PAULINO ACOSTA, PLAINTIFF AND APPELLEE, VS. NICOLAS LLACUNA AND PABLO ARELLANO, DEFENDANTS AND APPELLANTS.

This is an action brought by the plaintiff
to recover from the defendant Pablo Arellano the sum of P3,000, to
require him to render an accounting of the lumber business in which
both were partners, and to pay him his share of the profits thereof.
The other defendant was included as Arellano’s surety, and judgment for
the sum of P3,000 has been sought against him in case Arellano should
prove to be insolvent.

The defendants appealed from the judgment rendered by the Court of
First Instance of Ilocos Norte ordering Arellano to pay to the
plaintiff the sum of P3,067.10, with legal interest thereon from the
filing of the complaint, and the costs, and the surety Nicolas Llacuna
to pay, in case of Arellano’s insolvency, the sum of P3,000 with
interest thereon.

The parties entered into the following written stipulation of facts:

“1. That on March 6, 1927, the plaintiff Paulino
Acosta and the defendant Pablo Arellano, by means of public instrument
formed a partnership for the purpose of engaging in the purchase and
sale of lumber of various kinds in the Province of Ilocos Norte,
Philippine Islands, with a capital of P3,000, contributed by the
plaintiff as capitalist partner, the defendant Pablo Arellano being an
industrial partner and the other defendant as surety for the latter, as
evidenced by said instrument hereto attached, and which is acknowledged
by the parties as the instrument executed by them.

“2. That the term for which said partnership was to exist has not been fixed.

“3. That upon the organization of the partnership, the partners agreed: (a)
That the defendant Pablo Arellano, as industrial partner with the
necessary bond, would be the manager thereof, in the understanding that
he should invest the capital in the acquisition and sale of Philippine
lumber, without any intervention on the part of the plaintiff as to the
price thereof, which was entirely left to Pablo Arellano’s discretion; (b)
that the defendant Pablo Arellano should submit a liquidation of
accounts at the end of every month in order to show the number of cubic
meters of lumber sold during the preceding month; (c) that the
plaintiff would be entitled to the sum of P5 as his profit on every
cubic meter of lumber sold, irrespective of the price at which it was
disposed of.

“4. That the said capital of P3,000 has been
invested by the defendant Pablo Arellano, as manager of the
partnership, in the acquisition for said partnership of one hundred,
cubic meters of different kinds of lumber and in the transportation
thereof from the municipality of Bangui to that of Laoag, Ilocos Norte,
which transportation was done by means of trucks and carts prior to
April 15, 1927, on which date all the aforesaid one hundred cubic
meters of lumber had already been transported, in accordance with the
agreement between the plaintiff and the defendant Pablo Arellano
contained in the public instrument under which the partnership had been
organized.

“5. That the one hundred cubic meters of lumber
in question consisted mostly of lumber which the defendant Pablo
Arellano had purchased at public auction in the municipality of Bangui,
Ilocos Norte, and that which was cut under License No. 744-D, for
cutting timber, issued to Pablo Arellano, as agreed upon at the
organization of the partnership in question and evidenced by the public
instrument under which it was organized.

“6. That prior to
and after the filing of the complaint in the above entitled case, that
is, on May 25, 1927, the defendant Pablo Arellano, as manager of the
partnership, has been selling lumber from the one hundred cubic meters
in question but to date the plaintiff has not yet received his profit
of P5 on every cubic meter of lumber sold prior to the filing of the
defendant’s answer to the complaint of June 18, 1927, due to the said
plaintiff’s refusal to receive the same when it was offered him by the
defendant Pablo Arellano. The latter claims that he has rendered to the
plaintiff an accounting of the sales in question before the filing of
the answer, while the former, that is the plaintiff, claims that the
defendant has not done so.

“Laoag, Ilocos Norte, P. I., October 10, 1931.
(Sgd.) “PABLO ARELLANO
	(Sgd.) “PAULINO ACOSTA

	(Sgd.) “NICOLASLLACUNA
(Sgd.) “PEDRO L. VALDES
“Attorney for the defendants

		(Sgd.) “CONRADO RUBIO
		“Attorney for the plaintiff
	(Sgd.) “SEVERO HERNANDO
	“Attorney for the defendants“

The trial court based its appealed judgment mainly on the contract
entered into by the parties on March 6, 1927 (Exhibit A, the Spanish
translation of which is Exhibit A-l), the most important clauses of
which read as follows:

“1. That I, Paulino Acosta, party of the first
part, deliver to Pablo Arellano, party of the second part, the sum of
three thousand pesos, Philippine currency, to be used as capital in the
cutting of timber purchased by him at public auction in the town of
Bangui, Province of Ilocos Norte, and in the cutting of timber under
License No. 744-D, all of which timber amount to 100 cubic meters of
different kinds; and that said Pablo Arellano shall bring all of such
timber to Laoag, Ilocos Norte, until April 15, 1927.

