Partnership (Full Text)

Cases : Articles 1767-1783

1. Lyons v. Rosentock, 56 Phil 632 (1932)

G.R. No. L-35469

March 17, 1932

E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser,
deceased, defendant-appellee.
Harvey & O'Brien for appellant.
DeWitt, Perkins & Brandy for appellee.
STREET, J.:
This action was institute in the Court of First Instance of the City of Manila, by E. S.
Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased,
consequent upon the taking of an appeal by the executor from the allowance of the
claim sued upon by the committee on claims in said estate. The purpose of the action
is to recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering
& Co., Ltd., together with the sum of about P125,000, representing the dividends
which accrued on said stock prior to October 21, 1926, with lawful interest. Upon
hearing the cause the trial court absolved the defendant executor from the complaint,
and the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of
Manila where he was engaged during the years with which we are here concerned in
buying, selling, and administering real estate. In several ventures which he had made
in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him,
the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular
vocation was that of a missionary, or missionary agent, of the Methodist Episcopal
Church, went on leave to the United States and was gone for nearly a year and a half,
returning on September 21, 1920. On the eve of his departure Elser made a written
statements showing that Lyons was, at that time, half owner with Elser of three
particular pieces of real property. Concurrently with this act Lyons execute in favor of
Elser a general power of attorney empowering him to manage and dispose of said
properties at will and to represent Lyons fully and amply, to the mutual advantage of
both. During the absence of Lyons two of the pieces of property above referred to were
sold by Elser, leaving in his hands a single piece of property located at 616-618 Carried
Street, in the City of Manila, containing about 282 square meters of land, with the
improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece of land, containing
about 1,500,000 square meters, near the City of Manila, and he discerned therein a

fine opportunity for the promotion and development of a suburban improvement. This
property, which will be herein referred to as the San Juan Estate, was offered by its
owners for P570,000. To afford a little time for maturing his plans, Elser purchased an
option on this property for P5,000, and when this option was about to expire without
his having been able to raise the necessary funds, he paid P15,000 more for an
extension of the option, with the understanding in both cases that, in case the option
should be exercised, the amounts thus paid should be credited as part of the first
payment. The amounts paid for this option and its extension were supplied by Elser
entirely from his own funds. In the end he was able from his own means, and with the
assistance which he obtained from others, to acquire said estate. The amount required
for the first payment was P150,000, and as Elser had available only about P120,000,
including the P20,000 advanced upon the option, it was necessary to raise the
remainder by obtaining a loan for P50,000. This amount was finally obtained from a
Chinese merchant of the city named Uy Siuliong. This loan was secured through Uy
Cho Yee, a son of the lender; and in order to get the money it was necessary for Elser
not only to give a personal note signed by himself and his two associates in the
projected enterprise, but also by the Fidelity & Surety Company. The money thus
raised was delivered to Elser by Uy Siuliong on June 24, 1920. With this money and
what he already had in bank Elser purchased the San Juan Estate on or about June 28,
1920. For the purpose of the further development of the property a limited partnership
had, about this time, been organized by Elser and three associates, under the name of
J. K. Pickering & Company; and when the transfer of the property was effected the
deed was made directly to this company. As Elser was the principal capitalist in the
enterprise he received by far the greater number of the shares issued, his portion
amount in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser contemplated and hoped that
Lyons might be induced to come in with him and supply part of the means necessary
to carry the enterprise through. In this connection it appears that on May 20, 1920,
Elser wrote Lyons a letter, informing him that he had made an offer for a big
subdivision and that, if it should be acquired and Lyons would come in, the two would
be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired,
Elser cabled Lyons that he had bought the San Juan Estate and thought it advisable for
Lyons to resign (Exhibit M-13), meaning that he should resign his position with the
mission board in New York. On the same date he wrote Lyons a letter explaining some
details of the purchase, and added "have advised in my cable that you resign and I
hope you can do so immediately and will come and join me on the lines we have so
often spoken about. . . . There is plenty of business for us all now and I believe we
have started something that will keep us going for some time." In one or more
communications prior to this, Elser had sought to impress Lyons with the idea that he
should raise all the money he could for the purpose of giving the necessary assistance
in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked degree to Lyons,
and found him averse from joining in the purchase of the San Juan Estate. In fact upon
this visit of Lyons to the United States a grave doubt had arisen as to whether he
would ever return to Manila, and it was only in the summer of 1920 that the board of
missions of his church prevailed upon him to return to Manila and resume his position
as managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons

wrote a letter from New York thanking Elser for his offer to take Lyons into his new
project and adding that from the standpoint of making money, he had passed up a
good thing.
One source of embarrassment which had operated on Lyson to bring him to the
resolution to stay out of this venture, was that the board of mission was averse to his
engaging in business activities other than those in which the church was concerned;
and some of Lyons' missionary associates had apparently been criticizing his
independent commercial activities. This fact was dwelt upon in the letter abovementioned. Upon receipt of this letter Elser was of course informed that it would be out
of the question to expect assistance from Lyons in carrying out the San Juan project.
No further efforts to this end were therefore made by Elser.
When Elser was concluding the transaction for the purchase of the San Juan Estate, his
book showed that he was indebted to Lyons to the extent of, possibly, P11,669.72,
which had accrued to Lyons from profits and earnings derived from other properties;
and when the J. K. Pickering & Company was organized and stock issued, Elser
indorsed to Lyons 200 of the shares allocated to himself, as he then believed that
Lyons would be one of his associates in the deal. It will be noted that the par value of
these 200 shares was more than P8,000 in excess of the amount which Elser in fact
owed to Lyons; and when the latter returned to the Philippine Islands, he accepted
these shares and sold them for his own benefit. It seems to be supposed in the
appellant's brief that the transfer of these shares to Lyons by Elser supplies some sort
of basis for the present action, or at least strengthens the considerations involved in a
feature of the case to be presently explained. This view is manifestly untenable, since
the ratification of the transaction by Lyons and the appropriation by him of the shares
which were issued to him leaves no ground whatever for treating the transaction as a
source of further equitable rights in Lyons. We should perhaps add that after Lyons'
return to the Philippine Islands he acted for a time as one of the members of the board
of directors of the J. K. Pickering & Company, his qualification for this office being
derived precisely from the ownership of these shares.
We now turn to the incident which supplies the main basis of this action. It will be
remembered that, when Elser obtained the loan of P50,000 to complete the amount
needed for the first payment on the San Juan Estate, the lender, Uy Siuliong, insisted
that he should procure the signature of the Fidelity & Surety Co. on the note to be
given for said loan. But before signing the note with Elser and his associates, the
Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it.
To meet this requirements Elser mortgaged to the Fidelity & Surety Co. the equity of
redemption in the property owned by himself and Lyons on Carriedo Street. This
mortgage was executed on June 30, 1920, at which time Elser expected that Lyons
would come in on the purchase of the San Juan Estate. But when he learned from the
letter from Lyons of July 21, 1920, that the latter had determined not to come into this
deal, Elser began to cast around for means to relieve the Carriedo property of the
encumbrance which he had placed upon it. For this purpose, on September 9, 1920, he
addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a
property owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of
the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity
& Surety Co. agreed to the proposition; and on September 15, 1920, Elser executed in

favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar property and
delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company.
The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo
property and delivered it to Elser. But notwithstanding the fact that these documents
were executed and delivered, the new mortgage and the release of the old were never
registered; and on September 25, 1920, thereafter, Elser returned the cancellation of
the mortgage on the Carriedo property and took back from the Fidelity & Surety Co.
the new mortgage on the M. H. del Pilar property, together with the 1,000 shares of
the J. K. Pickering & Company which he had delivered to it.
The explanation of this change of purpose is undoubtedly to be found in the fact that
Lyons had arrived in Manila on September 21, 1920, and shortly thereafter, in the
course of a conversation with Elser told him to let the Carriedo mortgage remain on
the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation
in which Lyons used the words above quoted, and as that conversation supplies the
most reasonable explanation of Elser's recession from his purpose of relieving the
Carriedo property, the trial court was, in our opinion, well justified in accepting as a
proven fact the consent of Lyons for the mortgage to remain on the Carriedo property.
This concession was not only reasonable under the circumstances, in view of the
abundant solvency of Elser, but in view of the further fact that Elser had given to Lyons
200 shares of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in
excess of the indebtedness which Elser had owed to Lyons upon statement of account.
The trial court found in effect that the excess value of these shares over Elser's actual
indebtedness was conceded by Elser to Lyons in consideration of the assistance that
had been derived from the mortgage placed upon Lyon's interest in the Carriedo
property. Whether the agreement was reached exactly upon this precise line of
thought is of little moment, but the relations of the parties had been such that it was
to be expected that Elser would be generous; and he could scarcely have failed to take
account of the use he had made of the joint property of the two.
As the development of the San Juan Estate was a success from the start, Elser paid the
note of P50,000 to Uy Siuliong on January 18, 1921, although it was not due until more
than five months later. It will thus be seen that the mortgaging of the Carriedo
property never resulted in damage to Lyons to the extent of a single cent; and
although the court refused to allow the defendant to prove the Elser was solvent at
this time in an amount much greater than the entire encumbrance placed upon the
property, it is evident that the risk imposed upon Lyons was negligible. It is also plain
that no money actually deriving from this mortgage was ever applied to the purchase
of the San Juan Estate. What really happened was the Elser merely subjected the
property to a contingent liability, and no actual liability ever resulted therefrom. The
financing of the purchase of the San Juan Estate, apart from the modest financial
participation of his three associates in the San Juan deal, was the work of Elser
accomplished entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000
upon the equity of redemption in the Carriedo property, Lyons, as half owner of said
property, became, as it were, involuntarily the owner of an undivided interest in the
property acquired partly by that money; and it is insisted for him that, in consideration

of this fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K.
Pickering & Company, with the earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that the money obtained
from Uy Siuliong in the manner already explained had been used to held finance the
purchase of the San Juan Estate. He seems to have supposed that the Carried property
had been mortgaged to aid in putting through another deal, namely, the purchase of a
property referred to in the correspondence as the "Ronquillo property"; and in this
connection a letter of Elser of the latter part of May, 1920, can be quoted in which he
uses this language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo property.
Will use part of the money for Ronquillo buy (P60,000) if the owner comes
through.
Other correspondence shows that Elser had apparently been trying to buy the
Ronquillo property, and Lyons leads us to infer that he thought that the money
obtained by mortgaging the Carriedo property had been used in the purchase of this
property. It doubtedless appeared so to him in the retrospect, but certain consideration
show that he was inattentive to the contents of the quotation from the letter above
given. He had already been informed that, although Elser was angling for the Ronquillo
property, its price had gone up, thus introducing a doubt as to whether he could get it;
and the quotation above given shows that the intended use of the money obtained by
mortgaging the Carriedo property was that only part of the P50,000 thus obtained
would be used in this way, if the deal went through. Naturally, upon the arrival of
Lyons in September, 1920, one of his first inquiries would have been, if he did not
know before, what was the status of the proposed trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled
Lyons something to this effect;: "I have mortgaged the property on Carriedo Street,
secured by my personal note. You are amply protected. I wish you to join me in the San
Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram was
received by him, and we consider this point of fact of little moment, since the proof
shows that Lyons knew that the Carriedo mortgage had been executed, and after his
arrival in Manila he consented for the mortgage to remain on the property until it was
paid off, as shortly occurred. It may well be that Lyons did not at first clearly
understand all the ramifications of the situation, but he knew enough, we think, to
apprise him of the material factors in the situation, and we concur in the conclusion of
the trial court that Elser did not act in bad faith and was guilty of no fraud.
In the purely legal aspect of the case, the position of the appellant is, in our opinion,
untenable. If Elser had used any money actually belonging to Lyons in this deal, he
would under article 1724 of the Civil Code and article 264 of the Code of Commerce,
be obligated to pay interest upon the money so applied to his own use. Under the law
prevailing in this jurisdiction a trust does not ordinarily attach with respect to property
acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1
Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of
partnership had existed in the money used, the case might be difference; and much

emphasis is laid in the appellant's brief upon the relation of partnership which, it is
claimed, existed. But there was clearly no general relation of partnership, under article
1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not
acting for any partnership composed of himself and Lyons, and the law cannot be
distorted into a proposition which would make Lyons a participant in this deal contrary
to his express determination.
It seems to be supposed that the doctrines of equity worked out in the jurisprudence of
England and the United States with reference to trust supply a basis for this action.
The doctrines referred to operate, however, only where money belonging to one
person is used by another for the acquisition of property which should belong to both;
and it takes but little discernment to see that the situation here involved is not one for
the application of that doctrine, for no money belonging to Lyons or any partnership
composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan
Estate. Of course, if any damage had been caused to Lyons by the placing of the
mortgage upon the equity of redemption in the Carriedo property, Elser's estate would
be liable for such damage. But it is evident that Lyons was not prejudice by that act.
The appellee insist that the trial court committed error in admitting the testimony of
Lyons upon matters that passed between him and Elser while the latter was still alive.
While the admission of this testimony was of questionable propriety, any error made
by the trial court on this point was error without injury, and the determination of the
question is not necessary to this decision. We therefore pass the point without further
discussion.
The judgment appealed from will be affirmed, and it is so ordered, with costs against
the appellant.
Avancea, C.J., Johnson, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur.

2. Tuazon v. Bolanos, 95 Phil 106 (1954)

G.R. No. L-4935

May 28, 1954

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

ARANETA,
INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:

This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City.

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

Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of Title
No. 37686 of the land record of Rizal Province and as containing an area of 13 hectares
more or less. But the complaint was amended by reducing the area of 6 hectares,
more or less, after the defendant had indicated the plaintiff's surveyors the portion of
land claimed and occupied by him. The second amendment became necessary and
was allowed following the testimony of plaintiff's surveyors that a portion of the area
was embraced in another certificate of title, which was plaintiff's Transfer Certificate of
Title No. 37677. And still later, in the course of trial, after defendant's surveyor and
witness, Quirino Feria, had testified that the area occupied and claimed by defendant
was about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave of
court, amended its complaint to make its allegations conform to the evidence.

