G.R. No.

L-19342 May 25, 1972

LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA,

MARIANO B. OA, LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR.,
petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Orlando Velasco for petitioners.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R.
Rosete, and Special Attorney Purificacion Ureta for respondent.

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

The facts are stated in the decision of the Tax Court as follows:

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

The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half (1/2)
interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total assessed value of
P17,590.00 and an undetermined amount to be collected from the War Damage Commission. Later, they received from
said Commission the amount of P50,000.00, more or less. This amount was not divided among them but was used in
the rehabilitation of properties owned by them in common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two
were acquired after the death of the decedent with money borrowed from the Philippine Trust Company in the amount
of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administrator thereof, in the
obligation of P94,973.00, consisting of loans contracted by the latter with the approval of the Court (see p. 3 of Exhibit
K; or see p. 74, BIR rec.).

Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide the
properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oa who used said
properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the
sales thereof in real properties and securities. As a result, petitioners' properties and investments gradually increased
from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from the following year-end balances:

Year Investment Land Building

Account Account Account

1949 P87,860.00 P17,590.00

 1950 P24,657.65 128,566.72 96,076.26

1951 51,301.31 120,349.28 110,605.11

1952 67,927.52 87,065.28 152,674.39

1953 61,258.27 84,925.68 161,463.83

1954 63,623.37 99,001.20 167,962.04

1955 100,786.00 120,249.78 169,262.52

1956 175,028.68 135,714.68 169,262.52

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)

From said investments and properties petitioners derived such incomes as profits from installment sales of subdivided
lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38).
The said incomes are recorded in the books of account kept by Lorenzo T. Oa where the corresponding shares of the
petitioners in the net income for the year are also known. Every year, petitioners returned for income tax purposes their
shares in the net income derived from said properties and securities and/or from transactions involving them (Exhibit 3,
supra; t.s.n., pp. 25-26). However, petitioners did not actually receive their shares in the yearly income. (t.s.n., pp. 25-
26, 40, 98, 100). The income was always left in the hands of Lorenzo T. Oa who, as heretofore pointed out, invested
them in real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners formed an
unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section 24, in relation to
Section 84(b), of the Tax Code. Accordingly, he assessed against the petitioners the amounts of P8,092.00 and
P13,899.00 as corporate income taxes for 1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50
and 86, BIR rec.). Petitioners protested against the assessment and asked for reconsideration of the ruling of
respondent that they have formed an unregistered partnership. Finding no merit in petitioners' request, respondent
denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for Respondent, June 12, 1961).

The original assessment was as follows:

1955

Net income as per investigation ................ P40,209.89

Income tax due thereon ............................... 8,042.00

25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50

1956

Net income as per investigation ................ P69,245.23

Income tax due thereon ............................... 13,849.00

25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25

(See Exhibit 13, page 50, BIR records)

Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the Supreme Court
in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the questioned assessment refers
solely to the income tax proper for the years 1955 and 1956 and the "Compromise for non-filing," the latter item
obviously referring to the compromise in lieu of the criminal liability for failure of petitioners to file the corporate income
tax returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to Petition)

Petitioners have assigned the following as alleged errors of the Tax Court:

I.
 THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP;

II.

THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-OWNERS OF THE
PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM (sic);

III.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR CORPORATE
INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;

IV.

ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED PARTNERSHIP, THE

COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED
PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE PROFITS FROM THE PROPERTIES OWNED
IN COMMON AND THE LOANS RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;

V.

ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS
ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS INDIVIDUAL INCOME
TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING FROM THE PROPERTIES OWNED IN
COMMON, FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.

In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of Tax Appeals, should
petitioners be considered as co-owners of the properties inherited by them from the deceased Julia Buales and the profits derived from
transactions involving the same, or, must they be deemed to have formed an unregistered partnership subject to tax under Sections 24 and
84(b) of the National Internal Revenue Code? (2) Assuming they have formed an unregistered partnership, should this not be only in the
sense that they invested as a common fund the profits earned by the properties owned by them in common and the loans granted to them
upon the security of the said properties, with the result that as far as their respective shares in the inheritance are concerned, the total
income thereof should be considered as that of co-owners and not of the unregistered partnership? And (3) assuming again that they are
taxable as an unregistered partnership, should not the various amounts already paid by them for the same years 1955 and 1956 as individual
income taxes on their respective shares of the profits accruing from the properties they owned in common be deducted from the deficiency
corporate taxes, herein involved, assessed against such unregistered partnership by the respondent Commissioner?

Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in interest died way back on
March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949, and presumably petitioners have
been holding their respective shares in their inheritance since those dates admittedly under the administration or management of the head of
the family, the widower and father Lorenzo T. Oa, the assessment in question refers to the later years 1955 and 1956. We believe this point
to be important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue did treat
petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered them as having formed an unregistered
partnership. At least, there is nothing in the record indicating that an earlier assessment had already been made. Such being the case, and
We see no reason how it could be otherwise, it is easily understandable why petitioners' position that they are co-owners and not
unregistered co-partners, for the purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the
fact that they were not similarly assessed earlier by the Bureau of Internal Revenue.

The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition
approved in 1949, "the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or
selling them and investing the income derived therefrom and the proceed from the sales thereof in real properties and securities," as a result
of which said properties and investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account" in 1956. And all these
became possible because, admittedly, petitioners never actually received any share of the income or profits from Lorenzo T. Oa and
instead, they allowed him to continue using said shares as part of the common fund for their ventures, even as they paid the corresponding
income taxes on the basis of their respective shares of the profits of their common business as reported by the said Lorenzo T. Oa.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the properties inherited by
them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at considerable profit, and
that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted that all
the profits from these ventures were divided among petitioners proportionately in accordance with their respective shares in the inheritance.
In these circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their respective shares
of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several
transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamonut to actually
contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the above-
mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners rather than unregistered
co-partners within the contemplation of our corporate tax laws aforementioned. Before the partition and distribution of the estate of the
deceased, all the income thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners,
but it does not necessarily follow that such status as co-owners continues until the inheritance is actually and physically distributed among
the heirs, for it is easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding said
shares under the common management of the administrator or executor or of anyone chosen by them and engage in business on that basis.
Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance to circumvent and render meaningless Sections 24
and 84(b) of the National Internal Revenue Code.

It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants therein to be
unregistered co-partners for tax purposes, that their common fund "was not something they found already in existence" and that "it was not a
property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all
instances where an inheritance is not actually divided, there can be no unregistered co-partnership. As already indicated, for tax purposes,
the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties
and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in
the corresponding testate or intestate proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled
already to their respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in connection therewith. If after
such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making
profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax
purposes, at least, an unregistered partnership is formed. This is exactly what happened to petitioners in this case.

In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing of gross returns does
not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from
which the returns are derived," and, for that matter, on any other provision of said code on partnerships is unavailing. In Evangelista, supra,
this Court clearly differentiated the concept of partnerships under the Civil Code from that of unregistered partnerships which are considered
as "corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different
from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly
registered general partnerships," which constitute precisely one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter
how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in
any of the standard forms, or in confirmity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on corporation. Again, pursuant to said section 84(b),the term
"corporation" includes, among others, "joint accounts,(cuentas en participacion)" and "associations", none of which has
a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded
that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated,
"duly registered general co-partnerships" which are possessed of the aforementioned personality have been
expressly excluded by law (sections 24 and 84[b]) from the connotation of the term "corporation." ....

xxx xxx xxx

Similarly, the American Law

... provides its own concept of a partnership. Under the term "partnership" it includes not only a
partnership as known in common law but, as well, a syndicate, group, pool, joint venture, or other
unincorporated organization which carries on any business, financial operation, or venture, and
which is not, within the meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's
Law of Federal Income Taxation, p. 789; emphasis ours.)

The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is
carried on. ... . (8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)

For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships with the
exception only of duly registered general copartnerships within the purview of the term "corporation." It is, therefore,
clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to
the income tax for corporations.

We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968,
24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes in question, of their
inherited properties from those acquired by them subsequently, We consider as justified the following ratiocination of the Tax Court in
denying their motion for reconsideration:

In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding should be
limited to the business engaged in apart from the properties inherited by petitioners. In other words, the taxable income
of the partnership should be limited to the income derived from the acquisition and sale of real properties and corporate
securities and should not include the income derived from the inherited properties. It is admitted that the inherited
properties and the income derived therefrom were used in the business of buying and selling other real properties and
corporate securities. Accordingly, the partnership income must include not only the income derived from the purchase
and sale of other properties but also the income of the inherited properties.

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

Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the aforementioned resolution
denying petitioners' motion for reconsideration of the decision of said court. Pertinently, the court ruled this wise:

In support of the third ground, counsel for petitioners alleges:

Even if we were to yield to the decision of this Honorable Court that the herein petitioners have
formed an unregistered partnership and, therefore, have to be taxed as such, it might be recalled
that the petitioners in their individual income tax returns reported their shares of the profits of the
unregistered partnership. We think it only fair and equitable that the various amounts paid by the
individual petitioners as income tax on their respective shares of the unregistered partnership
should be deducted from the deficiency income tax found by this Honorable Court against the
unregistered partnership. (page 7, Memorandum for the Petitioner in Support of Their Motion for
Reconsideration, Oct. 28, 1961.)

In other words, it is the position of petitioners that the taxable income of the partnership must be reduced by the
amounts of income tax paid by each petitioner on his share of partnership profits. This is not correct; rather, it should
be the other way around. The partnership profits distributable to the partners (petitioners herein) should be reduced by
the amounts of income tax assessed against the partnership. Consequently, each of the petitioners in his individual
capacity overpaid his income tax for the years in question, but the income tax due from the partnership has been
correctly assessed. Since the individual income tax liabilities of petitioners are not in issue in this proceeding, it is not
proper for the Court to pass upon the same.

Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as individual income tax cannot be
credited as part payment of the taxes herein in question. It is argued that to sanction the view of the Tax Court is to oblige petitioners to pay
double income tax on the same income, and, worse, considering the time that has lapsed since they paid their individual income taxes, they
may already be barred by prescription from recovering their overpayments in a separate action. We do not agree. As We see it, the case of
petitioners as regards the point under discussion is simply that of a taxpayer who has paid the wrong tax, assuming that the failure to pay the
corporate taxes in question was not deliberate. Of course, such taxpayer has the right to be reimbursed what he has erroneously paid, but
the law is very clear that the claim and action for such reimbursement are subject to the bar of prescription. And since the period for the
recovery of the excess income taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard
prescription merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make the proper return and
payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any relaxation of the tax laws in favor of
persons who are not exactly above suspicion in their conduct vis-a-vis their tax obligation to the State.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs against petitioners.

Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur.

Reyes, J.B.L. and Teehankee, JJ., concur in the result.

Castro, J., took no part.

Concepcion, C.J., is on leave.

G.R. No. L-45425 April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

Guillermo B. Reyes for appellants.

Office of the Solicitor-General Tuason for appellee.

