ATP 01 Art. 1767 1809 PDF

ATP
(Agency, Trust, and Partnership)

Atty. Taleon | 2I | A.Y. 2017-2018
PARTNERSHIP
No. Case Title Pages Page
Arts. 1767-1809
1 Heirs of Lim v. Lim 7 2
2 Marsman Drysdale Land, Inc. v. Philippine Geoanalytics, Inc. 7 9
3 Jarantilla, Jr. v. Jarantilla 12 16
4 Aurbach v. Sanitary Wares Mftg. Corp. 16 28
5 Pioneer Insurance & Surety Corp. v. CA 12 44
THIRD DIVISION
[G.R. No. 172690. March 3, 2010.]
HEIRS OF JOSE LIM, represented by ELENITO LIM , petitioners, vs .

JULIET VILLA LIM , respondent.
DECISION
NACHURA , J : p
Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision 2 dated June 29,
2005, which reversed and set aside the decision 3 of the Regional Trial Court (RTC) of
Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and
Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They led a
Complaint 4 for Partition, Accounting and Damages against respondent Juliet Villa Lim
(respondent), widow of the late El edo Lim (El edo), who was the eldest son of Jose
and Cresencia.
Petitioners alleged that Jose was the liaison of cer of Interwood Sawmill in
Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu
(Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the trucking
business. Initially, with a contribution of P50,000.00 each, they purchased a truck to be
used in the hauling and transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death on August 15, 1981. Thereafter,
Jose's heirs, including El edo, and partners agreed to continue the business under the
management of El edo. The shares in the partnership pro ts and income that formed
part of the estate of Jose were held in trust by El edo, with petitioners' authority for
Elfledo to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, El edo was a fresh commerce
graduate serving as his father's driver in the trucking business. He was never a partner
or an investor in the business and merely supervised the purchase of additional trucks
using the income from the trucking business of the partners. By the time the
partnership ceased, it had nine trucks, which were all registered in El edo's name.
Petitioners asseverated that it was also through El edo's management of the
partnership that he was able to purchase numerous real properties by using the pro ts
derived therefrom, all of which were registered in his name and that of respondent. In
addition to the nine trucks, Elfledo also acquired five other motor vehicles.
HCTAEc
On May 18, 1995, El edo died, leaving respondent as his sole surviving heir.
Petitioners claimed that respondent took over the administration of the
aforementioned properties, which belonged to the estate of Jose, without their consent
and approval. Claiming that they are co-owners of the properties, petitioners required
respondent to submit an accounting of all income, pro ts and rentals received from the
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estate of El edo, and to surrender the administration thereof. Respondent refused;
thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed that El edo was
himself a partner of Norberto and Jimmy. Respondent also claimed that per testimony
of Cresencia, sometime in 1980, Jose gave El edo P50,000.00 as the latter's capital in
an informal partnership with Jimmy and Norberto. When El edo and respondent got
married in 1981, the partnership only had one truck; but through the efforts of El edo,
the business ourished. Other than this trucking business, El edo, together with
respondent, engaged in other business ventures. Thus, they were able to buy real
properties and to put up their own car assembly and repair business. When Norberto
was ambushed and killed on July 16, 1993, the trucking business started to falter.
When El edo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy
and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested
that three out of the nine trucks be given to him as his share, while the other three
trucks be given to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not
interested in the vehicles. Thus, she sold the same to respondent, who paid for them in
installments.
Respondent also alleged that when Jose died in 1981, he left no known assets,
and the partnership with Jimmy and Norberto ceased upon his demise. Respondent
also stressed that Jose left no properties that El edo could have held in trust.
Respondent maintained that all the properties involved in this case were purchased and
acquired through her and her husband's joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent submitted that
these are conjugal partnership properties; and thus, she had the right to refuse to
render an accounting for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in
favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1.) Ordering the partition of the above-mentioned properties equally between

the plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes, pro ts and

rentals received by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing
petitioners' complaint for lack of merit. Undaunted, petitioners led their Motion for
Reconsideration, 5 which the CA, however, denied in its Resolution 6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE
PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN
GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON THE ISSUE OF THE
IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP? 7
In essence, petitioners argue that according to the testimony of Jimmy, the sole
surviving partner, El edo was not a partner; and that he and Norberto entered into a
partnership with Jose. Thus, the CA erred in not giving that testimony greater weight
than that of Cresencia, who was merely the spouse of Jose and not a party to the
partnership. 8
Respondent counters that the issue raised by petitioners is not proper in a
petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would
entail the review, evaluation, calibration, and re-weighing of the factual ndings of the
CA. Moreover, respondent invokes the rationale of the CA decision that, in light of the
admissions of Cresencia and Edison and the testimony of respondent, the testimony of
Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's ndings was
fully justified. 9 cEaCTS
We resolve rst the procedural matter regarding the propriety of the instant
Petition.
Verily, the evaluation and calibration of the evidence necessarily involves
consideration of factual issues — an exercise that is not appropriate for a petition for
review on certiorari under Rule 45. This rule provides that the parties may raise only
questions of law, because the Supreme Court is not a trier of facts. Generally, we are
not duty-bound to analyze again and weigh the evidence introduced in and considered
by the tribunals below. 1 0 When supported by substantial evidence, the ndings of fact
of the CA are conclusive and binding on the parties and are not reviewable by this Court,
unless the case falls under any of the following recognized exceptions:
(1) When the conclusion is a nding grounded entirely on speculation,
surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;

(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its ndings, went beyond the issues
of the case and the same is contrary to the admissions of both appellant and
appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the ndings of fact are conclusions without citation of speci c
evidence on which they are based;
(9) When the facts set forth in the petition as well as in the petitioners' main
and reply briefs are not disputed by the respondents; and
(10) When the ndings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on record. 1 1
We note, however, that the ndings of fact of the RTC are contrary to those of the
CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the understanding that
there shall be a proportionate sharing of the pro ts and losses among them. A contract
of partnership is de ned by the Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves. 1 2 aHIEcS
Undoubtedly, the best evidence would have been the contract of partnership or
the articles of partnership. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized. Nonetheless, we are asked to determine who
between Jose and Elfledo was the "partner" in the trucking business.
A careful review of the records persuades us to af rm the CA decision. The
evidence presented by petitioners falls short of the quantum of proof required to
establish that: (1) Jose was the partner and not El edo; and (2) all the properties
acquired by El edo and respondent form part of the estate of Jose, having been
derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one
piece of evidence against respondent. It must be considered and weighed along with
petitioners' other evidence vis-à-vis respondent's contrary evidence. In civil cases, the
party having the burden of proof must establish his case by a preponderance of
evidence. "Preponderance of evidence" is the weight, credit, and value of the aggregate
evidence on either side and is usually considered synonymous with the term "greater
weight of the evidence" or "greater weight of the credible evidence." "Preponderance of
evidence" is a phrase that, in the last analysis, means probability of the truth. It is
evidence that is more convincing to the court as worthy of belief than that which is
offered in opposition thereto. 1 3 Rule 133, Section 1 of the Rules of Court provides the
guidelines in determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. — In civil cases, the
party having burden of proof must establish his case by a preponderance of
evidence. In determining where the preponderance or superior weight of evidence
on the issues involved lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of testifying, their intelligence,
their means and opportunity of knowing the facts to which they are testifying, the
nature of the facts to which they testify, the probability or improbability of their
testimony, their interest or want of interest, and also their personal credibility so
far as the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not necessarily
with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals 14 is
enlightening. Therein, we cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any pro ts made by
the use of the property; CHDAEc
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest
in any property from which the returns are derived;
(4) The receipt by a person of a share of the pro ts of a business is a prima
facie evidence that he is a partner in the business, but no such inference shall be
drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
Applying the legal provision to the facts of this case, the following circumstances
tend to prove that El edo was himself the partner of Jimmy and Norberto: 1) Cresencia
testi ed that Jose gave El edo P50,000.00, as share in the partnership, on a date that
coincided with the payment of the initial capital in the partnership; 1 5 (2) El edo ran the
affairs of the partnership, wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners herein; 1 6 (3) all of the
properties, particularly the nine trucks of the partnership, were registered in the name
of El edo; (4) Jimmy testi ed that El edo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the pro ts of the
business; 1 7 and (5) none of the petitioners, as heirs of Jose, the alleged partner,
demanded periodic accounting from El edo during his lifetime. As repeatedly stressed
in Heirs of Tan Eng Kee , 1 8 a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and
personal properties acquired and registered in the names of El edo and respondent
formed part of the estate of Jose, having been derived from Jose's alleged partnership
with Jimmy and Norberto. They failed to refute respondent's claim that El edo and
respondent engaged in other businesses. Edison even admitted that El edo also sold
Interwood lumber as a sideline. 1 9 Petitioners could not offer any credible evidence
other than their bare assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight. 2 0
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that El edo was not just a hired help but one of the
partners in the trucking business, active and visible in the running of its affairs
from day one until this ceased operations upon his demise. The extent of his
control, administration and management of the partnership and its business, the
fact that its properties were placed in his name, and that he was not paid salary or
other compensation by the partners, are indicative of the fact that El edo was a
partner and a controlling one at that. It is apparent that the other partners only
contributed in the initial capital but had no say thereafter on how the business
was ran. Evidently it was through Elfredo's efforts and hard work that the
partnership was able to acquire more trucks and otherwise prosper. Even the
appellant participated in the affairs of the partnership by acting as the
bookkeeper sans salary. TAIaHE
It is notable too that Jose Lim died when the partnership was barely a year old,
and the partnership and its business not only continued but also ourished. If it
were true that it was Jose Lim and not El edo who was the partner, then upon his
death the partnership should have been dissolved and its assets liquidated. On
the contrary, these were not done but instead its operation continued under the
helm of Elfledo and without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was through
their own concerted efforts and hard work. El edo did not limit himself to the
business of their partnership but engaged in other lines of businesses as well.
In sum, we nd no cogent reason to disturb the ndings and the ruling of the CA
as they are amply supported by the law and by the evidence on record.
WHEREFORE , the instant Petition is DENIED . The assailed Court of Appeals
Decision dated June 29, 2005 is AFFIRMED . Costs against petitioners.
SO ORDERED .
Corona, Velasco, Jr., Del Castillo * and Mendoza, JJ., concur.
Footnotes
* Additional member in lieu of Associate Justice Diosdado M. Peralta per Special Order No.
824 dated February 12, 2010.
1. Rollo, pp. 9-31.

2. Particularly docketed as CA-G.R. CV No. 83331; penned by Associate Justice Roberto A.
Barrios (deceased), with Associate Justices Amelita G. Tolentino and Vicente S.E.
Veloso, concurring; id. at 57-69.
3. Particularly docketed as Civil Case No. 97-60; rollo, pp. 49-55.
4. Records, pp. 1-9.

5. CA rollo, pp. 116-128.
6. Id. at 157-158.
7. Petitioners' Memorandum; rollo, pp. 271-295, at 285.
8. Id.
9. Respondent's Memorandum; id. at 204-234.
10. Francisco Madrid and Edgardo Bernardo v. Spouses Bonifacio Mapoy and Felicidad
Martinez, G.R. No. 150887, August 14, 2009. (Citations omitted.)
11. Ontimare, Jr. v. Elep, G.R. No. 159224, January 20, 2006, 479 SCRA 257, 265.
12. Litonjua, Jr. v. Litonjua, Sr., G.R. Nos. 166299-300, December 13, 2005, 477 SCRA 576,
584.
13. Perfecta Cavile, Jose de la Cruz and Rural Bank of Bayawan, Inc. v. Justina Litania-
Hong, accompanied and joined by her husband, Leopoldo Hong and Genoveva Litania,
G.R. No. 179540, March 13, 2009, citing Go v. Court of Appeals, 403 Phil. 883, 890-891
(2001).
14. 396 Phil. 68 (2000).
15. TSN, June 8, 1999, pp. 4, 8 and 9-10.