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

Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute) under
claim of ownership, adverse to the entire world by defendant and his predecessor in
interest" from "time in-memorial". The answer further alleges that registration of the
land in dispute was obtained by plaintiff or its predecessors in interest thru "fraud or
error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the land to
defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940,
until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case
was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the
litigation.
V. The trial court erred in holding that the land in dispute is covered by
transfer certificates of Title Nos. 37686 and 37677.

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

Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of
Civil Procedure, ruled that where the facts shown entitled plaintiff to relief
other than that asked for, no amendment to the complaint is necessary,
especially where defendant has himself raised the point on which recovery is
based, and that the appellate court treat the pleadings as amended to
conform to the evidence, although the pleadings were not actually amended.
(I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that described or represented in Exhibit A
and in Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant later
changed his lawyer and also his theory and tried to prove that the land in dispute was
not covered by plaintiff's certificate of title. The evidence, however, is against
defendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square meters,
more or less, covered by transfer certificate of title No. 37686 of the land records of
Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an area of
74,789 square meters, more or less, covered by transfer certificate of title No. 37677
of the land records of the same province, both lots having been originally registered on
July 8, 1914 under original certificate of title No. 735. The identity of the lots was
established by the testimony of Antonio Manahan and Magno Faustino, witnesses for
plaintiff, and the identity of the portion thereof claimed by defendant was established
by the testimony of his own witness, Quirico Feria. The combined testimony of these
three witnesses clearly shows that the portion claimed by defendant is made up of a
part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well within the area covered
by the two transfer certificates of title already mentioned. This fact also appears
admitted in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the decree
be collaterally attacked by any person claiming title to, or interest in, the land prior to
the registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could
title to that land in derogation of that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious and
continuous possession under claim of ownership for the period fixed by law is
ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off.
Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession
under a decree of registration does not prescribed. (Francisco vs. Cruz, 43 Off. Gaz.,
5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the

case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the
alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940,
until he vacates the premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as stipulated at the hearing
was P10 a month for each hectare and that the area occupied by defendant was
13.2619 hectares. The total rent to be paid for the area occupied should therefore be
P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had already been filed against
defendant. And it cannot be supposed that defendant has been paying rents, for he
has been asserting all along that the premises in question 'have always been since
time immemorial in open, continuous, exclusive and public and notorious possession
and under claim of ownership adverse to the entire world by defendant and his
predecessors in interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a
motion to dismiss alleging that there is pending before the Court of First Instance of
Rizal another action between the same parties and for the same cause and seeking to
sustain that allegation with a copy of the complaint filed in said action. But an
examination of that complaint reveals that appellant's allegation is not correct, for the
pretended identity of parties and cause of action in the two suits does not appear. That
other case is one for recovery of ownership, while the present one is for recovery of
possession. And while appellant claims that he is also involved in that order action
because it is a class suit, the complaint does not show that such is really the case. On
the contrary, it appears that the action seeks relief for each individual plaintiff and not
relief for and on behalf of others. The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and
Concepcion, JJ., concur.

3. Lim Tong Lim vs. Phil. Fishing. 317 SCRA 728 (1999)
[G.R. No. 136448. November 3, 1999]
LIM

TONG LIM, petitioner,

INC., respondent.

vs. PHILIPPINE

FISHING

GEAR

INDUSTRIES,

DECISION

PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow
money to pursue a business and to divide the profits or losses that may arise
therefrom, even if it is shown that they have not contributed any capital of their own to
a "common fund." Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partners, they are all liable for debts incurred
by or on behalf of the partnership. The liability for a contract entered into on behalf of
an unincorporated association or ostensible corporation may lie in a person who may
not have directly transacted on its behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November
26, 1998 Decision of the Court of Appeals in CA-GR CV 41477,[1] which disposed as
follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is
hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which
was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on
September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to
the modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by
the Agreement plus P68,000.00 representing the unpaid price of the floats not covered
by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on
their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February
9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February
19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per
appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets
counted from September 20, 1990 (date of attachment) to September 12, 1991 (date
of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the
unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount of P600,045.00, this Court noted that these items
were attached to guarantee any judgment that may be rendered in favor of the
plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the
nets during the pendency of this case, it was ordered sold at public auction for not less
than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds
of the sale paid for by plaintiff was deposited in court. In effect, the amount
of P900,000.00 replaced the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership and possession of the
nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as stipulated in the invoices;
hence, in effect, the plaintiff attached its own properties. It [was] for this reason also
that this Court earlier ordered the attachment bond filed by plaintiff to guaranty
damages to defendants to be cancelled and for 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]

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;

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.

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]

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]

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:

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and
Lim, as general partners, were jointly liable to pay respondent.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based
(1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement
executed by the three[9] in Civil Case No. 1492-MN which Chua and Yao had brought
against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c) a declaration of ownership
of fishing boats; (d) an injunction and (e) damages.[10] The Compromise Agreement
provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in
the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or
Lim Tong Lim;

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]

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the
RTC.
Ruling of the Court of Appeals

The evidence establishes that all the defendants including herein appellant Lim Tong
Lim undertook a partnership for a specific undertaking, that is for commercial fishing x
x x. Obviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is x x x. By a contract of
partnership, two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves
(Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed
Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT
THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE
FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the fishing nets and
floats purchased from respondent, the Court must resolve this key issue: whether by
their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling
The Petition is devoid of merit.
First and Second Issues: Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from
respondent, petitioner controverts the CA finding that a partnership existed between
him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the
Compromise Agreement alone. Furthermore, he disclaims any direct participation in
the purchase of the nets, alleging that the negotiations were conducted by Chua and
Yao only, and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a partner, of Chua and
Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had merely
leased to the two the main asset of the purported partnership -- the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25
percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the
two lower courts clearly showed that there existed a partnership among Chua, Yao and
him, pursuant to Article 1767 of the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial
fishing to join him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire
two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed
of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as
security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the
partnership in the amount of P1 million secured by a check, because of which, Yao and
Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and
Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought
nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72
by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c) declaration of ownership of
fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners
brother. In their Compromise Agreement, they subsequently revealed their intention to
pay the loan with the proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term common fund under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the
boat, but also to that of the nets and the floats. The fishing nets and the floats, both
essential to fishing, were obviously acquired in furtherance of their business. It would
have been inconceivable for Lim to involve himself so much in buying the boat but not
in the acquisition of the aforesaid equipment, without which the business could not
have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and
Yao, a partnership engaged in the fishing business. They purchased the boats, which
constituted the main assets of the partnership, and they agreed that the proceeds
from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the foregoing factual findings of the RTC and the
CA are binding on this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule.[16] In assailing the factual findings of
the two lower courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the existence
of a partnership was the Compromise Agreement. He also claims that the settlement
was entered into only to end the dispute among them, but not to adjudicate their
preexisting rights and obligations. His arguments are baseless. The Agreement was
but an embodiment of the relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and
thoroughly appraise all relevant facts. Both lower courts have done so and have found,
correctly, a preexisting partnership among the parties. In implying that the lower
courts have decided on the basis of one piece of document alone, petitioner fails to
appreciate that the CA and the RTC delved into the history of the document and
explored all the possible consequential combinations in harmony with law, logic and
fairness. Verily, the two lower courts factual findings mentioned above nullified
petitioners argument that the existence of a partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly
finds support in the Contract of Lease and the registration papers showing that he was
the owner of the boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he
consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess
of the proceeds to be divided among the three of them. No lessor would do what
petitioner did. Indeed, his consent to the sale proved that there was a preexisting
partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement
with Chua and Yao, in which debts were undertaken in order to finance the acquisition
and the upgrading of the vessels which would be used in their fishing business. The
sale of the boats, as well as the division among the three of the balance remaining
after the payment of their loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset of the partnership. It is
not uncommon to register the properties acquired from a loan in the name of the
person the lender trusts, who in this case is the petitioner himself. After all, he is the
brother of the creditor, Jesus Lim.

We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his

property to pay a debt he did not incur, if the relationship among the three of them
was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can
be imputed only to Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a
party may be estopped from denying its corporate existence. The reason behind this
doctrine is obvious - an unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes of a corporation
as provided by law; it cannot create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its representatives or agents do so
without authority and at their own risk. And as it is an elementary principle of law that
a person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and becomes personally liable
for contracts entered into or for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and
to a third party. In the first instance, an unincorporated association, which represented
itself to be a corporation, will be estopped from denying its corporate capacity in a suit
against it by a third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a contract it entered
into and by virtue of which itreceived 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 tailormade 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.

4. Litonjua v. LitonjuaG.R. Nos. 166299-300 December 13, 2005

AURELIO K. LITONJUA, JR.,
Petitioner,

G.R. NOS. 166299-300

- versus
EDUARDO K. LITONJUA, SR., ROBERT T. YANG,
ANGLO PHILS. MARITIME, INC., CINEPLEX, INC.,
DDM GARMENTS, INC., EDDIE K. LITONJUA
SHIPPING AGENCY, INC., EDDIE K. LITONJUA
SHIPPING CO., INC., LITONJUA SECURITIES, INC.
(formerly E. K. Litonjua Sec), LUNETA THEATER,
INC., E & L REALTY, (formerly E & L INTL SHIPPING
CORP.), FNP CO., INC., HOME ENTERPRISES, INC.,
BEAUMONT DEV. REALTY CO., INC., GLOED LAND
CORP., EQUITY TRADING CO., INC., 3D CORP., L DEV.
CORP, LCM
THEATRICAL ENTERPRISES,
INC.,
LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON
REALTY CORP., SARATOGA REALTY, INC., ACT
THEATER INC. (formerly General Theatrical & Film
Exchange, INC.), AVENUE REALTY, INC., AVENUE
THEATER, INC. and LVF PHILIPPINES, INC.,
(Formerly VF PHILIPPINES),
Respondents.
x--------------------------------------------

Present:
PANGANIBAN, J., Chairman
SANDOVAL- GUTIERREZ,
CORONA,
CARPIO MORALES and
GARCIA, JJ.
Promulgated:
December 13, 2005

-----x

DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K.
Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA)
dated March 31, 2004[1] in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R.
SP. No 78774 and its Resolution dated December 07, 2004,[2] denying petitioners
motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua,
Sr. (Eduardo) are brothers. The legal dispute between them started when, on

10

December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit
against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting. In his complaint,[3] docketed as
Civil Case No. 69235 and eventually raffled to Branch 68 of the court, [4] Aurelio
alleged that, since June 1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among
other corporations. Yang is described in the complaint as petitioners and Eduardos
partner in their Odeon Theater investment.[5] The same complaint also contained the
following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a
joint venture/partnership for the continuation of their family business
and common family funds .
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and
other relatives. Copy of this memorandum is attached hereto and
made an integral part as Annex A and the portion referring to
[Aurelio] submarked as Annex A-1.
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelios] retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and land development)
and contributing his industry to the continued operation of these
businesses, [Aurelio] will be given P1 Million or 10% equity in all
these businesses and those to be subsequently acquired by them
whichever is greater. . . .
4.01 from 22 June 1973 to about August 2001, or [in] a span of 28
years, [Aurelio] and Eduardo had accumulated in their joint
venture/partnership various assets including but not limited to the
corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership had also acquired
[various other assets], but Eduardo caused to be registered in the
names of other parties.
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants
consist of real properties . A list of some of these real properties is
attached hereto and made an integral part as Annex B.
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo
became sour so that [Aurelio] requested for an accounting and
liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that
Eduardo and/or the corporate defendants as well as Bobby [Yang],
are transferring . . . various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud of
[Aurelio]. In consequence, [Aurelio] is therefore causing at this time

the annotation on the titles of these real properties a notice of lis

pendens . (Emphasis in the original; underscoring and words in
bracket added.)
For ease of reference, Annex A-1 of the complaint, which petitioner asserts to have
been meant for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow the
pattern . You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this office
every time I am away. I want you to run it the way I am trying to run
it because I will be all alone and I will depend entirely to you (sic). My
sons will not be ready to help me yet until about maybe 15/20 years
from now. Whatever is left in the corporation, I will make sure that
you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%)
equity, whichever is greater. We two will gamble the whole thing of
what I have and what you are entitled to. . It will be you and me
alone on this. If ever I pass away, I want you to take care of all of
this. You keep my share for my two sons are ready take over but give
them the chance to run the company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first
ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset,
like Lt. Artiaga so you can live better there. The rest I will give you in
form of stocks which you can keep. This stock I assure you is good
and saleable. I will also gladly give you the share of Wack-Wack and
Valley Golf because you have been good. The rest will be in stocks
from all the corporations which I repeat, ten percent (10%)
equity. [6]
On December 20, 2002, Eduardo and the corporate respondents, as defendants a
quo, filed a joint ANSWER With Compulsory Counterclaim denying under oath the
material allegations of the complaint, more particularly that portion thereof depicting
petitioner and Eduardo as having entered into a contract of partnership. As affirmative
defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged that the
complaint states no cause of action, since no cause of action may be derived from the
actionable document, i.e., Annex A-1, being void under the terms of Article 1767 in
relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever
undertaking Eduardo agreed to do, if any, under Annex A-1, are unenforceable under
the provisions of the Statute of Frauds.[7]
For his part, Yang - who was served with summons long after the other defendants
submitted their answer moved to dismiss on the ground, inter alia, that, as to him,
petitioner has no cause of action and the complaint does not state any. [8] Petitioner
opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.
[9] To this motion, petitioner interposed an Opposition with ex-Parte Motion to Set the
Case for Pre-trial.[10]

