Article 1767

THIRD DIVISION
[G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide
the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partners,
they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf,
but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of
Appeals in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as
follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by
reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date
of attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount
of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted that these items were
attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to
avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less
than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was
deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by
the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own
properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty

damages to defendants to be cancelled and for theP900,000.00 cash bidded and paid for by plaintiff to serve as its bond in
favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be
satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the
total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to
award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the
amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants
are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff
to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with
the Clerk of Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7,
1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000
were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit
against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against
the three in their capacities as general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission. [5] On September 20, 1990, the lower
court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B
Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time
within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an
Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his
behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. [6] The trial court maintained the Writ, and
upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries
won the bidding and deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled
to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by the three[9] in Civil Case No. 1492-MN which Chua and Yao had
brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. [10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including
the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation
and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will
be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid
to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability
could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus
be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court
ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is x x x. By a 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 (Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND
PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the
Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership.
This Courts Ruling
The Petition is devoid of merit.
First and Second Issues: Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA
finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the
Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the
negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated
February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership -- the fishing
boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the
boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that
there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:
Article 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.
Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua
was already Yaos partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and
the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor
of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses for the
boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of P1 million
secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady
Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of
which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioners brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution to
such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any
loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed
formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and
the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the
fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the
foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. [16] In assailing the factual findings of the two lower courts, petitioner effectively
goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the Compromise
Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their
preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship
extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that
the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the

RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law,
logic and fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argument that the
existence of a partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao, not a partner
in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that
he was the owner of the boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to
pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what
petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts
were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their
loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who
in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did not incur, if
the relationship among the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and
not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so
shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that
there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying
its corporate existence. The reason behind this doctrine is obvious - an unincorporated association has no personality and
would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an
agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all
the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed
as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity
in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be
sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the

alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The
only question here is whether petitioner should be held jointly[18] liable with Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held
liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been
proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits
of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court
in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and
position , entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of
procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of
Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and
that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the
floats were specifically manufactured and tailor-made according to their own design, and were bought and used in the fishing
venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is
proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
[18]

The liability is joint if it is not specifically stated that it is solidary, Maramba v. Lozano, 126 Phil 833, June 29, 1967, per
Makalintal, J. See also Article 1207 of the Civil Code, which provides: The concurrence of two or more creditors or of two or
more debtors in one [and] the same obligation does not imply that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity.
FIRST DIVISION
[G.R. No. L-9996. October 15, 1957.]

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA and FRANCISCA EVANGELISTA, Petitioners, v. THE COLLECTOR
OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, Respondents.
SYLLABUS
1. TAXATION; TAX ON CORPORATIONS INCLUDES ORGANIZATION WHICH ARE NOT NECESSARY PARTNERSHIP.
"Corporations" strictly speaking are distinct and different from "partnership." When our Internal Revenue Code includes
"partnership" among the entities subject to the tax on "corporations", it must be allude to organization which are not necessarily
"partnership" in the technical sense of the term.
2. ID.; DULY REGISTERED GENERAL PARTNERSHIP ARE EXEMPTED FROM THE TAX UPON CORPORATIONS.
Section 24 of the Internal Revenue Code exempts from the tax imposed upon corporations "duly registered general
partnership", which constitute precisely one of the most typical form of partnership in this jurisdiction.
3. ID.; CORPORATION INCLUDES PARTNERSHIP NO MATTER HOW ORGANIZED. As defined in section 84 (b) of the
Internal Revenue Code "the term corporation includes partnership, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be undertaken in any of the standards form, or conformity with the
usual requirements of the law on partnerships, in order that one could be deemed constituted for the purposes of the tax on
corporations.
4. ID.; CORPORATIONS INCLUDES "JOINT ACCOUNT" AND ASSOCIATIONS WITHOUT LEGAL PERSONALITY.
Pursuant to Section 84 (b) of the Internal Revenue Code, the term "corporations" includes, among the others, "joint accounts
(cuenta en participacion)" and "associations", none of which has a legal personality of its own independent of that of its
members. For purposes of the tax on corporations, our National Internal Revenue Code includes these partnership. with the
exception only of duly registered general partnership. within the purview of the term "corporations." Held: That the
petitioners in the case at bar, who are engaged in real estate transactions for monetary gain and divide the same among
themselves, constitute a partnership, so far as the said Code is concerned, and are subject to the income tax for the
corporation.
5. ID.; CORPORATION; PARTNERSHIP WITHOUT LEGAL PERSONALITY SUBJECT TO RESIDENCE TAX ON
CORPORATION. The pertinent part of the provision of Section 2 of Commonwealth Act No. 465 which says: "The term
corporation as used in this Act includes joint-stock company, partnership, joint account (cuentas en participacion), association
or insurance company, no matter how created or organized." is analogous to that of Section 24 and 84 (b) of our Internal
Revenue Code which was approved the day immediately after the approval of said Commonwealth Act No. 565. Apparently,
the terms "corporation" and "Partnership" are used both statutes with substantially the same meaning, Held: That the
petitioners are subject to the residence tax corporations.

DECISION
This is a petition, filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of the
Court of Tax Appeals, the dispositive part of which reads:jgc:chanrobles.com.ph
"FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate dealers tax and the

residence tax for the years 1945 to 1949, inclusive, in accordance with the respondents assessment for the same in the total
amount of P6,878.34, which is hereby affirmed and the petition for review filed by petitioners is hereby dismissed with costs
against petitioners."cralaw virtua1aw library
It appears from the stipulation submitted by the parties:jgc:chanrobles.com.ph
"1. That the petitioners borrowed from their father the sum of P59,140.00 which amount together with their personal monies
was used by them for the purpose of buying real properties;
"2. That on February 2, 1943 they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq. m. including
improvements thereon for the sum of P100,000.00; this property has an assessed value of P57,517.00 as of 1948;
"3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of 3,718.40 sq. m.
including improvements thereon for P18,000.00; this property has an assessed value of P8,255.00 as of 1948;
"4. That on April 23, 1944 they purchased from the Insular Investments, Inc., a lot of 4,358 sq. m. including improvements
thereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1943;
"5. That on April 28, 1944 they bought from Mrs. Valentin Afable a lot of 8,371 sq. m. including improvements thereon for
P237,234.14. This property has an assessed value of P59,140.00 as of 1948;
"6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to manage their properties
with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits against
the defaulting tenant; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks
for them;
"7. That after having bought the above-mentioned real properties, the petitioners had the same rented or leased to various
tenants;
"8. That from the month of March, 1945 up to and including December, 1945, the total amount collected as rents on their real
properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33;
"9. That in 1946, they realized a gross rental income in the sum of P24,786.30, out of which amount was deducted the sum of
P16,288.27 for expenses thereby leaving them a net rental income of P7,498.13;
"10. That in 1948 they realized a gross rental income of P17,453.00 out of the which amount was deducted the sum of
P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35."cralaw virtua1aw library
It further appears that on September 24, 19a4, respondent Collector of Internal Revenue demanded the payment of income
tax on corporations, real estate dealers fixed tax and corporation residence tax for the years 1945-1949, computed, according
to the assessments made by said officer, as follows:chanrob1es virtual 1aw library
INCOME TAXES
1945. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P614.84
1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,144.71
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .910.34
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,912.30
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,575.90
_____________

Total including surcharge and compromise

P6,157.09

fund, with the intention of dividing the profits among themselves."cralaw virtua1aw library

REAL ESTATE DEALERS FIXED TAX

Pursuant to this article, 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, because:chanrob1es virtual 1aw library

1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P37.50
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150.00
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150.00
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150.00
____________
Total including penalty
P527.50

1. Said common fund was not something they found already in existence. It was not a property inherited by them pro indiviso.
They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to establish said common
fund.

RESIDENCE TAXES OF CORPORATION

1945. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P38.75
1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38.75
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38.75
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38.75
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38.75
______________
Total including surcharge
TOTAL TAXES DUE

2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a
lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.000. This was soon followed, on April 23, 1944, by
the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14.
The number of lots (24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and
preservation of the aforementioned common fund or even of the property acquired by petitioners in February, 1943. In other
words, one cannot but perceive a character of habituality peculiar to business transactions engaged in for purposes of gain.

P193.75
P6,878.34

Said letter of demand and the corresponding assessments were delivered to petitioners on December 3, 1954, whereupon
they instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained in his
letter of demand dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes in
question, with costs against the Respondent.
After appropriate proceedings, the Court of Tax Appeals rendered the above-mentioned decision for the respondent, and, a
petition for reconsideration and new trial having been subsequently denied, the case is now before Us for review at the
instance of the petitioners.
The issue in this case is 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, as well as to the residence tax for corporations and the
real estate dealers fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the terms
"corporation" and "partnership", as used in sections 24 and 84 of said Code, the pertinent parts of which
read:jgc:chanrobles.com.ph
"SEC. 24. Rate of tax on corporations. There shall be levied, assessed, collected, and paid annually upon the total net
income received in the preceding taxable year from all sources by every corporation organized in, or existing under the laws of
the Philippines, no matter how created or organized but not including duly registered general co-partnerships (compaias
colectivas), a tax upon such income equal to the sum of the following: . . . ."cralaw virtua1aw library
"Sec. 84(b). The term corporation includes partnerships, no matter how created or organized, joint-stock companies, joint
accounts (cuentas en participacion), associations or insurance companies, but does not include duly registered general
copartnerships (compaias colectivas)."cralaw virtua1aw library
Article 1767 of the Civil Code of the Philippines provides:jgc:chanrobles.com.ph
"By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common

3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties
were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of
rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties have been under the management of one person, namely, Simeon Evangelista, with full
power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes
and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation or
business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the first
property was acquired, and over twelve (12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to,
or on the causes for its continued existence. They did not even try to offer an explanation therefor.
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. Only one or
two of the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those cases are
not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts performed by them, a
legal entity, with a personality independent of that of its members, did not come into existence, and some of the characteristics
of partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court of Tax Appeals.
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 other, "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 copartner ships" 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." It may not be amiss to add that petitioners allegation to the effect that their liability in connection with the
leasing of the lots above referred to, under the management of one person even if true, on which we express no opinion
tends to increase the similarity between the nature of their venture and that of corporations, and is, therefore, an additional
argument in favor of the imposition of said tax on corporations.

"The term corporation as used in this Act includes joint-stock company, partnership, joint account (cuentas en participacion),
association or insurance company, no matter how created or organized." (italics ours.)

Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from "partnerships." By specific
provision of said laws, such "corporations" include "associations, joint-stock companies and insurance companies." However,
the term "association" is not used in the aforementioned laws

"Real estate dealer includes any person engaged in the business of buying, selling, exchanging, leasing, or renting property
or his own account as principal and holding himself out as a full or part- time dealer in real estate or as an owner of rental
property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year. . . . ." (Italics
ours.)

". . . in any narrow or technical sense. It includes any organization, created for the transaction of designated affairs, or the
attainment of some object, which, like a corporation, continues notwithstanding that its members or participants change, and
the affairs of which, like corporate affairs, are conducted by a single individual, a committee, a board, or some other group,
acting in a representative capacity. It is immaterial whether such organization is created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a voluntary association, a joint-stock corporation or company, a business trusts a
Massachusetts trust, a common law trust, and investment trust (whether of the fixed or the management type), an
interinsurance exchange operating through an attorney in fact, a partnership association, and any other type of organization
(by whatever name known) which is not, within the meaning of the Code, a trust or an estate, or a partnership." (7A Mertens
Law of Federal Income Taxation, p. 788; italics ours.)
Similarly, the American Law.
". . . provides its own concept of a partnership. Under the term partnership it includes not only a partnership as known at
common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated organization which carries on any
business, financial operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a corporation. . . .
." (7A Mertens Law of Federal Income Taxation, p. 789; italics ours.)
"The term partnership includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by
means of which any business, financial operation, or venture is carried on, . . . ." (8 Mertens Law of Federal Income Taxation,
p. 562 Note 63; italics ours.)
For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships with the
exception only of duly registered general copartnerships 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.
As regards the residence tax for corporations, section 2 of Commonwealth Act No. 465 provides in part:jgc:chanrobles.com.ph
"Entities liable to residence tax. Every corporation, no matter how created or organized, whether domestic or resident
foreign, engaged in or doing business in the Philippines shall pay an annual residence tax of five pesos and an annual
additional tax which, in no case, shall exceed one thousand pesos, in accordance with the following schedule: . . .

Considering that the pertinent part of this provision is analogous to that of sections 24 and 84(b) of our National Internal
Revenue Code (Commonwealth Act No. 466), and that the latter was approved on June 15, 1939, the day immediately after
the approval of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" and "partnership"
are used in both statutes with substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax
for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the properties above mentioned for a period of
over twelve years, and that the yearly gross rentals of said properties from 1945 to 1948 ranged from P9,599 to P17,453.
Thus, they are subject to the tax provided in section 193 (q) of our National Internal Revenue Code, for "real estate dealers,"
inasmuch as, pursuant to section 194(s) thereof:jgc:chanrobles.com.ph

Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed with costs against the petitioners herein. It is
so ordered.

Separate Opinions
BAUTISTA ANGELO, J., concurring:chanrob1es virtual 1aw library
I agree with the opinion that petitioners have actually contributed money to a common fund with express purpose of engaging
in real estate business for profit. The series of transactions which they had undertaken attest to this. This appears in the
following portion of of the decision:jgc:chanrobles.com.ph
"2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a
lot for P100,000. On April 3, 1944, they purchased 21 lots for P18,000. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The
number of lots (24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the last
three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and preservation
of the afore-mentioned common fund or even of the property acquired by petitioner in February, 1943. In other words, one
cannot but perceive a character of habituality peculiar to business transactions engaged in for purposes of gain."cralaw
virtua1aw library
I wish however to make the following observation: Article 1769 of the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3,
provides:jgc:chanrobles.com.ph
"(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or
do not share any profits made by the use of the property;

"(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the returns are derived;"
From the above it appears that the fact that those who agree to form a co-ownership share or do not share any profits made by
the use of the property held in common does not convert their venture into a partnership Or the sharing of the gross returns
does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in
the property. This only means that, aside from the circumstance of profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical personality different from
that of the individual partners, and the freedom to transfer or assign any interest in the property by one with the consent of the
others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636).
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in the
absence of other circumstances showing a contrary intention cannot be considered a partnership.
"Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself
which the proceeds derived." (Elements of the law of Partnership by Floyd R. Mechem, 2n Ed., section 83, p. 74.)
"A joint purchase of land, by two, does not constitute a copartnership in respect thereto; nor does an agreement to share the
profits and losses on the sale of land create a partnership; the parties are only tenants in common." (Clark v. Sideway, 142 U.
S. 682, 12 S. Ct. 327, 35 L. Ed., 1157.)
"Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common,
and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiffs commissions, no
partnership existed as between the three parties, whatever their relation may have been as to third parties." (Magee v. Magee,
123 N. E. 673, 233 Mass. 341.)
"In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally a participating in
both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party to
make contract, manage the business, and dispose of the whole property." (Municipal Paving Co. v. Herring, 150 P. 1067, 50 Ill.
470.)
"The common ownership of property does not itself create a partnership between the owners, though they may use it for
purpose of making gains; and they may, without becoming partners, agree among themselves as to the management and use
of such property and the application of the proceeds therefrom." (Spurlock v. Wilson, 142 S. W. 363, 160 No. App. 14.)
This is impliedly recognized in the following portion of the decision: "Although, taken singly, they might not suffice to establish
the intent necessary to constitute a partnership, the collective effect of these circumstances (referring to the series of
transactions) such as to leave no room for doubt on the existence of said intent in petitioners herein."
FIRST DIVISION
[G.R. No. L-49982. April 27, 1988.]

ELIGIO ESTANISLAO, JR., Petitioner, v. THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO
SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; FORMED WHERE MEMBERS OF THE SAME FAMILY
BOUND THEMSELVES TO CONTRIBUTE MONEY TO A COMMON FUND WITH THE INTENTION OF DIVIDING THE
PROFITS AMONG THEMSELVES. The Joint Affidavit of April 11, 1966 (Exhibit A), clearly stipulated by the members of the
same family that the P15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in the
operation of the gasoline station. Moreover other evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of private respondent Remedios Estanislao and Atty.
Angeles. Petitioner submitted to private respondents periodic accounting of the business. Petitioner gave a written authority to
private respondent Remedios Estanislao, his sister, to examine and audit the books of their "common business" (aming
negosyo). Respondent Remedios assisted in the running of the business. There is no doubt that the parties hereto formed a
partnership when they bound themselves to contribute money to a common fund with the intention of dividing the profits
among themselves.
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF APPEALS, GENERALLY CONCLUSIVE ON
APPEAL. The findings of facts of the respondent court are conclusive in this proceeding, and its conclusion based on the
said facts are in accordance with the applicable law.

DECISION
By this petition for certiorari the Court is asked to determine if a partnership exists between members of the same family
arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of Annapolis and
Aurora Blvd., Quezon City which were then being leased to the Shell Company of the Philippines Limited (SHELL). They
agreed to open and operate a gas station thereat to be known as Estanislao Shell Service Station with an initial investment of
P15,000.00 to be taken from the advance rentals due to them from SHELL for the occupancy of the said lots owned in
common by them. A joint affidavit was executed by them on April 11, 1966 which was prepared by Atty. Democrito Angeles. 1
They agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the
family. They negotiated with SHELL. For practical purposes and in order not to run counter to the companys policy of
appointing only one dealer, it was agreed that petitioner would apply for the dealership. Respondent Remedios helped in comanaging the business with petitioner from May 3, 1968 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated
that the P15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a
proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the business to private respondents, but
thereafter petitioner failed to render subsequent accounting. Hence through Atty. Angeles, a demand was made on petitioner to

render an accounting of the profits.

The financial report of December 31, 1968 shows that the business was able to make a profit of P87,293.79 and that by the
year ending 1969, a profit of P150,000.00 was realized. 3

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly committed by the trial
court. In due course, a decision was rendered by the Court of Appeals on November 28, 1978 affirming in toto the decision of
the lower court with costs against petitioner. **

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against petitioner saying
among others that the latter be ordered:jgc:chanrobles.com.ph

A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not satisfied therewith, the
petitioner now comes to this court by way of this petition for certiorari alleging that the respondent court
erred:jgc:chanrobles.com.ph

"1. to execute a public document embodying all the provisions of the partnership agreement entered into between plaintiffs and
defendants provided in Article 1771 of the New Civil Code;

"1. In interpreting the legal import of the Joint Affidavit (Exh. "A") vis-a-vis the Additional Cash Pledge Agreement (Exhs. "B-2,"
"6," and "L"); and

"2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to December 21, 1968
and from January 1, 1969 up to the time the order is issued and that the same be subject to proper audit;

2. In declaring that a partnership was established by and among the petitioner and the private respondents as regards the
ownership and/or operation of the gasoline service station business."cralaw virtua1aw library

"3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an amount of no less than
P150,000.00 with interest at the rate of 1% per month from date of demand until full payment thereof for the entire duration of
the business; and

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the Additional Cash Pledge
Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced (a) The joint Affidavit of April 11, 1966, Exhibit A reads:jgc:chanrobles.com.ph

"4. to pay the plaintiffs the amount of P10,000.00 as attorneys fees and costs of the suit." (pp. 13-14 Record on Appeal.)"
After trial on the merits, on October 15, 1975, Hon. Lino Anover, who was then the temporary presiding judge of Branch IV of
the trial court, rendered judgment dismissing the complaint and counterclaim and ordering private respondents to pay
petitioner P3,000.00 attorneys fee and costs. Private respondent filed a motion for reconsideration of the decision. On
December 1, 1975, Hon. Ricardo Tensuan who was the newly appointed presiding judge of the same branch, set aside the
aforesaid decision and rendered another decision in favor of said respondents.chanroblesvirtualawlibrary
The dispositive part thereof reads as follows:chanrob1es virtual 1aw library
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new judgment is hereby
rendered in favor of the plaintiffs and as against the defendant:chanrob1es virtual 1aw library
(1) Ordering the defendant to execute a public instrument embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendant as provided for in Article 1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up to the time this order is
issued, the same to be subject to examination and audit by the plaintiff;
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of the business in the amount
of P150,000.00, with interest thereon at the rate of One (1%) Per Cent per month from date of demand until full payment
thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P5,000.00 by way of attorneys fees of plaintiffs counsel; as well as
the costs of suit." (pp. 161-162. Record on Appeal)."cralaw virtua1aw library

"(1) That we are the Lessors of two parcels of land fully described in Transfer Certificates of Title Nos. 45071 and 71244 of the
Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED, a corporation
duly licensed to do business in the Philippines;
"(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINES LIMITED, advanced rentals in the total
amount of FIFTEEN THOUSAND PESOS (P15,000.00) Philippine Currency, so that we can use the said amount to augment
our capital investment in the operation of that gasoline station constructed by the said company on our two lots aforesaid by
virtue of an outstanding Lease Agreement we have entered into with the said company.
"(3) That the said SHELL COMPANY OF THE PHILIPPINES LIMITED out of its benevolence and desire to help us in
augmenting our capital investment in the operation of the said gasoline station, has agreed to give us the said amount of
P15,000.00, which amount will partake the nature of ADVANCED RENTALS;
"(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN THOUSAND PESOS
(P15,000,00) from the SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be
applied as monthly rentals for the said two lots under our Lease Agreement starting on the 25th of May, 1966 until such time
that the said amount of P15,000.00 be applicable, which time to our estimate will cover at four and one-half months from May
25, 1966 or until the 10th of October, 1966 more or less;
"(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES LIMITED execute an
instrument for us to sign embodying our conformity that the said amount that it will generously grant us as requested be
applied as ADVANCED RENTALS; and
"(6) FURTHER AFFIANTS SAYETH NOT.

(b) The Additional Cash Pledge Agreement of May 20, 1966, Exhibit 6, is as follows:jgc:chanrobles.com.ph
"WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66,
Book Nos. V & 111, Series of 1963 in the Notarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag,
respectively) executed in favour of SHELL by the herein CO-OWNERS and another Lease Agreement dated 19th March
1964 . . . also executed in favour of SHELL by CO-OWNERS Remedios and MARIA ESTANISLAO for the lessee of adjoining
portions of two parcels of land at Aurora Blvd., Annapolis, Quezon City, the CO-OWNERS RECEIVE a total monthly rental of
PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P3,382.29), Philippine Currency;
"WHEREAS, CO-OWNER Eligio Estanislao, Jr. is the Dealer of the Shell Station constructed on the leased land, and as
Dealer under the Cash Pledge Agreement dated 11th May 1966, he deposited to SHELL in cash the amount of PESOS TEN
THOUSAND (P10,000), Philippine Currency, to secure his purchases on credit of Shell petroleum
products; . . .chanroblesvirtualawlibrary
"WHEREAS, said DEALER, in his desire to be granted an increased credit limit up to P25,000, has secured the conformity of
his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of them to accumulate the equivalent
amount of P15,000, commencing 24th May 1966, this P15,000 shall be treated as additional cash deposit to SHELL under the
same terms and conditions of the aforementioned Cash Pledge Agreement dated 11th May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the mutual covenants among the CO-OWNERS
herein and SHELL, said parties have agreed and hereby agree as follows:jgc:chanrobles.com.ph
"1. The CO-OWNERS do hereby waive in favour of DEALER the monthly rentals due to all CO-OWNERS, collectively, under
the above described two Lease Agreements, one dated 13th November 1963 and the other dated 19th March 1964 to enable
DEALER to increase his existing cash deposit to SHELL, from P10,000 to P25,000, for such purpose, the SHELL COOWNERS and DEALER hereby irrevocably assign to SHELL the monthly rental of P3,382.29 payable to them respectively as
they fall due, monthly, commencing 24th May 1966, until such time that the monthly rentals accumulated, shall be equal to
P15,000.
"2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by DEALER to SHELL, thereby
increasing his credit limit from P10,000 to P25,000. This agreement, therefore, cancels and supersedes the Joint Affidavit
dated 11 April 1966 executed by the CO-OWNERS.
"3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from SHELL petroleum
products, on credit, up to the amount of P25,000.

