Sancho v.

Lizarraga
The plaintiff brought an action for the rescission of a partnership contract between himself and the
defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per annum form October 15, 1920, with costs, and
any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the complaint which are
incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter and
asking for the dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest, onehalf of said amount to be charged to the plaintiff. He also prays for any other just and equitable
remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the
defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it dissolved on account of the
expiration of the period for which it was constituted, and ordered the defendant, as managing
partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation
together with the accounts and vouchers within the period of thirty days from receipt of notice of said
judgment, without costs.
The plaintiff appealed from said decision making the following assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership
contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present
case.
2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest
from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that
this appeal is premature and therefore will not lie. The point is based on the contention that
inasmuch as the liquidation ordered by the trial court, and the consequent accounts, have not been
made and submitted, the case cannot be deemed terminated in said court and its ruling is not yet
appealable. In support of this contention counsel cites section 123 of the Code of Civil Procedure,
and the decision of this court in the case of Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered as ordered by the trial court,
and until they have been either approved or disapproved, the litigation involved in this action cannot
be considered as completely decided; and, as it was held in said case of Natividad vs .Villarica, also
with reference to an appeal taken from a decision ordering the rendition of accounts following the
dissolution of partnership, the appeal in the instant case must be deemed premature.

But even going into the merits of the case, the affirmation of the judgment appealed from is
inevitable. In view of the lower court's findings referred to above, which we cannot revise because
the parol evidence has not been forwarded to this court, articles 1681 and 1682 of the Civil Code
have been properly applied. Owing to the defendant's failure to pay to the partnership the whole
amount which he bound himself to pay, he became indebted to it for the remainder, with interest and
any damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand
rescission of the partnership contract according to article 1124 of the Code. This article cannot be
applied to the case in question, because it refers to the resolution of obligations in general, whereas
article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well
known principle that special provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full
force, without special pronouncement of costs. So ordered.

Evangelista v. Abad Santos

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella Abad
Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza
Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with
a contribution of P17,500 each. The amended Articles provided, inter alia, that "the contribution of
Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and
losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first
three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos
to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in the Court of
First Instance of Manila, alleging that the partnership, which was also made a party-defendant, had
been paying dividends to the partners except to her; and that notwithstanding her demands the
defendants had refused and continued to refuse and let her examine the partnership books or to
give her information regarding the partnership affairs to pay her any share in the dividends declared
by the partnership. She therefore prayed that the defendants be ordered to render accounting to her
of the partnership business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the
partnership books; and byway of affirmative defense alleged that the amended Articles of Copartnership did not express the true agreement of the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute industry to the partnership; and that her share of
30% was to be based on the profits which might be realized by the partnership only until full payment
of the loan which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in
the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.

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

partnership from June 7, 1955, and to pay the respondent her alleged share in the
net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the
costs of the suit, instead of dismissing respondent's complaint, with costs, against
the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by
the Court of Appeals. The evidence presented by the parties as the trial in support of their respective
positions on the issue of whether or not the respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to the extent of reproducing verbatim therein the
lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law that might have been commited by the lower
court. It should be observed, in this regard, that the Court of Appeals did not hold that the Articles of
Co-partnership, identified in the record as Exhibit "A", was conclusive evidence that the respondent
was an industrial partner of the said company, but considered it together with other factors,
consisting of both testimonial and documentary evidences, in arriving at the factual conclusion
expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of error are
hereunder reproduced if only to demonstrate that the same were made after a through analysis of
then evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first
assigned error, wherein it is pointed out that "Appellee's documentary evidence does
not conclusively prove that appellee was in fact admitted by appellants as industrial
partner of Evangelista & Co." and that "The grounds relied upon by the lower Court
are untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint
being that "In finding that the appellee is an industrial partner of appellant
Evangelista & Co., herein referred to as the partnership the lower court relied
mainly on the appellee's documentary evidence, entirely disregarding facts and
circumstances established by appellants" evidence which contradict the said finding'
(Page 21, Appellants' Brief). The lower court could not have done otherwise but rely
on the exhibits just mentioned, first, because appellants have admitted their
genuineness and due execution, hence they were admitted without objection by the
lower court when appellee rested her case and, secondly the said exhibits
indubitably show the appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to detract from the probative force
of the said exhibits because they all bear the imprint of their knowledge and consent,
and there is no credible showing that they ever protested against or opposed their
contents prior of the filing of their answer to appellee's complaint. As a matter of fact,
all the appellant Evangelista, Jr., would have us believe as against the cumulative
force of appellee's aforesaid documentary evidence is the appellee's Exhibit "A",
as confirmed and corroborated by the other exhibits already mentioned, does not

express the true intent and agreement of the parties thereto, the real understanding
between them being the appellee would be merely a profit sharer entitled to 30% of
the net profits that may be realized between the partners from June 7, 1955, until the
mortgage loan of P30,000.00 to be obtained from the RFC shall have been fully paid.
This version, however, is discredited not only by the aforesaid documentary evidence
brought forward by the appellee, but also by the fact that from June 7, 1955 up to the
filing of their answer to the complaint on February 8, 1964 or a period of over eight
(8) years appellants did nothing to correct the alleged false agreement of the
parties contained in Exhibit "A". It is thus reasonable to suppose that, had appellee
not filed the present action, appellants would not have advanced this obvious
afterthought that Exhibit "A" does not express the true intent and agreement of the
parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there
is an overriding fact which proves that the parties to the Amended Articles of
Partnership, Exhibit "A", did not contemplate to make the appellee Estrella Abad
Santos, an industrial partner of Evangelista & Co. It is an admitted fact that since
before the execution of the amended articles of partnership, Exhibit "A", the appellee
Estrella Abad Santos has been, and up to the present time still is, one of the judges
of the City Court of Manila, devoting all her time to the performance of the duties of
her public office. This fact proves beyond peradventure that it was never
contemplated between the parties, for she could not lawfully contribute her full time
and industry which is the obligation of an industrial partner pursuant to Art. 1789 of
the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite
impression that, even as she was and still is a Judge of the City Court of Manila, she
has rendered services for appellants without which they would not have had the
wherewithal to operate the business for which appellant company was organized.
Article 1767 of the New Civil Code which provides that "By contract of partnership
two or more persons bind themselves, to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves, 'does not
specify the kind of industry that a partner may thus contribute, hence the said
services may legitimately be considered as appellee's contribution to the common
fund. Another article of the same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so; and if
he should do so, the capitalist partners may either exclude him from
the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either
case.'

It is not disputed that the provision against the industrial partner engaging in
business for himself seeks to prevent any conflict of interest between the industrial
partner and the partnership, and to insure faithful compliance by said partner with
this prestation. There is no pretense, however, even on the part of the appellee is
engaged in any business antagonistic to that of appellant company, since being a
Judge of one of the branches of the City Court of Manila can hardly be characterized
as a business. That appellee has faithfully complied with her prestation with respect
to appellants is clearly shown by the fact that it was only after filing of the complaint
in this case and the answer thereto appellants exercised their right of exclusion
under the codal art just mentioned by alleging in their Supplemental Answer dated
June 29, 1964 or after around nine (9) years from June 7, 1955 subsequent to
the filing of defendants' answer to the complaint, defendants reached an agreement
whereby the herein plaintiff been excluded from, and deprived of, her alleged share,
interests or participation, as an alleged industrial partner, in the defendant
partnership and/or in its net profits or income, on the ground plaintiff has never
contributed her industry to the partnership, instead she has been and still is a judge
of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to
performance of her duties as such judge and enjoying the privilege and emoluments
appertaining to the said office, aside from teaching in law school in Manila, without
the express consent of the herein defendants' (Record On Appeal, pp. 24-25).
Having always knows as a appellee as a City judge even before she joined appellant
company on June 7, 1955 as an industrial partner, why did it take appellants many
yearn before excluding her from said company as aforequoted allegations? And how
can they reconcile such exclusive with their main theory that appellee has never
been such a partner because "The real agreement evidenced by Exhibit "A" was to
grant the appellee a share of 30% of the net profits which the appellant partnership
may realize from June 7, 1955, until the mortgage of P30,000.00 obtained from the
Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee is an
industrial partner of appellant company, with the right to demand for a formal
accounting and to receive her share in the net profit that may result from such an
accounting, which right appellants take exception under their second assigned error.
Our said holding is based on the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to
partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction
to reviewing only errors of law, accepting as conclusive the factual findings of the lower court upon
its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.