11

Acting on the separate motions immediately adverted to above, the trial

court, in an Omnibus Order dated March 5, 2003, denied the affirmative defenses and,
except for Yang, set the case for pre-trial on April 10, 2003.[11]
In another Omnibus Order of April 2, 2003, the same court denied the motion
of Eduardo, et al., for reconsideration[12] and Yangs motion to dismiss. The following
then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right
to seek reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed
motion to dismiss[13] to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of
April 2, 2003, but his motion was denied in an Order of July 4, 2003.[14]
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,
[15] to nullify the separate orders of the trial court, the first denying his motion to
dismiss the basic complaint and, the second, denying his motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave
abuse of discretion and injudicious haste attended the issuance of the trial courts
aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief from
the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP
No. 76987.
Per its resolution dated October 2, 2003,[16] the CAs 14th Division ordered
the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of
Authorities, the appellate court came out with the herein assailed Decision dated
March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing
as follows:
WHEREFORE, judgment is hereby rendered granting the
issuance of the writ of certiorari in these consolidated cases
annulling, reversing and setting aside the assailed orders of the
court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and
the complaint filed by private respondent [now petitioner Aurelio]
against all the petitioners [now herein respondents Eduardo, et al.]
with the court a quo is hereby dismissed.
SO ORDERED.[17] (Emphasis in the original; words in bracket
added.)
Explaining its case disposition, the appellate court stated, inter alia, that the alleged
partnership, as evidenced by the actionable documents, Annex A and A-1 attached to
the complaint, and upon which petitioner solely predicates his right/s allegedly
violated by Eduardo, Yang and the corporate defendants a quo is void or legally
inexistent.
In time, petitioner moved for reconsideration but his motion was denied by
the CA in its equally assailed Resolution of December 7, 2004.[18] .
Hence, petitioners present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the

actionable document because this was not a public instrument and
immovable properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against
[respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal
when all that Petitioner had done was to support his pleaded cause
of action by another legal perspective/argument.
The petition lacks merit.
Petitioners demand, as defined in the petitory portion of his complaint in the
trial court, is for delivery or payment to him, as Eduardos and Yangs partner, of his
partnership/joint venture share, after an accounting has been duly conducted of
what he deems to be partnership/joint venture property.[19]
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the understanding that
there shall be a proportionate sharing of the profits and losses between them.[20] A
contract of partnership is defined by the Civil Code as one where two or more
persons bound themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profits among themselves.[21] A joint venture,
on the other hand, is hardly distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e., community of interests in the
business and sharing of profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on partnership.[22]
The underlying issue that necessarily comes to mind in this proceedings is
whether or not petitioner and respondent Eduardo are partners in the theatre, shipping
and realty business, as one claims but which the other denies. And the issue bearing
on the first assigned error relates to the question of what legal provision is applicable
under the premises, petitioner seeking, as it were, to enforce the actionable document
- Annex A-1 - which he depicts in his complaint to be the contract of partnership/joint
venture between himself and Eduardo. Clearly, then, a look at the legal provisions
determinative of the existence, or defining the formal requisites, of a partnership is
indicated. Foremost of these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph
shall not affect the liability of the partnership and the members
thereof to third persons.

12

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

property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
Annex A-1, on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that
Annex A-1does not meet the public instrumentation requirements exacted under
Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or property, Annex A-1 cannot be
presented for notarization, let alone registered with the Securities and Exchange
Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as
the inventory requirement under the succeeding Article 1773 goes into the matter of
validity when immovable property is contributed to the partnership, the next logical
point of inquiry turns on the nature of petitioners contribution, if any, to the supposed
partnership.
The CA, addressing the foregoing query, correctly stated that petitioners
contribution consisted of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint
would show that [petitioners] contribution to the so-called
partnership/joint venture was his supposed share in the family
business that is consisting of movie theaters, shipping and land
development under paragraph 3.02 of the complaint. In other words,
his contribution as a partner in the alleged partnership/joint venture
consisted of immovable properties and real rights. .[23]
Significantly enough, petitioner matter-of-factly concurred with the appellate
courts observation that, prescinding from what he himself alleged in his basic
complaint, his contribution to the partnership consisted of his share in the Litonjua
family businesses which owned variable immovable properties. Petitioners assertion in
his motion for reconsideration[24] of the CAs decision, that what was to be contributed
to the business [of the partnership] was [petitioners] industry and his share in the
family [theatre and land development] business leaves no room for speculation as to
what petitioner contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under
Article 1773 of the Civil Code applies as long real property or real rights are initially
brought into the partnership. In short, it is really of no moment which of the partners,
or, in this case, who between petitioner and his brother Eduardo, contributed
immovables. In context, the more important consideration is that real property was
contributed, in which case an inventory of the contributed property duly signed by the
parties should be attached to the public instrument, else there is legally no partnership
to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues
that the immovables in question were not contributed, but were acquired after the
formation of the supposed partnership. Needless to stress, the Court cannot accord
cogency to this specious argument. For, as earlier stated, petitioner himself admitted
contributing his share in the supposed shipping, movie theatres and realty
development family businesses which already owned immovables even before
Annex A-1 was allegedly executed.
Considering thus the value and nature of petitioners alleged contribution to
the purported partnership, the Court, even if so disposed, cannot plausibly extend
Annex A-1 the legal effects that petitioner so desires and pleads to be given. Annex A-

1, in fine, cannot support the existence of the partnership sued upon and sought to be
enforced. The legal and factual milieu of the case calls for this disposition. A
partnership may be constituted in any form, save when immovable property or real
rights are contributed thereto or when the partnership has a capital of at
least P3,000.00, in which case a public instrument shall be necessary.[25] And if only
to stress what has repeatedly been articulated, an inventory to be signed by the
parties and attached to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its assailed
Decision[26] about the probative value and legal effect of Annex A-1 commends itself
for concurrence:
Considering that the allegations in the complaint showed that
[petitioner] contributed immovable properties to the alleged partnership, the
Memorandum (Annex A of the complaint) which purports to establish the said
partnership/joint venture is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such, the
said Memorandum is null and void for purposes of establishing the existence
of a valid contract of partnership. Indeed, because of the failure to comply
with the essential formalities of a valid contract, the purported
partnership/joint venture is legally inexistent and it produces no effect
whatsoever. Necessarily, a void or legally inexistent contract cannot be the
source of any contractual or legal right. Accordingly, the allegations in the
complaint, including the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid contractual or legal right which
could be violated by the [individual respondents] herein. As a consequence,
[petitioners] complaint does NOT state a valid cause of action because NOT
all the essential elements of a cause of action are present. (Underscoring and
words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CAs equally
assailed Resolution of December 7, 2004[27] denying petitioners motion for
reconsideration:
Further, We conclude that despite glaring defects in the allegations in the
complaint as well as the actionable document attached thereto
(Rollo, p. 191), the [trial] court did not appreciate and apply the legal
provisions which were brought to its attention by herein
[respondents] in the their pleadings. In our evaluation of [petitioners]
complaint, the latter alleged inter alia to have contributed
immovable properties to the alleged partnership but the actionable
document is not a public document and there was no inventory of
immovable properties signed by the parties. Both the allegations in
the complaint and the actionable documents considered, it is crystal
clear that [petitioner] has no valid or legal right which could be
violated by [respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioners posture that Annex A-1, assuming its
inefficacy or nullity as a partnership document, nevertheless created
demandable rights in his favor. As petitioner succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may

13

not be a partnership. This actionable contract is what is known as an

innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely
the contract does create rights and obligations of the parties and
which rights and obligations may be enforceable and demandable.
Just because the relationship created by the agreement cannot be
specifically labeled or pigeonholed into a category of nominate
contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and
earlier on the CA after he experienced a reversal of fortune thereat - as an
afterthought. The appellate court, however, cannot really be faulted for not yielding to
petitioners dubious stratagem of altering his theory of joint venture/partnership to an
innominate contract. For, at bottom, the appellate courts certiorari jurisdiction was
circumscribed by what was alleged to have been the order/s issued by the trial court in
grave abuse of discretion. As respondent Yang pointedly observed,[28] since the
parties basic position had been well-defined, that of petitioner being that the
actionable document established a partnership/joint venture, it is on those positions
that the appellate court exercised its certiorari jurisdiction. Petitioners act of changing
his original theory is an impermissible practice and constitutes, as the CA aptly
declared, an admission of the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance,
he has now contended that the actionable instrument may be
considered an innominate contract. xxx Verily, this now changes
[petitioners] theory of the case which is not only prohibited by the
Rules but also is an implied admission that the very theory he
himself has adopted, filed and prosecuted before the respondent
court is erroneous.
Be that as it may . . We hold that this new theory contravenes [petitioners]
theory of the actionable document being a partnership document. If
anything, it is so obvious we do have to test the sufficiency of the
cause of action on the basis of partnership law xxx.[29] (Emphasis in
the original; Words in bracket added).
But even assuming in gratia argumenti that Annex A-1 partakes of a perfected
innominate contract, petitioners complaint would still be dismissible as against
Eduardo and, more so, against Yang. It cannot be over-emphasized that petitioner
points to Eduardo as the author of Annex A-1. Withal, even on this consideration
alone, petitioners claim against Yang is doomed from the very start.
As it were, the only portion of Annex A-1 which could perhaps be remotely regarded as
vesting petitioner with a right to demand from respondent Eduardo the observance of
a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I
will ask you to stay as I want you to run this office everytime I am
away. I want you to run it the way I am trying to run it because I will
be alone and I will depend entirely to you, My sons will not be ready
to help me yet until about maybe 15/20 years from now. Whatever is
left in the corporation, I will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is
greater. (Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself under the
above passage, if he indeed wrote Annex A-1, is a promise which is not to be
performed within one year from contract execution on June 22, 1973.
Accordingly, the agreement embodied in Annex A-1 is covered by the Statute
of Frauds and ergo unenforceable for non-compliance therewith.[30] By force
of the statute of frauds, an agreement that by its terms is not to be performed
within a year from the making thereof shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing
and subscribed by the party charged. Corollarily, no action can be proved
unless the requirement exacted by the statute of frauds is complied with.[31]
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10%
equity of the family businesses supposedly promised by Eduardo to give in
the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would be to
read something not written in Annex A-1. Thus, even this angle alone argues
against the very idea of a partnership, the creation of which requires two or
more contracting minds mutually agreeing to contribute money, property or
industry to a common fund with the intention of dividing the profits between
or among themselves.[32]
In sum then, the Court rules, as did the CA, that petitioners complaint for specific
performance anchored on an actionable document of partnership which is legally
inexistent or void or, at best, unenforceable does not state a cause of action as against
respondent Eduardo and the corporate defendants. And if no of action can successfully
be maintained against respondent Eduardo because no valid partnership existed
between him and petitioner, the Court cannot see its way clear on how the same
action could plausibly prosper against Yang. Surely, Yang could not have become a
partner in, or could not have had any form of business relationship with, an inexistent
partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus that
would tie Yang to him as his partner. In fact, attendant circumstances would indicate
the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was for the continuation of their family
business and common family funds which were theretofore being mainly
managed by Eduardo. [33] But Yang denies kinship with the Litonjua family
and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will
be. No allegation is made whatsoever about what Yang contributed, if any, let
alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable
document did not contain such provision, let alone mention the name of Yang.
How, indeed, could a person be considered a partner when the document
purporting to establish the partnership contract did not even mention his
name.
3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo are
business partners in the [respondent] corporations, while Bobby is his and
Eduardos partner in their Odeon Theater investment (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang became
their partner in their Odeon Theater investment thereafter. Several
paragraphs later, however, petitioner would contradict himself by alleging
that his investment and that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of profit income and direct

14

investments in several corporation including but not limited to [six] corporate

respondents This simply means that the Odeon Theatre business came before
the corporate respondents. Significantly enough, petitioner refers to the
corporate respondents as progeny of the Odeon Theatre business.[34]
Needless to stress, petitioner has not sufficiently established in his complaint the
legal vinculum whence he sourced his right to drag Yang into the fray. The Court of
Appeals, in its assailed decision, captured and formulated the legal situation in the
following wise:

8. Whether or not the actionable document creates a

partnership, joint venture, or whatever, is a legal matter. What is
determinative for purposes of sufficiency of the complainants
allegations, is whether the actionable document bears out an
actionable contract be it a partnership, a joint venture or whatever
or some innominate contract It may be noted that one kind of
innominate contract is what is known as du ut facias (I give that you
may do).[37]

[Respondent] Yang, is impleaded because, as alleged in the

complaint, he is a partner of [Eduardo] and the [petitioner] in the
Odeon Theater Investment which expanded through reinvestments
of profits and direct investments in several corporations, thus:

43. Contrariwise, this actionable document, especially its

above-quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is what
is known as an innominate contract (Civil Code, Article 1307).[38]

xxx xxx xxx

Clearly, [petitioners] claim against Yang arose from his alleged
partnership with petitioner and the respondent. However, there was
NO allegation in the complaint which directly alleged how the
supposed contractual relation was created between [petitioner] and
Yang. More importantly, however, the foregoing ruling of this Court
that the purported partnership between [Eduardo] is void and legally
inexistent directly affects said claim against Yang. Since [petitioner]
is trying to establish his claim against Yang by linking him to the
legally inexistent partnership . . . such attempt had become futile
because there was NOTHING that would contractually connect
[petitioner] and Yang. To establish a valid cause of action, the
complaint should have a statement of fact upon which to connect
[respondent] Yang to the alleged partnership between [petitioner]
and respondent [Eduardo], including their alleged investment in the
Odeon Theater. A statement of facts on those matters is pivotal to
the complaint as they would constitute the ultimate facts necessary
to establish the elements of a cause of action against Yang. [35]

Springing surprises on the opposing party is offensive to the sporting idea of fair play,
justice and due process; hence, the proscription against a party shifting from one
theory at the trial court to a new and different theory in the appellate court.[39] On
the same rationale, an issue which was neither averred in the complaint cannot be
raised for the first time on appeal.[40] It is not difficult, therefore, to agree with the CA
when it made short shrift of petitioners innominate contract theory on the basis of the
foregoing basic reasons.
Petitioners protestation that his act of introducing the concept of innominate contract
was not a case of changing theories but of supporting his pleaded cause of action that
of the existence of a partnership - by another legal perspective/argument, strikes the
Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his
motion for reconsideration of the CAs decision virtually relegates partnership as a fallback theory. Two paragraphs later, in the same notion, petitioner faults the appellate
court for reading, with myopic eyes, the actionable document solely as establishing a
partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging
on whether or not to pursue the original cause of action or altogether abandoning the
same, thus:
12.

