconsistencies and contradictions in his
testimony. While on January 23, 1985 he testified that he
purchased the land in question on his own behalf (tsn, p. 4,
S. Jan. 23, 1985), in the July 18, 1985 hearing, forgetting
probably what he stated before,
Choithram testified that he was only an attorney-in-fact of
Ishwar
(tsn, p. 5, S. July 18, 1985). Also in the hearing of January 23,
1985, Choithram declared that nobody rented the building
that was constructed on the parcels of land in question (tsn,
pp. 5 and 6), only to admit in the hearing of October 30,
1985, that he was in fact renting the building for P12,000. 00
per annum (tsn, p. 3). Again, in the hearing of July 19, 1985,

Choithram testified that he had no knowledge of the

revocation of the Power of Attorney (tsn, pp. 20- 21), only to
backtrack when confronted with the letter of June 25, 1971
(Exhibits R to R-3), which he admitted to be in "his own
writing," indicating knowledge of the revocation of the Power
of Attorney.
These inconsistencies are not minor but go into the entire
credibility of the testimony of Choithram and the rule is that
contradictions on a very crucial point by a witness, renders s
testimony incredible People vs. Rafallo, 80 Phil. 22). Not only
this the doctrine of falsus in uno, falsus in omnibus is fully
applicable as far as the testimony of Choithram is concerned.
The cardinal rule, which has served in all ages, and has been
applied to all conditions of men, is that a witness willfully
falsifying the truth in one particular, when upon oath, ought
never to be believed upon the strength of his own testimony,
whatever he may assert (U.S. vs. Osgood 27 Feb. Case No.
15971-a, p. 364); Gonzales vs. Mauricio, 52 Phil, 728), for
what ground of judicial relief can there be left when the party
has shown such gross insensibility to the difference between
right and wrong, between truth and falsehood? (The
Santisima Trinidad, 7 Wheat, 283, 5 U.S.
[L. ed.] 454).
True, that Choithram's testimony finds corroboration from the
testimony of his brother, Navalrai, but the same would not be
of much help to Choithram. Not only is Navalrai an interested
and biased witness, having admitted his close relationship
with Choithram and that whenever he or Choithram had
problems, they ran to each other (tsn, pp. 17-18, S. Sept. 20,
1985), Navalrai has a pecuniary interest in the success of
Choithram in the case in question. Both he and Choithram
are business partners in Jethmal and Sons and/or Jethmal
Industries, wherein he owns 60% of the company and
Choithram, 40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question in 1966, Navalrai
was occupying 1,200 square meters thereof as a factory site
plus the fact that his son (Navalrais) was occupying the
apartment on top of the factory with his family rent free
except the amount of P l,000.00 a month to pay for taxes on
said properties (tsn, p. 17, S. Oct. 3, 1985).

Inherent
contradictions
also
marked
Navalrai
testimony. "While the latter was very meticulous in keeping
a receipt for the P 10,000.00 that he paid Ishwar as
settlement in Jethmal Industries, yet in the alleged payment
of P 100,000.00 to Ishwar, no receipt or voucher was ever
issued by him (tsn, p. 17, S. Oct. 3, 1983). 15 We concur.
The foregoing findings of facts of the Court of Appeals which
are supported by the evidence is conclusive on this Court.
The Court finds that Ishwar entrusted US$150,000.00 to
Choithram in 1965 for investment in the realty business.
Soon thereafter, a general power of attorney was executed
by Ishwar in favor of both Navalrai and Choithram. If it is true
that the purpose only is to enable Choithram to purchase
realty temporarily in the name of Ishwar, why the inclusion of
their elder brother Navalrai as an attorney-infact?
Then, acting as attorney-in-fact of Ishwar, Choithram
purchased two parcels of land located in Barrio Ugong Pasig,
Rizal, from Ortigas in 1966. With the balance of the money of
Ishwar, Choithram erected a building on said lot.
Subsequently, with a loan obtained from a bank and the
income of the said property, Choithram constructed three
other buildings thereon. He managed the business and
collected the rentals. Due to their relationship of confidence
it was only in 1970 when Ishwar demanded for an accounting
from Choithram. And even as Ishwar revoked the general
power of attorney on February 4, 1971, of which Choithram
was duly notified, Choithram wrote to Ishwar on June 25,
1971 requesting that he execute a new power of attorney in
their favor. 16 When Ishwar did not respond thereto,
Choithram nevertheless proceeded as such attorney-in-fact
to assign all the rights and interest of Ishwar to his daughterin-law Nirmla in 1973 without the knowledge and consent of
Ishwar. Ortigas in turn executed the corresponding deeds of
sale in favor of Nirmla after full payment of the purchase
accomplice of the lots.
In the prefatory statement of their petition, Choithram
pictured Ishwar to be so motivated by greed and
ungratefulness, who squandered the family business in New
York, who had to turn to his wife for support, accustomed to
living in ostentation and who resorted to blackmail in filing

several criminal and civil suits against them. These

statements find no support and should be stricken from the
records. Indeed, they are irrelevant to the proceeding.
Moreover, assuming Ishwar is of such a low character as
Choithram proposes to make this Court to believe, why is it
that of all persons, under his temporary arrangement theory,
Choithram opted to entrust the purchase of valuable real
estate and built four buildings thereon all in the name of
Ishwar? Is it not an unconscious emergence of the truth that
this otherwise wayward brother of theirs was on the contrary
able to raise enough capital through the generosity of his
father-in-law for the purchase of the very properties in
question? As the appellate court aptly observed if truly this
temporary arrangement story is the only motivation, why
Ishwar of all people? Why not the own son of Choithram,
Haresh who is also an American citizen and who was already
18 years old at the time of purchase in 1966? The Court
agrees with the observation that this theory is an
afterthought which surfaced only when Choithram, Nirmla
and Moti filed their answer.
When Ishwar asked for an accounting in 1970 and revoked
the general power of attorney in 1971, Choithram had a total
change of heart. He decided to claim the property as his. He
caused the transfer of the rights and interest of Ishwar to
Nirmla. On his representation, Ortigas executed the deeds of
sale of the properties in favor of Nirmla. Choithram obviously
surmised Ishwar cannot stake a valid claim over the property
by so doing. Clearly, this transfer to Nirmla is fictitious and,
as admitted by Choithram, was intended only to place the
property in her name until Choithram acquires Philippine
citizenship. 17 What appears certain is that it appears to be a
scheme of Choithram to place the property beyond the reach
of Ishwar should he successfully claim the same. Thus, it
must be struck down. Worse still, on September 27, 1990
spouses Ishwar filed an urgent motion for the issuance of a
writ of preliminary attachment and to require Choithram, et
al. to submit certain documents, inviting the attention of this
Court to the following:
a) Donation by Choithram of his 2,500 shares of stock in
General

Garments Corporation in favor of his children on

December 29,
1989; 18
b) Sale on August 2, 1990 by Choithram of his 100 shares
in Biflex
(Phils.), Inc., in favor of his children; 19and
c) Mortgage on June 20, 1989 by Nirmla through her
attorney-infact, Choithram, of the properties subject of
this litigation, for the amount of $3 Million in favor of
Overseas Holding, Co. Ltd., (Overseas for brevity), a
corporation which appears to be organized and
existing under and by virtue of the laws of Cayman
Islands, with a capital of only $100.00 divided into 100
shares of $1.00 each, and with address at P.O. Box
1790, Grand Cayman, Cayman Islands. 20 An
opposition thereto was filed by Choithram, et al. but no
documents were produced. A manifestation and reply
to the opposition was filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be fraudulent
attempts to remove these properties to the detriment of
spouses Ishwar should the latter prevail in this litigation.
On December 10, 1990 the court issued a resolution that
substantially reads as follows:
Considering the allegations of petitioners Ishwar
Jethmal
Ramnani
and
Sonya
Ramnani
that
respondents Choithram Jethmal Ramnani, Nirmla
Ramnani and Moti G. Ramnani have fraudulently
executed a simulated mortgage of the properties
subject of this litigation dated June 20, 1989, in favor
of Overseas Holding Co., Ltd. which appears to be a
corporation organized in Cayman Islands, for the
amount of $ 3,000,000.00, which is much more than
the value of the properties in litigation; that said
alleged mortgagee appears to be a "shell" corporation
with a capital of only $100.00; and that this alleged
transaction appears to be intended to defraud
petitioners Ishwar and Sonya Jethmal Ramnani of any
favorable judgment that this Court may render in this
case;

Wherefore the Court Resolved to issue a writ of

preliminary injunction enjoining and prohibiting said
respondents Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti G. Ramnani and the Overseas Holding
Co., Ltd. from encumbering, selling or otherwise
disposing of the properties and improvements subject
of this litigation until further orders of the Court.
Petitioners Ishwar and Sonya Jethmal Ramnani are
hereby required to post a bond of P
100,000.00 to answer for any damages d respondents
may suffer by way of this injunction if the Court finally
decides the said petitioners are not entitled thereto.
The Overseas Holding Co., Ltd. with address at P.O.
Box 1790 Grand Cayman, Cayman Islands, is hereby
IMPLEADED as a respondent in these cases, and is
hereby required to SUBMIT its comment on the Urgent
Motion for the Issuance of a Writ of Preliminary
Attachment and Motion for Production of Documents,
the Manifestation and the Reply to the Opposition filed
by said petitioners, within Sixty (60) days after service
by publication on it in accordance with the provisions
of Section 17, Rule 14 of the Rules of Court, at the
expense of petitioners Ishwar and Sonya Jethmal
Ramnani. Let copies of this resolution be served on the
Register of Deeds of
Pasig, Rizal, and the Provincial Assessor of Pasig, Rizal,
both in Metro Manila, for its annotation on the transfer
Certificates of Titles Nos.
403150 and 403152 registered in the name of
respondent Nirmla V. Ramnani, and on the tax
declarations of the said properties and its
improvements subject of this litigation. 21
The required injunction bond in the amount of P 100,000.00
was filed by the spouses Ishwar which was approved by the
Court. The above resolution of the Court was published in the
Manila Bulletin issue of December 17, 1990 at the expense of
said spouses. 22 On December 19, 1990 the said resolution
and petition for review with annexes in G.R. Nos. 85494 and
85496 were transmitted to respondent Overseas, Grand
Cayman Islands at its address c/o Cayman Overseas Trust Co.

Ltd., through the United Parcel Services Bill of Lading 23 and it

was actually delivered to said company on January 23,
1991. 24
On January 22, 1991, Choithram, et al., filed a motion to
dissolve the writ of preliminary injunction alleging that there
is no basis therefor as in the amended complaint what is
sought is actual damages and not a reconveyance of the
property, that there is no reason for its issuance, and that
acts already executed cannot be enjoined. They also offered
to file a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar
that there is basis for the injunction as the alleged mortgage
of the property is simulated and the other donations of the
shares of Choithram to his children are fraudulent schemes
to negate any judgment the Court may render for petitioners.
No comment or answer was filed by Overseas despite due
notice, thus it is and must be considered to be in default and
to have lost the right to contest the representations of
spouses Ishwar to declare the aforesaid alleged mortgage
nun and void.
This purported mortgage of the subject properties in
litigation appears to be fraudulent and simulated. The stated
amount of $3 Million for which it was mortgaged is much
more than the value of the mortgaged properties and its
improvements. The alleged mortgagee-company (Overseas)
was organized only on June 26,1989 but the mortgage was
executed much earlier, on June 20, 1989, that is six (6) days
before Overseas was organized. Overseas is a
"shelf" company worth only $100.00. 25 In the manifestation
of spouses Ishwar dated April 1, 1991, the Court was
informed that this matter was brought to the attention of the
Central Bank (CB) for investigation, and that in a letter of
March 20, 1991, the CB informed counsel for spouses Ishwar
that said alleged foreign loan of Choithram, et al. from
Overseas has not been previously approved/registered with
the CB. 26
Obviously, this is another ploy of Choithram, et al. to place
these properties beyond the reach of spouses Ishwar should
they obtain a favorable judgment in this case. The Court

finds and so declares that this alleged mortgage should be as

it is hereby declared null and void.
All these contemporaneous and subsequent acts of
Choithram, et al., betray the weakness of their cause so they
had to take an steps, even as the case was already pending
in Court, to render ineffective any judgment that may be
rendered against them.
The problem is compounded in that respondent Ortigas is
caught in the web of this bitter fight. It had all the time been
dealing with Choithram as attorney-in-fact of Ishwar.
However, evidence had been adduced that notice in writing
had been served not only on Choithram, but also on Ortigas,
of the revocation of Choithram's power of attorney by
Ishwar's lawyer, on May 24, 1971. 27 A publication of said
notice was made in the April 2, 1971 issue ofThe Manila
Times for the information of the general public. 28 Such notice
of revocation in a newspaper of general circulation is
sufficient warning to third persons including Ortigas. 29 A
notice of revocation was also registered with the Securities
and Exchange Commission on March 29, 1 971. 30 Indeed in
the letter of Choithram to Ishwar of June 25, 1971, Choithram
was pleading that Ishwar execute another power of attorney
to be shown to Ortigas who apparently learned of the
revocation of Choithram's power of attorney. 31 Despite said
notices, Ortigas nevertheless acceded to the representation
of Choithram, as alleged attorney-in-fact of Ishwar, to assign
the rights of petitioner Ishwar to Nirmla. While the primary
blame should be laid at the doorstep of Choithram, Ortigas is
not entirely without fault. It should have required Choithram
to secure another power of attorney from Ishwar. For
recklessly believing the pretension of Choithram that his
power of attorney was still good, it must, therefore, share in
the latter's liability to Ishwar.
In the original complaint, the spouses Ishwar asked for a
reconveyance of the properties and/or payment of its present
value and damages. 32 In the amended complaint they asked,
among others, for actual damages of not less than the
present value of the real properties in litigation, moral and
exemplary damages, attorneys fees, costs of the suit and
further prayed for "such other reliefs as may be deemed just

and equitable in the premises .33 The amended complaint

contain the following positive allegations:
7. Defendant Choithram Ramnani, in evident bad faith
and despite due notice of the revocation of the
General Power of Attorney, Annex 'D" hereof, caused
the transfer of the rights over the said parcels of land
to his daughter-in-law, defendant Nirmla Ramnani in
connivance with defendant Ortigas & Co., the latter
having agreed to the said transfer despite receiving a
letter from plaintiffs' lawyer informing them of the said
revocation; copy of the letter is hereto attached and
made an integral part hereof as Annex "H"; 8.
Defendant Nirmla Ramnani having acquired the
aforesaid property by fraud is, by force of law,
considered a trustee of an implied trust for the benefit
of plaintiff and is obliged to return the same to the
latter:
9. Several efforts were made to settle the matter within
the family but defendants (Choithram Ramnani, Nirmla
Ramnani and Moti Ramnani) refused and up to now fail
and still refuse to cooperate and respond to the same;
thus, the present case;
10.In addition to having been deprived of their rights over
the properties (described in par. 3 hereof), plaintiffs,
by reason of defendants' fraudulent act, suffered
actual damages by way of lost rental on the property
which defendants (Choithram Ramnani, Nirmla
Ramnani and Moti Ramnani have collected for
themselves; 34 In said amended complaint, spouses
Ishwar, among others, pray for payment of actual
damages in an amount no less than the value of the
properties in litigation instead of a reconveyance as
sought in the original complaint. Apparently they
opted not to insist on a reconveyance as they are
American citizens as alleged in the amended
complaint. The allegations of the amended complaint
above reproduced clearly spelled out that the transfer
of the property to Nirmla was fraudulent and that it
should be considered to be held in trust by Nirmla for
spouses Ishwar. As above-discussed, this allegation is

well-taken and the transfer of the property to Nirmla

should be considered to have created an implied trust
by Nirmla as trustee of the property for the benefit of
spouses Ishwar. 35
The motion to dissolve the writ of preliminary
injunction filed by Choithram, et al. should be denied. Its
issuance by this Court is proper and warranted under the
circumstances of the case. Under Section 3(c) Rule 58 of the
Rules of Court, a writ of preliminary injunction may be
granted at any time after commencement of the action and
before judgment when it is established: (c) that the
defendant is doing, threatens, or is about to do, or is
procuring or suffering to be done, some act probably in
violation of plaintiffs's rights respecting the subject of the
action, and tending to render the judgment ineffectual.
As above extensively discussed, Choithram, et al. have
committed and threaten to commit further acts of disposition
of the properties in litigation as well as the other assets of
Choithram, apparently designed to render ineffective any
judgment the Court may render favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary
injunction is to preserve the status quo of the things subject
of the litigation and to protect the rights of the spouses
Ishwar respecting the subject of the action during the
pendency of the Suit 36 and not to obstruct the administration
of justice or prejudice the adverse party. 37 In this case for
damages, should Choithram, et al. continue to commit acts
of disposition of the properties subject of the litigation, an
award of damages to spouses Ishwar would thereby be
rendered ineffectual and meaningless. 38
Consequently, if only to protect the interest of spouses
Ishwar, the Court hereby finds and holds that the motion for
the issuance of a writ of preliminary attachment filed by
spouses Ishwar should be granted covering the properties
subject of this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the
commencement of an action or at any time thereafter, the
plaintiff or any proper party may have the property of the
adverse party attached as security for the satisfaction of any