In the subsequent document entitled `Additional Cash Pledge Agreement" above reproduced (Exhibit 6), the private
respondents and petitioners assigned to SHELL the monthly rentals due them commencing the 24th of May 1966 until such
time that the monthly rentals accumulated equal P15,000.00 which private respondents agree to be a cash deposit of
petitioner in favor of SHELL to increase his credit limit as dealer. As above-stated it provided therein that "This agreement,
therefore, cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."cralaw virtua1aw
library
Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint Affidavit, whatever
partnership agreement there was in said previous agreement had thereby been abrogated. We find no merit in this argument.
Said cancelling provision was necessary for the Joint Affidavit speaks of P15,000.00 advance rentals starting May 25, 1966
while the latter agreement also refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a
duplication of reference to the P15,000.00 hence the need to provide in the subsequent document that it "cancels and
supersedes" the previous one. True it is that in the latter document, it is silent as to the statement in the Joint Affidavit that the
P15,000.00 represents the "capital investment" of the parties in the gasoline station business and it speaks of petitioner as the
sole dealer, but this is as it should be for in the latter document SHELL was a signatory and it would be against its policy if in
the agreement it should be stated that the business is a partnership with private respondents and not a sole proprietorship of
petitioner.chanrobles.com:cralaw:red
Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is
attested by the testimonies of private respondent Remedios Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business. 4 Petitioner gave a written authority to private respondent Remedios
Estanislao, his sister, to examine and audit the books of their "common business" (aming negosyo). 5 Respondent Remedios
assisted in the running of the business. There is no doubt that the parties hereto formed a partnership when they bound
themselves to contribute money to a common fund with the intention of dividing the profits among themselves. 6 The sole
dealership by the petitioner and the issuance of all government permits and licenses in the name of petitioner was in
compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of the SHELL
products.
Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion based on the said
facts are in accordance with the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This decision is immediately
executory and no motion for extension of time to file a motion for reconsideration shall be entertained.
SO ORDERED.
THIRD DIVISION

"4. This increase in the credit limit shall also be subject to the same terms and conditions of the above-mentioned Cash Pledge
Agreement dated 11th May 1966." (Exhs. "B-2," "L," and "6" ; Italics supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P15,000.00 advance
rental due to them from SHELL shall augment their "capital investment" in the operation of the gasoline station, which advance
rentals shall be credited as rentals from May 25, 1966 up to four and one-half months or until 10 October 1966, more or less
covering said P15,000.00.

G.R. No. 172690

HEIRS OF JOSE LIM,

represented by ELENITO LIM,
Petitioners,

- versus -

Present:
CORONA, J.,
Chairperson,
VELASCO, JR.,
NACHURA,
DEL CASTILLO,* and

MENDOZA, JJ.
Promulgated:
March 3, 2010

JULIET VILLA LIM,

Respondent.

x------------------------------------------------------------------------------------x
DECISION
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Civil Procedure, assailing the Court of
Appeals (CA) Decision[2] dated June 29, 2005, which reversed and set aside the decision [3] of the Regional Trial Court (RTC)
of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad (Cresencia); and their children
Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They filed a
Complaint[4] for Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo
Lim (Elfledo), who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980,
Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the trucking
business. Initially, with a contribution of P50,000.00 each, they purchased a truck to be used in the hauling and transport of
lumber of the sawmill. Jose managed the operations of this trucking business until his death on August 15, 1981. Thereafter,
Jose's heirs, including Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in
the partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority
for Elfledo to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as his fathers driver in the trucking
business. He was never a partner or an investor in the business and merely supervised the purchase of additional trucks
using the income from the trucking business of the partners. By the time the partnership ceased, it had nine trucks, which
were all registered in Elfledo's name. Petitioners asseverated that it was also through Elfledos management of the partnership
that he was able to purchase numerous real properties by using the profits derived therefrom, all of which were registered in
his name and that of respondent. In addition to the nine trucks, Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that respondent took over
the administration of the aforementioned properties, which belonged to the estate of Jose, without their consent and approval.
Claiming that they are co-owners of the properties, petitioners required respondent to submit an accounting of all income,
profits and rentals received from the estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus,
the filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and
Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00 as the
latter's capital in an informal partnership with Jimmy and Norberto. When Elfledo and respondent got married in 1981, the

partnership only had one truck; but through the efforts of Elfledo, the business flourished. Other than this trucking business,
Elfledo, together with respondent, engaged in other business ventures. Thus, they were able to buy real properties and to put
up their own car assembly and repair business. When Norberto was ambushed and killed on July 16, 1993, the trucking
business started to falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy and to the
heirs of Norberto, as she could no longer run the business. Jimmy suggested that three out of the nine trucks be given to him
as his share, while the other three trucks be given to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not
interested in the vehicles. Thus, she sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with Jimmy and Norberto
ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could have held in trust.
Respondent maintained that all the properties involved in this case were purchased and acquired through her and her
husbands joint efforts and hard work, and without any participation or contribution from petitioners or from Jose. Respondent
submitted that these are conjugal partnership properties; and thus, she had the right to refuse to render an accounting for the
income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and heirs of
Jose Lim and the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by her
from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners' complaint for lack of merit.
Undaunted, petitioners filed their Motion for Reconsideration, [5] which the CA, however, denied in its Resolution [6] dated May 8,
2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES, CAN
THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?[7]

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner, Elfledo was not a partner;
and that he and Norberto entered into a partnership with Jose. Thus, the CA erred in not giving that testimony greater weight
than that of Cresencia, who was merely the spouse of Jose and not a party to the partnership. [8]

10

Respondent counters that the issue raised by petitioners is not proper in a petition for review on certiorari under Rule 45 of the
Rules of Civil Procedure, as it would entail the review, evaluation, calibration, and re-weighing of the factual findings of the CA.
Moreover, respondent invokes the rationale of the CA decision that, in light of the admissions of Cresencia and Edison and the
testimony of respondent, the testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's findings
was fully justified.[9]
We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual issues an exercise that is not
appropriate for a petition for review on certiorari under Rule 45. This rule provides that the parties may raise only questions of
law, because the Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze again and weigh the
evidence introduced in and considered by the tribunals below. [10] When supported by substantial evidence, the findings of fact
of the CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls under any of
the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or
business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. A contract
of partnership is defined by the Civil Code as one where 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.[12]
Undoubtedly, the best evidence would have been the contract of partnership or the articles of partnership. Unfortunately, there
is none in this case, because the alleged partnership was never formally organized. Nonetheless, we are asked to determine
who between Jose and Elfledo was the partner in the trucking business.
A careful review of the records persuades us to affirm the CA decision. The evidence presented by petitioners falls short of the
quantum of proof required to establish that: (1) Jose was the partner and not Elfledo; and (2) all the properties acquired by
Elfledo and respondent form part of the estate of Jose, having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against respondent. It must be
considered and weighed along with petitioners' other evidence vis--vis respondent's contrary evidence. In civil cases, the party
having the burden of proof must establish his case by a preponderance of evidence. "Preponderance of evidence" is the
weight, credit, and value of the aggregate evidence on either side and is usually considered synonymous with the term
"greater weight of the evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a phrase that, in
the last analysis, means probability of the truth. It is evidence that is more convincing to the court as worthy of belief than that
which is offered in opposition thereto. [13] Rule 133, Section 1 of the Rules of Court provides the guidelines in determining
preponderance of evidence, thus:

(8) When the findings of fact are conclusions without citation of specific evidence on which they are
based;

SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden of
proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may consider all the
facts and circumstances of the case, the witnesses' manner of testifying, their intelligence, their means
and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of interest, and also their
personal credibility so far as the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not necessarily with the greater
number.

(9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs are not
disputed by the respondents; and

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals [14] is enlightening. Therein, we cited Article
1769 of the Civil Code, which provides:

(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;

(10) When the findings of fact of the Court of Appeals are premised on the supposed absence of
evidence and contradicted by the evidence on record.[11]

Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners
as to third persons;

We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review of such findings is
warranted.

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners
or co-possessors do or do not share any profits made by the use of the property;

On the merits of the case, we find that the instant Petition is bereft of merit.

11

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are
derived;

12

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

Applying the legal provision to the facts of this case, the following circumstances tend to prove that Elfledo was himself the
partner of Jimmy and Norberto: 1)Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date
that coincided with the payment of the initial capital in the partnership; [15] (2) Elfledo ran the affairs of the partnership, wielding
absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein; [16] (3) all
of the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the
profits of the business;[17] and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting
from Elfledo during his lifetime. As repeatedly stressed inHeirs of Tan Eng Kee,[18] a demand for periodic accounting is
evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired and registered
in the names of Elfledo and respondent formed part of the estate of Jose, having been derived from Jose's alleged partnership
with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo and respondent engaged in other
businesses. Edison even admitted that Elfledo also sold Interwood lumber as a sideline. [19] Petitioners could not offer any
credible evidence other than their bare assertions. Thus, we apply the basic rule of evidence that between documentary and
oral evidence, the former carries more weight.[20]
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of the partners in the trucking
business, active and visible in the running of its affairs from day one until this ceased operations upon
his demise. The extent of his control, administration and management of the partnership and its
business, the fact that its properties were placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one
at that. It is apparent that the other partners only contributed in the initial capital but had no say
thereafter on how the business was ran. Evidently it was through Elfredos efforts and hard work that the
partnership was able to acquire more trucks and otherwise prosper. Even the appellant participated in
the affairs of the partnership by acting as the bookkeeper sans salary.
It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and
its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo
who was the partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were not done but instead its operation
continued under the helm of Elfledo and without any participation from the heirs of Jose Lim.

Whatever properties appellant and her husband had acquired, this was through their own concerted
efforts and hard work. Elfledo did not limit himself to the business of their partnership but engaged in
other lines of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply supported by the law and
by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29, 2005
is AFFIRMED. Costs against petitioners.
SO ORDERED.

SECOND DIVISION
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, Petitioners-Appellants, v. THE COURT OF APPEALS, TOURIST WORLD
SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA, Respondents-Appellees.
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond
dispute:
xxx xxx xxxchanrobles virtual law library
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960 by and
between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as
party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises
belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch office. In the said contract the party
of the third part held herself solidarily liable with the party of the part for the prompt payment of the monthly rental agreed on.
When the branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service
Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be
withheld by the Tourist World Service, Inc.chanroblesvirtualawlibrarychanrobles virtual law library
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that Lina Sevilla
was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist
World Service considered closing down its office. This was firmed up by two resolutions of the board of directors of Tourist
World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of
the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the properties of
the Tourist World Service then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the
appellees for the use of the Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the
appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to comply with the
mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the
premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests
of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter the locked
premises, a complaint wall filed by the herein appellants against the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial
court ordered the dismissal of the case without prejudice.chanroblesvirtualawlibrary chanrobles virtual law library

13

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an
order dated June 8, 1963, granted permitting her to present evidence in support of her
counterclaim.chanroblesvirtualawlibrary chanrobles virtual law library
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the
reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following
which the court a quo ordered both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on
the following assignment of errors: chanrobles virtual law library
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O.
SEVILLA'S COMPLAINT.chanroblesvirtualawlibrary chanrobles virtual law library
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH
APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN
FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.chanroblesvirtualawlibrary chanrobles virtual law library
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM
DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS
AGAINST THE LATTER.chanroblesvirtualawlibrary chanrobles virtual law library
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA
O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN
HANDS.chanroblesvirtualawlibrary chanrobles virtual law library
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR
APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI
PREMISES.chanroblesvirtualawlibrary chanrobles virtual law library
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY
AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita; chanrobles
virtual law library
2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and chanrobles virtual law
library
3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS and the
appellant.chanroblesvirtualawlibrary chanrobles virtual law library
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee
TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that her relationship with
TWS was one of a joint business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist as well as a imediately
columnist had been in the travel business prior to the establishment of the joint business venture with appellee Tourist World
Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own
clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965).chanroblesvirtualawlibrary chanrobles
virtual law library

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering the premises at A.
Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the
prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan.
18,1964).chanroblesvirtualawlibrary chanrobles virtual law library
3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own, separate office
located at the Trade & Commerce Building; nor was she an employee thereof, having no participation in nor connection with
said business at the Trade & Commerce Building (pp. 16-18 tsn Id.). chanrobles virtual law library
4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own business (and not for any of
the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7% commissions
given by the airline companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18
tsn. Id.) chanrobles virtual law library
5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of an
office secretary, Miss Obieta, and other sundry expenses, aside from desicion the office furniture and supplying some of fice
furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and other expenses in
consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb.
16,1965).chanroblesvirtualawlibrary chanrobles virtual law library
6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for
appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18,
1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino Canilao (pp- 25, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc.
and as such was designated manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being
the true lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the petitioner,
Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her
employer. 4 The respondent Court of Appeal 5rendered an affirmance.chanroblesvirtualawlibrary chanrobles virtual law library
The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state: chanrobles
virtual law library
Ichanrobles virtual law library
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING
THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND
CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER
EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE
THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD
SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE
THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT)
ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST
DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.chanroblesvirtualawlibrary chanrobles virtual law library
IIchanrobles virtual law library
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING
APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL

14

CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8) chanrobles
IIIchanrobles virtual law library
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN
FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND
21 OF THE CIVIL CODE ON RELATIONS.chanroblesvirtualawlibrary chanrobles virtual law library
IV chanrobles virtual law library
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING
APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH
TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE
TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6chanrobles virtual law library
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World
Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the
padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla
entitled the latter to the relief of damages prayed for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the
telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7Tourist World Service, Inc., insists, on
the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that
inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera. The petitioners contend,
however, that relation between the between parties was one of joint venture, but concede that "whatever might have been the
true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from
taking the law into their own hands, 8in reference to the padlocking now questioned.chanroblesvirtualawlibrary chanrobles
virtual law library
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that
the relation between the parties was in the character of employer and employee, the courts would have been without
jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of
Labor Relations, pursuant to statutes then in force. 9chanrobles virtual law library
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we
have relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to
control not only the end to be achieved but also the means to be used in reaching such end." 10Subsequently, however, we
have considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties,
like the inclusion of the employee in the payrolls, in determining the existence of an employer-employee
relationship. 11chanrobles virtual law library
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World
Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under
the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments,
an arrangement that would be like claims of a master-servant relationship. True the respondent Court would later minimize her
participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a
true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume any
liability thereof. In that event, the parties must be bound by some other relation, but certainly not
employment.chanroblesvirtualawlibrary chanrobles virtual law library

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the
herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs.
Lina Sevilla.13Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as
to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and
capabilities.chanroblesvirtualawlibrary chanrobles virtual law library
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline
bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned
compensation in fluctuating amounts depending on her booking successes.chanroblesvirtualawlibrary chanrobles virtual law
library
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said,
employment is determined by the right-of-control test and certain economic parameters. But titles are weak
indicators.chanroblesvirtualawlibrary chanrobles virtual law library
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that
is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not
recognize the existence of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World
Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over
the manner in which the business was run. A joint venture, including a partnership, presupposes generally a of standing
between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital or property
contributed 15 and where each party exercises equal rights in the conduct of the business. 16 furthermore, the parties did not
hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist World Service, Inc. 17in
lieu of a distinct partnership name.chanroblesvirtualawlibrary chanrobles virtual law library
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist
World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract
that the agent renders services "in representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but
she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in
the concept of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her
principal's authority as owner of the business undertaking. We are convinced, considering the circumstances and from the
respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint
managament or a partnership..chanroblesvirtualawlibrary chanrobles virtual law library
But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the
parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for
mutual interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such,
she had acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the
operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her own name,
after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she earned as a result of
her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is
an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of
should entitle the petitioner, Lina Sevilla, to damages.chanroblesvirtualawlibrary chanrobles virtual law library
As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking
incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the

15

Tourist World Service, Inc. disconnected the telephone lines at the branch office. 20Yet, what cannot be denied is the fact that
Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the
disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must shoulder
responsibility therefor.chanroblesvirtualawlibrary chanrobles virtual law library
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World
Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without
notice to its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla,
had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla
was not a stranger to that contract having been explicitly named therein as a third party in charge of rental payments (solidarily
with Tourist World, Inc.). She could not be ousted from possession as summarily as one would eject an
interloper.chanroblesvirtualawlibrary chanrobles virtual law library
The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina
Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of
alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact
sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the
other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of
directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the respondent
Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the
lease over the branch office premises, incidentally, without notice to her.chanroblesvirtualawlibrary chanrobles virtual law
library
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the
respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " 22 It is strange
indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist
World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that
after office hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's
telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla articipation
therein.chanroblesvirtualawlibrary chanrobles virtual law library
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be
disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair
play.chanroblesvirtualawlibrary chanrobles virtual law library
We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service,
Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract
where the defendant acted ... in bad faith. 23chanrobles virtual law library
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its
brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil
Code, in relation to Article 2219 (10) thereof ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage. 24

ART. 2219. Moral damages 25may be recovered in the following and analogous cases:chanrobles virtual law library
xxx xxx xxxchanrobles virtual law library
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary
capacity.chanroblesvirtualawlibrary chanrobles virtual law library
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had
connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as
a cotortfeasor.chanroblesvirtualawlibrary chanrobles virtual law library
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, 25and
P5,000.00 as nominal 26and/or temperate 27damages, to be just, fair, and reasonable under the
circumstances.chanroblesvirtualawlibrary chanrobles virtual law library
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the
respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and
Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for
moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or
temperate damages.chanroblesvirtualawlibrary chanrobles virtual law library
Costs against said private respondents.chanroblesvirtualawlibrary chanrobles virtual law library
SO ORDERED.
16

Op cit 37. In Tuazon v. Balanos [95 Phil. 106 (1954)], this Court distinguished between a joint venture and a partnership but
this view has since raised questions from authorities. According to Campos, there seems to be no fundamental distinction
between the two forms of business combinations. CAMPOS, THE CORPORATION CODE 12 (1981).] For p of this case, we
use the terms of interchangeable.chanrobles virtual law library
THIRD DIVISION
[G.R. No. 134559. December 9, 1999]
ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs. COURT OF
APPEALS and MANUEL TORRES, respondents.
DECISION
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 Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:
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]

16

The Facts
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.
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 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:
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 CA elucidated further:
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:
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:
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]

17

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.
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.
[6]

The case was deemed submitted for resolution on September 15, 1999, upon receipt by the Court of the respective
Memoranda of the respondent and the petitioners.
[12]
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.
[14]
ART. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.
[15]
ART. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a
thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor.
SECOND DIVISION
[G.R. No. L-47045. November 22, 1988.]
NOBIO SARDANE, Petitioner, v. THE COURT OF APPEAL and ROMEO J. ACOJEDO respondents.
SYLLABUS

18

1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; NOT APPLICABLE WHERE THE TERMS OF THE
PROMISSORY NOTES ARE NOT VAGUE NOR AMBIGUOUS. The exceptions to the parol evidence rule do not apply as
on their face, nothing appears to be vague or ambiguous, for the terms of the promissory notes clearly show that it was
incumbent upon the private respondent to pay the amount involved in the promissory notes if and when the petitioner demands
the same. It was clearly the intent of the parties to enter into a contract of loan for how could an educated man like the private
respondent be deceived to sign a promissory note yet intending to make such a writing to be mere receipts of the petitioners
supposed contribution to the alleged partnership existing between the parties?
2. CIVIL LAW; PARTNERSHIP; MERE RECEIPT OF A SHARE OF THE PROFITS OF A PARTNER IN THE BUSINESS.
The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of the private
respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such profits were
received in payment as wages of an employee. Furthermore, herein petitioner had no voice in the management of the affairs of
the basnig. Under similar facts, this Court in the early case of Fortis v. Gutierrez Hermanos, denied the claim of the plaintiff
therein that he was e partner in the business of the defendant. The same rule was reiterated in Bastida v. Menzi & Co., Inc., Et.
Al. which involved the same factual and legal milieu.
3. REMEDIAL LAW; ACTION; ACTIONABLE DOCUMENT NOT DENIED SPECIFICALLY UNDER OATH IN THE ANSWER;
GENUINENESS AND DUE EXECUTION DEEMED ADMITTED. Petitioner did not deny under oath in his answer the
authenticity and due execution of the promissory notes which had been duly pleaded and attached to the complaint, thereby
admitting their genuineness and due execution. Even in the trial court, he did not at all question the fact that he signed said
promissory notes and that the same were genuine. Instead, he presented parol evidence to vary the import of the promissory
notes by alleging that they were mere receipts of his contribution to the alleged partnership which testimony, in the light of
Section 7, Rule 130, could not be admitted to vary or alter the explicit meaning conveyed by said promissory notes. On the
other hand, the said genuineness and due execution of said promissory notes were not affected, pursuant to the provisions of
Section 8, Rule 8, since such aspects were not at all questioned but, on the contrary, were admitted by herein petitioner.
4. ID.; ID.; IMPLIED ADMISSION OF GENUINENESS AND DUE EXECUTION OF ACTIONABLE DOCUMENTS; WAIVER OF
THE PROTECTIVE MANTLE UNDER RULE 8, SEC. 8, NOT APPLICABLE. The doctrines in Yu Chuck, Et. Al. v. Kong Li
Po, 7 which was reiterated in Central Surety & Insurance Co. v. C. N. Hodges, Et. Al. 8 does not sustain his thesis that the
herein private respondent had "waived the mantle of protection given him by Rule 8, Sec. 8." It is true that such implied
admission of genuineness and due execution may he waived by a party but only if he acts in a manner indicative of either an
express or tacit waiver thereof. Petitioner, however, either overlooked or ignored the fact that, as held in Yu Chuck, and the
same is true in other cases of identical factual settings, such a finding of waiver is proper where a case has been tried in
complete disregard of the rule and the plaintiff having pleaded a document by copy, presents oral evidence to prove the due
execution of the document and no objections are made to the defendants evidence in refutation. This situation does not obtain
in the present case hence said doctrine is obviously inapplicable.
5. ID.; ID.; ID.; FAILURE TO CROSS-EXAMINE DURING SUR-REBUTAL, NOT CONSTITUTIVE OF A WAIVER OF THE
IMPLIED ADMISSION. Neither did the failure of herein private respondent to cross-examine herein petitioner on the latters
sur-rebuttal testimony constitute a waiver of the aforesaid implied admission. As found by the respondent Court, said surrebuttal testimony consisted solely of the denial of the testimony of herein private respondent and no new or additional matter
was introduced in that sur-rebuttal testimony to exonerate herein petitioner from his obligations under the aforesaid promissory
notes.

6. ID.; ID.; APPEAL TO THE COURT OF APPEALS FROM DECISIONS OF THE INFERIOR COURTS; PROCEDURE OR
MODE OF APPEAL NOT PROVIDED IN AMENDATORY LAW AND/OR RESOLUTION. Petitioner anchors his said
objection on the provisions of Section 29, Republic Act 296 as amended by Republic Act 5433 effective September 9, 1968.
Subsequently, the procedure for appeal to the Court of Appeals from decisions of the then courts of first instance in the
exercise of their appellate jurisdiction over cases originating from the municipal courts was provided for by Republic Act 6031,
amending Section 45 of the Judiciary Act effective August 4, 1969. The requirement for affirmance in full of the inferior courts
decision was not adopted or reproduced in Republic Act 6031. Also, since Republic Act 6031 failed to provide for the
procedure or mode of appeal in the cases therein contemplated, the Court of Appeals en banc provided thereof in its
Resolution of August 12, 1971, by requiring a petition for review but which also did not require for its availability that the
judgment of the court of first instance had affirmed in full that of the lower court. Said mode of appeal and the procedural
requirements thereof governed the appeal taken in this case from the aforesaid Court of First Instance to the Court of Appeals
in 1977. Herein petitioners plaint on this issue is, therefore devoid of merit.

DECISION
The extensive discussion and exhaustive disquisition in the decision 1 of the respondent Court 2 should have written finis to
this case without further recourse to Us. The assignment of errors and arguments raised in the respondent Court by herein
private respondent, as the petitioner therein, having been correctly and justifiedly sustained by said court without any
reversible error in its conclusions, the present petition must fail.
The assailed decision details the facts and proceedings which spawned the present controversy as
follows:jgc:chanrobles.com.ph
"Petitioner brought an action in the City Court of Dipolog for collection of a sum of P5,217.26 based on promissory notes
executed by the herein private respondent Nobio Sardane in favor of the herein petitioner. Petitioner bases his right to collect
on Exhibits B, C, D, E, F, and G executed on different dates and signed by private respondent Nobio Sardane. Exhibit B is a
printed promissory note involving P1,117.25 and dated May 13, 1972. Exhibit C is likewise a printed promissory note and
denotes on its face that the sum loaned was P1,400.00. Exhibit D is also a printed promissory note dated May 31, 1977
involving an amount of P100.00. Exhibit E is what is commonly known to the layman as `vale which reads: `Good for: two
hundred pesos (Sgd) Nobio Sardane. Exhibit F is stated in the following tenor: `Received from Mr. Romeo Acojedo the sum
Pesos: Two Thousand Two Hundred (P2,200.00) ONLY, to be paid on or before December 25, 1975. (Sgd) Nobio Sardane.
Exhibit G and H are both vales involving the same amount of one hundred pesos, and dated August 25, 1972 and September
12, 1972 respectively.
"It has been established in the trial court that on many occasions, the petitioner demanded the payment of the total amount of
P5,217.25. The failure of the private respondent to pay the said amount prompted the petitioner to seek the services of lawyer
who made a letter (Exhibit 1) formally demanding the return of the sum loaned. Because of the failure of the private
respondent to heed the demands extrajudicially made by the petitioner, the latter was constrained to bring an action for
collection of sum of money.
"During the scheduled day for trial, private respondent failed to appear and to file an answer. On motion by the petitioner, the
City Court of Dipolog issued an order dated May 18, 1976 declaring the private respondent in default and allowed the
petitioner to present his evidence ex-parte. Based on petitioners evidence, the City Court of Dipolog rendered judgment by

19

default in favor of the petitioner.