Pressing its point, the CA later stated in its resolution denying petitioners
motion for reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable
document attached to the complaint that is controlling. Suffice it to
state, We have not ignored the actionable document As a matter of
fact, We emphasized in our decision that insofar as [Yang] is
concerned, he is not even mentioned in the said actionable
document. We are therefore puzzled how a person not mentioned in
a document purporting to establish a partnership could be
considered a partner.[36] (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his
theory of the case, as peremptorily determined by the CA, has been discussed at
length earlier and need not detain us long. Suffice it to say that after the CA has ruled
that the alleged partnership is inexistent, petitioner took a different tack. Thus, from a
joint venture/partnership theory which he adopted and consistently pursued in his
complaint, petitioner embraced the innominate contract theory. Illustrative of this shift
is petitioners statement in par. #8 of his motion for reconsideration of the CAs decision
combined with what he said in par. # 43 of this petition, as follows:

Incidentally, assuming that the actionable document created a

partnership between [respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the
actionable document attached to the complaint does not establish a
contractual relationship between [petitioner] and Eduardo, Sr. and
Roberto T Yang simply because his document does not create a
partnership or a joint venture. This is a myopic reading of the
actionable document.

Per the Courts own count, petitioner used in his complaint the mixed words joint
venture/partnership nineteen (19) times and the term partner four (4) times. He made
reference to the law of joint venture/partnership [being applicable] to the business
relationship between [him], Eduardo and Bobby [Yang] and to his rights in all specific
properties of their joint venture/partnership. Given this consideration, petitioners right
of action against respondents Eduardo and Yang doubtless pivots on the existence of
the partnership between the three of them, as purportedly evidenced by the undated
and unsigned Annex A-1. A void Annex A-1, as an actionable document of partnership,
would strip petitioner of a cause of action under the premises. A complaint for delivery
and accounting of partnership property based on such void or legally non-existent
actionable document is dismissible for failure to state of action. So, in gist, said the
Court of Appeals. The Court agrees.

15

WHEREFORE, the instant petition is DENIED and the impugned Decision and
Resolution of the Court of Appeals AFFIRMED.
Cost against the petitioner.
SO ORDERED.

nonresident foreign reinsurance company. May the clearing house or insurance pool so
formed be deemed a partnership or an association that is taxable as a corporation
under the National Internal Revenue Code (NIRC)? Should the pools remittances to the
member companies and to the said foreign firm be taxable as dividends? Under the
facts of this case, has the governments right to assess and collect said tax prescribed?
The Case

5. AFISCO v. CA G.R. No. 112675, January 25, 1999

[G.R. No. 112675. January 25, 1999]
AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION; CHARTER
INSURANCE
CO.,
INC.;
CIBELES
INSURANCE
CORPORATION;
COMMONWEALTH INSURANCE COMPANY; CONSOLIDATED INSURANCE
CO., INC.; DEVELOPMENT INSURANCE & SURETY CORPORATION;
DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES; EASTERN
ASSURANCE COMPANY & SURETY CORP.; EMPIRE INSURANCE
COMPANY;
EQUITABLE
INSURANCE
CORPORATION;
FEDERAL
INSURANCE CORPORATION INC.; FGU INSURANCE CORPORATION;
FIDELITY & SURETY COMPANY OF THE PHILS., INC.;FILIPINO
MERCHANTS
INSURANCE
CO.,
INC.;
GOVERNMENT
SERVICE
INSURANCE SYSTEM; MALAYAN INSURANCE CO., INC.; MALAYAN
ZURICH INSURANCE CO., INC.; MERCANTILE INSURANCE CO., INC.;
METROPOLITAN INSURANCE COMPANY; METRO-TAISHO INSURANCE
CORPORATION; NEW ZEALAND INSURANCE CO., LTD.; PAN-MALAYAN
INSURANCE CORPORATION; PARAMOUNT INSURANCE CORPORATION;
PEOPLES
TRANS-EAST
ASIA
INSURANCE
CORPORATION;
PERLA COMPANIA
DE
SEGUROS,
INC.;
PHILIPPINE
BRITISH
ASSURANCE CO., INC.; PHILIPPINE FIRST INSURANCE CO., INC.;
PIONEER INSURANCE & SURETY CORP.; PIONEER INTERCONTINENTAL
INSURANCE CORPORATION; PROVIDENT INSURANCE COMPANY OF
THE PHILIPPINES; PYRAMID INSURANCE CO., INC.; RELIANCE SURETY
& INSURANCE COMPANY; RIZAL SURETY & INSURANCE COMPANY;
SANPIRO
INSURANCE
CORPORATION;
SEABOARD-EASTERN
INSURANCE CO., INC.; SOLID GUARANTY, INC.; SOUTH SEA SURETY &
INSURANCE CO., INC.; STATE BONDING & INSURANCE CO., INC.;
SUMMA INSURANCE CORPORATION; TABACALERA INSURANCE CO.,
INC.all assessed as POOL OF MACHINERY INSURERS,petitioners, vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
DECISION
PANGANIBAN, J.:
Pursuant to reinsurance treaties, a number of local insurance firms formed
themselves into a pool in order to facilitate the handling of business contracted with a

These are the main questions raised in the Petition for Review
on Certiorari before us, assailing the October 11, 1993 Decision[1] of the Court of
Appeals[2]in CA-GR SP 29502, which dismissed petitioners appeal of the October 19,
1992 Decision[3] of the Court of Tax Appeals[4] (CTA) which had previously sustained
petitioners liability for deficiency income tax, interest and withholding tax. The Court
of Appeals ruled:
WHEREFORE, the petition is DISMISSED, with costs against petitioners.[5]
The petition also challenges the November 15, 1993 Court of Appeals (CA)
Resolution[6] denying reconsideration.
The Facts
The antecedent facts,[7] as found by the Court of Appeals, are as follows:
The petitioners are 41 non-life insurance corporations, organized and existing under
the laws of the Philippines. Upon issuance by them of Erection, Machinery Breakdown,
Boiler Explosion and Contractors All Risk insurance policies, the petitioners on August
1, 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance
Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich),
a non-resident foreign insurance corporation. The reinsurance treaties required
petitioners to form a [p]ool. Accordingly, a pool composed of the petitioners was
formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial statement and
filed an Information Return of Organization Exempt from Income Tax for the year
ending in 1975, on the basis of which it was assessed by the Commissioner of Internal
Revenue deficiency corporate taxes in the amount of P1,843,273.60, and withholding
taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and
to the petitioners, respectively.These assessments were protested by the petitioners
through its auditors Sycip, Gorres, Velayo and Co.
On January 27, 1986, the Commissioner of Internal Revenue denied the protest and
ordered the petitioners, assessed as Pool of Machinery Insurers, to pay deficiency
income tax, interest, and with[h]olding tax, itemized as follows:
Net income per information

16

return P3,737,370.00

10% withholding tax at

===========

source due thereon P 65,563.60

Income tax due thereon P1,298,080.00

Add: 25% surcharge 16,390.90

Add: 14% Int. fr. 4/15/76

14% interest from

to 4/15/79 545,193.60

1/25/76 to 1/25/79 6,884.18

TOTAL AMOUNT DUE & P1,843,273.60

Compromise penalty-

COLLECTIBLE ===========

non-filing of return 300.00

Dividend paid to Munich

late payment 300.00

Reinsurance Company P3,728,412.00

TOTAL AMOUNT DUE & P 89,438.68

===========

COLLECTIBLE ===========[8]

35% withholding tax at

The CA ruled in the main that the pool of machinery insurers was a partnership
taxable as a corporation, and that the latters collection of premiums on behalf of its
members, the ceding companies, was taxable income. It added that prescription did
not bar the Bureau of Internal Revenue (BIR) from collecting the taxes due, because
the taxpayer cannot be located at the address given in the information return
filed. Hence, this Petition for Review before us.[9]

source due thereon P1,304,944.20

Add: 25% surcharge 326,236.05
14% interest from
1/25/76 to 1/25/79 137,019.14
Compromise penaltynon-filing of return 300.00
late payment 300.00
TOTAL AMOUNT DUE & P1,768,799.39
COLLECTIBLE ===========
Dividend paid to Pool Members P 655,636.00

The Issues
Before this Court, petitioners raise the following issues:
1.Whether or not the Clearing House, acting as a mere agent and performing strictly
administrative functions, and which did not insure or assume any risk in its own name,
was a partnership or association subject to tax as a corporation;
2.Whether or not the remittances to petitioners and MUNICHRE of their respective
shares of reinsurance premiums, pertaining to their individual and separate contracts
of reinsurance, were dividends subject to tax; and
3.Whether or not the respondent Commissioners right to assess the Clearing House
had already prescribed.[10]
The Courts Ruling

===========

17

The petition is devoid of merit. We sustain the ruling of the Court of Appeals that
the pool is taxable as a corporation, and that the governments right to assess and
collect the taxes had not prescribed.

organized, but not including duly registered general co-partnership

(compaias
colectivas), general professional partnerships, private educational institutions, and
building and loan associations xxx.

First Issue:

Ineludibly, the Philippine legislature included in the concept of corporations those

entities
that
resembled
them
such
as
unregistered
partnerships
and
associations. Parenthetically, the NLRCs inclusion of such entities in the tax on
corporations was made even clearer by the Tax Reform Act of 1997,[21] which
amended the Tax Code. Pertinent provisions of the new law read as follows:

Pool Taxable as a Corporation

Petitioners contend that the Court of Appeals erred in finding that the pool or
clearing house was an informal partnership, which was taxable as a corporation under
the NIRC. They point out that the reinsurance policies were written by them
individually and separately, and that their liability was limited to the extent of their
allocated share in the original risks thus reinsured.[11] Hence, the pool did not act or
earn income as a reinsurer.[12] Its role was limited to its principal function of allocating
and distributing the risk(s) arising from the original insurance among the signatories to
the treaty or the members of the pool based on their ability to absorb the risk(s)
ceded[;] as well as the performance of incidental functions, such as records,
maintenance, collection and custody of funds, etc.[13]

SEC. 27. Rates of Income Tax on Domestic Corporations. -(A) In General. -- Except as otherwise provided in this Code, an income tax of thirtyfive percent (35%) is hereby imposed upon the taxable income derived during each
taxable year from all sources within and without the Philippines by every corporation,
as defined in Section 22 (B) of this Code, and taxable under this Title as a corporation
xxx.
SEC. 22. -- Definition. -- When used in this Title:

Petitioners belie the existence of a partnership in this case, because (1) they, the
reinsurers, did not share the same risk or solidary liability;[14] (2) there was no
common fund;[15] (3) the executive board of the pool did not exercise control and
management of its funds, unlike the board of directors of a corporation;
[16] and (4) the pool or clearing house was not and could not possibly have engaged
in the business of reinsurance from which it could have derived income for itself.[17]
The Court is not persuaded. The opinion or ruling of the Commission of Internal
Revenue, the agency tasked with the enforcement of tax laws, is accorded much
weight and even finality, when there is no showing that it is patently wrong,
[18] particularly in this case where the findings and conclusions of the internal revenue
commissioner were subsequently affirmed by the CTA, a specialized body created for
the exclusive purpose of reviewing tax cases, and the Court of Appeals.[19] Indeed,
[I]t has been the long standing policy and practice of this Court to respect the
conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the
nature of its functions, is dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject, unless there has
been an abuse or improvident exercise of its authority.[20]
This Court rules that the Court of Appeals, in affirming the CTA which had
previously sustained the internal revenue commissioner, committed no reversible
error. Section 24 of the NIRC, as worded in the year ending 1975, provides:
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is
hereby imposed upon the taxable net income received during each taxable year from
all sources by every corporation organized in, or existing under the laws of the
Philippines,
no
matter
how
created
or

xxx xxx xxx

(B) The term corporation shall include partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not include
general professional partnerships [or] a joint venture or consortium formed
for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract without the
Government. General
professional
partnerships are
partnerships
formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any
trade or business.
xxx xxx xxx."
Thus, the Court in Evangelista v. Collector of Internal Revenue[22] held that
Section 24 covered these unregistered partnerships and even associations or joint
accounts, which had no legal personalities apart from their individual members.
[23] The Court of Appeals astutely applied Evangelista:[24]
xxx Accordingly, a pool of individual real property owners dealing in real estate
business was considered a corporation for purposes of the tax in sec. 24 of the Tax
Code in Evangelista v. Collector of Internal Revenue, supra. The Supreme Court said:

18

The term partnership includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business,
financial operation, or venture is carried on. * * * (8 Mertens Law of Federal
Income Taxation, p. 562 Note 63)
Article 1767 of the Civil Code recognizes the creation of a contract of partnership
when 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. [25] Its
requisites are: (1) mutual contribution to a common stock, and (2) a joint interest in
the profits.[26] In other words, a partnership is formed when persons contract to
devote to a common purpose either money, property, or labor with the intention of
dividing the profits between themselves.[27] Meanwhile, an association implies
associates who enter into a joint enterprise x x x for the transaction of business.[28]
In the case before us, the ceding companies entered into a Pool
Agreement[29] or an association[30] that would handle all the insurance businesses
covered under their quota-share reinsurance treaty[31] and surplus reinsurance
treaty[32]with Munich. The following unmistakably indicates a partnership or an
association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other valuables
that are deposited in the name and credit of the pool.[33] This common
fund pays for the administration and operation expenses of the pool.[34]
(2) The pool functions through an executive board, which resembles the
board of directors of a corporation, composed of one representative for
each of the ceding companies.[35]
(3) True, the pool itself is not a reinsurer and does not issue any insurance
policy; however, its work is indispensable, beneficial and economically
useful to the business of the ceding companies and Munich, because
without it they would not have received their premiums. The ceding
companies share in the business ceded to the pool and in the expenses
according to a Rules of Distribution annexed to the Pool Agreement.
[36] Profit motive or business is, therefore, the primordial reason for the
pools formation. As aptly found by the CTA:
xxx The fact that the pool does not retain any profit or income does not
obliterate an antecedent fact, that of the pool being used in the transaction
of business for profit. It is apparent, and petitioners admit, that their
association or coaction was indispensable [to] the transaction of the
business. x x x If together they have conducted business, profit must have
been the object as, indeed, profit was earned. Though the profit was
apportioned among the members, this is only a matter of consequence, as
it implies that profit actually resulted.[37]

