THIRD DIVISION

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.

"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."

VITUG, J.:

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:

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.

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

The antecedents of the controversy, summarized by respondent Commission and quoted

at length by the appellate court in its decision, are hereunder restated.

"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;

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.

"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.

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

stating:

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

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

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

"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:

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
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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:

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;

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

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

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

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
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the partnership. An unjustified dissolution by the partner can subject him to a possible
action for damages.

SO ORDERED.
EN BANC

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.

G.R. No. 113375

May 5, 1994

KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME

CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO,
FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON,
RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA, and REP. JOKER P.
ARROYO, petitioners,
vs.
TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the
President; RENATO CORONA, in his capacity as Assistant Executive Secretary and
Chairman of the Presidential review Committee on the Lotto, Office of the President;
PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and PHILIPPINE GAMING
MANAGEMENT CORPORATION, respondents.
DAVIDE, JR., J.:
This is a special civil action for prohibition and injunction, with a prayer for a temporary
restraining order and preliminary injunction, which seeks to prohibit and restrain the
implementation of the "Contract of Lease" executed by the Philippine Charity
Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation
(PGMC) in connection with the on- line lottery system, also known as "lotto."
Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a non-stock domestic
corporation composed of civic-spirited citizens, pastors, priests, nuns, and lay leaders who
are committed to the cause of truth, justice, and national renewal. The rest of the
petitioners, except Senators Freddie Webb and Wigberto Taada and Representative
Joker P. Arroyo, are suing in their capacities as members of the Board of Trustees of
KILOSBAYAN and as taxpayers and concerned citizens. Senators Webb and Taada and
Representative Arroyo are suing in their capacities as members of Congress and as
taxpayers and concerned citizens of the Philippines.
The pleadings of the parties disclose the factual antecedents which triggered off the filing
of this petition.
Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P.
Blg. 42) which grants it the authority to hold and conduct "charity sweepstakes races,
lotteries and other similar activities," the PCSO decided to establish an on- line lottery
system for the purpose of increasing its revenue base and diversifying its sources of
funds. Sometime before March 1993, after learning that the PCSO was interested in
operating an on-line lottery system, the Berjaya Group Berhad, "a multinational company
and one of the ten largest public companies in Malaysia," long "engaged in, among others,
successful lottery operations in Asia, running both Lotto and Digit games, thru its
subsidiary, Sports Toto Malaysia," with its "affiliate, the International Totalizator Systems,
Inc., . . . an American public company engaged in the international sale or provision of
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computer systems, softwares, terminals, training and other technical services to the
gaming industry," "became interested to offer its services and resources to PCSO." As an
initial step, Berjaya Group Berhad (through its individual nominees) organized with some
Filipino investors in March 1993 a Philippine corporation known as the Philippine Gaming
Management Corporation (PGMC), which "was intended to be the medium through which
the technical and management services required for the project would be offered and
delivered to PCSO." 1

xxx

xxx

2.2.

OBJECTIVES

Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the
Lease Contract of an on-line lottery system for the PCSO. 2 Relevant provisions of the
RFP are the following:

2.2.2.
Enable PCSO to operate a nationwide on-line Lottery system at no expense or
risk to the government.

1.

EXECUTIVE SUMMARY

xxx

xxx

The objectives of PCSO in leasing the Facilities from a private entity are as follows:
xxx

xxx

xxx

1.4.

The lease shall be for a period not exceeding fifteen (15) years.

xxx

1.5.
The Lessor is expected to submit a comprehensive nationwide lottery
development plan ("Development Plan") which will include the game, the marketing of the
games, and the logistics to introduce the games to all the cities and municipalities of the
country within five (5) years.

xxx

xxx

xxx

2.4.

DUTIES AND RESPONSIBILITIES OF THE LESSOR

xxx

xxx

2.4.2.

THE LESSOR

xxx

The Proponent is expected to furnish and maintain the Facilities, including the personnel
needed to operate the computers, the communications network and sales offices under a
build-lease basis. The printing of tickets shall be undertaken under the supervision and
control of PCSO. The Facilities shall enable PCSO to computerize the entire gaming
system.
The Proponent is expected to formulate and design consumer-oriented Master Games
Plan suited to the marketplace, especially geared to Filipino gaming habits and
preferences. In addition, the Master Games Plan is expected to include a Product Plan for
each game and explain how each will be introduced into the market. This will be an
integral part of the Development Plan which PCSO will require from the Proponent.
xxx

xxx

xxx

1.7.
The Lessor shall be selected based on its technical expertise, hardware and
software capability, maintenance support, and financial resources. The Development Plan
shall have a substantial bearing on the choice of the Lessor. The Lessor shall be a
domestic corporation, with at least sixty percent (60%) of its shares owned by Filipino
shareholders.
xxx

xxx

xxx

xxx
xxx

xxx

xxx

1.2.
PCSO is seeking a suitable contractor which shall build, at its own expense, all
the facilities ('Facilities') needed to operate and maintain a nationwide on-line lottery
system. PCSO shall lease the Facilities for a fixed percentage ofquarterly gross receipts.
All receipts from ticket sales shall be turned over directly to PCSO. All capital, operating
expenses and expansion expenses and risks shall be for the exclusive account of the
Lessor.

xxx

xxx

xxx

The Office of the President, the National Disaster Control Coordinating Council, the
Philippine National Police, and the National Bureau of Investigation shall be authorized to
use the nationwide telecommunications system of the Facilities Free of Charge.
1.8.
Upon expiration of the lease, the Facilities shall be owned by PCSO without any
additional consideration. 3

The Proponent is expected to provide upgrades to modernize the entire gaming system
over the life ofthe lease contract.
The Proponent is expected to provide technology transfer to PCSO technical personnel. 4
7.

GENERAL GUIDELINES FOR PROPONENTS

xxx

xxx

xxx

Finally, the Proponent must be able to stand the acid test of proving that it is an entity able
to take on the role of responsible maintainer of the on-line lottery system, and able to
achieve PSCO's goal of formalizing an on-line lottery system to achieve its mandated
objective. 5
xxx

xxx

xxx
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16.

DEFINITION OF TERMS
1.

Facilities: All capital equipment, computers, terminals, software, nationwide

telecommunication network, ticket sales offices, furnishings, and fixtures; printing costs;
cost of salaries and wages; advertising and promotion expenses; maintenance costs;
expansion and replacement costs; security and insurance, and all other related expenses
needed to operate nationwide on-line lottery system. 6
Considering the above citizenship requirement, the PGMC claims that the Berjaya Group
"undertook to reduce its equity stakes in PGMC to 40%," by selling 35% out of the original
75% foreign stockholdings to local investors.
On 15 August 1993, PGMC submitted its bid to the PCSO. 7
The bids were evaluated by the Special Pre-Qualification Bids and Awards Committee
(SPBAC) for the on-line lottery and its Bid Report was thereafter submitted to the Office of
the President. 8 The submission was preceded by complaints by the Committee's
Chairperson, Dr. Mita Pardo de Tavera. 9
On 21 October 1993, the Office of the President announced that it had given the
respondent PGMC the go-signal to operate the country's on-line lottery system and that
the corresponding implementing contract would be submitted not later than 8 November
1993 "for final clearance and approval by the Chief Executive." 10 This announcement
was published in the Manila Standard, Philippine Daily Inquirer, and the Manila Times on
29 October 1993. 11
On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V. Ramos
strongly opposing the setting up to the on-line lottery system on the basis of serious moral
and ethical considerations. 12

DEFINITIONS

The following words and terms shall have the following respective meanings:
1.1
Rental Fee Amount to be paid by PCSO to the LESSOR as compensation for
the fulfillment of the obligations of the LESSOR under this Contract, including, but not
limited to the lease of the Facilities.
xxx

xxx

xxx

1.3
Facilities All capital equipment, computers, terminals, software (including
source codes for the On-Line Lottery application software for the terminals,
telecommunications and central systems), technology, intellectual property rights,
telecommunications network, and furnishings and fixtures.
1.4
Maintenance and Other Costs All costs and expenses relating to printing,
manpower, salaries and wages, advertising and promotion, maintenance, expansion and
replacement, security and insurance, and all other related expenses needed to operate an
On-Line Lottery System, which shall be for the account of the LESSOR. All expenses
relating to the setting-up, operation and maintenance of ticket sales offices of dealers and
retailers shall be borne by PCSO's dealers and retailers.
1.5
Development Plan The detailed plan of all games, the marketing thereof,
number of players, value of winnings and the logistics required to introduce the games,
including the Master Games Plan as approved by PCSO, attached hereto as Annex "A",
modified as necessary by the provisions of this Contract.
xxx

xxx

xxx

At the meeting of the Committee on Games and Amusements of the Senate on 12

November 1993, KILOSBAYAN reiterated its vigorous opposition to the on-line lottery on
account of its immorality and illegality. 13

1.8
Escrow Deposit The proposal deposit in the sum of Three Hundred Million
Pesos (P300,000,000.00) submitted by the LESSOR to PCSO pursuant to the
requirements of the Request for Proposals.

On 19 November 1993, the media reported that despite the opposition, "Malacaang will
push through with the operation of an on-line lottery system nationwide" and that it is
actually the respondent PCSO which will operate the lottery while the winning corporate
bidders are merely "lessors." 14

2.

On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to the

lottery award from Executive Secretary Teofisto Guingona, Jr. In his answer of 17
December 1993, the Executive Secretary informed KILOSBAYAN that the requested
documents would be duly transmitted before the end of the month. 15. However, on that
same date, an agreement denominated as "Contract of Lease" was finally executed by
respondent PCSO and respondent PGMC. 16 The President, per the press statement
issued by the Office of the President, approved it on 20 December 1993. 17
In view of their materiality and relevance, we quote the following salient provisions of the
Contract of Lease:

SUBJECT MATTER OF THE LEASE

The LESSOR shall build, furnish and maintain at its own expense and risk the Facilities for
the On-Line Lottery System of PCSO in the Territory on an exclusive basis. The LESSOR
shall bear all Maintenance and Other Costs as defined herein.
xxx

xxx

xxx

3.

RENTAL FEE

For and in consideration of the performance by the LESSOR of its obligations herein,
PCSO shall pay LESSOR a fixed Rental Fee equal to four point nine percent (4.9%) of
gross receipts from ticket sales, payable net of taxes required by law to be withheld, on a
semi-monthly basis. Goodwill, franchise and similar fees shall belong to PCSO.
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4.

LEASE PERIOD

The period of the lease shall commence ninety (90) days from the date of effectivity of this
Contract and shall run for a period of eight (8) years thereafter, unless sooner terminated
in accordance with this Contract.
5.
RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE
LOTTERY SYSTEM
PCSO shall be the sole and individual operator of the On-Line Lottery System.
Consequently:
5.1
PCSO shall have sole responsibility to decide whether to implement, fully or
partially, the Master Games Plan of the LESSOR. PCSO shall have the sole responsibility
to determine the time for introducing new games to the market. The Master Games Plan
included in Annex "A" hereof is hereby approved by PCSO.
5.2
PCSO shall have control over revenues and receipts of whatever nature from
the On-Line Lottery System. After paying the Rental Fee to the LESSOR, PCSO shall
have exclusive responsibility to determine the Revenue Allocation Plan; Provided, that the
same shall be consistent with the requirement of R.A. No. 1169, as amended, which fixes
a prize fund of fifty five percent (55%) on the average.

Line Lottery System. The LESSOR will bear all other Maintenance and Other Costs,
except as provided in Section 1.4.
5.9

PCSO shall assist the LESSOR in the following:

5.9.1

Work permits for the LESSOR's staff;

5.9.2

Approvals for importation of the Facilities;

5.9.3

Approvals and consents for the On-Line Lottery System; and

5.9.4
Business and premises licenses for all offices of the LESSOR and licenses for
the telecommunications network.
5.10
In the event that PCSO shall pre-terminate this Contract or suspend the
operation of the On-Line Lottery System, in breach of this Contract and through no fault of
the LESSOR, PCSO shall promptly, and in any event not later than sixty (60) days,
reimburse the LESSOR the amount of its total investment cost associated with the OnLine Lottery System, including but not limited to the cost of the Facilities, and further
compensate the LESSOR for loss of expected net profit after tax, computed over the
unexpired term of the lease.
6.

5.3
PCSO shall have exclusive control over the printing of tickets, including but not
limited to the design, text, and contents thereof.
5.4
PCSO shall have sole responsibility over the appointment of dealers or retailers
throughout the country. PCSO shall appoint the dealers and retailers in a timely manner
with due regard to the implementation timetable of the On-Line Lottery System. Nothing
herein shall preclude the LESSOR from recommending dealers or retailers for
appointment by PCSO, which shall act on said recommendation within forty-eight (48)
hours.
5.5
PCSO shall designate the necessary personnel to monitor and audit the daily
performance of the On-Line Lottery System. For this purpose, PCSO designees shall be
given, free of charge, suitable and adequate space, furniture and fixtures, in all offices of
the LESSOR, including but not limited to its headquarters, alternate site, regional and area
offices.
5.6
PCSO shall have the responsibility to resolve, and exclusive jurisdiction over, all
matters involving the operation of the On-Line Lottery System not otherwise provided in
this Contract.

DUTIES AND RESPONSIBILITIES OF THE LESSOR

The LESSOR is one of not more than three (3) lessors of similar facilities for the
nationwide On-Line Lottery System of PCSO. It is understood that the rights of the
LESSOR are primarily those of a lessor of the Facilities, and consequently, all rights
involving the business aspects of the use of the Facilities are within the jurisdiction of
PCSO. During the term of the lease, the LESSOR shall.
6.1
Maintain and preserve its corporate existence, rights and privileges, and
conduct its business in an orderly, efficient, and customary manner.
6.2

Maintain insurance coverage with insurers acceptable to PCSO on all Facilities.

6.3
Comply with all laws, statues, rules and regulations, orders and directives,
obligations and duties by which it is legally bound.
6.4
Duly pay and discharge all taxes, assessments and government charges now
and hereafter imposed of whatever nature that may be legally levied upon it.

5.7
PCSO shall promulgate procedural and coordinating rules governing all
activities relating to the On-Line Lottery System.

6.5
Keep all the Facilities in fail safe condition and, if necessary, upgrade, replace
and improve the Facilities from time to time as new technology develops, in order to make
the On-Line Lottery System more cost-effective and/or competitive, and as may be
required by PCSO shall not impose such requirements unreasonably nor arbitrarily.

5.8
PCSO will be responsible for the payment of prize monies, commissions to
agents and dealers, and taxes and levies (if any) chargeable to the operator of the On-

6.6
Provide PCSO with management terminals which will allow real-time monitoring
of the On-Line Lottery System.
sjbprior| 6

6.7
Upon effectivity of this Contract, commence the training of PCSO and other
local personnel and the transfer of technology and expertise, such that at the end of the
term of this Contract, PCSO will be able to effectively take-over the Facilities and
efficiently operate the On-Line Lottery System.

The LESSOR shall establish a telecommunications network that will connect all
municipalities and cities in the Territory in accordance with, at the LESSOR's option, either
of the LESSOR's proposals (or a combinations of both such proposals) attached hereto as
Annex "B," and under the following PCSO schedule:

6.8
Undertake a positive advertising and promotions campaign for both institutional
and product lines without engaging in negative advertising against other lessors.

xxx

6.9
Bear all expenses and risks relating to the Facilities including, but not limited to,
Maintenance and Other Costs and:
xxx

xxx

xxx

6.10
Bear all risks if the revenues from ticket sales, on an annualized basis, are
insufficient to pay the entire prize money.
6.11
Be, and is hereby, authorized to collect and retain for its own account, a security
deposit from dealers and retailers, in an amount determined with the approval of PCSO, in
respect of equipment supplied by the LESSOR. PCSO's approval shall not be
unreasonably withheld.
xxx

xxx

6.12

Comply with procedural and coordinating rules issued by PCSO.

7.

REPRESENTATIONS AND WARRANTIES

xxx

xxx

PCSO may, at its option, require the LESSOR to establish the telecommunications
network in accordance with the above Timetable in provinces where the LESSOR has not
yet installed terminals. Provided, that such provinces have existing nodes. Once a
municipality or city is serviced by land lines of a licensed public telephone company, and
such lines are connected to Metro Manila, then the obligation of the LESSOR to connect
such municipality or city through a telecommunications network shall cease with respect to
such municipality or city. The voice facility will cover the four offices of the Office of the
President, National Disaster Control Coordinating Council, Philippine National Police and
the National Bureau of Investigation, and each city and municipality in the Territory except
Metro Manila, and those cities and municipalities which have easy telephone access from
these four offices. Voice calls from the four offices shall be transmitted via radio or VSAT
to the remote municipalities which will be connected to this voice facility through wired
network or by radio. The facility shall be designed to handle four private conversations at
any one time.

xxx

The LESSOR represents and warrants that:

7.1
The LESSOR is corporation duly organized and existing under the laws of the
Republic of the Philippines, at least sixty percent (60%) of the outstanding capital stock of
which is owned by Filipino shareholders. The minimum required Filipino equity
participation shall not be impaired through voluntary or involuntary transfer, disposition, or
sale of shares of stock by the present stockholders.
7.2
The LESSOR and its Affiliates have the full corporate and legal power and
authority to own and operate their properties and to carry on their business in the place
where such properties are now or may be conducted. . . .
7.3
The LESSOR has or has access to all the financing and funding requirements to
promptly and effectively carry out the terms of this Contract. . . .
7.4
The LESSOR has or has access to all the managerial and technical expertise to
promptly and effectively carry out the terms of this Contract. . . .
xxx

xxx

xxx

10.

TELECOMMUNICATIONS NETWORK

xxx

xxx

xxx

13.

STOCK DISPERSAL PLAN

Within two (2) years from the effectivity of this Contract, the LESSOR shall cause itself to
be listed in the local stock exchange and offer at least twenty five percent (25%) of its
equity to the public.
14.

NON-COMPETITION

The LESSOR shall not, directly or indirectly, undertake any activity or business in
competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the
latter's prior written consent thereto.
15.

HOLD HARMLESS CLAUSE

15.1
The LESSOR shall at all times protect and defend, at its cost and expense,
PCSO from and against any and all liabilities and claims for damages and/or suits for or by
reason of any deaths of, or any injury or injuries to any person or persons, or damages to
property of any kind whatsoever, caused by the LESSOR, its subcontractors, its
authorized agents or employees, from any cause or causes whatsoever.
15.2
The LESSOR hereby covenants and agrees to indemnify and hold PCSO
harmless from all liabilities, charges, expenses (including reasonable counsel fees) and
costs on account of or by reason of any such death or deaths, injury or injuries, liabilities,
claims, suits or losses caused by the LESSOR's fault or negligence.
sjbprior| 7

15.3
The LESSOR shall at all times protect and defend, at its own cost and expense,
its title to the facilities and PCSO's interest therein from and against any and all claims for
the duration of the Contract until transfer to PCSO of ownership of the serviceable
Facilities.
16.

21.1
The LESSOR is insolvent or bankrupt or unable to pay its debts, stops or
suspends or threatens to stop or suspend payment of all or a material part of its debts, or
proposes or makes a general assignment or an arrangement or compositions with or for
the benefit of its creditors; or

SECURITY

16.1
To ensure faithful compliance by the LESSOR with the terms of the Contract,
the LESSOR shall secure a Performance Bond from a reputable insurance company or
companies acceptable to PCSO.
16.2
The Performance Bond shall be in the initial amount of Three Hundred Million
Pesos (P300,000,000.00), to its U.S. dollar equivalent, and shall be renewed to cover the
duration of the Contract. However, the Performance Bond shall be reduced proportionately
to the percentage of unencumbered terminals installed; Provided, that the Performance
Bond shall in no case be less than One Hundred Fifty Million Pesos (P150,000,000.00).

21.2
An order is made or an effective resolution passed for the winding up or
dissolution of the LESSOR or when it ceases or threatens to cease to carry on all or a
material part of its operations or business; or
21.3
Any material statement, representation or warranty made or furnished by the
LESSOR proved to be materially false or misleading;
said termination to take effect upon receipt of written notice of termination by the LESSOR
and failure to take remedial action within seven (7) days and cure or remedy the same
within thirty (30) days from notice.

16.3
The LESSOR may at its option maintain its Escrow Deposit as the Performance
Bond. . . .

Any suspension, cancellation or termination of this Contract shall not relieve the LESSOR
of any liability that may have already accrued hereunder.

17.

xxx

PENALTIES

xxx

xxx

17.1
Except as may be provided in Section 17.2, should the LESSOR fail to take
remedial measures within seven (7) days, and rectify the breach within thirty (30) days,
from written notice by PCSO of any wilfull or grossly negligent violation of the material
terms and conditions of this Contract, all unencumbered Facilities shall automatically
become the property of PCSO without consideration and without need for further notice or
demand by PCSO. The Performance Bond shall likewise be forfeited in favor of PCSO.

