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

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION "I trust that the accountants will be instructed to make the proper liquidation of my participation in the firm." On the same day, petitioner-appellant wrote respondents-appellees another letter stating: "Further to my letter to you today, I would like to have a meeting with all of you with regard to the mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like to have this resolved soon because it has to do with my own plans." On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating: "The partnership has ceased to be mutually satisfactory because of the working conditions of our employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay scale of our employees have been thwarted by the other partners. Not only have they refused to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their self-respect. The result of such policies is the formation of the union, including the assistant attorneys." On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission: "1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa & Lozada; "2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent or interest attributable to the use of his right in the assets of the dissolved partnership; "3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the partnership in the amount of at least P50,000.00;

G.R. No. 109248 July 3, 1995 GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,respondents.

VITUG, J.: The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254. The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court in its decision, are hereunder restated. The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were several subsequent amendments to the articles of partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners. On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

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"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such amounts as maybe proven during the trial and which the Commission may deem just and equitable under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or P100,000.00; "5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary damages in the amount of P200,000.00. "Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and equitable under the premises." On 13 July 1988, respondents-appellees filed their opposition to the petition. On 13 July 1988, petitioner filed his Reply to the Opposition. On 31 March 1989, the hearing officer rendered a decision ruling that: "[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of 1 any retiring or withdrawing partner in the partnership interest." On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held: WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing Officer for determination of the 2 respective rights and obligations of the parties. The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CAG.R. SP No. 24648). During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the prayer. The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in any such danger of being lost, removed or materially impaired. In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues: 1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will; 2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith; and 3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith; to which matters we shall, accordingly, likewise limit ourselves. A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

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The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The "DURATION" clause simply states: "5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners." The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948): "2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so." The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, 3 is a specific undertaking or "project" which has a definite or definable period of completion. The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance 4 of bad faith can prevent the dissolution of the partnership but that it can result in a liability for 5 damages. In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a 6 7 partner. Among partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily theright, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the 8 business. Upon its dissolution, the partnership continues and its legal personality is retained until 9 the complete winding up of its business culminating in its termination. The liquidation of the assets of the partnership following its dissolution is governed by various 10 provisions of the Civil Code; however, an agreement of the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly: . . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in accordance with the existing agreements and his partnership participation shall revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however, that with respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two (2) independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as the case may be. In the event of any disagreement between the said appraisers a third appraiser will be appointed by them whose decision shall be final. The share of the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing Junior 11 Partners and P5,000.00 in the case of the new Junior Partner. The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it. On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under 12 such an atmosphere of animosity; certainly, not against their will. Indeed, for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

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SO ORDERED. Feliciano, Romero, Melo and Francisco, JJ., concur.

The Facts The events that led to this case are summarized by the CA as follows: Sometime in June, 1986, *Petitioner+ Fernando Santos and *Respondent+ Nieves Reyes were introduced to each other by one Meliton Zabat regarding a lending business venture proposed by Nieves. It was verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat [would] take charge of solicitation of members and collection of loan payments. The venture was launched on June 13, 1986, with the understanding that [petitioner] would receive 70% of the profits while x x x Nieves and Zabat would earn 15% each. In July, 1986, x x x Nieves introduced Cesar Gragera to *petitioner+. Gragera, as chairman of the [6] Monte Maria Development Corporation (Monte Maria, for brevity), sought short-term loans for members of the corporation. [Petitioner] and Gragera executed an agreement providing funds for Monte Marias members. Under the agreement, Monte Maria, represented by Gragera, was entitled to P1.31 commission per thousand paid daily to *petitioner+ (Exh. A). x x x Nieves kept the books as representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit investigator. On August 6, 1986, *petitioner+, x x x *Nieves+ and Zabat executed the Article of Agreement which formalized their earlier verbal arrangement. *Petitioner+ and *Nieves+ later discovered that their partner Zabat engaged in the same lending business in competition with their partnership[.] Zabat was thereby expelled from the partnership. The operations with Monte Maria continued. On June 5, 1987, *petitioner+ filed a complaint for recovery of sum of money and damages. [Petitioner] charged [respondents], allegedly in their capacities as employees of [petitioner], with having misappropriated funds intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon Grageras complaint that his commissions were inadequately remitted, [petitioner] entrusted P200,000.00 to x x x Nieves to be given to Gragera. x x x Nieves allegedly failed to account for the amount. [Petitioner] asserted that after examination of the records, he found that of the total amount of P4,623,201.90 entrusted to [respondents], onlyP3,068,133.20 was remitted to Gragera, thereby leaving the balance of P1,555,065.70 unaccounted for. In their answer, *respondents+ asserted that they were partners and not mere employees of [petitioner]. The complaint, they alleged, was filed to preempt and prevent them from claiming their rightful share to the profits of the partnership.

[G.R. No. 135813. October 25, 2001]

FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents. DECISION PANGANIBAN, J.: As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are binding on the Supreme Court. However, there are several exceptions to this principle. In the present case, we find occasion to apply both the rule and one of the exceptions.

The Case Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision, as [2] well as the August 17, 1998 and the October 9, 1998 Resolutions, issued by the Court of Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as follows: WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is hereby [3] DISMISSED. Costs against *petitioner+. Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled as follows: WHEREFORE, *respondents+ motion for reconsideration is GRANTED. Accordingly, the courts decision dated November 28, 1997 is hereby MODIFIED in that the decision appealed from is [4] AFFIRMED in toto, with costs against *petitioner+.
[1]

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4
The October 9, 1998 Resolution denied for lack of merit petitioners Motion for [5] Reconsideration of the August 17, 1998 Resolution.

x x x Arsenio alleged that he was enticed by *petitioner+ to take the place of Zabat after *petitioner+ learned of Zabats activities. Arsenio resigned from his job at the Asian Development Bank to join the partnership. For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending activity with Monte Maria originated from her initiative. Except for the limited period of July 8, 1986 through August 20, 1986, she did not handle sums intended for Gragera. Collections were turned over to Gragera because he guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made on worksheets were based on this assumptive 100% collection of all loans. The loan releases were made less Grageras agreed commission. Because of this arrangement, she neither received payments from borrowers nor remitted any amount to Gragera. Her job was merely to make worksheets (Exhs. 15 to 15-DDDDDDDDDD) to convey to *petitioner] how much he would earn if all the sums guaranteed by Gragera were collected. *Petitioner+ on the other hand insisted that *respondents+ were his mere employees and not partners with respect to the agreement with Gragera. He claimed that after he discovered Zabats activities, he ceased infusing funds, thereby causing the extinguishment of the partnership. The agreement with Gragera was a distinct partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that [respondents] were hired as salaried employees with respect to the partnership between [petitioner] and Gragera. *Petitioner+ further asserted that in Nieves capacity as bookkeeper, she received all payments from which Nieves deducted Grageras commission. The commission would then be remitted to Gragera. She likewise determined loan releases. During the pre-trial, the parties narrowed the issues to the following points: whether [respondents] were employees or partners of [petitioner], whether [petitioner] entrusted money to [respondents] for delivery to Gragera, whether the P1,555,068.70 claimed under the complaint was actually remitted to Gragera and whether [respondents] were entitled to their counterclaim for share in the [7] profits.

39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED. 39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, the following: 39.2.1. P3,064,428.00 The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her joint venture with the [petitioner]. Six (6) percent of As damages from P3,064,428.00 August 3, 1987 until theP3,064,428.00 is fully paid. P50,000.00 P10,000.00 As moral damages As exemplary damages

39.2.2.

39.2.3. 39.2.4.

39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the following: 39.3.1. P2,899,739.50 The balance of the 15 percent share of the [respondent] ARSENIO REYES in the profits of his joint venture with the [petitioner]. Six (6) percent of As damages from P2,899,739.50 August 3, 1987 until theP2,899,739.50 is fully paid. P25,000.00 P10,000.00 As moral damages As exemplary damages

39.3.2. Ruling of the Trial Court In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere employees, of petitioner. It further ruled that Gragera was only a commission agent of petitioner, not his partner. Petitioner moreover failed to prove that he had entrusted any money to Nieves. Thus, respondents counterclaim for their share in the partnership and for damages was granted. The trial court disposed as follows: 39. WHEREFORE, the Court hereby renders judgment as follows:

39.3.3. 39.3.4. 39.4.

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The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:

39.4.1. 39.4.2

P50,000.00 The cost of the suit.

[8]

As attorneys fees; and

3. Affirming that the signature of Nieves Reyes on Exhibit E was a forgery; 4. Finding that Exhibit H *did+ not establish receipt by Nieves Reyes of P200,000.00 for delivery to Gragera; 5. Affirming the dismissal of Santos *Second+ Amended Complaint; 6. Affirming the decision of the trial court, upholding private respondents counterclaim;

Ruling of the Court of Appeals On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was dismissed. Upon the latters Motion for Reconsideration, however, the trial courts Decision was reinstated in toto. Subsequently, petitioners own Motion for Reconsideration was denied in the CA Resolution of October 9, 1998. The CA ruled that the following circumstances indicated the existence of a partnership among the parties: (1) it was Nieves who broached to petitioner the idea of starting a money-lending business and introduced him to Gragera; (2) Arsenio received dividends or profit -shares covering the period July 15 to August 7, 1986 (Exh. 6); and (3) the partnership contract was executed after the Agreement with Gragera and petitioner and thus showed the parties intention to consider it as a transaction of the partnership. In their common venture, petitioner invested capital while respondents contributed industry or services, with the intention of sharing in the profits of the business. The CA disbelieved petitioners claim that Nieves had misappropriated a total of P200,000 which was supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect the amounts due, while hers was merely to prepare the daily cash flow reports (Exhs. 15 15DDDDDDDDDD) to keep track of his collections. Hence, this Petition.
[9]

7. Denying Santos motion for reconsideration dated September 11, 1998. Succinctly put, the following were the issues raised by petitioner: (1) whether the parties relationship was one of partnership or of employer-employee; (2) whether Nieves misappropriated the sums of money allegedly entrusted to her for delivery to Gragera as his commissions; and (3) whether respondents were entitled to the partnership profits as determined by the trial court.

The Courts Ruling The Petition is partly meritorious.

First Issue: Business Relationship Petitioner maintains that he employed the services of respondent spouses in the money-lending venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves introduced Gragera to Santos did not make her a partner. She was only a witness to the Agreement between the two. Separate from the partnership between petitioner and Gragera was that which existed among petitioner, Nieves and Zabat, a partnership that was dissolved when Zabat was expelled. On the other hand, both the CA and the trial court rejected petitioners contentions and ruled that the business relationship was one of partnership. We quote from the CA Decision, as follows: *Respondents+ were industrial partners of *petitioner+. x x x Nieves herself provided the initiative in the lending activities with Monte Maria. In consonance with the agreement between appellant, Nieves and Zabat (later replaced by Arsenio), [respondents] contributed industry to the common fund with the intention of sharing in the profits of the partnership. [Respondents] provided services without which the partnership would not have [had] the wherewithal to carry on the purpose for

Issue Petitioner asks this Court to rule on the following issues:

[10]

Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to excess or lack of jurisdiction in: 1. Holding that private respondents were partners/joint venturers and not employees of Santos in connection with the agreement between Santos and Monte Maria/Gragera;

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2. Affirming the findings of the trial court that the phrase Received by on documents signed by Nieves Reyes signified receipt of copies of the documents and not of the sums shown thereon;

which it was organized and as such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]). While concededly, the partnership between *petitioner,+ Nieves and Zabat was technically dissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the business of the partnership without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to participate as a partner in their operations. There was therefore, no intent to dissolve the earlier partnership. The partnership between [petitioner,] Nieves and Arsenio simply took over and continued the business of the former partnership with Zabat, one of the incidents of which was the lending operations with Monte Maria. xxx xxx xxx

and profit shares or dividends (Exh. 6) to Arsenio, we uphold the factual finding of both courts that he replaced Zabat in the partnership. Indeed, the partnership was established to engage in a money-lending business, despite the fact that it was formalized only after the Memorandum of Agreement had been signed by petitioner and Gragera. Contrary to petitioners contention, there is no evidence to show that a different business venture is referred to in this Agreement, which was executed on August 6, 1986, or about a month after the Memorandum had been signed by petitioner and Gragera on July 14, 1986. The Agreement itself attests to this fact: WHEREAS, the parties have decided to formalize the terms of their business relationship in order that their respective interests may be properly defined and established for their mutual benefit and [15] understanding.

Gragera and *petitioner+ were not partners. The money-lending activities undertaken with Monte Maria was done in pursuit of the business for which the partnership between [petitioner], Nieves and Zabat (later Arsenio) was organized. Gragera who represented Monte Maria was merely paid commissions in exchange for the collection of loans. The commissions were fixed on gross returns, regardless of the expenses incurred in the operation of the business. The sharing of gross returns [11] does not in itself establish a partnership. We agree with both courts on this point. By the contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of [12] dividing the profits among themselves. The Articles of Agreement stipulated that the signatories shall share the profits of the business in a 70-15-15 manner, with petitioner getting the lions [13] share. This stipulation clearly proved the establishment of a partnership. We find no cogent reason to disagree with the lower courts that the partnership continued lending money to the members of the Monte Maria Community Development Group, Inc., which later on changed its business name to Private Association for Community Development, Inc. (PACDI). Nieves was not merely petitioners employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement, which states as follows: 2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of prospective borrowers, and shall x x x each be responsible in handling the collection of the loan payments of the borrowers that they each solicited. 3. That the bookkeeping and daily balancing of account of the business operation shall be [14] handled by the SECOND PARTY. The Second Party named in the Agreement was none other than Nieves Reyes. On the other hand, Arsenios duties as credit investigator are subsumed under the phrase screening of prospective borrowers. Because of this Agreement and the disbursement of monthly allowances

Second Issue: No Proof of Misappropriation of Grageras Unpaid Commission Petitioner faults the CA finding that Nieves did not misappropriate money intended for Grageras commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by Exhibit B (the Schedule of Daily Payments), which bears her signature under the words received by. For the period July 1986 to March 1987, Gragera should have earned a total commission of P4,282,429.30. However, only P3,068,133.20 was received by him. Thus, petitioner infers that she misappropriated the difference of P1,214,296.10, which represented the unpaid commissions. Exhibit H is an untitled tabulation which, according to him, shows that Gragera was [16] also entitled to a commission of P200,000, an amount that was never delivered by Nieves. On this point, the CA ruled that Exhibits B, F, E and H did not show that Nieves received for delivery to Gragera any amount from which theP1,214,296.10 unpaid commission was supposed to come, and that such exhibits were insufficient proof that she had embezzled P200,000. Said the CA: The presentation of Exhibit D vaguely denominated as members ledger does not clearly establish that Nieves received amounts from Monte Marias members. The document does not clearly state what amounts the entries thereon represent. More importantly, Nieves made the entries for the limited period of January 11, 1987 to February 17, 1987 only while the rest were made by Grageras own staff. Neither can we give probative value to Exhibit E which allegedly shows acknowledgment of the remittance of commissions to Verona Gonzales. The document is a private one and its due execution

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and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court which states: Sec. 20. Proof of Private Document Before any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either: (a) (b) By anyone who saw the document executed or written; or By evidence of the genuineness of the signature or handwriting of the maker.

Grageras operations. Gragera on the other hand devised the schedule of daily payment (Exhs. B and F) to record the projected gross daily collections. As aptly observed by the court a quo: 26.1. As between the versions of SANTOS and NIEVES on how the commissions of GRAGERA *were+ paid to him[,] that of NIEVES is more logical and practical and therefore, more believable. SANTOS version would have given rise to this improbable situation: GRAGERA would collect the daily amortizations and then give them to NIEVES; NIEVES would get GRAGERAs commissions from the [17] amortizations and then give such commission to GRAGERA. These findings are in harmony with the trial courts ruling, which we quote below:

Any other private document need only be identified as that which it is claimed to be. The court a quo even ruled that the signature thereon was a forgery, as it found that: x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a forgery. The initial stroke of Exh. E-1 starts from up and goes downward. The initial stroke of the genuine signatures of NIEVES (Exhs. A-3, B-1, F-1, among others) starts from below and goes upward. This difference in the start of the initial stroke of the signatures Exhs. E-1 and of the genuine signatures lends credence to Nieves claim that the signature Exh. E-1 is a forgery. xxx xxx xxx 21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column ADDITIONAL CASH that the additional cash was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by SANTOS, then his claim is not true. This is so because it is a liquidation of the sum of P240,000.00. 21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00 to GRAGERA when he received the latters letter complaining of its delayed release. Assuming as true SANTOS claim that he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did not give it to GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS did not even present the letter in evidence. He did not explain why he did not. 21.2. The evidence shows that all money transactions of the money-lending business of SANTOS were covered by petty cash vouchers. It is therefore strange why SANTOS did not present any [18] voucher or receipt covering the P200,000.00. In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his commissions before remitting his collections. Exhibits B and F are merely computations of what Gragera should collect for the day; they do not show that Nieves received the amounts stated therein. Neither is there sufficient proof that she misappropriated P200,000, because Exhibit H does not indicate that such amount was received by her; in fact, it shows a different figure. Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Well-entrenched is the basic rule that factual findings of the Court of Appeals affirming [19] those of the trial court are binding and conclusive on the Supreme Court. Although there are exceptions to this rule, petitioner has not satisfactorily shown that any of them is applicable to this issue.

Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the predetermined 100% collection as guaranteed by Gragera is credible and clearly in accord with the evidence. A perusal of Exhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the entries were indeed based on the 100% assumptive collection guaranteed by Gragera. Thus, the total amount recorded on Exh. B is exactly the number of borrowers multiplied by the projected collection of P150.00 per borrower. This holds true for Exh. F. Corollarily, Nieves explanation that the documents were pro forma and that she signed them not to signify that she collected the amounts but that she received the documents themselves is more believable than *petitioners+ assertion that she actually handled the amounts. Contrary to *petitioners+ assertion, Exhibit H does not unequivocally establish that x x x Nieves received P200,000.00 as commission for Gragera. As correctly stated by the court a quo, the document showed a liquidation of P240,000.00 and not P200,000.00. Accordingly, we find Nieves testimony that after August 20, 1986, all collections were made by Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100% payment of the loans, he took charge of the collections. As *petitioners+ representative, Nieves merely prepared the daily cash flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable *petitioner+ to keep track of

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Third Issue: Accounting of Partnership Petitioner refuses any liability for respondents claims on the profits of the partnership. He maintains that both business propositions were flops, as his investments were consumed and eaten up by the commissions orchestrated to be due Gragera a situation that could not have been rendered possible without complicity between Nieves and Grager a. Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid payment of the demands of Nieves, because sometime in March 1987, she signified to petitioner that it was about time to get her share of the profits which had already accumulated to some P3 million. Respondents add that while the partnership has not declared dividends or liquidated its earnings, the profits are already reflected on paper. To prove the counterclaim of Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs. 10 et seq. and 15 et seq.). Based on that income, her 15 percent share under the joint venture amounts to P3,064,428 (Exh. 10-I-3); and Arsenios, P2,026,000 minus the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. 6, 6-A to 6-B). The CA originally held that respondents counterclaim was premature, pending an accounting of the partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face. Affirming the trial courts ruling on the counterclaim, it held as follows: We earlier ruled that there is still need for an accounting of the profits and losses of the partnership before we can rule with certainty as to the respective shares of the partners. Upon a further review of the records of this case, however, there appears to be sufficient basis to determine the amount of shares of the parties and damages incurred by [respondents]. The fact is that the court a quo already made such a determination [in its] decision dated August 13, 1991 on the basis of the facts on [20] record. The trial courts ruling alluded to above is quoted below: 27. The defendants counterclaim for the payment of their share in the profits of their joint venture with SANTOS is supported by the evidence. 27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement (Exhs. 5, 5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I, inclusive) which she prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of which Exh. 3 is a sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to SANTOS. The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations from

June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about P2,926,000.00, in the profits. 27.1.1 SANTOS never denied NIEVES testimony that the money-lending business he was engaged in netted a profit and that the originals of the daily case flow reports were furnished to him. SANTOS however alleged that the money-lending operation of his joint venture with NIEVES and ZABAT resulted in a loss of about half a million pesos to him. But such loss, even if true, does not negate NIEVES claim that overall, the joint venture among them SANTOS, NIEVES and ARSENIO netted a profit. There is no reason for the Court to doubt the veracity of [the testimony of] NIEVES. 27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A and [21] 6-B) should be deducted from his total share. After a close examination of respondents exhibits, we find reason to disagree with the [22] CA. Exhibit 10-I shows that the partnership earned a total income of P20,429,520 for the period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amounts under the following column headings: 2-Day Advance Collection, Service Fee, Notarial Fee, Application Fee, Net Interest Income and Interest Income on Investment. Such entries represent the collections of the money-lending business or its gross income. The total income shown on Exhibit 10-I did not consider the expenses sustained by the partnership. For instance, it did not factor in the gross loan releases representing the money loaned to clients. Since the business is money-lending, such releases are comparable with the inventory or supplies in other business enterprises. Noticeably missing from the computation of the total income is the deduction of the weekly [23] allowance disbursed to respondents. Exhibits I et seq. and J et seq. show that Arsenio received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves, from July 12, 1986 to March 27, 1987 in the total amount of P25,600. These allowances are different from the profit already received by Arsenio. They represent expenses that should have been deducted from the business profits. The point is that all expenses incurred by the money-lending enterprise of the parties must first be deducted from the total income in order to arrive at the net profit of the partnership. The share of each one of them should be based on this net profit and not from the gross income or total income reflected in Exhibit 10-I, which the two courts invariably referred to as cash flow sheets. Similarly, Exhibits 15 et seq., which are the Daily Cashflow Reports, do not reflect the business expenses incurred by the parties, because they show only the daily cash collections. Contrary to the rulings of both the trial and the appellate courts, respondents exhibits do not reflect the complete financial condition of the money-lending business. The lower courts obviously labored over a mistaken notion that Exhibit 10 -I-1 represented the net profits earned by the partnership.
[24]

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For the purpose of determining the profit that should go to an industrial partner (who shares in the profits but is not liable for the losses), the gross income from all the transactions carried on by the firm must be added together, and from this sum must be subtracted the expenses or the losses sustained in the business. Only in the difference representing the net profits does the industrial partner share. But if, on the contrary, the losses exceed the income, the industrial partner does not [25] share in the losses. When the judgment of the CA is premised on a misapprehension of facts or a failure to notice certain relevant facts that would otherwise justify a different conclusion, as in this particular issue, a review of its factual findings may be conducted, as an exception to the general rule applied to the [26] first two issues. The trial court has the advantage of observing the witnesses while they are testifying, an opportunity not available to appellate courts. Thus, its assessment of the credibility of witnesses and their testimonies are accorded great weight, even finality, when supported by substantial evidence; more so when such assessment is affirmed by the CA. But when the issue involves the evaluation of exhibits or documents that are attached to the case records, as in the third issue, the rule may be relaxed. Under that situation, this Court has a similar opportunity to inspect, examine and evaluate those records, independently of the lower courts. Hence, we deem the award of the partnership share, as computed by the trial court and adopted by the CA, to be incomplete and not binding on this Court. WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998 are REVERSED and SET ASIDE. No costs. SO ORDERED. Melo, (Chairman), and Sandoval-Gutierrez, JJ., concur. Vitug, J., on official leave. FIRST DIVISION

The inherent powers of a Court to amend and control its processes and orders so as to make them conformable to law and justice includes the right to reverse itself, especially when in its honest opinion it has committed an error or mistake in judgment, and that to adhere to its decision will [1] cause injustice to a party litigant. On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration of our Decision dated October 4, 2000. They maintain that there was no partnership bettween petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other hand; and that the latter being merely an employee of petitioner Tocao. After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted merely as guarantor of Geminesse Enterprise. This was categorically affirmed by respondents own witness, Elizabeth Bantilan, during her cross-examination. Furthermore, Bantilan testified that it was Peter Lo who was the companys financier. Thus: Q A Q A Q A Q A Q A Q You mentioned a while ago the name William Belo. Now, what is the role of William Belo with Geminesse Enterprise? William Belo is the friend of Marjorie Tocao and he was the guarantor of the company. What do you mean by guarantor? He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us. We can borrow money from him. You mentioned a certain Peter Lo. Who is this Peter Lo? Peter Lo is based in Singapore. What is the role of Peter Lo in the Geminesse Enterprise? He is the one fixing our orders that open the L/C. You mean Peter Lo is the financier? Yes, he is the financier. And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct? Yes, sir.
[2]

[G.R. No. 127405. September 20, 2001] A MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY,respondents.

