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 ofP600,045.00, 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 the P900,000.00 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 forP3,250,000.00 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
ATTACHMENT OF PETITIONER LIMS GOODS.

THE

SEIZURE

AND

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 amongthe 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.
Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
Vitug, J., Pls. see concurring opinion.

[1] Penned by J. Portia Alino-Hormachuelos; with the concurrence of JJ. Buenaventura J. Guerrero, Division chairman, and
Presbitero J. Velasco Jr., member.
[2] CA Decision, p. 12; rollo, p. 36.
[3] RTC Decision penned by Judge Maximiano C. Asuncion, pp. 11-12; rollo, pp. 48-49.
[4] CA Decision, pp. 1-2; rollo, pp. 25-26.
[5] Ibid., p. 2; rollo, p. 26.
[6] RTC Decision, p. 2; rollo, p. 39.
[7] Petition, p. 4; rollo, p. 11.
[8] Ibid.
[9] RTC Decision, pp. 6-7; rollo, pp. 43-44.
[10] Respondents Memorandum, pp. 5, 8; rollo, pp. 107, 109.

[11] CA Decision, pp. 9-10; rollo, pp. 33-34.

[12] RTC Decision, p. 10; rollo, p. 47.
[13] Ibid.
[14] This case was deemed submitted for resolution on August 10, 1999, when this Court received petitioners Memorandum signed
by Atty. Roberto A. Abad. Respondents Memorandum signed by Atty. Benjamin S. Benito was filed earlier on July 27, 1999.
[15] Nos. 1-7 are from CA Decision, p. 9 (rollo, p. 33); No. 8 is from RTC Decision, p. 5 (rollo, p. 42); and No. 9 is from CA Decision,
pp. 9-10 (rollo, pp. 33-34).
[16] See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.
[17] Salvatierra v. Garlitos, 103 SCRA 757, May 23, 1958, per Felix, J.; citing Fay v. Noble, 7 Cushing [Mass.] 188.
[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.
[19] 16 Phil. 315, July 26, 1910, per Moreland, J.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-9996

October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA

EVANGELISTA,
petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
Santiago
F.
Alidio
and
Angel
S.
Dakila,
Jr.,
for
petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General
Esmeraldo Umali and Solicitor Felicisimo R. Rosete for Respondents.
CONCEPCION, J.:
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:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income
tax, real estate dealer's tax and the residence tax for the years 1945 to 1949,
inclusive, in accordance with the respondent's assessment for the same in the total
amount of P6,878.34, which is hereby affirmed and the petition for review filed by
petitioner is hereby dismissed with costs against petitioners.

It appears from the stipulation submitted by the parties:

1. That the petitioners borrowed from their father the sum of P59,1400.00 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 from 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
P130,000.00; this property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of
4,353 sq. m. including improvements thereon for P108,825.00. This property has an
assessed value of P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m.
including improvements thereon for P237,234.34. 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 tenants; 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 leases to various tenants;
8. That from the month of March, 1945 up to an 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;
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out
of which amount was deducted in the sum of P16,288.27 for expenses thereby
leaving them a net rental income of P7,498.13;
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.
It further appears that on September 24, 1954 respondent Collector of Internal
Revenue demanded the payment of income tax on corporations, real estate dealer's
fixed tax and corporation residence tax for the years 1945-1949, computed,
according to assessment made by said officer, as follows:
INCOME TAXES

1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949

1,575.90

Total including surcharge P6,157.09

and compromise
REAL ESTATE DEALER'S FIXED
TAX
1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

RESIDENCE
CORPORATION

TAXES

OF

1945

P38.75

1946

38.75

1947

38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

TOTAL TAXES DUE

P6,878.34.

Said letter of demand and 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.
After appropriate proceedings, the Court of Tax Appeals 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.
The issue in this case 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
section 24 and 84 of said Code, the pertinent parts of which read:
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: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute
money, properly, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to the 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:
1. Said common fund was not something they found already in existence. It was not
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 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 P18,000.00. 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 the petitioners in
February, 1943. In other words, one cannot but perceive a character of habitually
peculiar to business transactions engaged in the purpose 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 and enterprise operated for profit.
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.
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 participation)" and
"associations," none of which has a legal personality of its own, independent of that
of its members. Accordingly, the lawmaker could not have regarded that personality
as a condition essential to the existence of the partnerships therein referred to. In
fact, as above stated, "duly registered general copartnerships" which are
possessed of the aforementioned personality have been expressly excluded by
law (sections 24 and 84 [b] from the connotation of the 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 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 provisions 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 designed 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
interinsuarance 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; emphasis supplied.).
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 organizations which carries on any
business financial operation, or venture, and which is not, within the meaning of the
Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal Income
taxation, p. 789; emphasis supplied.)

The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income Taxation,
p. 562 Note 63; emphasis supplied.) .
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 of tax for corporations, section 2 of Commonwealth Act No.
465 provides in part:
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. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 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 June 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:
'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. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with
costs against the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix,
JJ., concur.