Soncuya v. De Luna
On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance of Manila and
amended complaint against Carmen de Luna in her own name and as co-administratrix of the
intestate estate, of Librada Avelino, in which, upon the facts therein alleged, he prayed that
defendant be sentenced to pay him the sum of P700,432 as damages and costs.
To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer based on
the following grounds: (1) That the complaint does not contain facts sufficient to constitute a cause of
action; and (2) that the complaint is ambiguous, unintelligible and vague.
Trial on the demurrer having been held and the parties heard, the court found the same well-founded
and sustained it, ordering the plaintiff to amend his complaint within a period of ten days from receipt
of notice of the order.
Plaintiff having manifested that he would prefer not to amend his amended complaint, the attorney
for the defendant, Carmen de Luna, filed a motion praying that the amended complaint be dismissed
with costs against the plaintiff. Said motion was granted by The Court of First Instance of Manila
which ordered the dismissal of the aforesaid amended complaint, with costs against the plaintiff.
From this order of dismissal, the appellant took an appeal, assigning twenty alleged errors
committed by the lower court in its order referred to.
The demurrer interposed by defendant to the amended complaint filed by plaintiff having been
sustained on the grounds that the facts alleged in said complaint are not sufficient to constitute a
cause of action and that the complaint is ambiguous, unintelligible and vague, the only questions
which may be raised and considered in the present appeal are those which refer to said grounds.
In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay plaintiff
damages in the sum of P700,432 as a result of the administration, said to be fraudulent, of he
partnership, "Centro Escolar de Seoritas", of which plaintiff, defendant and the deceased Librada
Avelino were members. For the purpose of adjudicating to plaintiff damages which he alleges to
have suffered as a partner by reason of the supposed fraudulent management of he partnership
referred to, it is first necessary that a liquidation of the business thereof be made to the end that the
profits and losses may be known and the causes of the latter and the responsibility of the defendant
as well as the damages which each partner may have suffered, may be determined. It is not alleged
in the complaint that such a liquidation has been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff to institute the action for damages which he
claims from the managing partner Carmen de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).

Having reached the conclusion that the facts alleged in the complaint are not sufficient to constitute
a cause of action on the part of plaintiff as member of the partnership "Centro Escolar de Seoritas"
to collect damages from defendant as managing partner thereof, without a previous liquidation, we
do not deem it necessary to discuss the remaining question of whether or not the complaint is
ambiguous, unintelligible and vague.
In view of the foregoing considerations, we are of the opinion and so hold that for a partner to be
able to claim from another partner who manages the general copartnership, damages allegedly
suffered by him by reason of the fraudulent administration of the latter, a previous liquidation of said
partnership is necessary.
Wherefore, finding no error in the order appealed from the same is affirmed in all its parts, with costs
against the appellant. So ordered.

Martinez v. Ong Pong

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."
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 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.

Moran v. CA

Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline
station located at Shaw Boulevard, corner Old Wack-Wack Road, Mandaluyong, Metro Manila. They
regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on
delivery (COD) basis. Orders for bulk fuel and other related products were made by telephone and
payments were effected by personal checks upon delivery. 1
Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7) and two
savings accounts, (Nos. 1037002387 and 1037001372) with the Shaw Boulevard branch of Citytrust
Banking Corporation. As a special privilege to the Morans, whom it considered as valued clients, the
bank allowed them to maintain a zero balance in their current account. Transfers from Saving
Account No. 1037002387 to their current account could be made only with their prior authorization,
but they gave written authority to Citytrust to automatically transfer funds from their Savings Account
No. 1037001372 to their Current Account No. 37-00066-7 at any time whenever the funds in their
current account were insufficient to meet withdrawals from said current account. Such arrangement
for automatic transfer of funds was called a pre-authorized transfer (PAT) agreement. 2
The PAT letter-agreement entered into by the parties on March 19, 1982 contained the following
provisions:
xxx xxx xxx
1. The transfer may be effected on the day following the overdrawing of the current
account, but the check/s would be honored if the savings account has sufficient
balance to cover the overdraft.
2. The regular charges on overdraft, and activity fees will be imposed by the Bank.
3. This is merely an accommodation on our part and we have the right, at all times
and for any reasonwhatsoever, to refuse to effect transfer of funds at our sole and
absolute option and discretion, reserving our right to terminate this arrangement at
any time without written notice to you.
4. You hold CITYTRUST free and harmless for any and all omissions or oversight in
executing this automatic transfer of funds; . . . 3

xxx xxx xxx

On December 12, 1983, petitioners, through Librada Moran, drew a check (Citytrust No. 041960) for
P50,576.00 payable to Petrophil
Corporation. 4 The next day, December 13, 1983, petitioners, again through Librada Moran, issued
another check (Citytrust No. 041962) in the amount of P56,090.00 in favor of the same corporation. 5 The
total sum of the two checks was P106,666.00.
On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its
account with the Pandacan branch of the Philippine National Bank (PNB), the collecting bank. In
turn, PNB, Pandacan branch presented them for clearing with the Philippine Clearing House
Corporation in the afternoon of the same day. The records show that on December 14, 1983, Current
Account No. 37-00066-7 had a zero balance, while Savings Account No. 1037001372 (covered by
the PAT) had an available balance of
P26,104.30 6 and Savings Account No. 1037002387 had an available balance of P43,268.39. 7
At about ten o'clock in the morning of the following day, December 15, 1983, petitioner George
Moran went to the bank, as was his regular practice, to personally oversee their daily transactions
with the bank. He deposited in their Savings Account No. 1037002387 the amounts of P10,874.58
and P6,754.25, 8 and he likewise deposited in their Savings Account No. 1037001372 the amounts of
P5,900.00, P35,100.00 and 30.00. 9 The amount of P40,000.00 was then transferred by him from Saving
Account No. 1037002387 to their current account by means of a pro forma withdrawal form (a debit
memorandum), which was provided by the bank, authorizing the latter to make the necessary transfer. At
the same time, the amount of P66,666.00 was transferred from Savings Account No. 1037001372 to the
same current account through the pre-authorized transfer (PAT) agreement. 10
Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada, that
Petrophil refused to deliver their orders on a credit basis because the two checks they had
previously issued were dishonored upon presentment for payment. Apparently, the bank dishonored
the checks due to "insufficiency of funds." 11 The non-delivery of gasoline forced petitioners to
temporarily stop business operations, allegedly causing them to suffer loss of earnings. In addition,
Petrophil cancelled their credit accommodation, forcing them to pay for their purchases in cash. 12George
Moran, furious and upset, demanded an explanation from Raul Diaz, the branch manager. Failing to get a
sufficient explanation, he talked to a certain Villareal, a bank officer, who allegedly told him that Amy
Belen Ragodo, the customer service officer, had committed a "grave error". 13
On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of the
petitioners on an application for a manager's check so that the dishonored checks could be
redeemed. Diaz then went to Petrophil to personally present the checks in payment for the two
dishonored checks. 14
In a chance meeting around May or June, 1984, George Moran learned from one Constancio
Magno, credit manager of Petrophil, that the latter received from Citytrust, through Diaz, a letter
dated December 16, 1983, notifying them that the two aforementioned checks were "inadvertently
dishonored . . . due to operational error." Said letter was received by Petrophil on January 4, 1984.

15

On July 24, 1984, or a little over six months after the incident, petitioners, through counsel, wrote
Citytrust claiming that the bank's dishonor of the checks caused them besmirched business and
personal reputation, shame and anxiety, hence they were contemplating the filing of the necessary
legal actions unless the bank issued a certification clearing their name and paid them P1,000,000.00
as moral damages. 16
The bank did not act favorably on their demands, hence petitioners filed a complaint for damages on
September 8, 1984, with the Regional Trial Court, Branch 159 at Pasig, Metro Manila, which was
docketed therein as Civil Case No. 51549. In turn, Citytrust filed a counterclaim for damages,
alleging that the case filed against it was unfounded and unjust.
After trial, a decision dated October 9, 1989 was rendered by the trial court dismissing both the
complaint and the counterclaim. 17 On appeal, the Court of Appeals rendered judgment in CA-G.R. CV
No. 25009 on October 9, 1989 affirming the decision of the trial court. 18
We start some basic and accepted rules, statutory and doctrinal. A check is a bill of exchange drawn
on a bank payable on demand. 19 Thus, a check is a written order addressed to a bank or persons
carrying on the business of banking, by a party having money in their hands, requesting them to pay on
presentment, to a person named therein or to bearer or order, a named sum of money. 20
Fixed savings and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan. 21 In other words, the relationship between the bank and the
depositor is that of a debtor and creditor. 22 By virtue of the contract of deposit between the banker and its
depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has
money in the hands of the bank. 23
Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent
of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when
the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual
damages. 24
Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds,
notwithstanding the fact that a deposit may be made later in the day. 25 Before a bank depositor may
maintain a suit to recover a specific amount from his bank, he must first show that he had on deposit
sufficient funds to meet his demand. 26
The present action for damages accordingly hinges on the resolution of the inquiry as to whether or
not petitioners had sufficient funds in their accounts when the bank dishonored the checks in
question. In view of the factual findings of the two lower courts the correctness of which are
challenged by what appear to be plausible, arguments, we feel that the same should properly be
resolved by us. This would necessarily require us to inquire into both the savings and current
accounts of petitioners in relation to the PAT arrangement.
On December 14, 1983, when PNB, Pandacan branch, presented the checks for collection, the
available balance for Savings Account No. 1037001372 was P26,104.30 while Current Account No.
37-00066-7 expectedly had a zero balance. On December 15, 1983, at approximately ten o'clock in
the morning, petitioners, through George Moran, learned that P66,666.00 from Saving Account No.