RESOLUTION YNARES-SANTIAGO, J.:

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The foregoing was neither refuted nor contradicted by respondents evidence. It should be recalled that the business relationship created between petitioner Tocao and respondent Anay was an informal partnership, which was not even recorded with the Securities and Exchange Commission. As such, it was understandable that Belo, who was after all petitioner Tocaos good friend and confidante, would occasionally participate in the affairs of the business, although never in [3] a formal or official capacity. Again, respondents witness, Elizabeth Bantilan, confirmed that

10

petitioner Belos presence in Geminesse Enterprises meetings was merely as guarantor of the [4] company and to help petitioner Tocao. Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business enterprise. Respondent herself professed lack of knowledge that petitioner Belo [5] received any share in the net income of the partnership. On the other hand, petitioner Tocao declared that petitioner Belo was not entitled to any share in the profits of Geminesse [6] Enterprise. With no participation in the profits, petitioner Belo cannot be deemed a partner since [7] the essence of a partnership is that the partners share in the profits and losses. Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of action against him and her complaint against him should accordingly be dismissed. As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for failing to account for stocks of Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her claim for damages should be barred to that extent. We do not agree. Given the circumstances surrounding private respondents sudden ouster from the partnership by petitioner Tocao, her act of withholding whatever stocks were in her possession and control was justified, if only to serve as security for her claims against the partnership. However, while we do not agree that the same renders private respondent in bad faith and should bar her claim for damages, we find that the said sum of P208,250.00 should be deducted from whatever amount is finally adjudged in her favor on the basis of the formal account of the partnership affairs to be submitted to the Regional Trial Court. WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY GRANTED. The Regional Trial Court of Makati is hereby ordered to DISMISS the complaint, docketed as Civil Case No. 88-509, as against petitioner William T. Belo only. The sum of P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao shall be held liable to pay respondent after the formal accounting of the partnership affairs. SO ORDERED. Davide, Jr., C.J., (Chairman), Kapunan, and Pardo, JJ., concur. Puno, J., on official leave. Republic SUPREME Manila FIRST DIVISION of the Philippines COURT

COURT OF APPEALS and NENITA A. ANAY, respondents. DECISION YNARES-SANTIAGO, J.: This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616,[i][1] affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88509.[ii][2] Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job of marketing the product considering her experience and established relationship with West Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general manager, and Anay as head of the marketing department and later, vice-president for sales. Anay organized the administrative staff and sales force while Tocao hired and fired employees, determined commissions and/or salaries of the employees, and assigned them to different branches. The parties agreed that Belos name should not appear in any documents relating to their transactions with West Bend Company. Instead, they agreed to use Anays name in securing distributorship of cookware from that company. The parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two percent (2%) for her demonstration services. The agreement was not reduced to writing on the strength of Belos assurances that he was sincere, dependable and honest when it came to financial commitments. Anay having secured the distributorship of cookware products from the West Bend Company and organized the administrative staff and the sales force, the cookware business took off successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited

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G.R. No. 127405 vs.

October 4, 2000

Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as president and general

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MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads: Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for tw enty (20) years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our company, will attend in response to the invitation. (Italics supplied.)[iii][3] Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31, 1987, she received a plaque of appreciation from the administrative and sales people through Marjorie Tocao[iv][4] for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo signed a memo[v][5] entitling her to a thirty-seven percent (37%) commission for her personal sales up Dec 31/87. Belo explained to her that said commission was apart from her ten percent (10%) share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter[vi][6] addressed to the Cubao sales office to the effect that she was no longer the vicepresident of Geminesse Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding office and conducting demonstrations in both Makati and Cubao offices.[vii][7] Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not answered. Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission although the company netted a gross sales of P13,300,360.00. On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages[viii][8] against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140. In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the

operation until she was illegally dismissed to determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend cookware sets before her dismissal. In their answer,[ix]*9+ Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was neither reduced in writing, nor ratified, was either unenforceable or void or inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her compensation or dismissal, such complaint should have been lodged with the Department of Labor and not with the regular court. Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill -will and resentment because Marjorie Tocao did not allow her to lord it over in the Geminesse Enterprise. Anay had acted like she owned the enterprise because of her experience and expertise. Hence, petitioners were the ones who suffered actual damages including unreturned and unaccounted stocks of Geminesse Enterprise, and serious anxiety, besmirched reputation in the business world, and various damages not less than P500,000.00. They also alleged that, to vindicate their names, they had to hire counsel for a fee of P23,000.00. At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to damages.[x][10] In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He, however, admitted that the two had agreed that Anay would receive a three to four percent (34%) share in the gross sales of the cookware. He denied contributing capital to the business or receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao, who was new in the business. He attended and/or presided over business meetings of the venture in his capacity as a guarantor but he never participated in decision-making. He claimed that he wrote the memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the business venture at the request of Tocao, because Anay had no other income.

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following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. However, she admitted that Anay was an expert in the cookware business and hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used in her garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds with interest. Because she treated Anay as her co -equal, Marjorie received the same amounts of commissions as her. However, Anay failed to account for stocks valued at P200,000.00. On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows: WHEREFORE, in view of the foregoing, judgment is hereby rendered: 1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for

was a joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a partnership existed between the parties. The letter of Roger Muencheberg of West Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao because he was convinced that with Marjories financial contribution and Anays experience, the combination of the two would be invaluable to the partnership, also supported that conclusion. Belos claim that he was merely a guarantor has no basis since there was no written evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On the contrary, it demonstrated his involvement as a partner in the business. The trial court further held that the payment of commissions did not preclude the existence of the partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil Code provides that a partnership may be constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie Tocaos name is not determinative of whether or not the business was managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise. The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits realized from the appropriation of the partnership business and goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled. Petitioners appeal to the Court of Appeals[xi][11] was dismissed, but the amount of damages awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied by the Court of Appeals for lack of merit.[xii][12] Petitioners Belo and Marjorie Tocao are now before this Court on a petition for review on certiorari, asserting that there was no business partnership between them and herein private

the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in the net profits of the cookware business; 2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and

fifty (150) cookware sets available for disposition when plaintiff was wrongfully excluded from the partnership by defendants; 3. Ordering defendants to pay plaintiff overriding commission on the total production which for

the period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00; 4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary

damages, and 5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.

SO ORDERED.

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The trial court held that there was indeed an oral partnership agreement between the plaintiff and the defendants, based on the following: (a) there was an intention to create a partner ship; (b) a common fund was established through contributions consisting of money and industry, and (c) there

respondent Nenita A. Anay who is, therefore, not entitled to the damages awarded to her by the Court of Appeals. Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed between them and private respondent Anay because Geminesse Enterprise came into being exactly a year before the alleged partnership was formed, and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without any memorandum whatsoever regarding the alleged partnership. [xiii][13] The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both the trial and appellate courts. This Court cannot set aside factual findings of such courts absent any showing that there is no evidence to support the conclusion drawn by the court a quo.[xiv][14] In this case, both the trial court and the Court of Appeals are one in ruling that petitioners and private respondent established a business partnership. This Court finds no reason to rule otherwise. To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves.[xv][15] It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto.[xvi][16] This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites of a partnership. The fact that there appears to be no record in the Securities and Exchange Commission of a public instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code[xvii][17] did not cause the nullification of the partnership. The pertinent provision of the Civil Code on the matter states: Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph. Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware. Private respondent contributed such expertise to the partnership and hence, under the law, she was the industrial or managing partner. It was through her reputation with

up the business when, upon being asked if private respondent held the positions of marketing manager and vice-president for sales, she testified thus: A: No, sir at the start she was the marketing manager because there were no one to sell yet, its

only me there then her and then two (2) people, so about four (4). Now, after that when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of marketing managers of which definitely Nita as superior to them would be the Vice President.[xviii][18] By the set-up of the business, third persons were made to believe that a partnership had indeed been forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the same company states: Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people and build up the organization. All they need is the finance and the products to sell.[xix][19] On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of the established fact that he presided over meetings regarding matters affecting the operation of the business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the business. His claim that he was merely a guarantor is belied by that personal act of proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code,[xx][20] he should have presented documentary evidence therefor. While Article 2055 of the Civil Code simply provides that guaranty must be express, Article 1403, the Statute of Frauds, requires that a special promise to answer for the debt, default or miscarriage of another be in writing. [xxi][21] Petitioner Tocao, a former ramp model,[xxii][22] was also a capitalist in the partnership. She claimed that she herself financed the business. Her and petitioner Belos roles as both capitalists to the partnership with private respondent are buttressed by petitioner Tocaos admissions that petitioner Belo was her boyfriend and that the partnership was not their only business venture together. They also established a firm that they called Wiji, the combination of petitioner Belos first name,

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the West Bend Company that the partnership was able to open the business of distributorship of that companys cookware products; it was through the same efforts that the business was propelled to financial success. Petitioner Tocao herself admitted private respondents indispensable role in putting

William, and her nickname, Jiji.[xxiii][23] The special relationship between them dovetails with petitioner Belos claim that he was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners requested West Bend Company to allow them to utilize their banking and trading facilities in Singapore in the matter of importation and payment of the cookware products.[xxiv][24] The inevitable conclusion, therefore, was that petitioners merged their respective capital and infused the amount into the partnership of distributing cookware with private respondent as the managing partner. The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between petitioners and private respondent. While it is true that the receipt of a percentage of net profits constitutes only prima facieevidence that the recipient is a partner in the business,[xxv][25] the evidence in the case at bar controverts an employer-employee relationship between the parties. In the first place, private respondent had a voice in the management of the affairs of the cookware distributorship,[xxvi][26] including selection of people who would constitute the administrative staff and the sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She admitted that, like her who owned Geminesse Enterprise,[xxvii][27] private respondent received only commissions and transportation and representation allowances[xxviii][28] and not a fixed salary.[xxix][29] Petitioner Tocao testified: Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you please go over this and tell the Honorable Court whether you ever came across this document and know of your own knowledge the amount A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain

Q: this? A: Q:

I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is

Thats her overriding commission. Overriding commission, I see. Of course, you are telling this Honorable Court that there being

the same P21,410.50 is merely by coincidence? A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a

sense because of her expertise in the business she is vital to my business. So, as part of the incentive I offer her the same thing. Q: A: Q: A: Q: A: Q: So, in short you are saying that this you have shared together, I mean having gotten from the As an equal. As an equal, I see. You were treating her as an equal? Yes, sir. I am calling again your attention to Exh. Y Overrides Makati the other one is That is the same thing, sir. With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the company P21,140.50 is your way of indicating that you were treating her as an equal?

amount there you will acknowledge you have received that? A: Q: A: Q: Yes, sir. Again in concept of commission, representation, promotion, etc.? Yes, sir. Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she

percentage for promotions, advertising, incentive. Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I

quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount? A: Q: Oh yes, sir. I see. And, by way of amplification this is what you are saying as one representing commission,

received the same amount? A: Q: Yes, sir. And, as in your previous statement it is not by coincidence that these two (2) are the same?

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representation, advertising and promotion? A: Yes, sir.

A: Q: A:

No, sir. It is again in concept of you treating Miss Anay as your equal? Yes, sir. (Italics supplied.)[xxx][30]

make the business venture a success. Thus, as petitioner Tocao became adept in the business operation, she started to assert herself to the extent that she would even shout at private respondent in front of other people.[xxxviii][38] Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her perception that private respondent was no longer necessary in the business operation,[xxxix][39] and resulted in a falling out between the two. However, a mere falling out or misunderstanding between partners does not convert the partnership into a sham organization.[xl][40] The partnership exists until dissolved under the law. Since the partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Thus: x x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partners capability to give it, and the absence of cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages.[xli][41] An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the power, although not necessarily the right to dissolve the partnership.[xlii][42] In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise.[xliii][43] By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business.[xliv][44] The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in petitioners claim for stocks that had been entrusted to private respondent in the pursuit of the partnership business. The determination of the amount of damages commensurate with the factual findings upon which it is based is primarily the task of the trial court.[xlv][45] The Court of Appeals may modify that amount only when its factual findings are diametrically opposed to that of the lower court,[xlvi][46] or the

If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall receive the same income in the business. In a partnership, each partner must share in the profits and losses of the venture, except that the industrial partner shall not be liable for the losses.[xxxi][31] As an industrial partner, private respondent had the right to demand for a formal accounting of the business and to receive her share in the net profit.[xxxii][32] The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that enterprise.[xxxiii][33] While it is true that in her undated application for renewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in retail of kitchenwares, cookwares, utensils, skillet, [xxxiv][34] she also admitted that the enterprise was only 60% to 70% for the cookware business, while 20% to 30% of its business activity was devoted to the sale of water sterilizer or purifier.[xxxv][35] Indubitably then, the business name Geminesse Enterprise was used only for practical reasons it was utilized as the common name for petitioner Tocaos various business activities, which included the distributorship of cookware. Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremitted stocks of Geminesse Enterprise amounting to P208,250.00.[xxxvi][36] Obviously a ploy to offset the damages awarded to private respondent, that claim, more than anything else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this Court said: The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, the petitioner and private complainant remained as co-partners. x x x.[xxxvii][37] It is not surprising then that, even after private respondent had been unceremoniously booted out of the partnership in October 1987, she still received her overriding commission until December 1987.

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Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself and/or for petitioner Belo financial gains resulting from private respondents efforts to

award is palpably or scandalously and unreasonably excessive.[xlvii][47] However, exemplary damages that are awarded by way of example or correction for the public good, [xlviii][48] should be reduced to P50,000.00, the amount correctly awarded by the Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted on account of the award of exemplary damages and petitioners evident bad faith in refusing to satisfy private respondents plainly valid, just and demandable claims,[xlix][49] appear to have been excessively granted by the trial court and should therefore be reduced to P25,000.00. WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows 1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine private respondents ten percent (10%) share in the net profits of the partnership;

Tocao vs. CA and Nenita Anay 365 SCRA 463 G.R 127405 October 4, 2000 Ynares-Santiago, J: Facts: Respondent met the petitioner through Belo. Petitioner Tacao conveyed her desire to enter into a joint venture with her and Anay is to be the marketing head of local distribution of kitchen wares, the former to finance the business. Anay was made to receive commissions based on her performance, as verbally agreed upon by her and Belo, the latter acting as the guarantor of Geminesse enterprise. In 1887, Belo signed a memorandum granting 37% commission to Anay for her business transaction. Two days after, Anay discovered that she was in effect no longer the head of marketing and had been barred from holding office. Issue: Whether or not Anay was an employee or partner of Tocao and thus entitled to damages. Ruling:

2.

Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) The RTC and CA found the partnership between petitioners and private respondent exists based on the facts presented. This amount be determined by S.C To be considered as a judicial personality, a partnership must fulfill these requisites: 1) two or more persons bind themselves to contribute money, property or industry to a common fund; (2) intention on the part of the partners to divide profits among themes selves. Where no immovable le property in involved, an oral agreement will suffice to create partnership. Thus, a subject he to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the power although not necessarily the right to dissolve the partnership. In 2001, SC issued a resolution, modifying its decision regarding as a partner to firm because he merely acted as a guarantor. As for the award of damages to Anay, the decision was sustained. Republic of the Philippines SUPREME COURT Manila

overriding commission for the one hundred and fifty (150) cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioners; 3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission

on the total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to P32,000.00; 4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the

amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the amount of P25,000.00. SO ORDERED. Partnership

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FIRST DIVISION G.R. No. L-59956 October 31, 1984 ISABELO MORAN, JR., petitioner, vs. THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:+.wph!1 This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson. As found by the respondent Court of Appeals, the undisputed facts indicate that: t.hqw xxx xxx xxx ... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention), with Moran actually supervising the work; that Pecson would receive a commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the payment of the first installment on the date due, complete with the costs of collection. Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees. After the trial, the Court of First Instance held that: t.hqw

From the evidence presented it is clear in the mind of the court that by virtue of the partnership agreement entered into by the parties-plaintiff and defendant the plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the defendant was able to print 2,000 copies only authorized of which, however, were sold at P5.00 each. Nothing more was done after this and it can be said that the venture did not really get off the ground. On the other hand, the plaintiff failed to give his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract which right is implied in reciprocal obligations under Article 1385 of the Civil Code whereunder 'rescission creates the obligation to return the things which were the object of the contract ... WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the complaint on June 19, 1972, and the costs of the suit. For insufficiency of evidence, the counterclaim is hereby dismissed. From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise rendered a decision against the petitioner. The dispositive portion of the decision reads: t.hqw PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson: (a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under their agreement); (b) Eight thousand (P8,000), (the commission for eight months); (c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project); (d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is made) The petitioner contends that the respondent Court of Appeals decided questions of substance in a way not in accord with law and with Supreme Court decisions when it committed the following errors:

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I THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM. II THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT. III THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE. IV ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN. V THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES. The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the unrealized profits of the partnership. The petitioner contends that the award is highly speculative. The petitioner maintains that the respondent court did not take into account the great risks involved in the business undertaking. We agree with the petitioner that the award of speculative damages has no basis in fact and law. There is no dispute over the nature of the agreement between the petitioner and the private respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced by the petitioner to enter into a partnership with him under the following terms and conditions: t.hqw

1. That the partnership will print colored posters of the delegates to the Constitutional Convention; 2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each; 3. That they will print Ninety Five Thousand (95,000) copies of the said posters; 4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15, 1971 up to December 15, 1971; 5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account pertaining to the distribution and printing of the said 95,000 posters shall be made. The petitioner on the other hand admitted in his answer the existence of the partnership. The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee because the appellant therein was remiss in his obligations as a partner and as prime contractor of the construction projects in question. This case was decided on a particular set of facts. We awarded compensatory damages in the Uy case because there was a finding that the constructing business is a profitable one and that the UP construction company derived some profits from its contractors in the construction of roads and bridges despite its deficient capital." Besides, there was evidence to show that the partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative damages in favor of the private respondent. Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much more than what was expected of him. In this case, however, there was mutual breach. Private respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies. Article 1797 of the Civil Code provides: t.hqw

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The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. In this case, on an investment of P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of expected profits is obvious. We have to take various factors into account. The failure of the Commission on Elections to proclaim all the 320 candidates of the Constitutional Convention on time was a major factor. The petitioner undesirable his best business judgment and felt that it would be a losing venture to go on with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture have to be considered. It does not follow however that the private respondent is not entitled to recover any amount from the petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and the private respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining P6,000.00 should therefore be returned to the private respondent. Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's supposed commission has no justifiable basis in law. Again, we agree with the petitioner. The partnership agreement stipulated that the petitioner would give the private respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly commissions. The agreement does not state the basis of the commission. The payment of the commission could only have been predicated on relatively extravagant profits. The parties could not have intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a failure, the private respondent is not entitled to the P8,000.00 commission.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of the Veterans" magazine venture, the respondent court ruled that: t.hqw xxx xxx xxx ... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does not question the due execution of said note. Must Moran therefore pay the amount of P20,000? The evidence indicates that the P20,000 was assigned by Moran to cover the following: t.hqw (a) P 7,000 the amount of the PNB check given by Pecson to Moran representing Pecson's investment in Moran's other project (the publication and printing of the 'Voice of the Veterans'); (b) P10,000 to cover the return of Pecson's contribution in the project of the Posters; (c) P3,000 representing Pecson's commission for three months (April, May, June, 1971). Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the Veterans' project, for this project never left the ground) ... As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule admits of certain exceptions. Thus, inCarolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and rectify the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and (5) when the court, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both the appellant and the appellee. In this case, there is misapprehension of facts. The evidence of the private respondent himself shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit that the private respondent expected to receive. The records show the following exhibits- t.hqw

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Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of investment in a magazine venture.

E Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of defendant. Defendant admitted the authenticity of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for the purpose of showing plaintiff's capital investment in the printing of the "Voice of the Veterans" for which he was promised a fixed profit of P8,000. This investment of P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00 investment thereby proportionately reducing the promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised profit), defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000 representing full return of the capital investment and P1,000 partial payment of the promised profit. The P3,000 balance of the promised profit was made part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore, being presented to show the consideration for the P20,000 promissory note. F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant. The authenticity of the check and his receipt of the proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show the consideration for the P20,000 note and the existence and validity of the obligation. xxx xxx xxx

explanation in connection with Exhibits E, L, and M to show the transaction mentioned therein. xxx xxx xxx P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the purpose of showing the transaction as explained in connection with Exhibits E, L, M, and N above. Explaining the above-quoted exhibits, respondent Pecson testified that: t.hqw Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory note in the amount of P14,000.00 which has been marked as Exhibit 2. Do you know this promissory note? A Yes, sir. Q What is this promissory note, in connection with your transaction with the defendant? A This promissory note is for the printing of the "Voice of the Veterans". Q What is this "Voice of the Veterans", Mr. Pecson? A It is a book.t.hqw

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the subject matter of the other partnership agreement and in which plaintiff invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000 made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the promised profit was later made part consideration of the P20,000 promissory note. M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This document is being offered for the purpose of further showing the transaction as explained in connection with Exhibits E and L.

(T.S.N., p. 19, Nov. 29, 1972) Q And what does the amount of P14,000.00 indicated in the promissory note, Exhibit 2, represent? A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the Philippine National Bank Manager's check and the P8,000.00 profit assured me by Mr. Moran which I will derive from the printing of this "Voice of the Veterans" book. Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I show you Exhibit E, is this the Manager's check that mentioned?

