LIM TONG LIM, petitioner,

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

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November
26, 1998 Decision of the Court of Appeals in CA-GR CV 41477,[1] which disposed as
follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is
hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which
was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court
on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to
the modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered
by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on
their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated
February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per
appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets
counted from September 20, 1990 (date of attachment) to September 12, 1991 (date
of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the
unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount of P600,045.00, this Court noted that these
items were attached to guarantee any judgment that may be rendered in favor of the
plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the
nets during the pendency of this case, it was ordered sold at public auction for not
less than P900,000.00 for which the plaintiff was the sole and winning bidder. The
proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount
of P900,000.00 replaced the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership and possession of the
nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder
in the public auction sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as stipulated in the invoices;
hence, in effect, the plaintiff attached its own properties. It [was] for this reason also
that this Court earlier ordered the attachment bond filed by plaintiff to guaranty
damages to defendants to be cancelled and for the P900,000.00 cash bidded and
paid for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff
may be entitled to in this case will have to be satisfied from the amount of
P900,000.00 as this amount replaced the attached nets and floats. Considering,
however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess to
the defendants who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that they are not the
owners of the nets and floats. For this reason, the defendants are hereby relieved
from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited by it with the
Clerk of Court.
SO ORDERED. [3]
The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract dated February 7, 1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent).
They claimed that they were engaged in a business venture with Petitioner Lim Tong
Lim, who however was not a signatory to the agreement. The total price of the nets
amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to
the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence,
private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong
Lim with a prayer for a writ of preliminary attachment. The suit was brought against
the three in their capacities as general partners, on the allegation that Ocean Quest
Fishing Corporation was a nonexistent corporation as shown by a Certification from
the Securities and Exchange Commission.[5] On September 20, 1990, the lower court

issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
fishing nets on board F/B Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his
liability and requesting a reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his possession. Peter Yao filed an Answer,
after which he was deemed to have waived his right to cross-examine witnesses and
to present evidence on his behalf, because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and
Crossclaim and moved for the lifting of the Writ of Attachment.[6] The trial court
maintained the Writ, and upon motion of private respondent, ordered the sale of the
fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding
and deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based
(1) on the testimonies of the witnesses presented and (2) on a Compromise
Agreement executed by the three[9] in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages.[10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in
the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or
Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than
P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong
Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]
The trial court noted that the Compromise Agreement was silent as to the
nature of their obligations, but that joint liability could be presumed from the equal
distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed
the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua
and Yao in a fishing business and may thus be held liable as a such for the fishing
nets and floats purchased by and for the use of the partnership. The appellate court
ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong
Lim undertook a partnership for a specific undertaking, that is for commercial fishing
x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is x x x. By a contract of
partnership, two or more persons bind themselves to contribute money, property or

industry to a common fund with the intention of dividing the profits among
themselves (Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues

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

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

AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE
CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE
FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and
floats purchased from respondent, the Court must resolve this key issue: whether by
their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's
Liability

In arguing that he should not be held liable for the equipment purchased from
respondent, petitioner controverts the CA finding that a partnership existed between
him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the
Compromise Agreement alone. Furthermore, he disclaims any direct participation in
the purchase of the nets, alleging that the negotiations were conducted by Chua and
Yao only, and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a partner, of Chua and
Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had merely
leased to the two the main asset of the purported partnership -- the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25
percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the
two lower courts clearly showed that there existed a partnership among Chua, Yao
and him, pursuant to Article 1767 of the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial
fishing to join him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed
of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as
security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to
the partnership in the amount of P1 million secured by a check, because of which,
Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady
Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought
nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch
72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity
of commercial documents; (b) reformation of contracts; (c) declaration of ownership
of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners
brother. In their Compromise Agreement, they subsequently revealed their intention
to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term common fund under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of
the boat, but also to that of the nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the boat
but not in the acquisition of the aforesaid equipment, without which the business
could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and
Yao, a partnership engaged in the fishing business. They purchased the boats, which
constituted the main assets of the partnership, and they agreed that the proceeds
from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the foregoing factual findings of the RTC and the
CA are binding on this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule.[16] In assailing the factual findings of
the two lower courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence
of a partnership was the Compromise Agreement. He also claims that the settlement
was entered into only to end the dispute among them, but not to adjudicate their
preexisting rights and obligations. His arguments are baseless. The Agreement was
but an embodiment of the relationship extant among the parties prior to its
execution.
A proper adjudication of claimants rights mandates that courts must review and
thoroughly appraise all relevant facts. Both lower courts have done so and have
found, correctly, a preexisting partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of document alone, petitioner
fails to appreciate that the CA and the RTC delved into the history of the document
and explored all the possible consequential combinations in harmony with law, logic
and fairness. Verily, the two lower courts factual findings mentioned above nullified
petitioners argument that the existence of a partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in the fishing venture. His argument
allegedly finds support in the Contract of Lease and the registration papers showing
that he was the owner of the boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he
consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess
of the proceeds to be divided among the three of them. No lessor would do what
petitioner did. Indeed, his consent to the sale proved that there was a preexisting
partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in order to finance
the acquisition and the upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves beyond cavil that F/B
Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the petitioner himself. After
all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his
property to pay a debt he did not incur, if the relationship among the three of them
was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability

can be imputed only to Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent,
a party may be estopped from denying its corporate existence. The reason behind
this doctrine is obvious - an unincorporated association has no personality and would
be incompetent to act and appropriate for itself the power and attributes of a
corporation as provided by law; it cannot create agents or confer authority on
another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as an agent without authority
or without a principal is himself regarded as the principal, possessed of all the right
and subject to all the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or for other acts
performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation
and to a third party. In the first instance, an unincorporated association, which
represented itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received
advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received benefits from it,
may be barred from denying its corporate existence in a suit brought against the
alleged corporation. In such case, all those who benefited from the transaction made
by the ostensible corporation, despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is
entitled to be paid for the nets it sold. The only question here is whether petitioner
should be held jointly[18] liable with Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of the ostensible corporation should
be held liable. Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he cannot be held
liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the partnership. He
in fact questions the attachment of the nets, because the Writ has effectively stopped

his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on estoppel, those acting on
behalf of a corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be
part of said association and is covered by the scope of the doctrine of corporation by
estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position , entraps and destroys the other. It
is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no
vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued
against the nets. We agree with the Court of Appeals that this issue is now moot and
academic. As previously discussed, F/B Lourdes was an asset of the partnership and
that it was placed in the name of petitioner, only to assure payment of the debt he
and his partners owed. The nets and the floats were specifically manufactured and
tailor-made according to their own design, and were bought and used in the fishing
venture they agreed upon. Hence, the issuance of the Writ to assure the payment of
the price stipulated in the invoices is proper. Besides, by specific agreement,
ownership of the nets remained with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioner.
SO ORDERED.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and
Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed,
respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October
1947, the limited partnership was registered with the Securities and Exchange
Commission. The firm engaged, among other activities, in the importation,
marketing, distribution and operation of automatic phonographs, radios, television

sets and amusement machines, their parts and accessories. It had an office and held
itself out as a limited partnership, handling and carrying merchandise, using invoices,
bills and letterheads bearing its trade-name, maintaining its own books of accounts
and bank accounts, and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the
partnership to Suter and his wife. The sale was duly recorded with the Securities and
Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation,
without objection by the herein petitioner, Commissioner of Internal Revenue, until in
1959 when the latter, in an assessment, consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to
secure a reconsideration, he appealed to the Court of Tax Appeals, which court, after
trial, rendered a decision, on 11 November 1965, reversing that of the Commissioner
of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal
Revenue, of the tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd.
should be disregarded for income tax purposes, considering that respondent William
J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by
the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the
partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage
of Suter and Spirig and their subsequent acquisition of the interests of remaining
partner Carlson in the partnership dissolved the limited partnership, and if they did
not, the fiction of juridical personality of the partnership should be disregarded for
income tax purposes because the spouses have exclusive ownership and control of
the business; consequently the income tax return of respondent Suter for the years in
question should have included his and his wife's individual incomes and that of the
limited partnership, in accordance with Section 45 (d) of the National Internal
Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens, residents
or non-residents, only one consolidated return for the taxable year shall be filed by
either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax
Appeals held, that his marriage with limited partner Spirig and their acquisition of
Carlson's interests in the partnership in 1948 is not a ground for dissolution of the
partnership, either in the Code of Commerce or in the New Civil Code, and that since
its juridical personality had not been affected and since, as a limited partnership, as
contra distinguished from a duly registered general partnership, it is taxable on its
income similarly with corporations, Suter was not bound to include in his individual

return the income of the limited partnership.

