partnership chapter ii cases

8/10/2019 Partnership Chapter II Cases

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EN BANC

[G.R. No. L-7991. May 21, 1956.]

PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY BANK OFNEW YORK,Respondent.

D E C I S I O N

PARAS,J.:

This is an appeal by certiorari from the decision of the Court of Appeals from

which we are reproducing the following basic findings of

fact:chanroblesvirtuallawlibrary

STASIKINOCEY is a partnership doing business at No. 58, Aurora Boulevard,

San Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da Costa, Jr., WilliamKusik and Emma Badong Gavino. This partnership was denied registration in

the Securities and Exchange Commission, and while it is confusing to see in this

case that the CARDINAL RATTAN, sometimes called the CARDINAL RATTANFACTORY, is treated as a copartnership, of which Defendants Gorcey and da

Costa are considered general partners, we are satisfied that, as alleged invarious instruments appearing of record, said Cardinal Rattan is merely the

business name or style used by the partnership Stasikinocey.

Prior to June 3, 1949,Defendant Stasikinocey had an overdraft account with

The National City Bank of New York, a foreign banking association duly licensed

to do business in the Philippines. On June 3, 1949, the overdraft showed abalance of P6,134.92 against theDefendantStasikinocey or the Cardinal Rattan

(Exhibit D), which account, due to the failure of the partnership to make the

required payment, was converted into an ordinary loan for which the

corresponding promissory joint note non-negotiable was executed on June 3,1949, by Louis F. da Costa for and in the name of the Cardinal Rattan, Louis F. da

Costa and Alan Gorcey (Exhibit D). This promissory note was secured on June 7,1949, by a chattel mortgage executed by Louis F. da Costa, Jr., General Partnerfor and in the name of Stasikinocey, alleged to be a duly registered Philippine

partnership, doing business under the name and style of Cardinal Rattan, with

principal office at 69 Riverside, San Juan, Rizal (Exhibit A). The chattelsmortgaged were the following motor vehicles:chanroblesvirtuallawlibrary

(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206 and with

plate No. T-7333 (1949);

(b)Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718

and with plate No. 10372; chan roblesvirtualawlibraryand

(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,

Serial No. 8869225 and with plate No. T-7222 (1949).

The mortgage deed was fully registered by the mortgagee on June 11, 1949, in

the Office of the Register of Deeds for the province of Rizal, at Pasig, (Exhibit A),and among other provisions it contained the

following:chanroblesvirtuallawlibrary

(a) That the mortgagor shall not sell or otherwise dispose of the said chattels

without the mortgagees written consent;chan roblesvirtualawlibraryand

(b) That the mortgagee may foreclose the mortgage at any time, after breach

of any condition thereof, the mortgagor waiving the 30- day notice offoreclosure.

On June 7, 1949, the same day of the execution of the chattel mortgageaforementioned, Gorcey and Da Costa executed an agreement purporting to

convey and transfer all their rights, title and participationin Defendantpartnership to Shaeffer, allegedly in consideration of the

cancellation of an indebtedness of P25,000 owed by them

and Defendantpartnership to the latter (Exhibit J), which transaction is said to

be in violation of the Bulk Sales Law (Act No. 3952 of the Philippine

Legislature).

While the said loan was still unpaid and the chattel mortgage

subsisting, Defendantpartnership, through DefendantsGorcey and Da Costatransferred to DefendantMcDonald the Fargo truck and Plymouth sedan on June

24, 1949 (Exhibit L). The Fargo pickup was also sold on June 28, 1949, by

William Shaeffer to Paul McDonald.

On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintiffs existingmortgage lien, in turn transferred the Fargo truck and the Plymouth sedan to

Benjamin Gonzales.

The National City Bank of New York, Respondentherein, upon learning of the

transfers made by the partnership Stasikinocey to William Shaeffer, from the

latter to Paul McDonald, and from Paul McDonald to Benjamin Gonzales, of the

vehicles previously pledged by Stasikinocey to the Respondent, filed an action

against Stasikinocey and its alleged partners Gorcey and Da Costa, as well asPaul McDonald and Benjamin Gonzales, to recover its credit and to foreclose the

corresponding chattel mortgage. McDonald and Gonzales weremade Defendantsbecause they claimed to have a better right over the pledged

vehicle.

After trial the Court of First Instance of Manila rendered judgment in favor of

the Respondent, annulling the sale of the vehicles in question to Benjamin

Gonzales; chan roblesvirtualawlibrarysentencing Da Costa and Gorcey to pay to

the Respondent jointly and severally the sum of P6,134.92, with legal interestfrom the debt of the promissory note involved; chan

roblesvirtualawlibrarysentencing the PetitionerGonzales to deliver the vehicles

in question to the Respondentfor sale at public auction if Da Costa and Gorceyshould fail to pay the money judgment; chan roblesvirtualawlibraryand


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sentencing Da Costa, Gorcey and Shaeffers to pay to the Respondentjointly and

severally any deficiency that may remain unpaid should the proceeds of the salenot be sufficient; chan roblesvirtualawlibraryand sentencing Gorcey, Da Costa,

McDonald and Shaeffer to pay the costs. Only Paul McDonald and Benjamin

Gonzales appealed to the Court of Appeals which rendered a decision thedispositive part of which reads as follows:chanroblesvirtuallawlibrary

WHEREFORE, the decision appealed from is hereby modified,relievingAppellantWilliam Shaeffer of the obligation of paying, jointly and

severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any deficiencythat may remain unpaid after applying the proceeds of the sale of the said motor

vehicles which shall be undertaken upon the lapse of 90 days from the date this

decision becomes final, if by then DefendantsLouis F. da Costa, Jr., and Alan W.Gorcey had not paid the amount of the judgment debt. With this modification

the decision appealed from is in all other respects affirmed, with costs

againstAppellants. This decision is without prejudice to whatever action LouisF. da Costa, Jr., and Alan W. Gorcey may take against their co-partners in the

Stasikinocey unregistered partnership.

This appeal by certiorari was taken by Paul McDonald and Benjamin

Gonzales, Petitionersherein, who have assigned the following

errors:chanroblesvirtuallawlibrary

I

IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIPWHICH HAS NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A

DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT

DOMICILE WOULD BIND THIRD PERSONS WHO ARE INNOCENT PURCHASERSFOR VALUE.

II

IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE OF

THE MEMBERS OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP

WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF ITS MEMBERS, ITNEED NOT BE REGISTERED IN THE ACTUAL RESIDENCE OF THE MEMBERS

WHO EXECUTED SAME; chan roblesvirtualawlibraryAND, AS A CONSEQUENCETHEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO THE ACTUAL

RESIDENCE OF SAID CHATTEL MORTGAGOR, DESPITEAPPELLANTS RAISINGTHAT QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING

THEREON.