BAUTISTA ANGELO, J., concurring:

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 the decision:
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 purchase 21 lots for P18,000. This was soon followed on April 23, 1944, by the
acquisition of another real state 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 aforementioned common
fund or even of the property acquired by the petitioner in February, 1943, In other
words,
we
cannot
but
perceive
a
character
of habitually peculiar
to business transactions engaged in for purposes of gain.
I wish however to make to make the following observation:
Article 1769 of the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides:
(2) Co-ownership or co-possession does not 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 partnership, whether or
not the person 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
shared or do not share any profits made by the use of 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 judicial
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 venture purchase of land, by two, does not constitute a copartnership in
respect thereto; nor does not agreement to share the profits and loses on the sale of
land create a partnership; the parties are only tenants in common. (Clark vs.
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
reality, 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 plaintiff's commissions, no
partnership existed as between the parties, whatever relation may have been as to
third parties. (Magee vs. Magee, 123 N. E. 6763, 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. vs 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 vs. 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."
G.R. No. L-49982 April 27, 1988
ELIGIO
ESTANISLAO,
JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO
and LEOCADIO SANTIAGO,respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.

GANCAYCO, J.:

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., QuezonCity 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 P 15,000.00 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
byAtty. 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
company's policy of appointing only one dealer, it was agreed that petitioner would
apply for the dealership. Respondent Remedios helped in managing the bussiness
with petitioner from May 3, 1966 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 P 15,000.00 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
For sometime, the petitioner submitted financial statements regarding the operation
of the business to private respondents, but therafter petitioner failed to render
subsequent accounting. Hence through Atty. Angeles, a demand was made on
petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to
make a profit of P 87,293.79 and that by the year ending 1969, a profit of P
150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First
Instance of Rizal against petitioner praying among others that the latter be ordered:
1. to execute a public document embodying all the provisions of the partnership
agreement entered into between plaintiffs and defendant as 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 P l50,000.00 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 P 10,000.00 as attorney's 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 P 3,000.00 attorney's fee and costs. Private respondent filed a motion for
reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the same branch, set aside the aforesaid
derision and rendered another decision in favor of said respondents.
The dispositive part thereof reads as follows:
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:
(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) 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,
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the
net profits of the business in the amount of P 150,000.00, with interest thereon at the
rate of One (1%) Per Cent per month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of
attorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record
on Appeal).
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:
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.
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:

(1) That we are the Lessors of two parcels of land fully describe 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;
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE
LIMITED advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P
l5,000.00) 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 and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its
benevolence and desire to help us in aumenting our capital investment in the
operation of the said gasoline station, has agreed to give us the said amount of P
15,000.00, 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 (P l6,000.00) from he SHELL COMPANY OF THE
PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied as
monthly rentals for the sai two lots under our Lease Agreement starting on the 25th
of May, 1966 until such time that the said of P 15,000.00 be applicable, which time to
our estimate 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
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as
doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, 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 lease 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 (P 3,382.29), 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 llth May 1966, he deposited to SHELL in cash the amount of PESOS TEN

THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of

Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P
25,000, 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 P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as
additional cash deposit to SHELL under the same terms and conditions of the
aforementioned Cash Pledge Agreement dated llth 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:
l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to
all CO-OWNERS, collectively, under the above describe two Lease Agreements, one
dated 13th November 1963 and the other dated 19th March 1964 to enable DEALER
to increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for such
purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign to
SHELL the monthly rental of P 3,382.29 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 P l5,000.
2. The above stated monthly rentals accumulated shall be treated as additional cash
deposit by DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to
P 25,000. This agreement, therefore, cancels and supersedes the Joint affidavit
dated 11 April 1966 executed by the CO-OWNERS.
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 P 25,000.
4. This increase in the credit shall also be subject to the same terms and conditions
of the above-mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2,"
"L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by
the parties that the P 15,000.00 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 onehalf months or until 10 October 1966, more or less covering said P 15,000.00.
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 P 15,000.00 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 COOWNERS."

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 P 15,000.00
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 P 15,000.00 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
P 15,000.00 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.
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 Remedies Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business. 4 Petitioner gave a written authority
to private respondent Remedies Estanislao, his sister, to examine and audit the
books of their "common business' aming negosyo). 5Respondent 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 accordancewith 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 shag beentertained.
SO ORDERED.
Narvasa, Cruz and Grio-Aquino, JJ., concur.

Footnotes
1 Exhibit A.
2 Exhibits 6 and 6-A.
3 Exhibit D.

* Penned by then Justice Ramon G. Gaviola, Jr., and concurred in by Justices B.S.
de la Fuente and Edgardo Paras, Fourth Division, Court of Appeals.
4 Exhibits D, D-1, D-2, D-3 and D-4.
5 Exhibit E.
6 Article 1767, New Civil Code.
THIRD DIVISION

HEIRS OF JOSE LIM,

G.R. No. 172690

represented by ELENITO LIM,

Petitioners,

Present:

CORONA, J.,
Chairperson,
VELASCO, JR.,
- versus -

NACHURA,
DEL CASTILLO,* and
MENDOZA, JJ.

Promulgated:
JULIET VILLA LIM,
Respondent.

March 3, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

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

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia
Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all
surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They 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 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.
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

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

SO ORDERED.

Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing
petitioners' complaint for lack of merit. Undaunted, petitioners 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]

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 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 certiorariunder 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;

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

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

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its 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]

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 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]

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

A careful review of the records persuades us to 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;

(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;

(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 in Heirs 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.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

RENATO C. CORONA
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR.

MARIANO
C. DEL CASTILLOAssociate

Associate Justice

Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

REYNATO S. PUNO

Chief Justice

Additional member in lieu of Associate Justice Diosdado M. Peralta per Special

Order No. 824 dated February 12, 2010.
[1]

Rollo, pp. 9-31.

