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Table of Contents

CIR v. William J. Suter................................................................................................................................... 3

Magalona v. Pesayco .................................................................................................................................... 4

Criado v. Gutierrez Hermanos....................................................................................................................

13

Leung v. IAC ................................................................................................................................................ 31


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CIR v. William J. Suter

G.R. No. L-25532, 2/28/1969


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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE,petitioner,

vs.WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.

Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.

A. S. Monzon, Gutierrez, Farrales and Ong for 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, ofthe tax court's aforesaid decision. It raises these issues:


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(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 byeither 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 generalcopartnership,

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 otherare prohibited from entering into universalpartnerships. (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 universalpartnership, but aparticular one. As appears from

Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when


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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 apartnership 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 paracontratar 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 separateproperty under the Spanish Civil Code (Article 1396):

The following shall be the exclusiveproperty 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 notbecome 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


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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

alreadysubjectto 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 partners-spouses in their individual capacities. The

corporations, in the cases cited, merely served as business conduits or alter egosof 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 colectivasthat the members, and not thefirm, 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 evenjoint accounts that have no personality of their own.1Appellant 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.


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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, andeven 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.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and

Teehankee, JJ., concur.

Barredo, J., took no part.

Footnotes

1V. Evangelists vs. Collector of Internal Revenue, 102 Phil 140; Collector vs. Batangas

Transportation Co., 102 Phil. 822.

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Magalona v. Pesayco

G.R. No. L-39607, 2/6/1934

59 Phil 453


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SUPREME COURT

Manila

EN BANC

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

ENCARNACION MAGALONA, ET AL.,plaintiffs-appellees,

vs.JUAN PESAYCO,defendant-appellant.

Manuel Polido and Pedro V. Jimenez for appellant.

Lutero and Lutero and Ramon Maza for appellee.

GODDARD,J.:

In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan Sermeno, and

the defendant, Juan Pesayco, formed a partnership for the purpose of catching "semillas

de bagus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose,

Antique Province, for the year 1931. It was agreed that the defendant should put in a bid for

this privilege and that the partners should each supply one third of the capital in case the

defendant was awarded the desired privilege. The defendant, having had experience in

this line, was to be the manager in case his bid was accepted. The defendant offered the

sum of P5,550.09 for the year ending December 31, 1931. As a deposit of

one-fourth of the amount of the bid was required each of the partners put up one third of

this amount. This bid, being the highest, was accepted by the municipality and the privilege

was awarded to the defendant. The latter entered upon his duties under the contract and

gave an account of two sales of "semillas de bagus", to Tiburcio Lutero as representative ofthe plaintiff Magalona. As the defendant, on April 21, 1931, had on hand only P410 he

wired, Exhibit A, Lutero for sufficient money to complete the payment of the first quarter

which was to be paid within the first twenty days of the second quarter of the year 1931. This

telegram reads as follows: "Hemos conseguido plazo hasta esta tarde tenemos aqui

cuatrocientos diez gira telegraficamente restante." Lutero immediately sent P1,000 to the

municipal treasurer of San Jose, Antique (Exhibit D).

The defendant managed the business from January 1,1931, and with the exception of the

two sales above-mentioned, never gave any account of his catches or sales to his partners,

the plaintiffs. In view of this the herein complaint was filed April 21, 1931, in which it was

prayed that a receiver be appointed by the court to take charge of the funds of the

partnership and the management of its affairs; that the defendant be ordered to render an

account of his management and to pay to the plaintiff their participation in the profits

thereof; that the defendant be required to turn over to the receiver all of the funds of the

partnership and that the defendant be condemned to pay the costs.

The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up a

bond for the same amount.


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The receiver took over the management and took possession of all the devices and

implements used in the catching of "semillas de bagus".

At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total

of 975,000 "semillas de bagus" the market value of which was P3 per thousand. The

defendant made no report of this nor did he pay the plaintiffs any part of the P2,925

realized by him on the sales thereof. This was not denied.

In his two counter-complaints the defendant prays that he be awarded damages in the

sum of P34,700. He denies that there was a partnership and depends principally upon the

fact that the partnership agreement was not in writing.

The partnership was conclusively proven by the oral testimony of the plaintiffs and other

witnesses, two of whom were Attorneys Lutero and Maza. The defense made no objection

to the questions asked with regard to the forming of this partnership. This court has held that

if a party permits a contract, which the law provides shall be in writing, to be proved,

without objection as to the form of the proof, it is just as binding as if the statute had been

complied with.

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

Article 1667 of the Civil Code provides that "Civil partnerships may be established in any

form whatever, unless real property or real rights are contributed to the same, in which case

a public instrument shall be necessary."

Articles of partnership are not required to be in writing except in the cases

mentioned in article 1667, Civil Code, which controls article 1280 of the same Code.

(Fernandez vs. Dela Rosa, 1 Phil., 671.)

A verbal partnership agreement is valid between the parties even though more than

1,500pesetasare involved and can be enforced without bringing action under

article 1279, Civil Code, to compel execution of a written instrument. (Arts. 1261,

1278-1280, 1667, Civil Code; arts. 116-119, 51, Code of Commerce.)Thunga Chui vs.Que Bentec, 2 Phil., 561. (4 Phil. Digest, 3468.)

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

Habiendose probado, sin pruebas en contrario, de que el demandado obtuvo

durante su administracion de este negocio, semillas de bagus por valor de P2,925

que no dio cuenta ni participacion a sus consocios los demandantes, el Juzgado

declara al demandado en deber a la sociedad, compuesta por demandantes y

demandado, en la suma de P2,925, importe de 975,000 semillas de bagus a P3 el

millar, y ordena que entregue esta suma al depositario judicial nombrado, comofondos de dicha sociedad.

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

ordena.


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

ordered.

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

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Criado v. Gutierrez Hermanos

G.R. No. L-12371, 3/23/1918

37 Phil 883


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SUPREME COURT

Manila

EN BANC

G.R. No. L-12371 March 23, 1918

LEOPOLDO CRIADO,plaintiff-appellant,

vs.GUTIERREZ HERMANOS,defendant-appellant.

Eduardo Gutierrez Repide and Felix Socias for plaintiff-appellant.

C. W. O'Brien for defendant-appellant.

TORRES,J.:

In the ordinary proceedings prosecuted in the Court of First Instance of Manila by counsel

for Leopoldo Criado against the firm of Gutierrez Hermanos for the recovery of a sum of

money, on September 11, 1916, judgment was handed down whereby said firm was

ordered to pay, in addition to other amounts therein specified, P54,292.62 with interest

thereon at the rate of 6 per cent per annum from May 25, 1912, and whereby it was held

that plaintiff was entitled to a share of .34064 per cent on P818,260.70, the total amount of

the unpaid bills, subject to the liability of 10 per cent contracted toward the defendant in

respect to said bills or to such part thereof as should be found to be uncollectible, with the

costs against the defendant. Both parties excepted from this judgment and moved for a

new trial, which motion was denied by an order of September 25th of the same year, to

which both parties excepted. Plaintiff and defendant by mutual consent have filed but a

single bill of exceptions and the same was approved, certified and forwarded to the clerkof this court, together with the oral and documentary evidence of record.