IMPERIAL, J.:

The plaintiff brought this action to recover from the defendant Collector of Internal Revenue the
sum of P1,863.44, with legal interest thereon, which they paid under protest by way of income
tax. They appealed from the decision rendered in the case on October 23, 1936 by the Court of
First Instance of the City of Manila, which dismissed the action with the costs against them.

The case was submitted for decision upon the following stipulation of facts:

Come now the parties to the above-mentioned case, through their respective undersigned
attorneys, and hereby agree to respectfully submit to this Honorable Court the case upon
the following statement of facts:

1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that
defendant is the Collector of Internal Revenue of the Philippines;

2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one
sweepstakes ticket valued at two pesos (P2), subscribed and paid therefor the amounts as
follows:

1. Jose Gatchalian .................................................................................................... P0.18

2. Gregoria Cristobal ............................................................................................... .18
3. Saturnina Silva .................................................................................................... .08
4. Guillermo Tapia ................................................................................................... .13
5. Jesus Legaspi ...................................................................................................... .15
6. Jose Silva ............................................................................................................. .07
7. Tomasa Mercado ................................................................................................ .08
8. Julio Gatchalian ................................................................................................... .13
9. Emiliana Santiago ................................................................................................ .13
10. Maria C. Legaspi ............................................................................................... .16
11. Francisco Cabral ............................................................................................... .13
12. Gonzalo Javier .................................................................................................... .14
13. Maria Santiago ................................................................................................... .17
14. Buenaventura Guzman ...................................................................................... .13
15. Mariano Santos ................................................................................................. .14

Total ........................................................................................................ 2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in
the ordinary course of business, from one of the duly authorized agents of the National
Charity Sweepstakes Office one ticket bearing No. 178637 for the sum of two pesos (P2)
and that the said ticket was registered in the name of Jose Gatchalian and Company;

4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-
mentioned ticket bearing No. 178637 won one of the third prizes in the amount of
P50,000 and that the corresponding check covering the above-mentioned prize of
P50,000 was drawn by the National Charity Sweepstakes Office in favor of Jose
Gatchalian & Company against the Philippine National Bank, which check was cashed
during the latter part of December, 1934 by Jose Gatchalian & Company;

5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner
Alfredo David to file the corresponding income tax return covering the prize won by Jose
Gatchalian & Company and that on December 29, 1934, the said return was signed by
Jose Gatchalian, a copy of which return is enclosed as Exhibit A and made a part hereof;

6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian &
Company requesting the payment of the sum of P1,499.94 to the deputy provincial
treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian & Company until January
20, 1935 within which to pay the said amount of P1,499.94, a copy of which letter
marked Exhibit B is enclosed and made a part hereof;

7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a
reply, a copy of which marked Exhibit C is attached and made a part hereof, requesting
exemption from payment of the income tax to which reply there were enclosed fifteen
(15) separate individual income tax returns filed separately by each one of the plaintiffs,
copies of which returns are attached and marked Exhibit D-1 to D-15, respectively, in
order of their names listed in the caption of this case and made parts hereof; a statement
of sale signed by Jose Gatchalian showing the amount put up by each of the plaintiffs to
cover up the attached and marked as Exhibit E and made a part hereof; and a copy of the
affidavit signed by Jose Gatchalian dated December 29, 1934 is attached and marked
Exhibit F and made part thereof;

8. That the defendant in his letter dated January 28, 1935, a copy of which marked
Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption from
the payment of tax and reiterated his demand for the payment of the sum of P1,499.94 as
income tax and gave plaintiffs until February 10, 1935 within which to pay the said tax;

9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the
defendant, notwithstanding subsequent demand made by defendant upon the plaintiffs
through their attorney on March 23, 1935, a copy of which marked Exhibit H is enclosed,
defendant on May 13, 1935 issued a warrant of distraint and levy against the property of
the plaintiffs, a copy of which warrant marked Exhibit I is enclosed and made a part
hereof;

10. That to avoid embarrassment arising from the embargo of the property of the
plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C.
Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of the tax and
penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official receipt
No. 7454879 which is attached and marked Exhibit J and made a part hereof, and
requested defendant that plaintiffs be allowed to pay under protest the balance of the tax
and penalties by monthly installments;

11. That plaintiff's request to pay the balance of the tax and penalties was granted by
defendant subject to the condition that plaintiffs file the usual bond secured by two
solvent persons to guarantee prompt payment of each installments as it becomes due;

12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is
enclosed and made a part hereof, to guarantee the payment of the balance of the alleged
tax liability by monthly installments at the rate of P118.70 a month, the first payment
under protest to be effected on or before July 31, 1935;

13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the
sum of P602.51, a copy of which protest is attached and marked Exhibit L, but that
defendant in his letter dated August 1, 1935 overruled the protest and denied the request
for refund of the plaintiffs;

14. That, in view of the failure of the plaintiffs to pay the monthly installments in
accordance with the terms and conditions of bond filed by them, the defendant in his
letter dated July 23, 1935, copy of which is attached and marked Exhibit M, ordered the
municipal treasurer of Pulilan, Bulacan to execute within five days the warrant of
distraint and levy issued against the plaintiffs on May 13, 1935;

15. That in order to avoid annoyance and embarrassment arising from the levy of their
property, the plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia,
Maria Santiago and Emiliano Santiago, paid under protest to the municipal treasurer of
Pulilan, Bulacan the sum of P1,260.93 representing the unpaid balance of the income tax
and penalties demanded by defendant as evidenced by income tax receipt No. 35811
which is attached and marked Exhibit N and made a part hereof; and that on September 3,
1936, the plaintiffs formally protested to the defendant against the payment of said
amount and requested the refund thereof, copy of which is attached and marked Exhibit
 O and made part hereof; but that on September 4, 1936, the defendant overruled the
protest and denied the refund thereof; copy of which is attached and marked Exhibit P
and made a part hereof; and

16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand
eight hundred and sixty three pesos and forty-four centavos (P1,863.44) paid under
protest by them but that defendant refused and still refuses to refund the said amount
notwithstanding the plaintiffs' demands.

17. The parties hereto reserve the right to present other and additional evidence if
necessary.

Exhibit E referred to in the stipulation is of the following tenor:

To whom it may concern:

I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on
the 11th day of August, 1934, I sold parts of my shares on ticket No. 178637 to the
persons and for the amount indicated below and the part of may share remaining is also
shown to wit:

Purchaser Amount Address

1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan.
2. Buenaventura Guzman ............................... .13 - Do -
3. Maria Santiago ............................................ .17 - Do -
4. Gonzalo Javier .............................................. .14 - Do -
5. Francisco Cabral .......................................... .13 - Do -
6. Maria C. Legaspi .......................................... .16 - Do -
7. Emiliana Santiago ......................................... .13 - Do -
8. Julio Gatchalian ............................................ .13 - Do -
9. Jose Silva ...................................................... .07 - Do -
10. Tomasa Mercado ....................................... .08 - Do -
11. Jesus Legaspi ............................................. .15 - Do -
12. Guillermo Tapia ........................................... .13 - Do -
13. Saturnina Silva ............................................ .08 - Do -
14. Gregoria Cristobal ....................................... .18 - Do -
 15. Jose Gatchalian ............................................ .18 - Do -

2.00 Total cost of said

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

Pulilan, Bulacan, P.I.

(Sgd.) JOSE GATCHALIAN

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:

RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934

ALL DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF
INTERNAL REVENUE.

Exhibit Purchase Price Net

Name Expenses
No. Price Won prize
1. Jose Gatchalian
D-1 P0.18 P4,425 P 480 3,945
..........................................
2. Gregoria Cristobal
D-2 .18 4,575 2,000 2,575
......................................
3. Saturnina Silva
D-3 .08 1,875 360 1,515
.............................................
4. Guillermo Tapia
D-4 .13 3,325 360 2,965
..........................................
5. Jesus Legaspi by Maria Cristobal ......... D-5 .15 3,825 720 3,105
6. Jose Silva
D-6 .08 1,875 360 1,515
....................................................
7. Tomasa Mercado
D-7 .07 1,875 360 1,515
.......................................
8. Julio Gatchalian by Beatriz Guzman
D-8 .13 3,150 240 2,910
.......
9. Emiliana Santiago
D-9 .13 3,325 360 2,965
......................................
10. Maria C. Legaspi
D-10 .16 4,100 960 3,140
......................................
 11. Francisco Cabral
D-11 .13 3,325 360 2,965
......................................
12. Gonzalo Javier
D-12 .14 3,325 360 2,965
..........................................
13. Maria Santiago
D-13 .17 4,350 360 3,990
..........................................
14. Buenaventura Guzman
D-14 .13 3,325 360 2,965
...........................
15. Mariano Santos
D-15 .14 3,325 360 2,965
........................................
<=""
2.00 50,000 td="">

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced
to the two following: (1) Whether the plaintiffs formed a partnership, or merely a community of
property without a personality of its own; in the first case it is admitted that the partnership thus
formed is liable for the payment of income tax, whereas if there was merely a community of
property, they are exempt from such payment; and (2) whether they should pay the tax
collectively or whether the latter should be prorated among them and paid individually.

The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last
amended by section 2 of Act No. 3761, reading as follows:

SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total
net income received in the preceding calendar year from all sources by every corporation,
joint-stock company, partnership, joint account (cuenta en participacion), association or
insurance company, organized in the Philippine Islands, no matter how created or
organized, but not including duly registered general copartnership (compaias
colectivas), a tax of three per centum upon such income; and a like tax shall be levied,
assessed, collected, and paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every corporation, joint-
stock company, partnership, joint account (cuenta en participacion), association, or
insurance company organized, authorized, or existing under the laws of any foreign
country, including interest on bonds, notes, or other interest-bearing obligations of
residents, corporate or otherwise: Provided, however, That nothing in this section shall be
construed as permitting the taxation of the income derived from dividends or net profits
on which the normal tax has been paid.

The gain derived or loss sustained from the sale or other disposition by a corporation,
joint-stock company, partnership, joint account (cuenta en participacion), association, or
insurance company, or property, real, personal, or mixed, shall be ascertained in
accordance with subsections (c) and (d) of section two of Act Numbered Two thousand
 eight hundred and thirty-three, as amended by Act Numbered Twenty-nine hundred and
twenty-six.

The foregoing tax rate shall apply to the net income received by every taxable
corporation, joint-stock company, partnership, joint account (cuenta en participacion),
association, or insurance company in the calendar year nineteen hundred and twenty and
in each year thereafter.

There is no doubt that if the plaintiffs merely formed a community of property the latter is
exempt from the payment of income tax under the law. But according to the stipulation facts the
plaintiffs organized a partnership of a civil nature because each of them put up money to buy a
sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they
did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership was not only
formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian
personally appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-
partner, as such collection the prize, the office issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said partner, in the same capacity, collected the said check. All
these circumstances repel the idea that the plaintiffs organized and formed a community of
property only.

Having organized and constituted a partnership of a civil nature, the said entity is the one bound
to pay the income tax which the defendant collected under the aforesaid section 10 (a) of Act No.
2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's contention that
the tax should be prorated among them and paid individually, resulting in their exemption from
the tax.