The petitioners reliance on Pascual v. Commissioner[38] is misplaced, because

the facts obtaining therein are not on all fours with the present case. In Pascual, there
was no unregistered partnership, but merely a co-ownership which took up only two
isolated
transactions.[39] The
Court
of
Appeals
did
not
err
in
applying Evangelista, which involved a partnership that engaged in a series of
transactions spanning more than ten years, as in the case before us.
Second Issue:
Pools Remittances Are Taxable
Petitioners further contend that the remittances of the pool to the ceding
companies and Munich are not dividends subject to tax. They insist that taxing such
remittances contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and would be
tantamount to an illegal double taxation, as it would result in taxing the same
premium income twice in the hands of the same taxpayer.[40] Moreover, petitioners
argue that since Munich was not a signatory to the Pool Agreement, the remittances it
received from the pool cannot be deemed dividends.[41] They add that even if such
remittances were treated as dividends, they would have been exempt under the
previously mentioned sections of the 1977 NIRC,[42] as well as Article 7 of paragraph
1[43] and Article 5 of paragraph 5[44] of the RP-West German Tax Treaty.[45]
Petitioners are clutching at straws. Double taxation means taxing the same
property twice when it should be taxed only once. That is, xxx taxing the same person
twice by the same jurisdiction for the same thing.[46] In the instant case, the pool is a
taxable entity distinct from the individual corporate entities of the ceding
companies. The tax on its income is obviously different from the tax on
the dividends received by the said companies. Clearly, there is no double taxation
here.
The tax exemptions claimed by petitioners cannot be granted, since their
entitlement thereto remains unproven and unsubstantiated. It is axiomatic in the law
of taxation that taxes are the lifeblood of the nation. Hence, exemptions therefrom are
highly disfavored in law and he who claims tax exemption must be able to justify his
claim or right.[47] Petitioners have failed to discharge this burden of proof. The
sections of the 1977 NIRC which they cite are inapplicable, because these were not yet
in effect when the income was earned and when the subject information return for the
year ending 1975 was filed.
Referring to the 1975 version of the counterpart sections of the NIRC, the Court
still cannot justify the exemptions claimed. Section 255 provides that no tax shall xxx
be paid upon reinsurance by any company that has already paid the tax xxx. This
cannot be applied to the present case because, as previously discussed, the pool is a
taxable entity distinct from the ceding companies; therefore, the latter cannot
individually claim the income tax paid by the former as their own.

19

On the other hand, Section 24 (b) (1)[48] pertains to tax on foreign corporations;
hence, it cannot be claimed by the ceding companies which are domestic
corporations. Nor can Munich, a foreign corporation, be granted exemption based
solely on this provision of the Tax Code, because the same subsection specifically
taxes dividends, the type of remittances forwarded to it by the pool. Although not a
signatory to the Pool Agreement, Munich is patently an associate of the ceding
companies in the entity formed, pursuant to their reinsurance treaties which required
the creation of said pool.
Under its pool arrangement with the ceding companies, Munich shared in their
income and loss. This is manifest from a reading of Articles 3[49] and 10[50] of the
Quota Share Reinsurance Treaty and Articles 3[51] and 10[52] of the Surplus
Reinsurance Treaty. The foregoing interpretation of Section 24 (b) (1) is in line with the
doctrine that a tax exemption must be construed strictissimi juris, and the statutory
exemption claimed must be expressed in a language too plain to be mistaken.[53]

only if the taxpayer informs the Commissioner of Internal Revenue of any change in
the address.
WHEREFORE, the petition is DENIED. The Resolutions of the Court of Appeals
dated October 11, 1993 and November 15, 1993 are hereby AFFIRMED. Costs against
petitioners.
SO ORDERED.
Romero, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

6. Arbes vs. Polistico, G.R No. 31057, September 7, 1929

Finally, the petitioners claim that Munich is tax-exempt based on the RP-West
German Tax Treaty is likewise unpersuasive, because the internal revenue
commissioner assessed the pool for corporate taxes on the basis of the information
return it had submitted for the year ending 1975, a taxable year when said treaty was
not yet in effect.[54] Although petitioners omitted in their pleadings the date of
effectivity of the treaty, the Court takes judicial notice that it took effect only later, on
December 14, 1984.[55]

G.R. No. 31057

September 7, 1929
ADRIANO ARBES, ET AL., plaintiffs-appellees,
vs.
VICENTE POLISTICO, ET AL., defendants-appellants.

Third Issue: Prescription

VILLAMOR, J.:

Petitioners also argue that the governments right to assess and collect the
subject tax had prescribed. They claim that the subject information return was filed by
the pool on April 14, 1976. On the basis of this return, the BIR telephoned petitioners
on November 11, 1981, to give them notice of its letter of assessment dated March 27,
1981. Thus, the petitioners contend that the five-year statute of limitations then
provided in the NIRC had already lapsed, and that the internal revenue commissioner
was already barred by prescription from making an assessment.[56]
We cannot sustain the petitioners. The CA and the CTA categorically found that
the prescriptive period was tolled under then Section 333 of the NIRC,[57] because the
taxpayer cannot be located at the address given in the information return filed and for
which reason there was delay in sending the assessment.[58] Indeed, whether the
governments right to collect and assess the tax has prescribed involves facts which
have been ruled upon by the lower courts. It is axiomatic that in the absence of a clear
showing of palpable error or grave abuse of discretion, as in this case, this Court must
not overturn the factual findings of the CA and the CTA.
Furthermore, petitioners admitted in their Motion for Reconsideration before the
Court of Appeals that the pool changed its address, for they stated that the pools
information return filed in 1980 indicated therein its present address. The Court finds
that this falls short of the requirement of Section 333 of the NIRC for the suspension of
the prescriptive period. The law clearly states that the said period will be suspended

Marcelino Lontok and Manuel dela Rosa for appellants.

Sumulong & Lavides for appellees.

This is an action to bring about liquidation of the funds and property of the association
called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the
defendants were designated as president-treasurer, directors and secretary of said
association.
It is well to remember that this case is now brought before the consideration of this
court for the second time. The first one was when the same plaintiffs appeared from
the order of the court below sustaining the defendant's demurrer, and requiring the
former to amend their complaint within a period, so as to include all the members of
"Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then
that in an action against the officers of a voluntary association to wind up its affairs
and enforce an accounting for money and property in their possessions, it is not
necessary that all members of the association be made parties to the action. (Borlasa
vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of origin, both
parties amend, respectively, their complaint and their answer, and by agreement of
the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office,
commissioner to examine all the books, documents, and accounts of "Turnuhan
Polistico & Co.," and to receive whatever evidence the parties might desire to present.
The commissioner rendered his report, which is attached to the record, with the
following resume:
Income:
Member's shares............................

97,263.70

20

Credits paid................................

6,196.55

Interest received...........................

4,569.45

Miscellaneous...............................

as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil.,
474), the court held: "Under section 140 of the Code of Civil Procedure it is made the
duty of the court to render judgment in accordance with the report of the referee
unless the court shall unless for cause shown set aside the report or recommit it to the
referee. This provision places upon the litigant parties of the duty of discovering and
exhibiting to the court any error that may be contained therein." The appellants stated
the grounds for their objection. The trial examined the evidence and the
commissioner's report, and accepted the findings of fact made in the report. We find
no convincing arguments on the appellant's brief to justify a reversal of the trial court's
conclusion admitting the commissioner's findings.

1,891.00
P109,620.70

Expenses:
Premiums
members.......................

to

68,146.25

Loans on real-estate.......................

9,827.00

Loans on promissory notes..............

4,258.55

Salaries....................................

1,095.00

Miscellaneous...............................

There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs.
Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable
institution to whom the partnership funds may be ordered to be turned over, should be
included, as a party defendant. The appellants refer to article 1666 of the Civil Code,
which provides:
A partnership must have a lawful object, and must be established for the
common benefit of the partners.

1,686.10
85,012.90

Cash on hand........................................

When the dissolution of an unlawful partnership is decreed, the profits shall

be given to charitable institutions of the domicile of the partnership, or, in
default of such, to those of the province.

24,607.80

The defendants objected to the commissioner's report, but the trial court, having
examined the reasons for the objection, found the same sufficiently explained in the
report and the evidence, and accepting it, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants
jointly and severally to return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs in this case, and to
the rest of the members of the said association represented by said plaintiffs, with
costs against the defendants.
The defendants assigned several errors as grounds for their appeal, but we believe
they can all be reduced to two points, to wit: (1) That not all persons having an interest
in this association are included as plaintiffs or defendants; (2) that the objection to the
commissioner's report should have been admitted by the court below.
As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be
followed.
With regard to the second point, despite the praiseworthy efforts of the attorney of the
defendants, we are of opinion that, the trial court having examined all the evidence
touching the grounds for the objection and having found that they had been explained
away in the commissioner's report, the conclusion reached by the court below,
accepting and adopting the findings of fact contained in said report, and especially
those referring to the disposition of the association's money, should not be disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the
findings of facts made by a referee appointed under the provisions of section 135 of
the Code of Civil Procedure stand upon the same basis, when approved by the Court,

Appellant's contention on this point is untenable. According to said article, no

charitable institution is a necessary party in the present case of determination of the
rights of the parties. The action which may arise from said article, in the case of
unlawful partnership, is that for the recovery of the amounts paid by the member from
those in charge of the administration of said partnership, and it is not necessary for
the said parties to base their action to the existence of the partnership, but on the fact
that of having contributed some money to the partnership capital. And hence, the
charitable institution of the domicile of the partnership, and in the default thereof,
those of the province are not necessary parties in this case. The article cited above
permits no action for the purpose of obtaining the earnings made by the unlawful
partnership, during its existence as result of the business in which it was engaged,
because for the purpose, as Manresa remarks, the partner will have to base his action
upon the partnership contract, which is to annul and without legal existence by reason
of its unlawful object; and it is self evident that what does not exist cannot be a cause
of action. Hence, paragraph 2 of the same article provides that when the dissolution of
the unlawful partnership is decreed, the profits cannot inure to the benefit of the
partners, but must be given to some charitable institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a
clear explanation of the scope and spirit of the provision of the Civil Code which we are
concerned. Commenting on said article Manresa, among other things says:
When the subscriptions of the members have been paid to the management
of the partnership, and employed by the latter in transactions consistent with
the purposes of the partnership may the former demand the return of the
reimbursement thereof from the manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no valid existence, if it is
considered juridically non-existent, the contract entered into can have no

21

legal effect; and in that case, how can it give rise to an action in favor of the
partners to judicially demand from the manager or the administrator of the
partnership capital, each one's contribution?
The authors discuss this point at great length, but Ricci decides the matter
quite clearly, dispelling all doubts thereon. He holds that the partner who
limits himself to demanding only the amount contributed by him need not
resort to the partnership contract on which to base his action. And he adds in
explanation that the partner makes his contribution, which passes to the
managing partner for the purpose of carrying on the business or industry
which is the object of the partnership; or in other words, to breathe the breath
of life into a partnership contract with an objection forbidden by law. And as
said contrast does not exist in the eyes of the law, the purpose from which
the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what
belongs to others, without any consideration; for which reason he is not
bound to return it and he who has paid in his share is entitled to recover it.

to return them, by denying to the partners the action to demand them.

(Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law, should be, as it is hereby,
affirmed with costs against the appellants; provided, however, the defendants shall
pay the legal interest on the sum of P24,607.80 from the date of the decision of the
court, and provided, further, that the defendants shall deposit this sum of money and
other documents evidencing uncollected credits in the office of the clerk of the trial
court, in order that said court may distribute them among the members of said
association, upon being duly identified in the manner that it may deem proper. So
ordered.
Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur.

7. Evangelista vs. CIR G.R. No. L-9996, Oct. 15, 1957

But this is not the case with regard to profits earned in the course of the
partnership, because they do not constitute or represent the partner's
contribution but are the result of the industry, business or speculation which
is the object of the partnership, and therefor, in order to demand the
proportional part of the said profits, the partner would have to base his action
on the contract which is null and void, since this partition or distribution of the
profits is one of the juridical effects thereof. Wherefore considering this
contract asnon-existent, by reason of its illicit object, it cannot give rise to the
necessary action, which must be the basis of the judicial complaint.
Furthermore, it would be immoral and unjust for the law to permit a profit
from an industry prohibited by it.
Hence the distinction made in the second paragraph of this article of this
Code, providing that the profits obtained by unlawful means shall not enrich
the partners, but shall upon the dissolution of the partnership, be given to the
charitable institutions of the domicile of the partnership, or, in default of such,
to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an obvious
deficiency of the former law, which did not describe the purpose to which
those profits denied the partners were to be applied, nor state what to be
done with them.
The profits are so applied, and not the contributions, because this would be
an excessive and unjust sanction for, as we have seen, there is no reason, in
such a case, for depriving the partner of the portion of the capital that he
contributed, the circumstances of the two cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be returned by the partners,
because it only deals with the disposition of the profits; but the fact that said
contributions are not included in the disposal prescribed profits, shows that in
consequences of said exclusion, the general law must be followed, and hence
the partners should reimburse the amount of their respective contributions.
Any other solution is immoral, and the law will not consent to the latter
remaining in the possession of the manager or administrator who has refused

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

22

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;

1947

10.34

1948

1,912.30

1949

1,575.90

Total including surcharge and compromise

P6,157.09

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;

REAL ESTATE DEALER'S FIXED TAX

1946

P37.50

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;

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

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

RESIDENCE TAXES OF CORPORATION

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

23

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:

petitioners do not even suggest that there has been any change in the
utilization thereof.

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: . . .

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.

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).

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.

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

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,

24

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.

8. Pascual v. CIR, G.R. No. 78133, October 18, 1988

G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents
GANCAYCO, J.:

25

The distinction between co-ownership and an unregistered partnership or joint venture

for income tax purposes is the issue in this petition.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged
errors of the respondent court:

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino,
et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan
Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir
Development Corporation, while the three parcels of land were sold by petitioners to
Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in
the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of
P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid
by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said
years.