The original complaint was filed in the Court of First Instance on May 25, 1912, and after

being twice amended was finally filed on January 15, 1913. Upon answering it, defendant

interposed a cross-complaint. After full trial, judgment was rendered on July 8, 1913, by

which, dismissing plaintiff's first, second, third, and fourth causes of action and the cross-

complaint of the defendant of the court sentenced the defendant, the firm of Gutierrez

Hermanos, to pay the several sums specified in the fifth, sixth, seventh, eighth, ninth, and

tenth causes of action, with legal interest thereon from May 25, 1912, and ordered same

further to render accounts to the plaintiff for the reason therein stated, and to pay the costs.

From this judgment defendant appealed and moved for a trial. The motion was denied and

defendant excepted and filed the proper bill of exceptions which was forwarded to this

court. Upon hearing, a decision was rendered on March 24, 1915, whereby, for the reasons

therein given, the judgment appealed from was set aside and the record remanded to the

court of origin for the proper proceedings.

The proceedings in the Court of First Instance having been reopened upon petition by

plaintiff, on May 24, 1915, the judge ordered the defendant Gutierrez Hermanos to render

within a period of twenty days a detailed account, supported by vouchers, of the share


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which the plaintiff might have in the capital stock of said firm up to that date. In

compliance with this order, defendant presented an account (record, pp. 103-124) certified

by the bookkeeper of the firm of Gutierrez Hermanos to on June 3 of the same year.

In view of the fact that the defendant firm had not complied with the order of the court in

respect to the account presented, counsel for plaintiff moved in writing that the clerk of

court, McMicking, be appointed so that, in his presence and in that of the parties, G. B.

Wicks might proceed to make true liquidation of plaintiff's said share of the capital stock of

the firm of Gutierrez Hermanos, since he began his connection therewith, on January 1,

1900, until his separation therefrom, on December 31, 1911. Said motion was accompanied

by an affidavit in which the plaintiff Leopoldo Criado declared under oath that he had

examined the accounts presented by the defendant referring to his capital in that firm and

that said accounts were based upon a false debit balance of P26,349.13 a balance

which had been previously impeached by the affiant as well as the accounts from which

said sum is sought to be derived. Wherefore he gain assailed them in their totality on the

grounds that some of the entries thereof were improper, other fraudulent, and still other

false. Therefore plaintiff's counsel moved that defendant be ordered to place immediately

at the disposal of Commissioner Wicks all the books, accounts, bills, vouchers, and other

documents that might be necessary, in order that said liquidation might be made by

defendants counsel, by an order of September 2, 1915, the court ruled in conformity

therewith, authorizing defendant to appoint another expert accountant who, together with

the one already designated. Wicks, might examine the books and documents

aforementioned. On motion by plaintiff, and notwithstanding the arguments made by the

defendant firm, it was provided by another order of the court that said firm should comply

with what the court had previously ordered, to wit, to place said books and documents at

the disposal of the commissioner for his examination in the office of the clerk of court, on the

three specified days of the week, from 2.30 o'clock up every afternoon.

After a rehearing of the case and an examination of George B. Wicks was made regarding

the contents of the report that he submitted after studying for that purpose the books andother documents placed at his disposal by the defendant to which report he attached

several documents in proof or substantiation of the different items mentioned in said report

(Exhibit Z-3) in view of the result and the evidence adduced by the parties, and by the

said commissioner's report duly supported by vouchers, the court rendered the judgment

aforementioned, on September 11, 1916. This motion was denied, exception was taken,

and, upon receipt of the proper bill of exceptions, both appeals were forwarded in the in

the usual manner.

Counsel for the defendant-appellant assails in general the judgment appealed from

because the trial court did not determine the issues raised in the first, second, third, fourth,

sixth, seventh, eighth, ninth, and tenth causes of action, and in defendant's cross-complaint;

and inasmuch as in the judgment the contrary appears with the exception of the first causeof action, the court will now proceed to examine each of the causes of action referred to inthe cross-complaint filed by the latter in its answer.

The first cause of action consists in the obligation assumed by Miguel Alonso, formerly one of

the general partners and manager of the firm of Gutierrez Hermanos, to pay to the plaintiff

Leopoldo Criado, and sum P1,100 by reason of the contract of loan prevent plaintiff from

suing for the recovery of that debt an action against the testate or intestate estate of the


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debtor who died without having paid his debt; the other partner Miguel Gutierrez de Celis,

manager of the firm, succeeded in persuading the plaintiff by promising to return said sum

to Criado this not being a strange obligation, for at the time of his death the deceased

debtor Miguel Alfonso, was a partner in the firm of Gutierrez Hermanos and had a share in

the firm's assets. But the fact is that from 1898, when Alfonso died, until 1912, the date the

complaint was filed, such settlement had already been made of the decedent's said share

and in spite of the attempts to collect made by the creditor he was unable to recover theloan.

Even on the supposition that at the time of his death the debtor Miguel Alfonso certainly

and positively left this debt and that in order to avoid judicial proceedings on the part of

the creditor, Miguel Gutierrez de Celis subrogated and put himself in the place of the

debtor, binding himself to pay said amount to plaintiff, yet, in view of the fact that said, loan

was made as an independent private act, unconnected with the mercantile operations of

the firm of Gutierrez Hermanos, and that the record does not duly show that this firm,

though its manager assumed the obligation to reimbursed the sum, there is no provision of

law to warrant us in holding that the firm of Gutierrez Hermanos is obliged to pay the

amount claimed by the plaintiff as the subject-matter of his first cause of action.

In the second cause of action plaintiff demands the payment of P43,410.86, and alleges

that, pursuant to a notarial instrument of March 29, 1900, he became a partner of the firm of

Gutierrez Hermanos; and that said document stipulated that the partnership should last for

four years from January 1, 1900, and, among other conditions, it contained the following:

Second. Therefore the partnership is organized among the parties to this instrument,

Don Placido Gutierrez de Celis, Don Miguel Gutierrez de Celis, Don Miguel Alonso y

Gutierrez, Don Daniel Perez y Alberto, and Don Leopoldo Criado y Garcia, the first

three as capitalist partners, and the last two as industrial partners.

Eighth. All earnings or profits that may be obtained shall be distributed among thepartners in the following proportion: 37 per cent shall go to Don Placido Gutierrez de

Celis; 37 per cent to Don Miguel Gutierrez de Celis; 16 per cent to Don Miguel

Alfonso y Gutierrez; 5 per cent, to Don Daniel Perez y Alberto; and 5 per cent to Don

Leopoldo Criado y Garcia. In the same proportion above established for the profits

the capitalist partners shall be liable for all losses or damages that may be sustained.

A copy of said instrument was presented as Exhibit A and made an integral part of thecomplaint.