[2]

Particularly docketed as CA-G.R. CV No. 83331; penned by Associate Justice

Roberto A. Barrios (deceased), with Associate Justices Amelita G. Tolentino and
Vicente S.E. Veloso, concurring; id. at 57-69.
[3]

Particularly docketed as Civil Case No. 97-60; rollo, pp. 49-55.

[4]

Records, pp. 1-9.

[5]

CA rollo, pp. 116-128.

[6]

Id. at 157-158.

[7]

Petitioners' Memorandum; rollo, pp. 271-295, at 285.

[8]

Id.

[9]

Respondent's Memorandum; id. at 204-234.

[10]

Francisco Madrid and Edgardo Bernardo v. Spouses Bonifacio Mapoy and

Felicidad Martinez, G.R. No. 150887, August 14, 2009. (Citations omitted.)
[11]

Ontimare, Jr. v. Elep, G.R. No. 159224, January 20, 2006, 479 SCRA 257, 265.

[12]

Litonjua, Jr. v. Litonjua, Sr., G.R. Nos. 166299-300, December 13, 2005, 477
SCRA 576, 584.
[13]

Perfecta Cavile, Jose de la Cruz and Rural Bank of Bayawan, Inc. v. Justina
Litania-Hong, accompanied and joined by her husband, Leopoldo Hong and
Genoveva Litania, G.R. No. 179540, March 13, 2009, citing Go v. Court of Appeals,
403 Phil. 883, 890-891 (2001).
[14]

396 Phil. 68 (2000).

[15]

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

[16]

TSN, May 2, 2000, p. 17.

[17]

Id. at 15-16.

[18]

Supra note 14, at 83, citing Estanislao, Jr. v. Court of Appeals, 160 SCRA 830,
837 (1988).
[19]

TSN, September 15, 1999, p. 8.

[20]

SPO2 Yap v. Judge Inopiquez, Jr., 451 Phil. 182, 192 (2003), citing Romago
Electric Co., Inc. v. Court of Appeals, 333 SCRA 291, 302 (2000), further
citing Ereeta v. Bezore, 54 SCRA 13 (1973) and Soriano v. Compaia General de
Tabacos de Filipinas, 18 SCRA 999 (1966); and Government Service Insurance
System v. Court of Appeals, 222 SCRA 685, 696 (1993), further citing Marvel
Building Corporation, et al. v. David, 94 Phil. 376 (1954).
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO
S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this
appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
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.
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.
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.
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:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
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.
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.
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.
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.
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;
2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellees TWS or TWS and the appellant.
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).
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).
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. 16-18 tsn Id.).
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.)
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).
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, 1965testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of
corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)
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 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court,
erred. Specifically, they state:
I
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.
II
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)
III
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.
IV
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. 6

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. 7 Tourist 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, 8 in reference to the padlocking now questioned.
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. 9
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. 11
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.
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. 13 Under 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.
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, who earns a fixed salary usually, she
earned compensation in fluctuating amounts depending on her booking successes.
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 rightof-control test and certain economic parameters. But titles are weak indicators.
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.
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, pre-assumed 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..
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.
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. 20 Yet, 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.
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.
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.
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.
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.

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. 23
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
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 25 may be recovered in the following and analogous
cases:
xxx xxx xxx
(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.
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.
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 26 and/or
temperate 27 damages, to be just, fair, and reasonable under the circumstances.
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.
Costs against said private respondents.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Footnotes
1 Rollo, 30-45.
2 Court of First Instance of Manila, Branch XIX Montesa, Agustin, Presiding Judge.

3 Rollo, Id 55; Record on Appeal, 38.

4 Record on Appeal, Id., 37-38.
5 Gaviola, Jr., RAmon, J., Reyes, Luis, and De Castro, Pacific, JJ., Conccurring
6 Rollo, Id., 124; Brief for Petitioners, 1-2.
7 Rollo, Id., 36.
8 Id., 21; emphasis in the original.
9 See Rep. Act No. 875 See also Rep. Act No. 1052, as amended by Rep. Act No.
1787.
10 LVN Pictures, Inc. v. Philippine Musicians Guild, No. L-12582, January 28,1961, 1
SCRA 132,173 (1961); emphasis in the original.
11 Visayan Stevedore Trans. Co., et al. v. C.I.R., et al., No. L-21696, February
25,1967,19 SCRA 426 (1967).
12 Rollo, Id., 40.
13 Id 31.
14 Id., 47.
15 BAUTISTA, TREATISE ON PHILIPPINE PARTNERSHIP LAW 34 (1978).
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.
17 See rollo, id.
18 CIVIL CODE, art. 1868.
19 See VI PADILLA, CIVIL LAW 350 (1974).
20 Rollo, id., 36.
21 Id, 31.
22 Id.
23 CIVIL CODE, art. 2220.
24 Supra.
25 Supra, art. 2232.
26 Supra art. 2221.
27 Supra, art. 2224.
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
PANGANIBAN, J.:
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
Agreement. With the said amount, he was able to effect the survey and
subdivision of the lots. He secured the Lapu Lapu City Councils approval of
subdivision project which he advertised in a local newspaper. He also caused

the
the
the
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:
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 subdivided 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:
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
Decision AFFIRMED. Costs against petitioners.

the

SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

challenged

[1]

Penned by Justice Ramon U. Mabutas Jr.; concurred in by Justices Emeterio C.