A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE

RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED
AN UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND
THAT THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO RESTS
UPON THE PETITIONERS.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I.
Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as
alleged deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that
they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in
the years 1968 and 1970, petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture taxable as a corporation under
Section 20(b) and its income was subject to the taxes prescribed under Section 24,
both of the National Internal Revenue Code 1 that the unregistered partnership was
subject to corporate income tax as distinguished from profits derived from the
partnership by them which is subject to individual income tax; and that the availment
of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of
their individual income tax liabilities but did not relieve them from the tax liability of
the unregistered partnership. Hence, the petitioners were required to pay the
deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals
docketed as CTA Case No. 3045. In due course, the respondent court by a majority
decision of March 30, 1987, 2 affirmed the decision and action taken by respondent
commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered
partnership was in fact formed by petitioners which like a corporation was subject to
corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a coownership between the petitioners, there was no adequate basis for the conclusion
that they thereby formed an unregistered partnership which made "hem liable for
corporate income tax under the Tax Code.

B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE

TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS
IGNORING THE REQUIREMENTS LAID DOWN BY LAW THAT WOULD WARRANT
THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE
AND THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS
FROM PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH
AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court
in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which together
with their own personal funds they used in buying several real properties. They
appointed their brother to manage their properties with full power to lease, collect,
rent, issue receipts, etc. They had the real properties rented or leased to various
tenants for several years and they gained net profits from the rental income. Thus, the
Collector of Internal Revenue demanded the payment of income tax on a corporation,
among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations
and the real estate dealers' fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms corporation and partnership as used in
sections 24 and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the 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

26

the laws of the Philippines, no matter how created or organized but not including
duly registered general co-partnerships (companies collectives), 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 participation),
associations or insurance companies, but does not include duly registered general
co-partnerships (companies colectivas).

4. Since August, 1945, the properties have been under the management of one
person, namely, Simeon Evangelists, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business enterprise operated
for profit.

Article 1767 of the Civil Code of the Philippines provides:

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 Evangelists became the manager.

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.

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.

Pursuant to this article, the essential elements of a partnership are two, namely:
(a) an agreement to contribute money, property or industry to a common fund; and
(b) intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of all the
facts and circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves, because:

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. 5

1. Said common fund was not something they found already in existence. It was
not a property inherited by them pro indiviso. They created it purposely. What is
more they jointly borrowed a substantial portion thereof in order to establish said
common fund.
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00. 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 transcations undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character of habituality
peculiar to business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other personal
uses, of petitioners herein. The properties were leased separately to several
persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by
way of rentals. Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.

In the present case, there is no evidence that petitioners entered into an agreement to
contribute money, property or industry to a common fund, and that they intended to
divide the profits among themselves. Respondent commissioner and/ or his
representative just assumed these conditions to be present on the basis of the fact
that petitioners purchased certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twentyfour (24) lots showing that the purpose was not limited to the conservation or
preservation of the common fund or even the properties acquired by them. The
character of habituality peculiar to business transactions engaged in for the purpose of
gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell
the same nor make any improvements thereon. In 1966, they bought another three (3)
parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of
land after which they did not make any additional or new purchase. The remaining
three (3) parcels were sold by them in 1970. The transactions were isolated. The
character of habituality peculiar to business transactions for the purpose of gain was
not present.
In Evangelista, the properties were leased out to tenants for several years. The
business was under the management of one of the partners. Such condition existed for
over fifteen (15) years. None of the circumstances are present in the case at bar. The
co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:

27

I wish however to make the following observation Article 1769 of the new Civil
Code lays down the rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use
of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived;
From the above it appears that the fact that those who agree to form a coownership share or do not share any profits made by the use of the property held
in common does not convert their venture into a partnership. Or the sharing of
the gross returns does not of itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property.
This only means that, aside from the circumstance of profit, the presence of other
elements constituting partnership is necessary, such as the clear intent to form a
partnership, the existence of a juridical personality different from that of the
individual partners, and the freedom to transfer or assign any interest in the
property by one with the consent of the others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)

In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally 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 III 470.)
The common ownership of property does not itself create a partnership between
the owners, though they may use it for the purpose of making gains; and they
may, without becoming partners, agree among themselves as to the
management, and use of such property and the application of the proceeds
therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property. There
must be a clear intent to form a partnership, the existence of a juridical personality
different from the individual partners, and the freedom of each party to transfer or
assign the whole property.

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.

In the present case, there is clear evidence of co-ownership between the petitioners.
There is no adequate basis to support the proposition that they thereby formed an
unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them
partners. They shared in the gross profits as co- owners and paid their capital gains
taxes on their net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an unregistered partnership
which is thereby liable for corporate income tax, as the respondent commissioner
proposes.

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 Flord D. Mechem 2nd Ed., section 83, p.
74.)

And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered partnership
with a distinct personality nor with assets that can be held liable for said deficiency
corporate income tax, then petitioners can be held individually liable as partners for
this unpaid obligation of the partnership p. 7 However, as petitioners have availed of
the benefits of tax amnesty as individual taxpayers in these transactions, they are
thereby relieved of any further tax liability arising therefrom.

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

thereto; nor does an agreement to share the profits and losses on the sale of land
create a partnership; the parties are only tenants in common. (Clark vs. Sideway,
142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent
Court of Tax Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and
another decision is hereby rendered relieving petitioners of the corporate income tax
liability in this case, without pronouncement as to costs.

Where plaintiff, his brother, and another agreed to become owners of a single
tract of realty, holding as tenants in common, and to divide the profits of
disposing of it, the brother and the other not being entitled to share in plaintiffs
commission, no partnership existed as between the three parties, whatever their
relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233
Mass. 341.)

SO ORDERED.

9. Heirs of Jose Lim and Juliet Lim, G.R. No. 172690, March 3, 2010
HEIRS OF JOSE LIM,
represented by ELENITO LIM,

G.R. No. 172690

28

Petitioners,

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

- versus -

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.:

29

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]

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]

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]

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.

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 certiorari under Rule 45. This rule provides that the parties may raise only
questions of law, because the Supreme Court is not a trier of facts. Generally, we are
not duty-bound to analyze again and weigh the evidence introduced in and considered
by the tribunals below.[10] When supported by substantial evidence, the findings of
fact of the CA are conclusive and binding on the parties and are not reviewable by this
Court, unless the case falls under any of the following recognized exceptions:

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:

(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]

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.

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.

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;

30

(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 wasthe 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.

10. Lilibeth Sunga-Chan G.R. No. 143 340, August 15, 2001
[G.R. No. 143340. August 15, 2001]
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T.
CHUA, respondent.
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
of the Decision[1] of the Court of Appeals dated January 31, 2000 in the case entitled
Lamberto T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May 23, 2000
denying the motion for reconsideration of herein petitioners Lilibeth Sunga Chan and
Cecilia Sunga (hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:

31

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint

against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter
petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga
(hereafter Jacinto), for Winding Up of Partnership Affairs, Accounting, Appraisal and
Recovery of Shares and Damages with Writ of Preliminary Attachment with the
Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with
Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For
business convenience, respondent and Jacinto allegedly agreed to register the
business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter
Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly
delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in
turn produced P100,000.00 as his counterpart contribution, with the intention that the
profits would be equally divided between them. The partnership allegedly had Jacinto
as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the wife of
respondent, Erlinda Sy. As compensation, Jacinto would receive a managers fee or
remuneration of 10% of the gross profit and Josephine would receive 10% of the net
profits, in addition to her wages and other remuneration from the business.
Allegedly, from the time that Shellite opened for business on July 8, 1977, its
business operation went quite well and was profitable. Respondent claimed that he
could attest to the success of their business because of the volume of orders and
deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum
Corporation. While Jacinto furnished respondent with the merchandise inventories,
balance sheets and net worth of Shellite from 1977 to 1989, respondent however
suspected that the amount indicated in these documents were understated and
undervalued by Jacinto and Josephine for their own selfish reasons and for tax
avoidance.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia
and particularly his daughter, petitioner Lilibeth, took over the operations, control,
custody, disposition and management of Shellite without respondents consent.
Despite respondents repeated demands upon petitioners for accounting,
inventory, appraisal, winding up and restitution of his net shares in the partnership,
petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of
Shellite, converting to her own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of
alibis and reasons to evade respondents demands, she disbursed out of the
partnership funds the amount of P200,000.00 and partially paid the same to
respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00
represented partial payment of the latters share in the partnership, with a promise
that the former would make the complete inventory and winding up of the properties
of the business establishment. Despite such commitment, petitioners allegedly failed
to comply with their duty to account, and continued to benefit from the assets and
income of Shellite to the damage and prejudice of respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that
the Securities and Exchange Commission (SEC) in Manila, not the Regional Trial Court
in Zambaonga del Norte had jurisdiction over the action.Respondent opposed the
motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and
substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory
Counterclaims, contending that they are not liable for partnership shares, unreceived
income/profits, interests, damages and attorneys fees, that respondent does not have
a cause of action against them, and that the trial court has no jurisdiction over the
nature of the action, the SEC being the agency that has original and exclusive
jurisdiction over the case. As counterclaim, petitioner sought attorneys fees and
expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the
ground that the claim for winding up of partnership affairs, accounting and recovery of
shares in partnership affairs, accounting and recovery of shares in partnership
assets /properties should be dismissed and prosecuted against the estate of deceased
Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for lack
of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition
and Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499
questioning the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend
Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial
conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed
by petitioner, as petitioners failed to show that a reversible error was committed by
the appellate court."[2]
On February 20, 1995, entry of judgment was made by the Clerk of Court and the
case was remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference and
set the hearing of the case on January 17, 1996. Respondent presented his evidence

32

while petitioners were considered to have waived their right to present evidence for
their failure to attend the scheduled date for reception of evidence despite notice.

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court,
appealing the case to the Court of Appeals.

On October 7, 1997, the trial court rendered

respondent. The dispositive portion of the Decision reads:

for

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive
portion of the Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:

WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all
respects.[4]

(1) DIRECTING them to render an accounting in acceptable form under accounting

procedures and standards of the properties, assets, income and profits of the Shellite
Gas Appliance Center since the time of death of Jacinto L. Sunga, from whom they
continued the business operations including all businesses derived from the Shellite
Gas Appliance Center; submit an inventory, and appraisal of all these properties,
assets, income, profits, etc. to the Court and to plaintiff for approval or disapproval;

On May 23, 2000, the Court of Appeals denied the motion for reconsideration
filed by petitioner.

its

Decision

ruling

(2) ORDERING them to return and restitute to the partnership any and all properties,
assets, income and profits they misapplied and converted to their own use and
advantage that legally pertain to the plaintiff and account for the properties mentioned
in pars. A and B on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the
plaintiff in the partnership of the listed properties, assets and good will (sic) in
schedules A, B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from
the partnership from 1988 to may 30, 1992, when the plaintiff learned of the closure of
the store the sum of P35,000.00 per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its
business activities pursuant to law, after delivering to the plaintiff all the interest,
shares, participation and equity in the partnership, or the value thereof in money or
moneys worth, if the properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad
faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and
exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic)
and P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]

Hence, this petition wherein petitioner relies upon the following grounds:
1. The Court of Appeals erred in making a legal conclusion that there
existed a partnership between respondent Lamberto T. Chua and the
late Jacinto L. Sunga upon the latters invitation and offer and that upon
his death the partnership assets and business were taken over by
petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches
and/or prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there was
competent and credible evidence to warrant the finding of a partnership,
and assuming arguendo that indeed there was a partnership, the
finding of highly exaggerated amounts or values in the partnership
assets and profits.[5]
Petitioners question the correctness of the finding of the trial court and the Court
of Appeals that a partnership existed between respondent and Jacinto from 1977 until
Jacintos death. In the absence of any written document to show such partnership
between respondent and Jacinto, petitioners argue that these courts were proscribed
from hearing the testimonies of respondent and his witness, Josephine, to prove the
alleged partnership three years after Jacintos death. To support this argument,
petitioners invoke the Dead Mans Statute or Survivorship Rule under Section 23, Rule
130 of the Rules of Court that provides:
SEC. 23. Disqualification by reason of death or insanity of adverse party.-- Parties or
assignors of parties to a case, or persons in whose behalf a case is prosecuted, against
an executor or administrator or other representative of a deceased person, or against
a person of unsound mind, upon a claim or demand against the estate of such
deceased person, or against such person of unsound mind, cannot testify as to any
matter of fact occurring before the death of such deceased person or before such
person became of unsound mind.

33

Petitioners thus implore this Court to rule that the testimonies of respondent and his
alter ego, Josephine, should not have been admitted to prove certain claims against a
deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property
or real rights are contributed thereto, in which case a public instrument shall be
necessary.[6] Hence, based on the intention of the parties, as gathered from the facts
and ascertained from their language and conduct, a verbal contract of partnership
may arise.[7] The essential points that must be proven to show that a partnership was
agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in
the profits.[8] Understandably so, in view of the absence of a written contract of
partnership between respondent and Jacinto, respondent resorted to the introduction
of documentary and testimonial evidence to prove said partnership. The crucial issue
to settle then is whether or not the Dead Mans Statute applies to this case so as to
render inadmissible respondents testimony and that of his witness, Josephine.
The Dead Mans Statute provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the surviving
party is not entitled to the undue advantage of giving his own uncontradicted and
unexplained account of the transaction.[9] But before this rule can be successfully
invoked to bar the introduction of testimonial evidence, it is necessary that:
1. The witness is a party or assignor of a party to a case or persons in
whose behalf a case is prosecuted.
2. The action is against an executor or administrator or other representative
of a deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate
of such deceased person or against person of unsound mind;
4. His testimony refers to any matter of fact which occurred before the
death of such deceased person or before such person became of
unsound mind.[10]
Two reasons forestall the application of the Dead Mans Statute to this case.
First, petitioners filed a compulsory counterclaim[11] against respondent in their
answer before the trial court, and with the filing of their counterclaim, petitioners
themselves effectively removed this case from the ambit of the Dead Mans Statute.
[12] Well entrenched is the rule that when it is the executor or administrator or
representatives of the estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat the
counterclaim.[13] Moreover, as defendant in the counterclaim, respondent is not
disqualified from testifying as to matters of fact occurring before the death of the

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

34

accrues at the date of dissolution, in the absence of any contrary agreement.