Plaintiff also alleged that, according to the books of the defendant firm, his capital was

P56,796.25 in 1902 and, according to the balance had on December 31, 1903, the profits

obtained amounted to P256,025.31, 5 per cent of which, or P12,801.26, belonged to him,according to the eight clause of the articles of partnership, although the manager Miguel

Gutierrez de Celis, by means of false and erroneous entries in the books, succeeded in

concealing such profits, thereby injuring him in said amount of P43,410.86. Plaintiff testified

that as soon as he learned of such entries, he at once protested, but that said manager

assured him that as soon as the probate proceedings concerning the estate of the

decedent Miguel Alfonso should be determined said amount would be refunded although

in spite of his efforts said promise has not been fulfilled.


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In its answer the defendant firm admitted that plaintiff Criado was an industrial partner

entitled to 5 per cent of the profits, but denied all the other averments of the complaint. In

special defense it alleged that on December 31, 1903, there was made a liquidation and

balance of the business of the firmoperations which were approved by all the partners

with no protest made by the plaintiff before or after said liquidation, but contrary, he gave

his assent thereto and without reserve whatsoever he executed a new partnership contract,

inasmuch as the sum shown by said liquidation and balance of the business of the firm atthe end of December, 1903, formed the basis of the capital mentioned in the articles of

partnership executed before a notary on May 9, 1904. Finally, the defendant alleged that,

in accordance with the provisions of section 43 of the Code of Civil Procedure, this second

cause of action had already prescribed, inasmuch as its object, the recovery of personal

property, prescribed after four years, just as an action for damages by reason of fraud.

The purpose of the second cause of action exercised by plaintiff's counsel is to obtain from

the defendant the share of the profits earned by the firm from 1900 to December 31, 1903,

belonging to plaintiff, by reason of the partnership contract a contract that produced

reciprocal rights and obligation between the partners and if the record shows as duly

proven that there were profits, the obligation on the part of the defendant firm to pay to

plaintiff his share of said profits at the rate of 5 per cent is inevitable, there appearing no just

and legal reason in the record for exempting the defendant from the fulfillment of said

obligation. It is therefore no proper to assert that the action brought by the plaintiff has for

its object the recovery of personal property, or demand damages for fraud, and therefore

the period for prescription is not the four years fixed by section 43, paragraph 1 of the Code

of Civil Procedure, but that of ten years, as provided in paragraph 1 of said section, in as

much as the action brought is founded on a contract in writing and demand is thereby

made for the payment of a certain net sum, entered in the books of the firm of Gutierrez

Hermanos, for the prescription of which the lapse of ten years is required a period which

certainly has not elapsed since the last balance was made of the business of the firm ofwhich Leopoldo Criado was a partner.

In order to determine whether besides the sum of P25,129.09 which constituted the

capital brought by the plaintiff Leopoldo Criado, as capitalist, during the second period of

the firm newly organized in 1904 plaintiff still has a right to demand the sum that is the

subject of his complaint in the second cause of action, or any other sum that might be

found to be a remainder of the salary owing him in his capacity of industrial partner during

the first period of the firm organized for four years from January, 1900, it becomes necessary

first too decide whether in fact the plaintiff is in estoppel and unable to oppose any valid

objection against said liquidation and balance; inasmuch as, according to the inventory of

the firm's business, made on December 31, 1903, which was signed by Leopoldo Criado,

Miguel Gutierrez de Celis and Daniel Perez de Celis, plaintiff Criado's capital on that date

was only P25,129.09, the sum recorded as his capital in the articles of partnership, Exhibit O,

which were in force during the second period from January, 1904, although this contractwas executed on May 9 of that year. From clause 7 of said contract, and according to said

inventory of December 31, 1903, it appears that the firm's capital stock amounted to

P1,605,497.30, of which the sum of P25,129.09 belonged to Leopoldo Criado.

In an affidavit plaintiff stated that when he learned of the contents of the firm's books, he

protested against the entries therein, but that the manager Guiterrez de Celis assured him

that he would lose nothing by those entries made in connection with a serious matter then

pending; that afterwards he learned that said entries had been made in the books through


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fear that Jose Fortiz, a creditor of 5 per cent of the profits, should claim his share of the

profits pertaining to the years 1902 and 1903; that in fact Fortiz did bring suit against

Gutierrez Hermanos and obtained a favorable judgment not only in the Court of First

Instance but also in the Supreme Court which affirmed the judgment of the lower court

(record, p. 381); that another reason why said false and erroneous entries were made in the

firm's books by Gutierrez de Celis was to show the family of the deceased Miguel Alonso

that the losses reported in his letter received during his lifetime from Gutierrez de Celis weredue to his poor management of the firm's business (record, pp. 381 and 382); that as, in

spite of repeated steps taken by plaintiff, said Gutierrez de Celis did not fulfill his promise to

pay the sums which had been unduly withheld by means of those improper entries, plaintiff

therefore finally refused to sign the balance sheet for the business of 1909, but did sign the

previous one containing the record of a loss of P110,000 and also the partnership contract

of 1904, showing his capital to be P25,129.09 as he believed that Miguel Gutierrez de Celis

would reimburse him, as he had promised, his share of the sums which had been entered as

losses in the firm's books.

In Exhibit 10 (record, p. 205) there appears an entry which reads thus:

P501,513.57, amount of the bills cancelled in the books in this date which should

have been cancelled in previous years on account of difficulty in their collection,

some of these bills being of such a nature that they should be charged to the

account of the management as they are contrary to the provisions of the 5th and

10th clauses of the partnership contract . . . but, in view of the fact that the author of

these irregularities is not living so that compliance with the contract may be

demanded of him, we have distributed the losses equally among the three principal

partners . . . and 5 per cent against each of the industrial partners, Leopoldo Criado's

share of the losses being P25,080.68.

Without doubt this entry was made for the purpose of showing that Miguel Alonso, former

manger of the partnership, was to blame for these losses. It is to be noted that, according tothe contract, plaintiff as an industrial partner is not liable for said losses; therefore in this

distribution said sum was unduly deducted from his share of the assets.

In order to prove the certainty of the protest made by plaintiff and the repeated promises

of payment by Miguel Gutierrez de Celis, Attorney Eduardo Gutierrez Repide was called as

witness and testified that, as a consequence to the complaint made by the plaintiff to the

attorney Marple, one of the members of the Hartigan law firm, against the acts of the

manager of the firm of Gutierrez Hermanosa proceeding which, as plaintiff stated

produced the effect of continually reducing his assets in the firm by order of the said Marple

he, witness, went to confer with said manager Guiterrez de Celis who after learning of

plaintiff's complaint stated to witness that there was then good and sufficient reason for

making it appear in the firm's books that the industrial partner Leopoldo Criado had lessassets in the firm than in reality he had, but that he should not worry further as later on the

firm would pay him the reduced amount of the forty-three thousand and odd pesos which

made up the reduction, and that, sometime afterwards, witness having been called as a

friend, and not as an attorney, by said manager of the firm, on meeting the latter, he

learned that just then Leopoldo Criado was refusing to sign the instrument setting forth the

new articles of partnership for a new period because said manager had not fulfilled his

promise to return to plaintiff the aforesaid sum deducted from the capital stock, on which


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occasion the notary Barrera was there waiting; that then Guiterrez de Celis directed the

witness to tell plaintiff not to worry, and that said sum would be returned to him; that

therefore witness, trusting in these words of the manger, advised plaintiff to sign the

instrument, just as he did; and that witness afterwards learned that these promises had not

been fulfilled.