“2.
That I shall not charge any interest on the three thousand pesos which
I have delivered to said Pablo Arellano but we have agreed that for
every cubic meter of said lumber that he may sell, he shall deliver to
me the sum of five pesos as my share of the profits thereon. I must not
intervene as to the price at which he desires to sell the lumber. That
at the end of every month, the number of cubic meters of lumber sold
shall be examined and said Pablo Arellano shall deliver to me my share
of the profits at the rate of five pesos for every cubic meter, as
above stated. That upon refunding to me the capital, I shall be bound
to issue a receipt therefor to Pablo Arellano, for his safekeeping, and
so on until he shall have refunded to me the total amount of three
thousand pesos, which I had delivered to him as capital.

“3.
That I, Pablo Arellano, of the second part, agree to and accept all the
conditions above stipulated. And for the receipt of the three thousand
pesos from Paulino Acosta, I present as my guarantor Nicolas Llacuna,
of age and resident of Laoag, Ilocos Norte, who shall be held
responsible for the said three thousand pesos in case of my failure to
refund the same. We have further agreed that the timber which I shall
cut shall not be liable for the capital of three thousand pesos but
said amount shall be refunded in cash to Paulino Acosta.

“We, Paulino Acosta and Pablo Arellano, have furthermore agreed that in
case I, Pablo Arellano, shall fail to comply with the stipulations of
this contract, and in consequence thereof court proceedings shall be
instituted, I will be held responsible and will pay all the expenses
occasioned thereby together with attorney’s fees.

“I,
Nicolas Llacuna, likewise aver that I agree and am willing to file a
bond in favor of Paulino Acosta for the three thousand pesos which
Pablo, Arellano has received from him, and bind myself that all my
property described herein below shall be liable upon said Pablo
Arellano’s failure to comply with the stipulations of this contract.”

The appellants assign the following alleged errors, to wit :

“FIRST ERROR

“The lower court erred in holding in its judgment
that the concept of partnership, as expressed by the provisions of
articles 1665 of the Civil Code and 116 of the Code of Commerce, is
entirely in conflict with the terms of the contract in question; in
holding that the sum of P3,000 was contributed not as a common fund of
a partnership but as a loan to Pablo Arellano (pp. 20 and 21 of the
Bill of Exceptions); and in holding as interest the share or profit of
P5 on every cubic meter of lumber which may be sold.

“SECOND ERROR

“The lower court erred in not having given weight
to the documentary and oral evidence of the defense as well as the
evidence presented on the counterclaim.

“THIRD ERROR

“The lower court erred in deciding this case
without adjusting its judgment to the legal provisions of the Code of
Commerce applicable thereto, in conformity with the stipulation of
facts, the amended complaint and the evidence presented; and in not
having ordered a previous liquidation of the partnership with the
appointment of a commissioner to examine the accounts thereof in order
to determine the lawful obligations arising therefrom.

“FOURTH ERROR

“The lower court erred in not giving weight to the evidence on the counterclaim.

“FIFTH ERROR

“The lower court erred in condemning the defendant
Pablo Arellano to refund the sum of P3,000 and the defendant Nicolas
Llacuna to subsidiarily pay the sum in question, and in ordering both
to pay the costs of the proceedings.”

In the opinion of this court, the only points raised in this appeal
are: (1) The nature of the contract entered into by the parties and the
effects thereof upon each of them; (2) the responsibilitiy of the
codefendant Nicolas Llacuna, and (3) the tenableness of the defendants’
counterclaim.

The court interpreted the nature of the contract entered into by
the parties by considering only the terms thereof and absolutely
disregarding the stipulation of facts. This court is of the opinion
that the best way of interpreting the contract in question is to abide
by the stipulation of facts entered into by the parties because it
reflects their true intention. According to the said stipulation, there
is no question that the contract executed was one of civil partnership
wherein the plaintiff alone contributed the capital of P3,000 and the
defendant contributed his industry and was made the manager of the
lumber business in which they were engaged. With respect to Llacuna,
his intervention was that of a mere surety who answered for the refund
to the plaintiff by Arellano of the capital contributed by the former.
However, his liability should be determined after the liquidation of
the business operations of the partnership. If the partnership failed
and the capital was lost in consequence of legitimate business
operations, there is not the least doubt but that the surety should not
be held liable, even subsidiarily, for the refund of the capital in
question. In order to arrive at this state of affairs, it is necessary
to make a liquidation of the business, which is one of the remedies
prayed for by the plaintiff in his amended complaint.

The trial court dismissed the defendants’ counterclaim on the
ground that the same has not been established by the evidence. This
court is convinced that such conclusion is correct and should not be
modified.

Wherefore, the judgment appealed from is hereby partly reversed and
the defendant Pablo Arellano is hereby ordered to submit within thirty
days a liquidation of the business of the partnership in question and
the court shall proceed to approve the same after hearing the parties
concerned. If it should appear from the result thereof that the surety,
Llacuna, is answerable for any amount of money, the court shall
likewise render judgment in conformity with such findings. The appealed
judgment is hereby affirmed with respect to the defendants’
counterclaim, without special pronouncement as to the costs of this
instance. So ordered.

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