Considering the denial by the Office of the President of its protest and the statement of
Assistant Executive Secretary Renato Corona that "only a court injunction can stop
Malacaang," and the imminent implementation of the Contract of Lease in February
1994, KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.

17.2
Should the LESSOR fail to comply with the terms of the Timetables provided in
Section 9 and 10, it shall be subject to an initial Penalty of Twenty Thousand Pesos
(P20,000.00), per city or municipality per every month of delay; Provided, that the Penalty
shall increase, every ninety (90) days, by the amount of Twenty Thousand Pesos
(P20,000.00) per city or municipality per month, whilst shall failure to comply persists. The
penalty shall be deducted by PCSO from the rental fee.

. . . X X THE OFFICE OF THE PRESIDENT, ACTING THROUGH RESPONDENTS

EXECUTIVE SECRETARY AND/OR ASSISTANT EXECUTIVE SECRETARY FOR
LEGAL AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEIR DISCRETION AND/OR
FUNCTIONS TANTAMOUNT TO LACK OF JURISDICTION AND/OR AUTHORITY IN
RESPECTIVELY: (A) APPROVING THE AWARD OF THE CONTRACT TO, AND (B)
ENTERING INTO THE SO-CALLED "CONTRACT OF LEASE" WITH, RESPONDENT
PGMC FOR THE INSTALLATION, ESTABLISHMENT AND OPERATION OF THE ONLINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED AND/OR
AUTHORIZED UNDER THE SAID CONTRACT, CONSIDERING THAT:

xxx

xxx

xxx

20.

OWNERSHIP OF THE FACILITIES

After expiration of the term of the lease as provided in Section 4, the Facilities directly
required for the On-Line Lottery System mentioned in Section 1.3 shall automatically
belong in full ownership to PCSO without any further consideration other than the Rental
Fees already paid during the effectivity of the lease.
21.

TERMINATION OF THE LEASE

In support of the petition, the petitioners claim that:

a)
Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from
holding and conducting lotteries "in collaboration, association or joint venture with any
person, association, company or entity";
b)
Under Act No. 3846 and established jurisprudence, a Congressional franchise is
required before any person may be allowed to establish and operate said
telecommunications system;

PCSO may terminate this Contract for any breach of the material provisions of this
Contract, including the following:
sjbprior| 8

c)
Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned
and/or controlled corporation, like the PGMC, is disqualified from operating a public
service, like the said telecommunications system; and
d)
Respondent PGMC is not authorized by its charter and under the Foreign
Investment Act (R.A. No. 7042) to install, establish and operate the on-line lotto and
telecommunications systems. 18
Petitioners submit that the PCSO cannot validly enter into the assailed Contract of Lease
with the PGMC because it is an arrangement wherein the PCSO would hold and conduct
the on-line lottery system in "collaboration" or "association" with the PGMC, in violation of
Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO
from holding and conducting charity sweepstakes races, lotteries, and other similar
activities "in collaboration, association or joint venture with any person, association,
company or entity, foreign or domestic." Even granting arguendo that a lease of facilities is
not within the contemplation of "collaboration" or "association," an analysis, however, of
the Contract of Lease clearly shows that there is a "collaboration, association, or joint
venture between respondents PCSO and PGMC in the holding of the On-Line Lottery
System," and that there are terms and conditions of the Contract "showing that respondent
PGMC is the actual lotto operator and not respondent PCSO." 19
The petitioners also point out that paragraph 10 of the Contract of Lease requires or
authorizes PGMC to establish a telecommunications network that will connect all the
municipalities and cities in the territory. However, PGMC cannot do that because it has no
franchise from Congress to construct, install, establish, or operate the network pursuant to
Section 1 of Act No. 3846, as amended. Moreover, PGMC is a 75% foreign-owned or
controlled corporation and cannot, therefore, be granted a franchise for that purpose
because of Section 11, Article XII of the 1987 Constitution. Furthermore, since "the
subscribed foreign capital" of the PGMC "comes to about 75%, as shown by paragraph
EIGHT of its Articles of Incorporation," it cannot lawfully enter into the contract in question
because all forms of gambling and lottery is one of them are included in the socalled foreign investments negative list under the Foreign Investments Act (R.A. No. 7042)
where only up to 40% foreign capital is allowed. 20
Finally, the petitioners insist that the Articles of Incorporation of PGMC do not authorize it
to establish and operate an on-line lottery and telecommunications systems. 21
Accordingly, the petitioners pray that we issue a temporary restraining order and a writ of
preliminary injunction commanding the respondents or any person acting in their places or
upon their instructions to cease and desist from implementing the challenged Contract of
Lease and, after hearing the merits of the petition, that we render judgment declaring the
Contract of Lease void and without effect and making the injunction permanent. 22
We required the respondents to comment on the petition.
In its Comment filed on 1 March 1994, private respondent PGMC asserts that "(1) [it] is
merely an independent contractor for a piece of work, (i.e., the building and maintenance
of a lottery system to be used by PCSO in the operation of its lottery franchise); and (2) as
such independent contractor, PGMC is not a co-operator of the lottery franchise with

PCSO, nor is PCSO sharing its franchise, 'in collaboration, association or joint venture'
with PGMC as such statutory limitation is viewed from the context, intent, and spirit of
Republic Act 1169, as amended by Batas Pambansa 42." It further claims that as an
independent contractor for a piece of work, it is neither engaged in "gambling" nor in
"public service" relative to the telecommunications network, which the petitioners even
consider as an "indispensable requirement" of an on-line lottery system. Finally, it states
that the execution and implementation of the contract does not violate the Constitution and
the laws; that the issue on the "morality" of the lottery franchise granted to the PCSO is
political and not judicial or legal, which should be ventilated in another forum; and that the
"petitioners do not appear to have the legal standing or real interest in the subject contract
and in obtaining the reliefs sought." 23
In their Comment filed by the Office of the Solicitor General, public respondents Executive
Secretary Teofisto Guingona, Jr., Assistant Executive Secretary Renato Corona, and the
PCSO maintain that the contract of lease in question does not violate Section 1 of R.A.
No. 1169, as amended by B.P. Blg. 42, and that the petitioner's interpretation of the
phrase "in collaboration, association or joint venture" in Section 1 is "much too narrow,
strained and utterly devoid of logic" for it "ignores the reality that PCSO, as a corporate
entity, is vested with the basic and essential prerogative to enter into all kinds of
transactions or contracts as may be necessary for the attainment of its purposes and
objectives." What the PCSO charter "seeks to prohibit is that arrangement akin to a "joint
venture" or partnership where there is "community of interest in the business, sharing of
profits and losses, and a mutual right of control," a characteristic which does not obtain in
a contract of lease." With respect to the challenged Contract of Lease, the "role of PGMC
is limited to that of a lessor of the facilities" for the on-line lottery system; in "strict technical
and legal sense," said contract "can be categorized as a contract for a piece of work as
defined in Articles 1467, 1713 and 1644 of the Civil Code."
They further claim that the establishment of the telecommunications system stipulated in
the Contract of Lease does not require a congressional franchise because PGMC will not
operate a public utility; moreover, PGMC's "establishment of a telecommunications system
is not intended to establish a telecommunications business," and it has been held that
where the facilities are operated "not for business purposes but for its own use," a
legislative franchise is not required before a certificate of public convenience can be
granted. 24 Even granting arguendo that PGMC is a public utility, pursuant to Albano S.
Reyes, 25 "it can establish a telecommunications system even without a legislative
franchise because not every public utility is required to secure a legislative franchise
before it could establish, maintain, and operate the service"; and, in any case, "PGMC's
establishment of the telecommunications system stipulated in its contract of lease with
PCSO falls within the exceptions under Section 1 of Act No. 3846 where a legislative
franchise is not necessary for the establishment of radio stations."
They also argue that the contract does not violate the Foreign Investment Act of 1991; that
the Articles of Incorporation of PGMC authorize it to enter into the Contract of Lease; and
that the issues of "wisdom, morality and propriety of acts of the executive department are
beyond the ambit of judicial review."
Finally, the public respondents allege that the petitioners have no standing to maintain the
instant suit, citing our resolution in Valmonte vs. Philippine Charity Sweepstakes Office. 26
sjbprior| 9

Several parties filed motions to intervene as petitioners in this case, 27 but only the motion
of Senators Alberto Romulo, Arturo Tolentino, Francisco Tatad, Gloria Macapagal-Arroyo,
Vicente Sotto III, John Osmea, Ramon Revilla, and Jose Lina 28 was granted, and the
respondents were required to comment on their petition in intervention, which the public
respondents and PGMC did.
In the meantime, the petitioners filed with the Securities and Exchange Commission on 29
March 1994 a petition against PGMC for the nullification of the latter's General Information
Sheets. That case, however, has no bearing in this petition.
On 11 April 1994, we heard the parties in oral arguments. Thereafter, we resolved to
consider the matter submitted for resolution and pending resolution of the major issues in
this case, to issue a temporary restraining order commanding the respondents or any
person acting in their place or upon their instructions to cease and desist from
implementing the challenged Contract of Lease.
In the deliberation on this case on 26 April 1994, we resolved to consider only these
issues: (a) the locus standi of the petitioners, and (b) the legality and validity of the
Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42,
which prohibits the PCSO from holding and conducting lotteries "in collaboration,
association or joint venture with any person, association, company or entity, whether
domestic or foreign." On the first issue, seven Justices voted to sustain the locus standi of
the petitioners, while six voted not to. On the second issue, the seven Justices were of the
opinion that the Contract of Lease violates the exception to Section 1(B) of R.A. No. 1169,
as amended by B.P. Blg. 42, and is, therefore, invalid and contrary to law. The six Justices
stated that they wished to express no opinion thereon in view of their stand on the first
issue. The Chief Justice took no part because one of the Directors of the PCSO is his
brother-in-law.
This case was then assigned to this ponente for the writing of the opinion of the Court.
The preliminary issue on the locus standi of the petitioners should, indeed, be resolved in
their favor. A party's standing before this Court is a procedural technicality which it may, in
the exercise of its discretion, set aside in view of the importance of the issues raised. In
the landmark Emergency Powers Cases, 29 this Court brushed aside this technicality
because "the transcendental importance to the public of these cases demands that they
be settled promptly and definitely, brushing aside, if we must, technicalities of procedure.
(Avelino vs. Cuenco, G.R. No. L-2821)." Insofar as taxpayers' suits are concerned, this
Court had declared that it "is not devoid of discretion as to whether or not it should be
entertained," 30 or that it "enjoys an open discretion to entertain the same or not." 31 In
De La Llana vs. Alba, 32 this Court declared:
1.
The argument as to the lack of standing of petitioners is easily resolved. As far
as Judge de la Llana is concerned, he certainly falls within the principle set forth in Justice
Laurel's opinion in People vs. Vera [65 Phil. 56 (1937)]. Thus: "The unchallenged rule is
that the person who impugns the validity of a statute must have a personal and substantial
interest in the case such that he has sustained, or will sustain, direct injury as a result of
its enforcement [Ibid, 89]. The other petitioners as members of the bar and officers of the

court cannot be considered as devoid of "any personal and substantial interest" on the
matter. There is relevance to this excerpt from a separate opinion in Aquino, Jr. v.
Commission on Elections [L-40004, January 31, 1975, 62 SCRA 275]: "Then there is the
attack on the standing of petitioners, as vindicating at most what they consider a public
right and not protecting their rights as individuals. This is to conjure the specter of the
public right dogma as an inhibition to parties intent on keeping public officials staying on
the path of constitutionalism. As was so well put by Jaffe; "The protection of private rights
is an essential constituent of public interest and, conversely, without a well-ordered state
there could be no enforcement of private rights. Private and public interests are, both in a
substantive and procedural sense, aspects of the totality of the legal order." Moreover,
petitioners have convincingly shown that in their capacity as taxpayers, their standing to
sue has been amply demonstrated. There would be a retreat from the liberal approach
followed in Pascual v. Secretary of Public Works, foreshadowed by the very decision of
People v. Vera where the doctrine was first fully discussed, if we act differently now. I do
not think we are prepared to take that step. Respondents, however, would hard back to
the American Supreme Court doctrine in Mellon v. Frothingham, with their claim that what
petitioners possess "is an interest which is shared in common by other people and is
comparatively so minute and indeterminate as to afford any basis and assurance that the
judicial process can act on it." That is to speak in the language of a bygone era, even in
the United States. For as Chief Justice Warren clearly pointed out in the later case of Flast
v. Cohen, the barrier thus set up if not breached has definitely been lowered.
In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, 33 reiterated
in Basco vs. Philippine Amusements and Gaming Corporation, 34 this Court stated:
Objections to taxpayers' suits for lack of sufficient personality standing or interest are,
however, in the main procedural matters. Considering the importance to the public of the
cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to
determine whether or not the other branches of government have kept themselves within
the limits of the Constitution and the laws and that they have not abused the discretion
given to them, this Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.
and in Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian
Reform, 35 it declared:
With particular regard to the requirement of proper party as applied in the cases before us,
we hold that the same is satisfied by the petitioners and intervenors because each of them
has sustained or is in danger of sustaining an immediate injury as a result of the acts or
measures complained of. [Ex Parte Levitt, 303 US 633]. And even if, strictly speaking, they
are not covered by the definition, it is still within the wide discretion of the Court to waive
the requirement and so remove the impediment to its addressing and resolving the serious
constitutional questions raised.
In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to
question the constitutionality of several executive orders issued by President Quirino
although they were invoking only an indirect and general interest shared in common with
the public. The Court dismissed the objective that they were not proper parties and ruled
that the transcendental importance to the public of these cases demands that they be
sjbprior| 10

settled promptly and definitely, brushing aside, if we must, technicalities of procedure. We

have since then applied this exception in many other cases. (Emphasis supplied)
In Daza vs. Singson, 36 this Court once more said:
. . . For another, we have early as in the Emergency Powers Cases that where serious
constitutional questions are involved, "the transcendental importance to the public of these
cases demands that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure." The same policy has since then been consistently followed by
the Court, as in Gonzales vs. Commission on Elections [21 SCRA 774] . . .
The Federal Supreme Court of the United States of America has also expressed its
discretionary power to liberalize the rule on locus standi. In United States vs. Federal
Power Commission and Virginia Rea Association vs. Federal Power Commission, 37 it
held:
We hold that petitioners have standing. Differences of view, however, preclude a single
opinion of the Court as to both petitioners. It would not further clarification of this
complicated specialty of federal jurisdiction, the solution of whose problems is in any event
more or less determined by the specific circumstances of individual situations, to set out
the divergent grounds in support of standing in these cases.
In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of
Congress, and even association of planters, and non-profit civic organizations were
allowed to initiate and prosecute actions before this Court to question the constitutionality
or validity of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A.
No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick
leave to Senators and Representatives and to elective officials of both Houses of
Congress; 38 (b) Executive Order No. 284, issued by President Corazon C. Aquino on 25
July 1987, which allowed members of the cabinet, their undersecretaries, and assistant
secretaries to hold other government offices or positions; 39 (c) the automatic
appropriation for debt service in the General Appropriations Act; 40 (d) R.A. No. 7056 on
the holding of desynchronized elections; 41 (d) R.A. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is contrary to morals, public
policy, and order; 42 and (f) R.A. No. 6975, establishing the Philippine National
Police. 43
Other cases where we have followed a liberal policy regarding locus standi include those
attacking the validity or legality of (a) an order allowing the importation of rice in the light of
the prohibition imposed by R.A. No. 3452; 44 (b) P.D. Nos. 991 and 1033 insofar as they
proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the
COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16
October 1976; 45 (c) the bidding for the sale of the 3,179 square meters of land at
Roppongi, Minato-ku, Tokyo, Japan; 46 (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan Petrochemical Corporation to
transfer the site of its plant from Bataan to Batangas and the validity of such transfer and
the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas; 47 (e)
the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of

Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal

Incentives Review Board exempting the National Power Corporation from indirect tax and
duties; 48 (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the
ground that the hearings conducted on the second provisional increase in oil prices did not
allow the petitioner substantial cross-examination; 49 (g) Executive Order No. 478 which
levied a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil and
P1.00 per liter of imported oil products; 50 (h) resolutions of the Commission on Elections
concerning the apportionment, by district, of the number of elective members of
Sanggunians; 51 and (i) memorandum orders issued by a Mayor affecting the Chief of
Police of Pasay City. 52
In the 1975 case of Aquino vs. Commission on Elections, 53 this Court, despite its
unequivocal ruling that the petitioners therein had no personality to file the petition,
resolved nevertheless to pass upon the issues raised because of the far-reaching
implications of the petition. We did no less in De Guia vs. COMELEC 54 where, although
we declared that De Guia "does not appear to have locus standi, a standing in law, a
personal or substantial interest," we brushed aside the procedural infirmity "considering
the importance of the issue involved, concerning as it does the political exercise of
qualified voters affected by the apportionment, and petitioner alleging abuse of discretion
and violation of the Constitution by respondent."
We find the instant petition to be of transcendental importance to the public. The issues it
raised are of paramount public interest and of a category even higher than those involved
in many of the aforecited cases. The ramifications of such issues immeasurably affect the
social, economic, and moral well-being of the people even in the remotest barangays of
the country and the counter-productive and retrogressive effects of the envisioned on-line
lottery system are as staggering as the billions in pesos it is expected to raise. The legal
standing then of the petitioners deserves recognition and, in the exercise of its sound
discretion, this Court hereby brushes aside the procedural barrier which the respondents
tried to take advantage of.
And now on the substantive issue.
Section 1 of R.A. No. 1169, as amending by B.P. Blg. 42, prohibits the PCSO from holding
and conducting lotteries "in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign." Section 1 provides:
Sec. 1. The Philippine Charity Sweepstakes Office. The Philippine Charity
Sweepstakes Office, hereinafter designated the Office, shall be the principal government
agency for raising and providing for funds for health programs, medical assistance and
services and charities of national character, and as such shall have the general powers
conferred in section thirteen of Act Numbered One thousand four hundred fifty-nine, as
amended, and shall have the authority:
A.
To hold and conduct charity sweepstakes races, lotteries and other similar
activities, in such frequency and manner, as shall be determined, and subject to such
rules and regulations as shall be promulgated by the Board of Directors.

sjbprior| 11

B.
Subject to the approval of the Minister of Human Settlements, to engage in
health and welfare-related investments, programs, projects and activities which may be
profit-oriented, by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, except for the activities
mentioned in the preceding paragraph (A), for the purpose of providing for permanent and
continuing sources of funds for health programs, including the expansion of existing ones,
medical assistance and services, and/or charitable grants: Provided, That such investment
will not compete with the private sector in areas where investments are adequate as may
be determined by the National Economic and Development Authority. (emphasis supplied)

MR. DAVIDE.

The language of the section is indisputably clear that with respect to its franchise or
privilege "to hold and conduct charity sweepstakes races, lotteries and other similar
activities," the PCSO cannot exercise it "in collaboration, association or joint venture" with
any other party. This is the unequivocal meaning and import of the phrase "except for the
activities mentioned in the preceding paragraph (A)," namely, "charity sweepstakes races,
lotteries and other similar activities."

MR. ZAMORA.

May I introduce an amendment to the committee amendment? The amendment would be

to insert after "foreign" in the amendment just read the following: EXCEPT FOR THE
ACTIVITY IN LETTER (A) ABOVE.
When it is joint venture or in collaboration with any entity such collaboration or joint
venture must not include activity activity letter (a) which is the holding and conducting of
sweepstakes races, lotteries and other similar acts.

We accept the amendment, Mr. Speaker.

MR. DAVIDE.
Thank you, Mr. Speaker.

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by Committee
Report No. 103 as reported out by the Committee on Socio-Economic Planning and
Development of the Interim Batasang Pambansa. The original text of paragraph B, Section
1 of Parliamentary Bill No. 622 reads as follows:
To engage in any and all investments and related profit-oriented projects or programs and
activities by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, for the main purpose of
raising funds for health and medical assistance and services and charitable grants. 55
During the period of committee amendments, the Committee on Socio-Economic Planning
and Development, through Assemblyman Ronaldo B. Zamora, introduced an amendment
by substitution to the said paragraph B such that, as amended, it should read as follows:
Subject to the approval of the Minister of Human Settlements, to engage in health-oriented
investments, programs, projects and activities which may be profit- oriented, by itself or in
collaboration, association, or joint venture with any person, association, company or entity,
whether domestic or foreign, for the purpose of providing for permanent and continuing
sources of funds for health programs, including the expansion of existing ones, medical
assistance and services and/or charitable grants. 56
Before the motion of Assemblyman Zamora for the approval of the amendment could be
acted upon, Assemblyman Davide introduced an amendment to the amendment:
MR. DAVIDE.
Mr. Speaker.
THE SPEAKER.
The gentleman from Cebu is recognized.