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N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This document is being offered in support of plaintiff's

A Yes, sir. Q What happened to this promissory note of P14,000.00 which you said represented P6,000.00 of your investment and P8,000.00 promised profits? A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the P6,000.00 capital I gave to him. Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital you gave to him, what happened to the promised profit of P8,000.00? A It was reduced to one-half (1/2) which is P4,000.00. Q Was there any document executed by Mr. Moran in connection with the Balance of P3,000.00 of your capital investment and the P4,000.00 promised profits? A Yes, sir, he executed a promissory note. Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which for purposes of Identification I request the same to be marked as Exhibit M. . . Court t.hqw Mark it as Exhibit M. Q (continuing) is this the promissory note which you said was executed by Mr. Moran in connection with your transaction regarding the printing of the "Voice of the Veterans"? A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972). Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?

Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr. Moran? A Yes, sir. (T.S.N., p. 23, Nov. 29, 1972). Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00 covered by the promissory note, Exhibit M. What does this P4,000.00 covered by Exhibit N represent? A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00 capital investment and the P1,000.00 represents partial payment of the P4,000.00 profit that was promised to me by Mr. Moran. Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M? A The balance of P3,000.00 and the rest of the profit was applied as part of the consideration of the promissory note of P20,000.00. (T.S.N., pp. 23-24, Nov. 29, 1972). The respondent court erred when it concluded that the project never left the ground because the project did take place. Only it failed. It was the private respondent himself who presented a copy of the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error to state that the project never took place and on this basis decree the return of the private respondent's investment. As already mentioned, there are risks in any business venture and the failure of the undertaking cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best business judgment, which seems to be true in this case. In view of the foregoing, there is no reason to pass upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no valid basis for the grant of the counterclaim. WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS representing the amount of the private respondent's contribution to the partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net

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A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note.

profits gained by the partnership in the sale of the two thousand (2,000) copies of the posters, with interests at the legal rate on both amounts from the date the complaint was filed until full payment is made. SO ORDERED.1wph1.t Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.

2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void (Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be commenced by the petitioners. 3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should have been appeal. SO ORDERED. (pp. 24-25, Rollo.)

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

The antecedent facts of the case are as follows: On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner Lourdes Navarro for "Delivery of Personal Properties With Damages". The complaint incorporated an application for a writ of replevin. The complaint was later docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and was subsequently amended to include private respondent's husband, Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as codefendant. On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as Presiding Justice of the Court of Appeals) approved private respondents' application for a writ of replevin. The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private respondents of all pieces of personal property sought to be recovered from petitioners. On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as follows : Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which had remain in the possession of the defendant is likewise declared to belong to her, however, said defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to plaintiff such other equipment[s] as were brought by the latter to and during the operation of their business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of Replevin. (p. 12, Rollo.) Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its rendition) and filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for Reconsideration". This was granted on January 18, 1991. Private respondents filed their opposition, citing the ruling in

G.R. No. 101847 May 27, 1993 LOURDES NAVARRO AND MENARDO NAVARRO, petitioners, vs. COURT OF APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B. YANSON, respondents. George L. Howard Law Office for petitioners Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for private respondents.

MELO, J.: Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses Lourdes and Menardo Navarro, thusly: The instant petition for annulment of decision is DISMISSED. 1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the petition.

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the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986]) proscribing the filing of any motion for extension of time to file a motion for a new trial or reconsideration. The trial judge vacated the order dated January 18, 1991 and declared the decision of April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was subsequently filed on February 1, 1991 or 22 days after the receipt of the decision). On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and satisfied". A receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was likewise submitted by the Sheriff (Annex "7", p. 83, Rollo). On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial court's decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to the evidence on record. The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or collateral fraud, observing further that an appeal was the proper remedy. In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the business of Air Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin is void since the properties belonging to the partnership do not actually belong to any of the parties until the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were extensively discussed by the trial judge in her 16-page, single-spaced decision. We agree with respondents that the decision in this case has become final. In fact a writ of execution had been issued and was promptly satisfied by the payment of P6,500.00 to private respondents. Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's decision. We respect the appellate court's finding in this regard. Petitioners have come to us in a petition for review. However, the petition is focused solely on factual issues which can no longer be entertained. Petitioners' arguments are all directed against the decision of the regional trial court; not a word is said in regard to the appellate's court disposition of their petition for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on account of the so-called admissions in judicio. But the factual premises of the trial court were more than enough to suppress and negate petitioners submissions along this line:

To be resolved by this Court factually involved in the issue of whether there was a partnership that existed between the parties based on their verbal contention; whether the properties that were commonly used in the operation of Allied Air Freight belonged to the alleged partnership business; and the status of the parties in this transaction of alleged partnership. On the other hand, the legal issues revolves on the dissolution and winding up in case a partnership so existed as well as the issue of ownership over the properties subject matter of recovery. As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote: Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the proceeds among themselves. xxx xxx xxx Corollary to this definition is the provision in determining whether a partnership exist as so provided under Article 1769, to wit: xxx xxx xxx Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted in any form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if the partnership involves a capitalization of P3,000.00 or more in money or property, the same must appear in a public instrument which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with these requirements shall only affect liability of the partners to third persons. In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made admission to have entered into an agreement of operating this Allied Air Freight Agency of which the plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the necessary equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant the Cashier. It was also admitted that part of this agreement was an equal sharing of whatever proceeds realized. Consequently, the plaintiff brought into this transaction certain chattels in compliance with her obligation. The same has been done by the herein brother and the herein defendant who started to work in the business. A cursory examination of the evidences presented no proof that a partnership, whether oral or written had been constituted at the inception of this transaction. True it is that even up to the filing of this complaint those movables

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

injunction that no one shall enrich himself at the expense of another. (pp. 7175, Rollo.) Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue raised therein having been directly litigated in, and passed upon by, the trial court. WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991 is AFFIRMED in all respects. No special pronouncement is made as to costs. SO ORDERED. Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. Nos. L-24020-21 July 29, 1968

FLORENCIO REYES and ANGEL REYES, petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS, respondents. Jose W. Diokno and Domingo Sandoval for petitioners. Office of the Solicitor General for respondents. FERNANDO, J.: Petitioners in this case were assessed by respondent Commissioner of Internal Revenue the sum of P46,647.00 as income tax, surcharge and compromise for the years 1951 to 1954, an assessment subsequently reduced to P37,528.00. This assessment sought to be reconsidered unsuccessfully was the subject of an appeal to respondent Court of Tax Appeals. Thereafter, another assessment was made against petitioners, this time for back income taxes plus surcharge and compromise in the total sum of P25,973.75, covering the years 1955 and 1956. There being a failure on their part to have such assessments reconsidered, the matter was likewise taken to the respondent Court of Tax Appeals. 1 The two cases involving as they did identical issues and ultimately traceable to facts similar in character were heard jointly with only one decision being rendered.

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In that joint decision of respondent Court of Tax Appeals, the tax liability for the years 1951 to 1954 was reduced to P37,128.00 and for the years 1955 and 1956, to P20,619.00 as income tax due "from 2 the partnership formed" by petitioners. The reduction was due to the elimination of surcharge, the failure to file the income tax return being accepted as due to petitioners honest belief that no such 3 liability was incurred as well as the compromise penalties for such failure to file. A reconsideration of the aforesaid decision was sought and denied by respondent Court of Tax Appeals. Hence this petition for review. The facts as found by respondent Court of Tax Appeals, which being supported by substantial 4 evidence, must be respected follow: "On October 31, 1950, petitioners, father and son, purchased a lot and building, known as the Gibbs Building, situated at 671 Dasmarias Street, Manila, for P835,000.00, of which they paid the sum of P375,000.00, leaving a balance of P460,000.00, representing the mortgage obligation of the vendors with the China Banking Corporation, which mortgage obligations were assumed by the vendees. The initial payment of P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was leased to various tenants, whose rights under the lease contracts with the original owners, the purchasers, petitioners herein, agreed to respect. The administration of the building was entrusted to an administrator who collected the rents; kept its books and records and rendered statements of accounts to the owners; negotiated leases; made necessary repairs and disbursed payments, whenever necessary, after approval by the owners; and performed such other functions necessary for the conservation and preservation of the building. Petitioners divided equally the income of operation and maintenance. The gross income 5 from rentals of the building amounted to about P90,000.00 annually." From the above facts, the respondent Court of Tax Appeals applying the appropriate provisions of the National Internal Revenue Code, the first of which imposes an income tax on corporations "organized in, or existing under the laws of the Philippines, no matter how created or organized but not including 6 duly registered general co-partnerships (companias colectivas), ...," a term, which according to the 7 second provision cited, includes partnerships "no matter how created or organized, ...," and applying 8 the leading case of Evangelista v. Collector of Internal Revenue, sustained the action of respondent Commissioner of Internal Revenue, but reduced the tax liability of petitioners, as previously noted. Petitioners maintain the view that the Evangelista ruling does not apply; for them, the situation is dissimilar.1wph1.tConsequently they allege that the reliance by respondent Court of Tax Appeals was unwarranted and the decision should be set aside. If their interpretation of the authoritative doctrine therein set forth commands assent, then clearly what respondent Court of Tax Appeals did fails to find shelter in the law. That is the crux of the matter. A perusal of the Evangelista decision is therefore unavoidable. As noted in the opinion of the Court, penned by the present Chief Justice, the issue was whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act 9 No. 466, otherwise known as the National Internal Revenue Code, ..." After referring to another section of the National Internal Revenue Code, which explicitly provides that the term corporation

"includes partnerships" and then to Article 1767 of the Civil Code of the Philippines, defining what a contract of partnership is, the opinion goes on to state that "the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same 10 among themselves, ..." In support of the above conclusion, reference was made to the following circumstances, namely, the common fund being created purposely not something already found in existence, the investment of the same not merely in one transaction but in a series of transactions; the lots thus acquired not being devoted to residential purposes or to other personal uses of petitioners in that case; such properties having been under the management of one person with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts and to endorse notes and checks; the above conditions having existed for more than 10 years since the acquisition of the above properties; and no testimony having been introduced as to the purpose "in creating the set up 11 already adverted to, or on the causes for its continued existence." The conclusion that emerged had all the imprint of inevitability. Thus: "Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances is such as to 12 leave no room for doubt on the existence of said intent in petitioners herein." It may be said that there could be a differentiation made between the circumstances above detailed and those existing in the present case. It does not suffice though to preclude the applicability of the Evangelista decision. Petitioners could harp on these being only one transaction. They could stress that an affidavit of one of them found in the Bureau of Internal Revenue records would indicate that their intention was to house in the building acquired by them the respective enterprises, coupled with a plan of effecting a division in 10 years. It is a little surprising then that while the purchase was made on October 31, 1950 and their brief as petitioners filed on October 20, 1965, almost 15 years later, there was no allegation that such division as between them was in fact made. Moreover, the facts as found and as submitted in the brief made clear that the building in question continued to be leased by other parties with petitioners dividing "equally the income ... after deducting the expenses 13 of operation and maintenance ..." Differences of such slight significance do not call for a different ruling. It is obvious that petitioners' effort to avoid the controlling force of the Evangelista ruling cannot be deemed successful. Respondent Court of Tax Appeals acted correctly. It yielded to the command of an authoritative decision; it recognized its binding character. There is clearly no merit to the second error assigned by petitioners, who would deny its applicability to their situation.

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The first alleged error committed by respondent Court of Tax Appeals in holding that petitioners, in acquiring the Gibbs Building, established a partnership subject to income tax as a corporation under the National Internal Revenue Code is likewise untenable. In their discussion in their brief of this alleged error, stress is laid on their being co-owners and not partners. Such an allegation was likewise made in the Evangelista case. This is the way it was disposed of in the opinion of the present Chief Justice: "This pretense was 14 correctly rejected by the Court of Tax Appeals." Then came the explanation why: "To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships", which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes, among others, "joint accounts, (cuentas en participacion)" and "associations", none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" which are possessed of the aforementioned personality - have been expressly excluded by law (sections 24 and 84[b]) from the connotation of the 15 term "corporation"." The opinion went on to summarize the matter aptly: "For purposes of the tax on corporations, our National Internal Revenue Code, include these partnerships with the exception only of duly registered general co-partnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, 16 insofar as said Code is concerned, and are subject to the income tax for corporations." In the light of the above, it cannot be said that the respondent Court of Tax Appeals decided the matter incorrectly. There is no warrant for the assertion that it failed to apply the settled law to uncontroverted facts. Its decision cannot be successfully assailed. Moreover, an observation made 17 in Alhambra Cigar & Cigarette Manufacturing Co. v. Commissioner of Internal Revenue, is wellworth recalling. Thus: "Nor as a matter of principle is it advisable for this Court to set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless, as did not happen here, there has been an abuse or improvident exercise of its authority." WHEREFORE, the decision of the respondent Court of Tax Appeals ordering petitioners "to pay the sums of P37,128.00 as income tax due from the partnership formed by herein petitioners for the

years 1951 to 1954 and P20,619.00 for the years 1955 and 1956 within thirty days from the date this decision becomes final, plus the corresponding surcharge and interest in case of delinquency," is affirmed. With costs against petitioners. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur. Footnotes
1

CTA Cases No. 518 and No. 519. Annex A, Brief for Petitioners, p. 39. Ibid, p. 38. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-45425

April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. Guillermo B. Reyes for appellants. Office of the Solicitor-General Tuason for appellee. IMPERIAL, J.: The plaintiff brought this action to recover from the defendant Collector of Internal Revenue the sum of P1,863.44, with legal interest thereon, which they paid under protest by way of income tax. They appealed from the decision rendered in the case on October 23, 1936 by the Court of First Instance of the City of Manila, which dismissed the action with the costs against them. The case was submitted for decision upon the following stipulation of facts: Come now the parties to the above-mentioned case, through their respective undersigned attorneys, and hereby agree to respectfully submit to this Honorable Court the case upon the following statement of facts:

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1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that defendant is the Collector of Internal Revenue of the Philippines; 2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one sweepstakes ticket valued at two pesos (P2), subscribed and paid therefor the amounts as follows: 1. Jose Gatchalian .................................................................................................... 2. Gregoria Cristobal ............................................................................................... 3. Saturnina Silva .................................................................................................... 4. Guillermo Tapia ................................................................................................... 5. Jesus Legaspi ...................................................................................................... 6. Jose Silva ............................................................................................................. 7. Tomasa Mercado ................................................................................................ 8. Julio Gatchalian ................................................................................................... 9. Emiliana Santiago ................................................................................................ 10. Maria C. Legaspi ............................................................................................... 11. Francisco Cabral ............................................................................................... 12. Gonzalo Javier .................................................................................................... 13. Maria Santiago ................................................................................................... 14. Buenaventura Guzman ...................................................................................... 15. Mariano Santos ................................................................................................. Total ........................................................................................................ P0.18 .18 .08 .13 .15 .07 .08 .13 .13 .16 .13 .14 .17 .13 .14 2.00

4. That as a result of the drawing of the sweepstakes on December 15, 1934, the abovementioned ticket bearing No. 178637 won one of the third prizes in the amount of P50,000 and that the corresponding check covering the above-mentioned prize of P50,000 was drawn by the National Charity Sweepstakes Office in favor of Jose Gatchalian & Company against the Philippine National Bank, which check was cashed during the latter part of December, 1934 by Jose Gatchalian & Company; 5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo David to file the corresponding income tax return covering the prize won by Jose Gatchalian & Company and that on December 29, 1934, the said return was signed by Jose Gatchalian, a copy of which return is enclosed as Exhibit A and made a part hereof; 6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian & Company until January 20, 1935 within which to pay the said amount of P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part hereof; 7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply, a copy of which marked Exhibit C is attached and made a part hereof, requesting exemption from payment of the income tax to which reply there were enclosed fifteen (15) separate individual income tax returns filed separately by each one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to D-15, respectively, in order of their names listed in the caption of this case and made parts hereof; a statement of sale signed by Jose Gatchalian showing the amount put up by each of the plaintiffs to cover up the attached and marked as Exhibit E and made a part hereof; and a copy of the affidavit signed by Jose Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made part thereof; 8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption from the payment of tax and reiterated his demand for the payment of the sum of P1,499.94 as income tax and gave plaintiffs until February 10, 1935 within which to pay the said tax; 9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant, notwithstanding subsequent demand made by defendant upon the plaintiffs through their attorney on March 23, 1935, a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy against the property of the plaintiffs, a copy of which warrant marked Exhibit I is enclosed and made a part hereof; 10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus

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

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Legaspi, paid under protest the sum of P601.51 as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official receipt No. 7454879 which is attached and marked Exhibit J and made a part hereof, and requested defendant that plaintiffs be allowed to pay under protest the balance of the tax and penalties by monthly installments; 11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject to the condition that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt payment of each installments as it becomes due; 12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made a part hereof, to guarantee the payment of the balance of the alleged tax liability by monthly installments at the rate of P118.70 a month, the first payment under protest to be effected on or before July 31, 1935; 13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of P602.51, a copy of which protest is attached and marked Exhibit L, but that defendant in his letter dated August 1, 1935 overruled the protest and denied the request for refund of the plaintiffs; 14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the terms and conditions of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which is attached and marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to execute within five days the warrant of distraint and levy issued against the plaintiffs on May 13, 1935; 15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid under protest to the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the unpaid balance of the income tax and penalties demanded by defendant as evidenced by income tax receipt No. 35811 which is attached and marked Exhibit N and made a part hereof; and that on September 3, 1936, the plaintiffs formally protested to the defendant against the payment of said amount and requested the refund thereof, copy of which is attached and marked Exhibit O and made part hereof; but that on September 4, 1936, the defendant overruled the protest and denied the refund thereof; copy of which is attached and marked Exhibit P and made a part hereof; and

17. The parties hereto reserve the right to present other and additional evidence if necessary. Exhibit E referred to in the stipulation is of the following tenor: To whom it may concern: I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on the 11th day of August, 1934, I sold parts of my shares on ticket No. 178637 to the persons and for the amount indicated below and the part of may share remaining is also shown to wit: Purchaser 1. Mariano Santos ........................................... 2. Buenaventura Guzman ............................... 3. Maria Santiago ............................................ 4. Gonzalo Javier .............................................. 5. Francisco Cabral .......................................... 6. Maria C. Legaspi .......................................... 7. Emiliana Santiago ......................................... 8. Julio Gatchalian ............................................ 9. Jose Silva ...................................................... 10. Tomasa Mercado ....................................... 11. Jesus Legaspi ............................................. 12. Guillermo Tapia ........................................... 13. Saturnina Silva ............................................ 14. Gregoria Cristobal ....................................... 15. Jose Gatchalian ............................................ Amount P0.14 .13 .17 .14 .13 .16 .13 .13 .07 .08 .15 .13 .08 .18 .18 Address Pulilan, Bulacan. - Do - Do - Do - Do - Do - Do - Do - Do - Do - Do - Do - Do - Do - Do -

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

2.00 Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts of whatever prize that might be won by said ticket. Pulilan, Bulacan, P.I. (Sgd.) JOSE GATCHALIAN And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows: RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE. Exhibit No. D-1 D-2 D-3 D-4 D-5 D-6 D-7 D-8 D-9 D-10 Purchase Price Price Won Net prize

11. Francisco Cabral ...................................... 12. Gonzalo Javier .......................................... 13. Maria Santiago .......................................... 14. Buenaventura Guzman ........................... 15. Mariano Santos ........................................

D-11 D-12 D-13 D-14 D-15

.13 .14 .17 .13 .14

3,325 3,325 4,350 3,325 3,325

360 2,965 360 2,965 360 3,990 360 2,965 360 2,965

Name 1. Jose Gatchalian .......................................... 2. Gregoria Cristobal ...................................... 3. Saturnina Silva ............................................. 4. Guillermo Tapia .......................................... 5. Jesus Legaspi by Maria Cristobal ......... 6. Jose Silva .................................................... 7. Tomasa Mercado ....................................... 8. Julio Gatchalian by Beatriz Guzman .......

Expenses

P0.18 P4,425 .18 .08 .13 .15 .08 .07 .13 .13 .16 4,575 1,875 3,325 3,825 1,875 1,875 3,150 3,325 4,100

P 480 3,945 2,000 2,575 360 1,515 360 2,965 720 3,105 360 1,515 360 1,515 240 2,910 360 2,965 960 3,140

<="" td="" style="font-size: 14px; textdecoration: none; 2.00 50,000 color: rgb(0, 0, 128); font-family: arial, verdana;"> The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to the two following: (1) Whether the plaintiffs formed a partnership, or merely a community of property without a personality of its own; in the first case it is admitted that the partnership thus formed is liable for the payment of income tax, whereas if there was merely a community of property, they are exempt from such payment; and (2) whether they should pay the tax collectively or whether the latter should be prorated among them and paid individually. The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended by section 2 of Act No. 3761, reading as follows: SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation, jointstock company, partnership, joint account (cuenta en participacion), association or insurance company, organized in the Philippine Islands, no matter how created or organized, but not including duly registered general copartnership (compaias colectivas), a tax of three per centum upon such income; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources within the Philippine Islands by every corporation, joint-stock company, partnership, joint account (cuenta en participacion), association, or insurance company organized, authorized, or existing under the laws of any foreign country, including interest on bonds, notes, or

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9. Emiliana Santiago ...................................... 10. Maria C. Legaspi ......................................

other interest-bearing obligations of residents, corporate or otherwise: Provided, however, That nothing in this section shall be construed as permitting the taxation of the income derived from dividends or net profits on which the normal tax has been paid. The gain derived or loss sustained from the sale or other disposition by a corporation, jointstock company, partnership, joint account (cuenta en participacion), association, or insurance company, or property, real, personal, or mixed, shall be ascertained in accordance with subsections (c) and (d) of section two of Act Numbered Two thousand eight hundred and thirty-three, as amended by Act Numbered Twenty-nine hundred and twenty-six. The foregoing tax rate shall apply to the net income received by every taxable corporation, joint-stock company, partnership, joint account (cuenta en participacion), association, or insurance company in the calendar year nineteen hundred and twenty and in each year thereafter. There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment of income tax under the law. But according to the stipulation facts the plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and formed a community of property only. Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay the income tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's contention that the tax should be prorated among them and paid individually, resulting in their exemption from the tax. In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to the plaintiffs appellants. So ordered. Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19342 May 25, 1972 LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA, LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR., petitioners, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent. Orlando Velasco for petitioners. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete, and Special Attorney Purificacion Ureta for respondent.