We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the marriage of the only general partner,
William J. Suter to the originally limited partner, Julia Spirig one year after the
partnership was organized is rested by the appellant upon the opinion of now Senator
Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines,
Vol. 1, 4th Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express provision in
the Code of Commerce, persons prohibited from making donations to each other are
prohibited from entering into universal partnerships. (2 Echaverri 196) It follows that
the marriage of partners necessarily brings about the dissolution of a pre-existing
partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears
from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in
force when the subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the partners may acquire
by their industry or work during the existence of the partnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of
the partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00
by Julia Spirig and neither one of them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden
to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho
Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the
prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad
universal, pero o podran constituir sociedad particular? Aunque el punto ha sido muy
debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad particular
entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que
estar a la norma general segun la que toda persona es capaz para contratar mientras
no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros
fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas
parece cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such
marriage not being one of the causes provided for that purpose either by the Spanish
Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a
single proprietorship, is equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned and contributed by them
before their marriage; and after they were joined in wedlock, such contributions
remained their respective separate property under the Spanish Civil Code (Article
1396):
The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did
not become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a
juridical personality of its own, distinct and separate from that of its partners (unlike
American and English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members. True, section
24 of the Internal Revenue Code merges registered general co-partnerships
(compaias colectivas) with the personality of the individual partners for income tax
purposes. But this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the
Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77
Phil. 504) as authority for disregarding the fiction of legal personality of the
corporations involved therein are not applicable to the present case. In the cited
cases, the corporations were already subject to tax when the fiction of their corporate
personality was pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon the partnersspouses in their individual capacities. The corporations, in the cases cited, merely
served as business conduits or alter egos of the stockholders, a factor that justified a
disregard of their corporate personalities for tax purposes. This is not true in the
present case. Here, the limited partnership is not a mere business conduit of the
partner-spouses; it was organized for legitimate business purposes; it conducted its
own dealings with its customers prior to appellee's marriage, and had been filing its
own income tax returns as such independent entity. The change in its membership,
brought about by the marriage of the partners and their subsequent acquisition of all
interest therein, is no ground for withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income tax. As far as the records show,
the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as
a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require
that income to be included in the individual tax return of respondent Suter is to
overstretch the letter and intent of the law. In fact, it would even conflict with what it
specifically provides in its Section 24: for the appellant Commissioner's stand results
in equal treatment, tax wise, of a general copartnership (compaia colectiva) and a
limited partnership, when the code plainly differentiates the two. Thus, the code
taxes the latter on its income, but not the former, because it is in the case of
compaias colectivas that the members, and not the firm, are taxable in their
individual capacities for any dividend or share of the profit derived from the duly
registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or constructively
the income of the spouses and forms part of the conjugal partnership of gains. This is
not wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank
vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna
become conjugal only when no longer needed to defray the expenses for the
administration and preservation of the paraphernal capital of the wife. Then again,

the appellant's argument erroneously confines itself to the question of the legal
personality of the limited partnership, which is not essential to the income taxability
of the partnership since the law taxes the income of even joint accounts that have no
personality of their own. 1 Appellant is, likewise, mistaken in that it assumes that the
conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the
"income of both spouses" (Section 45 [d] in their individual capacities. Though the
amount of income (income of the conjugal partnership vis-a-vis the joint income of
husband and wife) may be the same for a given taxable year, their consequences
would be different, as their contributions in the business partnership are not the
same.
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a
justification for requiring consolidation; the revenue code, as it presently stands, does
not authorize it, and even bars it by requiring the limited partnership to pay tax on its
own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No
costs.

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO

C. GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.Sycip,
Quisumbing, Salazar and Associates for appellees.
REYES, J. B. L., J.:
Direct appeal from the decision of the Court of First Instance of Davao (the amount
involved being more than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would
appear that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay", entered into a
general commercial partnership under the partnership name "Tan Sin An and Antonio
C. Goquiolay", for the purpose in dealing in real state. The partnership had a capital
of P30,000.00, P18,000.00 of which was contributed by Goquiolay and P12,000.00 by
Tan Sin An. The agreement lodge upon Tan Sin An the sole management of the
partnership affairs, stipulating that
III. The co-partnership shall be composed of said Tan Sin An as sole managing and
partner (sic), and Antonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and
partner (sic) or by his authorized agent, and it is expressly stipulated that the
managing and partner (sic) may delegate the entire management of the affairs of the
co-partnership by irrevocable power of attorney to any person, firm or corporation he
may select upon such terms as regards compensation as he may deem proper, and
vest in such persons, firm or corporation full power and authority, as the agent of the
co-partnership and in his name, place and stead to do anything for it or on his behalf
which he as such managing and partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the
affairs of the co-partnership; but he may examine its accounts once every six (6)
months at any time during ordinary business hours, and in accordance with the
provisions of the Code of Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
In the event of the death of any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but will have to be continued and
the deceased partner shall be represented by his heirs or assigns in said copartnership (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time

upon mutual agreement in writing of the partners (Art. XIII, articles of CoPartnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this
effect:
That besides the powers and duties granted the said Tan Sin An by the articles of copartnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that said Tan
Sin An should act as the Manager for said co-partnership for the full period of the
term for which said co-partnership was organized or until the whole period that the
said capital of P30,000.00 of the co-partnership should last, to carry on to the best
advantage and interest of the said co-partnership, to make and execute, sign, seal
and deliver for the co-partnership, and in its name, all bills, bonds, notes, specialties,
and trust receipts or other instruments or documents in writing whatsoever kind or
nature which shall be necessary to the proper conduction of the said businesses,
including the power to mortgage and pledge real and personal properties, to secure
the obligation of the co-partnership, to buy real or personal properties for cash or
upon such terms as he may deem advisable, to sell personal or real properties, such
as lands and buildings of the co-partnership in any manner he may deem advisable
for the best interest of said co-partnership, to borrow money on behalf of the copartnership and to issue promissory notes for the repayment thereof, to deposit the
funds of the co-partnership in any local bank or elsewhere and to draw checks
against funds so deposited ... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the
three (3) parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral
Survey of Davao, subject-matter of the instant litigation, assuming the payment of a
mortgage obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de
Construccion y Prestamos" for a period of ten (10) years, with 10% interest per
annum. Another 46 parcels were purchased by Tan Sin An in his individual capacity,
and he assumed payment of a mortgage debt thereon for P35,000.00 with interest.
The downpayment and the amortization were advanced by Yutivo and Co., for the
account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an
instrument executed by the partnership and Tan Sin An, whereby the entire 49 lots
were mortgaged in favor of the "Banco Hipotecario de Filipinas" (as successor to "La
Urbana") and the covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to P52,282.80 within eight 8
years, with 8% annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai
Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K.
Chuan. Defendant Kong Chai Pin was appointed administratrix of the intestate estate
of her deceased husband.
In the meantime, repeated demands for payment were made by the Banco
Hipotecario on the partnership and on Tan Sin An. In March, 1944, the defendant Sing
Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sans Hardware Co., paid
the remaining balance of the mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their
claims in the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13,
respectively, as alleged obligations of the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco Hipotecario". Disclaiming
knowledge of said claims at first, Kong Chai Pin later admitted the claims in her

amended answer and they were accordingly approved by the Court.

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority
to sell all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the
purpose preliminary of settling the aforesaid debts of Tan Sin An and the partnership.
Pursuant to a court order of April 2, 1949, the administratrix executed on April 4,
1949, a deed of sale1 of the 49 parcels of land to the defendants Washington Sycip
and Betty Lee in consideration of P37,000.00 and of vendees' assuming payments of
the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in
July, 1949, defendants Sycip and Betty Lee executed in favor of the Insular
Development Co., Inc. a deed of transfer covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay
filed, on or about July 25, 1949, a petition in the intestate proceedings seeking to set
aside the order of the probate court approving the sale in so far as his interest over
the parcels of land sold was concerned. In its order of December 29, 1949, the
probate court annulled the sale executed by the administratrix with respect to the
60% interest of Antonio Goquiolay over the properties sold. Kong Chai Pin appealed to
the Court of Appeals, which court later certified the case to us (93 Phil., 413; 49 Off.
Gaz. [7] 2307). On June 30, 1953, we rendered decision setting aside the orders of
the probate court complained of and remanding the case for new trial, due to the
non-inclusion of indispensable parties. Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other things, for the
annulment of the sale in favor of Washington Sycip and Betty Lee, and their
subsequent conveyance in favor of Insular Development Co., Inc., in so far as the
three (3) lots owned by the plaintiff partnership are concerned. The answer averred
the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan
Sin An. After hearing, the complaint was dismissed by the lower court in its decision
dated October 30, 1956; hence, this appeal taken directly to us by the plaintiffs, as
the amount involved is more than P200,000.00. Plaintiffs-appellants assign as errors
that
I The lower court erred in holding that Kong Chai Pin became the managing partner
of the partnership upon the death of her husband, Tan Sin An, by virtue of the articles
of Partnership executed between Tan Sin An and Antonio Goquiolay, and the general
power of attorney granted by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act alone as sole
managing partner in view of the minority of the other heirs.
III The lower court erred in holding that Kong Chai Pin was the only heir qualified to
act as managing partner.
IV The lower court erred in holding that Kong Chai Pin had authority to sell the
partnership properties by virtue of the articles of partnership and the general power
of attorney granted to Tan Sin An in order to pay the partnership indebtedness.
V The lower court erred in finding that the partnership did not pay its obligation to
the Banco Hipotecario.
VI The lower court erred in holding that the consent of Antonio Goquiolay was not
necessary to consummate the sale of the partnership properties.
VII The lower court erred in finding that Kong Chai Pin managed the business of the
partnership after the death of her husband, and that Antonio Goquiolay knew it.

VIII The lower court erred in holding that the failure of Antonio Goquiolay to oppose
the management of the partnership by Kong Chai Pin estops him now from attacking
the validity of the sale of the partnership properties.
IX The lower court erred in holding that the buyers of the partnership properties
acted in good faith.
X The lower court erred in holding that the sale was not fraudulent against the
partnership and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not only necessary but
beneficial to the partnership.
XII The lower court erred in dismissing the complaint and in ordering Antonio
Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding that the
widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole management
of the partnership, upon the latter's death. While, as we previously stated in our
narration of facts, the Articles of Co-Partnership and the power of attorney executed
by Antonio Goquiolay, conferred upon Tan Sin An the exclusive management of the
business, such power, premised as it is upon trust and confidence, was a mere
personal right that terminated upon Tan's demise. The provision in the articles stating
that "in the event of death of any one of the partners within the 10-year term of the
partnership, the deceased partner shall be represented by his heirs", could not have
referred to the managerial right given to Tan Sin An; more appropriately, it related to
the succession in the proprietary interest of each partner. The covenant that Antonio
Goquiolay shall have no voice or participation in the management of the partnership,
being a limitation upon his right as a general partner, must be held coextensive only
with Tan's right to manage the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the
continuation of the firm notwithstanding the death of one of the partners, the heirs of
the deceased, by never repudiating or refusing to be bound under the said provision
in the articles, became individual partners with Antonio Goquiolay upon Tan's demise.
The validity of like clauses in partnership agreements is expressly sanctioned under
Article 222 of the Code of Commerce.2
Minority of the heirs is not a bar to the application of that clause in the articles of copartnership (2 Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire
de Droit Civil, English translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p.
177).
Appellants argue, however, that since the "new" members' liability in the partnership
was limited merely to the value of the share or estate left by the deceased Tan Sin
An, they became no more than limited partners and, as such, were disqualified from
the management of the business under Article 148 of the Code of Commerce.
Although ordinarily, this effect follows from the continuance of the heirs in the
partnership,3 it was not so with respect to the widow Kong Chai Pin, who, by her
affirmative actions, manifested her intent to be bound by the partnership agreement
not only as a limited but as a general partner. Thus, she managed and retained
possession of the partnership properties and was admittedly deriving income
therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In
fact, by executing the deed of sale of the parcels of land in dispute in the name of the
partnership, she was acting no less than as a managing partner. Having thus
preferred to act as such, she could be held liable for the partnership debts and
liabilities as a general partner, beyond what she might have derived only from the