1037001372 was transferred to their current account. Another P40,000.00 was transferred from
Saving Accounts No. 1037002387 to the current account. Considering that the transfers were by
then sufficient to cover the two checks, it is asserted by petitioners that such fact should have
prevented the dishonor of the checks. It appears, however, that it was not so.
As explained by respondent court in its decision, Gerard E. Rionisto, head of the centralized clearing
unit of Citytrust, detailed on the witness stand the standard clearing procedure adopted by
respondent bank and the Philippine Clearing House Corporation, to wit:.
Q: Let me again re-phase the question. Most of (sic) these two
checks issued by Mrs. Librada Moran under the accounts of the
plaintiffs with Citytrust Banking Corporation were drawn dated
December 12, 1983 and December 13, 1983(and) these two (2)
checks were made payable to Petrophil Corporation. On record,
Petrophil Corporation presented these two (2) checks for clearing
with PNB Pandacan Branch on December 14, 1983. Now in
accordance with the bank, what would happen with these checks
drawn with (sic) PNB on December 14, 1983?.
A: So these checks will now be presented by PNB with the Philippine
Clearing House on December 14, and then the Philippine Clearing
House will process it until midnight of December 14. Citytrust will
send a clearing representative to the Philippine Clearing House at
around 2:00 o'clock in the morning of December 15 and then get the
checks. The checks will now be processed at the Citytrust Computer
at around 3:00 o'clock in the morning of December 14 (sic)but it will
be processed for balance of Citytrust as of December 14 because for
one, we have not opened on December 15 at 3:00 o'clock. Under the
clearing house rules, we are supposed to process it on the date it
was presented for clearing. (tsn, September 9, 1988, pp. 9-10). 27
Considering the clearing process adopted, as explained in the aforequoted testimony, it is clear that
the available balance on December 14, 1983 was used by the bank in determining whether or not
there was sufficient cash deposited to fund the two checks, although what was stamped on the
dorsal side of the two checks in question was "DAIF/12-15-83," since December 15, 1983 was the
actual date when the checks were processed. As earlier stated, when petitioners' checks were
dishonored due to insufficiency of funds, the available balance of Savings Account No. 1037001372,
which was the subject of the PAT agreement, was not enough to cover either of the two checks. On
December 14, 1983, when PNB, Pandacan branch presented the checks for collection, the available
balance for Savings Account No. 1037001372, to repeat, was only P26,104.30 while Current
Account No. 37-0006-7 had no available balance. It was only on December 15, 1983 at around ten
o'clock in the morning that the necessary funds were deposited, which unfortunately was too late to
prevent the dishonor of the checks.
Petitioners argue that public respondent, by relying heavily on Rionisto's testimony, failed to consider
the fact that the witness himself admitted that he had no personal knowledge surrounding the

dishonor of the two checks in question. Thus, although he knew the standard clearing procedure, it
does not necessarily mean that the same procedure was adopted with regard to the two checks.
We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a disputable presumption in
law that the ordinary course of business has been followed. In the absence of a contrary showing, it
is presumed that the acts in question were in conformity with the usual conduct of business. In the
case at bar, petitioners failed to present countervailing evidence to rebut the presumption that the
checks involved underwent the same regular process for clearing of checks followed by the bank
since 1983.
Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his
responsibilities every time he issues a check. He must personally keep track of his available balance
in the bank and not rely on the bank to notify him of the necessity to fund certain check she
previously issued. A check, as distinguished from an ordinary bill of exchange, is supposed to be
drawn against a previous deposit of funds for it is ordinarily intended for immediately payment. 28
Moreover, between the time of the issuance of said checks on December 12 and 13 and the time of
their presentment on December 14, petitioners had, at the very least, twenty-four hours to replenish
their balance in the bank.
As previously noted, it was only during business hours in the morning of December 15, 1983, that
P66,666.00 was automatically transferred from Savings Account No. 1037001372 to Current
Account No. 37-00066-7, and another P40,000.00 was transferred from Savings Account No.
1037002387 to the same current by a debit memorandum. Petitioners argue that if indeed the
checks were dishonored in the early morning of December 15, 1983, the bank would not have
automatically transferred P66,666.00 to said current account. They theorize that the checks having
already been dishonored, there was no necessity to put into effect the pre-authorized transfer
agreement.
That theory is incorrect. When the transfer from both savings accounts to the current account were
made, they were done in the hope that the checks may be retrieved, thus preventing their dishonor.
Unfortunately, respondent bank did not succeed in effectuating its good intentions. The transfers
were made to preserve its relations with petitioners whom it knew were valued clients, hence it
wanted to prevent the dishonor of their checks, if the same was at all possible. Although not
admitting fault, it tried its best to make sure that the checks would not bounce.
Under similar circumstances, it was held in Whitman vs. First National Bank 29 that a bank performs its
full duty where, upon the receipt of a check drawn against an account in which there are insufficient funds
to pay it in full, it endeavors to induce the drawer to make good his account so that the check can be paid,
and failing in this, it protests the check on the following morning and notifies its correspondent bank by the
telegraph of the protest. It cannot, therefore, be held liable to the payee and holder of the check for not
protesting it upon the day when it was received. In fact, the court added that the bank did more that it was
required to do by making an effort to induce the drawer to deposit sufficient money to make the check
good, and by notifying its correspondent of the dishonor of the check by telegram.

Petitioners maintain that at the time the checks were dishonored, they had already deposited
sufficient funds to cover said checks. To prove their point, petitioners quoted in their petition the
following testimony of said witness Rionisto, to wit:
Q: Now according to you, you would receive the checks from (being
deposited to) the collecting bank which in this particular example was
the Pandacan Branch of PNB which in turn will deliver it to the
Philippine Clearing House and the Philippine Clearing House will
deliver it to your office around 12:00 o'clock of December . . . ?
A: Around 2:00 o'clock of December 15. We sent a clearing
representative.
Q: And the checks will be processed in accordance with the balance
available as of December 14?
A: Yes, sir.
Q: And naturally you will place there "drawn against insufficient funds,
December 14, 1983"?
A: Yes, sir.
Q: Are you sure about that?
A: Yes, sir . . . (tsn, September 9, 1988, p. 14)

30

Obviously witness Rionisto was merely confused as to the dates (December 14 and 15) because it
did not jibe with his previous testimony, wherein he categorically stated that "the checks will now be
processed as the Citytrust Computer at around 3:00 in the morning of December 14 (sic) but it will
be processed for balance of Citytrust as of December 14 because for one, we have not opened on
December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the
date it was presented for
clearing." 31 Analyzing the procedure he had previously explained, and analyzing his testimony in its
entirety and not in truncated portions, it would logically and ineluctably appear that he actually meant
December 15, and not December 14.
In the early morning of every business day, prior to banking hours, the various branches of Citytrust
would receive a computer printout called the "rejected transactions" report from the head office. The
report contains, among others, a listing of "checks to be funded." When Citytrust, Shaw Boulevard
branch, received said report in the early morning of December 15, 1983, the two checks involved
were included in the "checks to be funded." That report was used by the bank as its basis in
dishonoring the two checks in question. Petitioner contends that the bank erred when it did so
because on previous occasions, the report was merely used by the bank as a basis for determining
whether or not it was necessary to notify them of the need to deposit certain amounts in their
accounts.

Amy Belen Rogado, a bank employee, testified that she would normally copy the details stated in the
report and transfer in on a "pink slip." These pink slips were then given to George Moran. In turn,
George Moran testified that he would deposit the necessary funds stated in the pink slips. As a
matter of fact, so petitioner asseverated, not a single check written on the notices was ever
dishonored after he had funded said checks with the bank. Thus, petitioner argues, the checks were
not yet dishonored after the bank received the report in the early morning of December 15, 1983.
Said argument does not persuade. If ever petitioners on previous occasions were given notices
every time a check was presented for clearing and payment and there were no adequate funds in
their accounts, these were, at most, mere accommodations on the part of respondent bank. It was
not a requirement or a general banking practice, hence non-compliance therewith could not lay the
bank open to blame or rebuke. Legally, the bank had all the right to dishonor the checks because
there were no sufficient funds to speak of in the first place. If the demand is by check, a drawer must
have to his credit enough to cover the demand. If his credit with the bank is less than the amount on
the face of the check, the bank may lawfully refuse payment. 32
Pursuing this matter further, the bank could also not be faulted for not accepting either of the two
checks. The first check issued was in the amount of P50,576.00, while the second one was for
P56,090.00. Savings Account No. 1307001372 then had a balance of only P26,104.30. This being
the case, Citytrust could not be expected to accept for payment either one of the two checks nor
partially honor one check.
A bank is under no obligation to make part payment on a check, up to only the amount of the
drawer's funds, where the check is drawn for an amount larger than what the drawer has on deposit.
Such a practice of paying checks in part has never existed. Upon partial payment, the check holder
could not be called upon to surrender the check, and the bank would be without a voucher affording
a certain means of showing the payment. The rule is based on commercial convenience, and any
rule that would work such manifest inconvenience should not be recognized. A check is intended not
only to transfer a right to the amount named in it, but to serve the further purpose of affording
evidence for the bank of the payment of such amount when the check is taken up. 33
On the other hand, assuming arguendo that Savings Account No. 1037002387, which is not covered
by a pre-arranged automatic transfer agreement, had enough amount deposited to cover both
checks (which is not so in this case), the bank still had no obligation to honor said checks as there
was then no authority given to it to make the transfer of funds. Where a depositor has two accounts
with a bank, an open account and a savings account, and draws a check upon the open account for
more money than the account contains, the bank may rightfully refuse to pay the check, and is under
no duty to make up the deficiency from the savings account. 34
We are agree with respondent Court of Appeals in its assessment and interpretation of the nature of
the letter of Citytrust to Petrophil, dated December 16, 1983. As aptly and correctly stated by said
court, ". . . the letter is not an admission of liability as it was written merely to maintain the goodwill
and continued patronage of plaintiff-appellants. (This) cannot be characterized as baseless,
considering the totality of the circumstances surrounding its writing." 35