III

IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES ANAFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF THE

TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS VOID AND

THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE

INNOCENT PURCHASERS FOR VALUE; chan roblesvirtualawlibraryAND, AS A

CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TOWHERE THE DEED WAS IN FACT EXECUTED, DESPITEAPPELLANTS RAISINGTHAT QUESTION PROPERLY BEFORE IT AND EXPRESSLY REQUESTING A

RULING THEREON.

IV

IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN

UNREGISTERED COMMERCIAL CO-PARTNERSHIP TO MAKE ALL OFFICIALAND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL CITY BANK OF NEWYORK IN ORDER TO SIMPLIFY ALL MATTERS RELATIVE TO LCS CABLE

TRANSFERS, DRAFTS, OR OTHER BANKING MEDIUMS, WAS SUFFICIENT

AUTHORITY FOR THE SAID MEMBER TO EXECUTE A CHATTEL MORTGAGE INORDER TO GIVE THE BANK SECURITY FOR A PRE-EXISTING OVERDRAFT,

GRANTED WITHOUT SECURITY. WHICH THE BANK HAD CONVERTED INTO A

DEMAND LOAN UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL

MORTGAGE WAS EXECUTED.

This is the first question propounded by

the Petitioners:chanroblesvirtuallawlibrarySince an unregistered commercialpartnership unquestionably has no juridical personality, can it have a domicile

so that the registration of a chattel mortgage therein is notice to the world?.

While an unregistered commercial partnership has no juridical personality,

nevertheless, where two or more persons attempt to create a partnership failingto comply with all the legal formalities, the law considers them as partners and

the association is a partnership in so far as it is a favorable to third persons, by

reason of the equitable principle of estoppel. In Jo Chung Chang vs. PacificCommercial Co., 45 Phil., 145, it was held that although the partnership with

the firm name of Teck Seing and Co. Ltd., could not be regarded as apartnership de jure, yet with respect to third persons it will be considered a

partnership with all the consequent obligations for the purpose of enforcing the

rights of such third persons. Da Costa and Gorcey cannot deny that they are

partners of the partnership Stasikinocey, because in all their transactions withthe Respondentthey represented themselves as such. PetitionerMcDonaldcannot disclaim knowledge of the partnership Stasikinocey because he dealt

with said entity in purchasing two of the vehicles in question through Gorcey

and Da Costa. As was held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where apartnership not duly organized has been recognized as such in its dealings with

certain persons, it shall be considered as partnership by estoppel and thepersons dealing with it are estopped from denying its partnership existence.The sale of the vehicles in question being void as to PetitionerMcDonald, the

transfer from the latter to PetitionerBenjamin Gonzales is also void, as the

buyer cannot have a better right than the seller.

It results that if the law recognizes a defectively organized partnership as defacto as far as third persons are concerned, for purposes of its de facto existence


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it should have such attribute of a partnership as domicile. In Hung-Man Yoc vs.

Kieng-Chiong-Seng, 6 Phil., 498, it was held that although it has no legalstanding, it is a partnership de facto and the general provisions of the Code

applicable to all partnerships apply to it. The registration of the chattelmortgage in question with the Office of the Register of Deeds of Rizal, theresidence or place of business of the partnership Stasikinocey being San Juan,

Rizal, was therefore in accordance with section 4 of the Chattel Mortgage Law.

The second question propounded by

the Petitionersis:chanroblesvirtuallawlibrary If not, is a chattel mortgageexecuted by only one of the partners of an unregistered commercial

partnership validly registered so as to constitute notice to the world if it is not

registered at the place where the aforesaid partner actually resides but only inthe place where the deed states that he resides, which is not his real residence?And the third question is as follows:chanroblesvirtuallawlibrary If the actualresidence of the chattel mortgagor not the residence stated in the deed ofchattel mortgage is controlling, may the Court of Appeals refuse to make a

finding of fact as to where the mortgagor resided despite your Petitionershaving properly raised that question before it and expressly requested a ruling

thereon?

These two questions have become academic by reason of the answer to the firstquestion, namely, that as a de facto partnership, Stasikinocey had its domicile in

San Juan, Rizal.

The fourth question asked by the Petitionersis as

follows:chanroblesvirtuallawlibraryIs a chattel mortgage executed by only one

of the partners of an unregistered commercial partnership valid as to third

persons when that partner executed the affidavit of good faith in Quezon Citybefore a notary public whose appointment is only for the City of Manila? If not,

may the Court of Appeals refuse to make a finding of fact as to where the deed

was executed, despite yourPetitioners having properly raised that issue beforeit and expressly requested a ruling thereon?

It is noteworthy that the chattel mortgage in question is in the form required bylaw, and there is therefore the presumption of its due execution which cannotbe easily destroyed by the biased testimony of the one who executed it. The

interested version of Da Costa that the affidavit of good faith appearing in the

chattel mortgage was executed in Quezon City before a notary public for and inthe City of Manila was correctly rejected by the trial court and the Court of

Appeals. Indeed, cumbersome legal formalities are imposed to prevent fraud. As

aptly pointed out in El Hogar Filipino vs. Olviga, 60 Phil., 17, If the biased andinterested testimony of a grantor and the vague and uncertain testimony of his

son are deemed sufficient to overcome a public instrument drawn up with all

the formalities prescribed by the law then there will have been established a

very dangerous doctrine which would throw wide open the doors to fraud.

The last question raised by the Petitionersis as

follows:chanroblesvirtuallawlibraryDoes only one of several partners of anunregistered commercial partnership have authority, by himself alone, to

execute a valid chattel mortgage over property owned by the unregistered

commercial partnership in order to guarantee a pre-existing overdraft

previously granted, without guaranty, by the bank?

In view of the conclusion that Stasikinocey is a de facto partnership, and Da

Costa appears as a co-manager in the letter of Gorcey to the Respondentand in

the promissory note executed by Da Costa, and that even the partnersconsidered him as such, as stated in the affidavit of April 21, 1948, to the effect

that That we as the majority partners hereby agree to appoint Louis da Costa

co-managing partner of Alan W. Gorcey, duly approved managing partner of the

said firm, the partner who executed the chattel mortgage in question must bedeemed to be so fully authorized. Section 6 of the Chattel Mortgage Law

provides that when a partnership is a party to the mortgage, the affidavit maybe made and subscribed by one member thereof. In this case the affidavit was

executed and subscribed by Da Costa, not only as a partner but as a managing

partner.