In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to the
plaintiffs appellants. So ordered.

Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ., concur.

G.R. No. L-47045 November 22, 1988

NOBIO SARDANE, petitioner,

vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.

Y.G. Villaruz & Associates for petitioner.

Pelagio R. Lachica for private respondent.

REGALADO, J.:
The extensive discussion and exhaustive disquisition in the decision 1 of the respondent Court 2 should have written finis to this case without
further recourse to Us. The assignment of errors and arguments raised in the respondent Court by herein private respondent, as the
petitioner therein, having been correctly and justifiedly sustained by said court without any reversible error in its conclusions, the present
petition must fail.

The assailed decision details the facts and proceedings which spawned the present controversy as follows:

Petitioner brought an action in the City Court of Dipolog for collection of a sum of
P5,217.25 based on promissory notes executed by the herein private respondent Nobio
Sardane in favor of the herein petitioner. Petitioner bases his right to collect on Exhibits
B, C, D, E, F, and G executed on different dates and signed by private respondent Nobio
Sardane. Exhibit B is a printed promissory note involving Pl,117.25 and dated May 13,
1972. Exhibit C is likewise a printed promissory note and denotes on its face that the sum
loaned was Pl,400.00. Exhibit D is also a printed promissory note dated May 31, 1977
involving an amount of P100.00. Exhibit E is what is commonly known to the layman as
'vale' which reads: 'Good for: two hundred pesos (Sgd) Nobio Sardane'. Exhibit F is
stated in the following tenor: 'Received from Mr. Romeo Acojedo the sum Pesos: Two
Thousand Two Hundred (P2,200.00) ONLY, to be paid on or before December 25, 1975.
(Sgd) Nobio Sardane.' Exhibit G and H are both vales' involving the same amount of one
hundred pesos, and dated August 25, 1972 and September 12, 1972 respectively.

It has been established in the trial court that on many occasions, the petitioner demanded
the payment of the total amount of P5,217.25. The failure of the private respondent to
pay the said amount prompted the petitioner to seek the services of lawyer who made a
letter (Exhibit 1) formally demanding the return of the sum loaned. Because of the failure
of the private respondent to heed the demands extrajudicially made by the petitioner, the
latter was constrained to bring an action for collection of sum of money.

During the scheduled day for trial, private respondent failed to appear and to file an
answer. On motion by the petitioner, the City Court of Dipolog issued an order dated May
18, 1976 declaring the private respondent in default and allowed the petitioner to present
his evidence ex-parte. Based on petitioner's evidence, the City Court of Dipolog rendered
judgment by default in favor of the petitioner.

Private respondent filed a motion to lift the order of default which was granted by the City
Court in an order dated May 24, 1976, taking into consideration that the answer was filed
within two hours after the hearing of the evidence presented ex-parte by the petitioner.

After the trial on the merits, the City Court of Dipolog rendered its decision on September
14, 1976, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and
against the defendant as follows:

(a) Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two
Hundred Seventeen Pesos and Twenty-five centavos (P5,217.25) plus legal interest to
commence from April 23, 1976 when this case was filed in court; and

(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as attorney's fee and to
pay the cost of this proceeding. 3

Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte which reversed the decision of the lower court
by dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-appellant P500.00 each for actual damages,
moral damages, exemplary damages and attorney's fees, as well as the costs of suit. Plaintiff-appellee then sought the review of said
decision by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two decisive issues, firstly, whether the oral testimony for the
therein private respondent Sardane that a partnership existed between him and therein petitioner Acojedo are admissible to vary the
meaning of the abovementioned promissory notes; and, secondly, whether because of the failure of therein petitioner to cross-examine
therein private respondent on his sur-rebuttal testimony, there was a waiver of the presumption accorded in favor of said petitioner by
Section 8, Rule 8 of the Rules of Court.

On the first issue, the then Court of First Instance held that "the pleadings of the parties herein put in issue the imperfection or ambiguity of
the documents in question", hence "the appellant can avail of the parol evidence rule to prove his side of the case, that is, the said amount
taken by him from appellee is or was not his personal debt to appellee, but expenses of the partnership between him and appellee."

Consequently, said trial court concluded that the promissory notes involved were merely receipts for the contributions to said partnership
and, therefore, upheld the claim that there was ambiguity in the promissory notes, hence parol evidence was allowable to vary or contradict
the terms of the represented loan contract.

The parol evidence rule in Rule 130 provides:

Sec. 7. Evidence of written agreements.When the terms of an agreement have been

reduced to writing, it is to be considered as containing all such terms, and, therefore,
there can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing except in the following
cases:

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

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

As correctly pointed out by the respondent Court the exceptions to the rule do not apply in this case as
there is no ambiguity in the writings in question, thus:

In the case at bar, Exhibits B, C, and D are printed promissory notes containing a
promise to pay a sum certain in money, payable on demand and the promise to bear the
costs of litigation in the event of the private respondent's failure to pay the amount loaned
when demanded extrajudicially. Likewise, the vales denote that the private respondent is
obliged to return the sum loaned to him by the petitioner. On their face, nothing appears
to be vague or ambigous, for the terms of the promissory notes clearly show that it was
incumbent upon the private respondent to pay the amount involved in the promissory
notes if and when the petitioner demands the same. It was clearly the intent of the parties
to enter into a contract of loan for how could an educated man like the private respondent
be deceived to sign a promissory note yet intending to make such a writing to be mere
receipts of the petitioner's supposed contribution to the alleged partnership existing
between the parties?

It has been established in the trial court that, the private respondent has been engaged in
business for quite a long period of time--as owner of the Sardane Trucking Service,
entering into contracts with the government for the construction of wharfs and seawall;
and a member of the City Council of Dapitan (TSN, July 20, 1976, pp. 57-
58).<re||an1w> It indeed puzzles us how the private respondent could have been
misled into signing a document containing terms which he did not mean them to be. ...

xxx xxx xxx

The private respondent admitted during the cross-examination made by petitioner's

counsel that he was the one who was responsible for the printing of Exhibits B, C, and D
 (TSN, July 28, 1976, p. 64). How could he purportedly rely on such a flimsy pretext that
the promissory notes were receipts of the petitioner's contribution? 4

The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory notes may be admitted to alter the
meaning conveyed thereby, still the evidence is insufficient to prove that a partnership existed between the private parties hereto.

As manager of the basnig Sarcado naturally some degree of control over the operations and maintenance thereof had to be exercised by
herein petitioner. The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of the private
respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a business is
prima facie evidence that he is a partner in the business, no such inference shall be drawn if such profits were received in payment as wages
of an employee. Furthermore, herein petitioner had no voice in the management of the affairs of the basnig. Under similar facts, this Court in
the early case of Fortis vs. Gutierrez Hermanos, 5 in denying the claim of the plaintiff therein that he was a partner in the business of the
defendant, declared:

This contention cannot be sustained. It was a mere contract of employment. The plaintiff
had no voice nor vote in the management of the affairs of the company. The fact that the
compensation received by him was to be determined with reference to the profits made
by the defendant in their business did not in any sense make him a partner therein. ...

The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved the same factual and legal
milieu.

There are other considerations noted by respondent Court which negate herein petitioner's pretension that he was a partner and not a mere
employee indebted to the present private respondent. Thus, in an action for damages filed by herein private respondent against the North
Zamboanga Timber Co., Inc. arising from the operations of the business, herein petitioner did not ask to be joined as a party plaintiff. Also,
although he contends that herein private respondent is the treasurer of the alleged partnership, yet it is the latter who is demanding an
accounting. The advertence of the Court of First Instance to the fact that the casco bears the name of herein petitioner disregards the finding
of the respondent Court that it was just a concession since it was he who obtained the engine used in the Sardaco from the Department of
Local Government and Community Development. Further, the use by the parties of the pronoun "our" in referring to "our basnig, our catch",
"our deposit", or "our boseros" was merely indicative of the camaraderie and not evidentiary of a partnership, between them.

The foregoing factual findings, which belie the further claim that the aforesaid promissory notes do not express the true intent and agreement
of the parties, are binding on Us since there is no showing that they fall within the exceptions to the rule limiting the scope of appellate review
herein to questions of law.

On the second issue, the pertinent rule on actionable documents in Rule 8, for ready reference, reads:

Sec. 8. How to contest genuineness of such documents.When an action or defense is

founded upon a written instrument, copied in or attached to the corresponding pleading
as provided in the preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party, under oath, specifically
denies them, and sets forth what he claims to be the facts; but this provision does not
apply when the adverse party does not appear to be a party to the instrument or when
compliance with an order for the inspection of the original instrument is refused.

The record shows that herein petitioner did not deny under oath in his answer the authenticity and due
execution of the promissory notes which had been duly pleaded and attached to the complaint, thereby
admitting their genuineness and due execution. Even in the trial court, he did not at all question the fact
that he signed said promissory notes and that the same were genuine. Instead, he presented parol
evidence to vary the import of the promissory notes by alleging that they were mere receipts of his
contribution to the alleged partnership.

His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished from
the rule on actionable documents. As the respondent Court correctly explained to herein petitioner, what
he presented in the trial Court was testimonial evidence that the promissory notes were receipts of his
supposed contributions to the alleged partnership which testimony, in the light of Section 7, Rule 130,
could not be admitted to vary or alter the explicit meaning conveyed by said promissory notes. On the
other hand, the presumed genuineness and due execution of said promissory notes were not affected,
pursuant to the provisions of Section 8, Rule 8, since such aspects were not at all questioned but, on the
contrary, were admitted by herein petitioner.

Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which was reiterated in Central Surety &
Insurance Co. vs. C. N. Hodges, et al. 8 does not sustain his thesis that the herein private respondent had "waived the mantle of protection
given him by Rule 8, Sec. 8". It is true that such implied admission of genuineness and due execution may be waived by a party but only if he
acts in a manner indicative of either an express or tacit waiver thereof. Petitioner, however, either overlooked or ignored the fact that, as held
in Yu Chuck, and the same is true in other cases of Identical factual settings, such a finding of waiver is proper where a case has been tried
in complete disregard of the rule and the plaintiff having pleaded a document by copy, presents oral evidence to prove the due execution of
the document and no objections are made to the defendant's evidence in refutation. This situation does not obtain in the present case hence
said doctrine is obviously inapplicable.

Neither did the failure of herein private respondent to cross-examine herein petitioner on the latter's sur-rebuttal testimony constitute a waiver
of the aforesaid implied admission. As found by the respondent Court, said sur-rebuttal testimony consisted solely of the denial of the
testimony of herein private respondent and no new or additional matter was introduced in that sur-rebuttal testimony to exonerate herein
petitioner from his obligations under the aforesaid promissory notes.

On the foregoing premises and considerations, the respondent Court correctly reversed and set aside the appealed decision of the Court of
First Instance of Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog City in Civil Case No. A-1838, dated
September 14, 1976.

Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein petitioner, as the private respondent therein,
raised a third unresolved issue that the petition for review therein should have been dismissed for lack of jurisdiction since the lower Court's
decision did not affirm in full the judgment of the City Court of Dipolog, and which he claimed was a sine qua non for such a petition under
the law then in force. He raises the same point in his present appeal and We will waive the procedural technicalities in order to put this issue
at rest.