In the present case, the actions taken by the bank after the incident clearly show that there was
neither malice nor bad faith, but rather a clear intent to mollify an obviously agitated client. Raul
Diaz, the branch manager, even went for this purpose to the Moran residence to facilitate their
application for a manager's check. Later, he went to the Petrophil Corporation to personally redeem
the checks. Still later, the letter was sent by respondent bank to Petrophil explaining that the
dishonor of the checks was due to "operational error." However, we reiterate, it would be a mistake
to construe that letter as an admission of guilt on the part of the bank. It knew that it was confronted
with a client who obviously was not willing to admit any fault on his part, although the facts show
otherwise. Thus, respondent bank ran the risk of losing the business of an important and influential
member of the financial community if it did not do anything to assuage the feelings of petitioners.
It will be recalled that the credit standing of the Morans with Petrophil Corporation was involved,
which fact, more than anything, displeased them, to say the least. On demand of petitioners that
their names be cleared, the bank considered it more prudent to send the letter. It never realized that
it would thereafter be used by petitioners as one of the bases of their legal action. It will be noted
that there was no reason for the bank to send the letter to Petrophil Corporation since the latter was
not a client nor was it demanding any explanation. Clearly, therefore, the letter was merely intended
to accommodate the request of the Morans and was part of the series of damage-control measures
taken by the bank to placate petitioners.
Respondent Court of Appeals perceptively observed that "all these somehow pacified plaintiffsappellants (herein petitioners) for they did not thereafter take immediate punitive action against the
defendant-appellee (herein private respondent). As pointed out by the court a quo, it took plaintiffsappellants about six (6) months after the dishonor of the checks to demand that defendant-appellee
pay them P1,000,000.00 as damages. At that time, plaintiffs-appellants had discovered the letter of
Mr. Diaz attributing the dishonor of their checks to 'operational error'. The attempt to unduly ride on
the letter of Mr. Diaz speaks for itself." 36
On the above premises which irresistibly commend themselves to our acceptance, we find no cogent
and sufficient to award actual, moral, or exemplary damages to petitioners. Although we take judicial
notice of the fact that there is a fiduciary relationship between a bank and its depositors, as well as
the extent of diligence expected of it in handling the accounts entrusted to its care, 37 the bank may
not be held responsible for such damages in the absence of fraud, bad faith, malice, or wanton attitude. 38
WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby
AFFIRMED, with costs against petitioners.
SO ORDERED.

Lozano v. Depakakibo
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by the Court
of Appeals, for the reason that only questions of law are involved in said appeal.

The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in the Municipality of Dumangas, Province of Iloilo,
under a franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of public
necessity and convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked
by the Public Service Commission on May 15, 1955. But the decision of the Public Service
Commission was appealed to Us on October 21, 1955. A temporary certificate of public convenience
was issued in the name of Olimpia D. Decolongon on December 22, 1955 (Exh. "B"). Evidently
because of the cancellation of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein
Mauro Lozana sold a generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new
grantee Olimpia D. Decolongon, by a deed dated October 30, 1955 (Exhibit "C"). Defendant Serafin
Depakakibo, on the other hand, sold one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the
spouses Felix Jimenea and Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant, alleging
that he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the
wires connecting the generator to the different houses supplied by electric current in the Municipality
of Dumangas, and that he is entitled to the possession thereof, but that the defendant has wrongfully
detained them as a consequence of which plaintiff suffered damages. Plaintiff prayed that said
properties be delivered back to him. Three days after the filing of the complaint, that is on November
18, 1955, Judge Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take
possession of the generator and 70 wooden posts, upon plaintiff's filing of a bond in the amount of
P16,000 in favor of the defendant (for subsequent delivery to the plaintiff). On December 5, 1955,
defendant filed an answer, denying that the generator and the equipment mentioned in the complaint
belong to the plaintiff and alleging that the same had been contributed by the plaintiff to the
partnership entered into between them in the same manner that defendant had contributed
equipments also, and therefore that he is not unlawfully detaining them. By way of counterclaim,
defendant alleged that under the partnership agreement the parties were to contribute equipments,
plaintiff contributing the generator and the defendant, the wires for the purpose of installing the main
and delivery lines; that the plaintiff sold his contribution to the partnership, in violation of the terms of
their agreement. He, therefore, prayed that the complaint against him be dismissed; that plaintiff be
adjudged guilty of violating the partnership contract and be ordered to pay the defendant the sum of
P3,000, as actual damages, P600.00 as attorney's fees and P2,600 annually as actual damages;
that the court order dissolution of the partnership, after the accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his
counterclaim, but this was denied by the court. Hearings on the case were conducted on October 25,
1956 and November 5, 1956, and on the latter date the judge entered a decision declaring plaintiff
owner of the equipment and entitled to the possession thereof, with costs against defendant. It is
against this judgment that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the
defendant entered into a contract of Partnership, a copy of which is attached as Annex "A" of

defendant's answer and counterclaim, for the purpose set forth therein and under the
national franchise granted to Mrs. Piadosa Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro
Lozana, contributed the amount of Eighteen Thousand Pesos (P18,000.00); said
contributions of both parties being the appraised values of their respective properties brought
into the partnership;
3. That the said Certificate of Public Convenience and Necessity was revoked and cancelled
by order of the Public Service Commission dated March 15, 1955, promulgated in case No.
58188, entitled, "Piadosa Buenaflor, applicant", which order has been appealed to the
Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said
partnership in favor of Olimpia Decolongon in the amount of P10,000.00 as per Deed of Sale
dated October 30, 1955 executed and ratified before Notary Public, Delfin Demaisip, in and
for the Municipality of Dumangas, Iloilo and entered in his Notarial Registry as Doc. No. 832;
Page No. 6; Book No. XIII; and Series of 1955, a copy thereof is made as Annex "B" of
defendant's answer and counterclaim;
5. That there was no liquidation of partnership and that at the time of said Sale on October
30, 1955, defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those
properties sold were taken by the Provincial Sheriff on November 20, 1955 and delivered to
the plaintiff on November 25, 1955 upon the latter posting the required bond executed by
himself and the Luzon Surety Co., dated November 17, 1955 and ratified before the Notary
Public, Eleuterio del Rosario in and for the province of Iloilo known as Doc. No. 200; Page
90; Book No. VII; and Series of 1955; of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia Decolongon, the
purchaser, who is presently operating an electric light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and
Felisa Harder contributed by him to the partnership for P3,500.00 as per Deed of Sale
executed and ratified before the Notary Public Rodrigo J. Harder in and for the Province of
Iloilo, known as Doc. No. 76; Page 94; Book No. V; and Series of 1955, a certified copy of
which is hereto attached marked as Annex "A", and made an integral part hereof; (pp, 27-29
ROA).
As it appears from the above stipulation of facts that the plaintiff and the defendant entered into the
contract of partnership, plaintiff contributing the amount of P18,000, and as it is not stated therein
that there bas been a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel
Engine on October 15, 1955, and since the court below had found that the plaintiff had actually
contributed one engine and 70 posts to the partnership, it necessarily follows that the Buda diesel
engine contributed by the plaintiff had become the property of the partnership. As properties of the

partnership, the same could not be disposed of by the party contributing the same without the
consent or approval of the partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void, because by the contract
of partnership, the parties thereto have become dummies of the owner of the franchise. The reason
for this holding was the admission by defendant when being cross-examined by the court that he
and the plaintiff are dummies. We find that this admission by the defendant is an error of law, not a
statement of a fact. The Anti-Dummy law has not been violated as parties plaintiff and defendant are
not aliens but Filipinos. The Anti-Dummy law refers to aliens only (Commonwealth Act 108 as
amended).
Upon examining the contract of partnership, especially the provision thereon wherein the parties
agreed to maintain, operate and distribute electric light and power under the franchise belonging to
Mrs. Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy such
as to make the contract of partnership, null and void ab initio. The agreement could have been
submitted to the Public Service Commission if the rules of the latter require them to be so presented.
But the fact of furnishing the current to the holder of the franchise alone, without the previous
approval of the Public Service Commission, does not per se make the contract of partnership null
and void from the beginning and render the partnership entered into by the parties for the purpose
also void and non-existent. Under the circumstances, therefore, the court erred in declaring that the
contract was illegal from the beginning and that parties to the partnership are not bound therefor,
such that the contribution of the plaintiff to the partnership did not pass to it as its property. It also
follows that the claim of the defendant in his counterclaim that the partnership be dissolved and its
assets liquidated is the proper remedy, not for each contributing partner to claim back what he had
contributed.
For the foregoing considerations, the judgment appealed from as well as the order of the court for
the taking of the property into custody by the sheriff must be, as they hereby are set aside and the
case remanded to the court below for further proceedings in accordance with law.

