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AURELIO K. LITONJUA, JR., Petitioner, vs.EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT’L SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES), Respondents.

D E C I S I O N

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 20041 in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07, 2004,2 denying petitioner’s motion for reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations for specific performance and accounting. In his complaint,3 docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court,4 Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations. Yang is described in the complaint as petitioner’s and Eduardo’s partner in their Odeon Theater investment.5 The same complaint also contained the following material averments:

3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the continuation of their family business and common family funds ….

3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and made an integral part as Annex "A" and the portion referring to [Aurelio] submarked as Annex "A-1 ".

3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio’s] retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. . . .

4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had accumulated in their joint venture/partnership various assets including but not limited to the corporate defendants and [their] respective assets.

4.02 In addition . . . the joint venture/partnership … had also acquired [various other assets], but Eduardo caused to be registered in the names of other parties….

xxx xxx xxx

4.04 The substantial assets of most of the corporate defendants consist of real properties …. A list of some of these real properties is attached hereto and made an integral part as Annex "B".

xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting and liquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of these real properties… a notice of lis pendens …. (Emphasis in the original; underscoring and words in bracket added.)

For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for him by his brother Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. ….

I am trying my best to mold you the way I work so you can follow the pattern …. You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to run it the way I am trying to run it because I will be all alone and I will depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole thing of what I have and what you are entitled to. …. It will be you and me alone on this. If ever I pass away, I want you to take care of all of this. You keep my share for my two sons are ready take over but give them the chance to run the company which I have built.

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack …and Valley Golf … because you have been good. The rest will be in stocks from all the corporations which I repeat, ten percent (10%) equity. 6

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER With Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly that portion thereof depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no cause of action may be derived from the actionable document, i.e., Annex "A-1", being void under the terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to do, if any, under Annex "A-1", are unenforceable under the provisions of the Statute of Frauds.7

For his part, Yang - who was served with summons long after the other defendants submitted their answer – moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint does not state any.8 Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9 To this motion, petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10

Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated March 5, 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10, 2003.11

In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for reconsideration12 and Yang’s motion to dismiss. The following then transpired insofar as Yang is concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss13 to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion was denied in an Order of July 4, 2003.14

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,15 to nullify the separate orders of the trial court, the first denying his motion to dismiss the basic complaint and, the second, denying his motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious haste attended the issuance of the trial court’s aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief from the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of Authorities, the appellate court came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing as follows:

WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a quo is hereby dismissed.

SO ORDERED.17 (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as evidenced by the actionable documents, Annex "A" and "A-1" attached to the complaint, and upon which petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate defendants a quo is "void or legally inexistent".

In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailed Resolution of December 7, 2004.18 .

Hence, petitioner’s present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable document because this was not a public instrument and immovable properties were contributed to the partnership.

B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to support his pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or payment to him, as Eduardo’s and Yang’s partner, of his partnership/joint venture share, after an accounting has been duly conducted of what he deems to be partnership/joint venture property.19

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses between them.20 A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves.21 A joint

venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint venture is generally governed by the law on partnership.22

The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and respondent Eduardo are partners in the theatre, shipping and realty business, as one claims but which the other denies. And the issue bearing on the first assigned error relates to the question of what legal provision is applicable under the premises, petitioner seeking, as it were, to enforce the actionable document - Annex "A-1" - which he depicts in his complaint to be the contract of partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the following provisions of the Civil Code:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that Annex "A-1" does not meet the public instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, Annex "A-1" cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of petitioner’s contribution, if any, to the supposed partnership.

The CA, addressing the foregoing query, correctly stated that petitioner’s contribution consisted of immovables and real rights. Wrote that court:

A further examination of the allegations in the complaint would show that [petitioner’s] contribution to the so-called "partnership/joint venture" was his supposed share in the family business that is consisting of movie theaters, shipping and land development under paragraph

3.02 of the complaint. In other words, his contribution as a partner in the alleged partnership/joint venture consisted of immovable properties and real rights. ….23

Significantly enough, petitioner matter-of-factly concurred with the appellate court’s observation that, prescinding from what he himself alleged in his basic complaint, his contribution to the partnership consisted of his share in the Litonjua family businesses which owned variable immovable properties. Petitioner’s assertion in his motion for reconsideration24 of the CA’s decision, that "what was to be contributed to the business [of the partnership] was [petitioner’s] industry and his share in the family [theatre and land development] business" leaves no room for speculation as to what petitioner contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as long real property or real rights are initially brought into the partnership. In short, it is really of no moment which of the partners, or, in this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more important consideration is that real property was contributed, in which case an inventory of the contributed property duly signed by the parties should be attached to the public instrument, else there is legally no partnership to speak of.

Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in question were not contributed, but were acquired after the formation of the supposed partnership. Needless to stress, the Court cannot accord cogency to this specious argument. For, as earlier stated, petitioner himself admitted contributing his share in the supposed shipping, movie theatres and realty development family businesses which already owned immovables even before Annex "A-1" was allegedly executed.

Considering thus the value and nature of petitioner’s alleged contribution to the purported partnership, the Court, even if so disposed, cannot plausibly extend Annex "A-1" the legal effects that petitioner so desires and pleads to be given. Annex "A-1", in fine, cannot support the existence of the partnership sued upon and sought to be enforced. The legal and factual milieu of the case calls for this disposition. A partnership may be constituted in any form, save when immovable property or real rights are contributed thereto or when the partnership has a capital of at least P3,000.00, in which case a public instrument shall be necessary.25 And if only to stress what has repeatedly been articulated, an inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its assailed Decision26 about the probative value and legal effect of Annex "A-1" commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the alleged partnership, the "Memorandum" (Annex "A" of the complaint) which purports to establish the said "partnership/joint venture" is NOT a public instrument and there was NO inventory of the immovable property duly signed by the parties. As such, the said "Memorandum" … is null and void for purposes of establishing the existence of a valid contract of partnership. Indeed, because of the failure to comply with the essential formalities of a valid

contract, the purported "partnership/joint venture" is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations in the complaint, including the actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right which could be violated by the [individual respondents] herein. As a consequence, [petitioner’s] complaint does NOT state a valid cause of action because NOT all the essential elements of a cause of action are present. (Underscoring and words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CA’s equally assailed Resolution of December 7, 200427 denying petitioner’s motion for reconsideration:

Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions which were brought to its attention by herein [respondents] in the their pleadings. In our evaluation of [petitioner’s] complaint, the latter alleged inter alia to have contributed immovable properties to the alleged partnership but the actionable document is not a public document and there was no inventory of immovable properties signed by the parties. Both the allegations in the complaint and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could be violated by [respondents]. (Words in bracket added.)

Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming its inefficacy or nullity as a partnership document, nevertheless created demandable rights in his favor. As petitioner succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights and obligations of the parties and which rights and obligations may be enforceable and demandable. Just because the relationship created by the agreement cannot be specifically labeled or pigeonholed into a category of nominate contract does not mean it is void or unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however, cannot really be faulted for not yielding to petitioner’s dubious stratagem of altering his theory of joint venture/partnership to an innominate contract. For, at bottom, the appellate court’s certiorari jurisdiction was circumscribed by what was alleged to have been the order/s issued by the trial court in grave abuse of discretion. As respondent Yang pointedly observed,28 since the parties’ basic position had been well-defined, that of petitioner being that the actionable document established a partnership/joint venture, it is on those positions that the appellate court exercised its certiorari jurisdiction. Petitioner’s act of changing his original theory is an impermissible practice and constitutes, as the CA aptly declared, an admission of the untenability of such theory in the first place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended that the actionable instrument may be considered an innominate contract. xxx Verily, this now changes [petitioner’s] theory of the case which is not only prohibited by the Rules but also is an implied admission that the very theory he himself … has adopted, filed and prosecuted before the respondent court is erroneous.

Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of the actionable document being a partnership document. If anything, it is so obvious we do have to test the sufficiency of the cause of action on the basis of partnership law xxx.29 (Emphasis in the original; Words in bracket added).

But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected innominate contract, petitioner’s complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be over-emphasized that petitioner points to Eduardo as the author of Annex "A-1". Withal, even on this consideration alone, petitioner’s claim against Yang is doomed from the very start.