BARREDO, J.:p Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding that petitioners have constituted an unregistered partnership and are, therefore, subject to the payment of the deficiency corporate income taxes assessed against them by respondent Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e) (2) of the Internal Revenue Code, as amended by Section 8 of Republic Act 1 No. 2343 and the costs of the suit, as well as the resolution of said court denying petitioners' motion for reconsideration of said decision. The facts are stated in the decision of the Tax Court as follows: Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo T. Oa the surviving spouse was appointed administrator of the estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted the project of partition, which was approved by the Court on May 16, 1949 (See Exhibit K). Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the project of partition was approved, Lorenzo T. Oa,

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their father and administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.). The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total assessed value of P17,590.00 and an undetermined amount to be collected from the War Damage Commission. Later, they received from said Commission the amount of P50,000.00, more or less. This amount was not divided among them but was used in the rehabilitation of properties owned by them in common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death of the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.). The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.). Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide the properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners' properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from the following year-end balances: Ye ar Investm ent Account Land Buildi ng Acco unt P17,590.00 96,076.26 110,605.11

1952 1953 1954 1955 1956

67,927.52 61,258.27 63,623.37 100,786.00 175,028.68

87,065.28 84,925.68 99,001.20 120,249.78 135,714.68

152,674.39 161,463.83 167,962.04 169,262.52 169,262.52

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

Acco unt P87,860.00 128,566.72 120,349.28

1949

P24,657.65 51,301.31

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1950 1951

Net income as per investigation ................ P40,209.89 Income tax due thereon ............................... 8,042.00 25% surcharge .............................................. 2,010.50 Compromise for non-filing .......................... 50.00 Total ............................................................... P10,102.50 1956 Net income as per investigation ................ P69,245.23 Income tax due thereon ............................... 13,849.00 25% surcharge .............................................. 3,462.25 Compromise for non-filing .......................... 50.00 Total ............................................................... P17,361.25 (See Exhibit 13, page 50, BIR records) Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the questioned assessment refers solely to the income tax proper for the years 1955 and 1956 and the "Compromise for nonfiling," the latter item obviously referring to the compromise in lieu of the criminal liability for failure of petitioners to file the corporate income tax returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to Petition) Petitioners have assigned the following as alleged errors of the Tax Court: I. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP; II. THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM (sic); III.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP; IV. ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS; V. ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP. In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of Tax Appeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased Julia Buales and the profits derived from transactions involving the same, or, must they be deemed to have formed an unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2) Assuming they have formed an unregistered partnership, should this not be only in the sense that they invested as a common fund the profits earned by the properties owned by them in common and the loans granted to them upon the security of the said properties, with the result that as far as their respective shares in the inheritance are concerned, the total income thereof should be considered as that of co-owners and not of the unregistered partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not the various amounts already paid by them for the same years 1955 and 1956 as individual income taxes on their respective shares of the profits accruing from the properties they owned in common be deducted from the deficiency corporate taxes, herein involved, assessed against such unregistered partnership by the respondent Commissioner? Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since those dates admittedly under the administration or management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in question refers to the later years 1955 and 1956. We believe this point to be important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal

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Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered them as having formed an unregistered partnership. At least, there is nothing in the record indicating that an earlier assessment had already been made. Such being the case, and We see no reason how it could be otherwise, it is easily understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact that they were not similarly assessed earlier by the Bureau of Internal Revenue. The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceed from the sales thereof in real properties and securities," as a result of which said properties and investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account" in 1956. And all these became possible because, admittedly, petitioners never actually received any share of the income or profits from Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of the profits of their common business as reported by the said Lorenzo T. Oa. It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures were divided among petitioners proportionately in accordance with their respective shares in the inheritance. In these circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the Tax Code. It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as coowners continues until the inheritance is actually and physically distributed among the heirs, for it is easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding said shares under the common management of the administrator or executor or of

anyone chosen by them and engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code. It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not something they found already in existence" and that "it was not a property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all instances where an inheritance is not actually divided, there can be no unregistered copartnership. As already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his coheirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed. This is exactly what happened to petitioners in this case. In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived," and, for that matter, on any other provision of said code on partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil Code from that of unregistered partnerships which are considered as "corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus: To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships," which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized."

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This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in confirmity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes, among others, "joint accounts,(cuentas en participacion)" and "associations", none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general co-partnerships" which are possessed of the aforementioned personality have been expressly excluded by law (sections 24 and 84[b]) from the connotation of the term "corporation." .... xxx xxx xxx Similarly, the American Law ... provides its own concept of a partnership. Under the term "partnership" it includes not only a partnership as known in common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated organization which carries on any business, financial operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income Taxation, p. 789; emphasis ours.) The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.) For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships with the exception only of duly registered general copartnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations. We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of coownership pursued by appellants therein.

As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes in question, of their inherited properties from those acquired by them subsequently, We consider as justified the following ratiocination of the Tax Court in denying their motion for reconsideration: In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding should be limited to the business engaged in apart from the properties inherited by petitioners. In other words, the taxable income of the partnership should be limited to the income derived from the acquisition and sale of real properties and corporate securities and should not include the income derived from the inherited properties. It is admitted that the inherited properties and the income derived therefrom were used in the business of buying and selling other real properties and corporate securities. Accordingly, the partnership income must include not only the income derived from the purchase and sale of other properties but also the income of the inherited properties. Besides, as already observed earlier, the income derived from inherited properties may be considered as individual income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but the moment their respective known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that the income of such shares should be considered as the part of the taxable income of an unregistered partnership. This, We hold, is the clear intent of the law. Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court. Pertinently, the court ruled this wise: In support of the third ground, counsel for petitioners alleges: Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed an unregistered partnership and, therefore, have to be taxed as such, it might be recalled that the petitioners in their individual income tax returns reported their shares of the profits of the unregistered partnership. We think it only fair and equitable that the various amounts paid by the individual petitioners as income tax on their respective shares of the unregistered partnership should be deducted from the deficiency income tax found by this Honorable Court against the unregistered partnership. (page 7, Memorandum for the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)

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In other words, it is the position of petitioners that the taxable income of the partnership must be reduced by the amounts of income tax paid by each petitioner on his share of partnership profits. This is not correct; rather, it should be the other way around. The partnership profits distributable to the partners (petitioners herein) should be reduced by the amounts of income tax assessed against the partnership. Consequently, each of the petitioners in his individual capacity overpaid his income tax for the years in question, but the income tax due from the partnership has been correctly assessed. Since the individual income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to pass upon the same. Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as individual income tax cannot be credited as part payment of the taxes herein in question. It is argued that to sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same income, and, worse, considering the time that has lapsed since they paid their individual income taxes, they may already be barred by prescription from recovering their overpayments in a separate action. We do not agree. As We see it, the case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of course, such taxpayer has the right to be reimbursed what he has erroneously paid, but the law is very clear that the claim and action for such reimbursement are subject to the bar of prescription. And since the period for the recovery of the excess income taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard prescription merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make the proper return and payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax obligation to the State. IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs against petitioners. Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur. Reyes, J.B.L. and Teehankee, JJ., concur in the result. Castro, J., took no part. Concepcion, C.J., is on leave. Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION G.R. No. L-68118 October 29, 1985 JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters, petitioners vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents. Demosthenes B. Gadioma for petitioners.

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

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Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains already paid by them. The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822). The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented. Hence, the instant appeal. We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves. To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated. As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction. Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeas says: Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad? El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad presupone necesariamente la convencion, mentras que la comunidad puede existir y existe ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer su conservacion.

orientacion de la doctrina cientifica seala como nota fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la finalidad perseguida por los interesados: lucro comun partible en la sociedad, y mera conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329). Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.* Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership. The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oa vs. ** This view is supported by the following rulings of respondent Commissioner: Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in questionpro-indiviso from their deceased parents; they did not contribute or invest additional ' capital to increase or expand the inherited properties; they merely continued dedicating the property to the use to which it had been put by their forebears; they individually reported in their tax returns their corresponding shares in the income and expenses of the 'hacienda', and they continued for many years the status of co-ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the existing contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963). All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).

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Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de bienes y contrato de sociedad, la moderna

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was held that they were taxable as an unregistered partnership. It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a lot and building, entrusted the administration of the building to an administrator and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an unregistered partnership. In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might have already prescribed. WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs. SO ORDERED. Abad Santos, Escolin, Cuevas and Alampay, JJ., concur. Concepcion, Jr., is on leave.

Romualdez Brothers and Harvey and OBrien for appellant. Jose M. Casal, Alberto Barretto and Gibbs and McDonough for appellee. Vickers, J.: This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First Instance of Manila. The case was tried on the amended complaint dated May 26, 1928 and defendants amended answer thereto of September 1, 1928. For the sake of clearness, we shall incorporate herein the principal allegations of the parties. FIRST CAUSE OF ACTION Plaintiff alleged: I That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%) of the capital stock of the defendant Menzi & Co., Inc., that the plaintiff has been informed and therefore believes that the defendant J.M. Menzi, his wife and daughter, together with the defendant P.C. Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant, Menzi & Co., Inc.; II That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager, J.M. Menzi, under the authority of the board of directors, entered into a contract with the plaintiff to engage in the business of exploiting prepared fertilizers, as evidenced by the contract marked Exhibit A, attached to the original complaint as a part thereof, and likewise made a part of the amended complaint, as if it were here copied verbatim; III That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture prepared fertilizers, the former superintending the work of actual preparation, and the latter, through defendants J.M. Menzi and P. C. Schlobohm, managing the business and opening an account entitled FERTILIZERS on the books of the defendant Menzi & Co., Inc., where all the accounts of the partnership business were supposed to be kept; the plaintiff had no participation in the making of

The Lawphil Project - Arellano Law Foundation Republic of the Philippines SUPREME COURT Manila EN BANC DECISION March 31, 1933

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G.R. No. L-35840 FRANCISCO BASTIDA, plaintiff-appellee, vs. MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants. MENZI & CO., appellant.

these entries, which were wholly in the defendants charge, under whose ord ers every entry was made; IV That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged to render annual balance sheets to be plaintiff upon the 30th day of June of each year; that the plaintiff had no intervention in the preparation of these yearly balances, nor was he permitted to have any access to the books of account; and when the balance sheets were shown him, he, believing in good faith that they contained the true statement of the partnership business, and relying upon the good faith of the defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and signed them, the last balance sheet having been rendered in the year 1926; V That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the plaintiff was kept in ignorance of the defendants acts relating to the management of the partnership funds, and the keeping of accounts, until he was informed and so believes and alleges, that the defendants had conspired to conceal from him the true status of the business, and to his damage and prejudice made false entries in the books of account and in the yearly balance sheets, the exact nature and amount of which it is impossible to ascertain, even after the examination of the books of the business, due to the defendants refusal to furnish all the books and data required for the purpose, and the constant obstacles they have placed in the way of the examination of the books of account and vouchers; VI That when the plaintiff received the information mentioned in the preceding paragraph, he demanded that the defendants permit him to examine the books and vouchers of the business, which were in their possession, in order to ascertain the truth of the alleged false entries in the books and balance sheets submitted for his approval, but the defendants refused, and did not consent to the examination until after the original complaint was filed in this case; but up to this time they have refused to furnish all the books, data, and vouchers necessary for a complete and accurate examination of all the partnerships accounts; and VII

That as a result of the partial examination of the books of account of the business, the plaintiff has, through his accountants, discovered that the defendants, conspiring and confederating together, presented to the plaintiff during the period covered by the partnership contract false and incorrect accounts, (a) For having included therein undue interest; (b) For having entered, as a charge to fertilizers, salaries and wages which should have been paid and were in fact paid by the defendant Menzi & Co., Inc.; (c) For having collected from the partnership the income tax which should have been paid for its own account by Menzi & Co., Inc.; (d) For having collected, to the damage and prejudice of the plaintiff, commissions on the purchase of materials for the manufacture of fertilizers; (e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained from the sale of fertilizers belonging to the partnership and bought with its own funds; and (f) For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon materials for fertilizer bought abroad, no entries of said rebates having been made on the books to the credit of the partnership. Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court: 1. To prohibit the defendants, each and every one of them, from destroying and concealing the books and papers of the partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff; 2. To summon each and every defendant to appear and give a true account of all facts relating to the partnership between the plaintiff and the defendant Menzi & Co., Inc., and of each and every act and transaction connected with the business of said partnership from the beginning to April 27, 1927, and a true statement of all merchandise of whatever description, purchased for said partnership, and of all the expenditures and sale of every kind, together with the true amount thereof, besides the sums received by the partnership from every source together with their exact nature, and a true and complete account of the vouchers for all sums paid by the partnership, and of the salaries paid to its employees;

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3. To declare null and void the yearly balances submitted by the defendants to the plaintiff from 1922 to 1926, both inclusive; 4. To order the defendants to give a true statement of all receipts and disbursements of the partnership during the period of its existence, besides granting the plaintiff any other remedy that the court may deem just and equitable. EXHIBIT A CONTRATO que se celebra entre los Sres. Menzi y Compaia, de Manila, como Primera Parte, y D. Francisco Bastada, tambien de Manila, como Segunda Parte, bajo las siguientes CONDICIONES 1. El objeto de este contrato es la explotacion del negocio de Abonos o Fertilizantes Preparados, para diversas aplicaciones agricolas;

suelo de la manufactura filipinos, pudiendo sin embargo vender o negociar en materim fertilizantes simples importados de los Estados Unidos o del Extranjero; 7. La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35 por ciento (treinta y cinco por ciento) de las utilidades netas del negocio de abonos, liquidables el 30 de junio de cada ao; 8. La Primera Parte facilitara la Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a cuenta de su parte de beneficios. 9. Durante el ao 1923 la Parte concedera a la Segunda permiso para que este se ausente de Filipinas por un periodo de tiempo que no exceda de un ao, sin menoscabo para derechos de la Segunda Parte con arreglo a este contrato. En testimonio de lo cual firmamos el presente en la Ciudad de Manila, I. F., a veintisiete de abril de 1922. MENZI & CO., INC.Por (Fdo.) J. MENZIGeneral ManagerPrimera Parte (Fdo.) F. BASTIDASegunda Parte

2. La duracion de este contrato sera de cinco aos, a contrar desde la fecha de su firma; MENZI & CO., INC.(Fdo.) MAX KAEGIActing Secretary 3. La Primera Parte se compromete a facilitar la ayuda financiera necesaria para el negocio; Defendants denied all the allegations of the amended complaint, except the formal allegations as to 4. La Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la disposicion del negocio; 1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general merchandise 5. La Segunda Parte no podra, directa o indirectamente, dedicarse por si sola ni en sociedad con otras personas, o de manera alguna que no sea con la Primera Parte, al negecio de Abonos, simples o preparados, o de materia alguna que se aplique comunmente a la fertilizacion de suelos y plantas, durante la vigencia de este contrato, a menos que obtenga autorizacion expresa de la Primera Parte para ello; 6. La Primera Parte no podra dedicarse, por si sola ni en sociedad o combinacion con otras personas o entidades, ni de otro modo que en sociedad con la Segunda Parte, al negocio de Abonos o Fertilizantes preparados, ya sean ellos importados, ya preparados en las Islas Fllipinas; tampoco 2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an employment agreement with the plaintiff, who represented that he had had much experience in the mixing of fertilizers, to superintend the mixing of the ingredients in the manufacture of prepared fertilizers in its fertilizer department and to obtain orders for such prepared fertilizers subject to its approval, for a compensation of 50 per cent of the net profits which it might derive from the sale of business in the Philippine Islands since its organization in October, 1921, including the importation and sale of all kinds of goods, wares, and merchandise, and especially simple fertilizer and fertilizer ingredients, and as a part of that business, it has been engaged since its organization in the manufacture and sale of prepared fertilizers for agricultural purposes, and has used for that purpose trade-marks belonging to it; the parties, and as a special defense to the first cause of action alleged:

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podra dedicarse a la venta o negocio de materias o productos que tengan aplicacion como fertilizantes, o que se usen en la composicion de fertilizantes o abonos, si ellos son productos de

the fertilizers prepared by him, and that said Francisco Bastida worked under said agreement until April 27, 1922, and received the compensation agreed upon for his services; that on the said 27th of April, 1922, the said Menzi & Co., Inc., and the said Francisco Bastida made and entered into the written agreement, which is marked Exhibit A, and made a part of the amended complaint in this case, whereby they mutually agreed that the employment of the said Francisco Bastida by the said Menzi & Co., Inc., in the capacity stated, should be for a definite period of five years from that date and under the other terms and conditions stated therein, but with the understanding and agreement that the said Francisco Bastida should receive as compensation for his said services only 35 per cent of the net profits derived from the sale of the fertilizers prepared by him during the period of the contract instead of 50 per cent of such profits, as provided in his former agreement; that the said Francisco Bastida was found to be incompetent to do anything in relation to its said fertilizer business with the exception of over-seeing the mixing of the ingredients in the manufacture of the same, and on or about the month of December, 1922, the defendant, Menzi & Inc., in order to make said business successful, was obliged to and actually did assume the full management and direction of said business; 3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc., were duly kept in the regular books of its general business, in the ordinary course thereof, up to June 30, 1923, and that after that time and during the remainder of the period of said agreement, for the purpose of convenience in determining the amount of compensation due to the plaintiff under his agreement, separate books of account for its said fertilizer business were duly, kept in the name of Menzi & Co., Inc., Fertilizer, and used exclusively for that purpose and it was mutually agreed between the said Francisco Bastida and the said Menzi & Co., Inc., that the yearly balances for the determination of the net profits of said business due to the said plaintiff as compensation for his services under said agreement would be made as of December 31st, instead of June 30th, of each year, during the period of said agreement; that the accounts of the business of its said fertilizer department, as recorded in its said books, and the vouchers and records supporting the same, for each year of said business have been duly audited by Messrs. White, Page & Co., certified public accountants, of Manila, who, shortly after the close of business at the end of each year up to and including the year 1926, have prepared therefrom a manufacturing and profit and loss account and balance sheet, showing the status of said business and the share of the net profits pertaining to the plaintiff as his compensation under said agreement; that after the said manufacturing and profit and the loss account and balance sheet for each year of the business of its said fertilizer department up to and including the year 1926, had been prepared by the said auditors and certified by them, they were shown to and examined by the

plaintiff, and duly accepted, and approved by him, with full knowledge of their contents, and as evidence of such approval, he signed his name on each of them, as shown on the copies of said manufacturing and profit and loss account and balance sheet for each year up to and including the year 1926, which are attached to the record of this case, and which are hereby referred to and made a part of this amended answer, and in accordance therewith, the said plaintiff has actually received the portion of the net profits of its said business for those years pertaining to him for his services under said agreement; that at no time during the course of said fertilizer business and the liquidation thereof has the plaintiff been in any way denied access to the books and records pertaining thereto, but on the contrary, said books and records have been subject to his inspection and examination at any time during business hours, and even since the commencement of this action, the plaintiff and his accountants, Messrs. Haskins & Sells, of Manila, have been going over and examining said books and records for months and the defendant, Menzi & Co. Inc., through its officers, have turned over to said plaintiff and his accountant the books and records of said business and even furnished them suitable accommodations in its own office to examine the same; 4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly notified the plaintiff that it would not under any conditions renew his said agreement or continue his said employment with it after its expiration, and after the termination of said agreement of April 27, 1927, the said Menzi & Co., Inc., had the certified public accountants, White, Page & Co., audit the accounts of the business of its said fertilizer department for the four months of 1927 covered by plaintiffs agreement and prepare a manufacturing and profit and loss account and balance sheet of said business showing the status of said business at the termination of said agreement, a copy of which was shown to and explained to the plaintiff; that at that time there were accounts receivable to be collected for business covered by said agreement of over P100,000, and there was guano, ashes, fine tobacco and other fertilizer ingredients on hand of over P75,000, which had to be disposed of by Menzi & Co., Inc., or valued by the parties, before the net profits of said business for the period of the agreement could be determined; that Menzi & Co., Inc., offered to take the face value of said accounts and the cost value of the other properties for the purpose of determining the profits of said business for that period, and to pay to the plaintiff at that time his proportion of such profits on that basis, which the plaintiff refused to accept, and being disgruntled because the said Menzi & Co., Inc., would not continue him in its service, the said plaintiff commenced this action, including therein not only Menzi & Co. Inc., but also it managers J.M. Menzi and P.C. Schlobohm, wherein he knowingly make various false and malicious allegations against the defendants; that since that time the said Menzi & Co., Inc., has been collecting the accounts

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receivable and disposing of the stocks on hand, and there is still on hand old stock of approximately P25,000, which it has been unable to dispose of up to this time; that as soon as possible a final liquidation and amounting of the net profits of the business covered by said agreement for the last four months thereof will be made and the share thereof appertaining to the plaintiff will be paid to him; that the plaintiff has been informed from time to time as to the status of the disposition of such properties, and he and his auditors have fully examined the books and records of said business in relation thereto. SECOND CAUSE OF ACTION As a second cause of action plaintiff alleged: I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II. That the examination made by the plaintiffs auditors of some of the books of the partnership that were furnished by the defendants disclosed the fact that said defendants had charged to purchases of the business, undue interest, the amount of which the plaintiff is unable to determine, as he has never had at his disposal the books and vouchers necessary for that purpose, and especially, owning to the fact that the partnership constituted between the plaintiff and the defendant Menzi & Co., Inc., never kept its own cash book, but that its funds were maliciously included in the private funds of the defendant entity, neither was there a separate BANK ACCOUNT of the partnership, such account being included in the defendants bank account. III. That from the examination of the partnership books as aforesaid, the plaintiff estimates that the partnership between himself and the defendant Menzi & Co., Inc., has been defrauded by the defendants by way of interest in an amount of approximately P184,432.51, of which 35 per cent, or P64,551.38, belongs to the plaintiff exclusively. Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally to pay him the sum of P64,551.38, or any amount which may finally appear to be due and owing from the defendants to the plaintiff upon this ground, with legal interest from the filing of the original complaint until payment.

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That under the contract of employment, Exhibit A, of the amended complaint, the defendant, Menzi & Co., Inc., only undertook and agreed to facilitate financial aid in carrying on the said fertilizer business, as it had been doing before the plaintiff was employed under the said agreement; that the said defendant, Menzi & Co., Inc., in the course of the said business of its fertilizer department, opened letters of credit through the banks of Manila, accepted and paid drafts drawn upon it under said letters of credit, and obtained loans and advances of moneys for the purchase of materials to be used in mixing and manufacturing its fertilizers and in paying the expenses of said business; that such drafts and loans naturally provided for interest at the banking rate from the dates thereof until paid, as is the case in all, such business enterprises, and that such payments of interest as were actually made on such drafts, loans and advances during the period of the said employment agreement constituted legitimate expenses of said business under said agreement. THIRD CAUSE OF ACTION As third cause of action, plaintiff alleged: I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and P.C. Schlobohm, nor the defendant Menzi & Co., Inc., had a right to collect for itself or themselves any amount whatsoever by way of salary for services rendered to the partnership between the plaintiff and the defendant, inasmuch as such services were compensated with the 65% of the net profits of the business constituting their share. III. That the plaintiff has, on his on account and with his own money, paid all the employees he has placed in the service of the partnership, having expended for their account, during the period of the contract, over P88,000, without ever having made any claim upon the defendants for this sum because it was included in the compensation of 35 per cent which he was to receive in accordance with the contract Exhibit A. IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue and excessive salaries for themselves, have made the partnership, or the fertilizer business, pay the salaries of a number of the employees of the defendant Menzi & Co., Inc.