There is no merit in Petitioners pretense that the motor vehicles in question are

the common property of Da Costa and Gorcey. Petitioners invoke article 24 ofthe Code of Commerce in arguing that an unregistered commercial partnership

has no juridical personality and cannot execute any act that would adverselyaffect innocent third persons. Petitioners forget that theRespondent is a third

person with respect to the partnership, and the chattel mortgage executed by

Da Costa cannot therefore be impugned by Gorcey on the ground that there isno partnership between them and that the vehicles in question belonged to

them in common. As a matter of fact, the Respondentand the Petitionersare all

third persons as regards the partnership Stasikinocey; chan

roblesvirtualawlibraryand even assuming that the Petitionersare purchasers ingood faith and for value, the Respondenthaving transacted with Stasikinocey

earlier than thePetitioners, it should enjoy and be given priority.

Wherefore, the appealed decision of the Court of Appeals is affirmed with costs

against thePetitioners.

Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo Labrador,Concepcion, Reyes, J.B.L., and Endencia,JJ., concur.


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G.R. No. 2715, Behn, Meyer and Co. v. Rosatzin, 5 Phil. 660

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

February 27, 1906

G.R. No. 2715

BEHN, MEYER & CO.,plaintiffs-appellees,

vs.

F. ROSATZIN,defendant-appellant.

Hartigan, Marple, Rohde and Gutierrez for appellant.

Pillsbury and Sutro for appellees.

WILLARD,J.:

The defendant and appellant was employed by the partnership of Behn, Meyer

& Co. as a bookkeeper during the years 1901, 1902, and 1903. He left their

employ in the last-named year, and the partnership brought this action to

recover a balance of 686.24 pesos claimed to be due it from the defendant. Theledger for the partnership for the year 1901 contained a page devoted to the

account-current of the defendant with the partnership. That account for that

year showed a balance in favor of the partnership and against the defendant of

686.24 pesos. This account was kept by the defendant himself, and all the

entries therein are in his handwriting. The defendant introduced no evidence in

relation to the account or its payment, and judgment was entered against him

for P571.87 in Philippine currency, the equivalent of 686.24 pesos in Mexican

currency. The defendant moved for a new trial, which was denied, and he has

brought the case here by bill of exceptions.

Objection was made in the court below to the admission of some of the books of

the partnership in evidence on the ground that they were not kept as required

by the Code of Commerce. We do not find it necessary to decide this question.

The ledger which contained the account above mentioned in the handwriting of

the defendant was certainly properly received in evidence, being an admission

by him of this indebtedness. The fact that the book was not kept in accordance

with the provisions of the Code of Commerce could not detract from the force of

this admission. This book alone was sufficient evidence to prove the cause of

action, and the reception in evidence of the other books, if it were error, was

error without prejudice.

It was proved that the defendant continued in the employ of the partnership

during the years 1902 and 1903, and was paid for those years his regular

monthly salary, and it is claimed by the appellant that this indicates that he

must have paid the balance due from him for the year 1901. This contention can

not be sustained.

The plaintiff offered no evidence to show that this balance had not been paid,

and it is claimed by the appellant that the judgment must be reversed for that

reason. The plaintiff having proved the existence of the obligation, the burden of

proof was upon the defendant to show that it had been discharged. This was the

law in force during the Spanish domination. (Art. 1214, Civil Code.) This rule has

not been changed by section 297 of the present Code of Procedure, which

section is as follows:


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Party must prove his affirmative allegations. Each party must prove his own

affirmative allegations. Evidence need not be given in support of a negative

allegation except when such negative allegation is an essential part of the

statement of the right or title on which the cause of action of defense is founded,

nor even in such case when the allegation is a denial of the existence of a

document, the custody of which belongs to the opposite party.

It is also claimed by the appellant that the existence of the plaintiff partnership

was not proved that is, that there was no proof to show that the partnership

had been organized in accordance with the Code of Commerce. There was

evidence presented by the defendant in the case that a partnership known as

Behn, Meyer & Co. existed in 1900. The defendant contracted with the

partnership in 1901 and subsequent years, and is now estopped to say that it

was not a partnership.

The appellant also attempted to prove that there had been a change in the

partners constituting the firm after 1901, and prior to the commencement of the

action, and that the partnership which brought this suit was not the partnership

with which the defendant contracted. He however, failed in his attempt, because

the witness whom he called to make the proof testified that the new partner,

Dittmar, become a member of the firm in 1900.

It is finally claimed by the defendant that the court erred in entering judgment

against him for the amount of the debt payable in Philippine currency. This

contention has already been decided adversely to the appellant in the case

of Gaspar vs. Molina,[[1]]No. 2206, November 2, 1905 (3 Off. Gaz., 651).

The judgment of the court below is affirmed, with the costs of this instance

against the appellant. After the expiration of twenty days let judgment be

entered in accordance herewith and the case remanded to the lower court for

execution thereof. So ordered.

Torres, Mapa, Johnson, and Carson, JJ., concur.

G.R. No. 5236, Martinez v. Ong Pong Co and Ong Lay


SUPREME COURT

Manila

EN BANC

January 10, 1910

G.R. No. 5236

PEDRO MARTINEZ,plaintiff-appellee,

vs.

ONG PONG CO and ONG LAY, defendants.

ONG PONG CO.,appellant.

Fernando de la Cantera for appellant.

O'Brien and DeWitt for appellee.

ARELLANO, C.J.:

On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the

defendants who, in a private document, acknowledged that they had received

the same with the agreement, as stated by them, "that we are to invest the

amount in a store, the profits or losses of which we are to divide with the

former, in equal shares."
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The plaintiff filed a complaint on April 25, 1907, in order to compel the

defendants to render him an accounting of the partnership as agreed to, or else

to refund him the P1,500 that he had given them for the said purpose. Ong Pong

Co alone appeared to answer the complaint; he admitted the fact of the

agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose

aforesaid, but he alleged that Ong Lay, who was then deceased, was the one who

had managed the business, and that nothing had resulted therefrom save the

loss of the capital of P1,500, to which loss the plaintiff agreed.

The judge of the Court of First Instance of the city of Manila who tried the case

ordered Ong Pong Co to return to the plaintiff one-half of the said capital of

P1,500 which, together with Ong Lay, he had received from the plaintiff, to wit,

P750, plus P90 as one-half of the profits, calculated at the rate of 12 per cent per

annum for the six months that the store was supposed to have been open, both

sums in Philippine currency, making a total of P840, with legal interest thereon

at the rate of 6 per cent per annum, from the 12th of June, 1901, when the

business terminated and on which date he ought to have returned the said

amount to the plaintiff, until the full payment thereof with costs.