As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as vesting petitioner with a right to demand from respondent Eduardo the observance of a determinate conduct, reads:

xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed wrote Annex "A-1", is a promise which is not to be performed within one year from "contract" execution on June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is covered by the Statute of Frauds and ergo unenforceable for non-compliance therewith.30 By force of the statute of frauds, an agreement that by its terms is not to be performed within a year from the making thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing and subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by the statute of frauds is complied with.31

Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity component of the promise was intended to go to a common fund would be to read something not written in Annex "A-1". Thus, even this angle alone argues against the very idea of a partnership, the creation of which requires two or more contracting minds mutually agreeing to contribute money, property or industry to a common fund with the intention of dividing the profits between or among themselves.32

In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific performance anchored on an actionable document of partnership which is legally inexistent or void or, at best, unenforceable does not state a cause of action as against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained against respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see its way clear on how the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could not have had any form of business relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner. In fact, attendant circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was "for the continuation of their family business and common family funds which were theretofore being mainly managed by Eduardo." 33 But Yang denies kinship with the Litonjua family and petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let alone his proportional share in the profits. But such allegation cannot, however, be made because, as aptly observed by the CA, the actionable document did not contain such provision, let alone mention the name of Yang. How, indeed, could a person be considered a partner when the document purporting to establish the partnership contract did not even mention his name.

3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the [respondent] corporations," while "Bobby is his and Eduardo’s partner in their Odeon Theater investment’ (par. 2.03). This means that the partnership between petitioner and Eduardo came first; Yang became their partner in their Odeon Theater investment thereafter. Several paragraphs later, however, petitioner would contradict himself by alleging that his "investment and that of Eduardo and Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct investments in several corporation including but not limited to [six] corporate respondents" This simply means that the "Odeon Theatre business" came before the corporate respondents. Significantly enough, petitioner refers to the corporate respondents as "progeny" of the Odeon Theatre business.34

Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and formulated the legal situation in the following wise:

[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a "partner" of [Eduardo] and the [petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and direct investments in several corporations, thus:

xxx xxx xxx

Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with petitioner and the …respondent. However, there was NO allegation in the complaint which directly alleged how the supposed contractual relation was created between [petitioner] and …Yang. More importantly, however, the foregoing ruling of this Court that the purported partnership between [Eduardo] is void and legally inexistent directly affects said claim against …Yang. Since [petitioner] is trying to establish his claim against … Yang by linking him to the legally inexistent partnership . . . such attempt had become futile because there was NOTHING that would contractually connect [petitioner] and … Yang. To establish a valid cause of action, the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged partnership between [petitioner] and respondent [Eduardo], including their alleged investment in the Odeon Theater. A statement of facts on those matters is pivotal to the complaint as they would constitute the ultimate facts necessary to establish the elements of a cause of action against … Yang. 35

Pressing its point, the CA later stated in its resolution denying petitioner’s motion for reconsideration the following:

xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is controlling. Suffice it to state, We have not ignored the actionable document … As a matter of fact, We emphasized in our decision … that insofar as [Yang] is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a person not mentioned in a document purporting to establish a partnership could be considered a partner.36 (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as peremptorily determined by the CA, has been discussed at length earlier and need not detain us long. Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a different tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued in his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is petitioner’s statement in par. #8 of his motion for reconsideration of the CA’s decision combined with what he said in par. # 43 of this petition, as follows:

8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal matter. What is determinative for purposes of sufficiency of the complainant’s allegations, is whether the actionable document bears out an actionable contract – be it a partnership, a joint venture or whatever or some innominate contract … It may be noted that one kind of innominate contract is what is known as du ut facias (I give that you may do).37

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307).38

Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence, the proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate court.39 On the same rationale, an issue which was neither averred in the complaint cannot be raised for the first time on appeal.40 It is not difficult,

therefore, to agree with the CA when it made short shrift of petitioner’s innominate contract theory on the basis of the foregoing basic reasons.

Petitioner’s protestation that his act of introducing the concept of innominate contract was not a case of changing theories but of supporting his pleaded cause of action – that of the existence of a partnership - by another legal perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his motion for reconsideration of the CA’s decision virtually relegates partnership as a fall-back theory. Two paragraphs later, in the same notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to pursue the original cause of action or altogether abandoning the same, thus:

12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable document attached to the complaint does not establish a contractual relationship between [petitioner] and … Eduardo, Sr. and Roberto T Yang simply because his document does not create a partnership or a joint venture. This is … a myopic reading of the actionable document.

Per the Court’s own count, petitioner used in his complaint the mixed words "joint venture/partnership" nineteen (19) times and the term "partner" four (4) times. He made reference to the "law of joint venture/partnership [being applicable] to the business relationship … between [him], Eduardo and Bobby [Yang]" and to his "rights in all specific properties of their joint venture/partnership". Given this consideration, petitioner’s right of action against respondents Eduardo and Yang doubtless pivots on the existence of the partnership between the three of them, as purportedly evidenced by the undated and unsigned Annex "A-1". A void Annex "A-1", as an actionable document of partnership, would strip petitioner of a cause of action under the premises. A complaint for delivery and accounting of partnership property based on such void or legally non-existent actionable document is dismissible for failure to state of action. So, in gist, said the Court of Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, petitioners, vs.DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ, respondents.

PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latter's dissolution, liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision disposed as follows:

"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision is rendered ordering the [petitioners] jointly and severally to pay and reimburse to [respondents] the amount of P253,114.00. No pronouncement as to costs."4

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750,000 for the operation of a restaurant and catering business under the name "Aquarius Food House and Catering Services."5 Villareal was appointed general manager and Carmelito Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984. His capital contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita Ramirez.6

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000 was refunded to him in cash by agreement of the partners.7

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased rental. The restaurant furniture and equipment were deposited in the respondents' house for storage.8

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in continuing their partnership or in reopening the restaurant, and that they were accepting the latter's offer to return their capital contribution.9

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the request for the return of their one-third share in the equity of the partnership. The repeated oral and written requests were, however, left unheeded.10

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that respondents had been paid, upon the turnover to them of furniture and equipment worth over P400,000; and that the latter had no right to demand a return of their equity because their share, together with the rest of the capital of the partnership, had been spent as a result of irreversible business losses.12

In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant. According to them, if such allegation were true, then the loans incurred by petitioners should be regarded as purely personal and, as such, not chargeable to the partnership. The former further averred that they had not received any regular report or accounting from the latter, who had solely managed the business. Respondents also alleged that they expected the equipment and the furniture stored in their house to be removed by petitioners as soon as the latter found a better location for the restaurant.13

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture and Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were inventoried and appraised at P29,000.15 The display freezer was sold for P5,000 and the proceeds were paid to them.16

After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held there liable as follows:18

"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners] ordering the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorney's fee in the amount of P30,000.00

(c) Costs of suit."

The CA Ruling

The CA held that, although respondents had no right to demand the return of their capital contribution, the partnership was nonetheless dissolved when petitioners lost interest in

continuing the restaurant business with them. Because petitioners never gave a proper accounting of the partnership accounts for liquidation purposes, and because no sufficient evidence was presented to show financial losses, the CA. computed their liability as follows:

"Consequently, since what has been proven is only the outstanding obligation of the partnership in the amount of P240,658.00, although contracted by the partnership before [respondents'] have joined the partnership but in accordance with Article 1826 of the New Civil Code, they are liable which must have to be deducted from the remaining capitalization of the said partnership which is in the amount of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share of [respondents], this amount of P759,342.00 must be divided into three (3) shares or in the amount of P253,114.00 for each share and which is the only amount which [petitioner] will return to [respondents'] representing the contribution to the partnership minus the outstanding debt thereof."19

Hence, this Petition.20

Issues

In their Memorandum,21 petitioners submit the following issues for our consideration:

"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution of the capital contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby treating the capital contribution like a loan, is in accordance with law and jurisprudence;

"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners to jointly and severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record; and

"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs."22

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the latter's share in the partnership; (2) whether the CA's computation of P253,114 as respondents' share is correct; and (3) whether the CA was likewise correct in not assessing costs.