Cui, Division chairman, and Hilarion L. Aquino, member.
[2]

Second Division.

[3]

CA Decision, p. 1; rollo, p. 15.

[4]

CA Decision, p.2; rollo, p. 16.

[5]

CA Decision, p. 3; rollo, p. 17.

[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.
[7]

CA Decision, p. 32; rollo, p. 46.

[8]

Petition, p. 2; rollo, p. 10.

[9]

Petitioners Memorandum, pp. 6-7; rollo, pp. 82-83.

[10]

CA Decision, pp. 5-6; rollo, pp. 19-20.

[11]

Jo Chung Cang v. Pacific Commercial Co., 45 Phil 142, September 6, 1923.

[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.
[13]

Petitioners Memorandum, pp. 6-7; rollo, pp. 82-83.

[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.
[16]

CA Decision, p. 20; rollo, p. 34.

[17]

Ibid., p. 28; rollo, p. 42.

[18]

See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.

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

NOBIO
SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.
Y.G. Villaruz & Associates for petitioner.
Pelagio R. Lachica for private respondent.

REGALADO, J.:
The extensive discussion and exhaustive disquisition in the decision 1 of the
respondent Court 2 should have written finis to this case without further recourse to
Us. The assignment of errors and arguments raised in the respondent Court by
herein private respondent, as the petitioner therein, having been correctly and
justifiedly sustained by said court without any reversible error in its conclusions, the
present petition must fail.
The assailed decision details the facts and proceedings which spawned the present
controversy as follows:
Petitioner brought an action in the City Court of Dipolog for collection of a sum of
P5,217.25 based on promissory notes executed by the herein private respondent
Nobio Sardane in favor of the herein petitioner. Petitioner bases his right to collect on
Exhibits B, C, D, E, F, and G executed on different dates and signed by private
respondent Nobio Sardane. Exhibit B is a printed promissory note involving Pl,117.25
and dated May 13, 1972. Exhibit C is likewise a printed promissory note and denotes
on its face that the sum loaned was Pl,400.00. Exhibit D is also a printed promissory
note dated May 31, 1977 involving an amount of P100.00. Exhibit E is what is
commonly known to the layman as 'vale' which reads: 'Good for: two hundred pesos
(Sgd) Nobio Sardane'. Exhibit F is stated in the following tenor: 'Received from Mr.
Romeo Acojedo the sum Pesos: Two Thousand Two Hundred (P2,200.00) ONLY, to
be paid on or before December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are
both vales' involving the same amount of one hundred pesos, and dated August 25,
1972 and September 12, 1972 respectively.
It has been established in the trial court that on many occasions, the petitioner
demanded the payment of the total amount of P5,217.25. The failure of the private
respondent to pay the said amount prompted the petitioner to seek the services of
lawyer who made a letter (Exhibit 1) formally demanding the return of the sum
loaned. Because of the failure of the private respondent to heed the demands
extrajudicially made by the petitioner, the latter was constrained to bring an action for
collection of sum of money.
During the scheduled day for trial, private respondent failed to appear and to file an
answer. On motion by the petitioner, the City Court of Dipolog issued an order dated
May 18, 1976 declaring the private respondent in default and allowed the petitioner
to present his evidence ex-parte. Based on petitioner's evidence, the City Court of
Dipolog rendered judgment by default in favor of the petitioner.

Private respondent filed a motion to lift the order of default which was granted by the
City Court in an order dated May 24, 1976, taking into consideration that the answer
was filed within two hours after the hearing of the evidence presented ex-parte by the
petitioner.
After the trial on the merits, the City Court of Dipolog rendered its decision on
September 14, 1976, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff
and against the defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two
Hundred Seventeen Pesos and Twenty-five centavos (P5,217.25) plus legal interest
to commence from April 23, 1976 when this case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as attorney's fee
and to pay the cost of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga
del Norte which reversed the decision of the lower court by dismissing the complaint
and ordered the plaintiff-appellee Acojedo to pay said defendant-appellant P500.00
each for actual damages, moral damages, exemplary damages and attorney's fees,
as well as the costs of suit. Plaintiff-appellee then sought the review of said decision
by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two
decisive issues, firstly, whether the oral testimony for the therein private respondent
Sardane that a partnership existed between him and therein petitioner Acojedo are
admissible to vary the meaning of the abovementioned promissory notes; and,
secondly, whether because of the failure of therein petitioner to cross-examine
therein private respondent on his sur-rebuttal testimony, there was a waiver of the
presumption accorded in favor of said petitioner by Section 8, Rule 8 of the Rules of
Court.
On the first issue, the then Court of First Instance held that "the pleadings of the
parties herein put in issue the imperfection or ambiguity of the documents in
question", hence "the appellant can avail of the parol evidence rule to prove his side
of the case, that is, the said amount taken by him from appellee is or was not his
personal debt to appellee, but expenses of the partnership between him and
appellee."
Consequently, said trial court concluded that the promissory notes involved were
merely receipts for the contributions to said partnership and, therefore, upheld the
claim that there was ambiguity in the promissory notes, hence parol evidence was
allowable to vary or contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.When the terms of an agreement have
been reduced to writing, it is to be considered as containing all such terms, and,
therefore, there can be, between the parties and their successors in interest, no