THE SPEAKER.
Is there any objection to the amendment? (Silence) The amendment, as amended, is
approved. 57
Further amendments to paragraph B were introduced and approved. When Assemblyman
Zamora read the final text of paragraph B as further amended, the earlier approved
amendment of Assemblyman Davide became "EXCEPT FOR THE ACTIVITIES
MENTIONED IN PARAGRAPH (A)"; and by virtue of the amendment introduced by
Assemblyman Emmanuel Pelaez, the word PRECEDING was inserted before
PARAGRAPH. Assemblyman Pelaez introduced other amendments. Thereafter, the new
paragraph B was approved. 58
This is now paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.
No interpretation of the said provision to relax or circumvent the prohibition can be allowed
since the privilege to hold or conduct charity sweepstakes races, lotteries, or other similar
activities is a franchise granted by the legislature to the PCSO. It is a settled rule that "in
all grants by the government to individuals or corporations of rights, privileges and
franchises, the words are to be taken most strongly against the grantee .... [o]ne who
claims a franchise or privilege in derogation of the common rights of the public must prove
his title thereto by a grant which is clearly and definitely expressed, and he cannot enlarge
it by equivocal or doubtful provisions or by probable inferences. Whatever is not
unequivocally granted is withheld. Nothing passes by mere implication." 59
In short then, by the exception explicitly made in paragraph B, Section 1 of its charter, the
PCSO cannot share its franchise with another by way of collaboration, association or joint
venture. Neither can it assign, transfer, or lease such franchise. It has been said that "the
rights and privileges conferred under a franchise may, without doubt, be assigned or
transferred when the grant is to the grantee and assigns, or is authorized by statute. On
the other hand, the right of transfer or assignment may be restricted by statute or the
sjbprior| 12

constitution, or be made subject to the approval of the grantor or a governmental agency,

such as a public utilities commission, exception that an existing right of assignment cannot
be impaired by subsequent legislation." 60
It may also be pointed out that the franchise granted to the PCSO to hold and conduct
lotteries allows it to hold and conduct a species of gambling. It is settled that "a statute
which authorizes the carrying on of a gambling activity or business should be strictly
construed and every reasonable doubt so resolved as to limit the powers and rights
claimed under its authority." 61
Does the challenged Contract of Lease violate or contravene the exception in Section 1 of
R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and
conducting lotteries "in collaboration, association or joint venture with" another?
We agree with the petitioners that it does, notwithstanding its denomination or designation
as a (Contract of Lease). We are neither convinced nor moved or fazed by the insistence
and forceful arguments of the PGMC that it does not because in reality it is only an
independent contractor for a piece of work, i.e., the building and maintenance of a lottery
system to be used by the PCSO in the operation of its lottery franchise. Whether the
contract in question is one of lease or whether the PGMC is merely an independent
contractor should not be decided on the basis of the title or designation of the contract but
by the intent of the parties, which may be gathered from the provisions of the contract
itself. Animus hominis est anima scripti. The intention of the party is the soul of the
instrument. In order to give life or effect to an instrument, it is essential to look to the
intention of the individual who executed it. 62 And, pursuant to Article 1371 of the Civil
Code, "to determine the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered." To put it more bluntly, no one should be
deceived by the title or designation of a contract.
A careful analysis and evaluation of the provisions of the contract and a consideration of
the contemporaneous acts of the PCSO and PGMC indubitably disclose that the contract
is not in reality a contract of lease under which the PGMC is merely an independent
contractor for a piece of work, but one where the statutorily proscribed collaboration or
association, in the least, or joint venture, at the most, exists between the contracting
parties. Collaboration is defined as the acts of working together in a joint project. 63
Association means the act of a number of persons in uniting together for some special
purpose or business. 64 Joint venture is defined as an association of persons or
companies jointly undertaking some commercial enterprise; generally all contribute assets
and share risks. It requires a community of interest in the performance of the subject
matter, a right to direct and govern the policy in connection therewith, and duty, which may
be altered by agreement to share both in profit and
losses. 65
The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither
funds of its own nor the expertise to operate and manage an on-line lottery system, and
that although it wished to have the system, it would have it "at no expense or risks to the
government." Because of these serious constraints and unwillingness to bear expenses
and assume risks, the PCSO was candid enough to state in its RFP that it is seeking for "a
suitable contractor which shall build, at its own expense, all the facilities needed to operate

and maintain" the system; exclusively bear "all capital, operating expenses and expansion
expenses and risks"; and submit "a comprehensive nationwide lottery development plan . .
. which will include the game, the marketing of the games, and the logistics to introduce
the game to all the cities and municipalities of the country within five (5) years"; and that
the operation of the on-line lottery system should be "at no expense or risk to the
government" meaning itself, since it is a government-owned and controlled agency.
The facilities referred to means "all capital equipment, computers, terminals, software,
nationwide telecommunications network, ticket sales offices, furnishings and fixtures,
printing costs, costs of salaries and wages, advertising and promotions expenses,
maintenance costs, expansion and replacement costs, security and insurance, and all
other related expenses needed to operate a nationwide on-line lottery system."
In short, the only contribution the PCSO would have is its franchise or authority to operate
the on-line lottery system; with the rest, including the risks of the business, being borne by
the proponent or bidder. It could be for this reason that it warned that "the proponent must
be able to stand to the acid test of proving that it is an entity able to take on the role of
responsible maintainer of the on-line lottery system." The PCSO, however, makes it clear
in its RFP that the proponent can propose a period of the contract which shall not exceed
fifteen years, during which time it is assured of a "rental" which shall not exceed 12% of
gross receipts. As admitted by the PGMC, upon learning of the PCSO's decision, the
Berjaya Group Berhad, with its affiliates, wanted to offer its services and resources to the
PCSO. Forthwith, it organized the PGMC as "a medium through which the technical and
management services required for the project would be offered and delivered to PCSO."
66
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an
on-line lottery system, the PCSO had nothing but its franchise, which it solemnly
guaranteed it had in the General Information of the RFP. 67 Howsoever viewed then, from
the very inception, the PCSO and the PGMC mutually understood that any arrangement
between them would necessarily leave to the PGMC the technical, operations, and
management aspects of the on-line lottery system while the PCSO would, primarily,
provide the franchise. The words Gaming and Management in the corporate name of
respondent Philippine Gaming Management Corporation could not have been conceived
just for euphemistic purposes. Of course, the RFP cannot substitute for the Contract of
Lease which was subsequently executed by the PCSO and the PGMC. Nevertheless, the
Contract of Lease incorporates their intention and understanding.
The so-called Contract of Lease is not, therefore, what it purports to be. Its denomination
as such is a crafty device, carefully conceived, to provide a built-in defense in the event
that the agreement is questioned as violative of the exception in Section 1 (B) of the
PCSO's charter. The acuity or skill of its draftsmen to accomplish that purpose easily
manifests itself in the Contract of Lease. It is outstanding for its careful and meticulous
drafting designed to give an immediate impression that it is a contract of lease. Yet, woven
therein are provisions which negate its title and betray the true intention of the parties to
be in or to have a joint venture for a period of eight years in the operation and
maintenance of the on-line lottery system.
Consistent with the above observations on the RFP, the PCSO has only its franchise to
offer, while the PGMC represents and warrants that it has access to all managerial and
sjbprior| 13

technical expertise to promptly and effectively carry out the terms of the contract. And, for
a period of eight years, the PGMC is under obligation to keep all the Facilities in safe
condition and if necessary, upgrade, replace, and improve them from time to time as new
technology develops to make the on-line lottery system more cost-effective and
competitive; exclusively bear all costs and expenses relating to the printing, manpower,
salaries and wages, advertising and promotion, maintenance, expansion and replacement,
security and insurance, and all other related expenses needed to operate the on-line
lottery system; undertake a positive advertising and promotions campaign for both
institutional and product lines without engaging in negative advertising against other
lessors; bear the salaries and related costs of skilled and qualified personnel for
administrative and technical operations; comply with procedural and coordinating rules
issued by the PCSO; and to train PCSO and other local personnel and to effect the
transfer of technology and other expertise, such that at the end of the term of the contract,
the PCSO will be able to effectively take over the Facilities and efficiently operate the online lottery system. The latter simply means that, indeed, the managers, technicians or
employees who shall operate the on-line lottery system are not managers, technicians or
employees of the PCSO, but of the PGMC and that it is only after the expiration of the
contract that the PCSO will operate the system. After eight years, the PCSO would
automatically become the owner of the Facilities without any other further consideration.

expected profits or rentals for the unexpired portion of the term of the contract would be
enough.

For these reasons, too, the PGMC has the initial prerogative to prepare the detailed plan
of all games and the marketing thereof, and determine the number of players, value of
winnings, and the logistics required to introduce the games, including the Master Games
Plan. Of course, the PCSO has the reserved authority to disapprove them. 68 And, while
the PCSO has the sole responsibility over the appointment of dealers and retailers
throughout the country, the PGMC may, nevertheless, recommend for appointment
dealers and retailers which shall be acted upon by the PCSO within forty-eight hours and
collect and retain, for its own account, a security deposit from dealers and retailers in
respect of equipment supplied by it.

(f)
The PCSO shall designate the necessary personnel to monitor and audit the
daily performance of the on-line lottery system; and promulgate procedural and
coordinating rules governing all activities relating to the on-line lottery system. The first
further confirms that it is the PGMC which will operate the system and the PCSO may, for
the protection of its interest, monitor and audit the daily performance of the system. The
second admits the coordinating and cooperative powers and functions of the parties.

(c)
The PGMC cannot "directly or indirectly undertake any activity or business in
competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the
latter's prior written consent." If the PGMC is engaged in the business of leasing
equipment and technology for an on-line lottery system, we fail to see any acceptable
reason why it should allow a restriction on the pursuit of such business.
(d)
The PGMC shall provide the PCSO the audited Annual Report sent to its
stockholders, and within two years from the effectivity of the contract, cause itself to be
listed in the local stock exchange and offer at least 25% of its equity to the public. If the
PGMC is merely a lessor, this imposition is unreasonable and whimsical, and could only
be tied up to the fact that the PGMC will actually operate and manage the system; hence,
increasing public participation in the corporation would enhance public interest.
(e)
The PGMC shall put up an Escrow Deposit of P300,000,000.00 pursuant to the
requirements of the RFP, which it may, at its option, maintain as its initial performance
bond required to ensure its faithful compliance with the terms of the contract.

(g)
The PCSO may validly terminate the contract if the PGMC becomes insolvent or
bankrupt or is unable to pay its debts, or if it stops or suspends or threatens to stop or
suspend payment of all or a material part of its debts.

This joint venture is further established by the following:

(a)
Rent is defined in the lease contract as the amount to be paid to the PGMC as
compensation for the fulfillment of its obligations under the contract, including, but not
limited to the lease of the Facilities. However, this rent is not actually a fixed amount.
Although it is stated to be 4.9% of gross receipts from ticket sales, payable net of taxes
required by law to be withheld, it may be drastically reduced or, in extreme cases, nothing
may be due or demandable at all because the PGMC binds itself to "bear all risks if the
revenue from the ticket sales, on an annualized basis, are insufficient to pay the entire
prize money." This risk-bearing provision is unusual in a lessor-lessee relationship, but
inherent in a joint venture.
(b)
In the event of pre-termination of the contract by the PCSO, or its suspension of
operation of the on-line lottery system in breach of the contract and through no fault of the
PGMC, the PCSO binds itself "to promptly, and in any event not later than sixty (60) days,
reimburse the Lessor the amount of its total investment cost associated with the On-Line
Lottery System, including but not limited to the cost of the Facilities, and further
compensate the LESSOR for loss of expected net profit after tax, computed over the
unexpired term of the lease." If the contract were indeed one of lease, the payment of the

All of the foregoing unmistakably confirm the indispensable role of the PGMC in the
pursuit, operation, conduct, and management of the On-Line Lottery System. They exhibit
and demonstrate the parties' indivisible community of interest in the conception, birth and
growth of the on-line lottery, and, above all, in its profits, with each having a right in the
formulation and implementation of policies related to the business and sharing, as well, in
the losses with the PGMC bearing the greatest burden because of its assumption of
expenses and risks, and the PCSO the least, because of its confessed unwillingness to
bear expenses and risks. In a manner of speaking, each is wed to the other for better or
for worse. In the final analysis, however, in the light of the PCSO's RFP and the above
highlighted provisions, as well as the "Hold Harmless Clause" of the Contract of Lease, it
is even safe to conclude that the actual lessor in this case is the PCSO and the subject
matter thereof is its franchise to hold and conduct lotteries since it is, in reality, the PGMC
which operates and manages the on-line lottery system for a period of eight years.
We thus declare that the challenged Contract of Lease violates the exception provided for
in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore,
invalid for being contrary to law. This conclusion renders unnecessary further discussion
on the other issues raised by the petitioners.
sjbprior| 14

WHEREFORE, the instant petition is hereby GRANTED and the challenged Contract of
Lease executed on 17 December 1993 by respondent Philippine Charity Sweepstakes
Office (PCSO) and respondent Philippine Gaming Management Corporation (PGMC) is
hereby DECLARED contrary to law and invalid.
The Temporary Restraining Order issued on 11 April 1994 is hereby MADE
PERMANENT.
No pronouncement as to costs. SO ORDERED.
EN BANC
August 29, 1960 G.R. No. L-9965
LUCINA BIGLANGAWA and LUCIA ESPIRITU, petitioners-appellees,
vs.
PASTOR B. CONSTANTINO, respondent-appellant.
BARRERA, J.:
The only issue, which is of law, involved in this appeal, is the legality of the annotation of
lis pendens predicated on the complaint of respondent-appellant Pastor B. Constantino.
On June 25, 1953, respondent Pastor B. Constantino filed with the Court of First Instance
of Rizal an amended complaint (docketed as Civil Case No. 2138) against petitioners
Lucina Biglangawa and Lucia Espiritu, as follows:
AMENDED COMPLAINT
Plaintiff, by his undersigned counsel, alleges:
As First Cause of Action
1. Plaintiff and defendants are residents of Malabon, Rizal.

and wife, with the added stipulation that they could not revoke the contract of agency
without plaintiff's consent. . .
5. Advancing all the expenses incurred in the development and administration of the
project, plaintiff caused the subdivision of said property into 203 lots and advertised them
for sale under the name "BBB MARULAS SUBDIVISION No. 3'; and up to October, 1951
plaintiff had disposed of more than half of the entire area at P10.00 and P12.00 per square
meter.
6. Although under the express terms of the contract of January 14, 1950 (Exhibit "A") the
commissions of plaintiff for making 37 3 those sales and his collection fees of 10% were to
be paid to him "from the first collections received from the purchasers in respect to each
lot sold", defendants, in contravention of that agreement, oppressively and in bad faith
adopted the practice of paying the latter's compensation out of 30% only of the gross
monthly collections from the sales, such that, as of October 15, 1951 when a liquidation
was made, there was still a balance on plaintiff's commissions in the amount of
P48,899.20.
7. Later, in October, 1951, defendants wantonly, oppressively, and in evident bad faith
terminated the agency contracts Exhibits "A" and "B" depriving plaintiff of his rights to
commission fees of 20% on the sale of the remaining lots and 10% fee on the cash
receipts of the business every month.
8. Defendants nevertheless, expressly acknowledge their liability to plaintiff in the sum of
P48,899.20 for unpaid commissions as of October 16, 1951; and they promised to pay
indebtedness to plaintiff in successive monthly installments beginning November, 1951, as
follows: . . .
9. Plaintiff consented to the settlement of the balance of his commission in monthly
installments after the termination of the agency in consideration of defendant's promises
that they would compute and faithfully pay the percentage of monthly installments on the
basis of their monthly gross collections from the operation of "BBB MARULAS
SUBDIVISION No. 3", as stipulated in Exhibit "C", and shall follow that procedure until
their total indebtedness is fully settled.

2. Defendants Lucina Biglangawa and Lucia Espiritu were or have been the owners of a
parcel of land in Marulas, Polo, Bulacan, more particularly described in "Transfer
Certificate of Title No. 5459 as follows: . . .

10. From October 16, 1951 to March 31, 1953, defendants made a total monthly gross
collection of around P52,849.63 from the business, and out of these receipts plaintiff was
entitled to minimum payments of P8,711.13 pursuant to Exhibit "C"; but again defendant
wantonly, fraudulently, oppressively, and in evident bad faith paid plaintiff only the sum of
P6,204.13 or P2,507.00 short of what plaintiff should have received during the period.

3. On January 14, 1950, defendant Lucina Biglangawa, with the consent of her co-owner
Lucia Espiritu, appointed plaintiff their exclusive agent to develop the area described in
paragraph 2 into subdivision lots and to sell them to prospective homeowners; and as
compensation for his services, defendants promised to pay him a commission of 20% on
the gross sales and a fee of 10% on the collections made by him payable from "the first
collections received from the purchasers in respect to each lot sold . . .

11. Upon gaining information of the breach of the contract by defendants about the end of
March, 1953 and verifying the existence of such breach, plaintiff immediately demanded of
defendants the difference between the amounts due to him under the contract Exhibit "C"
and those actually paid by them, but defendants wantonly, fraudulently, and without cause
refused to make necessary settlement.

4. The power thus conferred by Lucina Biglangawa to plaintiff was confirmed in a notarial
document executed on March 3, 1950 by her and her co-defendants, who are husband

xxxxxxxxx
sjbprior| 15

13. The balance of plaintiff's commissions remaining unpaid as of the filing of this
complaint, excluding the underpayments from November, 1951 to March, 1953, is
P39,534.62.
As to Second Cause of Action
1. Plaintiff reproduces paragraphs 1 to 13 of the first cause 3n 3 of action.

annotation of the lis pendens on petitioners' aforementioned title, as well as on the title
issued to Carmelita L. Santos.
Petitioners, therefore, on June 11, 1955, filed with the Court of First Instance of Bulacan, a
petition praying for the cancellation of said notice of lis pendens. To this petition,
respondent filed his answer on June 17, 1955, to which, petitioners filed their reply on
June 23, 1955. On June 24, 1955, respondent filed a rejoinder to said reply.

2. For defendants' gross and evident bad faith in refusing plaintiff's valid, just, and
demandable claim against them, plaintiff was forced to prosecute the present case against
them, and became liable for attorney's fees in the sum of P7,000.00.

