ARSENIO T.

MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC
FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents.
Facts:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. It is a subsidiary of Cellulose
Marketing International, a corporation duly organized under the laws of Sweden, with
principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative Office
known as Pacific Forest Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola
(ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already approved by the
Securities and Exchange Commission [SEC] on the said date."6 The Side Agreement
outlines the business relationship of the parties with regard to the Philippine
operations of Pacfor. Private respondent will establish a Pacfor representative office in
the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President.
Petitioner's base salary and the overhead expenditures of the company shall be
borne by the representative office and funded by Pacfor/ATM, since Pacfor Phils. is
equally owned on a 50-50 equity by ATM and Pacfor-usa.
On July 14, 1995, the SEC granted the application of private respondent Pacfor for a
license to transact business in the Philippines under the name of Pacfor or Pacfor
Phils.7 In its application, private respondent Pacfor proposed to establish its
representative office in the Philippines with the purpose of monitoring and
coordinating the market activities for paper products. It also designated petitioner as
its resident agent in the Philippines, authorized to accept summons and processes in
all legal proceedings, and all notices affecting the corporation.8
In March 1997, the Side Agreement was amended through a "Revised Operating and
Profit Sharing Agreement for the Representative Office Known as Pacific Forest
Resources (Philippines),"9 where the salary of petitioner was increased to $78,000
per annum. Both agreements show that the operational expenses will be borne by
the representative office and funded by all parties "as equal partners," while the
profits and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking
confirmation of his 50% equity of Pacfor Phils.10 Private respondent Pacfor, through
William Gleason, its President, replied that petitioner is not a part-owner of Pacfor
Phils. because the latter is merely Pacfor-USA's representative office and not an entity
separate and distinct from Pacfor-USA. "It's simply a 'theoretical company' with the
purpose of dividing the income 50-50."11 Petitioner presumably knew of this
arrangement from the start, having been the one to propose to private respondent
Pacfor the setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was in a joint
venture with them. He alleged he would have been better off remaining as an
independent agent or representative of Pacfor-USA as ATM Marketing Corp.13 Had he
known that no joint venture existed, he would not have allowed Pacfor to take the
profitable business of his own company, ATM Marketing Corp.14 Petitioner raised
other issues, such as the rentals of office furniture, salary of the employees, company
car, as well as commissions allegedly due him. The issues were not resolved, hence,
in October 2000, petitioner wrote Pacfor-USA demanding payment of unpaid

commissions and office furniture and equipment rentals, amounting to more than one
million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel, ordered
petitioner to turn over to it all papers, documents, files, records, and other materials
in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor
Phils.16 On December 18, 2000, private respondent Pacfor also required petitioner to
remit more than three hundred thousand-peso Christmas giveaway fund for clients of
Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement
and ordered petitioner to transfer title and turn over to it possession of the service
car.18
Private respondent Pacfor likewise sent letters to its clients in the Philippines,
advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper
Industries, Inc., dated November 21, 2000, private respondent Pacfor stated:
Until further notice, please course all inquiries and communications for Pacific Forest
Resources (Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the
offices of ATM Marketing Corporation at Room 504, Concorde Building, Legaspi
Village, Makati City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated
December 2000, private respondent directed said client "to please communicate
directly with us on any further questions associated with these payments or any
future business. Do not communicate with [Pacfor] and/or [ATM]."20
Petitioner construed these directives as a severance of the "unregistered partnership"
between him and Pacfor, and the termination of his employment as resident manager
of Pacfor Phils.21 In a memorandum to the employees of Pacfor Phils., dated January
29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all
records to them effective December 19, 2000. The company records were turned
over only on January 26, 2001. This means our jobs with Pacific Forest were
terminated effective December 19, 2000. I am concerned about your welfare. I would
like to help you by offering you to work with ATM Marketing Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally
own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis,
Pacfor Phils.' office furniture and equipment and the service car. He also reiterated his
demand for unpaid commissions, and proposed to offset these with the remaining
Christmas giveaway fund in his possession.23 Furthermore, he did not renew the
lease contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor
Phils., wherein he was the signatory to the lease agreement.24

On February 2, 2001, private respondent Pacfor placed petitioner on preventive

suspension and ordered him to show cause why no disciplinary action should be
taken against him. Private respondent Pacfor charged petitioner with willful
disobedience and serious misconduct for his refusal to turn over the service car and
the Christmas giveaway fund which he applied to his alleged unpaid commissions.
Private respondent also alleged loss of confidence and gross neglect of duty on the
part of petitioner for allegedly allowing another corporation owned by petitioner's
relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales and business of private
respondent for HEPI's principal, International Forest Products, a competitor of private
respondent.25
Petitioner denied the charges. He reiterated that he considered the import of Pacfor
President William Gleason's letters as a "cessation of his position and of the existence
of Pacfor Phils." He likewise informed private respondent Pacfor that ATM Marketing
Corp. now occupies Pacfor Phils.' office premises,26 and demanded payment of his
separation pay.27 On February 15, 2001, petitioner filed his complaint for illegal
dismissal, recovery of separation pay, and payment of attorney's fees with the
NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges against petitioner.
In a memorandum dated March 5, 2001, private respondent directed petitioner to
explain why he should not be disciplined for serious misconduct and conflict of
interest. Private respondent charged petitioner anew with serious misconduct for the
latter's alleged act of fraud and misrepresentation in authorizing the release of an
additional peso salary for himself, besides the dollar salary agreed upon by the
parties. Private respondent also accused petitioner of disloyalty and representation of
conflicting interests for having continued using the Pacfor Phils.' office for operations
of HEPI. In addition, petitioner allegedly solicited business for HEPI from a competitor
company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive
dismissal. By directing petitioner to turn over all office records and materials,
regardless of whether he may have retained copies, private respondent Pacfor
virtually deprived petitioner of his job by the gradual diminution of his authority as
resident manager. Petitioner's position as resident manager whose duty, among
others, was to maintain the security of its business transactions and communications
was rendered meaningless.
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On
December 20, 2001, the NLRC set aside the July 30, 2001 decision of the labor
arbiter, for lack of jurisdiction and lack of merit.31 It held there was no employeremployee relationship between the parties. Based on the two agreements between
the parties, it concluded that petitioner is not an employee of private respondent
Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration.32
Petitioner was not successful on his appeal to the Court of Appeals. The appellate
court upheld the ruling of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was
denied.
Issue:

Whether or not there was a partnership formed.