estate of her deceased husband. By allowing her to retain control of the firm's
property from 1942 to 1949, plaintiff estopped himself to deny her legal
representation of the partnership, with the power to bind it by the proper contracts.
The question now arises as to whether or not the consent of the other partners was
necessary to perfect the sale of the partnership properties to Washington Sycip and
Betty Lee. The answer is, we believe, in the negative. Strangers dealing with a
partnership have the right to assume, in the absence of restrictive clauses in the copartnership agreement, that every general partner has power to bind the
partnership, specially those partners acting with ostensible authority. And so, we held
in one case:
. . . Third persons, like the plaintiff, are not bound in entering into a contract with any
of the two partners, to ascertain whether or not this partner with whom the
transaction is made has the consent of the other partner. The public need not make
inquiries as to the agreements had between the partners. Its knowledge is enough
that it is contracting with the partnership which is represented by one of the
managing partners.
"There is a general presumption that each individual partner is an agent for the firm
and that he has authority to bind the firm in carrying on the partnership
transactions." [Mills vs. Riggle, 112 Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of the members of the firm acting apparently in its
behalf and within the scope of his authority." [Le Roy vs. Johnson, 7 U.S. Law, Ed.,
391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of Commerce to the
effect that
If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the
direction and management of the common business, and the members present shall
come to an agreement for all contracts or obligations which may concern the
association. (Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that
does not necessarily affect the validity of the acts of a partner, while acting within
the scope of the ordinary course of business of the partnership, as regards third
persons without notice. The latter may rightfully assume that the contracting partner
was duly authorized to contract for and in behalf of the firm and that, furthermore, he
would not ordinarily act to the prejudice of his co-partners. The regular course of
business procedure does not require that each time a third person contracts with one
of the managing partners, he should inquire as to the latter's authority to do so, or
that he should first ascertain whether or not the other partners had given their
consent thereto. In fact, Article 130 of the same Code of Commerce provides that
even if a new obligation was contracted against the express will of one of the
managing partners, "it shall not be annulled for such reason, and it shall produce its
effects without prejudice to the responsibility of the member or members who
contracted it, for the damages they may have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
367. Primera hipotesis. A falta de pactos especiales, la facultad de administrar
corresponde a cada socio personalmente. No hay que esperar ciertamente concordia

con tantas cabezas, y para cuando no vayan de acuerdo, la disciplina del Codigo no
ofrece un sistema eficaz que evite los inconvenientes. Pero, ante el silencio del
contrato, debia quiza el legislador privar de la administracion a uno de los socios en
beneficio del otro? Seria una arbitrariedad. Debera quiza declarar nula la Sociedad
que no haya elegido Administrador? El remedio seria peor que el mal. Debera, tal
vez, pretender que todos los socios concurran en todo acto de la Sociedad? Pero este
concurso de todos habria reducido a la impotencia la administracion, que es asunto d
todos los dias y de todas horas. Hubieran sido disposiciones menos oportunas que lo
adoptado por el Codigo, el cual se confia al espiritu de reciproca confianza que
deberia animar la colaboracion de los socios, y en la ley inflexible de responsabilidad
que implica comunidad en los intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el
contrato social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la
administracion en la totalidad de sus relaciones, salvo su responsabilidad en el caso
de una administracion culpable. Si debiera dar noticia, el beneficio de su simultania
actividad, frecuentemente distribuida en lugares y en tiempos diferentes, se echaria
a perder. Se objetara el que de esta forma, el derecho de oposicion de cada uno de
los socios puede quedar frustrado. Pero se puede contestar que este derecho de
oposicion concedido por la ley como un remedio excepcional, debe subordinarse al
derecho de ejercer el oficio de Administrador, que el Codigo concede sin limite: "se
presume que los socios se han concedido reciprocamente la facultad de administrar
uno para otro." Se haria precipitar esta hipotesis en la otra de una administracion
colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el consentimiento, a lo
menos tacito, de todos los socios lo que el Codigo excluye ........, si se obligase al
socio Administrador a dar noticia previa del negocio a los otros, a fin de que pudieran
oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II,
147-148) opines:
Para obligar a las Compaias enfrente de terceros (art. 128 del Codigo), no es
bastante que los actos y contratos hayan sido ejecutados por un socio o varios en
nombre colectivo, sino que es preciso el concurso de estos dos elementos, uno, que
el socio o socios tengan reconocida la facultad de administrar la Compaia, y otro,
que el acto o contrato haya sido ejecutado en nombre de la Sociedad y usando de su
firma social. Asi se que toda obligacion contraida bajo la razon social, se presume
contraida por la Compaia. Esta presunion es impuesta por motivos de necesidad
practica. El tercero no puede cada vez que trata con la Compaia, inquirir si
realmente el negocio concierne a la Sociedad. La presuncion es juris tantum y no juris
et de jure, de modo que si el gerente suscribe bajo la razon social una obligacion que
no interesa a la Sociedad, este podra rechazar la accion del tercero probando que el
acreedor conocia que la obligacion no tenia ninguna relacion con ella. Si tales actos y
contratos no comportasen la concurrencia de ambos elementos, seria nulos y podria
decretarse la responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la
Compaia, o contabilizados en sus libros, si el acto o contrato ha sido convalidado sin
protesta y se trata de acto o contrato que ha producido beneficio social, tendria
plena validez, aun cuando le faltase algunos o ambos de aquellos requisitos antes
sealados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al
nombramiento o designacion de uno o mas de un socio para administrar la Compaia
(art. 129 del Codigo) todos tienen por un igual el derecho de concurir a la decision y
manejo de los negocios comunes. . . .

Although the partnership under consideration is a commercial partnership and,

therefore, to be governed by the Code of Commerce, the provisions of the old Civil
Code may give us some light on the right of one partner to bind the partnership.
States Art. 1695 thereof:
Should no agreement have been made with respect to the form of management, the
following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of the may do
individually shall bind the partnership; but each one may oppose any act of the
others before it has become legally binding.
The records fail to disclose that appellant Goquiolay made any opposition to the sale
of the partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it
appears that he (Goquiolay) only interposed his objections after the deed of
conveyance was executed and approved by the probate court, and, consequently, his
opposition came too late to be effective.
Appellants assails the correctness of the amounts paid for the account of the
partnership as found by the trial court. This question, however, need not be resolved
here, as in the deed of conveyance executed by Kong Chai Pin, the purchasers
Washington Sycip and Betty Lee assumed, as part consideration of the purchase, the
full claims of the two creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware
Co.
Appellants also question the validity of the sale covering the entire firm realty, on the
ground that it, in effect, threw the partnership into dissolution, which requires
consent of all the partners. This view is untenable. That the partnership was left
without the real property it originally had will not work its dissolution, since the firm
was not organized to exploit these precise lots but to engage in buying and selling
real estate, and "in general real estate agency and brokerage business". Incidentally,
it is to be noted that the payment of the solidary obligation of both the partnership
and the late Tan Sin An, leaves open the question of accounting and contribution
between the co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was only a
fraudulent device by the appellees, with the connivance of Kong Chai Pin, to ease out
Antonio Goquiolay from the partnership. The "devise", according to the appellants,
started way back sometime in 1945, when one Yu Khe Thai sounded out Antonio
Goquiolay on the possibility of selling his share in the partnership; and upon his
refusal to sell, was followed by the filing of the claims of Yutivo Sons Hardware Co.
and Sing Yee and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin An. As
creditors of Tan Sin An and the plaintiff partnership (whose liability was alleged to be
joint and several), Yutivo Sons Hardware Co., and Sing Yee Cuan Co., Inc. had every
right to file their claims in the intestate proceedings. The denial of the claims at first
by Kong Chai Pin ( for lack of sufficient knowledge) negatives any conspiracy on her
part in the alleged fraudulent scheme, even if she subsequently decided to admit
their validity after studying the claims and finding it best to admit the same. It may
not be amiss to remark that the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the properties
were sold was unreasonably low, or in any way unfair, since appellants presented no
evidence of the market value of the lots as of the time of their sale to appellees Sycip
and Lee. The alleged value of P31,056.58 in May of 1955 is no proof of the market
value in 1949, specially because in the interval, the new owners appear to have
converted the land into a subdivision, which they could not do without opening roads
and otherwise improving the property at their own expense. Upon the other hand,

Kong Chai Pin hardly had any choice but to execute the questioned sale, as it appears
that the partnership had neither cash nor other properties with which to pay its
obligations. Anyway, we cannot consider seriously the inferences freely indulged in
by the appellants as allegedly indicating fraud in the questioned transactions, leading
to the conveyance of the lots in dispute to the appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm the same,
with costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and
Gutierrez David, JJ., concur.
RESOLUTION
December 10, 1963
REYES, J. B. L., J.:
The matter now pending is the appellant's motion for reconsideration of our main
decision, wherein we have upheld the validity of the sale of the lands owned by the
partnership Goquiolay & Tan Sin An, made in 1949 by the widow of the managing
partner, Tan Sin An (executed in her dual capacity of Administratrix of her husband's
estate and as partner, in lieu of the husband), in favor of buyers Washington Sycip
and Betty Lee for the following consideration:
Cash paid

P37,000.00

Debts assumed by purchase:

To Yutivo

62,415.91

To Sing Yee Cuan & Co.