Acting on said petition, the court issued an order on July 19, 1955, which reads:

WHEREFORE, plaintiff prays for judgment

Upon consideration of the petition filed by Lucina Biglangawa and Lucia Espiritu dated
June 11, 1955 and the answer thereto, and it appearing from the amended complaint of
Pastor B. Constantino, plaintiff in Civil Case No. 2138 of the Court of First Instance of
Rizal (respondent herein) that said action is purely and clearly a claim for money judgment
which does not affect the title or the right of possession of real property covered by
Transfer Certificate of Title No. T-5459 and it being a settled rule in this jurisdiction that a
notice of lis pendens may be invoked as a remedy in cases where the very lis mota of the
pending litigation concerns directly the possession of, or title to a specific real property;

(a) Ordering defendants to pay plaintiff the sum of P2,507.00 which is defendants'
underpayments from November, 1951 to March, 1953, with interest at the legal rate;
(b) Declaring defendants to have lost the right to pay plaintiff in monthly installments and
requiring them to pay plaintiff at once the balance of his commissions and fees in the
amount of P89,543.62, with interest at the legal rate from the filing of this complaint;
(c) Ordering defendants to pay plaintiff moral damages in the sum of P40,000.00,
exemplary damages in the sum of P30,000.00, and attorney's fees in the sum of
P7,000.00.
(d) Granting costs and such other reliefs as this court may deem just and equitable in the
premises.
To this complaint, petitioners filed their answer on August 25, 1953.
While said Civil Case No. 2138 was pending in said court, respondent, on April 5, 1955,
filed with the Office of the Register of deeds of Bulacan, the following notice of lis
pendens:
Please make of record the pendency of a complaint involving, among other things, rights
and interests and claims for services and damages on the following described property,
which has been converted into a subdivision as shown by the plan Psd-29964, situated in
Marulas, Polo, Bulacan, to wit: (Technical description of the real property mentioned in the
complaint) which property is more particularly described in Transfer Certificate of Title No.
5459 of the Register of Deeds of Bulacan. A copy of the complaint and amended
complaint, marked Appendices A and A-1, are attached hereto and made integral part
hereof.
On April 6, 1955, the Register of Deeds of Bulacan requested petitioners to surrender their
owner's copy of Transfer Certificate of Title No. 5459 for annotation of said notice of lis
pendens, but petitioners refused to do so. However, on May 17, 1955, when petitioners
registered the absolute deed of sale in favor of Carmelita L. Santos covering some of the
lots of the subdivision, said official without their knowledge and consent, made the

"ORDER

Wherefore, as prayed for, the Register of Deeds of Bulacan is hereby ordered to cancel
Entry No. 28176 for lis pendens on Transfer Certificate of Title No. T-5459 of the
petitioners as well as the annotation of the same on Transfer Certificate of Title No. T014480 of Carmelita L. Santos.
So ordered.
Respondent, on August 8, 1955, filed a motion for reconsideration of the above order, but
the same was denied by the court on September 30, 1955. Hence, this appeal.
Respondent-appellant claims that the lower court erred in holding that his pending action
(Civil Case No. 2138) in the Court of First Instance of Rizal, is purely a claim for money
judgment which does not affect the title or right of possession of petitioners' real property,
covered by Transfer Certificate of Title No. T-5459. Instead, he contends that the
agreement whereby he was to be paid a commission of 20% on the gross sales and a fee
of 10% on the collections made by him, converted him into a partner and gave him 1/5
participation in the property itself. Hence, he argues, his suit is one for the settlement and
adjustment of partnership interest or a partition action or proceeding.
Appellant's theory is neither supported by the allegations of his complaint, nor borne out
by the purpose of his action. There is no word or expression in the various paragraphs of
his amended complaint that suggests any idea of partnership. On the contrary, appellant
expressly averred that petitioners "appointed plaintiff (appellant) their exclusive agent to
develop the area described in paragraph 2 into subdivision lots and to sell them to
prospective homeowners; and as compensation for his services defendants (appellees)
promised to pay him a commission of 20% on the gross sales and a fee of 10% on the
collections made by him. . . ." (See paragraph 3 of amended complaint.) Categorically,
sjbprior| 16

appellant referred to himself as an agent, not a partner; entitled to compensation, not

participation, in the form of commission or fee, not a share.
It is true that in paragraph 5 of the amended complaint (supra) appellant claims to have
made advances for the expenses incurred in the development and administration of the
property. But again he never considered these as contributions to the business as to make
him a partner; otherwise, he would have so stated it in his complaint. In fact, after a
liquidation of these advances and the commissions due to appellant at the time of the
termination of the agency, the whole balance was considered as appellees' indebtedness
which appellant consented to be settled in monthly installments (see paragraphs 6, 8, and
9 of the amended complaint).
While it is true again that the prayer in a complaint does not determine the nature of the
action, it not being a material part of the cause of action, still it logically indicates, as it
does in this case, the purpose of the actor. The four paragraphs of the prayer seeks the
recovery of fixed amounts of underpayments and commissions and fees; not liquidation or
accounting or partition as now insisted upon by appellant.
Appellants's amended complaint, not being "an action affecting the title or the right of
possession of real property",[[1]] nor one "to recover possession of real estate, or to quiet
title thereto, or to remove clouds upon the title thereof, or for partition or other proceeding
of any kind in court affecting the title to real estate or the use or occupation thereof or the
buildings thereon . . .",[[2]] the same can not be the basis for annotating a notice of lis
pendens on the title of the petitioners-appellees.
Having reached the above conclusion, this Court finds it unnecessary to decide the
incidental matters raised by the parties during the pendency of this appeal.
Wherefore, finding no error in the appealed order of the court a quo, the same is hereby
affirmed, with costs against the respondent-appellant. So ordered.
THIRD DIVISION
[G.R. No. 101847. May 27, 1993.]
LOURDES NAVARRO AND MENARDO NAVARRO, Petitioners, v. COURT OF
APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial
Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON
AND RICARDO B. YANSON, Respondents.
REMEDIAL LAW; SUPREME COURT; JURISDICTION; LIMITED PURELY QUESTIONS
OF LAW AND NOT TO FACTUAL ISSUES PASSED UPON BY THE TRIAL COURT.
Petitioners have come to us in a petition for review. However, the petition is focused solely
on factual issues which can no longer be entertained. Petitioners arguments are all
directed against the decision of the regional trial court; not a word is said in regard to the
appellate courts disposition of their petition for annulment of judgment. Verily, petitioners
keep on pressing the idea that a partnership exists on account of the so-called admissions
in judicio. The appellate court acted properly in dismissing the petition for annulment of

judgment, the issue raised therein having been directly litigated in, and passed upon by,
the trial court.

DECISION
MELO, J.:

Assailed and sought to be set aside by the petition before us is the Resolution of the Court
of Appeals dated June 20, 1991 which dismissed the petition for annulment of judgment
filed by the Spouses Lourdes and Menardo Navarro, thusly:chanrob1es virtual 1aw library
The instant petition for annulment of decision is DISMISSED.
1.
Judgments may be annulled only on the ground of extrinsic or collateral fraud,
as distinguished from intrinsic fraud (Canlas v. Court of Appeals, 164 SCRA 160, 170). No
such ground is alleged in the petition.
2.
Even if the judgment rendered by the respondent Court were erroneous, it is not
necessarily void (Chereau v. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by
the proceeding sought to be commenced by the petitioners.
3.
The petitioners remedy against the judgment enforcement of which is sought to
be stopped should have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows:chanrob1es virtual 1aw library
On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against
petitioner Lourdes Navarro for "Delivery of Personal Properties With Damages." The
complaint incorporated an application for a writ of replevin. The complaint was later
docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod
(Branch 55) and was subsequently amended to include private respondents husband,
Ricardo B. Yanson, as co-plaintiff, and petitioners husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to
retire as Presiding Justice of the Court of Appeals) approved private respondents
application for a writ of replevin. The Sheriffs Return of Service dated March 3, 1978
affirmed receipt by private respondents of all the pieces of personal property sought to be
recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision,
disposing as follows:chanrob1es virtual 1aw library
Accordingly, in the light of the aforegoing findings, all chattels already recovered by
plaintiff by virtue of the Writ of Replevin and as listed in the complaint are hereby
sustained to belong to plaintiff being the owner of these properties; the motor vehicle,
sjbprior| 17

particularly that Ford Fiera Jeep registered in and which had remain in the possession of
the defendant is likewise declared to belong to her, however, said defendant is hereby
ordered to reimburse plaintiff the sum of P6,500.00 representing the amount advanced to
pay part of the price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during the operation
of their business as were listed in the complaint and not recovered as yet by virtue of the
previous Writ of Replevin. (p. 12, Rollo.)

Petitioners have come to us in a petition for review. However, the petition is focused solely
on factual issues which can no longer be entertained. Petitioners arguments are all
directed against the decision of the regional trial court; not a word is said in regard to the
appellate courts disposition of their petition for annulment of judgment. Verily, petitioners
keep on pressing the idea that a partnership exists on account of the so-called admissions
in judicio. But the factual premises of the trial court were more than enough to suppress
and negate petitioners submissions along this line:chanrob1es virtual 1aw library

Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its
rendition) and filed on January 16, 1991 a "Motion for Extension of Time To File a Motion
for Reconsideration." This was granted on January 18, 1991. Private respondents filed
their opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. v. Japson (142
SCRA 208 [1986] proscribing the filing of any motion for extension of time to file a motion
for new trial or reconsideration. The trial judge vacated the order dated January 18, 1991
and declared the decision of April 30, 1990 as final and executory. (Petitioners motion for
reconsideration was subsequently filed on February 1, 1991 or 22 days after the receipt of
the decision).

To be resolved by this Court factually involved the issue of whether there was a
partnership that existed between the parties based on their verbal contention; whether the
properties that were commonly used in the operation of Allied Air Freight belonged to this
alleged partnership business; and the status of the parties in this transaction of alleged
partnership. On the other hand, the legal issue revolves on the dissolution and winding up
in case a partnership so existed as well as the issue of ownership over the properties
subject matter of recovery.

On February 4, 1991, the trial judge issued a writ of execution (Annex "5", p. 79, Rollo).
The Sheriffs Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly
served and satisfied." A receipt for the amount of P6,500.00 issued by Mrs. Lourdes
Yanson, co-petitioner in this case, was likewise submitted by the Sheriff (Annex "7", p. 83,
Rollo).

As a premise, Article 1767 of the New Civil Code defines the contract of partnership to
quote:jgc:chanrobles.com.ph
"ART. 1767.
By the contract of partnership two or more persons bind themselves
to contribute money, property, or industry to a common fund, with the intention of dividing
the proceeds among themselves.
x

On June 26, 1991, petitioners filed with respondent court a petition for annulment of the
trial courts decision, claiming that the trial judge erred in declaring the non-existence of a
partnership, contrary to the evidence on record.

x"

Corollary to this definition is the provision in determining whether a partnership exist as so

provided under Article 1769, to wit:chanrob1es virtual 1aw library

The appellate court, as aforesaid, outrightly dismissed the petition due to absence of
extrinsic or collateral fraud, observing further that an appeal was the proper remedy.

In the petition before us, petitioners claim that the trial judge ignored evidence that would
show that the parties "clearly intended to form, and (in fact) actually formed a verbal
partnership engaged in the business of Air Freight Service Agency in Bacolod" ; and that
the decision sustaining the writ of replevin is void since "the properties belonging to the
partnership do not actually belong to any of the parties until the final disposition and
winding up of the partnership" (p. 15, Rollo). These issues, however, were extensively
discussed by the trial judge in her 16-page, single-spaced decision.

Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may
be constituted in any form, a public instrument is necessary where immovables or any
rights is constituted. Likewise, if the partnership involves a capitalization of P3,000.00 or
more in money or property, the same must appear in a public instrument which must be
recorded in the Office of the Securities and Exchange Commission. Failure to comply with
these requirements shall not affect liability of the partners to third persons.chanrobles
lawlibrary : rednad

We agree with respondents that the decision in this case has become final. In fact a writ of
execution had been issued and was promptly satisfied by the payment of P6,500.00 to
private respondents.chanrobles virtual lawlibrary

In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife
made admission to have entered into an agreement of operating this Allied Air Freight
Agency of which the plaintiff personally constituted with the Manila Office in a sense that
the plaintiff did supply the necessary equipments and money while her brother Atty.
Rodolfo Villaflores was the Manger and the defendant the Cashier. It was also admitted
that part of this agreement was an equal sharing of whatever proceeds realized.
Consequently, the plaintiff brought into this transaction certain chattels in compliance with
her obligation. The same has been done by the herein brother and the herein defendant
who started to work in the business. A cursory examination of the evidences presented no
proof that a partnership, whether oral or written had been constituted at the inception of

Having lost their right of appeal, petitioners resorted to annulment proceedings to justify a
belated judicial review of their case. This was, however, correctly thrown out by the Court
of Appeals because petitioners failed to cite extrinsic or collateral fraud to warrant the
setting aside of the trial courts decision. We respect the appellate courts finding in this
regard.

sjbprior| 18

this transaction. True it is that even up to the filing of this complaint whose movables
brought by plaintiff for the use in the operation of the business remain registered in her
name.

No special pronouncement is made as to costs.

SO ORDERED.

While there may have been co-ownership or co-possession of some items and/or any
sharing of proceeds by way of advances received by both plaintiff and the defendant,
these are not indicative and supportive of the existence of any partnership between them.
Article 1769 of the New Civil Code is explicit. Even the books and records retrieved by the
Commissioner appointed by the Court did not show proof of the existence of a partnership
as conceptualized by law. Such that if assuming that there were profits realized in 1975
after the two-year deficits were compensated, this could only be subject to an equal
sharing consonant to the agreement to equally divide any profit realized. However, this
Court cannot overlook the fact that the Audit Report of the appointed Commissioner was
not highly reliable in the sense that it was more of his personal estimate of what is
available on hand. Besides, the alleged profits was a difference found after valuating the
assets and not arising from the real operation of the business. In accounting procedures,
strictly, this could not be profit but a net worth.
In view of the above factual findings of the Court it follows inevitably therefore that there
being no partnership that existed, any dissolution, liquidation or winding up is beside the
point. The plaintiff herself had summarily ceased from her contract of agency and it is a
personal prerogative to desist. On the other hand, the assumption by the defendant in
negotiating for herself the continuance of the Agency with the principal in Manila is
comparable to plaintiffs. Any account of plaintiff with the principal as alleged, bore no
evidence as no collection was ever demanded of from her. The alleged P20,000.00
assumption specifically, as would have been testified to by the defendants husband
remain a mere allegation.cralawnad
As to the properties sought to be recovered, the Court sustains the possession by plaintiff
of all equipments and chattels recovered by virtue of the Writ of Replevin. Considering the
other vehicle which appeared registered in the name of the defendant, and to which even
she admitted that part of the purchase price came from the business claimed mutually
operated, although the Court have not as much considered all entries in the Audit report
as totally reliable to be sustained insofar as the operation of the business is concerned,
nevertheless, with this admission of the defendant and the fact that as borne out in said
Report there has been disbursed and paid for this vehicle out of the business funds in the
total sum of P6,500.00, it is only fitting and proper that validity of these disbursements
must be sustained as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and
taking into account the earlier agreement that only profits were to be shared equally, the
plaintiff must be reimbursed of this cost if only to allow the defendant continuous
possession of the vehicle in question. It is a fundamental, moral . . . another. (pp. 71-75,
Rollo.)
Withal, the appellate court acted properly in dismissing the petition for annulment of
judgment, the issue raised therein having been directly litigated in, and passed upon by,
the trial court.

SECOND DIVISION
G.R. No. L-68118

October 29, 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P.

OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,
respondents.
Demosthenes B. Gadioma for petitioners.

AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who sold two parcels
of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots
with areas of 1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The
next day he transferred his rights to his four children, the petitioners, to enable them to
build their residences. The company sold the two lots to petitioners for P178,708.12 on
March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them
would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them
to the Walled City Securities Corporation and Olga Cruz Canda for the total sum of
P313,050 (Exh. C and D). They derived from the sale a total profit of P134,341.88 or
P33,584 for each of them. They treated the profit as a capital gain and paid an income tax
on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period, the
Commissioner of Internal Revenue required the four petitioners to pay corporate income
tax on the total profit of P134,336 in addition to individual income tax on their shares
thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge
and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum of
P33,584 as a " taxable in full (not a mere capital gain of which is taxable) and required
them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud
surcharge and the accumulated interest.

WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated
June 20, 1991 is AFFIRMED in all respects.
sjbprior| 19

Thus, the petitioners are being held liable for deficiency income taxes and penalties
totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains
already paid by them.

common right or interest in any property from which the returns are derived". There must
be an unmistakable intention to form a partnership or joint venture.*

The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of
the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).

Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666,
where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket
with the agreement that they would divide the prize The ticket won the third prize of
P50,000. The 15 persons were held liable for income tax as an unregistered partnership.

The petitioners contested the assessments. Two Judges of the Tax Court sustained the
same. Judge Roaquin dissented. Hence, the instant appeal.

The instant case is distinguishable from the cases where the parties engaged in joint
ventures for profit. Thus, in Oa vs.

We hold that it is error to consider the petitioners as having formed a partnership under
article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the profit among themselves.

** This view is supported by the following rulings of respondent Commissioner:

To regard the petitioners as having formed a taxable unregistered partnership would result
in oppressive taxation and confirm the dictum that the power to tax involves the power to
destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure
and simple. To consider them as partners would obliterate the distinction between a coownership and a partnership. The petitioners were not engaged in any joint venture by
reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found
it not feasible to build their residences on the lots because of the high cost of construction,
then they had no choice but to resell the same to dissolve the co-ownership. The division
of the profit was merely incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state. It had to be terminated sooner or later. Castan
Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

Co-owership distinguished from partnership.We find that the case at bar is

fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa heirs
inherited the 'hacienda' in question pro-indiviso from their deceased parents; they did not
contribute or invest additional ' capital to increase or expand the inherited properties; they
merely continued dedicating the property to the use to which it had been put by their
forebears; they individually reported in their tax returns their corresponding shares in the
income and expenses of the 'hacienda', and they continued for many years the status of
co-ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value
and to continue the existing contractual relations with the Central Azucarera de Bais for
milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own
properties which produce income should not automatically be considered partners of an
unregistered partnership, or a corporation, within the purview of the income tax law. To
hold otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property
does not produce an income at all, it is not subject to any kind of income tax, whether the
income tax on individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case
No. 738, September 11, 1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979
Ed., pp. 77-78).

El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en

que la sociedad presupone necesariamente la convencion, mentras que la comunidad
puede existir y existe ordinariamente sin ela; y por razon del fin objecto, en que el objeto
de la sociedad es obtener lucro, mientras que el de la indivision es solo mantener en su
integridad la cosa comun y favorecer su conservacion.

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an
extrajudicial settlement the co-heirs used the inheritance or the incomes derived therefrom
as a common fund to produce profits for themselves, it was held that they were taxable as
an unregistered partnership.

Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si

en nuestro Derecho positive se ofrecen a veces dificultades al tratar de fijar la linea
divisoria entre comunidad de bienes y contrato de sociedad, la moderna orientacion de la
doctrina cientifica seala como nota fundamental de diferenciacion aparte del origen de
fuente de que surgen, no siempre uniforme, la finalidad perseguida por los interesados:
lucro comun partible en la sociedad, y mera conservacion y aprovechamiento en la
comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).

It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198,
where father and son purchased a lot and building, entrusted the administration of the
building to an administrator and divided equally the net income, and from Evangelista vs.
Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought
four pieces of real property which they leased to various tenants and derived rentals
therefrom. Clearly, the petitioners in these two cases had formed an unregistered
partnership.

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of
itself establish a partnership, whether or not the persons sharing them have a joint or
sjbprior| 20

In the instant case, what the Commissioner should have investigated was whether the
father donated the two lots to the petitioners and whether he paid the donor's tax (See Art.
1448, Civil Code). We are not prejudging this matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.
SO ORDERED.
EN BANC
July 29, 1968
G.R. Nos. L-24020-21
FLORENCIO REYES and ANGEL REYES, petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS,
respondents.
FERNANDO, J.:
Petitioners in this case were assessed by respondent Commissioner of Internal Revenue
the sum of P46,647.00 as income tax, surcharge and compromise for the years 1951 to
1954, an assessment subsequently reduced to P37,528.00. This assessment sought to be
reconsidered unsuccessfully was the subject of an appeal to respondent Court of Tax
Appeals. Thereafter, another assessment was made against petitioners, this time for back
income taxes plus surcharge and compromise in the total sum of P25,973.75, covering the
years 1955 and 1956. There being a failure on their part to have such assessments
reconsidered, the matter was likewise taken to the respondent Court of Tax Appeals. The
two cases[[1]] involving as they did identical issues and ultimately traceable to facts similar
in character were heard jointly with only one decision being rendered.

lease contracts with the original owners, the purchasers, petitioners herein, agreed to
respect. The administration of the building was entrusted to an administrator who collected
the rents; kept its books and records and rendered statements of accounts to the owners;
negotiated leases; made necessary repairs and disbursed payments, whenever
necessary, after approval by the owners; and performed such other functions necessary
for the conservation and preservation of the building. Petitioners divided equally the
income of operation and maintenance. The gross income from rentals of the building
amounted to about P90,000.00 annually."[[5]]
From the above facts, the respondent Court of Tax Appeals applying the appropriate
provisions of the National Internal Revenue Code, the first of which imposes an income
tax on corporations "organized in, or existing under the laws of the Philippines, no matter
how created or organized but not including duly registered general co-partnerships
(companias colectivas), ...,"[[6]] a term, which according to the second provision cited,
includes partnerships "no matter how created or organized, ...,"[[7]] and applying the
leading case of Evangelista v. Collector of Internal Revenue,[[8]] sustained the action of
respondent Commissioner of Internal Revenue, but reduced the tax liability of petitioners,
as previously noted.
Petitioners maintain the view that the Evangelista ruling does not apply; for them, the
situation is dissimilar. Consequently they allege that the reliance by respondent Court of
Tax Appeals was unwarranted and the decision should be set aside. If their interpretation
of the authoritative doctrine therein set forth commands assent, then clearly what
respondent Court of Tax Appeals did fails to find shelter in the law. That is the crux of the
matter. A perusal of the Evangelista decision is therefore unavoidable.

In that joint decision of respondent Court of Tax Appeals, the tax liability for the years
1951 to 1954 was reduced to P37,128.00 and for the years 1955 and 1956, to P20,619.00
as income tax due "from the partnership formed" by petitioners.[[2]] The reduction was due
to the elimination of surcharge, the failure to file the income tax return being accepted as
due to petitioners honest belief that no such liability was incurred as well as the
compromise penalties for such failure to file.[[3]] A reconsideration of the aforesaid
decision was sought and denied by respondent Court of Tax Appeals. Hence this petition
for review.