Held:
No.
Petitioner argues that he is an industrial partner of the partnership he formed with
private respondent Pacfor, and also an employee of the partnership. Petitioner insists
that an industrial partner may at the same time be an employee of the partnership,
provided there is such an agreement, which, in this case, is the "Side Agreement"
and the "Revised Operating and Profit Sharing Agreement." The Court of Appeals
denied the appeal of petitioner, holding that "the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or independent contractorship."
Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no
partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm
capital and of all property that may be acquired thereby and through the efforts of
the members.36 The property or stock of the partnership forms a community of
goods, a common fund, in which each party has a proprietary interest.37 In fact, the
New Civil Code regards a partner as a co-owner of specific partnership property.38
Each partner possesses a joint interest in the whole of partnership property. If the
relation does not have this feature, it is not one of partnership.39 This essential
element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and private
respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason,
private respondent Pacfor's President established this fact when he said that Pacfor
Phils. is simply a "theoretical company" for the purpose of dividing the income 50-50.
He stressed that petitioner knew of this arrangement from the very start, having
been the one to propose to private respondent Pacfor the setting up of a
representative office, and "not a branch office" in the Philippines to save on taxes.
Thus, the parties in this case, merely shared profits. This alone does not make a
partnership.40
Besides, a corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter.41 This doctrine is based on the following
considerations: (1) that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not its duly appointed
and authorized agents and officers, would be inconsistent with the policy of the law
that the corporation shall manage its own affairs separately and exclusively; and, (2)
that such an arrangement would improperly allow corporate property to become
subject to risks not contemplated by the stockholders when they originally invested
in the corporation.42 No such authorization has been proved in the case at bar.
Be that as it may, we hold that on the basis of the evidence, an employer-employee
relationship is present in the case at bar. The elements to determine the existence of
an employment relationship are: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the employer's power
to control the employee's conduct. The most important element is the employer's
control of the employee's conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it.43
In the instant case, all the foregoing elements are present.

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA

ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Facts:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon
City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of
Title No. 37686 of the land record of Rizal Province and as containing an area of 13
hectares more or less. But the complaint was amended by reducing the area of 6
hectares, more or less, after the defendant had indicated the plaintiff's surveyors the
portion of land claimed and occupied by him. The second amendment became
necessary and was allowed following the testimony of plaintiff's surveyors that a
portion of the area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area occupied
and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff
again, with the leave of court, amended its complaint to make its allegations conform
to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute) under
claim of ownership, adverse to the entire world by defendant and his predecessor in
interest" from "time in-memorial". The answer further alleges that registration of the
land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
1940, until he vacates the land, and also to pay the costs.
Issue:
Whether or not the case was brought by the real property in interest.
Held:
Yes.
There is nothing to the contention that the present action is not brought by the real
party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require
is that an action be brought in the name of, but not necessarily by, the real party in
interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the
action, that is to file the complaint, in the name of the plaintiff. That practice appears
to have been followed in this case, since the complaint is signed by the law firm of
Araneta and Araneta, "counsel for plaintiff" and commences with the statement
"comes now plaintiff, through its undersigned counsel." It is true that the complaint
also states that the plaintiff is "represented herein by its Managing Partner Gregorio
Araneta, Inc.", another corporation, but there is nothing against one corporation
being represented by another person, natural or juridical, in a suit in court. The

contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on
the theory that it is illegal for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by its charter."
(Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of
Corp., 1082.) There is nothing in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in
line with the corporate business of either of them.
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL
A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents.
Facts:
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 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."
The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:
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:

xxx

xxx

5.

Management

xxx

(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 other 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 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:
... 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, ACG.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, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean
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.
Issue:
Whether or not the entity created should be treated as a corporation, partnership or a
joint venture.
Held:
A joint venture.
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:
xxx

xxx

xxx

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-GR 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:

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:
(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.
(b)

When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's 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:
xxx

xxx

xxx

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 ajoint 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 subsequent acts shall be principally considered. (Art. 1371,
New Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
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 N Y S 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:
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 protect ASI as the
minority.

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 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 ASI's 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).
xxx

xxx

xxx

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 tms 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 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.
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.
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.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.xxx

xxx

xxx

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 Code's
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
YoungYutivo family count for another 13 stockholders, the Chamsay 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 closeheld 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 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 Ass'n. 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:
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 O' Neal, 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:
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 not 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 Agreement's 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 No. 75951, pp.
90-94)
ii. Object certain or lawful subject matter arts. 1306; 1347 to 1349; 1409;
1770; - the pursuit of a particular business for profit; except where the law
requires a specific form of business organization, such as banking or
insurance which only corporations can undertake.
Art. 1306. Stipulations, Clauses, Terms and Conditions; Limitations
The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. (1255a)
Article 1347

All things which are not outside the commerce of men, including future things, may
be the object of a contract. All rights which are not intransmissible may also be the
object of contracts.
No contract may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or
public policy may likewise be the object of a contract. (1271a)
Article 1349
The object of every contract must be determinate as to its kind. The fact that the
quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract
between the parties. (1273)
Article1409.
Thefollowingcontractsareinexistentandvoidfromthebeginning:
(1)Thosewhosecause,objectorpurposeiscontrarytolaw,morals,goodcustoms,publicorderor
publicpolicy;
(2)Thosewhichareabsolutelysimulatedorfictitious;
(3)Thosewhosecauseorobjectdidnotexistatthetimeofthetransaction;
(4)Thosewhoseobjectisoutsidethecommerceofmen;
(5)Thosewhichcontemplateanimpossibleservice;
(6)Thosewheretheintentionofthepartiesrelativetotheprincipalobjectofthecontractcannot
beascertained;
(7)Thoseexpresslyprohibitedordeclaredvoidbylaw.
Thesecontractscannotberatified.Neithercantherighttosetupthedefenseofillegalitybewaived.
ART. 1770
A partnership must have a lawful object or purpose, and must be established for the
common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the profits shall be
confiscated in favor of the State, without prejudice to the provisions of the Penal
Code governing the confiscation of the instruments and effects of a crime. (1666a)
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