evidence of the terms of the agreement other than the contents of the writing except
in the following cases:
(a) Where a mistake or imperfection of the writing or its failure to express the the true
intent and agreement of the parties, or the validity of the agreement is put in issue by
the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to the rule do not
apply in this case as there is no ambiguity in the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory notes containing a
promise to pay a sum certain in money, payable on demand and the promise to bear
the costs of litigation in the event of the private respondent's failure to pay the
amount loaned when demanded extrajudicially. Likewise, the vales denote that the
private respondent is obliged to return the sum loaned to him by the petitioner. On
their face, nothing appears to be vague or ambigous, for the terms of the promissory
notes clearly show that it was incumbent upon the private respondent to pay the
amount involved in the promissory notes if and when the petitioner demands the
same. It was clearly the intent of the parties to enter into a contract of loan for how
could an educated man like the private respondent be deceived to sign a promissory
note yet intending to make such a writing to be mere receipts of the petitioner's
supposed contribution to the alleged partnership existing between the parties?
It has been established in the trial court that, the private respondent has been
engaged in business for quite a long period of time--as owner of the Sardane
Trucking Service, entering into contracts with the government for the construction of
wharfs and seawall; and a member of the City Council of Dapitan (TSN, July 20,
1976, pp. 57-58).<re||an1w> It indeed puzzles us how the private respondent
could have been misled into signing a document containing terms which he did not
mean them to be. ...
xxx xxx xxx
The private respondent admitted during the cross-examination made by petitioner's
counsel that he was the one who was responsible for the printing of Exhibits B, C,
and D (TSN, July 28, 1976, p. 64). How could he purportedly rely on such a flimsy
pretext that the promissory notes were receipts of the petitioner's contribution? 4
The Court of Appeals held, and We agree, that even if evidence aliunde other than
the promissory notes may be admitted to alter the meaning conveyed thereby, still
the evidence is insufficient to prove that a partnership existed between the private
parties hereto.
As manager of the basnig Sarcado naturally some degree of control over the
operations and maintenance thereof had to be exercised by herein petitioner. The
fact that he had received 50% of the net profits does not conclusively establish that
he was a partner of the private respondent herein. Article 1769(4) of the Civil Code is
explicit that while the receipt by a person of a share of the profits of a business

is prima facie evidence that he is a partner in the business, no such inference shall
be drawn if such profits were received in payment as wages of an employee.
Furthermore, herein petitioner had no voice in the management of the affairs of
the basnig. Under similar facts, this Court in the early case of Fortis vs. Gutierrez
Hermanos, 5 in denying the claim of the plaintiff therein that he was a partner in the
business of the defendant, declared:
This contention cannot be sustained. It was a mere contract of employment. The
plaintiff had no voice nor vote in the management of the affairs of the company. The
fact that the compensation received by him was to be determined with reference to
the profits made by the defendant in their business did not in any sense make him a
partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved
the same factual and legal milieu.
There are other considerations noted by respondent Court which negate herein
petitioner's pretension that he was a partner and not a mere employee indebted to
the present private respondent. Thus, in an action for damages filed by herein private
respondent against the North Zamboanga Timber Co., Inc. arising from the
operations of the business, herein petitioner did not ask to be joined as a party
plaintiff. Also, although he contends that herein private respondent is the treasurer of
the alleged partnership, yet it is the latter who is demanding an accounting. The
advertence of the Court of First Instance to the fact that the casco bears the name of
herein petitioner disregards the finding of the respondent Court that it was just a
concession since it was he who obtained the engine used in the Sardaco from the
Department of Local Government and Community Development. Further, the use by
the parties of the pronoun "our" in referring to "our basnig, our catch", "our deposit",
or "our boseros" was merely indicative of the camaraderie and not evidentiary of a
partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid
promissory notes do not express the true intent and agreement of the parties, are
binding on Us since there is no showing that they fall within the exceptions to the rule
limiting the scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready
reference, reads:
Sec. 8. How to contest genuineness of such documents.When an action or
defense is founded upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding section, the genuineness and
due execution of the instrument shall be deemed admitted unless the adverse party,
under oath, specifically denies them, and sets forth what he claims to be the facts;
but this provision does not apply when the adverse party does not appear to be a
party to the instrument or when compliance with an order for the inspection of the
original instrument is refused.
The record shows that herein petitioner did not deny under oath in his answer the
authenticity and due execution of the promissory notes which had been duly pleaded