16. TSN, May 2, 2000, p. 17.
17. Id. at 15-16.

18. Supra note 14, at 83, citing Estanislao, Jr. vs. Court of Appeals, 160 SCRA 830, 837
(1988).
19. TSN, September 15, 1999, p. 8.
20. SPO2 Yap v. Judge Inopiguez, Jr., 451 Phil. 182, 192 (2003), citing Romago Electric Co.,
Inc. v. Court of Appeals, 333 SCRA 291, 302 (2000), further citing Ereñeta v. Bezore, 54
SCRA 13 (1973) and Soriano v. Compañia General de Tabacos de Filipinas, 18 SCRA
999 (1966); and Government Service Insurance System v. Court of Appeals, 222 SCRA
685, 696 (1993), further citing Marvel Building Corporation, et al. v. David, 94 Phil. 376
(1954).

THIRD DIVISION
[G.R. No. 183374. June 29, 2010.]
MARSMAN DRYSDALE LAND, INC. , petitioner, vs . PHILIPPINE

GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC. ,
respondents.
[G.R. No. 183376. June 29, 2010.]
GOTESCO PROPERTIES, INC. , petitioner, vs. MARSMAN DRYSDALE

LAND, INC. AND PHILIPPINE GEOANALYTICS, INC. , respondents.
DECISION
CARPIO MORALES , J : p
On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and
Gotesco Properties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for
the construction and development of an of ce building on a land owned by Marsman
Drysdale in Makati City. 1
The JVA contained the following pertinent provisions:
SECTION 4. CAPITAL OF THE JV
It is the desire of the Parties herein to implement this Agreement by investing in
the PROJECT on a FIFTY (50%) PERCENT-FIFTY (50%) PERCENT basis .
4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall
contribute the Property .
The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY
MILLION (P420,000,000.00).
For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable
condition within ninety (90) days from signing of this Agreement barring any
unforeseen circumstances over which [Marsman Drysdale] has no control.
Buildable condition shall mean that the old building/structure which stands on
the Property is demolished and taken to ground level.
4.2. Contribution of [Gotesco]-[Gotesco] shall contribute the amount of
PESOS: FOUR HUNDRED TWENTY MILLION (P420,000,000.00) in
cash which shall be payable as follows:
4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon

signing of this Agreement.
4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION

(P370,000,000.00) shall be paid based on progress billings, relative
to the development and construction of the Building, but shall in no
case exceed ten (10) months from delivery of the Property in a
Buildable condition as defined in section 4.1. IcTEAD
A joint account shall be opened and maintained by both Parties for

handling of said balance, among other Project concerns.
4.3. Funding and Financing
4.3.1 Construction funding for the Project shall be obtained

from the cash contribution of [Gotesco] .
4.3.2 Subsequent funding shall be obtained from the pre-selling of
units in the Building or, when necessary, from loans from various
banks or nancial institutions. [Gotesco] shall arrange the required
funding from such banks or nancial institutions, under such terms
and conditions which will provide nancing rates favorable to the
Parties.
4.3.3 [Marsman Drysdale] shall not be obligated to fund the

Project as its contribution is limited to the Property .
4.3.4 If the cost of the Project exceeds the cash contribution of

[Gotesco], the proceeds obtained from the pre-selling of units and
proceeds from loans, the Parties shall agree on other sources and
terms of funding such excess as soon as practicable.
4.3.5. ...
4.3.6. ...
4.3.7. ...
4.3.8 All funds advanced by a Party (or by third parties in

substitution for advances from a Party) shall be repaid by the
JV .
4.3.9 If any Party agrees to make an advance to the Project but
fails to do so (in whole or in part) the other party may
advance the shortfall and the Party in default shall
indemnify the Party making the substitute advance on
demand for all of its losses, costs and expenses incurred in
so doing . (emphasis supplied; underscoring in the original)
Via Technical Services Contract (TSC) dated July 14, 1997, 2 the joint venture
engaged the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil
exploration, laboratory testing, seismic study and geotechnical engineering for the
project. PGI, was, however, able to drill only four of five boreholes needed to conduct its
subsurface soil exploration and laboratory testing, justifying its failure to drill the
remaining borehole to the failure on the part of the joint venture partners to clear the
area where the drilling was to be made. 3 PGI was able to complete its seismic study
though. aATEDS
PGI then billed the joint venture on November 24, 1997 for P284,553.50
representing the cost of partial subsurface soil exploration; and on January 15, 1998
for P250,800 representing the cost of the completed seismic study. 4
Despite repeated demands from PGI, 5 the joint venture failed to pay its
obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint venture
was cut short and the planned building project was eventually shelved. 6
PGI subsequently led on November 11, 1999 a complaint for collection of sum
of money and damages at the Regional Trial Court (RTC) of Quezon City against
Marsman Drysdale and Gotesco.
In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the
responsibility of paying PGI to Gotesco which, under the JVA, was solely liable for the
monetary expenses of the project. 7
Gotesco, on the other hand, countered that PGI has no cause of action against it
as PGI had yet to complete the services enumerated in the contract; and that Marsman
Drysdale failed to clear the property of debris which prevented PGI from completing its
work. 8
By Decision of June 2, 2004, 9 Branch 226 of the Quezon City RTC rendered
judgment in favor of PGI, disposing as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of
plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff,
jointly :
(1) the sum of P535,353.50 with legal interest from the date of this
decision until fully paid;
(2) the sum of P200,000.00 as exemplary damages;
(3) the sum of P200,000.00 as and for attorney's fees; and
(4) costs of suit. cCSTHA
The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is

hereby GRANTED as follows:
a) Defendant [Gotesco] is ordered to reimburse co-defendant

[Marsman Drysdale] in the amount of P535,353.[50] in accordance
with the [JVA].
b) Defendant [Gotesco] is further ordered to pay co-defendant
[Marsman Drysdale] the sum of P100,000.00 as and for attorney's
fees.
SO ORDERED. (underscoring in the original; emphasis supplied)
Marsman Drysdale moved for partial reconsideration, contending that it should

not have been held jointly liable with Gotesco on PGI's claim as well as on the awards of
exemplary damages and attorney's fees. The motion was, by Resolution of October 28,
2005, denied.
Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by
Decision of January 28, 2008, 1 0 af rmed with modi cation the decision of the trial
court. Thus the appellate court disposed:
WHEREFORE , premises considered, the instant appeal is PARTLY GRANTED .
The assailed Decision dated June 2, 2004 and the Resolution dated October 28,
2005 of the RTC of Quezon City, Branch 226, in Civil Case No. Q99-39248 are
hereby AFFIRMED with MODIFICATION deleting the award of exemplary
damages in favor of [PGI] and the P100,000.00 attorney's fees in favor of
[Marsman Drysdale] and ordering defendant-appellant [Gotesco] to REIMBURSE
[Marsman Drysdale] 50% of the aggregate sum due [PGI], instead of the lump
sum P535,353.00 awarded by the RTC. The rest of the Decision stands.
SO ORDERED . (capitalization and emphasis in the original; underscoring
supplied)
In partly af rming the trial court's decision, the appellate court ratiocinated that
notwithstanding the terms of the JVA, the joint venture cannot avoid payment of PGI's
claim since "[the JVA] could not affect third persons like [PGI] because of the basic civil
law principle of relativity of contracts which provides that contracts can only bind the
parties who entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof." 1 1 ICASEH
Their motions for partial reconsideration having been denied, 1 2 Marsman

Drysdale and Gotesco led separate petitions for review with the Court which were
docketed as G.R. Nos. 183374 and 183376, respectively. By Resolution of September
8, 2008, the Court consolidated the petitions.
In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in
A. . . . ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER
CONCEDING THAT [GOTESCO] SHOULD ULTIMATELY BE SOLELY LIABLE TO
[PGI].
B. . . . AWARDING ATTORNEY'S FEES IN FAVOR OF [PGI] . . .
C. . . . IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE
REQUIREMENT OF "SATISFACTORY PERFORMANCE" OF ITS PRESTATION
WHICH, PURSUANT TO THE TECHNICAL SERVICES CONTRACT, IS THE
CONDITION SINE QUA NON TO COMPENSATION.
D. . . . DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN
DRYSDALE'S] ENTITLEMENT TO AN AWARD OF ATTORNEY'S FEES. 1 3
On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court
committed error when it
. . . ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK
PERFORMED BY [PGI] AND P100,000.00 [AS] ATTORNEY'S FEES . . . [AND] TO
REIMBURSE [MARSMAN DRYSDALE] 50% OF P535,353.50 AND PAY [MARSMAN
DRYSDALE] P100,000.00 AS ATTORNEY'S FEES. 1 4
On the issue of whether PGI was indeed entitled to the payment of services it
rendered, the Court sees no imperative to re-examine the congruent ndings of the trial
and appellate courts thereon. Undoubtedly, the exercise involves an examination of
facts which is normally beyond the ambit of the Court's functions under a petition for
review, for it is well-settled that this Court is not a trier of facts. While this judicial tenet
admits of exceptions, such as when the ndings of facts of the appellate court are
contrary to those of the trial court's, or when the judgment is based on a
misapprehension of facts, or when the ndings of facts are contradicted by the
evidence on record, 1 5 these extenuating grounds nd no application in the present
petitions.
AT ALL EVENTS, the Court is convinced that PGI had more than suf ciently
established its claims against the joint venture. In fact, Marsman Drysdale had long
recognized PGI's contractual claims when it (PGI) received a Certi cate of Payment 1 6
from the joint venture's project manager 1 7 which was endorsed to Gotesco for
processing and payment. 1 8 STcADa
The core issue to be resolved then is which between joint venturers Marsman
Drysdale and Gotesco bears the liability to pay PGI its unpaid claims.
To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding
for the project was to be obtained from Gotesco's cash contribution, as its (Marsman
Drysdale's) participation in the venture was limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since it was due to
the fault of Marsman Drysdale that PGI was unable to complete its undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
PGI executed a technical service contract with the joint venture and was never a
party to the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of
Marsman Drysdale (land) and Gotesco (cash) as well as the funding and nancing
mechanism for the project, the same cannot be used to defeat the lawful claim of PGI
against the two joint venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the
bene cial owner of the project, 1 9 and all billing invoices indicated the consortium
therein as the client. HCIaDT
As the appellate court held, Articles 1207 and 1208 of the Civil Code, which
respectively read:
Art. 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of
the former has a right to demand, or that each one of the latter is bound
to render, entire compliance with the prestations . There is a solidary
liability only when the obligation expressly so states, or when the law or nature of
the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligations to
which the preceding article refers the contrary does not appear, the credit or
debt shall be presumed to be divided into as many equal shares as
there are creditors or debtors , the credits or debts being considered distinct
from one another, subject to the Rules of Court governing the multiplicity of suits.
(emphasis and underscoring supplied)
presume that the obligation owing to PGI is joint between Marsman Drysdale and
Gotesco.
The only time that the JVA may be made to apply in the present petitions is when
the liability of the joint venturers to each other would set in.
A joint venture being a form of partnership, it is to be governed by the laws on
partnership. 2 0 Article 1797 of the Civil Code provides:
Art. 1797. The losses and pro ts shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same
proportion .
In the absence of stipulation, the share of each in the pro ts and losses shall be
in proportion to what he may have contributed, but the industrial partner shall not
be liable for the losses. As for the pro ts, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If besides his
services he has contributed capital, he shall also receive a share in the pro ts in
proportion to his capital. (emphasis and underscoring supplied)
In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the
proceeds of the project. 2 1 They did not provide for the splitting of losses, however.
Applying the above-quoted provision of Article 1797 then, the same ratio applies in
splitting the P535,353.50 obligation-loss of the joint venture.
The appellate court's decision must be modi ed, however. Marsman Drysdale
and Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman
Drysdale for "50% of the aggregate sum due" to PGI.
Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would
not only be contrary to the law on partnership on division of losses but would partake
of a clear case of unjust enrichment at Gotesco's expense. The grant by the lower
courts of Marsman Drysdale cross-claim against Gotesco was thus erroneous. THCSEA
Marsman Drysdale's supplication for the award of attorney's fees in its favor
must be denied. It cannot claim that it was compelled to litigate or that the civil action
or proceeding against it was clearly unfounded, for the JVA provided that, in the event a
party advances funds for the project, the joint venture shall repay the advancing party.
22
Marsman Drysdale was thus not precluded from advancing funds to pay for
PGI's contracted services to abate any legal action against the joint venture itself. It
was in fact hardline insistence on Gotesco having sole responsibility to pay for the
obligation, despite the fact that PGI's services redounded to the bene t of the joint
venture, that spawned the legal action against it and Gotesco.
Finally, an interest of 12% per annum on the outstanding obligation must be
imposed from the time of demand 2 3 as the delay in payment makes the obligation one
of forbearance of money, conformably with this Court's ruling in Eastern Shipping Lines,
Inc. v. Court of Appeals . 2 4 Marsman Drysdale and Gotesco should bear legal interest
on their respective obligations.
WHEREFORE , the assailed Decision and Resolution of the Court of Appeals are
AFFIRMED with MODIFICATION in that the order for Gotesco to reimburse Marsman
Drysdale is DELETED , and interest of 12% per annum on the respective obligations of
Marsman Drysdale and Gotesco is imposed, computed from the last demand or on
January 5, 1999 up to the finality of the Decision.
If the adjudged amount and the interest remain unpaid thereafter, the interest
rate shall be 12% per annum computed from the time the judgment becomes nal and
executory until it is fully satis ed. The appealed decision is, in all other respects,
affirmed.
Costs against petitioners Marsman Drysdale and Gotesco.
SO ORDERED.
Carpio, * Brion, Abad ** and Villarama, Jr., JJ., concur.
Footnotes
*Additional member per Raffle dated June 16, 2010.
**Additional member per Special Order No. 843 dated May 17, 2010.
1.I Records, pp. 101-120.
2.Id. at pp. 6-31.
3.Id. at p. 2.
4.Id. at pp. 33 and 36. Covered by Billing Invoice Nos. 437 and 526, respectively.
5.Id. at pp. 222, 224, and 225; Exhibits "E"; "F" and "G".
6.II Records, pp. 397-398. See also Transcript of Stenographic Notes, August 21, 2001, p. 8.
7.I Records, pp. 92-94.
8.Id. at p. 70.
9.II Records, pp. 505-530. Penned by Judge Leah S. Domingo Regala.

