Article 1767

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

property as a guaranty for any judgment that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the
highest bidder in the public auction sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the
plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for
theP900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in
this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached
nets and floats. Considering, however, that the total judgment obligation as computed above would
amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not put up a single centavo to raise the
amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this
reason, the defendants are hereby relieved from any and all liabilities arising from the monetary
judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total
price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to
the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent
filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three in their capacities as general partners,
on the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. [5] On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and
requesting a reasonable time within which to pay. He also turned over to respondent some of the nets
which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived
his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to
appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim
and Crossclaim and moved for the lifting of the Writ of Attachment. [6] The trial court maintained the Writ,
and upon motion of private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales
proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent.[8]

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three [9] in
Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch
72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an injunction and (e) damages. [10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount
of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment
for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever
will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall
be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao.[11]
The trial court noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for the
use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a partnership
essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund with the intention of dividing the profits among
themselves (Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT
CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP
AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST
FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE
COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats purchased from
respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be
deemed to have entered into a partnership.
This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent,
petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio
Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he
disclaims any direct participation in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the
"Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the main
asset of the purported partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a
monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of
the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join
him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing
boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the
venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by
Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other
expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in
the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership
papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the
parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioners brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to

divide equally among them the excess or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term common fund under Article 1767. The contribution to
such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the
parties agreed that any loss or profit from the sale and operation of the boats would be divided equally
among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so
much in buying the boat but not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the main
assets of the partnership, and they agreed that the proceeds from the sales and operations thereof
would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court,
absent any cogent proof that the present action is embraced by one of the exceptions to the rule. [16] In
assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership
was the Compromise Agreement. He also claims that the settlement was entered into only to end the
dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are
baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to
its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly
appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting
partnership among the parties. In implying that the lower courts have decided on the basis of one piece
of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the
document and explored all the possible consequential combinations in harmony with law, logic and
fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argument that
the existence of a partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua
and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of
Lease and the registration papers showing that he was the owner of the boats, including F/B
Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the
sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided
among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved
that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and
Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the
vessels which would be used in their fishing business. The sale of the boats, as well as the division

among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B
Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is
not uncommon to register the properties acquired from a loan in the name of the person the lender
trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a
debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee,
instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to
Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is
sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not
be allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. The reason behind this doctrine is obvious - an
unincorporated association has no personality and would be incompetent to act and appropriate for
itself the power and attributes of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a principal is himself regarded as the principal,
possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to
act on behalf of a corporation which has no valid existence assumes such privileges and obligations
and becomes personally liable for contracts entered into or for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third
party. In the first instance, an unincorporated association, which represented itself to be a corporation,
will be estopped from denying its corporate capacity in a suit against it by a third person who relied in
good faith on such representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless
treated it as a corporation and received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation. In such case, all those who benefited from
the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid
for the nets it sold. The only question here is whether petitioner should be held jointly [18] liable with Chua
and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name does not appear on any of the contracts
and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.

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

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

v. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX

APPEALS, Respondents.
SYLLABUS
1. TAXATION; TAX ON CORPORATIONS INCLUDES ORGANIZATION WHICH ARE NOT
NECESSARY PARTNERSHIP. "Corporations" strictly speaking are distinct and different from
"partnership." When our Internal Revenue Code includes "partnership" among the entities subject to the
tax on "corporations", it must be allude to organization which are not necessarily "partnership" in the
technical sense of the term.
2. ID.; DULY REGISTERED GENERAL PARTNERSHIP ARE EXEMPTED FROM THE TAX UPON
CORPORATIONS. Section 24 of the Internal Revenue Code exempts from the tax imposed upon
corporations "duly registered general partnership", which constitute precisely one of the most typical
form of partnership in this jurisdiction.
3. ID.; CORPORATION INCLUDES PARTNERSHIP NO MATTER HOW ORGANIZED. As defined in
section 84 (b) of the Internal Revenue Code "the term corporation includes partnership, no matter how
created or organized." This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standards form, or conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for the purposes of the tax on
corporations.
4. ID.; CORPORATIONS INCLUDES "JOINT ACCOUNT" AND ASSOCIATIONS WITHOUT LEGAL
PERSONALITY. Pursuant to Section 84 (b) of the Internal Revenue Code, the term "corporations"
includes, among the others, "joint accounts (cuenta en participacion)" and "associations", none of which
has a legal personality of its own independent of that of its members. For purposes of the tax on
corporations, our National Internal Revenue Code includes these partnership. with the exception only
of duly registered general partnership. within the purview of the term "corporations." Held: That the
petitioners in the case at bar, who are engaged in real estate transactions for monetary gain and divide
the same among themselves, constitute a partnership, so far as the said Code is concerned, and are
subject to the income tax for the corporation.

[18]

The liability is joint if it is not specifically stated that it is solidary, Maramba v. Lozano, 126 Phil 833,
June 29, 1967, per Makalintal, J. See also Article 1207 of the Civil Code, which provides: The
concurrence of two or more creditors or of two or more debtors in one [and] the same obligation does
not imply that each one of the former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity.
FIRST DIVISION

5. ID.; CORPORATION; PARTNERSHIP WITHOUT LEGAL PERSONALITY SUBJECT TO

RESIDENCE TAX ON CORPORATION. The pertinent part of the provision of Section 2 of
Commonwealth Act No. 465 which says: "The term corporation as used in this Act includes joint-stock
company, partnership, joint account (cuentas en participacion), association or insurance company, no
matter how created or organized." is analogous to that of Section 24 and 84 (b) of our Internal Revenue
Code which was approved the day immediately after the approval of said Commonwealth Act No. 565.
Apparently, the terms "corporation" and "Partnership" are used both statutes with substantially the same
meaning, Held: That the petitioners are subject to the residence tax corporations.

[G.R. No. L-9996. October 15, 1957.]

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA and FRANCISCA EVANGELISTA, Petitioners,

DECISION

This is a petition, filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for
review of a decision of the Court of Tax Appeals, the dispositive part of which
reads:jgc:chanrobles.com.ph
"FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate
dealers tax and the residence tax for the years 1945 to 1949, inclusive, in accordance with the
respondents assessment for the same in the total amount of P6,878.34, which is hereby affirmed and
the petition for review filed by petitioners is hereby dismissed with costs against petitioners."cralaw
virtua1aw library
It appears from the stipulation submitted by the parties:jgc:chanrobles.com.ph
"1. That the petitioners borrowed from their father the sum of P59,140.00 which amount together with
their personal monies was used by them for the purpose of buying real properties;
"2. That on February 2, 1943 they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40
sq. m. including improvements thereon for the sum of P100,000.00; this property has an assessed
value of P57,517.00 as of 1948;
"3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate
area of 3,718.40 sq. m. including improvements thereon for P18,000.00; this property has an assessed
value of P8,255.00 as of 1948;
"4. That on April 23, 1944 they purchased from the Insular Investments, Inc., a lot of 4,358 sq. m.
including improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as
of 1943;
"5. That on April 28, 1944 they bought from Mrs. Valentin Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.14. This property has an assessed value of P59,140.00 as of 1948;
"6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to
manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor;
in default of such payment, to bring suits against the defaulting tenant; to sign all letters, contracts, etc.,
for and in their behalf, and to endorse and deposit all notes and checks for them;
"7. That after having bought the above-mentioned real properties, the petitioners had the same rented
or leased to various tenants;

It further appears that on September 24, 19a4, respondent Collector of Internal Revenue demanded the
payment of income tax on corporations, real estate dealers fixed tax and corporation residence tax for
the years 1945-1949, computed, according to the assessments made by said officer, as
follows:chanrob1es virtual 1aw library
INCOME TAXES
1945. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P614.84
1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,144.71
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .910.34
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,912.30
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,575.90
_____________
Total including surcharge and compromise
P6,157.09
REAL ESTATE DEALERS FIXED TAX
1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P37.50
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150.00
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150.00
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150.00
____________
Total including penalty
P527.50
RESIDENCE TAXES OF CORPORATION
1945. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P38.75
1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38.75
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38.75
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38.75
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38.75
______________
Total including surcharge
TOTAL TAXES DUE

P193.75
P6,878.34

"8. That from the month of March, 1945 up to and including December, 1945, the total amount collected
as rents on their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby
leaving them a net rental income of P5,948.33;

Said letter of demand and the corresponding assessments were delivered to petitioners on December
3, 1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the
decision of the respondent contained in his letter of demand dated September 24, 1954" be reversed,
and that they be absolved from the payment of the taxes in question, with costs against
the Respondent.

"9. That in 1946, they realized a gross rental income in the sum of P24,786.30, out of which amount
was deducted the sum of P16,288.27 for expenses thereby leaving them a net rental income of
P7,498.13;

After appropriate proceedings, the Court of Tax Appeals rendered the above-mentioned decision for the
respondent, and, a petition for reconsideration and new trial having been subsequently denied, the case
is now before Us for review at the instance of the petitioners.

"10. That in 1948 they realized a gross rental income of P17,453.00 out of the which amount was
deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income of
P12,615.35."cralaw virtua1aw library

The issue in this case is whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as
well as to the residence tax for corporations and the real estate dealers fixed tax. With respect to the
tax on corporations, the issue hinges on the meaning of the terms "corporation" and "partnership", as

used in sections 24 and 84 of said Code, the pertinent parts of which read:jgc:chanrobles.com.ph

for profit.

"SEC. 24. Rate of tax on corporations. There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how created or organized but not
including duly registered general co-partnerships (compaias colectivas), a tax upon such income equal
to the sum of the following: . . . ."cralaw virtua1aw library

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15)
years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista
became the manager.

"Sec. 84(b). The term corporation includes partnerships, no matter how created or organized, jointstock companies, joint accounts (cuentas en participacion), associations or insurance companies, but
does not include duly registered general copartnerships (compaias colectivas)."cralaw virtua1aw
library
Article 1767 of the Civil Code of the Philippines provides:jgc:chanrobles.com.ph
"By the contract of partnership two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves."cralaw
virtua1aw library
Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions
for monetary gain and then divide the same among themselves, because:chanrob1es virtual 1aw library
1. Said common fund was not something they found already in existence. It was not a property inherited
by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion
thereof in order to establish said common fund.
2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2,
1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.000. This
was soon followed, on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5)
days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and
transactions undertaken, as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not limited to the conservation
and preservation of the aforementioned common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character of habituality peculiar to business
transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners
herein. The properties were leased separately to several persons, who, from 1945 to 1948 inclusive,
paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person, namely,
Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business enterprise operated

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set
up already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances were
present in the cases cited by petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the
acts performed by them, a legal entity, with a personality independent of that of its members, did not
come into existence, and some of the characteristics of partnerships are lacking in the case at bar. This
pretense was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships." When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships", which constitute precisely one of the most typical forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no
matter how created or organized." This qualifying expression clearly indicates that a joint venture need
not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law
on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations.
Again, pursuant to said section 84(b), the term "corporation" includes, among other, "joint accounts,
(cuentas en participacion)" and "associations", none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not have regarded that personality
as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated,
"duly registered general copartner ships" which are possessed of the aforementioned personality
have been expressly excluded by law (sections 24 and 84 [b]) from the connotation of the term
"corporation." It may not be amiss to add that petitioners allegation to the effect that their liability in
connection with the leasing of the lots above referred to, under the management of one person even
if true, on which we express no opinion tends to increase the similarity between the nature of their
venture and that of corporations, and is, therefore, an additional argument in favor of the imposition of
said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from
"partnerships." By specific provision of said laws, such "corporations" include "associations, joint-stock
companies and insurance companies." However, the term "association" is not used in the
aforementioned laws
". . . in any narrow or technical sense. It includes any organization, created for the transaction of
designated affairs, or the attainment of some object, which, like a corporation, continues
notwithstanding that its members or participants change, and the affairs of which, like corporate affairs,

are conducted by a single individual, a committee, a board, or some other group, acting in a
representative capacity. It is immaterial whether such organization is created by an agreement, a
declaration of trust, a statute, or otherwise. It includes a voluntary association, a joint-stock corporation
or company, a business trusts a Massachusetts trust, a common law trust, and investment trust
(whether of the fixed or the management type), an interinsurance exchange operating through an
attorney in fact, a partnership association, and any other type of organization (by whatever name
known) which is not, within the meaning of the Code, a trust or an estate, or a partnership." (7A
Mertens Law of Federal Income Taxation, p. 788; italics ours.)

"Real estate dealer includes any person engaged in the business of buying, selling, exchanging,
leasing, or renting property or his own account as principal and holding himself out as a full or part- time
dealer in real estate or as an owner of rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year. . . . ." (Italics ours.)
Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed with costs against the
petitioners herein. It is so ordered.

Similarly, the American Law.

". . . provides its own concept of a partnership. Under the term partnership it includes not only a
partnership as known at common law but, as well, a syndicate, group, pool, joint venture, or other
unincorporated organization which carries on any business, financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a corporation. . . . ." (7A Mertens Law of Federal
Income Taxation, p. 789; italics ours.)
"The term partnership includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried
on, . . . ." (8 Mertens Law of Federal Income Taxation, p. 562 Note 63; italics ours.)
For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships with the exception only of duly registered general copartnerships within the purview
of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for corporations.
As regards the residence tax for corporations, section 2 of Commonwealth Act No. 465 provides in
part:jgc:chanrobles.com.ph
"Entities liable to residence tax. Every corporation, no matter how created or organized, whether
domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual
residence tax of five pesos and an annual additional tax which, in no case, shall exceed one thousand
pesos, in accordance with the following schedule: . . .
"The term corporation as used in this Act includes joint-stock company, partnership, joint account
(cuentas en participacion), association or insurance company, no matter how created or organized."
(italics ours.)
Considering that the pertinent part of this provision is analogous to that of sections 24 and 84(b) of our
National Internal Revenue Code (Commonwealth Act No. 466), and that the latter was approved on
June 15, 1939, the day immediately after the approval of said Commonwealth Act No. 465 (June 14,
1939), it is apparent that the terms "corporation" and "partnership" are used in both statutes with
substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for
corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the properties above
mentioned for a period of over twelve years, and that the yearly gross rentals of said properties from
1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to the tax provided in section 193
(q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to section
194(s) thereof:jgc:chanrobles.com.ph

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

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

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

ESTANISLAO, EMILIO
SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; FORMED WHERE MEMBERS OF

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

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

advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and supersedes the
Joint Affidavit dated 11 April 1966 executed by the co-owners." 2

(2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up
to the time this order is issued, the same to be subject to examination and audit by the plaintiff;

For sometime, the petitioner submitted financial statements regarding the operation of the business to
private respondents, but thereafter petitioner failed to render subsequent accounting. Hence through
Atty. Angeles, a demand was made on petitioner to render an accounting of the profits.

(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of the
business in the amount of P150,000.00, with interest thereon at the rate of One (1%) Per Cent per
month from date of demand until full payment thereof;

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

(4) Ordering the defendant to pay the plaintiffs the sum of P5,000.00 by way of attorneys fees of
plaintiffs counsel; as well as the costs of suit." (pp. 161-162. Record on Appeal)."cralaw virtua1aw
library

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal
against petitioner saying among others that the latter be ordered:jgc:chanrobles.com.ph
"1. to execute a public document embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendants provided in Article 1771 of the New Civil Code;
"2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to
December 21, 1968 and from January 1, 1969 up to the time the order is issued and that the same be
subject to proper audit;
"3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an
amount of no less than P150,000.00 with interest at the rate of 1% per month from date of demand until
full payment thereof for the entire duration of the business; and
"4. to pay the plaintiffs the amount of P10,000.00 as attorneys fees and costs of the suit." (pp. 13-14
Record on Appeal.)"
After trial on the merits, on October 15, 1975, Hon. Lino Anover, who was then the temporary presiding
judge of Branch IV of the trial court, rendered judgment dismissing the complaint and counterclaim and
ordering private respondents to pay petitioner P3,000.00 attorneys fee and costs. Private respondent
filed a motion for reconsideration of the decision. On December 1, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the same branch, set aside the aforesaid decision and
rendered another decision in favor of said respondents.chanroblesvirtualawlibrary

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly
committed by the trial court. In due course, a decision was rendered by the Court of Appeals on
November 28, 1978 affirming in toto the decision of the lower court with costs against petitioner. **
A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not
satisfied therewith, the petitioner now comes to this court by way of this petition for certiorari alleging
that the respondent court erred:jgc:chanrobles.com.ph
"1. In interpreting the legal import of the Joint Affidavit (Exh. "A") vis-a-vis the Additional Cash Pledge
Agreement (Exhs. "B-2," "6," and "L"); and
2. In declaring that a partnership was established by and among the petitioner and the private
respondents as regards the ownership and/or operation of the gasoline service station business."cralaw
virtua1aw library
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the
Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced (a) The joint Affidavit of April 11, 1966, Exhibit A reads:jgc:chanrobles.com.ph
"(1) That we are the Lessors of two parcels of land fully described in Transfer Certificates of Title Nos.
45071 and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY
OF THE PHILIPPINES LIMITED, a corporation duly licensed to do business in the Philippines;

The dispositive part thereof reads as follows:chanrob1es virtual 1aw library

WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new
judgment is hereby rendered in favor of the plaintiffs and as against the defendant:chanrob1es virtual
1aw library
(1) Ordering the defendant to execute a public instrument embodying all the provisions of the
partnership agreement entered into between plaintiffs and defendant as provided for in Article 1771,
Civil Code of the Philippines;

"(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINES LIMITED, advanced
rentals in the total amount of FIFTEEN THOUSAND PESOS (P15,000.00) Philippine Currency, so that
we can use the said amount to augment our capital investment in the operation of that gasoline station
constructed by the said company on our two lots aforesaid by virtue of an outstanding Lease Agreement
we have entered into with the said company.
"(3) That the said SHELL COMPANY OF THE PHILIPPINES LIMITED out of its benevolence and desire
to help us in augmenting our capital investment in the operation of the said gasoline station, has agreed
to give us the said amount of P15,000.00, which amount will partake the nature of ADVANCED

RENTALS;
"(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (P15,000,00) from the SHELL COMPANY OF THE PHILIPPINES LIMITED, the
said sum as ADVANCED RENTALS to us be applied as monthly rentals for the said two lots under our
Lease Agreement starting on the 25th of May, 1966 until such time that the said amount of P15,000.00
be applicable, which time to our estimate will cover at four and one-half months from May 25, 1966 or
until the 10th of October, 1966 more or less;
"(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES
LIMITED execute an instrument for us to sign embodying our conformity that the said amount that it will
generously grant us as requested be applied as ADVANCED RENTALS; and

1963 and the other dated 19th March 1964 to enable DEALER to increase his existing cash deposit to
SHELL, from P10,000 to P25,000, for such purpose, the SHELL CO-OWNERS and DEALER hereby
irrevocably assign to SHELL the monthly rental of P3,382.29 payable to them respectively as they fall
due, monthly, commencing 24th May 1966, until such time that the monthly rentals accumulated, shall
be equal to P15,000.
"2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by
DEALER to SHELL, thereby increasing his credit limit from P10,000 to P25,000. This agreement,
therefore, cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the COOWNERS.
"3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from
SHELL petroleum products, on credit, up to the amount of P25,000.

"(6) FURTHER AFFIANTS SAYETH NOT.

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

"4. This increase in the credit limit shall also be subject to the same terms and conditions of the abovementioned Cash Pledge Agreement dated 11th May 1966." (Exhs. "B-2," "L," and "6" ; Italics supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the
P15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in the
operation of the gasoline station, which advance rentals shall be credited as rentals from May 25, 1966
up to four and one-half months or until 10 October 1966, more or less covering said P15,000.00.
In the subsequent document entitled `Additional Cash Pledge Agreement" above reproduced (Exhibit
6), the private respondents and petitioners assigned to SHELL the monthly rentals due them
commencing the 24th of May 1966 until such time that the monthly rentals accumulated equal
P15,000.00 which private respondents agree to be a cash deposit of petitioner in favor of SHELL to
increase his credit limit as dealer. As above-stated it provided therein that "This agreement, therefore,
cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."cralaw
virtua1aw library
Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint
Affidavit, whatever partnership agreement there was in said previous agreement had thereby been
abrogated. We find no merit in this argument. Said cancelling provision was necessary for the Joint
Affidavit speaks of P15,000.00 advance rentals starting May 25, 1966 while the latter agreement also
refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication
of reference to the P15,000.00 hence the need to provide in the subsequent document that it "cancels
and supersedes" the previous one. True it is that in the latter document, it is silent as to the statement in
the Joint Affidavit that the P15,000.00 represents the "capital investment" of the parties in the gasoline
station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter
document SHELL was a signatory and it would be against its policy if in the agreement it should be
stated that the business is a partnership with private respondents and not a sole proprietorship of
petitioner.chanrobles.com:cralaw:red
Moreover other evidence in the record shows that there was in fact such partnership agreement

10

between the parties. This is attested by the testimonies of private respondent Remedios Estanislao and
Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the business. 4
Petitioner gave a written authority to private respondent Remedios Estanislao, his sister, to examine
and audit the books of their "common business" (aming negosyo). 5 Respondent Remedios assisted in
the running of the business. There is no doubt that the parties hereto formed a partnership when they
bound themselves to contribute money to a common fund with the intention of dividing the profits
among themselves. 6 The sole dealership by the petitioner and the issuance of all government permits
and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this proceeding, and its
conclusion based on the said facts are in accordance with the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This
decision is immediately executory and no motion for extension of time to file a motion for
reconsideration shall be entertained.
SO ORDERED.
THIRD DIVISION

HEIRS OF JOSE LIM,

represented by ELENITO LIM,
Petitioners,

G.R. No. 172690

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

- versus -

Promulgated:
March 3, 2010

JULIET VILLA LIM,

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

Respondent.

x------------------------------------------------------------------------------------x
DECISION
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Civil Procedure,
assailing the Court of Appeals (CA) Decision[2] dated June 29, 2005, which reversed and set aside the
decision[3] of the Regional Trial Court (RTC) of Lucena City, dated April 12, 2004.
The facts of the case are as follows:

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of
Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in 1980,
Jose gave Elfledo P50,000.00 as the latter's capital in an informal partnership with Jimmy and
Norberto. When Elfledo and respondent got married in 1981, the partnership only had one truck; but
through the efforts of Elfledo, the business flourished. Other than this trucking business, Elfledo,
together with respondent, engaged in other business ventures. Thus, they were able to buy real
properties and to put up their own car assembly and repair business. When Norberto was ambushed
and killed on July 16, 1993, the trucking business started to falter. When Elfledo died on May 18, 1995
due to a heart attack, respondent talked to Jimmy and to the heirs of Norberto, as she could no longer
run the business. Jimmy suggested that three out of the nine trucks be given to him as his share, while
the other three trucks be given to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not
interested in the vehicles. Thus, she sold the same to respondent, who paid for them in installments.

11

Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership
with Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no
properties that Elfledo could have held in trust. Respondent maintained that all the properties involved
in this case were purchased and acquired through her and her husbands joint efforts and hard work,
and without any participation or contribution from petitioners or from Jose. Respondent submitted that
these are conjugal partnership properties; and thus, she had the right to refuse to render an accounting
for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of petitioners,
thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally between the
plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-Lim; and

of respondent, the testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the
RTC's findings was fully justified.[9]
We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual
issues an exercise that is not appropriate for a petition for review on certiorari under Rule 45. This rule
provides that the parties may raise only questions of law, because the Supreme Court is not a trier of
facts. Generally, we are not duty-bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below.[10] When supported by substantial evidence, the findings of fact of the
CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls
under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;

2) Ordering the defendant to submit an accounting of all incomes, profits and rentals
received by her from said properties.

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

SO ORDERED.

(4) When the judgment is based on a misapprehension of facts;

Aggrieved, respondent appealed to the CA.