Parenthetically, in that same motion for reconsideration he had sought affirmative relief from the respondent Court praying that it sustain the
decision of the trial Court, thereby invoking and submitting to its jurisdiction which he would now assail. Furthermore, the objection that he
raises is actually not one of jurisdiction but of procedure. 9

At any rate, it will be noted that petitioner anchors his said objection on the provisions of Section 29, Republic Act 296 as amended by
Republic Act 5433 effective September 9, 1968. Subsequently, the procedure for appeal to the Court of Appeals from decisions of the then
courts of first instance in the exercise of their appellate jurisdiction over cases originating from the municipal courts was provided for by
Republic Act 6031, amending Section 45 of the Judiciary Act effective August 4, 1969. The requirement for affirmance in full of the inferior
court's decision was not adopted or reproduced in Republic Act 6031. Also, since Republic Act 6031 failed to provide for the procedure or
mode of appeal in the cases therein contemplated, the Court of Appeals en banc provided thereof in its Resolution of August 12, 1971, by
requiring a petition for review but which also did not require for its availability that the judgment of the court of first instance had affirmed in
full that of the lower court. Said mode of appeal and the procedural requirements thereof governed the appeal taken in this case from the
aforesaid Court of First Instance to the Court of Appeals in 1977. 10 Herein petitioner's plaint on this issue is, therefore, devoid of merit.

WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs against herein petitioner.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

G.R. No. L-21906 December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.

Ruiz Law Offices for defendant-appellant.
CASTRO, J.:

This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of
May 21, 1956, all of the Court of First Instance of Davao, in civil case 629. The basic action is
for specific performance, and damages resulting from an alleged breach of contract.

In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then
Sitio of Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. No action
was taken thereon by the authorities concerned. During the Japanese occupation, he filed another
fishpond application for the same area, but because of the conditions then prevailing, it was not
acted upon either. On December 12, 1945 he filed a third fishpond application for the same area,
which, after a survey, was found to contain 178.76 hectares. Upon investigation conducted by a
representative of the Bureau of Forestry, it was discovered that the area applied for was still
needed for firewood production. Hence on May 13, 1946 this third application was disapproved.

Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration.
While this motion was pending resolution, he was advised by the district forester of Davao City
that no further action would be taken on his motion, unless he filed a new application for the area
concerned. So he filed on May 27, 1947 his fishpond application 1717.

Meanwhile, several applications were submitted by other persons for portions of the area covered
by 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 353-B) and asked for reinvestigation of
the application of Nicanor Casteel over the subject fishpond. However, by letter dated March 15,
1950 sent to the Secretary of Commerce and Agriculture and Natural Resources (now Secretary
of Agriculture and Natural Resources), Deluao withdrew his petition for reinvestigation.

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in
DANR Case 353, the dispositive portion of which reads as follows:

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.

On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary
injunction, praying among other things, that during the pendency of the case and upon their
filling the requisite bond as may be fixed by the court, a preliminary injunction be issued to
restrain Casteel from doing the acts complained of, and that after trial the said injunction be
made permanent. The lower court on April 26, 1951 granted the motion, and, two days later, it
issued a preliminary mandatory injunction addressed to Casteel, the dispositive portion of which
reads as follows:
 POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado
y todos usu abogados, agentes, mandatarios y demas personas que obren en su ayuda,
desista de impedir a la demandante Inocencia R. Deluao que continue administrando
personalmente la pesqueria objeto de esta causa y que la misma continue recibiendo los
productos de la venta de los pescados provenientes de dicha pesqueria, y que, asimismo,
se prohibe a dicho demandado Nicanor Casteel a desahuciar mediante fuerza al
encargado de los demandantes llamado Jesus Donesa de la pesqueria objeto de la
demanda de autos.

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that
he was the owner, lawful applicant and occupant of the fishpond in question. This motion,
opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its order of June 26,
1961.

The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8,
1952, denying the material averments of the plaintiffs' complaint. A reply to the defendants'
amended answer was filed by the plaintiffs on January 31, 1952.

The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June
4, 1951 the plaintiffs opposed his motion.

The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the
plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion,
opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower court in
its order of October 22, 1951. The defendants' motion for reconsideration filed on October 31,
1951 suffered the same fate when it was likewise denied by the lower court in its order of
November 12, 1951.

After the issues were joined, the case was set for trial. Then came a series of postponements. The
lower court (Branch I, presided by Judge Enrique A. Fernandez) finally issued on March 21,
1956 an order in open court, reading as follows: .

Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of
this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in the morning.

This case was filed on April 3, 1951 and under any circumstance this Court will not
entertain any other transfer of hearing of this case and if the parties will not be ready on
that day set for hearing, the court will take the necessary steps for the final determination
of this case. (emphasis supplied)

On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956,
issued by the office of the Clerk of Court (thru the special deputy Clerk of Court) of the Court of
First Instance of Davao, setting the hearing of the case for May 2 and 3, 1956 before Judge
Amador Gomez of Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion for
postponement. Acting on this motion, the lower court (Branch II, presided by Judge Gomez)
issued an order dated April 27, 1956, quoted as follows:
 This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956.
The motion is filed by the counsel for the defendants and has the conformity of the
counsel for the plaintiffs.

An examination of the records of this case shows that this case was initiated as early as
April 1951 and that the same has been under advisement of the Honorable Enrique A.
Fernandez, Presiding Judge of Branch No. I, since September 24, 1953, and that various
incidents have already been considered and resolved by Judge Fernandez on various
occasions. The last order issued by Judge Fernandez on this case was issued on March
21, 1956, wherein he definitely states that the Court will not entertain any further
postponement of the hearing of this case.

CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and
termination of any incident referring to this case should be referred back to Branch I, so
that the same may be disposed of therein. (emphasis supplied)

A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.

On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge
Fernandez presiding), when informed about the defendants' motion for postponement filed on
April 26, 1956, issued an order reiterating its previous order handed down in open court on
March 21, 1956 and directing the plaintiffs to introduce their evidence ex parte, there being no
appearance on the part of the defendants or their counsel. On the basis of the plaintiffs' evidence,
a decision was rendered on May 4, 1956 the dispositive portion of which reads as follows:

EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del

demandado Nicanor Casteel:

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

(b) Ordena al demandado entregue la demandante la posesion y administracion de la

mitad () del "fishpond" en cuestion con todas las mejoras existentes dentro de la misma;

(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en

concepto de danos a contar de la fecha de la expiracion de los 30 dias de la promulgacion
de esta decision hasta que entregue la posesion y administracion de la porcion del
"fishpond" en conflicto;

(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los

pescado beneficiados, mas los intereses legales de la fecha de la incoacion de la demanda
de autos hasta el completo pago de la obligacion principal;

(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos

incurridos por aquella durante la pendencia de esta causa;
 (f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma
de P2,000.00;

(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en

cuanto se refiere al demandado Juan Depra;

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

(i) Con las costas contra del demandado, Casteel.

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia,
lack of knowledge of the order of the court a quo setting the case for trial. The petition, however,
was denied by the lower court in its order of May 21, 1956, the pertinent portion of which reads
as follows:

The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of
this case has been transferred or not, but to inquire from the presiding Judge, particularly
because his motion asking the transfer of this case was not set for hearing and was not
also acted upon.

Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads
as follows:

Upon petition of the plaintiff without any objection on the part of the defendants,
the hearing of this case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock
in the morning.

This case was filed on April 3, 1951, and under any circumstance this Court will
not entertain any other transfer of the hearing of this case, and if the parties will
not be ready on the day set for hearing, the Court will take necessary steps for the
final disposition of this case.

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

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

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the
case to us for final determination on the ground that it involves only questions of law.

Casteel raises the following issues:

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

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

(3) Whether the lower court erred in ordering the issuance ex parte of a writ of
preliminary injunction against defendant-appellant, and in not dismissing appellees'
complaint.

1. The first and second issues must be resolved against the appellant.

The record indisputably shows that in the order given in open court on March 21, 1956, the
lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and
empathically stated that, since the case had been pending since April 3, 1951, it would not
entertain any further motion for transfer of the scheduled hearing.

An order given in open court is presumed received by the parties on the very date and time of
promulgation,1 and amounts to a legal notification for all legal purposes.2 The order of March 21,
1956, given in open court, was a valid notice to the parties, and the notice of hearing dated April
21, 1956 or one month thereafter, was a superfluity. Moreover, as between the order of March
21, 1956, duly promulgated by the lower court, thru Judge Fernandez, and the notice of hearing
signed by a "special deputy clerk of court" setting the hearing in another branch of the same
court, the former's order was the one legally binding. This is because the incidents of
postponements and adjournments are controlled by the court and not by the clerk of court,
pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of Court.

Much less had the clerk of court the authority to interfere with the order of the court or to
transfer the cage from one sala to another without authority or order from the court where the
case originated and was being tried. He had neither the duty nor prerogative to re-assign the trial
of the case to a different branch of the same court. His duty as such clerk of court, in so far as the
incident in question was concerned, was simply to prepare the trial calendar. And this duty
devolved upon the clerk of court and not upon the "special deputy clerk of court" who
purportedly signed the notice of hearing.

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

The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom
had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21, 1956
intransferably setting the case for hearing for May 2 and 3, 1956, was sufficient notice to all the
appellant's eleven other counsel of record. This is a well-settled rule in our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant
himself, to appear before Judge Fernandez on the scheduled dates of hearing Parties and their
lawyers have no right to presume that their motions for postponement will be granted.5 For
indeed, the appellant and his 12 lawyers cannot pretend ignorance of the recorded fact that since
September 24, 1953 until the trial held on May 2, 1956, the case was under the advisement of
Judge Fernandez who presided over Branch I. There was, therefore, no necessity to "re-assign"
the same to Branch II because Judge Fernandez had exclusive control of said case, unless he was
legally inhibited to try the case and he was not.

There is truth in the appellant's contention that it is the duty of the clerk of court not of the
Court to prepare the trial calendar. But the assignment or reassignment of cases already
pending in one sala to another sala, and the setting of the date of trial after the trial calendar has
been prepared, fall within the exclusive control of the presiding judge.

The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the
clerk of court of the Court of First Instance of Davao was located directly below Branch I. If the
appellant and his counsel had exercised due diligence, there was no impediment to their going
upstairs to the second storey of the Court of First Instance building in Davao on May 2, 1956 and
checking if the case was scheduled for hearing in the said sala. The appellant after all admits that
on May 2, 1956 his counsel went to the office of the clerk of court.

The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct.
But he was properly accorded this right. He was notified in open court on March 21, 1956 that
the case was definitely and intransferably set for hearing on May 2 and 3, 1956 before Branch I.
He cannot argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a
timely notice of the denial of his motion for postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in the case at bar, there had already been a
series of postponements. Unlike the case at bar, the Siochi case was not intransferably set for
hearing. Finally, whereas the cited case did not spend for a long time, the case at bar was only
finally and intransferably set for hearing on March 21, 1956 after almost five years had
elapsed from the filing of the complaint on April 3, 1951.