This Court's Ruling

The Petition has merit.

First Issue:Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on March 1, 1987. They found that the dissolution took place when respondents informed petitioners of the intention to discontinue it because of the former's dissatisfaction with,

and loss of trust in, the latter's management of the partnership affairs. These findings were amply supported by the evidence on record. Respondents consequently demanded from petitioners the return of their one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share. Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The partnership has a juridical personality separate and distinct from that of each of the partners."23 Since the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners.24

Second Issue:What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be compensated.25 After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the partners' shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share in the partnership cannot be determined until all the partnership assets will have been liquidated — in other words, sold and converted to cash — and all partnership creditors, if any, paid. The CA's computation of the amount to be refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total capital contribution was equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution at the beginning of the partnership remains intact, unimpaired and available for distribution or return to the partners. Such idea is speculative, conjectural and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of the business. In the present case, the financial statements presented before the trial court showed that the business had made meager profits.26 However, notable therefrom is the omission of any provision for the depreciation27 of the furniture and the equipment. The amortization of the goodwill28 (initially valued at P500,000) is not reflected either. Properly taking these non-cash items into account will show that the partnership was actually sustaining substantial losses, which consequently decreased the capital of the partnership. Both the trial and the appellate courts in fact recognized the decrease of the partnership assets to almost nil, but the latter failed to recognize the consequent corresponding decrease of the capital.

Second, the CA's finding that the partnership had an outstanding obligation in the amount of P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had rejected the contention that the obligation belonged to the partnership for the following reason:

"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The balance sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to different creditors, while the Certification issued by Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being the nominal party defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the partnership to Jesus Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually reduced. When petitioners and respondents ventured into business together, they should have prepared for the fact that their investment would either grow or shrink. In the present case, the investment of respondents substantially dwindled. The original amount of P250,000 which they had invested could no longer be returned to them, because one third of the partnership properties at the time of dissolution did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or disastrous contracts they have entered into with all the required formalities and with full awareness of what they were doing. Courts have no power to relieve them from obligations they have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments.29

Petitioners further argue that respondents acted negligently by permitting the partnership assets in their custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have liquidated these sole tangible assets of the partnership and considered the proceeds as payment of their net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to respondents was precisely the manner of liquidating the partnership and fully settling the latter's share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the purpose of storage. They were unaware that the restaurant would no longer be reopened by petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their capital investment.

Third Issue:Costs

Section 1, Rule 142, provides:

"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise provided in these rules, costs shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise provided by law."

Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for special reasons," to decree otherwise. When a lower court is reversed, the higher court normally does not award costs, because the losing party relied on the lower court's judgment which is presumed to have been issued in good faith, even if found later on to be erroneous. Unless shown to be patently capricious, the award shall not be disturbed by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This disposition is without prejudice to proper proceedings for the accounting, the liquidation and the distribution of the remaining partnership assets, if any. No pronouncement as to costs.

SO ORDERED.

Puno, Corona and Carpio-Morales, JJ ., concur.Sandoval-Gutierrez, J ., on official leave.

SANTIAGO SYJUCO, INC., petitioner, vs.HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF THE NATIONAL CAPITAL JUDICIAL REGION, BRANCH LXXXV, QUEZON CITY, THE CITY SHERIFF OF THE CITY OF MANILA, THE CITY REGISTER OF DEEDS OF THE CITY OF MANILA, EUGENIO LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or THE PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY PATERNO P. CANLAS, respondents.

Doroteo B. Daguna and Felix D. Carao for petitioner.

Paterno Canlas for private respondents.

 

NARVASA, J.:

This case may well serve as a textbook example of how judicial processes, designed to promote the swift and efficient disposition of disputes at law, can be so grossly abused and manipulated as to produce precisely the opposite result; how they can be utilized by parties with small scruples to forestall for an unconscionably long time so essentially simple a matter as making the security given for a just debt answer for its payment.

The records of the present proceedings and of two other cases already decided by this Court expose how indeed the routine procedure of an extrajudicial foreclosure came by dint of brazen forum shopping and other devious maneuvering to grow into a veritable thicket of litigation from which the mortgagee has been trying to extricate itself for the last twenty years.

Back in November 1964, Eugenio Lim, for and in his own behalf and as attorney-in-fact of his mother, the widow Maria Moreno (now deceased) and of his brother Lorenzo, together with his other brothers, Aramis, Mario and Paulino, and his sister, Nila, all hereinafter collectively called the Lims, borrowed from petitioner Santiago Syjuco, Inc. (hereinafter, Syjuco only) the sum of P800,000.00. The loan was given on the security of a first mortgage on property registered in the names of said borrowers as owners in common under Transfer Certificates of Title Numbered 75413 and 75415 of the Registry of Deeds of Manila. Thereafter additional loans on the same security were obtained by the Lims from Syjuco, so that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00, exclusive of interest, and the security had been augmented by bringing into the mortgage other property, also registered as owned pro indiviso by the Lims under two titles: TCT Nos. 75416 and 75418 of the Manila Registry.

There is no dispute about these facts, nor about the additional circumstance that as stipulated in the mortgage deed the obligation matured on November 8, 1967; that the Lims failed to pay it despite demands therefor; that Syjuco consequently caused extra-judicial proceedings for the foreclosure of the mortgage to be commenced by the Sheriff of Manila; and that the latter scheduled the auction sale of the mortgaged property on December 27, 1968. 1 The attempt to foreclose triggered off a legal battle that has dragged on for more than twenty years now, fought through five (5) cases in the trial courts, 2 two (2) in the Court of Appeals, 3 and three (3) more in this Court, 4 with the end only now in sight.

1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO. 00242-R; G.R. NO. L-34683

To stop the foreclosure, the Lims — through Atty. Marcial G. Mendiola, who was later joined by Atty. Raul Correa — filed Civil Case No. 75180 on December 24,1968 in the Court of First Instance of Manila (Branch 5). In their complaint they alleged that their mortgage was void, being usurious for stipulating interest of 23% on top of 11 % that they had been required to pay as "kickback." An order restraining the auction sale was issued two days later, on December 26,1968, premised inter alia on the Lims' express waiver of "their rights to the notice and re-publication of the notice of sale which may be conducted at some future date." 5

On November 25,1970, the Court of First Instance (then presided over by Judge Conrado M. Vasquez 6 rendered judgment finding that usury tained the mortgage without, however, rendering it void, declaring the amount due to be only Pl,136,235.00 and allowing the foreclosure to proceed for satisfaction of the obligation reckoned at only said amount . 7

Syjuco moved for new trial to enable it to present additional evidence to overthrow the finding of usury, and the Court ordered the case reopened for that purpose. The Lims tried to negate that order of reopening in the Court of Appeals, the proceedings being docketed as CA-G.R. No. 00242-R. They failed. The Court of Appeals upheld the Trial Court. The Lims then sought to nullify this action of the Appellate Court; towards that end, they filed with this Court a petition for certiorari and prohibition, docketed as G.R. No. L-34683. But here, too, they failed; their petition was dismissed. 8

Thereafter, and on the basis of the additional evidence adduced by Syjuco on remand of the case from this Court, the Trial Court promulgated an amended decision on August 16, 1972, reversing its previous holding that usury had flawed the Lims' loan obligation. It declared that the principal of said obligation indeed amounted to P2,460,000.00, exclusive of interest at the rate of 12% per annum from November 8, 1967, and, that obligation being already due, the defendants (Syjuco and the Sheriff of Manila) could proceed with the extrajudicial foreclosure of the mortgage given to secure its satisfaction. 9

2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752; G.R. NO. L-45752

On September 9, 1972, Atty. Paterno R. Canlas entered his appearance in Civil Case No. 75180 as counsel for the Lims in collaboration with Atty. Raul Correa, and on the same date appealed to the Court of Appeals from the amended decision of August 16, 1972. 10 In that appeal, which was docketed as CA G.R. No. 51752, Messrs. Canlas and Correa prayed that the loans be declared usurious; that the principal of the loans be found to be in the total amount of Pl,269,505.00 only, and the interest thereon fixed at only 6% per annum from the filing of the complaint; and that the mortgage be also pronounced void ab initio. 11

The appeal met with no success. In a decision promulgated on October 25,1976, the Court of Appeals affirmed in toto the Trial Court's amended decision. 12

The Lims came to this Court seeking reversal of the appellate Court's decision. However, their petition for review-filed in their behalf by Canlas, and Atty. Pio R. Marcos, and docketed as G.R. No. L-45752-was denied for lack of merit in a minute resolution dated August 5, 1977. The Lims' motion for reconsideration was denied and entry of judgment was made on September 24,1977. 13 Here the matter should have ended; it marked only the beginning of Syjuco's travails.