Facts:
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 Casteel's 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 Cacam's 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 Casteel's
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 versus 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 versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp.
Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."
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 Casteel's 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 Director's 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 appellant's 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:
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;
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 above-mentioned
conditions enumerated; ...
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...."
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 353 and 353B) 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:
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.
On the same date, the same official issued a decision in DANR Case 353-B, the
dispositive portion stating as follows:
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....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's 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.
Issue:
Whether or not the contact of service created a partnership or a co-ownership.
Held:
It creates a contract of Partnership.
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.
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 coownership 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 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 Casteel's 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 Deluao's
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 Casteel's appeal or the approval of Deluao's 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 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:
... [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.
(emphasis 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 letter10
to Casteel dated December 19, 1949 wherein they stated that they did not employ
him in his (Casteel's) 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,13expressing his concurrence in the appellant's suggestion and advising the
latter to ask for a reconsideration of the order of the Director of Fisheries
disapproving his (appellant's) 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 Casteel's application.
Thus by letter14 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 appellant's 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 appellant's
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 latter's capital the area covered by his fishpond permit F289-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.
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:
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.
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 appellant's 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
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 gratia argumenti that the approval of Casteel's 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 wrote17 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 Casteel's 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 letter19 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
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao
wrote a letter20 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."
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."
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. vs. Ago, et al. (L-15414, June 30,
1960), and reiterated in Ganitano vs. 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 (Coloso v. Board
of Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have no
supervising power over the proceedings and action 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...
(emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due
course to the appellant's fishpond application 1717 and awarded to him the
possession of the area in question. In view of the finality of the Secretary's 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 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 appellant's
application over the fishpond which was given due course. After the Secretary of
Agriculture and Natural Resources approved the appellant's 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, (e) 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.
ADRIANO ARBES, ET AL., plaintiffs-appellees,
vs.
VICENTE POLISTICO, ET AL., defendants-appellants.

Facts:
This is an action to bring about liquidation of the funds and property of the
association called "Turnuhan Polistico & Co." The plaintiffs were members or
shareholders, and the defendants were designated as president-treasurer, directors
and secretary of said association.
It is well to remember that this case is now brought before the consideration of this
court for the second time. The first one was when the same plaintiffs appeared from
the order of the court below sustaining the defendant's demurrer, and requiring the
former to amend their complaint within a period, so as to include all the members of
"Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then
that in an action against the officers of a voluntary association to wind up its affairs
and enforce an accounting for money and property in their possessions, it is not
necessary that all members of the association be made parties to the action. (Borlasa
vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of origin,
both parties amend, respectively, their complaint and their answer, and by
agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular
Auditor's Office, commissioner to examine all the books, documents, and accounts of
"Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire
to present.
The commissioner rendered his report, which is attached to the record, with the
following resume:
Income:
Member's shares...................97,263.70
Credits paid................................6,196.55
Interest received......................4,569.45
Miscellaneous............................1,891.00
P109,620.70
Expenses:
Premiums to members............68,146.25
Loans on real-estate....................9,827.00
Loans on promissory notes......4,258.55
Salaries..............................................1,095.00
Miscellaneous..................................1,686.10
85,012.90

Cash on hand........................................................

24,607.80

The defendants objected to the commissioner's report, but the trial court, having
examined the reasons for the objection, found the same sufficiently explained in the
report and the evidence, and accepting it, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants
jointly and severally to return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs in this case, and to
the rest of the members of the said association represented by said plaintiffs, with
costs against the defendants.
Issue:
Whether or not charitable institution should be made party defendant in the case at
bar.
Held:
No.
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S.
vs. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some
charitable institution to whom the partnership funds may be ordered to be turned
over, should be included, as a party defendant. The appellants refer to article 1666 of
the Civil Code, which provides:
A partnership must have a lawful object, and must be established for the common
benefit of the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall be given
to charitable institutions of the domicile of the partnership, or, in default of such, to
those of the province.
Appellant's contention on this point is untenable. According to said article, no
charitable institution is a necessary party in the present case of determination of the
rights of the parties. The action which may arise from said article, in the case of
unlawful partnership, is that for the recovery of the amounts paid by the member
from those in charge of the administration of said partnership, and it is not necessary
for the said parties to base their action to the existence of the partnership, but on the
fact that of having contributed some money to the partnership capital. And hence,
the charitable institution of the domicile of the partnership, and in the default
thereof, those of the province are not necessary parties in this case. The article cited
above permits no action for the purpose of obtaining the earnings made by the
unlawful partnership, during its existence as result of the business in which it was
engaged, because for the purpose, as Manresa remarks, the partner will have to base
his action upon the partnership contract, which is to annul and without legal
existence by reason of its unlawful object; and it is self evident that what does not
exist cannot be a cause of action. Hence, paragraph 2 of the same article provides
that when the dissolution of the unlawful partnership is decreed, the profits cannot
inure to the benefit of the partners, but must be given to some charitable institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as
a clear explanation of the scope and spirit of the provision of the Civil Code which we
are concerned. Commenting on said article Manresa, among other things says:
When the subscriptions of the members have been paid to the management of the
partnership, and employed by the latter in transactions consistent with the purposes

of the partnership may the former demand the return of the reimbursement thereof
from the manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no valid existence, if it is
considered juridically non-existent, the contract entered into can have no legal effect;
and in that case, how can it give rise to an action in favor of the partners to judicially
demand from the manager or the administrator of the partnership capital, each one's
contribution?
The authors discuss this point at great length, but Ricci decides the matter quite
clearly, dispelling all doubts thereon. He holds that the partner who limits himself to
demanding only the amount contributed by him need not resort to the partnership
contract on which to base his action. And he adds in explanation that the partner
makes his contribution, which passes to the managing partner for the purpose of
carrying on the business or industry which is the object of the partnership; or in other
words, to breathe the breath of life into a partnership contract with an objection
forbidden by law. And as said contrast does not exist in the eyes of the law, the
purpose from which the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what belongs to
others, without any consideration; for which reason he is not bound to return it and
he who has paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in the course of the partnership,
because they do not constitute or represent the partner's contribution but are the
result of the industry, business or speculation which is the object of the partnership,
and therefor, in order to demand the proportional part of the said profits, the partner
would have to base his action on the contract which is null and void, since this
partition or distribution of the profits is one of the juridical effects thereof. Wherefore
considering this contract as non-existent, by reason of its illicit object, it cannot give
rise to the necessary action, which must be the basis of the judicial complaint.
Furthermore, it would be immoral and unjust for the law to permit a profit from an
industry prohibited by it.
Hence the distinction made in the second paragraph of this article of this Code,
providing that the profits obtained by unlawful means shall not enrich the partners,
but shall upon the dissolution of the partnership, be given to the charitable
institutions of the domicile of the partnership, or, in default of such, to those of the
province.
This is a new rule, unprecedented by our law, introduced to supply an obvious
deficiency of the former law, which did not describe the purpose to which those
profits denied the partners were to be applied, nor state what to be done with them.
The profits are so applied, and not the contributions, because this would be an
excessive and unjust sanction for, as we have seen, there is no reason, in such a
case, for depriving the partner of the portion of the capital that he contributed, the
circumstances of the two cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful partnership,
the amounts contributed are to be returned by the partners, because it only deals
with the disposition of the profits; but the fact that said contributions are not included
in the disposal prescribed profits, shows that in consequences of said exclusion, the
general law must be followed, and hence the partners should reimburse the amount
of their respective contributions. Any other solution is immoral, and the law will not
consent to the latter remaining in the possession of the manager or administrator

who has refused to return them, by denying to the partners the action to demand
them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)
JOSE FERNANDEZ, plaintiff-appellant,
vs.
FRANCISCO DE LA ROSA, defendant-appellee.