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

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific evidence on
which they are based;
(9) When the facts set forth in the petition as well as in the petitioners' main and
reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the supposed
absence of evidence and contradicted by the evidence on record.[11]

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner,
Elfledo was not a partner; and that he and Norberto entered into a partnership with Jose. Thus, the CA
erred in not giving that testimony greater weight than that of Cresencia, who was merely the spouse of
Jose and not a party to the partnership.[8]
Respondent counters that the issue raised by petitioners is not proper in a petition for review
on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the review, evaluation,
calibration, and re-weighing of the factual findings of the CA. Moreover, respondent invokes the
rationale of the CA decision that, in light of the admissions of Cresencia and Edison and the testimony

We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review
of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects, labor, and skill in
lawful commerce or business, with the understanding that there shall be a proportionate sharing of the

12

profits and losses among them. A contract of partnership is defined by the Civil Code as one where two
or more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.[12]

(2) Co-ownership or co-possession does not of itself establish a partnership,

whether such co-owners or co-possessors do or do not share any profits made by
the use of the property;

Undoubtedly, the best evidence would have been the contract of partnership or the articles of
partnership. Unfortunately, there is none in this case, because the alleged partnership was never
formally organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the
partner in the trucking business.

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

A careful review of the records persuades us to affirm the CA decision. The evidence presented by
petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and
not Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of
Jose, having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against
respondent. It must be considered and weighed along with petitioners' other evidence vis--vis
respondent's contrary evidence. In civil cases, the party having the burden of proof must establish his
case by a preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of
the aggregate evidence on either side and is usually considered synonymous with the term "greater
weight of the evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a
phrase that, in the last analysis, means probability of the truth. It is evidence that is more convincing to
the court as worthy of belief than that which is offered in opposition thereto. [13] Rule 133, Section 1 of
the Rules of Court provides the guidelines in determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the party
having burden of proof must establish his case by a preponderance of evidence. In
determining where the preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and circumstances of the case, the
witnesses' manner of testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or want of
interest, and also their personal credibility so far as the same may legitimately
appear upon the trial. The court may also consider the number of witnesses, though
the preponderance is not necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals [14] is enlightening.
Therein, we cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each
other are not partners as to third persons;

13

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

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

trucks and otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.
It is notable too that Jose Lim died when the partnership was barely a year old, and
the partnership and its business not only continued but also flourished. If it were true
that it was Jose Lim and not Elfledo who was the partner, then upon his
death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were not done but
instead its operation continued under the helm of Elfledo and without any
participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their
own concerted efforts and hard work. Elfledo did not limit himself to the business of
their partnership but engaged in other lines of businesses as well.

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

SECOND DIVISION
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, Petitioners-Appellants, v. THE COURT OF
APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA
NOGUERA, Respondents-Appellees.
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari.
The facts are beyond dispute:
xxx xxx xxxchanrobles virtual law library
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct.
19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service,
Inc., represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as
appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the first part at
Mabini St., Manila for the former-s use as a branch office. In the said contract the party of the third part
held herself solidarily liable with the party of the part for the prompt payment of the monthly rental
agreed on. When the branch office was opened, the same was run by the herein appellant Una 0.
Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs.
Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service,
Inc.chanroblesvirtualawlibrarychanrobles virtual law library

14

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been
informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the
branch office was anyhow losing, the Tourist World Service considered closing down its office. This was
firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961
(Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of the Tourist
World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the
properties of the Tourist World Service then located at the said branch office. It further appears that on
Jan. 3, 1962, the contract with the appellees for the use of the Branch Office premises was terminated
and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact
appellants used it since Nov. 1961. Because of this, and to comply with the mandate of the Tourist
World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the
premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962
to protect the interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of
her employees could enter the locked premises, a complaint wall filed by the herein appellants against
the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees
answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered
the dismissal of the case without prejudice.chanroblesvirtualawlibrary chanrobles virtual law library
The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim
which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in
support of her counterclaim.chanroblesvirtualawlibrary chanrobles virtual law library
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the
issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss for
lack of merit, on the basis of which was elevated the instant appeal on the following assignment of
errors: chanrobles virtual law library
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT
MRS. LINA O. SEVILLA'S COMPLAINT.chanroblesvirtualawlibrary chanrobles virtual law library
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S
ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF
EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.chanroblesvirtualawlibrary chanrobles virtual law library
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA
IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE
LATTER.chanroblesvirtualawlibrary chanrobles virtual law library
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT
APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO
THEIR OWN HANDS.chanroblesvirtualawlibrary chanrobles virtual law library
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S
RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A.
MABINI PREMISES.chanroblesvirtualawlibrary chanrobles virtual law library

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O.
SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office
on Ermita; chanrobles virtual law library
2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not;
and chanrobles virtual law library
3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees
TWS or TWS and the appellant.chanroblesvirtualawlibrary chanrobles virtual law library
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and
between her and appellee TWS with offices at the Ermita branch office and that she was not an
employee of the TWS to the end that her relationship with TWS was one of a joint business venture
appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist
as well as a imediately columnist had been in the travel business prior to the establishment of the joint
business venture with appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre,
she being the godmother of one of his children, with her own clientele, coming mostly from her own
social circle (pp. 3-6 tsn. February 16,1965).chanroblesvirtualawlibrary chanrobles virtual law library
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering
the premises at A. Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with
appellee Tourist World Service, Inc. for the prompt payment of the monthly rentals thereof to other
appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964).chanroblesvirtualawlibrary chanrobles virtual law
library
3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had
its own, separate office located at the Trade & Commerce Building; nor was she an employee thereof,
having no participation in nor connection with said business at the Trade & Commerce Building (pp. 1618 tsn Id.). chanrobles virtual law library
4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own
business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from the
airline companies. She shared the 7% commissions given by the airline companies giving appellee
Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.) chanrobles virtual law
library
5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying
for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from desicion the
office furniture and supplying some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist
World Service, Inc. shouldering the rental and other expenses in consideration for the 3% split in the co
procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).chanroblesvirtualawlibrary chanrobles virtual
law library
6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch
manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title
for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965testimony of corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

15

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist
World Service, Inc. and as such was designated manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World
Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the
premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World
Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of
Appeal 5rendered an affirmance.chanroblesvirtualawlibrary chanrobles virtual law library
The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically,
they state: chanrobles virtual law library
Ichanrobles virtual law library
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD
SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ...
WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT
INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE
PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF
TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE),
IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT
(SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE
RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE
PROCESS WHICH ADHERES TO THE RULE OF LAW.chanroblesvirtualawlibrary chanrobles virtual
law library
IIchanrobles virtual law library
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO
WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH
APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8) chanrobles IIIchanrobles virtual law library
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS
CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.chanroblesvirtualawlibrary chanrobles virtual law library
IV chanrobles virtual law library
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER
CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST
ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED
UNILATERALLY BY TOURIST WORLD SERVICE INC. 6chanrobles virtual law library
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina
Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the
crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World
Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or not the evidence for the said appellant supports the

contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World
Service, Inc. 7Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere
employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on
the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however,
that relation between the between parties was one of joint venture, but concede that "whatever might
have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined
Tourist World Service and Canilao from taking the law into their own hands, 8in reference to the
padlocking now questioned.chanroblesvirtualawlibrary chanrobles virtual law library
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World
Service, Inc., maintains, that the relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the case, labor disputes being the
exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to
statutes then in force. 9chanrobles virtual law library
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee
relation. In general, we have relied on the so-called right of control test, "where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also the means to
be used in reaching such end." 10Subsequently, however, we have considered, in addition to the
standard of right-of control, the existing economic conditions prevailing between the parties, like the
inclusion of the employee in the payrolls, in determining the existence of an employer-employee
relationship. 11chanrobles virtual law library
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used
in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita
office, she had bound herself in solidum as and for rental payments, an arrangement that would be like
claims of a master-servant relationship. True the respondent Court would later minimize her
participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist
World, since in any case, a true employee cannot be made to part with his own money in pursuance of
his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be
bound by some other relation, but certainly not employment.chanroblesvirtualawlibrary chanrobles
virtual law library
In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the
same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any
airline for any fare brought in on the effort of Mrs. Lina Sevilla.13Under these circumstances, it cannot be
said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in
pursuing the business, obviously relied on her own gifts and
capabilities.chanroblesvirtualawlibrary chanrobles virtual law library
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in
commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then,

16

who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her
booking successes.chanroblesvirtualawlibrary chanrobles virtual law library
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's
employee. As we said, employment is determined by the right-of-control test and certain economic
parameters. But titles are weak indicators.chanroblesvirtualawlibrary chanrobles virtual law library
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting
Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership.
And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of
November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the
operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the
manner in which the business was run. A joint venture, including a partnership, presupposes generally a
of standing between the joint co-venturers or partners, in which each party has an equal proprietary
interest in the capital or property contributed 15 and where each party exercises equal rights in the
conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the
building itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.chanroblesvirtualawlibrary chanrobles virtual law library
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private
respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of
agency. It is the essence of this contract that the agent renders services "in representation or on behalf
of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her
principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept
of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, preassumed her principal's authority as owner of the business undertaking. We are convinced, considering
the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a
principal agent relationship, rather than a joint managament or a
partnership..chanroblesvirtualawlibrary chanrobles virtual law library
But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible
with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an
interest, the agency having been created for mutual interest, of the agent and the principal. 19 It appears
that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the
business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof,
holding herself solidarily liable for the payment of rentals. She continued the business, using her own
name, after Tourist World had stopped further operations. Her interest, obviously, is not to the
commissions she earned as a result of her business transactions, but one that extends to the very
subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be
revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the
petitioner, Lina Sevilla, to damages.chanroblesvirtualawlibrary chanrobles virtual law library
As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of
Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the
telephone lines at the branch office. 20Yet, what cannot be denied is the fact that Tourist World Service,

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

17

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

Op cit 37. In Tuazon v. Balanos [95 Phil. 106 (1954)], this Court distinguished between a joint venture
and a partnership but this view has since raised questions from authorities. According to Campos, there
seems to be no fundamental distinction between the two forms of business combinations. CAMPOS,
THE CORPORATION CODE 12 (1981).] For p of this case, we use the terms of
interchangeable.chanrobles virtual law library
THIRD DIVISION
[G.R. No. 134559. December 9, 1999]
ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES, respondents.
DECISION
Courts may not extricate parties from the necessary consequences of their acts. That the terms of
a contract turn out to be financially disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto release the contracting partners from

their respective obligations to each other arising from acts executed in accordance with their
agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision [1] Second
Division of the Court of Appeals[2] (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution
denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of
Cebu City in Civil Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the
plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are
likewise ordered dismissed. No pronouncement as to costs.[3]
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in
favor of respondent, who then had it registered in his name. By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be
used for the development of the subdivision.[4] All three of them also agreed to share the proceeds from
the sale of the subdivided lots.
The project did not push through, and the land was subsequently foreclosed by the bank.
According to petitioners, the project failed because of respondents lack of funds or means and
skills. They add that respondent used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement the Agreement. With
the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu
Lapu City Councils approval of the subdivision project which he advertised in a local newspaper. He
also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an
engineering firm for the building of sixty low-cost housing units and actually even set up a model house
on one of the subdivision lots. He did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project.[5]
Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who
were however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion,
was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the
appellate court remanded the case for further proceedings.Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the CA.
Hence, this Petition.[6]
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a
partnership for the development of the subdivision. Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial courts pronouncement that losses as well as profits in a joint venture should be distributed
equally,[7] the CA invoked Article 1797 of the Civil Code which provides:

18

Article 1797 - The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
x x x [The] Court of Appeals erred in concluding that the transaction x x x between the petitioners and
respondent was that of a joint venture/partnership, ignoring outright the provision of Article 1769, and
other related provisions of the Civil Code of the Philippines.[8]
The Courts Ruling
The Petition is bereft of merit.
Main Issue: Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of which were the bases of the appellate courts finding of
a partnership, were void.
In the same breath, however, they assert that under those very same contracts, respondent is
liable for his failure to implement the project. Because the agreement entitled them to receive 60
percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them
damages equivalent to 60 percent of the value of the property.[9]
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by
and between MR. MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS. ANTONIA B.
TORRES, and MISS EMETERIA BARING, x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at
Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, upon the execution of this contract for the property entrusted
by the SECOND PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises herein contained
the respective parties hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in the
amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50)
Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this

particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned
to be sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal
amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until
the sub-division project is terminated and ready for sale to any interested parties, and the amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid
by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the
development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the
SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally according to the x x x percentage
[agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved will start the work and all
improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned
provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by
the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements
spent by the FIRST PARTY, and the FIRST PARTY will be given a grace period to turnover the property
mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and
voluntarily for the uses and purposes therein stated.[10]
A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, which provides:
ART. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while respondent would give, in addition to
his industry, the amount needed for general expenses and other costs. Furthermore, the income from
the said project would be divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership.[11]
It should be stressed that the parties implemented the contract. Thus, petitioners transferred the
title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused
the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision
of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property,
but also industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been
expressly stipulated, but also to all necessary consequences thereof, as follows:

19

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have understood the terms
of the contract they voluntarily signed. If it was not in consonance with their expectations, they should
have objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary consequences of their acts, and
the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve
parties thereto of their obligations. They cannot now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code,
which provides:
ART. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the public instrument an
inventory of the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent
Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771,
[12]
the execution of a public instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they cannot be subject to inscription in the
Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to
those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the law when no such inventory is
made. The case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their claim that
respondent should pay them 60 percent of the value of the property.[13] They cannot in one breath deny
the contract and in another recognize it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less
approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the Joint
Venture Agreement an ordinary contract from which the parties rights and obligations to each other may
be inferred and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under Article 1422 [14] of the Civil
Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land
without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the
sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners
did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the prestation or promise of a thing or service
by another.[15]
In this case, the cause of the contract of sale consisted not in the stated peso value of the land,
but in the expectation of profits from the subdivision project, for which the land was intended to be

used. As explained by the trial court, the land was in effect given to the partnership as [petitioners]
participation therein. x x x There was therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits.
Liability of the Parties

Claiming that respondent was solely responsible for the failure of the subdivision project,
petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of the
property, which was their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners acts were not the cause of
the failure of the project.[16] But it also ruled that neither was respondent responsible therefor.[17] In
imputing the blame solely to him, petitioners failed to give any reason why we should disregard the
factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a
petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that
their Petition constitutes one of the exceptions to this doctrine.[18] Accordingly, we find no reversible error
in the CA's ruling that petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged Decision AFFIRMED. Costs
against petitioners.
SO ORDERED.
[6]

The case was deemed submitted for resolution on September 15, 1999, upon receipt by the Court of
the respective Memoranda of the respondent and the petitioners.
[12]
ART. 1771. A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary.
[14]
ART. 1422. A contract which is the direct result of a previous illegal contract, is also void and
inexistent.
[15]
ART. 1350. In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.
SECOND DIVISION
[G.R. No. L-47045. November 22, 1988.]
NOBIO SARDANE, Petitioner, v. THE COURT OF APPEAL and ROMEO J. ACOJEDO
respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; NOT APPLICABLE WHERE THE TERMS
OF THE PROMISSORY NOTES ARE NOT VAGUE NOR AMBIGUOUS. The exceptions to the parol
evidence rule do not apply as on their face, nothing appears to be vague or ambiguous, for the terms of
the promissory notes clearly show that it was incumbent upon the private respondent to pay the amount
involved in the promissory notes if and when the petitioner demands the same. It was clearly the intent
of the parties to enter into a contract of loan for how could an educated man like the private respondent
be deceived to sign a promissory note yet intending to make such a writing to be mere receipts of the

20

petitioners supposed contribution to the alleged partnership existing between the parties?
2. CIVIL LAW; PARTNERSHIP; MERE RECEIPT OF A SHARE OF THE PROFITS OF A PARTNER IN
THE BUSINESS. The fact that he had received 50% of the net profits does not conclusively establish
that he was a partner of the private respondent herein. Article 1769(4) of the Civil Code is explicit that
while the receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, no such inference shall be drawn if such profits were received in payment as
wages of an employee. Furthermore, herein petitioner had no voice in the management of the affairs of
the basnig. Under similar facts, this Court in the early case of Fortis v. Gutierrez Hermanos, denied the
claim of the plaintiff therein that he was e partner in the business of the defendant. The same rule was
reiterated in Bastida v. Menzi & Co., Inc., Et. Al. which involved the same factual and legal milieu.
3. REMEDIAL LAW; ACTION; ACTIONABLE DOCUMENT NOT DENIED SPECIFICALLY UNDER
OATH IN THE ANSWER; GENUINENESS AND DUE EXECUTION DEEMED ADMITTED. Petitioner
did not deny under oath in his answer the authenticity and due execution of the promissory notes which
had been duly pleaded and attached to the complaint, thereby admitting their genuineness and due
execution. Even in the trial court, he did not at all question the fact that he signed said promissory notes
and that the same were genuine. Instead, he presented parol evidence to vary the import of the
promissory notes by alleging that they were mere receipts of his contribution to the alleged partnership
which testimony, in the light of Section 7, Rule 130, could not be admitted to vary or alter the explicit
meaning conveyed by said promissory notes. On the other hand, the said genuineness and due
execution of said promissory notes were not affected, pursuant to the provisions of Section 8, Rule 8,
since such aspects were not at all questioned but, on the contrary, were admitted by herein petitioner.
4. ID.; ID.; IMPLIED ADMISSION OF GENUINENESS AND DUE EXECUTION OF ACTIONABLE
DOCUMENTS; WAIVER OF THE PROTECTIVE MANTLE UNDER RULE 8, SEC. 8, NOT
APPLICABLE. The doctrines in Yu Chuck, Et. Al. v. Kong Li Po, 7 which was reiterated in Central
Surety & Insurance Co. v. C. N. Hodges, Et. Al. 8 does not sustain his thesis that the herein private
respondent had "waived the mantle of protection given him by Rule 8, Sec. 8." It is true that such
implied admission of genuineness and due execution may he waived by a party but only if he acts in a
manner indicative of either an express or tacit waiver thereof. Petitioner, however, either overlooked or
ignored the fact that, as held in Yu Chuck, and the same is true in other cases of identical factual
settings, such a finding of waiver is proper where a case has been tried in complete disregard of the
rule and the plaintiff having pleaded a document by copy, presents oral evidence to prove the due
execution of the document and no objections are made to the defendants evidence in refutation. This
situation does not obtain in the present case hence said doctrine is obviously inapplicable.
5. ID.; ID.; ID.; FAILURE TO CROSS-EXAMINE DURING SUR-REBUTAL, NOT CONSTITUTIVE OF A
WAIVER OF THE IMPLIED ADMISSION. Neither did the failure of herein private respondent to
cross-examine herein petitioner on the latters sur-rebuttal testimony constitute a waiver of the aforesaid
implied admission. As found by the respondent Court, said sur-rebuttal testimony consisted solely of the
denial of the testimony of herein private respondent and no new or additional matter was introduced in
that sur-rebuttal testimony to exonerate herein petitioner from his obligations under the aforesaid
promissory notes.

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

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

21

made by the petitioner, the latter was constrained to bring an action for collection of sum of money.
"During the scheduled day for trial, private respondent failed to appear and to file an answer. On motion
by the petitioner, the City Court of Dipolog issued an order dated May 18, 1976 declaring the private
respondent in default and allowed the petitioner to present his evidence ex-parte. Based on petitioners
evidence, the City Court of Dipolog rendered judgment by default in favor of the petitioner.

contributions said partnership and, therefore, upheld the claim that there was ambiguity in the
promissory notes, hence parol evidence was allowable to vary or contradict the terms of the
represented loan contract.
The parol evidence rule in Rule 130 provides:jgc:chanrobles.com.ph

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

"Sec. 7. Evidence of written agreements. When the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and, therefore, there can be, between the
parties and their successors in interest, no evidence of the terms of the agreement other than the
contents of the writing except in the following cases:chanrob1es virtual 1aw library

"After the trial on the merits, the City Court of Dipolog rendered its decision on September 14, 1976, the
dispositive portion of which reads:chanrob1es virtual 1aw library

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

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the
defendant as follows:chanrob1es virtual 1aw library

(b) When there is an intrinsic ambiguity in the writing."cralaw virtua1aw library

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

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

Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte which
reversed the decision of the lower court by dismissing the complaint and ordered the plaintiff-appellee
Acojedo to pay said defendant-appellant P500.00 each for actual damages, moral damages, exemplary
damages and attorneys fees, as well as the costs of suit. Plaintiff-appellee then sought the review of
said decision by petition to the respondent Court.

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

The assignment of errors in said petition for review can be capsulized into two decisive issues, firstly,
whether the oral testimony for the therein private respondent Sardane that a partnership existed
between him and therein petitioner Acojedo are admissible to vary the meaning of the abovementioned
promissory notes; and, secondly, whether because of the failure of therein petitioner to cross-examine
therein private respondent on his sur-rebuttal testimony, there was a waiver of the presumption
accorded in favor of said petitioner by Section 8, Rule 8 of the Rules of Court.