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Defendants alleged:

V. That under this item of undue salaries the defendants have appropriated P43,920 of the partnership funds, of which 35 per cent, or P15,372 belongs exclusively to the plaintiff. Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and severally to the plaintiff the amount of P15,372, with legal interest from the date of the filing of the original complaint until the date of payment. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the special defense the first cause of action in this amended answer; 2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and conducted its said fertilizer business, in which the plaintiff was to receive 35 percent of the net profits as compensation for this services, as hereinbefore alleged, from on or about January 1, 1923, when its other departments had special experienced Europeans in charge thereof, who received not only salaries but also a percentage of the net profits of such departments; that its said fertilizer business, after its manager took charge of it, became very successful, and owing to the large volume of business transacted, said business required great deal of time and attention, and actually consumed at least one-half of the time of the manager and certain employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co., furnished office space, stationery and other incidentals, for said business, and had its employees perform the duties of cashiers, accountants, clerks, messengers, etc., for the same, and for that reason the said Menzi & Co., Inc., charged each year, from and after 1922, as expenses of said business, which pertained to the fertilizer department, as certain amount as salaries and wages to cover the proportional part of the overhead expenses of Menzi & Co., Inc.; that the same method is followed in each of the several departments of the business of Menzi & Co., Inc., that each and every year from and after 1922, a just proportion of said overhead expenses were charged to said fertilizer departments and entered on the books thereof, with the knowledge and consent of the plaintiff, and included in the auditors reports, which were examined, accepted and approved by him, and he is now estopped from saying that such expenses were not legitimate and just expenses of said business.

I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action. II. That the defendant Menzi & Co., Inc., through the defendant J. M. Menzi and P. C. Schlobohm, has paid, with the funds of the partnership between the defendant entity and the plaintiff, the income tax due from said defendant entity for the fertilizer business, thereby defrauding the partnership in the amount of P10,361.72 of which 35 per cent belongs exclusively to the plaintiff, amounting to P3,626.60. III. That the plaintiff has, during the period of the contract, paid with his own money the income tax corresponding to his share which consists in 35 per cent of the profits of the fertilizer business, expending about P5,000 without ever having made any claim for reimbursement against the partnership, inasmuch as it has always been understood among the partners that each of them would pay his own income tax. Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff the sum of P3,362.60, with legal interest from the date of the filing of the original complaint until its payment. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to the Government of the Philippine Islands each year during the period of the agreement, Exhibit A, of the income of its whole business, including its fertilizer department; that the proportional share of such income taxes found to be due on the business of the fertilizer department was charged as a proper and legitimate expense of that department, in the same manner as was done in the other departments of its business; that inasmuch as the agreement with the plaintiff was an employment agreement, he was required to make his own return under the Income Tax Law and to pay his own income taxes, instead of having them paid at the source, as might be done under the law, so that he would be entitled to the personal exemptions allowed by the law; that the income taxes paid by the said Menzi & Co., Inc., pertaining to the business, were duly entered on the books of that department, and included in the auditors reports hereinbefore referred to, which reports were examined, accepted and approved by the plaintiff, with full knowledge of their contents, and he is now estopped from saying that such taxes are not a legitimate expense of said business.

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FOURTH CAUSE OF ACTION As fourth cause of action, the plaintiff alleged:

FIFTH CAUSE OF ACTION As fifth cause of action, plaintiff alleged: I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been receiving, during the period of the contract Exhibit A, from foreign firms selling fertilizing material, a secret commission equivalent to 5 per cent of the total value of the purchases of fertilizing material made by the partnership constituted between the plaintiff and the defendant Menzi Co., Inc., and that said 5 per cent commission was not entered by the defendants in the books of the business, to the credit and benefit of the partnership constituted between the plaintiff and the defendant, but to the credit of the defendant Menzi Co., Inc., which appropriated it to itself. III. That the exact amount, or even the approximate amount of the fraud thus suffered by the plaintiff cannot be determined, because the entries referring to these items do not appear in the partnership books, although the plaintiff believes and alleges that they do appear in the private books of the defendant Menzi & Co., Inc., which the latter has refused to furnish, notwithstanding the demands made therefore by the auditors and the lawyers of the plaintiff. IV. That taking as basis the amount of the purchases of some fertilizing material made by the partnership during the first four years of the contract Exhibit A, the plaintiff estimates that this 5 per cent commission collected by the defendant Menzi Co., Inc., to the damage and prejudice of the plaintiff, amounts to P127,375.77 of which 35 per cent belongs exclusively to the plaintiff. Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the plaintiff the amount of P44,581.52, or the exact amount owed upon this ground, after both parties have adduced their evidence upon the point. Defendants alleged: 1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer;

for its propaganda work in advertising and bringing about sales of its potash a commission of 5 per cent on all orders of potash received by it from the Philippine Islands; that during the period of said agreement, Exhibit A, orders were sent to said concern for potash, through C. Andre & Co., of Hamburg, as the agent of the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per cent commission, amounting in all to P2,222.32 for the propaganda work which it did for said firm in the Philippine Islands; that said commissioners were not in any sense discounts on the purchase price of said potash, and have no relation to the fertilizer business of which the plaintiff was to receive a share of the net profits for his services, and consequently were not credited to that department; 3. That in going over the books of Menzi Co., Inc., it has been found that there are only two items of commissions, which were received from the United Supply Co., of San Francisco, in the total of sum $66.51, which through oversight, were not credited on the books of the fertilizer department of Menzi & Co., Inc., but due allowance has now been given to the department for such item. SIXTH CAUSE OF ACTION As sixth cause of action, plaintiff alleged: I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action. II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M. Menzi and P.C. Schlobohm and their assistants, has tampered with the books of the business making fictitious transfers in favor of the defendant Menzi & Co., Inc., of merchandise belonging to the partnership, purchased with the latters money, and deposited in its warehouses, and then sold by Menzi & Co., Inc., to third persons, thereby appropriating to itself the profits obtained from such resale. III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this respect as the real amount obtained from such sales can only be ascertained from the examination of the private books of the defendant entity, which the latter has refused to permit notwithstanding the demand made for the purpose by the auditors and the lawyers of the plaintiff, and no basis of computation can be established, even approximately, to ascertain the extent of the fraud sustained by the plaintiff in this respect, by merely examining the partnership books.

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2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement, Exhibit A, and has now what is called a Propaganda Agency Agreement which the Deutsches Kalesyndikat, G.M.B., of Berlin, which is a manufacturer of potash, by virtue of which said Menzi & Co., Inc., was to receive Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement as to all the profits received from the sale to third persons of the fertilizers

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pertaining to the partnership, and the profits they have appropriated, ordering them jointly and severally to pay 35 per cent of the net amount, with legal interest from the filing of the original complaint until the payment thereof. Defendant alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer: 2. That under the express terms of the employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., had the right to import into the Philippine Islands in the course of its fertilizer business and sell fro its exclusive account and benefit simple fertilizer ingredients; that the only materials imported by it and sold during the period of said agreement were simple fertilizer ingredients, which had nothing whatever to do with the business of mixed fertilizers, of which the plaintiff was to receive a share of the net profits as a part of his compensation. SEVENTH CAUSE OF ACTION As seventh cause of action, plaintiff alleged: I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for the account of the partnership constituted between itself and the plaintiff, and with the latters money, purchased from a several foreign firms various simple fertilizing material for the use of the partnership. III. That in the paid invoices for such purchases there are charged, besides the cost price of the merchandise, other amounts for freight, insurance, duty, etc., some of which were not entirely thus spent and were later credited by the selling firms to the defendant Menzi & Co., Inc. IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M. Menzi and P.C. Schlobohm upon receipt of the credit notes remitted by the selling firms of fertilizing material, for rebates upon freight, insurance, duty, etc., charged in the invoice but not all expended, did not enter them upon the books to the credit of the partnership constituted between the defendant and the plaintiff, but entered or had them entered to the credit on Menzi & Co., Inc.,

permit notwithstanding the demand to this effect made upon them by the auditors and the lawyers of the plaintiff. Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement as to the total amount of such rebates, and to sentence the defendants to pay the plaintiff jointly and severally 35 per cent of the net amount. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer: 2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., received from its agent, C. Andre & Co., of Hamburg, certain credits pertaining to the fertilizer business in the profits of which the plaintiff was interested, by way of refunds of German Export Taxes, in the total sum of P1,402.54; that all of department as received, but it has just recently been discovered that through error an additional sum of P216.22 was credited to said department, which does not pertain to said business in the profits of which the plaintiff is interested. EIGHT CAUSE OF ACTION A eighth cause of action, plaintiff alleged: I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action. II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of the complaint, the defendant Menzi & Co., Inc., acting as manager of the fertilizer business constituted between said defendant and the plaintiff, entered into a contract with the Compaia General de Tabacos de Filipinas for the sale of said entity of three thousand tons of fertilizers of the trade mark Corona No. 1, at the rate of P111 per ton, f. o. b. Bais, Oriental N egros, to be delivered, as they were delivered, according to information received by the plaintiff, during the months of November and December, 1927, and January, February, March, and April, 1928. III. That both the contract mentioned above and the benefits derived therefrom, which the plaintiff estimates at P90,000, Philippine currency, belongs to the fertilizer business constituted between the plaintiff and the defendant, of which 35 per cent, or P31,500, belongs to said plaintiff. IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27, 1927, the defendants have not rendered a true accounting of the profits obtained by the business during the last four months thereof, as the purposed balance submitted to the plaintiff was incorrect with regard to the inventory of merchandise, transportation equipment, and the value of the trade marks,

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thereby defrauding the plaintiff of 35 per cent of the value of such reductions. V. That the total amount, or even the approximate amount of this fraud cannot be ascertained without an examination of the private books of Menzi & Co., Inc., which the latter has refused to

for which reason such proposed balance did not represent the true status of the business of the partnership on April 30, 1927. V. That the proposed balance submitted to the plaintiff with reference to the partnership operations during the last four months of its existence, was likewise incorrect, inasmuch as it did not include the profit realized or to be realized from the contract entered into with the Compaia General de Tabacos de Filipinas, notwithstanding the fact that this contract was negotiated during the existence of the partnership, and while the defendant Menzi & Co., Inc., was the manager thereof. VI. That the defendant entity now contends that the contract entered into with the Compaia General de Tabacos de Filipinas belongs to it exclusively, and refuses to give the plaintiff his share consisting in 35 per cent of the profits produced thereby. Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed account of the business during the last four months of the existence of the partnership, i. e., from January 1, 1927 to April 27, 1927, and to sentence them likewise to pay the plaintiff 35 per cent of the net profits. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from the Compaia General de Tabacos Filipinas on April 21, 1927, was taken by it in the regular course of its fertilizer business, and was to be manufactured and delivered in December, 1927, and up to April, 1928; that the employment agreement of the plaintiff expired by its own terms on April 27, 1927, and he has not been in any way in the service of the defendant, Menzi & Co., Inc., since that time, and he cannot possibly have any interest in the fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the expiration of his contract for any service rendered to it. NINTH CAUSE OF ACTION As ninth cause of action, plaintiff alleged: I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing business a prosperous concern to such an extent that the profits obtained from the business during the five years it has existed, amount to approximately P1,000,000, Philippine currency. IV. That the value of the good will and the trade marks of a business of this nature amounts to at least P1,000,000, of which sum 35 per cent belongs to the plaintiff, or, P350,000. V. That at the time of the expiration of the contract Exhibit A, the defendant entity, notwithstanding and in spite of the plaintiffs insistent opposition, has assumed the charge of liquidating the fer tilizing business, without having rendered a monthly account of the state of the liquidation, as required by law, thereby causing the plaintiff damages. VI. That the damages sustained by the plaintiff, as well as the amount of his share in the remaining property of the plaintiff, and may only be truly and correctly ascertained by compelling the defendants J. M. Menzi and P. C. Schlobohm to declare under oath and explain to the court in detail the sums obtained from the sale of the remaining merchandise, after the expiration of the partnership contract. VII. That after the contract Exhibit A had expired, the defendant continued to use for its own benefit the good-will and trade marks belonging to the partnership, as well as its transportation equipment and other machinery, thereby indicating its intention to retain such good-will, trade marks, transportation equipment and machinery, for the manufacture of fertilizers, by virtue of which the defendant is bound to pay the plaintiff 35 per cent of the value of said property. VIII. That the true value of the transportation equipment and machinery employed in the preparation of the fertilizers amounts of P20,000, 35 per cent of which amount to P7,000. IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and detailed account of the state of the liquidation of the partnership business, but said defendants has ignored such demands, so that the plaintiff does not, and this date, know whether the liquidation of the business has been finished, or what the status of it is at present. Wherefore, the plaintiff prays the Honorable Court: 1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed account of the status of business in liquidation, that is, from April 28, 1927, until it is finished, ordering all the defendants to pay the plaintiff jointly and severally 35 per cent of the net amount. 2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35 per cent of the value of the goodwill and the trade marks of the fertilizer business; 3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35

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II. That during the period of the contract Exhibit A, the partnership constituted thereby registered in the Bureau of Commerce and Industry the trade marks CORONA NO. 1, CORONA NO. 2, ARADO, and HOZ, the plaintiff and the defendant having by their efforts succeeded in making them favorably known in the market.

per cent of the value of the transportation equipment and machinery of the business; and 4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this Honorable Court may deem just and equitable. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc., pertains exclusively to it, and the plaintiff can have no interest therein of any nature under his said employment agreement; that the trade-marks mentioned by the plaintiff in his amended complaint, as a part of such good-will, belonged to and have been used by the said Menzi & Co., Inc., in its fertilizer business from and since its organization, and the plaintiff can have no rights to or interest therein under his said employment agreement; that the transportation equipment pertains to the fertilizer department of Menzi & Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own business, due and reasonable compensation for its use has been allowed to said business; that the machinery pertaining to the said fertilizer business was destroyed by fire in October, 1926, and the value thereof in the sum of P20,000 was collected from the Insurance Company, and the plaintiff has been given credit for 35 per cent of that amount; that the present machinery used by Menzi & Co., Inc., was constructed by it, and the costs thereof was not charged to the fertilizer department, and the plaintiff has no right to have it taken into consideration in arriving at the net profits due to him under his said employment agreement. The dispositive part of the decision of the trial court is as follows: Wherefore, let judgment be entered: (a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a contract of general regular commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the industrial partner; (b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets, Exhibits C to C-8, is not estopped from questioning the statements of the accounts therein contained; (c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P 60,385.67 with legal interest from the date of the filing of the original complaint until paid; (d) Dismissing the third cause of action; (e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum of

P3,821.41, with legal interest from the date of the filing of the original until paid; (f ) Dismissing the fifth cause of action; (g) Dismissing the sixth cause of action; (h) Dismissing the seventh cause of action; (i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum of P6,578.38 with legal interest from January 1, 1929, the date of the liquidation of the fertilizer business, until paid; (j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of P196,709.20 with legal interest from the date of the filing of the original complaint until paid; (k) Ordering the said defendant corporation, in view of the plaintiffs share of the profits of the business accruing from January 1, 1927 to December 31, 1928, to pay the plaintiff 35 per cent of the net balance shown in Exhibits 51 and 51-A, after deducting the item of P2,410 for income tax, and any other sum charged for interest under the entry Purchases; (l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit 52 and 52-A, to pay the plaintiff the sum of P17,463.54 with legal interest from January 1, 1929, until fully paid; (m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and (n) Menzi & Co., Inc., shall pay the costs of the trial. The appellant makes the following assignment of error: I. The trial court erred in finding and holding that the contract Exhibit A constitutes a regular collective commercial copartnership between the defendant corporation, Menzi & Co., Inc., and the plaintiff, Francisco Bastida, and not a contract of employment. II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged to the fertilizer business in question the sum of P10,918.33 as income taxes partners balances, foreign drafts, local drafts, and on other credit balances in the sum of P172,530.49, and that 35 per cent thereof, or the sum of P60,358.67, with legal interest thereon from the date of filing his complaint, corresponds to the plaintiff. III. The trial court erred finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged to the fertilizer business in question the sum of P10,918.33 as income taxes for the years 1923, 1924, 1925 and 1926, and that the plaintiff is entitled to 35 per cent thereof, or the sum of P3,821.41, with legal interest thereon from the date of filing his complaint, and in disallowing the item of P2,410 charged as income tax in the liquidation in Exhibits 51 and 51 A for the period from

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January 1 to April 27, 1927. IV. The trial court erred in refusing to find and hold under the evidence in this case that the contract, Exhibit A was daring the whole period thereof considered by the parties and performed by them as a contract of employment in relation to the fertilizer business of the defendant, and that the accounts of said business were kept by the defendant, Menzi & Co., Inc., on that theory with the knowledge and consent of the plaintiff, and that at the end of each year for five years a balance sheet and profit and loss statement of said business were prepared from the books of account of said business on the same theory and submitted to the plaintiff, and that each year said balance sheet and profit and loss statement were examined, approved and signed by said contract in accordance therewith with full knowledge of the manner in which said business was conducted and the charges for interest and income taxes made against the same and that by reason of such facts, the plaintiff is now estopped from raising any question as to the nature of said contract or the propriety of such charges. V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is entitled to 35 per cent of the net profits in the sum of P18,795.38 received by the defendant, Menzi & Co., Inc., from its contract with the Compaia General de Tabacos de Filipinas, or the sum of P6.578.38, with legal interest thereon from January 1, 1929, the date upon which the liquidation of said business was terminated. VI. The trial court erred in finding and holding that the value of the good-will of the fertilizer business in question was P562,312, and that the plaintiff, Francisco Bastida, was entitled to 35 per cent of such valuation, or the sum of P196,709.20, with legal interest thereon from the date of filing his complaint. VII. The trial court erred in rendering judgment in favor of the plaintiff and against defendant, Menzi & Co., Inc., (a) on the second cause of action, for the sum of P60,385.67, with legal interest thereon from the date of filing the complaint; (b) on the fourth cause of action, for the sum of P3,821.41, with legal interest thereon from the date of filing the complaint; (c) on the eight cause of action, for the sum of P6,578.38, with legal interest thereon from January 1, 1929; and (d) on the ninth cause of action, for the sum of P196,709.20, with legal interest thereon from the date of filing the original complaint; and (e) for the costs of the action, and in not approving the final liquidation of said business, Exhibits 51 and 51-A and 52 and 52-A, as true and correct, and entering judgment against said defendant only for the amounts admitted therein as due the plaintiff with legal interest, with the costs against the plaintiff.

through John Bordman and the Menzi-Bordman Co. the good-will, trade-marks, business, and other assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910 until that firm was taken over the Alien Property Custodian in 1917. Among the trademarks thus acquired by the appellant were those known as the ARADO, HOZ, and CORONA. They were registered in the Bureau of Commerce and Industry in the name of Menzi & Co. The trade marks ARADO and HOZ had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the trade mark CORONA had been used in its other business. The HOZ trade -mark was used by John Bordman and the Menzi-Bordman Co. in the continuation of the fertilizer business that had belonged to Behn, Meyer & Co., Ltd. The business of Menzi & Co., Inc., was divided into several different departments, each of which was in charge of a manager, who received a fixed salary and a percentage of the profits. The corporation had to borrow money or obtain credits from time to time and to pay interest thereon. The amount paid for interest was charged against the department concerned, and the interest charges were taken into account in determining the net profits of each department. The practice of the corporation was to debit or credit each department with interest at the bank rate on its daily balance. The fertilizer business of Menzi & Co., Inc., was carried on in accordance with this practice under the Sundries Department until July, 1923, and after that as a separate department. In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to see Toehl, the manager of the sundries department of Menzi & Co., Inc., and told him that he had a written contract with the Philippine Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons, but the he did not have the money to buy the ingredients to fill the order and carry on the on the business. He offered to assign to Menzi & Co., Inc., his contract with the Philippine Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain other orders for fifty per cent of the net profits that Menzi & Co., might derive therefrom. J.M. Menzi, the general manager of Menzi & Co., accepted plaintiffs offer. Plaintiff assigned to Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the defendant corporation proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer. On January 10, 1922 the defendant corporation at plaintiffs request gave him the following letter, Exhibit B: MANILA, 10 de enero de 1922 Sr. FRANCISCO BASTIDAManila

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VIII. The trial court erred in overruling the defendants motion for a new trial. It appears from the evidence that the defendants corporation was organized in 1921 for purpose of importing and selling general merchandise, including fertilizers and fertilizer ingredients. It appears

MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio, tenemos convenido para la explotacion del negocio de abono y fertilizantes, por la presente venimos en confirmar su derecho de 50 por ciento de las untilidades que se deriven del contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la Calamba Sugar Estates, asi como de cuantos contratos se cierren con definitiva de nuestro contrato mutuo, lo que formalizacion definitiva de nuestro contrato mutuo, lo que hacemos para garantia y seguridad de Vd. MENZI & CO.,Por (Fdo.) W. TOEHL Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff. It ordered ingredients from the United States and other countries, and the interest on the drafts for the purchase of these materials was changed to the business as a part of the cost of the materials. The mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1, 1922 under its CORONA brand. Menzi & Co., Inc., had only one bank account for its whole business. The fertilizer business had no separate capital. A fertilizer account was opened in the general ledger, and interest at the rate charged by the Bank of the Philippine Islands was debited or credited to that account on the daily balances of the fertilizer business. This was in accordance with appellants established practice, to which the plaintiff assented. On or about April 24, 1922 the net profits of the business carried on under the oral agreement were determined by Menzi & Co., Inc., after deducting interest charges, proportional part of warehouse rent and salaries and wages, and the other expenses of said business, and the plaintiff was paid some twenty thousand pesos in full satisfaction of his share of the profits. Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant corporation April 27, 1922 entered a written contract with the plaintiff, marked Exhibit A, which is the basis of the present action. The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in practically the same manner as it was prior thereto. The intervention of the plaintiff was limited to supervising the mixing of the fertilizers in Menzi & Co.s, Inc., bodegas. The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce & Industry in the name of Menzi & Co., Inc., and the fees were paid by that company. They were not changed to the fertilizer business, in which the plaintiff was interested. Only the fees for registering the formulas in the Bureau of Science were charged to the fertilizer business, and the total amount

export to other countries. This contract is rendered to in the record as the Vastago Contract. Menzi & Co., Inc., advanced the plaintiff, paying the salaries of his employees, and other expenses in performing his contract. White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month, and at the end of each year they prepared a balance sheet and a profit and loss statement of the fertilizer business. These statements were delivered to the plaintiff for examination, and after he had had an opportunity of verifying them he approved them without objection and returned them to Menzi & Co., Inc. Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer business the following amounts: 1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73 1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62 1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56 1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03 1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98 Total . . . . . . . . . . . . . . . . . . . . P196,483.92 To this amount must be added plaintiffs share of the net profi ts from January 1 to April 27, 1927, amounting to P34,766.87, making a total of P231,250.79. Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff that the contract for his services would not be renewed. When plaintiffs contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on hand materials and ingredients and two Ford trucks of the book value of approximately P75,000, and accounts receivable amounting to P103,000. There were claims outstanding and bills to pay. Before the net profits could be finally determined, it was necessary to dispose of the materials and equipment, collect the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss statement for the period from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused to accept it, and filed the present action. Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed to the plaintiff that the old and damaged stocks on hand having a book value of P40,000, which the defendant corporation had been unable to dispose of, be sold at public or private sale, or divided between the parties. The plaintiff refused to agree to this. The defendant corporation then applied to the trial court for an order for the sale of the remaining property at public auction, but