[21] Considering that the death of a partner results in the dissolution of the
partnership[22], in this case, it was after Jacintos death that respondent as the
surviving partner had the right to an account of his interest as against petitioners. It
bears stressing that while Jacintos death dissolved the partnership, the dissolution did
not immediately terminate the partnership. The Civil Code[23] expressly provides that
upon dissolution, the partnership continues and its legal personality is retained until
the complete winding up of its business, culminating in its termination.[24]
In a desperate bid to cast doubt on the validity of the oral partnership between
respondent and Jacinto, petitioners maintain that said partnership that had an initial
capital of P200,000.00 should have been registered with the Securities and Exchange
Commission (SEC) since registration is mandated by the Civil Code. True, Article 1772
of the Civil Code requires that partnerships with a capital of P3,000.00 or more must
register with the SEC, however, this registration requirement is not mandatory. Article
1768 of the Civil Code[25] explicitly provides that the partnership retains its juridical
personality even if it fails to register. The failure to register the contract of partnership
does not invalidate the same as among the partners, so long as the contract has the
essential requisites, because the main purpose of registration is to give notice to third
parties, and it can be assumed that the members themselves knew of the contents of
their contract.[26] In the case at bar, non-compliance with this directory provision of
the law will not invalidate the partnership considering that the totality of the evidence
proves that respondent and Jacinto indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed
decision is AFFIRMED.
SO ORDERED.

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and Julia
Spirig and Gustav Carlson, as the limited partners. The partners contributed,
respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October
1947, the limited partnership was registered with the Securities and Exchange
Commission. The firm engaged, among other activities, in the importation, marketing,
distribution and operation of automatic phonographs, radios, television sets and
amusement machines, their parts and accessories. It had an office and held itself out
as a limited partnership, handling and carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its own books of accounts and bank
accounts, and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the
partnership to Suter and his wife. The sale was duly recorded with the Securities and
Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without
objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959
when the latter, in an assessment, consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to
secure a reconsideration, he appealed to the Court of Tax Appeals, which court, after
trial, rendered a decision, on 11 November 1965, reversing that of the Commissioner
of Internal Revenue.

Melo, (Chairman), Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

The present case is a petition for review, filed by the Commissioner of Internal
Revenue, of the tax court's aforesaid decision. It raises these issues:

11. CIR v. Suter G.R. No. L-25532, February 28, 1969

G.R. No. L-25532

February 28, 1969

COMMISSIONER
OF
INTERNAL
REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo
R. Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd.
should be disregarded for income tax purposes, considering that respondent William J.
Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by
the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the
partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of
Suter and Spirig and their subsequent acquisition of the interests of remaining partner
Carlson in the partnership dissolved the limited partnership, and if they did not, the
fiction of juridical personality of the partnership should be disregarded for income tax
purposes because the spouses have exclusive ownership and control of the business;

35

consequently the income tax return of respondent Suter for the years in question
should have included his and his wife's individual incomes and that of the limited
partnership, in accordance with Section 45 (d) of the National Internal Revenue Code,
which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable year
shall be filed by either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals
held, that his marriage with limited partner Spirig and their acquisition of Carlson's
interests in the partnership in 1948 is not a ground for dissolution of the partnership,
either in the Code of Commerce or in the New Civil Code, and that since its juridical
personality had not been affected and since, as a limited partnership, as contra
distinguished from a duly registered general partnership, it is taxable on its income
similarly with corporations, Suter was not bound to include in his individual return the
income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the marriage of the only general partner,
William J. Suter to the originally limited partner, Julia Spirig one year after the
partnership was organized is rested by the appellant upon the opinion of now Senator
Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines,
Vol. 1, 4th Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express
provision in the Code of Commerce, persons prohibited from making
donations
to
each
other
are
prohibited
from
entering
into universal partnerships. (2 Echaverri 196) It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing partnership.
(1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears
from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in
force when the subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the partners may acquire by
their industry or work during the existence of the partnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by
Julia Spirig and neither one of them was an industrial partner. It follows that William J.
Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter
by Article 1677 of the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho
Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the
prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de
sociedad universal, pero o podran constituir sociedad particular? Aunque el
punto ha sido muy debatido, nos inclinamos a la tesis permisiva de los
contratos de sociedad particular entre esposos, ya que ningun precepto de
nuestro Codigo los prohibe, y hay que estar a la norma general segun la que
toda persona es capaz para contratar mientras no sea declarado incapaz por
la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta
misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de
rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such
marriage not being one of the causes provided for that purpose either by the Spanish
Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a
single proprietorship, is equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned and contributed by
them before their marriage; and after they were joined in wedlock, such contributions
remained their respective separate property under the Spanish Civil Code (Article
1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did
not become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a
juridical personality of its own, distinct and separate from that of its partners (unlike
American and English law that does not recognize such separate juridical personality),
the bypassing of the existence of the limited partnership as a taxpayer can only be
done by ignoring or disregarding clear statutory mandates and basic principles of our
law. The limited partnership's separate individuality makes it impossible to equate its
income with that of the component members. True, section 24 of the Internal Revenue
Code merges registered general co-partnerships (compaias colectivas) with the
personality of the individual partners for income tax purposes. But this rule is
exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be
extended by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the
Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77
Phil. 504) as authority for disregarding the fiction of legal personality of the

36

corporations involved therein are not applicable to the present case. In the cited cases,
the corporations were already subject to tax when the fiction of their corporate
personality was pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon the partnersspouses in their individual capacities. The corporations, in the cases cited, merely
served as business conduits or alter egos of the stockholders, a factor that justified a
disregard of their corporate personalities for tax purposes. This is not true in the
present case. Here, the limited partnership is not a mere business conduit of the
partner-spouses; it was organized for legitimate business purposes; it conducted its
own dealings with its customers prior to appellee's marriage, and had been filing its
own income tax returns as such independent entity. The change in its membership,
brought about by the marriage of the partners and their subsequent acquisition of all
interest therein, is no ground for withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income tax. As far as the records show,
the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as a
business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that
income to be included in the individual tax return of respondent Suter is to overstretch
the letter and intent of the law. In fact, it would even conflict with what it specifically
provides in its Section 24: for the appellant Commissioner's stand results in equal
treatment, tax wise, of a general copartnership (compaia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus, the code taxes the
latter on its income, but not the former, because it is in the case of compaias
colectivas that the members, and not the firm, are taxable in their individual capacities
for any dividend or share of the profit derived from the duly registered general
partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended,
Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or constructively
the income of the spouses and forms part of the conjugal partnership of gains. This is
not wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank
vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna
become conjugal only when no longer needed to defray the expenses for the
administration and preservation of the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the question of the legal
personality of the limited partnership, which is not essential to the income taxability of
the partnership since the law taxes the income of even joint accounts that have no
personality of their own. 1Appellant is, likewise, mistaken in that it assumes that the
conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the
"income of both spouses" (Section 45 [d] in their individual capacities. Though the
amount of income (income of the conjugal partnership vis-a-vis the joint income of
husband and wife) may be the same for a given taxable year, their consequences
would be different, as their contributions in the business partnership are not the same.
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a justification
for requiring consolidation; the revenue code, as it presently stands, does not

authorize it, and even bars it by requiring the limited partnership to pay tax on its own
income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No
costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano
and Teehankee, JJ., concur.

12. Aurbach v. Sanitary Wares G.R. No. 75875, December 15, 1989
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.:

37

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.,

38

Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then
certified for the election of the following Wolfgang Aurbach, John Griffin, David
Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then
moved to recess the meeting which was duly seconded. There was also a
motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn
was accepted by the Chairman, Baldwin Young, who announced that the motion
was carried and declared the meeting adjourned. Protests against the
adjournment were registered and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not adjourned but only recessed
and that the meeting would be reconvened in the next room. The Chairman
then threatened to have the stockholders who did not agree to the decision of
the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano
E. Salazar and other stockholders, allegedly representing 53 or 54% of the
shares of Saniwares, decided to continue the meeting at the elevator lobby of
the American Standard Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of
the cumulative votes cast earlier in the meeting, the ASI Group nominated its
four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were
certified as elected directors by the Acting Secretary, Andres Gatmaitan, with
the explanation that there was a tie among the other six (6) nominees for the
four (4) remaining positions of directors and that the body decided not to break
the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto
R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and
Charles Chamsay. The case was denominated as SEC Case No. 2417. The second
petition was for quo warranto and application for receivership by Wolfgang Aurbach,
John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the
group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz.
The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino
Cruz claimed to be the legitimate directors of the corporation.

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 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.

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, Rollo75951)

39

The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and
Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20
Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of
the parties hereto partners or joint venturers in respect of any
transaction hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7, Rule
130 of the Revised Rules of Court. According to them, the Lagdameo and Young Group
never pleaded in their pleading that the "Agreement" failed to express the true intent
of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and
therefore, there can be, between the parties and their successors in interest,
no evidence of the terms of the agreement other than the contents of the
writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express the
true intent and agreement of the parties or the validity of the agreement is put
in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply
and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to
express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the
parties thereto disclaim being partners or joint venturers such disclaimer is
directed at third parties and is not inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in Saniwares one of which (the
Philippine Investors) shall constitute the majority, and the other ASI shall
constitute the minority stockholder. In any event, the evident intention of the
Philippine Investors and ASI in entering into the Agreement is to enter into
ajoint venture enterprise, and if some words in the Agreement appear to be
contrary to the evident intention of the parties, the latter shall prevail over the
former (Art. 1370, New Civil Code). The various stipulations of a contract shall
be interpreted together attributing to the doubtful ones that sense which may
result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in
order to judge the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered. (Art. 1371, New Civil Code).
(Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties
joined their efforts in furtherance of an enterprise for their joint profit, the
question whether they intended by their agreement to create a joint adventure,
or to assume some other relation is a question of fact for the jury. (Binder v.
Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238
SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well
as the testimonial evidence presented by the Lagdameo and Young Group shows that
the parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI
agreed to accept the role of minority vis-a-vis the Philippine National group of

40

investors, on the condition that the Agreement should contain provisions to

protect ASI as the minority.

possibility of the enterprise being treated as partnership for tax purposes and liabilities
to third parties.

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)].

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 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

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

41

stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees'

Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is
a close-held corporation. Surely, appellants cannot honestly claim that
Saniwares is a public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint
venture corporations and have not rigidly applied principles of corporation law
designed primarily for public issue corporations. These courts have indicated
that express arrangements between corporate joint ventures should be
construed with less emphasis on the ordinary rules of law usually applied to
corporate entities and with more consideration given to the nature of the
agreement between the joint venturers (Please see Wabash Ry v. American
Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union
Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240
N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway
v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v.
Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11
Vand Law Rev. p. 680,1958). These American cases dealt with legal questions
as to the extent to which the requirements arising from the corporate form of
joint venture corporations should control, and the courts ruled that substantial
justice lay with those litigants who relied on the joint venture agreement rather
than the litigants who relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture
deviate from the traditional pattern of corporation management. A noted
authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do one
or more of the following: (1) require greater than majority vote for shareholder
and director action; (2) give certain shareholders or groups of shareholders
power to select a specified number of directors; (3) give to the shareholders
control over the selection and retention of employees; and (4) set up a
procedure for the settlement of disputes by arbitration (See I O' Neal, Close
Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing
Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily
imply that agreements regarding the exercise of voting rights are allowed only
in close corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this
provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty
five stockholders, and therefore cannot qualify as a close corporation under

section 96, can some of them enter into an agreement to vote as a unit in the
election of directors? It is submitted that there is no reason for denying
stockholders of corporations other than close ones the right to enter into not
voting or pooling agreements to protect their interests, as long as they do not
intend to commit any wrong, or fraud on the other stockholders not parties to
the agreement. Of course, voting or pooling agreements are perhaps more
useful and more often resorted to in close corporations. But they may also be
found necessary even in widely held corporations. Moreover, since the Code
limits the legal meaning of close corporations to those which comply with the
requisites laid down by section 96, it is entirely possible that a corporation
which is in fact a close corporation will not come within the definition. In such
case, its stockholders should not be precluded from entering into contracts like
voting agreements if these are otherwise valid. (Campos & Lopez-Campos, op
cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the
designation or nomination of directors restricts the right of the Agreement's
signatories to vote for directors, such contractual provision, as correctly held
by the SEC, is valid and binding upon the signatories thereto, which include
appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals correctly
stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a)
hereof says that three of the nine directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the Filipino stockholders. This
allocation of board seats is obviously in consonance with the minority position
of ASI.
Having entered into a well-defined contractual relationship, it is imperative
that the parties should honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend that any allocation of
board seats, even in joint venture corporations, are null and void to the extent
that such may interfere with the stockholder's rights to cumulative voting as
provided in Section 24 of the Corporation Code. This Court should not be
prepared to hold that any agreement which curtails in any way cumulative
voting should be struck down, even if such agreement has been freely entered
into by experienced businessmen and do not prejudice those who are not
parties thereto. It may well be that it would be more cogent to hold, as the
Securities and Exchange Commission has held in the decision appealed from,
that cumulative voting rights may be voluntarily waived by stockholders who
enter into special relationships with each other to pursue and implement
specific purposes, as in joint venture relationships between foreign and local
stockholders, so long as such agreements do not adversely affect third parties.

42

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.

43

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.

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.

13. J. Tiosejo Investment v. Spouses

September 8, 2010
J. TIOSEJO INVESTMENT CORP.,
Petitioner,

Ang, G.R. No. 174149,

G.R. No. 174149

Present:

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.

- versus -

CORONA, C.J.,
Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
PEREZ, and
MENDOZA,* JJ.
Promulgated:

SPOUSES BENJAMIN AND ELEANOR ANG,

Respondents.