3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9

Syjuco then resumed its efforts to proceed with the foreclosure. It caused the auction sale of the mortgaged property to be scheduled on December 20, 1977, only to be frustrated again by another action filed by the Lims on December 19, 1977, docketed as Civil Case No. 112762 of the Court of First Instance of Manila. 14 The action sought to stop the sale on the ground that the notice of foreclosure had not been republished; this, notwithstanding that as earlier stressed, the restraining order of December 26, 1968 issued in Civil Case No 75180 explicitly declared itself to be predicated on the Lims' waiver of "their rights to the notice and republication of the notice of sale which may be conducted at some future date." 15 An order restraining the sale issued in the case, although the petition for preliminary injunction was subsequently denied. A supplemental complaint was also filed by the Lims seeking recovery of some Pl million in damages allegedly suffered by reason of said lack of republication. 16

4. CIVIL CASE NO. 75180

That very same claim — that there had been no republication of the notice of sale, which was the foundation of the Lims' action in Civil Case No. 112762 as aforesaid — was made by the Lims the basis of an urgent motion filed on December 15, 1977 in Civil Case No. 75180, in which, as earlier narrated, the judgement authorizing the foreclosure had been affirmed by both the Court of Appeals and this Court, and had become final and executory. And that motion sought exactly the same remedy prayed for in Civil Case No. 112762 (filed by the Lims four [4] days later, on December 19, 1977), i.e., the prevention of the auction sale. The Court -- Branch 5, then presided over by Judge Jose H. Tecson — granted the restraining order on December 19, 1977, 17 the very same day that the Lims commenced Civil Case No. 112762 in the same Court and in which subsequent action they asked for and obtained a similar restraining order.

The Lims' counsel thus brought about the anomalous situation of two (2) restraining orders directed against the same auction sale, based on the same ground, issued by different courts having cognizance

of two (2) separate proceedings instituted for identical objectives. This situation lasted for all of three (3) years, despite the republication of the notice of sale caused by Syjuco in January, 1978 in an effort to end all dispute about the matter, and despite Judge Tecson's having been made aware of Civil Case No. 112762. It should have been apparent to Judge Tecson that there was nothing more to be done in Civil Case No. 75180 except to enforce the judgment, already final and executory, authorizing the extrajudicial foreclosure of the mortgage, a judgment sanctioned, to repeat, by both the Court of Appeals and the Supreme Court; that there was in truth no need for another publication of the notice since the Lims had precisely waived such republication, this waiver having been the condition under which they had earlier obtained an order restraining the first scheduled sale; that, in any event, the republication effected by Syjuco had removed the only asserted impediment to the holding of the same; and that, finally, the Lims were acting in bad faith: they were maintaining proceedings in two (2) different courts for essentially the same relief. 18 Incredibly, not only did Judge Tecson refuse to allow the holding of the auction sale, as was the only just and lawful course indicated by the circumstances, 19 he authorized the Lims to sell the mortgaged property in a private sale, 20 with the evident intention that the proceeds of the sale, which he directed to be deposited in court, would be divided between Syjuco and the Lims; this, in line with the patently specious theory advocated by the Lims' counsel that the bond flied by them for the postponement of the sale, set at P6 million by the Court (later increased by P 3 million) had superseded and caused novation of the mortgage. 21 The case lay fallow for a year, certain other, incidents arising and remaining unresolved on account of numerous postponements.

5. G.R. No. L-56014

Finally, on January 28, 1981, Syjuco betook itself to this Court, presumably no longer disposed to await Judge Tecson's pleasure or the Lims' convenience. It filed a petition for certiorari and prohibition, docketed as G.R. No. L-56014, alleging that in Civil Case No. 75180, Judge Tecson had gravely abused discretion in:

(1) unreasonably delaying the foreclosure of the mortgage;

(2) entertaining the Lims' motion to discharge said mortgage grounded on the theory that it had been superseded and novated by the Lims' act of filing the bond required by Judge Tecson in connection with the postponement of the foreclosure sale, and unreasonably delaying resolution of the issue; and

(3) authorizing the Lims to negotiate and consummate the private sale of the mortgaged property and motu proprio extending the period granted the Lims for the purpose, in disregard of the final and executory judgment rendered in the case.

By judgment rendered on September 21, 1982, after due proceedings, this Court 22 issued the writ prayed for and nullified the orders and actuations of Judge Tecson in Civil Case No. 75180. The judgment declared that:

(1) the republication by Syjuco of the notice of foreclosure sale rendered the complaint in Civil Case No. 112762 moot and academic; hence, said case could not operate to bar the sale;

(2) the Lims' bonds (of P 6 million and P 3 million), having by the terms thereof been given to guarantee payment of damages to Syjuco and the Sheriff of Manila resulting from the suspension of the auction sale, could not in any sense and from any aspect have the effect of superseding the mortgage or novating it;

(3) in fact, the bonds had become worthless when, as shown by the record, the bondsman's authority to transact non-life insurance business in the Philippines was not renewed, for cause, as of July 1, 1981.

The decision consequently decreed that the Sheriff of Manila should proceed with the mortgage sale, there being no further impediment thereto. 23

Notice of the decision was served on the Lims, through Atty. Canlas, on October 2, 1982. A motion for reconsideration was filed, 24 but the same was denied with finality for lack of merit and entry of final judgment was made on March 22,1983. 25

6. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE REGIONAL TRIAL COURT, QUEZON CITY, JUDGE JOSE P. CASTRO, PRESIDING

Twelve (12) days after the Lims were served, as above mentioned, with notice of this Court's judgment in G.R. No. 56014, or on October 14,1982, they caused the filing with the Regional Trial Court of Quezon City of still another action, the third, also designed, like the first two, to preclude enforcement of the mortgage held by Syjuco.

This time the complaint was presented, not in their individual names, but in the name of a partnership of which they themselves were the only partners: "Heirs of Hugo Lim." The complaint advocated the theory that the mortgage which they, together with their mother, had individually constituted (and thereafter amended during the period from 1964 to 1967) over lands standing in their names in the Property Registry as owners pro indiviso, in fact no longer belonged to them at that time, having been earlier deeded over by them to the partnership, "Heirs of Hugo Lim", more precisely, on March 30, 1959, hence, said mortgage was void because executed by them without authority from the partnership.

The complaint was signed by a lawyer other than Atty. Canlas, but the records disclose that Atty. Canlas took over as counsel as of November 4,1982. The case, docketed as Civil Case No. Q-39295, was assigned to Branch 35 of the Quezon City Regional Trial Court, then presided over by Judge Jose P. Castro.

Judge Castro issued a restraining order on October 15, 1982. Then, Sheriff Perfecto G. Dalangin submitted a return of summons to the effect that on December 6, 1982 he —

.. served personally and left a copy of summons together with a copy of Complaint and its annexes x x upon defendant's office formerly at 313 Quirino Ave., Paranaque, Metro-Manila and now at 407 Dona Felisa Syjuco Building, Remedios St., corner Taft Avenue, Manila, through the Manager, a person of sufficient age and discretion duly authorized to receive service of such nature, but who refused to accept service and signed receipt thereof. 26

A vaguer return will be hard to find. It is impossible to discern from it where precisely the summons was served, whether at Quirino Avenue, Paranaque, or Taft Avenue, Manila; and it is inexplicable that the name of the person that the sheriff had been able to identify as the manager is not stated, the latter being described merely as "a person of sufficient age and discretion." In any event, as it was to claim later, Syjuco asserts that it was never so served with summons, or with any other notice, pleading, or motion relative to the case, for that matter.