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thereof was credited to this business in the final liquidation on April 27, 1927. On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps to tobacco that it might need for its fertilizer business either in the Philippine Islands or for

apparently the court did not act on the petition. The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business was completed in December, 1928 and a final balance sheet and a profit and loss statement were submitted to the plaintiff during the trial. During the liquidation the books of Menzi & Co., Inc., for the whole period of the contract in question were reaudited by White, Page & Co.., certain errors of bookkeeping were discovered by them. After making the corrections they found the balance due the plaintiff to be P21,633.20. Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers of Menzi & Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co., Inc., was obliged to furnish free of charge all the capital the partnership should need. He naturally reached very different conclusions from those of the auditors of Menzi Co., Inc. We come now to a consideration of appellants assignment of error. After considering the evidence and the arguments of counsel, we are unanimously of the opinion that under the facts of this case the relationship established between Menzi & Co. and by the plaintiff was to receive 35 per cent of the net profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of supervising the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its execution justified the finding that it was a contract of copartnership. Exhibit A, as appears from the statement of facts, was in effect a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for one-half of the net profits derived by the corporation from certain fertilizer contracts. Plaintiff was paid his share of the profits from those transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests. Plaintiff never made any objection to defendants manner of keeping the accounts or to the charges. The business was continued in the same manner under the written agreement, Exhibit A, and for four years the plaintiff never made any objection. On the contrary he approved and signed every year the balance sheet and the profit and loss statement. It was only when plaintiffs contract was about to expire and the defendant corporation had notified him that it would not renew it that the plaintiff began to make objections. The trial court relied on article 116 of the Code of Commerce, which provides that articles of association by which two or more persons obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall be commercial, no matter

Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and a small percentage of the net profits, he was to receive 35 per cent of the net profits as compensation for his services. Menzi & Co., Inc., was to advanced him P300 a month on account of his participation in the profits. It will be noted that no provision was made for reimbursing Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now well settled that the old rule that sharing profits as profits made one a partner is overthrown. (Mechem, second edition, p. 89.) It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become partners. Great stress in laid by the trial judge and plaintiffs attorneys on the fact that in the sixth paragraph of Exhibit A the phrase en sociedad con is used in providing that defendant corporation not engage in the business of prepared fertilizers except in association with the plaintiff (en sociedad con). The fact is that en sociedad con as there used merely means en reunion con or in association with, and does not carry the meaning of in partnership with. The trial judge found that the defendant corporation had not always regarded the contract in question as an employment agreement, because in its answer to the original complaint it stated that before the expiration of Exhibit A it notified the plaintiff that it would not continue associated with him in said business. The trial judge concluded that the phrase associated with, used by the defendant corporation, indicated that it regarded the contract, Exhibit A, as an agreement of copartnership. In the first place, the complaint and answer having been superseded by the amended complaint and the answer thereto, and the answer to the original complaint not having been presented in evidence as an exhibit, the trial court was not authorized to take it into account. Where amended pleadings have been filed, allegations in the original pleadings are held admissible, but in such case the original pleadings can have no effect, unless formally offered in evidence. (Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil. 148.) In the second place, although the word associated may be related etymologically to the Spanish word socio, meaning partner, it does not in its common acceptation imply any partnership relation. The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay to the plaintiff 35 per cent of the net profits of the fertilizer business, to advance to him P300 a month on account of his share of the profits, and to grant him permission during 1923 to absent himself from the Philippines for not more than one year are utterly incompatible with the claim that it was the intention of the parties to form a copartnership. Various other reasons for holding that the parties were not partners are advanced in appellants brief. We do not deem it necessary to discuss them here. We merely wish to add that in the Vastago contract, Exhibit A, the plaintiff clearly

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what its class may be, provided it has been established in accordance with the provisions of this Code; but in the case at bar there was no common fund, that is, a fund belonging to the parties as joint owners or partners. The business belonged to Menzi & Co., Inc. The plaintiff was working for

recognized Menzi & Co., Inc., as the owners of the fertilizer business in question. As to the various items of the expense rejected by the trial judge, they were in our opinion proper charges and erroneously disallowed, and this would true even if the parties had been partners. Although Menzi & Co., Inc., agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary credit. Some of the contentions of the plaintiff and his expert witness Thompson are so obviously without merit as not to merit serious consideration. For instance, they objected to the interest charges on draft for materials purchased abroad. Their contention is that the corporation should have furnished the money to purchase these materials for cash, overlooking the fact that the interest was added to the cost price, and that the plaintiff was not prejudiced by the practice complained of. It was also urged, and this seems to us the height of absurdity, that the defendant corporation should have furnished free of charge such financial assistance as would have made it unnecessary to discount customers notes, thereby enabling the business to reap the interest. In other words, the defendant corporation should have enabled the fertilizer department to do business on a credit instead of a cash basis. The charges now complained of, as we have already stated, are the same as those made under the verbal agreement, upon the termination of which the parties made a settlement; the charges in question were acquiesced in by the plaintiff for years, and it is now too late for him to contest them. The decision of this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil. 474), is in point. A portion of the syllabus of that case reads as follows: 1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. Acts done by the parties to a contract in the course of its performance are admissible in evidence upon the question of its meaning, as being their own contemporaneous interpretation of its terms. 2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an action upon a contract containing a provision a doubtful application it appeared that under a similar prior contract the parties had, upon the termination of said contract, adjusted their rights and made a settlement in which the doubtful clause had been given effect in conformity with the interpretation placed thereon by one of the parties. Held: That this action of the parties under the prior contract could properly be considered upon the question of the interpretation of the same clause in the later contract. 3. ID.; ID.; ACQUIESCENCE. Where one of the parties to a contract acquiesces in the interpretation placed by the other upon a provision of doubtful application, the party so acquiescing is bound by such interpretation. 4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being aware at the time of the execution

thereof that the other placed a certain interpretation upon a provision of doubtful application, nevertheless proceeded, without raising any question upon the point, to perform the services which he was bound to render under the contract. Upon the termination of the contract by mutual consent a question was raised as to the proper interpretation of the doubtful provision. Held: That the party raising such question had acquiesced in the interpretation placed upon the contract by the other party and was bound thereby. The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived by Menzi & Co., Inc., from its contract for fertilizers with the Tabacalera. This finding in our opinion is not justified by the evidence. This contract was obtained by Menzi & Co., Inc., shortly before plaintiffs contract with the defendant corporation expired. Plaintiff tried to get the Tabacalera contract for himself. When this contract was filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no right to participate in the profits derived therefrom. Appellants sixth assignment of error is that the trial court erred in finding the value of the good -will of the fertilizer business in question to be P562,312, and that the plaintiff was entitled to 35 per cent thereof or P196,709.20. In reaching this conclusion the trial court unfortunately relied on the opinion of the accountant, Vernon Thompson, who assumed, erroneously as we have seen, that the plaintiff and Menzi & Co., Inc., were partners; but even if they had been partners there would have been no good-will to dispose of. The defendant corporation had a fertilizer business before it entered into any agreement with the plaintiff; plaintiffs agreement was for a fixed period, five years, and during that time the business was carried on in the name of Menzi & Co., Inc., and in Menzi & Co.s warehouses and after the expiration of plaintiffs contract Menzi & Co., Inc., continued its fertilizer business, as it had a perfect right to do. There was really nothing to which any good-will could attach. Plaintiff maintains, however, that the trade-marks used in the fertilizer business during the time that he was connected with it acquired great value, and that they have been appropriated by the appellant to its own use. That seems to be the only basis of the alleged good-will, to which a fabulous valuation was given. As we have seen, the trade- marks were not new. They had been used by Behn, Meyer & Co. in its business for other goods and one of them for fertilizer. They belonged to Menzi & Co., Inc., and were registered in its name; only the expense of registering the formulas in the Bureau of Science was charged to the business in which the plaintiff was interested. These trade-marks remained the exclusive property of Menzi & Co., and the plaintiff had no interest therein on the expiration of his contract. The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the evidence that said balance is correct.

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For the foregoing reasons, the decision appealed from is modified and the defendant corporation is sentenced to pay the plaintiff twenty-one thousand, six hundred and thirty-three pesos and twenty centavos (P21,633.20), with legal interest thereon from the date of the filing of the complaint on June 17, 1927, without a special finding as to costs. Street, Villamor, and Villa-Real, JJ., concur. Justice Hull participated in this case, but on account of his absence on leave at the time of the promulgation of the decision he authorized the undersigned to certify that he voted to modify the decision of the trial court as appears in the foregoing decision of this court. VILLAMOR, J., Presiding Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-12541 August 28, 1959

agreed to be established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in the lobby of the building as is ordinarily carried on in lobbies of theatres in operation, provided the said business may not obstruct the free ingress and agrees of patrons of the theatre; (4) that after December 31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but if the partnership agreement is terminated before the lapse of one and a half years period under any of the causes mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take away all improvements that the partnership may place in the premises. Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for the exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the partners in the same proportion as their capital contribution and the liability of Mrs. Yulo, in case of loss, shall be limited to her capital contribution (Exh. "B"). In June , 1946, they executed a supplementary agreement, extending the partnership for a period of three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between them at the rate of 50-50 and after December 31, 1950, the showhouse building shall belong exclusively to the second party, Mrs. Yulo. The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it was stipulated that the lease shall continue for an indefinite period of time, but that after one year the lease may be cancelled by either party by written notice to the other party at least 90 days before the date of cancellation. The last contract was executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a civil action to the Court of First Instance of Manila on July 3, 1949 to declare the lease of the premises. On February 9, 1950, the Municipal Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The judgment was appealed. In the Court of First Instance, the two cases were afterwards heard jointly, and judgment was rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring the contract of lease of the premises terminated as of July 31, 1949, and fixing the reasonable monthly rentals of said premises at P100. Both parties appealed from said decision and the Court of Appeals, on April 30, 1955, affirmed the judgment. On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make good to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants, vs. YANG CHIAO SENG, defendant-appellee. Punzalan, Yabut, Eusebio & Tiburcio for appellants. Augusto Francisco and Julian T. Ocampo for appellee. LABRADOR, J.: Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is prosecuted by plaintiff. The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run and operate a theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in advance within the first 15 days of each quarter, (2) that the partnership shall be for a period of two years and six months, starting from July 1, 1945 to December 31, 1947, with the condition that if the land is expropriated or rendered impracticable for the business, or if the owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner, then the partnership shall be terminated even if the period for which the partnership was

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In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on May 26, 1954, alleging the existence of a partnership between them and that the defendant Yang Chiao Seng has refused to pay her share from December, 1949 to December, 1950; that after December 31, 1950 the partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff became the absolute owner of the building occupied by the Cine Astor; that the reasonable rental that the defendant should pay therefor from January, 1951 is P5,000; that the defendant has acted maliciously and refuses to pay the participation of the plaintiff in the profits of the business amounting to P35,000 from November, 1949 to October, 1950, and that as a result of such bad faith and malice on the part of the defendant, Mrs. Yulo has suffered damages in the amount of P160,000 and exemplary damages to the extent of P5,000. The prayer includes a demand for the payment of the above sums plus the sum of P10,000 for the attorney's fees. In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to get around the prohibition contained in the contract of lease between the owners and the plaintiff against the sublease of the said property. As to the other claims, he denies the same and alleges that the fair rental value of the land is only P1,100. By way of counterclaim he alleges that by reason of an attachment issued against the properties of the defendant the latter has suffered damages amounting to P100,000. The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court heard evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment ordering the defendant to pay to the plaintiff P41,000 for her participation in the business up to December, 1950; P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until defendant vacates the same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until defendant vacates the property. This decision, however, was set aside on a motion for reconsideration. In said motion it is claimed that defendant failed to appear at the hearing because of his honest belief that a joint petition for postponement filed by both parties, in view of a possible amicable settlement, would be granted; that in view of the decision of the Court of Appeals in two previous cases between the owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged participation in the profit of the business, etc. The court, finding the above motion, well-founded, set aside its decision and a new trial was held. After trial the court rendered the decision making the following findings: that it is not true that a partnership was created between the plaintiff and the defendant because defendant has not actually contributed the sum mentioned in the Articles of Partnership, or any other amount; that the real agreement between the plaintiff and the defendant is not of the partnership but one of the lease for the reason that under the agreement the plaintiff did not share either in the profits or in the losses of the business as required by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a "guaranteed participation" in the profits also belies the supposed existence of a partnership between them. It. therefore, denied plaintiff's claim for damages or supposed participation in the profits.

As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of the theatre, the court after ocular inspection found that the said lobby was very narrow space leading to the balcony of the theatre which could not be used for business purposes under existing ordinances of the City of Manila because it would constitute a hazard and danger to the patrons of the theatre. The court, therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground that the defendant failed to present sufficient evidence to sustain the same. It is against this decision that the appeal has been prosecuted by plaintiff to this Court. The first assignment of error imputed to the trial court is its order setting aside its former decision and allowing a new trial. This assignment of error is without merit. As that parties agreed to postpone the trial because of a probable amicable settlement, the plaintiff could not take advantage of defendant's absence at the time fixed for the hearing. The lower court, therefore, did not err in setting aside its former judgment. The final result of the hearing shown by the decision indicates that the setting aside of the previous decision was in the interest of justice. In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out the evidence offered by the defendant-appellee to prove that the relation between him and the plaintiff is one of the sublease and not of partnership. The action of the lower court in admitting evidence is justified by the express allegation in the defendant's answer that the agreement set forth in the complaint was one of lease and not of partnership, and that the partnership formed was adopted in view of a prohibition contained in plaintiff's lease against a sublease of the property. The most important issue raised in the appeal is that contained in the fourth assignment of error, to the effect that the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease and not of partnership. We have gone over the evidence and we fully agree with the conclusion of the trial court that the agreement was a sublease, not a partnership. The following are the requisites of partnership: (1) two or more persons who bind themselves to contribute money, property, or industry to a common fund; (2) intention on the part of the partners to divide the profits among themselves. (Art. 1767, Civil Code.). In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not furnish any help or intervention in the management of the theatre. In the third place, it does not appear that she has ever demanded from defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to receive her share of P3,000 a month, which can not be interpreted in any manner than a payment for the use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real contract between them.

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Plaintiff claims the sum of P41,000 as representing her share or participation in the business from December, 1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement between the plaintiff and the defendant was to end upon the termination of the right of the plaintiff to the lease. Plaintiff's right having terminated in July, 1949 as found by the Court of Appeals, the partnership agreement or the agreement for her to receive a participation of P3,000 automatically ceased as of said date. We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-appellant. Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4935 May 28, 1954

in the course of trial, after defendant's surveyor and witness, Quirino Feria, had testified that the area occupied and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its allegations conform to the evidence. Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and notorious possession (of land in dispute) under claim of ownership, adverse to the entire world by defendant and his predecessor in interest" from "time in-memorial". The answer further alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or interest either personal or thru publication to defendant and/or predecessors in interest." The answer therefore prays that the complaint be dismissed with costs and plaintiff required to reconvey the land to defendant or pay its value. After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in question and ordering him to restore possession thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs. Appealing directly to this court because of the value of the property involved, defendant makes the following assignment or errors: I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real property in interest. II. The trial court erred in admitting the third amended complaint.

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA, INC., plaintiffappellee, vs. QUIRINO BOLAOS, defendant-appellant. Araneta and Araneta for appellee. Jose A. Buendia for appellant. REYES, J.: This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City. Plaintiff's complaint was amended three times with respect to the extent and description of the land sought to be recovered. The original complaint described the land as a portion of a lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province and as containing an area of 13 hectares more or less. But the complaint was amended by reducing the area of 6 hectares, more or less, after the defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied by him. The second amendment became necessary and was allowed following the testimony of plaintiff's surveyors that a portion of the area was embraced in another certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later,

III. The trial court erred in denying defendant's motion to strike. IV. The trial court erred in including in its decision land not involved in the litigation. V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos. 37686 and 37677. Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land. VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62 monthly from January, 1940, until he vacates the premises. VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the defendant.

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As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be broughtin the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in the name of the plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one corporation being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is that "though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of them. Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads: Sec. 4. Amendment to conform to evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at my time, even of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall be so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence. Under this provision amendment is not even necessary for the purpose of rendering judgment on issues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says in this Rules of Court: Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that where the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint is necessary, especially where defendant has himself raised the point on which recovery is based, and that the appellate court treat the pleadings as

amended to conform to the evidence, although the pleadings were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.) Our conclusion therefore is that specification of error II, III, and IV are without merit.. Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial, that the land in dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant later changed his lawyer and also his theory and tried to prove that the land in dispute was not covered by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by transfer certificate of title No. 37686 of the land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less, covered by transfer certificate of title No. 37677 of the land records of the same province, both lots having been originally registered on July 8, 1914 under original certificate of title No. 735. The identity of the lots was established by the testimony of Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was established by the testimony of his own witness, Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion claimed by defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well within the area covered by the two transfer certificates of title already mentioned. This fact also appears admitted in defendant's answer to the third amended complaint. As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of registration can no longer be impugned on the ground of fraud, error or lack of notice to defendant, as more than one year has already elapsed from the issuance and entry of the decree. Neither court the decree be collaterally attacked by any person claiming title to, or interest in, the 1 land prior to the registration proceedings. (Sorogon vs. Makalintal, 45 Off. Gaz., 3819.) Nor could title to that land in derogation of that of plaintiff, the registered owner, be acquired by prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. 2 Judge of CFI of Tarlac, etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree of registration does not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI. As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises.' But it appears from the record that that reasonable compensation for the use and occupation of the premises, as stipulated at the hearing was P10 a month for each hectare and that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area occupied should therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already been filed against defendant. And it cannot

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be supposed that defendant has been paying rents, for he has been asserting all along that the premises in question 'have always been since time immemorial in open, continuous, exclusive and public and notorious possession and under claim of ownership adverse to the entire world by defendant and his predecessors in interest.' This assignment of error is thus clearly without merit. Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.

AGUSTIN ABONG, petitioner, vs. THE WORKMEN'S COMPENSATION COMMISSION, NELLY BALLARES, ANACORITA DAHIL-DAHIL, MANUEL LAHAO-LAHAO, CONCHITA MONTEROYO, SHIRLEY LOZADA and ROSARIO ALOVA, respondents. Pelaez, Jalandoni and Jamir for petitioner.

During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss alleging that there is pending before the Court of First Instance of Rizal another action between the same parties and for the same cause and seeking to sustain that allegation with a copy of the complaint filed in said action. But an examination of that complaint reveals that appellant's allegation is not correct, for the pretended identity of parties and cause of action in the two suits does not appear. That other case is one for recovery of ownership, while the present one is for recovery of possession. And while appellant claims that he is also involved in that order action because it is a class suit, the complaint does not show that such is really the case. On the contrary, it appears that the action seeks relief for each individual plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly without merit. Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff. Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Pagano C. Villavieja for respondent Workmen Compensation Commission. Labaton and Labaton for private respondents.

ESGUERRA, J.: I. STATEMENT OF THE CASE Appeal by certiorari from the decision of the Workmen's Compensation Commission, awarding compensation to private respondents. II. FACTS OF THE CASE The undisputed facts as borne out by the record are follows:

Footnotes
1

80 Phil., 259.

Aladino Dionson, Filomeno Umbria, Noel Lahao-lahao, Juanita Monteroyo and Wilfredo Monteroyo and Demetrio Escoreal, all decent were members of a fishing outfit, the "IWAG" or more popularly called the "ALEX", owned by petitioner herein, Dr. Agustino R. Abong. On May 15, 1966, this fishing outfit set out to sea somewhat off the coast of Northern Negros. The decedents were among the 70 crew members who were loaded on two big bancas, 8 small fishing boats locally known as "lawagan" and one towing motorboat. While they were, thus, fishing, typhoon "IRMA" passed along their way, scattering the boats and blowing them far out into the open sea. The 1 tragedy netted eight (8) dead while some sixty (60) men survived the disaster. As a consequence of the incident seven (7) notices and claims for death compensation were filed with the Bacolod Sub-Regional Office (or Regional Office No. VII) of the Department of Labor by herein private respondents on June 1, 1966. A copy of the notices and claims were sent to petitioner Dr. Agustino R. Abong by registered mail at his place of business, but the envelopes containing said notices and claims were returned unclaimed, although petitioner was personally notified thrice. Thereafter, counsel for private respondents on July 6, 1966, and July 14, 1966, respectively, filed

2 80 Phil., 415. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

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G.R. Nos. L-32347-53 December 26, 1973

an ex-parte motion with the Bacolod Sub-Regional Office of the Workmen's Compensation Commission to declare petitioner in default, which motion was granted. Thereupon, claimants were allowed to present their evidence. Finding the claims of the private respondents to be allied in 2 nature, the cases were consolidated. After due hearing before Acting Referee, Bertito D. Dadivas, he rendered on August 1, 1966, a decision granting the claims, the pertinent portions of which are quoted as follows: In the light of the testimonies of herein claimants and their principal witness, Filomeno Pason, who is a survivor of that unfortunate tragedy and who personally witnessed the deaths of all eight (8) deceased workers of respondent, there is no doubt at all that their deaths arose out of and in the course of their employment as "washing" or helpers and light tenders of respondent Dr. Agustino R. Abong. Under Sections 2 and 8 of the Workmen's Compensation Act, as amended, the deaths of above deceased persons are, therefore, compensable. In granting this award it should be considered that two of the eight deceased workers Noel Lahao-lahao and Wilfredo Monteroyo were minors at the time of employment. Respondent herein has also failed to submit a report of this accident "as soon as possible after the occurence of an injury resulting in absence from work for a day or more"; nor registered himself or his business enterprise in accordance with Sections 37 and 56 of the Workmen's Compensation Act, otherwise known as Republic Act No. 3428. Section 4-A of the Workmen's Compensation Act provides for payment of an additional compensation equal to fifty per centum of the compensation to be awarded, in case of failure of the employer to comply with any order, rule or regulation of the Workmen's Compensation Act in the event of the death of the employee or employees concerned. Wherefore, under the law, the claimants are entitled to compensation and respondent is hereby ordered: 1. To pay to claimant, ANACORITA DAHIL-DAHIL the sum of SIX THOUSAND PESOS (P6,000.00), plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00), plus the further sum of TWO HUNDRED PESOS as burial expenses, through this Office;

3. To pay to claimant, MANUEL LAHAO-LAHAO, the sum of TWO THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE HUNDRED PESOS (P1,300.00), or the total sum of THREE THOUSAND NINE HUNDRED PESOS (P3,900.00), plus burial expenses in the sum of TWO HUNDRED PESOS (P200.00), through this Office; 4. To pay to claimant, SHIRLEY LOZADA, the sum of FIVE THOUSAND ONE HUNDRED TWENTY PESOS (P5,120.00) plus 50% penalty in the sum of TWO THOUSAND FIVE HUNDRED SIXTY PESOS (P2,560.00) or the total sum of SEVEN THOUSAND SIX HUNDRED EIGHTY PESOS (P7,680.00), plus burial expenses of TWO HUNDRED PESOS (P200.00) through this Office; 5. To pay to claimant, ROSARIO ALOVA, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS (P9,000.00), plus the further sum of TWO HUNDRED PESOS (P200.00) for burial expenses, through this Office; 6. To pay to claimant, CONCHITA MONTEROYO, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) representing compensation for the death of her husband, Juanito; and TWO THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE HUNDRED PESOS (P1,300.00) or the total sum of THREE THOUSAND NINE HUNDRED PESOS (P3,900.00) representing compensation for the death of her son, Wilfredo; plus the further sum of FOUR HUNDRED PESOS (P400.00) for burial expenses of Juanito and Wilfredo Monteroyo; or a grand total for these two cases of THIRTEEN THOUSAND THREE HUNDRED PESOS (P13,300.00), through this Office; 7. To pay to counsel for claimants, Atty. Angel F. Lobaton, Sr. the sum of TWO THOUSAND SIX HUNDRED FORTY-FOUR PESOS (P2,644.00) as attorney's fees; and 8. To pay to the Workmen's Compensation Fund, through this Office, the sum of FIVE HUNDRED TWENTY PESOS (P520.00), pursuant to Section 55 of the Workmen's 3 Compensation Act, as amended." On September 14, 1966, herein petitioner filed a (1) motion to set aside the order declaring him in default and a (2) separate motion to set aside the Decision of the Acting Referee, to which seasonable 4 oppositions were interposed by private respondents on September 26, 1966. On October 25, 1966, Acting Referee Bertito D. Dadivas issued an Order denying both motions of 5 petitioner. A motion for reconsideration was then filed by petitioner on November 4, 1966,

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2. To pay to claimant, NELLY BALLARES, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS (P9,000.00) plus the further sum of TWO HUNDRED PESOS (P200.00), as burial expenses through this Office;

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raising, inter alia, the fundamental question of jurisdiction and denial of due process. An opposition 7 thereto was interposed by private respondents on November 10, 1966. On March 23, 1970, Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., of the Workmen Compensation Commission rendered a decision affirming the earlier decision of the 8 referee. On April 17, 1970, petitioner sought the review of the decision of Associate (Medical) Commission Castelo-Sotto by the respondent Workmen's Compensation Commission sitting en banc, but the latter however affirmed the decision with the modification that the 50% additional compensation 9 earlier imposed as penalty was eliminated, in its resolution of July 7, 1970. Dissatisfied with the verdict, petitioner came to this Court for reversal of the adverse decision against him. III. ISSUES OF THE CASE In his brief before this Court the petitioner imputes five errors committed by respondent Workmen's Compensation Commission, viz: 1. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN HOLDING THAT THERE WAS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PETITIONER AND THE DECEASED CREW MEMBERS OF THE "IWAG" FISHING OUTFIT. 2. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN NOT DECLARING ITSELF WITHOUT JURISDICTION OVER THE CLAIMS FOR DEATH BENEFITS. 3. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN FINDING THAT THE DEATH OF THE DECEASED CREW MEMBER IS COMPENSABLE UNDER THE WORKMEN'S COMPENSATION ACT, AS AMENDED, IN FINDING PETITIONER LIABLE FOR THE PAYMENT OF SUCH COMPENSATION. 4. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN DENYING PETITIONER HIS RIGHT TO BE HEARD. 5. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN GRANTING EXCESSIVE AWARDS TO THE CLAIMANTS.