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

On the first issue, the then Court of First Instance held that "the pleadings of the parties herein put in
issue the imperfection or ambiguity of the documents in question", hence "the appellant can avail of the
parol evidence rule to prove his side of the case, that is, the said amount taken by him from appellee is
or was not his personal debt to appellee, but expenses of the partnership between him and
appellee."cralaw virtua1aw library

"The private respondent admitted during the cross-examination made by petitioners counsel that he
was the one who was responsible for the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64).
How could he purportedly rely on such a flimsy pretext that the promissory notes were receipts of the
petitioners contribution?" 4

Consequently, said trial court concluded that the promised notes involved were merely receipts for the

The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory notes

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

22

may be admitted to alter the meaning conveyed thereby, still the evidence is insufficient to prove that a
partnership existed between the private parties hereto.
As manager of the basnig Sarcado, naturally some degree of control over the operations and
maintenance thereof had to be exercised by herein petitioner. The fact that he had received 50% of the
net profits does not conclusively establish that he was a partner of the private respondent herein. Article
1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the business, no such inference shall be drawn if
such profits were received in payment as wages of an employee. Furthermore, herein petitioner had no
voice in the management of the affairs of the basnig. Under similar facts, this Court in the early case of
Fortis v. Gutierrez Hermanos, 5 in denying the claim of the plaintiff therein that he was e partner in the
business of the defendant, declared:jgc:chanrobles.com.ph
"This contention cannot be sustained. It was a mere contract of employment. The plaintiff had no voice
nor vote in the management of the affairs of the company. The fact that the compensation received by
him was to be determined with reference to the profits made by the defendant in their business did not
in any sense make him a partner therein. . . . ."cralaw virtua1aw library
The same rule was reiterated in Bastida v. Menzi & Co., Inc., Et. Al. 6 which involved the same factual
and legal milieu.
There are other considerations noted by respondent Court which negate herein petitioners pretension
that he was partner and not a mere employee indebted to the present private Respondent. Thus, in an
action for damages filed by herein private respondent against the North Zamboanga Timber Co., Inc.
arising from the operations of the business, herein petitioner did not ask to be joined as a party plaintiff.
Also, although he contends that herein private respondent is the treasurer of the alleged partnership,
yet it is the latter who is demanding an accounting. The advertence of the Court of First Instance to the
fact that the casco bears the name of the herein petitioner disregards the finding of the respondent
Court that it was just a concession since it was he who obtained the engine used in the Sardaco from
the Department. Further, the use Government and Community Development. Further, the use by the
parties of the pronoun "our" in referring to "our basnig", "our catch", "our deposit", or "our boseros" was
merely indicative of the camaraderie, and not evidentiary of a partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid promissory notes do not
express the true intent and agreement of the parties, are binding on Us since there is no showing that
they fall within the exceptions to the rule limiting the scope of appellate review herein to questions of
law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready reference,
reads:jgc:chanrobles.com.ph
"Sec. 8. How to contest genuineness of such documents. When an action or defense is founded
upon a written instrument, copied in or attached to the corresponding pleading as provided in the
preceding section, the genuineness and due execution of the instrument shall be deemed admitted

unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the
facts; but this provision does not apply when the adverse party does not appear to be a party to the
instrument or when compliance with an order for the inspection of the original instrument is
refused."cralaw virtua1aw library
The record shows that herein petitioner did not deny under oath in his answer the authenticity and due
execution of the promissory notes which had been duly pleaded and attached to the complaint, thereby
admitting their genuineness and due execution. Even in the trial court, he did not at all question the fact
that he signed said promissory notes and that the same were genuine. Instead, he presented parol
evidence to vary the import of the promissory notes by alleging that they were mere receipts of his
contribution to the alleged partnership.
His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished
from the rule on actionable documents. As the respondent Court correctly explained to herein petitioner,
what he presented in the trial Court was testimonial evidence that the promissory notes were receipts of
his supposed contributions to the alleged partnership which testimony, in the light of Section 7, Rule
130, could not be admitted to vary or alter the explicit meaning conveyed by said promissory notes. On
the other hand, the said genuineness and due execution of said promissory notes were not affected,
pursuant to the provisions of Section 8, Rule 8, since such aspects were not at all questioned but, on
the contrary, were admitted by herein petitioner.
Petitioners invocation of the doctrines in Yu Chuck, Et. Al. v. Kong Li Po, 7 which was reiterated in
Central Surety & Insurance Co. v. C. N. Hodges, Et. Al. 8 does not sustain his thesis that the herein
private respondent had "waived the mantle of protection given him by Rule 8, Sec. 8." It is true that such
implied admission of genuineness and due execution may he waived by a party but only if he acts in a
manner indicative of either an express or tacit waiver thereof. Petitioner, however, either overlooked or
ignored the fact that, as held in Yu Chuck, and the same is true in other cases of identical factual
settings, such a finding of waiver is proper where a case has been tried in complete disregard of the
rule and the plaintiff having pleaded a document by copy, presents oral evidence to prove the due
execution of the document and no objections are made to the defendants evidence in refutation. This
situation does not obtain in the present case hence said doctrine is obviously inapplicable.
Neither did the failure of herein private respondent to cross-examine herein petitioner on the latters surrebuttal testimony constitute a waiver of the aforesaid implied admission. As found by the respondent
Court, said sur-rebuttal testimony consisted solely of the denial of the testimony of herein private
respondent and no new or additional matter was introduced in that sur-rebuttal testimony to exonerate
herein petitioner from his obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the real respondent Court correctly reversed and set
aside the appealed decision of the Court of First Instance of Zamboanga del Norte and affirmed in full
the decision of the City Court of Dipolog City in Civil Case No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein petitioner,
as the private respondent therein, raised a third unresolved issue that the petition for review therein

23

should have been dismissed for lack of jurisdiction since the lower Courts decision did not affirm in full
the judgment of the City Court of Dipolog, and which he claimed was a sine qua non for such a petition
under the law then in force. He raises the same point in his present appeal and We will waive the
procedural technicalities in order to put this issue at rest.

LUCIANO E. SALAZAR, Petitioner, v. SANITARY WARES MANUFACTURING CORPORATION,

ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F.
LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF
APPEALS,Respondents.

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

SYLLABUS

At any rate, it will be noted that petitioner anchors his said objection on the provisions of Section 29,
Republic Act 296 as amended by Republic Act 5433 effective September 9, 1968. Subsequently, the
procedure for appeal to the Court of Appeals from decisions of the then courts of first instance in the
exercise of their appellate jurisdiction over cases originating from the municipal courts was provided for
by Republic Act 6031, amending Section 45 of the Judiciary Act effective August 4, 1969. The
requirement for affirmance in full of the inferior courts decision was not adopted or reproduced in
Republic Act 6031. Also, since Republic Act 6031 failed to provide for the procedure or mode of appeal
in the cases therein contemplated, the Court of Appeals en banc provided thereof in its Resolution of
August 12, 1971, by requiring a petition for review but which also did not require for its availability that
the judgment of the court of first instance had affirmed in full that of the lower court. Said mode of
appeal and the procedural requirements thereof governed the appeal taken in this case from the
aforesaid Court of First Instance to the Court of Appeals in 1977. 10 Herein petitioners plaint on this
issue is, therefore devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs against
herein petitioner.
SO ORDERED.
THIRD DIVISION
[G.R. No. 75875. December 15, 1989.]
WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY,Petitioners, v. SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, Respondents.
[G.R. No. 7595. December 15, 1989]
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B.
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ,Petitioners, v. THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID
P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, Respondents.
[G.R. Nos. 75975-76. December 15, 1989]

1. COMMERCIAL LAW; JOINT VENTURE; WHETHER THERE EXISTS A JOINT VENTURE DEPENDS
UPON THE PARTIES ACTUAL INTENTION WHICH IS DETERMINED IN ACCORDANCE WITH THE
RULES COVERING THE INTERPRETATION AND CONSTRUCTION OF CONTRACTS. The rule is
that whether the parties to a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is determined in accordance
with the rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v.
Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co.
20 Cal. 2nd 751, 128 P 2nd 668)
2. ID.; ID.; ESTABLISHED IN CASE AT BAR. In the instant cases, our examination of important
provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young
Group shows that the parties agreed to establish a joint venture and not a corporation. The history of
the organization of Saniwares and the unusual arrangements which govern its policy making body are
all consistent with a joint venture and not with an ordinary corporation. Section 5 (a) of the agreement
uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a
six to three ratio. Each group is assured of a fixed number of directors in the board. Moreover, ASI in its
communications referred to the enterprise as joint venture. Baldwin Young also testified that Section
16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties
hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and liabilities to third parties.
3. ID.; ID.; CONCEPT OF JOINT VENTURE; DISTINGUISHED FROM PARTNERSHIP. The point of
query, however, is whether or not that provision is applicable to a joint venture with clearly defined
agreements: "The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some temporary
purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the
partnership, since their elements are similar community of interest in the business, sharing of profits
and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App.
170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266
Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code,
a partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint

24

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

DECISION
These consolidated petitions seek the review of the amended decision of the Court of Appeals in CAG.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then
Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary
Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more
than three (3) directors; that the Filipino stockholders shall not interfere in ASIs choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in
the event they cannot agree on the six (6) nominees, they shall vote only among themselves to
determine who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.
The antecedent facts can be summarized as follows:chanrob1es virtual 1aw library
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing

and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for
foreign partners, European or American who could help in its expansion plans. On August 15, 1962,
ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in
the ownership of an enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that the
business operations in the Philippines shall be carried on by an incorporated enterprise and that the
name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation." chanrobles.com:cralaw:red
The Agreement has the following provisions relevant to the issues in these cases on the nomination and
election of the directors of the corporation:jgc:chanrobles.com.ph
"3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as
Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for.
(1) Cumulative voting for directors:chanrob1es virtual 1aw library
x
x
x
"5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of
nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by American-Standard, and the others six:
shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875).
At the request of ASI, the agreement contained provisions designed to protect it as a minority group,
including the grant of veto powers over a number of corporate acts and the right to designate certain
officers, such as a member of the Executive Committee whose vote was required for important
corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the
Board of Investments for availment of incentives with the condition that at least 60% of the capital stock
of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered.
Unfortunately, with the business successes, there came a deterioration of the initially harmonious
relations between the two groups. According to the Filipino group, a basic disagreement was due to
their desire to expand the export operations of the company to which ASI objected as it apparently had
other subsidiaries of joint venture groups in the countries where Philippine exports were contemplated.
On March 8, 1983, the annual stockholders meeting was held. The meeting was presided by Baldwin
Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items
in the agenda, the stockholders then proceeded to the election of the members of the board of directors.

25

The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan,
Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated
Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young
ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent
practice of the parties during the past annual stockholders meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal advice of Saniwares legal counsel. The
following events then, transpired:chanrob1es virtual 1aw library
. . . . There were protests against the action of the Chairman and heated arguments ensued. An appeal
was made by the ASI representative to the body of stockholders present that a vote be taken on the
ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote on
the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes
present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E.
Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua, protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, ACG.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay,
and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all
the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617)
were being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young,
nevertheless instructed the Secretary to cast all votes equally in favor of the three ASI nominees,
namely, Wolfgang Aurbach, John Griffin and David Whittingham, and the six originally nominated by
Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham, Ernesto Lagdameo, Sr., Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative
of ASI then moved to recess the meeting which was duly seconded. There was also a motion to adjourn
(p. 28, Rollo, Ac-G.R. SP No. 05617). This motion to adjourn was accepted by the Chairman, Baldwin
Young, who announced that the motion was carried and declared the meeting adjourned. Protests
against the adjournment were registered and having been ignored, Mr. Jaqua, the ASI representative,
stated that the meeting was not adjourned but only recessed and that the meeting would be reconvened
in the next room. The Chairman then threatened to have the stockholders who did not agree to the
decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar
and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to
continue the meeting at the elevator lobby of the American Standard Building. The continued meeting
was presided by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the
cumulative votes cast earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself,
thus the said five directors were certified as elected directors by the Acting Secretary, Andres
Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four (4)
remaining positions of directors and that the body decided not to break the tie." (pp. 37-39, Rollo of
75975-76)

These incidents triggered off the filing of separate petitions by the parties with the Securities and
Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares,
Ernesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo
and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as SEC
Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group
of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was
docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the
legitimate directors of the corporation.chanrobles law library
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision
upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and
Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the
hearing officers decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP
No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were
consolidated and the appellate court in its decision ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders meeting of Saniwares be ordered
convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees (Lagdameo Group) the appellate court (Court
of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No.
75875 assign the following errors:chanrob1es virtual 1aw library
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE
RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT
THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS
DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY
RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE
AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY
DO. (p. 17, Rollo 75875).
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following
grounds:jgc:chanrobles.com.ph

26

"11.1 That Amended Decision would sanction the CAs disregard of binding contractual agreements
entered into by stockholders and the replacement of the conditions of such agreements with terms
never contemplated by the stockholders but merely dictated by the CA.
"11.2 The Amended decision would likewise sanction the unlawful deprivation of the property rights of
stockholders without due process of law in order that a favored group of stockholders may be illegally
benefited and guaranteed a continuing monopoly of the control of a corporation." (pp. 14-15, Rollo
75975-76).
On the other hand, the petitioners in G.R. No. 75951 contend that:chanrob1es virtual 1aw library
I
"THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE
THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
"THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS
HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANIWARES." (P. 24, Rollo 75951).
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its
annual stockholders meeting held on March 8, 1983. To answer this question the following factors
should be determined: (1) the nature of the business established by the parties whether it was a joint
venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity
during elections of Saniwares board of directors.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
The rule is that whether the parties to a particular contract have thereby established among themselves
a joint venture or some other relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares,
Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press
Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the
parties should be viewed strictly on the "Agreement" dated August 15, 1962 wherein it is clearly stated
that the parties intention was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:chanrob1es virtual
1aw library
x
x
x
"(c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder." (At p. 66, Rollo G.R. No. 75875)

They object to the admission of other evidence which tends to show that the parties agreement was to
establish a joint venture presented by the Lagdameo and Young Group on the ground that it
contravenes the parol evidence rule under section 7, Rule 130 of the Revised Rules of Court. According
to them, the Lagdameo and Young Group never pleaded in their pleading that the "Agreement" failed to
express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:jgc:chanrobles.com.ph
"Evidence of written agreements When the terms of an agreement have been reduced to writing, it is
to be considered as containing all such terms, and therefore, there can be, between the parties and
their successors in interest, no evidence of the terms of the agreement other than the contents of the
writing, except in the following cases:chanrob1es virtual 1aw library
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement
of the parties or the validity of the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Groups stand, the Lagdameo and Young Group pleaded in their Reply and Answer to
Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties,
to wit:chanrob1es virtual 1aw library
x
x
x
"4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim
being partners or joint venturers such disclaimer is directed at third parties and is not inconsistent with,
and does not preclude, the existence of two distinct groups of stockholders in Saniwares one of which
(the Philippine Investors) shall constitute the majority, and the other (ASI) shall constitute the minority
stockholder. In any event, the evident intention of the Philippine Investors and ASI in entering into the
Agreement is to enter into a joint venture enterprise, and if some words in the Agreement appear to be
contrary to the evident intention of the parties, the latter shall prevail over the former (Art. 1370, New
Civil Code). The various stipulations of a contract shall be interpreted together attributing to the doubtful
ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in
order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall
be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417).
It has been ruled:jgc:chanrobles.com.ph
"In an action at law, where there is evidence tending to prove that the parties joined their efforts in
furtherance of an enterprise for their joint profit, the question whether they intended by their agreement
to create a joint adventure, or to assume some other relation is a question of fact for the jury. (Binder v.
Kessler v 200 App. Div. 40, 192 NYS 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v.
George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871).
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial

27

evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a
joint venture and not a corporation. The history of the organization of Saniwares and the unusual
arrangements which govern its policy making body are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:jgc:chanrobles.com.ph
"According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in
behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the Agreement should contain provisions to
protest ASI as the minority.
"An examination of the Agreement shows that certain provisions were included to protect the interests
of ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated
corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to designate a member
of the Executive Committee and the vote of this member is required for certain transactions [Sec. 3 (b)
(i)].
"The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws
of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares shall be that
which is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard"
products otherwise than through ASIs Export Marketing Services [Sec. 13 (6)]. Under the Agreement,
ASI agreed to provide technology and know-how to Saniwares and the latter paid royalties for the same.
(At p. 2).
x
x
x
"It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of
directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an
effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements for amendments of the articles and by-laws; and
most significantly to the issues of this case, the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the other 6, clearly indicate that 1) there are two
distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the
minority stockholder.

constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder"
was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities
of a local firm are constrained to seek the technology and marketing assistance of huge multinational
corporations of the developed world. Arrangements are formalized where a foreign group becomes a
minority owner of a firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The foreign group may,
from the start, intend to establish its own sole or monopolistic operations and merely uses the joint
venture arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness
may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or predominantly take over the
entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To
the extent that such subversive actions can be lawfully prevented, the courts should extend protection
especially in industries where constitutional and legal requirements reserve controlling ownership to
Filipino citizens.chanroblesvirtualawlibrary
The Lagdameo Group stated in their appellees brief in the Court of Appeals:jgc:chanrobles.com.ph
"In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting rights.
"Sec. 100. Agreements by stockholders.
x
x
x
"2. An agreement between two or more stockholders, if in writing and signed by the parties thereto,
may provide that in exercising any voting rights, the shares held by them shall be voted as therein
provided, or as they may agree, or as determined in accordance with a procedure agreed upon by
them.

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the
selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of
directors in the board.

"Appellants contend that the above provision is included in the Corporation Codes chapter on close
corporations and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly,
although Saniwares had 95 stockholders at the time of the disputed stockholders meeting, these 95
stockholders are not separate from each other but are divisible into groups representing a single
identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders.
The Young/Yutivo family count for another 13 stockholders, the Cham family for 8 stockholders, the
Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family
and/or business or interest group are considered as one (which, it is respectfully submitted, they should
be for purposes of determining how closely held Saniwares is), there were as of 8 March 1983,
practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees
Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also
testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to

"Secondly, even assuming that Saniwares is technically not a close corporation because it has more
than 20 stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot

Premises considered, we believe that under the Agreement there are two groups of stockholders who
established a corporation with provisions for a special contractual relationship between the parties, i.e.,
ASI and the other stockholders." (pp. 4-5)

28

honestly claim that Saniwares is a public issue or a widely held corporation.

"In the United States, many courts have taken a realistic approach to joint venture corporations and
have not rigidly applied principles of corporation law designed primarily for public issue corporations.
These courts have indicated that express arrangements between corporate joint ventures should be
construed with less emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint venturers (Please see
Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines
Union Ry; 254 Assn. 247 US. 490; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495, 82
S.E. 2d 771; Deboy v. Harris, 207 Md., 212, 113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296
Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand. Law Rev., p. 680, 1958). These American cases dealt with legal questions as to
the extent to which the requirements arising from the corporate form of joint venture corporations should
control, and the courts ruled that substantial justice lay with those litigants who relied on the joint
venture agreement rather than the litigants who relied on the orthodox principles of corporation law.

"In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of
directors restricts the right of the Agreements signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon the signatories thereto, which include
appellants." (Rollo G.R. No. 75951, pp. 90-94).
In regard to the question as to whether or not the ASI group may vote their additional equity during
elections of Saniwares board of directors, the Court of Appeals correctly stated:jgc:chanrobles.com.ph
"As in other joint venture companies, the extent of ASIs participation in the management of the
corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors
shall be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino
stockholders. This allocation of board seats is obviously in consonance with the minority position of ASI.

"It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional
pattern of corporation management. A noted authority has pointed out that just as in close corporations,
shareholders agreements in joint venture corporations often contain provisions which do one or more of
the following: (1) require greater than majority vote for shareholder and director action; (2) give certain
shareholders or groups of shareholders power to select a specified number of directors; (3) give to the
shareholders control over the selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I ONeal, Close Corporations, 1971 ed., Section 1.06a, pp. 1516) (Decision of SEC Hearing Officer, p. 16)

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

"Thirdly, paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements
regarding the exercise of voting rights are allowed only in close corporations. As Campos and LopezCampos explain:jgc:chanrobles.com.ph

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

"Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily
imply that these agreements can be valid only in close corporations as defined by the Code? Suppose
that a corporation has twenty five stockholders, and therefore cannot qualify as a close corporation
under section 96, can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of corporations other than
close ones the right to enter into voting or pooling agreements to protect their interests, as long as they
do not intend to commit any wrong, or fraud on the other stockholders not parties to the agreement. Of
course, voting or pooling agreements are perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even in widely held corporations. Moreover, since
the Code limits the legal meaning of close corporations to those which comply with the requisites laid
down by section 96, it is entirely possible that a corporation which is in fact a close corporation will not
come within the definition. In such case, its stockholders should not be precluded from entering into
contracts like voting agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)

"On the one hand, the clearly established minority position of ASI and the contractual allocation of board
seats cannot be disregarded. On the other hand, the rights of the stockholders to cumulative voting
should also be protected.

"As correctly held by the SEC Hearing Officer:jgc:chanrobles.com.ph

"In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further
reflection, we feel that the proper and just solution to give due consideration to both factors suggests
itself quite clearly. This Court should recognize and uphold the division of the stockholders into two
groups, and at the same time uphold the right of the stockholders within each group to cumulative
voting in the process of determining who the groups nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the Filipino stockholders cannot
agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders
only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be
allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate

29

more than the three directors it is allowed to designate under the Agreement, and may even be able to
get a majority of the board seats, a result which is clearly contrary to the contractual intent of the
parties.
"Such a ruling will give effect to both the allocation of the board seats and the stockholders right to
cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors." (Rollo 75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote
their additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act
(Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:jgc:chanrobles.com.ph
"And provided finally that the election of aliens as members of the board of directors or governing body
of corporations or associations engaging in partially nationalized activities shall be allowed in proportion
to their allowable participation or share in the capital of such entities. (amendments introduced by
Presidential Decree 715, section 1, promulgated May 28, 1975)"
The ASI Groups argument is correct within the context of Section 24 of the Corporation Code. The point
of query, however, is whether or not that provision is applicable to a joint venture with clearly defined
agreements:jgc:chanrobles.com.ph
"The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership, since their
elements are similar community of interest in the business, sharing of profits and losses, and a
mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.
2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main
distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the execution of a
single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500
[1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is
a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez Campos Comments,
Notes and Selected Cases, Corporation Code 1981).

Moreover, the usual rules as regards the construction and operations of contracts generally apply to a
contract of joint venture. (OHara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the question of
whether or not the ASI Group may vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the
allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of
stockholders to cumulative voting in the process of determining who the groups nominees would be
under Section 3(a) (1) of the "Agreement." As pointed out by SEC, Section 5(a) of the Agreement
relates to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates
to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members of
the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be
beholden to them would obliterate their minority status as agreed upon by the parties. As aptly stated by
the appellate court:jgc:chanrobles.com.ph
". . . . ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise,
ASI would be able to designate more than the three directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary
to the contractual intent of the parties.
"Such a ruling will give effect to both the allocation of the board seats and the stockholders right to
cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors." (At p. 39, Rollo, 75875).
Equally important as the consideration of the contractual intent of the parties is the consideration as
regards the possible domination by the foreign investors of the enterprise in violation of the
nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In
this regard, petitioner Salazars position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same
law also limits the election of aliens as members of the board of directors in proportion to their
allowance participation of said entity. In the instant case, the foreign Group (ASI) was limited to
designate three directors . This is the allowable participation of the ASI Group. Hence, in future
dealings, this limitation of six to three board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board seats in the 9-man board of directors there
are provisions already agreed upon and embodied in the parties Agreement to protect the interests
arising from the minority status of the foreign investors.cralawnad

30

With these findings, we affirm the decisions of the SEC Hearing Officer and SEC which were impliedly
affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham,
Ernesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo,
and George F. Lee as the duly elected directors of Saniwares at the March 8, 1983 annual stockholders
meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a
cumulative voting during the election of the board of directors of the enterprise as ruled by the appellate
court and submits that the six (6) directors allotted the Filipino stockholders should be selected by
consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."cralaw virtua1aw library
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino
stockholders are allowed to select their nominees separately and not as a common slot determined by
the majority of their group.
Section 5(a) of the Agreement which uses the word designates in the allocation of board directors
should not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the
Agreement. As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees
which is cumulative voting while section 5(a) relates to the manner of nominating the members of the
board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now
impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting
procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on
the directors thus elected being genuine members of the Filipino group, not voters whose interest is to
increase the ASI share in the management of Saniwares. The joint venture character of the enterprise
must always be taken into account, so long as the company exists under its original agreement.
Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what
they cannot accomplish openly. There are substantial safeguards in the Agreement which are intended
to preserve the majority status of the Filipino investors as well as to maintain the minority status of the
foreign investors group as earlier discussed. They should be maintained.chanroblesvirtualawlibrary
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the
petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is
MODIFIED in that Messrs. Wolfgang Aurbach, John Griffin, David Whittingham, Ernesto V. Lagdameo,
Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8, 1983 annual stockholders meeting.
In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos.
75975-76 and G.R. No. 75875.
SO ORDERED.