10.CA rollo, pp. 274-282. Penned by Associate Justice Estela M. Perlas-Bernabe with Associate
Justices Portia Aliño-Hormachuelos and Lucas P. Bersamin (now a member of the
Court).
11.Id. at p. 278.
12.Id. at p. 322.
13.Rollo (G.R. No. 183374), pp. 19-20.
14.Rollo (G.R. No. 183376), p. 19.
15.La Rosa v. Ambassador Hotel, G.R. No. 177059, March 13, 2009, 581 SCRA 340, 345-346.
16.I Records, pp. 218-221; Exhibits "B," "C" and "D."

17.Lawrence Campbell.
18.I Records, p. 223; Exhibit "E-2."
19.In the Technical Services Contract's SC-1 Definitions portion, it was stated that "OWNER
means Marsman-Drysdale Land, Inc./Gotesco Properties, Inc., a Joint Venture and its
authorized representatives and successors in interest."
20.Aurbach v. Sanitary Wares Manufacturing Corp., G.R. No. 75875, December 15, 1989, 180
SCRA 130, 146-147.
21.I Records, p. 107. Section 8 of the JVA states that: ". . . . a) proceeds from the JV shall be
shared equally on a 50:50 ratio between the Parties unless such ratio is changed due to
additional investments as provided in Section 4.3; . . . ."
22.I Records, p. 105. The JVA states that: ". . . . 4.3.8. All funds advanced by a Party (or by third
parties in substitution for advances from a Party) shall be repaid by the [joint venture]. . .
."
23.Vide: I Records, p. 40. The last demand letter from PGI is dated January 5, 1999.
24.G.R. No. 97412, July 12, 1994, 234 SCRA 78.
FIRST DIVISION
[G.R. No. 154486. December 1, 2010.]
FEDERICO JARANTILLA, JR. , petitioner, vs . ANTONIETA JARANTILLA,

BUENAVENTURA REMOTIGUE, SUBSTITUTED BY CYNTHIA
REMOTIGUE, DOROTEO JARANTILLA and TOMAS JARANTILLA ,
respondents.
DECISION
LEONARDO-DE CASTRO , J : p
This petition for review on certiorari 1 seeks to modify the Decision 2 of the Court
of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which set aside the Decision 3
dated December 18, 1992 of the Regional Trial Court (RTC) of Quezon City, Branch 98 in
Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children:
Federico, Del n, Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta. 4 Petitioner
Federico Jarantilla, Jr. is the grandchild of the late Jarantilla spouses by their son
Federico Jarantilla, Sr. and his wife Leda Jamili. 5 Petitioner also has two other
brothers: Doroteo and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint before the RTC while
Antonieta Jarantilla, his aunt, was the plaintiff therein. His co-respondents before he
joined his aunt Antonieta in her complaint, were his late aunt Conchita Jarantilla's
husband Buenaventura Remotigue, who died during the pendency of the case, his
cousin Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and
Buenaventura Remotigue, and his brothers Doroteo and Tomas Jarantilla. 6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the
real properties of their deceased parents. 7 With the exception of the real property
adjudicated to Pacita Jarantilla, the heirs also agreed to allot the produce of the said
real properties for the years 1947-1949 for the studies of Rafael and Antonieta
Jarantilla. 8
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered
into an agreement with the spouses Buenaventura Remotigue and Conchita Jarantilla to
provide mutual assistance to each other by way of nancial support to any commercial
and agricultural activity on a joint business arrangement. This business relationship
proved to be successful as they were able to establish a manufacturing and trading
business, acquire real properties, and construct buildings, among other things. 9 This
partnership ended in 1973 when the parties, in an "Agreement," 1 0 voluntarily agreed to
completely dissolve their "joint business relationship/arrangement." 1 1 DHATcE
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed
a document wherein they acknowledged that while registered only in Buenaventura
Remotigue's name, they were not the only owners of the capital of the businesses
Manila Athletic Supply (712 Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo
City) and Remotigue Trading (Cotabato City). In this same "Acknowledgement of
Participating Capital," they stated the participating capital of their co-owners as of the
year 1952, with Antonieta Jarantilla's stated as eight thousand pesos (P8,000.00) and
Federico Jarantilla, Jr.'s as five thousand pesos (P5,000.00). 1 2
The present case stems from the amended complaint 1 3 dated April 22, 1987
led by Antonieta Jarantilla against Buenaventura Remotigue, Cynthia Remotigue,
Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the accounting of
the assets and income of the co-ownership, for its partition and the delivery of her
share corresponding to eight percent (8%), and for damages. Antonieta claimed that in
1946, she had entered into an agreement with Conchita and Buenaventura Remotigue,
Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta
alleged that the initial contribution of property and money came from the heirs'
inheritance, and her subsequent annual investment of seven thousand ve hundred
pesos (P7,500.00) as additional capital came from the proceeds of her farm. Antonieta
also alleged that from 1946-1969, she had helped in the management of the business
they co-owned without receiving any salary. Her salary was supposedly rolled back into
the business as additional investments in her behalf. Antonieta further claimed co-
ownership of certain properties 1 4 (the subject real properties) in the name of the
defendants since the only way the defendants could have purchased these properties
were through the partnership as they had no other source of income.
The respondents, including petitioner herein, in their Answer, 1 5 denied having
formed a partnership with Antonieta in 1946. They claimed that she was in no position
to do so as she was still in school at that time. In fact, the proceeds of the lands they
partitioned were devoted to her studies. They also averred that while she may have
helped in the businesses that her older sister Conchita had formed with Buenaventura
Remotigue, she was paid her due salary. They did not deny the existence and validity of
the "Acknowledgement of Participating Capital" and in fact used this as evidence to
support their claim that Antonieta's 8% share was limited to the businesses
enumerated therein. With regard to Antonieta's claim in their other corporations and
businesses, the respondents said these should also be limited to the number of her
shares as speci ed in the respective articles of incorporation. The respondents denied
using the partnership's income to purchase the subject real properties and said that the
certificates of title should be binding on her. 1 6
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who
was one of the original defendants, entered into a compromise agreement 1 7 with
Antonieta Jarantilla wherein he supported Antonieta's claims and asserted that he too
was entitled to six percent (6%) of the supposed partnership in the same manner as
Antonieta was. He prayed for a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiff's prayer for an
accounting from the other defendants, and the partition of the properties of the
co-ownership and the delivery to the plaintiff and to defendant Federico Jarantilla,
Jr. of their rightful share of the assets and properties in the co-ownership. 1 8
acCETD
The RTC, in an Order 1 9 dated March 25, 1992, approved the Joint Motion to
Approve Compromise Agreement 2 0 and on December 18, 1992, decided in favor of
Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders judgment in favor of
the plaintiff Antonieta Jarantilla and against defendants Cynthia Remotigue,
Doroteo Jarantilla and Tomas Jarantilla ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount on
the real properties covered by TCT Nos. 35655, 338398, 338399 &
335395, all of the Registry of Deeds of Quezon City; TCT Nos.
(18303)23341, 142882 & 490007(4615), all of the Registry of Deeds
of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato
based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount on

the Remotigue Agro-Industrial Corporation, Manila Athletic Supply,
Inc., MAS Rubber Products, Inc. and Buendia Recapping Corporation
based on the shares of stocks present book value;
3. to account for the assets and income of the co-ownership and
deliver to plaintiff her rightful share thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as

moral damages;
5. to pay, jointly and severally, the sum of P50,000.00 as attorney's

fees; and
6. to pay, jointly and severally, the costs of the suit. 2 1
Both the petitioner and the respondents appealed this decision to the Court of
Appeals. The petitioner claimed that the RTC "erred in not rendering a complete
judgment and ordering the partition of the co-ownership and giving to [him] six per
centum (6%) of the properties." 2 2
While the Court of Appeals agreed to some of the RTC's factual ndings, it also
established that Antonieta Jarantilla was not part of the partnership formed in 1946,
and that her 8% share was limited to the businesses enumerated in the
Acknowledgement of Participating Capital. On July 30, 2002, the Court of Appeals
rendered the herein challenged decision setting aside the RTC's decision, as follows:
WHEREFORE , the decision of the trial court, dated 18 December 1992 is SET
ASIDE and a new one is hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of

8% in the assets and pro ts of Manila Athletic Supply, Remotigue
Trading in Iloilo City and Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his
share of 6% of the assets and pro ts of the above-mentioned
enterprises; and, holding that caDTSE
(3) plaintiff Antonieta Jarantilla is a stockholder in the following

corporations to the extent stated in their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;

(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.