judgment that may be recovered, in, among others, the

following cases:
(d) In an action against a party who has been guilty of
a fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in
concealing or disposing of the property for the taking,
detention or conversion of which the action is brought;
(e) In an action against a party who has removed or
disposed of his property, or is about to do so, with
intent to defraud his creditors; . .
.
Verily, the acts of Choithram, et al. of disposing the
properties subject of the litigation disclose a scheme to
defraud spouses Ishwar so they may not be able to recover
at all given a judgment in their favor, the requiring the
issuance of the writ of attachment in this instance.
Nevertheless, under the peculiar circumstances of this case
and despite the fact that Choithram, et al., have committed
acts which demonstrate their bad faith and scheme to
defraud spouses Ishwar and Sonya of their rightful share in
the properties in litigation, the Court cannot ignore the fact
that Choithram must have been motivated by a strong
conviction that as the industrial partner in the acquisition of
said assets he has as much claim to said properties as
Ishwar, the capitalist partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of
$150,000.00 for the business.1wphi1 They entrusted the
money to Choithram to invest in a profitable business
venture in the Philippines. For this purpose they appointed
Choithram as their attorney-in-fact.
Choithram in turn decided to invest in the real estate
business. He bought the two (2) parcels of land in question
from Ortigas as attorney-in-fact of Ishwar- Instead of paying
for the lots in cash, he paid in installments and used the
balance of the capital entrusted to him, plus a loan, to build
two buildings. Although the buildings were burned later,
Choithram was able to build two other buildings on the
property. He rented them out and collected the rentals.
Through the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is nowa
valuable asset worth millions of pesos. As of the last estimate

in 1985, while the case was pending before the trial court,
the market value of the properties is no less than
P22,304,000.00. 39 It should be worth much more today. We
have a situation where two brothers engaged in a business
venture. One furnished the capital, the other contributed his
industry and talent. Justice and equity dictate that the two
share equally the fruit of their joint investment and efforts.
Perhaps this Solomonic solution may pave the way towards
their reconciliation. Both would stand to gain. No one would
end up the loser. After all, blood is thicker than water.
However, the Court cannot just close its eyes to the devious
machinations and schemes that Choithram employed in
attempting to dispose of, if not dissipate, the properties to
deprive spouses Ishwar of any possible means to recover any
award the Court may grant in their favor. Since Choithram, et
al.
acted with evident bad faith and malice, they should pay
moral and exemplary damages as well as attorney's fees to
spouses Ishwar. WHEREFORE, the petition in G.R. No. 85494
is DENIED, while the petition in G.R. No. 85496 is hereby
given due course and GRANTED. The judgment of the Court
of Appeals dated October 18, 1988 is hereby modified as
follows: 1. Dividing equally between respondents spouses
Ishwar, on the one hand, and petitioner Choithram Ramnani,
on the other, (in G.R. No. 85494) the two parcels of land
subject of this litigation, including all the improvements
thereon, presently covered by transfer Certificates of Title
Nos. 403150 and 403152 of the Registry of Deeds, as well as
the rental income of the property from 1967 to the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani,
Moti C.
Ramnani and respondent Ortigas and Company, Limited
Partnership (in G.R. No. 85496) are ordered solidarily to pay
in cash the value of said one-half (1/2) share in the said land
and improvements pertaining to respondents spouses Ishwar
and Sonya at their fair market value at the time of the
satisfaction of this judgment but in no case less than their
value as appraised by the Asian Appraisal, Inc. in its
Appraisal Report dated August 1985 (Exhibits T to T-14,
inclusive).

3. Petitioners Choithram, Nirmla and Moti Ramnani and

respondent Ortigas & Co., Ltd. Partnership shall also be
jointly and severally liable to pay to said respondents
spouses Ishwar and Sonya Ramnani one-half (1/2) of the
total rental income of said properties and improvements
from 1967 up to the date of satisfaction of the judgment to
be computed as follows:
a. On Building C occupied by Eppie's Creation and
Jethmal Industries from 1967 to 1973, inclusive,
based on the 1967 to 1973 monthly rentals paid
by Eppie's Creation;
b. Also on Building C above, occupied by Jethmal
Industries and Lavine from 1974 to 1978, the
rental incomes based on then rates prevailing
as shown under Exhibit "P"; and from 1979 to
1981, based on then prevailing rates as
indicated under Exhibit "Q";
c. On Building A occupied by Transworld Knitting
Mills from 1972 to 1978, the rental incomes
based upon then prevailing rates shown under
Exhibit "P", and from 1979 to
1981, based on prevailing rates per Exhibit "Q";
d. On the two Bays Buildings occupied by SigmaMariwasa from 1972 to 1978, the rentals based
on the Lease Contract, Exhibit "P", and from
1979 to 1980, the rentals based on the Lease
Contract,
Exhibit
"Q".
and
thereafter
commencing 1982, to account for and turn over
the rental incomes paid or ought to be paid for
the use and occupancy of the properties and all
improvements totalling 10,048 sq. m., based on
the rate per square meter prevailing in 1981 as
indicated annually cumulative up to 1984. Then,
commencing 1985 and up to the satisfaction of
the judgment, rentals shall be computed at ten
percent (10%) annually of the fair market values
of the properties as appraised by the Asian
Appraisals, Inc. in August
1985. (Exhibits T to T-14, inclusive.)

4. To determine the market value of the properties at the time

of the satisfaction of this judgment and the total rental
incomes thereof, the trial court is hereby directed to hold a
hearing with deliberate dispatch for this purpose only and
to have the judgment immediately executed after such
determination.
5. Petitioners Choithram, Nirmla and Moti, all surnamed
Ramnani, are also jointly and severally liable to pay
respondents Ishwar and Sonya Ramnani the amount of
P500,000.00 as moral damages, P200,000.00 as exemplary
damages and attorney's fees equal to 10% of the total
award. to said respondents spouses.
6. The motion to dissolve the writ of preliminary injunction
dated December
10, 1990 filed by petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani, is hereby DENIED and the said injunction
is hereby made permanent. Let a writ of attachment be
issued and levied against the properties and improvements
subject of this litigation to secure the payment of the above
awards to spouses Ishwar and Sonya.
7. The mortgage constituted on the subject property dated
June 20, 1989 by petitioners Choithram and Nirmla, both
surnamed Ramnani in favor of respondent Overseas
Holding, Co. Ltd. (in G.R. No. 85496) for the amount of $3M is hereby declared null and void. The Register of Deeds
of Pasig, Rizal, is directed to cancel the annotation of d
mortgage on the titles of the properties in question.
8. Should respondent Ortigas Co., Ltd. Partnership pay the
awards to Ishwar and Sonya Ramnani under this judgment,
it shall be entitled to reimbursement from petitioners
Choithram, Nirmla and Moti, all surnamed Ramnani.
9. The above awards shag bear legal rate of interest of six
percent (6%) per annum from the time this judgment
becomes final until they are fully paid by petitioners
Choithram Ramnani, Nirmla V. Ramnani, Moti C. Ramnani
and Ortigas, Co., Ltd. Partnership. Said petitioners
Choithram, et al. and respondent Ortigas shall also pay the
costs.
SO ORDERED.

G.R.
No.
L-11624
January 21, 1918 E. M.
BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Vicente
Foz
for
appellants. A. J. Burke
for appellee. STREET,
J.:
In the year 1913, the individuals named as defendants in this
action formed a civil partnership, called "La Protectora," for
the purpose of engaging in the business of transporting
passengers and freight at Laoag, Ilocos Norte. In order to
provide the enterprise with means of transportation, Marcelo
Barba, acting as manager, came to Manila and upon June 23,
1913, negotiated the purchase of two automobile trucks from
the plaintiff, E. M. Bachrach, for the agree price of P16,500.
He paid the sum of 3,000 in cash, and for the balance
executed promissory notes representing the deferred
payments. These notes provided for the payment of interest
from June 23, 1913, the date of the notes, at the rate of 10
per cent per annum. Provision was also made in the notes for
the payment of 25 per cent of the amount due if it should be
necessary to place the notes in the hands of an attorney for
collection. Three of these notes, for the sum of P3,375 each,
have been made the subject of the present action, and there
are exhibited with the complaint in the cause. One was
signed by Marcelo Barba in the following manner:
P.
P.
La
Protectora By
Marcelo Barba
Marcelo
Barba.
The other two notes are signed in the same way with the
word "By" omitted before the name of Marcelo Barba in the
second line of the signature. It is obvious that in thus signing
the notes Marcelo Barba intended to bind both the
partnership and himself. In the body of the note the word "I"

(yo) instead of "we" (nosotros) is used before the words

"promise to pay" (prometemos) used in the printed form. It is
plain that the singular pronoun here has all the force of the
plural.
As preliminary to the purchase of these trucks, the
defendants Nicolas
Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano, upon June 12, 1913, executed in due form a
document in which they declared that they were members
of the firm "La Protectora" and that they had granted to its
president full authority "in the name and representation of
said partnership to contract for the purchase of two
automobiles" (en nombre y representacion de la
mencionada sociedad contratante la compra de dos
automoviles). This document was apparently executed in
obedience to the requirements of subsection 2 of article
1697 of the Civil Code, for the purpose of evidencing the
authority of Marcelo Barba to bind the partnership by the
purchase. The document in question was delivered by him
to Bachrach at the time the automobiles were purchased.
From time to time after this purchase was made, Marcelo
Barba purchased of the plaintiff various automobile effects
and accessories to be used in the business of "La
Protectora." Upon May 21, 1914, the indebtedness resulting
from these additional purchases amounted to the sum of
P2,916.57 In May, 1914, the plaintiff foreclosed a chattel
mortgage which he had retained on the trucks in order to
secure the purchase price. The amount realized from this
sale was P1,000. This was credited unpaid. To recover this
balance, together with the sum due for additional
purchases, the present action was instituted in the Court of
First Instance of the city of Manila, upon May 29, 1914,
against "La Protectora" and the five individuals Marcelo
Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and
Modesto
Serrano. No question has been made as to the propriety of
impleading "La Protectora" as if it were a legal entity. At the
hearing, judgment was rendered against all of the
defendants. From this judgment no appeal was taken in
behalf either of "La Protectora" or Marcelo Barba; and their

liability is not here under consideration. The four individuals

who signed the document to which reference has been
made, authorizing Barba to purchase the two trucks have,
however, appealed and assigned errors. The question here to
be determined is whether or not these individuals are liable
for the firm debts and if so to what extent.
The amount of indebtedness owing to the plaintiff is not in
dispute, as the principal of the debt is agreed to be P7,037.
Of this amount it must now be assumed, in view of the
finding of the trial court, from which no appeal has been
taken by the plaintiff, that the unpaid balance of the notes
amounts to P4,121, while the remainder (P2,916) represents
the amount due for automobile supplies and accessories.
The business conducted under the name of "La Protectora"
was evidently that of a civil partnership; and the liability of
the partners to this association must be determined under
the provisions of the Civil Code. The authority of Marcelo
Barba to bind the partnership, in the purchase of the trucks,
is fully established by the document executed by the four
appellants upon June 12, 1913. The transaction by which
Barba secured these trucks was in conformity with the tenor
of this document. The promissory notes constitute the
obligation exclusively of "La Protectora" and of Marcelo
Barba; and they do not in any sense constitute an obligation
directly binding on the four appellants. Their liability is based
on the fact that they are members of the civil partnership
and as such are liable for its debts. It is true that article 1698
of the Civil Code declares that a member of a civil
partnership is not liable in solidum (solidariamente) with his
fellows for its entire indebtedness; but it results from this
article, in connection with article 1137 of the Civil Code, that
each is liable with the others (mancomunadamente) for his
aliquot part of such indebtedness. And so it has been held by
this court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.) The Court of
First Instance seems to have founded its judgment against
the appellants in part upon the idea that the document
executed by them constituted an authority for Marcelo Barba
to bind them personally, as contemplated in the second
clause of article 1698 of the Civil Code. That cause says that
no member of the partnership can bind the others by a

personal act if they have not given him authority to do so.

We think that the document referred to was intended merely
as an authority to enable Barba to bind the partnership and
that the parties to that instrument did not intend thereby to
confer upon Barba an authority to bind them personally. It is
obvious that the contract which Barba in fact executed in
pursuance of that authority did not by its terms profess to
bind the appellants personally at all, but only the partnership
and himself. It follows that the four appellants cannot be held
to have been personally obligated by that instrument; but, as
we have already seen, their liability rests upon the general
principles underlying partnership liability. As to so much of
the indebtedness as is based upon the claim for automobile
supplies and accessories, it is obvious that the document of
June 12, 1913, affords no authority for holding the appellants
liable. Their liability upon this account is, however, no less
obvious than upon the debt incurred by the purchase of the
trucks; and such liability is derived from the fact that the
debt was lawfully incurred in the prosecution of the
partnership enterprise.
There is no proof in the record showing what the agreement,
if any, was made with regard to the form of management.
Under these circumstances it is declared in article 1695 of
the Civil Code that all the partners are considered agents of
the partnership. Barba therefore must be held to have had
authority to incur these expenses. But in addition to this he is
shown to have been in fact the president or manager, and
there can be no doubt that he had actual authority to incur
this obligation.
From what has been said it results that the appellants are
severally liable for their respective shares of the entire
indebtedness found to be due; and the Court of First Instance
committed no error in giving judgment against them. The
amount for which judgment should be entered is P7,037, to
which shall be added (1) interest at 10 per cent per annum
from June 23, 1913, to be calculated upon the sum of P4.121;
(2) interest at 6 per cent per annum from July 21, 1915, to be
calculated upon the sum of P2,961; (3) the further sum of
P1,030.25, this being the amount stipulated to be paid by
way of attorney's fees. However, it should be noted that any

property pertaining to "La Protectora" should first be applied

to this indebtedness pursuant to the judgment already
entered in this case in the court below; and each of the four
appellants shall be liable only for the one-fifth part of the
remainder unpaid.
Let judgment be entered accordingly, without any express
finding of costs of this instance. So ordered.
Arellano, C.J., Torres, Araullo, Malcolm, and Avancea, JJ.,
concur.

G.R. No. L-40098 August 29, 1975

ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO
NG SUA and CO
OYO,
petitioners, vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch
III, CFI, Cebu and TAN PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain
actuations of respondent Court of First Instance of Cebu
Branch III in its Civil Case No. 12328, an action for accounting
of properties and money totalling allegedly about P15 million
pesos filed with a common cause of action against six
defendants, in which after declaring four of the said
defendants herein petitioners, in default and while the trial
as against the two defendants not declared in default was in
progress, said court granted plaintiff's motion to dismiss the
case in so far as the non-defaulted defendants were
concerned and thereafter proceeded to hear ex-parte the rest
of the plaintiffs evidence and subsequently rendered
judgment by default against the defaulted defendants, with
the particularities that notice of the motion to dismiss was
not duly served on any of the defendants, who had alleged a
compulsory counterclaim against plaintiff in their joint

answer, and the judgment so rendered granted reliefs not

prayed for in the complaint, and (2) prohibition to enjoin
further proceedings relative to the motion for immediate
execution of the said judgment.
Originally, this litigation was a complaint filed on February 9,
1971 by respondent Tan Put only against the spousespetitioners Antonio Lim Tanhu and Dy Ochay. Subsequently,
in an amended complaint dated September 26, 1972, their
son Lim Teck Chuan and the other spouses-petitioners
Alfonso Leonardo Ng Sua and Co Oyo and their son Eng
Chong Leonardo were included as defendants. In said
amended complaint, respondent Tan alleged that she "is the
widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company ... with
Antonio Lim Tanhu and Alfonso Ng Sua that "defendant
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck
Chuan, and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants
managed to use the funds of the partnership to purchase
lands and building's in the cities of Cebu, Lapulapu,
Mandaue, and the municipalities of Talisay and Minglanilla,
some of which were hidden, but the description of those
already discovered were as follows: (list of properties) ...;"
and that:
13.(A)fter the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation continued the
business of Glory Commercial Company by
purportedly organizing a corporation known as
the Glory Commercial Company, Incorporated,
with paid up capital in the sum of
P125,000.00, which money and other assets of
the
said
Glory
Commercial
Company,
Incorporated are actually the assets of the
defunct
Glory
Commercial
Company
partnership, of which the plaintiff has a share
equivalent to one third (/ 3) thereof;
14.(P)laintiff, on several occasions after the death
of her husband, has asked defendants of the