From this judgment Ong Pong Co appealed to this court, and assigned the

following errors:

1. For not having taken into consideration the fact that the reason for the closing

of the store was the ejectment from the premises occupied by it.

2. For not having considered the fact that there were losses.

3. For holding that there should have been profits.

4. For having applied article 1138 of the Civil Code.

5. and 6. For holding that the capital ought to have yielded profits, and that the

latter should be calculated 12 per cent per annum; and

7. The findings of the ejectment.

As to the first assignment of error, the fact that the store was closed by virtue of

ejectment proceedings is of no importance for the effects of the suit. The whole

action is based upon the fact that the defendants received certain capital from

the plaintiff for the purpose of organizing a company; they, according to the

agreement, were to handle the said money and invest it in a store which was the

object of the association; they, in the absence of a special agreement vesting in

one sole person the management of the business, were the actual

administrators thereof; as such administrators they were the agent of the

company and incurred the liabilities peculiar to every agent, among which is

that of rendering account to the principal of their transactions, and paying him

everything they may have received by virtue of the mandatum. (Arts. 1695 and

1720, Civil Code.) Neither of them has rendered such account nor proven the

losses referred to by Ong Pong Co; they are therefore obliged to refund the

money that they received for the purpose of establishing the said store the

object of the association. This was the principal pronouncement of the

judgment.

With regard to the second and third assignments of error, this court, like the

court below, finds no evidence that the entire capital or any part thereof was

lost. It is no evidence of such loss to aver, without proof, that the effects of the

store were ejected. Even though this were proven, it could not be inferred

therefrom that the ejectment was due to the fact that no rents were paid, and


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that the rent was not paid on account of the loss of the capital belonging to the

enterprise.

With regard to the possible profits, the finding of the court below are based on

the statements of the defendant Ong Pong Co, to the effect that "there were

some profits, but not large ones." This court, however, does not find that the

amount thereof has been proven, nor deem it possible to estimate them to be a

certain sum, and for a given period of time; hence, it can not admit the estimate,

made in the judgment, of 12 per cent per annum for the period of six months.

Inasmuch as in this case nothing appears other than the failure to fulfill an

obligation on the part of a partner who acted as agent in receiving money for a

given purpose, for which he has rendered no accounting, such agent is

responsible only for the losses which, by a violation of the provisions of the law,

he incurred. This being an obligation to pay in cash, there are no other losses

than the legal interest, which interest is not due except from the time of the

judicial demand, or, in the present case, from the filing of the complaint. (Arts.

1108 and 1100, Civil Code.) We do not consider that article 1688 is applicable in

this case, in so far as it provides "that the partnership is liable to every partner

for the amounts he may have disbursed on account of the same and for the

proper interest," for the reason that no other money than that contributed as is

involved.

As in the partnership there were two administrators or agents liable for the

above-named amount, article 1138 of the Civil Code has been invoked; this

latter deals with debts of a partnership where the obligation is not a joint one,

as is likewise provided by article 1723 of said code with respect to the liability

of two or more agents with respect to the return of the money that they

received from their principal. Therefore, the other errors assigned have not

been committed.

In view of the foregoing judgment appealed from is hereby affirmed, provided,

however, that the defendant Ong Pong Co shall only pay the plaintiff the sum of

P750 with the legal interest thereon at the rate of 6 per cent per annum from

the time of the filing of the complaint, and the costs, without special ruling as to

the costs of this instance. So ordered.

Torres, Johnson, Carson, and Moreland, JJ., concur.

[G.R. No. 114398. October 24, 1997.]

CARMEN LIWANAG, Petitioner, v. THE HON. COURT OF APPEALS and THEPEOPLE OF THE PHILIPPINES, represented by the SolicitorGeneral, Respondents.

Efren L. Liwanag for Petitioner.

The Solicitor General for Respondents.

SYLLABUS

1. CRIMINAL LAW; REVISED PENAL CODE; ESTAFA; ELEMENTS THEREOF. Estafa is a crime committed by a person who defrauds another causing him to

suffer damages, by means of unfaithfulness or abuse of confidence, or of false

pretenses of fraudulent acts. From the foregoing, the elements of estafa are

present, as follows: (1) that the accused defrauded another by abuse of

confidence or deceit, and (2) that damage or prejudice capable of pecuniary

estimation is caused to the offended party or third party, and it is essential thatthere be a fiduciary relation between them either in the form of a trust,

commission or administration.

2. ID.; ID.; ID.; WHEN MONEY OR PROPERTY HAVE BEEN RECEIVED BY A

PARTNER FOR A SPECIFIC PURPOSE, AND HE LATER MISAPPROPRIATED IT,

SUCH PARTNER IS GUILTY OF ESTAFA. Even assuming that a contract of


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partnership was indeed entered into by and between the parties, we have ruled

that when money or property have been received by a partner for a specificpurpose (such as that obtaining in the instant case) and he later

misappropriated it, such partner is guilty of estafa.

3. CIVIL LAW; LOANS; THE TRANSACTION IN THE CASE AT BAR CANNOT BE

CONSIDERED A LOAN, SINCE IN A CONTRACT OF LOAN ONCE THE MONEY IS

RECEIVED BY THE DEBTOR, OWNERSHIP OVER THE SAME IS TRANSFERRED.

Neither can the transaction be considered a loan, since in a contract of loanonce the money is received by a debtor, ownership over the same is transferred.

Being the owner, the borrower can dispose of it for whatever purpose he may

deem proper. In the instant petition, however, it is evident that Liwanag could

not dispose of the money as she pleased because it was only delivered to her for

a single purpose, namely, for the purchase of cigarettes, and if this was not

possible then to return the money to Rosales. Since in this case there was notransfer of ownership of the money delivered, Liwanag is liable for conversion

under Art. 315, par. 1 (b) of the Revised Penal Code.

D E C I S I O N

ROMERO,J.:

Petitioner was charged with the crime of estafa before the Regional Trial Court

(RTC), Branch 93, Quezon City, in an information which reads as

follows:jgc:chanrobles.com.ph

"That on or between the month of May 19, 1988 and August, 1988 in Quezon

City, Philippines and within the jurisdiction of this Honorable Court, the said

accused, with intent of gain, with unfaithfulness, and abuse of confidence, did

then and there, willfully, unlawfully and feloniously defraud one ISIDORAROSALES, in the following manner, to wit: on the date and in the place

aforementioned, said accused received in trust from the offended party cash

money amounting to P536,650.00, Philippine Currency, with the express

obligation involving the duty to act as complainants agent in purchasing local

cigarettes (Philip Morris and Marlboro cigarettes), to resell them to severalstores, to give her commission corresponding to 40% of the profits; and to

return the aforesaid amount of offended party, but said accused, far from

complying her aforesaid obligation, and once in possession thereof, misapplied,

misappropriated and converted the same to her personal use and benefit,despite repeated demands made upon her,Accusedfailed and refused and still

fails and refuses to deliver and/or return the same to the damage and prejudice

of the said ISIDORA ROSALES, in the aforementioned amount and in such otheramount as may be awarded under the provision of the Civil Code.