FIRST DIVISION
[G.R. No. 127405. October 4, 2000]
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A.
ANAY, respondents.
DECISION
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616,
[1]
affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent
Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean
Water Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local
distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay
the job of marketing the product considering her experience and established relationship with West
Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo
acted as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and sales force
while Tocao hired and fired employees, determined commissions and/or salaries of the employees, and
assigned them to different branches. The parties agreed that Belos name should not appear in any
documents relating to their transactions with West Bend Company. Instead, they agreed to use Anays
name in securing distributorship of cookware from that company. The parties agreed further that Anay
would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding
commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales
she would make; and (4) two percent (2%) for her demonstration services. The agreement was not
reduced to writing on the strength of Belos assurances that he was sincere, dependable and honest
when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off
successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship registered
in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good
his monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited
Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to
the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay
accepted the invitation with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July
13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years
now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will attend in response to the
invitation. (Italics supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving
the business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August
31, 1987, she received a plaque of appreciation from the administrative and sales people through
Marjorie Tocao[4] for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo
signed a memo[5] entitling her to a thirty-seven percent (37%) commission for her personal sales "up

31

Dec 31/87. Belo explained to her that said commission was apart from her ten percent (10%) share in
the profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter [6] addressed to the
Cubao sales office to the effect that she was no longer the vice-president of Geminesse Enterprise. The
following day, October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie
Tocao had barred her from holding office and conducting demonstrations in both Makati and Cubao
offices.[7] Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for
the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share
in the net profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote
Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The
following year, 1988, she did not receive the same commission although the company netted a gross
sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages[8] against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the
following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2)
P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed
for an audit of the finances of Geminesse Enterprise from the inception of its business operation until
she was illegally dismissed to determine her ten percent (10%) share in the net profits. She further
prayed that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was
neither reduced in writing, nor ratified, was either unenforceable or void or inexistent. As far as Belo was
concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a
partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an
agreed remuneration, and her complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill-will
and resentment because Marjorie Tocao did not allow her to lord it over in the Geminesse
Enterprise. Anay had acted like she owned the enterprise because of her experience and expertise.
Hence, petitioners were the ones who suffered actual damages including unreturned and unaccounted
stocks of Geminesse Enterprise, and serious anxiety, besmirched reputation in the business world, and
various damages not less than P500,000.00. They also alleged that, to vindicate their names, they had
to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an
employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to
damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay would receive a three to four
percent (3-4%) share in the gross sales of the cookware. He denied contributing capital to the business
or receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao, who was new in
the business. He attended and/or presided over business meetings of the venture in his capacity as a

guarantor but he never participated in decision-making. He claimed that he wrote the memo granting
the plaintiff thirty-seven percent (37%) commission upon her dismissal from the business venture at the
request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with
Anay. However, she admitted that Anay was an expert in the cookware business and hence, they
agreed to grant her the following commissions: thirty-seven percent (37%) on personal sales; five
percent (5%) on gross sales; two percent (2%) on product demonstrations, and two percent (2%) for
recruitment of personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the
net profits. Marjorie claimed that she got the capital for the business out of the sale of the sewing
machines used in her garments business and from Peter Lo, a Singaporean friend-financier who loaned
her the funds with interest. Because she treated Anay as her co-equal, Marjorie received the same
amounts of commissions as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs
for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine
the ten percent (10%) share of plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred
and fifty (150) cookware sets available for disposition when plaintiff was wrongfully
excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which
for the period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as
exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement between the plaintiff and
the defendants, based on the following: (a) there was an intention to create a partnership; (b) a common
fund was established through contributions consisting of money and industry, and (c) there was a joint
interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative officer of
Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc.,
buttressed the fact that a partnership existed between the parties. The letter of Roger Muencheberg of
West Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjories financial contribution and Anays experience, the combination of
the two would be invaluable to the partnership, also supported that conclusion. Belos claim that he was
merely a guarantor has no basis since there was no written evidence thereof as required by Article 2055
of the Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse
Enterprise plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On
the contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger
sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil
Code provides that a partnership may be constituted in any form. The fact that Geminesse Enterprise
was registered in Marjorie Tocaos name is not determinative of whether or not the business was

32

managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an
innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership
as well as damages or share in the profits realized from the appropriation of the partnership business
and goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully
expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of damages awarded
by the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary
damages. Their Motion for Reconsideration was denied by the Court of Appeals for lack of merit.
[12]
Petitioners Belo and Marjorie Tocao are now before this Court on a petition for review on certiorari,
asserting that there was no business partnership between them and herein private respondent Nenita A.
Anay who is, therefore, not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership
existed between them and private respondent Anay because Geminesse Enterprise came into being
exactly a year before the alleged partnership was formed, and that it was very unlikely that petitioner
Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without any
memorandum whatsoever regarding the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the exclusive
domain of both the trial and appellate courts. This Court cannot set aside factual findings of such courts
absent any showing that there is no evidence to support the conclusion drawn by the court a quo.[14] In
this case, both the trial court and the Court of Appeals are one in ruling that petitioners and private
respondent established a business partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more
persons bind themselves to contribute money, property or industry to a common fund; and (2) intention
on the part of the partners to divide the profits among themselves. [15] It may be constituted in any form; a
public instrument is necessary only where immovable property or real rights are contributed thereto.
[16]
This implies that since a contract of partnership is consensual, an oral contract of partnership is as
good as a written one. Where no immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The fact that there appears to be no record in
the Securities and Exchange Commission of a public instrument embodying the partnership agreement
pursuant to Article 1772 of the Civil Code[17] did not cause the nullification of the partnership. The
pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the partnership and
hence, under the law, she was the industrial or managing partner. It was through her reputation with the
West Bend Company that the partnership was able to open the business of distributorship of that
companys cookware products; it was through the same efforts that the business was propelled to
financial success. Petitioner Tocao herself admitted private respondents indispensable role in putting up
the business when, upon being asked if private respondent held the positions of marketing manager
and vice-president for sales, she testified thus:

A: No, sir at the start she was the marketing manager because there were no one to sell yet,
its only me there then her and then two (2) people, so about four (4). Now, after that
when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were
given the designation of marketing managers of which definitely Nita as superior to them
would be the Vice President.[18]
By the set-up of the business, third persons were made to believe that a partnership had indeed been
forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of
Missy Jagler of West Bend Company to Roger Muencheberg of the same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge
does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and
Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier.
They will continue to gather other key people and build up the organization. All they need is the finance
and the products to sell.[19]
On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face
of the established fact that he presided over meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own
business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of petitioner
Tocao under Article 2053 of the Civil Code,[20] he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be express, Article 1403, the
Statute of Frauds, requires that a special promise to answer for the debt, default or miscarriage of
another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She claimed that
she herself financed the business. Her and petitioner Belos roles as both capitalists to the partnership
with private respondent are buttressed by petitioner Tocaos admissions that petitioner Belo was her
boyfriend and that the partnership was not their only business venture together. They also established a
firm that they called Wiji, the combination of petitioner Belos first name, William, and her nickname, Jiji.
[23]
The special relationship between them dovetails with petitioner Belos claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners
requested West Bend Company to allow them to utilize their banking and trading facilities in Singapore
in the matter of importation and payment of the cookware products. [24] The inevitable conclusion,
therefore, was that petitioners merged their respective capital and infused the amount into the
partnership of distributing cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an employeremployee relationship between petitioners and private respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business,[25] the evidence in the case at bar controverts an 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,[26] including selection of people who would constitute the administrative staff
and the sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise, [27] private respondent

33

received only commissions and transportation and representation allowances [28] and not a fixed salary.
[29]
Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y.
Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21,
1987, will you please go over this and tell the Honorable Court whether you ever came across
this document and know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain
percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:
Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is
this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the
same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a
sense because of her expertise in the business she is vital to my business. So, as part of the
incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the
company P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount
there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she
received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall
receive the same income in the business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be liable for the losses. [31] As an

industrial partner, private respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise,
a sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise. [33] While it is true that in her undated
application for renewal of registration of that firm name, petitioner Tocao indicated that it would be
engaged in retail of kitchenwares, cookwares, utensils, skillet,[34] she also admitted that the enterprise
was only 60% to 70% for the cookware business, while 20% to 30% of its business activity was devoted
to the sale of water sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise
was used only for practical reasons - it was utilized as the common name for petitioner Tocaos various
business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and
unremitted stocks of Geminesse Enterprise amounting to P208,250.00. [36]Obviously a ploy to offset the
damages awarded to private respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been unceremoniously booted out of the
partnership in October 1987, she still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to
reap for herself and/or for petitioner Belo financial gains resulting from private respondents efforts to
make the business venture a success. Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she would even shout at private respondent in
front of other people.[38] Her instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her perception
that private respondent was no longer necessary in the business operation,[39]and resulted in a falling
out between the two. However, a mere falling out or misunderstanding between partners does not
convert the partnership into a sham organization. [40] The partnership exists until dissolved under the
law. Since the partnership created by petitioners and private respondent has no fixed term and is
therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the
will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partners capability to give it, and the absence of cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution
of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership but that it can result in a liability for damages.[41]
An unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personaeallows the partners to have
the power, although not necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is
shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9,

34

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

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

[20]

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

35

Despite respondents repeated demands upon petitioners for accounting, inventory, appraisal,
winding up and restitution of his net shares in the partnership, petitioners failed to comply.Petitioner
Lilibeth allegedly continued the operations of Shellite, converting to her own use and advantage its
properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis and reasons
to evade respondents demands, she disbursed out of the partnership funds the amount of P200,000.00
and partially paid the same to respondent. Petitioner Lilibeth allegedly informed respondent that the
P200,000.00 represented partial payment of the latters share in the partnership, with a promise that the
former would make the complete inventory and winding up of the properties of the business
establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to
account, and continued to benefit from the assets and income of Shellite to the damage and prejudice
of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and
Exchange Commission (SEC) in Manila, not the Regional Trial Court in Zambaonga del Norte had
jurisdiction over the action. Respondent opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and substance denied
the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims, contending
that they are not liable for partnership shares, unreceived income/profits, interests, damages and
attorneys fees, that respondent does not have a cause of action against them, and that the trial court
has no jurisdiction over the nature of the action, the SEC being the agency that has original and
exclusive jurisdiction over the case. As counterclaim, petitioner sought attorneys fees and expenses of
litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the
claim for winding up of partnership affairs, accounting and recovery of shares in partnership affairs,
accounting and recovery of shares in partnership assets /properties should be dismissed and
prosecuted against the estate of deceased Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus
with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to
dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial
Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, as
petitioners failed to show that a reversible error was committed by the appellate court."[2]
On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was
remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of
the case on January 17, 1996. Respondent presented his evidence while petitioners were considered to
have waived their right to present evidence for their failure to attend the scheduled date for reception of
evidence despite notice.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive
portion of the Decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as
follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and
standards of the properties, assets, income and profits of the Shellite Gas Appliance Center since the
time of death of Jacinto L. Sunga, from whom they continued the business operations including all
businesses derived from the Shellite Gas Appliance Center; submit an inventory, and appraisal of all
these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income
and profits they misapplied and converted to their own use and advantage that legally pertain to the
plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the
partnership of the listed properties, assets and good will (sic) in schedules A, B and C, on pages 4-5 of
the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership
from 1988 to may 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00
per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities
pursuant to law, after delivering to the plaintiff all the interest, shares, participation and equity in the
partnership, or the value thereof in money or moneys worth, if the properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold
them liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic) and P25,00.00 as
litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to
the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the
Decision reads:
WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all respects.[4]
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon the following grounds:
1. The Court of Appeals erred in making a legal conclusion that there existed a partnership
between respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the latters
invitation and offer and that upon his death the partnership assets and business were
taken over by petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription
did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there was competent and
credible evidence to warrant the finding of a partnership, and assuming arguendo that
indeed there was a partnership, the finding of highly exaggerated amounts or values in
the partnership assets and profits.[5]

36

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a
partnership existed between respondent and Jacinto from 1977 until Jacintos death.In the absence of
any written document to show such partnership between respondent and Jacinto, petitioners argue that
these courts were proscribed from hearing the testimonies of respondent and his witness, Josephine, to
prove the alleged partnership three years after Jacintos death. To support this argument, petitioners
invoke the Dead Mans Statute or Survivorship Rule under Section 23, Rule 130 of the Rules of Court
that provides:
SEC. 23. Disqualification by reason of death or insanity of adverse party.-- Parties or assignors of
parties to a case, or persons in whose behalf a case is prosecuted, against an executor or administrator
or other representative of a deceased person, or against a person of unsound mind, upon a claim or
demand against the estate of such deceased person, or against such person of unsound mind, cannot
testify as to any matter of fact occurring before the death of such deceased person or before such
person became of unsound mind.
Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego,
Josephine, should not have been admitted to prove certain claims against a deceased person (Jacinto),
now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary.[6] Hence, based on the
intention of the parties, as gathered from the facts and ascertained from their language and conduct, a
verbal contract of partnership may arise.[7] The essential points that must be proven to show that a
partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in
the profits.[8] Understandably so, in view of the absence of a written contract of partnership between
respondent and Jacinto, respondent resorted to the introduction of documentary and testimonial
evidence to prove said partnership. The crucial issue to settle then is whether or not the Dead Mans
Statute applies to this case so as to render inadmissible respondents testimony and that of his witness,
Josephine.
The Dead Mans Statute provides that if one party to the alleged transaction is precluded from
testifying by death, insanity, or other mental disabilities, the surviving party is not entitled to the undue
advantage of giving his own uncontradicted and unexplained account of the transaction. [9] But before
this rule can be successfully invoked to bar the introduction of testimonial evidence, it is necessary that:
1. The witness is a party or assignor of a party to a case or persons in whose behalf a case
is prosecuted.
2. The action is against an executor or administrator or other representative of a deceased
person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of such deceased
person or against person of unsound mind;
4. His testimony refers to any matter of fact which occurred before the death of such
deceased person or before such person became of unsound mind.[10]
Two reasons forestall the application of the Dead Mans Statute to this case.
First, petitioners filed a compulsory counterclaim[11] against respondent in their answer before the
trial court, and with the filing of their counterclaim, petitioners themselves effectively removed this case
from the ambit of the Dead Mans Statute.[12] Well entrenched is the rule that when it is the executor or
administrator or representatives of the estate that sets up the counterclaim, the plaintiff, herein

respondent, may testify to occurrences before the death of the deceased to defeat the counterclaim.
[13]
Moreover, as defendant in the counterclaim, respondent is not disqualified from testifying as to
matters of fact occurring before the death of the deceased, said action not having been brought against
but by the estate or representatives of the deceased.[14]
Second, the testimony of Josephine is not covered by the Dead Mans Statute for the simple
reason that she is not a party or assignor of a party to a case or persons in whose behalf a case is
prosecuted. Records show that respondent offered the testimony of Josephine to establish the
existence of the partnership between respondent and Jacinto. Petitioners insistence that Josephine is
the alter ego of respondent does not make her an assignor because the term assignor of a party means
assignor of a cause of action which has arisen, and not the assignor of a right assigned before any
cause of action has arisen.[15] Plainly then, Josephine is merely a witness of respondent, the latter being
the party plaintiff.
We are not convinced by petitioners allegation that Josephines testimony lacks probative value
because she was allegedly coerced by respondent, her brother-in-law, to testify in his favor. Josephine
merely declared in court that she was requested by respondent to testify and that if she were not
requested to do so she would not have testified. We fail to see how we can conclude from this candid
admission that Josephines testimony is involuntary when she did not in any way categorically say that
she was forced to be a witness of respondent. Also, the fact that Josephine is the sister of the wife of
respondent does not diminish the value of her testimony since relationship per se, without more, does
not affect the credibility of witnesses.[16]
Petitioners reliance alone on the Dead Mans Statute to defeat respondents claim cannot prevail
over the factual findings of the trial court and the Court of Appeals that a partnership was established
between respondent and Jacinto. Based not only on the testimonial evidence, but the documentary
evidence as well, the trial court and the Court of Appeals considered the evidence for respondent as
sufficient to prove the formation of a partnership, albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial
precedents, a factual matter like the finding of the existence of a partnership between respondent and
Jacinto cannot be inquired into by this Court on review.[17] This Court can no longer be tasked to go over
the proofs presented by the parties and analyze, assess and weigh them to ascertain if the trial court
and the appellate court were correct in according superior credit to this or that piece of evidence of one
party or the other.[18] It must be also pointed out that petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now turn to this Court to question the admissibility and
authenticity of the documentary evidence of respondent when petitioners failed to object to the
admissibility of the evidence at the time that such evidence was offered.[19]
With regard to petitioners insistence that laches and/or prescription should have extinguished
respondents claim, we agree with the trial court and the Court of Appeals that the action for accounting
filed by respondent three (3) years after Jacintos death was well within the prescribed period. The Civil
Code provides that an action to enforce an oral contract prescribes in six (6) years [20] while the right to
demand an accounting for a partners interest as against the person continuing the business accrues at
the date of dissolution, in the absence of any contrary agreement. [21] Considering that the death of a
partner results in the dissolution of the partnership[22], in this case, it was after Jacintos death that
respondent as the surviving partner had the right to an account of his interest as against petitioners. It
bears stressing that while Jacintos death dissolved the partnership, the dissolution did not immediately
terminate the partnership.The Civil Code[23] expressly provides that upon dissolution, the partnership

37

continues and its legal personality is retained until the complete winding up of its business, culminating
in its termination.[24]
In a desperate bid to cast doubt on the validity of the oral partnership between respondent and
Jacinto, petitioners maintain that said partnership that had an initial capital of P200,000.00 should have
been registered with the Securities and Exchange Commission (SEC) since registration is mandated by
the Civil Code. True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00
or more must register with the SEC, however, this registration requirement is not mandatory. Article
1768 of the Civil Code[25]explicitly provides that the partnership retains its juridical personality even if it
fails to register. The failure to register the contract of partnership does not invalidate the same as
among the partners, so long as the contract has the essential requisites, because the main purpose of
registration is to give notice to third parties, and it can be assumed that the members themselves knew
of the contents of their contract.[26] In the case at bar, non-compliance with this directory provision of the
law will not invalidate the partnership considering that the totality of the evidence proves that
respondent and Jacinto indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is
AFFIRMED.
SO ORDERED.
[20]

The following actions must be commenced within six years:

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

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

38

inventoried and appraised at P29,000.[15] The display freezer was sold for P5,000 and the proceeds
were paid to them.[16]
After trial, the RTC[17] ruled that the parties had voluntarily entered into a partnership, which could
be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held them liable as follows:[18]
WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners]
ordering the [petitioners] to pay jointly and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorneys fee in the amount of P30,000.00
(c) Costs of suit.
The CA Ruling
The CA held that, although respondents had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when petitioners lost interest in continuing the
restaurant business with them. Because petitioners never gave a proper accounting of the partnership
accounts for liquidation purposes, and because no sufficient evidence was presented to show financial
losses, the CA computed their liability as follows:
Consequently, since what has been proven is only the outstanding obligation of the partnership in the
amount of P240,658.00, although contracted by the partnership before [respondents] have joined the
partnership but in accordance with Article 1826 of the New Civil Code, they are liable which must have
to be deducted from the remaining capitalization of the said partnership which is in the amount
of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share of [respondents],
this amount of P759,342.00 must be divided into three (3) shares or in the amount of P253,114.00 for
each share and which is the only amount which [petitioner] will return to [respondents] representing the
contribution to the partnership minus the outstanding debt thereof.[19]
Hence, this Petition.[20]
Issues
In their Memorandum,[21] petitioners submit the following issues for our consideration:
9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the capital
contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby
treating the capital contribution like a loan, is in accordance with law and jurisprudence;
9.2. Whether the Honorable Court of Appeals decision ordering the petitioners to jointly and severally
pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record; and
9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs.[22]
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for
the latters share in the partnership; (2) whether the CAs computation of P253,114 as respondents share
is correct; and (3) whether the CA was likewise correct in not assessing costs.
This Courts Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the formers dissatisfaction with, and loss of trust
in, the latters management of the partnership affairs. These findings were amply supported by the

evidence on record. Respondents consequently demanded from petitioners the return of their one-third
equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their equity
share. Except as managers of the partnership, petitioners did not personally hold its equity or
assets. The partnership has a juridical personality separate and distinct from that of each of the
partners.[23] Since the capital was contributed to the partnership, not to petitioners, it is the partnership
that must refund the equity of the retiring partners.[24]
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can
only pay out what it has in its coffers, which consists of all its assets. However, before the partners can
be paid their shares, the creditors of the partnership must first be compensated. [25] After all the creditors
have been paid, whatever is left of the partnership assets becomes available for the payment of the
partners shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents one-third
share in the partnership cannot be determined until all the partnership assets will have been liquidated
-- in other words, sold and converted to cash -- and all partnership creditors, if any, paid. The CAs
computation of the amount to be refunded to respondents as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total capital
contribution was equivalent to the gross assets to be distributed to the partners at the time of the
dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and available for distribution or return to the
partners. Such idea is speculative, conjectural and totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased by profits earned
or decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of
the business. In the present case, the financial statements presented before the trial court showed that
the business had made meager profits.[26] However, notable therefrom is the omission of any provision
for the depreciation[27] of the furniture and the equipment. The amortization of the goodwill [28] (initially
valued at P500,000) is not reflected either. Properly taking these non-cash items into account will show
that the partnership was actually sustaining substantial losses, which consequently decreased the
capital of the partnership. Both the trial and the appellate courts in fact recognized the decrease of the
partnership assets to almost nil, but the latter failed to recognize the consequent corresponding
decrease of the capital.
Second, the CAs finding that the partnership had an outstanding obligation in the amount
of P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had
rejected the contention that the obligation belonged to the partnership for the following reason:
x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The
balance sheet (Exh. 4) does not reveal the total loan. The Agreement (Exh. A) par. 6 shows an
outstanding obligation of P240,055.00 which the partnership owes to different creditors, while the
Certification issued by Mercator Finance (Exh. 8) shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party defendant in the instant case, who obtained
a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed.

39

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the
partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually reduced. When
petitioners and respondents ventured into business together, they should have prepared for the fact that
their investment would either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at the time of dissolution did not
amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects of unwise,
foolish or disastrous contracts they have entered into with all the required formalities and with full
awareness of what they were doing. Courts have no power to relieve them from obligations they have
voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise
investments.[29]
Petitioners further argue that respondents acted negligently by permitting the partnership assets in
their custody to deteriorate to the point of being almost worthless.Supposedly, the latter should have
liquidated these sole tangible assets of the partnership and considered the proceeds as payment of
their net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to
respondents was precisely the manner of liquidating the partnership and fully settling the latters share in
the partnership.
We disagree. The delivery of the store furniture and equipment to private respondents was for the
purpose of storage. They were unaware that the restaurant would no longer be reopened by
petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their
capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules, costs shall
be allowed to the prevailing party as a matter of course, but the court shall have power, for special
reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as
may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise
provided by law.
Although, as a rule, costs are adjudged against the losing party, courts have discretion, for special
reasons, to decree otherwise. When a lower court is reversed, the higher court normally does not award
costs, because the losing party relied on the lower courts judgment which is presumed to have been
issued in good faith, even if found later on to be erroneous. Unless shown to be patently capricious, the
award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET
ASIDE. This disposition is without prejudice to proper proceedings for the accounting, the liquidation
and the distribution of the remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.

(1) The assets of the partnership are:

(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing the partners in respect of profits.
(3) The assets shall applied in the order of their declaration in No.1 of this article to the satisfaction of
the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the
liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to
enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in
No. 4, to the extent of the amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a court
for distribution, partnership creditors shall have priority on partnership property, saving the
rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate
property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partnership by way of contribution.
[27]
As an accepted business practice, furniture and equipment are depreciated over five years to
recognize the decrease in their value due to wear and tear.
[28]
As an accepted business practice, 1/5 of the original value of goodwill is charged as a business
expense every year, such that at the end of five years goodwill no longer appears as an asset
of the business.