Facts:
The object of this action is to obtain from the court a declaration that a partnership
exists between the parties, that the plaintiff has a consequent interested in certain
cascoes which are alleged to be partnership property, and that the defendant is
bound to render an account of his administration of the cascoes and the business
carried on with them.
Judgment was rendered for the defendant in the court below and the plaintiff
appealed.
The respective claims of the parties as to the facts, so far as it is necessary to state
them in order to indicate the point in dispute, may be briefly summarized. The
plaintiff alleges that in January, 1900, he entered into a verbal agreement with the
defendant to form a partnership for the purchase of cascoes and the carrying on of
the business of letting the same for hire in Manila, the defendant to buy the cascoes
and each partner to furnish for that purpose such amount of money as he could, the
profits to be divided proportionately; that in the same January the plaintiff furnished
the defendant 300 pesos to purchase a casco designated as No. 1515, which the
defendant did purchase for 500 pesos of Doa Isabel Vales, taking the title in his own
name; that the plaintiff furnished further sums aggregating about 300 pesos for
repairs on this casco; that on the fifth of the following March he furnished the
defendant 825 pesos to purchase another casco designated as No. 2089, which the
defendant did purchase for 1,000 pesos of Luis R. Yangco, taking the title to this
casco also in his own name; that in April the parties undertook to draw up articles of
partnership for the purpose of embodying the same in an authentic document, but
that the defendant having proposed a draft of such articles which differed materially
from the terms of the earlier verbal agreement, and being unwillingly to include
casco No. 2089 in the partnership, they were unable to come to any understanding
and no written agreement was executed; that the defendant having in the meantime
had the control and management of the two cascoes, the plaintiff made a demand for
an accounting upon him, which the defendant refused to render, denying the
existence of the partnership altogether.
The defendant admits that the project of forming a partnership in the casco business
in which he was already engaged to some extent individually was discussed between
himself and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a
partner of the plaintiff in a bakery business, being also a party to the negotiations,
but he denies that any agreement was ever consummated. He denies that the
plaintiff furnished any money in January, 1900, for the purchase of casco No. 1515, or
for repairs on the same, but claims that he borrowed 300 pesos on his individual
account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo,
and Antonio Angulo. The 825 pesos, which he admits he received from the plaintiff
March 5, he claims was for the purchase of casco No. 1515, which he alleged was
bought March 12, and he alleges that he never received anything from the defendant
toward the purchase of casco No. 2089. He claims to have paid, exclusive of repairs,
1,200 pesos for the first casco and 2,000 pesos for the second one.

The case comes to this court under the old procedure, and it is therefore necessary
for us the review the evidence and pass upon the facts. Our general conclusions may
be stated as follows:
(1)
Doa Isabel Vales, from whom the defendant bought casco No. 1515, testifies
that the sale was made and the casco delivered in January, although the public
document of sale was not executed till some time afterwards. This witness is
apparently disinterested, and we think it is safe to rely upon the truth of her
testimony, especially as the defendant, while asserting that the sale was in March,
admits that he had the casco taken to the ways for repairs in January.
It is true that the public document of sale was executed March 10, and that the
vendor declares therein that she is the owner of the casco, but such declaration does
not exclude proof as to the actual date of the sale, at least as against the plaintiff,
who was not a party to the instrument. (Civil Code, sec. 1218.) It often happens, of
course, in such cases, that the actual sale precedes by a considerable time the
execution of the formal instrument of transfer, and this is what we think occurred
here.
(2)
The plaintiff presented in evidence the following receipt: "I have this day
received from D. Jose Fernandez eight hundred and twenty-five pesos for the cost of a
casco which we are to purchase in company. Manila, March 5, 1900. Francisco de la
Rosa." The authenticity of this receipt is admitted by the defendant. If casco No. 1515
was bought, as we think it was, in January, the casco referred to in the receipt which
the parties "are to purchase in company" must be casco No. 2089, which was bought
March 22. We find this to be the fact, and that the plaintiff furnished and the
defendant received 825 pesos toward the purchase of this casco, with the
understanding that it was to be purchased on joint account.
(3)
Antonio Fernandez testifies that in the early part of January, 1900, he saw
Antonio Angulo give the defendant, in the name of the plaintiff, a sum of money, the
amount of which he is unable to state, for the purchase of a casco to be used in the
plaintiff's and defendant's business. Antonio Angulo also testifies, but the defendant
claims that the fact that Angulo was a partner of the plaintiff rendered him
incompetent as a witness under the provisions of article 643 of the then Code of Civil
Procedure, and without deciding whether this point is well taken, we have discarded
his testimony altogether in considering the case. The defendant admits the receipt of
300 pesos from Antonio Angulo in January, claiming, as has been stated, that it was a
loan from the firm. Yet he sets up the claim that the 825 pesos which he received
from the plaintiff in March were furnished toward the purchase of casco No. 1515,
thereby virtually admitting that casco was purchased in company with the plaintiff.
We discover nothing in the evidence to support the claim that the 300 pesos received
in January was a loan, unless it may be the fact that the defendant had on previous
occasions borrowed money from the bakery firm. We think all the probabilities of the
case point to the truth of the evidence of Antonio Fernandez as to this transaction,
and we find the fact to be that the sum in question was furnished by the plaintiff
toward the purchase for joint ownership of casco No. 1515, and that the defendant
received it with the understanding that it was to be used for this purposed. We also
find that the plaintiff furnished some further sums of money for the repair of casco.
(4)
The balance of the purchase price of each of the two cascoes over and above
the amount contributed by the plaintiff was furnished by the defendant.