"Private respondent filed a motion to lift the order of default which was granted by the City Court in an order dated May 24,
1976, taking into consideration that the answer was filed within two hours after the hearing of the evidence presented ex-parte
by the petitioner.
"After the trial on the merits, the City Court of Dipolog rendered its decision on September 14, 1976, the dispositive portion of
which reads:chanrob1es virtual 1aw library
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendant as
follows:chanrob1es virtual 1aw library
(a) Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two Hundred Seventeen Pesos Twenty-five
centavos (P5,217.25) plus legal interest to commence from April 23, 1976 when this case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as attorneys fee and to pay the cost of this proceeding." 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte which reversed the decision of the
lower court by dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-appellant P500.00
each for actual damages, moral damages, exemplary damages and attorneys fees, as well as the costs of suit. Plaintiffappellee then sought the review of said decision by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two decisive issues, firstly, whether the oral
testimony for the therein private respondent Sardane that a partnership existed between him and therein petitioner Acojedo are
admissible to vary the meaning of the abovementioned promissory notes; and, secondly, whether because of the failure of
therein petitioner to cross-examine therein private respondent on his sur-rebuttal testimony, there was a waiver of the
presumption accorded in favor of said petitioner by Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the pleadings of the parties herein put in issue the imperfection or
ambiguity of the documents in question", hence "the appellant can avail of the parol evidence rule to prove his side of the
case, that is, the said amount taken by him from appellee is or was not his personal debt to appellee, but expenses of the
partnership between him and appellee."cralaw virtua1aw library
Consequently, said trial court concluded that the promised notes involved were merely receipts for the contributions said
partnership and, therefore, upheld the claim that there was ambiguity in the promissory notes, hence parol evidence was
allowable to vary or contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:jgc:chanrobles.com.ph
"Sec. 7. Evidence of written agreements. When the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be, between the parties and their successors in interest, no
evidence of the terms of the agreement other than the contents of the writing except in the following cases:chanrob1es virtual
1aw library

(a) Where a mistake or imperfection of the writing or its failure to express the the true intent and agreement of the parties, or
the validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing."cralaw virtua1aw library
As correctly pointed out by the respondent Court the exceptions to the rule do not apply in this case as there is no ambiguity in
the writings in question, thus:jgc:chanrobles.com.ph
"In the case at bar, Exhibits B, C, and D are printed promissory notes containing a promise to pay a sum certain in money,
payable on demand and the promise to bear the costs of litigation in the event of the private respondents failure to pay the
amount loaned when demanded extrajudicially. Likewise, the vales denote that the private respondent is obliged to return the
sum loaned to him by the petitioner. On their face, nothing appears to be vague or ambiguous, for the terms of the promissory
notes clearly show that it was incumbent upon the private respondent to pay the amount involved in the promissory notes if
and when the petitioner demands the same. It was clearly the intent of the parties to enter into a contract of loan for how could
an educated man like the private respondent be deceived to sign a promissory note yet intending to make such a writing to be
mere receipts of the petitioners supposed contribution to the alleged partnership existing between the parties?
It has been established in the trial court that the private respondent has been engaged in business for quite a long period of
time as owner of the Sardane Trucking Service, entering into contracts with the government for the construction of wharfs
and seawall; and a member of the City Council of Dapitan (TSN, July 20, 1976, pp. 57-58). It indeed puzzles us how the
private respondent could have been misled into signing a document containing terms which he did not mean them to be. . . .
x
x
x

"The private respondent admitted during the cross-examination made by petitioners counsel that he was the one who was
responsible for the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How could he purportedly rely on such a flimsy
pretext that the promissory notes were receipts of the petitioners contribution?" 4
The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory notes may be admitted to
alter the meaning conveyed thereby, still the evidence is insufficient to prove that a partnership existed between the private
parties hereto.
As manager of the basnig Sarcado, naturally some degree of control over the operations and maintenance thereof had to be
exercised by herein petitioner. The fact that he had received 50% of the net profits does not conclusively establish that he was
a partner of the private respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a
share of the profits of a business is prima facie evidence that he is a partner in the business, no such inference shall be drawn
if such profits were received in payment as wages of an employee. Furthermore, herein petitioner had no voice in the
management of the affairs of the basnig. Under similar facts, this Court in the early case of Fortis v. Gutierrez Hermanos, 5 in
denying the claim of the plaintiff therein that he was e partner in the business of the defendant,
declared:jgc:chanrobles.com.ph
"This contention cannot be sustained. It was a mere contract of employment. 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 defendant in their business did not in any sense make him a partner therein. . . . ."cralaw

20

virtua1aw library
The same rule was reiterated in Bastida v. Menzi & Co., Inc., Et. Al. 6 which involved the same factual and legal milieu.
There are other considerations noted by respondent Court which negate herein petitioners pretension that he was partner and
not a mere employee indebted to the present private Respondent. Thus, in an action for damages filed by herein private
respondent against the North Zamboanga Timber Co., Inc. arising from the operations of the business, herein petitioner did not
ask to be joined as a party plaintiff. Also, although he contends that herein private respondent is the treasurer of the alleged
partnership, yet it is the latter who is demanding an accounting. The advertence of the Court of First Instance to the fact that
the casco bears the name of the herein petitioner disregards the finding of the respondent Court that it was just a concession
since it was he who obtained the engine used in the Sardaco from the Department. Further, the use Government and
Community Development. Further, the use by the parties of the pronoun "our" in referring to "our basnig", "our catch", "our
deposit", or "our boseros" was merely indicative of the camaraderie, and not evidentiary of a partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid promissory notes do not express the true intent
and agreement of the parties, are binding on Us since there is no showing that they fall within the exceptions to the rule limiting
the scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready reference, reads:jgc:chanrobles.com.ph
"Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a written instrument,
copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution
of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what
he claims to be the facts; but this provision does not apply when the adverse party does not appear to be a party to the
instrument or when compliance with an order for the inspection of the original instrument is refused."cralaw virtua1aw library
The record shows that herein petitioner did not deny under oath in his answer the authenticity and due execution of the
promissory notes which had been duly pleaded and attached to the complaint, thereby admitting their genuineness and due
execution. Even in the trial court, he did not at all question the fact that he signed said promissory notes and that the same
were genuine. Instead, he presented parol evidence to vary the import of the promissory notes by alleging that they were mere
receipts of his contribution to the alleged partnership.
His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished from the rule on
actionable documents. As the respondent Court correctly explained to herein petitioner, what he presented in the trial Court
was testimonial evidence that the promissory notes were receipts of his supposed contributions to the alleged partnership
which testimony, in the light of Section 7, Rule 130, could not be admitted to vary or alter the explicit meaning conveyed by
said promissory notes. On the other hand, the said genuineness and due execution of said promissory notes were not
affected, pursuant to the provisions of Section 8, Rule 8, since such aspects were not at all questioned but, on the contrary,
were admitted by herein petitioner.
Petitioners invocation of the doctrines in Yu Chuck, Et. Al. v. Kong Li Po, 7 which was reiterated in Central Surety & Insurance
Co. v. C. N. Hodges, Et. Al. 8 does not sustain his thesis that the herein private respondent had "waived the mantle of
protection given him by Rule 8, Sec. 8." It is true that such implied admission of genuineness and due execution may he
waived by a party but only if he acts in a manner indicative of either an express or tacit waiver thereof. Petitioner, however,

either overlooked or ignored the fact that, as held in Yu Chuck, and the same is true in other cases of identical factual settings,
such a finding of waiver is proper where a case has been tried in complete disregard of the rule and the plaintiff having
pleaded a document by copy, presents oral evidence to prove the due execution of the document and no objections are made
to the defendants evidence in refutation. This situation does not obtain in the present case hence said doctrine is obviously
inapplicable.
Neither did the failure of herein private respondent to cross-examine herein petitioner on the latters sur-rebuttal testimony
constitute a waiver of the aforesaid implied admission. As found by the respondent Court, said sur-rebuttal testimony consisted
solely of the denial of the testimony of herein private respondent and no new or additional matter was introduced in that surrebuttal testimony to exonerate herein petitioner from his obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the real respondent Court correctly reversed and set aside the appealed
decision of the Court of First Instance of Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog City
in Civil Case No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein petitioner, as the private
respondent therein, raised a third unresolved issue that the petition for review therein should have been dismissed for lack of
jurisdiction since the lower Courts decision did not affirm in full the judgment of the City Court of Dipolog, and which he
claimed was a sine qua non for such a petition under the law then in force. He raises the same point in his present appeal and
We will waive the procedural technicalities in order to put this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative relief from the respondent Court praying that
it sustain the decision of the trial Court, thereby invoking and submitting to its jurisdiction which he would now assail.
Furthermore, the objection that he raises is actually not one of jurisdiction but of procedure. 9
At any rate, it will be noted that petitioner anchors his said objection on the provisions of Section 29, Republic Act 296 as
amended by Republic Act 5433 effective September 9, 1968. Subsequently, the procedure for appeal to the Court of Appeals
from decisions of the then courts of first instance in the exercise of their appellate jurisdiction over cases originating from the
municipal courts was provided for by Republic Act 6031, amending Section 45 of the Judiciary Act effective August 4, 1969.
The requirement for affirmance in full of the inferior courts decision was not adopted or reproduced in Republic Act 6031. Also,
since Republic Act 6031 failed to provide for the procedure or mode of appeal in the cases therein contemplated, the Court of
Appeals en banc provided thereof in its Resolution of August 12, 1971, by requiring a petition for review but which also did not
require for its availability that the judgment of the court of first instance had affirmed in full that of the lower court. Said mode of
appeal and the procedural requirements thereof governed the appeal taken in this case from the aforesaid Court of First
Instance to the Court of Appeals in 1977. 10 Herein petitioners plaint on this issue is, therefore devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs against herein petitioner.
SO ORDERED.
THIRD DIVISION
[G.R. No. 75875. December 15, 1989.]
WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY,Petitioners, v. SANITARY

21

WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R.

LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, Respondents.
[G.R. No. 7595. December 15, 1989]
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ,Petitioners, v. THE COURT OF APPEALS,
WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO
SALAZAR, Respondents.
[G.R. Nos. 75975-76. December 15, 1989]
LUCIANO E. SALAZAR, Petitioner, v. SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN
YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS,Respondents.

SYLLABUS
1. COMMERCIAL LAW; JOINT VENTURE; WHETHER THERE EXISTS A JOINT VENTURE DEPENDS UPON THE PARTIES
ACTUAL INTENTION WHICH IS DETERMINED IN ACCORDANCE WITH THE RULES COVERING THE INTERPRETATION
AND CONSTRUCTION OF CONTRACTS. The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation depends upon their actual intention which is determined
in accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B.
and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
2. ID.; ID.; ESTABLISHED IN CASE AT BAR. In the instant cases, our examination of important provisions of the Agreement
as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a
joint venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which govern
its policy making body are all consistent with a joint venture and not with an ordinary corporation. Section 5 (a) of the
agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a six to three
ratio. Each group is assured of a fixed number of directors in the board. Moreover, ASI in its communications referred to the
enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein contained
shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder"
was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and liabilities to third
parties.
3. ID.; ID.; CONCEPT OF JOINT VENTURE; DISTINGUISHED FROM PARTNERSHIP. The point of query, however, is
whether or not that provision is applicable to a joint venture with clearly defined agreements: "The legal concept of a joint
venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable
from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses,
and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939];
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the
joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal.

App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez Campos Comments, Notes and Selected Cases, Corporation
Code 1981). Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of
joint venture. (OHara v. Harman 14 App. Dev. (167) 43 NYS 556).
4. ID.; ID.; RIGHT OF STOCKHOLDERS TO CUMULATE VOTES IN ELECTING DIRECTORS LIES IN THE AGREEMENT OF
PARTIES. Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not
the ASI Group may vote their additional equity lies in the agreement of the parties. The appellate court was correct in
upholding the agreement of the parties as regards the allocation of director seats under Section 5 (a) of the "Agreement," and
the right of each group of stockholders to cumulative voting in the process of determining who the groups nominees would be
under Section 3(a) (1) of the "Agreement." As pointed out by SEC, Section 5(a) of the Agreement relates to the manner of
nominating the members of the board of directors while Section 3 (a) (1) relates to the manner of voting for these nominees.
5. ID.; ANTI-DUMMY; LIMITS THE ELECTION OF ALIENS AS MEMBERS OF THE BOARD OF DIRECTORS IN
PROPORTION TO THEIR ALLOWANCE PARTICIPATION OF THE ENTITY. Equally important as the consideration of the
contractual intent of the parties is the consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy
Act. In this regard, petitioner Salazars position is that the Anti-Dummy Act allows the ASI group to elect board directors in
proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits the election of aliens
as members of the board of directors in proportion to their allowance participation of said entity.

DECISION
These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and
05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI)
cannot nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASIs choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot
agree on the six (6) nominees, they shall vote only among themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:chanrob1es virtual 1aw library
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary
wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could
help in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into
an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the
ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here

22

and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be
carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation." chanrobles.com:cralaw:red
The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the
directors of the corporation:jgc:chanrobles.com.ph
"3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and, insofar
as permitted under Philippine law, shall specifically provide for.
(1) Cumulative voting for directors:chanrob1es virtual 1aw library
x
x
"5. Management

(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals. As long
as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors shall be
designated by American-Standard, and the others six: shall be designated by the other stockholders of the Corporation. (pp.
51 & 53, Rollo of 75875).
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto
powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments
for availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the
Filipino group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI
objected as it apparently had other subsidiaries of joint venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders meeting was held. The meeting was presided by Baldwin Young.
The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the
stockholders then proceeded to the election of the members of the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto
Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then
nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last
two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during the
past annual stockholders meetings to nominate only nine persons as nominees for the nine-member board of directors, and
the legal advice of Saniwares legal counsel. The following events then, transpired:chanrob1es virtual 1aw library
. . . . There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by the ASI

representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman then instructed the Corporate
Secretary to cast all the votes present and represented by proxy equally for the 6 nominees of the Philippine Investors and the
3 nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E. Salazar and Charles
Chamsay. The ASI representative, Mr. Jaqua, protested the decision of the Chairman and announced that all votes accruing to
ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being cumulatively voted for the three ASI
nominees and Charles Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders
announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were
being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary
to cast all votes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham,
and the six originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the following
Wolfgang Aurbach, John Griffin, David Whittingham, Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, Ac-G.R. SP No. 05617). This motion to adjourn was accepted by
the Chairman, Baldwin Young, who announced that the motion was carried and declared the meeting adjourned. Protests
against the adjournment were registered and having been ignored, Mr. Jaqua, the ASI representative, stated that the meeting
was not adjourned but only recessed and that the meeting would be reconvened in the next room. The Chairman then
threatened to have the stockholders who did not agree to the decision of the Chairman on the casting of votes bodily thrown
out. The ASI Group, Luciano E. Salazar and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares,
decided to continue the meeting at the elevator lobby of the American Standard Building. The continued meeting was presided
by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the
meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting
Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four (4)
remaining positions of directors and that the body decided not to break the tie." (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission
(SEC). The first petition filed was for preliminary injunction by Saniwares, Ernesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay.
The case was denominated as SEC Case No. 2417. The second petition was for quo warranto and application for receivership
by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young
and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both
sets of parties except for Avelino Cruz claimed to be the legitimate directors of the corporation.chanrobles law library
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officers decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the
case to the Securities and Exchange Commission with the directive that a new stockholders meeting of Saniwares be ordered
convoked as soon as possible, under the supervision of the Commission.

23

Upon a motion for reconsideration filed by the appellees (Lagdameo Group) the appellate court (Court of Appeals) rendered
the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the
following errors:chanrob1es virtual 1aw library
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS
REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF THE
PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo 75875).
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following
grounds:jgc:chanrobles.com.ph
"11.1 That Amended Decision would sanction the CAs disregard of binding contractual agreements entered into by
stockholders and the replacement of the conditions of such agreements with terms never contemplated by the stockholders
but merely dictated by the CA.

may vote their additional 10% equity during elections of Saniwares board of directors.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or
some other relation depends upon their actual intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed
strictly on the "Agreement" dated August 15, 1962 wherein it is clearly stated that the parties intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:chanrob1es virtual 1aw library
x
x
x
"(c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of
any transaction hereunder." (At p. 66, Rollo G.R. No. 75875)
They object to the admission of other evidence which tends to show that the parties agreement was to establish a joint venture
presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence rule under section 7, Rule
130 of the Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded in their pleading that
the "Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:jgc:chanrobles.com.ph

"11.2 The Amended decision would likewise sanction the unlawful deprivation of the property rights of stockholders without due
process of law in order that a favored group of stockholders may be illegally benefited and guaranteed a continuing monopoly
of the control of a corporation." (pp. 14-15, Rollo 75975-76).

"Evidence of written agreements When the terms of an agreement have been reduced to writing, it is to be considered as
containing all such terms, and therefore, there can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing, except in the following cases:chanrob1es virtual 1aw library

On the other hand, the petitioners in G.R. No. 75951 contend that:chanrob1es virtual 1aw library

(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties or the
validity of the agreement is put in issue by the pleadings.

I
"THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE STOCKHOLDERS OF
SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT
AND THE LAW.
II
"THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE
DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANIWARES." (P.
24, Rollo 75951).
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders
meeting held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Groups stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim in SEC
Case No. 2417 that the Agreement failed to express the true intent of the parties, to wit:chanrob1es virtual 1aw library
x
x
x
"4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or joint
venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the existence of two
distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute the majority, and the other
(ASI) shall constitute the minority stockholder. In any event, the evident intention of the Philippine Investors and ASI in entering
into the Agreement is to enter into a joint venture enterprise, and if some words in the Agreement appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former (Art. 1370, New Civil Code). The various stipulations of a
contract shall be interpreted together attributing to the doubtful ones that sense which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their contemporaneous and

24

subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417).
It has been ruled:jgc:chanrobles.com.ph
"In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an enterprise
for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to assume some
other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40, 192 NYS 653; Pyroa v. Brownfield (Tex.
Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871).
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented
by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The
history of the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent
with a joint venture and not with an ordinary corporation. As stated by the SEC:jgc:chanrobles.com.ph
"According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the Philippine
nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group of investors, on the
condition that the Agreement should contain provisions to protest ASI as the minority.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c)
of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as
partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are
constrained to seek the technology and marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing
expertise, use of its brand names, and other such assistance. However, there is always a danger from such arrangements.
The foreign group may, from the start, intend to establish its own sole or monopolistic operations and merely uses the joint
venture arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign group undermines the local majority ownership and
actively tries to completely or predominantly take over the entire company. This undermining of joint ventures is not consistent
with fair dealing to say the least. To the extent that such subversive actions can be lawfully prevented, the courts should
extend protection especially in industries where constitutional and legal requirements reserve controlling ownership to Filipino
citizens.chanroblesvirtualawlibrary

"An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the minority.
For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the vote of this member is
required for certain transactions [Sec. 3 (b) (i)].

The Lagdameo Group stated in their appellees brief in the Court of Appeals:jgc:chanrobles.com.ph

"The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares [Sec. 3
(a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The Agreement
further provides that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that
Saniwares should not export "Standard" products otherwise than through ASIs Export Marketing Services [Sec. 13 (6)]. Under
the Agreement, ASI agreed to provide technology and know-how to Saniwares and the latter paid royalties for the same. (At p.
2).
x
x
x
"It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for certain
actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power. Furthermore, the grant
to ASI of the right to designate certain officers of the corporation; the super-majority voting requirements for amendments of
the articles and by-laws; and most significantly to the issues of this case, the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the other 6, clearly indicate that 1) there are two distinct groups in
Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders who own the balance of
60%, and that 2) ASI is given certain protections as the minority stockholder.

"Sec. 100. Agreements by stockholders.

Premises considered, we believe that under the Agreement there are two groups of stockholders who established a
corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other stockholders." (pp.
4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine
directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.

"In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding the
exercise of their voting rights.

x
x
x
"2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in
exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as
determined in accordance with a procedure agreed upon by them.
"Appellants contend that the above provision is included in the Corporation Codes chapter on close corporations and
Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at
the time of the disputed stockholders meeting, these 95 stockholders are not separate from each other but are divisible into
groups representing a single identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95
stockholders. The Young/Yutivo family count for another 13 stockholders, the Cham family for 8 stockholders, the Santos
family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family and/or business or interest group
are considered as one (which, it is respectfully submitted, they should be for purposes of determining how closely held
Saniwares is), there were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp.
5 to 6 of appellees Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).
"Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20 stockholders, the
undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim that Saniwares is a public issue
or a widely held corporation.
"In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly applied

25

principles of corporation law designed primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less emphasis on the ordinary rules of law usually
applied to corporate entities and with more consideration given to the nature of the agreement between the joint venturers
(Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254
Assn. 247 US. 490; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495, 82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212, 113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S.
262; "The Legal Status of Joint Venture Corporations", 11 Vand. Law Rev., p. 680, 1958). These American cases dealt with
legal questions as to the extent to which the requirements arising from the corporate form of joint venture corporations should
control, and the courts ruled that substantial justice lay with those litigants who relied on the joint venture agreement rather
than the litigants who relied on the orthodox principles of corporation law.
"As correctly held by the SEC Hearing Officer:jgc:chanrobles.com.ph
"It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of corporation
management. A noted authority has pointed out that just as in close corporations, shareholders agreements in joint venture
corporations often contain provisions which do one or more of the following: (1) require greater than majority vote for
shareholder and director action; (2) give certain shareholders or groups of shareholders power to select a specified number of
directors; (3) give to the shareholders control over the selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I ONeal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC
Hearing Officer, p. 16)
"Thirdly, paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the exercise
of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain:jgc:chanrobles.com.ph
"Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these
agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter into an agreement
to vote as a unit in the election of directors? It is submitted that there is no reason for denying stockholders of corporations
other than close ones the right to enter into voting or pooling agreements to protect their interests, as long as they do not
intend to commit any wrong, or fraud on the other stockholders not parties to the agreement. Of course, voting or pooling
agreements are perhaps more useful and more often resorted to in close corporations. But they may also be found necessary
even in widely held corporations. Moreover, since the Code limits the legal meaning of close corporations to those which
comply with the requisites laid down by section 96, it is entirely possible that a corporation which is in fact a close corporation
will not come within the definition. In such case, its stockholders should not be precluded from entering into contracts like
voting agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
"In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts the right
of the Agreements signatories to vote for directors, such contractual provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include appellants." (Rollo G.R. No. 75951, pp. 90-94).

Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in consonance with the minority
position of ASI.
"Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere to their
respective rights and obligations thereunder. Appellants seem to contend that any allocation of board seats, even in joint
venture corporations, are null and void to the extent that such may interfere with the stockholders rights to cumulative voting
as provided in Section 24 of the Corporation Code. This Court should not be prepared to hold that any agreement which
curtails in any way cumulative voting should be struck down, even if such agreement has been freely entered into by
experienced businessmen and do not prejudice those who are not parties thereto. It may well be that it would be more cogent
to hold, as the Securities and exchange Commission has held in the decision appealed from, that cumulative voting rights may
be voluntary waived by stockholders who enter into special relationships with each other to pursue and implement specific
purposes, as in joint venture relationships between foreign and local stockholders, so long as such agreements do not
adversely affect third parties.
"In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all that needs to
be done is to give life and effect to the particular contractual rights and obligations which the parties have assumed for
themselves.
"On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats cannot be
disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be protected.
"In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection, we feel that
the proper and just solution to give due consideration to both factors suggests itself quite clearly. This Court should recognize
and uphold the division of the stockholders into two groups, and at the same time uphold the right of the stockholders within
each group to cumulative voting in the process of determining who the groups nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the Filipino stockholders cannot agree who their six
nominees will be, a vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties.
"Such a ruling will give effect to both the allocation of the board seats and the stockholders right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention
of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and the laws
if ASI is allowed to nominate more than three directors." (Rollo 75875, pp. 38-39)

In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares
board of directors, the Court of Appeals correctly stated:jgc:chanrobles.com.ph

The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity
pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes
in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation
of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:jgc:chanrobles.com.ph

"As in other joint venture companies, the extent of ASIs participation in the management of the corporation is spelled out in the

"And provided finally that the election of aliens as members of the board of directors or governing body of corporations or

26

associations engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share
in the capital of such entities. (amendments introduced by Presidential Decree 715, section 1, promulgated May 28, 1975)"
The ASI Groups argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is
whether or not that provision is applicable to a joint venture with clearly defined agreements:jgc:chanrobles.com.ph
"The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact
hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing
of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95
P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v.
Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed.
811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law
of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At
p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture.
(OHara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group
may vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director
seats under Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the process
of determining who the groups nominees would be under Section 3(a) (1) of the "Agreement." As pointed out by SEC, Section
5(a) of the Agreement relates to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates
to the manner of voting for these nominees.