SECOND DIVISION
[G.R. No. 127347. November 25, 1999]
ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS and FELICIDAD S.
VDA. DE ABROGAR, respondents.
DECISION

[25]

Article 1839 of the Civil Code provides thus:

Article 1839. In settling accounts between the partners after dissolution, the following rules shall be
observed, subject to any agreement to the contrary:

This is a petition for review on certiorari of the decision[1] of the Court of Appeals, dated November
29, 1990, which reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila,

40

dated April 11, 1995. The trial court dismissed the petition for declaration of nullity of a deed of sale filed
by private respondent Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending
activities. Private respondent and her late husband, Ruben M. Abrogar, were the registered owners of a
house and lot, covered by Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April
18, 1991, private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner, entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property from
the FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed of Absolute
Sale shall be executed by the FIRST PARTY conveying the property to the SECOND PARTY for and in
consideration of the sum of Two Hundred Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said
property within a period of ninety (90) days from the execution of this memorandum of agreement
effective April 18, 1991, for the amount of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said property within
a period of ninety (90) days, the FIRST PARTY is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the expiration of the said 90 day grace
period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or
whatever claims on the property nor shall be cause the annotation of say claim at the back of the title to
the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her ownership of the
property and shall defend the rights of the SECOND PARTY against any party whom may have any
interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the account of the FIRST
PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND PARTY
after the expiration of the 15-day grace period given in paragraph 3 above, the FIRST PARTY shall pay
an amount equivalent to Five Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or
P10,000.00 per month of delay as and for rentals and liquidated damages;

(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within ninety (90)
days period above-mentioned, this memorandum of agreement shall be deemed cancelled and the
Deed of Absolute Sale, executed by the parties shall be the final contract considered as entered
between the parties and the SECOND PARTY shall proceed to transfer ownership of the property above
described to its name free from lines and encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale, [3] dated
June 11, 1991, wherein private respondent, with the consent of her late husband, sold the subject
property to A.C. Aguila & Sons, Co., represented by petitioner, for P200,000.00. In a special power of
attorney dated the same day, April 18, 1991, private respondent authorized petitioner to cause the
cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject property as provided in the Memorandum
of Agreement.[4]
Private respondent failed to redeem the property within the 90-day period as provided in the
Memorandum of Agreement. Hence, pursuant to the special power of attorney mentioned above,
petitioner caused the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the
name of A.C. Aguila and Sons, Co.[5]
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil,
counsel for A.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days after
receipt of the letter and surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the
latter would bring the appropriate action in court.[6]
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co.
filed an ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro
Manila. In a decision, dated April 3, 1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila &
Sons, Co. on the ground that private respondent did not redeem the subject property before the
expiration of the 90-day period provided in the Memorandum of Agreement. Private respondent
appealed first to the Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of
Appeals, and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale with the Regional
Trial Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She alleged that the signature of
her husband on the deed of sale was a forgery because he was already dead when the deed was
supposed to have been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for falsification against
petitioner with the Office of the Prosecutor of Quezon City which was dismissed in a resolution, dated
February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:

41

Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they could not personally
appear before Notary Public Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben
Abrogar, died on May 8, 1991 or one month and 2 days before the execution of the Deed of Absolute
Sale, while the plaintiff was still in the Quezon City Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991, cannot be sustained. The Court is convinced
that the three required documents, to wit: the Memorandum of Agreement, the Special Power of
Attorney, and the Deed of Absolute Sale were all signed by the parties on the same date on April 18,
1991. It is a common and accepted business practice of those engaged in money lending to prepare an
undated absolute deed of sale in loans of money secured by real estate for various reasons, foremost of
which is the evasion of taxes and surcharges. The plaintiff never questioned receiving the sum of
P200,000.00 representing her loan from the defendant. Common sense dictates that an established
lending and realty firm like the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar
spouses, who are virtual strangers to it, without the simultaneous accomplishment and signing of all the
required documents, more particularly the Deed of Absolute Sale, to protect its interest.

Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the property sold. It is
well-known that payment of taxes accompanied by actual possession of the land covered by the tax
declaration, constitute evidence of great weight that a person under whose name the real taxes were
declared has a claim of right over the land.

....

Moreover, it is undisputed that the deed of sale with right of repurchase was executed by reason of the
loan extended by defendant-appellee to plaintiff-appellant. The amount of loan being the same with the
amount of the purchase price.

WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED DISMISSED,
with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and defendant-appellee is
indubitably an equitable mortgage. Article 1602 of the New Civil Code finds strong application in the
case at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually inadequate. The
property is a two hundred forty (240) sq. m. lot. On said lot, the residential house of plaintiff-appellant
stands. The property is inside a subdivision/village. The property is situated in Marikina which is already
part of Metro Manila. The alleged sale took place in 1991 when the value of the land had considerably
increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square meter for
both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that plaintiff-appellant is obliged
to deliver peacefully the possession of the property to the SECOND PARTY within fifteen (15) days after
the expiration of the said ninety (90) day grace period. Otherwise stated, plaintiff-appellant is to retain
physical possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property sold as if they were still the absolute
owners. There was no provision for maintenance or expenses, much less for payment of rent.

It is well-settled that the presence of even one of the circumstances in Article 1602 of the New Civil
Code is sufficient to declare a contract of sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually inadequate, has
retained possession of the subject property and has continued paying the realty taxes over the subject
property, (circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the New Civil Code), it must
be conclusively presumed that the transaction the parties actually entered into is an equitable mortgage,
not a sale with right to repurchase. The factors cited are in support to the finding that the Deed of
Sale/Memorandum of Agreement with right to repurchase is in actuality an equitable mortgage.

....
Since the real intention of the party is to secure the payment of debt, now deemed to be repurchase
price: the transaction shall then be considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a pactum commissorium
which is clearly prohibited by Article 2088 of the New Civil Code. Article 2088 of the New Civil Code
reads:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose
of them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there
should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the
payment of principal obligation; and (2) that there should be a stipulation for an automatic appropriation
by the creditor of the thing pledged and mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant secured by
a mortgage on the property of plaintiff-appellant. The loan was payable within ninety (90) days, the
period within which plaintiff-appellant can repurchase the property. Plaintiff-appellant will pay
P230,000.00 and not P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure

42

of plaintiff-appellee to pay the P230,000,00 within the ninety (90) days period, the property shall
automatically belong to defendant-appellee by virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we hereby so declare to be
invalid, for being violative of law.

officers or agents, which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint. [11] We cannot understand why
both the Regional Trial Court and the Court of Appeals sidestepped this issue when it was squarely
raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this action should be
prosecuted makes it unnecessary to discuss the other issues raised by him in this appeal.

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

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint
against petitioner is DISMISSED.
SO ORDERED.

Article 1769
SECOND DIVISION
[G.R. No. 126881. October 3, 2000]
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET LUMBER
COMPANY, represented by its President TAN ENG LAY, respondents.
DECISION
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the Decision [1] dated
March 13, 1996 of the former Fifth Division[2] of the Court of Appeals in CA-G.R. CV No. 47937, the
dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint
dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedents
brother TAN ENG LAY on February 19, 1990. The complaint,[3] docketed as Civil Case No. 1983-R in
the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
petitioners filed an amended complaint[4] impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the trial court in
its Order dated May 3, 1991.[5]
The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan
Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the
business of selling lumber and hardware and construction supplies. They named their enterprise
Benguet Lumber which they jointly managed until Tan Eng Kees death. Petitioners herein averred that
the business prospered due to the hard work and thrift of the alleged partners. However, they claimed
that in 1981, Tan Eng Lay and his children caused the conversion of the partnership Benguet Lumber

43

into a corporation called Benguet Lumber Company. The incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners
prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof,
and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment [6]on April 12, 1995, to
wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint adventure which is akin to a particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership called Benguet Lumber and as such should share in the
profits and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber
Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right
to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a
particular partnership have descended to the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet
Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc. so
the plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber
Company, Inc. until such time that said corporation is finally liquidated are directed to submit the name
of any person they want to be appointed as receiver failing in which this Court will appoint the Branch
Clerk of Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the
instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered
the assailed decision reversing the judgment of the trial court.Petitioners motion for
reconsideration[7] was denied by the Court of Appeals in a Resolution[8] dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay
and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners
complained that Exhibits 4 to 4-U offered by the defendants before the trial court, consisting of payrolls
indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the
discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial
Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment [9] dismissing the
cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY

BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS
SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D)
THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME
FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELFSERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A
SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS
WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT
THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF
PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE
COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE
BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE
PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN
AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED
THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAUGIO CITY AS
BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY
MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT
CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC
INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will
not be disturbed on appeal if such are supported by the evidence. [10]Our jurisdiction, it must be
emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court.-A party desiring to appeal by certiorari from a judgment or final
order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified petition for review on

44

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

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

45

of the evidence by the court a quo.[13] Inasmuch as the Court of Appeals and the trial court had reached
conflicting conclusions, perforce we must examine the record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by law as one where:
xxx two or more persons bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.[14]
Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide
the profits among themselves.[15] The agreement need not be formally reduced into writing, since statute
allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real
rights are contributed,[16] and (2) when the partnership has a capital of three thousand pesos or more.
[17]
In both cases, a public instrument is required. [18] An inventory to be signed by the parties and
attached to the public instrument is also indispensable to the validity of the partnership whenever
immovable property is contributed to the partnership.[19]
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint adventure,
which it said is akin to a particular partnership. [20] A particular partnership is distinguished from a joint
adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the
participating merchants can transact business under their own name, and can be
individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a number
of years; a partnership generally relates to a continuing business of various transactions
of a certain kind.[21]
A joint adventure presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property contributed, and
where each party exercises equal rights in the conduct of the business. [22] Nonetheless, in Aurbach, et.
al. v. Sanitary Wares Manufacturing Corporation, et. al., [23] we expressed the view that a joint adventure
may be likened to a particular partnership, thus:
The legal concept of a joint adventure is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their elements
are similar-community of interest in the business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939];
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdiction is that the partnership contemplates a general business with
some degree of continuity, while the joint adventure is formed for the execution of a single transaction,
and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is
not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under Philippine law, a joint adventure is a form of partnership and

should thus be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation cannot enter
into a partnership contract, it may however engage in a joint adventure with others. (At p. 12, Tuazon v.
Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles
of partnership but there is none. The alleged partnership, though, was never formally organized. In
addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was
allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented
the parties from complying with the provisions of the New Civil Code when it took effect on August 30,
1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A review of the record persuades us that
the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the absence
of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing a partnership. The testimonies to that effect
of petitioners witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with the
number of witnesses wherein preponderance lies;[24] the quality of their testimonies is to be
considered. None of petitioners witnesses could suitably account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo.
[25]
He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers. [26] Tan Eng Lay,
however, denied knowledge of this meeting or of the conversation between Peralta and his brother.
[27]
Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only
later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or copossession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.[28]
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that
the partners share in the profits and losses.[29] Each has the right to demand an accounting as long as
the partnership exists.[30] We have allowed a scenario wherein [i]f excellent relations exist among the
partners at the start of the business and all the partners are more interested in seeing the firm grow
rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. [31] But in
the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is
presumed to take ordinary care of his concerns.[32] As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did
not furnish any help or intervention in the management of the theatre. In the third place, it does not
appear that she has even demanded from defendant any accounting of the expenses and earnings of
the business. Were she really a partner, her first concern should have been to find out how the
business was progressing, whether the expenses were legitimate, whether the earnings were correct,
etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that
she did was to receive her share of P3,000.00 a month, which cannot be interpreted in any manner than
a payment for the use of the premises which she had leased from the owners. Clearly, plaintiff had

46

always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. A), which shows
that both parties considered this offer as the real contract between them.[33] [italics supplied]
A demand for periodic accounting is evidence of a partnership. [34] During his lifetime, Tan Eng Kee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits 4 to 4-U for private respondents, consisting of payrolls
purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then
called. The authenticity of these documents was questioned by petitioners, to the extent that they filed
criminal charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were
dismissed for insufficiency of evidence. Exhibits 4 to 4-U in fact shows that Tan Eng Kee received sums
as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners
as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(b) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not
a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one,
so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received
amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet
Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng
Lay intended to divide the profits of the business between themselves, which is one of the essential
features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the
employees; that both were supervising the employees; that both were the ones who determined the
price at which the stocks were to be sold; and that both placed orders to the suppliers of the Benguet
Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay
lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated powers and
privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for
the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employees position is higher in rank, it is not unusual that he
orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can
order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does
not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a
partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was
not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan
Eng Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay
gave his brother, and which were not given the other employees, only proves the kindness and
generosity of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarrelling with Tan Eng Lay in connection with the
pricing of stocks, this does not adequately prove the existence of a partnership relation between
them. Even highly confidential employees and the owners of a company sometimes argue with respect
to certain matters which, in no way indicates that they are partners as to each other.[35]
In the instant case, we find private respondents arguments to be well-taken. Where circumstances
taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of the existence of the parties intent.
[36]
Yet, in the case at bench, even the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the
operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as
a member of the family, he occupied a niche above the rank-and-file employees. He would have
enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby
entitling him to exercise powers of supervision. It may even be that among his duties is to place orders
with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the
conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or liquidation to
speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is
hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
[18]

Note, however, Article 1768 of the Civil Code which provides: The partnership has a juridical
personality separate and distinct from that of each of the partners, even in case of failure to comply with
the requirements of Article 1772, first paragraph.
[20]
A particular partnership has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation. (Civil Code, Art. 1783)
SECOND DIVISION
[G.R. No. L-19342. May 25, 1972.]

47

properties but also the income of the inherited properties.

LORENZO T. OA, and HEIRS OF JULIA BUNALES, namely: RODOLFO B. OA, MARIANO B.
OA, LUZ B. OA, VIRGINIA B. OA, and LORENZO B. OA, JR., Petitioners, v. THE
COMMISSIONER OF INTERNAL REVENUE, Respondent.
SYLLABUS
1. TAXATION; INTERNAL REVENUE CODE; CORPORATE TAX; UNREGISTERED PARTNERSHIP;
FORMATION THEREOF WHERE INCOME FROM SHARES OF CO-HEIRS CONTRIBUTED TO
COMMON FUND. From the moment petitioners allowed not only the incomes from their respective
shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa
(who managed the properties) as a common fund in undertaking several transactions or in business,
with the intention of deriving profit to be shared by them proportionally, such act was tantamount to
actually contributing such incomes to a common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the provisions of the Tax Code.
2. ID.; ID.; ID.; WHEN HEIRS NOT CONSIDERED AS UNREGISTERED CO-PARTNERS AND NOT
SUBJECT TO SUCH TAX. In cases of inheritance, there is a period when the heirs can be
considered as co-owners rather than unregistered co-partners within the contemplation of our corporate
tax laws. Before the partition and distribution of the estate of the deceased, all the income thereof does
belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners.
3. ID.; ID.; ID.; CIRCUMVENTIONS OF SECTIONS 24 AND 84(b) OF TAX CODE WHEN HEIRS
CONTINUE AS CO-OWNERS. For tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership, for it is easily conceivable that after knowing
their respective shares in the partition, they (heirs) might decide to continue holding said shares under
the common management of the administrator or executor or of anyone chosen by them and engage in
business on that basis. Withal, if this were not so, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal
Revenue Code.
4. ID.; ID.; ID., HEIRS AS UNREGISTERED CO-PARTNERS; PARTNERSHIP CONTEMPLATED IN
CIVIL CODE NOT APPLICABLE. Petitioners reliance on Article 1769, par. (3) of the Civil Code,
providing that: "The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which the returns
are derived," and, for that matter, on any other provision of said code on partnerships is unavailing. In
Evangelista (102 Phil. 140), this Court clearly differentiated the concept of partnerships under the Civil
Code from that of unregistered partnerships which are considered as "corporations" under Sections 24
and 84(b) of the National Internal Revenue Code.
5. ID.; ID.; ID.; ID.; SEGREGATION OF INCOME FROM BUSINESS FROM THAT OF INHERITED
PROPERTIES, NOT PROPER. Where the inherited properties and the income derived therefrom
were used in business of buying and selling other real properties and corporate securities, the
partnership income must include not only the income derived from the purchase and sale of other

6. ID.; ID.; INCOME TAX; ACTION FOR REIMBURSEMENT SUBJECT TO PRESCRIPTION. A

taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in question
was not deliberate, has the right to be reimbursed what he has erroneously paid, but the law is very
clear that the claim and action for such reimbursement are subject to the bar of prescription. And since
the period for the recovery of the excess income taxes in the case of herein petitioners has already
lapsed, it would not seem right to virtually disregard prescription merely upon the ground that the reason
for the delay is precisely because the taxpayers failed to make the proper return and payment of the
corporate taxes legally due from them.

DECISION
Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as
above, holding that petitioners have constituted an unregistered partnership and are, therefore, subject
to the payment of the deficiency corporate income taxes assessed against them by respondent
Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5%
surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e)
(2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of
the suit, 1 as well as the resolution of said court denying petitioners motion for reconsideration of said
decision.
The facts are stated in the decision of the Tax Court as follows:jgc:chanrobles.com.ph
"Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her
five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the
settlement of her estate. Later, Lorenzo T. Oa, the surviving spouse was appointed administrator of the
estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted
the project of partition, which was approved by the Court on May 16, 1949 (See Exhibit K). Because
three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the
project of partition was approved, Lorenzo T. Oa, their father and administrator of the estate, filed a
petition in Civil Case No. 9637 of the Court of First Instance of Manila for appointment as guardian of
said minors. On November 14, 1949, the Court appointed him guardian of the persons and property of
the aforenamed minors (See p. 3, BIR rec.).
"The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided
one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a
total assessed value of P17,590.00 and an undetermined amount to be collected from the War Damage
Commission. Later, they received from said Commission the amount of P50,000.00, more or less. This
amount was not divided among them but was used in the rehabilitation of properties owned by them in
common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death of
the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00
(t.s.n., p. 24; Exhibit 3, pp. 34-31, 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.).

48

Compromise for non-filing

"Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to
divide the properties therein listed. Instead, the properties remained under the management of Lorenzo
T. Oa who used said properties in business by leasing or selling them and investing the income
derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result,
petitioners properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in
1956 as can be gleaned from the following year-end balances:jgc:chanrobles.com.ph
"Year
1949
1950
1951
1952
1953
1954
1955
1956

Investment
Account

Land

Building

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

P 17,590.00
128,566.72
96,076.26
120,349.28
110,605.11
87,065.28
152,674.39
84,925.68
161,463.83
99,001.20
167,962.04
120,249.78
169,262.52
135,714.68
169,262.52

Account

Account

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

Income tax due thereon

25% surcharge

P40,209.89
8,042.00
2,010.50

Total
==========
"1956
"Net income as per investigation

Income tax due thereon

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

50.00

P10,102.50

P69,245.23
13,849.00
3,462.25
50.00

17,361.25

(See Exhibit 13, page 50, BIR records)

"Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the
Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the
questioned assessment refers solely to the income tax proper for the years 1955 and 1956 and the
Compromise for non-filing, the latter item obviously referring to the compromise in lieu of the criminal
liability for failure of petitioners to file the corporate income tax returns for said years. (See Exh. 17,
page 86, BIR records)." (Pp. 1-3, Annex C to Petition).
Petitioners have assigned the following as alleged errors of the Tax Court:chanrob1es virtual 1aw library
"I
"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;
"II
"THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE COOWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM
TRANSACTIONS THEREFROM (sic);
"III
"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
"IV
"ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY IN
VESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;.
"V
"ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF
TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS
AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING
FROM THE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THE

49

UNREGISTERED PARTNERSHIP."cralaw virtua1aw library

In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by
the Court of Tax Appeals, should petitioners be considered as co-owners of the properties inherited by
them from the deceased Julia Buales and the profits derived from transactions involving the same, or,
must they be deemed to have formed an unregistered partnership subject to tax under Sections 24 and
84(b) of the National Internal Revenue Code? (2) Assuming they have formed an unregistered
partnership, should this not be only in the sense that they invested as a common fund the profits earned
by the properties owned by them in common and the loans granted to them upon the security of the
said properties, with the result that as far as their respective shares in the inheritance are concerned,
the total income thereof should be considered as that of co-owners and not of the unregistered
partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not
the various amounts already paid by them for the same years 1955 and 1956 as individual income
taxes on their respective shares of the profits accruing from the properties they owned in common be
deducted from the deficiency corporate taxes, herein involved, assessed against such unregistered
partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas petitioners
predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was
judicially approved as early as May 16, 1949, and presumably petitioners have been holding their
respective shares in their inheritance since those dates admittedly under the administration or
management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in
question refers to the later years 1955 and 1956. We believe this point to be important because,
apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue
did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At least, there is nothing in the record
indicating that an earlier assessment had already been made. Such being the case, and We see no
reason how it could be otherwise, it is easily understandable why petitioners position that they are coowners 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 proceeds from the sales thereof in real properties and securities," as
a result of which said properties and investments steadily increased yearly from P87,860.00 in "land
account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account,"
P135.714.68 in "land account" and P169,262.52 in "building account" in 1956 And all these became
possible because, admittedly, petitioners never actually received any share of the income or profits from
Lorenzo T. Oa, and instead, they allowed him to continue using said shares as part of the common
fund for their ventures, even as they paid the corresponding income taxes on the basis of their
respective shares of the profits of their common business as reported by the said Lorenzo T. Oa.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to
holding the properties inherited by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit, and that with said profit,
petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise
admitted that all the profits from these ventures were divided among petitioners proportionately in
accordance with their respective shares in the inheritance. In these circumstances, it is Our considered
view that from the moment petitioners allowed not only the incomes from their respective shares of the
inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a common
fund in undertaking several transactions or in business, with the intention of deriving profit to be shared
by them proportionally, such act was tantamount to actually contributing such incomes to a common
fund and, in effect, they thereby formed an unregistered partnership within the purview of the abovementioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered
as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of the deceased, all the income
thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered
co-partners, but it does not necessarily follow that such status as co-owners continues until the
inheritance is actually and physically distributed among the heirs, for it is easily conceivable that after
knowing their respective shares in the partition, they might decide to continue holding said shares under
the common management of the administrator or executor or of anyone chosen by them and engage in
business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal
Revenue Code.
It is true that in Evangelista v. Collector, 102 Phil. 140, it was stated, among the reasons for holding the
appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not
something they found already in existence" and that" [i]t was not a property inherited by them pro
indiviso," but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all
instances where an inheritance is not actually divided, there can be no unregistered co-partnership. As
already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted
into an unregistered partnership the moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.
The reason for this is simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them to manage and
dispose of as exclusively his own without the intervention of the other heirs, and, accordingly he
becomes liable individually for all taxes in connection therewith. If after such partition, he allows his
share to be held in common with his co-heirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no doubt that, even if no document or
instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is
formed. This is exactly what happened to petitioners in this case.