(5)
We are unable to find upon the evidence before us that there was any specific
verbal agreement of partnership, except such as may be implied from the fact as to
the purchase of the casco.
(6)
Although the evidence is somewhat unsatisfactory upon this point, we think it
more probable than otherwise that no attempt was made to agree upon articles of
partnership till about the middle of the April following the purchase of the cascoes.
(7)
At some time subsequently to the failure of the attempt to agree upon
partnership articles and after the defendant had been operating the cascoes for some
time, the defendant returned to the plaintiff 1,125 pesos, in two different sums, one
of 300 and one of 825 pesos. The only evidence in the record as to the circumstances
under which the plaintiff received these sums is contained in his answer to the
interrogatories proposed to him by the defendant, and the whole of his statement on
this point may properly be considered in determining the fact as being in the nature
of an indivisible admission. He states that both sums were received with an express
reservation on his part of all his rights as a partner. We find this to be the fact.
Issues:
(1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a result of the act of the
defendant in receiving back the 1,125 pesos?
Held:
(1) "Partnership is a contract by which 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." (Civil Code, art. 1665.)
The essential points upon which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint
interest in the profits. If the contract contains these two elements the partnership
relation results, and the law itself fixes the incidents of this relation if the parties fail
to do so. (Civil Code, secs. 1689, 1695.)
We have found as a fact that money was furnished by the plaintiff and received by
the defendant with the understanding that it was to be used for the purchase of the
cascoes in question. This establishes the first element of the contract, namely,
mutual contribution to a common stock. The second element, namely, the intention
to share profits, appears to be an unavoidable deduction from the fact of the
purchase of the cascoes in common, in the absence of any other explanation of the
object of the parties in making the purchase in that form, and, it may be added, in
view of the admitted fact that prior to the purchase of the first casco the formation of
a partnership had been a subject of negotiation between them.
Under other circumstances the relation of joint ownership, a relation distinct though
perhaps not essentially different in its practical consequence from that of
partnership, might have been the result of the joint purchase. If, for instance, it were
shown that the object of the parties in purchasing in company had been to make a
more favorable bargain for the two cascoes that they could have done by purchasing
them separately, and that they had no ulterior object except to effect a division of
the common property when once they had acquired it, the affectio societatis would
be lacking and the parties would have become joint tenants only; but, as nothing of
this sort appears in the case, we must assume that the object of the purchase was
active use and profit and not mere passive ownership in common.

It is thus apparent that a complete and perfect contract of partnership was entered
into by the parties. This contract, it is true, might have been subject to a suspensive
condition, postponing its operation until an agreement was reached as to the
respective participation of the partners in the profits, the character of the partnership
as collective or en comandita, and other details, but although it is asserted by
counsel for the defendant that such was the case, there is little or nothing in the
record to support this claim, and that fact that the defendant did actually go on and
purchase the boat, as it would seem, before any attempt had been made to
formulate partnership articles, strongly discountenances the theory.
The execution of a written agreement was not necessary in order to give efficacy to
the verbal contract of partnership as a civil contract, the contributions of the partners
not having been in the form of immovables or rights in immovables. (Civil Code, art.
1667.) The special provision cited, requiring the execution of a public writing in the
single case mentioned and dispensing with all formal requirements in other cases,
renders inapplicable to this species of contract the general provisions of article 1280
of the Civil Code.
(2)
The remaining question is as to the legal effect of the acceptance by the
plaintiff of the money returned to him by the defendant after the definitive failure of
the attempt to agree upon partnership articles. The amount returned fell short, in our
view of the facts, of that which the plaintiff had contributed to the capital of the
partnership, since it did not include the sum which he had furnished for the repairs of
casco No. 1515. Moreover, it is quite possible, as claimed by the plaintiff, that a profit
may have been realized from the business during the period in which the defendant
have been administering it prior to the return of the money, and if so he still retained
that sum in his hands. For these reasons the acceptance of the money by the plaintiff
did not have the effect of terminating the legal existence of the partnership by
converting it into a societas leonina, as claimed by counsel for the defendant.
Did the defendant waive his right to such interest as remained to him in the
partnership property by receiving the money? Did he by so doing waive his right to
an accounting of the profits already realized, if any, and a participation in them in
proportion to the amount he had originally contributed to the common fund? Was the
partnership dissolved by the "will or withdrawal of one of the partners" under article
1705 of the Civil Code? We think these questions must be answered in the negative.
There was no intention on the part of the plaintiff in accepting the money to
relinquish his rights as a partner, nor is there any evidence that by anything that he
said or by anything that he omitted to say he gave the defendant any ground
whatever to believe that he intended to relinquish them. On the contrary he notified
the defendant that he waived none of his rights in the partnership. Nor was the
acceptance of the money an act which was in itself inconsistent with the continuance
of the partnership relation, as would have been the case had the plaintiff withdrawn
his entire interest in the partnership. There is, therefore, nothing upon which a
waiver, either express or implied, can be predicated. The defendant might have
himself terminated the partnership relation at any time, if he had chosen to do so, by
recognizing the plaintiff's right in the partnership property and in the profits. Having
failed to do this he can not be permitted to force a dissolution upon his co-partner
upon terms which the latter is unwilling to accept. We see nothing in the case which
can give the transaction in question any other aspect than that of the withdrawal by
one partner with the consent of the other of a portion of the common capital.
The result is that we hold and declare that a partnership was formed between the
parties in January, 1900, the existence of which the defendant is bound to recognize;

that cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff
is entitled to an accounting of the defendant's administration of such property, and of
the profits derived therefrom. This declaration does not involve an adjudication as to
any disputed items of the partnership account.
iii. Cause of obligation art 1350 for each contracting party, the prestation
or promise of a thing or service by the other; the undertaking of the other to
contribute money, property or industry.
Article 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. (1274)
1. Distinction from other business relations and organizations
a. Joint venture
JOSEFINA P. REALUBIT, Petitioner,
vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.
Facts:
On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture
Agreement with Francis Eric Amaury Biondo (Biondo), a French national, for the
operation of an ice manufacturing business. With Josefina as the industrial partner
and Biondo as the capitalist partner, the parties agreed that they would each receive
40% of the net profit, with the remaining 20% to be used for the payment of the ice
making machine which was purchased for the business.5 For and in consideration of
the sum of P500,000.00, however, Biondo subsequently executed a Deed of
Assignment dated 27 June 1997, transferring all his rights and interests in the
business in favor of respondent Eden Jaso (Eden), the wife of respondent Prosencio
Jaso.6 With Biondos eventual departure from the country, the Spouses Jaso caused
their lawyer to send Josefina a letter dated 19 February 1998, apprising her of their
acquisition of said Frenchmans share in the business and formally demanding an
accounting and inventory thereof as well as the remittance of their portion of its
profits.7
Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso
commenced the instant suit with the filing of their 3 August 1998 Complaint against
Josefina, her husband, Ike Realubit (Ike), and their alleged dummies, for specific
performance, accounting, examination, audit and inventory of assets and properties,
dissolution of the joint venture, appointment of a receiver and damages. Docketed as
Civil Case No. 98-0331 before respondent Branch 257 of the Regional Trial Court
(RTC) of Paraaque City, said complaint alleged, among other matters, that the
Spouses Realubit had no gainful occupation or business prior to their joint venture
with Biondo; that with the income of the business which earned not less than
P3,000.00 per day, they were, however, able to acquire the two-storey building as
well as the land on which the joint ventures ice plant stands, another building which
they used as their office and/or residence and six (6) delivery vans; and, that aside
from appropriating for themselves the income of the business, the Spouses Realubit
have fraudulently concealed the funds and assets thereof thru their relatives,
associates or dummies.8
Served with summons, the Spouses Realubit filed their Answer dated 21 October
1998, specifically denying the material allegations of the foregoing complaint.