As noted in the opinion of the Court, penned by the present Chief Justice, the issue was
whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code, ..."[[9]] After referring to another section of the National Internal Revenue Code,
which explicitly provides that the term corporation "includes partnerships" and then to
Article 1767 of the Civil Code of the Philippines, defining what a contract of partnership is,
the opinion goes on to state that "the essential elements of a partnership are two, namely:
(a) an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed to and did, contribute
money and property to a common fund. Hence, the issue narrows down to their intent in
acting as they did. Upon consideration of all the facts and circumstances surrounding the
case, we are fully satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves, ..."[[10]]

The facts as found by respondent Court of Tax Appeals, which being supported by
substantial evidence, must be respected[[4]] follow: "On October 31, 1950, petitioners,
father and son, purchased a lot and building, known as the Gibbs Building, situated at 671
Dasmarias Street, Manila, for P835,000.00, of which they paid the sum of P375,000.00,
leaving a balance of P460,000.00, representing the mortgage obligation of the vendors
with the China Banking Corporation, which mortgage obligations were assumed by the
vendees. The initial payment of P375,000.00 was shared equally by petitioners. At the
time of the purchase, the building was leased to various tenants, whose rights under the

In support of the above conclusion, reference was made to the following circumstances,
namely, the common fund being created purposely not something already found in
existence, the investment of the same not merely in one transaction but in a series of
transactions; the lots thus acquired not being devoted to residential purposes or to other
personal uses of petitioners in that case; such properties having been under the
management of one person with full power to lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts and to endorse notes and checks; the above
conditions having existed for more than 10 years since the acquisition of the above
sjbprior| 21

properties; and no testimony having been introduced as to the purpose "in creating the set
up already adverted to, or on the causes for its continued existence."[[11]] The conclusion
that emerged had all the imprint of inevitability. Thus: "Although, taken singly, they might
not suffice to establish the intent necessary to constitute a partnership, the collective effect
of these circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein."[[12]]
It may be said that there could be a differentiation made between the circumstances
above detailed and those existing in the present case. It does not suffice though to
preclude the applicability of the Evangelista decision. Petitioners could harp on these
being only one transaction. They could stress that an affidavit of one of them found in the
Bureau of Internal Revenue records would indicate that their intention was to house in the
building acquired by them the respective enterprises, coupled with a plan of effecting a
division in 10 years. It is a little surprising then that while the purchase was made on
October 31, 1950 and their brief as petitioners filed on October 20, 1965, almost 15 years
later, there was no allegation that such division as between them was in fact made.
Moreover, the facts as found and as submitted in the brief made clear that the building in
question continued to be leased by other parties with petitioners dividing "equally the
income ... after deducting the expenses of operation and maintenance ..."[[13]] Differences
of such slight significance do not call for a different ruling.
It is obvious that petitioners' effort to avoid the controlling force of the Evangelista ruling
cannot be deemed successful. Respondent Court of Tax Appeals acted correctly. It
yielded to the command of an authoritative decision; it recognized its binding character.
There is clearly no merit to the second error assigned by petitioners, who would deny its
applicability to their situation.
The first alleged error committed by respondent Court of Tax Appeals in holding that
petitioners, in acquiring the Gibbs Building, established a partnership subject to income
tax as a corporation under the National Internal Revenue Code is likewise untenable. In
their discussion in their brief of this alleged error, stress is laid on their being co-owners
and not partners. Such an allegation was likewise made in the Evangelista case.
This is the way it was disposed of in the opinion of the present Chief Justice: "This
pretense was correctly rejected by the Court of Tax Appeals."[[14]] Then came the
explanation why: "To begin with, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships". When our Internal
Revenue Code includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance, section
24 of said Code exempts from the aforementioned tax "duly registered general
partnerships", which constitute precisely one of the most typical forms of partnerships in
this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation
includes partnerships, no matter how created or organized." This qualifying expression
clearly indicates that a joint venture need not be undertaken in any of the standard forms,
or in conformity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on corporations. Again, pursuant to
said section 84(b), the term "corporation" includes, among others, "joint accounts,
(cuentas en participacion)" and "associations", none of which has a legal personality of its

own, independent of that of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the partnerships
therein referred to. In fact, as above stated, "duly registered general copartnerships"
which are possessed of the aforementioned personality - have been expressly excluded
by law (sections 24 and 84[b]) from the connotation of the term "corporation"."[[15]] The
opinion went on to summarize the matter aptly: "For purposes of the tax on corporations,
our National Internal Revenue Code, include these partnerships with the exception only
of duly registered general co-partnerships within the purview of the term "corporation." It
is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned, and are subject to the income tax for corporations."[[16]]
In the light of the above, it cannot be said that the respondent Court of Tax Appeals
decided the matter incorrectly. There is no warrant for the assertion that it failed to apply
the settled law to uncontroverted facts. Its decision cannot be successfully assailed.
Moreover, an observation made in Alhambra Cigar & Cigarette Manufacturing Co. v.
Commissioner of Internal Revenue,[[17]] is well-worth recalling. Thus: "Nor as a matter of
principle is it advisable for this Court to set aside the conclusion reached by an agency
such as the Court of Tax Appeals which is, by the very nature of its functions, dedicated
exclusively to the study and consideration of tax problems and has necessarily developed
an expertise on the subject, unless, as did not happen here, there has been an abuse or
improvident exercise of its authority."
WHEREFORE, the decision of the respondent Court of Tax Appeals ordering petitioners
"to pay the sums of P37,128.00 as income tax due from the partnership formed by herein
petitioners for the years 1951 to 1954 and P20,619.00 for the years 1955 and 1956 within
thirty days from the date this decision becomes final, plus the corresponding surcharge
and interest in case of delinquency," is affirmed. With costs against petitioners.
EN BANC
G.R. No. L-2484 April 11, 1906
JOHN FORTIS,Plaintiff-Appellee, vs. GUTIERREZ HERMANOS,Defendants-Appellants.
WILLARD, J.:
Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this
action to recover a balance due him as salary for the year 1902. He alleged that he was
entitled, as salary, to 5 per cent of the net profits of the business of the defendants for said
year. The complaint also contained a cause of action for the sum of 600 pesos, money
expended by plaintiff for the defendants during the year 1903. The court below, in its
judgment, found that the contract had been made as claimed by the plaintiff; that 5 per
cent of the net profits of the business for the year 1902 amounted to 26,378.68 pesos,
Mexican currency; that the plaintiff had received on account of such salary 12,811.75
pesos, Mexican currency, and ordered judgment against the defendants for the sum
13,566.93 pesos, Mexican currency, with interest thereon from December 31, 1904. The
court also ordered judgment against the defendants for the 600 pesos mentioned in the
complaint, and intereat thereon. The total judgment rendered against the defendants in
favor of the plaintiff, reduced to Philippine currency, amounted to P13,025.40. The
sjbprior| 22

defendants moved for a new trial, which was denied, and they have brought the case here
by bill of exceptions.chanroblesvirtualawlibrary chanrobles virtual law library
(1)
The evidence is sufifcient to support the finding of the court below to the effect
that the plaintiff worked for the defendants during the year 1902 under a contract by which
he was to receive as compensation 5 per cent of the net profits of the business. The
contract was made on the part of the defendants by Miguel Alonzo Gutierrez. By the
provisions of the articles of partnership he was made one of the managers of the
company, with full power to transact all of the business thereof. As such manager he had
authority to make a contract of employment with the plaintiff.chanroblesvirtualawlibrary
chanrobles virtual law library
(2)
Before answering in the court below, the defendants presented a motion that the
complaint be made more definite and certain. This motion was denied. To the order
denying it the defendants excepted, and they have assigned as error such ruling of the
court below. There is nothing in the record to show that the defendants were in any way
prejudiced by this ruling of the court below. If it were error it was error without prejudice,
and not ground for reversal. (Sec. 503, Code of Civil Procedure.)chanrobles virtual law
library
(3)
It is claimed by the appellants that the contract alleged in the complaint made
the plaintiff a copartner of the defendants in the business which they were carrying on.
This contention can not bo sustained. It was a mere contract of employnent. The plaintiff
had no voice nor vote in the management of the affairs of the company. The fact that the
compensation received by him was to be determined with reference to the profits made by
the defendants in their business did not in any sense make by a partner therein. The
articles of partnership between the defendants provided that the profits should be divided
among the partners named in a certain proportion. The contract made between the plaintiff
and the then manager of the defendant partnership did not in any way vary or modify this
provision of the articles of partnership. The profits of the business could not be determined
until all of the expenses had been paid. A part of the expenses to be paid for the year
1902 was the salary of the plaintiff. That salary had to be deducted before the net profits of
the business, which were to be divided among the partners, could be ascertained. It was
undoubtedly necessary in order to determine what the salary of the plaintiff was, to
determine what the profits of the business were, after paying all of the expenses except
his, but that determination was not the final determination of the net profits of the
business. It was made for the purpose of fixing the basis upon which his compensation
should be determined.chanroblesvirtualawlibrary chanrobles virtual law library
(4)
It was no necessary that the contract between the plaintiff and the defendants
should be made in writing. (Thunga Chui vs. Que Bentec, 1 1 Off. Gaz., 818, October 8,
1903.)chanrobles virtual law library
(5)
It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the
contract, had died prior to the trial of the action, and the defendants claim that by reasons
of the provisions of section 383, paragraph 7, of the Code of Civil Procedure, plaintiff could
not be a witness at the trial. That paragraph provides that parties to an action against an
executor or aministrator upon a claim or demand against the estate of a deceased person
can not testify as to any matter of fact occurring before the death of such deceased

person. This action was not brought against the administrator of Miguel Alonzo, nor was it
brought upon a claim against his estate. It was brought against a partnership which was in
existence at the time of the trial of the action, and which was juridical person. The fact that
Miguel Alonzo had been a partner in this company, and that his interest therein might be
affected by the result of this suit, is not sufficient to bring the case within the provisions of
the section above cited.chanroblesvirtualawlibrary chanrobles virtual law library
(6)
The plaintiff was allowed to testify against the objection and exception of the
defendants, that he had been paid as salary for the year 1900 a part of the profits of the
business. This evidence was competent for the purpose of corroborating the testimony of
the plaintiff as to the existence of the contract set out in the
complaint.chanroblesvirtualawlibrary chanrobles virtual law library
(7)
The plaintiff was allowed to testify as to the contents of a certain letter written by
Miguel Glutierrez, one of the partners in the defendant company, to Miguel Alonzo
Gutierrez, another partner, which letter was read to plaintiff by Miguel Alonzo. It is not
necessary to inquire whether the court committed an error in admitting this evidence. The
case already made by the plaintiff was in itself sufficient to prove the contract without
reference to this letter. The error, if any there were, was not prejudicial, and is not ground
for revesal. (Sec. 503, Code of Civil Procedure.)chanrobles virtual law library
(8)
For the purpose of proving what the profits of the defendants were for the year
1902, the plaintiff presented in evidence the ledger of defendants, which contained an
entry made on the 31st of December, 1902, as follows:
Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66 Utilidades liquidas
obtenidas durante el ano y que abonamos conforme a la proporcion que hemos
establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of
the defendants, who testiffied, among other things, that there were no profits during the
year 1902, but, on the contrary, that the company suffered considerable loss during that
year. We do not think the evidence of this witnees sufficiently definite and certain to
overcome the positive evidence furnished by the books of the defendants
themselves.chanroblesvirtualawlibrary chanrobles virtual law library
(9)
In reference to the cause of action relating to the 600 pesos, it appears that the
plaintiff left the employ of the defendants on the 19th of Macrh, 1903; that at their request
he went to Hongkong, and was there for about two months looking after the business of
the defendants in the matter of the repair of a certain steamship. The appellants in their
brief say that the plaintiff is entitled to no compensation for his services thus rendered,
because by the provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to be gratuitous. That
article i not applicable to this case, because the amount of 600 pesos not claimed as
compensation for services but as a reimbursment for money expended by the plaintiff in
the business of the defendants. The article of the code that is applicable is article
1728.chanroblesvirtualawlibrary chanrobles virtual law library

sjbprior| 23

The judgment of the court below is affirmed, with the costs, of this instance against the
appellants. After the expiration of twenty days from the date of this decision let final
judgment be entered herein, and ten days thereafter let the case be remanded to the
lower court for execution. So ordered.

EN BANC
G.R. No. L-45425

April 29, 1939

JOSE
GATCHALIAN,
ET
AL., plaintiffs-appellants,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of Internal
Revenue the sum of P1,863.44, with legal interest thereon, which they paid under protest
by way of income tax. They appealed from the decision rendered in the case on October
23, 1936 by the Court of First Instance of the City of Manila, which dismissed the action
with the costs against them.
The case was submitted for decision upon the following stipulation of facts:
Come now the parties to the above-mentioned case, through their respective
undersigned attorneys, and hereby agree to respectfully submit to this
Honorable Court the case upon the following statement of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that
defendant is the Collector of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them to
purchase one sweepstakes ticket valued at two pesos (P2), subscribed and paid
therefor the amounts as follows:
1. Jose Gatchalian ....................................................................................................

P0.18

2. Gregoria Cristobal ...............................................................................................

.18

3. Saturnina Silva ....................................................................................................

.08

4. Guillermo Tapia ...................................................................................................

.13

5. Jesus Legaspi ......................................................................................................

.15

6. Jose Silva .............................................................................................................

.07

7. Tomasa Mercado ................................................................................................

.08

8. Julio Gatchalian ...................................................................................................

.13

9. Emiliana Santiago ................................................................................................

.13

10. Maria C. Legaspi ...............................................................................................

.16

11. Francisco Cabral ...............................................................................................

.13

12. Gonzalo Javier ....................................................................................................

.14

13. Maria Santiago ...................................................................................................

.17

14. Buenaventura Guzman ......................................................................................

.13

15. Mariano Santos .................................................................................................

.14

Total ........................................................................................................

2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs

purchased, in the ordinary course of business, from one of the duly authorized
agents of the National Charity Sweepstakes Office one ticket bearing No.
178637 for the sum of two pesos (P2) and that the said ticket was registered in
the name of Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15, 1934,
the above-mentioned ticket bearing No. 178637 won one of the third prizes in
the amount of P50,000 and that the corresponding check covering the abovementioned prize of P50,000 was drawn by the National Charity Sweepstakes
Office in favor of Jose Gatchalian & Company against the Philippine National
Bank, which check was cashed during the latter part of December, 1934 by
Jose Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was required by income tax
examiner Alfredo David to file the corresponding income tax return covering the
prize won by Jose Gatchalian & Company and that on December 29, 1934, the
said return was signed by Jose Gatchalian, a copy of which return is enclosed
as Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an assessment against Jose
Gatchalian & Company requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian &
Company until January 20, 1935 within which to pay the said amount of
P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part
hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to
defendant a reply, a copy of which marked Exhibit C is attached and made a
part hereof, requesting exemption from payment of the income tax to which
reply there were enclosed fifteen (15) separate individual income tax returns
filed separately by each one of the plaintiffs, copies of which returns are
attached and marked Exhibit D-1 to D-15, respectively, in order of their names
listed in the caption of this case and made parts hereof; a statement of sale
signed by Jose Gatchalian showing the amount put up by each of the plaintiffs
sjbprior| 24

to cover up the attached and marked as Exhibit E and made a part hereof; and
a copy of the affidavit signed by Jose Gatchalian dated December 29, 1934 is
attached and marked Exhibit F and made part thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of which
marked Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for
exemption from the payment of tax and reiterated his demand for the payment
of the sum of P1,499.94 as income tax and gave plaintiffs until February 10,
1935 within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded
by the defendant, notwithstanding subsequent demand made by defendant
upon the plaintiffs through their attorney on March 23, 1935, a copy of which
marked Exhibit H is enclosed, defendant on May 13, 1935 issued a warrant of
distraint and levy against the property of the plaintiffs, a copy of which warrant
marked Exhibit I is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the property of
the plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal,
Maria C. Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as
part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan, as
evidenced by official receipt No. 7454879 which is attached and marked Exhibit
J and made a part hereof, and requested defendant that plaintiffs be allowed to
pay under protest the balance of the tax and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was
granted by defendant subject to the condition that plaintiffs file the usual bond
secured by two solvent persons to guarantee prompt payment of each
installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit
K is enclosed and made a part hereof, to guarantee the payment of the balance
of the alleged tax liability by monthly installments at the rate of P118.70 a
month, the first payment under protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the
payment of the sum of P602.51, a copy of which protest is attached and marked
Exhibit L, but that defendant in his letter dated August 1, 1935 overruled the
protest and denied the request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in
accordance with the terms and conditions of bond filed by them, the defendant
in his letter dated July 23, 1935, copy of which is attached and marked Exhibit
M, ordered the municipal treasurer of Pulilan, Bulacan to execute within five
days the warrant of distraint and levy issued against the plaintiffs on May 13,
1935;

15. That in order to avoid annoyance and embarrassment arising from the levy
of their property, the plaintiffs on August 28, 1936, through Jose Gatchalian,
Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid under protest to
the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing
the unpaid balance of the income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is attached and marked
Exhibit N and made a part hereof; and that on September 3, 1936, the plaintiffs
formally protested to the defendant against the payment of said amount and
requested the refund thereof, copy of which is attached and marked Exhibit O
and made part hereof; but that on September 4, 1936, the defendant overruled
the protest and denied the refund thereof; copy of which is attached and marked
Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one
thousand eight hundred and sixty three pesos and forty-four centavos
(P1,863.44) paid under protest by them but that defendant refused and still
refuses to refund the said amount notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and additional evidence
if necessary.
Exhibit E referred to in the stipulation is of the following tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby
certify, that on the 11th day of August, 1934, I sold parts of my shares on ticket
No. 178637 to the persons and for the amount indicated below and the part of
may share remaining is also shown to wit:
Purchaser

Amount

Address

1. Mariano Santos ...........................................

P0.14

Pulilan, Bulacan.

2. Buenaventura Guzman ...............................

.13

- Do -

3. Maria Santiago ............................................

.17

- Do -

4. Gonzalo Javier ..............................................

.14

- Do -

5. Francisco Cabral ..........................................

.13

- Do -

6. Maria C. Legaspi ..........................................

.16

- Do -

7. Emiliana Santiago .........................................

.13

- Do -

8. Julio Gatchalian ............................................

.13

- Do -

9. Jose Silva ......................................................

.07

- Do -

10. Tomasa Mercado .......................................

.08

- Do -

11. Jesus Legaspi .............................................

.15

- Do -

sjbprior| 25

12. Guillermo Tapia ...........................................

.13

- Do -

13. Saturnina Silva ............................................

.08

- Do -

14. Gregoria Cristobal .......................................

.18

- Do -

15. Jose Gatchalian ............................................

.18

- Do -

2.00

Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts of
whatever prize that might be won by said ticket.

11.
Francisco
Cabral ......................................

D-11

.13

3,325

360

2,965

12.
Gonzalo
Javier ..........................................

D-12

.14

3,325

360

2,965

13.
Maria
Santiago .........................................
.

D-13

.17

4,350

360

3,990

14.
Buenaventura
Guzman ...........................

D-14

.13

3,325

360

2,965

15.
Mariano
Santos ........................................

D-15

.14

3,325

360

2,965

2.00

50,000

<="" td="" style="fontsize: 14px; text-decoration:

none; color: rgb(0, 0, 128);
font-family:
arial,
verdana;">

Pulilan, Bulacan, P.I.

(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934
ALL DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF
INTERNAL REVENUE.

Name

Exhibit
No.

Purchase
Price

Price
Won

Expenses

Net
prize

1.
Jose
Gatchalian ......................................
....

D-1

P0.18

P4,425

P 480

3,945

2.
Gregoria
Cristobal ......................................

D-2

.18

4,575

2,000

2,575

3.
Saturnina
Silva .............................................

D-3

.08

1,875

360

1,515

4.
Guillermo
Tapia ..........................................

D-4

.13

3,325

360

2,965

5. Jesus Legaspi
Cristobal .........

D-5

.15

3,825

720

3,105

6.
Jose
Silva ................................................
....

D-6

.08

1,875

360

1,515

7.
Tomasa
Mercado .......................................

D-7

.07

1,875

360

1,515

8. Julio Gatchalian
Guzman .......

D-8

.13

3,150

240

2,910

9.
Emiliana
Santiago ......................................

D-9

.13

3,325

360

2,965

10.
Maria
C.
Legaspi ......................................

D-10

.16

4,100

960

3,140

by

Maria

by Beatriz

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be
reduced to the two following: (1) Whether the plaintiffs formed a partnership, or merely a
community of property without a personality of its own; in the first case it is admitted that
the partnership thus formed is liable for the payment of income tax, whereas if there was
merely a community of property, they are exempt from such payment; and (2) whether
they should pay the tax collectively or whether the latter should be prorated among them
and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as
last amended by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding calendar year from all sources by
every corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association or insurance company, organized in the Philippine
Islands, no matter how created or organized, but not including duly registered
general copartnership (compaias colectivas), a tax of three per centum upon
such income; and a like tax shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding calendar year from
all sources within the Philippine Islands by every corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or
insurance company organized, authorized, or existing under the laws of any
foreign country, including interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise: Provided, however, That
nothing in this section shall be construed as permitting the taxation of the
income derived from dividends or net profits on which the normal tax has been
paid.
The gain derived or loss sustained from the sale or other disposition by a
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company, or property, real, personal, or
mixed, shall be ascertained in accordance with subsections (c) and (d) of
sjbprior| 26

section two of Act Numbered Two thousand eight hundred and thirty-three, as
amended by Act Numbered Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income received by every taxable
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company in the calendar year nineteen
hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of property the latter is
exempt from the payment of income tax under the law. But according to the stipulation
facts the plaintiffs organized a partnership of a civil nature because each of them put up
money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which
they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The
partnership was not only formed, but upon the organization thereof and the winning of the
prize, Jose Gatchalian personally appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued
the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in
the same capacity, collected the said check. All these circumstances repel the idea that
the plaintiffs organized and formed a community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is the one
bound to pay the income tax which the defendant collected under the aforesaid section 10
(a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in
plaintiff's contention that the tax should be prorated among them and paid individually,
resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this instance
to the plaintiffs appellants. So ordered.
FIRST DIVISION
G.R. No. 78903

February 28, 1990

SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,

vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE,
respondents.