50

In this connection, petitioners reliance on Article 1769, paragraph (3), of the Civil Code, providing that:
"The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are
derived," and, for that matter, on any other provision of said code on partnerships is unavailing. In
Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil Code
from that of unregistered partnerships which are considered as "corporations" under Sections 24 and
84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:jgc:chanrobles.com.ph
"To begin with, the tax in question is one imposed upon corporations, which, strictly speaking, are
distinct and different from partnerships. When our Internal Revenue Code includes partnerships
among the entities subject to the tax on corporations, said Code must allude, therefore, to
organizations which are not necessarily partnerships, in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax duly registered general
partnerships, which constitute precisely one of the most typical forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said Code, the term corporation includes partnerships, no
matter how created or organized. This qualifying expression clearly indicates that a joint venture need
not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law
on partnerships, in order that one could be deemed constituted for purposes of the tax on corporation.
Again, pursuant to said section 84(b), the term corporation includes, among other, joint accounts,
(cuentas en participacion) and associations, none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not have regarded that personality
as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated,
duly registered general co-partnerships which are possessed of the aforementioned personality
have been expressly excluded by law (sections 24 and 84 [b]) from the connotation of the term
corporation. . . .
x
x
x
"Similarly, the American Law
. . . provides its own concept of a partnership. Under the term partnership it includes not only a
partnership as known as common law but, as well, a syndicate, group, pool, joint venture, or other
unincorporated organization which carries on any business, financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a corporation. . . . (7A Mertens Law of Federal
Income Taxation, p. 789; Emphasis ours.).
The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried
on. . . . (8 Mertens Law of Federal Income Taxation, p. 562 Note 63; Emphasis ours.)
"For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships with the exception only of duly registered general co-partnerships within the purview
of the term corporation. It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for
corporations."cralaw virtua1aw library

We reiterated this view, thru Mr. Justice Fernando, in Reyes v. Commissioner of Internal Revenue, G. R.
Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of 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:jgc:chanrobles.com.ph
"In connection with the second ground, it is alleged that, if there was an unregistered partnership, the
holding should be limited to the business engaged in apart from the properties inherited by petitioners.
In other words, the taxable income of the partnership should be limited to the income derived from the
acquisition and sale of real properties and corporate securities and should not include the income
derived from the inherited properties. It is admitted that the inherited properties and the income derived
therefrom were used in the business of buying and selling other real properties and corporate securities.
Accordingly, the partnership income must include not only the income derived from the purchase and
sale of other properties but also the income of the inherited properties."cralaw virtua1aw library
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 adequately resolved by the Tax Court in the
aforementioned resolution denying petitioners motion for reconsideration of the decision of said court.
Pertinently, the court ruled this Wise:jgc:chanrobles.com.ph
"In support of the third ground, counsel for petitioners allege:chanrob1es virtual 1aw library
Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed
an unregistered partnership and, therefore, have to be taxed as such, it might be recalled that the
petitioners in their individual income tax returns reported their shares of the profits of the unregistered
partnership. We think it only fair and equitable that the various amounts paid by the individual
petitioners as income tax on their respective shares of the unregistered partnership should be deducted
from the deficiency income tax found by this Honor able Court against the unregistered partnership.
(page 7, Memorandum for the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the partnership must be
reduced by the amounts of income tax paid by each petitioner on his share of partnership profits. This is
not correct; rather, it should be the other way around. The partnership profits distributable to the
partners (petitioners herein) should be reduced by the amounts of income tax assessed against the

51

Partnership. Consequently, each of the petitioners in his individual capacity overpaid his income tax for
the years in question, but the income tax due from the partnership has been correctly assessed. Since
the individual income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for
the Court to pass upon the same."cralaw virtua1aw library
Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid
as individual income tax cannot be credited as part payment of the taxes herein in question. It is argued
that to sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same
income, and, worse, considering the time that has lapsed since they paid their individual income taxes,
they may already be barred by prescription from recovering their overpayments in a separate action.
We do not agree. As We see it, the case of petitioners as regards the point under discussion is simply
that of a taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in
question was not deliberate. Of course, such taxpayer has the right to be reimbursed what he has
erroneously paid, but the law is very clear that the claim and action for such reimbursement are subject
to the bar of prescription, And since the period for the recovery of the excess income taxes in the case
of herein petitioners has already lapsed, it would not seem right to virtually disregard prescription merely
upon the ground that the reason for the delay is precisely because the taxpayers failed to make the
proper return and payment of the corporate taxes legally due from them. In principle, it is but proper not
to allow any relaxation of the tax laws in favor of persons who are not exactly above suspicion in their
conduct vis-a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is
affirmed, with costs against petitioners.
1

. In other words, the assessment was affirmed except for the sum of P100.00 which was the total of
two P50-items purportedly for "Compromise for non-filing" which the Tax Court held h be unjustified,
since there was no compromise agreement to speak of.

the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the
Torrens titles issued to them would show that they were co-owners of the two lots.cralawnad
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled
City Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit
as a capital gain and paid an income tax on one-half thereof or on P16,792.
In April, 1980, or one day before the expiration of the five year prescriptive period, the Commissioner of
Internal Revenue required the four petitioners to pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on their shares thereof. He assessed P37,018 as
corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest,
or a total of P71,074 56.cralawnad
Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a
"distributive dividend" taxable in full (not a mere capital gain of which 1/2 is taxable) and required them
to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the
accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling
P127,781.76 on their profit of P134, 336, in addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership
or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal
Revenue v. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge
Roaquin dissented. Hence, the instant appeal.

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, v. COMMISSIONER OF INTERNAL REVENUE and COURT OF
TAX APPEALS, Respondents.

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.

DECISION
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.

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.

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

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

52

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:jgc:chanrobles.com.ph

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are
cancelled. No costs.

"Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

SO ORDERED.
"El criterio diferencial segun la doctrina m s generalizada est : por raz "n del origen, en que la
sociedad presupone necesariamente la convencion, mientras que la comunidad puede existir y existe
ordinariamente sin ella; y por raz "n del fin u objecto, en que el objeto de la sociedad es obtener lucro,
mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer su
conservacion.
"Reflejo de este criterio es la sentencia de 15 de octubre de 1940, en la que se dice que si en nuestro
Derecho positivo se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de
bienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica seala como nota
fundamental de diferenciacion, aparte del origen o fuente de que surgen, no siempre uniforme, la
finalidad perseguida por los interesados: lucro comun partible en la sociedad, y mera conservacion y
aprovechamiento en la comunidad." (Derecho Civil Espaol, Vol. 2, Part 1, 10 Ed., 1971, 328-329).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived." There must be an unmistakable intention to form a
partnership or joint venture. **
Such intent was present in Gatchalian v. Collector of Internal Revenue, 67 Phil. 666 where 15 persons
contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement that they
would divide the prize. The ticket won the third prize of P50,000. The 15 persons were held liable for
income tax as an unregistered partnership.chanrobles virtual lawlibrary
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit.
Thus, in Ona v. Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after
an extrajudicial settlement the co-heirs used the inheritance or the incomes derived therefrom as a
common fund to produce profits for themselves, it was held that they were taxable as an unregistered
partnership.
It is likewise different from Reyes v. Commissioner of Internal Revenue, 24 SCRA 198 where father and
son purchased a lot and building, entrusted the administration of the building to an administrator and
divided equally the net income, and from Evangelista v. Collector of Internal Revenue, 102 Phil. 140
where the three Evangelista sisters bought four pieces of real property which they leased to various
tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an
unregistered partnership.
In the instant case, what the Commissioner should have investigated was whether the father donated
the two lots to the petitioners and whether he paid the donors tax (See art. 1448, Civil Code). We are
not prejudging this matter. It might have already prescribed.

** This view is supported by the following rulings of respondent Commissioner:jgc:chanrobles.com.ph

"Co-ownership distinguished from partnership. We find that the case at bar is fundamentally similar
to the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the hacienda in question
pro-indiviso from their deceased parents; they did not contribute or invest additional capital to increase
or expand the inherited properties; they merely continued dedicating the property to the use to which it
had been put by their forebears; they individually reported in their tax returns their corresponding shares
in the income and expenses of the hacienda, and they continued for many years the status of coownership in order, as conceded by respondent, to preserve its (the hacienda) value and to continue
the existing contractual relations with the Central Azucarera de Bais for milling purposes." (Longa v.
Araas, CTA Case No. 653, July 31, 1963).
"All co-ownerships are not deemed unregistered partnership. Co-heirs who own properties which
produce income should not automatically be considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income
of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does
not produce an income at all, it is not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation." (De Leon v. CIR, CTA Case No. 738, September 11, 1961,
cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Article 1770

EN BANC
[G.R. No. L-21906. December 24, 1968.]
INOCENCIA DELUAO and FELIPE DELUAO, Plaintiffs-Appellees, v. NICANOR CASTEEL and
JUAN DEPRA, Defendants, NICANOR CASTEEL, Defendant-Appellant.
SYLLABUS
1. REMEDIAL LAW; PROCEDURE; NOTICE OF HEARING; ORDER GIVEN IN OPEN COURTS IS
SUFFICIENT NOTICE. An order given in open court is presumed received by the parties on the very
date and time of promulgation, and amounts to a legal notification for all legal purposes. The order of
March 21, 1956, given in open court, was a valid notice to the parties, and the notice of hearing dated
April 21, 1966 or one month thereafter, was a superfluity. Moreover, as between the order of March 21,

53

1956 duly promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by
the "special deputy clerk of court" setting the hearing in another branch of the same court, the formers
order was the one legally binding. This because the incidents of postponements and adjournments are
controlled by the court and not by the clerk of court, pursuant to Section 4, Rule 31 (Now sec. 3, Rule
22 of the Rules of Court).
2. ID.; ID.; ID.; CLERK OF COURT MAY NOT INTERFERE WITH THE ORDER OF THE COURT OR
WITH TRANSFER OF CASE FROM ONE SALA TO ANOTHER. The clerk has no authority to
interfere with the order of the court or to transfer the case from one sala to another without authority or
order from the court where the case originated and was being tried. He had neither the duty nor
prerogative to re-assign the trial of the case to a different branch of the same court. His duty as such
clerk of court, in so far as the incident in question was concerned, was simply to prepare the trial
calendar. And this duty devolved upon the clerk of court and not upon the "special deputy clerk of court"
who purportedly signed the notice of hearing.
3. ID.; ID.; ID.; NOTICE TO ONE OF SEVERAL COUNSELS IS NOTICE TO ALL. Defendant was
represented by a total of 12 lawyers none of whom had even withdrawn as counsel. Notice to one of the
counsels, Atty. Ruiz, of the order dated March 21, 1956, was sufficient notice to all the appellants
eleven other counsel of record. This is well settled rule in our jurisdiction. It was the duty of Atty. Ruiz, or
of the other lawyers of record, not excluding the appellant himself, to appear before Judge Fernandez
on the scheduled dates of hearing. Parties and their lawyers have no right to presume that their motions
for postponement will be granted. Hence, the constitutional requirement of due process has been
fulfilled in this case: the lower court is a competent court; it lawfully acquired jurisdiction over the person
of the defendant (appellant) and the subject matter of the action; the defendant (appellant) was given
opportunity to be heard and judgment was rendered upon lawful hearing.
4. ID.; ID.; ID.; INSTANT CASE DISTINGUISHED FROM SIOCHI V. TIRONA. Appellant cannot
argue that, pursuant to the doctrine in Siochi v. Tirona, his counsel was entitled to a timely notice of the
denial of his motion for postponement. In the cited case the motion for postponement was the first one
filed by the defendant; in the case at bar, there had already been a series of postponements. Unlike the
case at bar, the Siochi case was not intransferably set for hearing. Finally, whereas the cited case did
not spend for a long period of time, the case at bar was only finally and intransferably set for hearing on
March 21, 1956 after almost five years had elapsed from the filing of the complaint on April 3, 1951.
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP CONTRACT IN INSTANT CASE.
Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to
know the law. It must be assumed, conformably to such rule, that the parties entered into the so called
"contract of service" cognizant of the mandatory and prohibitory laws governing the filing of applications
for fishpond permits. And since they were aware of the said laws, it must likewise be assumed in
fairness to the parties that they did not intend to violate them. This view must perforce negate the
appellees allegation that the "contract of service" created a contract of co ownership between the
parties over the disputed fishpond. The contract must be construed as one of partnership, divided into
two parts namely, contract of partnership to exploit the fishpond pending its award which is valid, and
a contract of partnership to divide the fishpond between them after such award which is illegal. The

evidence preponderates in favor of the view that the initial intention of the parties was not to form a co ownership but to establish a partnership, plaintiff Deluao as capitalist partner and defendant
appellant as an industrial partner the ultimate undertaking of which was to divide into two equal parts
such portion of the fishpond as might have been developed by the amount extended by the plaintiffsappellees, with the further provision that defendant appellant should reimburse the expenses incurred
by the appellees over one-half of the fishpond that would pertain to him.
6. ID.; ID.; ID.; PARTNERSHIP; DISSOLUTION THEREOF; AWARD BY THE SECRETARY OF
AGRICULTURE AND NATURAL RESOURCES DISSOLVES THE PARTNERSHIP. The arrangement
under the so-called "contract of service" continued until the decision both dated Sept. 15, 1950 were
issued by the Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B. This
development, by itself, brought about the dissolution of the partnership. Since the partnership had for its
object the division into two equal parts of the fishpond between the appellees and the appellant after it
shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one half
thereof to parties other than the applicant Casteel, it was dissolved by the approval of his application
and the award to him of the fishpond. The approval was an event which made it unlawful for the
members to carry it on in partnership. Moreover, subsequent events likewise reveal the intent of both
parties to terminate the partnership because each refused to share the fishpond with the other.
7. PUBLIC LAND ACT; DISPOSITION OF PUBLIC LAND; POWER OF THE SECRETARY OF
AGRICULTURE AND NATURAL RESOURCES RELATIVE THERETO. In this jurisdiction, the
Secretary of Agriculture and Natural Resources possesses executive and administrative powers with
regard to the survey, classification, lease, sale or any other form of concession or disposition and
management of the lands of the public domain, and, more specifically, with regard to the grant of
withholding of licenses, permits, leases and contracts over portions of the public domain to be utilized
as fishponds. However, the Secretary does not possess the authority to violate the prohibitory laws nor
to exempt anyone from their operation.
8. ID.; ID.; ID.; SECRETARYS DECISION IN INSTANT CASE IS BINDING. In the case at bar, the
Secretary of Agriculture and Natural Resources gave due course to the appellants fishpond application
171 and awarded to him the possession of the area in question. In view of the finality of the secretarys
decision in DANR Cases 353 and 353-B, and considering the absence of any proof that the said official
exceeded his statutory authority, exercised unconstitutional powers, or acted with arbitrariness and in
disregard of his duty, or with grave abuse of discretion. We can do no less than respect and maintain
unfettered his official acts in the premises. It is a salutary rule that the judicial department should not
dictate to the executive department what to do with regard to the administration and disposition of the
public domain which the law had entrusted to its care and administration. Indeed, courts cannot
superimpose their discretion on that of the land department and compel the latter to do an act which
involved the exercise of judgment and discretion.
9. REMEDIAL LAW; PROVISIONAL REMEDY; INJUNCTION, CONTINUANCE THEREOF IS
IMPROPER. Even assuming that the injunction was properly issued because present all the requisite
grounds for its issuance, its continuation, and, worse, its declaration as permanent, was improper in the
face of the knowledge later acquired by the lower court that it was the appellants application over the

54

fishpond which was given due course. After the secretary of Agriculture and Natural Resources
approved the appellants application he became to all intents and purposes the legal permitted of the
area with the corresponding right to possess, occupy and enjoy the same. Consequently, the lower
court erred in issuing the preliminary mandatory injunction. An injunction should be granted to take
property out of the possession and control of one party and place it in the hands of another whose title
had not been clearly established by law.
DECISION
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May 21,
1956, all of the Court of First Instance of Davao, in civil case 629. The basic action is for specific
performance, and damages resulting from an alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then sitio of
Malalag (now the municipality of Malalag), municipality of Padada, Davao. No action was taken thereon
by the authorities concerned. During the Japanese occupation, he filed another fishpond application for
the same area, but because of the conditions then prevailing, it was not acted upon either. On
December 12, 1945 he filed a third fishpond application for the same area, which, after a survey, was
found to contain 178.76 hectares. Upon investigation conducted by a representative of the Bureau of
Forestry, it was discovered that the area applied for was still needed for firewood production. Hence on
May 13, 1946 this third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While this
motion was pending resolution, he was advised by the district forester of Davao City that no further
action would be taken on his motion, unless he filed a new application for the area concerned. So he
filed on May 27, 1947 his fishpond application 1717.
Meanwhile, several applications were submitted by other persons for portions of the area covered by
Casteels application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land
found inside the area applied for by Casteel; he was later granted fishpond permit F-289-C covering 9.3
hectares certified as available for fishpond purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land applied
for by Casteel. Alejandro Cacams fishpond application 1276, filed on December 26, 1946, was given
due course on December 9, 1947 with the issuance to him of fishpond permit F-539-C to develop 30
hectares of land comprising a portion of the area applied for by Casteel, upon certification of the Bureau
of Forestry that the area was likewise available for fishpond purposes. On November 17, 1948 Felipe
Deluao filed his own fishpond application for the area covered by Casteels application.
Because of the threat poised upon his position by the above applicants who entered upon and spread
themselves within the area, Casteel realized the urgent necessity of expanding his occupation thereof
by constructing dikes and cultivating marketable fishes, in order to prevent old and new squatters from

usurping the land. But lacking financial resources at that time, he sought financial aid from his uncle
Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed
improvements on the fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already occupied by rival
applicants, Casteel immediately filed the corresponding protests. Consequently, two administrative
cases ensued involving the area in question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp.
A. No. 1717), Nicanor Casteel, applicant-appellant v. Fp. A. No. 763, Victorio D. Carpio, applicantappellant" ; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717). Nicanor Casteel,
applicant-protestant v. Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro
Cacam, Permittees-Respondents."cralaw virtua1aw library
However, despite the finding made in the investigation of the above administrative cases that Casteel
had already introduced improvements on portions of the area applied for by him in the form of dikes,
fishpond gates, clearings, etc., the Director of Fisheries nevertheless rejected Casteels application on
October 25, 1949, required him to remove all the improvements which he had introduced on the land,
and ordered that the land be leased through public auction. Failing to secure a favorable resolution of
his motion for reconsideration of the Directors order, Casteel appealed to the Secretary of Agriculture
and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our
discussion of the appellants third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor
Casteel as party of the second part, executed a contract denominated a "contract of service" the
salient provisions of which are as follows:jgc:chanrobles.com.ph
"That the Party of the First Part in consideration of the mutual covenants and agreements made herein
to the Party of the Second Part, hereby enter into a contract of service, whereby the Party of the First
Part hires and employs the Party of the Second Part on the following terms and conditions, to wit:
"That the Party of the First Part will finance as she has hereby financed the sum of TWENTY SEVEN
THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second Part who renders
only his services for the construction and improvements of a fishpond at barrio Malalag, Municipality of
Padada, Province of Davao, Philippines;
"That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish that
will be produced from said fishpond;
"That the Party of the First Part will be the administrator of the same she having financed the
construction and improvement of said fishpond;
"That this contract was the result of a verbal agreement entered into between the Parties sometime in
the month of November, 1947, with all the abovementioned conditions enumerated; . . ."cralaw

55

virtua1aw library
On the same date the above contract was entered into, Inocencia Deluao executed a special power of
attorney in favor of Jesus Donesa, extending to the latter the authority "To represent me in the
administration of the fishpond at Malalag, Municipality of Padada, Province of Davao, Philippines, which
has been applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, and to
supervise, demand, receive, and collect the value of the fish that is being periodically realized from
it . . ."cralaw virtua1aw library
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on
November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the
two administrative cases (DANR Cases 3S3 and 353-B) and asked for reinvestigation of the application
of Nicanor Casteel over the subject fishpond. However, by letter dated March 15, 1950 sent to the
Secretary of Commerce and Agriculture and Natural Resources (now Secretary of Agriculture and
Natural Resources), Deluao withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR
Case 353, the dispositive portion of which reads as follows:jgc:chanrobles.com.ph
"In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A No. 1717) of Nicanor Casteel
should be, as hereby it is, reinstated and given due course for the area indicated in the sketch drawn at
the back of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio shall remain rejected."cralaw
virtua1aw library
On the same date, the same of official issued a decision in DANR Case 353-B, the dispositive portion
stating as follows:jgc:chanrobles.com.ph
"WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-539-C of
Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor Casteel is required to
pay the improvements introduced thereon by said permittees in accordance with the terms and
dispositions contained elsewhere in this decision . . ."cralaw virtua1aw library
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the
fishpond, and ejected the latters representative (encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and
Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of
First Instance of Davao for specific performance and damages against Nicanor Casteel and Juan Depra
(who, they alleged, instigated Casteel to violate his contract), praying, inter alia, (a) that Casteel be
ordered to respect and abide by the terms and conditions of said contract and that Inocencia Deluao be
allowed to continue administering the said fishpond and collecting the proceeds from the sale of the
fishes caught from time to time; and (b) that the defendants be ordered to pay jointly and severally to
plaintiffs the sum of P20,000 in damages.

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

56

Davao, setting the hearing of the case for May 2 and 3, 1956 before Judge Amador Gomez of Branch II.
The defendants, thru counsel, on April 26, 1956 filed a motion for postponement. Acting on this motion,
the lower court (Branch II, presided by Judge Gomez) issued an order dated April 27, 1956, quoted as
follows:jgc:chanrobles.com.ph

aquella durante la pendencia de esta causa;

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

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

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

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

"CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and termination of
any incident referring to this case should be referred back to Branch I, so that the same may be
disposed of therein." (Italics supplied)
A copy of the abovequoted order was served on the defendants counsel on May 4, 1956. On the
scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge Fernandez
presiding), when informed above the defendants motion for postponement filed on April 26, 1956,
issued an order reiterating its previous order handed down in open court on March 21, 1956 and
directing the plaintiffs to introduce their evidence ex parte, there being no appearance on the part of the
defendants or their counsel. On the basis of the plaintiffs evidence, a decision was rendered on May 4,
1956 the dispositive portion of which reads as follows:jgc:chanrobles.com.ph
"EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra de demandado
Nicanor Casteel:jgc:chanrobles.com.ph
"(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;
"(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad (1/2) del
`fishpond en cuestion con todas las mejoras existentes dentro de la misma;
"(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en concepto
de daos contar de la fecha de la expiracion de los 30 dias de la promulgacion de esta decision hasta
que entregue la posesion y administracion de la porcion del `fishpond en conflicto;
"(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los peseado
beneficiados mas los intereses legales de la fecha de la incoacion de la demanda de autos hasta el
completo pago de la obligacion principal;
"(e) Condena al demandado a pagar a la demamdante la suma de P2,000.00, por gastos incurridos por

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

P2,000.00;

"(i) Con las costas contra del demandado, Casteel."cralaw virtua1aw library
The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of
knowledge of the order of the court a quo setting the case for trial. The petition, however, was denied by
the lower court in its order of May 21, 1956, the pertinent portion of which reads as
follows:jgc:chanrobles.com.ph
"The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case has been
transferred or not, but to inquire from the presiding Judge, particularly because his motion asking the
transfer of this case was not set for hearing and was not also acted upon.
"Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as
follows:chanrob1es virtual 1awibrary
`Upon petition of the plaintiff without any objection on the part of the defendants, the hearing of this
case is hereby transferred to May 2 and 3, 1956, at 8:30 oclock in the morning.
`This case was filed on April 3, 1951, and under any circumstance this Court will not entertain any other
transfer of the hearing of this case, and if the parties will not be ready on the day set for hearing, the
Court will take necessary steps for the final disposition of this case.
"In view of the order above-quoted, the Court will not accede to any transfer of this case and the duty of
Atty. Ruiz is no other than to be present in Sala of this Court and to call the attention of the same to the
existence of his motion for transfer.
"Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the same
is hereby denied."cralaw virtua1aw library
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us
for final determination on the ground that it involves only questions of law.
Casteel raises the following issues:jgc:chanrobles.com.ph
"(1) Whether the lower court committed gross abuse of discretion when it ordered reception of the
appellees evidence in the absence of the appellant at the trial on May 2, 1956, thus depriving the

57

appellant of his day in court and of his property without due process of law;
"(2) Whether the lower court committed grave abuse of discretion when it denied the verified petition for
relief from judgment filed by the appellant on May 11, 1956 in accordance with Rule 38, Rules of Court;
"(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary injunction
against defendant-appellant, and in not dismissing appellees complaint."cralaw virtua1aw library
1. The first and second issues must be resolved against the Appellant.
The record indisputably shows that in the order given in open court on March 21, 1956, the lower court
set the case for hearing on May 2 and 3, 1956 at 8:30 oclock in the morning and empathically stated
that, since the case had been pending since April 3, 1951, it would not entertain any further motion for
transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very date and time of
promulgations, 1 and amounts to a legal notification for all legal purposes. 2 The order of March 21,
1956, given in open court, was a valid notice to the parties, and the notice of hearing dated April 21,
1956, or one month thereafter, was a superfluity. Moreover, as between the order of March 21, 1956,
duly promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by a
"special deputy clerk of court" setting the hearing in another branch of the same court, the formers
order was the one legally binding. This is because the incidents of postponements and adjournments
are controlled by the court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3,
Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the court or to transfer the
case from one sala to another without authority or order from the court where the case originated and
was being tried. He had neither the duty nor prerogative to re-assign the trial of the case to a different
branch of the same court. His duty as such clerk of court, in so far as the incident in question was
concerned, was simply to prepare the trial calendar. And this duty devolved upon the clerk of court and
not upon the "special deputy clerk of court" who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the appellees counsel. The
postponement of hearings does not depend upon agreement of the parties, but upon the courts
discretion. 3

12 lawyers cannot pretend ignorance of the recorded fact that since September 24, 1953 until the trial
held on May 2, 1956, the case was under the advisement of Judge Fernandez who presided over
Branch I. There was, therefore, no necessity to "re -assign" the same to Branch II because Judge
Fernandez had exclusive control of said case, unless he was legally inhibited to try the case - and he
was not.
There is truth in the appellants contention that it is the duty of the clerk of court not of the Court to
prepare the trial calendar. But the assignment or reassignment of cases already pending in one sala to
another sala, and the setting of the date of trial after the trial calendar has been prepared, fall within the
exclusive control of the presiding judge.
The appellant does not deny the appellees claim that on May 2 and 3, 1956, the office of the clerk of
court of the Court of First Instance of Davao was located directly below Branch I. If the appellant and his
counsel had exercised due diligence, there was no impediment to their going upstairs to the second
storey of the Court of First Instance building in Davao on May 2, 1956 and checking if the case was
scheduled for hearing in the said sala. The appellant after all admits that on May 2, 1956 his counsel
went to the office of the clerk of court.
The appellants statement that parties as a matter of right are entitled to notice of trial, is correct. But he
was properly accorded this right. He was notified in open court on March 21, 1956 that the case was
definitely and intransferably set for hearing on May 2 and 3, 1956 before Branch I. He cannot argue
that, pursuant to the doctrine in Siochi v. Tirona, 6 his counsel was entitled to a timely notice of the
denial of his motion for postponement. In the cited case the motion for postponement was the first one
filed by the defendant; in the case at bar, there had already been a series of postponements. Unlike the
case at bar, the Siochi case was not intransferably set for hearing. Finally, whereas the cited case did
not spend for a long time, the case at bar was only finally and intransferably set for hearing on March
21, 1956 after almost five years had elapsed from the filing of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare for
trial is unacceptable because between March 21, 1956 and May 2, 1956, they had one month and ten
days to do so. In effect, the appellant had waived his right to appear at the trial and therefore he cannot
be heard to complain that he has been deprived of his property without due process of law. 7 Verily, the
constitutional requirements of due process have been fulfilled in this case: the lower court is a
competent court; it lawfully acquired jurisdiction over the person of the defendant (appellant) and the
subject matter of the action; the defendant (appellant) was given an opportunity to be heard; and
judgment was rendered upon lawful hearing. 8

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

2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex parte
of a writ of preliminary injunction against him, and in not dismissing the appellees complaint. We find
this contention meritorious.