In view of the evidence adduced by plaintiff, not rebutted by counsel for the defendant, it

cannot be held that plaintiff was in estoppel immediately after having signed the

partnership contract of May 9, 1904, in which it appears that he brought into the new firm,

as capital of his own, P25129.09, nor may it be said that he was not entitled to claim the rest

of his assets in the firm during the first period from 1900 to 1903, to wit, the difference

between the sum of P56,793.25, plaintiff Criado's capital as an industrial partner and said

P25,129.09, the capital brought into the new firm, inasmuch as it was not the plaintiff, but

the manager of the firm, Miguel Gutierrez de Celis, who intentionally and deliberately

induced Leopoldo Criado to sign said partnership contract of May, 1904, in which plaintiff

appeared as capitalist partner for the last mentioned sum brought into the general assets of

the firm under the repeated promise that he would afterwards be paid the rest of the assets

due him up to the aforestated sum of P56,793.25, the amount of capital standing to hiscredit at the time of the termination of the previous partnership on December 31, 1903.

As aforesaid, plaintiff signed the instrument of 1904 in the belief that the manager of the firm

of Gutierrez Hermanos would fulfill the promise he had made not only to the plaintiff but also

to the attorney Gutierrez Repide; wherefore, it is evident that the defendant cannot set up

estoppel against the plaintiff, who relied upon said repeated promise (Act No. 190, sec.

333), inasmuch as the defendant was aware that plaintiff, as an industrial partner, was

entitled to collect a greater sum as a part of his capital than that brought into the new

partnership and he had an indisputable right to contradict and adduce oral evidence

against the contents of said instrument of May 9, 1904 (Act No. 190, sec. 285), in case the

exception of the plaintiff which the defendant denied were based on the contents of that

instrument, and likewise against the liquidation and balance made at the expiration of theterm of the first partnership, causing to appear in said balance and in the books of the firm,

among other entries, that aforementioned sum of P501,513.57, certified to in the document

Exhibit 10, this amount is sufficiently large when distributed among the partners, as losses

when plaintiff Criado, as one of the industrial partners is not liable for the losses which the

firm may have sustained according to the eighth clause of the notarial instrument of May

29, 1900. The allotment to the industrial partner Leopoldo Criado of the amount of

P25,080.68 as losses suffered by the firm in its business during the years 1900 to 1903 was

notoriously illegal, inasmuch as he, being merely an industrial partner, was not liable for anyloss whatever.

Plaintiff assails several entries made in the books of the firm consisting of losses in hemp,

merchandise, depreciation of steamers, and reduction in capital stock belonging to thepartners, all amounting to P793,199.24, as well as the net loss estimated at P110,578.38. But it

suffices our purpose to mention the reduction as losses, distributed among the partners, of

P501,613.57, P25,080.68 of which was charged against the plaintiff as his proportionate loss

of the capital, in order to show the propriety of plaintiff's averments that without any good

reason or ground whatever he sustained a loss by the decrease of his capital.


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For the practical application and the fulfillment of the stipulations made by the partners, in

the second and eighth clauses of said articles of partnership of March 29, 1900, it should be

understood that, for the purpose of determining the profits that correspond to an industrial

partner who shares in the profits from the different transactions carried on by the firm must

be added together from which sum must be subtracted that of the losses sustained in its

business, and in the difference which represents the net profits if these are greater than

the losses

the industrial partner shares, i. e., in the sum total of the profits. But if, on thecontrary, the losses are greater and exceed the profits in said difference the industrialpartner should not be liable, for this constitutes a real loss to the firm.

Wherefore, having examined the documents presented at the trial, among them Exhibits C,

F, H, P, 2 and 8 as well as the report of the commissioner, Wicks, Exhibit Z-3, together with the

documents attached by him to his report, and taking into account that only sixty-seven

thousand and odd pesos could be collected from the credits considered as uncollectible,

and that the plaintiff, as an industrial partner, should not be liable for the losses, according

to the articles of partnership, it follows that, at the termination of the partnership in 1903,

plaintiff's assets were P56,793.25, and his liabilities P1,054.56, there being in his favor

consequently a balance of P55,738.69; but as in the instrument of May, 1904, he was

credited with only P25,129.09, as capital brought into the new company, the plaintiff is

entitled to demand that the firm of Gutierrez Hermanos pay him in the sum of P30,609.60.

Furthermore, in the instrument of May 9, 1904, it is not stated that the amount brought in the

plaintiff was the balance and sole asset that he had as an industrial partner in the extinct

firm in 1903, nor that he condoned and renounced any other assets he might have therein;

consequently, he has not lost his right to collect the rest of his capital by having signed said

instrument, and it is not fair that his copartners should benefit with no just reason and to his

prejudice.

The commissioner, Wicks, awarded plaintiff P32,875.46, as a part of his capital which he was

entitled to collect (Exhibit Z-3). Plaintiff accepts this sum, though he demanded more in hiscomplaint; but this court can not accept the commissioner's conclusion in this particular,

inasmuch as plaintiff admitted that his capital, on December 31, 1902, was the sum

aforementioned which appears in the defendant's books, and in 1903 the firm of Gutierrez

Hermanos netted no profits from its business; because, as a result of the commissioner's

examination if the books and papers of the defendant firm, he unduly awarded plaintiff

P6,205.25, as a part of his capital, which the defendant had failed to pay him in the years

1900 to 1902, and P1,660.91, as a part of his assets unduly excluded by the defendant firm

from his account of invested capital in 1903, both amount aggregating P7,866.17. It is to be

observed that plaintiff agrees that his capital in 1903, according to the defendant firm's

books amounts to P56,793.25, without the debt of P1,054.56.

On pages 8 to 12 of Exhibit Z-3 the commissioner Wicks also unduly charged plaintiff 5 percent of the interests on certain personal accounts that were canceled in the books, and on

certain sums which appeared on the firm's books as losses pertaining to the years 1904 to

1911, as being related to certain other accounts that originated during the period 1900 to

1903. These charges were improper because the interests on the accounts stricken from the

books are, like the principal debts, also losses for which, according to the articles of

partnership, the industrial partner should not be held liable. The amount thus unduly

charged against plaintiff on account of the said 5 per cent interest aggregates P5,600.32,


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which sum, subtracted from said P7,866.17, an amount also unduly paid, leaves a

difference of P2,265.85 likewise unduly credited to the plaintiff and which apparently

increases his assets. This latter sum, subtracted from that awarded by the commissioner,

shows that plaintiff is entitled only to the sum of P30,609.60, a sum which, with the sole

difference of one centavo through inaccuracy in the calculations, we deem to be

mathematically correct, lawful, just, and in conformity with the stipulations made by and

among the partners in said instrument; and therefore the defendant should be ordered topay the same, together with the legal interest thereon from the date of the filing of thecomplaint.