(4) No costs. 2 3

The respondents, on August 20, 2002, led a Motion for Partial Reconsideration
but the Court of Appeals denied this in a Resolution 2 4 dated March 21, 2003.
Antonieta Jarantilla led before this Court her own petition for review on
certiorari 2 5 dated September 16, 2002, assailing the Court of Appeals' decision on
"similar grounds and similar assignments of errors as this present case" 2 6 but it was
dismissed on November 20, 2002 for failure to le the appeal within the reglementary
period of fteen (15) days in accordance with Section 2, Rule 45 of the Rules of Court.
27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT
RULING THAT PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED
TO A SIX PER CENTUM (6%) SHARE OF THE OWNERSHIP OF THE REAL
PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING COMMON
FUNDS FROM THE BUSINESSES WHERE HE HAD OWNED SUCH SHARE .
28
Petitioner asserts that he was in a partnership with the Remotigue spouses, the
Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin
Vismanos, as evidenced by the Acknowledgement of Participating Capital the
Remotigue spouses executed in 1957. He contends that from this partnership, several
other corporations and businesses were established and several real properties were
acquired. In this petition, he is essentially asking for his 6% share in the subject real
properties. He is relying on the Acknowledgement of Participating Capital, on his own
testimony, and Antonieta Jarantilla's testimony to support this contention.
The core issue is whether or not the partnership subject of the
Acknowledgement of Participating Capital funded the subject real properties. In other
words, what is the petitioner's right over these real properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of the
Rules of Civil Procedure, only questions of law may be raised by the parties and passed
upon by this Court. 2 9
A question of law arises when there is doubt as to what the law is on a certain
state of facts, while there is a question of fact when the doubt arises as to the
truth or falsity of the alleged facts. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented
by the litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear that the
issue invites a review of the evidence presented, the question posed is one of fact.
Thus, the test of whether a question is one of law or of fact is not the appellation
given to such question by the party raising the same; rather, it is whether the
appellate court can determine the issue raised without reviewing or evaluating the
evidence, in which case, it is a question of law; otherwise it is a question of fact.
30 TCDHaE
Since the Court of Appeals did not fully adopt the factual ndings of the RTC, this
Court, in resolving the questions of law that are now in issue, shall look into the facts
only in so far as the two courts a quo differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which was
af rmed in the 1957 document, the "Acknowledgement of Participating Capital." The
RTC used this as its basis for giving Antonieta Jarantilla an 8% share in the three
businesses listed therein and in the other businesses and real properties of the
respondents as they had supposedly acquired these through funds from the
partnership. 3 1
The Court of Appeals, on the other hand, agreed with the RTC as to Antonieta's
8% share in the business enumerated in the Acknowledgement of Participating Capital,
but not as to her share in the other corporations and real properties. The Court of
Appeals ruled that Antonieta's claim of 8% is based on the "Acknowledgement of
Participating Capital," a duly notarized document which was speci c as to the subject
of its coverage. Hence, there was no reason to pattern her share in the other
corporations from her share in the partnership's businesses. The Court of Appeals also
said that her claim in the respondents' real properties was more "precarious" as these
were all covered by certi cates of title which served as the best evidence as to all the
matters contained therein. 3 2 Since petitioner's claim was essentially the same as
Antonieta's, the Court of Appeals also ruled that petitioner be given his 6% share in the
same businesses listed in the Acknowledgement of Participating Capital.
Factual ndings of the trial court, when con rmed by the Court of Appeals, are
nal and conclusive except in the following cases: (1) when the inference made is
manifestly mistaken, absurd or impossible; (2) when there is a grave abuse of
discretion; (3) when the nding is grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the ndings of fact are con icting; (6) when the
Court of Appeals, in making its ndings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when the
ndings of the Court of Appeals are contrary to those of the trial court; (8) when the
ndings of fact are conclusions without citation of speci c evidence on which they are
based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly considered, would justify a different
conclusion; and (10) when the ndings of fact of the Court of Appeals are premised on
the absence of evidence and are contradicted by the evidence on record. 3 3
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship with
the respondents as a co-ownership, but in the same breath, assert that a verbal
partnership was formed in 1946 and was af rmed in the 1957 Acknowledgement of
Participating Capital.
There is a co-ownership when an undivided thing or right belongs to different
persons. 3 4 It is a partnership when two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the pro ts
among themselves. 3 5 The Court, in Pascual v. The Commissioner of Internal Revenue ,
3 6 quoted the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v. The
Collector of Internal Revenue 3 7 to further elucidate on the distinctions between a co-
ownership and a partnership, to wit:
I wish however to make the following observation: Article 1769 of the new Civil
Code lays down the rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership,
whether such co-owners or co-possessors do or do not share any pro ts made by
the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest
in any property from which the returns are derived; CAIaDT
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any pro ts made by the use of the property held
in common does not convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. This only
means that, aside from the circumstance of pro t, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a
partnership, the existence of a juridical personality different from that of the
individual partners, and the freedom to transfer or assign any interest in the
property by one with the consent of the others.
It is evident that an isolated transaction whereby two or more persons contribute
funds to buy certain real estate for pro t in the absence of other circumstances
showing a contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but
who severally retain the title to their respective contribution, are not thereby
rendered partners. They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a co-partnership in respect

thereto; nor does an agreement to share the pro ts and losses on the sale of land
create a partnership; the parties are only tenants in common.
Where plaintiff, his brother, and another agreed to become owners of a single
tract of realty, holding as tenants in common, and to divide the pro ts of
disposing of it, the brother and the other not being entitled to share in plaintiff's
commission, no partnership existed as between the three parties, whatever their
relation may have been as to third parties.
In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally participating in both pro ts and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each
party to make contract, manage the business, and dispose of the whole property. .
...
The common ownership of property does not itself create a partnership between
the owners, though they may use it for the purpose of making gains; and they
may, without becoming partners, agree among themselves as to the
management, and use of such property and the application of the proceeds
therefrom. 3 8 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a
contract of partnership: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the pro ts among the contracting parties . The
rst element is undoubtedly present in the case at bar, for, admittedly, all the parties in
this case have agreed to, and did, contribute money and property to a common fund.
Hence, the issue narrows down to their intent in acting as they did. 3 9 It is not denied
that all the parties in this case have agreed to contribute capital to a common fund to
be able to later on share its pro ts. They have admitted this fact, agreed to its veracity,
and even submitted one common documentary evidence to prove such partnership —
the Acknowledgement of Participating Capital. SDTIaE
As this case revolves around the legal effects of the Acknowledgement of

Participating Capital, it would be instructive to examine the pertinent portions of this
document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de
Remotigue, both of legal age, Filipinos and residents of Loyola Heights, Quezon
City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of
Calle Real, Iloilo City and the Remotigue Trading, Cotabato Branch, Cotabato, P.I.,
all dealing in athletic goods and equipments, and general merchandise are
recorded in their respective books with Buenaventura Remotigue as the registered
owner and are being operated by them as such:
That they are not the only owners of the capital of the three establishments and
their participation in the capital of the three establishments together with the
other co-owners as of the year 1952 are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE P25,000.00

THOUSAND)
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE 25,000.00
THOUSAND)
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND) 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND) 8,000.00
6. Rafael Jarantilla (SIX THOUSAND) 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND) 5,000.00
8. Quintin Vismanos (TWO THOUSAND) 2,000.00
That aside from the persons mentioned in the next preceding paragraph, no other
person has any interest in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this
29th day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE 4 0
The Acknowledgement of Participating Capital is a duly notarized document

voluntarily executed by Conchita Jarantilla-Remotigue and Buenaventura Remotigue in
1957. Petitioner does not dispute its contents and is actually relying on it to prove his
participation in the partnership. Article 1797 of the Civil Code provides: aEHASI
Art. 1797. The losses and pro ts shall be distributed in conformity

with the agreement. If only the share of each partner in the pro ts has been
agreed upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the pro ts
and losses shall be in proportion to what he may have contributed, but
the industrial partner shall not be liable for the losses. As for the pro ts, the
industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as agreed
upon, or in the absence of any such stipulations, then to his share in proportion to his
contribution to the partnership. The petitioner himself claims his share to be 6%, as
stated in the Acknowledgement of Participating Capital. However, petitioner fails to
realize that this document speci cally enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue
Trading in Cotabato City. Since there was a clear agreement that the capital the
partners contributed went to the three businesses, then there is no reason to deviate
from such agreement and go beyond the stipulations in the document. Therefore, the
Court of Appeals did not err in limiting petitioner's share to the assets of the
businesses enumerated in the Acknowledgement of Participating Capital.
I n Villareal v. Ramirez , 4 1 the Court held that since a partnership is a separate
juridical entity, the shares to be paid out to the partners is necessarily limited only to its
total resources, to wit:
Since it is the partnership, as a separate and distinct entity, that must refund the
shares of the partners, the amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be paid their shares,
the creditors of the partnership must rst be compensated. After all the creditors
have been paid, whatever is left of the partnership assets becomes available for
the payment of the partners' shares. 4 2
There is no evidence that the subject real properties were assets of the
partnership referred to in the Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents' properties based
on the concept of trust. He claims that since the subject real properties were
purchased using funds of the partnership, wherein he has a 6% share, then "law and
equity mandates that he should be considered as a co-owner of those properties in
such proportion." 4 3 In Pigao v. Rabanillo , 4 4 this Court explained the concept of trusts,
to wit:
Express trusts are created by the intention of the trustor or of the parties, while
implied trusts come into being by operation of law, either through implication of
an intention to create a trust as a matter of law or through the imposition of the
trust irrespective of, and even contrary to, any such intention. In turn, implied
trusts are either resulting or constructive trusts. Resulting trusts are based on the
equitable doctrine that valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have been contemplated by
the parties. They arise from the nature or circumstances of the consideration
involved in a transaction whereby one person thereby becomes invested with
legal title but is obligated in equity to hold his legal title for the bene t of another.
45 HTAIcD