above-mentioned properties and for the

liquidation of the business of the defunct
partnership, including investments on real
estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just
told plaintiff to 15. (S)ometime in the month of
November, 1967, defendants, Antonio Lim
Tanhu, by means of fraud deceit and
misrepresentations did then and there, induce
and convince the plaintiff to execute a
quitclaim of all her rights and interests, in the
assets of the partnership of Glory Commercial
Company, which is null and void, executed
through fraud and without any legal effect. The
original of said quitclaim is in the possession of
the adverse party defendant Antonio Lim
Tanhu.
16. (A)s a matter of fact, after the execution of
said quitclaim, defendant Antonio Lim Tanhu
offered to pay the plaintiff the amount
P65,000.00 within a period of one (1) month,
for which plaintiff was made to sign a receipt
for the amount of P65,000.00 although no such
amount was given and plaintiff was not even
given a copy of said document; 17.
(T)hereafter, in the year 1968-69, the
defendants who had earlier promised to
liquidate the aforesaid properties and assets in
favor among others of plaintiff and until the
middle of the year 1970 when the plaintiff
formally demanded from the defendants the
accounting of real and personal properties of
the Glory Commercial Company, defendants
refused and stated that they would not give the
share of the plaintiff. (Pp. 36-37,
Record.) She prayed as follows:
WHEREFORE, it is most respectfully prayed that
judgment be rendered:
a) Ordering the defendants to render an
accounting of the real and personal properties

of the Glory Commercial Company including

those registered in the names of the defendants
and other persons, which properties are located
in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the
plaintiff after accounting, one third (/ 3) of the
total value of all the properties which is
approximately P5,000,000.00 representing the
just share of the plaintiff;
c) Ordering the defendants to pay the attorney of
the plaintiff the sum of Two Hundred Fifty
Thousand Pesos (P250,000.00) by way of
attorney's fees and damages in the sum of One
Million Pesos (P1,000,000.00). This Honorable
Court is prayed for other remedies and reliefs
consistent with law and equity and order the
defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was
opposed by defendants upon the ground that
there were material modifications of the causes
of action previously alleged, but respondent
judge nevertheless allowed the amendment
reasoning that:
The present action is for accounting of real and
personal properties as well as for the recovery
of the same with damages.
An objective consideration of pars. 13 and 15 of
the amended complaint pointed out by the
defendants to sustain their opposition will show
that the allegations of facts therein are merely
to amplify material averments constituting the
cause of action in the original complaint. It
likewise include necessary and indispensable
defendants
without
whom
no
final
determination can be had in the action and in
order that complete relief is to be accorded as
between those already parties.
Considering that the amendments sought to be
introduced do not change the main causes of action in the
original complaint and the reliefs demanded and to allow

amendments is the rule, and to refuse them the exception

and in order that the real question between the parties may
be properly and justly threshed out in a single proceeding to
avoid multiplicity of actions. (Page 40, Record.) In a single
answer with counterclaim, over the signature of their
common counsel, defendants denied specifically not only the
allegation that respondent Tan is the widow of Tee Hoon
because, according to them, his legitimate wife was Ang Siok
Tin still living and with whom he had four (4) legitimate
children, a twin born in 1942, and two others born in 1949
and 1965, all presently residing in Hongkong, but also all the
allegations of fraud and conversion quoted above, the truth
being, according to them, that proper liquidation had been
regularly made of the business of the partnership and Tee
Hoon used to receive his just share until his death, as a result
of which the partnership was dissolved and what
corresponded to him were all given to his wife and children.
To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE
DEFENSES, defendants hereby incorporate all
facts averred and alleged in the answer, and
further most respectfully declare: 1. That in the
event that plaintiff is filing the present
complaint as an heir of Tee Hoon Lim Po Chuan,
then, she has no legal capacity to sue as such,
considering that the legitimate wife, namely:
Ang Siok Tin, together with their children are
still alive. Under Sec. 1, (d), Rule 16 of the
Revised Rules of Court, lack of legal capacity to
sue is one of the grounds for a motion to
dismiss and so defendants prays that a
preliminary hearing be conducted as provided
for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the
present case under Art. 144 of the Civil Code, then, her claim
or demand has been paid, waived abandoned or otherwise
extinguished as evidenced by the 'quitclaim' Annex 'A'
hereof, the ground cited is another ground for a motion to
dismiss (Sec. 1, (h), Rule 16) and hence defendants pray that

3.

4.

5.

6.

a preliminary hearing be made in connection therewith

pursuant to Section 5 of the aforementioned rule;
That Tee Hoon Lim Po Chuan was legally married to Ang Siok
Tin and were blessed with the following children, to wit:
Ching Siong Lim and Ching Hing Lim (twins) born on February
16, 1942; Lim Shing Ping born on March 3, 1949 and Lim Eng
Lu born on June 25, 1965 and presently residing in
Hongkong;
That even before the death of Tee Hoon Lim Po Chuan, the
plaintiff was no longer his common law wife and even though
she was not entitled to anything left by Tee Hoon Lim Po
Chuan, yet, out of the kindness and generosity on the part of
the defendants, particularly Antonio Lain Tanhu, who, was
inspiring to be monk and in fact he is now a monk, plaintiff
was given a substantial amount evidenced by the
'quitclaim' (Annex 'A');
That the defendants have acquired properties out of their
own personal fund and certainly not from the funds
belonging to the partnership, just as Tee Hoon Lim Po Chuan
had acquired properties out of his personal fund and which
are now in the possession of the widow and neither the
defendants nor the partnership have anything to do about
said properties;
That it would have been impossible to buy properties from
funds belonging to the partnership without the other
partners knowing about it considering that the amount taken
allegedly is quite big and with such big amount withdrawn
the partnership would have been insolvent; 7. That plaintiff
and Tee Hoon Lim Po Chuan were not blessed with children
who would have been lawfully entitled to succeed to the
properties left by the latter together with the widow and
legitimate children;
8. That despite the fact that plaintiff knew that
she was no longer entitled to anything of the
shares of the late Tee Hoon Lim Po Chuan, yet,
this suit was filed against the defendant who
have to interpose the following
COUNTERCLAIM

A. That the defendants hereby reproduced, by way

of reference, all the allegations and foregoing
averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was
merely the common-law wife of Tee Hoon Lim Po
Chuan and that the lawful and legal is still
living, together with the legitimate children, and
yet she deliberately suppressed this fact, thus
showing her bad faith and is therefore liable for
exemplary damages in an amount which the
Honorable Court may determine in the exercise
of its sound judicial discretion. In the event that
plaintiff is married to Tee Hoon Lim Po Chuan,
then, her marriage is bigamous and should
suffer the consequences thereof;
C. That plaintiff was aware and had knowledge
about the 'quitclaim', even though she was not
entitled to it, and yet she falsely claimed that
defendants refused even to see her and for
filing this unfounded, baseless, futile and puerile
complaint, defendants suffered mental anguish
and torture conservatively estimated to be not
less than P3,000.00; D. That in order to defend
their rights in court, defendants were
constrained to engage the services of the
undersigned counsel, obligating themselves to
pay P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the
time that this case will be before this Honorable Court and
until the same will be finally terminated and adjudicated,
defendants will have to spend at least P5,000.00. (Pp. 44-47.
Record.) After unsuccessfully trying to show that this
counterclaim is merely permissive and should be dismissed
for non-payment of the corresponding filing fee, and after
being overruled by the court, in due time, plaintiff answered
the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial,
both of the two defendants-spouses the Lim Tanhus and Ng
Suas, did not appear, for which reason, upon motion of
plaintiff dated February 16, 1973, in an order of March 12,

1973, they were all "declared in DEFAULT as of February 3,

1973 when they failed to appear at the pre-trial." They
sought to hive this order lifted thru a motion for
reconsideration, but the effort failed when the court denied
it. Thereafter, the trial started, but at the stage thereof where
the first witness of the plaintiff by the name of Antonio Nuez
who testified that he is her adopted son, was up for re-crossexamination, said plaintiff unexpectedly filed on October 19,
1974 the following simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned
counsel, unto the Honorable Court most
respectfully moves to drop from the complaint
the defendants Lim Teck Chuan and Eng Chong
Leonardo and to consider the case dismissed
insofar as said defendants Lim Teck Chuan and
Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of
the Honorable
Court to drop from the complaint the defendants
Lim Teck Chuan and Eng Chong Leonardo and to
dismiss the case against them without
pronouncement as to costs. (Page 50, Record.)
which she set for hearing on December 21,
1974. According to petitioners, none of the
defendants declared in default were notified of
said motion, in violation of Section 9 of Rule 13,
since they had asked for the lifting of the order
of default, albeit unsuccessfully, and as regards
the defendants not declared in default, the
setting of the hearing of said motion on October
21, 1974 infringed the three-day requirement of
Section 4 of Rule 15, inasmuch as Atty. Adelino
Sitoy of Lim Teck Chuan was served with a copy
of the motion personally only on October 19,
1974, while Atty. Benjamin Alcudia of Eng Chong
Leonardo was served by registered mail sent
only on the same date. Evidently without even
verifying the notices of service, just as simply as

plaintiff had couched her motion, and also

without any legal grounds stated, respondent
court granted the prayer of the above motion
thus:
ORDER
Acting on the motion of the plaintiff praying for
the dismissal of the complaint as against
defendants Lim Teck
Chuan and Eng Chong Leonardo.
The same is hereby GRANTED. The complaint as
against defendant Lim Teck Chuan and Eng
Chong Leonardo is hereby ordered DISMISSED
without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu
and his spouse Dy Ochay as well as defendants
Alfonso Ng Sua and his spouse Co Oyo have
been declared in default for failure to appear
during the pre-trial and as to the other
defendants the complaint had already been
ordered dismissed as against them.
Let the hearing of the plaintiff's evidence exparte be set on
November 20, 1974, at 8:30 A.M. before the
Branch Clerk of Court who is deputized for the
purpose, to swear in witnesses and to submit
her report within ten (10) days thereafter. Notify
the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page
52, Record.) But, in connection with this last order, the
scheduled ex-parte reception of evidence did not take place
on November 20, 1974, for on October 28, 1974, upon verbal
motion of plaintiff, the court issued the following
selfexplanatory order: .
Acting favorably on the motion of the plaintiff
dated
October 18, 1974, the Court deputized the
Branch Clerk of Court to receive the evidence of
the plaintiff ex-parte to be made on November

20, 1974. However, on October 28, 1974, the

plaintiff, together with her witnesses, appeared
in court and asked, thru counsel, that she be
allowed to present her evidence.
Considering the time and expenses incurred by
the plaintiff in bringing her witnesses to the
court, the Branch Clerk of Court is hereby
authorized to receive immediately the evidence
of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page
53. Record.) Upon learning of these orders on October 23,
1973, the defendant Lim Teck Cheng, thru counsel, Atty.
Sitoy, filed a motion for reconsideration thereof, and on
November 1, 1974, defendant Eng Chong Leonardo, thru
counsel Atty. Alcudia, filed also his own motion for
reconsideration and clarification of the same orders. These
motions were denied in an order dated December 6, 1974
but received by the movants only on December 23, 1974.
Meanwhile, respondent court rendered the impugned
decision on December 20, 1974. It does not appear when the
parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru
counsel, filed a motion to quash the order of October 28,
1974. Without waiting however for the resolution thereof, on
January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo
went to the Court of Appeals with a petition for certiorari
seeking the annulment of the above-mentioned orders of
October 21, 1974 and October 28, 1974 and decision of
December 20, 1974. By resolution of January 24, 1975, the
Court of Appeals dismissed said petition, holding that its
filing was premature, considering that the motion to quash
the order of October 28, 1974 was still unresolved by the trial
court. This holding was reiterated in the subsequent
resolution of February 5, 1975 denying the motion for
reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other
defendants, petitioners herein, filed their notice of appeal,
appeal bond and motion for extension to file their record on
appeal, which was granted, the extension to expire after

fifteen (15) days from January 26 and 27, 1975, for

defendants Lim Tanhu and Ng Suas, respectively. But on
February 7, 1975, before the perfection of their appeal,
petitioners filed the present petition with this Court. And with
the evident intent to make their procedural position clear,
counsel for defendants, Atty. Manuel Zosa, filed with
respondent court a manifestation dated February 14, 1975
stating that "when the non-defaulted defendants Eng Chong
Leonardo and Lim Teck Chuan filed their petition in the Court
of
Appeals, they in effect abandoned their motion to quash the
order of
October 28, 1974," and that similarly "when Antonio Lim
Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo, filed
their petition for certiorari and prohibition ... in the Supreme
Court, they likewise abandoned their motion to quash." This
manifestation was acted upon by respondent court together
with plaintiffs motion for execution pending appeal in its
order of the same date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the
order of October 28, 1974 and the motion for
execution pending appeal were called for
hearing today, counsel for the defendantsmovants submitted their manifestation inviting
the attention of this Court that by their filing for
certiorari and prohibition with preliminary
injunction in the Court of Appeals which was
dismissed and later the defaulted defendants
filed with the Supreme Court certiorari with
prohibition they in effect abandoned their
motion to quash. IN VIEW HEREOF, the motion
to quash is ordered ABANDONED. The resolution
of the motion for execution pending appeal shall
be resolved after the petition for certiorari and
prohibition shall have been resolved by the
Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page
216, Record.)

Upon these premises, it is the position of petitioners that

respondent court acted illegally, in violation of the rules or
with grave abuse of discretion in acting on respondent's
motion to dismiss of October 18, 1974 without previously
ascertaining whether or not due notice thereof had been
served on the adverse parties, as, in fact, no such notice was
timely served on the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo and no notice at all was ever
sent to the other defendants, herein petitioners, and more
so, in actually ordering the dismissal of the case by its order
of October 21, 1974 and at the same time setting the case
for further hearing as against the defaulted defendants,
herein petitioners, actually hearing the same ex-parte and
thereafter rendering the decision of December 20, 1974
granting respondent Tan even reliefs not prayed for in the
complaint. According to the petitioners, to begin with, there
was compulsory counterclaim in the common answer of the
defendants the nature of which is such that it cannot be
decided in an independent action and as to which the
attention of respondent court was duly called in the motions
for reconsideration. Besides, and more importantly, under
Section 4 of Rule 18, respondent court had no authority to
divide the case before it by dismissing the same as against
the non-defaulted defendants and thereafter proceeding to
hear it ex-parte and subsequently rendering judgment
against the defaulted defendants, considering that in their
view, under the said provision of the rules, when a common
cause of action is alleged against several defendants, the
default of any of them is a mere formality by which those
defaulted are not allowed to take part in the proceedings, but
otherwise, all the defendants, defaulted and not defaulted,
are supposed to have but a common fate, win or lose. In
other words, petitioners posit that in such a situation, there
can only be one common judgment for or against all the
defendant, the non-defaulted and the defaulted. Thus,
petitioners contend that the order of dismissal of October 21,
1974 should be considered also as the final judgment insofar
as they are concerned, or, in the alternative, it should be set
aside together with all the proceedings and decision held and
rendered subsequent thereto, and that the trial be resumed

as of said date, with the defendants Lim Teck Chuan and Eng
Chong Leonardo being allowed to defend the case for all the
defendants. On the other hand, private respondent maintains
the contrary view that inasmuch as petitioners had been
properly declared in default, they have no personality nor
interest to question the dismissal of the case as against their
non-defaulted co-defendants and should suffer the
consequences of their own default. Respondent further
contends, and this is the only position discussed in the
memorandum submitted by her counsel, that since
petitioners have already made or at least started to make
their appeal, as they are in fact entitled to appeal, this
special civil action has no reason for being. Additionally, she
invokes the point of prematurity upheld by the Court of
Appeals in regard to the above-mentioned petition therein of
the non-defaulted defendants Lim Teck Chuan and Eng Chong
Leonardo. Finally, she argues that in any event, the errors
attributed to respondent court are errors of judgment and
may be reviewed only in an appeal. After careful scrutiny of
all the above-related proceedings, in the court below and
mature deliberation, the Court has arrived at the conclusion
that petitioners should be granted relief, if only to stress
emphatically once more that the rules of procedure may not
be misused and abused as instruments for the denial of
substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative
instance of how some members of the bar, availing of their
proficiency in invoking the letter of the rules without regard
to their real spirit and intent, succeed in inducing courts to
act contrary to the dictates of justice and equity, and, in
some instances, to wittingly or unwittingly abet unfair
advantage by ironically camouflaging their actuations as
earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be
liberally construed in order to promote their object and to
assist the parties in obtaining not only 'speedy' but more
imperatively, "just ... and inexpensive determination of every
action and proceeding." We cannot simply pass over the
impression that the procedural maneuvers and tactics