On February 10, 1983, Atty. Canlas filed an ex-parte motion to declare Syjuco in default. The order of default issued the next day, also directing the plaintiff partnership to present evidence ex parte within three (3) days. On February 22, 1983, judgment by default was rendered, declaring void the mortgage in question because executed by the Lims without authority from the partnership which was and had been since March 30,1959 the exclusive owner of the mortgaged property, and making permanent an injunction against the foreclosure sale that had issued on January 14,1983. 27 Service of notice of the default judgment was, according to the return of the same Sheriff Perfecto Dalangin, effected on the following day, February 23, 1983. His return is a virtual copy of his earlier one regarding service of summons: it

also states the place of service as the defendant's office, either at its former location, 313 Quirino Avenue, Paranaque, or at the later address, 407 Dona Felisa, Syjuco Building, Taft Avenue, Manila; and it also fails to identify the person on whom service was made, describing him only as "the clerk or person in charge" of the office. 28

Unaccountably, and contrary to what might be expected from the rapidity with which it was decided-twelve (12) days from February 10, 1983, when the motion to declare defendant Syjuco in default was filed-the case was afterwards allowed by Atty. Canlas to remain dormant for seventeen (17) months. He made no effort to have the judgment executed, or to avail of it in other actions instituted by him against Syjuco. The judgment was not to be invoked until sometime in or after July, 1984, again to stop the extrajudicial mortgage sale scheduled at or about that time at the instance of Syjuco, as shall presently be recounted.

7. Other Actions in the Interim:

a. CIVIL CASE No. 83-19018, RTC MANILA

While the Lims, through their partnership ("Heirs of Hugo Lim"), were prosecuting their action in the sala of Judge Castro, as above narrated, Syjuco once again tried to proceed with the foreclosure after entry of judgment had been made in G.R. No. 56014 on March 22, 1983. It scheduled the auction sale on July 30, 1983. But once again it was frustrated. Another obstacle was put up by the Lims and their counsel, Atty. Canlas. This was Civil Case No. 83-19018 of the Manila Regional Trial Court. The case was filed to stop the sale on the theory that what was sought to be realized from the sale was much in excess of the judgment in Civil Case No. 75180, and that there was absence of the requisite notice. It is significant that the judgment by default rendered by Judge Castro in Civil Case No. Q-36485 was not asserted as additional ground to support the cause of action. Be this as it may, a restraining order was issued on July 20,1983 in said Civil Case No. 83-9018. 29

b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY

What the outcome of this case, No. 83-19018, is not clear. What is certain is (1) that the auction sale was re-scheduled for September 20, 1983, (2) that it was aborted because the Lims managed to obtain still another restraining order in another case commenced by their lawyer, Atty. Canlas: Civil Case No. Q-32924 of the Court of First Instance of Quezon City, grounded on the proposition that the publication of the notice of sale was defective; and (3) that the action was dismissed by the Regional Trial Court on February 3, 1984. 30

No other salient details about these two (2) cases are available in the voluminous records before the Court, except that it was Atty. Canlas who had filed them. He admits having done so unequivocally: "Thus, the undersigned counsel filed injunction cases in Civil Case No. 83-19018 and Civil Case No. 39294, Regional Trial Courts of Manila and Quezon City. ... " 31

7. RE-ACTIVATION OF CIVIL CASE NO. Q-36485, RTC, Q QUEZON CITY, BRANCH XXXV

Upon the dismissal of Civil Case No. 39294, Syjuco once more resumed its efforts to effect the mortgage sale which had already been stymied for more than fifteen (15) years. At its instance, the sheriff once again set a date for the auction sale. But on the date of the sale, a letter of Atty. Canlas was handed to the sheriff drawing attention to the permanent injunction of the sale embodied in the judgment by default rendered by Judge Castro in Civil Case No. Q- 36485. 32 Syjuco lost no time in inquiring about Civil Case No. Q-36485, and was very quickly made aware of the judgment by default therein promulgated and the antecedent events leading thereto. It was also made known that on July 9, 1984, Judge Castro had ordered execution of the judgment; that Judge Castro had on July 16, 1984 granted Atty. Canlas' motion to declare cancelled the titles to the Lims' mortgaged properties and as nun and void the annotation of the

mortgage and its amendments on said titles, and to direct the Register of Deeds of Manila to issue new titles, in lieu of the old, in the name of the partnership, "Heirs of Hugo Lim." 33

On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a motion for reconsideration of the decision and for dismissal of the action, alleging that it had never been served with summons; that granting arguendo that service had somehow been made, it had never received notice of the decision and therefore the same had not and could not have become final; and that the action should be dismissed on the ground of bar by prior judgment premised on the final decisions of the Supreme Court in G.R. No. L-45752 and G.R. No. 56014.

Two other motions by Syjuco quickly followed. The first, dated July 20, 1984, prayed for abatement of Judge Castro's order decreeing the issuance of new certificates of title over the mortgaged lands in the name of the plaintiff partnership. 34 The second, filed on July 24, 1984, was a supplement to the motion to dismiss earlier filed, asserting another ground for the dismissal of the action, i.e., failure to state a cause of action, it appearing that the mortgaged property remained registered in the names of the individual members of the Lim family notwithstanding that the property had supposedly been conveyed to the plaintiff partnership long before the execution of the mortgage and its amendments,-and that even assuming ownership of the property by the partnership, the mortgage executed by all the partners was valid and binding under Articles 1811 and 1819 of the Civil Code. 35

The motions having been opposed in due course by the plaintiff partnership, they remained pending until January 31, 1985 when Syjuco moved for their immediate resolution. Syjuco now claims that Judge Castro never acted on the motions. The latter however states that that he did issue an order on February 22, 1985 declaring that he had lost jurisdiction to act thereon because, petitio principii, his decision had already become final and executory.

8. G.R.NO.L-70403; THE PROCEEDING AT BAR

For the third time Syjuco is now before this Court on the same matter. It filed on April 3, 1985 the instant petition for certiorari, prohibition and mandamus. It prays in its petition that the default judgment rendered against it by Judge Castro in said Civil Case No. Q-36485 be annulled on the ground of lack of service of summons, res judicata and laches, and failure of the complaint to state a cause of action; that the sheriff be commanded to proceed with the foreclosure of the mortgage on the property covered by Transfer Certificates of Title Numbered 75413, 75415, 75416 and 75418 of the Manila Registry; and that the respondents the Lims, Judge Castro, the Sheriff and the Register of Deeds of Manila, the partnership known as "Heirs of Hugo Lim," and Atty. Paterno R. Canlas, counsel for-the Lims and their partnership-be perpetually enjoined from taking any further steps to prevent the foreclosure.

The comment filed for the respondents by Atty. Canlas in substance alleged that (a) Syjuco was validly served with summons in Civil Case No. Q-36485, hence, that the decision rendered by default therein was also valid and, having been also duly served on said petitioner, became final by operation of law after the lapse of the reglementary appeal period; (b) finality of said decision removed the case from the jurisdiction of the trial court, which was powerless to entertain and act on the motion for reconsideration and motion to dismiss; (c) the petition was in effect an action to annul a judgment, a proceeding within the original jurisdiction of the Court of Appeals; (d) the plea of res judicata came too late because raised after the decision had already become final; moreover, no Identity of parties existed between the cases invoked, on the one hand, and Civil Case No. Q-36485, on the other, the parties in the former being the Lims in their personal capacities and in the latter, the Lim Partnership, a separate and distinct juridical entity; and the pleaded causes of action being different, usury in the earlier cases and authority of the parties to encumber partnership property in the case under review; (e) the plea of laches also came too late, not having been invoked in the lower court; and (f) the property involved constituted assets of the Lim partnership, being registered as such with the Securities and Exchange Commission. 36

On his own behalf Atty. Canlas submitted that he had no knowledge of the institution of Civil Case No. Q-36485 (though he admitted being collaborating counsel in said case); that he did not represent the Lims in all their cases against Syjuco, having been counsel for the former only since 1977, not for the last seventeen years as claimed by Syjuco; and that he had no duty to inform opposing counsel of the pendency of Civil Case No. Q-36485. 37

Respondent Judge Castro also filed a comment 38 disclaiming knowledge of previous controversies regarding the mortgaged property. He asserted that Syjuco had been properly declared in default for having failed to answer the complaint despite service of summons upon it, and that his decision in said case which was also properly served on Syjuco became final when it was not timely appealed, after which he lost jurisdiction to entertain the motion for reconsideration and motion to dismiss. He also denied having failed to act on said motions, adverting to an alleged order of February 22, 1985 where he declared his lack of jurisdiction to act thereon.