Uy v. Puzon
(NOTE: A partner in a construction venture who failed to standby his commitment
to the partnership will be ordered to reimburse to his co-partner whatever the
latter invested and spent for the projects of the venture.)

Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P. Construction
Company" and ordering the defendant Bartolome Puzon to pay the plaintiff the amounts of: (1)
P115,102.13, with legal interest thereon from the date of the filing of the complaint until fully paid; (2)
P200,000.00, as plaintiffs share in the unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with the Republic of the Philippines
for the construction of the Ganyangan Bato Section of the Pagadian Zamboanga City Road,
province of Zamboanga del Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding
difficulty in accomplishing both projects, Bartolome Puzon sought the financial assistance of the plaintiff,
William Uy. As an inducement, Puzon proposed the creation of a partnership between them which would
be the sub-contractor of the projects and the profits to be divided equally between them. William Uy

inspected the projects in question and, expecting to derive considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the "U.P. Construction Company" 3 which was subsequently
engaged as subcontractor of the construction projects. 4

The partners agreed that the capital of the partnership would be P100,000.00 of which each partner
shall contribute the amount of P50,000.00 in cash. 5 But, as heretofore stated, Puzon was short of cash
and he promised to contribute his share in the partnership capital as soon as his application for a loan
with the Philippine National Bank in the amount of P150,000.00 shall have been approved. However,
before his loan application could be acted upon, he had to clear his collaterals of its incumbrances first.
For this purpose, on October 24, 1956, Wilham Uy gave Bartolome Puzon the amount of P10,000.00 as
advance contribution of his share in the partnership to be organized between them under the firm name
U.P. CONSTRUCTION COMPANY which amount mentioned above will be used by Puzon to pay his
obligations with the Philippine National Bank to effect the release of his mortgages with the said
Bank. 6 On October 29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the said Puzon was to use in payment of his obligation
to the Rehabilitation Finance Corporation. 7 Puzon promised William Uy that the amount of P150,000.00
would be given to the partnership to be applied thusly: P40,000.00, as reimbursement of the capital
contribution of William Uy which the said Uy had advanced to clear the title of Puzon's property;
P50,000.00, as Puzon's contribution to the partnership; and the balance of P60,000.00 as Puzon's
personal loan to the partnership. 8
Although the partnership agreement was signed by the parties on January 18, 1957, 9 work on the
projects was started by the partnership on October 1, 1956 in view of the insistence of the Bureau of
Public Highways to complete the project right away. 10 Since Puzon was busy with his other projects,
William Uy was entrusted with the management of the projects and whatever expense the latter might
incur, would be considered as part of his contribution. 11 At the end of December, 1957, William Uy had
contributed to the partnership the amount of P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this amount, P40,000.00 was for the reimbursement of
Uy's contribution to the partnership which was used to clear the title to Puzon's property, and the
P20,000.00 as Puzon's contribution to the partnership capital. 13
To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the knowledge
and consent of William Uy, 14 assigned to the Philippine National Bank all the payments to be received
on account of the contracts with the Bureau of Public Highways for the construction of the aforementioned projects. 15 By virtue of said assignment, the Bureau of Public Highways paid the money due
on the partial accomplishments on the government projects in question to the Philippine National Bank
which, in turn, applied portions of it in payment of Puzon's loan. Of the amount of P1,047,181.07,
released by the Bureau of Public Highways in payment of the partial work completed by the partnership
on the projects, the amount of P332,539.60 was applied in payment of Puzon's loan and only the amount
of P27,820.80 was deposited in the partnership funds, 16 which, for all practical purposes, was also under
Puzon's account since Puzon was the custodian of the common funds.
As time passed and the financial demands of the projects increased, William Uy, who supervised the
said projects, found difficulty in obtaining the necessary funds with which to pursue the construction
projects. William Uy correspondingly called on Bartolome Puzon to comply with his obligations under
the terms of their partnership agreement and to place, at lest, his capital contribution at the disposal
of the partnership. Despite several promises, Puzon, however, failed to do so. 17 Realizing that his
verbal demands were to no avail, William Uy consequently wrote Bartolome Puzon pormal letters of
demand, 18 to which Puzon replied that he is unable to put in additional capital to continue with the
projects. 19

Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the
construction projects, wrote the subcontractor, U.P. Construction Company, on November 20, 1957,
advising the partnership, of which he is also a partner, that unless they presented an immediate
solution and capacity to prosecute the work effectively, he would be constrained to consider the subcontract terminated and, thereafter, to assume all responsibilities in the construction of the projects
in accordance with his original contract with the Bureau of Public Highways. 20 On November 27,
1957, Bartolome Puzon again wrote the U.P.Construction Company finally terminating their subcontract
agreement as of December 1, 1957. 21
Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and his
authority to deal with the Bureau of Public Highways in behalf of the partnership was revoked by
Bartolome Puzon who continued with the construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their
partnership agreement, instituted an action in court, seeking, inter alia, the dissolution of the
partnership and payment of damages.
Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming that it
was the plaintiff, William Uy, who violated the terms thereof. He, likewise, prayed for the dissolution
of the partnership and for the payment by the plaintiff of his, share in the losses suffered by the
partnership.
After appropriate proceedings, the trial court found that the defendant, contrary to the terms of their
partnership agreement, failed to contribute his share in the capital of the partnership applied
partnership funds to his personal use; ousted the plaintiff from the management of the firm, and
caused the failure of the partnership to realize the expected profits of at least P400,000.00. As a
consequence, the trial court dismissed the defendant's counterclaim and ordered the dissolution of
the partnership. The trial court further ordered the defendant to pay the plaintiff the sum of
P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the appeal
before this Court, the said Bartolome Puzon died, and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19) assignment of errors, involving questions of fact,
which relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay the appellee is not supported by
the evidence and the law.
After going over the record, we find no reason for rejecting the findings of fact below, justifying the
reversal of the decision appealed from.
The findings of the trial court that the appellant failed to contribute his share in the capital of the
partnership is clear incontrovertible. The record shows that after the appellant's loan the amount of
P150,000.00 was approved by the Philippin National Bank in November, 1956, he gave the amount
P60,000.00 to the appellee who was then managing the construction projects. Of this amount,
P40,000.00 was to be applied a reimbursement of the appellee's contribution to the partnership
which was used to clear the title to the appellant's property, and th balance of P20,000.00, as
Puzon's contribution to the partnership. 23 Thereafter, the appellant failed to make any further

contributions the partnership funds as shown in his letters to the appellee wherein he confessed his
inability to put in additional capital to continue with the projects. 24

Parenthetically, the claim of the appellant that the appellee is equally guilty of not contributing his
share in the partnership capital inasmuch as the amount of P40,000.00, allegedly given to him in
October, 1956 as partial contribution of the appellee is merely a personal loan of the appellant which
he had paid to the appellee, is plainly untenable. The terms of the receipts signed by the appellant
are clear and unequivocal that the sums of money given by the appellee are appellee's partial
contributions to the partnership capital. Thus, in the receipt for P10,000.00 dated October 24,
1956, 25 the appellant stated:
+.wph!1

Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in
Check No. SC 423285 Equitable Banking Corporation, dated October 24, 1956, as
advance contribution of the share of said William Uy in the partnership to be
organized between us under the firm name U.P. CONSTRUCTION COMPANY which
amount mentioned above will be used by the undersigned to pay his obligations with
the Philippine National Bank to effect the release of his mortgages with the said
bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29, 1956,

26

the appellant also said:

+.wph!1

Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in

Check No. SC423287, of the Equitable Banking Corporation, as partial contribution
of the share of the said William Uy to the U.P. CONSTRUCTION COMPANY for
which the undersigned will use the said amount in payment of his obligation to the
Rehabilitation Finance Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied partnership funds is, likewise, sustained
by competent evidence. It is of record that the appellant assigned to the Philippine National Bank all
the payments to be received on account of the contracts with the Bureau of Public Highways for the
construction of the aforementioned projects to guarantee the repayment of the bank. 27 By virtue of
the said appeflant's personal loan with the said bank assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the construction projects in question to the Philippine
National Bank who, in turn, applied portions of it in payment of the appellant's loan. 28
The appellant claims, however, that the said assignment was made with the consent of the appellee
and that the assignment not prejudice the partnership as it was reimbursed by the appellant.
But, the appellee categorically stated that the assignment to the Philippine National Bank was made
without his prior knowledge and consent and that when he learned of said assignment, he cal the
attention of the appellant who assured him that the assignment was only temporary as he would
transfer the loan to the Rehabilitation Finance Corporation within three (3) months time. 29
The question of whom to believe being a matter large dependent on the trier's discretion, the findings
of the trial court who had the better opportunity to examine and appraise the fact issue, certainly
deserve respect.
That the assignment to the Philippine National Bank prejudicial to the partnership cannot be denied.
The record show that during the period from March, 1957 to September, 1959, the appellant
Bartolome Puzon received from the Bureau of Public highways, in payment of the work
accomplished on the construction projects, the amount of P1,047,181.01, which amount rightfully
and legally belongs to the partnership by virtue of the subcontract agreements between the appellant