revealed in the records of the case at bar were deliberately

planned with the calculated end in view of depriving
petitioners and their co-defendants below of every
opportunity to properly defend themselves against a claim of
more than substantial character, considering the millions of
pesos worth of properties involved as found by respondent
judge himself in the impugned decision, a claim that appears,
in the light of the allegations of the answer and the
documents already brought to the attention of the court at
the pre-trial, to be rather dubious. What is most regrettable is
that apparently, all of these alarming circumstances have
escaped respondent judge who did not seem to have
hesitated in acting favorably on the motions of the plaintiff
conducive to the deplorable objective just mentioned, and
which motions, at the very least, appeared to be 'of highly
controversial' merit, considering that their obvious tendency
and immediate result would be to convert the proceedings
into a one-sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court
to lean more on the contentions of private respondent may
be discerned from the manner it resolved the attempts of
defendants Dy Ochay and Antonio Lim Tanhu to have the
earlier order of default against them lifted. Notwithstanding
that Dy Ochay's motion of October 8, 1971, co-signed by her
with their counsel, Atty. Jovencio Enjambre (Annex 2 of
respondent answer herein) was over the jurat of the notary
public before whom she took her oath, in the order of
November 2, 1971, (Annex 3 id.) it was held that "the oath
appearing at the bottom of the motion is not the one
contemplated by the abovequoted pertinent provision (See.
3, Rule 18) of the rules. It is not even a verification. (See. 6,
Rule 7.) What the rule requires as interpreted by the
Supreme Court is that the motion must have to be
accompanied by an affidavit of merits that the defendant has
a meritorious defense, thereby ignoring the very simple legal
point that the ruling of the Supreme Court in Ong Peng vs.
Custodio, 1 SCRA 781, relied upon by His Honor, under which
a separate affidavit of merit is required refers obviously to
instances where the motion is not over oath of the party

concerned, considering that what the cited provision literally

requires is no more than a "motion under oath." Stated
otherwise, when a motion to lift an order of default contains
the reasons for the failure to answer as well as the facts
constituting the prospective defense of the defendant and it
is sworn to by said defendant, neither a formal verification
nor a separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to
lift the order of default "is an admission that there was a
valid service of summons" and that said motion could not
amount to a challenge against the jurisdiction of the court
over the person of the defendant. Such a rationalization is
patently specious and reveals an evident failure to grasp the
import of the legal concepts involved. A motion to lift an
order of default on the ground that service of summons has
not been made in accordance with the rules is in order and is
in essence verily an attack against the jurisdiction of the
court over the person of the defendant, no less than if it were
worded in a manner specifically embodying such a direct
challenge.
And then, in the order of February 14, 1972 (Annex 6, id.)
lifting at last the order of default as against defendant Lim
Tanhu, His Honor posited that said defendant "has a defense
(quitclaim) which renders the claim of the plaintiff
contentious." We have read defendants' motion for
reconsideration of November 25, 1971 (Annex 5, id.), but We
cannot find in it any reference to a "quitclaim". Rather, the
allegation of a quitclaim is in the amended complaint (Pars.
15-16, Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured through
fraud and deceit. In truth, the motion for reconsideration just
mentioned, Annex 5, merely reiterated the allegation in Dy
Ochay's earlier motion of October 8, 1971, Annex 2, to set
aside the order of default, that plaintiff Tan could be but the
common law wife only of Tee Hoon, since his legitimate wife
was still alive, which allegation, His Honor held in the order of
November 2, 1971, Annex 3, to be "not good and meritorious
defense". To top it all, whereas, as already stated, the order
of February 19, 1972, Annex 6, lifted the default against Lim
Tanhu because of the additional consideration that "he has a

defense (quitclaim) which renders the claim of the plaintiff

contentious," the default of Dy Ochay was maintained
notwithstanding that exactly the same "contentions" defense
as that of her husband was invoked by her. Such tenuous, if
not altogether erroneous reasonings and manifest
inconsistency in the legal postures in the orders in question
can hardly convince Us that the matters here in issue were
accorded due and proper consideration by respondent court.
In fact, under the circumstances herein obtaining, it seems
appropriate to stress that, having in view the rather
substantial value of the subject matter involved together
with the obviously contentious character of plaintiff's claim,
which is discernible even on the face of the complaint itself,
utmost care should have been taken to avoid the slightest
suspicion of improper motivations on the part of anyone
concerned. Upon the considerations hereunder to follow, the
Court expresses its grave concern that much has to be done
to dispel the impression that herein petitioners and their codefendants are being railroaded out of their rights and
properties without due process of law, on the strength of
procedural technicalities adroitly planned by counsel and
seemingly unnoticed and undetected by respondent court,
whose orders, gauged by their tenor and the citations of
supposedly pertinent provisions and jurisprudence made
therein, cannot be said to have proceeded from utter lack of
juridical knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the
record is the seeming alacrity with which the motion to
dismiss the case against nondefaulted defendants Lim Teck
Chuan and Eng Chong Leonardo was disposed of, which
definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff
and he was still under re-cross-examination. Undoubtedly,
the motion to dismiss at that stage and in the light of the
declaration of default against the rest of the defendants was
a well calculated surprise move, obviously designed to
secure utmost advantage of the situation, regardless of its
apparent unfairness. To say that it must have been entirely
unexpected by all the defendants, defaulted and non-

defaulted , is merely to rightly assume that the parties in a

judicial proceeding can never be the victims of any
procedural waylaying as long as lawyers and judges are
imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable
fact that the adverse parties who were entitled to be notified
of such unanticipated dismissal motion did not get due notice
thereof. Certainly, the nondefaulted defendants had the right
to the three-day prior notice required by Section 4 of Rule 15.
How could they have had such indispensable notice when the
motion was set for hearing on Monday, October 21, 1974,
whereas the counsel for Lim Teck Chuan, Atty. Sitoy was
personally served with the notice only on Saturday, October
19, 1974 and the counsel for Eng Chong Leonardo, Atty.
Alcudia, was notified by registered mail which was posted
only that same Saturday, October 19, 1974? According to
Chief Justice Moran, "three days at least must intervene
between the date of service of notice and the date set for the
hearing, otherwise the court may not validly act on the
motion." (Comments on the Rules of Court by Moran, Vol. 1,
1970 ed. p. 474.) Such is the correct construction of Section
4 of Rule 15. And in the instant case, there can be no
question that the notices to the non-defaulted defendants
were short of the requirement of said provision. We can
understand the over-anxiety of counsel for plaintiff, but what
is incomprehensible is the seeming inattention of respondent
judge to the explicit mandate of the pertinent rule, not to
speak of the imperatives of fairness, considering he should
have realized the far-reaching implications, specially from the
point of view he subsequently adopted, albeit erroneously, of
his favorably acting on it. Actually, he was aware of said
consequences, for simultaneously with his order of dismissal,
he immediately set the case for the ex-parte hearing of the
evidence against the defaulted defendants, which,
incidentally, from the tenor of his order which We have
quoted above, appears to have been done by him motu
propio As a matter of fact, plaintiff's motion also quoted
above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974
further ignores or is inconsistent with a number of known

juridical principles concerning defaults, which We will here

take occasion to reiterate and further elucidate on, if only to
avoid a repetition of the unfortunate errors committed in this
case. Perhaps some of these principles have not been amply
projected and elaborated before, and such paucity of
elucidation could be the reason why respondent judge must
have acted as he did. Still, the Court cannot but express its
vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and
specific warrant under the terms of existing rules or binding
jurisprudence. Extreme care must be the instant reaction of
every judge when confronted with a situation involving risks
that the proceedings may not be fair and square to all the
parties concerned. Indeed, a keen sense of fairness, equity
and justice that constantly looks for consistency between the
letter of the adjective rules and these basic principles must
be possessed by every judge, If substance is to prevail, as it
must, over form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage on the
part of any litigant before it, is unworthy of any court of
justice and equity. Withal, only those rules and procedure
informed, with and founded on public policy deserve
obedience in accord with their unequivocal language or
words..
Before proceeding to the discussion of the default aspects of
this case, however, it should not be amiss to advert first to
the patent incorrectness, apparent on the face of the record,
of the aforementioned order of dismissal of October 21, 1974
of the case below as regards non-defaulted defendants Lim
and Leonardo. While it is true that said defendants are not
petitioners herein, the Court deems it necessary for a full
view of the outrageous procedural strategy conceived by
respondent's counsel and sanctioned by respondent court to
also make reference to the very evident fact that in ordering
said dismissal respondent court disregarded completely the
existence of defendant's counterclaim which it had itself
earlier held if indirectly, to be compulsory in nature when it
refused to dismiss the same on the ground alleged by
respondent Tan that he docketing fees for the filing thereof
had not been paid by defendants. Indeed, that said

counterclaim is compulsory needs no extended elaboration.

As may be noted in the allegations hereof aforequoted, it
arose out of or is necessarily connected with the occurrence
that is the subject matter of the plaintiff's claim, (Section 4,
Rule 9) namely, plaintiff's allegedly being the widow of the
deceased Tee Hoon entitled, as such, to demand accounting
of and to receive the share of her alleged late husband as
partner of defendants Antonio Lim Tanhu and Alfonso
Leonardo Ng Sua in Glory Commercial Company, the truth of
which allegations all the defendants have denied. Defendants
maintain in their counterclaim that plaintiff knew of the
falsity of said allegations even before she filed her complaint,
for she had in fact admitted her common-law relationship
with said deceased in a document she had jointly executed
with him by way of agreement to terminate their illegitimate
relationship, for which she received P40,000 from the
deceased, and with respect to her pretended share in the
capital and profits in the partnership, it is also defendants'
posture that she had already quitclaimed, with the assistance
of able counsel, whatever rights if any she had thereto in
November, 1967, for the sum of P25,000 duly receipted by
her, which quitclaim was, however, executed, according to
respondent herself in her amended complaint, through fraud.
And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material
allegations thereof are false and baseless, she has caused
them to suffer damages. Undoubtedly, with such allegations,
defendants' counterclaim is compulsory, not only because
the same evidence to sustain it will also refute the cause or
causes of action alleged in plaintiff's complaint, (Moran,
supra p. 352) but also because from its very nature, it is
obvious that the same cannot "remain pending for
independent adjudication by the
court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that
"(i)f a counterclaim has been pleaded by a defendant prior to
the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's
objection unless the counterclaim can remain pending for
independent adjudication by the court." Defendants Lim and

Leonardo had no opportunity to object to the motion to

dismiss before the order granting the same was issued, for
the simple reason that they were not opportunity notified of
the motion therefor, but the record shows clearly that at
least defendant Lim immediately brought the matter of their
compulsory counterclaim to the attention of the trial court in
his motion for reconsideration of October 23, 1974, even as
the counsel for the other defendant, Leonardo, predicated his
motion on other grounds. In its order of December 6, 1974,
however, respondent court not only upheld the plaintiffs
supposed absolute right to choose her adversaries but also
held that the counterclaim is not compulsory, thereby
virtually making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration why the
motion to dismiss should not have been granted. As the
plaintiff's complaint has been framed, all the six defendants
are charged with having actually taken part in a conspiracy
to misappropriate, conceal and convert to their own benefit
the profits, properties and all other assets of the partnership
Glory Commercial Company, to the extent that they have
allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from the
partnership. Upon such allegations, no judgment finding the
existence of the alleged conspiracy or holding the capital of
the corporation to be the money of the partnership is legally
possible without the presence of all the defendants. The nondefaulted defendants are alleged to be stockholders of the
corporation and any decision depriving the same of all its
assets cannot but prejudice the interests of said defendants.
Accordingly, upon these premises, and even prescinding from
the other reasons to be discussed anon it is clear that all the
six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than
grant that they are so on page 23 of their answer. Such being
the case, the questioned order of dismissal is exactly the
opposite of what ought to have been done. Whenever it
appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the
court to stop the trial and to order the inclusion of such party.

(The Revised Rules of Court, Annotated & Commented by

Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also
Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable,
for the "general rule with reference to the making of parties
in a civil action requires the joinder of all necessary parties
wherever possible, and the joinder of all indispensable
parties under any and all conditions, the presence of those
latter being a sine qua non of the exercise of judicial power."
(Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely "
when an indispensable party is not before the court (that) the
action should be dismissed." (People v. Rodriguez, 106 Phil.
325, at p. 327.) The absence of an indispensable party
renders all subsequent actuations of the court null and void,
for want of authority to act, not only as to the absent parties
but even as to those present. In short, what respondent court
did here was exactly the reverse of what the law ordains it
eliminated those who by law should precisely be joined. As
may he noted from the order of respondent court quoted
earlier, which resolved the motions for reconsideration of the
dismissal order filed by the non-defaulted defendants, His
Honor rationalized his position thus: It is the rule that it is the
absolute prerogative of the plaintiff to choose, the theory
upon which he predicates his
right of action, or the parties he desires to sue,
without dictation or imposition by the court or
the adverse party. If he makes a mistake in the
choice of his right of action, or in that of the
parties against whom he seeks to enforce it,
that is his own concern as he alone suffers
therefrom. The plaintiff cannot be compelled to
choose his defendants, He may not, at his own
expense, be forced to implead anyone who,
under the adverse party's theory, is to answer
for defendant's liability. Neither may the Court
compel him to furnish the means by which
defendant may avoid or mitigate their liability.
(Vao vs. Alo, 95 Phil. 495-496.) This being the
rule this court cannot compel the plaintiff to
continue prosecuting her cause of action
against the defendants-movants if in the

course of the trial she believes she can enforce

it against the remaining defendants subject
only to the limitation provided in Section 2,
Rule 17 of the Rules of Court. ... (Pages 6263,
Record.)
Noticeably, His Honor has employed the same equivocal
terminology as in plaintiff's motion of October 18, 1974 by
referring to the action he had taken as being "dismissal of
the complaint against them or their being dropped
therefrom", without perceiving that the reason for the
evidently intentional ambiguity is transparent. The apparent
idea is to rely on the theory that under Section 11 of Rule 3,
parties may be dropped by the court upon motion of any
party at any stage of the action, hence "it is the absolute
right prerogative of the plaintiff to choosethe parties he
desires to sue, without dictation or imposition by the court or
the adverse party." In other words, the ambivalent pose is
suggested that plaintiff's motion of October 18, 1974 was not
predicated on Section 2 of Rule 17 but more on Section 11 of
Rule 3. But the truth is that nothing can be more incorrect. To
start with, the latter rule does not comprehend whimsical
and irrational dropping or adding of parties in a complaint.
What it really contemplates is erroneous or mistaken nonjoinder and misjoinder of parties. No one is free to join
anybody in a complaint in court only to drop him
unceremoniously later at the pleasure of the plaintiff. The
rule presupposes that the original inclusion had been made
in the honest conviction that it was proper and the
subsequent dropping is requested because it has turned out
that such inclusion was a mistake. And this is the reason why
the rule ordains that the dropping be "on such terms as are
just" just to all the other parties. In the case at bar, there
is nothing in the record to legally justify the dropping of the
non-defaulted defendants, Lim and Leonardo. The motion of
October
18, 1974 cites none. From all appearances, plaintiff just
decided to ask for it, without any relevant explanation at all.
Usually, the court in granting such a motion inquires for the
reasons and in the appropriate instances directs the granting
of some form of compensation for the trouble undergone by

the defendant in answering the complaint, preparing for or

proceeding partially to trial, hiring counsel and making
corresponding expenses in the premises. Nothing of these,
appears in the order in question. Most importantly, His Honor
ought to have considered that the outright dropping of the
nondefaulted defendants Lim and Leonardo, over their
objection at that, would certainly be unjust not only to the
petitioners, their own parents, who would in consequence be
entirely defenseless, but also to Lim and Leonardo
themselves who would naturally correspondingly suffer from
the eventual judgment against their parents. Respondent
court paid no heed at all to the mandate that such dropping
must be on such terms as are just" meaning to all
concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing
its order of dismissal of October 21, 1974 as well as its order
of December 6, 1974 denying reconsideration of such
dismissal. As We make this ruling, We are not oblivious of the
circumstance that defendants Lim and Leonardo are not
parties herein. But such consideration is inconsequential. The
fate of the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-parte
hearing of October 21, 1974 which directly affects and
prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We
are to decide the case of herein petitioners properly and
fairly.
The attitude of the non-defaulted defendants of no longer
pursuing further their questioning of the dismissal is from
another point of view understandable. On the one hand, why
should they insist on being defendants when plaintiff herself
has already release from her claims? On the other hand, as
far as their respective parents-co-defendants are concerned,
they must have realized that they (their parents) could even
be benefited by such dismissal because they could question
whether or not plaintiff can still prosecute her case against
them after she had secured the order of dismissal in
question. And it is in connection with this last point that the
true and correct concept of default becomes relevant. At this
juncture, it may also be stated that the decision of the Court

of Appeals of January 24, 1975 in G. R. No. SP-03066

dismissing the petition for certiorari of non-defaulted
defendants Lim and Leonardo impugning the order of
dismissal of October 21, 1974, has no bearing at all in this
case, not only because that dismissal was premised by the
appellate court on its holding that the said petition was
premature inasmuch as the trial court had not yet resolved
the motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally because
herein petitioners were not parties in that proceeding and
cannot, therefore, be bound by its result. In particular, We
deem it warranted to draw the attention of private
respondent's counsel to his allegations in paragraphs XI to
XIV of his answer, which relate to said decision of the Court
of Appeals and which have the clear tendency to make it
appear to the Court that the appeals court had upheld the
legality and validity of the actuations of the trial court being
questioned, when as a matter of indisputable fact, the
dismissal of the petition was based solely and exclusively on
its being premature without in any manner delving into its
merits. The Court must and does admonish counsel that such
manner of pleading, being deceptive and lacking in candor,
has no place in any court, much less in the Supreme Court,
and if We are adopting a passive attitude in the premises, it
is due only to the fact that this is counsel's first offense. But
similar conduct on his part in the future will definitely be
dealt with more severely. Parties and counsel would be well
advised to avoid such attempts to befuddle the issues as
invariably then will be exposed for what they are, certainly
unethical and degrading to the dignity of the law profession.
Moreover, almost always they only betray the inherent
weakness of the cause of the party resorting to them.
2
Coming now to the matter itself of default, it is quite
apparent that the impugned orders must have proceeded
from inadequate apprehension of the fundamental precepts
governing such procedure under the Rules of Court. It is time
indeed that the concept of this procedural device were fully
understood by the bench and bar, instead of being merely
taken for granted as being that of a simple expedient of not