54,310.13

TOTAL

P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our
holding, Kong Chai Pin, widow of the deceased partner Tan Sin An, never became
more than a limited partner, incapacitated by law to manage the affairs of the
partnership; that the testimony of her witnesses Young and Lim belies that she took
over administration of the partnership property; and that, in any event, the sale
should be set aside because it was executed with the intent to defraud appellant of
his share in the properties sold.
Three things must be always held in mind in the discussion of this motion to
reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one partner,
acting in behalf of the firm, to a stranger. There is no question between partners inter
se, and this aspects of the case was expressly reserved in the main decision of 26
July 1960;

(b) That the partnership was expressly organized "to engage in real estate business,
either by buying and selling real estate". The Article of co-partnership, in fact,
expressly provided that:
IV. The object and purpose of the co-partnership are as follows:
1. To engage in real estate business, either by buying and selling real estates; to
subdivide real estates into lots for the purpose of leasing and selling them.;
(c) That the properties sold were not part of the contributed capital (which was in
cash) but land precisely acquired to be sold, although subject a mortgage in favor of
the original owners, from whom the partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon by appellant.
It is first averred that there is "not one iota evidence" that Kong Chai Pin managed
and retained possession of the partnership properties. Suffice it to point out that
appellant Goquiolay himself admitted that
. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage
the properties (as) she had no other means of income. Then I said, because I wanted
to help Mrs. Kong Chai Pin, she could just do it and besides I am not interested in
agricultural lands. I allowed her to take care of the properties in order to help her and
because I believe in God and I wanted to help her.
Q. So the answer to my question is you did not take any steps?
A. I did not.
Q. And this conversation which you had with Mrs. Yu Eng Lai was few months after
1945?
A. In the year 1945. (Emphasis supplied)
The appellant subsequently ratified this testimony in his deposition of 30 June 1956,
page 8-9, wherein he sated:
that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of
course they are receiving quite a lot of benefit from that plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly
entitled to greater weight than those of Hernando Young and Rufino Lim, having been
made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the
witness found the properties "abandoned and undeveloped", omits to mention that
said part of the testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs.
Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the
partnership were undeveloped, and the family of the widow (Kong Chai Pin) did not
receive any income from the partnership properties, was given in answer to the
question:

According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his family
lived on the plantation of the partnership and derived their subsistence from that
plantation. What can you say to that? (Dep. 19 July 1956, p. 8)
And also
What can you say so to the development of these other properties of the partnership
which you saw during the occupation?" (Dep., p. 13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigatto
is about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An.
When I went there with Hernando Young we saw all the abaca destroyed. The place
was occupied by the Japanese Army. They planted camotes and vegetables to feed
the Japanese Army. Of course they never paid any money to Tan Sin An or his family.
(Dep., Lim. pp. 13-14.) (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's
admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i e., continue
to manage the properties. Witnesses Lim and Young referred to the period of
Japanese occupation; but Goquiolay's authority was, in fact, given to the widow in
1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried
out no acts of management during the Japanese occupation (1942-1944) does not
mean that she did not do so from 1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he
actually manifested his willingness that the widow should manage the partnership
properties. Whether or not she complied with this authority is a question between her
and the appellant, and is not here involved. But the authority was given, and she did
have it when she made the questioned sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was
only to manage the property, and that it did not include the power to alienate, citing
Article 1713 of the Civil Code of 1889. What this argument overlooks is that the
widow was not a mere agent, because she had become a partner upon her husband's
death, as expressly provided by the articles of co-partnership. Even more, granting
that by succession to her husband, Tan Sin An, the widow only a became the limited
partner, Goquiolay's authorization to manage the partnership property was proof that
he considered and recognized her has general partner, at least since 1945. The
reason is plain: Under the law (Article 148, last paragraph, Code of Commerce),
appellant could not empower the widow, if she were only a limited partner, to
administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the
interests of the co-partnership, not even in the capacity agents of the managing
partners.(Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An's widow showed
that she desired to be considered a general partner. By authorizing the widow to
manage partnership property (which a limited partner could not be authorized to do),
Goquiolay recognized her as such partner, and is now in estoppel to deny her position
as a general partner, with authority to administer and alienate partnership property.

Besides, as we pointed out in our main decision, the heir ordinarily (and we did not
say "necessarily") becomes a limited partner for his own protection, because he
would normally prefer to avoid any liability in excess of the value of the estate
inherited so as not to jeopardize his personal assets. But this statutory limitation of
responsibility being designed to protect the heir, the latter may disregard it and
instead elect to become a collective or general partner, with all the rights and
privileges of one, and answering for the debts of the firm not only with the
inheritance bud also with the heir's personal fortune. This choice pertains exclusively
to the heir, and does not require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here involved expressly
stipulated that:
In that event of the death of any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but will have to be continued and
the deceased partner shall be represented by his heirs or assigns in said copartnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited
partner; on the contrary they expressly stipulated that in case of death of either
partner "the co-partnership ... will have to be continued" with the heirs or assigns. It
certainly could not be continued if it were to be converted from a general partnership
into a limited partnership, since the difference between the two kinds of associations
is fundamental; and specially because the conversion into a limited association would
leave the heirs of the deceased partner without a share in the management. Hence,
the contractual stipulation does actually contemplate that the heirs would become
general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should
they refuse to assume personal and unlimited responsibility for the obligations of the
firm. The heirs, in other words, can not be compelled to become general partners
against their wishes. But because they are not so compellable, it does not
legitimately follow that they may not voluntarily choose to become general partners,
waiving the protective mantle of the general laws of succession. And in the latter
event, it is pointless to discuss the legality of any conversion of a limited partner into
a general one. The heir never was a limited partner, but chose to be, and became, a
general partner right at the start.
It is immaterial that the heirs name was not included in the firm name, since no
conversion of status is involved, and the articles of co-partnership expressly
contemplated the admission of the partner's heirs into the partnership.
It must never be overlooked that this case involves the rights acquired by strangers,
and does not deal with the rights arising between partners Goquiolay and the widow
of Tan Sin An. The issues between the partners inter se were expressly reversed in
our main decision. Now, in determining what kind of partner the widow of partner Tan
Sin An had elected to become, strangers had to be guided by her conduct and
actuations and those of appellant Goquiolay. Knowing that by law a limited partner is
barred from managing the partnership business or property, third parties (like the
purchasers) who found the widow possessing and managing the firm property with
the acquiescense (or at least without apparent opposition) of the surviving partners
were perfectly justified in assuming that she had become a general partner, and,
therefore, in negotiating with her as such a partner, having authority to act for, and
in behalf of, the firm. This belief, be it noted, was shared even by the probate court
that approved the sale by the widow of the real property standing in the partnership
name. That belief was fostered by the very inaction of appellant Goquiolay. Note that
for seven long years, from partner Tan Sin An's death in 1942 to the sale in 1949,

there was more than ample time for Goquiolay to take up the management of these
properties, or at least ascertain how its affairs stood. For seven years Goquiolay could
have asserted his alleged rights, and by suitable notice in the commercial registry
could have warned strangers that they must deal with him alone, as sole general
partner. But he did nothing of the sort, because he was not interested (supra), and he
did not even take steps to pay, or settle, the firm debts that were overdue since
before the outbreak of the last war. He did not even take steps, after Tan Sin An died,
to cancel, or modify, the provisions of the partnership articles that he (Goquiolay)
would have no intervention in the management of the partnership. This laches
certainly contributed to confirm the view that the widow of Tan Sin An had, or was
given, authority to manage and deal with the firm's properties, apart from the
presumption that a general partner dealing with partnership property has the
requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil., 513;
quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners
may contract and sign in the name of the partnership with the consent of the other,
undoubtedly creates an obligation between the two partners, which consists in asking
the other's consent before contracting for the partnership. This obligation of course is
not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he
contracts has previously obtained the consent of the other. A third person may and
has a right to presume that the partner with whom he contracts has, in the ordinary
and natural course of business, the consent of his co-partner; for otherwise he would
not enter into the contract. The third person would naturally not presume that the
partner with whom he enters into the transaction is violating the articles of
partnership, but on the contrary, is acting in accordance therewith. And this finds
support in the legal presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties. (Litton vs. Hill & Ceron, et al., 67
Phil., 509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell the real
estate of the firm. This argument is lamentably superficial because it fails to
differentiate between real estate acquired and held as stock-in-trade and real state
held merely as business site (Vivante's "taller o banco social") for the partnership.
Where the partnership business is to deal in merchandise and goods, i.e., movable
property, the sale of its real property (immovables) is not within the ordinary powers
of a partner, because it is not in line with the normal business of the firm. But where
the express and avowed purpose of the partnership is to buy and sell real estate (as
in the present case), the immovables thus acquired by the firm form part of its stockin-trade, and the sale thereof is in pursuance of partnership purposes, hence within
the ordinary powers of the partner. This distinction is supported by the opinion of Gay
de Montella1, in the very passage quoted in the appellant's motion for
reconsideration:
La enajenacion puede entrar en las facultades del gerente: cuando es conforme a los
fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los
fines sociales, viene limitada a los objetos de comecio o a los productos de la fabrica
para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una cosa
parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario.
(Montella) (Emphasis supplied)
The same rule obtains in American law.