and attached to the complaint, thereby admitting their genuineness and due
execution. Even in the trial court, he did not at all question the fact that he signed
said promissory notes and that the same were genuine. Instead, he presented parol
evidence to vary the import of the promissory notes by alleging that they were mere
receipts of his contribution to the alleged partnership.
His arguments on this score reflect a misapprehension of the rule on parol evidence
as distinguished from the rule on actionable documents. As the respondent Court
correctly explained to herein petitioner, what he presented in the trial Court was
testimonial evidence that the promissory notes were receipts of his supposed
contributions to the alleged partnership which testimony, in the light of Section 7,
Rule 130, could not be admitted to vary or alter the explicit meaning conveyed by
said promissory notes. On the other hand, the presumed genuineness and due
execution of said promissory notes were not affected, pursuant to the provisions of
Section 8, Rule 8, since such aspects were not at all questioned but, on the contrary,
were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which
was reiterated in Central Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does not
sustain his thesis that the herein private respondent had "waived the mantle of
protection given him by Rule 8, Sec. 8". It is true that such implied admission of
genuineness and due execution may be waived by a party but only if he acts in a
manner indicative of either an express or tacit waiver thereof. Petitioner, however,
either overlooked or ignored the fact that, as held in Yu Chuck, and the same is true
in other cases of Identical factual settings, such a finding of waiver is proper where a
case has been tried in complete disregard of the rule and the plaintiff having pleaded
a document by copy, presents oral evidence to prove the due execution of the
document and no objections are made to the defendant's evidence in refutation. This
situation does not obtain in the present case hence said doctrine is obviously
inapplicable.
Neither did the failure of herein private respondent to cross-examine herein petitioner
on the latter's sur-rebuttal testimony constitute a waiver of the aforesaid implied
admission. As found by the respondent Court, said sur-rebuttal testimony consisted
solely of the denial of the testimony of herein private respondent and no new or
additional matter was introduced in that sur-rebuttal testimony to exonerate herein
petitioner from his obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the respondent Court correctly
reversed and set aside the appealed decision of the Court of First Instance of
Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog
City in Civil Case No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court,
herein petitioner, as the private respondent therein, raised a third unresolved issue
that the petition for review therein should have been dismissed for lack of jurisdiction
since the lower Court's decision did not affirm in full the judgment of the City Court of
Dipolog, and which he claimed was a sine qua non for such a petition under the law

then in force. He raises the same point in his present appeal and We will waive the
procedural technicalities in order to put this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative
relief from the respondent Court praying that it sustain the decision of the trial Court,
thereby invoking and submitting to its jurisdiction which he would now assail.
Furthermore, the objection that he raises is actually not one of jurisdiction but of
procedure. 9
At any rate, it will be noted that petitioner anchors his said objection on the provisions
of Section 29, Republic Act 296 as amended by Republic Act 5433 effective
September 9, 1968. Subsequently, the procedure for appeal to the Court of Appeals
from decisions of the then courts of first instance in the exercise of their appellate
jurisdiction over cases originating from the municipal courts was provided for by
Republic Act 6031, amending Section 45 of the Judiciary Act effective August 4,
1969. The requirement for affirmance in full of the inferior court's decision was not
adopted or reproduced in Republic Act 6031. Also, since Republic Act 6031 failed to
provide for the procedure or mode of appeal in the cases therein contemplated, the
Court of Appeals en banc provided thereof in its Resolution of August 12, 1971, by
requiring a petition for review but which also did not require for its availability that the
judgment of the court of first instance had affirmed in full that of the lower court. Said
mode of appeal and the procedural requirements thereof governed the appeal taken
in this case from the aforesaid Court of First Instance to the Court of Appeals in
1977. 10 Herein petitioner's plaint on this issue is, therefore, devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with
costs against herein petitioner.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

Footnotes
1 Penned by Gutierrez, H. E., J., with the concurrence of Serrano, M. and Batacan,
D. Fl., JJ.
2 Special Fifth Division, CA-G.R. No. SP-06464-R, Romeo J. Acojedo, Petitioner, vs.
Nobio Sardane and Hon. Dimalanes B. Buissan, in his capacity as Judge of the
Court of First Instance of Zamboanga del Norte, Respondents.
3 Rollo, 62-65.
4 Rollo, 71-74.
5 6 Phil. 100 (1906).
6 58 Phil. 188 (1933).
7 46 Phil. 608 (1924).

8 38 SCRA 159 (1971).

9 See Manila Railroad Co. vs. Attorney-General, 20 Phil. 523 (1911).
10 For the present procedure, see Sec. 22 B.P. 129; Pars. 20, 21, and 22 (b) of the
Interim or Transitional Rules and Guidelines.
THIRD DIVISION
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and
CHARLES
CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R.
LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN,
BALDWIN
YOUNG
and
AVELINO
V.
CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO
E.
SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and
the COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of
Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders can nominate only six
(6) candidates and in the event they cannot agree on the six (6) nominees, they shall

vote only among themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which would engage primarily
in the business of manufacturing in the Philippines and selling here and abroad
vitreous china and sanitary wares. The parties agreed that the business operations in
the Philippines shall be carried on by an incorporated enterprise and that the name of
the corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall
specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors,
which shall consist of nine individuals. As long as American-Standard shall own at
least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the other six shall be designated by
the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a
minority group, including the grant of veto powers over a number of corporate acts
and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According
to the Filipino group, a basic disagreement was due to their desire to expand the

export operations of the company to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the countries where Philippine exports
were contemplated. On March 8, 1983, the annual stockholders' meeting was held.
The meeting was presided by Baldwin Young. The minutes were taken by the
Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the
stockholders then proceeded to the election of the members of the board of directors.
The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and
David P. Whittingham. The Philippine investors nominated six, namely; Ernesto
Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who
in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last
two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr.
Jaqua protested the decision of the Chairman and announced that all votes accruing
to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that
all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, ACG.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar.
The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all
votes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John
Griffin and David Whittingham and the six originally nominated by Rogelio Vinluan,
namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the
election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.
Boncan, Baldwin Young. The representative of ASI then moved to recess the
meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo,
AC-G.R. SP No. 05617). This motion to adjourn was accepted by the Chairman,
Baldwin Young, who announced that the motion was carried and declared the
meeting adjourned. Protests against the adjournment were registered and having
been ignored, Mr. Jaqua the ASI representative, stated that the meeting was not
adjourned but only recessed and that the meeting would be reconvened in the next
room. The Chairman then threatened to have the stockholders who did not agree to
the decision of the Chairman on the casting of votes bodily thrown out. The ASI