"Such a ruling will give effect to both the allocation of the board seats and the stockholders right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention
of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and the laws
if ASI is allowed to nominate more than three directors." (At p. 39, Rollo, 75875).
Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible
domination by the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazars position is that the Anti-Dummy Act
allows the ASI group to elect board directors in proportion to their share in the capital of the entity. It is to be noted, however,
that the same law also limits the election of aliens as members of the board of directors in proportion to their allowance
participation of said entity. In the instant case, the foreign Group (ASI) was limited to designate three directors . This is the
allowable participation of the ASI Group. Hence, in future dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties Agreement to protect the interests arising from
the minority status of the foreign investors.cralawnad
With these findings, we affirm the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the
appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Ernesto V. Lagdameo, Baldwin
Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of
Saniwares at the March 8, 1983 annual stockholders meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during the
election of the board of directors of the enterprise as ruled by the appellate court and submits that the six (6) directors allotted
the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement which uses the word
"designate" meaning "nominate, delegate or appoint."cralaw virtua1aw library
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are allowed to
select their nominees separately and not as a common slot determined by the majority of their group.
Section 5(a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in
isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while section 5(a) relates to the manner of
nominating the members of the board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.

This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to them
would obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate
court:jgc:chanrobles.com.ph
". . . . ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority
of the board seats, a result which is clearly contrary to the contractual intent of the parties.

The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot,
however, be ignored. The validity of the cumulative voting procedure is dependent on the directors thus elected being genuine
members of the Filipino group, not voters whose interest is to increase the ASI share in the management of Saniwares. The
joint venture character of the enterprise must always be taken into account, so long as the company exists under its original
agreement. Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot
accomplish openly. There are substantial safeguards in the Agreement which are intended to preserve the majority status of
the Filipino investors as well as to maintain the minority status of the foreign investors group as earlier discussed. They should
be maintained.chanroblesvirtualawlibrary

27

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is
partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach, John Griffin,
David Whittingham, Ernesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo,
and George F. Lee are declared as the duly elected directors of Saniwares at the March 8, 1983 annual stockholders meeting.
In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No.
75875.
SO ORDERED.
FIRST DIVISION
[G.R. No. 127405. October 4, 2000]
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY, respondents.
DECISION
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616, [1] affirming the Decision of
the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita A. Anay met
petitioner William T. Belo, then the vice-president for operations of Ultra Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for
the importation and local distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay
the job of marketing the product considering her experience and established relationship with West Bend Company, a
manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and
general manager, and Anay as head of the marketing department and later, vice-president for sales. Anay organized the
administrative staff and sales force while Tocao hired and fired employees, determined commissions and/or salaries of the
employees, and assigned them to different branches. The parties agreed that Belos name should not appear in any documents
relating to their transactions with West Bend Company. Instead, they agreed to use Anays name in securing distributorship of
cookware from that company. The parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net
profits of the business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%)
of the sales she would make; and (4) two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belos assurances that he was sincere, dependable and honest when it came to financial
commitments.
Anay having secured the distributorship of cookware products from the West Bend Company and organized the
administrative staff and the sales force, the cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala
Avenue, Makati City. Belo made good his monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend
Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with
the consent of Marjorie Tocao who, as president and general manager of Geminesse Enterprise, even wrote a letter to the Visa
Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years now, acquired the
distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice President Sales Marketing and a business
partner of our company, will attend in response to the invitation. (Italics supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on
account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31, 1987, she received a plaque of
appreciation from the administrative and sales people through Marjorie Tocao [4] for her excellent job performance. On October

7, 1987, in the presence of Anay, Belo signed a memo [5] entitling her to a thirty-seven percent (37%) commission for her
personal sales "up Dec 31/87. Belo explained to her that said commission was apart from her ten percent (10%) share in the
profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter [6] addressed to the Cubao sales office to the
effect that she was no longer the vice-president of Geminesse Enterprise. The following day, October 10, she received a note
from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding office and conducting demonstrations
in both Makati and Cubao offices.[7] Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the
net profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter
was not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did
not receive the same commission although the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages [8] against
Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following: (1) P32,00.00
as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3)
P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the
inception of its business operation until she was illegally dismissed to determine her ten percent (10%) share in the net profits.
She further prayed that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend cookware
sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was neither reduced in
writing, nor ratified, was either unenforceable or void or inexistent. As far as Belo was concerned, his only role was to introduce
Anay to Marjorie Tocao. There could not have been a partnership because, as Anay herself admitted, Geminesse Enterprise
was the sole proprietorship of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse
Enterprise for an agreed remuneration, and her complaint referred to either her compensation or dismissal, such complaint
should have been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill-will and resentment
because Marjorie Tocao did not allow her to lord it over in the Geminesse Enterprise. Anay had acted like she owned the
enterprise because of her experience and expertise. Hence, petitioners were the ones who suffered actual damages including
unreturned and unaccounted stocks of Geminesse Enterprise, and serious anxiety, besmirched reputation in the business
world, and various damages not less than P500,000.00. They also alleged that, to vindicate their names, they had to hire
counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner of
Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He, however,
admitted that the two had agreed that Anay would receive a three to four percent (3-4%) share in the gross sales of the
cookware. He denied contributing capital to the business or receiving a share in its profits as he merely served as a guarantor
of Marjorie Tocao, who was new in the business. He attended and/or presided over business meetings of the venture in his
capacity as a guarantor but he never participated in decision-making. He claimed that he wrote the memo granting the plaintiff
thirty-seven percent (37%) commission upon her dismissal from the business venture at the request of Tocao, because Anay
had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. However, she
admitted that Anay was an expert in the cookware business and hence, they agreed to grant her the following commissions:
thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two percent (2%) on product demonstrations,
and two percent (2%) for recruitment of personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the

28

net profits. Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds with interest. Because she
treated Anay as her co-equal, Marjorie received the same amounts of commissions as her. However, Anay failed to account for
stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987
and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff
in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150)
cookware sets available for disposition when plaintiff was wrongfully excluded from the partnership by
defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period covering
January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement between the plaintiff and the defendants, based
on the following: (a) there was an intention to create a partnership; (b) a common fund was established through contributions
consisting of money and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth Bantilan, Anays
cousin and the administrative officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between the parties. The letter of Roger Muencheberg of West
Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao because he was convinced that with
Marjories financial contribution and Anays experience, the combination of the two would be invaluable to the partnership, also
supported that conclusion. Belos claim that he was merely a guarantor has no basis since there was no written evidence
thereof as required by Article 2055 of the Civil Code. Moreover, his acts of attending and/or presiding over meetings of
Geminesse Enterprise plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On the
contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the partnership inasmuch
as such practice is often resorted to in business circles as an impetus to bigger sales volume. It did not matter that the
agreement was not in writing because Article 1771 of the Civil Code provides that a partnership may be constituted in any
form. The fact that Geminesse Enterprise was registered in Marjorie Tocaos name is not determinative of whether or not the
business was managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of Domestic
Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the
guilty partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits realized
from the appropriation of the partnership business and goodwill. An innocent partner thus possesses pecuniary interest in
every existing contract that was incomplete and in the trade name of the co-partnership and assets at the time he was
wrongfully expelled.
Petitioners appeal to the Court of Appeals [11] was dismissed, but the amount of damages awarded by the trial court were
reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their Motion for Reconsideration was
denied by the Court of Appeals for lack of merit. [12] Petitioners Belo and Marjorie Tocao are now before this Court on a petition
for review on certiorari, asserting that there was no business partnership between them and herein private respondent Nenita
A. Anay who is, therefore, not entitled to the damages awarded to her by the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed between them
and private respondent Anay because Geminesse Enterprise came into being exactly a year before the alleged partnership
was formed, and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao
contributing nothing, without any memorandum whatsoever regarding the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both the trial
and appellate courts. This Court cannot set aside factual findings of such courts absent any showing that there is no evidence
to support the conclusion drawn by the court a quo.[14] In this case, both the trial court and the Court of Appeals are one in
ruling that petitioners and private respondent established a business partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (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.[15] It may be constituted in any form; a public instrument is necessary only where immovable
property or real rights are contributed thereto.[16] This implies that since a contract of partnership is consensual, an oral contract
of partnership is as good as a written one. Where no immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The fact that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the partnership agreement pursuant to Article 1772 of the Civil
Code[17] did not cause the nullification of the partnership. The pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of
failure to comply with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware.
Private respondent contributed such expertise to the partnership and hence, under the law, she was the industrial or managing
partner. It was through her reputation with the West Bend Company that the partnership was able to open the business of
distributorship of that companys cookware products; it was through the same efforts that the business was propelled to
financial success. Petitioner Tocao herself admitted private respondents indispensable role in putting up the business when,
upon being asked if private respondent held the positions of marketing manager and vice-president for sales, she testified
thus:
A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only me there
then her and then two (2) people, so about four (4). Now, after that when she recruited already Oscar Abella
and Lina Torda-Cruz these two (2) people were given the designation of marketing managers of which
definitely Nita as superior to them would be the Vice President.[18]
By the set-up of the business, third persons were made to believe that a partnership had indeed been forged between
petitioners and private respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of West Bend Company to
Roger Muencheberg of the same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have cookware
experience. Nita Anay has started to gather former managers, Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people and build up the
organization. All they need is the finance and the products to sell.[19]
On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of the established
fact that he presided over meetings regarding matters affecting the operation of the business. Moreover, his having authorized
in writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that private respondent should
receive thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than that he had a
proprietary interest in the business. His claim that he was merely a guarantor is belied by that personal act of proprietorship in
the business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code,
[20]
he should have presented documentary evidence therefor. While Article 2055 of the Civil Code simply provides that

29

guaranty must be express, Article 1403, the Statute of Frauds, requires that a special promise to answer for the debt, default or
miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model, [22] was also a capitalist in the partnership. She claimed that she herself financed
the business. Her and petitioner Belos roles as both capitalists to the partnership with private respondent are buttressed by
petitioner Tocaos admissions that petitioner Belo was her boyfriend and that the partnership was not their only business
venture together. They also established a firm that they called Wiji, the combination of petitioner Belos first name, William, and
her nickname, Jiji.[23] The special relationship between them dovetails with petitioner Belos claim that he was acting in behalf of
petitioner Tocao. Significantly, in the early stage of the business operation, petitioners requested West Bend Company to allow
them to utilize their banking and trading facilities in Singapore in the matter of importation and payment of the cookware
products.[24] The inevitable conclusion, therefore, was that petitioners merged their respective capital and infused the amount
into the partnership of distributing cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship
between petitioners and private respondent. While it is true that the receipt of a percentage of net profits constitutes only prima
facie evidence that the recipient is a partner in the business, [25] the evidence in the case at bar controverts an employeremployee relationship between the parties. In the first place, private respondent had a voice in the management of the affairs
of the cookware distributorship,[26] including selection of people who would constitute the administrative staff and the sales
force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She admitted that, like her
who owned Geminesse Enterprise,[27] private respondent received only commissions and transportation and representation
allowances[28] and not a fixed salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go over this. Exh. Y
is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you please go over this and tell the
Honorable Court whether you ever came across this document and know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage for promotions,
advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: Overrides Marjorie
Ann Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission, representation,
advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same P21,410.50 is
merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense because of her
expertise in the business she is vital to my business. So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company P21,140.50 is
your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.

Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there you will
acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received the same
amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall receive the same
income in the business. In a partnership, each partner must share in the profits and losses of the venture, except that the
industrial partner shall not be liable for the losses.[31] As an industrial partner, private respondent had the right to demand for a
formal accounting of the business and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole proprietorship,
is of no moment. What was registered with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that
enterprise.[33] While it is true that in her undated application for renewal of registration of that firm name, petitioner Tocao
indicated that it would be engaged in retail of kitchenwares, cookwares, utensils, skillet, [34] she also admitted that the enterprise
was only 60% to 70% for the cookware business, while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used only for practical reasons - it was
utilized as the common name for petitioner Tocaos various business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremitted stocks of
Geminesse Enterprise amounting to P208,250.00. [36]Obviously a ploy to offset the damages awarded to private respondent,
that claim, more than anything else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this Court
said:
The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the
unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been
terminated, the petitioner and private complainant remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been unceremoniously booted out of the partnership in October
1987, she still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself and/or for
petitioner Belo financial gains resulting from private respondents efforts to make the business venture a success. Thus, as
petitioner Tocao became adept in the business operation, she started to assert herself to the extent that she would even shout
at private respondent in front of other people.[38] Her instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation, [39]and resulted in a falling out between the two. However, a
mere falling out or misunderstanding between partners does not convert the partnership into a sham organization. [40] The
partnership exists until dissolved under the law. Since the partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of
a partner. Thus:
x x x. 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 partners

30

capability to give it, and the absence of 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 but that it can result in a liability for damages. [41]
An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a
partnership, the doctrine of delectus personaeallows the partners to have the power, although not necessarily the right to
dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to
the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of
Geminesse Enterprise.[43] By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered
herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in petitioners
claim for stocks that had been entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings upon which it is based is primarily
the task of the trial court.[45] The Court of Appeals may modify that amount only when its factual findings are diametrically
opposed to that of the lower court, [46] or the award is palpably or scandalously and unreasonably excessive. [47] However,
exemplary damages that are awarded by way of example or correction for the public good, [48] should be reduced to
P50,000.00, the amount correctly awarded by the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted on
account of the award of exemplary damages and petitioners evident bad faith in refusing to satisfy private respondents plainly
valid, just and demandable claims,[49] appear to have been excessively granted by the trial court and should therefore be
reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private
respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership
pursuant to the pertinent provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court and the Court of Appeals are
AFFIRMED with MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987
and 1988, pursuant to Article 1809 of the Civil Code, in order to determine private respondents ten percent (10%) share in the
net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition since the time private respondent was wrongfully excluded from
the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total production which,
for the period covering January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of P50,000.00,
exemplary damages in the amount of P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.
[17]

Civil Code, Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property,
shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the
members thereof to third persons.

[20]

Civil Code, Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known; there
can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured.
Article 1768
THIRD DIVISION
[G.R. No. 143340. August 15, 2001]
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T. CHUA, respondent.
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision [1] of the Court of
Appeals dated January 31, 2000 in the case entitled Lamberto T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May 23, 2000 denying the motion for
reconsideration of herein petitioners Lilibeth Sunga Chan and Cecilia Sunga (hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga Chan (hereafter
petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto L.
Sunga (hereafter Jacinto), for Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages
with Writ of Preliminary Attachment with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane
Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto allegedly agreed to register the
business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of Jacinto as a
sole proprietorship. Respondent allegedly delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in
turn produced P100,000.00 as his counterpart contribution, with the intention that the profits would be equally divided between
them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the wife
of respondent, Erlinda Sy. As compensation, Jacinto would receive a managers fee or remuneration of 10% of the gross profit
and Josephine would receive 10% of the net profits, in addition to her wages and other remuneration from the business.
Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went quite well and
was profitable. Respondent claimed that he could attest to the success of their business because of the volume of orders and
deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto furnished
respondent with the merchandise inventories, balance sheets and net worth of Shellite from 1977 to 1989, respondent
however suspected that the amount indicated in these documents were understated and undervalued by Jacinto and
Josephine for their own selfish reasons and for tax avoidance.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his daughter,
petitioner Lilibeth, took over the operations, control, custody, disposition and management of Shellite without respondents
consent.
Despite respondents repeated demands upon petitioners for accounting, inventory, appraisal, winding up and restitution
of his net shares in the partnership, petitioners failed to comply.Petitioner Lilibeth allegedly continued the operations of Shellite,
converting to her own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis and reasons to evade respondents
demands, she disbursed out of the partnership funds the amount of P200,000.00 and partially paid the same to
respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented partial payment of the latters
share in the partnership, with a promise that the former would make the complete inventory and winding up of the properties of

31

the business establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to account, and
continued to benefit from the assets and income of Shellite to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and Exchange
Commission (SEC) in Manila, not the Regional Trial Court in Zambaonga del Norte had jurisdiction over the
action. Respondent opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims, contending that they are not liable
for partnership shares, unreceived income/profits, interests, damages and attorneys fees, that respondent does not have a
cause of action against them, and that the trial court has no jurisdiction over the nature of the action, the SEC being the
agency that has original and exclusive jurisdiction over the case. As counterclaim, petitioner sought attorneys fees and
expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for winding up of
partnership affairs, accounting and recovery of shares in partnership affairs, accounting and recovery of shares in partnership
assets /properties should be dismissed and prosecuted against the estate of deceased Jacinto in a probate or intestate
proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the Court of
Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, as petitioners failed to
show that a reversible error was committed by the appellate court."[2]
On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded to the trial court
on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the case on January
17, 1996. Respondent presented his evidence while petitioners were considered to have waived their right to present evidence
for their failure to attend the scheduled date for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive portion of the Decision
reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the
properties, assets, income and profits of the Shellite Gas Appliance Center since the time of death of Jacinto L. Sunga, from
whom they continued the business operations including all businesses derived from the Shellite Gas Appliance Center; submit
an inventory, and appraisal of all these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or
disapproval;
(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they
misapplied and converted to their own use and advantage that legally pertain to the plaintiff and account for the properties
mentioned in pars. A and B on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the partnership of the listed
properties, assets and good will (sic) in schedules A, B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to may 30,
1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest until
fully paid;

(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after
delivering to the plaintiff all the interest, shares, participation and equity in the partnership, or the value thereof in money or
moneys worth, if the properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the plaintiff
the sum of P50,000.00 as moral and exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic) and P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all respects.[4]
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon the following grounds:
1. The Court of Appeals erred in making a legal conclusion that there existed a partnership between respondent
Lamberto T. Chua and the late Jacinto L. Sunga upon the latters invitation and offer and that upon his death
the partnership assets and business were taken over by petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription did not apply in the
instant case.
3. The Court of Appeals erred in making the legal conclusion that there was competent and credible evidence to
warrant the finding of a partnership, and assuming arguendo that indeed there was a partnership, the finding
of highly exaggerated amounts or values in the partnership assets and profits.[5]
Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a partnership existed
between respondent and Jacinto from 1977 until Jacintos death.In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners argue that these courts were proscribed from hearing the testimonies
of respondent and his witness, Josephine, to prove the alleged partnership three years after Jacintos death. To support this
argument, petitioners invoke the Dead Mans Statute or Survivorship Rule under Section 23, Rule 130 of the Rules of Court
that provides:
SEC. 23. Disqualification by reason of death or insanity of adverse party.-- Parties or assignors of parties to a case, or persons
in whose behalf a case is prosecuted, against an executor or administrator or other representative of a deceased person, or
against a person of unsound mind, upon a claim or demand against the estate of such deceased person, or against such
person of unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased person or before
such person became of unsound mind.
Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego, Josephine, should not have
been admitted to prove certain claims against a deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
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. [6] Hence, based on the intention of the parties, as gathered from the facts
and ascertained from their language and conduct, a verbal contract of partnership may arise. [7] The essential points that must
be proven to show that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest
in the profits.[8] Understandably so, in view of the absence of a written contract of partnership between respondent and Jacinto,
respondent resorted to the introduction of documentary and testimonial evidence to prove said partnership. The crucial issue
to settle then is whether or not the Dead Mans Statute applies to this case so as to render inadmissible respondents testimony
and that of his witness, Josephine.

32

The Dead Mans Statute provides that if one party to the alleged transaction is precluded from testifying by death,
insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage of giving his own uncontradicted
and unexplained account of the transaction. [9] But before this rule can be successfully invoked to bar the introduction of
testimonial evidence, it is necessary that:
1. The witness is a party or assignor of a party to a case or persons in whose behalf a case is prosecuted.
2. The action is against an executor or administrator or other representative of a deceased person or a person of
unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against
person of unsound mind;
4. His testimony refers to any matter of fact which occurred before the death of such deceased person or before
such person became of unsound mind.[10]
Two reasons forestall the application of the Dead Mans Statute to this case.
First, petitioners filed a compulsory counterclaim[11] against respondent in their answer before the trial court, and with the
filing of their counterclaim, petitioners themselves effectively removed this case from the ambit of the Dead Mans Statute.
[12]
Well entrenched is the rule that when it is the executor or administrator or representatives of the estate that sets up the
counterclaim, the plaintiff, herein respondent, may testify to occurrences before the death of the deceased to defeat the
counterclaim.[13] Moreover, as defendant in the counterclaim, respondent is not disqualified from testifying as to matters of fact
occurring before the death of the deceased, said action not having been brought against but by the estate or representatives of
the deceased.[14]
Second, the testimony of Josephine is not covered by the Dead Mans Statute for the simple reason that she is not a
party or assignor of a party to a case or persons in whose behalf a case is prosecuted. Records show that respondent offered
the testimony of Josephine to establish the existence of the partnership between respondent and Jacinto. Petitioners
insistence that Josephine is the alter ego of respondent does not make her an assignor because the term assignor of a party
means assignor of a cause of action which has arisen, and not the assignor of a right assigned before any cause of action has
arisen.[15] Plainly then, Josephine is merely a witness of respondent, the latter being the party plaintiff.
We are not convinced by petitioners allegation that Josephines testimony lacks probative value because she was
allegedly coerced by respondent, her brother-in-law, to testify in his favor. Josephine merely declared in court that she was
requested by respondent to testify and that if she were not requested to do so she would not have testified. We fail to see how
we can conclude from this candid admission that Josephines testimony is involuntary when she did not in any way
categorically say that she was forced to be a witness of respondent. Also, the fact that Josephine is the sister of the wife of
respondent does not diminish the value of her testimony since relationship per se, without more, does not affect the credibility
of witnesses.[16]
Petitioners reliance alone on the Dead Mans Statute to defeat respondents claim cannot prevail over the factual findings
of the trial court and the Court of Appeals that a partnership was established between respondent and Jacinto. Based not only
on the testimonial evidence, but the documentary evidence as well, the trial court and the Court of Appeals considered the
evidence for respondent as sufficient to prove the formation of a partnership, albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial precedents, a factual
matter like the finding of the existence of a partnership between respondent and Jacinto cannot be inquired into by this Court
on review.[17] This Court can no longer be tasked to go over the proofs presented by the parties and analyze, assess and weigh
them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of
evidence of one party or the other.[18] It must be also pointed out that petitioners failed to attend the presentation of evidence of
respondent. Petitioners cannot now turn to this Court to question the admissibility and authenticity of the documentary
evidence of respondent when petitioners failed to object to the admissibility of the evidence at the time that such evidence was
offered.[19]

With regard to petitioners insistence that laches and/or prescription should have extinguished respondents claim, we
agree with the trial court and the Court of Appeals that the action for accounting filed by respondent three (3) years after
Jacintos death was well within the prescribed period. The Civil Code provides that an action to enforce an oral contract
prescribes in six (6) years[20] while the right to demand an accounting for a partners interest as against the person continuing
the business accrues at the date of dissolution, in the absence of any contrary agreement. [21] Considering that the death of a
partner results in the dissolution of the partnership [22], in this case, it was after Jacintos death that respondent as the surviving
partner had the right to an account of his interest as against petitioners. It bears stressing that while Jacintos death dissolved
the partnership, the dissolution did not immediately terminate the partnership.The Civil Code [23] expressly provides that upon
dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business,
culminating in its termination.[24]
In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto, petitioners
maintain that said partnership that had an initial capital of P200,000.00 should have been registered with the Securities and
Exchange Commission (SEC) since registration is mandated by the Civil Code. True, Article 1772 of the Civil Code requires
that partnerships with a capital of P3,000.00 or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code[25]explicitly provides that the partnership retains its juridical personality even if it fails
to register. The failure to register the contract of partnership does not invalidate the same as among the partners, so long as
the contract has the essential requisites, because the main purpose of registration is to give notice to third parties, and it can
be assumed that the members themselves knew of the contents of their contract. [26] In the case at bar, non-compliance with
this directory provision of the law will not invalidate the partnership considering that the totality of the evidence proves that
respondent and Jacinto indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED.
SO ORDERED.
[20]