and the U.P. Construction Company. In view of the assignemt made by Puzon to the Philippine
National Bank, the latter withheld and applied the amount of P332,539,60 in payment of the
appellant's personal loan with the said bank. The balance was deposited in Puzon's current account
and only the amount of P27,820.80 was deposited in the current account of the partnership. 30 For
sure, if the appellant gave to the partnership all that were eamed and due it under the subcontract
agreements, the money would have been used as a safe reserve for the discharge of all obligations of the
firm and the partnership would have been able to successfully and profitably prosecute the projects it
subcontracted.
When did the appellant make the reimbursement claimed by him?
For the same period, the appellant actually disbursed for the partnership, in connection with the
construction projects, the amount of P952,839.77. 31 Since the appellant received from the Bureau of
Public Highways the sum of P1,047,181.01, the appellant has a deficit balance of P94,342.24. The
appellant, therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted from the management of the
partnership is also based upon persuasive evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's contribution to the partnership capital, the said
appellant did not allow him to hold office in the U.P. Construction Company and his authority to deal
with the Bureau of Public Highways was revoked by the appellant.32
As the record stands, We cannot say, therefore, that the decis of the trial court is not sustained by
the evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse the
plaintiff-appellee whatever amount latter had invested in or spent for the partnership on account of
construction projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the partnership is
P100,000.00 of which each part shall contribute to the partnership the amount of P50,000.00
cash 33 the partners of the U.P. Construction Company did contribute their agreed share in the
capitalization of the enterprise in lump sums of P50,000.00 each. Aside from the initial amount
P40,000.00 put up by the appellee in October, 1956, 34 the partners' investments took, the form of cash
advances coveting expenses of the construction projects as they were incurred. Since the determination
of the amount of the disbursements which each of them had made for the construction projects require an
examination of the books of account, the trial court appointed two commissioners, designated by the
parties, "to examine the books of account of the defendant regarding the U.P. Construction Company and
his personal account with particular reference to the Public Works contract for the construction of the
Ganyangan-Bato Section, Pagadian-Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan
Road, including the payments received by defendant from the Bureau of Public Highways by virtue of the
two projects above mentioned, the disbursements or disposition made by defendant of the portion thereof
released to him by the Philippine National Bank and in whose account these funds are deposited . 35
In due time, the loners so appointed, 36 submitted their report 37 they indicated the items wherein they
are in agreement, as well as their points of disagreement.
In the commissioners' report, the appellant's advances are listed under Credits; the money received
from the firm, under Debits; and the resulting monthly investment standings of the partners, under
Balances. The commissioners are agreed that at the end of December, 1957, the appellee had a

balance of P8,242.39. 38 It is in their respective adjustments of the capital account of the appellee that
the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of
P24,239.48, representing the checks isssued by the appellant, 39 and encashed by the appellee or his
brother, Uy Han so that the appellee would owe the partnership the amount of P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the following
additional amounts:
(1) P7,497.80 items omitted from the books of partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77 less payroll remittances
from the appellant in amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction site.
With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting the
findings of the trial which we find to be in accord with the evidence:
To enhance defendant's theory that he should be credited P24,239.48, he presented checks
allegedly given to plaintiff and the latter's brother, Uy Han, marked as Exhibits 2 to 11. However,
defendant admitted that said cheeks were not entered nor record their books of account, as
expenses for and in behalf of partnership or its affairs. On the other hand, Uy Han testified that of the
cheeks he received were exchange for cash, while other used in the purchase of spare parts
requisitioned by defendant. This testimony was not refuted to the satisfaction of the Court,
considering that Han's explanation thereof is the more plausible because if they were employed in
the prosecution of the partners projects, the corresponding disbursements would have certainly been
recorded in its books, which is not the case. Taking into account defendant is the custodian of the
books of account, his failure to so enter therein the alleged disbursements, accentuates the falsity of
his claim on this point. 40
Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in view of
his proclivity to favor the appellant and because of the inaccurate accounting procedure adopted by
him in auditing the books of account of the partnership unlike Mr. Tayag's report which inspires faith
and credence. 41
As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the appellee out of
his personal funds which not been entered in the books of the partnership but which been
recognized and conceded to by the auditor designated by the appellant who included the said
amount under Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear and
convincing. 43
As for the sum of of P26,027.04, the same represents the expenses which the appelle paid in
connection withe the projects and not entered in the books of the partnership since all vouchers and
receipts were sent to the Manila office which were under the control of the appellant. However,
officer which were under the control of the appellant. However, a list of these expenses are
incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.

In resume', the appelllee's credit balance would be as follows:

+.wph!1

Undisputed
balance as of
Dec. 1967

Add: Items
omitted from
the books but

P 8,242.

recognized
and charged
to
Miscellaneous

Expenses by
Mr. Ablaza

7,497.80

Add:
Payrolls
paid by
the
appelle
e

P128,
103.7
7

Less:
Payro
ll
remitt
ance
s
recei
ved

63,00
0.00

Add:
Other
expe
nses

65,10
3.77

incurr
ed at
the

site
(Exhs
, ZZ,
ZZ-1
to
ZZ-4)

26,02
7.04

TOTA
L

P106,
871.0
0

At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00 which he
also advanced for the construction projects but which were not included in the Commissioner's
Report. 44
Appellee's total investments in the partnership would, therefore, be:

Appellee's total
credits

P106,871.
00

Add:
unrecorded
balances
for the
month of
Dec. 1957
(Exhs.
KKK, KK-1
to KKK_19,
KKK-22)

3,917,39

Add:
Payments
to Munoz,
as

4,665.00

subcontract
or of five,
(5) Bridges
(p. 264 tsn;
Exhs. KKK20, KKK21)

Total
Investment
s

Pl
15,453.39

Regarding the award of P200,000.00 as his share in the unrealized profits of the partnership, the
appellant contends that the findings of the trial court that the amount of P400,000.00 as reasonable
profits of the partnership venture is without any basis and is not supported by the evidence. The
appemnt maintains that the lower court, in making its determination, did not take into consideration
the great risks involved in business operations involving as it does the completion of the projects
within a definite period of time, in the face of adverse and often unpredictable circumstances, as well
as the fact that the appellee, who was in charge of the projects in the field, contributed in a large
measure to the failure of the partnership to realize such profits by his field management.
This argument must be overruled in the light of the law and evidence on the matter. Under Article
2200 of the Civil Code, indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain. In other words lucrum
cessans is also a basis for indemnification.
Has the appellee failed to make profits because of appellant's breach of contract?
There is no doubt that the contracting business is a profitable one and that the U.P. Construction
Company derived some profits from' co io oa ects its sub ntracts in the construction of the road and
bridges projects its deficient working capital and the juggling of its funds by the appellant.
Contrary to the appellant's claim, the partnership showed some profits during the period from July 2,
1956 to December 31, 1957. If the Profit and Loss Statement 45 showed a net loss of P134,019.43, this
was primarily due to the confusing accounting method employed by the auditor who intermixed h and
accthe cas ruamethod of accounting and the erroneous inclusion of certain items, like personal expenses
of the appellant and afteged extraordinary losses due to an accidental plane crash, in the operating
expenses of the partnership, Corrected, the Profit and Loss Statement would indicate a net profit of
P41,611.28.
For the period from January 1, 1958 to September 30, 1959, the partnership admittedly made a net
profit of P52,943.89. 46
Besides, as We have heretofore pointed out, the appellant received from the Bureau of Public
Highways, in payment of the zonstruction projects in question, the amount of P1,047,181.01 47 and
disbursed the amount of P952,839.77, 48 leaving an unaccounted balance of P94,342.24. Obviously, this
amount is also part of the profits of the partnership.

During the trial of this case, it was discovered that the appellant had money and credits receivable
froin the projects in question, in the custody of the Bureau of Public Highways, in the amount of
P128,669.75, representing the 10% retention of said projects.49 After the trial of this case, it was shown
that the total retentions Wucted from the appemnt amounted to P145,358.00. 50 Surely, these retained
amounts also form part of the profits of the partnership.
Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and
subcontract agreements, and considering the fact that the total contract amount of these two
projects is P2,327,335.76, it is reasonable to expect that the partnership would have earned much
more than the P334,255.61 We have hereinabove indicated. The award, therefore, made by the trial
court of the amount of P200,000.00, as compensatory damages, is not speculative, but based on
reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed
with costs against the appellant, it being understood that the liability mentioned herein shall be home
by the estate of the deceased Bartolome Puzon, represented in this instance by the administrator
thereof, Franco Puzon.
Ramnani v CA