Claiming that they have been engaged in the tube ice trading business under a single
proprietorship even before their dealings with Biondo, the Spouses Realubit, in turn,
averred that their said business partner had left the country in May 1997 and could
not have executed the Deed of Assignment which bears a signature markedly
different from that which he affixed on their Joint Venture Agreement; that they
refused the Spouses Jasos demand in view of the dubious circumstances surrounding
their acquisition of Biondos share in the business which was established at Don
Antonio Heights, Commonwealth Avenue, Quezon City; that said business had
already stopped operations on 13 January 1996 when its plant shut down after its
power supply was disconnected by MERALCO for non-payment of utility bills; and,
that it was their own tube ice trading business which had been moved to 66-C
Cenacle Drive, Sanville Subdivision, Project 6, Quezon City that the Spouses Jaso
mistook for the ice manufacturing business established in partnership with Biondo.9
The issues thus joined and the mandatory pre-trial conference subsequently
terminated, the RTC went on to try the case on its merits and, thereafter, to render its
Decision dated 17 September 2001, discounting the existence of sufficient evidence
from which the income, assets and the supposed dissolution of the joint venture can
be adequately reckoned. Upon the finding, however, that the Spouses Jaso had been
nevertheless subrogated to Biondos rights in the business in view of their valid
acquisition of the latters share as capitalist partner,10 the RTC disposed of the case
in the following wise:
WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting
and inventory of the assets and liabilities of the joint venture from its inception to the
present, to allow plaintiffs access to the books and accounting records of the joint
venture, to deliver to plaintiffs their share in the profits, if any, and to pay the
plaintiffs the amount of P20,000. for moral damages. The claims for exemplary
damages and attorneys fees are denied for lack of basis.11
On appeal before the CA, the foregoing decision was set aside in the herein assailed
Decision dated 30 April 2007, upon the following findings and conclusions: (a) the
Spouses Jaso validly acquired Biondos share in the business which had been
transferred to and continued its operations at 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City and not dissolved as claimed by the Spouses
Realubit; (b) absent showing of Josefinas knowledge and consent to the transfer of
Biondos share, Eden cannot be considered as a partner in the business, pursuant to
Article 1813 of the Civil Code of the Philippines; (c) while entitled to Biondos share in
the profits of the business, Eden cannot, however, interfere with the management of
the partnership, require information or account of its transactions and inspect its
books; (d) the partnership should first be dissolved before Eden can seek an
accounting of its transactions and demand Biondos share in the business; and, (e)
the evidence adduced before the RTC do not support the award of moral damages in
favor of the Spouses Jaso.12
The Spouses Realubits motion for reconsideration of the foregoing decision was
denied for lack of merit in the CAs 28 June 2007 Resolution,13 hence, this petition.
Issues:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT
VENTURE
B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS PARTNER
IN THE JOINT VENTURE TO RENDER [A]N ACCOUNTING TO ONE WHO IS NOT A
PARTNER IN SAID JOINT VENTURE.

C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT
VENTURE AND IN THE SEPARATE ICE BUSINESS OF PETITIONER[S].14
Held:
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA
inordinately gave premium to the notarization of the 27 June 1997 Deed of
Assignment executed by Biondo in favor of the Spouses Jaso. Calling attention to the
latters failure to present before the RTC said assignor or, at the very least, the
witnesses to said document, the Spouses Realubit maintain that the testimony of
Rolando Diaz, the Notary Public before whom the same was acknowledged, did not
suffice to establish its authenticity and/or validity. They insist that notarization did not
automatically and conclusively confer validity on said deed, since it is still entirely
possible that Biondo did not execute said deed or, for that matter, appear before said
notary public.15 The dearth of merit in the Spouses Realubits position is, however,
immediately evident from the settled rule that documents acknowledged before
notaries public are public documents which are admissible in evidence without
necessity of preliminary proof as to their authenticity and due execution.16
It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo
executed in favor of Eden not only enjoys a presumption of regularity17 but is also
considered prima facie evidence of the facts therein stated.18 A party assailing the
authenticity and due execution of a notarized document is, consequently, required to
present evidence that is clear, convincing and more than merely preponderant.19 In
view of the Spouses Realubits failure to discharge this onus, we find that both the
RTC and the CA correctly upheld the authenticity and validity of said Deed of
Assignment upon the combined strength of the above-discussed disputable
presumptions and the testimonies elicited from Eden20 and Notary Public Rolando
Diaz.21 As for the Spouses Realubits bare assertion that Biondos signature on the
same document appears to be forged, suffice it to say that, like fraud,22 forgery is
never presumed and must likewise be proved by clear and convincing evidence by
the party alleging the same.23 Aside from not being borne out by a comparison of
Biondos signatures on the Joint Venture Agreement24 and the Deed of
Assignment,25 said forgery is, moreover debunked by Biondos duly authenticated
certification dated 17 November 1998, confirming the transfer of his interest in the
business in favor of Eden.26
Generally understood to mean an organization formed for some temporary purpose,
a joint venture is likened to a particular partnership or one which "has for its object
determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation."27 The rule is settled that joint ventures are governed by the
law on partnerships28 which are, in turn, based on mutual agency or delectus
personae.29 Insofar as a partners conveyance of the entirety of his interest in the
partnership is concerned, Article 1813 of the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership does
not itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to
interfere in the management or administration of the partnership business or affairs,
or to require any information or account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to receive in accordance with
his contracts the profits to which the assigning partners would otherwise be entitled.
However, in case of fraud in the management of the partnership, the assignee may
avail himself of the usual remedies.