The pivotal issue requiring determination is who is the statutory employer of the decedents and who should be liable for their death compensation. Nevertheless, We take up the merits of the points raised ad seriatim. IV. DISCUSSION As regards the first three interrelated assigned errors, there is a faint attempt by petitioner Agustino R. Abong to evade liability by advancing the theory that he had absolutely no voice or intervention in the choice, hiring, dismissing, control, supervision and compensation of the fishermen-crew members, and that these matters, which are the essence of employer-employee relationship, are the sole responsibility of the team leader, Simplicio Panganiban, and the team-members or crew 10 pursuant to their Agreement (Exhibit "G"). The contention of petitioner is devoid of merit. It should be pointed out that this case is an appeal from the decision of the Workmen's Compensation Commission. And in this class of proceedings, only questions of law should be raised, the findings of facts made by the Commission being conclusive and 11 binding upon this Court. Although this Court is authorized to inquire into the facts, it only does so when the conclusions therefrom are not supported by the evidence. In the case at bar, however, this Court finds the findings of fact made by Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., and concurred in by the Commission en banc to be fully supported by the evidence on record which clearly points out that petitioner Agustino R. Abong is the statutory employer of the decedents. In ruling for the deceased workers, the Commission said: ... After a careful review of the evidence and the records, We are inclined to agree with the proposition, advanced by the claimant's counsel that there existed an employer-employee relationship between the respondent and the decedents. Not only that the said deceased workers worked for and in the interest of the business of the herein respondent. But that they were subject to the control, supervision, and dismissal of the respondent, thru its agent, Simplicio Panganiban, the alleged "partner" of herein respondent. And while these workers were paid in kind, or by "pakiao basis" still that fact did not alter the character of their relationship with the respondent as employees of the latter. The intervention of Simplicio Panganiban, in this case, is merely that of an agent or intermediary between the owner of the fishing boat and the members of its crew. In short, Panganiban is merely the person charged by Dr. Abong to recruit the said fishermen to work for and for the enforcement of the business venture of herein respondent. The proposition, on the other hand, of the respondent's counsel, that Dr. Abong was not the employer of the decedents, simply because of an alleged partnership agreement, executed on March 23, 1962, between the respondent, Dr. Agustino R. Abong, as "Financier" and Simplicio Panganiban, as his "Team leader", is intended certainly as a very clever device designed primarily to exempt the employer from

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answering any liability under the provisions of the Workmen's Compensation Act, as amended. The said contract of partnership while it may be considered as valid and lawful, between the signatories thereto, the respondent Dr. Abong and his "partner" or agent, Simplicio Panganiban, nowhere in that said agreement did the decedents or their heirs in interests take any participation or manifested their conformity to the said covenant. Thus, even if we consider this contract as valid and enforceable between them, it cannot bind the non-signatories thereto, like the deceased fishermen. The case invoked by the respondent (Pajarillo, et al., vs. Social Security System, G.R. No. L-21930, August 31, 1966) can not be legally applied in the instant case, for the simple reason that the facts in that aforesaid case are not the same as those in the case at bar. Moreover, we are of the view, that the said Pajarillo case may be good only as far as the Social Security System, for purposes of membership thereat, is concerned and is not readily applicable to cases involving Workmen's Compensation claims as the one at bar. For here, the contract of partnership, if valid, only binds the parties thereto, and the decedents in this case, as the records will show, were never a party signatory thereto. How then can we tie them to that partnership agreement when it only holds the two-party, Abong and Panganiban, as the sole partners in that agreement? Furthermore, even if Panganiban will be considered as an independent contractor, which he is not, his position as such will not relieve the employer, respondent Abong, from his liability under the Act. It is well-defined in the Act, that an employer includes every person or association of persons, incorporated or not, public or private, and the legal representatives of the deceased employer. It includes the owner or manager of the business carried on in the establishment or place of work but who, for the reason that there is an independent contractor in the same, or for any other reason, is not the direct employer of laborers employed there. (Section 39, paragraph[s], Workmen's Compensation Act, as amended). xxx xxx xxx
12

Petitioner also argues that he was denied his right to heard. properly notified of the proceedings against him.

15

It is contended that petitioner was not

The assigned error merits scant consideration. Proper notices and claims for compensation together with a formal letter to accomplish WCC Form No. 3 Employer's Report Accident or Sickness 16 were duly served upon petitioner at his place of business in Sagay, Negros Occidental. His failure to claim his mail and to answer the claims or controvert the same and to accomplish WCC Form No. 3, are fatal errors which cannot be repaired at this time. It needs no argument to show that service by registered mail is deemed completed upon petitioner's failure to claim his mail from the post office 17 within five (5) days from the first notice sent by the postmaster. The further contention that the "notices" should have been sent his place of residence in Bacolod City is of no moment either. Section 26 of Republic Act No. 3428, as amended, provides: SEC. 26. Delivery of notice and claim ... . The notices shall be served by personal delivery or by sending it by registered letter addressed to the employer at his last known residence or at his place of business. (Emphasis supplied) Clearly, there was no error in sending petitioner's mails to his place of business at Sagay, Negros Occidental. And now We come to the last point. It is contended that respondent Commission erred in granting excessive awards the claimants. We find this contention incorrect. The Commission's findings relative to the wages of the decedents are findings facts which are not open to review by this Court as the same are supported by 18 substantial evidence on record. We, therefore, find no cogent reason to disturb the Commission's findings on this point. V. CONCLUSION Under the circumstances, private respondents' claim should be upheld not only because they are supported by the evidence on record, but also because the Workmen's Compensation Act is a social legislation designed to give relief to the workman who has been the victim of an accident in the pursuit of his employment, and the law must be liberally construed to attain the purpose for which it 19 was enacted. Moreover, this Tribunal finds no reason in this case to depart from the rule which limits its appellate jurisdiction to the review of errors of law only, accepting as conclusive the factual findings of the Workmen's Compensation Commission which in this case are supported by substantial evidence. VI. JUDGMENT

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As pointed out by the Commission's findings, the fundamental bases showing that petitioner, Dr. Agustino R. Abong, is the employer, are present, namely, the selection and engagement of the employee; the payment of wages; the power of dismissal and the employer's power to control the 13 employees' conduct. These powers were lodged in petitioner Abong, thru his agent, Simplicio Panganiban, whom he alleges to be his "partner". On this score alone, the petitioner for review must fail. It is well-settled that employer-employee relationship involves findings of fact which are 14 conclusive and binding and not subject to review by this Court.

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ACCORDINGLY, the assailed decision is hereby fully affirmed. Costs against the petitioner. Makalintal C.J., Castro, Teehankee, Makasiar and Muoz Palma, JJ., concur.

their complaint and their answer, and by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to present. The commissioner rendered his report, which is attached to the record, with the following resume: Income:

Footnotes Member's shares............................ 1 Record, p. 20. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 31057 September 7, 1929 Expenses: Premiums to members....................... Loans on real-estate....................... Loans on promissory notes.............. Marcelino Lontok and Manuel dela Rosa for appellants. Sumulong & Lavides for appellees. VILLAMOR, J.: This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as president-treasurer, directors and secretary of said association. It is well to remember that this case is now brought before the consideration of this court for the second time. The first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions, it is not necessary that all members of the association be made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of origin, both parties amend, respectively, Salaries.................................... Miscellaneous............................... 68,146.25 9,827.00 4,258.55 1,095.00 1,686.10 85,012.90 Cash on hand........................................ 24,607.80 Credits paid................................ Interest received........................... Miscellaneous............................... 97,263.70 6,196.55 4,569.45 1,891.00 P109,620.70

ADRIANO ARBES, ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO, ET AL., defendants-appellants.

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The defendants objected to the commissioner's report, but the trial court, having examined the reasons for the objection, found the same sufficiently explained in the report and the evidence, and accepting it, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of the said association represented by said plaintiffs, with costs against the defendants.

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The defendants assigned several errors as grounds for their appeal, but we believe they can all be reduced to two points, to wit: (1) That not all persons having an interest in this association are included as plaintiffs or defendants; (2) that the objection to the commissioner's report should have been admitted by the court below. As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed. With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we are of opinion that, the trial court having examined all the evidence touching the grounds for the objection and having found that they had been explained away in the commissioner's report, the conclusion reached by the court below, accepting and adopting the findings of fact contained in said report, and especially those referring to the disposition of the association's money, should not be disturbed. In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of facts made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure stand upon the same basis, when approved by the Court, as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil., 474), the court held: "Under section 140 of the Code of Civil Procedure it is made the duty of the court to render judgment in accordance with the report of the referee unless the court shall unless for cause shown set aside the report or recommit it to the referee. This provision places upon the litigant parties of the duty of discovering and exhibiting to the court any error that may be contained therein." The appellants stated the grounds for their objection. The trial examined the evidence and the commissioner's report, and accepted the findings of fact made in the report. We find no convincing arguments on the appellant's brief to justify a reversal of the trial court's conclusion admitting the commissioner's findings. There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code, which provides: A partnership must have a lawful object, and must be established for the common benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case. The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution. We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear explanation of the scope and spirit of the provision of the Civil Code which we are concerned. Commenting on said article Manresa, among other things says: When the subscriptions of the members have been paid to the management of the partnership, and employed by the latter in transactions consistent with the purposes of the partnership may the former demand the return of the reimbursement thereof from the manager or administrator withholding them? Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically non-existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an action in favor of the partners to judicially demand from the manager or the administrator of the partnership capital, each one's contribution? The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling all doubts thereon. He holds that the partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his action. And he adds in explanation that the partner makes his contribution, which passes to the managing partner for the purpose of carrying on the business or industry which is the object of the partnership; or in other words, to breathe the breath of life into a partnership contract with an objection forbidden by law. And as said contrast does not exist in the eyes of the law, the purpose from which the contribution was made has not come into existence, and the administrator of the partnership holding said contribution retains what belongs to others, without any consideration; for which reason he is not bound to return it and he who has paid in his share is entitled to recover it. But this is not the case with regard to profits earned in the course of the partnership, because they do not constitute or represent the partner's contribution but are the result of the industry, business or speculation which is the object of the partnership, and therefor, in order to demand the proportional part of the said profits, the partner would have to base his action on the contract which is null and void, since this partition or distribution of the profits

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Appellant's contention on this point is untenable. According to said article, no charitable institution is a necessary party in the present case of determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is

is one of the juridical effects thereof. Wherefore considering this contract asnon-existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it. Hence the distinction made in the second paragraph of this article of this Code, providing that the profits obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province. This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former law, which did not describe the purpose to which those profits denied the partners were to be applied, nor state what to be done with them. The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different. Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned by the partners, because it only deals with the disposition of the profits; but the fact that said contributions are not included in the disposal prescribed profits, shows that in consequences of said exclusion, the general law must be followed, and hence the partners should reimburse the amount of their respective contributions. Any other solution is immoral, and the law will not consent to the latter remaining in the possession of the manager or administrator who has refused to return them, by denying to the partners the action to demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264) The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with costs against the appellants; provided, however, the defendants shall pay the legal interest on the sum of P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk of the trial court, in order that said court may distribute them among the members of said association, upon being duly identified in the manner that it may deem proper. So ordered. Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18703 August 28, 1922

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee, vs. PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING CORPORATION,petitioners-appellants. Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants. Antonio Sanz for appellee. ROMUALDEZ, J.: The record of this proceeding having been transmitted to this court by virtue of an appeal taken herein, a motion was presented by the appellants praying this court that this case be considered purely a moot question now, for the reason that subsequent to the decision appealed from, the partnership Campos Rueda & Co., voluntarily filed an application for a judicial decree adjudging itself insolvent, which is just what the herein petitioners and appellants tried to obtain from the lower court in this proceeding. The motion now before us must be, and is hereby, denied even under the facts stated by the appellants in their motion aforesaid. The question raised in this case is not purely moot one; the fact that a man was insolvent on a certain day does not justify an inference that he was some time prior thereto. Proof that a man was insolvent on a certain day does not justify an inference that he was on a day some time prior thereto. Many contingencies, such as unwise investments, losing contracts, misfortune, or accident, might happen to reduce a person from a state of solvency within a short space of time. (Kimball vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.) A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge Campos Rueda & Co. insolvent in December, 1921, as prayed for in this case, and another to declare it insolvent in July, 1922, as stated in the motion. Turning to the merits of this appeal, we find that this limited partnership was, and is, indebted to the appellants in various sums amounting to not less than P1,000, payable in the Philippines, which were

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not paid more than thirty days prior to the date of the filing by the petitioners of the application for involuntary insolvency now before us. These facts were sufficient established by the evidence. The trial court denied the petition on the ground that it was not proven, nor alleged, that the members of the aforesaid firm were insolvent at the time the application was filed; and that was said partners are personally and solidarily liable for the consequence of the transactions of the partnership, it cannot be adjudged insolvent so long as the partners are not alleged and proven to be insolvent. From this judgment the petitioners appeal to this court, on the ground that this finding of the lower court is erroneous. The fundamental question that presents itself for decision is whether or not a limited partnership, such as the appellee, which has failed to pay its obligation with three creditors for more than thirty days, may be held to have committed an act of insolvency, and thereby be adjudged insolvent against its will. Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for all intents and purposes, which personality is recognized in all its acts and contracts (art. 116, Code of Commerce). This being so and the juridical personality of a limited partnership being different from that of its members, it must, on general principle, answer for, and suffer, the consequence of its acts as such an entity capable of being the subject of rights and obligations. If, as in the instant case, the limited partnership of Campos Rueda & Co. Failed to pay its obligations with three creditors for a period of more than thirty days, which failure constitutes, under our Insolvency Law, one of the acts of bankruptcy upon which an adjudication of involuntary insolvency can be predicated, this partnership must suffer the consequences of such a failure, and must be adjudged insolvent. We are not unmindful of the fact that some courts of the United States have held that a partnership may not be adjudged insolvent in an involuntary insolvency proceeding unless all of its members are insolvent, while others have maintained a contrary view. But it must be borne in mind that under the American common law, partnerships have no juridical personality independent from that of its members; and if now they have such personality for the purpose of the insolvency law, it is only by virtue of general law enacted by the Congress of the United States on July 1, 1898, section 5, paragraph (h), of which reads thus: In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners not adjudged bankrupt; but such partner or partners not adjudged bankrupt shall settle the partnership business as expeditiously as its nature will permit, and account for the interest of the partner or partners adjudged bankrupt.

doctrines, citing one from In reBertenshaw (157 Fed., 363), and the other from Francis vs. McNeal (186 Fed., 481). But there being in our insolvency law no such provision as that contained in section 5 of said Act of Congress of July 1, 1898, nor any rule similar thereto, and the juridical personality of limited partnership being recognized by our statutes from their formation in all their acts and contracts the decision of American courts on this point can have no application in this jurisdiction, nor we see any reason why these partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency of their members, provided the partnership has, as such, committed some of the acts of insolvency provided in our law. Under this view it is unnecessary to discuss the other points raised by the parties, although in the particular case under consideration it can be added that the liability of the limited partners for the obligations and losses of the partnership is limited to the amounts paid or promised to be paid into the common fund except when a limited partner should have included his name or consented to its inclusion in the firm name (arts. 147 and 148, Code of Commerce). Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than thirty days to pay its obligations to the petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and the International Banking Corporation, the case comes under paragraph 11 of section 20 of Act No. 1956, and consequently the petitioners have the right to a judicial decree declaring the involuntary insolvency of said partnership. Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited partnership Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable for having failed for more than thirty days to meet its obligations with the three petitioners herein, and it is ordered that this proceeding be remanded to the Court of First Instance of Manila with instruction to said court to issue the proper decrees under section 24 of Act No. 1956, and proceed therewith until its final disposition. It is so ordered without special finding as to costs. Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Johns, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-25532 February 28, 1969

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The general consideration that these partnership had no juridical personality and the limitations prescribed in subsection (h) above set forth gave rise to the conflict noted in American decisions, as stated in the case of In reSamuels (215 Fed., 845), which mentions the two apparently conflicting

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner. A. S. Monzon, Gutierrez, Farrales and Ong for respondents. REYES, J.B.L., J.: A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited partnership was registered with the Securities and Exchange Commission. The firm engaged, among other activities, in the importation, marketing, distribution and operation of automatic phonographs, radios, television sets and amusement machines, their parts and accessories. It had an office and held itself out as a limited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation with the Central Bank. In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded with the Securities and Exchange Commission on 20 December 1948. The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm and the individual incomes of the partnersspouses Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955. Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue. The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and (b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00. The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the partnership dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership should be disregarded for income tax purposes because the spouses have exclusive ownership and control of the business; consequently the income tax return of respondent Suter for the years in question should have included his and his wife's individual incomes and that of the limited partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, which provides as follows: (d) Husband and wife. In the case of married persons, whether citizens, residents or non-residents, only one consolidated return for the taxable year shall be filed by either spouse to cover the income of both spouses; .... In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in 1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New Civil Code, and that since its juridical personality had not been affected and since, as a limited partnership, as contra distinguished from a duly registered general partnership, it is taxable on its income similarly with corporations, Suter was not bound to include in his individual return the income of the limited partnership. We find the Commissioner's appeal unmeritorious. The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of law because of the marriage of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one year after the partnership was organized is rested by the appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows: A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are prohibited from entering into universal partnerships. (2 Echaverri 196) It follows that the marriage of

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partners necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58) The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd. wasnot a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947), a universal partnership requires either that the object of the association be all the present property of the partners, as contributed by them to the common fund, or else "all that the partners may acquire by their industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid Article 1677: Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segun la que toda persona es capaz para contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943. Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce. The appellant's view, that by the marriage of both partners the company became a single proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately owned and contributed by them before their marriage; and after they were joined in wedlock, such contributions remained their respective separate property under the Spanish Civil Code (Article 1396): The following shall be the exclusive property of each spouse: (a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become common property of both after their marriage in 1948. It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct and separate from that of its partners (unlike American and English law that does not recognize such separate juridical personality), the bypassing of the existence of the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited partnership's separate individuality makes it impossible to equate its income with that of the component members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships (compaias colectivas) with the personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to limited partnerships. The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality of the corporations involved therein are not applicable to the present case. In the cited cases, the corporations were already subject to tax when the fiction of their corporate personality was pierced; in the present case, to do so would exempt the limited partnership from income taxation but would throw the tax burden upon the partners-spouses in their individual capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is not true in the present case. Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns as such independent entity. The change in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed. As the limited partnership under consideration is taxable on its income, to require that income to be included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compaia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the case of compaias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt

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But it is argued that the income of the limited partnership is actually or constructively the income of the spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become conjugal only when no longer needed to defray the expenses for the administration and preservation of the paraphernal capital of the wife. Then again, the appellant's argument erroneously confines itself to the question of the legal personality of the limited partnership, which is not essential to the income taxability of the partnership since the 1 law taxes the income of even joint accounts that have no personality of their own. Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in their individual capacities. Though the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable year, their consequences would be different, as their contributions in the business partnership are not the same. The difference in tax rates between the income of the limited partnership being consolidated with, and when split from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership to pay tax on its own income. FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and Teehankee, JJ., concur. Barredo, J., took no part. Footnotes
1

MARLENE DAUDEN-HERNAEZ, petitioner, vs. HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City, HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA, respondents. R. M. Coronado and Associates for petitioner. Francisco Lavides for respondent. REYES, J.B.L., Acting C.J.: Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City (Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of contract and damages, denying reconsideration, refusing to admit an amended complaint, and declaring the dismissal final and unappealable. The essential facts are the following: Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein private respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services as leading actress in two motion pictures produced by the company, and to recover damages. Upon motion of defendants, the respondent court (Judge Walfrido de los Angeles presiding) ordered the complaint dismissed, mainly because the "claim of plaintiff was not evidenced by any written document, either public or private", and the complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil, Code of the Philippines, as well as for containing defective allege, petitions. Plaintiff sought reconsideration of the dismissal and for admission of an amended complaint, attached to the motion. The court denied reconsideration and the leave to amend; whereupon, a second motion for reconsideration was filed. Nevertheless, the court also denied it for being pro forma, as its allegations "are, more or less, the same as the first motion", and for not being accompanied by an affidavit of merits, and further declared the dismissal final and unappealable. In view of the attitude of the Court of First Instance, plaintiff resorted to this Court. The answer sets up the defense that "the proposed amended complaint did not vary in any material respect from the original complaint except in minor details, and suffers from the same vital defect of the original complaint", which is the violation of Article 1356 of the Civil Code, in that the contract sued upon was not alleged to be in writing; that by Article 1358 the writing was absolute and indispensable, because the amount involved exceeds five hundred pesos; and that the second motion for reconsideration did not interrupt the period for appeal, because it was not served on three days' notice. We shall take up first the procedural question. It is a well established rule in our jurisprudence that when a court sustains a demurrer or motion to dismiss it is error for the court to dismiss the

V. Evangelists vs. Collector of Internal Revenue, 102 Phil 140; Collector vs. Batangas Transportation Co., 102 Phil. 822.