allowing the offending party to take part in the proceedings,

so that after his adversary shall have presented his evidence,
judgment may be rendered in favor of such opponent, with
hardly any chance of said judgment being reversed or
modified.
The Rules of Court contain a separate rule on the subject of
default, Rule 18. But said rule is concerned solely with
default resulting from failure of the defendant or defendants
to answer within the reglementary period. Referring to the
simplest form of default, that is, where there is only one
defendant in the action and he fails to answer on time,
Section 1 of the rule provides that upon "proof of such
failure, (the court shall) declare the defendant in default.
Thereupon the court shall proceed to receive the plaintiff's
evidence and render judgment granting him such relief as
the complaint and the facts proven may warrant." This last
clause is clarified by Section 5 which says that "a judgment
entered against a party in default shall not exceed the
amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are,
they do not readily convey the full import of what they
contemplate. To begin with, contrary to the immediate notion
that can be drawn from their language, these provisions are
not to be understood as meaning that default or the failure of
the defendant to answer should be "interpreted as an
admission by the said defendant that the plaintiff's cause of
action find support in the law or that plaintiff is entitled to the
relief prayed for." (Moran, supra, p. 535 citing Macondary &
Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v.
McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden
v. Johnson,
59 Ga. 105; People v. Rust, 292 111. 328; Ken v. Leopold 21
111. A. 163;
Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of
rights except that of being heard and of presenting evidence
in the trial court. According to Section 2, "except as provided
in Section 9 of Rule 13, a party declared in default shall not
be entitled to notice of subsequent proceedings, nor to take
part in the trial." That provision referred to reads: "No service

of papers other than substantially amended pleadings and

final orders or judgments shall be necessary on a party in
default unless he files a motion to set aside the order of
default, in which event he shall be entitled to notice of all
further proceedings regardless of whether the order of
default is set aside or not." And pursuant to Section 2 of Rule
41, "a party who has been declared in default may likewise
appeal from the judgment rendered against him as contrary
to the evidence or to the law, even if no petition for relief to
set aside the order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown
out of court. While in a sense it may be said that by
defaulting he leaves himself at the mercy of the court, the
rules see to it that any judgment against him must be in
accordance with law. The evidence to support the plaintiff's
cause is, of course, presented in his absence, but the court is
not supposed to admit that which is basically incompetent.
Although the defendant would not be in a position to object,
elementary justice requires that, only legal evidence should
be considered against him. If the evidence presented should
not be sufficient to justify a judgment for the plaintiff, the
complaint must be dismissed. And if an unfavorable
judgment should be justifiable, it cannot exceed in amount or
be different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present
widespread practice of trial judges, as was done by His Honor
in this case, of delegating to their clerks of court the
reception of the plaintiff's evidence when the defendant is in
default. Such a Practice is wrong in principle and orientation.
It has no basis in any rule. When a defendant allows himself
to be declared in default, he relies on the faith that the court
would take care that his rights are not unduly prejudiced. He
has a right to presume that the law and the rules will still be
observed. The proceedings are held in his forced absence,
and it is but fair that the plaintiff should not be allowed to
take advantage of the situation to win by foul or illegal
means or with inherently incompetent evidence. Thus, in
such instances, there is need for more attention from the
court, which only the judge himself can provide. The clerk of

court would not be in a position much less have the authority

to act in the premises in the manner demanded by the rules
of fair play and as contemplated in the law, considering his
comparably limited area of discretion and his presumably
inferior preparation for the functions of a judge. Besides, the
default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor
and conduct of the witnesses of the plaintiff, the better to
appreciate their truthfulness and credibility. We therefore
declare as a matter of judicial policy that there being no
imperative reason for judges to do otherwise, the practice
should be discontinued.
Another matter of practice worthy of mention at this point is
that it is preferable to leave enough opportunity open for
possible lifting of the order of default before proceeding with
the reception of the plaintiff's evidence and the rendition of
the decision. "A judgment by default may amount to a
positive and considerable injustice to the defendant; and the
possibility of such serious consequences necessitates a
careful and liberal examination of the grounds upon which
the defendant may seek to set it aside." (Moran, supra p.
534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The
expression, therefore, in Section 1 of Rule 18 aforequoted
which says that "thereupon the court shall proceed to receive
the plaintiff's evidence etc." is not to be taken literally. The
gain in time and dispatch should the court immediately try
the case on the very day of or shortly after the declaration of
default is far outweighed by the inconvenience and
complications involved in having to undo everything already
done in the event the defendant should justify his omission
to answer on time.
The foregoing observations, as may be noted, refer to
instances where the only defendant or all the defendants,
there being several, are declared in default. There are
additional rules embodying more considerations of justice
and equity in cases where there are several defendants
against whom a common cause of action is averred and not
all of them answer opportunely or are in default, particularly
in reference to the power of the court to render judgment in
such situations. Thus, in addition to the limitation of Section

5 that the judgment by default should not be more in amount

nor different in kind from the reliefs specifically sought by
plaintiff in his complaint, Section 4 restricts the authority of
the court in rendering judgment in the situations just
mentioned as follows:
Sec. 4. Judgment when some defendants
answer, and other make difficult. When a complaint states
a common cause of action against several defendant some
of whom answer, and the others fail to do so, the court shall
try the case against all upon the answer thus filed and
render judgment upon the evidence presented. The same
proceeding applies when a common cause of action is
pleaded in a counterclaim, cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this
provision and the controlling jurisprudence explanatory
thereof this wise:
Where a complaint states a common cause of
action against several defendants and some
appear to defend the case on the merits while
others make default, the defense interposed by
those who appear to litigate the case inures to
the benefit of those who fail to appear, and if
the court finds that a good defense has been
made, all of the defendants must be absolved.
In other words, the answer filed by one or some
of the defendants inures to the benefit of all the
others, even those who have not seasonably
filed their answer. (Bueno v. Ortiz, L-22978, June
27, 1968, 23 SCRA 1151.) The proper mode of
proceeding where a complaint states a common
cause of action against several defendants, and
one of them makes default, is simply to enter a
formal default order against him, and proceed
with the cause upon the answers of the others.
The defaulting defendant merely loses his
standing in court, he not being entitled to the
service of notice in the cause, nor to appear in
the suit in any way. He cannot adduce evidence;
nor can he be heard at the final hearing, (Lim
Toco v. Go Fay, 80

Phil. 166.) although he may appeal the

judgment rendered against him on the merits.
(Rule 41, sec. 2.) If the case is finally decided in
the plaintiff's favor, a final decree is then
entered against all the defendants; but if the
suit should be decided against the plaintiff, the
action will be dismissed as to all the defendants
alike. (Velez v. Ramas, 40 Phil. 787792; Frow v.
de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other
words the judgment will affect the defaulting
defendants either favorably or adversely.
(Castro v. Pea, 80 Phil. 488.) Defaulting
defendant may ask execution if judgment is in
his favor. (Castro v. Pea, supra.) (Moran, Rules
of Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the
numerous cases cited by Moran, this Court
elaborated on the construction of the same rule
when it sanctioned the execution, upon motion
and for the benefit of the defendant in default,
of a judgment which was adverse to the
plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her
counsel, also was a movant in the petition for
execution Annex 1. Did she have a right to be
such, having been declared in default? In Frow
vs. De la Vega,supra, cited as authority in
Velez vs. Ramas, supra, the Supreme Court of
the United States adopted as ground for its
own decision the following ruling of the New
York Court of Errors in Clason vs. Morris, 10
Jons., 524:
It would be unreasonable to hold that because
one defendant had made default, the plaintiff
should have a decree even against him, where
the court is satisfied from the proofs offered by
the other, that in fact the plaintiff is not entitled
to a decree. (21 Law, ed., 61.) The reason is
simple: justice has to be consistent. The
complaint stating a common cause of action

against several defendants, the complainant's

rights or lack of them in the controversy
have to be the same, and not different, as
against all the defendant's although one or
some make default and the other or others
appear, join issue, and enter into trial. For
instance, in the case of Clason vs. Morris above
cited, the New York Court of Errors in effect held
that in such a case if the plaintiff is not entitled
to a decree, he will not be entitled to it, not only
as against the defendant appearing and
resisting his action but also as against the one
who made default. In the case at bar, the cause
of action in the plaintiff's complaint was
common against the Mayor of Manila, Emilia
Matanguihan, and the other defendants in Civil
Case No. 1318 of the lower court. The Court of
First Instance in its judgment found and held
upon the evidence adduced by the plaintiff and
the defendant mayor that as between said
plaintiff and defendant Matanguihan the latter
was the one legally entitled to occupy the stalls;
and it decreed, among other things, that said
plaintiff immediately vacate them. Paraphrasing
the New York Court of Errors, it would be
unreasonable to hold now that because
Matanguihan had made default, the said
plaintiff should be declared, as against her,
legally entitled to the occupancy of the stalls, or
to remain therein, although the Court of First
Instance was so firmly satisfied, from the proofs
offered by the other defendant, that the same
plaintiff was not entitled to such occupancy that
it peremptorily ordered her to vacate the stalls.
If in the cases of Clason vs. Morris, supra, Frow
vs. De la Vega, supra, and Velez vs. Ramas,
supra the decrees entered inured to the benefit
of the defaulting defendants, there is no reason
why that entered in said case No. 1318 should
not be held also to have inured to the benefit of

the defaulting defendant Matanguihan and the

doctrine in said three cases plainly implies that
there is nothing in the law governing default
which would prohibit the court from rendering
judgment favorable to the defaulting defendant
in such cases. If it inured to her benefit, it
stands to reason that she had a right to claim
that benefit, for it would not be a benefit if the
supposed beneficiary were barred from claiming
it; and if the benefit necessitated the execution
of the decree, she must be possessed of the
right to ask for the execution thereof as she did
when she, by counsel, participated in the
petition for execution Annex 1. Section 7 of Rule
35 would seem to afford a solid support to the
above considerations. It provides that when a
complaint states a common cause of action
against several defendants, some of whom
answer, and the others make default, 'the court
shall try the case against all upon the answer
thus filed and render judgment upon the
evidence presented by the parties in court'. It is
obvious that under this provision the case is
tried jointly not only against the defendants
answering but also against those defaulting,
and the trial is held upon the answer filed by the
former; and the judgment, if adverse, will
prejudice the defaulting defendants no less than
those who answer. In other words, the
defaulting defendants are held bound by the
answer filed by their co-defendants and by the
judgment which the court may render against
all of them. By the same token, and by all rules
of equity and fair play, if the judgment should
happen to be favorable, totally or partially, to
the
answering
defendants,
it
must
correspondingly benefit the defaulting ones, for
it would not be just to let the judgment produce
effects as to the defaulting defendants only
when adverse to them and not when favorable.

In Bueno vs. Ortiz, 23 SCRA 1151, the Court

applied the provision under discussion in the
following words:
In answer to the charge that respondent Judge
had committed a grave abuse of discretion in
rendering a default judgment against the PC,
respondents allege that, not having filed its
answer within the reglementary period, the PC
was in default, so that it was proper for Patanao
to forthwith present his evidence and for
respondent Judge to render said judgment. It
should be noted, however, that in entering the
area in question and seeking to prevent Patanao
from continuing his logging operations therein,
the
PC was merely executing an order of the
Director of Forestry and acting as his agent.
Patanao's cause of action against the other
respondents in Case No. 190, namely, the
Director of Forestry, the District Forester of
Agusan, the
Forest Officer of Bayugan, Agusan, and the
Secretary of
Agriculture and Natural Resources. Pursuant to
Rule 18, Section 4, of the Rules of Court, 'when
a complaint states a common cause of action
against several defendants some of whom
answer and the others fail to do so, the court
shall try the case against all upon the answer
thus filed (by some) and render judgment upon
the evidence presented.' In other words, the
answer filed by one or some of the defendants
inures to the benefit of all the others, even
those who have not seasonably filed their
answer. Indeed, since the petition in Case No.
190 sets forth a common cause of action
against all of the respondents therein, a
decision in favor of one of them would
necessarily favor the others. In fact, the main
issue, in said case, is whether Patanao has a

timber license to undertake logging operations

in the disputed area. It is not possible to decide
such issue in the negative, insofar as the
Director of Forestry, and to settle it otherwise,
as regards the PC, which is merely acting as
agent of the Director of Forestry, and is,
therefore, his alter ego, with respect to the
disputed forest area.
Stated differently, in all instances where a common cause of
action is alleged against several defendants, some of whom
answer and the others do not, the latter or those in default
acquire a vested right not only to own the defense interposed
in the answer of their co- defendant or codefendants not in
default but also to expect a result of the litigation totally
common with them in kind and in amount whether favorable
or unfavorable. The substantive unity of the plaintiff's cause
against all the defendants is carried through to its adjective
phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness of
the cause of action also inevitably implies that all the
defendants are indispensable parties, the court's power to
act is integral and cannot be split such that it cannot relieve
any of them and at the same time render judgment against
the rest. Considering the tenor of the section in question, it is
to be assumed that when any defendant allows himself to be
declared in default knowing that his defendant has already
answered, he does so trusting in the assurance implicit in the
rule that his default is in essence a mere formality that
deprives him of no more than the right to take part in the
trial and that the court would deem anything done by or for
the answering defendant as done by or for him. The
presumption is that otherwise he would not -have seen to
that he would not be in default. Of course, he has to suffer
the consequences of whatever the answering defendant may
do or fail to do, regardless of possible adverse consequences,
but if the complaint has to be dismissed in so far as the
answering defendant is concerned it becomes his inalienable
right that the same be dismissed also as to him. It does not
matter that the dismissal is upon the evidence presented by
the plaintiff or upon the latter's mere desistance, for in both

contingencies, the lack of sufficient legal basis must be the

cause. The integrity of the common cause of action against
all the defendants and the indispensability of all of them in
the proceedings do not permit any possibility of waiver of the
plaintiff's right only as to one or some of them, without
including all of them, and so, as a rule, withdrawal must be
deemed to be a confession of weakness as to all. This is not
only elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of procedural
strategem practiced by private respondent herein that
resulted in totally depriving petitioners of every opportunity
to defend themselves against her claims which, after all, as
will be seen later in this opinion, the record does not show to
be invulnerable, both in their factual and legal aspects,
taking into consideration the tenor of the pleadings and the
probative value of the competent evidence which were
before the trial court when it rendered its assailed decision
where all the defendants are indispensable parties, for which
reason the absence of any of them in the case would result in
the court losing its competency to act validly, any
compromise that the plaintiff might wish to make with any of
them must, as a matter of correct procedure, have to await
until after the rendition of the judgment, at which stage the
plaintiff may then treat the matter of its execution and the
satisfaction of his claim as variably as he might please.
Accordingly, in the case now before Us together with the
dismissal of the complaint against the non-defaulted
defendants, the court should have ordered also the dismissal
thereof as to petitioners.
Indeed, there is more reason to apply here the principle of
unity and indivisibility of the action just discussed because all
the defendants here have already joined genuine issues with
plaintiff. Their default was only at the pre-trial. And as to
such absence of petitioners at the pre-trial, the same could
be attributed to the fact that they might not have considered
it necessary anymore to be present, since their respective
children Lim and Leonardo, with whom they have common
defenses, could take care of their defenses as well. Anything
that might have had to be done by them at such pre-trial
could have been done for them by their children, at least

initially, specially because in the light of the pleadings before

the court, the prospects of a compromise must have
appeared to be rather remote. Such attitude of petitioners is
neither uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and irrevocably
in default was not an absolute necessity. Practical
considerations and reasons of equity should have moved
respondent court to be more understanding in dealing with
the situation. After all, declaring them in default as
respondent court did not impair their right to a common fate
with their children.
3
Another issue to be resolved in this case is the question of
whether or not herein petitioners were entitled to notice of
plaintiff's motion to drop their co-defendants Lim and
Leonardo, considering that petitioners had been previously
declared in default. In this connection, the decisive
consideration is that according to the applicable rule, Section
9, Rule 13, already quoted above, (1) even after a defendant
has been declared in default, provided he "files a motion to
set aside the order of default, he shall be entitled to notice
of all further proceedings regardless of whether the order of
default is set aside or not" and (2) a party in default who has
not filed such a motion to set aside must still be served with
all "substantially amended or supplemented pleadings." In
the instant case, it cannot be denied that petitioners had all
filed their motion for reconsideration of the order declaring
them in default. Respondents' own answer to the petition
therein makes reference to the order of April 3, 1973, Annex
8 of said answer, which denied said motion for
reconsideration. On page 3 of petitioners' memorandum
herein this motion is referred to as "a motion to set aside the
order of default." But as We have not been favored by the
parties with a copy of the said motion, We do not even know
the excuse given for petitioners' failure to appear at the pretrial, and We cannot, therefore, determine whether or not the
motion complied with the requirements of Section 3 of Rule
18 which We have held to be controlling in cases of default
for failure to answer on time. (The Philippine-British Co. Inc.

etc. et al. vs. The Hon. Walfrido de los Angeles etc. et al., 63
SCRA 50.)
We do not, however, have here, as earlier noted, a case of
default for failure to answer but one for failure to appear at
the pre-trial. We reiterate, in the situation now before Us,
issues have already been joined. In fact, evidence had been
partially offered already at the pre-trial and more of it at the
actual trial which had already begun with the first witness of
the plaintiff undergoing re-cross-examination. With these
facts in mind and considering that issues had already been
joined even as regards the defaulted defendants, it would be
requiring the obvious to pretend that there was still need for
an oath or a verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their
default. Inasmuch as none of the parties had asked for a
summary judgment there can be no question that the issues
joined were genuine, and consequently, the reason for
requiring such oath or verification no longer holds. Besides, it
may also be reiterated that being the parents of the nondefaulted defendants, petitioners must have assumed that
their presence was superfluous, particularly because the
cause of action against them as well as their own defenses
are common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is
secondary and the requirements of Section 3 of Rule 18 need
not be strictly complied with, unlike in cases of default for
failure to answer. We can thus hold as We do hold for the
purposes of the revival of their right to notice under Section
9 of Rule 13, that petitioner's motion for reconsideration was
in substance legally adequate regardless of whether or not it
was under oath. In any event, the dropping of the defendants
Lim and Leonardo from plaintiff's amended complaint was
virtually a second amendment of plaintiffs complaint. And
there can be no doubt that such amendment was substantial,
for with the elimination thereby of two defendants allegedly
solidarily liable with their co-defendants, herein petitioners, it
had the effect of increasing proportionally what each of the
remaining defendants, the said petitioners, would have to
answer for jointly and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October 18, 1974 was

legally indispensable under the rule above-quoted.