The following actions must be commenced within six years:

(1) Upon an oral contract; and
(2) Upon a quasi-contract.
[21]
Art. 1842, Civil Code:
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 of any
agreement to the contrary.
[22]
Article 1830, Civil Code.
[23]
Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing
to be associated in the carrying on as distinguished from the winding up of the business.
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is
completed.
[25]
The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to
comply with the requirements of article 1772, first paragraph.
THIRD DIVISION
[G.R. No. 144214. July 14, 2003]
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, petitioners, vs. DONALDO EFREN C.
RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ, respondents.
DECISION

33

A share in a partnership can be returned only after the completion of the latters dissolution, liquidation and winding up of
the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision [1] and the July 26, 2000
Resolution[2] of the Court of Appeals[3] (CA) in CA-GR CV No. 41026. The assailed Decision disposed as follows:
WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the Regional Trial Court, Branch
148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision is rendered ordering the [petitioners]
jointly and severally to pay and reimburse to [respondents] the amount of P253,114.00. No pronouncement as to costs.[4]
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital
of P750,000 for the operation of a restaurant and catering business under the name Aquarius Food House and Catering
Services.[5] Villareal was appointed general manager and Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984. His capital
contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita Ramirez.[6]
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000 was refunded to
him in cash by agreement of the partners.[7]
In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because
of increased rental. The restaurant furniture and equipment were deposited in the respondents house for storage.[8]
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in continuing their
partnership or in reopening the restaurant, and that they were accepting the latters offer to return their capital contribution. [9]
On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration of the restaurant
furniture and equipment stored in their house.She also reiterated the request for the return of their one-third share in the equity
of the partnership. The repeated oral and written requests were, however, left unheeded.[10]
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a Complaint [11] dated
November 10, 1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the partnership and
had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that respondents had been paid, upon the
turnover to them of furniture and equipment worth over P400,000; and that the latter had no right to demand a return of their
equity because their share, together with the rest of the capital of the partnership, had been spent as a result of irreversible
business losses.[12]
In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant. According to
them, if such allegation were true, then the loans incurred by petitioners should be regarded as purely personal and, as such,
not chargeable to the partnership. The former further averred that they had not received any regular report or accounting from
the latter, who had solely managed the business. Respondents also alleged that they expected the equipment and the furniture
stored in their house to be removed by petitioners as soon as the latter found a better location for the restaurant. [13]
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture and
Equipment[14] on July 8, 1988. The furniture and the equipment stored in their house were inventoried and appraised
at P29,000.[15] The display freezer was sold for P5,000 and the proceeds were paid to them.[16]
After trial, the RTC[17] ruled that the parties had voluntarily entered into a partnership, which could be dissolved at any
time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the trial court, in its July 21,
1992 Decision, held them liable as follows:[18]
WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners] ordering the [petitioners] to
pay jointly and severally the following:

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

(b) Attorneys fee in the amount of P30,000.00
(c) Costs of suit.
The CA Ruling
The CA held that, although respondents had no right to demand the return of their capital contribution, the partnership
was nonetheless dissolved when petitioners lost interest in continuing the restaurant business with them. Because petitioners
never gave a proper accounting of the partnership accounts for liquidation purposes, and because no sufficient evidence was
presented to show financial losses, the CA computed their liability as follows:
Consequently, since what has been proven is only the outstanding obligation of the partnership in the amount of P240,658.00,
although contracted by the partnership before [respondents] have joined the partnership but in accordance with Article 1826 of
the New Civil Code, they are liable which must have to be deducted from the remaining capitalization of the said partnership
which is in the amount of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share of
[respondents], this amount of P759,342.00 must be divided into three (3) shares or in the amount of P253,114.00 for each
share and which is the only amount which [petitioner] will return to [respondents] representing the contribution to the
partnership minus the outstanding debt thereof.[19]
Hence, this Petition.[20]
Issues
In their Memorandum,[21] petitioners submit the following issues for our consideration:
9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the capital contribution, instead of the net
capital after the dissolution and liquidation of a partnership, thereby treating the capital contribution like a loan, is in
accordance with law and jurisprudence;
9.2. Whether the Honorable Court of Appeals decision ordering the petitioners to jointly and severally pay and reimburse the
amount of [P]253,114.00 is supported by the evidence on record; and
9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs.[22]
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the latters share in the
partnership; (2) whether the CAs computation of P253,114 as respondents share is correct; and (3) whether the CA was
likewise correct in not assessing costs.
This Courts Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on March 1,
1987. They found that the dissolution took place when respondents informed petitioners of the intention to discontinue it
because of the formers dissatisfaction with, and loss of trust in, the latters management of the partnership affairs. These
findings were amply supported by the evidence on record. Respondents consequently demanded from petitioners the return of
their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their equity share. Except as managers
of the partnership, petitioners did not personally hold its equity or assets. The partnership has a juridical personality separate
and distinct from that of each of the partners. [23] Since the capital was contributed to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring partners.[24]
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to
be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which

34

consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be
compensated.[25] After all the creditors have been paid, whatever is left of the partnership assets becomes available for the
payment of the partners shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents one-third share in the partnership
cannot be determined until all the partnership assets will have been liquidated -- in other words, sold and converted to cash -and all partnership creditors, if any, paid. The CAs computation of the amount to be refunded to respondents as their share
was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total capital contribution was equivalent
to the gross assets to be distributed to the partners at the time of the dissolution of the partnership. We cannot sustain the
underlying idea that the capital contribution at the beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative, conjectural and totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased by
losses sustained. It does not remain static and unaffected by the changing fortunes of the business. In the present case, the
financial statements presented before the trial court showed that the business had made meager profits. [26] However, notable
therefrom is the omission of any provision for the depreciation[27] of the furniture and the equipment. The amortization of the
goodwill[28] (initially valued at P500,000) is not reflected either. Properly taking these non-cash items into account will show that
the partnership was actually sustaining substantial losses, which consequently decreased the capital of the partnership. Both
the trial and the appellate courts in fact recognized the decrease of the partnership assets to almost nil, but the latter failed to
recognize the consequent corresponding decrease of the capital.
Second, the CAs finding that the partnership had an outstanding obligation in the amount of P240,658 was not
supported by evidence. We sustain the contrary finding of the RTC, which had rejected the contention that the obligation
belonged to the partnership for the following reason:
x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The balance sheet (Exh. 4)
does not reveal the total loan. The Agreement (Exh. A) par. 6 shows an outstanding obligation of P240,055.00 which the
partnership owes to different creditors, while the Certification issued by Mercator Finance (Exh. 8) shows that it was Sps.
Diogenes P. Villareal and Luzviminda J. Villareal, the former being the nominal party defendant in the instant case, who
obtained a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed.
Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the partnership to Jesus
Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually reduced. When petitioners and
respondents ventured into business together, they should have prepared for the fact that their investment would either grow or
shrink. In the present case, the investment of respondents substantially dwindled. The original amount of P250,000 which they
had invested could no longer be returned to them, because one third of the partnership properties at the time of dissolution did
not amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or disastrous
contracts they have entered into with all the required formalities and with full awareness of what they were doing. Courts have
no power to relieve them from obligations they have voluntarily assumed, simply because their contracts turn out to be
disastrous deals or unwise investments.[29]
Petitioners further argue that respondents acted negligently by permitting the partnership assets in their custody to
deteriorate to the point of being almost worthless.Supposedly, the latter should have liquidated these sole tangible assets of
the partnership and considered the proceeds as payment of their net capital. Hence, petitioners argue that the turnover of the
remaining partnership assets to respondents was precisely the manner of liquidating the partnership and fully settling the
latters share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the purpose of
storage. They were unaware that the restaurant would no longer be reopened by petitioners. Hence, the former cannot be
faulted for not disposing of the stored items to recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules, costs shall be allowed to the
prevailing party as a matter of course, but the court shall have power, for special reasons, to adjudge that either party shall pay
the costs of an action, or that the same be divided, as may be equitable. No costs shall be allowed against the Republic of the
Philippines unless otherwise provided by law.
Although, as a rule, costs are adjudged against the losing party, courts have discretion, for special reasons, to decree
otherwise. When a lower court is reversed, the higher court normally does not award costs, because the losing party relied on
the lower courts judgment which is presumed to have been issued in good faith, even if found later on to be erroneous. Unless
shown to be patently capricious, the award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This disposition is
without prejudice to proper proceedings for the accounting, the liquidation and the distribution of the remaining partnership
assets, if any. No pronouncement as to costs.
SO ORDERED.
[25]

Article 1839 of the Civil Code provides thus:

Article 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any
agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing the partners in respect of profits.
(3) The assets shall applied in the order of their declaration in No.1 of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of
the amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a court for distribution,
partnership creditors shall have priority on partnership property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the
following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partnership by way of contribution.

35

[27]

As an accepted business practice, furniture and equipment are depreciated over five years to recognize the decrease in
their value due to wear and tear.
[28]
As an accepted business practice, 1/5 of the original value of goodwill is charged as a business expense every year, such
that at the end of five years goodwill no longer appears as an asset of the business.

SECOND DIVISION
[G.R. No. 127347. November 25, 1999]
ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
DECISION
This is a petition for review on certiorari of the decision[1] of the Court of Appeals, dated November 29, 1990, which
reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial court
dismissed the petition for declaration of nullity of a deed of sale filed by private respondent Felicidad S. Vda. de Abrogar
against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private respondent
and her late husband, Ruben M. Abrogar, were the registered owners of a house and lot, covered by Transfer Certificate of
Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the consent of her late husband, and
A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property from the FIRST PARTY
[Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed of Absolute Sale shall be executed by the FIRST
PARTY conveying the property to the SECOND PARTY for and in consideration of the sum of Two Hundred Thousand Pesos
(P200,000.00), Philippine Currency;

(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her ownership of the property and shall defend
the rights of the SECOND PARTY against any party whom may have any interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND PARTY after the expiration of
the 15-day grace period given in paragraph 3 above, the FIRST PARTY shall pay an amount equivalent to Five Percent of the
principal amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per month of delay as and for rentals and liquidated
damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within ninety (90) days period abovementioned, this memorandum of agreement shall be deemed cancelled and the Deed of Absolute Sale, executed by the
parties shall be the final contract considered as entered between the parties and the SECOND PARTY shall proceed to
transfer ownership of the property above described to its name free from lines and encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale, [3] dated June 11, 1991, wherein
private respondent, with the consent of her late husband, sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000.00. In a special power of attorney dated the same day, April 18, 1991, private respondent authorized
petitioner to cause the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject property as provided in the Memorandum of Agreement. [4]
Private respondent failed to redeem the property within the 90-day period as provided in the Memorandum of
Agreement. Hence, pursuant to the special power of attorney mentioned above, petitioner caused the cancellation of TCT No.
195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co.[5]
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila
& Sons, Co., demanding that she vacate the premises within 15 days after receipt of the letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the appropriate action in court.[6]

(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said property within a period of
ninety (90) days from the execution of this memorandum of agreement effective April 18, 1991, for the amount of TWO
HUNDRED THIRTY THOUSAND PESOS (P230,000.00);

Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an ejectment case
against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the
Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private respondent did not redeem the
subject property before the expiration of the 90-day period provided in the Memorandum of Agreement. Private respondent
appealed first to the Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of Appeals, and later to this
Court, but she lost in all the cases.

(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said property within a period of ninety (90)
days, the FIRST PARTY is obliged to deliver peacefully the possession of the property to the SECOND PARTY within fifteen
(15) days after the expiration of the said 90 day grace period;

Private respondent then filed a petition for declaration of nullity of a deed of sale with the Regional Trial Court, Branch
273, Marikina, Metro Manila on December 4, 1993. She alleged that the signature of her husband on the deed of sale was a
forgery because he was already dead when the deed was supposed to have been executed on June 11, 1991.

(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or whatever claims on the
property nor shall be cause the annotation of say claim at the back of the title to the said property;

It appears, however, that private respondent had filed a criminal complaint for falsification against petitioner with the
Office of the Prosecutor of Quezon City which was dismissed in a resolution, dated February 14, 1994.

36

On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:

Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they could not personally appear before Notary
Public Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben Abrogar, died on May 8, 1991 or one month and 2
days before the execution of the Deed of Absolute Sale, while the plaintiff was still in the Quezon City Medical Center
recuperating from wounds which she suffered at the same vehicular accident on May 8, 1991, cannot be sustained. The Court
is convinced that the three required documents, to wit: the Memorandum of Agreement, the Special Power of Attorney, and the
Deed of Absolute Sale were all signed by the parties on the same date on April 18, 1991. It is a common and accepted
business practice of those engaged in money lending to prepare an undated absolute deed of sale in loans of money secured
by real estate for various reasons, foremost of which is the evasion of taxes and surcharges. The plaintiff never questioned
receiving the sum of P200,000.00 representing her loan from the defendant. Common sense dictates that an established
lending and realty firm like the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar spouses, who are virtual
strangers to it, without the simultaneous accomplishment and signing of all the required documents, more particularly the Deed
of Absolute Sale, to protect its interest.
....
WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED DISMISSED, with costs against the
plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and defendant-appellee is indubitably an
equitable mortgage. Article 1602 of the New Civil Code finds strong application in the case at bar in the light of the following
circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually inadequate. The property is a two hundred
forty (240) sq. m. lot. On said lot, the residential house of plaintiff-appellant stands. The property is inside a
subdivision/village. The property is situated in Marikina which is already part of Metro Manila. The alleged sale took place in
1991 when the value of the land had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square meter for both the land and for
the house.

Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the property sold. It is well-known that
payment of taxes accompanied by actual possession of the land covered by the tax declaration, constitute evidence of great
weight that a person under whose name the real taxes were declared has a claim of right over the land.
It is well-settled that the presence of even one of the circumstances in Article 1602 of the New Civil Code is sufficient to
declare a contract of sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually inadequate, has retained possession of the
subject property and has continued paying the realty taxes over the subject property, (circumstances mentioned in par. (1) (2)
and (5) of Article 1602 of the New Civil Code), it must be conclusively presumed that the transaction the parties actually
entered into is an equitable mortgage, not a sale with right to repurchase. The factors cited are in support to the finding that the
Deed of Sale/Memorandum of Agreement with right to repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was executed by reason of the loan extended by
defendant-appellee to plaintiff-appellant. The amount of loan being the same with the amount of the purchase price.
....
Since the real intention of the party is to secure the payment of debt, now deemed to be repurchase price: the transaction shall
then be considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a pactum commissorium which is clearly
prohibited by Article 2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation
to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there should be a pledge or
mortgage wherein a property is pledged or mortgaged by way of security for the payment of principal obligation; and (2) that
there should be a stipulation for an automatic appropriation by the creditor of the thing pledged and mortgaged in the event of
non-payment of the principal obligation within the stipulated period.

Second: The disputed Memorandum of Agreement specifically provides that plaintiff-appellant is obliged to deliver peacefully
the possession of the property to the SECOND PARTY within fifteen (15) days after the expiration of the said ninety (90) day
grace period. Otherwise stated, plaintiff-appellant is to retain physical possession of the thing allegedly sold.

In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant secured by a mortgage on the
property of plaintiff-appellant. The loan was payable within ninety (90) days, the period within which plaintiff-appellant can
repurchase the property. Plaintiff-appellant will pay P230,000.00 and not P200,000.00, the P30,000.00 excess is the interest
for the loan extended. Failure of plaintiff-appellee to pay the P230,000,00 within the ninety (90) days period, the property shall
automatically belong to defendant-appellee by virtue of the deed of sale executed.

In fact, plaintiff-appellant retained possession of the property sold as if they were still the absolute owners. There was no
provision for maintenance or expenses, much less for payment of rent.

Clearly, the agreement entered into by the parties is in the nature of pactum commissorium. Therefore, the deed of sale
should be declared void as we hereby so declare to be invalid, for being violative of law.
....

37

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. The questioned Deed of
Sale and the cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant and the issuance of TCT No. 267073
issued in favor of defendant-appellee pursuant to the questioned Deed of Sale is hereby declared VOID and is hereby
ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of Marikina is hereby ordered REINSTATED. The loan in
the amount of P230,000.00 shall be paid within ninety (90) days from the finality of this decision. In case of failure to pay the
amount of P230,000.00 from the period therein stated, the property shall be sold at public auction to satisfy the mortgage debt
and costs and if there is an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against which this case should
have been brought; (2) the judgment in the ejectment case is a bar to the filing of the complaint for declaration of nullity of a
deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and private respondent is a pacto de retro sale
and not an equitable mortgage as held by the appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that every action must
be prosecuted and defended in the name of the real party in interest. A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of the suit. [7] This ruling is now embodied in Rule 3, 2 of the 1997
Revised Rules of Civil Procedure. Any decision rendered against a person who is not a real party in interest in the case cannot
be executed.[8] Hence, a complaint filed against such a person should be dismissed for failure to state a cause of action. [9]
Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and distinct from that of each of the
partners. The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair, or illegal purposes. [10] In this case, private respondent has not
shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of
Agreement was executed between private respondent, with the consent of her late husband, and A. C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not its officers or agents, which should be impleaded in any litigation
involving property registered in its name. A violation of this rule will result in the dismissal of the complaint. [11] We cannot
understand why both the Regional Trial Court and the Court of Appeals sidestepped this issue when it was squarely raised
before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this action should be prosecuted makes it
unnecessary to discuss the other issues raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint against petitioner is
DISMISSED.
SO ORDERED.

Article 1769

SECOND DIVISION
[G.R. No. 126881. October 3, 2000]
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY, respondents.
DECISION
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the Decision [1] dated March 13, 1996 of the
former Fifth Division[2] of the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent,
joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF
TAN ENG KEE, filed suit against the decedents brother TAN ENG LAY on February 19, 1990. The complaint,[3] docketed as
Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an
amended complaint[4] impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng
Lay. The amended complaint was admitted by the trial court in its Order dated May 3, 1991.[5]
The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling
their resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise Benguet Lumber which they jointly managed until Tan Eng Kees
death. Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners. However,
they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership Benguet Lumber into a
corporation called Benguet Lumber Company. The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs
of their rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment[6]on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint adventure which is akin to a particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a business venture
and/or particular partnership called Benguet Lumber and as such should share in the profits and/or losses of the business
venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co. Inc. and as such the
heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a particular partnership
have descended to the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet Lumber Company Inc. to
render an accounting of all the assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the
business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber Company, Inc. until
such time that said corporation is finally liquidated are directed to submit the name of any person they want to be appointed as
receiver failing in which this Court will appoint the Branch Clerk of Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.

38

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision
reversing the judgment of the trial court.Petitioners motion for reconsideration [7] was denied by the Court of Appeals in a
Resolution[8] dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn Tan for the
use of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits 4 to 4-U offered by the
defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber,
were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial
documents by a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges
were filed, rendered judgment[9] dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN
THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B)
THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME
FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG
KEE WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE
DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP
JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES
AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET
LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET
LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO
BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE
18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH
THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT
KNOWN IN BAUGIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN
THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF

BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT
ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be disturbed on
appeal if such are supported by the evidence. [10]Our jurisdiction, it must be emphasized, does not include review of factual
issues. Thus:
Filing of petition with Supreme Court.-A party desiring to appeal by certiorari from a judgment or final order or resolution of the
Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly
set forth.[11] [italics supplied]
Admitted exceptions have been recognized, though, and when present, may compel us to analyze the evidentiary basis
on which the lower court rendered judgment.Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings are contrary to the
admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a different
conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record.[12]
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the existence of a
partnership, the Court in turn went beyond that by justifying the existence of a joint adventure.
When mention is made of a joint adventure, it would presuppose parity of standing between the parties, equal proprietary
interest and the exercise by the parties equally of the conduct of the business, thus:
xxx xxx xxx xxx
We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before the war. The appellees
however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet Lumber
were confiscated if not burned by the Japanese. After the war, because of the absence of capital to start a lumber and
hardware business, Lay and Kee pooled the proceeds of their individual businesses earned from buying and selling military
supplies, so that the common fund would be enough to form a partnership, both in the lumber and hardware business. That
Lay and Kee actually established the Benguet Lumber in Baguio City, was even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were
partners, is obvious from the fact that: (1) they conducted the affairs of the business during Kees lifetime, jointly, (2) they were
the ones giving orders to the employees, (3) they were the ones preparing orders from the suppliers, (4) their families stayed
together at the Benguet Lumber compound, and (5) all their children were employed in the business in different capacities.
xxx xxx xxx xxx
It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads
submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration

39

of the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kees
death in 1984. It had no business book, no written account nor any memorandum for that matter and no license mentioning the
existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4, 1971, Exhibit 2,
mentioned co-defendant Lay as the only registered owner of the Benguet Lumber and Hardware. His application for
registration, effective 1954, in fact mentioned that his business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber Company, on the basis of his SSS
coverage effective 1958, Exhibit 3. In the Payrolls, Exhibits 4 to 4-U, inclusive, for the years 1982 to 1983, Kee was similarly
listed only as an employee; precisely, he was on the payroll listing. In the Termination Notice, Exhibit 5, Lay was mentioned
also as the proprietor.
xxx xxx xxx xxx
We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but when an immovable
is constituted, the execution of a public instrument becomes necessary. This is equally true if the capitalization exceeds
P3,000.00, in which case a public instrument is also necessary, and which is to be recorded with the Securities and Exchange
Commission. In this case at bar, we can easily assume that the business establishment, which from the language of the
appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real properties
and to the fact that it is now a compound. The execution of a public instrument, on the other hand, was never established by
the appellees.
And then in 1981, the business was incorporated and the incorporators were only Lay and the members of his family. There is
no proof either that the capital assets of the partnership, assuming them to be in existence, were maliciously assigned or
transferred by Lay, supposedly to the corporation and since then have been treated as a part of the latters capital assets,
contrary to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk house in Trinidad, but
within the compound of the lumber establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated on a table
and were commanding people as testified to by the son, Elpidio Tan; 3) that both were supervising the laborers, as testified to
by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80 pieces of the G.I.
sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written. However, if it involves
real property or where the capital is P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the parties
to execute the contract; 3) money property or industry contribution; 4) community of funds and interest, mentioning equality of
the partners or one having a proportionate share in the benefits; and 5) intention to divide the profits, being the true test of the
partnership. The intention to join in the business venture for the purpose of obtaining profits thereafter to be divided, must be
established. We cannot see these elements from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG KEE
and TAN ENG LAY had allegedly entered into a joint adventure. In this connection, we have held that whether a partnership
exists is a factual matter; consequently, since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative
to the correctness of the assessment of the evidence by the court a quo.[13] Inasmuch as the Court of Appeals and the trial
court had reached conflicting conclusions, perforce we must examine the record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of
partnership is defined by law as one where:
xxx 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.
Two or more persons may also form a partnership for the exercise of a profession.[14]

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute
money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves. [15] The agreement
need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1)
when immovable property or real rights are contributed,[16] and (2) when the partnership has a capital of three thousand pesos
or more.[17] In both cases, a public instrument is required. [18] An inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the
partnership.[19]
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint adventure, which it said is akin to
a particular partnership.[20] A particular partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no
firm name and no legal personality. In a joint account, the participating merchants can transact business
under their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of
pursuing to a successful termination may continue for a number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind.[21]
A joint adventure presupposes generally a parity of standing between the joint co-ventures or partners, in which each
party has an equal proprietary interest in the capital or property contributed, and where each party exercises equal rights in the
conduct of the business.[22] Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al., [23] we
expressed the view that a joint adventure may be likened to a particular partnership, thus:
The legal concept of a joint adventure is of common law origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly
distinguishable from the partnership, since their elements are similar-community of interest in the business, sharing of profits
and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most
opinions in common law jurisdiction is that the partnership contemplates a general business with some degree of continuity,
while the joint adventure is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann.
116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811
[1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular
or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint adventure is a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however engage in a joint adventure with others. (At p.
12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation
Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but
there is none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New
Civil Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well
be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect on
August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a partnership
existed based purely on circumstantial evidence. A review of the record persuades us that the Court of Appeals correctly
reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to
establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded
on the precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an

40

established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a
partnership. The testimonies to that effect of petitioners witnesses is directly controverted by Tan Eng Lay. It should be noted
that it is not with the number of witnesses wherein preponderance lies; [24] the quality of their testimonies is to be
considered. None of petitioners witnesses could suitably account for the beginnings of Benguet Lumber Company, except
perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo. [25] He stated that when he met Tan Eng Kee
after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.[26] Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his brother.
[27]
Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only later on that his said
brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically here, of the G.I.
sheets) is not an indicium of the existence of a partnership.[28]
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan
Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses.
[29]
Each has the right to demand an accounting as long as the partnership exists. [30] We have allowed a scenario wherein [i]f
excellent relations exist among the partners at the start of the 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. [31] But in the situation in
the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of his
concerns.[32] As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did not furnish any help or
intervention in the management of the theatre. In the third place, it does not appear that she has even demanded from
defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were
correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to
receive her share of P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. A), which shows that both parties considered this offer as the real contract between them.
[33]
[italics supplied]
A demand for periodic accounting is evidence of a partnership. [34] During his lifetime, Tan Eng Kee appeared never to have
made any such demand for accounting from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits 4 to 4-U for private respondents, consisting of payrolls purporting to show that
Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. The authenticity of these documents was
questioned by petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife and children. As
aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits 4 to 4-U in fact shows that Tan Eng Kee
received sums as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or
do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint
or common right or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business,
but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(b) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if the
payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not present and
offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share in the profits of
the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of
Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended
to divide the profits of the business between themselves, which is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of
circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were supervising the
employees; that both were the ones who determined the price at which the stocks were to be sold; and that both placed orders
to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan
Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges granted in favor of
Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long, therefore,
that an employees position is higher in rank, it is not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from
suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily have to perform this
particular task. It is, thus, not an indication that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was not accorded to other
employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal relations
existed between them. Whatever privileges Tan Eng Lay gave his brother, and which were not given the other employees, only
proves the kindness and generosity of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarrelling with Tan Eng Lay in connection with the pricing of stocks, this
does not adequately prove the existence of a partnership relation between them. Even highly confidential employees and the
owners of a company sometimes argue with respect to certain matters which, in no way indicates that they are partners as to
each other.[35]
In the instant case, we find private respondents arguments to be well-taken. Where circumstances taken singly may be
inadequate to prove the intent to form a partnership, nevertheless, the collective effect of these circumstances may be such as
to support a finding of the existence of the parties intent.[36] Yet, in the case at bench, even the aforesaid circumstances when
taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the
operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of the
family, he occupied a niche above the rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he
not kin, such as his residence in the Benguet Lumber Company compound. He would have moral, if not actual, superiority over
his fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place
orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the conclusion
desired; these are not inconsistent with the powers and duties of a manager, even in a business organized and run as
informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the
petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is hereby
AFFIRMED in toto. No pronouncement as to costs.