As regards the third cause of action in the previous judgment which was set aside, the

complaint, in so far as this cause of action was concerned, was dismissed and upon a

reopening of the case, in the subsequent judgment rendered therein on September 11,

1916, the court abstained from granting the petition made in connection with said third

cause of action; notwithstanding, the plaintiff-appellant in his brief made no assignment of

error with respect to this matter, nor did he request the court to make any ruling on the

petition submitted in connection with said cause of action. Therefore, notwithstanding the

agreement contained in the document Exhibit 50, and in view of the fact that plaintiff

tacitly waived any right he might have had to enforce this claim, judging from his conduct

in the matter of the collection of the sum of P406.99, also mentioned by the commissioner in

his report Exhibit Z-3, this court dismisses the complaint in so far as said third cause of action

is concerned.

In the judgment appealed from, the trial court holds that the item relative to the shares of

stock in the Bataan mines pertained to the losses suffered in 1906 and should have been

charged to the account of profits and losses as, according to the 8th clause of the articles

of partnership, plaintiff had suffered a loss not only of 5 but 10 per cent. The plaintiff-

appellant likewise makes no assignment of error against this judicial declaration. Therefore

the complaint is also dismissed with respect to the fourth cause of action. By the fifth cause

of action counsel for plaintiff demands payment of the sum of P88,245.93, and the trialcourt, for the reason stated in the judgment, held that the defendant firm was obliged to

pay to plaintiff the sum of P51,296.62, with legal interest thereon from May 25, 1912, the date

of the filing of the complaint. This finding has not been assailed, nor has any error been

assigned against it by the plaintiff-appellant in his brief, but the defendant-appellant,

ordered in the judgment to pay that sum, made an assignment of errors based on the

reason set forth in its brief.

The plaintiff having impliedly acquiesced in the finding of the trial court with respect to the

fifth cause of action, we shall now proceed merely to inquire whether that court actually

committed the errors assigned to the judgment by the defendant-appellant.

According to the document Exhibit 7, presented by the defendant, which appears to be acopy of plaintiff's stock account, certified as authentic by the defendant's bookkeeper, the

capital stock of the plaintiff Leopoldo Criado, prior to December 29, 1911, was P73,147.87,

an amount which also appears in the document (Exhibit P) and tends to prove that on

December 31, 1911, plaintiff's capital was the amount stated, before the annotation of the

entries assailed as false and fraudulent by plaintiff.


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The eighth and sixteenth clauses of the articles of partnership, Exhibit O (record, p. 82),

executed in May, 1904, which ratified and approved the transactions of the firm of Gutierrez

Hermanos from January of that year state the following:

Eighth. The earnings or profits which may be obtained shall be distributed among the

partners in the following proportion:

Forty per cent to D. Placido Gutierrez de Celis;

Forty per cent to D. Miguel Gutierrez de Celis;

Ten per cent to D. Daniel Perez Albertos; and

Ten per cent to D. Leopoldo Criado Garcia.

In the same proportion provided for the profits, the partners shall be liable for the

losses that may be incurred.

Sixteenth. In case the partnership business should incur such losses as to prevent a

continuance of the business or to make a dissolution of the partnership advisable,

same shall be liquidated, each capitalist partner bearing such loss in a pro rataproportion to the capital he represents, the expenses necessary for the prosecution

of the business being chargeable to the firm as a whole. Notwithstanding these

provisions the partners Don Placido and Don Miguel as principal capitalist partners

may liquidate the partnership or alienate its rights whenever they deem proper so to

do.

By a notarial instrument of January 2, 1908, the life of the partnership was extended to

another term of four years, upon the same bases and conditions (Exh. X, p. 100).

From the two preinstated clauses of the partnership contract it is deduced that the partners

should be liable for all the losses incurred by the partnership in the proportion fixed in the 8th

clause; but that, in case such losses should be of so great importance as to prevent acontinuation of the partnership business, or to make advisable the dissolution of the

partnership, then due action should be taken in conformity with the provisions of said clause

16, and the partners should be liable from the losses in a proportion pro rata to their share in

the partnership assets; in consequence whereof, plaintiff should be liable at the rate of 10

per cent of the losses sustained.

The trial judge held that, according to the balance sheet (Exhibit P) admitted by the

defendant (sten. notes, p. 45), the profits in 1911 were P120,986.34; but a mere reading of

this balance sheet shows that the profits were not so much as the plaintiff claims, even by

adding thereto the sum of P30,000, nor did they amount to the sum fixed by the court, for

the reason that same document shows losses of P21,963.38 for general expenses and of

P22,569.41 for the account on its face, which accounts bear debit balances.

In order to determine the exact amount of the profits and losses during the year 1911, it

becomes necessary to examine the 1910 inventory, not discussed by the litigants, and to

make a comparison between its contents and those of the 1911 inventory. Having

examined various documents stating accounts of several kinds relating to the business of

the firm of Gutierrez Hermanos, as those of the merchandise, various debtors, furnitures,

shares, consignments, vessels, cash operations of provincial business, and rural and urban


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properties, it appears that the active capital of the partnership was, on December 31, 1911,

P2,685,096.40.

According to the inventory Exhibit 51 (record, p. 172), the liabilities of the partnership were

P789,228.65 in 1911.

The unpaid accounts aggregate a total of P148,965.66. In his report (Exhibit Z-3) the

commissioner classified these credits as uncollectible, doubtful and slow collection, a

classification we find very just, since entry No. 1657, Exhibit T, admits that a part of such

credits, without being uncollectible or doubtful, is of slow collection. According to said

commissioner's report, the uncollectible credits amount to P33,746.58, an amount which

may, in justice, be considered as lost; those doubtful amount to P39,864.49, and those of

slow collection to P75,354.59, making a total of P118,219.08.

We cannot consider as lost the credits of slow collection nor even the doubtful ones, as

there is the hope that they may be collected in the future; therefore the sum of the doubtful

credits and those of slow collection should be deducted, as unpaid accounts from the

liabilities which, consequently, are reduced to P671,019.57, an amount that still must bereduced to P662,337 because in 1912 the balance of P8,682.57, Ramon Madarieta's debt,

was collected as the commissioner states in his report. According to the entry No. 1658,

Exhibit U, the active capital was reduced on account of the difference in the price of

hemp, by the sum of P110,091.19. Therefore, deducting from the liabilities the excess of

P102,534.27, it appears that, on December 31, 1911, the liabilities were only P2,125,293.67,

and this sum, compared with the capital that the defendant firm had on December 31,

1910, which according to Exhibit Z (record, p. 120) was P2,182,010.04, shows a loss of

P56,716.57. Consequently, there should be deducted from plaintiff's capital 10 per cent of

this sum or P5,671.64 as his share of the loss.