Consequently, respondent court had no authority to act on
the motion, to dismiss, pursuant to Section 6 of Rule 15, for
according to Senator Francisco, "(t) he Rules of Court clearly
provide that no motion shall be acted upon by the Court
without the proof of service of notice thereof, together with a
copy of the motion and other papers accompanying it, to all
parties concerned at least three days before the hearing
thereof, stating the time and place for the hearing of the
motion. (Rule 26, section 4, 5 and 6, Rules of Court (now Sec.
15, new Rules). When the motion does not comply with this
requirement, it is not a motion. It presents no question which
the court could decide. And the Court acquires no jurisdiction
to consider it. (Roman Catholic Bishop of Lipa vs. Municipality
of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955;
21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44
Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The
Revised Rules of Court in the Philippines, pp. 861-862.) Thus,
We see again, from a different angle, why respondent court's
order of dismissal of October 21, 1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is
respondents' position that certiorari is not the proper remedy
of petitioners. It is contended that inasmuch as said
petitioners have in fact made their appeal already by filing
the required notice of appeal and appeal bond and a motion
for extension to file their record on appeal, which motion was
granted by respondent court, their only recourse is to
prosecute that appeal. Additionally, it is also maintained that
since petitioners have expressly withdrawn their motion to
quash of January 4, 1975 impugning the order of October 28,
1974, they have lost their right to assail by certiorari the
actuations of respondent court now being questioned,
respondent court not having been given the opportunity to
correct any possible error it might have committed. We do
not agree. As already shown in the foregoing discussion, the
proceedings in the court below have gone so far out of hand
that prompt action is needed to restore order in the

entangled situation created by the series of plainly illegal

orders it had issued. The essential purpose of certiorari is to
keep the proceedings in lower judicial courts and tribunals
within legal bounds, so that due process and the rule of law
may prevail at all times and arbitrariness, whimsicality and
unfairness which justice abhors may immediately be
stamped out before graver injury, juridical and otherwise,
ensues. While generally these objectives may well be
attained in an ordinary appeal, it is undoubtedly the better
rule to allow the special remedy of certiorari at the option of
the party adversely affected, when the irregularity
committed by the trial court is so grave and so far reaching
in its consequences that the long and cumbersome
procedure of appeal will only further aggravate the situation
of the aggrieved party because other untoward actuations
are likely to materialize as natural consequences of those
already perpetrated. If the law were otherwise, certiorari
would have no reason at all for being.
No elaborate discussion is needed to show the urgent need
for corrective measures in the case at bar. Verily, this is one
case that calls for the exercise of the Supreme Court's
inherent power of supervision over all kinds of judicial actions
of lower courts. Private respondent's procedural technique
designed to disable petitioners to defend themselves against
her claim which appears on the face of the record itself to be
at least highly controversial seems to have so fascinated
respondent court that none would be surprised should her
pending motion for immediate execution of the impugned
judgment receive similar ready sanction as her previous
motions which turned the proceedings into a one-sided affair.
The stakes here are high. Not only is the subject matter
considerably substantial; there is the more important aspect
that not only the spirit and intent of the rules but even the
basic rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of the
proceedings below would be nothing short of wittingly
condoning inequity and injustice resulting from erroneous
construction and unwarranted application of procedural rules.
5

The sum and total of all the foregoing disquisitions is that the
decision here in question is legally anomalous. It is
predicated on two fatal malactuations of respondent court
namely (1) the dismissal of the complaint against the nondefaulted defendants Lim and Leonardo and (2) the ex-parte
reception of the evidence of the plaintiff by the clerk of court,
the subsequent using of the same as basis for its judgment
and the rendition of such judgment. For at least three
reasons which We have already fully discussed above, the
order of dismissal of October 21, 1974 is unworthy of Our
sanction: (1) there was no timely notice of the motion
therefor to the non-defaulted defendants, aside from there
being no notice at all to herein petitioners; (2) the common
answer of the defendants, including the non-defaulted,
contained a compulsory counterclaim incapable of being
determined in an independent action; and (3) the immediate
effect of such dismissal was the removal of the two nondefaulted defendants as parties, and inasmuch as they are
both indispensable parties in the case, the court
consequently lost the" sine qua non of the exercise of judicial
power", per Borlasa vs. Polistico, supra. This is not to
mention anymore the irregular delegation to the clerk of
court of the function of receiving plaintiff's evidence. And as
regards the ex-parte reception of plaintiff's evidence and
subsequent rendition of the judgment by default based
thereon, We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles on
default, to a common and single fate with their non-defaulted
co-defendants. And We are not yet referring, as We shall do
this anon to the numerous reversible errors in the decision
itself.
It is to be noted, however, that the above-indicated two
fundamental flaws in respondent court's actuations do not
call for a common corrective remedy. We cannot simply rule
that all the impugned proceedings are null and void and
should be set aside, without being faced with the
insurmountable obstacle that by so doing We would be
reviewing the case as against the two non-defaulted
defendants who are not before Us not being parties hereto.
Upon the other hand, for Us to hold that the order of

dismissal should be allowed to stand, as contended by

respondents themselves who insist that the same is already
final, not only because the period for its finality has long
passed but also because allegedly, albeit not very accurately,
said 'non-defaulted defendants unsuccessfully tried to have it
set aside by the Court of Appeals whose decision on their
petition is also already final, We would have to disregard
whatever evidence had been presented by the plaintiff
against them and, of course, the findings of respondent court
based thereon which, as the assailed decision shows, are
adverse to them. In other words, whichever of the two
apparent remedies the Court chooses, it would necessarily
entail some kind of possible juridical imperfection. Speaking
of their respective practical or pragmatic effects, to annul the
dismissal would inevitably prejudice the rights of the
nondefaulted defendants whom We have not heard and who
even respondents would not wish to have anything anymore
to do with the case. On the other hand, to include petitioners
in the dismissal would naturally set at naught every effort
private respondent has made to establish or prove her case
thru means sanctioned by respondent court. In short, We are
confronted with a legal para-dilemma. But one thing is
certain this difficult situations has been brought about by
none other than private respondent who has quite cynically
resorted to procedural maneuvers without realizing that the
technicalities of the adjective law, even when apparently
accurate from the literal point of view, cannot prevail over
the imperatives of the substantive law and of equity that
always underlie them and which have to be inevitably
considered in the construction of the pertinent procedural
rules. All things considered, after careful and mature
deliberation, the Court has arrived at the conclusion that as
between the two possible alternatives just stated, it would
only be fair, equitable and proper to uphold the position of
petitioners. In other words, We rule that the order of
dismissal of October 21, 1974 is in law a dismissal of the
whole case of the plaintiff, including as to petitioners herein.
Consequently, all proceedings held by respondent court
subsequent thereto including and principally its decision of
December 20, 1974 are illegal and should be set aside.

This conclusion is fully justified by the following

considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted
to by private respondent in securing the decision in her favor
was ill-conceived. It was characterized by that which every
principle of law and equity disdains taking unfair
advantage of the rules of procedure in order to unduly
deprive the other party of full opportunity to defend his
cause. The idea of "dropping" the non-defaulted defendants
with the end in view of completely incapacitating their codefendants from making any defense, without considering
that all of them are indispensable parties to a common cause
of action to which they have countered with a common
defense readily connotes an intent to secure a one-sided
decision, even improperly. And when, in this connection, the
obvious weakness of plaintiff's evidence is taken into
account, one easily understands why such tactics had to be
availed of. We cannot directly or indirectly give Our assent to
the commission of unfairness and inequity in the application
of the rules of procedure, particularly when the propriety of
reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private respondents,
although approved by His Honor, run counter to such basic
principles in the rules on default and such elementary rules
on dismissal of actions and notice of motions that no trial
court should be unaware of or should be mistaken in
applying. We are at a loss as to why His Honor failed to see
through counsel's inequitous strategy, when the provisions
(1) on the three-day rule on notice of motions, Section 4 of
Rule 15, (2) against dismissal of actions on motion of plaintiff
when there is a compulsory counterclaim, Section 2, Rule 17,
(3) against permitting the absence of indispensable parties,
Section 7, Rule 3, (4) on service of papers upon defendants
in default when there are substantial amendments to
pleadings, Section 9, Rule 13, and (5) on the unity and
integrity of the fate of defendants in default with those not in
default where the cause of action against them and their own
defenses are common, Section 4, Rule 18, are so plain and
the jurisprudence declaratory of their intent and proper
construction are so readily comprehensible that any error as

to their application would be unusual in any competent trial

court.
3. After all, all the malactuations of respondent court are
traceable to the initiative of private respondent and/or her
counsel. She cannot, therefore, complain that she is being
made to unjustifiably suffer the consequences of what We
have found to be erroneous orders of respondent court. It is
only fair that she should not be allowed to benefit from her
own frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the
basis of its own recitals, the decision in question cannot
stand close scrutiny. What is more, the very considerations
contained therein reveal convincingly the inherent weakness
of the cause of the plaintiff. To be sure, We have been giving
serious thought to the idea of merely returning this case for a
resumption of trial by setting aside the order of dismissal of
October 21, 1974, with all its attendant difficulties on
account of its adverse effects on parties who have not been
heard, but upon closer study of the pleadings and the
decision and other circumstances extant in the record before
Us, We are now persuaded that such a course of action would
only lead to more legal complications incident to attempts on
the part of the parties concerned to desperately squeeze
themselves out of a bad situation. Anyway, We feel confident
that by and large, there is enough basis here and now for Us
to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would
immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had no
reason for being were there less haste and more
circumspection in rendering the same. Recklessness in
jumping to unwarranted conclusions, both factual and legal,
is at once evident in its findings relative precisely to the main
bases themselves of the reliefs granted. It is apparent therein
that no effort has been made to avoid glaring
inconsistencies. Where references are made to codal
provisions and jurisprudence, inaccuracy and inapplicability
are at once manifest. It hardly commends itself as a
deliberate and consciencious adjudication of a litigation
which, considering the substantial value of the subject

matter it involves and the unprecedented procedure that was

followed by respondent's counsel, calls for greater attention
and skill than the general run of cases would.
Inter alia, the following features of the decision make it
highly improbable that if We took another course of action,
private respondent would still be able to make out any case
against petitioners, not to speak of their codefendants who
have already been exonerated by respondent herself thru her
motion to dismiss:
1. According to His Honor's own statement of plaintiff's case,
"she is the widow of the late Tee Hoon Po Chuan (Po Chuan,
for short) who was then one of the partners in the
commercial partnership, Glory Commercial Co. with
defendants Antonio Lim Tanhu (Lim Tanhu, for short) and
Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners;
that after the death of her husband on March 11, 1966 she is
entitled to share not only in the capital and profits of the
partnership but also in the other assets, both real and
personal, acquired by the partnership with funds of the latter
during its lifetime."
Relatedly, in the latter part of the decision, the findings are to
the following effect: .
That the herein plaintiff Tan Put and her late
husband Po Chuan married at the Philippine
Independent Church of
Cebu City on December, 20, 1949; that Po
Chuan died on March 11, 1966; that the plaintiff
and the late Po Chuan were childless but the
former has a foster son Antonio Nuez whom
she has reared since his birth with whom she
lives up to the present; that prior to the
marriage of the plaintiff to Po Chuan the latter
was already managing the partnership Glory
Commercial Co. then engaged in a little
business in hardware at Manalili St., Cebu City;
that prior to and just after the marriage of the
plaintiff to Po Chuan she was engaged in the
drugstore business; that not long after her
marriage, upon the suggestion of Po Chuan the
plaintiff sold her drugstore for P125,000.00

which amount she gave to her husband in the

presence of defendant Lim Tanhu and was
invested in the partnership Glory Commercial
Co. sometime in 1950; that after the investment
of the abovestated amount in the partnership
its business flourished and it embarked in the
import business and also engaged in the
wholesale and retail trade of cement and GI
sheets and under huge profits; xxx xxx xxx
That the late Po Chuan was the one who actively
managed the business of the partnership Glory
Commercial Co. he was the one who made the
final decisions and approved the appointments
of new personnel who were taken in by the
partnership; that the late Po Chuan and
defendants Lim Tanhu and Ng Sua are brothers,
the latter two (2) being the elder brothers of the
former; that defendants Lim Tanhu and Ng Sua
are both naturalized Filipino citizens whereas
the late Po Chuan until the time of his death
was a Chinese citizen; that the three (3)
brothers were partners in the Glory Commercial
Co. but Po Chuan was practically the owner of
the partnership having the controlling interest;
that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere
employees of Po Chuan .... (Pp.
89-91, Record.)
How did His Honor arrive at these conclusions? To start with,
it is not clear in the decision whether or not in making its
findings of fact the court took into account the allegations in
the pleadings of the parties and whatever might have
transpired at the pre-trial. All that We can gather in this
respect is that references are made therein to pre-trial
exhibits and to Annex A of the answer of the defendants to
plaintiff's amended complaint. Indeed, it was incumbent
upon the court to consider not only the evidence formally
offered at the trial but also the admissions, expressed or
implied, in the pleadings, as well as whatever might have
been placed before it or brought to its attention during the

pre-trial. In this connection, it is to be regretted that none of

the parties has thought it proper to give Us an idea of what
took place at the pre-trial of the present case and what are
contained in the pre-trial order, if any was issued pursuant to
Section 4 of Rule 20. The fundamental purpose of pre-trial,
aside from affording the parties every opportunity to
compromise or settle their differences, is for the court to be
apprised of the unsettled issues between the parties and of
their respective evidence relative thereto, to the end that it
may take corresponding measures that would abbreviate the
trial as much as possible and the judge may be able to
ascertain the facts with the least observance of technical
rules. In other words whatever is said or done by the parties
or their counsel at the pre- trial serves to put the judge on
notice of their respective basic positions, in order that in
appropriate cases he may, if necessary in the interest of
justice and a more accurate determination of the facts, make
inquiries about or require clarifications of matters taken up at
the pre-trial, before finally resolving any issue of fact or of
law. In brief, the pre-trial constitutes part and parcel of the
proceedings, and hence, matters dealt with therein may not
be disregarded in the process of decision making. Otherwise,
the real essence of compulsory pre-trial would be
insignificant and worthless.
Now, applying these postulates to the findings of respondent
court just quoted, it will be observed that the court's
conclusion about the supposed marriage of plaintiff to the
deceased Tee Hoon Lim Po Chuan is contrary to the weight of
the evidence brought before it during the trial and the
pretrial.
Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and
wife "shall be set forth in an instrument" signed by the
parties as well as by their witnesses and the person
solemnizing the marriage. Accordingly, the primary evidence
of a marriage must be an authentic copy of the marriage
contract. While a marriage may also be proved by other
competent evidence, the absence of the contract must first
be satisfactorily explained. Surely, the certification of the
person who allegedly solemnized a marriage is not