CONTRARY TO LAW."cralaw virtua1aw library

The antecedent facts are as follows:chanrob1es virtual 1aw library

Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to

the house of complainant Isidora Rosales (Rosales) and asked her to join them

in the business of buying and selling cigarettes. Convinced of the feasibility of

the venture, Rosales readily agreed. Under their agreement, Rosales would givethe money needed to buy the cigarettes while Liwanag and Tabligan would act

as her agents, with a corresponding 40% commission to her if the goods are

sold; otherwise the money would be returned to Rosales. Consequently, Rosales

gave several cash advances to Liwanag and Tabligan amounting to

P633,650.00.chanroblesvirtuallawlibrary:red

During the first two months, Liwanag and Tabligan made periodic visits to

Rosales to report on the progress of the transactions. The visits, however,

suddenly stopped, and all efforts by Rosales to obtain information regarding

their business proved futile.

Alarmed by this development and believing that the amounts she advancedwere being misappropriated, Rosales filed a case of estafa against Liwanag.

After trial on the merits, the trial court rendered a decision dated January 9,

1991, finding Liwanag guilty as charged. The dispositive portion of the decisionreads thus:jgc:chanrobles.com.ph

"WHEREFORE, the Court holds, that the prosecution has established the guilt of

the accused, beyond reasonable doubt, and therefore, imposes upon theaccused, Carmen Liwanag, an Indeterminate Penalty of SIX (6) YEARS, EIGHT

(8) MONTHS AND TWENTY ONE (21) DAYS OF PRISION CORRECCIONAL TO

FOURTEEN (14) YEARS AND EIGHT (8) MONTHS OF PRISION MAYOR AS

MAXIMUM, AND TO PAY THE COSTS.

The accused is likewise ordered to reimburse complainant the sum of

P526,650.00, without subsidiary imprisonment, in case of insolvency.

SO ORDERED."cralaw virtua1aw library

Said decision was affirmed with modification by the Court of Appeals in a

decision dated November 29, 1993, the decretal portion of which

reads:jgc:chanrobles.com.ph

"WHEREFORE, in view of the foregoing, the judgment appealed from is hereby

affirmed with the correction of the nomenclature of the penalty which shouldbe: SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY ONE (21) DAYS of prision


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mayor, as minimum, to FOURTEEN (14) YEARS and EIGHT (8) MONTHS of

reclusion temporal, as maximum. In all other respects, the decision isAFFIRMED.

SO ORDERED."cralaw virtua1aw library

Her motion for reconsideration having been denied in the resolution of March

16, 1994, Liwanag filed the instant petition, submitting the following

assignment of errors:jgc:chanrobles.com.ph

"1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE

CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA,

WHEN CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSED-

PETITIONER AND COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR

THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OFTHE MONEY OF THE COMPLAINANT IS PURELY CIVIL IN NATURE AND NOT

CRIMINAL.

2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTINGTHE ACCUSED-PETITIONER ON GROUNDS OF REASONABLE DOUBT BY

APPLYING THE EQUIPOISE RULE."cralaw virtua1aw library

Liwanag advances the theory that the intention of the parties was to enter into a

contract of partnership, wherein Rosales would contribute the funds while she

would buy and sell the cigarettes, and later divide the profits between them. 1She also argues that the transaction can also be interpreted as a simple loan,

with Rosales lending to her the amount stated on an installment basis. 2

The Court of Appeals correctly rejected these pretenses.

While factual findings of the Court of Appeals are conclusive on the parties and

not reviewable by the Supreme Court, and carry more weight when these affirm

the factual findings of the trial court, 3 we deem it more expedient to resolve theinstant petition on its merits.

Estafa is a crime committed by a person who defrauds another causing him to

suffer damages, by means of unfaithfulness or abuse of confidence, or of false

pretenses or fraudulent acts. 4

From the foregoing, the elements of estafa are present, as follows: (1) that the

accused defrauded another by abuse of confidence or deceit; and (2) that

damage or prejudice capable of pecuniary estimation is caused to the offendedparty or third party, 5 and it is essential that there be a fiduciary relation

between them either in the form of a trust, commission or administration. 6

The receipt signed by Liwanag states thus:jgc:chanrobles.com.ph

"May 19, 1988 Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX

THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) PhilippineCurrency, to purchase cigarrets (sic) (Philip & Marlboro) to be sold to

customers. In the event the said cigarrets (sic) are not sold, the proceeds of the

sale or the said products (shall) be returned to said Mrs. Isidora P. Rosales the

said amount of P526,650.00 or the said items on or before August 30, 1988.

(SGD & Thumbedmarked) (sic)

CARMEN LIWANAG

26 H. Kaliraya St.

Quezon City

Signed in the presence of:chanrob1es virtual 1aw library

(Sgd) Illegible (Sgd) Doming Z. Baligad"

The language of the receipt could not be any clearer. It indicates that the money

delivered to Liwanag was for a specific purpose, that is, for the purchase of

cigarettes, and in the event the cigarettes cannot be sold, the money must bereturned to Rosales.

Thus, even assuming that a contract of partnership was indeed entered into by

and between the parties, we have ruled that when money or property have beenreceived by a partner for a specific purpose (such as that obtaining in the

instant case) and he later misappropriated it, such partner is guilty of estafa.

7chanroblesvirtualawlibrary

Neither can the transaction be considered a loan, since in a contract of loan once

the money is received by the debtor, ownership over the same is transferred. 8

Being the owner, the borrower can dispose of it for whatever purpose he may

deem proper.

In the instant petition, however, it is evident that Liwanag could not dispose of

the money as she pleased because it was only delivered to her for a single

purpose, namely, for the purchase of cigarettes, and if this was not possible then

to return the money to Rosales. Since in this case there was no transfer ofownership of the money delivered, Liwanag is liable for conversion under Art.

315, par. 1(b) of the Revised Penal Code.

WHEREFORE, in view of the foregoing, the appealed decision of the Court of


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Appeals dated November 29, 1993, is AFFIRMED. Costs against petitioner.

SO ORDERED.

Melo, Francisco and Panganiban,JJ., concur.

Narvasa, C.J., on leave.


SUPREME COURTManila

EN BANC

G.R. No. L-45624 April 25, 1939

GEORGE LITTON,petitioner-appellant,vs.