JR.,

MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court of Appeals rendered on
May 26, 1987, upholding the validity of the sale of a parcel of land by petitioner Segundo
Dalion (hereafter, "Dalion") in favor of private respondent Ruperto Sabesaje, Jr. (hereafter,
"Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod, Southern Leyte, declared in the name of
Segundo Dalion, under Tax Declaration No. 11148, with an area of 8947 hectares,
assessed at P 180.00, and bounded on the North, by Sergio Destriza and Titon Veloso,
East, by Feliciano Destriza, by Barbara Bonesa (sic); and West, by Catalino Espina. (pp.
36-37, Rollo)

The decision affirms in toto the ruling of the trial court 1 issued on January 17, 1984, the
dispositive portion of which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders judgment.
(a)
Ordering the defendants to deliver to the plaintiff the parcel of land subject of
this case, declared in the name of Segundo Dalion previously under Tax Declaration No.
11148 and lately under Tax Declaration No. 2297 (1974) and to execute the
corresponding formal deed of conveyance in a public document in favor of the plaintiff of
the said property subject of this case, otherwise, should defendants for any reason fail to
do so, the deed shall be executed in their behalf by the Provincial Sheriff or his Deputy;
(b)
Ordering the defendants to pay plaintiff the amount of P2,000.00 as attorney's
fees and P 500.00 as litigation expenses, and to pay the costs; and
(c)

Dismissing the counter-claim. (p. 38, Rollo)

The facts of the case are as follows:

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a
private document of absolute sale, dated July 1, 1965 (Exhibit "A"), allegedly executed by
Dalion, who, however denied the fact of sale, contending that the document sued upon is
fictitious, his signature thereon, a forgery, and that subject land is conjugal property, which
he and his wife acquired in 1960 from Saturnina Sabesaje as evidenced by the "Escritura
de Venta Absoluta" (Exhibit "B"). The spouses denied claims of Sabesaje that after
executing a deed of sale over the parcel of land, they had pleaded with Sabesaje, their
relative, to be allowed to administer the land because Dalion did not have any means of
livelihood. They admitted, however, administering since 1958, five (5) parcels of land in
Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje,
who died in 1956. They never received their agreed 10% and 15% commission on the
sales of copra and abaca, respectively. Sabesaje's suit, they countered, was intended
merely to harass, preempt and forestall Dalion's threat to sue for these unpaid
commissions.
From the adverse decision of the trial court, Dalion appealed, assigning errors some of
which, however, were disregarded by the appellate court, not having been raised in the
court below. While the Court of Appeals duly recognizes Our authority to review matters
even if not assigned as errors in the appeal, We are not inclined to do so since a review of
the case at bar reveals that the lower court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no reason to dispute the
Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the same property deeded out in
Exhibit "B". The boundaries delineating it from adjacent lots are identical. Both documents
detail out the following boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
sjbprior| 27

On the West-Catalino Espina.

(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract of sale of a
parcel of land and b) the necessity of a public document for transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of Rule
132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how proved.-Before any private
writing may be received in evidence, its due execution and authenticity must be proved
either:
(a)

By anyone who saw the writing executed;

(b)

By evidence of the genuineness of the handwriting of the maker; or

(c)

By a subscribing witness

xxx

xxx

xxx

SEC. 23. Handwriting, how proved. The handwriting of a person may be proved by any
witness who believes it to be the handwriting of such person, and has seen the person
write, or has seen writing purporting to be his upon which the witness has acted or been
charged, and has thus acquired knowledge of the handwriting of such person. Evidence
respecting the handwriting may also be given by a comparison, made by the witness or
the court, with writings admitted or treated as genuine by the party against whom the
evidence is offered, or proved to be genuine to the satisfaction of the judge. (Rule 132,
Revised Rules of Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed positively testified on the
authenticity thereof. They categorically stated that it had been executed and signed by the
signatories thereto. In fact, one of such witnesses, Gerardo M. Ogsoc, declared on the
witness stand that he was the one who prepared said deed of sale and had copied parts
thereof from the "Escritura De Venta Absoluta" (Exhibit B) by which one Saturnina
Sabesaje sold the same parcel of land to appellant Segundo Dalion. Ogsoc copied the
bounderies thereof and the name of appellant Segundo Dalion's wife, erroneously written
as "Esmenia" in Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41, Rollo)
xxx

xxx

xxx

Against defendant's mere denial that he signed the document, the positive testimonies of
the instrumental Witnesses Ogsoc and Espina, aside from the testimony of the plaintiff,
must prevail. Defendant has affirmatively alleged forgery, but he never presented any
witness or evidence to prove his claim of forgery. Each party must prove his own
affirmative allegations (Section 1, Rule 131, Rules of Court). Furthermore, it is presumed
that a person is innocent of a crime or wrong (Section 5 (a), Idem), and defense should
have come forward with clear and convincing evidence to show that plaintiff committed

forgery or caused said forgery to be committed, to overcome the presumption of

innocence. Mere denial of having signed, does not suffice to show forgery.
In addition, a comparison of the questioned signatories or specimens (Exhs. A-2 and A-3)
with the admitted signatures or specimens (Exhs. X and Y or 3-C) convinces the court that
Exhs. A-2 or Z and A-3 were written by defendant Segundo Dalion who admitted that
Exhs. X and Y or 3-C are his signatures. The questioned signatures and the specimens
are very similar to each other and appear to be written by one person.
Further comparison of the questioned signatures and the specimens with the signatures
Segundo D. Dalion appeared at the back of the summons (p. 9, Record); on the return
card (p. 25, Ibid.); back of the Court Orders dated December 17, 1973 and July 30, 1974
and for October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on the open court notice of
April 13, 1983 (p. 235, Ibid.) readily reveal that the questioned signatures are the
signatures of defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion appear on the face of the
questioned document (Exh. A), one at the right corner bottom of the document (Exh. A-2)
and the other at the left hand margin thereof (Exh. A-3). The second signature is already a
surplusage. A forger would not attempt to forge another signature, an unnecessary one,
for fear he may commit a revealing error or an erroneous stroke. (Decision, p. 10) (pp. 4243, Rollo)
We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we
reiterate that
Appellate courts have consistently subscribed to the principle that conclusions and
findings of fact by the trial courts are entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons, since it is undeniable that the trial court is
in a more advantageous position to examine real evidence, as well as to observe the
demeanor of the witnesses while testifying in the case (Chase v. Buencamino, Sr., G.R.
No. L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605,
August 19, 1985, 138 SCRA 185)
Assuming authenticity of his signature and the genuineness of the document, Dalion
nonetheless still impugns the validity of the sale on the ground that the same is embodied
in a private document, and did not thus convey title or right to the lot in question since
"acts and contracts which have for their object the creation, transmission, modification or
extinction of real rights over immovable property must appear in a public instrument" (Art.
1358, par 1, NCC).
This argument is misplaced. The provision of Art. 1358 on the necessity of a public
document is only for convenience, not for validity or enforceability. It is not a requirement
for the validity of a contract of sale of a parcel of land that this be embodied in a public
instrument.
A contract of sale is a consensual contract, which means that the sale is perfected by
mere consent. No particular form is required for its validity. Upon perfection of the
contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the
vendee may compel transfer of ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold (Art. 1458, NCC).
sjbprior| 28

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of
land and to execute corresponding formal deed of conveyance in a public document.
Under Art. 1498, NCC, when the sale is made through a public instrument, the execution
thereof is equivalent to the delivery of the thing. Delivery may either be actual (real) or
constructive. Thus delivery of a parcel of land may be done by placing the vendee in
control and possession of the land (real) or by embodying the sale in a public instrument
(constructive).
As regards petitioners' contention that the proper action should have been one for specific
performance, We believe that the suit for recovery of ownership is proper. As earlier
stated, Art. 1475 of the Civil Code gives the parties to a perfected contract of sale the right
to reciprocally demand performance, and to observe a particular form, if warranted, (Art.
1357). The trial court, aptly observed that Sabesaje's complaint sufficiently alleged a
cause of action to compel Dalion to execute a formal deed of sale, and the suit for
recovery of ownership, which is premised on the binding effect and validity inter partes of
the contract of sale, merely seeks consummation of said contract.
... . A sale of a real property may be in a private instrument but that contract is valid and
binding between the parties upon its perfection. And a party may compel the other party to
execute a public instrument embodying their contract affecting real rights once the
contract appearing in a private instrument hag been perfected (See Art. 1357).
... . (p. 12, Decision, p. 272, Records)
ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals
upholding the ruling of the trial court is hereby AFFIRMED. No costs.
SO ORDERED.
OSCAR ANGELES and EMERITA ANGELES, petitioners, vs. THE HON. SECRETARY
OF JUSTICE and FELINO MERCADO, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari[1] to annul the letter-resolution[2] dated 1 February 2000 of
the Secretary of Justice in Resolution No. 155.[3] The Secretary of Justice affirmed the
resolution[4] in I.S. No. 96-939 dated 28 February 1997 rendered by the Provincial
Prosecution Office of the Department of Justice in Santa Cruz, Laguna (Provincial
Prosecution Office). The Provincial Prosecution Office resolved to dismiss the complaint
for estafa filed by petitioners Oscar and Emerita Angeles (Angeles spouses) against
respondent Felino Mercado (Mercado).
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under
Article 315 of the Revised Penal Code against Mercado before the Provincial Prosecution
Office. Mercado is the brother-in-law of the Angeles spouses, being married to Emerita
Angeles sister Laura.

In their affidavits, the Angeles spouses claimed that in November 1992, Mercado
convinced them to enter into a contract of antichresis,[5] colloquially known as sanglaangperde, covering eight parcels of land (subject land) planted with fruit-bearing lanzones
trees located in Nagcarlan, Laguna and owned by Juana Suazo. The contract of
antichresis was to last for five years with P210,000 as consideration. As the Angeles
spouses stay in Manila during weekdays and go to Laguna only on weekends, the parties
agreed that Mercado would administer the lands and complete the necessary paperwork.
[6]
After three years, the Angeles spouses asked for an accounting from Mercado. Mercado
explained that the subject land earned P46,210 in 1993, which he used to buy more
lanzones trees. Mercado also reported that the trees bore no fruit in 1994. Mercado gave
no accounting for 1995. The Angeles spouses claim that only after this demand for an
accounting did they discover that Mercado had put the contract of sanglaang-perde over
the subject land under Mercado and his spouses names.[7] The relevant portions of the
contract of sanglaang-perde, signed by Juana Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO
(P210,000), salaping gastahin, na aking tinanggap sa mag[-]asawa nila G. AT GNG.
FELINO MERCADO, mga nasa hustong gulang, Filipino, tumitira at may pahatirang sulat
sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay aking ipinagbili, iniliwat
at isinalin sa naulit na halaga, sa nabanggit na mag[-] asawa nila G. AT GNG. FELINO
MERCADO[,] sa kanila ay magmamana, kahalili at ibang dapat pagliwatan ng kanilang
karapatan, ang lahat na ibubunga ng lahat na puno ng lanzones, hindi kasama ang ibang
halaman na napapalooban nito, ng nabanggit na WALONG (8) Lagay na Lupang CocalLanzonal, sa takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993, at
magtatapos sa taong 1997, kayat pagkatapos ng lansonesan sa taong 1997, ang
pamomosision at pakikinabang sa lahat na puno ng lanzones sa nabanggit na WALONG
(8) Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin, sa akin ay magmamana,
kahalili at ibang dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na ano pa
mang halaga, sa mag[-] asawa nila G. AT GNG. FELINO MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na ako
ay bibigyan nila ng LIMA (5) na [sic] kaing na lanzones taon-taon sa loob ng LIMA (5) na
[sic] taon ng aming kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na
silang mag[-]asawa nila G. AT GNG. FELINO MERCADO ang magpapaalis ng dapo sa
puno ng lansones taon-taon [sic] sa loob ng LIMA (5) [sic] taonng [sic] aming kasunduang
ito.[8]
In his counter-affidavit, Mercado denied the Angeles spouses allegations. Mercado
claimed that there exists an industrial partnership, colloquially known as sosyo industrial,
between him and his spouse as industrial partners and the Angeles spouses as the
financiers. This industrial partnership had existed since 1991, before the contract of
antichresis over the subject land. As the years passed, Mercado used his and his
spouses earnings as part of the capital in the business transactions which he entered into
in behalf of the Angeles spouses. It was their practice to enter into business transactions
with other people under the name of Mercado because the Angeles spouses did not want
to be identified as the financiers.
sjbprior| 29

Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and
contracts under his name for the Angeles spouses. Mercado also attached the minutes of
the barangay conciliation proceedings held on 7 September 1996. During the barangay
conciliation proceedings, Oscar Angeles stated that there was a written sosyo industrial
agreement: capital would come from the Angeles spouses while the profit would be
divided evenly between Mercado and the Angeles spouses.[9]
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending
the filing of criminal information for estafa against Mercado. This resolution, however, was
issued without Mercados counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3
January 1997 resolution, Mercado moved for its reconsideration. Hence, on 26 February
1997, the Provincial Prosecution Office issued an amended resolution dismissing the
Angeles spouses complaint for estafa against Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The partnership was
initially unsaddled [with] problems. Management became the source of misunderstanding
including the accounting of profits, which led to further misunderstanding until it was
revealed that the contract with the orchard owner was only with the name of the
respondent, without the names of the complainants.
The accusation of estafa here lacks enough credible evidentiary support to sustain a
prima facie finding.

Indeed, it is difficult to believe that the [Angeles spouses] would readily part with their
money without holding on to some document to evidence the receipt of money, or at least
to inspect the document involved in the said transaction. Under the circumstances, we are
inclined to believe that [the Angeles spouses] knew from the very start that the questioned
document was not really in their names.
In addition, we are convinced that a partnership truly existed between the [Angeles
spouses] and [Mercado]. The formation of a partnership was clear from the fact that they
contributed money to a common fund and divided the profits among themselves. Records
would show that [Mercado] was able to make deposits for the account of the [Angeles
spouses]. These deposits represented their share in the profits of their business venture.
Although the [Angeles spouses] deny the existence of a partnership, they, however, never
disputed that the deposits made by [Mercado] were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado]
during the hearing of their barangay conciliation case reveals that the [Angeles spouses]
acknowledged their joint business ventures with [Mercado] although they assailed the
manner by which [Mercado] conducted the business and handled and distributed the
funds. The veracity of this transcript was not raised in issued [sic] by [the Angeles
spouses]. Although the legal formalities for the formation of a partnership were not
adhered to, the partnership relationship of the [Angeles spouses] and [Mercado] is evident
in this case. Consequently, there is no estafa where money is delivered by a partner to
his co-partner on the latters representation that the amount shall be applied to the
business of their partnership. In case of misapplication or conversion of the money
received, the co-partners liability is civil in nature (People v. Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.[11]
Hence, this petition.

Premises considered, it is respectfully recommended that the complaint for estafa be

dismissed.

Issues

RESPECTFULLY SUBMITTED.[10]

The Angeles spouses ask us to consider the following issues:

The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution
Office denied in a resolution dated 4 August 1997.

1. Whether the Secretary of Justice committed grave abuse of discretion amounting to

lack of jurisdiction in dismissing the appeal of the Angeles spouses;

The Ruling of the Secretary of Justice

2. Whether a partnership existed between the Angeles spouses and Mercado even
without any documentary proof to sustain its existence;

On appeal to the Secretary of Justice, the Angeles spouses emphasized that the
document evidencing the contract of sanglaang-perde with Juana Suazo was executed in
the name of the Mercado spouses, instead of the Angeles spouses. The Angeles spouses
allege that this document alone proves Mercados misappropriation of their P210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of [Mercado]
for the crime of estafa cannot be sustained. [The Angeles spouses] failed to show
sufficient proof that [Mercado] deliberately deceived them in the sanglaang perde
transaction. The document alone, which was in the name of [Mercado and his spouse],
failed to convince us that there was deceit or false representation on the part of [Mercado]
that induced the [Angeles spouses] to part with their money. [Mercado] satisfactorily
explained that the [Angeles spouses] do not want to be revealed as the financiers.

3. Assuming that there was a partnership, whether there was misappropriation by

Mercado of the proceeds of the lanzones after the Angeles spouses demanded an
accounting from him of the income at the office of the barangay authorities on 7
September 1996, and Mercado failed to do so and also failed to deliver the proceeds to
the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the information for estafa
against Mercado.[12]
The Ruling of the Court
The petition has no merit.
sjbprior| 30

Whether the Secretary of Justice Committed

Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion when the same is
performed in a capricious or whimsical exercise of judgment amounting to lack of
jurisdiction. The abuse of discretion must be so patent and gross as to amount to an
evasion of positive duty, or to a virtual refusal to perform a duty enjoined by law, as where
the power is exercised in an arbitrary and despotic manner because of passion or
personal hostility.[13]
The Angeles spouses fail to convince us that the Secretary of Justice committed grave
abuse of discretion when he dismissed their appeal. Moreover, the Angeles spouses
committed an error in procedure when they failed to file a motion for reconsideration of the
Secretary of Justices resolution. A previous motion for reconsideration before the filing of
a petition for certiorari is necessary unless: (1) the issue raised is one purely of law; (2)
public interest is involved; (3) there is urgency; (4) a question of jurisdiction is squarely
raised before and decided by the lower court; and (5) the order is a patent nullity.[14] The
Angeles spouses failed to show that their case falls under any of the exceptions. In fact,
this present petition for certiorari is dismissible for this reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with Mercado. The Angeles
spouses rely on Articles 1771 to 1773 of the Civil Code, which state that:

Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a
contract showing a sosyo industrial or industrial partnership, contribution of money and
industry to a common fund, and division of profits between the Angeles spouses and
Mercado.
Whether there was
Misappropriation by Mercado
The Secretary of Justice adequately explained the alleged misappropriation by Mercado:
The document alone, which was in the name of [Mercado and his spouse], failed to
convince us that there was deceit or false representation on the part of [Mercado] that
induced the [Angeles spouses] to part with their money. [Mercado] satisfactorily explained
that the [Angeles spouses] do not want to be revealed as the financiers.[15]
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil
case for damages, injunction and restraining order filed by the Angeles spouses against
Mercado and Leo Cerayban, stated:
xxx [I]t was the practice to have all the contracts of antichresis of their partnership secured
in [Mercados] name as [the Angeles spouses] are apprehensive that, if they come out into
the open as financiers of said contracts, they might be kidnapped by the New Peoples
Army or their business deals be questioned by the Bureau of Internal Revenue or worse,
their assets and unexplained income be sequestered, as xxx Oscar Angeles was then
working with the government.[16]
Furthermore, accounting of the proceeds is not a proper subject for the present case.

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.

For these reasons, we hold that the Secretary of Justice did not abuse his discretion in
dismissing the appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition
for certiorari is DISMISSED.
SO ORDERED.

Failure to comply with the requirements 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.
The Angeles spouses position that there is no partnership because of the lack of a public
instrument indicating the same and a lack of registration with the Securities and Exchange
Commission (SEC) holds no water. First, the Angeles spouses contributed money to the
partnership and not immovable property. Second, mere failure to register the contract of
partnership with the SEC does not invalidate a contract that has the essential requisites of
a partnership. The purpose of registration of the contract of partnership is to give notice to
third parties. Failure to register the contract of partnership does not affect the liability of
the partnership and of the partners to third persons. Neither does such failure to register
affect the partnerships juridical personality. A partnership may exist even if the partners
do not use the words partner or partnership.

ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA

BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES, respondents.
DECISION
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of their acts. That the
terms of a contract turn out to be financially disadvantageous to them will not relieve them
of their obligations therein. The lack of an inventory of real property will not ipso facto
release the contracting partners from their respective obligations to each other arising
from acts executed in accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision[1]
Second Division of the Court of Appeals[2] (CA) in CA-GR CV No. 42378 and its June 25,
1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling of the
sjbprior| 31

Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as
follows:

stipulated in the contract. Disagreeing with the trial courts pronouncement that losses as
well as profits in a joint venture should be distributed equally,[7] the CA invoked Article
1797 of the Civil Code which provides:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant
and against the plaintiffs, orders the dismissal of the plaintiffs complaint.
The
counterclaims of the defendant are likewise ordered dismissed. No pronouncement as to
costs.[3]

Article 1797 - The losses and profits shall be distributed in conformity with the agreement.
If only the share of each partner in the profits has been agreed upon, the share of each in
the losses shall be in the same proportion.