admissible evidence of such marriage unless proof of loss of

the contract or of any other satisfactory reason for its nonproduction is first presented to the court. In the case at bar,
the purported certification issued by a Mons. Jose M.
Recoleto, Bishop, Philippine Independent Church, Cebu City,
is not, therefore, competent evidence, there being absolutely
no showing as to unavailability of the marriage contract and,
indeed, as to the authenticity of the signature of said
certifier, the jurat allegedly signed by a second assistant
provincial fiscal not being authorized by law, since it is not
part of the functions of his office. Besides, inasmuch as the
bishop did not testify, the same is hearsay.
As regards the testimony of plaintiff herself on the same
point and that of her witness Antonio Nuez, there can be no
question that they are both self-serving and of very little
evidentiary value, it having been disclosed at the trial that
plaintiff has already assigned all her rights in this case to said
Nuez, thereby making him the real party in interest here
and, therefore, naturally as biased as herself. Besides, in the
portion of the testimony of Nuez copied in Annex C of
petitioner's memorandum, it appears admitted that he was
born only on March 25, 1942, which means that he was less
than eight years old at the supposed time of the alleged
marriage. If for this reason alone, it is extremely doubtful if
he could have been sufficiently aware of such event as to be
competent to testify about it. Incidentally, another Annex C
of the same memorandum purports to be the certificate of
birth of one Antonio T. Uy supposed to have been born on
March 23, 1937 at Centro Misamis, Misamis Occidental, the
son of one Uy Bien, father, and Tan Put, mother. Significantly,
respondents have not made any adverse comment on this
document. It is more likely, therefore, that the witness is
really the son of plaintiff by her husband Uy Kim Beng. But
she testified she was childless. So which is which? In any
event, if on the strength of this document, Nuez is actually
the legitimate son of Tan Put and not her adopted son, he
would have been but 13 years old in 1949, the year of her
alleged marriage to Po Chuan, and even then, considering
such age, his testimony in regard thereto would still be
suspect. Now, as against such flimsy evidence of plaintiff, the

court had before it, two documents of great weight belying

the pretended marriage. We refer to (1) Exhibit LL, the
income tax return of the deceased Tee Hoon Lim Po Chuan
indicating that the name of his wife was Ang Sick Tin and (2)
the quitclaim, Annex A of the answer, wherein plaintiff Tan
Put stated that she had been living with the deceased
without benefit of marriage and that she was his "commonlaw wife". Surely, these two documents are far more reliable
than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial
evidence. But it is evidence offered to the judge himself, not
to the clerk of court, and should have at least moved him to
ask plaintiff to explain if not rebut it before jumping to the
conclusion regarding her alleged marriage to the deceased,
Po Chuan. And in regard to the quitclaim containing the
admission of a common-law relationship only, it is to be
observed that His Honor found that "defendants Lim Tanhu
and Ng Sua had the plaintiff execute a quitclaim on
November 29, 1967 (Annex "A", Answer) where they gave
plaintiff the amount of P25,000 as her share in the capital
and profits of the business of Glory Commercial Co. which
was engaged in the hardware business", without making
mention of any evidence of fraud and misrepresentation in its
execution, thereby indicating either that no evidence to
prove that allegation of the plaintiff had been presented by
her or that whatever evidence was actually offered did not
produce persuasion upon the court.
Stated differently, since the existence of the quitclaim has
been duly established without any circumstance to detract
from its legal import, the court should have held that plaintiff
was bound by her admission therein that she was the
common-law wife only of Po Chuan and what is more, that
she had already renounced for valuable consideration
whatever claim she might have relative to the partnership
Glory Commercial Co. And when it is borne in mind that in
addition to all these considerations, there are mentioned and
discussed in the memorandum of petitioners (1) the
certification of the Local Civil Registrar of Cebu City and (2) a
similar certification of the Apostolic Prefect of the Philippine
Independent Church, Parish of Sto. Nio, Cebu City, that

their respective official records corresponding to December

1949 to December 1950 do not show any marriage between
Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now,
it stands to reason that plaintiff's claim of marriage is really
unfounded. Withal, there is still another document, also
mentioned and discussed in the same memorandum and
unimpugned by respondents, a written agreement executed
in Chinese, but purportedly translated into English by the
Chinese Consul of Cebu, between Tan Put and Tee Hoon Lim
Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu
City,
Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan
Put, have lived with Mr. Lim Po Chuan alias
TeeHoon since 1949 but it recently occurs that
we are incompatible with each other and are not
in the position to keep living together
permanently. With the mutual concurrence, we
decided to terminate the existing relationship of
common law-marriage and promised not to
interfere each other's affairs from now on. The
Forty Thousand Pesos (P40,000.00) has been
given to me by Mr. Lim Po Chuan for my
subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the
54th
year
of
the
Republic
of
China
(corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp.
283-284,
Record.)
Indeed, not only does this document prove that plaintiff's
relation to the deceased was that of a common-law wife but
that they had settled their property interests with the
payment to her of P40,000.

In the light of all these circumstances, We find no alternative

but to hold that plaintiff Tan Put's allegation that she is the
widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record
convincingly shows that her relation with said deceased was
that of a common-law wife and furthermore, that all her
claims against the company and its surviving partners as well
as those against the estate of the deceased have already
been settled and paid. We take judicial notice of the fact that
the respective counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio Castillo, are
members in good standing of the Philippine Bar, with the
particularity that the latter has been a member of the
Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they had
allowed themselves to be parties to a fraudulent document
His Honor did right in recognizing its existence, albeit erring
in not giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged
status as legitimate wife of Po Chuan is not only
unconvincing but has been actually overcome by the more
competent and weighty evidence in favor of the defendants,
her attempt to substantiate her main cause of action that
defendants Lim Tanhu and Ng Sua have defrauded the
partnership Glory Commercial Co. and converted its
properties to themselves is even more dismal. From the very
evidence summarized by His Honor in the decision in
question, it is clear that not an iota of reliable proof exists of
such alleged misdeeds. Of course, the existence of the
partnership has not been denied, it is actually admitted
impliedly in defendants' affirmative defense that Po Chuan's
share had already been duly settled with and paid to both
the plaintiff and his legitimate family. But the evidence as to
the actual participation of the defendants Lim Tanhu and Ng
Sua in the operation of the business that could have enabled
them to make the extractions of funds alleged by plaintiff is
at best confusing and at certain points manifestly
inconsistent.
In her amended complaint, plaintiff repeatedly alleged that
as widow of Po Chuan she is entitled to / 3 share of the

assets and properties of the partnership. In fact, her prayer

in said complaint is, among others, for the delivery to her of
such / 3 share. His Honor's statement of the case as well as
his findings and judgment are all to that same effect. But
what did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had
money of her own when she "married" Po Chuan and "that
prior to and just after the marriage of the plaintiff to Po
Chuan, she was engaged in the drugstore business; that not
long after her marriage, upon the suggestion of Po Chuan,
the plaintiff sold her drugstore for P125,000 which amount
she gave to her husband in the presence of Tanhu and was
invested in the partnership Glory Commercial Co. sometime
in 1950; that after the investment of the abovestated amount
in the partnership, its business flourished and it embarked in
the import business and also engaged in the wholesale and
retail trade of cement and GI sheets and under (sic) huge
profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of
P125,000 to the capital of the partnership by reason of which
the business flourished and amassed all the millions referred
to in the decision has not been alleged in the complaint, and
inasmuch as what was being rendered was a judgment by
default, such theory should not have been allowed to be the
subject of any evidence. But inasmuch as it was the clerk of
court who received the evidence, it is understandable that he
failed to observe the rule. Then, on the other hand, if it was
her capital that made the partnership flourish, why would she
claim to be entitled to only to / 3 of its assets and profits?
Under her theory found proven by respondent court, she was
actually the owner of everything, particularly because His
Honor also found "that defendants Lim Tanhu and Ng Sua
were partners in the name but they were employees of Po
Chuan that defendants Lim Tanhu and Ng Sua had no means
of livelihood at the time of their employment with the Glory
Commercial Co. under the management of the late Po Chuan
except their salaries therefrom; ..." (p. 27, id.) Why then does
she claim only / 3 share? Is this an indication of her
generosity towards defendants or of a concocted cause of
action existing only in her confused imagination engendered

by the death of her commonlaw husband with whom she had

settled her common-law claim for recompense of her services
as common law wife for less than what she must have known
would go to his legitimate wife and children? Actually, as may
be noted from the decision itself, the trial court was confused
as to the participation of defendants Lim Tanhu and Ng Sua in
Glory Commercial Co. At one point, they were deemed
partners, at another point mere employees and then
elsewhere as partners-employees, a newly found concept, to
be sure, in the law on partnership. And the confusion is worse
comfounded in the judgment which allows these "partners in
name" and "partners-employees" or employees who had no
means of livelihood and who must not have contributed any
capital in the business, "as Po
Chuan was practically the owner of the partnership having
the controlling interest", /3 each of the huge assets and
profits of the partnership. Incidentally, it may be observed at
this juncture that the decision has made Po Chuan play the
inconsistent role of being "practically the owner" but at the
same time getting his capital from the P125,000 given to him
by plaintiff and from which capital the business allegedly
"flourished."
Anent the allegation of plaintiff that the properties shown by
her exhibits to be in the names of defendants Lim Tanhu and
Ng Sua were bought by them with partnership funds, His
Honor confirmed the same by finding and holding that "it is
likewise clear that real properties together with the
improvements in the names of defendants Lim Tanhu and Ng
Sua were acquired with partnership funds as these
defendants were only partnersemployees of deceased Po
Chuan in the Glory Commercial Co. until the time of his death
on March 11, 1966." (p. 30, id.) It Is Our considered view,
however, that this conclusion of His Honor is based on
nothing but pure unwarranted conjecture. Nowhere is it
shown in the decision how said defendants could have
extracted money from the partnership in the fraudulent and
illegal manner pretended by plaintiff. Neither in the
testimony of Nuez nor in that of plaintiff, as these are
summarized in the decision, can there be found any single
act of extraction of partnership funds committed by any of

said defendants. That the partnership might have grown into

a multi-million enterprise and that the properties described in
the exhibits enumerated in the decision are not in the names
of Po Chuan, who was Chinese, but of the defendants who
are Filipinos, do not necessarily prove that Po Chuan had not
gotten his share of the profits of the business or that the
properties in the names of the defendants were bought with
money of the partnership. In this connection, it is decisively
important to consider that on the basis of the concordant and
mutually cumulative testimonies of plaintiff and Nuez,
respondent court found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively
managed the business of the partnership Glory
Commercial Co. he was the one who made the
final decisions and approved the appointments
of new Personnel who were taken in by the
partnership; that the late Po Chuan and
defendants Lim Tanhu and Ng Sua are brothers,
the latter to (2) being the elder brothers of the
former; that defendants Lim Tanhu and Ng Sua
are both naturalized Filipino citizens whereas
the late Po Chuan until the time of his death
was a Chinese citizen; that the three (3)
brothers were partners in the Glory Commercial
Co. but Po Chuan was practically the owner of
the partnership having the controlling interest;
that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere
employees of Po Chuan; .... (Pp.
90-91, Record.)
If Po Chuan was in control of the affairs and the running of
the partnership, how could the defendants have defrauded
him of such huge amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po Chuan was in control
of the affairs of the partnership, the more logical inference is
that if defendants had obtained any portion of the funds of
the partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor,

considering that Article 1807 of the Civil Code refers only to

what is taken by a partner without the consent of the other
partner or partners. Incidentally again, this theory about Po
Chuan having been actively managing the partnership up to
his death is a substantial deviation from the allegation in the
amended complaint to the effect that "defendants Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and
Eng Chong Leonardo, through fraud and machination, took
actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Co., defendants managed to use the funds of the
partnership to purchase lands and buildings etc. (Par. 4, p. 2
of amended complaint, Annex B of petition) and should not
have been permitted to be proven by the hearing officer, who
naturally did not know any better.
Moreover, it is very significant that according to the very tax
declarations and land titles listed in the decision, most if not
all of the properties supposed to have been acquired by the
defendants Lim Tanhu and Ng Sua with funds of the
partnership appear to have been transferred to their names
only in 1969 or later, that is, long after the partnership had
been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to
account to anyone for such acquisitions in the absence of
clear proof that they had violated the trust of Po Chuan
during the existence of the partnership. (See Hanlon vs.
Hansserman and.
Beam, 40 Phil. 796.)
There are other particulars which should have caused His
Honor to readily disbelieve plaintiffs' pretensions. Nuez
testified that "for about 18 years he was in charge of the GI
sheets and sometimes attended to the imported items of the
business of Glory Commercial Co." Counting 18 years back
from 1965 or 1966 would take Us to 1947 or 1948. Since
according to Exhibit LL, the baptismal certificate produced by
the same witness as his birth certificate, shows he was born
in March, 1942, how could he have started managing Glory
Commercial Co. in 1949 when he must have been barely six
or seven years old? It should not have escaped His Honor's
attention that the photographs showing the premises of

Philippine Metal Industries after its organization "a year or

two after the establishment of Cebu Can Factory in 1957 or
1958" must have been taken after 1959. How could Nuez
have been only 13 years old then as claimed by him to have
been his age in those photographs when according to his
"birth certificate", he was born in 1942? His Honor should not
have overlooked that according to the same witness,
defendant Ng Sua was living in Bantayan until he was
directed to return to Cebu after the fishing business thereat
floundered, whereas all that the witness knew about
defendant Lim Teck Chuan's arrival from Hongkong and the
expenditure of partnership money for him were only told to
him allegedly by Po Chuan, which testimonies are veritably
exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan.
Neither should His Honor have failed to note that according
to plaintiff herself, "Lim Tanhu was employed by her husband
although he did not go there always being a mere employee
of
Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua
had no known income except their salaries. Actually, it is not
stated, however, from what evidence such conclusion was
derived in so far as Ng Sua is concerned. On the other hand,
with respect to Lim Tanhu, the decision itself states that
according to Exhibit NN-Pre trial, in the supposed income tax
return of Lim Tanhu for 1964, he had an income of P4,800 as
salary from Philippine Metal Industries alone and had a total
assess sable net income of P23,920.77 that year for which he
paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit
GG-Pretrial in the year, he had a net income of P32,000 for
which be paid a tax of P3,512.40. (id.) As early as 1962, "his
fishing business in Madridejos Cebu was making money, and
he reported "a net gain from operation (in) the amount of
P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his
Honor gather the conclusion that all the properties registered
in his name have come from funds malversed from the
partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co. without the
aid of any accountant or without the same being explained

by any witness who had prepared them or who has

knowledge of the entries therein. This must be the reason
why there are apparent inconsistencies and inaccuracies in
the conclusions His Honor made out of them. In Exhibit SSPre-trial, the reported total assets of the company amounted
to P2,328,460.27 as of December, 1965, and yet, Exhibit TTPre-trial, according to His Honor, showed that the total value
of goods available as of the same date was P11,166,327.62.
On the other hand, per Exhibit XX-Pre-trial, the supposed
balance sheet of the company for 1966, "the value of
inventoried merchandise, both local and imported", as found
by His Honor, was P584,034.38. Again, as of December 31,
1966, the value of the company's goods available for sale
was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, per
Exhibit II-3-Pre-trial, the supposed Book of Account, whatever
that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation
that His Honor, unless he is a certified public accountant, was
hardly qualified to read such exhibits and draw any definite
conclusions therefrom, without risk of erring and committing
an injustice. In any event, there is no comprehensible
explanation in the decision of the conclusion of His Honor
that there were P12,223,182.55 cash money defendants
have to account for, particularly when it can be very clearly
seen in Exhibits 11-4, 11-4- A, 115 and 11-6-Pre-trial, Glory
Commercial Co. had accounts payable as of December 31,
1965 in the amount of P4,801,321.17. (p. 15, id.) Under the
circumstances, We are not prepared to permit anyone to
predicate any claim or right from respondent court's unaided
exercise of accounting knowledge.
Additionally, We note that the decision has not made any
finding regarding the allegation in the amended complaint
that a corporation denominated Glory Commercial Co., Inc.
was organized after the death of Po Chuan with capital from
the funds of the partnership. We note also that there is
absolutely no finding made as to how the defendants Dy
Ochay and Co Oyo could in any way be accountable to
plaintiff, just because they happen to be the wives of Lim
Tanhu and Ng Sua, respectively. We further note that while
His Honor has ordered defendants to deliver or pay jointly

and severally to the plaintiff P4,074,394.18 or / 3 of the

P12,223,182.55, the supposed cash belonging to the
partnership as of December 31, 1965, in the same breath,
they have also been sentenced to partition and give / 3 share
of the properties enumerated in the dispositive portion of the
decision, which seemingly are the very properties allegedly
purchased from the funds of the partnership which would
naturally include the P12,223,182.55 defendants have to
account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of
the defendants, then Glory Commercial Co. would have the
status of a partnership in liquidation and the only right
plaintiff could have would be to what might result after such
liquidation to belong to the deceased partner, and before this
is finished, it is impossible to determine, what rights or
interests, if any, the deceased had (Bearneza vs. Dequilla 43
Phil. 237). In other words, no specific amounts or properties
may be adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first
terminated.
Indeed, only time and the fear that this decision would be
much more extended than it is already prevent us from
further pointing out the inexplicable deficiencies and
imperfections of the decision in question. After all, what have
been discussed should be more than sufficient to support Our
conclusion that not only must said decision be set aside but
also that the action of the plaintiff must be totally dismissed,
and, were it not seemingly futile and productive of other
legal complications, that plaintiff is liable on defendants'
counterclaims. Resolution of the other issues raised by the
parties albeit important and perhaps pivotal has likewise
become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All
proceedings held in respondent court in its Civil Case No.
12328 subsequent to the order of dismissal of October 21,
1974 are hereby annulled and set aside, particularly the exparte proceedings against petitioners and the decision on
December 20, 1974. Respondent court is hereby ordered to
enter an order extending the effects of its order of dismissal
of the action dated October 21, 1974 to herein petitioners

Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and

Co Oyo. And respondent court is hereby permanently
enjoined from taking any further action in said civil case gave
and except as herein indicated.