HILL & CERON, ET AL.,respondents-appellees.

George E. Reich for appellant.Roy and De Guzman for appellees.

Espeleta, Quijano and Liwag for appellee Hill.

CONCEPCION,J.:

This is a petition to review on certiorarithe decision of the Court of Appeals in a

case originating from the Court of First Instance of Manila wherein the herein

petitioner George Litton was the plaintiff and the respondents Hill & Ceron,Robert Hill, Carlos Ceron and Visayan Surety & Insurance Corporation were

defendants.

The facts are as follows: On February 14, 1934, the plaintiff sold and delivered

to Carlos Ceron, who is one of the managing partners of Hill & Ceron, a certain

number of mining claims, and by virtue of said transaction, the defendant Carlos

Ceron delivered to the plaintiff a document reading as follows:

Feb. 14, 1934

Received from Mr. George Litton share certificates Nos. 4428, 4429 and

6699 for 5,000, 5,000 and 7,000 shares respectively total 17,000

shares of Big Wedge Mining Company, which we have sold at P0.11

(eleven centavos) per share or P1,870.00 less 1/2 per cent brokerage.

HILL & CERON

By: (Sgd.) CARLOS CERON

Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720,and unable to collect this sum either from Hill & Ceron or from its surety

Visayan Surety & Insurance Corporation, Litton filed a complaint in the Court of

First Instance of Manila against the said defendants for the recovery of the said

balance. The court, after trial, ordered Carlos Ceron personally to pay the

amount claimed and absolved the partnership Hill & Ceron, Robert Hill and the

Visayan Surety & Insurance Corporation. On appeal to the Court of Appeals, thelatter affirmed the decision of the court on May 29, 1937, having reached the

conclusion that Ceron did not intend to represent and did not act for the firm

Hill & Ceron in the transaction involved in this litigation.

Accepting, as we cannot but accept, the conclusion arrived at by the Court of

Appeals as to the question of fact just mentioned, namely, that Ceron

individually entered into the transaction with the plaintiff, but in view, however,of certain undisputed facts and of certain regulations and provisions of the Code

of Commerce, we reach the conclusion that the transaction made by Ceron withthe plaintiff should be understood in law as effected by Hill & Ceron and binding

upon it.

In the first place, it is an admitted fact by Robert Hill when he testified at thetrial that he and Ceron, during the partnership, had the same power to buy and

sell; that in said partnership Hill as well as Ceron made the transaction as

partners in equal parts; that on the date of the transaction, February 14, 1934,

the partnership between Hill and Ceron was in existence. After this date, or onFebruary 19th, Hill & Ceron sold shares of the Big Wedge; and when the

transaction was entered into with Litton, it was neither published in the

newspapers nor stated in the commercial registry that the partnership Hill &

Ceron had been dissolved.

Hill testified that a few days before February 14th he had a conversation with

the plaintiff in the course of which he advised the latter not to deliver shares for

sale or on commission to Ceron because the partnership was about to be

dissolved; but what importance can be attached to said advice if the partnershipwas not in fact dissolved on February 14th, the date when the transaction with

Ceron took place?


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Under article 226 of the Code of Commerce, the dissolution of a commercial

association shall not cause any prejudice to third parties until it has beenrecorded in the commercial registry. (See also Cardell vs.Maeru, 14 Phil., 368.)

The Supreme Court of Spain held that the dissolution of a partnership by the

will of the partners which is not registered in the commercial registry, does notprejudice third persons. (Opinion of March 23, 1885.)

Aside from the aforecited legal provisions, the order of the Bureau of Commerce

of December 7, 1933, prohibits brokers from buying and selling shares on theirown account. Said order reads:

The stock and/or bond broker is, therefore, merely an agent or an

intermediary, and as such, shall not be allowed. . . .

(c) To buy or to sell shares of stock or bonds on his own account forpurposes of speculation and/or for manipulating the market,

irrespective of whether the purchase or sale is made from or to a

private individual, broker or brokerage firm.

In its decision the Court of Appeals states:

But there is a stronger objection to the plaintiff's attempt to make the

firm responsible to him. According to the articles of copartnership of

'Hill & Ceron,' filed in the Bureau of Commerce.

Sixth. That the management of the business affairs of the copartnership

shall be entrusted to both copartners who shall jointly administer the

business affairs, transactions and activities of the copartnership, shalljointly open a current account or any other kind of account in any bank

or banks, shall jointly sign all checks for the withdrawal of funds and

shall jointly or singly sign, in the latter case, with the consent of the

other partner. . . .

Under this stipulation, a written contract of the firm can only be signed

by one of the partners if the other partner consented. Without theconsent of one partner, the other cannot bind the firm by a written

contract. Now, assuming for the moment that Ceron attempted to

represent the firm in this contract with the plaintiff (the plaintiff

conceded that the firm name was not mentioned at that time), the latter

has failed to prove that Hill had consented to such contract.

It follows from the sixth paragraph of the articles of partnership of Hill &n

Ceron above quoted that the management of the business of the partnership hasbeen entrusted to both partners thereof, but we dissent from the view of the

Court of Appeals that for one of the partners to bind the partnership the consent

of the other is necessary. Third persons, like the plaintiff, are not bound inentering 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 inquires as to the agreements had betweenthe 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 anauthorized 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 members of the firm actingapparently in its behalf and within the scope of his authority. (Le

Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)

The second paragraph of the articles of partnership of Hill & Ceron reads in

part:

Second: That the purpose or object for which this copartnership isorganized is to engage in the business of brokerage in general, such as

stock and bond brokers, real brokers, investment security brokers,

shipping brokers, and other activities pertaining to the business of

brokers in general.

The kind of business in which the partnership Hill & Ceron is to engage beingthus determined, none of the two partners, under article 130 of the Code of

Commerce, may legally engage in the business of brokerage in general as stock

brokers, security brokers and other activities pertaining to the business of the

partnership. Ceron, therefore, could not have entered into the contract of sale ofshares with Litton as a private individual, but as a managing partner of Hill &

Ceron.

The respondent argues in its brief that even admitting that one of the partnerscould not, in his individual capacity, engage in a transaction similar to that in

which the partnership is engaged without binding the latter, nevertheless there

is no law which prohibits a partner in the stock brokerage business for engaging

in other transactions different from those of the partnership, as it happens in

the present case, because the transaction made by Ceron is a mere personalloan, and this argument, so it is said, is corroborated by the Court of Appeals.

We do not find this alleged corroboration because the only finding of fact made


12/59

by the Court of Appeals is to the effect that the transaction made by Ceron with

the plaintiff was in his individual capacity.