Group, Luciano E. Salazar and other stockholders, allegedly representing 53 or 54%

of the shares of Saniwares, decided to continue the meeting at the elevator lobby of
the American Standard Building. The continued meeting was presided by Luciano E.
Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative
votes cast earlier in the meeting, the ASI Group nominated its four nominees;
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano
E. Salazar voted for himself, thus the said five directors were certified as elected
directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there
was a tie among the other six (6) nominees for the four (4) remaining positions of
directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 7597576)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case
No. 2417. The second petition was for quo warranto and application for receivership
by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and
Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC
Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No.
2718. Both sets of parties except for Avelino Cruz claimed to be the legitimate
directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar
(docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the
appellate court in its decision ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders' meeting of
Saniwares be ordered convoked as soon as possible, under the supervision of the
Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF
SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM

EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER
OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS
PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT
THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision
on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual
agreements entered into by stockholders and the replacement of the conditions of
such agreements with terms never contemplated by the stockholders but merely
dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the property
rights of stockholders without due process of law in order that a favored group of
stockholders may be illegally benefitted and guaranteed a continuing monopoly of
the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
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 SANTWARES. (P. 24,
Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture or a corporation
and (2) whether or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B.

and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press
Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder. (At P. 66, RolloGR No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7,
Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and
Young Group never pleaded in their pleading that the "Agreement" failed to express
the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and therefore,
there can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing, except in the following
cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true
intent and agreement of the parties or the validity of the agreement is put in issue by
the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed
to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at third
parties and is not inconsistent with, and does not preclude, the existence of two
distinct groups of stockholders in Saniwares one of which (the Philippine Investors)
shall constitute the majority, and the other ASI shall constitute the minority
stockholder. In any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise, and if some
words in the Agreement appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former (Art. 1370, New Civil Code). The various

stipulations of a contract shall be interpreted together attributing to the doubtful ones

that sense which may result from all of them taken jointly (Art. 1374, New Civil
Code). Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371,
New Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question whether
they intended by their agreement to create a joint adventure, or to assume some
other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George,
27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as
well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation. The
history of the organization of Saniwares and the unusual arrangements which govern
its policy making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed
to accept the role of minority vis-a-vis the Philippine National group of investors, on
the condition that the Agreement should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that certain provisions were included to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the
right to designate the president and plant manager [Sec. 5 (6)]. The Agreement
further provides that the sales policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard"
products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-how to Saniwares
and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes
of the board of directors for certain actions, in effect gave ASI (which designates 3
directors under the Agreement) an effective veto power. Furthermore, the grant to
ASI of the right to designate certain officers of the corporation; the super-majority

voting requirements for amendments of the articles and by-laws; and most
significantly to the issues of tms case, the provision that ASI shall designate 3 out of
the 9 directors and the other stockholders shall designate the other 6, clearly indicate
that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the
capital stock and the Philippine National stockholders who own the balance of 60%,
and that 2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein
contained shall be construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is not
consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in
industries where constitutional and legal requirements reserve controlling ownership
to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the
parties thereto, may provide that in exercising any voting rights, the shares held by

them shall be voted as therein provided, or as they may agree, or as determined in

accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation because
it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of
the disputed stockholders meeting, these 95 stockholders are not separate from
each other but are divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders,
etc. If the members of one family and/or business or interest group are considered as
one (which, it is respectfully submitted, they should be for purposes of determining
how closely held Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees'
Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is a closeheld corporation. Surely, appellants cannot honestly claim that Saniwares is a public
issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint venturers
(Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago,
M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry
v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with
legal questions as to the extent to which the requirements arising from the corporate
form of joint venture corporations should control, and the courts ruled that substantial
justice lay with those litigants who relied on the joint venture agreement rather than
the litigants who relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management. A noted authority has
pointed out that just as in close corporations, shareholders' agreements in joint
venture corporations often contain provisions which do one or more of the following:
(1) require greater than majority vote for shareholder and director action; (2) give
certain shareholders or groups of shareholders power to select a specified number of
directors; (3) give to the shareholders control over the selection and retention of
employees; and (4) set up a procedure for the settlement of disputes by arbitration

(See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this
provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and more often resorted to in
close corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close
corporations to those which comply with the requisites laid down by section 96, it is
entirely possible that a corporation which is in fact a close corporation will not come
within the definition. In such case, its stockholders should not be precluded from
entering into contracts like voting agreements if these are otherwise valid. (Campos
& Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
nomination of directors restricts the right of the Agreement's signatories to vote for
directors, such contractual provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp.
90-94)
In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals
correctly stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a) hereof
says that three of the nine directors shall be designated by ASI and the remaining six
by the other stockholders, i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the
parties should honor and adhere to their respective rights and obligations thereunder.
Appellants seem to contend that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such may interfere with the
stockholder's rights to cumulative voting as provided in Section 24 of the Corporation
Code. This Court should not be prepared to hold that any agreement which curtails in
any way cumulative voting should be struck down, even if such agreement has been
freely entered into by experienced businessmen and do not prejudice those who are