41

SO ORDERED.

from that of unregistered partnerships which are considered as "corporations" under Sections 24 and 84(b) of the National
Internal Revenue Code.

[18]

Note, however, Article 1768 of the Civil Code which provides: The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first
paragraph.
[20]
A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of
a profession or vocation. (Civil Code, Art. 1783)
SECOND DIVISION
[G.R. No. L-19342. May 25, 1972.]
LORENZO T. OA, and HEIRS OF JULIA BUNALES, namely: RODOLFO B. OA, MARIANO B. OA, LUZ B. OA,
VIRGINIA B. OA, and LORENZO B. OA, JR., Petitioners, v. THE COMMISSIONER OF INTERNAL
REVENUE, Respondent.

5. ID.; ID.; ID.; ID.; SEGREGATION OF INCOME FROM BUSINESS FROM THAT OF INHERITED PROPERTIES, NOT
PROPER. Where the inherited properties and the income derived therefrom were used in business of buying and selling
other real properties and corporate securities, the partnership income must include not only the income derived from the
purchase and sale of other properties but also the income of the inherited properties.
6. ID.; ID.; INCOME TAX; ACTION FOR REIMBURSEMENT SUBJECT TO PRESCRIPTION. A taxpayer who has paid the
wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate, has the right to be reimbursed
what he has erroneously paid, but the law is very clear that the claim and action for such reimbursement are subject to the bar
of prescription. And since the period for the recovery of the excess income taxes in the case of herein petitioners has already
lapsed, it would not seem right to virtually disregard prescription merely upon the ground that the reason for the delay is
precisely because the taxpayers failed to make the proper return and payment of the corporate taxes legally due from them.

SYLLABUS

DECISION

1. TAXATION; INTERNAL REVENUE CODE; CORPORATE TAX; UNREGISTERED PARTNERSHIP; FORMATION THEREOF
WHERE INCOME FROM SHARES OF CO-HEIRS CONTRIBUTED TO COMMON FUND. From the moment petitioners
allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be
used by Lorenzo T. Oa (who managed the properties) as a common fund in undertaking several transactions or in business,
with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such
incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the provisions
of the Tax Code.

Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding that
petitioners have constituted an unregistered partnership and are, therefore, subject to the payment of the deficiency corporate
income taxes assessed against them by respondent Commissioner of Internal Revenue for the years 1955 and 1956 in the
total sum of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of
Section 51 (e) (2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of the suit,
1 as well as the resolution of said court denying petitioners motion for reconsideration of said decision.

2. ID.; ID.; ID.; WHEN HEIRS NOT CONSIDERED AS UNREGISTERED CO-PARTNERS AND NOT SUBJECT TO SUCH
TAX. In cases of inheritance, there is a period when the heirs can be considered as co-owners rather than unregistered copartners within the contemplation of our corporate tax laws. Before the partition and distribution of the estate of the deceased,
all the income thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered copartners.

"Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her five children. In 1948,
Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo T.
Oa, the surviving spouse was appointed administrator of the estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April
14, 1949, the administrator submitted the project of partition, which was approved by the Court on May 16, 1949 (See Exhibit
K). Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the project of
partition was approved, Lorenzo T. Oa, their father and administrator of the estate, filed a petition in Civil Case No. 9637 of
the Court of First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed
him guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.).

3. ID.; ID.; ID.; CIRCUMVENTIONS OF SECTIONS 24 AND 84(b) OF TAX CODE WHEN HEIRS CONTINUE AS COOWNERS. For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered
partnership, for it is easily conceivable that after knowing their respective shares in the partition, they (heirs) might decide to
continue holding said shares under the common management of the administrator or executor or of anyone chosen by them
and engage in business on that basis. Withal, if this were not so, it would be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
4. ID.; ID.; ID., HEIRS AS UNREGISTERED CO-PARTNERS; PARTNERSHIP CONTEMPLATED IN CIVIL CODE NOT
APPLICABLE. Petitioners reliance on Article 1769, par. (3) of the Civil Code, providing that: "The sharing of gross returns
does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in
any property from which the returns are derived," and, for that matter, on any other provision of said code on partnerships is
unavailing. In Evangelista (102 Phil. 140), this Court clearly differentiated the concept of partnerships under the Civil Code

The facts are stated in the decision of the Tax Court as follows:jgc:chanrobles.com.ph

"The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half (1/2) interest in
ten parcels of land with a total assessed value of P87,860.00, six houses with a total assessed value of P17,590.00 and an
undetermined amount to be collected from the War Damage Commission. Later, they received from said Commission the
amount of P50,000.00, more or less. This amount was not divided among them but was used in the rehabilitation of properties
owned by them in common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death of the
decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 3431, BIR rec.).
"The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administrator thereof, in the
obligation of P94,973.00, consisting of loans contracted by the latter with the approval of the Court (see p. 3 of Exhibit K; or
see p. 74, BIR rec.).

42

"Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide the properties
therein listed. Instead, the properties remained under the management of Lorenzo T. Oa who used said properties in
business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real
properties and securities. As a result, petitioners properties and investments gradually increased from P105,450.00 in 1949 to
P480,005.20 in 1956 as can be gleaned from the following year-end balances:jgc:chanrobles.com.ph
"Year

Investment
Account

Land
Account

Building
Account

1949
1950
1951
1952
1953
1954
1955
1956

P 87,860
P 24,657.65
51,301.31
67,927.52
61,258.27
63,623.37
100,786.00
175,028.68

P 17,590.00
128,566.72
120,349.28
87,065.28
84,925.68
99,001.20
120,249.78
135,714.68

96,076.26
110,605.11
152,674.39
161,463.83
167,962.04
169,262.52
169,262.52

(See Exhibits 3 & K; t.s.n., pp. 22, 25-26, 40, 50, 102-104)
"From said investments and properties petitioners derived such incomes as profits from installment sales of subdivided lots,
profits from sales of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said
incomes are recorded in the books of account kept by Lorenzo T. Oa, where the corresponding shares of the petitioners in
the net income for the year are also known. Every year, petitioners returned for income tax purposes their shares in the net
income derived from said properties and securities and/or from transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26).
However, petitioners did not actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100). The income was
always left in the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in real properties and securities. (See
Exhibit 3, t.s.n., pp. 50, 102-104).
"On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners formed an
unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section 24, in relation to Section
84(b), of the Tax Code. Accordingly, he assessed against the petitioners the amounts of P8,092.00 and P13,899.00 as
corporate income taxes for 1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and asked for reconsideration of the ruling of respondent that they have formed
an unregistered partnership. Finding no merit in petitioners request, respondent denied it (See Exhibit 17, p. 86, BIR rec.).
(See Pp. 1-4, Memorandum for Respondent, June 12, 1961).
"The original assessment was as follows:jgc:chanrobles.com.ph
"1955
"Net income as per investigation

Income tax due thereon

25% surcharge
Compromise for non-filing
Total
==========

P40,209.89
8,042.00
2,010.50
50.00

P10,102.50

"1956
"Net income as per investigation

Income tax due thereon

25% surcharge
Compromise for non-filing
Total
==========

P69,245.23
13,849.00
3,462.25
50.00

17,361.25

(See Exhibit 13, page 50, BIR records)

"Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the Supreme Court in
Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the questioned assessment refers solely to
the income tax proper for the years 1955 and 1956 and the Compromise for non-filing, the latter item obviously referring to the
compromise in lieu of the criminal liability for failure of petitioners to file the corporate income tax returns for said years. (See
Exh. 17, page 86, BIR records)." (Pp. 1-3, Annex C to Petition).
Petitioners have assigned the following as alleged errors of the Tax Court:chanrob1es virtual 1aw library
"I
"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP;
"II
"THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-OWNERS OF THE
PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM (sic);
"III
"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR CORPORATE INCOME
TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
"IV
"ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED PARTNERSHIP, THE COURT OF
TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE
EXTENT ONLY THAT THEY IN VESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;.
"V
"ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED
IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR
RESPECTIVE SHARES OF THE PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON, FROM THE
DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP."cralaw virtua1aw library
In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of Tax
Appeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased Julia Buales
and the profits derived from transactions involving the same, or, must they be deemed to have formed an unregistered
partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2) Assuming they have formed
an unregistered partnership, should this not be only in the sense that they invested as a common fund the profits earned by
the properties owned by them in common and the loans granted to them upon the security of the said properties, with the

43

result that as far as their respective shares in the inheritance are concerned, the total income thereof should be considered as
that of co-owners and not of the unregistered partnership? And (3) assuming again that they are taxable as an unregistered
partnership, should not the various amounts already paid by them for the same years 1955 and 1956 as individual income
taxes on their respective shares of the profits accruing from the properties they owned in common be deducted from the
deficiency corporate taxes, herein involved, assessed against such unregistered partnership by the respondent
Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas petitioners predecessor in interest died
way back on March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949, and
presumably petitioners have been holding their respective shares in their inheritance since those dates admittedly under the
administration or management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in question
refers to the later years 1955 and 1956. We believe this point to be important because, apparently, at the start, or in the years
1944 to 1954, the respondent Commissioner of Internal Revenue did treat petitioners as co-owners, not liable to corporate tax,
and it was only from 1955 that he considered them as having formed an unregistered partnership. At least, there is nothing in
the record indicating that an earlier assessment had already been made. Such being the case, and We see no reason how it
could be otherwise, it is easily understandable why petitioners position that they are co-owners and not unregistered copartners, for the purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the
fact that they were not similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project
of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oa who used said properties in
business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real
properties and securities," as a result of which said properties and investments steadily increased yearly from P87,860.00 in
"land account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land
account" and P169,262.52 in "building account" in 1956 And all these became possible because, admittedly, petitioners never
actually received any share of the income or profits from Lorenzo T. Oa, and instead, they allowed him to continue using said
shares as part of the common fund for their ventures, even as they paid the corresponding income taxes on the basis of their
respective shares of the profits of their common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the properties
inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at
considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate
securities. It is likewise admitted that all the profits from these ventures were divided among petitioners proportionately in
accordance with their respective shares in the inheritance. In these circumstances, it is Our considered view that from the
moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several transactions or in business,
with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such
incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the abovementioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners rather
than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the partition and
distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, obviously, without
them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as co-owners continues

until the inheritance is actually and physically distributed among the heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue holding said shares under the common management of the
administrator or executor or of anyone chosen by them and engage in business on that basis. Withal, if this were to be
allowed, it would be the easiest thing for heirs in any inheritance to circumvent and render meaningless Sections 24 and 84(b)
of the National Internal Revenue Code.
It is true that in Evangelista v. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants therein to
be unregistered co-partners for tax purposes, that their common fund "was not something they found already in existence" and
that" [i]t was not a property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as petitioners are
doing here, that ergo, in all instances where an inheritance is not actually divided, there can be no unregistered co-partnership.
As already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with
intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project
partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate
proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their respective
definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own
without the intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in connection therewith.
If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with
the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument
were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed. This is exactly what
happened to petitioners in this case.
In this connection, petitioners reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing of gross
returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived," and, for that matter, on any other provision of said code on
partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil
Code from that of unregistered partnerships which are considered as "corporations" under Sections 24 and 84(b) of the
National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point
thus:jgc:chanrobles.com.ph
"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 corporation. Again,
pursuant to said section 84(b), the term corporation includes, among other, 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 co-partnerships 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. . . .
x
x
x

44

"Similarly, the American Law

. . . provides its own concept of a partnership. Under the term partnership it includes not only a partnership as known as
common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated organization which carries on any
business, financial operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a corporation. . . .
(7A Mertens Law of Federal Income Taxation, p. 789; Emphasis ours.).
The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by
means of which any business, financial operation, or venture is carried on. . . . (8 Mertens Law of Federal Income Taxation, p.
562 Note 63; Emphasis ours.)
"For purposes of the tax on corporations, our National Internal Revenue Code, includes 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."cralaw virtua1aw library
We reiterated this view, thru Mr. Justice Fernando, in Reyes v. Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July
29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes in
question, of their inherited properties from those acquired by them subsequently, We consider as justified the following
ratiocination of the Tax Court in denying their motion for reconsideration:jgc:chanrobles.com.ph
"In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding should be limited
to the business engaged in apart from the properties inherited by petitioners. In other words, the taxable income of the
partnership should be limited to the income derived from the acquisition and sale of real properties and corporate securities
and should not include the income derived from the inherited properties. It is admitted that the inherited properties and the
income derived therefrom were used in the business of buying and selling other real properties and corporate securities.
Accordingly, the partnership income must include not only the income derived from the purchase and sale of other properties
but also the income of the inherited properties."cralaw virtua1aw library

partnership and, therefore, have to be taxed as such, it might be recalled that the petitioners in their individual income tax
returns reported their shares of the profits of the unregistered partnership. We think it only fair and equitable that the various
amounts paid by the individual petitioners as income tax on their respective shares of the unregistered partnership should be
deducted from the deficiency income tax found by this Honor able Court against the unregistered partnership. (page 7,
Memorandum for the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the partnership must be reduced by the amounts of
income tax paid by each petitioner on his share of partnership profits. This is not correct; rather, it should be the other way
around. The partnership profits distributable to the partners (petitioners herein) should be reduced by the amounts of income
tax assessed against the Partnership. Consequently, each of the petitioners in his individual capacity overpaid his income tax
for the years in question, but the income tax due from the partnership has been correctly assessed. Since the individual
income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to pass upon the
same."cralaw virtua1aw library
Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as individual income
tax cannot be credited as part payment of the taxes herein in question. It is argued that to sanction the view of the Tax Court is
to oblige petitioners to pay double income tax on the same income, and, worse, considering the time that has lapsed since
they paid their individual income taxes, they may already be barred by prescription from recovering their overpayments in a
separate action. We do not agree. As We see it, the case of petitioners as regards the point under discussion is simply that of
a taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of
course, such taxpayer has the right to be reimbursed what he has erroneously paid, but the law is very clear that the claim and
action for such reimbursement are subject to the bar of prescription, And since the period for the recovery of the excess
income taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make the proper return and
payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any relaxation of the tax laws in
favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirmed, with costs against
petitioners.
1

Besides, as already observed earlier, the income derived from inherited properties may be considered as individual income of
the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but the moment their
respective known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that
the income of such shares should be considered as the part of the taxable income of an unregistered partnership. This, We
hold, is the clear intent of the law.

. In other words, the assessment was affirmed except for the sum of P100.00 which was the total of two P50-items purportedly
for "Compromise for non-filing" which the Tax Court held h be unjustified, since there was no compromise agreement to speak
of.
SECOND DIVISION
[G.R. No. L-68118. October 29, 1985.]

Likewise, the third question of petitioners appears to have adequately resolved by the Tax Court in the aforementioned
resolution denying petitioners motion for reconsideration of the decision of said court. Pertinently, the court ruled this
Wise:jgc:chanrobles.com.ph

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and
sisters, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, Respondents.

"In support of the third ground, counsel for petitioners allege:chanrob1es virtual 1aw library
Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed an unregistered

DECISION

45

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.

things a temporary state. It had to be terminated sooner or later. Castan Tobeas says:jgc:chanrobles.com.ph
"Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

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.cralawnad
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 on 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.cralawnad
Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a "distributive dividend"
taxable in full (not a mere capital gain of which 1/2 is taxable) and required them to pay deficiency income taxes aggregating
P56,707.20 including the 50% fraud surcharge and the accumulated interest.
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.
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 v. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented.
Hence, the instant appeal.
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.
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 co-ownership 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

"El criterio diferencial segun la doctrina m s generalizada est : por raz "n del origen, en que la sociedad presupone
necesariamente la convencion, mientras que la comunidad puede existir y existe ordinariamente sin ella; y por raz "n del fin u
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.
"Reflejo de este criterio es la sentencia de 15 de octubre de 1940, en la que se dice que si en nuestro Derecho positivo 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 o 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 Espaol, Vol. 2, Part 1, 10 Ed., 1971, 328-329).
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 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. **
Such intent was present in Gatchalian v. 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.chanrobles virtual
lawlibrary
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Ona v.
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.
It is likewise different from Reyes v. 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 v. 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.
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 donors 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.
** This view is supported by the following rulings of respondent Commissioner:jgc:chanrobles.com.ph

46

"Co-ownership 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 coownership 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 v. Araas, CTA Case No. 653, July 31, 1963).
"All co-ownerships are not deemed unregistered partnership. Co-heirs 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 v. CIR, CTA Case No. 738, September 11, 1961, cited in Araas,
1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).

3. ID.; ID.; ID.; NOTICE TO ONE OF SEVERAL COUNSELS IS NOTICE TO ALL. Defendant was represented by a total of
12 lawyers none of whom had even withdrawn as counsel. Notice to one of the counsels, Atty. Ruiz, of the order dated March
21, 1956, was sufficient notice to all the appellants eleven other counsel of record. This is well settled rule in our jurisdiction. It
was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to appear before Judge
Fernandez on the scheduled dates of hearing. Parties and their lawyers have no right to presume that their motions for
postponement will be granted. Hence, the constitutional requirement of due process has been fulfilled in this case: the lower
court is a competent court; it lawfully acquired jurisdiction over the person of the defendant (appellant) and the subject matter
of the action; the defendant (appellant) was given opportunity to be heard and judgment was rendered upon lawful hearing.
4. ID.; ID.; ID.; INSTANT CASE DISTINGUISHED FROM SIOCHI V. TIRONA. Appellant cannot argue that, pursuant to the
doctrine in Siochi v. Tirona, his counsel was entitled to a timely notice of the denial of his motion for postponement. In the cited
case the motion for postponement was the first one filed by the defendant; in the case at bar, there had already been a series
of postponements. Unlike the case at bar, the Siochi case was not intransferably set for hearing. Finally, whereas the cited
case did not spend for a long period of time, the case at bar was only finally and intransferably set for hearing on March 21,
1956 after almost five years had elapsed from the filing of the complaint on April 3, 1951.

Article 1770

EN BANC
[G.R. No. L-21906. December 24, 1968.]
INOCENCIA DELUAO and FELIPE DELUAO, Plaintiffs-Appellees, v. NICANOR CASTEEL and JUAN
DEPRA, Defendants, NICANOR CASTEEL, Defendant-Appellant.
SYLLABUS
1. REMEDIAL LAW; PROCEDURE; NOTICE OF HEARING; ORDER GIVEN IN OPEN COURTS IS SUFFICIENT NOTICE.
An order given in open court is presumed received by the parties on the very date and time of promulgation, and amounts to a
legal notification for all legal purposes. The order of March 21, 1956, given in open court, was a valid notice to the parties, and
the notice of hearing dated April 21, 1966 or one month thereafter, was a superfluity. Moreover, as between the order of March
21, 1956 duly promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by the "special deputy
clerk of court" setting the hearing in another branch of the same court, the formers order was the one legally binding. This
because the incidents of postponements and adjournments are controlled by the court and not by the clerk of court, pursuant
to Section 4, Rule 31 (Now sec. 3, Rule 22 of the Rules of Court).
2. ID.; ID.; ID.; CLERK OF COURT MAY NOT INTERFERE WITH THE ORDER OF THE COURT OR WITH TRANSFER OF
CASE FROM ONE SALA TO ANOTHER. The clerk has no authority to interfere with the order of the court or to transfer the
case from one sala to another without authority or order from the court where the case originated and was being tried. He had
neither the duty nor prerogative to re-assign the trial of the case to a different branch of the same court. His duty as such clerk
of court, in so far as the incident in question was concerned, was simply to prepare the trial calendar. And this duty devolved
upon the clerk of court and not upon the "special deputy clerk of court" who purportedly signed the notice of hearing.