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

a partnership to deal in real estate may be created and either partner has the legal
right to sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has
ample power, as a general agent of the firm, to enter into an executory contract for
the sale of real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
If the several partners engaged in the business of buying and selling real estate can
not bind the firm by purchases or sales of such property made in the regular course
of business, then they are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership at all, but a several
agency.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage * * * in buying and selling real estate" (Art IV, No. 1, Articles
of Copartnership), it can not be maintained that the sale was made in excess of her
powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in
McGrath, et al., vs. Cowen, et al., 49 N. E., 338. But the facts of that case are vastly
different from the one before us. In the McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its
property was insufficient to pay its debts, though it still had good credit, and was
actively engaged in the prosecution of its business. On that day, which was Saturday,
the plaintiff caused to be prepared, ready for execution, the four chattel mortgages in
question, which cover all the tangible property then belonging to the firm, including
the counters, shelving, and other furnishings and fixtures necessary for, and used in
carrying on, its business, and signed the same in this form: "In witness whereof, the
said Cowen & McGrath, a firm, and Owen McGrath, surviving partner of said firm, and
Owen McGrath, individually, have here-unto set their hands, this 20th day of May, A.
D. 1893. Cowen & McGrath, by Owen McGrath. Owen McGrath, Surviving partner of
Cowen & McGrath. Owen McGrath" At the same time, the plaintiff had prepared,
ready for filing, the petition for the dissolution of the partnership and appointment of
a receiver, which he subsequently filed, as hereinafter stated. On the day the
mortgages were signed, they were placed in the hands of the mortgagees, which was
the first intimation to them that there was any intention to make then. At that time
none of the claims secured by the mortgages were due, except, it may be, a small
part of one of them, and none of the creditors to whom the mortgages were made
had requested security, or were pressing for the payment of their debts. ... The
mortgages appear to be without a sufficient condition of defeasance, and contain a
stipulation authorizing the mortgagees to take immediate possession of the property,
which they did as soon as the mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at once closed, and
possession delivered by them to the receiver appointed upon the filing of the
petition. The avowed purpose of the plaintiff in the course pursued by him, was to
terminate the partnership, place its property beyond the control of the firm, and
insure the preference of the mortgages, all of which was known to them at the
time: ... . (Cas cit., p. 343, Emphasis supplied)

It is natural that from these facts the Supreme Court of Ohio should draw the
conclusion that conveyances were made with intent to terminate the partnership,
and that they were not within the powers of McGrath as partner. But there is no
similarly between those acts and the sale by the widow of Tan Sin An. In the McGrath
case, the sale included even the fixtures used in the business, in our case, the lands
sold were those acquired to be sold. In the McGrath case, none of the creditors were
pressing for payment; in our case, the creditors had been unpaid for more than seven
years, and their claims had been approved by the probate court for payment. In the
McGrath case, the partnership received nothing beyond the discharge of its debts; in
the present case, not only were its debts assumed by the buyers, but the latter paid,
in addition, P37,000.00 in cash to the widow, to the profit of the partnership. Clearly,
the McGrath ruling is not applicable.
We will now turn to the question to fraud. No direct evidence of it exists; but
appellant points out, as indicia thereof, the allegedly low price paid for the property,
and the relationship between the buyers, the creditors of the partnership, and the
widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts
assumed by the purchaser. These debts (P62,415.91 to Yutivo, and P54,310.13 to
Sing Yee Cuan & Co.) are not questioned; they were approved by the Court, and its
approval is now final. The claims were, in fact, for the balance on the original
purchase price of the land sold (due first to La Urbana, later to the Banco Hipotecario)
plus accrued interests and taxes, redeemed by the two creditors-claimants. To show
that the price was inadequate, appellant relies on the testimony of the realtor Mata,
who in 1955, six years after the sale in question, asserted that the land was worth
P312,000.00. Taking into account the continued rise of real estate values since
liberation, and the fact that the sale in question was practically a forced sale because
the partnership had no other means to pay its legitimate debts, this evidence
certainly does not show such "gross inadequacy" as to justify rescission of the sale. If
at the time of the sale (1949 the price of P153,726.04 was really low, how is it that
appellant was not able to raise the amount, even if the creditor's representative, Yu
Khe Thai, had already warned him four years before (1946) that the creditors wanted
their money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to
discharge the debts. But the lands were already mortgaged, and had been
mortgaged since 1940, first to La Urbana, and then to the Banco Hipotecario. Was it
reasonable to expect that other persons would loan money to the partnership when it
was unable even to pay the taxes on the property, and the interest on the principal
since 1940? If it had been possible to find lenders willing to take a chance on such a
bad financial record, would not Goquiolay have taken advantage of it? But the fact is
clear on the record that since liberation until 1949 Goquiolay never lifted a finger to
discharge the debts of the partnership. Is he entitled now to cry fraud after the debts
were discharged with no help from him?
With regard to the relationship between the parties, suffice it to say that the Supreme
Court has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs.
McMicking, 21 Phil., 243; also Hermandad de Smo. Nombre de Jesus vs. Sanchez, 40
Off. Gaz., 1685). There is no evidence that the original buyers, Washington Sycip and
Betty Lee, were without independent means to purchase the property. That the
Yutivos should be willing to extend credit to them, and not to appellant, is neither
illegal nor immoral; at the very least, these buyers did not have a record of
inveterate defaults like the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy

between the Yutivo firm and their component members. But no proof is adduced. If
he was such a victim, he could have easily defeated the conspirators by raising
money and paying off the firm's debts between 1945 and 1949; but he did; he did not
even care to look for a purchaser of the partnership assets. Were it true that the
conspiracy to defraud him arose (as he claims) because of his refusal to sell the lands
when in 1945 Yu Khe Thai asked him to do so, it is certainly strange that the
conspirators should wait 4 years, until 1949, to have the sale effected by the widow
of Tan Sin An, and that the sale should have been routed through the probate court
taking cognizance of Tan Sin An's estate, all of which increased the risk that the
supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan
& Co., (as subrogees of the Banco Hipotecario) in proceedings for the settlement of
the estate of Tan Sin An. This for two reasons: First, Tan Sin An and the partnership
"Tan Sin An & Goquiolay" were solidary (joint and several) debtors (Exhibit "N"
mortgage to the Banco Hipotecario), and Rule 87, section 6, is to the effect that:
Where the obligation of the decedent is joint and several with another debtor, the
claim shall be filed against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from the other debtor.
(Emphasis supplied)
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of
the partnership and those of Tan Sin An personally, and a mortgage in indivisible, in
the sense that each and every parcel under mortgage answers for the totality of the
debt (Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration. The fraud charged not being one used to obtain
a party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if
there is fraud at all, it can only be a fraud of creditors that gives rise to a rescission of
the offending contract. But by express provision of law (Article 1294, Civil Code of
1889; Article 1383, New Civil Code), "the action for rescission is subsidiary; it can not
be instituted except when the party suffering damage has no other legal means to
obtain reparation for the same". Since there is no allegation, or evidence, that
Goquiolay can not obtain reparation from the widow and heirs of Tan Sin An, the
present suit to rescind the sale in question is not maintenable, even if the fraud
charged actually did exist.
Premises considered, the motion for reconsideration is denied.
Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.

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

On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a
commercial partnership for a period of ten years with a capital of P30,000.00 of
which Goquiolay contributed P18,000.00 representing 60% while Tan Sin An
P12,000.00 representing 40%. The business of the partnership was to engage in
buying real estate properties for subdivision, resale and lease. The partnership was
duly registered, and among the conditions agreed upon in the partnership agreement
which are material to this case are: (1) that Tan Sin An would be the exclusive
managing partner, and (2) in the event of the death of any of the partners the
partnership would continue, the deceased to be represented by his heirs. On May 31,
1940, Goquiolay executed a general power of attorney in favor of Tan Sin An
appointing the latter manager of the partnership and conferring upon him the usual
powers of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos.
526, 441 and 521 of the cadastral survey of Davao, the only assets of the
partnership, with the capital originally invested, financing the balance of the
purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de
Construccion Prestamos" in the amount of P25,000.00 payable in ten years. On the
same date, Tan Sin An, in his individual capacity, acquired 46 parcels of land
executing a mortgage thereon in favor of the same company for the sum of
P35,000.00. On September 25, 1940, these two mortgage obligations were
consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan
Sin An, in his individual capacity, and the partnership bound themselves to pay jointly
and severally the total amount of P52,282.80, with 8% annual interest thereon within
the period of eight years mortgaging in favor of said entity the 3 parcels of land
belonging to the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong
Chai Pin, and four children, all of whom are minors of tender age. On March 18, 1944,
Kong Chai Pin was appointed administratrix of the intestate estate of Tan Sin An. And
on the same date, Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the
remaining unpaid balance of the mortgage obligation of the partnership amounting to
P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president and general
manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for
Goquiolay and the two had a conference in the office of the former during which he
offered to buy the interest of Goquiolay in the partnership. In 1948, Kong Chai Pin,
the widow, sent her counsel, Atty. Dominador Zuo, to ask Goquiolay to execute in
her favor a power of attorney. Goquiolay refused both to sell his interest in the
partnership as well as to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons
Hardware Co., and Sing, Yee and Cuan Co., Inc. filed in November, 1946 a claim each
in the intestate proceedings of Tan Sin An for the sum of P84,705.48 and P66,529.91,
respectively, alleging that they represent obligations of both Tan Sin An and the
partnership. After first denying any knowledge of the claims, Kong Chai Pin, as
administratrix, admitted later without qualification the two claims in an amended
answer she filed on February 28, 1947. The admission was predicated on the ground
that she and the creditors were closely related by blood, affinity and business ties. On
due course, these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai
Pin filed a petition in the probate court to sell all the properties of the partnership as
well as some of the conjugal properties left by Tan Sin An for the purpose of paying
the claims. Following approval by the court of the petition for authority to sell, Kong
Chai Pin, in her capacity as administratrix, and presuming to act as managing partner

of the partnership, executed on April 4, 1949 a deed of sale of the properties owned
by Tan Sin An and by the partnership in favor of Betty Y. Lee and Washington Z. Sycip
in consideration of the payment to Kong Chai Pin of the sum of P37,000.00, and the
assumption by the buyers of the claims filed by Yutivo Sons Hardware Co. and Sing,
Yee and Cuan Co., Inc. in whose favor the buyers executed a mortgage on the
properties purchased. Betty Y. Lee and Washington Z. Sycip subsequently executed a
deed of sale of the same properties in favor of their co-defendant Insular
Development Company, Inc. It should be noted that these transactions took place
without the knowledge of Goquiolay and it is admitted that Betty Y. Lee and
Washington Z. Sycip bought the properties on behalf of the ultimate buyer, the
Insular Development Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on July 25,
1949 in the intestate proceedings a petition to set aside the order of the court
approving the sale. The court granted the petition. While the order was pending
appeal in the Supreme Court, Goquiolay filed the present case on January 15, 1953
seeking to nullify the sale as stated in the early part of this decision. In the
meantime, the Supreme Court remanded the original case to the probate court for
rehearing due to lack of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the
partnership properties on the ground that she had no authority to sell because even
granting that she became a partner upon the death of Tan Sin An the power of
attorney granted in favor of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on the theory that
she succeeded to all the rights and prerogatives of Tan Sin An as managing partner.
The trial court sustained the validity of the sale on the ground that under the
provisions of the articles of partnership allowing the heirs of the deceased partner to
represent him in the partnership after hid death Kong Chai Pin became a managing
partner, this being the capacity held by Tan Sin An when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this decision but
on different grounds, among which the salient points are: (1) the power of attorney
given by Goquiolay to Tan Sin An as manager of the partnership expired after his
death; (2) his widow Kong Chai Pin did not inherit the management of the
partnership, it being a personal right; (3) as a general rule, the heirs of a deceased
general partner come into the partnership in the capacity only of limited partners; (4)
Kong Chai Pin, however, became a general partner because she exercised certain
alleged acts of management; and (5) the sale being necessary to pay the obligations
of the partnership, she was therefore authorized to sell the partnership properties
without the consent of Goquiolay under the principle of estoppel, the buyers having
the right to rely on her acts of management and to believe her to be in fact the
managing partner.
Considering that some of the above findings of fact and conclusions of law are
without legal or factual basis, appellants have in due course filed a motion for
reconsideration which because of the importance of the issues therein raised has
been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the partnership
as limited partners only, therefore Kong Chai Pin, who must necessarily have entered
the partnership as a limited partner originally, could have not chosen to be a general
partner by exercising the alleged acts of management, because under Article 148 of