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complaint without giving the party plaintiff an opportunity to amend his complaint if he so 1 chooses. Insofar as the first order of dismissal (Annex D, Petition) did not provide that the same was without prejudice to amendment of the complaint, or reserve to the plaintiff the right to amend his complaint, the said order was erroneous; and this error was compounded when the motion to accept the amended complaint was denied in the subsequent order of 3 October 1966 (Annex F, Petition). Hence, the petitioner-plaintiff was within her rights in filing her so-called second motion for reconsideration, which was actually a first motion against the refusal to admit the amended complaint. It is contended that the second motion for reconsideration was merely pro forma and did not suspend the period to appeal from the first order of dismissal (Annex D) because (1) it merely reiterated the first motion for reconsideration and (2) it was filed without giving the counsel for defendant-appellee the 3 days' notice provided by the rules. This argument is not tenable, for the reason that the second motion for reconsideration was addressed to the court' refusal to allow an amendment to the original complaint, and this was a ground not invoked in the first motion for reconsideration. Thus, the second motion to reconsider was really not pro forma, as it was based on a different ground, even if in its first part it set forth in greater detail the arguments against the correctness of the first order to dismiss. And as to the lack of 3 days' notice, the record shows that appellees had filed their opposition (in detail) to the second motion to reconsider (Answer, Annex 4); so that even if it were true that respondents were not given the full 3 days' notice they were not deprived of any substantial right. Therefore, the claim that the first order of dismissal had become final and unappealable must be overruled. It is well to observe in this regard that since a motion to dismiss is not a responsive pleading, the plaintiff-petitioner was entitled as of right to amend the original dismissed complaint. In Paeste vs. Jaurigue 94 Phil. 179, 181, this Court ruled as follows: Appellants contend that the lower court erred in not admitting their amended complaint and in holding that their action had already prescribed. Appellants are right on both counts. Amendments to pleadings are favored and should be liberally allowed in the furtherance of justice. (Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17, Rules of Court, a party may amend his pleading once as a matter of course, that is, without leave of court, at any time before a responsive pleading is served. A motion to dismiss is not a "responsive pleading". (Moran on the Rules of Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended their complaint before it was answered, the motion to admit the amendment should not have been denied. It is true that the amendment was presented after the original complaint had been ordered dismissed. But that order was not yet final for it was still under reconsideration.

The foregoing observations leave this Court free to discuss the main issue in this petition. Did the court below abuse its discretion in ruling that a contract for personal services involving more than P500.00 was either invalid of unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines? We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable misunderstanding of the role of the written form in contracts, as ordained in the present Civil Code. In the matter of formalities, the contractual system of our Civil Code still follows that of the 2 Spanish Civil Code of 1889 and of the "Ordenamiento de Alcala" of upholding the spirit and intent of the parties over formalities: hence, in general, contracts are valid and binding from their perfection regardless of form whether they be oral or written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus, the first cited provision prescribes: ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis supplied) Concordantly, the first part of Article 1356 of the Code Provides: ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.... (Emphasis supplied) These essential requisites last mentioned are normally (1) consent (2) proper subject matter, 3 and (3) consideration or causa for the obligation assumed (Article 1318). So that once the three elements exist, the contract is generally valid and obligatory, regardless of the form, oral or written, in which they are couched.lawphi1.nt To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356: However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.... It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter partes of a contract that possesses the three validating elements of consent, subject matter, and causa, Article 1356 of the Code establishes only two exceptions, to wit: (a) Contracts for which the law itself requires that they be in some particular form (writing) in order to make themvalid and enforceable (the so-called solemn contracts). Of these the typical example is

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the donation of immovable property that the law (Article 749) requires to be embodied in a public instrument in order "that the donation may be valid", i.e., existing or binding. Other instances are the donation of movables worth more than P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article 748); contracts to pay interest on loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the agreements contemplated by Article 1744, 1773, 1874 and 2134 of the present Civil Code. (b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in requiring a writing embodying the terms thereof for their enforceability by action in court. The contract sued upon by petitioner herein (compensation for services) does not come under either exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing. ART. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action the contract. (Emphasis supplied) . It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein were grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing the same could not be sued upon, or that her complaint should be dismissed for failure to state a cause of action because it did not plead any written agreement. The basic error in the court's decision lies in overlooking that in our contractual system it is not enough that the law should require that the contract be in writing, as it does in Article 1358. The law must further prescribe that without the writing the contract is not valid or not enforceable by action. WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to the court of origin for further proceedings not at variance with this decision.

Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and Barredo, JJ., concur. Concepcion, C.J. and Castro, J., are on leave. Capistrano, J., took no part. Footnotes
1

Macapinlac vs. Gutierrez Repide, 43 Phil. 774; Ibaez vs. Fortis, 17 Phil. 82; Balderrama vs. Compania General de Tabacos, 13 Phil. 609; Molina vs. La Electricista, 6 Phil. 519; Mapua vs. Suburban Theaters, Inc., 87 Phil. 364. Unless, of course, the defect is incurable, as in lack of jurisdiction.
2

Law 1, Title 1, Book X, of the Novisima Recopilaicion.

Plus a fourth requisite of delivery in so-called real contracts, such as deposit, pledge and commodatum (Article 1316). But the contract here involved is not of this class.

The Lawphil Project - Arellano Law Foundation Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-33580 February 6, 1931

MAXIMILIANO SANCHO, plaintiff-appellant, vs. SEVERIANO LIZARRAGA, defendant-appellee. Jose Perez Cardenas and Jose M. Casal for appellant. Celso B. Jamora and Antonio Gonzalez for appellee. ROMUALDEZ, J.: The plaintiff brought an action for the rescission of a partnership contract between himself and the defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso investment therein, with interest at 12 per cent per annum form October 15, 1920, with costs, and any other just and equitable remedy against said defendant.

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Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc., and Ramon Valenzuela.

The defendant denies generally and specifically all the allegations of the complaint which are incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter and asking for the dissolution of the partnership, and the payment to him as its manager and administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest, onehalf of said amount to be charged to the plaintiff. He also prays for any other just and equitable remedy. The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had demanded that the defendant liquidate the partnership, declared it dissolved on account of the expiration of the period for which it was constituted, and ordered the defendant, as managing partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation together with the accounts and vouchers within the period of thirty days from receipt of notice of said judgment, without costs. The plaintiff appealed from said decision making the following assignments of error: 1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present case. 2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest from October 15, 1920, until fully paid.

the parol evidence has not been forwarded to this court, articles 1681 and 1682 of the Civil Code have been properly applied. Owing to the defendant's failure to pay to the partnership the whole amount which he bound himself to pay, he became indebted to it for the remainder, with interest and any damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand rescission of the partnership contract according to article 1124 of the Code. This article cannot be applied to the case in question, because it refers to the resolution of obligations in general, whereas article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well known principle that special provisions prevail over general provisions. By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full force, without special pronouncement of costs. So ordered. Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.

The Lawphil Project - Arellano Law Foundation Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-16318 October 21, 1921

3. In denying the motion for a new trial. In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that this appeal is premature and therefore will not lie. The point is based on the contention that inasmuch as the liquidation ordered by the trial court, and the consequent accounts, have not been made and submitted, the case cannot be deemed terminated in said court and its ruling is not yet appealable. In support of this contention counsel cites section 123 of the Code of Civil Procedure, and the decision of this court in the case of Natividad vs. Villarica (31 Phil., 172). This contention is well founded. Until the accounts have been rendered as ordered by the trial court, and until they have been either approved or disapproved, the litigation involved in this action cannot be considered as completely decided; and, as it was held in said case of Natividad vs .Villarica, also with reference to an appeal taken from a decision ordering the rendition of accounts following the dissolution of partnership, the appeal in the instant case must be deemed premature. But even going into the merits of the case, the affirmation of the judgment appealed from is inevitable. In view of the lower court's findings referred to above, which we cannot revise because PANG LIM and BENITO GALVEZ, plaintiffs-appellees, vs. LO SENG, defendant-appellant. Cohn, Fisher and DeWitt for appellant. No appearance for appellees.

STREET, J.: For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Seng and Pang Lim, Chinese residents of the City of Manila, were partners, under the firm name of Lo Seng and Co., in the business of running a distillery, known as "El Progreso," in the Municipality of Paombong, in the Province of Bulacan. The land on which said distillery is located as well as the buildings and improvements originally used in the business were, at the time to which reference is now made, the

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property of another Chinaman, who resides in Hongkong, named Lo Yao, who, in September, 1911, leased the same to the firm of Lo Seng and Co. for the term of three years. Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented by one Lo Shui as attorney in fact, became effective whereby the lease was extended for fifteen years. The reason why the contract was made for so long a period of time appears to have been that the Bureau of Internal Revenue had required sundry expensive improvements to be made in the distillery, and it was agreed that these improvements should be effected at the expense of the lessees. In conformity with this understanding many thousands of pesos were expended by Lo Seng and Co., and later by Lo Seng alone, in enlarging and improving the plant. Among the provisions contained in said lease we note the following: Know all men by these presents: xxx xxx xxx

Neither the original contract of lease nor the agreement extending the same was inscribed in the property registry, for the reason that the estate which is the subject of the lease has never at any time been so inscribed. On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the latter in the position of sole owner; and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged before a notary public a deed purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the entire distillery plant including the land used in connection therewith. As in case of the lease this document also was never recorded in the registry of property. Thereafter Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to yield; and the present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of Paombong to recover possession of the premises. From the decision of the justice of the peace the case was appealed to the Court of First Instance, where judgment was rendered for the plaintiffs; and the defendant thereupon appealed to the Supreme Court. The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil Code, which reads in part as follows: ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in force at the time of making the sale, unless the contrary is stipulated, and subject to the provisions of the Mortgage Law. In considering this provision it may be premised that a contract of lease is personally binding on all who participate in it regardless of whether it is recorded or not, though of course the unrecorded lease creates no real charge upon the land to which it relates. The Mortgage Law was devised for the protection of third parties, or those who have not participated in the contracts which are by that law required to be registered; and none of its provisions with reference to leases interpose any obstacle whatever to the giving of full effect to the personal obligations incident to such contracts, so far as concerns the immediate parties thereto. This is rudimentary, and the law appears to be so understood by all commentators, there being, so far as we are aware, no authority suggesting the contrary. Thus, in the commentaries of the authors Galindo and Escosura, on the Mortgage Law, we find the following pertinent observation: "The Mortgage Law is enacted in aid of and in respect to third persons only; it does not affect the relations between the contracting parties, nor their capacity to contract. Any question affecting the former will be determined by the dispositions of the special law [i.e., the Mortgage Law], while any question affecting the latter will be determined by the general law." (Galindo y Escosura, Comentarios a la Legislacion Hipotecaria, vol. I, p. 461.) Although it is thus manifest that, under the Mortgage Law, as regards the personal obligations expressed therein, the lease in question was from the beginning, and has remained, binding upon all the parties thereto among whom is to be numbered Pang Lim, then a member of the firm of Lo Seng and Co. this does not really solve the problem now before us, which is, whether the plaintiffs

1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of Hongkong, cede by way of lease for fifteen years more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing business under the firm name of Lo Seng and Co.), after the termination of the previous contract, because of the fact that they are required, by the Bureau of Internal Revenue, to rearrange, alter and clean up the distillery. 2. That all the improvements and betterments which they may introduce, such as machinery, apparatus, tanks, pumps, boilers and buildings which the business may require, shall be, after the termination of the fifteen years of lease, for the benefit of Mr. Lo Yao, my principal, the buildings being considered as improvements. 3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract of September 11, 1911, acknowledged before the notary public D. Vicente Santos; and all modifications and repairs which may be needed shall be paid for by Messrs. Pang Lim and Lo Seng. We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at present conducting, hereby accept this contract in each and all its parts, said contract to be effective upon the termination of the contract of September 11, 1911.

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herein, as purchasers of the estate, are at liberty to terminate the lease, assuming that it was originally binding upon all parties participating in it. Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article 1571 of the Civil Code; and the position of the defendant derives no assistance from the mere circumstance that the lease was admittedly binding as between the parties thereto. 1awph!l.net The words "subject to the provisions of the Mortgage Law," contained in article 1571, express a qualification which evidently has reference to the familiar proposition that recorded instruments are effective against third persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from whence it follows that a recorded lease must be respected by any purchaser of the estate whomsoever. But there is nothing in the Mortgage Law which, so far as we now see, would prevent a purchaser from exercising the precise power conferred in article 1571 of the Civil Code, namely, of terminating any lease which is unrecorded; nothing in that law that can be considered as arresting the force of article 1571 as applied to the lease now before us. Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as supplying authority for the proposition that the lease in question cannot be terminated by one who, like Pang Lim, has taken part in the contract. That provision is practically identical in terms with the first paragraph of article 23 of the Mortgage Law, being to the effect that unrecorded leases shall be of no effect as against third persons; and the same observation will suffice to dispose of it that was made by us above in discussing the Mortgage Law, namely, that while it recognizes the fact that an unrecorded lease is binding on all persons who participate therein, this does not determine the question whether, admitting the lease to be so binding, it can be terminated by the plaintiffs under article 1571. Having thus disposed of the considerations which arise in relation with the Mortgage Law, as well as article 1549 of the Civil Coded all of which, as we have seen, are undecisive we are brought to consider the aspect of the case which seems to us conclusive. This is found in the circumstance that the plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this litigation, namely, first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease. These two positions are essentially antagonistic and incompatible. Every competent person is by law bond to maintain in all good faith the integrity of his own obligations; and no less certainly is he bound to respect the rights of any person whom he has placed in his own shoes as regards any contract previously entered into by himself. While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim cannot now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived from himself, and for which he has received full value.

The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the circumstance that prior to the acquisition of this property Pang Lim had been partner with Lo Seng and Benito Galvez an employee. Both therefore had been in relations of confidence with Lo Seng and in that position had acquired knowledge of the possibilities of the property and possibly an experience which would have enabled them, in case they had acquired possession, to exploit the distillery with profit. On account of his status as partner in the firm of Lo Seng and Co., Pang Lim knew that the original lease had been extended for fifteen years; and he knew the extent of valuable improvements that had been made thereon. Certainly, as observed in the appellant's brief, it would be shocking to the moral sense if the condition of the law were found to be such that Pang Lim, after profiting by the sale of his interest in a business, worthless without the lease, could intervene as purchaser of the property and confiscate for his own benefit the property which he had sold for a valuable consideration to Lo Seng. The sense of justice recoils before the mere possibility of such eventuality. Above all other persons in business relations, partners are required to exhibit towards each other the highest degree of good faith. In fact the relation between partners is essentially fiduciary, each being considered in law, as he is in fact, the confidential agent of the other. It is therefore accepted as fundamental in equity jurisprudence that one partner cannot, to the detriment of another, apply exclusively to his own benefit the results of the knowledge and information gained in the character of partner. Thus, it has been held that if one partner obtains in his own name and for his own benefit the renewal of a lease on property used by the firm, to commence at a date subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be a constructive trustee of the firm as to such lease. (20 R. C. L., 878-882.) And this rule has even been applied to a renewal taken in the name of one partner after the dissolution of the firm and pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.) An additional consideration showing that the position of the plaintiff Pang Lim in this case is untenable is deducible from articles 1461 and 1474 of the Civil Code, which declare that every person who sells anything is bound to deliver and warrant the subject-matter of the sale and is responsible to the vendee for the legal and lawful possession of the thing sold. The pertinence of these provisions to the case now under consideration is undeniable, for among the assets of the partnership which Pang Lim transferred to Lo Seng, upon selling out his interest in the firm to the latter, was this very lease; and while it cannot be supposed that the obligation to warrant recognized in the articles cited would nullify article 1571, if the latter article had actually conferred on the plaintiffs the right to terminate this lease, nevertheless said articles (1461, 1474), in relation with other considerations, reveal the basis of an estoppel which in our opinion precludes Pang Lim from setting up his interest as purchaser of the estate to the detriment of Lo Seng. It will not escape observation that the doctrine thus applied is analogous to the doctrine recognized in courts of common law under the head of estoppel by deed, in accordance with which it is held that if a person, having no title to land, conveys the same to another by some one or another

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of the recognized modes of conveyance at common law, any title afterwards acquired by the vendor will pass to the purchaser; and the vendor is estopped as against such purchaser from asserting such after-acquired title. The indenture of lease, it may be further noted, was recognized as one of the modes of conveyance at common law which created this estoppel. (8 R. C. L., 1058, 1059.) From what has been said it is clear that Pang Lim, having been a participant in the contract of lease now in question, is not in a position to terminate it: and this is a fatal obstacle to the maintenance of the action of unlawful detainer by him. Moreover, it is fatal to the maintenance of the action brought jointly by Pang Lim and Benito Galvez. The reason is that in the action of unlawful detainer, under section 80 of the Code of Civil Procedure, the only question that can be adjudicated is the right to possession; and in order to maintain the action, in the form in which it is here presented, the proof must show that occupant's possession is unlawful, i. e., that he is unlawfully withholding possession after the determination of the right to hold possession. In the case before us quite the contrary appears; for, even admitting that Pang Lim and Benito Galvez have purchased the estate from Lo Yao, the original landlord, they are, as between themselves, in the position of tenants in common or owners pro indiviso, according to the proportion of their respective contribution to the purchase price. But it is well recognized that one tenant in common cannot maintain a possessory action against his cotenant, since one is as much entitled to have possession as the other. The remedy is ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows that as Lo Seng is vested with the possessory right as against Pang Lim, he cannot be ousted either by Pang Lim or Benito Galvez. Having lawful possession as against one cotenant, he is entitled to retain it against both. Furthermore, it is obvious that partition proceedings could not be maintained at the instance of Benito Galvez as against Lo Seng, since partition can only be effected where the partitioners are cotenants, that is, have an interest of an identical character as among themselves. (30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito Galvez are bound to respect Lo Seng's lease, at least in so far as the present action is concerned. We have assumed in the course of the preceding discussion that the deed of sale under which the plaintiffs acquired the right of Lo Yao, the owner of the fee, is competent proof in behalf of the plaintiffs. It is, however, earnestly insisted by the attorney for Lo Seng that this document, having never been recorded in the property registry, cannot under article 389 of the Mortgage Law, be used in court against him because as to said instrument he is a third party. The important question thus raised is not absolutely necessary to the decision of this case, and we are inclined to pass it without decision, not only because the question does not seem to have been ventilated in the Court of First Instance but for the further reason that we have not had the benefit of any written brief in this case in behalf of the appellees. The judgment appealed from will be reversed, and the defendant will be absolved from the complaint. It is so ordered, without express adjudication as to costs. Johnson, Araullo, Avancea and Villamor, JJ., concur.

The Lawphil Project - Arellano Law Foundation Catalan Vs. Gatchalian 105 Phil 1270 G.R. No. L-11648 April 22, 1959

Facts: Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave together with the improvements thereon to secure a credit from the latter. The partnership failed to pay the obligation. The properties were sold to Dr. Marave at a public auction. Catalan redeemed the property and he contends that title should be cancelled and a new one must be issued in his name.

Issue: Did Catalans redemption of the properties make him the absolute owner of the lands?

Ruling: No. Under Article 1807 of the NCC every partner becomes a trustee for his copartner with regard to any benefits or profits derived from his act as a partner. Consequently, when Catalan redeemed the properties in question, he became a trustee and held the same in trust for his copartner Gatchalian, subject to his right to demand from the latter his contribution to the amount of redemption. Art. 1830. The marriage of the general partner to a limited partner did not result in the dissolution of the partnership.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. L-22493 July 31, 1975 ISLAND SALES, INC., plaintiff-appellee, vs. UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO,defendant-appellant. Grey, Buenaventura and Santiago for plaintiff-appellee. Anacleto D. Badoy, Jr. for defendant-appellant.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the defendant company. Daniel A. Guizona failed to file an answer and was consequently declared in default.
1

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant 2 Romulo B. Lumauig is concerned. When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to 3 present its evidence ex-parte , after which the trial court rendered the decision appealed from. The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are five (5) general partners, the joint and subsidiary liability of each partner should not 1 5 exceed one-fifth ( / ) of the obligations of the defendant company. But the trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants 1 5 4 Daco and Sim to only one-fifth ( / ) of the obligations of the defendant company. Hence, this appeal. The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership. Article 1816 of the Civil Code provides: Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract. In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held: The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in Negros. It was, therefore, a civil partnership as distinguished from a mercantile partnership. Being a civil partnership, by the express provisions of articles l698 and 1137 of the Civil Code, the partners are not liable each for the whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo is responsible to

CONCEPCION JR., J.: This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads: WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus attorney's fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs. The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are sentenced to pay the plaintiff in this case with the understanding that the judgment against these individual defendants shall be enforced only if the defendant company has no more leviable properties with which to satisfy the judgment against it. . The individual defendants shall also pay the costs. On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid, with the condition that failure to pay any of said installments as they fall due would render the whole unpaid balance immediately due and demandable.

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plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country cannot increase the liability of Pedro Yulo. In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability 1 5 of the appellant Benjamin C. Daco shall be limited to only one-fifth ( / ) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff. WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as to costs. SO ORDERED. Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.

theobligation. The properties were sold to Dr. Marave at a publicauction. Catalan redeemed the property and he contends that titleshould be cancelled and a new one must be issued in his name. Issue: Did Catalans redemption of the properties make him the absolute owner of the lands? Ruling: No. Under Article 1807 of the NCC every partner becomes atrustee for his copartner with regard to any benefits or profitsderived from his act as a partner. Consequently, when Catalanredeemed the properties in question, he became a trustee andheld the same in trust for his copartner Gatchalian, subject to hisright to demand from the latter his contribution to the amount ofredemption. Art. 1830. The marriage of the general partner to alimited partner did not result in the dissolution of the partnership.

Footnotes 1 p. 3a, RA 2 p. 4a, RA 3 49, RA 4 pp. 56-57, RA

Catalan Vs. Gatchalian 105 Phil 1270 G.R. No. L-11648 April 22, 1959

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Facts: Catalan and Gatchalian are partners. They mortgaged twolots to Dr. Marave together with the improvements thereon tosecure a credit from the latter. The partnership failed to pay