The capital which the plaintiff had in the firm in 1911, according to Exhibit 7 (record, p. 197),

amounts to P76,141.08, a balance which constituted his capital on December 31, 1910, andadding thereto the sum of the amounts collected, P605.50, the result is that plaintiff's true

assets, in his account of capital stock, must be P76,746.58. Deducting from this sum that of

P2,570.98 which is charged as a debit against plaintiff, there appears a net balance in his

favor of P74,175.60 and, deducting from this sum 10 per cent of the P56,716.37 or P5,671.64

as losses, there results the difference of P68,503.97, the sum which he was entitled to collect

from the defendant by this fifth cause of action although the amount was reduced to

P51,296.62 as fixed in the judgmentthe payment of which the defendant is obliged in the

manner stipulated in the 19th clause of the articles of partnership, in proportion to the total

net capital, the date is, at the rate of 3.22 per cent with legal interest from the date of the

filing of the complaint.

By the sixth cause of action plaintiff claims the sum of P2,000, alleging that same was undulycharged against his private account when, in truth and in fact, in consequence of a

compromise made by advice of the attorneys of the defendant, the former firm of Del Pan

and Ortigas, he, as manager of the defendant firm, paid said sum to Leopoldo who for this

reason, in spite of his better right, desisted from claiming P8,000 from Tirso Nery against

whom the defendant then had an action pending.


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The trial court rendered judgment in favor of the plaintiff for P2,000, with legal interest

thereon, at the first hearing of this case, and at the second hearing held that plaintiff should

be paid P1,800, considering the remaining P200 as plaintiff's share in the loss suffered by thefirm on account of said compromise.

The defendant alleged that its manager's statement shows that this sum of P2,000 was paid

by Guiterrez Hermanos on the account of Leopoldo Criado, as there was no need of buying

this credit of Leopoldo Ferrer against Tirso Nery, and that while acting as manager plaintiff

took advantage of the opportunity to buy said credit for 25 per cent of its nominal value.

Plaintiff testified that Miguel Gutierrez de Celis read the complaint of Leopoldo Ferrer and

believed that it was advisable to pay this creditor's claim; that therefore De Celis himself

drew the check for the payment of Ferrer's claim and ordered plaintiff to go to court in

company with the attorney to stipulate a compromise about the matter.

The manager, Miguel Gutierrez de Celis, testified that he had no knowledge of that

complaint and of that compromise; but the court, who saw and observed these witnesses

while they were testifying, gave credence to the plaintiff's testimony, and we see no reasonwhatever for modifying his judgment in this matter, for the evidence as a whole tends to

prove that plaintiff told the truth.

So therefore plaintiff is entitled to recover from the defendant the sum of P1,800 but must

suffer the loss of the remaining P200 as his share of the loss of the credit.

In the seventh cause of action plaintiff claims compensation for the services rendered the

defendant firm at the instance of Miguel Gutierrez de Celis, and alleged that a just and

reasonable compensation from December 31, 1911, when he left the firm, until March 30,

1912, is P1,000 per month, such services being rendered at the request of Miguel Gutierrez

de Celis, with the promise that compensation would be in accordance with the profits

obtained; that this value of services, P1,000 per month, was estimated on the basis of thework done by him and the profits obtained; that he therefore demanded of Miguel

Gutierrez de Celis the payment of said compensation, but that the latter refused to payanything (record, p. 427).

The manager Miguel Gutierrez de Celis testified that Leopoldo Criado lodged and boarded

in the house of Gutierrez Hermanos during the months of January, February, and March,

1912; that his work consisted solely in being there and seeing that things were

accomplished; that he intervened in the preparation of the balance sheets; and that

consequently his services were of no value.

Upon the foregoing evidence the lower court rendered judgment in favor of the plaintiff for

the amount claimed and fixed by himself, and basing judgment on the nature of his workand on what he had earned previously as a partner.

In trying to prove that the trial court erred in its award in favor of plaintiff for this cause of

action, counsel for the defendant says, on page 33 of the Spanish brief, No. 9300, that

plaintiff could not establish his right under this cause of action; that, according to the

testimony of the defendant's manager, the sole reason why plaintiff continued in the firm

after December 31, 1911, was to make the final balance sheets; and that therefore he can


25/42

recover nothing for his services because the rule established in various American cases

cited is that a liquidator-partner is not entitled to any compensation for his services as such,

unless there are special stipulations in the matter of circumstances from which suchcontractual stipulations may be deducted.

Assuming that the rule cited were applicable in this country, the same rule favors the

plaintiff for, in the present case, there was not only an implied but an express contract that

the defendant should pay plaintiff a compensation proportionate to the profits that might

be obtained from the business of the firm.

With respect to the amount of that compensation, counsel for the defendant say on the

aforecited page of their brief, that plaintiff testified that his salary ought to be in

accordance with the profits that might be obtained but that he did not prove how much

he could have earned elsewhere.

It is undeniable that plaintiff did render services to the defendant firm when he was not

obliged to do so gratuitously, for, neither in the partnership contract (Exhibit O), nor in the

law, is there any provision whatever to the effect that plaintiff as a partner was obliged toliquidate the business without compensation, since among the partner's obligations as

prescribed by articles 170 to 174 of the Code of Commerce, such an obligation does not

appear, but on the contrary, articles 228 and 229 of the said Code provide that in general

or limited partnerships, should there be no objection on the part of any of the partners, the

persons who managed the common funds shall continue in charge of the l iquidation.

Plaintiff, without being obliged, rendered service to the defendant at the manager's

request, with the understanding that his compensation should be in proportion to the profits

that might be obtained, and, therefore, it is just and reasonable that such services should

be remunerated.

As regards the amount of the compensation we do not find satisfactory rebuttal of plaintiff's

testimony in this matter, as the manager merely said that plaintiff's services were worthnothing, a statement that falls by its own weight, for, however insignificant may be the work

one person does on behalf of another, it is always worth something. There is no estimate of

his compensation were not received nor do we find his estimate exaggerated. Nor does

there appear any reason whatever for modifying the judgment of the trial court in respect

to this point.

Therefore the defendant ought in justice pay to the plaintiff the amount claimed in thisseventh cause of action.

In the eighth cause of action plaintiff claims the sum of P52 as his 10 per cent share of the

P520 which La Germinal paid the defendant as dividend obtained in 1911 and

corresponding to the shares of stock the defendant held in that company, alleging that,notwithstanding the fact that the defendant collected said amount, it failed to credit him

with P52, the sum to which he was entitled.

In its answer defendant admitted that it collected the dividend mentioned, and that

plaintiff was entitled to the payment of P52.


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Plaintiff testified (record, p. 429) that the books do not show that the sum of P520 was

divided among the partners. Counsel for the defendant admitted that they had no

evidence to present in respect to this cause of action.

Therefore plaintiff has an unquestionable right to collect from the defendant the sum of P52,

as held by the trial court.

By the ninth cause of action plaintiff claims the payment of P1,171.11 as his 10 per cent

share of the P11,711.16 which the insurers of several of the defendant's steamers paid on

account of certain damages suffered by these vessels said repairs were paid

proportionately by all the partnersand that, notwithstanding the collection of this sum,

defendant did not pay him his share thereof.