not parties thereto. It may well be that it would be more cogent to hold, as the
Securities and Exchange Commission has held in the decision appealed from, that
cumulative voting rights may be voluntarily waived by stockholders who enter into
special relationships with each other to pursue and implement specific purposes, as
in joint venture relationships between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule on
this question. Rather, all that needs to be done is to give life and effect to the
particular contractual rights and obligations which the parties have assumed for
themselves.
On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should
recognize and uphold the division of the stockholders into two groups, and at the
same time uphold the right of the stockholders within each group to cumulative voting
in the process of determining who the group's nominees would be. In practical terms,
as suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however, should not be allowed to interfere
in the voting within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the Corporation
Code which gives the stockholders of a corporation the right to cumulate their votes
in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group
would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act
108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors
or governing body of corporations or associations engaging in partially nationalized
activities shall be allowed in proportion to their allowable participation or share in the

capital of such entities. (amendments introduced by Presidential Decree 715, section

1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact
hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d.
12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common
law jurisdictions is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal,
and a particular partnership may have for its object a specific undertaking. (Art. 1783,
Civil Code). It would seem therefore that under Philippine law, a joint venture is a
form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167)
43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in the
process of determining who the group's nominees would be under Section 3 (a) (1)
of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to
the manner of nominating the members of the board of directors while Section 3 (a)
(1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three directors it is
allowed to designate under the Agreement, and may even be able to get a majority of
the board seats, a result which is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the board
of directors in proportion to their allowance participation of said entity. In the instant
case, the foreign Group ASI was limited to designate three directors. This is the
allowable participation of the ASI Group. Hence, in future dealings, this limitation of
six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties'
Agreement to protect the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which
were impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach,
John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A.
Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the
duly elected directors of Saniwares at the March 8,1983 annual stockholders'
meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."

They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees separately
and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under
its original agreement. Cumulative voting may not be used as a device to enable ASI
to achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain the minority status of the foreign
investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach
John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.
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
YNARES-SANTIAGO, J.:

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 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 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
employer-employee 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 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
personae allows 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, 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.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

[1]

Presiding Justice Nathanael P. de Pano, Jr., ponente; Associate Justices Fermin

A. Martin, Jr. and Conchita Carpio Morales, concurring.
[2]

Presided by Judge Leticia P. Morales.

[3]

Exh. VV.

[4]

Exh. WW.

[5]

Exh. CC.

[6]

Exh. JJ.

[7]

Exh. HH.

[8]

Rollo, p. 67-73.

[9]

Rollo, pp. 79-82.

[10]

Record, p. 71.

[11]

Decision dated August 9, 1996; Rollo, pp. 24-37.

[12]

Resolution dated December 5, 1996; Rollo, pp. 39-43.

[13]

Petition, p. 15.

[14]

Alicbusan v. Court of Appeals, 336 Phil. 321, 326-327 (1997).

[15]

Civil Code, Art. 1767; Fue Leung v. Intermediate Appellate Court, 169 SCRA 746,
754 (1989); citing Yulo v. Yang Chiao Cheng, 106 Phil. 110 (1959).
[16]

Civil Code, Art. 1771; Agad v. Mabato, 132 Phil. 634, 636 (1968).

[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.
[18]

TSN, November 12, 1991, p. 49.

[19]

Exh. C-5-A.

[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.
[21]

V TOLENTINO, CIVIL CODE OF THE PHILIPPINES, p. 507, 1992 ed.

[22]

TSN, November 12, 1991, p. 4.

[23]

Ibid., p. 44.

[24]

Exh. C-4; TSN, December 16, 1991, pp. 15-18.

[25]

Sardane v. Court of Appeals, 167 SCRA 524, 530-531 (1998).

[26]

Ibid.

[27]

TSN, November 12, 1991, pp. 54.

[28]

Ibid., pp. 52-53.

[29]

Ibid., p. 50.

[30]

Ibid., pp. 56-59.

[31]

Civil Code, Art. 1797; Moran, Jr. v. Court of Appeals, 218 Phil. 105, 112 (1984).

[32]

Civil Code, Art. 1799; Evangelista & Co. v. Abad Santos, 151-A Phil. 853, 860
(1973).
[33]

Exh. 5.

[34]

Exh. 5-A.

[35]

TSN, November 12, 1991, p. 42.

[36]

Petition, p. 10; Rollo, p. 18.

[37]

296 SCRA 194, 206 (1998).

[38]

TSN, June 14, 1989, pp. 5-6.

[39]

TSN, November 12, 1991, p. 35.

[40]

Muasque v. Court of Appeals, 139 SCRA 533, 540 (1985).

[41]

Ortega v. Court of Appeals, 315 Phil. 573, 580-581 (1995).

[42]

Ibid., at p. 581.

[43]

Exh. 7.

[44]

Singsong v. Isabela Sawmill, 88 SCRA 623 (1979).

[45]

Air France v. Carrascoso, 124 Phil. 722, 742 (1966).

[46]

Prudencio v. Alliance Transport System, Inc., 148 SCRA 440, 447 (1987).

[47]

Ibid.; Philippine Airlines, Inc. v. Court of Appeals, 226 SCRA 423, 425 (1993).

[48]

Civil Code, Art. 2229.

[49]

Civil Code, Art. 2208 (1) & (5).