It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to
appear before Judge Fernandez on the scheduled dates of hearing. Parties and their lawyers have no
right to presume that their motions for postponement will be granted. 5 For indeed, the appellant and his

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

58

Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to
know the law. It must be assumed, conformably to such rule, that the parties entered into the so-called
"contract of service" cognizant of the mandatory and prohibitory laws governing the filing of applications
for fishpond permits. And since they were aware of the said laws, it must likewise be assumed in
fairness to the parties that they did not intend to violate them. This view must perforce negate the
appellees allegation that exhibit A created a contract of co-ownership between the parties over the
disputed fishpond. Were we to admit the establishment of a co-ownership violative of the prohibitory
laws which will hereafter be discussed, we shall be compelled to declare altogether the nullity of the
contract. This would certainly not serve the cause of equity and justice, considering that rights and
obligations have already arisen between the parties. We shall therefore construe the contract as one of
partnership, divided into two parts - namely, a contract of partnership, to exploit the fishpond pending its
award to either Felipe Deluao or Nicanor Casteel, and a contract of partnership to divide the fishpond
between them after such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called
"contract of service" on November 25, 1949, there were two pending applications over the fishpond.
One was Casteels which was appealed by him to the Secretary of Agriculture and Natural Resources
after it was disallowed by the Director of Fisheries on October 25, 1949. The other was Felipe Deluaos
application over the same area which was likewise rejected by the Director of Fisheries on November
29, 1949, refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the
Secretary of Agriculture and Natural Resources. Clearly, although the fishpond was then in the
possession of Casteel, neither he nor Felipe Deluao was the holder of a fishpond permit over the area.
But be that as it may, they were not however precluded from exploiting the fishpond pending resolution
of Casteels appeal or the approval of Deluaos application over the same area whichever event
happened first. No law, rule or regulation prohibited them from doing so. Thus, rather than let the
fishpond remain idle, they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the parties was not to form a
co-ownership but to establish a partnership Inocencia Deluao as capitalist partner and Casteel as
industrial partner the ultimate undertaking of which was to divide into two equal parts such portion of
the fishpond as might have been developed by the amount extended by the plaintiffs-appellees, with the
further provision that Casteel should reimburse the expenses incurred by the appellees over one-half of
the fishpond that would pertain to him. This can be gleaned, among others, from the letter of Casteel to
Felipe Deluao on November 15, 1949, which states, inter alia:jgc:chanrobles.com.ph
". . . [W]ith respect to your allowing me to use your money, same will redound to your benefit because
you are the ones interested in half of the work we have done so far, besides I did not insist on our being
partners in my fishpond permit, but it was you `Tatay Eping the one who wanted that we be partners
and it so happened that we became partners because I am poor, but in the midst of my poverty it never
occurred to me to be unfair to you. Therefore so that each of us may be secured, let us have a
document prepared to the effect that we are partners in the fishpond that we caused to be made here in
Balasinon, but it does not mean that you will treat me as one of your `Bantay (caretaker) on wage basis
but not earning wages at all, while the truth is that we are partners. In the event that you are not

amenable to my proposition and consider me as `Bantay (caretaker) instead, do not blame me if I

withdraw all my cases and be left without even a little and you likewise." (Italics supplied) 9
Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their
partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which, although
denominated a "contract of service," was actually the memorandum of their partnership agreement.
That it was not a contract of the services of the appellant, was admitted by the appellees themselves in
their letter 10 to Casteel dated December 19, 1949 wherein they stated that they did not employ him in
his (Casteels) claim but because he used their money in developing and improving the fishpond, his
right must be divided between them. Of course, although exhibit A did not specify any wage or share
appertaining to the appellant as industrial partner, he was so entitled - this being one of the conditions
he specified for the execution of the document of partnership. 11
Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In a
letter 12 dated March 24, 1950, the appellant suggested that they divide the fishpond and the remaining
capital, and offered to pay the Deluaos a yearly installment of P3,000 presumably as reimbursement
for the expenses of the appellees for the development and improvement of the one-half that would
pertain to the appellant. Two days later, the appellee Felipe Deluao replied, 13 expressing his
concurrence in the appellants suggestion and advising the latter to ask for a reconsideration of the
order of the Director of Fisheries disapproving his (appellants) application, so that if a favorable
decision was secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to
maintain his petition for the reinvestigation of Casteels application. Thus by letter 14 dated March 15,
1950 addressed to the Secretary of Agriculture and Natural Resources, he withdrew his petition on the
alleged ground that he was no longer interested in the area, but stated however that he wanted his
interest to be protected and his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions both dated
September 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in DANR
Cases 353 and 353-B. This development, by itself, brought about the dissolution of the partnership.
Moreover, subsequent events likewise reveal the intent of both parties to terminate the partnership
because each refused to share the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership,." . .
any event which makes it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership." The approval of the appellants fishpond application by the
decisions in DANR Cases 353 and 353-B brought to the fore several provisions of law which made the
continuation of the partnership unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the
Secretary of Agriculture and Natural Resources. 15 To the same effect is Condition No. 3 of the
fishpond permit which states that "The permittee shall not transfer or sublet all or any area herein

59

granted or any rights acquired therein without the previous consent and approval of this Office."
Parenthetically, we must observe that in DANR Case 353-B, the permit granted to one of the parties
therein, Leoncio Aradillos, was cancelled not solely for the reason that his permit covered a portion of
the area included in the appellants prior fishpond application, but also because, upon investigation, it
was ascertained thru the admission of Aradillos himself that due to lack of capital, he allowed one Lino
Estepa to develop with the latters capital the area covered by his fishpond permit F-289-C with the
understanding that he (Aradillos) would be given a share in the produce thereof. 16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that.
"The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of
Agriculture and Commerce, and the violation of this condition shall avoid the contract; Provided, That
assignment, encumbrance, or subletting for purposes of speculation shall not be permitted in any case:
Provided further, That nothing contained in this section shall be understood or construed to permit the
assignment, encumbrance, or subletting of lands leased under this Act, or under any previous Act, to
persons, corporations, or associations which under this Act, are not authorized to lease public
lands."cralaw virtua1aw library
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources
issued in August 1937, prohibits a transfer or sublease unless first approved by the Director of Lands
and under such terms and conditions as he may prescribe. Thus, it states:jgc:chanrobles.com.ph
"When a transfer or sub-lease of area and improvement may be allowed. If the permittee or lessee
had, unless otherwise specifically provided, held the permit or lease and actually operated and made
improvements on the area for at least one year, he/she may request permission to sub-lease or transfer
the area and improvements under certain conditions.
"(a) Transfer subject to approval. A sub-lease or transfer shall only be valid when first approved by
the Director under such terms and conditions as may be prescribed, otherwise it shall be null and void.
A transfer not previously approved or reported shall be considered sufficient cause for the cancellation
of the permit or lease and forfeiture of the bond and for granting the area to a qualified applicant or
bidder, as provided in subsection (r) of Sec. 33 of this Order."cralaw virtua1aw library
Since the partnership had for its object the division into two equal parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by
the approval of his application and the award to him of the fishpond. The approval was an event which
made it unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership. The appellees, however, argue that in approving the appellants application, the Secretary
of Agriculture and Natural Resources likewise recognized and/or confirmed their property right to onehalf of the fishpond by virtue of the contract of service, exhibit A. But the untenability of this argument
would readily surface if one were to consider that the Secretary of Agriculture and Natural Resources
did not do so for the simple reason that he does not possess the authority to violate the aforementioned
prohibitory laws nor to exempt anyone from their operation.

However, assuming in gratis argumenti that the approval of Casteels application, coupled with the
foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership,
succeeding events reveal the intent of both parties to terminate the partnership by refusing to share the
fishpond with the other.
On December 27, 1950 Casteel wrote 17 the appellee Inocencia Deluao, expressing his desire to divide
the fishpond so that he could administer his own share, such division to be subject to the approval of
the Secretary of Agriculture and Natural Resources. By letter dated December 29, 1950, 18 the
appellee Felipe Deluao demurred to Casteels proposition because there were allegedly no appropriate
grounds to support the same and, moreover, the conflict over the fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter 19 to the appellee Felipe Deluao wherein the
former expressed his determination to administer the fishpond himself because the decision of the
Government was in his favor and the only reason why administration had been granted to the Deluaos
was because he was indebted to them. In the same letter, the appellant forbade Felipe Deluao from
sending the couples encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote a
letter 20 dated January 5, 1951 in which he reiterated his refusal to grant the administration of the
fishpond to the appellant, stating as a ground his belief "that only the competent agencies of the
government are in a better position to render any equitable arrangement relative to the present case;
hence, any action we may privately take may not meet the procedure of legal order."cralaw virtua1aw
library
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to
share the fishpond with each other - in direct violation of the undertaking for which they have
established their partnership - each must be deemed to have expressly withdrawn from the partnership,
thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that
dissolution is caused "by the express will of any partner at any time."cralaw virtua1aw library
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and
administrative powers with regard to the survey, classification, lease, sale or any other form of
concession or disposition and management of the lands of the public domain, and, more specifically,
with regard to the grant or withholding of licenses, permits, leases and contracts over portions of the
public domain to be utilized as fishponds. 21 Thus, we held in Pajo, Et. Al. v. Ago, Et. Al. (L-15414, June
30, 1960), and reiterated in Ganitanao v. Secretary of Agriculture and Natural Resources, Et. Al. (L21167, March 31, 1966), that
". . . [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources) by law
regarding the disposition of public lands such as granting of licenses, permits, leases, and contracts, or
approving, rejecting, reinstating, or cancelling applications, or deciding conflicting applications, are all
executive and administrative in nature. It is a well-recognized principle that purely administrative and
discretionary functions may not be interfered with by the courts (Caloso v. Board of Accountancy, G.R.
No. L-5750, April 20, 1953). In general, courts have no supervising power over the proceeding and
actions of the administrative departments of the government. This is generally true with respect to acts

60

involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559) Findings of
fact by an administrative board or official, following a hearing, are binding upon the courts and will not
be disturbed except where the board or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of
discretion .." (Italics supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the
appellants fishpond application 1717 and awarded to him the possession of the area in question. In
view of the finality of the Secretarys decision in DANR Cases 353 and 353-B, and considering the
absence of any proof that the said official exceeded his statutory authority, exercised unconstitutional
powers, or acted with arbitrariness and in disregard of his duty, or with grave abuse of discretion, we
can do no less than respect and maintain unfettered of his official acts in the premises. It is a salutary
rule that the judicial department should not dictate to the executive department what to do with regard to
the administration and disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the land department and
compel the latter to do an act which involves the exercise of judgment and discretion. 22

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

Article 1773
EN BANC
[G.R. No. L-24193. June 28, 1968.]
MAURICIO AGAD, Plaintiff-Appellant, v. SEVERINO MABATO & MABATO & AGAD
COMPANY,Defendants-Appellees.
SYLLABUS

Therefore, with the view that we take of this case, and even assuming that the injunction was properly
issued because present all the requisite grounds for its issuance, its continuation, and, worse, its
declaration as permanent, was improper in the face of the knowledge later acquired by the lower court
that it was the appellants application over the fishpond which was given due course. After the Secretary
of Agriculture and Natural Resources approved the appellants application, he became to all intents and
purposes the legal permittee of the area with the corresponding right to possess, occupy and enjoy the
same. Consequently, the lower court erred in issuing the preliminary mandatory injunction. We cannot
overemphasize that an injunction should not be granted to take property out of the possession and
control of one party and place it in the hands of another whose title has not been clearly established by
law. 23
However, pursuant to our holding that there was a partnership between the parties for the exploitation of
the fishpond before it was awarded to Casteel, this case should be remanded to the lower court for the
reception of evidence relative to an accounting from November 25, 1949 to September 15, 1950, in
order for the court to determine (a) the profits realized by the partnership, (b) the share (in the profits) of
Casteel as industrial partner, (c) the share (in the profits) of Deluao as capitalist partner, and (d) whether
the amounts totalling about P27,000 advanced by Deluao to Casteel for the development and
improvement of the fishpond have already been liquidated. Besides, since the appellee Inocencia
Deluao continued in possession and enjoyment of the fishpond even after it was awarded to Casteel,
she did so no longer in the concept of a capitalist partner but merely as creditor of the appellant, and
therefore, she must likewise submit in the lower court an accounting of the proceeds of the sales of all
the fishes harvested from the fishpond from September 16, 1950 until Casteel shall have been finally
given the possession and enjoyment of the same. In the event that the appellee Deluao has received
more than her lawful credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6%
interest thereon per annum, then she should reimburse the excess to the Appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1)

1. CIVIL LAW; PARTNERSHIP; PURPOSE TO "OPERATE A FISHPOND" ; APPLICABILITY OF ART.

1773 N.C.C. Where a partnership was formed "to operate a fishpond", not to "engage in a fishpond
business", and the partners contributed P1,000.00 each as their share, Art. 1773 of the Civil Code does
not apply, it appearing that neither a fishpond nor a real right thereto was contributed to the partnership
or become a part of the capital thereof, even if a fishpond or a real right thereto could become part of its
assets.
DECISION
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance
of Davao, we are called upon to determine the applicability of Article 1773 of our Civil Code to the
contract of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated August
29, 1952, copy of which is attached to the complaint as Annex "A" partners in a fishpond business, to
the capital of which Agad contributed P1,000, with the right to receive 50% of the profits; that from 1952
up to and including 1956, Mabato who handled the partnership funds, had yearly rendered accounts of
the operations of the partnership; and that, despite repeated demands, Mabato had failed and refused
to render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and
Mabato & Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay
him (Agad) the sum of P14,000, as his share in the profits of the partnership for the period from 1957 to
1963, in addition to P1,000 as attorneys fees, and ordering the dissolution of the partnership, as well as
the winding up of its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said
partnership, upon the ground that the contract therefor had not been perfected, despite the execution of

61

Annex "A", because Agad had allegedly failed to give his P1,000 contribution to the partnership capital.
Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be declared void ab initio;
and that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorneys fees.

proceedings, with the costs of this instance against defendant- appellee, Severino Mabato. It is so
ordered.
THIRD DIVISION

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

[G.R. No. 101847. May 27, 1993.]

LOURDES NAVARRO AND MENARDO NAVARRO, Petitioners, v. 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.
SYLLABUS

Articles 1771 and 1773 of said Code provide:jgc:chanrobles.com.ph

"Art. 1771. A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary.
"Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties, and attached to the Public
instrument."cralaw virtua1aw library
The issue before us hinges on whether or not "immovable property or real rights" have been contributed
to the partnership under consideration. Mabato alleged and the lower court held that the answer should
be in the affirmative, because "it is really inconceivable how a partnership engaged in the fishpond
business could exist without said fishpond property (being) contributed to the partnership." It should be
noted, however, that, as stated in Annex "A" the partnership was established "to operate a fishpond",
not to "engage in a fishpond business." Moreover, none of the partners contributed either a fishpond or
a real right to any fishpond. Their contributions were limited to the sum of P1,000 each. Indeed,
Paragraph 4 of the Annex "A" provides:jgc:chanrobles.com.ph
"That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of
which One Thousand (P1,000.00) pesos has been contributed by Severino Mabato and One Thousand
(P1,000.00) Pesos has been contributed by Mauricio Agad.
x

x"

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said
fishpond nor a real right thereto was contributed to the partnership or became part of the capital thereof,
even if a fishpond or a real right thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order
appealed from should be, as it is hereby set aside and the case remanded to the lower court for further

REMEDIAL LAW; SUPREME COURT; JURISDICTION; LIMITED PURELY QUESTIONS OF LAW AND
NOT TO FACTUAL ISSUES PASSED UPON BY THE TRIAL COURT. Petitioners have come to us in
a petition for review. However, the petition is focused solely on factual issues which can no longer be
entertained. Petitioners arguments are all directed against the decision of the regional trial court; not a
word is said in regard to the appellate courts disposition of their petition for annulment of judgment.
Verily, petitioners keep on pressing the idea that a partnership exists on account of the so-called
admissions in judicio. The appellate court acted properly in dismissing the petition for annulment of
judgment, the issue raised therein having been directly litigated in, and passed upon by, the trial court.

DECISION
Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses
Lourdes and Menardo Navarro, thusly:chanrob1es virtual 1aw library
The instant petition for annulment of decision is DISMISSED.
1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas v. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the
petition.
2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void
(Chereau v. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners remedy against the judgment enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)

62

The antecedent facts of the case are as follows:chanrob1es virtual 1aw library
On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner
Lourdes Navarro for "Delivery of Personal Properties With Damages." The complaint incorporated an
application for a writ of replevin. The complaint was later docketed as Civil Case No. 716 (12562) of the
then Court of First Instance of Bacolod (Branch 55) and was subsequently amended to include private
respondents husband, Ricardo B. Yanson, as co-plaintiff, and petitioners husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved private respondents application for a writ of
replevin. The Sheriffs Return of Service dated March 3, 1978 affirmed receipt by private respondents of
all the pieces of personal property sought to be recovered from petitioners.

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.chanrobles virtual lawlibrary

On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as
follows:chanrob1es virtual 1aw library
Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of
the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the
owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which
had remain in the possession of the defendant is likewise declared to belong to her, however, said
defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount
advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during the operation of their
business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.)

Having lost their right of appeal, petitioners resorted to annulment proceedings to justify a belated
judicial review of their case. This was, however, correctly thrown out by the Court of Appeals because
petitioners failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial courts
decision. We respect the appellate courts finding in this regard.

Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its rendition) and
filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for Reconsideration." This
was granted on January 18, 1991. Private respondents filed their opposition, citing the ruling in the case
of Habaluyas Enterprises, Inc. v. Japson (142 SCRA 208 [1986] proscribing the filing of any motion for
extension of time to file a motion for new trial or reconsideration. The trial judge vacated 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).

To be resolved by this Court factually involved the issue of whether there was a partnership that existed
between the parties based on their verbal contention; whether the properties that were commonly used
in the operation of Allied Air Freight belonged to this alleged partnership business; and the status of the
parties in this transaction of alleged partnership. On the other hand, the legal issue revolves on the
dissolution and winding up in case a partnership so existed as well as the issue of ownership over the
properties subject matter of recovery.

On February 4, 1991, the trial judge issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriffs
Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and satisfied." A
receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was
likewise submitted by the Sheriff (Annex "7", p. 83, Rollo).

Petitioners have come to us in a petition for review. However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners arguments are all directed against the decision
of the regional trial court; not a word is said in regard to the appellate courts disposition of their petition
for annulment of judgment. Verily, petitioners keep on pressing the idea that a partnership exists on
account of the so-called admissions in judicio. But the factual premises of the trial court were more than
enough to suppress and negate petitioners submissions along this line:chanrob1es virtual 1aw library

As a premise, Article 1767 of the New Civil Code defines the contract of partnership to
quote:jgc:chanrobles.com.ph
"ART. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the proceeds among themselves.
x

On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial courts
decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to
the evidence on record.

x"

Corollary to this definition is the provision in determining whether a partnership exist as so provided
under Article 1769, to wit:chanrob1es virtual 1aw library
x
x
x

63

Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be
constituted in any form, a public instrument is necessary where immovables or any rights is constituted.
Likewise, if the partnership involves a capitalization of P3,000.00 or more in money or property, the
same must appear in a public instrument which must be recorded in the Office of the Securities and
Exchange Commission. Failure to comply with these requirements shall not affect liability of the
partners to third persons.chanrobles lawlibrary : rednad
In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made
admission to have entered into an agreement of operating this Allied Air Freight Agency of which the
plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the
necessary equipments and money while her brother Atty. Rodolfo Villaflores was the Manger and the
defendant the Cashier. It was also admitted that part of this agreement was an equal sharing of
whatever proceeds realized. Consequently, the plaintiff brought into this transaction certain chattels in
compliance with her obligation. The same has been done by the herein brother and the herein
defendant who started to work in the business. A cursory examination of the evidences presented no
proof that a partnership, whether oral or written had been constituted at the inception of this transaction.
True it is that even up to the filing of this complaint whose movables brought by plaintiff for the use in
the operation of the business remain registered in her name.
While there may have been co-ownership or co-possession of some items and/or any sharing of
proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and
supportive of the existence of any partnership between them. Article 1769 of the New Civil Code is
explicit. Even the books and records retrieved by the Commissioner appointed by the Court did not
show proof of the existence of a partnership as conceptualized by law. Such that if assuming that there
were profits realized in 1975 after the two-year deficits were compensated, this could only be subject to
an equal sharing consonant to the agreement to equally divide any profit realized. However, this Court
cannot overlook the fact that the Audit Report of the appointed Commissioner was not highly reliable in
the sense that it was more of his personal estimate of what is available on hand. Besides, the alleged
profits was a difference found after valuating the assets and not arising from the real operation of the
business. In accounting procedures, strictly, this could not be profit but a net worth.
In view of the above factual findings of the Court it follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff
herself had summarily ceased from her contract of agency and it is a personal prerogative to desist. On
the other hand, the assumption by the defendant in negotiating for herself the continuance of the
Agency with the principal in Manila is comparable to plaintiffs. Any account of plaintiff with the principal
as alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00
assumption specifically, as would have been testified to by the defendants husband remain a mere
allegation.cralawnad
As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all
equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle
which appeared registered in the name of the defendant, and to which even she admitted that part of
the purchase price came from the business claimed mutually operated, although the Court have not as

much considered all entries in the Audit report as totally reliable to be sustained insofar as the operation
of the business is concerned, nevertheless, with this admission of the defendant and the fact that as
borne out in said Report there has been disbursed and paid for this vehicle out of the business funds in
the total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be
sustained as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the
earlier agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this
cost if only to allow the defendant continuous possession of the vehicle in question. It is a fundamental,
moral . . . another. (pp. 71-75, Rollo.)
Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue
raised therein having been directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991
is AFFIRMED in all respects.
No special pronouncement is made as to costs.
FIRST DIVISION
[G.R. No. 142612. July 29, 2005]
OSCAR ANGELES and EMERITA ANGELES, petitioners, vs. THE HON. SECRETARY OF JUSTICE
and FELINO MERCADO, respondents.
DECISION
The Case
This is a petition for certiorari[1] to annul the letter-resolution[2] dated 1 February 2000 of the
Secretary of Justice in Resolution No. 155.[3] The Secretary of Justice affirmed the resolution [4] in I.S.
No. 96-939 dated 28 February 1997 rendered by the Provincial Prosecution Office of the Department of
Justice in Santa Cruz, Laguna (Provincial Prosecution Office). The Provincial Prosecution Office
resolved to dismiss the complaint for estafa filed by petitioners Oscar and Emerita Angeles (Angeles
spouses) against respondent Felino Mercado (Mercado).
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under Article 315
of the Revised Penal Code against Mercado before the Provincial Prosecution Office. Mercado is the
brother-in-law of the Angeles spouses, being married to Emerita Angeles sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992, Mercado convinced them
to enter into a contract of antichresis, [5] colloquially known assanglaang-perde, covering eight parcels of
land (subject land) planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and owned by
Juana Suazo. The contract of antichresis was to last for five years with P210,000 as consideration. As
the Angeles spouses stay in Manila during weekdays and go to Laguna only on weekends, the parties
agreed that Mercado would administer the lands and complete the necessary paperwork.[6]
After three years, the Angeles spouses asked for an accounting from Mercado. Mercado explained
that the subject land earned P46,210 in 1993, which he used to buy more lanzones trees. Mercado also
reported that the trees bore no fruit in 1994. Mercado gave no accounting for 1995. The Angeles
spouses claim that only after this demand for an accounting did they discover that Mercado had put the