the Code of Commerce a limited partner cannot intervene in the management of the
partnership even if given a power of attorney by the general partners. An Act
prohibited by law cannot give rise to any right and is void under the express
provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the
Yu (Yutivo) family, the rest, members of the law firm which handles the Yutivo
interests and handled the papers of sale. They did not rely on the alleged acts of
management they believed (this was the opinion of their lawyers) that Kong Chai
Pin succeeded her husband as a managing partner and it was on this theory alone
that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by the very
witnesses presented by the defendants themselves.
The arguments advanced by appellants are in our opinion well-taken and furnish
sufficient basis to reconsider our decision if we want to do justice to Antonio C.
Goquiolay. And to justify this conclusion, it is enough that we lay stress on the
following points: (1) there is no sufficient factual basis to conclude that Kong Chai Pin
executed acts of management to give her the character of general manager of the
partnership, or to serve as basis for estoppel that may benefit the purchasers of the
partnership properties; (2) the alleged acts of management, even if proven, could not
give Kong Chai Pin the character of general manager for the same is contrary to law
and well-known authorities; (3) even if Kong Chai Pin acted as general manager she
had no authority to sell the partnership properties as to make it legal and valid; and
(4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the
partnership and if she did so it was merely to favor the purchasers who were close
relatives to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management
imputed to her our ruling we apparently gave particular importance to the fact that it
was Goquiolay himself who tried to prove the acts of management. Appellants,
however, have emphasized the fact, and with reason, that the appellees themselves
are the ones who denied and refuted the so-called acts of management imputed to
Kong Chai Pin. To have a clear view of this factual situation, it becomes necessary
that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a
conversation with one Hernando Young in Manila in the year 1945 who informed him
that Kong Chai Pin "was attending to the properties and deriving some income
therefrom and she had no other means of livelihood except those properties and
some rentals derived from the properties." He went on to say by way of remark that
she could continue doing this because he wanted to help her. On point that he
emphasized was that he was "not interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same person referred
to by Goquiolay, who was a close friend of the family of Kong Chai Pin, for the
purpose of denying the testimony of Goquiolay. Young testified that in 1945 he was
still in Davao, and insisted no less than six times during his testimony that he was not
in Manila in 1945, the year when he allegedly gave the information to Goquiolay,
stating that he arrived in Manila for the first time in 1947. He testified further that he
had visited the partnership properties during the period covered by the alleged
information given by him to Goquiolay and that he found them "abandoned and
underdeveloped," and that Kong Chai Pin was not deriving any income from them.
The other witness for the defendants, Rufino Lim, also testified that he had seen the
partnership properties and corroborated the testimony of Hernando Young in all

respects: "the properties in Mamay were underdeveloped, the shacks were destroyed
in Tigato, and the family of Kong Chai Pin did not receive any income from the
partnership properties." He specifically rebutted the testimony of Goquiolay in his
deposition given on June 30, 1956 that Kong Chai Pin and her family were living in the
partnership properties and stated that the 'family never actually lived in the
properties of the partnership even before the war or after the war."
It is unquestionable that Goquiolay was merely repeating an information given to him
by a third person, Hernando Young he stressed this point twice. A careful analysis
of the substance of Goquiolay's testimony will show that he merely had no objection
to allowing Kong Chai Pin to continue attending to the properties in order to give her
some means of livelihood, because, according to the information given him by
Hernando Young, which he assumed to be true, Kong Chai Pin had no other means of
livelihood. But certainly he made it very clear that he did not allow her to manage
the partnership when he explained his reason for refusing to sign a general power of
attorney for Kong Chai Pin which her counsel, Atty. Zuo, brought with him to his
house in 1948. He said:
. . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuo and he asked me
if I could execute a general power of attorney for Mrs. Kong Chai Pin. Then I told Atty.
Zuo what is the use of executing a general power of attorney for Mrs. Kong Chai Pin
when Mrs. Kong Chai Pin had already got that plantation for agricultural purposes, I
said for agricultural purposes she can use that plantation ... (T.s.n., p. 9, Hearing on
May 5, 1955)
It must be noted that in his testimony Goquiolay was categorically stating his
opposition to the management of the partnership by Kong Chai Pin and carefully
made the distinction that his conformity was for her to attend to the partnership
properties in order to give her merely a means of livelihood. It should be stated that
the period covered by the testimony refers to the period of occupation when living
condition was difficult and precarious. And Atty. Zuo, it should also be stated, did not
deny the statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin exercised
certain acts of management of the partnership properties is highly controverted. The
most that we can say is that the alleged acts are doubtful more so when they are
disputed by the defendants themselves who later became the purchasers of the
properties, and yet these alleged acts, if at all, only refer to management of the
properties and not to management of the partnership, which are two different things.
In resume, we may conclude that the sale of the partnership properties by Kong Chai
Pin cannot be upheld on the ground of estoppel, first, because the alleged acts of
management have not been clearly proven; second, because the record clearly
shows that the defendants, or the buyers, were not misled nor did they rely on the
acts of management, but instead they acted solely on the opinion of their counsel,
Atty. Quisumbing, to the effect that she succeeded her husband in the partnership as
managing partner by operation of law; and third, because the defendants are
themselves estopped to invoke a defense which they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are
true, could such acts give her the character of general manager of the partnership as
we have concluded in our decision?
Out answer is in the negative because it is contrary to law and precedents. Garrigues,
a well-known commentator, is clearly of the opinion that mere acceptance of the
inheritance does not make the heir of a general partner a general partner himself. He
emphasized that the heir must declare that he is entering the partnership as a

general partner unless the deceased partner has made it an express condition in his
will that the heir accepts the condition of entering the partnership as a prerequisite of
inheritance, in which case acceptance of the inheritance is enough. 1 But here Tan Sin
An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to become
general partner by exercising acts of management? We believe not, for, in
consonance with out ruling that as a general rule the heirs of a deceased partner
succeed as limited partners only by operation of law, it is obvious that the heir, upon
entering the partnership, must make a declaration of his character, otherwise he
should be deemed as having succeeded as limited partner by the mere acceptance of
inheritance. And here Kong Chai Pin did not make such declaration. Being then a
limited partner upon the death of Tan Sin An by operation of law, the peremptory
prohibition contained in Article 1482 of the Code of Commerce became binding upon
her and as a result she could not change her status by violating its provisions not
only under the general principle that prohibited acts cannot produce any legal effect,
but also because under the provisions of Article 147 3 of the same Code she was
precluded from acquiring more rights than those pertaining to her as a limited
partner. The alleged acts of management, therefore, did not give Kong Chai Pin the
character of general manager to authorize her to bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai
Pin gave her the character of a general partner, could she sell the partnership
properties without authority from the other partners?
Our answer is also in the negative in the light of the provisions of the articles of
partnership and the pertinent provisions of the Code of Commerce and the Civil Code.
Thus, Article 129 of the Code of Commerce says:
If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the
direction and management of the common business, and the members present shall
come to an agreement for all contracts or obligations which may concern the
association.
And the pertinent portions of the Articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing
partner or by his authorized agent, and it is expressly stipulated that the managing
partner may delegate the entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he may select, upon
such terms as regards compensation as he may deem proper, and vest in such
person, firm or corporation full power and authority, as the agent of the copartnership and in his name, place and stead to do anything for it or on his behalf
which he as such managing partner might do or cause to be done. (Page 23, Record
on Appeal)
It would thus be seen that the powers of the managing partner are not defined either
under the provisions of the Code of Commerce or in the articles of partnership, a
situation which, under Article 2 of the same Code, renders applicable herein the
provisions of the Civil Code, And since, according to well-known authorities, the
relationship between a managing partner and the partnership is substantially the
same as that of the agent and his principal, 4 the extent of the power of Kong Chai Pin
must, therefore, be determined under the general principles governing agency. And,
on this point, the law says that an agency created in general terms includes only acts
of administration, but with regard to the power to compromise, sell, mortgage, and
other acts of strict ownership, an express power of attorney is required. 5 Here Kong