The respondent Register of Deeds for his part presented a comment wherein he stated that by virtue of an order of execution in Civil Case No. Q-36485, he had cancelled TCTs Nos. 75413, 75415, 75416 and 75418 of his Registry and prepared new certificates of title in lieu thereof, but that cancellation had been held in abeyance for lack of certain registration requirements and by reason also of the motion of Syjuco's Atty. Formoso to hold in abeyance enforcement of the trial court's order of July 16, 1984 as well as of the temporary restraining order subsequently issued by the Court. 39

It is time to write finis to this unedifying narrative which is notable chiefly for the deception, deviousness and trickery which have marked the private respondents' thus far successful attempts to avoid the payment of a just obligation. The record of the present proceeding and the other records already referred to, which the Court has examined at length, make it clear that the dispute should have been laid to rest more than eleven years ago, with entry of judgment of this Court (on September 24, 1977) in G.R. No. L-45752 sealing the fate of the Lims' appeal against the amended decision in Civil Case No. 75180 where they had originally questioned the validity of the mortgage and its foreclosure. That result, the records also show, had itself been nine (9) years in coming, Civil Case No. 75180 having been instituted in December 1968 and, after trial and judgment, gone through the Court of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No. 34683), both at the instance of the Lims, on the question of reopening before the amended decision could be issued.

Unwilling, however, to concede defeat, the Lims moved (in Civil Case No. 75180) to stop the foreclosure sale on the ground of lack of republication. On December 19,1977 they obtained a restraining order in said case, but this notwithstanding, on the very same date they filed another action (Civil Case No. 117262) in a different branch of the same Court of First Instance of Manila to enjoin the foreclosure sale on the same ground of alleged lack of republication. At about this time, Syjuco republished the notice of sale in order, as it was later to manifest, to end all further dispute.

That move met with no success. The Lims managed to persuade the judge in Civil Case No. 75180, notwithstanding his conviction that the amended decision in said case had already become final, not only to halt the foreclosure sale but also to authorize said respondents to dispose of the mortgaged property at a private sale upon posting a bond of P6,000,000.00 (later increased by P3,000,000.00) to guarantee payment of Syjuco's mortgage credit. This gave the Lims a convenient excuse for further suspension of the foreclosure sale by introducing a new wrinkle into their contentions-that the bond superseded the mortgage which should, they claimed, therefore be discharged instead of foreclosed.

Thus from the final months of 1977 until the end of 1980, a period of three years, Syjuco found itself fighting a legal battle on two fronts: in the already finally decided Civil Case No. 75180 and in Civil Case No. 117262, upon the single issue of alleged lack of republication, an issue already mooted by the Lims' earlier waiver of republication as a condition for the issuance of the original restraining order of December 26,1968 in Civil Case No. 75180, not to mention the fact that said petitioner had also tried to put an end to it by actually republishing the notice of sale.

With the advent of 1981, its pleas for early resolution having apparently fallen on deaf ears, Syjuco went to this Court (in G.R. No. L-56014) from which, on September 21, 1982, it obtained the decision already referred to holding, in fine, that there existed no further impediment to the foreclosure sale and that the sheriff could proceed with the same.

Said decision, instead of deterring further attempts to derail the foreclosure, apparently gave the signal for the clandestine filing this time — by the Partnership of the Heirs of Hugo Lim -on October 14,1982 of Civil Case No. Q-36485, the subject of the present petition, which for the first time asserted the claim that the mortgaged property had been contributed to the plaintiff partnership long before the execution of the Syjuco's mortgage in order to defeat the foreclosure.

Syjuco now maintains that it had no actual knowledge of the existence and pendency of Civil Case No. Q-36485 until confronted, in the manner already adverted to, with the fait accompli of a "final" judgment with permanent injunction therein, and nothing in the record disabuses the Court about the truth of this disclaimer. Indeed, considering what had transpired up to that denouement, it becomes quite evident that actuations of the Lims and their lawyer had been geared to keeping Syjuco in the dark about said case. Their filing of two other cases also seeking to enjoin the foreclosure sale (Civil Case No. 83-19018, Regional Trial Court of Manila in July 1983, and Civil Case No. Q-32924, Regional Trial Court of Quezon City in September of the same year) after said sale had already been permanently enjoined by default judgment in Civil Case No. Q-36485, appears in retrospect to be nothing but a brace of feints calculated to keep Syjuco in that state of ignorance and to lull any apprehensions it mat may have harbored about encountering further surprises from any other quarter.

Further credence is lent to this appraisal by the unusually rapid movement of Civil Case No. Q-36485 itself in its earlier stages, which saw the motion to declare Syjuco in default filed, an order of default issued, evidence ex parte for the plaintiffs received and judgment by default rendered, all within the brief span of twelve days, February 10-22, 1983. Notice of said judgment was "served" on February 23, 1983, the day after it was handed down, only to be followed by an unaccountable lull of well over a year before it was ordered executed on July 9, 1984 — unaccountable, considering that previous flurry of activity, except in the context of a plan to rush the case to judgment and then divert Syjuco's attention to the Lims' moves in other directions so as to prevent discovery of the existence of the case until it was too late.

The Court cannot but condemn in the strongest terms this trifling with the judicial process which degrades the administration of justice, mocks, subverts and misuses that process for purely dilatory purposes, thus tending to bring it into disrepute, and seriously erodes public confidence in the will and competence of the courts to dispense swift justice.

Upon the facts, the only defense to the foreclosure that could possibly have merited the full-blown trial and appeal proceedings it actually went through was that of alleged usury pleaded in Civil Case No. 75180 and finally decided against the respondent Lims in G.R. No. L-45752 in September 1977. The other issues of failure to republish and discharge of mortgage by guarantee set up in succeeding actions were sham issues, questions without substance raised only for purposes of delay by the private respondents, in which they succeeded only too well. The claim urged in this latest case: that the mortgaged property had been contributed to the respondent partnership and was already property of said partnership when the individual Lims unauthorizedly mortgaged it to Syjuco, is of no better stripe, and this, too, is clear from the undisputed facts and the legal conclusions to be drawn therefrom.

The record shows that the respondent partnership is composed exclusively of the individual Lims in whose name all the cases herein referred to, with the sole exception of Civil Case No. Q-36485, were brought and prosecuted, their contribution to the partnership consisting chiefly, if not solely, of the property subject of the Syjuco mortgage. It is also a fact that despite its having been contributed to the partnership, allegedly on March 30, 1959, the property was never registered with the Register of Deeds in the name of the partnership, but to this date remains registered in the names of the Lims as owners in common. The original mortgage deed of November 14,1964 was executed by the Lims as such owners, as were all subsequent amendments of the mortgage. There can be no dispute that in those

circumstances, the respondent partnership was chargeable with knowledge of the mortgage from the moment of its execution. The legal fiction of a separate juridical personality and existence will not shield it from the conclusion of having such knowledge which naturally and irresistibly flows from the undenied facts. It would violate all precepts of reason, ordinary experience and common sense to propose that a partnership, as commonly known to all the partners or of acts in which all of the latter, without exception, have taken part, where such matters or acts affect property claimed as its own by said partnership.

If, therefore, the respondent partnership was inescapably chargeable with knowledge of the mortgage executed by all the partners thereof, its silence and failure to impugn said mortgage within a reasonable time, let alone a space of more than seventeen years, brought into play the doctrine of estoppel to preclude any attempt to avoid the mortgage as allegedly unauthorized.

The principles of equitable estoppel, sometimes called estoppel in pais, are made part of our law by Art. 1432 of the Civil Code. Coming under this class is estoppel by silence, which obtains here and as to which it has been held that:

... an estoppel may arise from silence as well as from words. 'Estoppel by silence' arises where a person, who by force of circumstances is under a duty to another to speak, refrains from doing so and thereby leads the other to believe in the existence of a state of facts in reliance on which he acts to his prejudice. Silence may support an estoppel whether the failure to speak is intentional or negligent.