[G.R. No. 70926. January 31, 1989.]

DAN FUE LEUNG, Petitioner, v. HON. INTERMEDIATE
APPELLATE COURT and LEUNG YIU,Respondents.
John L. Uy for Petitioner.
Edgardo F. Sundiam for Private Respondent.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CAUSE OF

ACTION; NATURE
OF ACTION IS DETERMINED BY THE FACTS CONSTITUTING
THE CAUSE OF
ACTION. 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).
2. CIVIL
LAW;
SPECIAL
CONTRACTS;
PARTNERSHIP;
REQUISITES. 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)

3. ID.; ID.; ID.; OBLIGATIONS OF PARTNERS; RIGHT TO

DEMAND AN
ACCOUNTING EXISTS AS LONG AS PARTNERSHIP EXISTS;
PRESCRIPTION
BEGINS TO RUN ONLY UPON DISSOLUTION OF PARTNERSHIP
WHEN FINAL ACCOUNTING IS DONE. 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.
4. ID.; ID.; ID.; DISSOLUTION AND WINDING UP; LIQUIDATION
AND
WINDING UP OF PARTNERSHIP AFFAIRS, RETURN OF CAPITAL
AND OTHER
INCIDENTS
OF
DISSOLUTION
PROPER
BECAUSE
CONTINUATION OF
PARTNERSHIP HAS BECOME INEQUITABLE. 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.

DECISION

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 tile partners having contributed P4,000.00
to its initial establishment.
The private respondents evidence
follows:chanrob1es virtual 1aw library

is

summarized

as

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 respondentss)
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.chanrobles lawlibrary : rednad
Furthermore, the private respondent received from the
petitioner the amount of P12,000.00 covered by the latters
Equitable Banking Corporation Check No. 13389470-B from
the profits of the operation of the restaurant for the year
1974. Witness Teodulo Diaz, Chief of the Savings Department
of the China Banking Corporation testified that said check
(Exhibit B) was deposited by and duly credited to the private
respondents savings account with the bank after it was
cleared by the drawee bank, the Equitable Banking
Corporation. Another witness Elvira Rana of the Equitable
Banking Corporation testified that the check in question was
in fact and in truth drawn by the petitioner and debited
against his own account in said bank. This fact was clearly
shown and indicated in the petitioners 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:chanrob1es virtual
1aw library
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 Corporations 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:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant, ordering the latter to
deliver and pay to the former, the sum equivalent to 22% of
the annual profit derived from the operation of Sun Wah
Panciteria from October, 1955, until fully paid, and attorneys
fees in the amount of P5,000.00 and cost of suit." (p. 125,
Rollo)
The private respondent filed a verified motion for
reconsideration in the nature of a motion for new trial and, as
supplement to the said motion, he requested that the
decision rendered should include the net profit of the Sun
Wah Panciteria which was not specified in the decision, and
allow private respondent to adduce evidence so that the said
decision will be comprehensively adequate and thus put an
end to further
litigation.chanrobles virtual lawlibrary

rendered by this Court on September 30, 1980, is hereby

amended. The dispositive portion of said decision should
read now as follows:jgc:chanrobles.com.ph
"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 attorneys
fees and costs of suit." (p. 150, Rollo)
The petitioner appealed the trial courts amended decision to
the then Intermediate Appellate Court. The questioned
decision was further modified by the appellate court. The
dispositive portion of the appellate courts decision
reads:jgc:chanrobles.com.ph
"WHEREFORE, the decision appealed from is modified, the
dispositive
portion thereof reading as follows:jgc:chanrobles.com.ph
"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.

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:jgc:chanrobles.com.ph

"Except as modified, the decision of the court a quo is

affirmed in all other respects. (p. 102, Rollo)

"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

Later, the appellate court, in a resolution, modified its

decision and affirmed the lower courts decision. The
dispositive portion of the resolution
reads:jgc:chanrobles.com.ph

"WHEREFORE, the dispositive portion of the amended

judgment of the court a quo reading as follows:chanrob1es
virtual 1aw library
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 attorneys
fees and costs of suit.
is hereby retained in full and affirmed in toto it being
understood that the date of judicial demand is July 13, 1978."
(pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed
by petitioner was denied.chanrobles lawlibrary : rednad
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:chanrob1es
virtual 1aw library

"2. That on or about the latter (sic) of September, 1955,

defendant sought the financial assistance of plaintiff in
operating the defendants 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 twentytwo percentum (22%) of the annual profit derived
from the operation of the said panciteria;
"3. That on October 1, 1955, plaintiff delivered to the
defendant the sum of four thousand pesos (P4,000.00),
Philippine Currency, of which copy for the receipt of such
amount, duly acknowledged by the defendant is attached
hereto as Annex "A", and form an integral part hereof;" (p.
11, Rollo)
In essence, the private respondent alleged that when Sun
Wah Panciteria was established, he gave P4,000.00 to the
petitioner with the understanding that he would be entitled
to twenty-two percent (22%) of the annual profit derived
from the operation of the said panciteria. These allegations,
which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah
Panciteria because Article 1767 of the Civil Code provides
that "By the contract of partnership two or more persons
bind themselves to contribute money, property or industry to
a common
fund, with the intention of dividing the profits among
themselves." Therefore, the lower courts did not err in
construing the complaint as one wherein the private
respondent asserted his rights as partner of the petitioner in
the establishment of the Sun Wah Panciteria, notwithstanding

the use of the term financial assistance therein. We agree

with the appellate courts observation to the effect that." . .
given its ordinary meaning, financial assistance is the giving
out of money to another without the expectation of any
returns therefrom. It connotes an ex gratia dole out in favor
of someone driven into a state of destitution. But this
circumstance under which the P4,000.00 was given to the
petitioner does not obtain in this case." (p. 99, Rollo) The
complaint explicitly stated that "as a return for such financial
assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived
from the operation of the said panciteria." (p. 107, Rollo) The
well-settled doctrine is that the." . . nature of the action filed
in court is determined by the facts alleged in the complaint
as constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger
Electric, Inc. v.
Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main
issue in the instant case was whether or not the private
respondent is a partner of the petitioner in the establishment
of Sun Wah Panciteria.
The petitioner also contends that the respondent court
gravely erred in giving probative value to the PC Crime
Laboratory Report (Exhibit "J") on the ground that the alleged
standards or specimens used by the PC Crime Laboratory in
arriving at the conclusion were never testified to by any
witness nor has any witness identified the handwriting in the
standards or specimens belonging to the petitioner. The
supposed standards or specimens of handwriting were
marked as Exhibits "H", "H-1" to "H-24" and admitted as
evidence for the private respondent over the vigorous
objection of the petitioners counsel.chanrobles law library
The records show that the PC Crime Laboratory upon orders
of the lower court examined the signatures in the two
receipts issued separately by the petitioner to the private
respondent and So Sia (Exhibits "A" and "D") and compared

the signatures on them with the signatures of the petitioner

on the various pay envelopes (Exhibits "H", "H-1" to "H-24")
of Antonio Ah Heng and Maria Wong, employees of the
restaurant. After the usual examination conducted on the
questioned documents, the PC Crime Laboratory submitted
its findings (Exhibit J) attesting that the signatures appearing
in both receipts (Exhibits "A" and "D") were the signatures of
the petitioner.
The records also show that when the pay envelopes (Exhibits
"H", "H-1" to "H-24") were presented by the private
respondent for marking as exhibits, the petitioner did not
interpose any objection. Neither did the petitioner file an
opposition to the motion of the private respondent to have
these exhibits together with the two receipts examined by
the PC Crime Laboratory despite due notice to him. Likewise,
no explanation has been offered for his silence nor was any
hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J"
should be rejected or ignored. The records sufficiently
establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The
Hon. Respondent Intermediate Appellate Court gravely erred
in not resolving the issue of prescription in favor of petitioner.
The alleged receipt is dated October 1, 1955 and the
complaint was filed only on July 13, 1978 or after the lapse of
twenty-two (22) years, nine (9) months and twelve (12) days.
From October 1, 1955 to duly 13, 1978, no written demands
were ever made by private Respondent.
The petitioners argument is based on Article 1144 of the
Civil Code which provides:chanrob1es virtual 1aw library
Art. 1144. The following actions must be brought within ten
years
from
the
time
the
right
of
section
accrues:jgc:chanrobles.com.ph
"(1) Upon a written contract;

which
is
applicable.
states:jgc:chanrobles.com.ph

(2) Upon an obligation created by law;

(3) Upon a judgment."cralaw virtua1aw library
in
relation
to
Article
provides:jgc:chanrobles.com.ph

1155

thereof

which

"Art. 1155. The prescription of actions is interrupted when

they are filed before the court, when there is a written extrajudicial demand by the creditor, and when there is any
written acknowledgment of the debt by the debtor."cralaw
virtua1aw library
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun
Wah Panciteria. The requisites of a partnership which are
1) two or more persons bind themselves to contribute
money, property, or industry to a common fund; and 2)
intention on the part of the partners to divide the profits
among themselves (Article 1767, Civil Code; Yulo v. Yang
Chiao Cheng, 106 Phil. 110) have been established. As
stated by the respondent, a partner shares not only in profits
but also in the losses of the firm. If excellent relations exist
among the partners at the start of business and all the
partners are more interested in seeing the firm grow rather
than get immediate returns, a deferment of sharing in the
profits is perfectly plausible. It would be incorrect to state
that if a partner does not assert his rights anytime within ten
years from the start of operations, such rights are
irretrievably lost. The private respondents 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.cralawnad
It is Article 1842 of the Civil Code in conjunction with Articles
1144 and 1155

Article

1842

"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."cralaw virtua1aw library
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807,
and 1809 show that the right to demand an accounting exists
as long as the partnership exists. Prescription begins to run
only upon the dissolution of the partnership when the final
accounting is done.
Finally, the petitioner assails the appellate courts monetary
awards in favor of the private respondent for being excessive
and unconscionable and above the claim of private
respondent as embodied in his complaint and testimonial
evidence presented by said private respondent to support his
claim in the complaint.
Apart from his own testimony and allegations, the private
respondent presented the cashier of Sun Wah Panciteria, a
certain Mrs. Sarah L. Licup, to testify on the income of the
restaurant.
Mrs. Licup stated:jgc:chanrobles.com.ph
"ATTY. HIPOLITO (direct examination to Mrs. Licup).
"Q Mrs. Witness, yon stated that among your duties was that
you were in charge of the custody of the cashiers box, of the
money, being the cashier, is that correct?
"A Yes, sir.

"Q So that every time there is a customer who pays, you

were the one who accepted the money and you gave the
change, if any, is that correct?

"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.

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

"Q How much is that?

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

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

"Q Per service?
"ATTY. HIPOLITO:chanrob1es virtual 1aw library
"A Per service, Per catering.
I see.
"Q So, in other words, after your job, you huddle or confer
together?

"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, count it all. I total it. We sum it up.

"A Yes.

"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?

"Q And ten thousand pesos during pay day?

"A For regular days, I received around P7,000.00 a day during

my shift alone and during pay days I receive more than
P10,000.00. That is excluding the catering outside the place.

"Q What about the catering service, will you please tell the
Honorable Court how many times a week were there catering
services?
"A Sometimes three times a month; sometimes two times a
month or more.

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

"COURT:chanrob1es virtual 1aw library

Any cross?
"ATTY. UY (counsel for defendant):chanrob1es virtual 1aw
library
No cross-examination, Your Honor. (TSN. p. 65, November 15,
1978)."
(Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did
the petitioners counsel waive the cross-examination on the
matter of income but he failed to comply with his promise to
produce pertinent records. When a subpoena duces tecum
was issued to the petitioner for the production of their
records of sale, his counsel voluntarily offered to bring them
to court. He asked for sufficient time prompting the court to
cancel all hearings for January, 1981 and reset them to the
later part of the following month. The petitioners counsel
never produced any books, prompting the
trial court to state:chanrobles virtual lawlibrary
"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 defendants 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 defendants
counsel, the same was again reset to December 22, 1981 as
previously scheduled which hearing was understood as
intransferable in character. Again on December 22, 1981, the
defendants 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 petitioners 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 respondents submissions
but, after promising to do so, it deliberately failed to present
its books and other evidence.
The resolution of the Intermediate Appellate Court ordering
the payment of the petitioners 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.chanrobles
law library : red
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:jgc:chanrobles.com.ph
"Art. 1831. On application by or for a partner the court shall
decree a dissolution whenever:chanrob1es virtual 1aw library

"(3) A partner has been guilty of such conduct as tends to

affect prejudicially the carrying on of the business;

"(4) A partner willfully or persistently commits a breach of

the partnership agreement, or otherwise so conducts himself
in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in
partnership with him;

"(6)
Other
circumstances
render
equitable."cralaw virtua1aw library

dissolution

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.

[G.R. No. 126334. November 23, 2001.]

EMILIO EMNACE, Petitioner, v. 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.

DECISION

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 Divinagracias
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. Nio and Talisay, Negros
Occidental, and cash deposits in the local branches of the
Bank
of
the
Philippine
Islands
and
Prudential
Bank.chanrob1es virtua1 1aw
1ibrary
Throughout the existence of the partnership, and even after
Vicente Tabanaos untimely demise in 1994, petitioner failed
to submit to Tabanaos heirs any statement of assets and
liabilities of the partnership, and to render an accounting of
the partnerships finances. Petitioner also reneged on his
promise to turn over to Tabanaos heirs the deceaseds 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, Tabanaos 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:chanrob1es virtual 1aw library
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:chanrob1es virtual 1aw library
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. Attorneys 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 petitioners
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 a right 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

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

The following day, respondents filed an amended complaint,

7 incorporating the additional prayer that petitioner be
ordered to "sell all (the partnerships) 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, 8
arguing 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.

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 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.

Not satisfied, petitioner filed the instant petition for review,

raising the same issues resolved by the Court of Appeals,
namely:chanrob1es virtual
1aw library

Petitioner filed a petition for certiorari before the Court of

Appeals, 11 raising the following issues:chanrob1es virtual
1aw library
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;
III. Whether or not respondent Judge acted without jurisdiction
or with grave abuse of discretion in allowing the estate of the

On August 8, 1996, the Court of Appeals rendered the

assailed decision, 12 dismissing the petition forcertiorari,
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 petitioners
motions to dismiss.

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 courts territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of
Vicente Tabanao; and
IV. 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
decedents 1/3 share in the partnerships assets. While they
ask for an accounting of the partnerships 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

partnerships 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.
We do not agree. The trial court does not have to employ
guesswork in ascertaining the estimated value of the
partnerships 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
partnerships 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 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 petitioners assertion.
The third paragraph of Section 16, Rule 141 of the Rules of
Court states that:chanrob1es virtual 1aw library
The legal fees shall be a lien on the monetary or property
judgment in favor of the pauper-litigant.
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 be the courts
based on evidence presented, falls squarely under the third
paragraph of said Section
5(a), which provides:chanrob1es virtual 1aw library
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. (Emphasis
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 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 partnerships total assets to be worth Thirty
Million Pesos (P30,000,000.00), in a letter 21 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 a lien.
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:chanrob1es virtual 1aw library
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. (Emphasis 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:chanrob1es virtual 1aw library
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
petitioners compliance with, the contract that the partners
executed to formalize the partnerships dissolution, as well as
to implement the liquidation and partition of the
partnerships 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. Petitioners 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 Tabanaos 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. 33 Moreover, 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
petitioners obligations as outlined in their dissolution
agreement were transmitted to respondents. They, therefore,
had the capacity to sue and seek the courts 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 petitioners hollow
arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution;
(2) windingup; 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 partnerships 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 petitioners 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:chanrob1es virtual
1aw library
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 partnerships 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 petitioners motions to dismiss. Likewise, the
Court of Appeals did not commit reversible error in upholding
the trial courts 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.chanrob1es virtua1

1aw 1ibrary
WHEREFORE, in view of all the foregoing, the instant petition
is DENIED for lack of merit, and the case is REMANDED 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.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.