The pretension of the appellant and his 12 counsel of record that they lacked ample time to
prepare for trial is unacceptable because between March 21, 1956 and May 2, 1956, they had one
month and ten days to do so. In effect, the appellant had waived his right to appear at the trial
and therefore he cannot be heard to complain that he has been deprived of his property without
due process of law.7 Verily, the constitutional requirements of due process have been fulfilled in
this case: the lower court is a competent court; it lawfully acquired jurisdiction over the person of
the defendant (appellant) and the subject matter of the action; the defendant (appellant) was
given an opportunity to be heard; and judgment was rendered upon lawful hearing.8

2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance
ex parte of a writ of preliminary injunction against him, and in not dismissing the appellee's
complaint. We find this contention meritorious.
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 co-ownership between the parties over the disputed fishpond. Were we to admit the
establishment of a co-ownership violative of the prohibitory laws which will hereafter be
discussed, we shall be compelled to declare altogether the nullity of the contract. This would
certainly not serve the cause of equity and justice, considering that rights and obligations have
already arisen between the parties. We shall therefore construe the contract as one of partnership,
divided into two parts namely, a contract of partnership to exploit the fishpond pending its
award to either Felipe Deluao or Nicanor Casteel, and a contract of partnership to divide the
fishpond between them after such award. The first is valid, the second illegal.

It 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 F-289-C with the understanding that he
(Aradillos) would be given a share in the produce thereof.16

Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides
that

The lessee shall not assign, encumber, or sublet his rights without the consent of the
Secretary of Agriculture and Commerce, and the violation of this condition shall avoid
the contract; Provided, That assignment, encumbrance, or subletting for purposes of
speculation shall not be permitted in any case: Provided, further, That nothing contained
in this section shall be understood or construed to permit the assignment, encumbrance,
or subletting of lands leased under this Act, or under any previous Act, to persons,
corporations, or associations which under this Act, are not authorized to lease public
lands.

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.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby
rendered: (1) dissolving the injunction issued against the appellant, (2) placing the latter back in
possession of the fishpond in litigation, and (3) remanding this case to the court of origin for the
reception of evidence relative to the accounting that the parties must perforce render in the
premises, at the termination of which the court shall render judgment accordingly. The
appellant's counterclaim is dismissed. No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando and
Capistrano, JJ., concur.

G.R. No. 21639 September 25, 1924

ALBERT F. KIEL, plaintiff-appellee,

vs.
ESTATE OF P. S. SABERT, defendant-appellant.

J. F. Yeager for appellant.

J. S. Alano for appellee.

MALCOLM, J.:

This action relates to the legal right of Albert F. Kiel to secure from the estate of P. S. Sabert the
sum of P20,000, on a claim first presented to the commissioners and disallowed, then on appeal
to the Court of First Instance allowed, and ultimately the subject-matter of the appeal taken to
this court.

A skeletonized statement of the case and the facts based on the complaint, the findings of the
trial judge, and the record, may be made in the following manner:
In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain public lands
situated in the municipality of Parang, Province of Cotabato, known as Parang Plantation
Company. Kiel subsequently took over the interest of Milfeil. In 1910, Kiel and P. S. Sabert
entered into an agreement to develop the Parang Plantation Company. Sabert was to furnish the
capital to run the plantation and Kiel was to manage it. They were to share and share alike in the
property. It seems that this partnership was formed so that the land could be acquired in the name
of Sabert, Kiel being a German citizen and not deemed eligible to acquire public lands in the
Philippines.

By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the plantation.
During the World War, he was deported from the Philippines.

On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan Plantation
Company, with a subscribed capital of P40,000. On April 10, 1922, P. S. Sabert transferred all of
his rights in two parcels of land situated in the municipality of Parang, Province of Cotabato,
embraced within his homestead application No. 21045 and his purchase application No. 1048, in
consideration of the sum of P1, to the Nituan Plantation Company.

In this same period, Kiel appears to have tried to secure a settlement from Sabert. At least in a
letter dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell all property that I have for
P40,000 or take in a partner who is willing to develop the plantation, to take up the K. & S. debt
no matter which way I will straiten out with you." But Sabert's death came before any amicable
arrangement could be reached and before an action by Kiel against Sabert could be decided. So
these proceedings against the estate of Sabert.

In this court, the defendant-appellant assigns the following errors:

The lower court erred

(1) In finding this was an action to establish a resulting trust in land.

(2) In finding a resulting trust in land could have been established in public lands in favor
of plaintiff herein who was an alien subject at the same time said alleged resulting trust
was created.

(3) In finding a resulting trust in land had been established by the evidence in the case.

(4) In admitting the testimony of the plaintiff herein.

(5) In admitting the testimony of William Milfeil, John C. Beyersdorfer, Frank R. Lasage,
Oscar C. Butler and Stephen Jurika with reference to alleged statements and declarations
of the deceased P. S. Sabert.

(6) In finding any copartnership existed between plaintiff and the deceased Sabert.

(7) In rendering judgment for the plaintiff herein.

Errors 1, 2, and 3, relating to resulting trusts. These three errors discussing the same subject
may be resolved together. In effect, as will soon appear, we reach the conclusion that both parties
were in error in devoting so much time to the elaboration of these questions, and that a ruling on
the same is not needed.

It is conceivable, that the facts in this case could have been so presented to the court by means of
allegations in the complaint, as to disclose characteristics of a resulting trust. But the complaint
as framed asks for a straight money judgment against an estate. In no part of the complaint did
plaintiff allege any interest in land, claim any interest in land, or pretend to establish a resulting
trust in land. That the plaintiff did not care to press such an action is demonstrated by the relation
of the fact of alienage with the rule, that a trust will not be created when, for the purpose of
evading the law prohibiting one from taking or holding real property, he takes a conveyance
thereof in the name of a third person. (26 R. C. L., 1214-1222; Leggett vs. Dubois [1835], 5
Paige, N. Y., 114; 28 Am. Dec., 413.)

The parties are wrong in assuming that the trial judge found that this was an action to establish a
resulting trust in land. In reality, all that the trial judge did was to ground one point of his
decision on an authority coming from the Supreme Court of California, which discussed the
subject of resulting trusts.

Error 4, relating to the admission of testimony of the plaintiff herein. Well taken.

The Code of Civil Procedure in section 383, No. 7, names as incompetent witnesses, parties to an
action or proceeding against an executor or administrator of a deceased person upon a claim or
demand against the estate of such deceased person, who "cannot testify as to any matter of fact
occuring before the death of such deceased person." But the trial judge, misled somewhat by the
decision of the Supreme Court of California in the city of Myers vs. Reinstein ([1885], 67 Cal.,
89), permitted this testimony to go in, whereas if the decision had been read more carefully, it
would have been noted that "the action was not on a claim or demand against the estate of
Reinstein." Here this is exactly the situation which confronts us.

The case of Maxilom vs. Tabotabo ([1907], 9 Phil., 390), is squarely on all fours with the case at
bar. It was there held that "A party to an action against an executor or administrator of a
deceased person, upon a claim against the estate of the latter, is absolutely prohibited by law
from giving testimony concerning such claim or demand as to anything that occurred before the
death of the person against whose estate the action is prosecuted."

Error 5, relating to the testimony of five witnesses with reference to alleged statements and
declarations of the deceased P. S. Sabert. Not well taken.

By section 282 of the Code of Civil Procedure, the declaration, act, or omission of a deceased
person having sufficient knowledge of the subject, against his pecuniary interest, is admissible as
evidence to that extent against his successor in interest. By section 298, No. 4, of the same Code,
evidence may be given up a trial of the following facts: ". . . the act or declaration of a deceased
person, done or made against his interest in respect to his real property." (See Leonardo vs.
Santiago [1907], 7 Phil., 401.) The testimony of these witnesses with reference to the acts or
declarations of Sabert was, therefore, properly received for whatever they might be worth.

Error 6, relating to the existence of a copartnership between Kiel and Sabert. Not well taken.

No partnership agreement in writing was entered into by Kiel and Sabert. The question
consequently is whether or not the alleged verbal copartnership formed by Kiel and Sabert has
been proved, if we eliminate the testimony of Kiel and only consider the relevant testimony of
other witnesses. In performing this task, we are not unaware of the rule of partnership that the
declarations of one partner, not made in the presence of his copartner, are not competent to prove
the existence of a partnership between them as against such other partner, and that the existence
of a partnership cannot be established by general reputation, rumor, or hearsay. (Mechem on
Partnership, sec. 65; 20 R. C. L., sec. 53; Owensboro Wagon Company vs. Bliss [1901], 132
Ala., 253.)

The testimony of the plaintiff's witnesses, together with the documentary evidence, leaves the
firm impression with us that Kiel and Sabert did enter into a partnership, and that they were to
share equally. Applying the tests as to the existence of partnership, we feel that competent
evidence exists establishing the partnership. Even more primary than any of the rules of
partnership above announced, is the injunction to seek out the intention of the parties, as
gathered from the facts and as ascertained from their language and conduct, and then to give this
intention effect. (Giles vs. Vette [1924], 263 U. S., 553.)

Error 7, relating to the judgment rendered for the plaintiff. Well taken in part.

The judgment handed down, it will be remembered, permitted the plaintiff to recover from the
estate the full amount claimed, presumably on the assumption that Sabert having sold by
property to the Nituan Plantation Company for P40,000, Kiel should have one-half of the same,
or P20,000. There is, however, extant in the record absolutely no evidence as to the precise
amount received by Sabert from the sale of this particular land. If it is true that Sabert sold all his
land to the Nituan Plantation Company for P40,000, although this fact was not proven, what part
of the P40,000 would correspond to the property which belonged to Kiel and Sabert under their
partnership agreement? It impresses us further that Kiel under the facts had no standing in court
to ask for any part of the land and in fact he does not do so; his only legal right is to ask for what
is in effect an accounting with reference to its improvements and income as of 1917 when Sabert
became the trustee of the estate on behalf of Kiel.

As we have already intimated, we do not think that Kiel is entitled to any share in the land itself,
but we are of the opinion that he has clearly shown his right to one-half of the value of the
improvements and personal property on the land as to the date upon which he left the plantation.
Such improvements and personal property include buildings, coconut palms, and other plantings,
cattle and other animals, implements, fences, and other constructions, as well as outstanding
collectible credits, if any, belonging to the partnership. The value of these improvements and of
the personal property cannot be ascertained from the record and the case must therefore be
remanded for further proceedings.
In resume, we disregard errors 1, 2, and 3, we find well taken, errors 4 and 7, and we find not
well taken, errors 5 and 6.

The judgment appealed from is set aside and the record is returned to the lower court where the
plaintiff, if he so desires, may proceed further to prove his claim against the estate of P. S.
Sabert. Without costs. So ordered.

Johnson, Street, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.

G.R. No. 19892 September 6, 1923

TECK SEING AND CO., LTD., petitioner-appellee.

SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.

Del Rosario & Del Rosario and Block, Johnston and Greenbaum for appellants.
F. V. Arias for appellants Jo Ibec and Go Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici curiae.