The Facts

The CA elucidated further:

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint
venture agreement" with Respondent Manuel Torres for the development of a parcel of
land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering
the said parcel of land in favor of respondent, who then had it registered in his name. By
mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the development of the
subdivision.[4] All three of them also agreed to share the proceeds from the sale of the
subdivided lots.

In the absence of stipulation, the share of each partner in the profits and losses shall be
in proportion to what he may have contributed, but the industrial partner shall not be liable
for the losses. As for the profits, the industrial partner shall receive such share as may be
just and equitable under the circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:

The project did not push through, and the land was subsequently foreclosed by the bank.
According to petitioners, the project failed because of respondents lack of funds or
means and skills. They add that respondent used the loan not for the development of the
subdivision, but in furtherance of his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement the Agreement.
With the said amount, he was able to effect the survey and the subdivision of the lots. He
secured the Lapu Lapu City Councils approval of the subdivision project which he
advertised in a local newspaper. He also caused the construction of roads, curbs and
gutters. Likewise, he entered into a contract with an engineering firm for the building of
sixty low-cost housing units and actually even set up a model house on one of the
subdivision lots. He did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because petitioners and
their relatives had separately caused the annotations of adverse claims on the title to the
land, which eventually scared away prospective buyers. Despite his requests, petitioners
refused to cause the clearing of the claims, thereby forcing him to give up on the project.
[5]
Subsequently, petitioners filed a criminal case for estafa against respondent and his wife,
who were however acquitted. Thereafter, they filed the present civil case which, upon
respondent's motion, was later dismissed by the trial court in an Order dated September 6,
1982.
On appeal, however, the appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated,
was affirmed by the CA.
Hence, this Petition.[6]
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and respondent had
formed a partnership for the development of the subdivision. Thus, they must bear the
loss suffered by the partnership in the same proportion as their share in the profits

x x x [The] Court of Appeals erred in concluding that the transaction x x x between the
petitioners and respondent was that of a joint venture/partnership, ignoring outright the
provision of Article 1769, and other related provisions of the Civil Code of the
Philippines.[8]
The Courts Ruling
The Petition is bereft of merit.
Main Issue: Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend that the
Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of
the appellate courts finding of a partnership, were void.
In the same breath, however, they assert that under those very same contracts,
respondent is liable for his failure to implement the project. Because the agreement
entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots,
they pray that respondent pay them damages equivalent to 60 percent of the value of the
property.[9]
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of
March, 1969, by and between MR. MANUEL R. TORRES, x x x the FIRST PARTY,
likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the
SECOND PARTY:
W I T N E S S E T H:
sjbprior| 32

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property
located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184
with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the execution of this contract
for the property entrusted by the SECOND PARTY, for sub-division projects and
development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises
herein contained the respective parties hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5,
1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY
CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] &
FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the
SECOND PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for
their personal obligations and this particular amount will serve as an advance payment
from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted
from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest
and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale
to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project
should be paid by the FIRST PARTY, exclusively and all the expenses will not be
deducted from the sales after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM
60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and
additional profits or whatever income deriving from the sales will be divided equally
according to the x x x percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved will start the work
and all improvements upon the adjacent lots will be negotiated in both parties['] favor and
all sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back the
property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST
PARTY, including all necessary improvements spent by the FIRST PARTY, and the
FIRST PARTY will be given a grace period to turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who executed same
freely and voluntarily for the uses and purposes therein stated.[10]

A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, which provides:
ART. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.
Under the above-quoted Agreement, petitioners would contribute property to the
partnership in the form of land which was to be developed into a subdivision; while
respondent would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the contract manifested the
intention of the parties to form a partnership.[11]
It should be stressed that the parties implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in the name of the respondent. On the
other hand, respondent caused the subject land to be mortgaged, the proceeds of which
were used for the survey and the subdivision of the land. As noted earlier, he developed
the roads, the curbs and the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no contribution to
the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only
money or property, but also industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been
expressly stipulated, but also to all necessary consequences thereof, as follows:
ART. 1315. Contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good faith,
usage and law.
It is undisputed that petitioners are educated and are thus presumed to have understood
the terms of the contract they voluntarily signed. If it was not in consonance with their
expectations, they should have objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary consequences of their
acts, and the fact that the contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their obligations. They cannot now
disavow the relationship formed from such agreement due to their supposed
misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil
Code, which provides:
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.
sjbprior| 33

They contend that since the parties did not make, sign or attach to the public instrument
an inventory of the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision which is a
complement of Article 1771,[12] the execution of a public instrument would be useless if
there is no inventory of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those who contract
with the partnership in the belief [in] the efficacy of the guaranty in which the immovables
may consist. Thus, the contract is declared void by the law when no such inventory is
made. The case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their claim
that respondent should pay them 60 percent of the value of the property.[13] They cannot
in one breath deny the contract and in another recognize it, depending on what
momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a
contract and courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the
Joint Venture Agreement an ordinary contract from which the parties rights and
obligations to each other may be inferred and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under Article 1422[14] of
the Civil Code, because it is the direct result of an earlier illegal contract, which was for the
sale of the land without valid consideration.
This argument is puerile.
The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision project. Its
first stipulation states that petitioners did not actually receive payment for the parcel of
land sold to respondent. Consideration, more properly denominated as cause, can take
different forms, such as the prestation or promise of a thing or service by another.[15]
In this case, the cause of the contract of sale consisted not in the stated peso value of the
land, but in the expectation of profits from the subdivision project, for which the land was
intended to be used. As explained by the trial court, the land was in effect given to the
partnership as [petitioners] participation therein.
x x x There was therefore a
consideration for the sale, the [petitioners] acting in the expectation that, should the
venture come into fruition, they [would] get sixty percent of the net profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the subdivision project,
petitioners maintain that he should be made to pay damages equivalent to 60 percent of
the value of the property, which was their share in the profits under the Joint Venture
Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners acts were not the
cause of the failure of the project.[16] But it also ruled that neither was respondent
responsible therefor.[17] In imputing the blame solely to him, petitioners failed to give any

reason why we should disregard the factual findings of the appellate court relieving him of
fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in
this case. Petitioners have not alleged, not to say shown, that their Petition constitutes
one of the exceptions to this doctrine.[18] Accordingly, we find no reversible error in the
CA's ruling that petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged Decision AFFIRMED.
Costs against petitioners.
SO ORDERED.
G.R. No. L-31684

June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO

and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co."
On June 7, 1955 the Articles of Co-partnership was amended as to include herein
respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo
C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The
amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos
consists of her industry being an industrial partner", and that the profits and losses "shall
be divided and distributed among the partners ... in the proportion of 70% for the first three
partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad
Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad
Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in the
Court of First Instance of Manila, alleging that the partnership, which was also made a
party-defendant, had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and continued to refuse and let
her examine the partnership books or to give her information regarding the partnership
affairs to pay her any share in the dividends declared by the partnership. She therefore
prayed that the defendants be ordered to render accounting to her of the partnership
business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or distributed
profits of the partnership; denied likewise that the plaintiff ever demanded that she be
allowed to examine the partnership books; and byway of affirmative defense alleged that
the amended Articles of Co-partnership did not express the true agreement of the parties,
which was that the plaintiff was not an industrial partner; that she did not in fact contribute
industry to the partnership; and that her share of 30% was to be based on the profits
which might be realized by the partnership only until full payment of the loan which it had
obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.
sjbprior| 34

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

industrial partner was thoroughly analyzed by the Court of Appeals on its decision, to the
extent of reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over
again, its jurisdiction being limited to reviewing errors of law that might have been
commited by the lower court. It should be observed, in this regard, that the Court of
Appeals did not hold that the Articles of Co-partnership, identified in the record as Exhibit
"A", was conclusive evidence that the respondent was an industrial partner of the said
company, but considered it together with other factors, consisting of both testimonial and
documentary evidences, in arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of
error are hereunder reproduced if only to demonstrate that the same were made after a
through analysis of then evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first assigned
error, wherein it is pointed out that "Appellee's documentary evidence does not
conclusively prove that appellee was in fact admitted by appellants as industrial partner of
Evangelista & Co." and that "The grounds relied upon by the lower Court are untenable"
(Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that
"In finding that the appellee is an industrial partner of appellant Evangelista & Co., herein
referred to as the partnership the lower court relied mainly on the appellee's
documentary evidence, entirely disregarding facts and circumstances established by
appellants" evidence which contradict the said finding' (Page 21, Appellants' Brief). The
lower court could not have done otherwise but rely on the exhibits just mentioned, first,
because appellants have admitted their genuineness and due execution, hence they were
admitted without objection by the lower court when appellee rested her case and,
secondly the said exhibits indubitably show the appellee is an industrial partner of
appellant company. Appellants are virtually estopped from attempting to detract from the
probative force of the said exhibits because they all bear the imprint of their knowledge
and consent, and there is no credible showing that they ever protested against or opposed
their contents prior of the filing of their answer to appellee's complaint. As a matter of fact,
all the appellant Evangelista, Jr., would have us believe as against the cumulative force
of appellee's aforesaid documentary evidence is the appellee's Exhibit "A", as
confirmed and corroborated by the other exhibits already mentioned, does not express the
true intent and agreement of the parties thereto, the real understanding between them
being the appellee would be merely a profit sharer entitled to 30% of the net profits that
may be realized between the partners from June 7, 1955, until the mortgage loan of
P30,000.00 to be obtained from the RFC shall have been fully paid. This version,
however, is discredited not only by the aforesaid documentary evidence brought forward
by the appellee, but also by the fact that from June 7, 1955 up to the filing of their answer
to the complaint on February 8, 1964 or a period of over eight (8) years appellants
did nothing to correct the alleged false agreement of the parties contained in Exhibit "A". It
is thus reasonable to suppose that, had appellee not filed the present action, appellants
would not have advanced this obvious afterthought that Exhibit "A" does not express the
true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an
overriding fact which proves that the parties to the Amended Articles of Partnership,
Exhibit "A", did not contemplate to make the appellee Estrella Abad Santos, an industrial
partner of Evangelista & Co. It is an admitted fact that since before the execution of the
sjbprior| 35

amended articles of partnership, Exhibit "A", the appellee Estrella Abad Santos has been,
and up to the present time still is, one of the judges of the City Court of Manila, devoting all
her time to the performance of the duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the parties, for she could not
lawfully contribute her full time and industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point,
quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite
impression that, even as she was and still is a Judge of the City Court of Manila, she has
rendered services for appellants without which they would not have had the wherewithal to
operate the business for which appellant company was organized. Article 1767 of the New
Civil Code which provides that "By contract of partnership two or more persons bind
themselves, to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves, 'does not specify the kind of industry
that a partner may thus contribute, hence the said services may legitimately be considered
as appellee's contribution to the common fund. Another article of the same Code relied
upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist partners
may either exclude him from the firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for
himself seeks to prevent any conflict of interest between the industrial partner and the
partnership, and to insure faithful compliance by said partner with this prestation. There is
no pretense, however, even on the part of the appellee is engaged in any business
antagonistic to that of appellant company, since being a Judge of one of the branches of
the City Court of Manila can hardly be characterized as a business. That appellee has
faithfully complied with her prestation with respect to appellants is clearly shown by the
fact that it was only after filing of the complaint in this case and the answer thereto
appellants exercised their right of exclusion under the codal art just mentioned by alleging
in their Supplemental Answer dated June 29, 1964 or after around nine (9) years from
June 7, 1955 subsequent to the filing of defendants' answer to the complaint,
defendants reached an agreement whereby the herein plaintiff been excluded from, and
deprived of, her alleged share, interests or participation, as an alleged industrial partner, in
the defendant partnership and/or in its net profits or income, on the ground plaintiff has
never contributed her industry to the partnership, instead she has been and still is a judge
of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to
performance of her duties as such judge and enjoying the privilege and emoluments
appertaining to the said office, aside from teaching in law school in Manila, without the
express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having always
knows as a appellee as a City judge even before she joined appellant company on June 7,
1955 as an industrial partner, why did it take appellants many yearn before excluding her
from said company as aforequoted allegations? And how can they reconcile such
exclusive with their main theory that appellee has never been such a partner because
"The real agreement evidenced by Exhibit "A" was to grant the appellee a share of 30% of
the net profits which the appellant partnership may realize from June 7, 1955, until the
mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have
been fully paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that appellee is an
industrial partner of appellant company, with the right to demand for a formal accounting
and to receive her share in the net profit that may result from such an accounting, which
right appellants take exception under their second assigned error. Our said holding is
based on the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:
(1)
If he is wrongfully excluded from the partnership business or possession of its
property by his co-partners;
(2)

If the right exists under the terms of any agreement;

(3)

As provided by article 1807;

(4)

Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate
jurisdiction to reviewing only errors of law, accepting as conclusive the factual findings of
the lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.
Catalan Vs. Gatchalian 105 Phil 1270
G.R. No. L-11648 April 22, 1959
Facts:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave
together with the improvements thereon to secure a credit from the latter. The partnership
failed to pay the obligation. The properties were sold to Dr. Marave at a public auction.
Catalan redeemed the property and he contends that title should be cancelled and a new
one must be issued in his name.
Issue:
Did Catalans redemption of the properties make him the absolute owner of the
lands?
Ruling:
No. Under Article 1807 of the NCC every partner becomes a trustee for his copartner with
regard to any benefits or profits derived from his act as a partner. Consequently, when
Catalan redeemed the properties in question, he became a trustee and held the same in
trust for his copartner Gatchalian, subject to his right to demand from the latter his
contribution to the amount of redemption.
Art. 1830. The marriage of the general partner to a limited partner did not result in the
dissolution of the partnership.

sjbprior| 36

EN BANC
G.R. No. 5840
September 17, 1910
THE UNITED STATES, plaintiff-appellee,
vs.
EUSEBIO CLARIN, defendant-appellant.
ARELLANO, C.J.:

No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who,
to the prejudice of another, shall appropriate or misapply any money, goods, or any kind of
personal property which they may have received as a deposit on commission for
administration or in any other character producing the obligation to deliver or return the
same," (as, for example, in commodatum, precarium, and other unilateral contracts which
require the return of the same thing received) does not include money received for a
partnership; otherwise the result would be that, if the partnership, instead of obtaining
profits, suffered losses, as it could not be held liable civilly for the share of the capitalist
partner who reserved the ownership of the money brought in by him, it would have to
answer to the charge of estafa, for which it would be sufficient to argue that the
partnership had received the money under obligation to return it.

Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with
Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes, and, believing that
he could make some money in this business, the said Larin made an agreement with the
three men by which the profits were to be divided equally between him and them.

We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for
estafa is dismissed without prejudice to the institution of a civil action.

Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and
obtained P203 from the business, but did not comply with the terms of the contract by
delivering to Larin his half of the profits; neither did they render him any account of the
capital.

G.R. No. L-45624

EN BANC
April 25, 1939

GEORGE LITTON, petitioner-appellant,

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

Larin charged them with the crime of estafa, but the provincial fiscal filed an information
only against Eusebio Clarin in which he accused him of appropriating to himself not only
the P172 but also the share of the profits that belonged to Larin, amounting to P15.50.

CONCEPCION, J.:

Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed that
the facts presented concerned the defendant and themselves together.

This is a petition to review on certiorari the decision of the Court of Appeals in a case
originating from the Court of First Instance of Manila wherein the herein petitioner George
Litton was the plaintiff and the respondents Hill & Ceron, Robert Hill, Carlos Ceron and
Visayan Surety & Insurance Corporation were defendants.

The trial court, that of First Instance of Pampanga, sentenced the defendant, Eusebio
Clarin, to six months' arresto mayor, to suffer the accessory penalties, and to return to
Pedro Larin P172, besides P30.50 as his share of the profits, or to subsidiary
imprisonment in case of insolvency, and to pay the costs. The defendant appealed, and in
deciding his appeal we arrive at the following conclusions:
When two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves, a contract is
formed which is called partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and
Guzman, he invested his capital in the risks or benefits of the business of the purchase
and sale of mangoes, and, even though he had reserved the capital and conveyed only
the usufruct of his money, it would not devolve upon of his three partners to return his
capital to him, but upon the partnership of which he himself formed part, or if it were to be
done by one of the three specifically, it would be Tarug, who, according to the evidence,
was the person who received the money directly from Larin.
The P172 having been received by the partnership, the business commenced and profits
accrued, the action that lies with the partner who furnished the capital for the recovery of
his money is not a criminal action for estafa, but a civil one arising from the partnership
contract for a liquidation of the partnership and a levy on its assets if there should be any.

The facts are as follows: On February 14, 1934, the plaintiff sold and delivered to Carlos
Ceron, who is one of the managing partners of Hill & Ceron, a certain number of mining
claims, and by virtue of said transaction, the defendant Carlos Ceron delivered to the
plaintiff a document reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699 for 5,000,
5,000 and 7,000 shares respectively total 17,000 shares of Big Wedge Mining
Company, which we have sold at P0.11 (eleven centavos) per share or P1,870.00 less 1/2
per cent brokerage.
HILL & CERON
By: (Sgd.) CARLOS CERON
Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720, and
unable to collect this sum either from Hill & Ceron or from its surety Visayan Surety &
Insurance Corporation, Litton filed a complaint in the Court of First Instance of Manila
against the said defendants for the recovery of the said balance. The court, after trial,
ordered Carlos Ceron personally to pay the amount claimed and absolved the partnership
sjbprior| 37

Hill & Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On appeal to
the Court of Appeals, the latter affirmed the decision of the court on May 29, 1937, having
reached the conclusion that Ceron did not intend to represent and did not act for the firm
Hill & Ceron in the transaction involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the Court of Appeals as
to the question of fact just mentioned, namely, that Ceron individually entered into the
transaction with the plaintiff, but in view, however, of certain undisputed facts and of
certain regulations and provisions of the Code of Commerce, we reach the conclusion that
the transaction made by Ceron with the plaintiff should be understood in law as effected
by Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified at the trial that he
and Ceron, during the partnership, had the same power to buy and sell; that in said
partnership Hill as well as Ceron made the transaction as partners in equal parts; that on
the date of the transaction, February 14, 1934, the partnership between Hill and Ceron
was in existence. After this date, or on February 19th, Hill & Ceron sold shares of the Big
Wedge; and when the transaction was entered into with Litton, it was neither published in
the newspapers nor stated in the commercial registry that the partnership Hill & Ceron had
been dissolved.
Hill testified that a few days before February 14th he had a conversation with the plaintiff
in the course of which he advised the latter not to deliver shares for sale or on commission
to Ceron because the partnership was about to be dissolved; but what importance can be
attached to said advice if the partnership was not in fact dissolved on February 14th, the
date when the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a commercial association
shall not cause any prejudice to third parties until it has been recorded in the commercial
registry. (See also Cardell vs. Maeru, 14 Phil., 368.) The Supreme Court of Spain held
that the dissolution of a partnership by the will of the partners which is not registered in the
commercial registry, does not prejudice third persons. (Opinion of March 23, 1885.)
Aside from the aforecited legal provisions, the order of the Bureau of Commerce of
December 7, 1933, prohibits brokers from buying and selling shares on their own account.
Said order reads:
The stock and/or bond broker is, therefore, merely an agent or an intermediary, and as
such, shall not be allowed. . . .
(c) To buy or to sell shares of stock or bonds on his own account for purposes of
speculation and/or for manipulating the market, irrespective of whether the purchase or
sale is made from or to a private individual, broker or brokerage firm.
In its decision the Court of Appeals states:
But there is a stronger objection to the plaintiff's attempt to make the firm responsible to
him. According to the articles of copartnership of 'Hill & Ceron,' filed in the Bureau of
Commerce.
Sixth. That the management of the business affairs of the copartnership shall be entrusted
to both copartners who shall jointly administer the business affairs, transactions and
activities of the copartnership, shall jointly open a current account or any other kind of

account in any bank or banks, shall jointly sign all checks for the withdrawal of funds and
shall jointly or singly sign, in the latter case, with the consent of the other partner. . . .
Under this stipulation, a written contract of the firm can only be signed by one of the
partners if the other partner consented. Without the consent of one partner, the other
cannot bind the firm by a written contract. Now, assuming for the moment that Ceron
attempted to represent the firm in this contract with the plaintiff (the plaintiff conceded that
the firm name was not mentioned at that time), the latter has failed to prove that Hill had
consented to such contract.
It follows from the sixth paragraph of the articles of partnership of Hill &n Ceron above
quoted that the management of the business of the partnership has been entrusted to both
partners thereof, but we dissent from the view of the Court of Appeals that for one of the
partners to bind the partnership the consent of the other is necessary. Third persons, like
the plaintiff, are not bound in entering into a contract with any of the two partners, to
ascertain whether or not this partner with whom the transaction is made has the consent
of the other partner. The public need not make inquires as to the agreements had between
the partners. Its knowledge, is enough that it is contracting with the partnership which is
represented by one of the managing partners.
There is a general presumption that each individual partner is an authorized agent for the
firm and that he has authority to bind the firm in carrying on the partnership transactions.
(Mills vs. Riggle, 112 Pac., 617.)
The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of members of the firm acting apparently in its behalf and within the
scope of his authority. (Le Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill & Ceron reads in part:
Second: That the purpose or object for which this copartnership is organized is to engage
in the business of brokerage in general, such as stock and bond brokers, real brokers,
investment security brokers, shipping brokers, and other activities pertaining to the
business of brokers in general.
The kind of business in which the partnership Hill & Ceron is to engage being thus
determined, none of the two partners, under article 130 of the Code of Commerce, may
legally engage in the business of brokerage in general as stock brokers, security brokers
and other activities pertaining to the business of the partnership. Ceron, therefore, could
not have entered into the contract of sale of shares with Litton as a private individual, but
as a managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the partners could not, in
his individual capacity, engage in a transaction similar to that in which the partnership is
engaged without binding the latter, nevertheless there is no law which prohibits a partner
in the stock brokerage business for engaging in other transactions different from those of
the partnership, as it happens in the present case, because the transaction made by
Ceron is a mere personal loan, and this argument, so it is said, is corroborated by the
Court of Appeals. We do not find this alleged corroboration because the only finding of fact
made by the Court of Appeals is to the effect that the transaction made by Ceron with the
plaintiff was in his individual capacity.
sjbprior| 38