Chai Pin did not have such power when she sold the properties of the partnership.
Of course, there is authority to the effect that a managing partner, even without
express power of attorney, may perform acts affecting ownership if the same are
necessary to promote or accomplish a declared object of the partnership, but here
the transaction is not for this purpose. It was effected not to promote any avowed
object of the partnership.6 Rather, the sale was effected to pay an obligation of the
partnership by selling its real properties which Kong Chai Pin could not do without
express authority. The authorities supporting this view are overwhelming.
La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los
fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los
fines sociales, viene limitada a los objetos de comercio, o los productos de la fabrica
para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una cosa
parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario.
Por el contrario, el gerente no tiene atribuciones para vender las instalaciones del
comercio ni la fabrica, ni las maquinarias, vehiculos de transporte, etc., que forman
parte de la explotacion social. En todos estas casos, igualmente que si tratase de la
venta de una marca o procedimiento mecanico o quimico, etc., siendo actos de
disposicion seria necesario contar con la conformidad expresa de todos los socios. (R.
Gay de Montella, id., pp. 223-224, Emphasis supplied)
Los poderes de los Administradores no tienen ante el silencio del contrato otros
limites que los sealados por el objeto de la Sociedad y, por consiguiente, pueden
llevar a cabo todas las operaciones que sirven para aquel ejercicio, incluso
cambiando repetidas veces los propios acuerdos segun el interes convenido de la
Sociedad. Pueden contratar y despedir a los empleados, tomar en arriendo
almacenas y tiendas, expedir cambiales, girarlas, avalarlas, dar en prenda o en
hipoteca los bienes de la sociedad y adquirir inmuebles destinados a su explotacion o
al empleo estable de sus capitales. Pero no podran ejecutar los actos que estan en
contradiccion con la explotacion que les fue confiada no podran cambiar el objeto, el
domicilio la razon social; fundir a la Sociedad en otra; ceder la accion, y por tanto, el
uso de la firma social a otro renunciar definitivamente el ejercicio de uno de otro
ramo comercio que se les haya confiado y enajenar o piqnorar el taller o el banco
social excepto que la venta o piqnoracion tengan por el objeto procurar los medios
necesarios para la continuacion de la empresa social. (Cesar Vivante, Tratado de
Derecho Mercantil, pp. 124-125, Vol II, la. ed.; Emphasis supplied)
The act of one partner to bind the firm, must be necessary for the carrying on of its
business. If all that can be said of it was that it was convenient, or that it facilitated
the transaction of the business of the firm, that is not sufficient, in the absence of
evidence of saction by other partners. Nor, it seems, will necessity itself be sufficient
if it be an extraordinary necessity. What is necessary for carrying on the business of
the firm under ordinary circumstances and in the usual way, is the test. Lindl. Partn.
Sec. 126. While, within this rule, one member of a partnership may, in the usual and
ordinary course of its business, make a valid sale or pledge, by way of mortgage or
otherwise, of all or part of its effects intended for sale, to a bona fide purchaser or
mortgage, without the consent of the other members of the firm, it is not within the
scope of his implied authority to make a final disposition of all of its effects, including
those employed as the means of carrying on its business, the object and effect of
which is to immediately terminate the partnership, and place its property beyond its
control. Such a disposition, instead of being within the scope of the partnership
business, or in the usual and ordinary way of carrying it on, is necessarily subversive
of the object of the partnership, and contrary to the presumed intention of the
partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49 N.F. 338, 343;
Emphasis supplied)

Since Kong Chai Pin sold the partnership properties not in line with the business of
the partnership but to pay its obligation without first obtaining the consent of the
other partners, the sale is invalid being in excess of her authority.
4. Finally, the same under consideration was effected in a suspicious manner as may
be gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels of land
situated in the City of Davao have an area of 200 hectares more or less, or 2,000,000
square meters. These properties were purchased by the partnership for purposes of
subdivision. According to realtor Mata, who testified in court, these properties could
command at the time he testified a value of not less than P312,000.00, and
according to Dalton Chen, manager of the firm which took over the administration,
since the date of sale no improvement was ever made thereon precisely because of
this litigation. And yet, for said properties, aside from the sum of P37,000.00 which
was paid for the properties of the deceased and the partnership, only the paltry sum
of P66,529.91 was paid as a consideration therefor, of which the sum of P46,116.75
was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell
them if her purpose was only to pay the partnership's obligation. She could have
negotiated a loan if she wanted to pay it by placing the properties as security, but
preferred to sell them even at such low prices because of her close relationship with
the purchasers and creditors who conveniently organized a partnership to exploit
them, as may be seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo, founder of
the defendant Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO, and SIN YEE
CUAN CO, INC., alleged creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee &
Cuan are the three children of Jose). YU KHE THAI is a grandson of the same Jose P.
Yutivo, and president of the two alleged creditors. He is the acknowledged head of
the Yu families. WASHINGTON Z. SYCIP, one of the original buyers, is married to Ana
Yu, a daughter of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a
daughter of Yu Khe Thai. The INSULAR DEVELOPMENT CO., the ultimate buyer, was
organized for the specific purpose of buying the partnership properties. Its
incorporators were: Ana Yu and Betty V. Lee, Atty. Quisumbing and Salazar the
lawyers who studied the papers of sale and have been counsel for the Yutivo
interests; Dalton Chen a brother-in-law of Yu Khe Thai and an executive of Sing Yee &
Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo Sons Hardware,
and Simeon Daguiwag, a trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives
of Kong Chai Pin, have already conceived the idea of possessing the lands for
purposes of subdivision, excluding Goquiolay from their plan, and this is evident from
the following sequence of events:
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the
creditors of the partnership filed their claim against the partnership in the intestate
proceedings. The creditors studied ways and means of liquidating the obligation of
the partnership, leading to the formation of the defendant Insular Development Co.,
composed of members of the Yutivo family and the counsel of record of the
defendants, which subsequently bought the properties of the partnership and
assumed the obligation of the latter in favor of the creditors of the partnership, Yutivo
Sons Hardware and Sing, Yee & Cuan, also of the Yutivo family. The buyers took time
to study the commercial potentialities of the partnership properties and their lawyers
carefully studied the document and other papers involved in the transaction. All
these steps led finally to the sale of the three partnership properties.

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

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV
No. 41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch 140,
in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand,
private respondent Nenita A. Anay met petitioner William T. Belo, then the vicepresident for operations of Ultra Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire
to enter into a joint venture with her for the importation and local distribution of
kitchen cookwares. Belo volunteered to finance the joint venture and assigned to
Anay the job of marketing the product considering her experience and established
relationship with West Bend Company, a manufacturer of kitchen wares in Wisconsin,

U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and
general manager, and Anay as head of the marketing department and later, vicepresident for sales. Anay organized the administrative staff and sales force while
Tocao hired and fired employees, determined commissions and/or salaries of the
employees, and assigned them to different branches. The parties agreed that Belos
name should not appear in any documents relating to their transactions with West
Bend Company. Instead, they agreed to use Anays name in securing distributorship of
cookware from that company. The parties agreed further that Anay would be entitled
to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding
commission of six percent (6%) of the overall weekly production; (3) thirty percent
(30%) of the sales she would make; and (4) two percent (2%) for her demonstration
services. The agreement was not reduced to writing on the strength of Belos
assurances that he was sincere, dependable and honest when it came to financial
commitments.
Anay having secured the distributorship of cookware products from the West
Bend Company and organized the administrative staff and the sales force, the
cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with
office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his
monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend
Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin,
U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in Pismo
Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the
consent of Marjorie Tocao who, as president and general manager of Geminesse
Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on
July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner
of our company, will attend in response to the invitation. (Italics supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook
the task of saving the business on account of the unsatisfactory sales record in the
Makati and Cubao offices. On August 31, 1987, she received a plaque of appreciation
from the administrative and sales people through Marjorie Tocao[4] for her excellent
job performance. On October 7, 1987, in the presence of Anay, Belo signed a
memo[5] entitling her to a thirty-seven percent (37%) commission for her personal
sales "up Dec 31/87. Belo explained to her that said commission was apart from her
ten percent (10%) share in the profits. On October 9, 1987, Anay learned that
Marjorie Tocao had signed a letter[6] addressed to the Cubao sales office to the effect
that she was no longer the vice-president of Geminesse Enterprise. The following
day, October 10, she received a note from Lina T. Cruz, marketing manager, that
Marjorie Tocao had barred her from holding office and conducting demonstrations in
both Makati and Cubao offices.[7] Anay attempted to contact Belo. She wrote him
twice to demand her overriding commission for the period of January 8, 1988 to
February 5, 1988 and the audit of the company to determine her share in the net
profits. When her letters were not answered, Anay consulted her lawyer, who, in turn,
wrote Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December
1987. The following year, 1988, she did not receive the same commission although
the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum
of money with damages[8] against Marjorie D. Tocao and William Belo before the
Regional Trial Court of Makati, Branch 140.

In her complaint, Anay prayed that defendants be ordered to pay her, jointly
and severally, the following: (1) P32,00.00 as unpaid overriding commission from
January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3)
P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the
finances of Geminesse Enterprise from the inception of its business operation until
she was illegally dismissed to determine her ten percent (10%) share in the net
profits. She further prayed that she be paid the five percent (5%) overriding
commission on the remaining 150 West Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement
with Anay that was neither reduced in writing, nor ratified, was either unenforceable
or void or inexistent. As far as Belo was concerned, his only role was to introduce
Anay to Marjorie Tocao. There could not have been a partnership because, as Anay
herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for
an agreed remuneration, and her complaint referred to either her compensation or
dismissal, such complaint should have been lodged with the Department of Labor
and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on
account of ill-will and resentment because Marjorie Tocao did not allow her to lord it
over in the Geminesse Enterprise. Anay had acted like she owned the enterprise
because of her experience and expertise. Hence, petitioners were the ones who
suffered actual damages including unreturned and unaccounted stocks of Geminesse
Enterprise, and serious anxiety, besmirched reputation in the business world, and
various damages not less than P500,000.00. They also alleged that, to vindicate their
names, they had to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the
plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) whether or
not the parties are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the
profit of the business. He, however, admitted that the two had agreed that Anay
would receive a three to four percent (3-4%) share in the gross sales of the cookware.
He denied contributing capital to the business or receiving a share in its profits as he
merely served as a guarantor of Marjorie Tocao, who was new in the business. He
attended and/or presided over business meetings of the venture in his capacity as a
guarantor but he never participated in decision-making. He claimed that he wrote the
memo granting the plaintiff thirty-seven percent (37%) commission upon her
dismissal from the business venture at the request of Tocao, because Anay had no
other income.
For her part, Marjorie Tocao denied having entered into an oral partnership
agreement with Anay. However, she admitted that Anay was an expert in the
cookware business and hence, they agreed to grant her the following commissions:
thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two
percent (2%) on product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on
the net profits. Marjorie claimed that she got the capital for the business out of the
sale of the sewing machines used in her garments business and from Peter Lo, a
Singaporean friend-financier who loaned her the funds with interest. Because she
treated Anay as her co-equal, Marjorie received the same amounts of commissions as
her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of
which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the