64

contract of sanglaang-perde over the subject land under Mercado and his spouses names. [7] The
relevant portions of the contract of sanglaang-perde, signed by Juana Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO (P210,000), salaping
gastahin, na aking tinanggap sa mag[-]asawa nila G. AT GNG. FELINO MERCADO, mga nasa hustong
gulang, Filipino, tumitira at may pahatirang sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng
Laguna, ay aking ipinagbili, iniliwat at isinalin sa naulit na halaga, sa nabanggit na mag[-] asawa nila G.
AT GNG. FELINO MERCADO[,] sa kanila ay magmamana, kahalili at ibang dapat pagliwatan ng
kanilang karapatan, ang lahat na ibubunga ng lahat na puno ng lanzones, hindi kasama ang ibang
halaman na napapalooban nito, ng nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal, sa
takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993, at magtatapos sa taong 1997, kayat
pagkatapos ng lansonesan sa taong 1997, ang pamomosision at pakikinabang sa lahat na puno ng
lanzones sa nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin,
sa akin ay magmamana, kahalili at ibang dapat pagliwatan ng aking karapatan na ako ay walang
ibabalik na ano pa mang halaga, sa mag[-] asawa nila G. AT GNG. FELINO MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na ako ay bibigyan
nila ng LIMA (5) na [sic] kaing na lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng aming
kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na silang
mag[-]asawa nila G. AT GNG. FELINO MERCADO ang magpapaalis ng dapo sa puno ng lansones
taon-taon [sic] sa loob ng LIMA (5) [sic] taonng [sic] aming kasunduang ito.[8]
In his counter-affidavit, Mercado denied the Angeles spouses allegations. Mercado claimed that
there exists an industrial partnership, colloquially known as sosyo industrial, between him and his
spouse as industrial partners and the Angeles spouses as the financiers. This industrial partnership had
existed since 1991, before the contract of antichresis over the subject land. As the years passed,
Mercado used his and his spouses earnings as part of the capital in the business transactions which he
entered into in behalf of the Angeles spouses. It was their practice to enter into business transactions
with other people under the name of Mercado because the Angeles spouses did not want to be
identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and contracts
under his name for the Angeles spouses. Mercado also attached the minutes of the barangay
conciliation proceedings held on 7 September 1996. During the barangay conciliation proceedings,
Oscar Angeles stated that there was a writtensosyo industrial agreement: capital would come from the
Angeles spouses while the profit would be divided evenly between Mercado and the Angeles spouses.[9]
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending the filing
of criminal information for estafa against Mercado. This resolution, however, was issued without
Mercados counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3 January
1997 resolution, Mercado moved for its reconsideration. Hence, on 26 February 1997, the Provincial
Prosecution Office issued an amended resolution dismissing the Angeles spouses complaint for estafa
against Mercado.
The Provincial Prosecution Office stated thus:

The subject of the complaint hinges on a partnership gone sour. The partnership was initially unsaddled
[with] problems. Management became the source of misunderstanding including the accounting of
profits, which led to further misunderstanding until it was revealed that the contract with the orchard
owner was only with the name of the respondent, without the names of the complainants.
The accusation of estafa here lacks enough credible evidentiary support to sustain a prima facie finding.
Premises considered, it is respectfully recommended that the complaint for estafa be dismissed.
RESPECTFULLY SUBMITTED.[10]
The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution Office
denied in a resolution dated 4 August 1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the document
evidencing the contract of sanglaang-perde with Juana Suazo was executed in the name of the
Mercado spouses, instead of the Angeles spouses. The Angeles spouses allege that this document
alone proves Mercados misappropriation of their P210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of [Mercado] for the crime
of estafa cannot be sustained. [The Angeles spouses] failed to show sufficient proof that [Mercado]
deliberately deceived them in the sanglaang perde transaction. The document alone, which was in the
name of [Mercado and his spouse], failed to convince us that there was deceit or false representation
on the part of [Mercado] that induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be revealed as the financiers. Indeed,
it is difficult to believe that the [Angeles spouses] would readily part with their money without holding on
to some document to evidence the receipt of money, or at least to inspect the document involved in the
said transaction. Under the circumstances, we are inclined to believe that [the Angeles spouses] knew
from the very start that the questioned document was not really in their names.
In addition, we are convinced that a partnership truly existed between the [Angeles spouses] and
[Mercado]. The formation of a partnership was clear from the fact that they contributed money to a
common fund and divided the profits among themselves. Records would show that [Mercado] was able
to make deposits for the account of the [Angeles spouses]. These deposits represented their share in
the profits of their business venture. Although the [Angeles spouses] deny the existence of a
partnership, they, however, never disputed that the deposits made by [Mercado] were indeed for their
account.
The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado] during the
hearing of their barangay conciliation case reveals that the [Angeles spouses] acknowledged their joint
business ventures with [Mercado] although they assailed the manner by which [Mercado] conducted the
business and handled and distributed the funds. The veracity of this transcript was not raised in issued
[sic] by [the Angeles spouses]. Although the legal formalities for the formation of a partnership were not
adhered to, the partnership relationship of the [Angeles spouses] and [Mercado] is evident in this case.
Consequently, there is no estafa where money is delivered by a partner to his co-partner on the latters
representation that the amount shall be applied to the business of their partnership. In case of
misapplication or conversion of the money received, the co-partners liability is civil in nature (People v.
Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.[11]
Hence, this petition.

65

Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of discretion amounting to lack
of jurisdiction in dismissing the appeal of the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and Mercado even without
any documentary proof to sustain its existence;
3. Assuming that there was a partnership, whether there was misappropriation by Mercado of
the proceeds of the lanzones after the Angeles spouses demanded an accounting from
him of the income at the office of the barangay authorities on 7 September 1996, and
Mercado failed to do so and also failed to deliver the proceeds to the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the information for estafa
against Mercado.[12]
The Ruling of the Court
The petition has no merit.
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion when the same is performed
in a capricious or whimsical exercise of judgment amounting to lack of jurisdiction. The abuse of
discretion must be so patent and gross as to amount to an evasion of positive duty, or to a virtual refusal
to perform a duty enjoined by law, as where the power is exercised in an arbitrary and despotic manner
because of passion or personal hostility.[13]
The Angeles spouses fail to convince us that the Secretary of Justice committed grave abuse of
discretion when he dismissed their appeal. Moreover, the Angeles spouses committed an error in
procedure when they failed to file a motion for reconsideration of the Secretary of Justices resolution. A
previous motion for reconsideration before the filing of a petition for certiorari is necessary unless: (1)
the issue raised is one purely of law; (2) public interest is involved; (3) there is urgency; (4) a question of
jurisdiction is squarely raised before and decided by the lower court; and (5) the order is a patent nullity.
[14]
The Angeles spouses failed to show that their case falls under any of the exceptions. In fact, this
present petition for certiorari is dismissible for this reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with Mercado. The Angeles spouses rely
on Articles 1771 to 1773 of the Civil Code, which state that:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
The Angeles spouses position that there is no partnership because of the lack of a public
instrument indicating the same and a lack of registration with the Securities and Exchange Commission

(SEC) holds no water. First, the Angeles spouses contributed money to the partnership and not
immovable property. Second, mere failure to register the contract of partnership with the SEC does not
invalidate a contract that has the essential requisites of a partnership. The purpose of registration of the
contract of partnership is to give notice to third parties. Failure to register the contract of partnership
does not affect the liability of the partnership and of the partners to third persons. Neither does such
failure to register affect the partnerships juridical personality. A partnership may exist even if the
partners do not use the words partner or partnership.
Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a contract
showing a sosyo industrial or industrial partnership, contribution of money and industry to a common
fund, and division of profits between the Angeles spouses and Mercado.
Whether there was
Misappropriation by Mercado
The Secretary of Justice adequately explained the alleged misappropriation by Mercado: The
document alone, which was in the name of [Mercado and his spouse], failed to convince us that there
was deceit or false representation on the part of [Mercado] that induced the [Angeles spouses] to part
with their money. [Mercado] satisfactorily explained that the [Angeles spouses] do not want to be
revealed as the financiers.[15]
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil case for
damages, injunction and restraining order filed by the Angeles spouses against Mercado and Leo
Cerayban, stated:
xxx [I]t was the practice to have all the contracts of antichresis of their partnership secured in
[Mercados] name as [the Angeles spouses] are apprehensive that, if they come out into the open as
financiers of said contracts, they might be kidnapped by the New Peoples Army or their business deals
be questioned by the Bureau of Internal Revenue or worse, their assets and unexplained income be
sequestered, as xxx Oscar Angeles was then working with the government.[16]
Furthermore, accounting of the proceeds is not a proper subject for the present case.
For these reasons, we hold that the Secretary of Justice did not abuse his discretion in dismissing
the appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition
for certiorari is DISMISSED.
SO ORDERED.
[5]

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

AURELIO K. LITONJUA, JR.,

G.R. NOS. 166299-300

Petitioner,

- versus
Present:
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS.
MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE

66

K. LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA

SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E.
K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY,
(formerly E & L INTL SHIPPING CORP.), FNP CO., INC., HOME
ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC.,
GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., L
DEV. CORP, LCM THEATRICAL ENTERPRISES, INC., LITONJUA
SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP.,
SARATOGA REALTY, INC., ACT THEATER INC. (formerly General
Theatrical & Film Exchange, INC.), AVENUE REALTY, INC.,
AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly
VF PHILIPPINES),
Respondents.
x-------------------------------------------------x

PANGANIBAN, J., Chairman

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

Promulgated:

December 13, 2005

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

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are
brothers. The legal dispute between them started when, on December 4, 2002, in the Regional Trial
Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent Robert
T. Yang (Yang) and several corporations for specific performance and accounting. In his complaint,
[3]
docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court, [4] Aurelio alleged
that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon
Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises,
Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands
and buildings, among other corporations. Yang is described in the complaint as petitioners and
Eduardos partner in their Odeon Theater investment.[5] The same complaint also contained the following
material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint
venture/partnership for the continuation of their family business and common family
funds .
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an integral part
as Annex A and the portion referring to [Aurelio] submarked as Annex A-1.

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

67

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

xxx xxx xxx

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

In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et
al., for reconsideration[12] and Yangs motion to dismiss. The following then transpired insofar as Yang is
concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek
reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss [13] to
its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003,
but his motion was denied in an Order of July 4, 2003.[14]
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,[15] to nullify
the separate orders of the trial court, the first denying his motion to dismiss the basic complaint
and, the second, denying his motion for reconsideration.

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

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as
evidenced by the actionable documents, Annex A and A-1 attached to the complaint, and upon which
petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate
defendants a quo is void or legally inexistent.

68

In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally
assailed Resolution of December 7, 2004.[18] .

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

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

B. When it ruled that the actionable document did not create a demandable right in
favor of petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent]
Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all that
Petitioner had done was to support his pleaded cause of action by another legal
perspective/argument.
The petition lacks merit.
Petitioners demand, as defined in the petitory portion of his complaint in the trial court, is for
delivery or payment to him, as Eduardos and Yangs partner, of his partnership/joint venture share,
after an accounting has been duly conducted of what he deems to be partnership/joint venture
property.[19]
A partnership exists when two or more persons agree to place their money, effects, labor, and
skill in lawful commerce or business, with the understanding that there shall be a proportionate
sharing of the profits and losses between them. [20] A contract of partnership is defined by the Civil
Code as one where two or more persons bound themselves to contribute money, property, or industry
to a common fund with the intention of dividing the profits among themselves. [21] A joint venture, on
the other hand, is hardly distinguishable from, and may be likened to, a partnership since their
elements are similar, i.e., community of interests in the business and sharing of profits and losses.
Being a form of partnership, a joint venture is generally governed by the law on partnership.[22]
The underlying issue that necessarily comes to mind in this proceedings is whether or not
petitioner and respondent Eduardo are partners in the theatre, shipping and realty business, as one
claims but which the other denies. And the issue bearing on the first assigned error relates to the
question of what legal provision is applicable under the premises, petitioner seeking, as it were, to

enforce the actionable document - Annex A-1 - which he depicts in his complaint to be the contract of
partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions
determinative of the existence, or defining the formal requisites, of a partnership is indicated. Foremost
of these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall
be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which must be
recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the
liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the parties,
and attached to the public instrument.
Annex A-1, on its face, contains typewritten entries, personal in tone, but is unsigned and
undated. As an unsigned document, there can be no quibbling that Annex A-1 does not meet the
public instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being
unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or
property, Annex A-1 cannot be presented for notarization, let alone registered with the Securities
and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch
as the inventory requirement under the succeeding Article 1773 goes into the matter of validity
when immovable property is contributed to the partnership, the next logical point of inquiry turns on
the nature of petitioners contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioners contribution consisted
of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that
[petitioners] contribution to the so-called partnership/joint venture was his supposed
share in the family business that is consisting of movie theaters, shipping and land
development under paragraph 3.02 of the complaint. In other words, his contribution
as a partner in the alleged partnership/joint venture consisted of immovable
properties and real rights. .[23]
Significantly enough, petitioner matter-of-factly concurred with the appellate courts
observation that, prescinding from what he himself alleged in his basic complaint, his contribution to
the partnership consisted of his share in the Litonjua family businesses which owned variable
immovable properties. Petitioners assertion in his motion for reconsideration [24] of the CAs decision,

69

that what was to be contributed to the business [of the partnership] was [petitioners] industry and
his share in the family [theatre and land development] business leaves no room for speculation as
to what petitioner contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the
Civil Code applies as long real property or real rights are initially brought into the partnership. In short, it
is really of no moment which of the partners, or, in this case, who between petitioner and his brother
Eduardo, contributed immovables. In context, the more important consideration is that real property was
contributed, in which case an inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the
immovables in question were not contributed, but were acquired after the formation of the
supposed partnership. Needless to stress, the Court cannot accord cogency to this specious
argument. For, as earlier stated, petitioner himself admitted contributing his share in the supposed
shipping, movie theatres and realty development family businesses which already owned
immovables even before Annex A-1 was allegedly executed.
Considering thus the value and nature of petitioners alleged contribution to the purported
partnership, the Court, even if so disposed, cannot plausibly extend Annex A-1 the legal effects that
petitioner so desires and pleads to be given. Annex A-1, in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The legal and factual milieu of the case calls for
this disposition. A partnership may be constituted in any form, save when immovable property or
real rights are contributed thereto or when the partnership has a capital of at least P3,000.00, in
which case a public instrument shall be necessary.[25] And if only to stress what has repeatedly
been articulated, an inventory to be signed by the parties and attached to the public instrument is
also indispensable to the validity of the partnership whenever immovable property is contributed to
it.
Given the foregoing perspective, what the appellate court wrote in its assailed
Decision[26] about the probative value and legal effect of Annex A-1 commends itself for
concurrence:
Considering that the allegations in the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the Memorandum (Annex A of the complaint)
which purports to establish the said partnership/joint venture is NOT a public instrument and
there was NO inventory of the immovable property duly signed by the parties. As such, the
said Memorandum is null and void for purposes of establishing the existence of a valid contract
of partnership. Indeed, because of the failure to comply with the essential formalities of a valid
contract, the purported partnership/joint venture is legally inexistent and it produces no effect
whatsoever. Necessarily, a void or legally inexistent contract cannot be the source of any
contractual or legal right. Accordingly, the allegations in the complaint, including the actionable
document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or
legal right which could be violated by the [individual respondents] herein. As a consequence,

[petitioners] complaint does NOT state a valid cause of action because NOT all the essential
elements of a cause of action are present. (Underscoring and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CAs equally assailed
Resolution of December 7, 2004[27] denying petitioners motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint as well as
the actionable document attached thereto (Rollo, p. 191), the [trial] court did not
appreciate and apply the legal provisions which were brought to its attention by herein
[respondents] in the their pleadings. In our evaluation of [petitioners] complaint, the
latter alleged inter alia to have contributed immovable properties to the alleged
partnership but the actionable document is not a public document and there was no
inventory of immovable properties signed by the parties. Both the allegations in the
complaint and the actionable documents considered, it is crystal clear that [petitioner]
has no valid or legal right which could be violated by [respondents]. (Words in bracket
added.)
Under the second assigned error, it is petitioners posture that Annex A-1, assuming its inefficacy or
nullity as a partnership document, nevertheless created demandable rights in his favor. As
petitioner succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions, established
an actionable contract even though it may not be a partnership. This actionable
contract is what is known as an innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does
create rights and obligations of the parties and which rights and obligations may be
enforceable and demandable. Just because the relationship created by the
agreement cannot be specifically labeled or pigeonholed into a category of nominate
contract does not mean it is void or unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA
after he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however,
cannot really be faulted for not yielding to petitioners dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at bottom, the appellate courts certiorari jurisdiction
was circumscribed by what was alleged to have been the order/s issued by the trial court in grave
abuse of discretion. As respondent Yang pointedly observed,[28]since the parties basic position had been
well-defined, that of petitioner being that the actionable document established a partnership/joint
venture, it is on those positions that the appellate court exercised its certiorari jurisdiction. Petitioners
act of changing his original theory is an impermissible practice and constitutes, as the CA aptly
declared, an admission of the untenability of such theory in the first place.

70

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

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

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

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

xxx You will be the only one left with the company, among us brothers and I will ask you to stay
as I want you to run this office everytime I am away. I want you to run it the way I am
trying to run it because I will be alone and I will depend entirely to you, My sons will
not be ready to help me yet until about maybe 15/20 years from now. Whatever is left
in the corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring
added)
It is at once apparent that what respondent Eduardo imposed upon himself under the above
passage, if he indeed wrote Annex A-1, is a promise which is not to be performed
within one year from contract execution on June 22, 1973. Accordingly, the
agreement embodied in Annex A-1is covered by the Statute of Frauds
and ergo unenforceable for non-compliance therewith.[30] By force of the statute of
frauds, an agreement that by its terms is not to be performed within a year from the

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

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limited to [six] corporate respondents This simply means that the Odeon Theatre business
came before the corporate respondents. Significantly enough, petitioner refers to the corporate
respondents as progeny of the Odeon Theatre business.[34]
Needless to stress, petitioner has not sufficiently established in his complaint the
legal vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals, in its
assailed decision, captured and formulated the legal situation in the following wise:
[Respondent] Yang, is impleaded because, as alleged in the complaint, he is a
partner of [Eduardo] and the [petitioner] in the Odeon Theater Investment which
expanded through reinvestments of profits and direct investments in several
corporations, thus:
xxx xxx xxx
Clearly, [petitioners] claim against Yang arose from his alleged partnership with
petitioner and the respondent. However, there was NO allegation in the complaint
which directly alleged how the supposed contractual relation was created between
[petitioner] and Yang. More importantly, however, the foregoing ruling of this Court
that the purported partnership between [Eduardo] is void and legally inexistent directly
affects said claim against Yang. Since [petitioner] is trying to establish his claim
against Yang by linking him to the legally inexistent partnership . . . such attempt had
become futile because there was NOTHING that would contractually connect
[petitioner] and Yang. To establish a valid cause of action, the complaint should have
a statement of fact upon which to connect [respondent] Yang to the alleged
partnership between [petitioner] and respondent [Eduardo], including their alleged
investment in the Odeon Theater. A statement of facts on those matters is pivotal to
the complaint as they would constitute the ultimate facts necessary to establish the
elements of a cause of action against Yang. [35]
Pressing its point, the CA later stated in its resolution denying petitioners motion for
reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document attached to
the complaint that is controlling. Suffice it to state, We have not ignored the actionable
document As a matter of fact, We emphasized in our decision that insofar as [Yang] is
concerned, he is not even mentioned in the said actionable document. We are
therefore puzzled how a person not mentioned in a document purporting to establish
a partnership could be considered a partner.[36] (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his theory of the
case, as peremptorily determined by the CA, has been discussed at length earlier and need not
detain us long. Suffice it to say that after the CA has ruled that the alleged partnership is inexistent,
petitioner took a different tack. Thus, from a joint venture/partnership theory which he adopted and
consistently pursued in his complaint, petitioner embraced the innominate contract theory.

Illustrative of this shift is petitioners statement in par. #8 of his motion for reconsideration of the CAs
decision combined with what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint
venture, or whatever, is a legal matter. What is determinative for purposes of
sufficiency of the complainants allegations, is whether the actionable document bears
out an actionable contract be it a partnership, a joint venture or whatever or some
innominate contract It may be noted that one kind of innominate contract is what is
known as du ut facias (I give that you may do).[37]
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate contract (Civil
Code, Article 1307).[38]
Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and
due process; hence, the proscription against a party shifting from one theory at the trial court to a
new and different theory in the appellate court.[39] On the same rationale, an issue which was
neither averred in the complaint cannot be raised for the first time on appeal. [40] It is not difficult,
therefore, to agree with the CA when it made short shrift of petitioners innominate contract theory
on the basis of the foregoing basic reasons.
Petitioners protestation that his act of introducing the concept of innominate contract was not a
case of changing theories but of supporting his pleaded cause of action that of the existence of a
partnership - by another legal perspective/argument, strikes the Court as a strained attempt to
rationalize an untenable position. Paragraph 12 of his motion for reconsideration of the CAs
decision virtually relegates partnership as a fall-back theory. Two paragraphs later, in the same
notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document
solely as establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party
hedging on whether or not to pursue theoriginal cause of action or altogether abandoning the
same, thus:
12. Incidentally, assuming that the actionable document created a partnership between
[respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this
partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable document
attached to the complaint does not establish a contractual relationship between
[petitioner] and Eduardo, Sr. and Roberto T Yang simply because his document does
not create a partnership or a joint venture. This is a myopic reading of the actionable
document.
Per the Courts own count, petitioner used in his complaint the mixed words joint
venture/partnership nineteen (19) times and the term partnerfour (4) times. He made reference to
the law of joint venture/partnership [being applicable] to the business relationship between [him],

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Eduardo and Bobby [Yang] and to his rights in all specific properties of their joint
venture/partnership. Given this consideration, petitioners right of action against respondents
Eduardo and Yang doubtless pivots on the existence of the partnership between the three of them,
as purportedly evidenced by the undated and unsigned Annex A-1. A void Annex A-1, as an
actionable document of partnership, would strip petitioner of a cause of action under the premises.
A complaint for delivery and accounting of partnership property based on such void or legally non-

existent actionable document is dismissible for failure to state of action. So, in gist, said the Court
of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the
Court of Appeals AFFIRMED.
Cost against the petitioner.

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