5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP CONTRACT IN INSTANT CASE. Too well-settled to
require any citation of authority is the rule that everyone is conclusively presumed to know the law. It must be assumed,
conformably to such rule, that the parties entered into the so called "contract of service" cognizant of the mandatory and
prohibitory laws governing the filing of applications for fishpond permits. And since they were aware of the said laws, it must
likewise be assumed in fairness to the parties that they did not intend to violate them. This view must perforce negate the
appellees allegation that the "contract of service" created a contract of co ownership between the parties over the disputed
fishpond. The contract must be construed as one of partnership, divided into two parts namely, contract of partnership to
exploit the fishpond pending its award which is valid, and a contract of partnership to divide the fishpond between them after
such award which is illegal. The evidence preponderates in favor of the view that the initial intention of the parties was not to
form a co - ownership but to establish a partnership, plaintiff Deluao as capitalist partner and defendant appellant as an
industrial partner the ultimate undertaking of which was to divide into two equal parts such portion of the fishpond as might
have been developed by the amount extended by the plaintiffs-appellees, with the further provision that defendant appellant
should reimburse the expenses incurred by the appellees over one-half of the fishpond that would pertain to him.
6. ID.; ID.; ID.; PARTNERSHIP; DISSOLUTION THEREOF; AWARD BY THE SECRETARY OF AGRICULTURE AND
NATURAL RESOURCES DISSOLVES THE PARTNERSHIP. The arrangement under the so-called "contract of service"
continued until the decision both dated Sept. 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in
DANR Cases 353 and 353-B. This development, by itself, brought about the dissolution of the partnership. Since the
partnership had for its object the division into two equal parts of the fishpond between the appellees and the appellant after it
shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one half thereof to parties other
than the applicant Casteel, it was dissolved by the approval of his application and the award to him of the fishpond. The
approval was an event which made it unlawful for the members to carry it on in partnership. Moreover, subsequent events
likewise reveal the intent of both parties to terminate the partnership because each refused to share the fishpond with the
other.
7. PUBLIC LAND ACT; DISPOSITION OF PUBLIC LAND; POWER OF THE SECRETARY OF AGRICULTURE AND NATURAL
RESOURCES RELATIVE THERETO. In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses

47

executive and administrative powers with regard to the survey, classification, lease, sale or any other form of concession or
disposition and management of the lands of the public domain, and, more specifically, with regard to the grant of withholding of
licenses, permits, leases and contracts over portions of the public domain to be utilized as fishponds. However, the Secretary
does not possess the authority to violate the prohibitory laws nor to exempt anyone from their operation.
8. ID.; ID.; ID.; SECRETARYS DECISION IN INSTANT CASE IS BINDING. In the case at bar, the Secretary of Agriculture
and Natural Resources gave due course to the appellants fishpond application 171 and awarded to him the possession of the
area in question. In view of the finality of the secretarys decision in DANR Cases 353 and 353-B, and considering the absence
of any proof that the said official exceeded his statutory authority, exercised unconstitutional powers, or acted with arbitrariness
and in disregard of his duty, or with grave abuse of discretion. We can do no less than respect and maintain unfettered his
official acts in the premises. It is a salutary rule that the judicial department should not dictate to the executive department
what to do with regard to the administration and disposition of the public domain which the law had entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the land department and compel the latter to do
an act which involved the exercise of judgment and discretion.
9. REMEDIAL LAW; PROVISIONAL REMEDY; INJUNCTION, CONTINUANCE THEREOF IS IMPROPER. Even assuming
that the injunction was properly issued because present all the requisite grounds for its issuance, its continuation, and, worse,
its declaration as permanent, was improper in the face of the knowledge later acquired by the lower court that it was the
appellants application over the fishpond which was given due course. After the secretary of Agriculture and Natural Resources
approved the appellants application he became to all intents and purposes the legal permitted of the area with the
corresponding right to possess, occupy and enjoy the same. Consequently, the lower court erred in issuing the preliminary
mandatory injunction. An injunction should be granted to take property out of the possession and control of one party and
place it in the hands of another whose title had not been clearly established by law.
DECISION
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May 21, 1956, all of the Court of
First Instance of Davao, in civil case 629. The basic action is for specific performance, and damages resulting from an alleged
breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then sitio of Malalag (now the
municipality of Malalag), municipality of Padada, Davao. No action was taken thereon by the authorities concerned. During the
Japanese occupation, he filed another fishpond application for the same area, but because of the conditions then prevailing, it
was not acted upon either. On December 12, 1945 he filed a third fishpond application for the same area, which, after a
survey, was found to contain 178.76 hectares. Upon investigation conducted by a representative of the Bureau of Forestry, it
was discovered that the area applied for was still needed for firewood production. Hence on May 13, 1946 this third application
was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While this motion was pending
resolution, he was advised by the district forester of Davao City that no further action would be taken on his motion, unless he
filed a new application for the area concerned. So he filed on May 27, 1947 his fishpond application 1717.
Meanwhile, several applications were submitted by other persons for portions of the area covered by Casteels application.

On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land found inside the area
applied for by Casteel; he was later granted fishpond permit F-289-C covering 9.3 hectares certified as available for fishpond
purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land applied for by Casteel.
Alejandro Cacams fishpond application 1276, filed on December 26, 1946, was given due course on December 9, 1947 with
the issuance to him of fishpond permit F-539-C to develop 30 hectares of land comprising a portion of the area applied for by
Casteel, upon certification of the Bureau of Forestry that the area was likewise available for fishpond purposes. On November
17, 1948 Felipe Deluao filed his own fishpond application for the area covered by Casteels application.
Because of the threat poised upon his position by the above applicants who entered upon and spread themselves within the
area, Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new squatters from usurping the land. But lacking financial resources at that
time, he sought financial aid from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which
to finance the needed improvements on the fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants, Casteel
immediately filed the corresponding protests. Consequently, two administrative cases ensued involving the area in question, to
wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant v. Fp. A. No. 763,
Victorio D. Carpio, applicant- appellant" ; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717). Nicanor
Casteel, applicant-protestant v. Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, PermitteesRespondents."cralaw virtua1aw library
However, despite the finding made in the investigation of the above administrative cases that Casteel had already introduced
improvements on portions of the area applied for by him in the form of dikes, fishpond gates, clearings, etc., the Director of
Fisheries nevertheless rejected Casteels application on October 25, 1949, required him to remove all the improvements which
he had introduced on the land, and ordered that the land be leased through public auction. Failing to secure a favorable
resolution of his motion for reconsideration of the Directors order, Casteel appealed to the Secretary of Agriculture and Natural
Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our discussion of the appellants
third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the
second part, executed a contract denominated a "contract of service" the salient provisions of which are as
follows:jgc:chanrobles.com.ph
"That the Party of the First Part in consideration of the mutual covenants and agreements made herein to the Party of the
Second Part, hereby enter into a contract of service, whereby the Party of the First Part hires and employs the Party of the
Second Part on the following terms and conditions, to wit:
"That the Party of the First Part will finance as she has hereby financed the sum of TWENTY SEVEN THOUSAND PESOS
(P27,000.00), Philippine Currency, to the Party of the Second Part who renders only his services for the construction and
improvements of a fishpond at barrio Malalag, Municipality of Padada, Province of Davao, Philippines;

48

"That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish that will be produced from
said fishpond;
"That the Party of the First Part will be the administrator of the same she having financed the construction and improvement of
said fishpond;
"That this contract was the result of a verbal agreement entered into between the Parties sometime in the month of November,
1947, with all the abovementioned conditions enumerated; . . ."cralaw virtua1aw library
On the same date the above contract was entered into, Inocencia Deluao executed a special power of attorney in favor of
Jesus Donesa, extending to the latter the authority "To represent me in the administration of the fishpond at Malalag,
Municipality of Padada, Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor Casteel, but
rejected by the Bureau of Fisheries, and to supervise, demand, receive, and collect the value of the fish that is being
periodically realized from it . . ."cralaw virtua1aw library
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17, 1948.
Unfazed by this rejection, Deluao reiterated his claim over the same area in the two administrative cases (DANR Cases 3S3
and 353-B) and asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond. However, by letter
dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and Natural Resources (now Secretary of
Agriculture and Natural Resources), Deluao withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR Case 353, the
dispositive portion of which reads as follows:jgc:chanrobles.com.ph
"In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A No. 1717) of Nicanor Casteel should be, as hereby it is,
reinstated and given due course for the area indicated in the sketch drawn at the back of the last page hereof; and Fp. A. No.
762 of Victorio D. Carpio shall remain rejected."cralaw virtua1aw library
On the same date, the same of official issued a decision in DANR Case 353-B, the dispositive portion stating as
follows:jgc:chanrobles.com.ph
"WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-539-C of Alejandro Cacam,
should be, as they are hereby cancelled and revoked; Nicanor Casteel is required to pay the improvements introduced thereon
by said permittees in accordance with the terms and dispositions contained elsewhere in this decision . . ."cralaw virtua1aw
library
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected the
latters representative (encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and Nicanor Casteel, Felipe
Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for specific performance
and damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate his contract), praying,
inter alia, (a) that Casteel be ordered to respect and abide by the terms and conditions of said contract and that Inocencia

Deluao be allowed to continue administering the said fishpond and collecting the proceeds from the sale of the fishes caught
from time to time; and (b) that the defendants be ordered to pay jointly and severally to plaintiffs the sum of P20,000 in
damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction, praying among other things,
that during the pendency of the case and upon their filing the requisite bond as may be fixed by the court, a preliminary
injunction be issued to restrain Casteel from doing the acts complained of, and that after trial the said injunction be made
permanent. The lower court on April 26, 1951 granted the motion, and, two days later, it issued a preliminary mandatory
injunction addressed to Casteel, the dispositive portion of which reads as follows:jgc:chanrobles.com.ph
"POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y todos sus abogados, agentes,
mandatarios y demas personas que obren en su ayuda, desista de impedir a la demandante Inocencia R. Deluao que
continue administrando parsonalmente la pesqueria objeto de esta causa y que la misma continue recibiendo los productos de
la venta de los pescados provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho demandado Nicanor Casteel a
desahuciar mediante fuerza al encargado de los demandantes llamado Jesus Donesa de la pesqueria objeto de la demanda
de autos."cralaw virtua1aw library
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was the owner, lawful
applicant and occupant of the fishpond in question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by the
lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952, denying the material
averments of the plaintiffs complaint. A reply to the defendants amended answer was filed by the plaintiffs on January 31,
1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951 the plaintiffs opposed
his motion. The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs complaint failed
to state a claim upon which relief may be granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied for
lack of merit by the lower court in its order of October 22, 1951. The defendants motion for reconsideration filed on October
31, 1951 suffered the same fate when it was likewise denied by the lower court in its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of postponements. The lower court (Branch I,
presided by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an order in open court, reading as
follows:jgc:chanrobles.com.ph
"Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this case is hereby transferred to
May 2 and 3, 1956 at 8:30 oclock in the morning.
"This case was filed on April 3, 1951 and under any circumstance this Court will not entertain any other transfer of hearing of
this case and if the parties will not be ready on that day set for hearing, the court will take the necessary steps for the final
determination of this case." (Italics supplied)
On April 25, 1956 the defendants counsel received a notice of hearing dated April 21, 1956, issued by the office of the Clerk of
Court (thru the special deputy Clerk of Court) of the Court of First Instance of Davao, setting the hearing of the case for May 2

49

and 3, 1956 before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion for
postponement. Acting on this motion, the lower court (Branch II, presided by Judge Gomez) issued an order dated April 27,
1956, quoted as follows:jgc:chanrobles.com.ph

Juan Depra;

"This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The motion is filed by the counsel for
the defendants and has the conformity of the counsel for the plaintiffs.

"(i) Con las costas contra del demandado, Casteel."cralaw virtua1aw library

"An examination of the records of this case shows that this case was initiated as early as April 1951 and that the same has
been under advisement of the Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since September 24, 1953,
and that various incidents have already been considered and resolved by Judge Fernandez on various occasions. The last
order issued by Judge Fernandez on this case was issued on March 21, 1956, wherein he definitely states that the Court will
not entertain any further postponement of the hearing of this case.
"CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and termination of any incident referring to
this case should be referred back to Branch I, so that the same may be disposed of therein." (Italics supplied)
A copy of the abovequoted order was served on the defendants counsel on May 4, 1956. On the scheduled date of hearing,
that is, on May 2, 1956, the lower court (Branch I, with Judge Fernandez presiding), when informed above the defendants
motion for postponement filed on April 26, 1956, issued an order reiterating its previous order handed down in open court on
March 21, 1956 and directing the plaintiffs to introduce their evidence ex parte, there being no appearance on the part of the
defendants or their counsel. On the basis of the plaintiffs evidence, a decision was rendered on May 4, 1956 the dispositive
portion of which reads as follows:jgc:chanrobles.com.ph

"(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas.

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of knowledge of the order
of the court a quo setting the case for trial. The petition, however, was denied by the lower court in its order of May 21, 1956,
the pertinent portion of which reads as follows:jgc:chanrobles.com.ph
"The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case has been transferred or not, but
to inquire from the presiding Judge, particularly because his motion asking the transfer of this case was not set for hearing and
was not also acted upon.
"Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as follows:chanrob1es virtual
1awibrary
`Upon petition of the plaintiff without any objection on the part of the defendants, the hearing of this case is hereby transferred
to May 2 and 3, 1956, at 8:30 oclock in the morning.
`This case was filed on April 3, 1951, and under any circumstance this Court will not entertain any other transfer of the hearing
of this case, and if the parties will not be ready on the day set for hearing, the Court will take necessary steps for the final
disposition of this case.

"EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra de demandado Nicanor
Casteel:jgc:chanrobles.com.ph

"In view of the order above-quoted, the Court will not accede to any transfer of this case and the duty of Atty. Ruiz is no other
than to be present in Sala of this Court and to call the attention of the same to the existence of his motion for transfer.

"(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;

"Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the same is hereby
denied."cralaw virtua1aw library

"(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad (1/2) del `fishpond en cuestion
con todas las mejoras existentes dentro de la misma;
"(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en concepto de daos contar de la
fecha de la expiracion de los 30 dias de la promulgacion de esta decision hasta que entregue la posesion y administracion de
la porcion del `fishpond en conflicto;

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for final determination
on the ground that it involves only questions of law.
Casteel raises the following issues:jgc:chanrobles.com.ph

"(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los peseado beneficiados mas los
intereses legales de la fecha de la incoacion de la demanda de autos hasta el completo pago de la obligacion principal;

"(1) Whether the lower court committed gross abuse of discretion when it ordered reception of the appellees evidence in the
absence of the appellant at the trial on May 2, 1956, thus depriving the appellant of his day in court and of his property without
due process of law;

"(e) Condena al demandado a pagar a la demamdante la suma de P2,000.00, por gastos incurridos por aquella durante la
pendencia de esta causa;

"(2) Whether the lower court committed grave abuse of discretion when it denied the verified petition for relief from judgment
filed by the appellant on May 11, 1956 in accordance with Rule 38, Rules of Court;

"(f) Condena al demandador a pagar a la demandante, en concepto de honorarios, la suma de P2,000.00;

"(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary injunction against defendantappellant, and in not dismissing appellees complaint."cralaw virtua1aw library

"(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en cuanto se refiere al demandado

50

1. The first and second issues must be resolved against the Appellant.
The record indisputably shows that in the order given in open court on March 21, 1956, the lower court set the case for hearing
on May 2 and 3, 1956 at 8:30 oclock in the morning and empathically stated that, since the case had been pending since April
3, 1951, it would not entertain any further motion for transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very date and time of promulgations, 1 and amounts
to a legal notification for all legal purposes. 2 The order of March 21, 1956, given in open court, was a valid notice to the
parties, and the notice of hearing dated April 21, 1956, or one month thereafter, was a superfluity. Moreover, as between the
order of March 21, 1956, duly promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by a
"special deputy clerk of court" setting the hearing in another branch of the same court, the formers order was the one legally
binding. This is because the incidents of postponements and adjournments are controlled by the court and not by the clerk of
court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the court or to transfer the case from one sala to
another without authority or order from the court where the case originated and was being tried. He had neither the duty nor
prerogative to re-assign the trial of the case to a different branch of the same court. His duty as such clerk of court, in so far as
the incident in question was concerned, was simply to prepare the trial calendar. And this duty devolved upon the clerk of court
and not upon the "special deputy clerk of court" who purportedly signed the notice of hearing.

The appellants statement that parties as a matter of right are entitled to notice of trial, is correct. But he was properly accorded
this right. He was notified in open court on March 21, 1956 that the case was definitely and intransferably set for hearing on
May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi v. Tirona, 6 his counsel was
entitled to a timely notice of the denial of his motion for postponement. In the cited case the motion for postponement was the
first one filed by the defendant; in the case at bar, there had already been a series of postponements. Unlike the case at bar,
the Siochi case was not intransferably set for hearing. Finally, whereas the cited case did not spend for a long time, the case at
bar was only finally and intransferably set for hearing on March 21, 1956 after almost five years had elapsed from the filing
of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare for trial is unacceptable
because between March 21, 1956 and May 2, 1956, they had one month and ten days to do so. In effect, the appellant had
waived his right to appear at the trial and therefore he cannot be heard to complain that he has been deprived of his property
without due process of law. 7 Verily, the constitutional requirements of due process have been fulfilled in this case: the lower
court is a competent court; it lawfully acquired jurisdiction over the person of the defendant (appellant) and the subject matter
of the action; the defendant (appellant) was given an opportunity to be heard; and judgment was rendered upon lawful hearing.
8
2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex parte of a writ of preliminary
injunction against him, and in not dismissing the appellees complaint. We find this contention meritorious.

It is of no moment that the motion for postponement had the conformity of the appellees counsel. The postponement of
hearings does not depend upon agreement of the parties, but upon the courts discretion. 3

Apparently, the court a quo relied on exhibit A the so-called "contract of service "and the appellees contention that it
created a contract of co-ownership and partnership between Inocencia Deluao and the appellant over the fishpond in question.

The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom had ever withdrawn as
counsel. Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably setting the case for hearing for May 2 and 3,
1956, was sufficient notice to all the appellants eleven other counsel of record. This is a well-settled rule in our jurisdiction. 4

Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to know the law. It must
be assumed, conformably to such rule, that the parties entered into the so-called "contract of service" cognizant of the
mandatory and prohibitory laws governing the filing of applications for fishpond permits. And since they were aware of the said
laws, it must likewise be assumed in fairness to the parties that they did not intend to violate them. This view must
perforce negate the appellees allegation that exhibit A created a contract of co-ownership between the parties over the
disputed fishpond. Were we to admit the establishment of a co-ownership violative of the prohibitory laws which will hereafter
be discussed, we shall be compelled to declare altogether the nullity of the contract. This would certainly not serve the cause
of equity and justice, considering that rights and obligations have already arisen between the parties. We shall therefore
construe the contract as one of partnership, divided into two parts - namely, a contract of partnership, to exploit the fishpond
pending its award to either Felipe Deluao or Nicanor Casteel, and a contract of partnership to divide the fishpond between
them after such award. The first is valid, the second illegal.

It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to appear before Judge
Fernandez on the scheduled dates of hearing. Parties and their lawyers have no right to presume that their motions for
postponement will be granted. 5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance of the recorded fact
that since September 24, 1953 until the trial held on May 2, 1956, the case was under the advisement of Judge Fernandez
who presided over Branch I. There was, therefore, no necessity to "re -assign" the same to Branch II because Judge
Fernandez had exclusive control of said case, unless he was legally inhibited to try the case - and he was not.
There is truth in the appellants contention that it is the duty of the clerk of court not of the Court to prepare the trial
calendar. But the assignment or reassignment of cases already pending in one sala to another sala, and the setting of the date
of trial after the trial calendar has been prepared, fall within the exclusive control of the presiding judge.
The appellant does not deny the appellees claim that on May 2 and 3, 1956, the office of the clerk of court of the Court of First
Instance of Davao was located directly below Branch I. If the appellant and his counsel had exercised due diligence, there was
no impediment to their going upstairs to the second storey of the Court of First Instance building in Davao on May 2, 1956 and
checking if the case was scheduled for hearing in the said sala. The appellant after all admits that on May 2, 1956 his counsel
went to the office of the clerk of court.

It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called "contract of service" on
November 25, 1949, there were two pending applications over the fishpond. One was Casteels which was appealed by him to
the Secretary of Agriculture and Natural Resources after it was disallowed by the Director of Fisheries on October 25, 1949.
The other was Felipe Deluaos application over the same area which was likewise rejected by the Director of Fisheries on
November 29, 1949, refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the Secretary of
Agriculture and Natural Resources. Clearly, although the fishpond was then in the possession of Casteel, neither he nor Felipe
Deluao was the holder of a fishpond permit over the area. But be that as it may, they were not however precluded from
exploiting the fishpond pending resolution of Casteels appeal or the approval of Deluaos application over the same area
whichever event happened first. No law, rule or regulation prohibited them from doing so. Thus, rather than let the fishpond

51

remain idle, they cultivated it.

The evidence preponderates in favor of the view that the initial intention of the parties was not to form a co-ownership but to
establish a partnership Inocencia Deluao as capitalist partner and Casteel as industrial partner the ultimate undertaking
of which was to divide into two equal parts such portion of the fishpond as might have been developed by the amount
extended by the plaintiffs-appellees, with the further provision that Casteel should reimburse the expenses incurred by the
appellees over one-half of the fishpond that would pertain to him. This can be gleaned, among others, from the letter of
Casteel to Felipe Deluao on November 15, 1949, which states, inter alia:jgc:chanrobles.com.ph
". . . [W]ith respect to your allowing me to use your money, same will redound to your benefit because you are the ones
interested in half of the work we have done so far, besides I did not insist on our being partners in my fishpond permit, but it
was you `Tatay Eping the one who wanted that we be partners and it so happened that we became partners because I am
poor, but in the midst of my poverty it never occurred to me to be unfair to you. Therefore so that each of us may be secured,
let us have a document prepared to the effect that we are partners in the fishpond that we caused to be made here in
Balasinon, but it does not mean that you will treat me as one of your `Bantay (caretaker) on wage basis but not earning wages
at all, while the truth is that we are partners. In the event that you are not amenable to my proposition and consider me as
`Bantay (caretaker) instead, do not blame me if I withdraw all my cases and be left without even a little and you likewise."
(Italics supplied) 9
Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their partnership, the appellee
Inocencia Deluao and the appellant executed exhibit A which, although denominated a "contract of service," was actually the
memorandum of their partnership agreement. That it was not a contract of the services of the appellant, was admitted by the
appellees themselves in their letter 10 to Casteel dated December 19, 1949 wherein they stated that they did not employ him
in his (Casteels) claim but because he used their money in developing and improving the fishpond, his right must be divided
between them. Of course, although exhibit A did not specify any wage or share appertaining to the appellant as industrial
partner, he was so entitled - this being one of the conditions he specified for the execution of the document of partnership. 11
Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In a letter 12 dated March
24, 1950, the appellant suggested that they divide the fishpond and the remaining capital, and offered to pay the Deluaos a
yearly installment of P3,000 presumably as reimbursement for the expenses of the appellees for the development and
improvement of the one-half that would pertain to the appellant. Two days later, the appellee Felipe Deluao replied, 13
expressing his concurrence in the appellants suggestion and advising the latter to ask for a reconsideration of the order of the
Director of Fisheries disapproving his (appellants) application, so that if a favorable decision was secured, then they would
divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to maintain his petition for
the reinvestigation of Casteels application. Thus by letter 14 dated March 15, 1950 addressed to the Secretary of Agriculture
and Natural Resources, he withdrew his petition on the alleged ground that he was no longer interested in the area, but stated
however that he wanted his interest to be protected and his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions both dated September 15, 1950 were
issued by the Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B. This development, by itself,
brought about the dissolution of the partnership. Moreover, subsequent events likewise reveal the intent of both parties to
terminate the partnership because each refused to share the fishpond with the other.