MALCOLM, J.:

Following the presentation of an application to be adjudged an insolvent by the "Sociedad

Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Piol &
Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which the Court
was prayed to enter an order: "(A) Declaring the individual partners as described in paragraph 5
parties to this proceeding; (B) to require each of said partners to file an inventory of his property
in the manner required by section 51 of Act No. 1956; and (C) that each of said partners be
adjudicated insolvent debtors in this proceeding." The trial judge first granted the motion, but,
subsequently, on opposition being renewed, denied it. It is from this last order that an appeal was
taken in accordance with section 82 of the Insolvency Law.

There has been laid before us for consideration and decision a question of some importance and
of some intricacy. The issue in the case relates to a determination of the nature of the mercantile
establishment which operated under the name of Teck Seing & co., Ltd., and this issue requires
us to look into, and analyze, the document constituting Teck Seing & Co., Ltd. It reads:

ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA

Sepan todos por la presente:

Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino y residente
del municipio de Tabogon Provincia de Cebu, Islas Filipinas, Go Tayco, mayor de edad,
comerciante, vecino y residente del municipio de Cebu Provincia de Cebu, Islas Filipinas,
Yap Gueco, mayor de edad, comerciante, vecino y residente del municipio y Provincia de
Cebu, Islas Filipinas, Lim Yogsing, mayor de edad comerciante, vecino y residente del
municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo Ybec, mayor de edad,
comerciante, vecino y residente del municipio de Jagna, Provincia de Bohol, Islas
Filipinas, hacemos constar por la presente, que constituimos y formamos una sociedad
mercantil limitada, bajo las leyes vigentes en las Islas Filipinas y para ser registrada de
acuerdo con los reglamentos vigentes del Codigo de Comercio en Filipinas.

Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su domicilio
principal en la Calle Magallanes No. 94, de la Ciudad de Cebu, Provincia de Cebu, Islas
Filipinas.

Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las Islas
Filipinas, dividido en cinco acciones de a P6,000 como sigue:

Santiago Jo Chung Cang . . . . . . . . . . . . . P6,000.00

Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Total . . . . . . . . . . . . . . . . . . . . . . 30,000.00

Que la duracion de la sociedad sera la de seis aos, a contar de la fecha de esta escritura,
pudiendo prorrogarse este tiempo a discrecion unanime de todos los accionistas.

El objeto de la sociedad sera la compra y venta de mercaderias en general.

El administrador o administradores de la sociedad podran, previa conformidad de los

accionistas, establecer cuantas sucursales o establecimientos considere necesarios para
facilitar sus negocios y el mayor desarrollo del comercio a que se dedica la sociedad,
verificando todas las operaciones que crean convenientes para el fomento de su capital.

Las ganancias o perdidas que resultaren durante cada ao comercial, se distribuiran

proporcionalmente entre los accionistas, de acuerdo con el capital aportado por cada uno
de los mismos.

Las ganancias que resultaren en cada ao comercial, si resultaren algunas ganancias, no

podran ser retiradas pors los accionistas hasta dentro del termino de tres aos a contar de
la fecha del primer balance anual del negocio, quedadno por tanto estas ganancias en
reserva, para ampliar el capital aportado opor los accionistas y ampliar por tanto la esfera
de accion emprendida por la misma sociedad. Al pasar o expirar el termino de tres aos,
cada accionista podra retirar o depositar en poder de la sociedad, las ganancias que le
debiera corresponder durante dicho termino de tres aos.

Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquiera cantidad
o cantidades de la sociedad, que haya sido aportado por los mismos, para atender sus
gastos particulares ni aun pagando redito alguno sobre la cantidad que intenen disponer o
extraer de dicha sociedad.

El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo, la
administracion de la Compaia, quienes podran usar indistintamente la firma social,
quedando por consiguiente autorizados amobs para hacer en nombre de ella toda calse de
operaciones, negocios y especulaciones mercantiles, practicando judicial y extra-
judicialment cuantos actos se requieran para el bien de la sociedad, nombrar procuradores
o abogados para reclamaciones y cobro de creditos y proponer ante los tribunales las
demandas, convenios, transacciones y excepciones procdentes. En caso de ausencia,
enfermedad o cualquier otro impedimento del accionista administrador Sr. Lim Yogsing,
este podra conferir poder general o especial al accionista que crea conveniente para que
en union del administrador auxiliar Sr. Vicente Jocson Jo, pudieran ambos administrar
convenientemente los negocios de la sociedad. Que los administradores podran tener los
empleados necesarios para el mejor que debieran percibir dichos empleados por servicios
rendidos a la sociedad.

Que ambos administradores podran disponer de mil discientos pesos (P1,200) moneda
filipina, anualmente, para sus gastos particulares, siendo dicha cantidad de P1,200 la que
corresponde a cada uno de dichos administradores, como emolumentos o salarios que se
les asigna a cas uno, por sus trabajos en la administracion de la sociedad. Entendiendose,
que, los accionistas podran disponer cada fin de aola gratificacion quese concedera a
cada administrador, si los negocios del ao fueran boyantes y justifiquen la concesion de
una gratificacion especial, aparte del salario aqui dispuesto y especificado.

Que pasado el termino de seis aos, y es de la conveniencia de los accionistas la

continuacion del negocio de esta sociedad, dicho termino sera prorrogado por igual
numero de aos, sin necesidas del otorgamiento de ulteriores escrituras, quedando la
presente en vigor hasta el termino dispuesto por todos los accionistas.

Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por razon de lo
estipulado en esta en ella comprendidos, se procurara arreglar entre los mismos amistosa
y extrajudicialmente, y si no se consiguiere un arreglo de este modo, dichos accionistas
nombraran un arbitro, cuya resolucion estan todos obligados y por la presente se
comprometen y se obligan a acatarla en todas sus partes, renunciando ulteriores recursos.

En cuyos terminos dejamos formalizada esta escritura de sociedad mercantillimitada, y

prometemos cumplirla fiel y estrictamente segun los pactos que hemos establecido.

En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu, Islas

Filipinas, hoy 31 de octubre de mil novecientos diez y nueve.
 (Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO

Firnando en presencia de:

(Fdos.) "ATILANO LEYSON
"JULIO DIAZ

"ESTADOS UNIDOS DE AMERCA

"ISLAS FILIPINAS
"PROVINCIA DE CEBU

En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de octubre de

1919, A.D., ante mi, Notario Publico que subscribe, comprecieron personalmente
Santiago Jo Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec, representado
este ultimo por Ho Seng Sian, segun autorizacion hecha en telegrama de fecha 27 de
septiembre de 1919 que se me ha presentado en este mismo acto, de quienes doy fe de
que les conozco por ser las mismas personas que otorgaron el preinserto documento,
ratificando ant emi su contenido y manifestando ser el mismo un acto de su libre y
voluntario otorgamiento. El Sr. Santiago Jo Chung Cang me exhibio su cedula personal
expedida en Cebu, Cebu, I.F. el dia 19 de septiembre de 1919 bajo el No. H77742, Go
Tayco tambien me exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9 de octubre de
1919 bajo el No. G2042490, Yap Gueco tambien me exhibio la suya expedida en Cebu,
Cebu, I.F. el dia 20 de enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me
exhibio la suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de 1919 bajo el No.
F1455662, y Ho Seng Sian representante de Jo Ybec, me exhibio su cedula personal
expedida en Cebu, Cebu, I.f. el dia 4 de febrero de 1919 bajo el No. F1453733.

Ante mi,

(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1. de enero de 1920

"Asiento No. 157

Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.

Presentado a las diez y cuarenta y tres minutos de la maana de hoy, segun el asiento No.
125, pagina 9 del Tomo 1. del Libro Diario. Cebu, 11 de febrero de 1920.
 (Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-
Officio"

Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del Tomo 3.
del Libro Registro de Sociedades Mercantiles. Cebu, 11 de febrero de 1920. Honorarios
treinta pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo Administrativo.

(Fdo.) "QUIRICO ABETO

[SELLO] "Registrador Mercantil Ex-
Officio"

Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not a
corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is accidental
partnership denominated cuenta en participacion (joint account association).

Counsel for the petitioner and appellee described his client in once place in his opposition to the
motion of the creditors as "una verdadera sociedad anonima" (a true sociedad anonima). The
provisions of the Code of Commerce relating to sociedades anonimas were, however, repealed
by section 191 of the Corporation Law (Act No. 1459), with the exceptions the sociedades
anonimas lawfully organized at the time of the passage of the Corporation Law were recognized,
which is not our case.

The document providing for the partnership contract purported to form "una sociedad mercantil
limitada," and counsel for the petitioner's first contention was that Teck Seing & Co., Ltd., was
not "una sociedad regular colectiva, ni siquiera comanditaria, sino una sociedad mercantil
limitada." Let us see if the partnership contract created a "sociedad en comandita," or, as it is
known in English, and will hereafter be spoken of, "a limited partnership."

To establish a limited partnership there must be, at least, one general partner and the name of the
least one of the general partners must appear in the firm name. (Code of Commerce, arts. 122
[2], 146, 148.) But neither of these requirements have been fulfilled. The general rule is, that
those who seek to avail themselves of the protection of laws permitting the creation of limited
partnerships must show a substantially full compliance with such laws. A limited partnership that
has not complied with the law of its creation is not considered a limited partnership at all, but a
general partnership in which all the members are liable. (Mechem, Elements of Partnership, p.
412; Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.)

The contention of the creditors and appellants is that the partnership contract established a
general partnership.

Article 125 of the Code of Commerce provides that the articles of general copartnership must
estate the names, surnames, and domiciles of the partners; the firm name; the names, and
surnames of the partners to whom the management of the firm and the use of its signature is
instrusted; the capital which each partner contributes in cash, credits, or property, stating the
value given the latter or the basis on which their appraisement is to be made; the duration of the
copartnership; and the amounts which, in a proper case, are to be given to each managing partner
annually for his private expenses, while the succeeding article of the Code provides that the
general copartnership must transact business under the name of all its members, of several of
them, or of one only. Turning to the document before us, it will be noted that all of the
requirements of the Code have been met, with the sole exception of that relating to the
composition of the firm name. We leave consideration of this phase of the case for later
discussion.

The remaining possibility is the revised contention of counsel for the petitioners to the effect that
Teck Seing & Co., Ltd., is "una sociedad mercantil "de facto" solamente" (only a de facto
commercial association), and that the decision of the Supreme court in the case of Hung-Man-
Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling. It was this argument which
convinced the trial judge, who gave effect to his understanding of the case last cited and which
here must be given serious attention.

The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm Kieng-
Chiong-Seng was not organized by means of any public document; that the partnership had not
been recorded in the mercantile registry; and that Kieng-Chiong-Seng was not proven to be the
firm name, but rather the designation of the partnership. The conclusion then was, that the
partnership in question was merely de facto and that, therefore, giving effect to the provisions of
article 120 of the Code of Commerce, the right of action was against the persons in charge of the
management of the association.

Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by side with
the facts before us, a marked difference is at once disclosed. In the cited case, the organization of
the partnership was not evidenced by any public document; here, it is by a public document. In
the cited case, the partnership naturally could not present a public instrument for record in the
mercantile registry; here, the contract of partnership has been duly registered. But the two cases
are similar in that the firm name failed to include the name of any of the partners.

We come then to the ultimate question, which is, whether we should follow the decision in
Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should differentiate the two cases,
holding Teck Seing & Co., Ltd., a general copartnership, notwithstanding the failure of the firm
name to include the name of one of the partners. Let us now notice this decisive point in the case.

Article 119 of the Code of Commerce requires every commercial association before beginning
its business to state its article, agreements, and conditions in a public instrument, which shall be
presented for record in the mercantile registry. Article 120, next following, provides that the
persons in charge of the management of the association who violate the provisions of the
foregoing article shall be responsible in solidum to the persons not members of the association
with whom they may have transacted business in the name of the association. Applied to the
facts before us, it would seem that Teck Seing & Co., Ltd. has fulfilled the provisions of article
119. Moreover, to permit the creditors only to look to the person in charge of the management of
the association, the partner Lim Yogsing, would not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to the general copartnership
transacting business under the name of all its members or of several of them or of one only, is
wisely included in our commercial law. It would appear, however, that this provision was
inserted more for the protection of the creditors than of the partners themselves. A distinction
could well be drawn between the right of the alleged partnership to institute action when failing
to live up to the provisions of the law, or even the rights of the partners as among themselves,
and the right of a third person to hold responsible a general copartnership which merely lacks a
legal firm name in order to make it a partnership de jure.

The civil law and the common law alike seem to point to a difference between the rights of the
partners who have failed to comply with the law and the rights of third persons who have dealt
with the partnership.

The supreme court of Spain has repeatedly held that notwithstanding the obligation of the
members to register the articles of association in the commercial registry, agreements containing
all the essential requisites are valid as between the contracting parties, whatever the form
adopted, and that, while the failure to register in the commercial registry necessarily precludes
the members from enforcing rights acquired by them against third persons, such failure cannot
prejudice the rights of third persons. (See decisions of December 6, 1887, January 25, 1888,
November 10, 1890, and January 26, 1900.) The same reasoning would be applicable to the less
formal requisite pertaining to the firm name.

The common law is to the same effect. The State of Michigan had a statute prohibiting the
transaction of business under an assumed name or any other than the real name of the individual
conducting the same, unless such person shall file with the county clerk a certificate setting forth
the name under which the business is to be conducted and the real name of each of the partners,
with their residences and post-office addresses, and making a violation thereof a misdemeanor.
The supreme Court of Michigan said:

The one object of the act is manifestly to protect the public against imposition and fraud,
prohibiting persons from concealing their identity by doing business under an assumed
name, making it unlawful to use other than their real names in transacting business
without a public record of who they are, available for use in courts, and to punish those
who violate the prohibition. The object of this act is not limited to facilitating the
collection of debts, or the protection of those giving credit to persons doing business
under an assumed name. It is not unilateral in its application. It applies to debtor and
creditor, contractor and contractee, alike. Parties doing business with those acting under
an assumed name, whether they buy or sell, have a right, under the law, to know who
they are, and who to hold responsible, in case the question of damages for failure to
perform or breach of warranty should arise.

The general rule is well settled that, where statutes enacted to protect the public against
fraud or imposition, or to safeguard the public health or morals, contain a prohibition and
impose a penalty, all contracts in violation thereof are void. . . .
 As this act involves purely business transactions, and affects only money interests, we
think it should be construed as rendering contracts made in violation of it unlawful and
unforceable at the instance of the offending party only, but not as designed to take away
the rights of innocent parties who may have dealt with the offenders in ignorance of their
having violated the statute. (Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C,
697.)

The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs. Hernandez
[1903], 1 Phil., 705), contains the following pertinent observations:

Another case may be supposed. A partnership is organized for commercial purposes. It

fails to comply with the requirements of article 119. A creditor sues the partnership for a
debt contracted by it, claiming to hold the partners severally. They answer that their
failure to comply with the Code of Commerce makes them a civil partnership and that
they are in accordance with article 1698 of the Civil Code only liable jointly. To allow
such liberty of action would be to permit the parties by a violation of the Code to escape a
liability which the law has seen fit to impose upon persons who organized commercial
partnership; "Because it would be contrary to all legal principles that the nonperformance
of a duty should redound to the benefit of the person in default either intentional or
unintentional." (Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs.
Lichauco [1916], 33 Phil., 350, 360.)

Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following comment
after articles 121 and 126 of the Code:

From the decisions cited in this and in the previous comments, the following is deduced:
1st. Defects in the organization cannot affect relations with third persons. 2d. Members
who contract with other persons before the association is lawfully organized are liable to
these persons. 3d. The intention to form an association is necessary, so that if the
intention of mutual participation in the profits and losses in a particular business is
proved, and there are no articles of association, there is no association. 4th. An
association, the articles of which have not been registered, is valid in favor of third
persons. 5th. The private pact or agreement to form a commercial association is governed
not by the commercial law but by the civil law. 6th. Secret stipulations expressed in a
public instrument, but not inserted in the articles of association, do not affect third
persons, but are binding on the parties themselves. 7th. An agreement made in a public
instrument, other than the articles of association, by means of which one of the partners
guarantees to another certain profits or secures him from losses, is valid between them,
without affecting the association. 8th. Contracts entered into by commercial associations
defectively organized are valid when they are voluntarily executed by the parties, if the
only controversy relates to whether or not they complied with the agreement.

xxx xxx xxx

The name of the collective merchant is called firm name. By this name, the new being is
distinguished from others, its sphere of action fixed, and the juridical personality better
 determined, without constituting an exclusive character of the general partnership to such
an extent as to serve the purpose of giving a definition of said kind of a mercantile
partnership, as is the case in our Code.

Having in mind that these partnerships are prevailingly of a personal character, article
126 says that they must transact business under the name of all its members, of some of
them, or of one only, the words "and company" to be added in the latter two cases.

It is rendered impossible for the general partnership to adopt a firm name appropriate to
its commercial object; the law wants to link, and does link, the solidary and unlimited
responsibility of the members of this partnership with the formation of its name, and
imposes a limitation upon personal liberty in its selection, not only by prescribing the
requisites, but also by prohibiting persons not members of the company from including
their names in its firm name under penalty of civil solidary responsibility.

Of course, the form required by the Code for the adoption of the firm name does not
prevent the addition thereto of any other title connected with the commercial purpose of
the association. The reader may see our commentaries on the mercantile registry about
the business names and firm names of associations, but it is proper to establish here that,
while the business name may be alienated by any of the means admitted by the law, it
seems impossible to separate the firm names of general partnerships from the juridical
entity for the creation of which it was formed. (Vol. 2, pp. 197, 213.)

On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain
the name of all or any of the partners as prescribed by the Code of Commerce prevents the
creation of a general partnership, Professor Jose A. Espiritu, as amicus curi, states:

My opinion is that such a fact alone cannot and will not be a sufficient cause of
preventing the formation of a general partnership, especially if the other requisites are
present and the requisite regarding registration of the articles of association in the
Commercial Registry has been complied with, as in the present case. I do not believe that
the adoption of a wrong name is a material fact to be taken into consideration in this case;
first, because the mere fact that a person uses a name not his own does not prevent him
from being bound in a contract or an obligation he voluntarily entered into; second,
because such a requirement of the law is merely a formal and not necessarily an essential
one to the existence of the partnership, and as long as the name adopted sufficiently
identity the firm or partnership intended to use it, the acts and contracts done and entered
into under such a name bind the firm to third persons; and third, because the failure of the
partners herein to adopt the correct name prescribed by law cannot shield them from their
personal liabilities, as neither law nor equity will permit them to utilize their own mistake
in order to put the blame on third persons, and much less, on the firm creditors in order to
avoid their personal possibility.

The legal intention deducible from the acts of the parties controls in determining the existence of
a partnership. If they intend to do a thing which in law constitutes a partnership, they are
partners, although their purpose was to avoid the creation of such relation. Here, the intention of
the persons making up Teck Seing & co., Ltd. was to establish a partnership which they
erroneously denominated a limited partnership. If this was their purpose, all subterfuges resorted
to in order to evade liability for possible losses, while assuming their enjoyment of the
advantages to be derived from the relation, must be disregarded. The partners who have
disguised their identity under a designation distinct from that of any of the members of the firm
should be penalized, and not the creditors who presumably have dealt with the partnership in
good faith.

Articles 127 and 237 of the Code of Commerce make all the members of the general
copartnership liable personally and in solidum with all their property for the results of the
transactions made in the name and for the account of the partnership. Section 51 of the
Insolvency Law, likewise, makes all the property of the partnership and also all the separate
property of each of the partners liable. In other words, if a firm be insolvent, but one or more
partners thereof are solvent, the creditors may proceed both against the firm and against the
solvent partner or partners, first exhausting the assets of the firm before seizing the property of
the partners. (Brandenburg of Bankcruptcy, sec. 108; De los Reyes vs. Lukban and Borja [1916],
35 Phil., 757; Involuntary Insolvency of Campos Rueda & Co. vs. Pacific Commercial Co.
[1922], 44 Phil., 916).

We reach the conclusion that the contract of partnership found in the document hereinbefore
quoted established a general partnership or, to be more exact, a partnership as this word is used
in the Insolvency Law.

Wherefore, the order appealed from is reversed, and the record shall be returned to the court of
origin for further proceedings pursuant to the motion presented by the creditors, in conformity
with the provisions of the Insolvency Law. Without special findings as to the costs in this
instance, it is ordered.

Araullo, C.J., Johnson, Street, Avancea, Villamor, Johns and Romualdez, JJ., concur.

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,

vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

Angeles, Maskarino and Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First
Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil
Code to the contract of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated
August 29, 1952, copy of which is attached to the complaint as Annex "A" partners in a
fishpond business, to the capital of which Agad contributed P1,000, with the right to receive 50%
of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership
funds, had yearly rendered accounts of the operations of the partnership; and that, despite
repeated demands, Mabato had failed and refused to render accounts for the years 1957 to 1963,
Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9,
1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as
his share in the profits of the partnership for the period from 1957 to 1963, in addition to P1,000
as attorney's fees, and ordering the dissolution of the partnership, as well as the winding up of its
affairs by a receiver to be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence
of said partnership, upon the ground that the contract therefor had not been perfected, despite the
execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to
the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex
"A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary
damages, as well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no
cause of action and that the lower court had no jurisdiction over the subject matter of the case,
because it involves principally the determination of rights over public lands. After due hearing,
the court issued the order appealed from, granting the motion to dismiss the complaint for failure
to state a cause of action. This conclusion was predicated upon the theory that the contract of
partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil Code, because an
inventory of the fishpond referred in said instrument had not been attached thereto. A
reconsideration of this order having been denied, Agad brought the matter to us for review by
record on appeal.

Articles 1771 and 1773 of said Code provide:

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

Art. 1773. A contract of partnership is void, whenever immovable property is contributed

thereto, if inventory of said property is not made, signed by the parties; and attached to
the public instrument.