Execution of a judgment is the fruit and end of the suit and is the life of the
law. To frustrate it for almost a decade by means of deception and dilatory schemes
on the part of the losing litigants is to frustrate all the efforts, time and expenditure of
the courts. This Courts Decision in this case became final and executory as early as
1992. After years of continuous wrangling during the execution stage, it is
unfortunate that the judgment still awaits full implementation. Delaying tactics
employed by the said losing litigants have prevented the orderly execution. It is in the
interest of justice that we should write finisto this litigation.
For resolution is the Motion for Reconsideration of this Courts Resolution dated
August 17, 1999 filed by spouses Ishwar and Sonya Ramnani. Our assailed
Resolution denied their Manifestation and Urgent Motion dated May 6, 1994 and
affirmed the orders of the Regional Trial Court of Pasay City, Branch 119 dated
January 27 and April 5, 1994.
The factual backdrop, culled from the voluminous records in these cases, are:
In the latter part of 1965, spouses Ishwar Jethmal Ramnani, an American citizen,
and Sonya Jethmal Ramnani, both from New York (hereinafter referred to as spouses
Ishwar), invested substantial amount of money for a profitable business venture in the
Philippines. Since they could not personally manage their investments, they

appointed two of Ishwars brothers, Choithram Jethmal Ramnani and Navalrai

Jethmal Ramnani, as their attorneys-in-fact.
Choithram decided to invest in the real estate business. On February 1, 1966 and
May 16, 1966, Choithram, in his capacity as attorney-in-fact of Ishwar, bought two
parcels of land located in Barrio Ugong, Pasig, Rizal from Ortigas & Company, Ltd.
Partnership (Ortigas, for short) and had buildings constructed thereon. Through the
industry and genius of Choithram, Ishwars property was developed and improved
into a valuable asset worth millions of pesos.
Unfortunately, Choithram, while showing himself to be a good manager, proved
unfaithful to the trust reposed in him by spouses Ishwar. Without their knowledge,
Choithram started to appropriate his brothers property and other assets as his own.
In 1973, upon complete payments of Ishwars lots which he purchased from
Ortigas, Choithram caused the latter to execute the corresponding deeds of sale in
favor of his daughter-in-law, Nirmla. Eventually, TCT Nos. 403150 and 403152 were
issued by the Registry of Deeds of Rizal in her favor.
Choithram also donated 2,500 shares of stock in a garment corporation to his
children. He also fraudulently mortgaged $3,000,000.00 worth of the spouses
property to Overseas Holding Co. Records show that the $3,000,000.00 mortgage
was executed on June 20, 1989, or 6 days before the corporation was organized.
Spouses Ishwar learned what Choithram was doing. Hence, they asked him to
render an accounting, but there was none forthcoming. They then revoked
Choithrams general power of attorney. He earnestly pleaded in writing to Ishwar to
issue another power of attorney, but to no avail.
Choithram repudiated all well-meaning efforts to solve the controversy within the
Ramnani family. Moreover, he denied the genuine nature of the trust relationship
between him and his brother Ishwar.
Agitated, spouses Ishwar filed on October 6, 1982 with the Court of First Instance
of Rizal a complaint for reconveyance and damages against Choithram and his son
Moti and daughter-in-law Nirmla (Choithram family for short). Ironically, the CFI
dismissed the complaint and recognized Choithrams full ownership of the questioned
two parcels of land. On appeal, the Court of Appeals reversed the trial courts

decision, finding that spouses Ishwar entrusted capital to Choithram to be invested in

the Philippines. The appellate court held the Choithram family and Ortigas jointly
and severally liable to spouses Ishwar.
Subsequently, the Court of Appeals modified its earlier decision by dismissing the
case against Ortigas. Both parties appealed to this Court. In G.R. No. 85494, the
Choithram family vigorously asserted their right of ownership over the disputed lots,
while in G.R. No. 85496, spouses Ishwar faulted the Court of Appeals in dismissing
the case against Ortigas.
In the meantime, Choithram continued to dissipate Ishwars assets.
On May 7, 1991, this Court rendered a joint Decision in G.R.
Nos. 85494 and 85496, now in 196 SCRA 731. This Court held that Choithram
violated the trust relationship between him and Ishwar. Considering, however, that the
two protagonists are brothers and that Choithram made wise investments of spouses
Ishwars money, this Court applied a Solomonic solution by dividing equally between
spouses Ishwar and the Choithram family the two parcels of land subject of the
litigation, including all the improvements thereon and income from 1967. This Court
also ruled that Ortigas is solidarily liable with Choithram family to spouses Ishwar
because of its bad faith in executing the deeds of sale in favor of Nirmla despite its
knowledge that Choithrams general power of attorney had been revoked by Ishwar.
Later, this Court realized that its Solomonic Decision, in effect, formulated a new
contract for the parties. Thus, in its Resolution dated February 26, 1992, this Court
declared that the disputed lots are solely owned by spouses Ishwar. The motion for
reconsideration of the Choithram family was denied with finality.
On March 18, 1992, this Court also denied Choithrams motion for clarification
and/or second motion for reconsideration. Entry of final judgment was then
made on March 20, 1992.
Still obstinate to abide with this Courts final judgment, the Choithram family
filed a petition for certiorari, through the Overseas Holding Corporation, (docketed
as G.R. No. 105071) seeking to set aside as unconstitutional this Courts May 7,
1991 joint Decision declaring, among others, that the mortgaged contract involving
the two parcels of land executed between Nirmla and Overseas Holding is void. This

Court denied the said petition for being in the nature of a third motion for
reconsideration and stressed that a writ of certiorari may not issue from the Court en
banc to annul a Decision of one of the Courts Divisions. This Court forthwith
ordered the Regional Trial Court of Pasay City, Branch 112 to execute with dispatch
its joint Decision of May 7, 1991 and Resolution dated February 26, 1992. The
parties and counsel were also warned to desist from further assailing an already final
Decision and raising anew issues already passed upon.
Per Resolution of this Court dated August 26, 1992, the case was re-assigned to
the RTC of Pasay City, Branch 119. Thereafter, execution proceedings and hearing on
the valuation of the disputed properties ensued.
Because of the Choithram familys continuing delaying tactics and evasive moves
against the execution of this Courts Decision and due to the desire of spouses Ishwar
to quickly obtain the fruits of their many years of court battle, the latter were
constrained to agree to a compromise agreement which was denominated as Tripartite
Agreement.
It bears stressing that spouses Ishwar were claiming for the value of the two lots,
not the lots themselves. To clear up this issue, the July 19, 1993 Tripartite Agreement
fixed the valuation at P65,000,000.00 which the Choithram family, together with
Ortigas, agreed to pay spouses Ishwar, thus:
(a) P40 Million upon the signing hereof by the parties;
b) P10 Million within thirty (30) days from July 5, 1993 or on or before
September 3, 1993;
c) P15 Million within sixty (60) days from July 5, 1993 or on or before
September 3, 1993;
Choithram and/or Harish Ramnani shall issue to plaintiffs postdated checks on the
amounts covered by paragraph (b and c above) immediately encashable on due
dates.[1]
There is also a specific agreement on default by the Choithram family, thus:

6. In the event of default of defendants Ortigas and Choithram Jethmal Ramnani to

pay any of the amounts within the agreed period, proceedings in execution, including
hearings on valuation, shall immediately resume and plaintiff shall be entitled to
enforce and execute the Supreme Courts judgment against the defendants in
accordance with the terms thereof and the final and total monetary entitlements
described in paragraph 1 above, less whatever amounts plaintiffs may have partially
recovered from the defendants. In case of execution of the balance due Ishwar as
finally determined by the Court, plaintiffs shall proceeds to first sell the subject
properties mentioned in par. 6 hereof.[2]
The Choithram family paid spouses Ishwar 40,000,000.00, as agreed
upon. However, when the payment of the P25,000,000.00 balance became due, they
defaulted and again balked at complying with their commitments under the
compromise agreement.
On August 3, 1993, or one day before August 4, 1993, the due date of the second
payment, the Choithram family wrote the Bureau of Internal Revenue, ostensibly
requesting clarification whether or not, as payors of P65 million, they should pay the
government any tax. Significantly, they did not inform the BIR that Ishwar is a
permanent resident alien here and that the amount he will receive under the Tripartite
Agreement is not subject to withholding tax at source. In response, the BIR
Commissioner, in a letter dated August 6, 1993, informed Choithram and Ortigas that
the 65 million compromise settlement is subject to 30% withholding tax collectible
against spouses Ishwar and at the same time constituted Choithram and Ortigas as
withholding agents.
The side issue arising from the Choithram familys report to BIR of alleged nonpayment of taxes due was eventually decided in favor of spouses Ishwar. But it gave
the Choithram family a convenient excuse for not complying with their obligation to
pay when due the balance under the compromise agreement.
On September 3, 1993, the Choithram family filed a manifestation tendering
payment of the balance of P25 million as evidenced by checks payable, not to spouses
Ishwar, but to the Branch Clerk of Court of the RTC. Subsequently, or particularly on
September 7, 1993, or three days after the maturity date of the second set of checks,
spouses Ishwar filed with the court a quo an urgent motion for immediate resumption
of hearing, arguing that pursuant to Paragraph 6 of the Tripartite Agreement,

Choithram and Ortigas were already in default, hence, execution proceedings should
be resumed. The trial court, in its assailed order dated January 27, 1994, denied the
motion, thus:
That defendants desire to pay the balance of the amount stipulated in their Tripartite
Agreement is apparent. Under the aforestated facts and circumstances, is it equitable
that they be held in default? Article 1229 of the Civil Code gives the court the power
to equitably reduce penalty when the principal obligation has been partly complied
with by the debtor. In default cases, the court may likewise reconsider its order of
default when the interest of justice so dictates.
In order not to put to naught all the efforts of the parties in forging the Tripartite
Agreement which took them a long period of time to arrive at, the branch Clerk of
Court is directed to immediately endorse to the counsel of plaintiffs, up to the time the
same is encashed, under the following terms:
1. That the Quasha Law (F)irm receives the balance of the amount of P25 million in
compliance with the Tripartite Agreement, adverted to, and subject to the tax claim of the
BIR;
2. That it shall release to the plaintiffs the amount due them after the tax matter on said amount
shall have been resolved, and in the meanwhile the said amount shall be deposited in an
interest bearing account and/or money placement in treasury bills; and
3. T he upon receipt of the aforestated amount, plaintiffs shall execute the Deed of Assignment
of Judgment in favor of defendants Ortigas & Co., Ltd., Partnership and Choithram Jethmal
Ramnani in the proportion agreed upon by the said defendants.