Defendant denied that is received P11,711.16, but admitted that it did receive P9,032.92,

and that this sum plaintiff should be credited with P953.92.

The court below rendered in favor of plaintiff judgment for P953.90, from which judgment he

did not appeal, nor did the defendant make any assignment of error in respect thereto. Wesee no reason whatever for changing or modifying this finding, for the defendant admitted,

as aforesaid, that plaintiff was entitled to the amount awarded him in the judgment. Wetherefore affirm this part of the judgment.

By the tenth cause of action plaintiff asks judgment for P3,000. alleging that in 1911, after he

had ceased to be a partner of Gutierrez Hermanos, the defendant firm charged to the

account of "Items pending collection" and credited in favor of Movellan and Angulo, of

Paris, insurers of the defendant's steamers for the year 1912, thereby diminishing the partners'

capital; and that of said P35,334.09, he is entitled P3,000 which the defendant's manager

failed to pay plaintiff, notwithstanding the demand made upon him so to do.

The defendant alleges that the premium pertaining to the year 1912 amount to onlyP958.97, of which P95.89 belongs to plaintiff, and admits that said sum should be credited to

plaintiff's account.

The lower court rendered judgment in favor of plaintiff for P1,001.22, from which judgment

he did not appeal, and although the defendant appealed he from this award of the

judgment, it was not included in its assignment of errors. Nor do we find anything in the

record to show that the trial court erred; on the contrary, we see that the dates and

premiums of the insurance policies mentioned in the judgment, for which plaintiff should not

be held liable, agree with those given in Exhibit 45 (record, p. 297) which is a copy of the

insurance policies of the steamers Montaez, Dos Hermanos, and Magallanes, certified to

by the bookkeeper of the defendant firm, no policies of other steamers having been

presented, while the report of the commissioner (record, p. 77), schedule 28 of Exhibit Z-3,differs very much from Exhibit 45. Therefore said award of the trial court should likewise be

affirmed.

DEFENDANT'S CROSS-COMPLAINT.

The defendant asks therein that plaintiff be ordered to pay any amount proved due the

partnership, and alleges that during the time that plaintiff acted as the official in charge


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and the manager of the defendant firm's business, to wit, during the period between May 1

and December 10, 1903, he, knowingly and in contravention of the stipulations contained in

the articles of partnership, sold and delivered various merchandise and other effects to

several debtors, such as Antonio de la Riva, whose debt had then reached the amount of

P88,617.96, and Gerena and Co. whose account showed a debit balance of P39,417.16,

without having the security required by the articles of partnership; that therefore plaintiff

alone is responsible for losses occasioned through such procedure; and that, upon makingthe balance sheet on December 31, 1911, a loss was found whereby plaintiff owed thedefendant more than P26,000.

The clause to which this cross-complaint refers and which was violated by plaintiff is the fifth

of the instrument of March 16, 1900, presented as Exhibit A (record, p. 58), and is of the

following tenor:

The purpose of the partnership shall be the transaction of business in the purchase

and sale of groceries and beverages from Europe and America, and domestic

merchandise; and in the advancement of funds on goods under security to

companies or to private parties, the credit allowed thereon not to exceed thirtythousand pesos and granted only on the approval of the principal capitalist

partners.

The trial court dismissed this cross-complaint, for the reason that the transactions, the

responsibility for which the defendant claims to hold plaintiff liable, were ratified by Miguel

Gutierrez de Celis upon his arrival in the Philippines.

The cross-complaint raises two questions, to wit: (First.) Is plaintiff liable for the debts of

Antonio de la Riva and of Gerena and Co.? (Second.) Is plaintiff in debt to the defendant inthe sum of twenty-six thousand and odd pesos?

With respect to the second question we have already shown in discussing the fifth cause ofaction, that, as disclosed by the record, the defendant is indebted to plaintiff. This question

should therefore be determined in the negative.

As regards the first question, even supposing that plaintiff has violated the stipulations of

articles of partnership by giving credit to various persons without taking the security required

in the fifth clause of said articles, yet in the cross-complaint no other reasons are alleged by

virtue of which he should be held liable for said breach of contract.

Article 144 of the Code of Commerce makes a partner liable for the damages suffered by

the partnership, by reason of his malice, abuse of powers, or serious negligence, and

requires him to indemnify the partnership should the other partners so require, provided an

express or verbal approval or ratification of the act on which the claim is based can not bededuced in any manner whatsoever. According to this legal provision, in order that the

partner at fault may be compelled to pay an indemnity, it is indispensable, in the first,

place, that his conduct shall have caused some damage to the partnership, and, in the

second place, that his conduct should not have been expressly or impliedly ratified by the

other partners or the manager of the partnership.


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In the cross-complaint the allegation is made that plaintiff, violating said fifth clause of the

articles of partnership, sold and delivered merchandise and other effects to various debtors,

such as Antonio de la Riva and Gerena and Co., without the security required in said

articles; and that, because of the large sums which said debtors owe to the partnership,

plaintiff is liable for all the damage and harm caused, amounting to P128,035.12.

Plaintiff Leopoldo Criado testified, with respect to Gerena and Co., that subsequent to his

arrival in this country, Miguel Gutierrez de Celis continued to maintain commercial relations

with said debtor firm, whose debt would have been collected had Gutierrez de Celis

followed his (plaintiff's) advice and that of the attorneys of the firm of Gutierrez Hermanos

aside from the fact that the firm of Genera and Co. was solvent and could pay its debt; so it

is that the manager Miguel Gutierrez de Celis continuing said business ratified plaintiff's

procedure during the three months and several days that he acted temporarily, in 1903, as

manager of the partnership; and for said reason there is no ground upon which plaintiff may

be held liable for the harm occasioned by the non-payment of the debt of Gerena and

Co.; and that rather did the liability for such harm fall upon the manager Gutierrez de Celis

who conscientiously never believed that plaintiff was solely liable for the loss, for the Entry

No. 1889 (Exhibit 10, aforecited) contains the statement that the author of such losses no

longer exists, the fault being attributed to the deceased Miguel Alfonso, although Miguel

Gutierrez de Celis testified (record, p. 557) that he gave his approval to what had been

done, without knowing what it was, and that the plaintiff who gave the money to Gerena

and Co. This testimony is in direct contradiction to the evidence contained in the entry

aforementioned, written on December 31, 1903, and notwithstanding that error was

discovered by Gutierrez de Celis, as he stated, the truth is that the amount of the loss was

not charged to Leopoldo Criado, neither was a similar charge made in respect to the

amount paid to Leopoldo Ferrer of which mention has previously been made herein above.

So said Entry No. 1889 of the document Exhibit 10 remained intact.

With respect to the account of Antonio de la Riva which shows, as of December 31, 1903, a

debit balance of P91,000 and odd pesos, plaintiff testified (record, p. 590) that as securityfor this debt De la Riva had delivered to the firm of Gutierrez Hermanos a lot of hemp worth

P33,218.06, a power of attorney to collect P26,000 from the store "Isla de Cuba" in monthly

installments of P2,000, and the insurance policy of the launch Concha, which representedP34,000; whereby the debt was reduced to P12,000, on December 31, 1903.