The appealed decision is reversed and the defendants are ordered to pay to the plaintiff,
jointly and severally, the sum of P720, with legal interest, from the date of the filing of the
complaint, minus the commission of one-half per cent (%) from the original price of
P1,870, with the costs to the respondents. So ordered.
EN BANC
G.R. No. L-22442

August 1, 1924

ANTONIO PARDO, petitioner,

vs.
THE HERCULES LUMBER CO., INC., and IGNACIO FERRER, respondents.
STREET, J.:
The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc., one
of the respondents herein, seeks by this original proceeding in the Supreme Court to
obtain a writ of mandamus to compel the respondents to permit the plaintiff and his duly
authorized agent and representative to examine the records and business transactions of
said company. To this petition the respondents interposed an answer, in which, after
admitting certain allegations of the petition, the respondents set forth the facts upon which
they mainly rely as a defense to the petition. To this answer the petitioner in turn
interposed a demurrer, and the cause is now before us for determination of the issue thus
presented.
It is inferentially, if not directly admitted that the petitioner is in fact a stockholder in the
Hercules Lumber Company, Inc., and that the respondent, Ignacio Ferrer, as acting
secretary of the said company, has refused to permit the petitioner or his agent to inspect
the records and business transactions of the said Hercules Lumber Company, Inc., at
times desired by the petitioner. No serious question is of course made as to the right of the
petitioner, by himself or proper representative, to exercise the right of inspection conferred
by section 51 of Act No. 1459. Said provision was under the consideration of this court in
the case of Philpotts vs. Philippine Manufacturing Co., and Berry (40 Phil., 471), where we
held that the right of examination there conceded to the stockholder may be exercised
either by a stockholder in person or by any duly authorized agent or representative.
The main ground upon which the defense appears to be rested has reference to the time,
or times, within which the right of inspection may be exercised. In this connection the
answer asserts that in article 10 of the By-laws of the respondent corporation it is declared
that "Every shareholder may examine the books of the company and other documents
pertaining to the same upon the days which the board of directors shall annually fix." It is
further averred that at the directors' meeting of the respondent corporation held on
February 16, 1924, the board passed a resolution to the following effect:

within the ten days thus defined, his right to inspection and examination is lost, at least for
this year.
We are entirely unable to concur in this contention. The general right given by the statute
may not be lawfully abridged to the extent attempted in this resolution. It may be admitted
that the officials in charge of a corporation may deny inspection when sought at unusual
hours or under other improper conditions; but neither the executive officers nor the board
of directors have the power to deprive a stockholder of the right altogether. A by-law
unduly restricting the right of inspection is undoubtedly invalid. Authorities to this effect are
too numerous and direct to require extended comment. (14 C.J., 859; 7 R.C.L., 325; 4
Thompson on Corporations, 2nd ed., sec. 4517; Harkness vs. Guthrie, 27 Utah, 248; 107
Am., St. Rep., 664. 681.) Under a statute similar to our own it has been held that the
statutory right of inspection is not affected by the adoption by the board of directors of a
resolution providing for the closing of transfer books thirty days before an election. (State
vs. St. Louis Railroad Co., 29 Mo., Ap., 301.)
It will be noted that our statute declares that the right of inspection can be exercised "at
reasonable hours." This means at reasonable hours on business days throughout the
year, and not merely during some arbitrary period of a few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the answer of the
respondents calls in question the motive which is supposed to prompt the petitioner to
make inspection; and in this connection it is alleged that the information which the
petitioner seeks is desired for ulterior purposes in connection with a competitive firm with
which the petitioner is alleged to be connected. It is also insisted that one of the purposes
of the petitioner is to obtain evidence preparatory to the institution of an action which he
means to bring against the corporation by reason of a contract of employment which once
existed between the corporation and himself. These suggestions are entirely apart from
the issue, as, generally speaking, the motive of the shareholder exercising the right is
immaterial. (7 R.C.L., 327.)
We are of the opinion that, upon the allegations of the petition and the admissions of the
answer, the petitioner is entitled to relief. The demurrer is, therefore, sustained; and the
writ of mandamus will issue as prayed, with the costs against the respondent. So ordered.
THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
GUTIERREZ, JR., J.:

The board also resolved to call the usual general (meeting of shareholders) for March 30
of the present year, with notice to the shareholders that the books of the company are at
their disposition from the 15th to 25th of the same month for examination, in appropriate
hours.
The contention for the respondent is that this resolution of the board constitutes a lawful
restriction on the right conferred by statute; and it is insisted that as the petitioner has not
availed himself of the permission to inspect the books and transactions of the company

The petitioner asks for the reversal of the decision of the then Intermediate Appellate
Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First
Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung
Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and
ordering the petitioner to pay to the private respondent his share in the annual profits of
the said restaurant.
sjbprior| 39

This case originated from a complaint filed by respondent Leung Yiu with the then Court of
First Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent
(22%) of the annual profits derived from the operation of Sun Wah Panciteria since
October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz,
Manila, was established sometime in October, 1955. It was registered as a single
proprietorship and its licenses and permits were issued to and in favor of petitioner Dan
Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the
trial of the case to show that Sun Wah Panciteria was actually a partnership and that he
was one of the partners having contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private
respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a
receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of the
P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters
so that the trial court commissioned an interpreter in the person of Ms. Florence Yap to
translate its contents into English. Florence Yap issued a certification and testified that the
translation to the best of her knowledge and belief was correct. The private respondent
identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was
affixed by the latter in his (private respondents') presence. Witnesses So Sia and Antonio
Ah Heng corroborated the private respondents testimony to the effect that they were both
present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified
that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery
of his own investment in another amount of P4,000.00 An examination was conducted by
the PC Crime Laboratory on orders of the trial court granting the private respondents
motion for examination of certain documentary exhibits. The signatures in Exhibits "A" and
'D' when compared to the signature of the petitioner appearing in the pay envelopes of
employees of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24)
showed that the signatures in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of
P12,000.00 covered by the latter's Equitable Banking Corporation Check No. 13389470-B
from the profits of the operation of the restaurant for the year 1974. Witness Teodulo Diaz,
Chief of the Savings Department of the China Banking Corporation testified that said
check (Exhibit B) was deposited by and duly credited to the private respondents savings
account with the bank after it was cleared by the drawee bank, the Equitable Banking
Corporation. Another witness Elvira Rana of the Equitable Banking Corporation testified
that the check in question was in fact and in truth drawn by the petitioner and debited
against his own account in said bank. This fact was clearly shown and indicated in the
petitioner's statement of account after the check (Exhibit B) was duly cleared. Rana further
testified that upon clearance of the check and pursuant to normal banking procedure, said
check was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His
evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah
Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in
Clark Field and later as waiter at the Toho Restaurant amounting to a little more than

P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he
was the sole owner of the restaurant, the petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied
having issued to the private respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to that of
the plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive
portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering the latter to deliver and pay to the former, the sum equivalent to 22%
of the annual profit derived from the operation of Sun Wah Panciteria from October, 1955,
until fully paid, and attorney's fees in the amount of P5,000.00 and cost of suit. (p. 125,
Rollo)
The private respondent filed a verified motion for reconsideration in the nature of a motion
for new trial and, as supplement to the said motion, he requested that the decision
rendered should include the net profit of the Sun Wah Panciteria which was not specified
in the decision, and allow private respondent to adduce evidence so that the said decision
will be comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the trial court
rendered an amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by
the plaintiff, which was granted earlier by the Court, is hereby reiterated and the decision
rendered by this Court on September 30, 1980, is hereby amended. The dispositive
portion of said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the
defendant, ordering the latter to pay the former the sum equivalent to 22% of the net profit
of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate
Appellate Court. The questioned decision was further modified by the appellate court. The
dispositive portion of the appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive portion thereof
reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net
profit of P2,000.00 a day from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16,
1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a
day.
sjbprior| 40

Except as modified, the decision of the court a quo is affirmed in all other respects. (p.
102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower
court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading
as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant,
ordering the latter to pay to the former the sum equivalent to 22% of the net profit of
P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial
demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found that the private respondent is a partner of
the petitioner in the setting up and operations of the panciteria. While the dispositive
portions merely ordered the payment of the respondents share, there is no question from
the factual findings that the respondent invested in the business as a partner. Hence, the
two courts declared that the private petitioner is entitled to a share of the annual profits of
the restaurant. The petitioner, however, claims that this factual finding is erroneous. Thus,
the petitioner argues: "The complaint avers that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria,
in return of which private respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private respondent is a partner of the
business. It was, therefore, a serious error for the lower court and the Hon. Intermediate
Appellate Court to grant a relief not called for by the complaint. It was also error for the
Hon. Intermediate Appellate Court to interpret or construe 'financial assistance' to mean
the contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought the financial
assistance of plaintiff in operating the defendant's eatery known as Sun Wah Panciteria,
located in the given address of defendant; as a return for such financial assistance.
plaintiff would be entitled to twenty-two percentum (22%) of the annual profit derived from
the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand
pesos (P4,000.00), Philippine Currency, of which copy for the receipt of such amount, duly
acknowledged by the defendant is attached hereto as Annex "A", and form an integral part
hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that he would be
entitled to twenty-two percent (22%) of the annual profit derived from the operation of the
said panciteria. These allegations, which were proved, make the private respondent and

the petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of
the Civil Code provides that "By the contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention
of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the
private respondent asserted his rights as partner of the petitioner in the establishment of
the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein.
We agree with the appellate court's observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of money to another without the expectation
of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into
a state of destitution. But this circumstance under which the P4,000.00 was given to the
petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that
"as a return for such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the operation of the said
panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the action filed
in court is determined by the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric,
Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was
whether or not the private respondent is a partner of the petitioner in the establishment of
Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative
value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged
standards or specimens used by the PC Crime Laboratory in arriving at the conclusion
were never testified to by any witness nor has any witness identified the handwriting in the
standards or specimens belonging to the petitioner. The supposed standards or
specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as
evidence for the private respondent over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court examined
the signatures in the two receipts issued separately by the petitioner to the private
respondent and So Sia (Exhibits "A" and "D") and compared the signatures on them with
the signatures of the petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24")
of Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual
examination conducted on the questioned documents, the PC Crime Laboratory submitted
its findings (Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A"
and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were
presented by the private respondent for marking as exhibits, the petitioner did not
interpose any objection. Neither did the petitioner file an opposition to the motion of the
private respondent to have these exhibits together with the two receipts examined by the
PC Crime Laboratory despite due notice to him. Likewise, no explanation has been offered
for his silence nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or
ignored. The records sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent
Intermediate Appellate Court gravely erred in not resolving the issue of prescription in
sjbprior| 41

favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was
filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and
twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were ever
made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years from the time the right of
action accrues:

respondent as embodied in his complaint and testimonial evidence presented by said

private respondent to support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent presented the
cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of
the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).

(1) Upon a written contract;

(2) Upon an obligation created by law;

Q Mrs. Witness, you stated that among your duties was that you were in charge of the
custody of the cashier's box, of the money, being the cashier, is that correct?

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

Q
So that every time there is a customer who pays, you were the one who
accepted the money and you gave the change, if any, is that correct?

Art. 1155. The prescription of actions is interrupted when they are filed before the court,
when there is a written extra-judicial demand by the creditor, and when there is any written
acknowledgment of the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites
of a partnership which are 1) two or more persons bind themselves to contribute
money, property, or industry to a common fund; and 2) intention on the part of the partners
to divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao
Cheng, 106 Phil. 110)-have been established. As stated by the respondent, a partner
shares not only in profits but also in the losses of the firm. If excellent relations exist
among the partners at the start of business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible. It would be incorrect to state that if a partner does not assert
his rights anytime within ten years from the start of operations, such rights are irretrievably
lost. The private respondent's cause of action is premised upon the failure of the petitioner
to give him the agreed profits in the operation of Sun Wah Panciteria. In effect the private
respondent was asking for an accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the person
or partnership continuing the business, at the date of dissolution, in the absence or any
agreement to the contrary.
Regarding the prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting
exists as long as the partnership exists. Prescription begins to run only upon the
dissolution of the partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor of the private
respondent for being excessive and unconscionable and above the claim of private

Yes, sir.

Yes.

Q
Now, after 11:30 (P.M.) which is the closing time as you said, what do you do
with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q

So, in other words, after your job, you huddle or confer together?

Yes, count it all. I total it. We sum it up.

Q
Now, Mrs. Witness, in an average day, more or less, will you please tell us, how
much is the gross income of the restaurant?
A For regular days, I received around P7,000.00 a day during my shift alone and during
pay days I receive more than P10,000.00. That is excluding the catering outside the place.
Q What about the catering service, will you please tell the Honorable Court how many
times a week were there catering services?
A Sometimes three times a month; sometimes two times a month or more.
xxx

xxx

xxx

Now more or less, do you know the cost of the catering service?

A Yes, because I am the one who receives the payment also of the catering.
Q

How much is that?

sjbprior| 42

That ranges from two thousand to six thousand pesos, sir.

Per service?

Per service, Per catering.

Q
So in other words, Mrs. witness, for your shift alone in a single day from 3:30
P.M. to 11:30 P.M. in the evening the restaurant grosses an income of P7,000.00 in a
regular day?
A

Yes.

And ten thousand pesos during pay day.?

Yes.

(TSN, pp. 53 to 59, inclusive, November 15,1978)

xxx

xxx

xxx

COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel
waive the cross-examination on the matter of income but he failed to comply with his
promise to produce pertinent records. When a subpoena duces tecum was issued to the
petitioner for the production of their records of sale, his counsel voluntarily offered to bring
them to court. He asked for sufficient time prompting the court to cancel all hearings for
January, 1981 and reset them to the later part of the following month. The petitioner's
counsel never produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded
in the daily sales book. ledgers, journals and for this purpose, employed a bookkeeper.
This inspired the Court to ask counsel for the defendant to bring said records and counsel
for the defendant promised to bring those that were available. Seemingly, that was the
reason why this case dragged for quite sometime. To bemuddle the issue, defendant
instead of presenting the books where the same, etc. were recorded, presented witnesses
who claimed to have supplied chicken, meat, shrimps, egg and other poultry products
which, however, did not show the gross sales nor does it prove that the same is the best
evidence. This Court gave warning to the defendant's counsel that if he failed to produce
the books, the same will be considered a waiver on the part of the defendant to produce
the said books inimitably showing decisive records on the income of the eatery pursuant to
the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse
if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process to the
petitioner.

The defendant was given all the chance to present all conceivable witnesses, after the
plaintiff has rested his case on February 25, 1981, however, after presenting several
witnesses, counsel for defendant promised that he will present the defendant as his last
witness. Notably there were several postponement asked by counsel for the defendant
and the last one was on October 1, 1981 when he asked that this case be postponed for
45 days because said defendant was then in Hongkong and he (defendant) will be back
after said period. The Court acting with great concern and understanding reset the hearing
to November 17, 1981. On said date, the counsel for the defendant who again failed to
present the defendant asked for another postponement, this time to November 24, 1981 in
order to give said defendant another judicial magnanimity and substantial due process. It
was however a condition in the order granting the postponement to said date that if the
defendant cannot be presented, counsel is deemed to have waived the presentation of
said witness and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila said date was declared
a partial non-working holiday, so much so, the hearing was reset to December 7 and 22,
1981. On December 7, 1981, on motion of defendant's counsel, the same was again reset
to December 22, 1981 as previously scheduled which hearing was understood as
intransferable in character. Again on December 22, 1981, the defendant's counsel asked
for postponement on the ground that the defendant was sick. the Court, after much
tolerance and judicial magnanimity, denied said motion and ordered that the case be
submitted for resolution based on the evidence on record and gave the parties 30 days
from December 23, 1981, within which to file their simultaneous memoranda. (Rollo, pp.
148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the
Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the trial
court, it is in the heart of Chinatown where people who buy and sell jewelries,
businessmen, brokers, manager, bank employees, and people from all walks of life
converge and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the trial court
and the appellate court. If the respondent court awarded damages only from judicial
demand in 1978 and not from the opening of the restaurant in 1955, it is because of the
petitioner's contentions that all profits were being plowed back into the expansion of the
business. There is no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify the factual
findings of both the trial court and the appellate court, it cannot refer to any portion of the
records for such modification. There is no basis in the records for this Court to change or
set aside the factual findings of the trial court and the appellate court. The petitioner was
given every opportunity to refute or rebut the respondent's submissions but, after
promising to do so, it deliberately failed to present its books and other evidence.
The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's
obligation shows that the same continues until fully paid. The question now arises as to
whether or not the payment of a share of profits shall continue into the future with no fixed
ending date.
Considering the facts of this case, the Court may decree a dissolution of the partnership
under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
sjbprior| 43

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying
on of the business;
(4) A partner willfully or persistently commits a breach of the partnership agreement, or
otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with him;
xxx xxx xxx

On April 22, 1961, the defendant company, a general partnership duly registered under
the laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment
basis and for this purpose executed a promissory note for P9,440.00, payable in twelve
(12) equal monthly installments of P786.63, the first installment payable on or before May
22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until
fully paid, with the condition that failure to pay any of said installments as they fall due
would render the whole unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the
defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco,
Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included
as co-defendants in their capacity as general partners of the defendant company.

(6) Other circumstances render a dissolution equitable.

Daniel A. Guizona failed to file an answer and was consequently declared in default. 1
There shall be a liquidation and winding up of partnership affairs, return of capital, and
other incidents of dissolution because the continuation of the partnership has become
inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision
of the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved.

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the
defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their counsels failed to appear
notwithstanding the notices sent to them. Consequently, the trial court authorized the
plaintiff to present its evidence ex-parte 3 , after which the trial court rendered the decision
appealed from.

SO ORDERED.
SECOND DIVISION
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants.
BENJAMIN C. DACO, defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the
Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive
portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General Construction
Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum
until it is fully paid, plus attorney's fees which the Court fixes in the sum of Eight Hundred
Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc
are sentenced to pay the plaintiff in this case with the understanding that the judgment
against these individual defendants shall be enforced only if the defendant company has
no more leviable properties with which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision
claiming that since there are five (5) general partners, the joint and subsidiary liability of
each partner should not exceed one-fifth ( 1/ 5 ) of the obligations of the defendant
company. But the trial court denied the said motion notwithstanding the conformity of the
plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the
obligations of the defendant company. 4 Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint to favor one
of the general partners of a partnership increases the joint and subsidiary liability of each
of the remaining partners for the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts which
may be entered into in the name and for the account of the partnership, under its signature
and by a person authorized to act for the partnership. However, any partner may enter into
a separate obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as distinguished from a mercantile
partnership. Being a civil partnership, by the express provisions of articles l698 and 1137
of the Civil Code, the partners are not liable each for the whole debt of the partnership.
The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for only onehalf of the debt. The fact that the other partner, Jaime Palacios, had left the country cannot
increase the liability of Pedro Yulo.
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In the instant case, there were five (5) general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only
one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the complaint
against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff,
does not unmake the said Lumauig as a general partner in the defendant company. In so
moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual
liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without
pronouncement as to costs.
SO ORDERED.

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