In view of the foregoing, plaintiffs Motion for continuation of hearing is DENIED. [3]
Spouses Ishwar filed a Motion for Reconsideration but was denied. This
prompted them to file with this Court a Manifestation and Urgent Motion
contending inter alia that the lower court committed grave abuse of discretion in
denying their motion for resumption of the execution proceedings.
On August 17, 1999, this Court issued a Resolution denying spouses Ishwars
Manifestation and Urgent Motion and sustaining the challenged orders of the RTC.
Hence, the present Motion for Reconsideration of the said Resolution.

In their motion, spouses Ishwar contend that we are rewarding bad faith and
fraudulent maneuverings on the part of the Choitram family. To allow noncompliance with the terms of the Tripartite Agreement and, therefore, a deviation from
our May 7, 1991 Decision and February 26, 1992 Resolution is an act of injustice.
Spouses Ishwar specified in their motion the reprehensible acts of Choithram,
among them:
a) Patent violation of a clear compromise agreement burdensome to Ishwar Ramnani;
b) In spite of Ishwars generous concessions, Choithram repaid the favors with bad faith,
delaying tactics and sinister moves intended to thwart him (Ishwar) from getting what is
justly due him, resulting in extreme anxiety, considerable distress and needless expenses on
his part;
c) Filing fabricated charges with the BIR regarding Ishwars alleged tax liabilities, all of them
found without basis but only after causing the delayed settlement of what Choithram
promised to pay under the compromise agreement; and
d) Continued maneuver to delay or prevent the execution of this Courts Decision dated May 7,
1991 and February 26, 1992.

In what spouses Ishwar call a plea for simple justice, they now ask, Should
deceit and unscrupulous(ness) be rewarded?
It is elementary that nothing beneficial or lucrative should arise from subterfuge
or deception. Bad faith has characterized the history of this case. It started with
Choithrams violations of the trust agreement and has continued throughout the
execution stage. Dilatory tactics, including a misleading report to the BIR, have
resulted in non-implementation for ten (10) years of a final and executory Decision of
this Court. Moreover, there have been late and faulty payments under a compromise
agreement.
We rule that under the above circumstances, the Choitram family should strictly
comply with the terms of the compromise agreement in an expeditious manner.
A compromise is defined in the Civil Code as:
Art. 2028. A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.

A compromise is intended to prevent or put an end to a lawsuit. The parties adjust

their difficulties by mutual consent. Each of the parties prefers the terms of the
compromise to their earlier hope of gaining, balanced by the danger of losing. It is
intended to end litigation because of the uncertainty of its result. Prolonging a
litigation is anathema to a compromise agreement.
In this particular case, there is no longer any uncertainty over the result of
litigation. Judgments were rendered ten (10) years back. Spouses Ishwar have won
their cases. The Choithram family should have accepted this settled matter a long
time ago. Spouses Ishwar agreed to the compromise simply because after more than a
decade of litigation, their lots or the value thereof have not been returned to them. In
fact, up to the present time, or 17 years from the filing of the complaint and more than
nine (9) years after our denied-with-finality judgment, they have not been fully
paid.
A compromise agreement is valid and binding, not because it is the settlement of a
controversy. Once the compromise is perfected, the parties are bound to abide by it in
good faith.
In the cases at bar, the Choithram family persisted in dilatory tactics even after the
court battle was supposed to have ended with finality. Their claims have been
adjudged invalid but they continued the conflict.
Under the compromise agreement, the post-dated check for P10,000,000.00
should have been cashed not later than August 4, 1993, and the P15,000,000.00 check
not later than September 3, 1993. The post dated checks could not be cashed. Instead,
a P10,000,000.00 check was tendered on September 12, 1993, or 8 days late. The
checks were personal checks payable to the Clerk of Court, meaning that spouses
Ishwar could not even encash them until ordered by the trial court. The check for
P15,000,000.00 was tendered on September 12, 1993, or 8 days late. It has to be
emphasized at this point that the compromise agreement is evidently in amounts
substantially less than what the Choitram family should pay spouses Ishwar. The
compromise is spouses Ishwars concession to the Choithram family for them to end
the seemingly interminable litigation.

We thus rule that the trial court committed reversible error when it applied
equitable considerations under Article 1229 of the Civil Code to justify the defaults of
Choithram and Ortigas.
In Commercial Credit Corporation of Cagayan de Oro v. Court of Appeals, [4] this
Court held:
(Article 1229) . . . applies only to obligations or contract, subject of a litigation, the
condition being that the same has been partly or irregularly complied with by the
debtor. The provision also applies even if there has been no performance, as long as
the penalty is iniquitous or unconscionable. It cannot apply to a final and executory
judgment.
Moreover, equity does not apply to a situation when fraud and dilatory schemes
exist. The incidents, during the supposed tender of payment, support a finding of
continuing insincerity, recalcitrance, and bad faith on the part of the Choitram
family. But these were not taken into account by the trial court.
In the first place, the tender of payment was effected late with no valid reason for
the delay.
Second, the tender of payment is of doubtful validity. It bears reiterating that the
checks were personal checks payable, not to spouses Ishwar, but to the RTC Branch
Clerk of Court. They were not managers or cashiers checks. Spouses Ishwar also
state that the tender was conditional. It carried what they called unacceptable
conditions. The checks could not be indorsed to them because they were Not
transferable. The term and maturity were limited in nature.
Third and most important, the intent to really pay as agreed upon was missing. It
was not a genuine or sincere tender. Instead of making good on the stipulated
payment, the Choithram family created a situation in such a way that the balance of
P25 million was to be paid to the Bureau of Internal Revenue, not to spouses
Ishwar. Thus, Choitram peremptorily wrote a poison letter to the BIR requesting
clarification on the alleged tax liabilities of spouses Ishwar, and of his
(Choithrams) obligations as payor. Choithram maliciously concealed from the BIR
the material fact that Ishwar, although an alien, is a permanent resident of the
Philippines, and his income and amounts received under the Tripartite Agreement are,

therefore, not subject to 30% withholding tax at source. Under the Tax Code, a final
30% withholding tax at source is mandated to be collected only from non-resident
aliens. The BIR promptly issued an assessment based on an incomplete presentation
of facts by Choithram, directing him to withhold Twenty Million One Hundred Fifty
Thousand Pesos (P20,150,000.00)
For the mischief of the Choithram family, spouses Ishwar were needlessly
compelled to litigate before the Court of Tax Appeals and subsequently before the
Court of Appeals, and in the process wasted time and incurred expenses just to correct
the harm done by the said family. The Court of Tax appeals reversed the BIR and
ruled that Ishwar is a resident alien and his income is not subject to 30% automatic
final withholding tax at source. Subsequently, the Court of Appeals affirmed the CTA
ruling on the status of Ishwar as a resident alien.
The administrative and judicial processes which Ishwar had to undergo because of
the deceit and unscrupulous acts of the Choithram family consumed five (5)
exhausting years, from 1993 until the dispute was finally resolved in 1998. Indeed,
incessant bad faith on the part of the Family Choithram is evident.
A second hard look at the history of these cases shows that it was a mis-step and
when we upheld the orders of the trial court dated January 7, 1994 and April 5,
1994. They should be rescinded.
By way of conclusion, it is elementary that if a party fails or refuses to abide by a
compromise agreement, the other party may either enforce the compromise or regard
it as rescinded and insist upon his original demand. [5] This rule must be followed. For
indeed, it is not the province of the court to alter a contract by construction or to
make a new contract for the parties; its duty is confined to the interpretation of the one
which they have made for themselves without regard to its wisdom or folly as the
court cannot supply material stipulations or read into the contract words which it does
not contain.[6]
WHEREFORE, this Courts Resolution dated August 17, 1999 is
reconsidered. The January 27, 1994 and April 5, 1994 orders of the Regional Trial
Court, Branch 119, Pasay City, in Civil Case No. 0534-P are set aside. The trial court
is ordered to speedily enforce and execute this Courts final and executory Decision
dated May 7, 1991 and the Resolution dated February 26, 1992; and to expeditiously

resume and complete the proceedings in execution, including the valuation of the
parcels of land covered by TCT Nos. 403150 and 403152 of the Registry of Deeds of
Pasig City for the purpose of determining the final and total monetary entitlement of
spouses Ishwar Jethmal and Sonya Jethmal Ramnani, less the amount of Forty Million
(40,000,000.00) Pesos received by them, strictly according to the tenor of the above
Decision and Resolution of this Court. The trial court is further directed to report the
progress of its compliance within 15 days from notice and every 10 days thereafter,
until the execution is terminated.
SO ORDERED.