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

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

xxx xxx xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership.
Neither said fishpond nor a real right thereto was contributed to the partnership or became part of
the capital thereof, even if a fishpond or a real right thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order
appealed from should be, as it is hereby set aside and the case remanded to the lower court for
further proceedings, with the costs of this instance against defendant-appellee, Severino Mabato.
It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

G.R. No. L-4935 May 28, 1954

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

ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.

Araneta and Araneta for appellee.

Jose A. Buendia for appellant.

REYES, J.:

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.

Appealing directly to this court because of the value of the property involved, defendant makes
the following assignment or errors:

I. The trial court erred in not dismissing the case on the ground that the case was not
brought by the real property in interest.

II. The trial court erred in admitting the third amended complaint.

III. The trial court erred in denying defendant's motion to strike.

IV. The trial court erred in including in its decision land not involved in the litigation.

V. The trial court erred in holding that the land in dispute is covered by transfer
certificates of Title Nos. 37686 and 37677.

Vl. The trial court erred in not finding that the defendant is the true and lawful owner of
the land.

VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the
amount of P132.62 monthly from January, 1940, until he vacates the premises.

VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to
the defendant.

As to the first assigned error, 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.

Errors II, III, and IV, referring to the admission of the third amended complaint, may be
answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions such
amendment. It reads:

Sec. 4. Amendment to conform to evidence. When issues not raised by the pleadings
are tried by express or implied consent of the parties, they shall be treated in all respects,
as if they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at my time, even of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the issues made by the pleadings,
the court may allow the pleadings to be amended and shall be so freely when the
presentation of the merits of the action will be subserved thereby and the objecting party
fails to satisfy the court that the admission of such evidence would prejudice him in
maintaining his action or defense upon the merits. The court may grant a continuance to
enable the objecting party to meet such evidence.

Under this provision amendment is not even necessary for the purpose of rendering judgment on
issues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says
in this Rules of Court:

Under this section, American courts have, under the New Federal Rules of Civil
Procedure, ruled that where the facts shown entitled plaintiff to relief other than that
asked for, no amendment to the complaint is necessary, especially where defendant has
himself raised the point on which recovery is based, and that the appellate court treat the
pleadings as amended to conform to the evidence, although the pleadings were not
actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.)

Our conclusion therefore is that specification of error II, III, and IV are without merit..

Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the
trial, that the land in dispute "is that described or represented in Exhibit A and in Exhibit B
enclosed in red pencil with the name Quirino Bolaos," defendant later changed his lawyer and
also his theory and tried to prove that the land in dispute was not covered by plaintiff's certificate
of title. The evidence, however, is against defendant, for it clearly establishes that plaintiff is the
registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of
5,297,429.3 square meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an area
of 74,789 square meters, more or less, covered by transfer certificate of title No. 37677 of the
land records of the same province, both lots having been originally registered on July 8, 1914
under original certificate of title No. 735. The identity of the lots was established by the
testimony of Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of
the portion thereof claimed by defendant was established by the testimony of his own witness,
Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion
claimed by defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and
is well within the area covered by the two transfer certificates of title already mentioned. This
fact also appears admitted in defendant's answer to the third amended complaint.

As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in
1914, the decree of registration can no longer be impugned on the ground of fraud, error or lack
of notice to defendant, as more than one year has already elapsed from the issuance and entry of
the decree. Neither court the decree be collaterally attacked by any person claiming title to, or
interest in, the land prior to the registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz.,
3819.) Nor could title to that land in derogation of that of plaintiff, the registered owner, be
acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious
and continuous possession under claim of ownership for the period fixed by law is ineffective
against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.)
And it is likewise settled that the right to secure possession under a decree of registration does
not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this
Court on this point is that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92
Phil., 796. This disposes of the alleged errors V and VI.

As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant
should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the
premises.' But it appears from the record that that reasonable compensation for the use and
occupation of the premises, as stipulated at the hearing was P10 a month for each hectare and
that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta
and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already been
filed against defendant. And it cannot be supposed that defendant has been paying rents, for he
has been asserting all along that the premises in question 'have always been since time
immemorial in open, continuous, exclusive and public and notorious possession and under claim
of ownership adverse to the entire world by defendant and his predecessors in interest.' This
assignment of error is thus clearly without merit.

Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to
dismiss alleging that there is pending before the Court of First Instance of Rizal another action
between the same parties and for the same cause and seeking to sustain that allegation with a
copy of the complaint filed in said action. But an examination of that complaint reveals that
appellant's allegation is not correct, for the pretended identity of parties and cause of action in the
two suits does not appear. That other case is one for recovery of ownership, while the present
one is for recovery of possession. And while appellant claims that he is also involved in that
order action because it is a class suit, the complaint does not show that such is really the case. On
the contrary, it appears that the action seeks relief for each individual plaintiff and not relief for
and on behalf of others. The motion for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.

Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion,
JJ., concur.

G.R. No. 75875 December 15, 1989

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.

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R.

LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.

G.R. Nos. 75975-76 December 15, 1989

LUCIANO E. SALAZAR, petitioner,

vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT
OF APPEALS, respondents.

Belo, Abiera & Associates for petitioners in 75875.

Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of
Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can nominate only six (6)
candidates and in the event they cannot agree on the six (6) nominees, they shall vote
only among themselves to determine who the six (6) nominees will be, with cumulative
voting to be allowed but without interference from ASI.

The antecedent facts can be summarized as follows:

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 xxx

5. Management
 (a) The management of the Corporation shall be vested in a Board of
Directors, which shall consist of nine individuals. As long as American-
Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by American-
Standard, and the 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, AC-G.R. SP No. 05617) were being voted cumulatively in favor of
Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless
instructed the Secretary to cast all votes equally in favor of the three ASI
nominees, namely, Wolfgang Aurbach, John Griffin and David
Whittingham and the six originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, and Baldwin Young. The Secretary then
certified for the election of the following Wolfgang Aurbach, John Griffin,
David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The
representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP
No. 05617). This motion to adjourn was accepted by the Chairman,
Baldwin Young, who announced that the motion was carried and declared
the meeting adjourned. Protests against the adjournment were registered
and having been ignored, Mr. Jaqua the ASI representative, stated that
the meeting was not adjourned but only recessed and that the meeting
would be reconvened in the next room. The Chairman then threatened to
have the stockholders who did not agree to the decision of the Chairman
on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the
shares of Saniwares, decided to continue the meeting at the elevator
lobby of the American Standard Building. The continued meeting was
presided by Luciano E. Salazar, while Andres Gatmaitan acted as
Secretary. On the basis of the cumulative votes cast earlier in the meeting,
the ASI Group nominated its four nominees; Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected
directors by the Acting Secretary, Andres Gatmaitan, with the explanation
that there was a tie among the other six (6) nominees for the four (4)
remaining positions of directors and that the body decided not to break the
tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, 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.

The two petitions were consolidated and tried jointly by a hearing officer who rendered a
decision upholding the election of the Lagdameo Group and dismissing the quo
warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in
its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED

ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE
BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE
WAS NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS

FROM EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY
THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY REPRESENT OF
THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS

PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH
WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17,
Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding

contractual agreements entered into by stockholders and the replacement
of the conditions of such agreements with terms never contemplated by
the stockholders but merely dictated by the CA .
 11.2. The Amended decision would likewise sanction the deprivation of
the property rights of stockholders without due process of law in order that
a favored group of stockholders may be illegally benefitted and
guaranteed a continuing monopoly of the control of a corporation. (pp. 14-
15, Rollo-75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE

RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE
DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT

PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS
MEETING OF SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the year
1983 during its annual stockholders' meeting held on March 8, 1983. To answer this
question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.

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 close-held corporation. Surely, appellants cannot honestly
claim that Saniwares is a public issue or a widely held corporation.

In the United States, many courts have taken a realistic approach to joint
venture corporations and have not rigidly applied 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)

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

As in other joint venture companies, the extent of ASI's participation in the

management of the corporation is spelled out in the Agreement. Section
5(a) hereof says that three of the nine directors shall be designated by ASI
and the remaining six by the other stockholders, i.e., the Filipino
stockholders. This allocation of board seats is obviously in consonance
with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative

that the parties should honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend that any allocation of
board seats, even in joint venture corporations, are null and void to the
extent that such may interfere with the stockholder's rights to cumulative
voting as provided in Section 24 of the Corporation Code. This Court
should not be prepared to hold that any agreement which curtails in any
way cumulative voting should be struck down, even if such agreement has
been freely entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be that it would be
more cogent to hold, as the Securities and Exchange Commission has
held in the decision appealed from, that cumulative voting rights may be
voluntarily waived by stockholders who enter into special relationships
with each other to pursue and implement specific purposes, as in joint
venture relationships between foreign and local stockholders, so long as
such agreements do not adversely affect third parties.

In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to give
life and effect to the particular contractual rights and obligations which the
parties have assumed for themselves.

On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats Cannot be disregarded. On the other
hand, the rights of the stockholders to cumulative voting should also be
protected.
 In our decision sought to be reconsidered, we opted to uphold the second
over the first. Upon further reflection, we feel that the proper and just
solution to give due consideration to both factors suggests itself quite
clearly. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting in the process of
determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the
Filipino stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only. During this
voting, each Filipino stockholder can cumulate his votes. ASI, however,
should not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three directors it
is allowed to designate under the Agreement, and may even be able to get
a majority of the board seats, a result which is clearly contrary to the
contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and
the stockholder's right to cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (Rollo-75875,
pp. 38-39)

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

And provided finally that the election of aliens as members of the board of
directors or governing body of corporations or associations engaging in
partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities.
(amendments introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)

The ASI Group's argument is correct within the context of Section 24 of the Corporation
Code. The point of query, however, is whether or not that provision is applicable to a
joint venture with clearly defined agreements:

The legal concept of ajoint venture is of common law origin. It has no

precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266
 Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership,
since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. Blackner v. Mc
Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d.
242 [1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tufts
v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395
111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under Philippine law, a joint venture is
a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95
Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43
NYS 556).

Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement of the parties
as regards the allocation of director seats under Section 5 (a) of the "Agreement," and
the right of each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3 (a) (1) of the
"Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while Section 3 (a) (1)
relates to the manner of voting for these nominees.

This is the proper interpretation of the Agreement of the parties as regards the election
of members of the board of directors.

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

Such a ruling will give effect to both the allocation of the board seats and
the stockholder's right to cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (At p. 39,
Rollo, 75875)

Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the Constitution
and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is
that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the same law also
limits the election of aliens as members of the board of directors in proportion to their
allowance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group.
Hence, in future dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in limiting 3
board seats in the 9-man board of directors there are provisions already agreed upon
and embodied in the parties' Agreement to protect the interests arising from the minority
status of the foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors allotted
the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of
the Agreement which uses the word "designate" meaning "nominate, delegate or
appoint."

They also stress the possibility that the ASI Group might take control of the enterprise if
the Filipino stockholders are allowed to select their nominees separately and not as a
common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of directors.
The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now
impugn its legality.

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

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John
Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan,
Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the
duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.
In all other respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

SO ORDERED.

Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.