The appealed decision is reversed and the defendants are ordered to pay to the

plaintiff, jointly and severally, the sum of P720, with legal interest, from the dateof the filing of the complaint, minus the commission of one-half per cent (%)

from the original price of P1,870, with the costs to the respondents. So ordered.

Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

RESOLUTION

July 13, 1939

CONCEPCION, J.:

A motion has been presented in this case by Robert Hill, one of the defendants

sentenced in our decision to pay to the plaintiff the amount claimed in hiscomplaint. It is asked that we reconsider our decision, the said defendant

insisting that the appellant had not established that Carlos Ceron, another of thedefendants, had the consent of his copartner, the movant, to enter with theappellant into the contract whose breach gave rise to the complaint. It is argued

that, it being stipulated in the articles of partnership that Hill and Ceron, only

partners of the firm Hill & Ceron, would, as managers, have the management of

the business of the partnership, and that either may contract and sign for the

partnership with the consent of the other; the parties of partnership having

been, so it is said, recorded in the commercial registry, the appellant could not

ignore the fact that the consent of the movant was necessary for the validity ofthe contract which he had with the other partner and defendant, Ceron, and

there being no evidence that said consent had been obtained, the complaint to

compel compliance with the said contract had to be, as it must be in fact, a

procedural failure.

Although this question has already been considered and settled in our decision,

we nevertheless take cognizance of the motion in order to enlarge upon ourviews on the matter.

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 thepartnership. This obligation of course is not imposed upon a third person who

contracts with the partnership. Neither is it necessary for the third person toascertain 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 andnatural course of business, the consent of his copartner; 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 ofpartnership 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 equallyapplicable to contracts which have the force of law between the parties.

Wherefore, unless the contrary is shown, namely, that one of the partners did

not consent to his copartner entering into a contract with a third person, and

that the latter with knowledge thereof entered into said contract, the aforesaid

presumption with all its force and legal effects should be taken into account.

There is nothing in the case at bar which destroys this presumption; the only

thing appearing in he findings of fact of the Court of Appeals is that the plaintiff"has failed to prove that Hill had consented to such contract". According to this,

it seems that the Court of Appeals is of the opinion that the two partners should

give their consent to the contract and that the plaintiff should prove it. Theclause of the articles of partnership should not be thus understood, for it meansthat one of the two partners should have the consent of the other to contract for

the partnership, which is different; because it is possible that one of thepartners may not see any prospect in a transaction, but he may nevertheless

consent to the realization thereof by his copartner in reliance upon his skill and

ability or otherwise. And here we have to hold once again that it is not the

plaintiff who, under the articles of partnership, should obtain and prove theconsent of Hill, but the latter's partner, Ceron, should he file a complaint against

the partnership for compliance with the contract; but in the present case, it is a

third person, the plaintiff, who asks for it. While the said presumption stands,

the plaintiff has nothing to prove.

Passing now to another aspect of the case, had Ceron in any way stated to the

appellant at the time of the execution of the contract, or if it could be inferred by

his conduct, that he had the consent of Hill, and should it turn out later that he

did not have such consent, this alone would not annul the contract judging fromthe provisions of article 130 of the Code of Commerce reading as follows:

No new obligation shall be contracted against the will of one of the

managing partners, should he have expressly stated it; but if, however,it should be contracted it shall not be annulled for this reason, and shall

have its effects without prejudice to the liability of the partner or

partners who contracted it to reimburse the firm for any lossoccasioned by reason thereof. (Emphasis supplied.)


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Under the aforequoted provisions, when, not only without the consent but

against the will of any of the managing partners, a contract is entered into witha third person who acts in good faith, and the transaction is of the kind of

business in which the partnership is engaged, as in the present case, said

contract shall not be annulled, without prejudice to the liability of the guiltypartner.

The reason or purpose behind these legal provisions is no other than to protect

a third person who contracts with one of the managing partners of thepartnership, thus avoiding fraud and deceit to which he may easily fall a victim

without this protection which the Code of Commerce wisely provides.

If we are to interpret the articles of partnership in question by holding that it is

the obligation of the third person to inquire whether the managing copartner of

the one with whom he contracts has given his consent to said contract, which ispractically casting upon him the obligation to get such consent, this

interpretation would, in similar cases, operate to hinder effectively the

transactions, a thing not desirable and contrary to the nature of business whichrequires promptness and dispatch one the basis of good faith and honesty

which are always presumed.

In view of the foregoing, and sustaining the other views expressed in thedecision, the motion is denied. So ordered.

Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.


SUPREME COURTManila

EN BANC

G.R. No. L-11840 December 10, 1963

ANTONIO C. GOQUIOLAY, ET AL.,plaintiffs-appellants,vs.

WASHINGTON Z. SYCIP, ET AL.,defendants-appellees.

Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-

appellees.Jose C. Calayco for plaintiffs-appellants..

R E S O L U T I O N

REYES, J.B.L.,J.:

The matter now pending is the appellant's motion for reconsideration of ourmain 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 as

Administratrix of the husband's estate and as partner in lieu of the husband), in

favor of the buyers Washington Sycip and Betty Lee for the following

consideration:

Cash paid P37,000.00

Debts assumed by purchaser:

To Yutivo 62,415.91

To Sing Yee Cuan & Co., 54,310.13

T O T A L P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insist 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 affairsof partnership; that the testimony of her witness Young and Lim belies that she

took over the administration of the partnership property; and that, in any event,

the sale should be set aside because it was executed with the intent to defraudappellant 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 aspect to the case was expressly reserved in the main

decision of 26 July 1960;


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(b) That partnership was expressly organized: "to engage in real estate

business, either by buying and selling real estate". The Articles of co-partnership, in fact, expressly provided that:

IV. The object and purpose of the copartnership 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 to 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 byappellant.

It is first averred that there is "not one iota of evidence" that Kong Chai Pinmanaged 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 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 Laiwas few months after 1945?

A In the year 1945. (Emphasis supplied).

The appellant subsequently ratified this testimony in his deposition of 30 June

1956, pages 8-9, wherein he stated:

that plantation was being occupied at that time by the widow, Mrs. Tan

Sin An, and of course they are receiving quiet a lot benefit from theplantation.

Discarding the self-serving expressions, these admissions of Goquiolay arecertainly 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, thatthe 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 t ime?

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 tothe question:

According to Mr. Goquiolay, during the Japanese occupation Tan Sin anand 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 as to the development of these other properties of thepartnership 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 propertywhich is in Tigato is about eleven (11) hectares and planted with abaca

seedlings planted by Mr. Sin An. When I went there with Hernando

Youngwe 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 doit" (i.e., continue to manage the properties). Witnesses Lim and Young referred


15/59

to the period ofJapanese 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 find that Goquiolay did not merely rely on reports from Lim and Young;

he actually manifested his willingness that the widow should manage thepartnership 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 was never revoked.