partnership affairs for the years 1987 and 1988 pursuant to Art. 1809
of the Civil Code in order to determine the ten percent (10%) share of
plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for
the one hundred and fifty (150) cookware sets available for disposition
when plaintiff was wrongfully excluded from the partnership by
defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total
production which for the period covering January 8, 1988 to February
5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and
P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and
P20,000.00 as costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement
between the plaintiff and the defendants, based on the following: (a) there was an
intention to create a partnership; (b) a common fund was established through
contributions consisting of money and industry, and (c) there was a joint interest in
the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative
officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between the parties.
The letter of Roger Muencheberg of West Bend Company stating that he awarded the
distributorship to Anay and Marjorie Tocao because he was convinced that with
Marjories financial contribution and Anays experience, the combination of the two
would be invaluable to the partnership, also supported that conclusion. Belos claim
that he was merely a guarantor has no basis since there was no written evidence
thereof as required by Article 2055 of the Civil Code. Moreover, his acts of attending
and/or presiding over meetings of Geminesse Enterprise plus his issuance of a memo
giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude
the existence of the partnership inasmuch as such practice is often resorted to in
business circles as an impetus to bigger sales volume. It did not matter that the
agreement was not in writing because Article 1771 of the Civil Code provides that a
partnership may be constituted in any form. The fact that Geminesse Enterprise was
registered in Marjorie Tocaos name is not determinative of whether or not the
business was managed and operated by a sole proprietor or a partnership. What was
registered with the Bureau of Domestic Trade was merely the business name or style
of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a
partnership is an innocent partner. Hence, the guilty partner must give him his due
upon the dissolution of the partnership as well as damages or share in the profits
realized from the appropriation of the partnership business and goodwill. An innocent
partner thus possesses pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and assets at the time he
was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of
damages awarded by the trial court were reduced to P50,000.00 for moral damages
and P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied

by the Court of Appeals for lack of merit.[12] Petitioners Belo and Marjorie Tocao are
now before this Court on a petition for review on certiorari, asserting that there was
no business partnership between them and herein private respondent Nenita A. Anay
who is, therefore, not entitled to the damages awarded to her by the Court of
Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held
that a partnership existed between them and private respondent Anay because
Geminesse Enterprise came into being exactly a year before the alleged partnership
was formed, and that it was very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing, without any memorandum
whatsoever regarding the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are
within the exclusive domain of both the trial and appellate courts. This Court cannot
set aside factual findings of such courts absent any showing that there is no evidence
to support the conclusion drawn by the court a quo.[14] In this case, both the trial
court and the Court of Appeals are one in ruling that petitioners and private
respondent established a business partnership. This Court finds no reason to rule
otherwise.
To be considered a juridical personality, a partnership must fulfill these
requisites: (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.[15] It may be constituted in any form; a public instrument
is necessary only where immovable property or real rights are contributed thereto.
[16] This implies that since a contract of partnership is consensual, an oral contract
of partnership is as good as a written one. Where no immovable property or real
rights are involved, what matters is that the parties have complied with the requisites
of a partnership. The fact that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the partnership agreement
pursuant to Article 1772 of the Civil Code[17] did not cause the nullification of the
partnership. The pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that
of each of the partners, even in case of failure to comply with the requirements of
article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the
business of distributorship of cookware. Private respondent contributed such
expertise to the partnership and hence, under the law, she was the industrial or
managing partner. It was through her reputation with the West Bend Company that
the partnership was able to open the business of distributorship of that companys
cookware products; it was through the same efforts that the business was propelled
to financial success. Petitioner Tocao herself admitted private respondents
indispensable role in putting up the business when, upon being asked if private
respondent held the positions of marketing manager and vice-president for sales, she
testified thus:
A: No, sir at the start she was the marketing manager because there were
no one to sell yet, its only me there then her and then two (2) people,
so about four (4). Now, after that when she recruited already Oscar
Abella and Lina Torda-Cruz these two (2) people were given the
designation of marketing managers of which definitely Nita as
superior to them would be the Vice President.[18]
By the set-up of the business, third persons were made to believe that a partnership
had indeed been forged between petitioners and private respondents. Thus, the
communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger

Muencheberg of the same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the
operations. Marge does not have cookware experience. Nita Anay has started to
gather former managers, Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to
gather other key people and build up the organization. All they need is the finance
and the products to sell.[19]
On the other hand, petitioner Belos denial that he financed the partnership
rings hollow in the face of the established fact that he presided over meetings
regarding matters affecting the operation of the business. Moreover, his having
authorized in writing on October 7, 1987, on a stationery of his own business firm,
Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of
the proceeds of her personal sales, could not be interpreted otherwise than that he
had a proprietary interest in the business. His claim that he was merely a guarantor
is belied by that personal act of proprietorship in the business. Moreover, if he was
indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil
Code,[20] he should have presented documentary evidence therefor. While Article
2055 of the Civil Code simply provides that guaranty must be express, Article 1403,
the Statute of Frauds, requires that a special promise to answer for the debt, default
or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the
partnership. She claimed that she herself financed the business. Her and petitioner
Belos roles as both capitalists to the partnership with private respondent are
buttressed by petitioner Tocaos admissions that petitioner Belo was her boyfriend
and that the partnership was not their only business venture together. They also
established a firm that they called Wiji, the combination of petitioner Belos first
name, William, and her nickname, Jiji.[23] The special relationship between them
dovetails with petitioner Belos claim that he was acting in behalf of petitioner Tocao.
Significantly, in the early stage of the business operation, petitioners requested West
Bend Company to allow them to utilize their banking and trading facilities in
Singapore in the matter of importation and payment of the cookware products.[24]
The inevitable conclusion, therefore, was that petitioners merged their respective
capital and infused the amount into the partnership of distributing cookware with
private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While it
is true that the receipt of a percentage of net profits constitutes only prima facie
evidence that the recipient is a partner in the business,[25] the evidence in the case
at bar controverts an employer-employee relationship between the parties. In the
first place, private respondent had a voice in the management of the affairs of the
cookware distributorship,[26] including selection of people who would constitute the
administrative staff and the sales force. Secondly, petitioner Tocaos admissions
militate against an employer-employee relationship. She admitted that, like her who
owned Geminesse Enterprise,[27] private respondent received only commissions and
transportation and representation allowances[28] and not a fixed salary.[29]
Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as
Exhs. X and Y. Please go over this. Exh. Y is denominated `Cubao overrides
8-21-87 with ending August 21, 1987, will you please go over this and tell
the Honorable Court whether you ever came across this document and
know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you
earlier a certain percentage for promotions, advertising, incentive.

Q: I see. Now, this promotion, advertising, incentive, there is a figure here and
words which I quote: Overrides Marjorie Ann Tocao P21,410.50 this means
that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one
representing commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay
P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court
that there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi,
you know in a sense because of her expertise in the business she is vital to
my business. So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having
gotten from the company P21,140.50 is your way of indicating that you
were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao
P15,314.25 the amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an
indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2)
are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to
believe that they shall receive the same income in the business. In a partnership,
each partner must share in the profits and losses of the venture, except that the
industrial partner shall not be liable for the losses.[31] As an industrial partner,

private respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of
Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered
with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that
enterprise.[33] While it is true that in her undated application for renewal of
registration of that firm name, petitioner Tocao indicated that it would be engaged in
retail of kitchenwares, cookwares, utensils, skillet,[34] she also admitted that the
enterprise was only 60% to 70% for the cookware business, while 20% to 30% of its
business activity was devoted to the sale of water sterilizer or purifier.[35]
Indubitably then, the business name Geminesse Enterprise was used only for
practical reasons - it was utilized as the common name for petitioner Tocaos various
business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the
unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250.00.[36] Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court. Since the partnership has not been
terminated, the petitioner and private complainant remained as co-partners. x x x.
[37]
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still received her
overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondents efforts to make the business venture a success. Thus, as
petitioner Tocao became adept in the business operation, she started to assert
herself to the extent that she would even shout at private respondent in front of
other people.[38] Her instruction to Lina Torda Cruz, marketing manager, not to allow
private respondent to hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private respondent was no longer necessary
in the business operation,[39] and resulted in a falling out between the two.
However, a mere falling out or misunderstanding between partners does not convert
the partnership into a sham organization.[40] The partnership exists until dissolved
under the law. Since the partnership created by petitioners and private respondent
has no fixed term and is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. 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 partners
capability to give it, and the absence of 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 but that it can result in a
liability for damages.[41]
An unjustified dissolution by a partner can subject him to action for damages because
by the mutual agency that arises in a partnership, the doctrine of delectus personae
allows the partners to have the power, although not necessarily the right to dissolve
the partnership.[42]

In this case, petitioner Tocaos unilateral exclusion of private respondent from

the partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of
Geminesse Enterprise.[43] By that memo, petitioner Tocao effected her own
withdrawal from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding up of the
business.[44]
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had been entrusted
to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual
findings upon which it is based is primarily the task of the trial court.[45] The Court of
Appeals may modify that amount only when its factual findings are diametrically
opposed to that of the lower court,[46] or the award is palpably or scandalously and
unreasonably excessive.[47] However, exemplary damages that are awarded by way
of example or correction for the public good,[48] should be reduced to P50,000.00,
the amount correctly awarded by the Court of Appeals. Concomitantly, the award of
moral damages of P100,000.00 was excessive and should be likewise reduced to
P50,000.00. Similarly, attorneys fees that should be granted on account of the award
of exemplary damages and petitioners evident bad faith in refusing to satisfy private
respondents plainly valid, just and demandable claims,[49] appear to have been
excessively granted by the trial court and should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The
partnership among petitioners and private respondent is ordered dissolved, and the
parties are ordered to effect the winding up and liquidation of the partnership
pursuant to the pertinent provisions of the Civil Code. This case is remanded to the
Regional Trial Court for proper proceedings relative to said dissolution. The appealed
decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the
partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil
Code, in order to determine private respondents ten percent (10%) share in the net
profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five
percent (5%) overriding commission for the one hundred and fifty (150) cookware
sets available for disposition since the time private respondent was wrongfully
excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral
damages in the amount of P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.