On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created. Noting
the need to prove the existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily
show the existence of the trust and its elements. While implied trusts may
be proved by oral evidence, the evidence must be trustworthy and received
by the courts with extreme caution, and should not be made to rest on
loose, equivocal or indefinite declarations. Trustworthy evidence is required
because oral evidence can easily be fabricated." 4 6
The petitioner has failed to prove that there exists a trust over the subject real
properties. Aside from his bare allegations, he has failed to show that the respondents
used the partnership's money to purchase the said properties. Even assuming
arguendo that some partnership income was used to acquire these properties, the
petitioner should have successfully shown that these funds came from his share in the
partnership pro ts. After all, by his own admission, and as stated in the
Acknowledgement of Participating Capital, he owned a mere 6% equity in the
partnership.
In essence, the petitioner is claiming his 6% share in the subject real properties,
by relying on his own self-serving testimony and the equally biased testimony of
Antonieta Jarantilla. Petitioner has not presented evidence, other than these
unsubstantiated testimonies, to prove that the respondents did not have the means to
fund their other businesses and real properties without the partnership's income. On
the other hand, the respondents have not only, by testimonial evidence, proven their
case against the petitioner, but have also presented suf cient documentary evidence to
substantiate their claims, allegations and defenses. They presented preponderant
proof on how they acquired and funded such properties in addition to tax receipts and
tax declarations. 4 7 It has been held that "while tax declarations and realty tax receipts
do not conclusively prove ownership, they may constitute strong evidence of ownership
when accompanied by possession for a period sufficient for prescription." 4 8 Moreover,
it is a rule in this jurisdiction that testimonial evidence cannot prevail over documentary
evidence. 4 9 This Court had on several occasions, expressed our disapproval on using
mere self-serving testimonies to support one's claim. In Ocampo v. Ocampo , 5 0 a case
on partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was suf ciently
proved by their witnesses — Luisa Ocampo-Llorin and Melita Ocampo. We
disagree. Their testimonies cannot prevail over the array of documents presented
by Belen. A claim of ownership cannot be based simply on the testimonies of
witnesses; much less on those of interested parties, self-serving as they are. 5 1
It is true that a certi cate of title is merely an evidence of ownership or title over
the particular property described therein. Registration in the Torrens system does not
create or vest title as registration is not a mode of acquiring ownership; hence, this
cannot deprive an aggrieved party of a remedy in law. 5 2 However, petitioner asserts
ownership over portions of the subject real properties on the strength of his own
admissions and on the testimony of Antonieta Jarantilla. As held by this Court in
Republic of the Philippines v. Orfinada, Sr.: 5 3
Indeed, a Torrens title is generally conclusive evidence of ownership of the land
referred to therein, and a strong presumption exists that a Torrens title was
regularly issued and valid. A Torrens title is incontrovertible against any
informacion possessoria, of other title existing prior to the issuance thereof not
annotated on the Torrens title. Moreover, persons dealing with property covered
by a Torrens certi cate of title are not required to go beyond what appears on its
face. 5 4
As we have settled that this action never really was for partition of a co-
ownership, to permit petitioner's claim on these properties is to allow a collateral,
indirect attack on respondents' admitted titles. In the words of the Court of Appeals,
"such evidence cannot overpower the conclusiveness of these certi cates of title, more
so since plaintiff's [petitioner's] claims amount to a collateral attack, which is
prohibited under Section 48 of Presidential Decree No. 1529, the Property Registration
Decree." 5 5 aAcDSC
SEC. 48. Certi cate not subject to collateral attack . — A certi cate of title
shall not be subject to collateral attack. It cannot be altered, modi ed, or
cancelled except in a direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title when
its objective is to nullify the title, thereby challenging the judgment pursuant to which
the title was decreed." 5 6 In Aguilar v. Alfaro, 5 7 this Court further distinguished between
a direct and an indirect or collateral attack, as follows:
A collateral attack transpires when, in another action to obtain a different relief
and as an incident to the present action, an attack is made against the judgment
granting the title. This manner of attack is to be distinguished from a direct attack
against a judgment granting the title, through an action whose main objective is
to annul, set aside, or enjoin the enforcement of such judgment if not yet
implemented, or to seek recovery if the property titled under the judgment had
been disposed of. . . . .
Petitioner's only piece of documentary evidence is the Acknowledgement of

Participating Capital, which as discussed above, failed to prove that the real properties
he is claiming co-ownership of were acquired out of the proceeds of the businesses
covered by such document. Therefore, petitioner's theory has no factual or legal leg to
stand on.
WHEREFORE , the Petition is hereby DENIED and the Decision of the Court of
Appeals in CA-G.R. CV No. 40887, dated July 30, 2002 is AFFIRMED .
SO ORDERED .
Corona, C.J., Peralta, * Abad ** and Perez, JJ., concur.
Footnotes
* Per Special Order No. 913 dated November 2, 2010.

** Per Special Order No. 917 dated November 24, 2010.
1. Under Rule 45 of the 1997 Rules of Civil Procedure.
2. Rollo, pp. 34-45; penned by Associate Justice Buenaventura J. Guerrero with Associate
Justices Rodrigo V. Cosico and Perlita J. Tria Tirona concurring.
3. Id. at 105-110.
4. Id. at 34.
5. Records, Vol. I, p. 1.
6. Rollo, p. 49.
7. Id. at 34-35.
9. Id. at 7.
10. Id. at 7-9.
11. Id. at 7.
12. Id. at 6.
13. Rollo, pp. 48-57.
14. Rollo, p. 18; the subject real properties are covered by TCT Nos. 35655, 338398, 338399
& 335395, all of the Registry of Deeds of Quezon City; TCT Nos. (18303)23341, 142882
& 490007(4615), all of the Registry of Deeds of Rizal; and TCT No. T-6309 of the
Registry of Deeds of Cotabato.
15. Id. at 72-76.
16. Id. at 111-197.
17. Id. at 83-87.
18. Id. at 85-86.
19. Id. at 102-104.
20. Id. at 83-87.
21. Id. at 109-110.
22. Id. at 205.
23. Id. at 44.
24. CA rollo, p. 564.
25. Docketed as G.R. No. 154722.
26. Rollo, p. 313.

27. CA rollo, p. 284.
28. Rollo, p. 20.
29. Vector Shipping Corporation v. Macasa, G.R. No. 160219, July 21, 2008, 559 SCRA 105.
30. Binay v. Odeña, G.R. No. 163683, June 8, 2007, 524 SCRA 248, 255-256, citing Velayo-
Fong v. Velayo, G.R. No. 155488, December 6, 2006, 510 SCRA 320, 329-330.

31. Rollo, pp. 105-110.
32. Id. at 42.
33. Go v. Court of Appeals, 403 Phil. 883, 890 (2001).
34. CIVIL CODE, Art. 484.
35. CIVIL CODE, Art. 1767.

36. 248 Phil. 788 (1988).
37. 102 Phil. 140 (1957).

38. Pascual v. The Commissioner of Internal Revenue, supra note 36 at 795-796.
39. Id. at 795.
41. 453 Phil. 999 (2003).
42. Id. at 1008-1009.

43. Rollo, p. 24.
44. G.R. No. 150712, May 2, 2006, 488 SCRA 546.
45. Id. at 560-561.

46. Oco v. Limbaring, G.R. No. 161298, January 31, 2006, 481 SCRA 348.
47. Records, Vol. I, pp. 7-9, 54-62, Vol. II, pp. 482-486, 535-564, 567-653.
48. Heirs of Clemente Ermac v. Heirs of Vicente Ermac, 451 Phil. 368, 378 (2003).
49. Romago Electric Co., Inc. v. Court of Appeals, 388 Phil. 964, 976 (2000).
50. 471 Phil. 519 (2004).
51. Id. at 539.
52. Heirs of Clemente Ermac v. Heirs of Vicente Ermac, supra note 48 at 377.
53. G.R. No. 141145, November 12, 2004, 442 SCRA 342.
54. Id. at 359.
55. Rollo, pp. 42-43.
56. Oño v. Lim, G.R. No. 154270, March 9, 2010.
57. G.R. No. 164402, July 5, 2010.

THIRD DIVISION
[G.R. No. 75875. December 15, 1989.]
WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.

WHITTINGHAM and CHARLES CHAMSAY, petitioners, vs.
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUZ, respondents.
Belo, Abiera & Associates for petitioners in 75875.

Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
[G.R. No. 75951. December 15, 1989.]
SANITARY WARES MANUFACTURING CORPORATION,

ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, petitioners, 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.
SYLLABUS
1. COMMERCIAL LAW; JOINT VENTURE; WHETHER THERE EXISTS A JOINT

VENTURE DEPENDS UPON THE PARTIES' ACTUAL INTENTION WHICH IS
DETERMINED IN ACCORDANCE WITH THE RULES COVERING THE
INTERPRETATION AND CONSTRUCTION OF CONTRACTS. — The rule is that
whether the parties to a particular contract have thereby established among
themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B.
and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press
Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
2. ID.; ID.; ESTABLISHED IN CASE AT BAR. — In the instant cases, our
examination of important provisions of the Agreement as well as the testimonial
evidence presented by the Lagdameo and Young Group shows that the parties
agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary
corporation. Section 5 (a) of the agreement uses the word "designated" and not
"nominated" or "elected" in the selection of the nine directors on a six to three
ratio. Each group is assured of a fixed number of directors in the board. Moreover,
ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein
contained shall be construed to constitute any of the parties hereto partners or
joint venturers in respect of any transaction hereunder" was merely to obviate
the possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
3. ID.; ID.; CONCEPT OF JOINT VENTURE; DISTINGUISHED FROM
PARTNERSHIP. — The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements: "The legal concept
of a joint venture is of common law origin. It has no precise legal definition, but
it has been generally understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are similar —
community of interest in the business, sharing of profits and losses, and a mutual
right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d.
12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. (Tufts v.
Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71
NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is
not entirely accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore
that under Philippine law, a joint venture is a form of partnership and should
thus be governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 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).
4. ID.; ID.; RIGHT OF STOCKHOLDERS TO CUMULATE VOTES IN ELECTING
DIRECTORS LIES IN THE AGREEMENT OF PARTIES. — Bearing these principles in
mind, the correct view would be that the resolution of the question of whether or
not the ASI Group may vote their additional equity lies in the agreement of the
parties. The appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in
the process of determining who the 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.
5. ID.; ANTI-DUMMY; LIMITS THE ELECTION OF ALIENS AS MEMBERS OF THE
BOARD OF DIRECTORS IN PROPORTION TO THEIR ALLOWANCE PARTICIPATION
OF THE ENTITY. — Equally important as the consideration of the contractual
intent of the parties is the consideration as regards the possible domination by
the foreign investors of the enterprise in violation of the nationalization
requirements enshrined in the Constitution and circumvention of the Anti-
Dummy Act. In this regard, petitioner 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.
DECISION
GUTIERREZ, JR., J : p
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." LibLex
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
"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 others six: shall be
designated by the other stockholders of the Corporation. (pp. 51 &
53, Rollo of 75875).
At the request of ASI, the agreement contained provisions designed to protect it

as a minority group, including the grant of veto powers over a number of
corporate acts and the right to designate certain officers, such as a member of
the Executive Committee whose vote was required for important corporate
transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was
also registered with the Board of Investments for availment of incentives with
the condition that at least 60% of the capital stock of the corporation shall be
owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it
apparently had other subsidiaries of joint venture groups in the countries where
Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin Young.
The minutes were taken by the Secretary, Avelino Cruz. After disposing of the
preliminary items in the agenda, the stockholders then proceeded to the election
of the members of the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine
investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto
R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R. Ceniza then
nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay.
The chairman, Baldwin Young ruled the last two nominations out of order on the
basis of section 5 (a) of the Agreement, the consistent practice of the parties
during the past annual stockholders' meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal advice of
Saniwares' legal counsel. The following events then, transpired:
. . . . There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to the
body of stockholders present that a vote be taken on the ruling of the
Chairman. The Chairman, Baldwin Young, declared the appeal out of order
and no vote on the ruling was taken. The Chairman then instructed the
Corporate Secretary to cast all the votes present and represented by
proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI
representative, Mr. Jaqua, protested the decision of the Chairman and
announced that all votes accruing to ASI shares, a total of 1,329,695 (p.
27, Rollo, AC-G.R. SP No. 05617) were being cumulatively voted for the
three ASI nominees and Charles Chamsay, and instructed the Secretary
to so vote. Luciano E. Salazar and other proxy holders announced that all
the votes owned by and or represented by them 467,197 shares (p. 27,
Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of
Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed
the Secretary to cast all votes equally in favor of the three ASI nominees,
namely, Wolfgang Aurbach, John Griffin and David Whittingham, and the
six originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo,
Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F.
Lee, and Baldwin Young. The Secretary then certified for the election of
the following — Wolfgang Aurbach, John Griffin, David Whittingham,
Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI
then moved to recess the meeting which was duly seconded. There was
also a motion to adjourn (p. 28, Rollo, Ac-G.R. SP No. 05617). This motion
to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting
adjourned. Protests against the adjournment were registered and having
been ignored, Mr. Jaqua, the ASI representative, stated that the meeting
was not adjourned but only recessed and that the meeting would be
reconvened in the next room. The Chairman then threatened to have the
stockholders who did not agree to the decision of the Chairman on the
casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and
other stockholders, allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator lobby of the
American Standard Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the
basis of the cumulative votes cast earlier in the meeting, the ASI Group
nominated its four nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself,
thus the said five directors were certified as elected directors by the
Acting Secretary, Andres Gatmaitan, with the explanation that there was
a tie among the other six (6) nominees for the four (4) remaining
positions of directors and that the body decided not to break the tie."
(pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with
the Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Ernesto V. Lagdameo, Baldwin Young, Raul
A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case
No. 2417. The second petition was for quo warranto and application for
receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E.
Salazar and Charles Chamsay against the group of Young and Lagdameo
(petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as
SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the
legitimate directors of the corporation. LLphil
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 That Amended Decision would sanction the CA's disregard of
binding contractual agreements entered into by stockholders and the
replacement of the conditions of such agreements with terms never
contemplated by the stockholders but merely dictated by the CA.
"11.2 The Amended decision would likewise sanction the unlawful