Inaction or silence may under some circumstances amount to a misrepresentation and concealment of the facts, so as to raise an equitable estoppel. When the silence is of such a character and under such circumstances that it would become a fraud on the other party to permit the party who has kept silent to deny what his silence has induced the other to believe and act on, it will operate as an estoppel. This doctrine rests on the principle that if one maintains silence, when in conscience he ought to speak, equity will debar him from speaking when in conscience he ought to remain silent. He who remains silent when he ought to speak cannot be heard to speak when he should be silent. 40

And more to the point:

A property owner who knowingly permits another to sell or encumber the property, without disclosing his title or objecting to the transaction, is estopped to set up his title or interest as against a person who has been thereby misled to his injury.

x x x

An owner of real property who stands by and sees a third person selling or mortgaging it under claim of title without asserting his own title or giving the purchaser or mortgagee any notice thereof is estopped, as against such purchaser or mortgagee, afterward to assert his title; and, although title does not pass under these circumstances, a conveyance will be decreed by a court of equity. Especially is the rule applicable where the party against whom the estoppel is claimed, in addition to standing by, takes part in malting the sale or mortgage. 41

More specifically, the concept to which that species of estoppel which results from the non-disclosure of an estate or interest in real property has ordinarily been referred is fraud, actual or constructive. ... Although fraud is not an essential element of the original conduct working the estoppel, it may with perfect property be said that it would be fraudulent for the party to repudiate his conduct, and to assert a right or claim in contravention thereof. 42

Equally or even more preclusive of the respondent partnership's claim to the mortgaged property is the last paragraph of Article 1819 of the Civil Code, which contemplates a situation duplicating the circumstances that attended the execution of the mortgage in favor of Syjuco and therefore applies foursquare thereto:

Where the title to real property is in the names of all the partners a conveyance executed by all the partners passes all their rights in such property.

The term "conveyance" used in said provision, which is taken from Section 10 of the American Uniform Partnership Act, includes a mortgage.

Interpreting Sec. 10 of the Uniform Partnership Act, it has been held that the right to mortgage is included in the right to convey. This is different from the rule in agency that a special power to sell excludes the power to mortgage (Art. 1879). 43

As indisputable as the propositions and principles just stated is that the cause of action in Civil Case No. Q-36485 is barred by prior judgment. The right subsumed in that cause is the negation of the mortgage, postulated on the claim that the parcels of land mortgaged by the Lims to Syjuco did not in truth belong to them but to the partnership. Assuming this to be so, the right could have been asserted at the time that the Lims instituted their first action on December 24, 1968 in the Manila Court of First Instance, Civil Case No. 75180, or when they filed their subsequent actions: Civil Case No. 112762, on December 19, 1977; Civil Case No. 83-19018, in 1983, and Civil Case No. Q-39294, also in 1983. The claim could have been set up by the Lims, as members composing the partnership, "Heirs of Hugo Lim." It could very well have been put forth by the partnership itself, as co-plaintiff in the corresponding complaints, considering that the actions involved property supposedly belonging to it and were being prosecuted by the entire membership of the partnership, and therefore, the partnership was in actuality, the real party in interest. In fact, consistently with the Lims' theory, they should be regarded, in all the actions presented by them, as having sued for vindication, not of their individual rights over the property mortgaged, but those of the partnership. There is thus no reason to distinguish between the Lims, as individuals, and the partnership itself, since the former constituted the entire membership of the latter. In other words, despite the concealment of the existence of the partnership, for all intents and purposes and consistently with the Lims' own theory, it was that partnership which was the real party in interest in all the actions; it was actually represented in said actions by all the individual members thereof, and consequently, those members' acts, declarations and omissions cannot be deemed to be simply the individual acts of said members, but in fact and in law, those of the partnership.

What was done by the Lims — or by the partnership of which they were the only members-was to split their cause of action in violation of the well known rule that only one suit may be instituted for a single cause of action. 44 The right sought to be enforced by them in all their actions was, at bottom, to strike down the mortgage constituted in favor of Syjuco, a right which, in their view, resulted from several circumstances, namely that the mortgage was constituted over property belonging to the partnership without the latter's authority; that the principal obligation thereby secured was usurious; that the publication of the notice of foreclosure sale was fatally defective, circumstances which had already taken place at the time of the institution of the actions. They instituted four (4) actions for the same purpose on one ground or the other, making each ground the subject of a separate action. Upon these premises, application of the sanction indicated by law is caned for, i.e., the judgment on the merits in any one is available as a bar in the others. 45

The first judgment-rendered in Civil Case No. 75180 and affirmed by both the Court of Appeals (CA-G.R. No. 51752) and this Court (G.R. No. L-45752) should therefore have barred all the others, all the requisites of res judicata being present. The judgment was a final and executory judgment; it had been rendered by a competent court; and there was, between the first and subsequent cases, not only identity of subject-matter and of cause of action, but also of parties. As already pointed out, the plaintiffs in the first four (4) actions, the Lims, were representing exactly the same claims as those of the partnership, the plaintiff in the fifth and last action, of which partnership they were the only members, and there was hence

no substantial difference as regards the parties plaintiff in all the actions. Under the doctrine of res judicata, the judgment in the first was and should have been regarded as conclusive in all other, actions not only "with respect to the matter directly adjudged," but also "as to any other matter that could have been raised in relation thereto. " 46 It being indisputable that the matter of the partnership's being the owner of the mortgaged properties "could have been raised in relation" to those expressly made issuable in the first action, it follows that that matter could not be re-litigated in the last action, the fifth.

Though confronted with the facts thus precluding the respondent partnership's claim to the property under both the principle of estoppel and the provisions of Article 1819, last paragraph, of the Civil Code, as well as the familiar doctrine of res judicata, the respondent Judge refused to act on Syjuco's motions on the ground that he no longer had jurisdiction to do so because they were filed after judgment by default against Syjuco, which failed to answer the complaint despite valid service of summons, had been rendered and become final. The sheriffs return, however, creates grave doubts about the correctness of the Judge's basic premise that summons had been validly served on Syjuco. For one thing, the return 47 is unspecific about where service was effected. No safe conclusion about the place of service can be made from its reference to a former and a present office of Syjuco in widely separate locations, with nothing to indicate whether service was effected at one address or the other, or even at both. A more serious defect is the failure to name the person served who is, with equal ambiguity, identified only as "the Manager" of the defendant corporation (petitioner herein). Since the sheriffs return constitutes primary evidence of the manner and incidents of personal service of a summons, the Rules are quite specific about what such a document should contain:

SEC. 20. Proof of service. — The proof of service of a summons shall be made in writing by the server and shall set forth the manner, place and date of service; shall specify any papers which have been served with the process and the name of the person who received the same; and shall be sworn to when made by a person other than a sheriff or his deputy. 48

In the case of Delta Motor Sales Corporation vs. Mangosing 49 it was held that:"

(a) strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. The officer upon whom service is made must be one who is named in the statute; otherwise the service is insufficient. So, where the statute requires that in the case of a domestic corporation summons should be served on 'the president or head of the corporation, secretary, treasurer, cashier or managing agent thereof, service of summons on the secretary's wife did not confer jurisdiction over the corporation in the foreclosure proceeding against it. Hence, the decree of foreclosure and the deficiency judgment were void and should be vacated (Reader vs. District Court, 94 Pacific 2nd 858).

The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers served on him. In other words, 'to bring home to the corporation notice of the filing of the action'. (35 A C.J.S. 288 citing Jenkins vs. Lykes Bros. S.S. Co., 48 F. Supp. 848; MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).

The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which summons should be served on a domestic corporation (U.S. vs. Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd 260).'