It is argued that the authority given by Goquiolay to the widow Kong Chai Pinwas 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 apartner upon her husband's death, as expressly provided by the articles of

copartnership. Even more, granting that by succession to her husband, Tan Sin

An, the widow only became a limited partner, Goquiolay's authorization tomanage the partnership property was proof that he considered and recognizedher as general partner, at least since 1945. The reason is plain: Under the law

(Article 148, last paragraph, Code of Commerce), appellant could not empowerthe 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 withrespect to the interests of the copartnership, not even in the capacity of

agents of the managing partners. (Emphasis supplied).

By seeking authority to manage partnership property, Tan Sin An's widowshowed that she desired to be considered ageneral 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 administerand 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 ofthe 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 but 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 remember that the articles of co -partnership here involved expressly

stipulated that:

In the event of the death of any of the partners at any time before theexpiration 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 co-partnership (Art. XII,

Articles of Co-Partnership).

The Articles did not provide that the heirs of the deceased would bemerely limitedpartners; 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 beconverted 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 have the heirs of thedeceased partner without a share in the management. Hence, the contractualstipulation does actually contemplate that the heirs would becomegeneral

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 tobecome 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 anyconversion 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 heir's name was not included in the firm name, since noconversion 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 involved the rights acquired by

strangers, and does not deal with the rights existing between partnersGoquiolay and the widow of Tan Sin An. The issues between the partners inter

sewere expressly reserved in our main decision. Now, in determining what kind

of partner the widow of partner Tan Sin an Had elected to become, strangers


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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 thepartnership business or property, third parties (like the purchasers) who found

the widow possessing and managing the firm property with the acquiescence

(or at least without apparent opposition) of the surviving partners wereperfectly 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 thepartnership 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 thatthey 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 certainlycontributed 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 to

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 twomanaging partners may contract and sign in the name of the

partnership with the consent of the other, undoubtedly creates on

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 thepartnership. Neither it is 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 copartner; for otherwise he wouldnot 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 presumptionthat 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. 409, 516). (Emphasis supplied.)

It is next urged that the widow, even as a partner, had no authority to sell the

real estate of the f irm. This argument is lamentably superficial because it fails todifferentiate between real estate acquired and held as stock-in-tradeand real

estate 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 notwithin 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 from part of its stock-in-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 deMontella1, in the very passage quoted in the appellant's motion forreconsideration:

La enajenacion puede entrar en las facultades del gerante, 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 decomercio o a los productos de la fabrica para explotacion de los cualesse 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 partnerhas 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 Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:

If the several partners engaged in the business of buying and sellingreal estate can not bind the firm by purchases or sales of such property


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made in the regular course of business, then they are incapable of

exercising the essential rights and powers of general partners and theirassociation 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 thepartnership, "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 power 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 sensethat 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, andused in carrying on, its business, and signed the same in this form: "Inwitness whereof, the said Cowen & McGrath, a firm, and Owen McGrath,

surviving partner, of said firm, and Owen McCrath, individually, havehereunto 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, theplaintiff had

prepared, ready for filing, the petitionfor the dissolution of thepartnership and appointment of a receiverwhich 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 them. At the timenone of theclaims secured by the mortgages were due, except, it may be, a small part

of one of them, andnone of the creditors to whom the mortgages were

made had requested security, or were pressing for the payment of theirdebts. ... The mortgages appear to be without a sufficient condition of

defiance, and contain a stipulation authorizing the mortgagees to takeimmediate 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 thepetition. The avowed purposes of the plaintiff,in the course pursued by

him, was to terminate the partnership, place its properly beyond the

control of the firm, and insure the preference of the mortgagees, all of

which was known to them at the time; .... (Cas cit., p. 343, Emphasis

supplied).

It is natural that form these facts the Supreme Court of Ohio should draw the

conclusion that the conveyances were made with intent to terminate thepartnership, and that they were not within the powers of McGrath as a partner.

But there is no similarity 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 theMcGrath 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 of fraud. No direct evidence of it exists; butappellant point 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 partnershipdebts assumed by the purchaser. These debts (62,415.91 to Yutivo, and

P54,310.13 to Sing Ye 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 (sue first to La Urbana, later tothe Banco Hipotecario) plus accrued interests and taxes, redeemed by the two

creditors-claimants. To show that the price was inadquate, appellant relies on

the testimony of the realtor Mata, who is 1955, six years after the sale in

question, asserted that the land was worth P312,000.00. Taking into accountthe 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 recission 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 notable to raise the amount, even if the creditor's representative, Yu Khe Thai, had

already warned him four years before (1945) 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


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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 lenderswilling 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 ofthe 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 theSupreme Court has ruled that relationship alone is not a badge of fraud (Oria

Hnos. vs. McMicking, 21 Phil. 243; also Hermandad del 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 buyersdid 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 conspiratorsby raising money and paying off the firm's debts between 1945 and 1949; buthe did not; 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 SinAn'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 YeeCuan & 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 (Exhibits "N", mortgage to the Banco Hipotecario), and Rule 87,

section 6 is the effect that:

Where the obligation of the decedent isjoint and several with another

debtor, the claim shall be filed against the decedent as if he were the onlydebtor, without prejudice to the right of the estate to recovercontribution from the other debtor. (Emphasis supplied).

Secondly, the solidary obligation was guaranteed by a mortgage on theproperties of the partnership and those of Tan Sim An personally, and a

mortgage is 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 CivilCode, Art. 2089).

A final and conclusive consideration: The fraud charged not being one used toobtain a party's consent to a contract (i.e., not being deceit or dolus in

contrahendo), if there is fraud at al, it can only be a fraud of creditorsthat 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 forrescission 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 maintainable, 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.Regala, J., took no part.

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 Z. Sycip and Betty Y. Lee on the ground that it was executedwithout 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 predicted. The case is once more

before us on a motion for reconsideration filed by appellants raising bothquestions 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 inbuying real estate properties for subdivision, resale and lease. The partnership

was duly registered, and among the conditions agreed upon in the partnershipagreement which are material to this case are: (1) that Tan Sin An would be the


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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 hisheirs. 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 orginally invested, financing the balance of thepurchase 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 aresult 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 a period of eight years mortgaging in favor of

said entity the 3 parcels of land belonging to the partnership and the 46 parcelsof land belonging individually to Tan Sin An.

Tan Sin An died on June 26, 1942 and was survived by his widow, defendantKong 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 intestateestate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co., Inc. paid to

the Banco Hipote

partnership chapter ii cases

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