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership,." . . any event which
makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership." The
approval of the appellants fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore several
provisions of law which made the continuation of the partnership unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from transferring or subletting
the fishpond granted to him, without the previous consent or approval of the Secretary of Agriculture and Natural Resources.
15 To the same effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not transfer or sublet all
or any area herein granted or any rights acquired therein without the previous consent and approval of this Office."
Parenthetically, we must observe that in DANR Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos,
was cancelled not solely for the reason that his permit covered a portion of the area included in the appellants prior fishpond
application, but also because, upon investigation, it was ascertained thru the admission of Aradillos himself that due to lack of
capital, he allowed one Lino Estepa to develop with the latters capital the area covered by his fishpond permit F-289-C with
the understanding that he (Aradillos) would be given a share in the produce thereof. 16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that.
"The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of Agriculture and Commerce,
and the violation of this condition shall avoid the contract; Provided, That assignment, encumbrance, or subletting for purposes
of speculation shall not be permitted in any case: Provided further, That nothing contained in this section shall be understood
or construed to permit the assignment, encumbrance, or subletting of lands leased under this Act, or under any previous Act, to
persons, corporations, or associations which under this Act, are not authorized to lease public lands."cralaw virtua1aw library
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources issued in August 1937,
prohibits a transfer or sublease unless first approved by the Director of Lands and under such terms and conditions as he may
prescribe. Thus, it states:jgc:chanrobles.com.ph
"When a transfer or sub-lease of area and improvement may be allowed. If the permittee or lessee had, unless otherwise
specifically provided, held the permit or lease and actually operated and made improvements on the area for at least one year,
he/she may request permission to sub-lease or transfer the area and improvements under certain conditions.
"(a) Transfer subject to approval. A sub-lease or transfer shall only be valid when first approved by the Director under such
terms and conditions as may be prescribed, otherwise it shall be null and void. A transfer not previously approved or reported
shall be considered sufficient cause for the cancellation of the permit or lease and forfeiture of the bond and for granting the
area to a qualified applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order."cralaw virtua1aw library
Since the partnership had for its object the division into two equal parts of the fishpond between the appellees and the
appellant after it shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one-half thereof
to parties other than the applicant Casteel, it was dissolved by the approval of his application and the award to him of the
fishpond. The approval was an event which made it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership. The appellees, however, argue that in approving the appellants application, the
Secretary of Agriculture and Natural Resources likewise recognized and/or confirmed their property right to one-half of the
fishpond by virtue of the contract of service, exhibit A. But the untenability of this argument would readily surface if one were to

52

consider that the Secretary of Agriculture and Natural Resources did not do so for the simple reason that he does not possess
the authority to violate the aforementioned prohibitory laws nor to exempt anyone from their operation.
However, assuming in gratis argumenti that the approval of Casteels application, coupled with the foregoing prohibitory laws,
was not enough to cause the dissolution ipso facto of their partnership, succeeding events reveal the intent of both parties to
terminate the partnership by refusing to share the fishpond with the other.
On December 27, 1950 Casteel wrote 17 the appellee Inocencia Deluao, expressing his desire to divide the fishpond so that
he could administer his own share, such division to be subject to the approval of the Secretary of Agriculture and Natural
Resources. By letter dated December 29, 1950, 18 the appellee Felipe Deluao demurred to Casteels proposition because
there were allegedly no appropriate grounds to support the same and, moreover, the conflict over the fishpond had not been
finally resolved.
The appellant wrote on January 4, 1951 a last letter 19 to the appellee Felipe Deluao wherein the former expressed his
determination to administer the fishpond himself because the decision of the Government was in his favor and the only reason
why administration had been granted to the Deluaos was because he was indebted to them. In the same letter, the appellant
forbade Felipe Deluao from sending the couples encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao
wrote a letter 20 dated January 5, 1951 in which he reiterated his refusal to grant the administration of the fishpond to the
appellant, stating as a ground his belief "that only the competent agencies of the government are in a better position to render
any equitable arrangement relative to the present case; hence, any action we may privately take may not meet the procedure
of legal order."cralaw virtua1aw library
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to share the fishpond
with each other - in direct violation of the undertaking for which they have established their partnership - each must be deemed
to have expressly withdrawn from the partnership, thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code
which provides, inter alia, that dissolution is caused "by the express will of any partner at any time."cralaw virtua1aw library
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and administrative powers with
regard to the survey, classification, lease, sale or any other form of concession or disposition and management of the lands of
the public domain, and, more specifically, with regard to the grant or withholding of licenses, permits, leases and contracts over
portions of the public domain to be utilized as fishponds. 21 Thus, we held in Pajo, Et. Al. v. Ago, Et. Al. (L-15414, June 30,
1960), and reiterated in Ganitanao v. Secretary of Agriculture and Natural Resources, Et. Al. (L-21167, March 31, 1966), that
". . . [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources) by law regarding the disposition
of public lands such as granting of licenses, permits, leases, and contracts, or approving, rejecting, reinstating, or cancelling
applications, or deciding conflicting applications, are all executive and administrative in nature. It is a well-recognized principle
that purely administrative and discretionary functions may not be interfered with by the courts (Caloso v. Board of Accountancy,
G.R. No. L-5750, April 20, 1953). In general, courts have no supervising power over the proceeding and actions of the
administrative departments of the government. This is generally true with respect to acts involving the exercise of judgment or
discretion, and findings of fact. (54 Am. Jur. 558-559) Findings of fact by an administrative board or official, following a hearing,
are binding upon the courts and will not be disturbed except where the board or official has gone beyond his statutory
authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of
discretion .." (Italics supplied)

In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the appellants fishpond application
1717 and awarded to him the possession of the area in question. In view of the finality of the Secretarys decision in DANR
Cases 353 and 353-B, and considering the absence of any proof that the said official exceeded his statutory authority,
exercised unconstitutional powers, or acted with arbitrariness and in disregard of his duty, or with grave abuse of discretion, we
can do no less than respect and maintain unfettered of his official acts in the premises. It is a salutary rule that the judicial
department should not dictate to the executive department what to do with regard to the administration and disposition of the
public domain which the law has entrusted to its care and administration. Indeed, courts cannot superimpose their discretion
on that of the land department and compel the latter to do an act which involves the exercise of judgment and discretion. 22
Therefore, with the view that we take of this case, and even assuming that the injunction was properly issued because present
all the requisite grounds for its issuance, its continuation, and, worse, its declaration as permanent, was improper in the face of
the knowledge later acquired by the lower court that it was the appellants application over the fishpond which was given due
course. After the Secretary of Agriculture and Natural Resources approved the appellants application, he became to all intents
and purposes the legal permittee of the area with the corresponding right to possess, occupy and enjoy the same.
Consequently, the lower court erred in issuing the preliminary mandatory injunction. We cannot overemphasize that an
injunction should not be granted to take property out of the possession and control of one party and place it in the hands of
another whose title has not been clearly established by law. 23
However, pursuant to our holding that there was a partnership between the parties for the exploitation of the fishpond before it
was awarded to Casteel, this case should be remanded to the lower court for the reception of evidence relative to an
accounting from November 25, 1949 to September 15, 1950, in order for the court to determine (a) the profits realized by the
partnership, (b) the share (in the profits) of Casteel as industrial partner, (c) the share (in the profits) of Deluao as capitalist
partner, and (d) whether the amounts totalling about P27,000 advanced by Deluao to Casteel for the development and
improvement of the fishpond have already been liquidated. Besides, since the appellee Inocencia Deluao continued in
possession and enjoyment of the fishpond even after it was awarded to Casteel, she did so no longer in the concept of a
capitalist partner but merely as creditor of the appellant, and therefore, she must likewise submit in the lower court an
accounting of the proceeds of the sales of all the fishes harvested from the fishpond from September 16, 1950 until Casteel
shall have been finally given the possession and enjoyment of the same. In the event that the appellee Deluao has received
more than her lawful credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6% interest thereon per
annum, then she should reimburse the excess to the Appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1) dissolving the
injunction issued against the appellant, (2) placing the latter back in possession of the fishpond in litigation, and (3) remanding
this case to the court of origin for the reception of evidence relative to the accounting that the parties must perforce render in
the premises, at the termination of which the court shall render judgment accordingly. The appellants counterclaim is
dismissed. No pronouncement as to costs.

Article 1773
EN BANC
[G.R. No. L-24193. June 28, 1968.]

53

MAURICIO AGAD, Plaintiff-Appellant, v. SEVERINO MABATO & MABATO & AGAD COMPANY,Defendants-Appellees.

"Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is
not made, signed by the parties, and attached to the Public instrument."cralaw virtua1aw library

SYLLABUS
1. CIVIL LAW; PARTNERSHIP; PURPOSE TO "OPERATE A FISHPOND" ; APPLICABILITY OF ART. 1773 N.C.C. Where a
partnership was formed "to operate a fishpond", not to "engage in a fishpond business", and the partners contributed
P1,000.00 each as their share, Art. 1773 of the Civil Code does not apply, it appearing that neither a fishpond nor a real right
thereto was contributed to the partnership or become a part of the capital thereof, even if a fishpond or a real right thereto
could become part of its assets.

The issue before us hinges on whether or not "immovable property or real rights" have been contributed to the partnership
under consideration. Mabato alleged and the lower court held that the answer should be in the affirmative, because "it is really
inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being)
contributed to the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was established "to
operate a fishpond", not to "engage in a fishpond business." Moreover, none of the partners contributed either a fishpond or a
real right to any fishpond. Their contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of the Annex "A"
provides:jgc:chanrobles.com.ph

DECISION
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of Davao, we are called
upon to determine the applicability of Article 1773 of our Civil Code to the contract of partnership on which the complaint herein
is based.

"That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of which One Thousand
(P1,000.00) pesos has been contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has been contributed by
Mauricio Agad.
x

Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated August 29, 1952, copy of which
is attached to the complaint as Annex "A" partners in a fishpond business, to the capital of which Agad contributed P1,000,
with the right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership
funds, had yearly rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato had
failed and refused to render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato &
Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000,
as his share in the profits of the partnership for the period from 1957 to 1963, in addition to P1,000 as attorneys fees, and
ordering the dissolution of the partnership, as well as the winding up of its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon the
ground that the contract therefor had not been perfected, despite the execution of Annex "A", because Agad had allegedly
failed to give his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that
Annex "A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as well as
attorneys fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and that the
lower court had no jurisdiction over the subject matter of the case, because it involves principally the determination of rights
over public lands. After due hearing, the court issued the order appealed from, granting the motion to dismiss the complaint for
failure to state a cause of action. This conclusion was predicated upon the theory that the contract of partnership, Annex "A", is
null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not
been attached thereto. A reconsideration of this order having been denied, Agad brought the matter to us for review by record
on appeal.
Articles 1771 and 1773 of said Code provide:jgc:chanrobles.com.ph
"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.

x"

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor a real
right thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto
could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be, as it
is hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance against
defendant- appellee, Severino Mabato. It is so ordered.
THIRD DIVISION
[G.R. No. 101847. May 27, 1993.]
LOURDES NAVARRO AND MENARDO NAVARRO, Petitioners, v. COURT OF APPEALS, JUDGE BETHEL KATALBASMOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses
OLIVIA V. YANSON AND RICARDO B. YANSON,Respondents.
SYLLABUS
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.

54

DECISION
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 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).
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).

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.)

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.
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.

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 codefendant.
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,
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.)
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

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
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.
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
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.
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

x"

55

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
x
x
x
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
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 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.
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.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991 is AFFIRMED in all
respects.
No special pronouncement is made as to costs.
FIRST DIVISION
[G.R. No. 142612. July 29, 2005]
OSCAR ANGELES and EMERITA ANGELES, petitioners, vs. THE HON. SECRETARY OF JUSTICE and FELINO
MERCADO, respondents.
DECISION
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 assanglaang-perde, 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 Cocal-Lanzonal, sa takdang LIMA (5) NA [sic]

56

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.
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 writtensosyo 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.
Premises considered, it is respectfully recommended that the complaint for estafa be dismissed.
RESPECTFULLY SUBMITTED.[10]
The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution Office denied in a resolution
dated 4 August 1997.
The Ruling of the Secretary of Justice
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. 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.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of discretion amounting to lack of jurisdiction in
dismissing the appeal of the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and Mercado even without any documentary
proof to sustain its existence;
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.
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.

57

[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:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear
in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the 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.
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.
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.

[5]

Article 2132 of the Civil Code provides: By the contract of antichresis the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing, and thereafter to
the principal of his credit.
THIRD DIVISION

AURELIO K. LITONJUA, JR.,

G.R. NOS. 166299-300

Petitioner,

- versus
Present:
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME,
INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING
AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA
SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L
REALTY, (formerly E & L INTL SHIPPING CORP.), FNP CO., INC., HOME
ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC., GLOED LAND
CORP., EQUITY TRADING CO., INC., 3D CORP., L DEV. CORP, LCM
THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL
INC., ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC.
(formerly General Theatrical & Film Exchange, INC.), AVENUE REALTY, INC.,
AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF
PHILIPPINES),
Respondents.
x-------------------------------------------------x

PANGANIBAN, J., Chairman

SANDOVAL- GUTIERREZ,
CORONA,
CARPIO MORALES and
GARCIA, JJ.

Promulgated:

December 13, 2005

DECISION
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside
the Decision of the Court of Appeals (CA) dated March 31, 2004 [1] in consolidated cases C.A. G.R. Sp. No. 76987 and C.A.
G.R. SP. No 78774 and its Resolution dated December 07, 2004,[2] denying petitioners motion for reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal
dispute between them started when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit
against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations for specific performance
and accounting. In his complaint,[3] docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court, [4] Aurelio
alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business
which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations. Yang is described in the
complaint as petitioners and Eduardos partner in their Odeon Theater investment.[5] The same complaint also contained the
following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the
continuation of their family business and common family funds .

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3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by

Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and
made an integral part as Annex A and the portion referring to [Aurelio] submarked as Annex A-1.
3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelios] retaining
his share in the remaining family businesses (mostly, movie theaters, shipping and land development)
and contributing his industry to the continued operation of these businesses, [Aurelio] will be given P1
Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever
is greater. . . .
4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had
accumulated in their joint venture/partnership various assets including but not limited to the corporate
defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership had also acquired [various other assets], but Eduardo
caused to be registered in the names of other parties.
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist of real properties . A list of some
of these real properties is attached hereto and made an integral part as Annex B.
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio]
requested for an accounting and liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate
defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio]
is therefore causing at this time the annotation on the titles of these real properties a notice of lis
pendens . (Emphasis in the original; underscoring and words in bracket added.)
For ease of reference, Annex A-1 of the complaint, which petitioner asserts to have been meant for him by his brother
Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. .

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

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS
PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give
you in form of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly
give you the share of Wack-Wack and Valley Golf because you have been good. The rest will be in
stocks from all the corporations which I repeat, ten percent (10%) equity. [6]
On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER With
Compulsory Counterclaimdenying under oath the material allegations of the complaint, more particularly that portion thereof
depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative defenses, Eduardo, et al.,
apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no cause of action may be
derived from the actionable document, i.e., Annex A-1, being void under the terms of Article 1767 in relation to Article 1773 of
the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to do, if any, under Annex A-1, are
unenforceable under the provisions of the Statute of Frauds.[7]
For his part, Yang - who was served with summons long after the other defendants submitted their answer moved to dismiss
on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint does not state any. [8] Petitioner
opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses. [9] To this motion, petitioner interposed
an Opposition with ex-Parte Motion to Set the Case for Pre-trial.[10]
Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated March 5,
2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10, 2003.[11]
In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for
reconsideration[12] and Yangs motion to dismiss. The following then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of the
April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss[13] to its full resolution.

59

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion was
denied in an Order of July 4, 2003.[14]

B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and

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

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

Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious
haste attended the issuance of the trial courts aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief
from the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003, [16] the CAs 14th Division ordered the consolidation of CA G.R. SP No.
78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of Authorities, the appellate court came out
with the herein assailedDecision dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing
as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in
these consolidated cases annulling, reversing and setting aside the assailed orders of the court a
quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent
[now petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the
court a quo is hereby dismissed.
SO ORDERED.[17] (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as evidenced by the
actionable documents, Annex A and A-1 attached to the complaint, and upon which petitioner solely predicates his right/s
allegedly violated by Eduardo, Yang and the corporate defendants a quo is void or legally inexistent.
In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailed Resolution
of December 7, 2004.[18] .

Hence, petitioners present recourse, on the contention that the CA erred:

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

Petitioners demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or payment to
him, as Eduardos and Yangs partner, of his partnership/joint venture share, after an accounting has been duly conducted of
what he deems to be partnership/joint venture property.[19]
A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses between
them.[20] A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to
contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. [21] A
joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements
are similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on partnership.[22]
The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and respondent
Eduardo are partners in the theatre, shipping and realty business, as one claims but which the other denies. And the issue
bearing on the first assigned error relates to the question of what legal provision is applicable under the premises, petitioner
seeking, as it were, to enforce the actionable document - Annex A-1 - which he depicts in his complaint to be the contract of
partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the following provisions of the
Civil Code:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
Annex A-1, on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that Annex A-1 does not meet the public instrumentation requirements

60

exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving
more than P3,000.00 in money or property, Annex A-1 cannot be presented for notarization, let alone registered with the
Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the nature of petitioners contribution, if any, to the
supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioners contribution consisted of immovables and
real rights. Wrote that court:
A further examination of the allegations in the complaint would show that [petitioners]
contribution to the so-called partnership/joint venture was his supposed share in the family business that
is consisting of movie theaters, shipping and land development under paragraph 3.02 of the complaint.
In other words, his contribution as a partner in the alleged partnership/joint venture consisted of
immovable properties and real rights. .[23]
Significantly enough, petitioner matter-of-factly concurred with the appellate courts observation that,
prescinding from what he himself alleged in his basic complaint, his contribution to the partnership consisted of his share
in the Litonjua family businesses which owned variable immovable properties. Petitioners assertion in his motion for
reconsideration[24] of the CAs decision, that what was to be contributed to the business [of the partnership] was
[petitioners] industry and his share in the family [theatre and land development] business leaves no room for speculation
as to what petitioner contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as
long real property or real rights are initially brought into the partnership. In short, it is really of no moment which of the partners,
or, in this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an inventory of the contributed property duly signed by the
parties should be attached to the public instrument, else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in question
were not contributed, but were acquired after the formation of the supposed partnership. Needless to stress, the Court
cannot accord cogency to this specious argument. For, as earlier stated, petitioner himself admitted contributing his
share in the supposed shipping, movie theatres and realty development family businesses which already owned
immovables even before Annex A-1 was allegedly executed.
Considering thus the value and nature of petitioners alleged contribution to the purported partnership, the
Court, even if so disposed, cannot plausibly extend Annex A-1 the legal effects that petitioner so desires and pleads to
be given. Annex A-1, in fine, cannot support the existence of the partnership sued upon and sought to be enforced. The
legal and factual milieu of the case calls for this disposition. A partnership may be constituted in any form, save when
immovable property or real rights are contributed thereto or when the partnership has a capital of at least P3,000.00, in
which case a public instrument shall be necessary.[25] And if only to stress what has repeatedly been articulated, an
inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its assailed Decision [26] about the probative
value and legal effect of Annex A-1 commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner] contributed immovable
properties to the alleged partnership, the Memorandum (Annex A of the complaint) which purports to establish the
said partnership/joint venture is NOT a public instrument and there was NO inventory of the immovable property
duly signed by the parties. As such, the said Memorandum is null and void for purposes of establishing the
existence of a valid contract of partnership. Indeed, because of the failure to comply with the essential formalities of
a valid contract, the purported partnership/joint venture is legally inexistent and it produces no effect whatsoever.
Necessarily, a void or legally inexistent contract cannot be the source of any contractual or legal right. Accordingly,
the allegations in the complaint, including the actionable document attached thereto, clearly demonstrates that
[petitioner] has NO valid contractual or legal right which could be violated by the [individual respondents] herein. As
a consequence, [petitioners] complaint does NOT state a valid cause of action because NOT all the essential
elements of a cause of action are present. (Underscoring and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CAs equally assailed Resolution of December 7,
2004[27] denying petitioners motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable
document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal
provisions which were brought to its attention by herein [respondents] in the their pleadings. In our
evaluation of [petitioners] complaint, the latter alleged inter alia to have contributed immovable properties
to the alleged partnership but the actionable document is not a public document and there was no
inventory of immovable properties signed by the parties. Both the allegations in the complaint and the
actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which
could be violated by [respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioners posture that Annex A-1, assuming its inefficacy or nullity as a partnership
document, nevertheless created demandable rights in his favor. As petitioner succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable
contract even though it may not be a partnership. This actionable contract is what is known as an
innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights and
obligations of the parties and which rights and obligations may be enforceable and demandable. Just
because the relationship created by the agreement cannot be specifically labeled or pigeonholed into a
category of nominate contract does not mean it is void or unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after he experienced a
reversal of fortune thereat - as an afterthought. The appellate court, however, cannot really be faulted for not yielding to
petitioners dubious stratagem of altering his theory of joint venture/partnership to an innominate contract. For, at bottom, the

61

appellate courts certiorari jurisdiction was circumscribed by what was alleged to have been the order/s issued by the trial court
in grave abuse of discretion. As respondent Yang pointedly observed, [28]since the parties basic position had been well-defined,
that of petitioner being that the actionable document established a partnership/joint venture, it is on those positions that the
appellate court exercised its certiorari jurisdiction. Petitioners act of changing his original theory is an impermissible practice
and constitutes, as the CA aptly declared, an admission of the untenability of such theory in the first place.

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

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

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

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

xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run
this office everytime I am away. I want you to run it the way I am trying to run it because I will be alone
and I will depend entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years
from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed
wrote Annex A-1, is a promise which is not to be performed within one year from contract execution on
June 22, 1973. Accordingly, the agreement embodied in Annex A-1is covered by the Statute of Frauds

and ergo unenforceable for non-compliance therewith.[30] By force of the statute of frauds, an agreement
that by its terms is not to be performed within a year from the making thereof shall be unenforceable by
action, unless the same, or some note or memorandum thereof, be in writing and subscribed by the
party charged. Corollarily, no action can be proved unless the requirement exacted by the statute of
frauds is complied with.[31]
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses supposedly
promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity component of
the promise was intended to go to a common fund would be to read something not written in Annex A-1. Thus,
even this angle alone argues against the very idea of a partnership, the creation of which requires two or more
contracting minds mutually agreeing to contribute money, property or industry to a common fund with the intention
of dividing the profits between or among themselves.[32]
In sum then, the Court rules, as did the CA, that petitioners complaint for specific performance anchored on an actionable
document of partnership which is legally inexistent or void or, at best, unenforceable does not state a cause of action as
against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained against
respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see its way clear
on how the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could
not have had any form of business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner.
In fact, attendant circumstances would indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was for the
continuation of their family business and common family funds which were theretofore being mainly managed by
Eduardo. [33] But Yang denies kinship with the Litonjua family and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and
what his share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let
alone his proportional share in the profits. But such allegation cannot, however, be made because, as aptly
observed by the CA, the actionable document did not contain such provision, let alone mention the name of Yang.
How, indeed, could a person be considered a partner when the document purporting to establish the partnership
contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo are business partners in the [respondent]
corporations, while Bobby is his and Eduardos partner in their Odeon Theater investment (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang became their partner in their Odeon Theater
investment thereafter. Several paragraphs later, however, petitioner would contradict himself by alleging that his
investment and that of Eduardo and Yang in the Odeon theater business has expanded through a reinvestment of
profit income and direct investments in several corporation including but not limited to [six] corporate respondents
This simply means that the Odeon Theatre business came before the corporate respondents. Significantly enough,
petitioner refers to the corporate respondents as progeny of the Odeon Theatre business.[34]

62

Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he sourced his
right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and formulated the legal situation
in the following wise:
[Respondent] Yang, is impleaded because, as alleged in the complaint, he is a partner of [Eduardo] and
the [petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and
direct investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioners] claim against Yang arose from his alleged partnership with petitioner and the
respondent. However, there was NO allegation in the complaint which directly alleged how the supposed
contractual relation was created between [petitioner] and Yang. More importantly, however, the foregoing
ruling of this Court that the purported partnership between [Eduardo] is void and legally inexistent
directly affects said claim against Yang. Since [petitioner] is trying to establish his claim against Yang by
linking him to the legally inexistent partnership . . . such attempt had become futile because there was
NOTHING that would contractually connect [petitioner] and Yang. To establish a valid cause of action,
the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged
partnership between [petitioner] and respondent [Eduardo], including their alleged investment in the
Odeon Theater. A statement of facts on those matters is pivotal to the complaint as they would constitute
the ultimate facts necessary to establish the elements of a cause of action against Yang. [35]
Pressing its point, the CA later stated in its resolution denying petitioners motion for reconsideration the
following:
xxx Whatever the complaint calls it, it is the actionable document attached to the complaint
that is controlling. Suffice it to state, We have not ignored the actionable document As a matter of fact,
We emphasized in our decision that insofar as [Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not mentioned in a document purporting
to establish a partnership could be considered a partner.[36] (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as
peremptorily determined by the CA, has been discussed at length earlier and need not detain us long. Suffice it to say
that after the CA has ruled that the alleged partnership is inexistent, petitioner took a different tack. Thus, from a joint
venture/partnership theory which he adopted and consistently pursued in his complaint, petitioner embraced the
innominate contract theory. Illustrative of this shift is petitioners statement in par. #8 of his motion for reconsideration of
the CAs decision combined with what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint venture, or whatever,
is a legal matter. What is determinative for purposes of sufficiency of the complainants allegations, is
whether the actionable document bears out an actionable contract be it a partnership, a joint venture or
whatever or some innominate contract It may be noted that one kind of innominate contract is what is
known as du ut facias (I give that you may do).[37]

43. Contrariwise, this actionable document, especially its above-quoted provisions,

established an actionable contract even though it may not be a partnership. This actionable contract is
what is known as an innominate contract (Civil Code, Article 1307).[38]
Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence, the
proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate court.
[39]
On the same rationale, an issue which was neither averred in the complaint cannot be raised for the first time on
appeal.[40] It is not difficult, therefore, to agree with the CA when it made short shrift of petitioners innominate contract
theory on the basis of the foregoing basic reasons.
Petitioners protestation that his act of introducing the concept of innominate contract was not a case of changing theories
but of supporting his pleaded cause of action that of the existence of a partnership - by another legal
perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his
motion for reconsideration of the CAs decision virtually relegates partnership as a fall-back theory. Two paragraphs later,
in the same notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as
establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to
pursue theoriginal cause of action or altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr.
and [petitioner], no immovables were contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable document attached to the
complaint does not establish a contractual relationship between [petitioner] and Eduardo, Sr. and
Roberto T Yang simply because his document does not create a partnership or a joint venture. This is a
myopic reading of the actionable document.
Per the Courts own count, petitioner used in his complaint the mixed words joint venture/partnership nineteen (19) times
and the term partnerfour (4) times. He made reference to the law of joint venture/partnership [being applicable] to the
business relationship between [him], Eduardo and Bobby [Yang] and to his rights in all specific properties of their joint
venture/partnership. Given this consideration, petitioners right of action against respondents Eduardo and Yang
doubtless pivots on the existence of the partnership between the three of them, as purportedly evidenced by the undated
and unsigned Annex A-1. A void Annex A-1, as an actionable document of partnership, would strip petitioner of a cause
of action under the premises. A complaint for delivery and accounting of partnership property based on such void or
legally non-existent actionable document is dismissible for failure to state of action. So, in gist, said the Court of Appeals.
The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of
Appeals AFFIRMED.
Cost against the petitioner.

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