The rule cannot be any less exacting as regards adherence to the requirements of proof of service, it being usually by such proof that sufficiency of compliance with the prescribed mode of service is measured. Here the only proof of service of summons is the questioned sheriff's return which, as already pointed out, is not only vague and unspecific as to the place of service, but also neglects to Identify by name the recipient of the summons as required by Rule 20, Section 14, of the Rules of Court. Where the

sheriffs return is defective the presumption of regularity in the performance of official functions will not lie. 50 The defective sheriffs return thus being insufficient and incompetent to prove that summons was served in the manner prescribed for service upon corporations, there is no alternative to affirming the petitioner's claim that it had not been validly summoned in Civil Case No. Q-36485. It goes without saying that lacking such valid service, the Trial Court did not acquire jurisdiction over the petitioner Syjuco, rendering null and void all subsequent proceedings and issuances in the action from the order of default up to and including the judgment by default and the order for its execution. 51

The respondents' contention that the petition is in effect an action to annul a judgment which is within the exclusive original jurisdiction of the Court of Appeals 52 has already been answered in Matanguihan vs. Tengco 53 where, by declaring that an action for annulment of judgment is not a plain, speedy and adequate remedy, this Court in effect affirmed that certiorari is an appropriate remedy against judgments or proceedings alleged to have been rendered or had without valid service of summons. 54

Respondent Judge Castro begged the question when, instead of resolving on the merits the issue of the invalidity of his default judgment and of the proceedings leading thereto because of absence of valid service of summons on the defendant, which had been expressly raised in the defendant's motion for reconsideration, he simply refused to do so on the excuse that he had lost jurisdiction over the case. This refusal was, in the premises, a grave abuse of judicial discretion which must be rectified.

What has been said makes unnecessary any further proceedings in the Court below, which might otherwise be indicated by the consideration that two of the postulates of petitioner's unresolved motions which the Court considers equally as decisive as res judicata, to wit: estoppel by silence and Article 1819, last paragraph, of the Civil Code, do not constitute grounds for a motion to dismiss under rule 16, of the Rules of Court. Such a step would only cause further delay. And delay has been the bane of petitioner's cause, defying through all these years all its efforts to collect on a just debt.

The undenied and undisputable facts make it perfectly clear that the claim to the mortgaged property belatedly and in apparent bad faith pressed by the respondent partnership is foreclosed by both law and equity. Further proceedings will not make this any clearer than it already is. The Court is clothed with ample authority, in such a case, to call a halt to all further proceedings and pronounce judgment on the basis of what is already manifestly of record.

So much for the merits; the consequences that should attend the inexcusable and indefensible conduct of the respondents Lims, the respondent partnership and their counsel, Atty. Paterno R. Canlas, should now be addressed. That the Lims and their partnership acted in bad faith and with intent to defraud is manifest in the record of their actuations, presenting as they did, piecemeal and in one case after another, defenses to the foreclosure or claims in derogation thereof that were available to them from the very beginning — actuations that were to stave off the liquidation of an undenied debt for more than twenty years and culminated in the clandestine filing and prosecution of the action subject of the present petition.

What has happened here, it bears repeating, is nothing less than an abuse of process, a trifling with the courts and with the rights of access thereto, for which Atty. Canlas must share responsibility equally with his clients. The latter could not have succeeded so well in obstructing the course of justice without his aid and advice and his tireless espousal of their claims and pretensions made in the various cases chronicled here. That the cause to which he lent his advocacy was less than just or worthy could not have escaped him, if not at the start of his engagement, in the years that followed when with his willing assistance, if not instigation, it was shuttled from one forum to another after each setback. This Court merely stated what is obvious and cannot be gainsaid when, in Surigao Mineral Reservation Board vs. Cloribel, 55 it held that a party's lawyer of record has control of the proceedings and that '(w)hatever steps his client takes should be within his knowledge and responsibility."

In Prudential Bank vs. Castro, 56 strikingly similar actuations in a case, which are described in the following paragraph taken from this Court's decision therein:

Respondents' foregoing actuations reveal an 'unholy alliance' between them and a clear indication of partiality for the party represented by the other to the detriment of the objective dispensation of justice. Writs of Attachment and Execution were issued and implemented with lightning speed; the case itself was railroaded to a swift conclusion through a similar judgment; astronomical sums were awarded as damages and attorney's fees; and topping it all, the right to appeal was foreclosed by clever maneuvers," and which, the Court found, followed a pattern of conduct in other cases of which judicial notice was taken, were deemed sufficient cause for disbarment.

Atty. Canlas even tried to mislead this Court by claiming that he became the Lims' lawyer only in 1977, 57 when the record indubitably shows that he has represented them since September 9, 1972 when he first appeared for them to prosecute their appeal in Civil Case No. 75180. 58 He has also quite impenitently disclaimed a duty to inform opposing counsel in Civil Case No. Q-39294 of the existence of Civil Case No. Q-36485, as plaintiffs' counsel in both actions, even while the former, which involved the same mortgage, was already being litigated when the latter was filed, although in the circumstances such disclosure was required by the ethics of his profession, if not indeed by his lawyer's oath.

A clear case also exists for awarding at least nominal damages to petitioner, though damages are not expressly prayed for, under the general prayer of the petition for "such other reliefs as may be just and equitable under the premises," and the action being not only of certiorari and prohibition, but also of mandamus-in which the payment of "damages sustained by the petitioner by reason of the wrongful acts of the defendant' is expressly authorized. 59

There is no question in the Court's mind that such interests as may have accumulated on the mortgage loan will not offset the prejudice visited upon the petitioner by the excruciatingly long delay in the satisfaction of said debt that the private respondents have engineered and fomented.

These very same considerations dictate the imposition of exemplary damages in accordance with Art. 2229 of the Civil Code.

WHEREFORE, so that complete justice may be dispensed here and, as far as consistent with that end, all the matters and incidents with which these proceedings are concerned may be brought to a swift conclusion:

(1) the assailed judgment by default in Civil Case No.Q-36485, the writ of execution and all other orders issued in implementation thereof, and all proceedings in the case leading to said judgment after the filing of the complaint are DECLARED null and void and are hereby SET ASIDE; and the complaint in said case is DISMISSED for being barred by prior judgment and estoppel, and for lack of merit;

(2) the City Sheriff of Manila is ORDERED, upon receipt of this Decision, to schedule forthwith and thereafter conduct with all due dispatch the sale at public auction of the mortgaged property in question for the satisfaction of the mortgage debt of the respondents Lims to petitioner, in the principal amount of P2,460,000.00 as found in the amended decision in Civil Case No. 75180 of the Court of First Instance of Manila, interests thereon at the rate of twelve (12%) percent per annum from November 8, 1967 until the date of sale, plus such other and additional sums for commissions, expenses, fees, etc. as may be lawfully chargeable in extrajudicial foreclosure and sale proceedings;

(3) the private respondents, their successors and assigns, are PERPETUALLY ENJOINED from taking any action whatsoever to obstruct, delay or prevent said auction sale;

(4) the private respondents (the Lims, the Partnership of the Heirs of Hugo Lim and Atty. Paterno R. Canlas) are sentenced, jointly and severally, to pay the petitioner P25,000.00 as nominal damages and P100,000.00 as exemplary damages, as well as treble costs; and

(5) let this matter be referred to the Integrated Bar of the Philippines for investigation, report, and recommendation insofar as the conduct of Atty. Canlas as counsel in this case and in the other cases hereinabove referred to is concerned.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

 

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs.HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.

 

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were several subsequent amendments to the articles of partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.

"I trust that the accountants will be instructed to make the proper liquidation of my participation in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

"Further to my letter to you today, I would like to have a meeting with all of you with regard to the mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like to have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

"The partnership has ceased to be mutually satisfactory because of the working conditions of our employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay scale of our employees have been thwarted by the other partners. Not only have they refused to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their self-respect. The result of such policies is the formation of the union, including the assistant attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent or interest attributable to the use of his right in the assets of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the partnership in the amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such amounts as maybe proven during the trial and which the Commission may deem just and equitable under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing partner in the partnership interest." 1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing Officer for determination of the respective rights and obligations of the parties. 2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his

application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in any such danger of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners."

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or definable period of completion. 3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership 4 but that it can result in a liability for damages. 5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination. 9

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in accordance with the existing agreements and his partnership participation shall revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however, that with respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two (2) independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as the case may be. In the event of any disagreement between the said appraisers a third appraiser will be appointed by them whose decision shall be final. The share of the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a partner is not

contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Feliciano, Romero, Melo and Francisco, JJ., concur.