deprivation of the property rights of stockholders without due process of
law in order that a favored group of stockholders may be illegally
benefited and guaranteed a continuing monopoly of the control of a
corporation." (pp. 14-15, Rollo — 75975-76).
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
"THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE
RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE
DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.
II
"THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT
PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS
MEETING OF SANIWARES." (P. 24, Rollo — 75951).
The issues raised in the petitions are interrelated, hence, they are discussed
jointly.
The main issue hinges on who were the duly elected directors of Saniwares for
the year 1983 during its annual stockholders' meeting held on March 8, 1983. To
answer this question the following factors should be determined: (1) the nature
of the business established by the parties — whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may vote their additional 10%
equity during elections of Saniwares' board of directors. LLjur
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 — G.R. No. 75875)
They object to the admission of other evidence which tends to show that the
parties' agreement was to establish a joint venture presented by the Lagdameo
and Young Group on the ground that it contravenes the parol evidence rule under
section 7, Rule 130 of the Revised Rules of Court. According to them, the
Lagdameo and Young Group never pleaded in their pleading that the
"Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
"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 a joint venture enterprise, and
if some words in the Agreement appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former (Art. 1370,
New Civil Code). The various stipulations of a contract shall be interpreted
together attributing to the doubtful ones that sense which may result
from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in
order to judge the intention of the contracting parties, their
contemporaneous and 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 NYS 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200
P 96 33 C.J. p. 871).
In the instant cases, our examination of important provisions of the Agreement

as well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation.
The history of the organization of Saniwares and the unusual arrangements
which govern its policy making body are all consistent with a joint venture and
not with an ordinary corporation. As stated by the SEC:
"According to the unrebutted testimony of Mr. Baldwin Young, he
negotiated the Agreement with ASI in behalf of the Philippine nationals. He
testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the
Agreement should contain provisions to protest ASI as the minority.
"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 this case, the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the other 6, clearly
indicate that — 1) there are two distinct groups in Saniwares, namely ASI,
which owns 40% of the capital stock and the Philippine National
stockholders who own the balance of 60%, and that 2) ASI is given
certain protections as the minority stockholder.
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. cdll
The Lagdameo Group stated in their appellees' brief in the Court of Appeals:
"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 Young/Yutivo family count for another 13 stockholders,
the Cham family for 8 stockholders, the Santos family for 9 stockholders,
the Dy family for 7 stockholders, etc. If the members of one family
and/or business or interest group are considered as one (which, it is
respectfully submitted, they should be for purposes of determining how
closely held Saniwares is), there were as of 8 March 1983, practically only
17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of
appellees' Rejoinder Memorandum dated 11 December 1984 and Annex
"A" thereof).
"Secondly, even assuming that Saniwares is technically not a close
corporation because it has more than 20 stockholders, the undeniable
fact is that it is a close-held corporation. Surely, appellants cannot
honestly claim that Saniwares is a public issue or a widely held
corporation.
"In the United States, many courts have taken a realistic approach to joint
venture corporations and have not rigidly applied 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 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 G.R. 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
voluntary waived by stockholders who enter into special relationships
with each other to pursue and implement specific purposes, as in joint
venture relationships between foreign and local stockholders, so long as
such agreements do not adversely affect third parties.
"In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to give
life and effect to the particular contractual rights and obligations which
the parties have assumed for themselves.
"On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats cannot be disregarded. On the other
hand, the rights of the stockholders to cumulative voting should also be
protected.
"In our decision sought to be reconsidered, we opted to uphold the

second over the first. Upon further reflection, we feel that the proper and
just solution to give due consideration to both factors suggests itself
quite clearly. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold the right of
the stockholders within each group to cumulative voting in the process of
determining who the 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 a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel,
266 Fed. 811 [1920]) It is in fact hardly distinguishable from the
partnership, since their elements are similar — community of interest in
the business, sharing of profits and losses, and a mutual right of control.
(Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson,
95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d.
12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a temporary
nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811
[1920]). This observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. (Art.
1783, Civil Code). It would seem therefore that under Philippine law, a joint
venture is a form of partnership and should thus be governed by the law
of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 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.LexLib
With these findings, we affirm the decisions of the SEC Hearing Officer and SEC
which were impliedly affirmed by the appellate court declaring Messrs. Wolfgang
Aurbach, John Griffin, David P. Whittingham, Ernesto V. Lagdameo, Baldwin
Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George
F. Lee as the duly elected directors of Saniwares at the March 8, 1983 annual
stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No.
75951 ) object to a cumulative voting during the election of the board of
directors of the enterprise as ruled by the appellate court and submits that the
six (6) directors allotted the Filipino stockholders should be selected by consensus
pursuant to section 5 (a) of the Agreement which uses the word "designate"
meaning "nominate, delegate or appoint."
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. cdll
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach,
John Griffin, David Whittingham, Ernesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8, 1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
Fernan C.J., Bidin and Cortés, JJ., concur.
Feliciano, J., took no part.

THIRD DIVISION
[G.R. No. 84197. July 28, 1989.]
PIONEER INSURANCE & SURETY CORPORATION , petitioner, vs. THE

HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and
JACOB S. LIM , respondents.
[G.R. No. 84157. July 28, 1989.]
JACOB S. LIM , petitioner, vs. COURT OF APPEALS, PIONEER

INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and
HEAVY EQUIPMENT CO., INC., FRANCISCO and MODESTO
CERVANTES and CONSTANCIO MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.

Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
SYLLABUS
1. CIVIL LAW; DAMAGES; INSURANCE; AN INSURER IS SURROGATED TO THE

RIGHTS OF THE INSURED AGAINST THE WRONGDOER UPON RECEIPT OF THE
INDEMNITY. — The petitioner's argument that the respondents had no interest in the
reinsurance contract as this is strictly between the petitioner as insured and the
reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance
Code has no basis. Under the provisions of Article 2207 of the Civil Code if a property is
insured and the owner receives the indemnity from the insurer, the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the amount paid
by the insurer does not fully cover the loss, then the aggrieved party is the one entitled
to recover the de ciency. Evidently, under this legal provision, the real party in interest
with regard to the portion of the indemnity paid is the insurer and not the insured. (PAL
v. Heald Lumber Co., 101 Phil. 1031; Manila Mahogany Manufacturing Corporation v.
Court of Appeals, 154 SCRA 650 [1987]
2. REMEDIAL LAW; ACTIONS; PARTIES; ONLY THE REISURER OF THE
INSURER ACTING AS AN ATTORNEY-IN-FACT OF THE REINSURER CAN COLLECT
AGAINST THE INDEMNITY AGREEMENT. — The appellate court did not commit a
reversible error in dismissing the petitioner's complaint as against the respondents for
the reason that the petitioner was not the real party in interest in the complaint and,
therefore, has no cause of action against the respondents.
3. ID.; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT UPHELD ON
APPEAL. — We nd the trial court's ndings on the matter replete with evidence to
substantiate its nding that the counter-indemnitors are not liable to the petitioner.
Pioneer, having foreclosed the chattel mortgage on the planes and spare parts, no
longer has any further action against the defendants as indemnitors to recover any
unpaid balance of the price. The indemnity agreement was ipso jure extinguished upon
the foreclosure of the chattel mortgage. These defendants, as indemnitors, would be
entitled to be subrogated to the right of Pioneer should they make payments to the
latter. (Articles 2067 and 2080, New Civil Code)
4. CIVIL LAW; CONTRACTS; A DE FACTO PARTNERSHIP IS CREATED WHERE
PERSONS ASSOCIATE THEMSELVES BUT FAILED TO FORM A CORPORATION. — Where
persons associate themselves together under articles to purchase property to carry on
a business, and their organization is so defective as to come short of creating a
corporation within the statute, they become in legal effect partners inter se, and their
rights as members of the company to the property acquired by the company will be
recognized (Smith v. Schoodoc Pond Packing Co., 84 A 268, 109 Me. 555; Whipple v.
Parker, 29 Mich. 369).
5. ID.; ID.; ID.; DOCTRINE NOT APPLICABLE WHERE THERE WAS REALLY NO
INVENTION TO FORM A CORPORATION; PARTIES NEED NOT SHARE IN LOSSES; CASE
AT BAR. — The petitioner never had the intention to form a corporation with the
respondents despite his representations to them. This gives credence to the cross-
claims of the respondents to the effect that they were induced and lured by the
petitioner to make contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement. Applying the principles of law
earlier cited to the facts of the case, necessarily, no de facto partnership was created
among the parties which would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The record shows that the petitioner
was acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
DECISION
GUTIERREZ, JR. , J : p
The subject matter of these consolidated petitions is the decision of the Court of
Appeals in CA-G.R. CV No. 66195 which modi ed the decision of the then Court of First
Instance of Manila in Civil Case No. 66135. The plaintiff's complaint (petitioner in G.R.
No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but
in all other respects the trial court's decision was affirmed. LLpr
The dispositive portion of the trial court's decision reads as follows:

"WHEREFORE, judgment is rendered against defendant Jacob S. Lim
requiring him to pay plaintiff the amount of P311,056.02, with interest at the
rate of 12% per annum compounded monthly; plus 15% of the amount awarded
to plaintiff as attorney's fees from July 2, 1966, until full payment is made; plus
P70,000.00 moral and exemplary damages.
"It is found in the records that the cross party plaintiffs incurred
additional miscellaneous expenses aside from P151,000.00, making a total of
P184,878.74. Defendant Jacob S. Lim is further required to pay cross party
plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the
amount of P184,878.74 with interest from the ling of the cross-complaints
until the amount is fully paid; plus moral and exemplary damages in the amount
of P184,878.84 with interest from the ling of the cross-complaints until the
amount is fully paid; plus moral and exemplary damages in the amount of
P50,000.00 for each of the two Cervanteses.
"Furthermore, he is required to pay P20,000.00 to Bormaheco and the
Cervanteses, and another P20,000.00 to Constancio B. Maglana as attorney's
fees.
xxx xxx xxx
"WHEREFORE, in view of all above, the complaint of plaintiff Pioneer
against defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is
dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco
and the Cervanteses the amount of P20,000.00 as attorney's fees and the
amount of P4,379.21, per year from 1966 with legal rate of interest up to the
time it is paid.
"Furthermore, the plaintiff is required to pay Constancio B. Maglana the
amount of P20,000.00 as attorney's fees and costs.
"No moral or exemplary damages is awarded against plaintiff for this
action was led in good faith. The fact that the properties of the Bormaheco
and the Cervanteses were attached and that they were required to le a
counterbond in order to dissolve the attachment, is not an act of bad faith.
When a man tries to protect his rights, he should not be saddled with moral or
exemplary damages. Furthermore, the rights exercised were provided for in the
Rules of Court, and it was the court that ordered it, in the exercise of its
discretion.
"No damage is decided against Malayan Insurance Company, Inc., the
third-party defendant, for it only secured the attachment prayed for by the
plaintiff Pioneer. If an insurance company would be liable for damages in
performing an act which is clearly within its power and which is the reason for
its being, then nobody would engage in the insurance business. No further claim
or counter-claim for or against anybody is declared by this Court." (Rollo — G.R.
No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline
business as owner-operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim
entered into and executed a sales contract (Exhibit A) for the sale and purchase of two
(2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed
price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No.
PIC-718, arrived in Manila on June 7, 1965 while the other aircraft, arrived in Manila on
July 18, 1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner
in G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C)
in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and
spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio
Maglana (respondents in both petitions) contributed some funds used in the purchase
of the above aircrafts and spare parts. The funds were supposed to be their
contributions to a new corporation proposed by Lim to expand his airline business.
They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of
Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco
and the Cervanteses. The indemnity agreements stipulated that the indemnitors
principally agree and bind themselves jointly and severally to indemnify and hold and
save harmless Pioneer from and against any/all damages, losses, costs, damages,
taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may
incur in consequence of having become surety upon the bond/note and to pay,
reimburse and make good to Pioneer, its successors and assigns, all sums and
amounts of money which it or its representatives should or may pay or cause to be paid
or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed
in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in
favor of the former. It was stipulated therein that Lim transfer and convey to the surety
the two aircrafts. The deed (Exhibit D) was duly registered with the Of ce of the
Register of Deeds of the City of Manila and with the Civil Aeronautics Administration
pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No.
776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to
request payments from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then led a petition for the extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however,
filed a third party claim alleging that they are co-owners of the aircrafts.
On July 19, 1966, Pioneer led an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and respondents, the
Cervanteses, Bormaheco and Maglana. cdll
In their Answers, Maglana, Bormaheco and the Cervanteses led cross-claims

against Lim alleging that they were not privies to the contracts signed by Lim and, by
way of counterclaim, sought for damages for being exposed to litigation and for
recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in
question.
After trial on the merits, a decision was rendered holding Lim liable to pay
Pioneer but dismissed Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modi ed the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all other respects the
trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT
REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE
RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo — G.R. No.
84197, p. 10)
The petitioner questions the following findings of the appellate court:
"We nd no merit in plaintiffs appeal. It is undisputed that plaintiff
Pioneer had reinsured its risk of liability under the surety bond in favor of JDA
and subsequently collected the proceeds of such reinsurance in the sum of
P295,000.00. Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiff's instant action for the recovery of the amount of
P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is not the
real party in interest to institute the instant action as it does not stand to be
benefited or injured by the judgment.
"Plaintiff Pioneer's contention that it is representing the reinsurer to
recover the amount from defendants, hence, it instituted the action is utterly
devoid of merit. Plaintiff did not even present any evidence that it is the
attorney-in-fact of the reinsurance company, authorized to institute an action for
and in behalf of the latter. To qualify a person to be a real party in interest in
whose name an action must be prosecuted, he must appear to be the present
real owner of the right sought to be enforced (Moran, Vol. I, Comments on the
Rules of Court, 1979 ed., p. 155.). It has been held that the real party in interest
is the party who would be bene ted or injured by the judgment or the party
entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil.
125, 131). By real party in interest is meant a present substantial interest as
distinguished from a mere expectancy or a future, contingent, subordinate or
consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby v. Spring eld
Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germana, 1 NW 2d 424;
Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
"Based on the foregoing premises, plaintiff Pioneer cannot be considered
as the real party in interest as it has already been paid by the reinsurer the sum
of P295,000.00 — the bulk of defendants' alleged obligation to Pioneer.
"In addition to the said proceeds of the reinsurance received by plaintiff
Pioneer from its reinsurer, the former was able to foreclose extra-judicially one
of the subject airplanes and its spare engine, realizing the total amount of
P37,050.00 from the sale of the mortgaged chattels. Adding the sum of
P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is
patent that plaintiff has been overpaid in the amount of P33,383.72 considering
that the total amount it had paid to JDA totals to only P298,666.28. To allow
plaintiff Pioneer to recover from defendants the amount in excess of
P298,666.28 would be tantamount to unjust enrichment as it has already been
paid by the reinsurance company of the amount plaintiff has paid to JDA as
surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled is
the rule that no person should unjustly enrich himself at the expense of another
(Article 22, New Civil Code)." (Rollo-84197, pp. 24-25).
The petitioner contends that — (1) it is at a loss where respondent court based
its nding that petitioner was paid by its reinsurer in the aforesaid amount, as this
matter has never been raised by any of the parties herein both in their answers in the
court below and in their respective briefs with respondent court; (Rollo, p. 11) (2) even
assuming hypothetically that it was paid by its reinsurer, still none of the respondents
had any interest in the matter since the reinsurance is strictly between the petitioner
and the re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the
indemnity agreements, the petitioner is entitled to recover from respondents
Bormaheco and Maglana; and (4) the principle of unjust enrichment is not applicable
considering that whatever amount he would recover from the co-indemnitor will be paid
to the reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance
money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the
issues threshed out were:
xxx xxx xxx
"1. Has Pioneer a cause of action against defendants with respect to
so much of its obligations to JDA as has been paid with reinsurance money?
2. If the answer to the preceding question is in the negative, has
Pioneer still any claim against defendants, considering the amount it has
realized from the sale of the mortgaged properties? (Record on Appeal, p. 359,
Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
"It appearing that Pioneer reinsured its risk of liability under the surety
bond it had executed in favor of JDA, collected the proceeds of such
reinsurance in the sum of P295,000, and paid with the said amount the bulk of
its alleged liability to JDA under the said surety bond, it is plain that on this
score it no longer has any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that
is suing defendants for the amount paid to it by the reinsurers, notwithstanding
that the cause of action pertains to the latter, Pioneer says: 'The reinsurers opted
instead that the Pioneer Insurance & Surety Corporation shall pursue alone the
case.' '. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers
to recover the amount.' In other words, insofar as the amount paid to it by the
reinsurers Pioneer is suing defendants as their attorney-in-fact.
But in the rst place, there is not the slightest indication in the complaint
that Pioneer is suing as attorney-in-fact of the reinsurers for any amount. Lastly,
and most important of all, Pioneer has no right to institute and maintain in its
own name an action for the bene t of the reinsurers. It is well-settled that an
action brought by an attorney-in-fact in his own name instead of that of the
principal will not prosper, and this is so even where the name of the principal is
disclosed in the complaint.
"'Section 2 of Rule 3 of the Old Rules of Court provides that 'Every
action must be prosecuted in the name of the real party in interest.' This
provision is mandatory. The real party in interest is the party who would be
bene ted or injured by the judgment or is the party entitled to the avails of
the suit.
"'This Court has held in various cases that an attorney-in-fact is not
a real party in interest, that there is no law permitting an action to be
brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil.
Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinas
Industrial Corporation v. San Diego G.R. No. L-22347, 1968, 23 SCRA 706,
710-714.'"
"The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer
has collected P295,000.00 from the reinsurers, the uninsured portion of what it
paid to JDA is the difference between the two amounts, or P3,666.28. This is the
amount for which Pioneer may sue defendants, assuming that the indemnity
agreement is still valid and effective. But since the amount realized from the
sale of the mortgaged chattels are P35,000.00 for one of the airplanes and
P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still overpaid
by P33,383.72. Therefore, Pioneer has no more claim against defendants."'
(Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the
appellate court. Considering this admitted payment, the only issue that cropped up was
the effect of payment made by the reinsurers to the petitioner. Therefore, the
petitioner's argument that the respondents had no interest in the reinsurance contract
as this is strictly between the petitioner as insured and the reinsuring company
pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.
"In general a reinsurer, on payment of a loss acquires the same rights by
subrogation as are acquired in similar cases where the original insurer pays a
loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
"The rules of practice in actions on original insurance policies are in
general applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330, 126 GA. 380, 7 Ann. Con. 1134)".
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
"Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or loss arising out
of the wrong or breach of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury."
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v.
Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila
Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):.
"Note that if a property is insured and the owner receives the indemnity
from the insurer, it is provided in said article that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the amount
paid by the insurer does not fully cover the loss, then the aggrieved party is the
one entitled to recover the de ciency. Evidently, under this legal provision, the
real party in interest with regard to the portion of the indemnity paid is the
insurer and not the insured." (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing
the petitioner's complaint as against the respondents for the reason that the petitioner
was not the real party in interest in the complaint and, therefore, has no cause of action
against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the evidence on
record shows that it is entitled to recover from the counter indemnitors. It does not,
however, cite any grounds except its allegation that respondent "Maglana's defense and
evidence are certainly incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we nd the trial court's ndings on the matter replete with
evidence to substantiate its nding that the counter-indemnitors are not liable to the
petitioner. The trial court stated:
"Apart from the foregoing proposition, the indemnity agreement ceased
to be valid and effective after the execution of the chattel mortgage.
"Testimonies of defendants Francisco Cervantes and Modesto
Cervantes.
"Pioneer Insurance, knowing the value of the aircrafts and the spare parts
involved, agreed to issue the bond provided that the same would be mortgaged
to it, but this was not possible because the planes were still in Japan and could
not be mortgaged here in the Philippines. As soon as the aircrafts were brought
to the Philippines, they would be mortgaged to Pioneer Insurance to cover the
bond, and this indemnity agreement would be cancelled.
"The following is averred under oath by Pioneer in the original complaint:
"'The various con icting claims over the mortgaged properties have
impaired and rendered insuf cient the security under the chattel mortgage
and there is thus no other suf cient security for the claim sought to be
enforced by this action.'"
"This is judicial admission and aside from the chattel mortgage there is
no other security for the claim sought to be enforced by this action, which
necessarily means that the indemnity agreement had ceased to have any force
and effect at the time this action was instituted. Sec 2, Rule 129, Revised Rules
of Court.
"Prescinding from the foregoing, Pioneer, having foreclosed the chattel
mortgage on the planes and spare parts, no longer has any further action
against the defendants as indemnitors to recover any unpaid balance of the
price. The indemnity agreement was ipso jure extinguished upon the foreclosure
of the chattel mortgage. These defendants, as indemnitors, would be entitled to
be subrogated to the right of Pioneer should they make payments to the latter.
Articles 2067 and 2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the
remedy of foreclosure precludes any further action to recover any unpaid
balance of the price.
SAL or Lim, having failed to pay the second to the eight and last
installments to JDA and Pioneer as surety having made of the payments to
JDA, the alternative remedies open to Pioneer were as provided in Article 1484
of the New Civil Code, known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both
by extrajudicial foreclosure and the instant suit. Such being the case, as
provided by the aforementioned provisions, Pioneer 'shall have no further action
against the purchaser to recover any unpaid balance and any agreement to the
contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L-24772,
May 27, 1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from
through the contention that Pioneer is not the vendor but JDA. The reason is
that Pioneer is actually exercising the rights of JDA as vendor, having
subrogated it in such rights. Nor may the application of the provision be validly
opposed on the ground that these defendants and defendant Maglana are not
the vendee but indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R.
No. L-27862, Nov. 20, 1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of
their maturity dates discharged these defendants from any liability as alleged
indemnitors. The change of the maturity dates of the obligations of Lim, or SAL,
extinguished the original obligations thru novations, thus discharging the
indemnitors.
"'The principal hereof shall be paid in eight equal successive three
months interval installments, the rst of which shall be due and payable
25 August 1965, the remainder of which . . . shall be due and payable on
the 26th day . . . of each succeeding three months and the last of which
shall be due and payable 26th May 1967.'"
"However, at the trial of this case, Pioneer produced a memorandum
executed by SAL, or Lim and JDA, modifying the maturity dates of the
obligations, as follows:
"'The principal hereof shall be paid in eight equal successive three
month interval installments the rst of which shall be due and payable 4
September 1965, the remainder of which . . . shall be due and payable on
the 4th day . . . of each succeeding months and the last of which shall be
due and payable 4th June 1967.'"
"Not only that, Pioneer also produced eight purported promissory notes
bearing maturity dates different from that xed in the aforesaid memorandum;
the due date of the rst installment appears as October 15, 1965, and those of
the rest of the installments, the 15th of each succeeding three months, that of
the last installment being July 15, 1967.
"These restructuring of the obligations with regard to their maturity dates,
effected twice, were done without the knowledge, much less, would have it
believed that these defendants Maglana (sic). Pioneer's of cial Numeriano
Carbonel, would have it believed that these defendants and defendant Maglana
knew of and consented to the modi cation of the obligations. But if that were
so, there would have been the corresponding documents in the form of a written
notice to as well as written conformity of these defendants, and there are no
such document. The consequence of this was the extinguishment of the
obligations and of the surety bond secured by the indemnity agreement which
was thereby also extinguished. Applicable by analogy are the rulings of the
Supreme Court in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553,
563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
"'Art. 2079. An extension granted to the debtor by the creditor
without the consent of the guarantor extinguishes the guaranty. The mere
failure on the part of the creditor to demand payment after the debt has
become due does not of itself constitute any extension of time referred to
herein, (New Civil Code).'"
"Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F.
Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
"Pioneer's liability as surety to JDA had already prescribed when Pioneer
paid the same. Consequently, Pioneer has no more cause of action to recover
from these defendants, as supposed indemnitors what it has paid to JDA. By
virtue of an express stipulation in the surety bond, the failure of JDA to present
its claim to Pioneer within ten days from default of Lim or SAL on every
installment, released Pioneer from liability from the claim.
"Therefore, Pioneer is not entitled to exact reimbursement from these
defendants thru the indemnity.
"'Art. 1318. Payment by a solidary debtor shall not entitle him to

reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or became illegal.'"
"These defendants are entitled to recover damages and attorney's fees

from Pioneer and its surety by reason of the ling of the instant case against
them and the attachment and garnishment of their properties. The instant
action is clearly unfounded insofar as plaintiff drags these defendants and
defendant Maglana." (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
"1. What legal rules govern the relationship among co-investors
whose agreement was to do business through the corporate vehicle but who
failed to incorporate the entity in which they had chosen to invest? How are the
losses to be treated in situations where their contributions to the intended
'corporation' were invested not through the corporate form? This Petition
presents these fundamental questions which we believe were resolved
erroneously by the Court of Appeals ('CA')." (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the
failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and
petitioner Lim to incorporate, a de facto partnership among them was created, and that
as a consequence of such relationship all must share in the losses and/or gains of the
venture in proportion to their contribution. The petitioner, therefore, questions the
appellate court's ndings ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended corporation, to wit:
"However, defendant Lim should be held liable to pay his co-defendants'
cross-claims in the total amount of P184,878.74 as correctly found by the trial
court, with the interest from the ling of the cross-claims until the amount is
fully paid. Defendants Lim should pay one-half of the said amount to
Bormaheco and the Cervanteses and the other one-half to defendant Maglana.
It is established in the records that defendant Lim had duly received the amount
of P151,000.00 from defendants Bormaheco and Maglana representing the
latter's participation in the ownership of the subject airplanes and spare parts
(Exhibit 58). In addition, the cross-party plaintiffs incurred additional expenses,
hence, the total sum of P184,878.74."
We first state the principles.
"While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be governed by
the supposed charter and the laws of the state relating thereto and not by the
rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94
Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a
corporation and who carry on business under the corporate name occupy a
position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann.
Cas. 1913A 1065). Thus, where persons associate themselves together under
articles to purchase property to carry on a business, and their organization is so
defective as to come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as members of the
company to the property acquired by the company will be recognized (Smith v.
Schoodoc Pond Packing Co., 84 A 268, 109 Me. 555; Whipple v. Parker, 29 Mich.
369). So, where certain persons associated themselves as a corporation for the
development of land for irrigation purposes, and each conveyed land to the
corporation, and two of them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no stock was ever issued
in the corporation, it was treated as a trustee for the associates in an action
between them for an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed among them in proportion
to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446).
However, such a relation does not necessarily exist, for ordinarily persons
cannot be made to assume the relation of partners, as between themselves,
when their purpose is that no partnership shall exist (London Assur. Corp. v.
Drennen, Minn., 6 S. Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be
implied only when necessary to do justice between the parties; thus, one who
takes no part except to subscribe for stock in a proposed corporation which is
never legally formed does not become a partner with other subscribers who
engage in business under the name of the pretended corporation, so as to be
liable as such in an action for settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between
certain stockholders and other stockholders, who were also directors, will not be
implied in the absence of an agreement, so as to make the former liable to
contribute for payment of debts illegally contracted by the latter (Heald v. Owen,
44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Emphasis
supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited
for his failure to appear during the pre-trial despite noti cation. In his answer, the
petitioner denied having received any amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the appellate court, however, found
through Exhibit 58, that the petitioner received the amount of P151,000.00 representing
the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of
the subject airplanes and spare parts. The record shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru the Cervanteses. LexLib
It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them. This gives
credence to the cross-claims of the respondents to the effect that they were induced
and lured by the petitioner to make contributions to a proposed corporation which was
never formed because the petitioner reneged on their agreement. Maglana alleged in
his cross-claim:
". . . that sometime in early 1965, Jacob Lim proposed to Francisco
Cervantes and Maglana to expand his airline business. Lim was to procure two
DC-3's from Japan and secure the necessary certi cates of public convenience
and necessity as well as the required permits for the operation thereof. Maglana
sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to
Lim which Cervantes did and Lim acknowledged receipt thereof Cervantes,
likewise, delivered his share of the undertaking. Lim in an undertaking sometime
on or about August 9, 1965, promised to incorporate his airline in accordance
with their agreement and proceeded to acquire the planes on his own account.
Since then up to the ling of this answer, Lim has refused, failed and still
refuses to set up the corporation or return the money of Maglana."
(Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer,
counterclaim, cross-claim and third party complaint:
"Sometime in April 1965, defendant Lim lured and induced the answering
defendants to purchase two airplanes and spare parts from Japan which the
latter considered as their lawful contribution and participation in the proposed
corporation to be known as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were advanced by defendants
Bormaheco and the Cervanteses and Constancio Maglana (Exh. E-1). Contrary
to the agreement among the defendants, defendant Lim in connivance with the
plaintiff, signed and executed the alleged chattel mortgage and surety bond
agreement in his personal capacity as the alleged proprietor of the SAL. The
answering defendants learned for the rst time of this trickery and
misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel
mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to le
an adverse claim in the form of third party claim. Notwithstanding repeated oral
demands made by defendants Bormaheco and Cervanteses, to defendant Lim,
to surrender the possession of the two planes and their accessories and or
return the amount advanced by the former amounting to an aggregate sum of
P178,997.14 as evidenced by a statement of accounts, the latter ignored,
omitted and refused to comply with them." (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which would entitle
the petitioner to a reimbursement of the supposed losses of the proposed corporation.
The record shows that the petitioner was acting on his own and not in behalf of his
other would-be incorporators in transacting the sale of the airplanes and spare parts. LLjur
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of

the Court of Appeals is AFFIRMED.
SO ORDERED.
Fernan, (C.J., Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., No part.

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ATP

(Agency, Trust, and Partnership)

[G.R. No. 172690. March 3, 2010.]

HEIRS OF JOSE LIM, represented by ELENITO LIM , petitioners, vs .

1.) Ordering the partition of the above-mentioned properties equally between

2) Ordering the defendant to submit an accounting of all incomes, pro ts and

Aggrieved, respondent appealed to the CA.

(2) When the inference made is manifestly mistaken, absurd or impossible;

(3) Where there is a grave abuse of discretion;

(5) When the findings of fact are conflicting;

(c) As an annuity to a widow or representative of a deceased partner;

1. Rollo, pp. 9-31.

4. Records, pp. 1-9.

15. TSN, June 8, 1999, pp. 4, 8 and 9-10.

17. Id. at 15-16.

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[G.R. No. 183374. June 29, 2010.]

MARSMAN DRYSDALE LAND, INC. , petitioner, vs . PHILIPPINE

[G.R. No. 183376. June 29, 2010.]

GOTESCO PROPERTIES, INC. , petitioner, vs. MARSMAN DRYSDALE

4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon

4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION

A joint account shall be opened and maintained by both Parties for

4.3. Funding and Financing

4.3.1 Construction funding for the Project shall be obtained

4.3.3 [Marsman Drysdale] shall not be obligated to fund the

4.3.4 If the cost of the Project exceeds the cash contribution of

4.3.8 All funds advanced by a Party (or by third parties in

(2) the sum of P200,000.00 as exemplary damages;

(3) the sum of P200,000.00 as and for attorney's fees; and

(4) costs of suit. cCSTHA

The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is

a) Defendant [Gotesco] is ordered to reimburse co-defendant

Marsman Drysdale moved for partial reconsideration, contending that it should

Their motions for partial reconsideration having been denied, 1 2 Marsman

9.II Records, pp. 505-530. Penned by Judge Leah S. Domingo Regala.

16.I Records, pp. 218-221; Exhibits "B," "C" and "D."

[G.R. No. 154486. December 1, 2010.]

FEDERICO JARANTILLA, JR. , petitioner, vs . ANTONIETA JARANTILLA,

2. to deliver to the plaintiff her 8% share or its equivalent amount on

4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as

5. to pay, jointly and severally, the sum of P50,000.00 as attorney's

6. to pay, jointly and severally, the costs of the suit. 2 1

(1) after accounting, plaintiff Antonieta Jarantilla be given her share of

(3) plaintiff Antonieta Jarantilla is a stockholder in the following

(b) MAS Rubber Products, Inc.;

(d) B. Remotigue Agro-Industrial Development Corp.

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A joint purchase of land, by two, does not constitute a co-partnership in respect

As this case revolves around the legal effects of the Acknowledgement of

1. Buenaventura Remotigue (TWENTY-FIVE P25,000.00

The Acknowledgement of Participating Capital is a duly notarized document

Art. 1797. The losses and pro ts shall be distributed in conformity

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Petitioner's only piece of documentary evidence is the Acknowledgement of

* Per Special Order No. 913 dated November 2, 2010.

26. Rollo, p. 313.

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35. CIVIL CODE, Art. 1767.

37. 102 Phil. 140 (1957).

42. Id. at 1008-1009.

45. Id. at 560-561.