This testimony appears other corroborated documents and other evidence of record for,

with respect to the power of attorney to collect the sum mentioned from the "Isla de Cuba,"

the same exhibit, No. 5, which is the account of Antonio de la Riva, certified to by the

defendant's bookkeeper, shows that on July 3, August 5, and September 5, 1903, the

account of Antonio de la Riva's indebtedness to the partnership was credited with various

sums collected from the "Isla de Cuba." With respect to the hemp referred to by witness, the

manager himself Miguel Gutierrez de Celis testified (record, p. 565) that upon his arrival inthe Philippines, he allowed an increase in De la Riva's debt, by reason of the security of the

hemp which this debtor was sending to the firm. With reference to the insurance of the

launch Concha, there is no evidence of record in contradiction of the facts, except the

testimony of Miguel Gutierrez de Celis in which the latter claims that the launch was

purchased by plaintiff in his own name with money belonging to the firm, in order

afterwards to sell it to Antonio de la Riva (record, p. 567). The manager De Celis does not

deny that the partnership held said insurance policy on the launch as security, nor that De

la Riva was the owner of the boat, for, if the launch were sold to De la Riva and the


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proceeds from the sale were charged to the latter's account, together with the expenses

occasioned by the trips made by that boat (Exhibit 5), it is obvious that Antonio de la Riva

was the owner of the launch, although he was a debtor to the firm of Gutierrez Hermanosfor its price and the expenses incurred.

Consequently it is indisputable and beyond all doubt that when plaintiff turned over to

Miguel Gutierrez de Celis the management and administration of the business of the firm,

this business was in very good condition, and if afterwards losses had been sustained same

were due to the fault of Gutierrez de Celis himself; so it is that, in canceling in the books the

account of Antonio de la Riva, he divided the amount thereof among all the partners, in

the belief that it was a loss that affected them all.

Starting from the fact that the record shows that the defendant owes plaintiff various sums

of greater or lesser importance, as stated in the findings on the majority of the causes of

action prosecuted by plaintiff, it is logical that this court should not find any well-founded or

legal reason by virtue of which judgment may be rendered against plaintiff for whatever

amount he may be owing the defendant firm, inasmuch as the latter is shown to be his

debtor. Therefore plaintiff should be absolved from the cross-complaint filed by thedefendant.

As regards the amount of the collectible accounts and of unpaid credits which total sum is

stated in the part of this decision relative to the fifth cause of action, it is undeniable that

the plaintiff Leopoldo Criado, as capitalist partner of the partnership organized in May,

1904, is entitled to receive 10 per cent of every sum collected from the date on which he

ceased to belong to the firm, January, 1912, and of whatever sum that in the future may be

collected from said collectible accounts or unpaid credits, and it is so held, without any

liability on his part in relation to the bad or uncollectible credits. Therefore, in view of section

126 of Act No. 190, we reverse that part of the judgment of the court below whereby such

liability for 10 per cent is imposed upon the plaintiff.

The last error assigned by the defendant to the judgment of the court below relates to the

order of September 2, 1915, in which it is held that the accounts presented by the

defendant are not in accord with the orders given by the Supreme Court in its previous

decision, in so far as it was directed that the firm of Gutierrez Hermanos should render a new

account supported by vouchers to determine exactly plaintiff's share in the firm's assets. In

fact the defendant was ordered immediately to present to the court all its books, vouchers

and other documents that might be necessary for the settlement of the assets pertaining to

plaintiff during the years 1900 to 1911, and to place the same at the disposal of the expert,

G. B. Wicks, and was authorized to appoint another expert who, with said Wicks, might

examine the books and papers of the firm of Gutierrez Hermanos. This order is perfectly legal

and just. It is an interlocutory order of mere procedure, issued in compliance with and in

consequence of the decision of this court, to end that, with the result of the liquidation ofthe accounts made by the expert appointed, without the defendant having wished to

appoint another in use of its right so to do, this court may decide this suit equitably, in

accordance with its true merits and in conformity with the law.

For the foregoing reasons, whereby the errors assigned to the judgment appealed from with

respect to the parts thereof discussed in this decision have been refuted, the defendant

should be, as it hereby is absolved from the complaint by the first cause of action. By the


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second cause of action the firm of Gutierrez Hermanos, the defendant, should be, as it

hereby is ordered to pay to the plaintiff Leopoldo Criado the sum of P30,609.60, with legal

interest thereon from May 25, 1912, the date of the filing of the complaint. In so far as it is

based on the third and the fourth causes of action, said complaint is dismissed. In

accordance with the fifth cause of action, the defendant should be, as it hereby is, ordered

to pay to plaintiff the sum of P51,296.62 fixed in the judgment appealed from, with legal

interest thereon from the date when the original complaint was filed, May, 1912, and theplaintiff must pay said sum in the manner prescribed in the 19th clause of the articles of

partnership of 1904. By the sixth cause of action, the defendant is likewise ordered to pay

P1,800; by the seventh, P3,000; by the eighth, P52; by the ninth, P953.90; and by the tenth,

P1,001.22. That part of the judgment relating to the plaintiff's liability for 10 per cent of the

outstanding and the uncollectible bills is reversed, and he is reserved his right in the sums

collected or which may be collected from same. The plaintiff Leopoldo Criado is absolved

from the cross-complaint filed by the defendant Gutierrez Hermanos.

The plaintiff shall pay one-third, and the defendant two thirds, of the costs of both instances.

The judgment appealed from is thus affirmed in so far as it is in accord with this decision,

and is reversed in so far as it is not. So ordered.

Arellano, C.J., Johnson, Araullo, Street, Avancea and Fisher, JJ.,concur.

http://www.lawphil.net/judjuris/juri1918/mar1918/gr_l-12371_1918.html


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Leung v. IAC

G.R. No. L-70926, 1/31/1989


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SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,

vs.HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

John L. Uy for petitioner.

Edgardo F. Sundiam for private respondent.

GUTIERREZ,JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court

in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of

Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner

of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the

petitioner to pay to the private respondent his share in the annual profits of the saidrestaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of

First Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent

(22%) of the annual profits derived from the operation of Sun Wah Panciteria since October,1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila,

was established sometime in October, 1955. It was registered as a single proprietorship and

its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole

proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show

that Sun Wah Panciteria was actually a partnership and that he was one of the partnershaving contributed P4,000.00 to its initial establishment.

The private respondents evidence is summarized as follows:

About the time the Sun Wah Panciteria started to become operational, the private

respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a

receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of the

P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters so

that the trial court commissioned an interpreter in the person of Ms. Florence Yap to

translate its contents into English. Florence Yap issued a certification and testified that the

translation to the best of her knowledge and belief was correct. The private respondent


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identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was

affixed by the latter in his (private respondents') presence. Witnesses So Sia and Antonio Ah

Heng corroborated the private respondents te

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