In the case of a dissolution of the partnership, the assignee is entitled to receive his
assignors interest and may require an account from the date only of the last account
agreed to by all the partners.
From the foregoing provision, it is evident that "(t)he transfer by a partner of his
partnership interest does not make the assignee of such interest a partner of the
firm, nor entitle the assignee to interfere in the management of the partnership
business or to receive anything except the assignees profits. The assignment does
not purport to transfer an interest in the partnership, but only a future contingent
right to a portion of the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital."30 Since a partners
interest in the partnership includes his share in the profits,31 we find that the CA
committed no reversible error in ruling that the Spouses Jaso are entitled to Biondos
share in the profits, despite Juanitas lack of consent to the assignment of said
Frenchmans interest in the joint venture. Although Eden did not, moreover, become
a partner as a consequence of the assignment and/or acquire the right to require an
accounting of the partnership business, the CA correctly granted her prayer for
dissolution of the joint venture conformably with the right granted to the purchaser of
a partners interest under Article 1831 of the Civil Code.32 1wphi1
Considering that they involve questions of fact, neither are we inclined to hospitably
entertain the Spouses Realubits insistence on the supposed fact that Josefinas joint
venture with Biondo had already been dissolved and that the ice manufacturing
business at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was
merely a continuation of the same business they previously operated under a single
proprietorship. It is well-entrenched doctrine that questions of fact are not proper
subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of
appeal is confined to questions of law.33 Upon the principle that this Court is not a
trier of facts, we are not duty bound to examine the evidence introduced by the
parties below to determine if the trial and the appellate courts correctly assessed and
evaluated the evidence on record.34 Absent showing that the factual findings
complained of are devoid of support by the evidence on record or the assailed
judgment is based on misapprehension of facts, the Court will limit itself to reviewing
only errors of law.35
Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out
the dissolution of the joint venture and concluded that the ice manufacturing
business at the aforesaid address was the same one established by Juanita and
Biondo. As a rule, findings of fact of the CA are binding and conclusive upon this
Court,38 and will not be reviewed or disturbed on appeal39 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; (6) when the CA, 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;
(8) when the findings of fact are conclusions without citation of specific evidence on
which they are based; (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, (10)
when the findings of fact of the CA are premised on the supposed absence of
evidence and contradicted by the evidence on record.40 Unfortunately for the
Spouses Realubits cause, not one of the foregoing exceptions applies to the case.

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO

W. LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO
T. LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
Facts:
Primelink Properties and Development Corporation (Primelink for brevity) is a
domestic corporation engaged in real estate development. Rafaelito W. Lopez is its
President and Chief Executive Officer.
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin
and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2)
adjoining parcels of land, with a combined area of 30,000 square meters, located in
Tagaytay City and covered by Transfer Certificate of Title (TCT) No. T-108484 of the
Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity
as President, entered into a Joint Venture Agreement (JVA) for the development of the
aforementioned property into a residential subdivision to be known as "Tagaytay
Garden Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute
the two parcels of land as their share in the joint venture. For its part, Primelink
undertook to contribute money, labor, personnel, machineries, equipment,
contractors pool, marketing activities, managerial expertise and other needed
resources to develop the property and construct therein the units for sale to the
public. Specifically, Primelink bound itself to accomplish the following, upon the
execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs,
structural and architectural plans, site development plans, and such other need plans
in accordance with existing laws and the rules and regulations of appropriate
government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the
projects;
c.) Furnish all materials, equipment, labor and services for the development of the
land in preparation for the construction and sale of the different types of units
(single-detached, duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force
majeure or fortuitous event or by competent authority, or other unavoidable
circumstances beyond the DEVELOPERS control, not to exceed three years from the
date of the signing of this Joint Venture Agreement, except the installation of the
electrical facilities which is solely MERALCOS responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers,
support personnel and marketing staff, to handle all services related to land and
housing development (administrative and construction) and marketing (sales,
advertising and promotions).
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can
draw allowances or make advances not exceeding a total of twenty percent (20%) of

the net revenue for that period, on the basis of sixty percent (60%) for the
DEVELOPER and forty percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net
revenue for the first two years, in order to have sufficient reserves or funds to protect
and/or guarantee the construction and completion of the different types of units
mentioned above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing
allowances and/or advances equivalent to sixty percent (60%) and forty percent
(40%), respectively, of the total net revenue or income of the sale of the units.
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or
income of the Joint Venture project, after deducting all expenses incurred in
connection with the land development (such as administrative management and
construction expenses), and marketing (such as sales, advertising and promotions),
and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or
income of the Joint Venture project, after deducting all the above-mentioned
expenses.
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the
project:
SALES-INCOME-COST PROJECTION
SELLING PRICE

COST PRICE

DIFFERENCE

INCOME

CLUSTER:
A1 3,200,000

A2 1,260,000

1,940,000 x 24

P 46,560,000.00

B2 960,000

1,540,000 x 24

36,960,000.00

C2 1,400,000

2,100,000 x 16

33,600,000.00

900,000 x 24 =

21,600,000.00

TWIN:
B1 2,500,000
SINGLE:
C1 3,500,000

ROW-TYPE TOWNHOMES:
D1 1,600,000

D2 700,000

P138,720,000.00
(GROSS)

Total Cash Price (A1+B1+C1+D1)

P231,200,000.00

Total Building Expense (A2+B2+C2+D2)

92,480,000.00

COMPUTATION OF ADDL. INCOME ON INTEREST

TCP x 30% D/P

P 69,360,000

Balance = 70%

161,840,000

P238,409,740

x .03069 x 48

Total Amount (TCP + int. earn.)

P 69,360,000.00

238,409,740.00
P307,769,740.00

EXPENSES:
less: A Building expenses
B Commission (8% of TCP)

P 92,480,000.00
18,496,000.00

C Admin. & Mgmt. expenses (2% of TCP)

4,624,000.00

D Advertising & Promo exp. (2% of TCP)

4,624,000.00

E Building expenses for the open

spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms.
TOTAL EXPENSES (A+B+C+D+E)

12,000,000.00
P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES

Total Projected Income (incl. income from interest earn.)
less:
Total Expenses

P307,769,740.00
132,224,000.00
P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or conflicting

opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
Voluntary Arbitration in accordance with the Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an escrow
agreement. Conformably with the escrow agreement, the owners duplicate of the
title was deposited with the China Banking Corporation.11 However, Primelink failed
to immediately secure a Development Permit from Tagaytay City, and applied the
permit only on August 30, 1995. On October 12, 1995, the City issued a Development
Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that
Primelink comply with its obligations under the JVA, otherwise the appropriate action
would be filed against it to protect their rights and interests. This impelled the officers
of Primelink to meet with the Lazatins and enabled the latter to review its business
records/papers. In another Letter14 dated October 22, 1997, the Lazatins informed
Primelink that they had decided to rescind the JVA effective upon its receipt of the
said letter. The Lazatins demanded that Primelink cease and desist from further
developing the property.

Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court
(RTC) of Tagaytay City, Branch 18, a complaint for rescission accounting and
damages, with prayer for temporary restraining order and/or preliminary injunction
against Primelink and Lopez. The case was docketed as Civil Case No. TG-1776.
Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from
the execution of the JVA and the delivery of the title and possession of the land to
defendants, the land development aspect of the project had not yet been completed,
and the construction of the housing units had not yet made any headway, based on
the following facts, namely: (a) of the 50 housing units programmed for Phase I, only
the following types of houses appear on the site in these condition: (aa) single
detached, one completed and two units uncompleted; (bb) cluster houses, one unit
nearing completion; (cc) duplex, two units completed and two units unfinished; and
(dd) row houses, two units, completed; (b) in Phase II thereof, all that was done by
the defendants was to grade the area; the units so far constructed had been the
object of numerous complaints by their owners/purchasers for poor workmanship and
the use of sub-standard materials in their construction, thus, undermining the
projects marketability. Plaintiffs also alleged that defendants had, without justifiable
reason, completely disregarded previously agreed accounting and auditing
procedures, checks and balances system installed for the mutual protection of both
parties, and the scheduled regular meetings were seldom held to the detriment and
disadvantage of plaintiffs. They averred that they sent a letter through counsel,
demanding compliance of what was agreed upon under the agreement but
defendants refused to heed said demand. After a succession of letters with still no
action from defendants, plaintiffs sent a letter on October 22, 1997, a letter formally
rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted
by defendants, they (plaintiffs) stood to receive the amount of P70,218,296.00 as
their net share in the joint venture project; to date, however, after almost four (4)
years and despite the undertaking in the JVA that plaintiffs shall initially get 20% of
the agreed net revenue during the first two (2) years (on the basis of the 60%-40%
sharing) and their full 40% share thereafter, defendants had yet to deliver these
shares to plaintiffs which by conservative estimates would amount to no less than
P40,000,000.00.15
Issues:
(1) Whether respondents are entitled to the possession of the parcels of land covered
by the JVA and the improvements thereon introduced by petitioners as their
contribution to the JVA;
(2) Whether petitioners are entitled to reimbursement for the value of the
improvements on the parcels of land.
On the first issue, we agree with petitioners that respondents did not specifically pray
in their complaint below that possession of the improvements on the parcels of land
which they contributed to the JVA be transferred to them. Respondents made a
specific prayer in their complaint that, upon the rescission of the JVA, they be placed
in possession of the parcels of land subject of the agreement, and for other "reliefs
and such other remedies as are just and equitable in the premises." However, the
trial court was not precluded from awarding possession of the improvements on the
parcels of land to respondents in its decision. Section 2(c), Rule 7 of the Rules of
Court provides that a pleading shall specify the relief sought but it may add as
general prayer for such further or other relief as may be deemed just and equitable.
Even without the prayer for a specific remedy, proper relief may be granted by the
court if the facts alleged in the complaint and the evidence introduced so warrant.50
The court shall grant relief warranted by the allegations and the proof even if no such

relief is prayed for.51 The prayer in the complaint for other reliefs equitable and just
in the premises justifies the grant of a relief not otherwise specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the
parcels of land and the improvements on the said parcels of land. It bears stressing
that the parcels of land, as well as the improvements made thereon, were
contributed by the parties to the joint venture under the JVA, hence, formed part of
the assets of the joint venture.53 The trial court declared that respondents were
entitled to the possession not only of the parcels of land but also of the
improvements thereon as a consequence of its finding that petitioners breached their
agreement and defrauded respondents of the net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA which, under the
Courts ruling in Aurbach, is a form of partnership, and as such is to be governed by
the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence
on record that petitioners willfully and persistently committed a breach of the JVA, the
court thereby dissolved/cancelled the partnership.54 With the rescission of the JVA on
account of petitioners fraudulent acts, all authority of any partner to act for the
partnership is terminated except so far as may be necessary to wind up the
partnership affairs or to complete transactions begun but not yet finished.55 On
dissolution, the partnership is not terminated but continues until the winding up of
partnership affairs is completed.56 Winding up means the administration of the
assets of the partnership for the purpose of terminating the business and discharging
the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon
to respondents was only for a specific purpose: the winding up of partnership affairs,
and the partition and distribution of the net partnership assets as provided by law.57
After all, Article 1836 of the New Civil Code provides that unless otherwise agreed by
the parties in their JVA, respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved
the partnership or the legal representative of the last surviving partner, not insolvent,
has the right to wind up the partnership affairs, provided, however, that any partner,
his legal representative or his assignee, upon cause shown, may obtain winding up
by the court.
It must be stressed, too, that although respondents acquired possession of the lands
and the improvements thereon, the said lands and improvements remained
partnership property, subject to the rights and obligations of the parties, inter se, of
the creditors and of third parties under Articles 1837 and 1838 of the New Civil Code,
and subject to the outcome of the settlement of the accounts between the parties as
provided in Article 1839 of the New Civil Code, absent any agreement of the parties
in their JVA to the contrary.58 Until the partnership accounts are determined, it
cannot be ascertained how much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified
for the value of the improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does not contain any provision
designating any party to wind up the affairs of the partnership.

Thus, under Article 1837 of the New Civil Code, the rights of the parties when
dissolution is caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others,
may do so, during the agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the payment by bond
approved by the court, or pay to any partner who has caused the dissolution
wrongfully, the value of his interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1(b) of this article, and in like
manner indemnify him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No.
2, all the rights of a partner under the first paragraph, subject to liability for damages
in the second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the
right as against his co-partners and all claiming through them in respect of their
interests in the partnership, to have the value of his interest in the partnership, less
any damage caused to his co-partners by the dissolution, ascertained and paid to
him in cash, or the payment secured by a bond approved by the court, and to be
released from all existing liabilities of the partnership; but in ascertaining the value of
the partners interest the value of the good-will of the business shall not be
considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of
the creditors of the partnership for any payments made by him in respect of the
partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation
against all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in
Article 1839 of the New Civil Code:
Art. 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 to partners in respect of profits.
(3) The assets shall be 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 and separate creditors on individual 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 partners by way of contribution.