September 8, 2010

44

x--------------------------------------------------x
DECISION
PEREZ, J.:
Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review
at bench seeks the reversal of the Resolutions dated 23 May 2006 and 9 August 2006
issued by the Third Division of the Court of Appeals (CA) in CA-G.R. SP No. 93841
which, respectively, dismissed the petition for review of petitioner J. Tiosejo Investment
Corp. (JTIC) for having been filed out of time[1] and denied the motion for
reconsideration of said dismissal.[2]
The Facts
On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with
Primetown Property Group, Inc. (PPGI) for the development of a residential
condominium project to be known asThe Meditel on the formers 9,502 square meter
property along Samat St., Highway Hills, Mandaluyong City.[3] With petitioner
contributing the same property to the joint venture and PPGI undertaking to develop
the condominium, the JVA provided, among other terms and conditions, that the
developed units shall be shared by the former and the latter at a ratio of 17%-83%,
respectively.[4] While both parties were allowed, at their own individual responsibility,
to pre-sell the units pertaining to them,[5] PPGI further undertook to use all proceeds
from the pre-selling of its saleable units for the completion of the Condominium
Project. [6]
On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued License
to Sell No. 96-06-2854 in favor of petitioner and PPGI as project owners.[7] By virtue of
said license, PPGI executed Contract to Sell No. 0212 with Spouses Benjamin and
Eleanor Ang on 5 February 1997, over the 35.45-square meter condominium unit
denominated as Unit A-1006, for the agreed contract price of P52,597.88 per square
meter or a total P2,077,334.25.[8] On the same date PPGI and respondents also
executed Contract to Sell No. 0214 over the 12.50 square meter parking space
identified as Parking Slot No. 0405, for the stipulated consideration of P26,400.00
square meters or a total of P313,500.00.[9]
On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the
rescission of the aforesaid Contracts to Sell docketed before the HLURB as HLURB Case
No. REM 072199-10567. Contending that they were assured by petitioner and PPGI
that the subject condominium unit and parking space would be available for turn-over
and occupancy in December 1998, respondents averred, among other matters, that in
view of the non-completion of the project according to said representation,
respondents instructed petitioner and PPGI to stop depositing the post-dated checks
they issued and to cancel said Contracts to Sell; and, that despite several demands,
petitioner and PPGI have failed and refused to refund the P611,519.52 they already
paid under the circumstances. Together with the refund of said amount and interests
thereon at the rate of 12% per annum, respondents prayed for the grant of their
claims for moral and exemplary damages as well as attorneys fees and the costs.[10]
Specifically denying the material allegations of the foregoing complaint, PPGI filed its
7 September 1999 answer alleging that the delay in the completion of the project was
attributable to the economic crisis which affected the country at the time; that the

unexpected and unforeseen inflation as well as increase in interest rates and cost of
building materials constitute force majeure and were beyond its control; that aware of
its responsibilities, it offered several alternatives to its buyers like respondents for a
transfer of their investment to its other feasible projects and for the amounts they
already paid to be considered as partial payment for the replacement unit/s; and, that
the complaint was prematurely filed in view of the on-going negotiations it is
undertaking with its buyers and prospective joint venture partners. Aside from the
dismissal of the complaint, PPGI sought the readjustment of the contract price and the
grant of its counterclaims for attorneys fees and litigation expenses.[11]
Petitioner also specifically denied the material allegations of the complaint in separate
answer dated 5 February 2002[12] which it amended on 20 May 2002. Calling
attention to the fact that its prestation under the JVA consisted in contributing the
property on which The Meditel was to be constructed, petitioner asseverated that, by
the terms of the JVA, each party was individually responsible for the marketing and
sale of the units pertaining to its share; that not being privy to the Contracts to Sell
executed by PPGI and respondents, it did not receive any portion of the payments
made by the latter; and, that without any contributory fault and negligence on its part,
PPGI breached its undertakings under the JVA by failing to complete the condominium
project. In addition to the dismissal of the complaint and the grant of its counterclaims
for exemplary damages, attorneys fees, litigation expenses and the costs, petitioner
interposed a cross-claim against PPGI for full reimbursement of any sum it may be
adjudged liable to pay respondents.[13]
Acting on the position papers and draft decisions subsequently submitted by the
parties,[14] Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to
render the 30 July 2003 decision declaring the subject Contracts to Sell cancelled and
rescinded on account of the non-completion of the condominium project. On the
ground that the JVA created a partnership liability on their part, petitioner and PPGI, as
co-owners of the condominium project, were ordered to pay: (a) respondents claim for
refund of the P611,519.52 they paid, with interest at the rate of 12% per annum from
5 February 1997; (b) damages in the sum of P75,000.00; (c) attorneys fees in the sum
of P30,000.00; (d) the costs; and, (e) an administrative fine in the sum of P10,000.00
for violation of Sec. 20 in relation to Sec. 38 of Presidential Decree No.
957. [15] Elevated to the HLURB Board of Commissioners via the petition for review
filed by petitioner,[16] the foregoing decision was modified to grant the latters crossclaim in the 14 September 2004 decision rendered by said administrative bodys
Second Division in HLURB Case No. REM-A-031007-0240,[17] to wit:
Wherefore, the petition for review of the respondent Corporation is
dismissed. However, the decision of the Office below dated July 30, 2003 is modified,
hence, its dispositive portion shall read:

1. Declaring the contracts to sell, both dated

February 5, 1997, as cancelled and rescinded,
and ordering the respondents to immediately
pay the complainants the following:
a.
b.
c.

The amount of P611,519.52, with

interest at the legal rate reckoned
from February 5, 1997 until fully paid;
Damages of P75,000.00;
Attorneys
fees
equivalent
to P30,000.00; and

45

d.

The Cost of suit;

2. Ordering respondents to pay this Office

administrative fine of P10,000.00 for violation
of Section 20 in relation to Section 38 of P.D.
957; and
3. Ordering respondent Primetown to reimburse
the entire amount which the respondent
Corporation will be constrained to pay the
complainants.
So ordered.[18]
With the denial of its motion for reconsideration of the foregoing
decision,[19] petitioner filed a Notice of Appeal dated 28 February
2005 which was docketed before the Office of the President (OP) as
O.P. Case No. 05-B-072.[20] On 3 March 2005, the OP issued an order
directing petitioner to submit its appeal memorandum within 15
days from receipt thereof.[21] Acting on the motion therefor filed,
the OP also issued another order on the same date, granting
petitioner a period of 15 days from 28 February 2005 or until 15
March 2005 within which to file its appeal memorandum.[22] In view
of petitioners filing of a second motion for extension dated 15 March
2005,[23] the OP issued the 18 March 2005 order granting the
former an additional 10 days from 15 March 2005 or until 25 March
2005 within which to file its appeal memorandum, provided no
further extension shall be allowed.[24] Claiming to have received the
aforesaid 3 March 2005 order only on 16 March 2005, however,
petitioner filed its 31 March 2005 motion seeking yet another
extension of 10 days or until 10 April 2005 within which to file its
appeal memorandum.[25]
On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for
extension of petitioner[26] which eventually filed its appeal memorandum by
registered mail on 11 April 2005 in view of the fact that 10 April 2005 fell on a Sunday.
[27] On 25 October 2005, the OP rendered a decision dismissing petitioners appeal on
the ground that the latters appeal memorandum was filed out of time and that the
HLURB Board committed no grave abuse of discretion in rendering the appealed
decision.[28] Aggrieved by the denial of its motion for reconsideration of the foregoing
decision in the 3 March 2006 order issued by the OP,[29] petitioner filed before the CA
its 29 March 2006 motion for an extension of 15 days from 31 March 2006 or until 15
April 2006 within which to file its petition for review.[30] Accordingly, a non-extendible
period of 15 days to file its petition for review was granted petitioner in the 31 March
2006 resolution issued by the CA Third Division in CA-G.R, SP No. 93841.[31]
Maintaining that 15 April 2006 fell on a Saturday and that pressures of work
prevented its counsel from finalizing its petition for review, petitioner filed a motion on
17 April 2006, seeking for an additional time of 10 days or until 27 April 2006 within
which to file said pleading.[32] Although petitioner filed by registered mail a motion to
admit its attached petition for review on 19 April 2006,[33] the CA issued the herein
assailed 23 May 2006 resolution,[34] disposing of the formers pending motion for
extension as well as the petition itself in the following wise:

We resolve to DENY the second extension motion and rule

to DISMISS the petition for being filed late.
Settled is that heavy workload is by no means excusable
(Land Bank of the Philippines vs. Natividad, 458 SCRA 441 [2005]). If
the failure of the petitioners counsel to cope up with heavy workload
should be considered a valid justification to sidestep the
reglementary period, there would be no end to litigations so long as
counsel had not been sufficiently diligent or experienced (LTS
Philippine Corporation vs. Maliwat, 448 SCRA 254, 259-260 [2005],
citing Sublay vs. National Labor Relations Commission, 324 SCRA
188 [2000]).
Moreover, lawyers should not assume that their motion for
extension or postponement will be granted the length of time they
pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).
SO ORDERED.[35]
Petitioners motion for reconsideration of the foregoing resolution[36] was
denied for lack of merit in the CAs second assailed 9 August 2006 resolution,
[37] hence, this petition.
The Issues
Petitioner seeks the reversal of the assailed resolutions on the following grounds, to
wit:

I. THE

COURT OF APPEALS ERRED IN DISMISSING

PETITION ON MERE TECHNICALITY;

THE

II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE

THE PETITION ON THE MERITS THEREBY AFFIRMING
THE OFFICE OF THE PRESIDENTS DECISION (A)
DISMISSING JTICS APPEAL ON A MERE TECHNICALITY;
(B) AFFIRMING THE HLURB BOARDS DECISION
INSOFAR AS IT FOUND JTIC SOLIDARILY LIABLE WITH
PRIMETOWN TO PAY SPOUSES ANG DAMAGES,
ATTORNEYS FEES AND THE COST OF THE SUIT; AND
(C) AFFIRMING THE HLURB BOARDS DECISION
INSOFAR AS IT FAILED TO AWARD JITC ITS
COUNTERCLAIMS AGAINST SPOUSES ANG.[38]

The Courts Ruling

We find the petition bereft of merit.
While the dismissal of an appeal on purely technical grounds is concededly frowned
upon,[39] it bears emphasizing that the procedural requirements of the rules on
appeal are not harmless and trivial technicalities that litigants can just discard and
disregard at will.[40] Neither being a natural right nor a part of due process, the rule is

46

settled that the right to appeal is merely a statutory privilege which may be exercised
only in the manner and in accordance with the provisions of the law.[41] The
perfection of an appeal in the manner and within the period prescribed by law is, in
fact, not only mandatory but jurisdictional.[42] Considering that they are requirements
which cannot be trifled with as mere technicality to suit the interest of a party,
[43] failure to perfect an appeal in the prescribed manner has the effect of rendering
the judgment final and executory.[44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes
against the CA for denying its second motion for extension of time for lack of merit and
dismissing its petition for review for having been filed out of time. Acting on the 29
March 2006 motion filed for the purpose, after all, the CA had already granted
petitioner an inextendible period of 15 days from 31 March 2006 or until 15 April 2006
within which to file its petition for review. Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedure provides as follows:
Sec. 4. Period of appeal. The appeal shall be taken within fifteen
(15) days from notice of the award, judgment, final order or
resolution, or from the date of its last publication, if publication is
required by law for its effectivity, or of the denial of petitioners
motion for new trial or reconsideration duly filed in accordance with
the governing law of the court or agency a quo. Only one (1) motion
for reconsideration shall be allowed.Upon proper motion and
payment of the full amount of the docket fee before the expiration of
the reglementary period, the Court of Appeals may grant an
additional period of fifteen (15) days only within which to file the
petition for review. No further extension shall be granted except for
the most compelling reason and in no case to exceed fifteen (15)
days. (Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in its first
motion, petitioner filed a second motion for extension praying for an additional 10
days from 17 April 2006 within which to file its petition for review, on the ground that
pressures of work and the demands posed by equally important cases prevented its
counsel from finalizing the same. As correctly ruled by the CA, however, heavy
workload cannot be considered as a valid justification to sidestep the reglementary
period[45] since to do so would only serve to encourage needless delays and
interminable litigations. Indeed, rules prescribing the time for doing specific acts or for
taking certain proceedings are considered absolutely indispensable to prevent
needless delays and to orderly and promptly discharge judicial business.[46] Corollary
to the principle that the allowance or denial of a motion for extension of time is
addressed to the sound discretion of the court,[47] moreover, lawyers cannot expect
that their motions for extension or postponement will be granted[48] as a matter of
course.
Although technical rules of procedure are not ends in themselves, they are necessary
for an effective and expeditious administration of justice and cannot, for said reason,
be discarded with the mere expediency of claiming substantial merit.[49] This holds
particularly true in the case at bench where, prior to the filing of its petition for review
before the CA, petitioners appeal before the OP was likewise dismissed in view of its
failure to file its appeal memorandum within the extensions of time it had been

granted by said office. After being granted an initial extension of 15 days to do the
same, the records disclose that petitioner was granted by the OP a second extension
of 10 days from 15 March 2005 or until 25 March 2005 within which to file its appeal
memorandum, on the condition that no further extensions shall be allowed. Aside from
not heeding said proviso, petitioner had, consequently, no more time to extend when it
filed its 31 March 2005 motion seeking yet another extension of 10 days or until 10
April 2005 within which to file its appeal memorandum.
With the foregoing procedural antecedents, the initial 15-day extension granted by
the CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedure against further extensions except for the most compelling reason, it was
clearly inexcusable for petitioner to expediently plead its counsels heavy workload as
ground for seeking an additional extension of 10 days within which to file its petition
for review. To our mind, petitioner would do well to remember that, rather than the low
gate to which parties are unreasonably required to stoop, procedural rules are
designed for the orderly conduct of proceedings and expeditious settlement of cases in
the courts of law. Like all rules, they are required to be followed[50] and utter
disregard of the same cannot be expediently rationalized by harping on the policy of
liberal construction[51] which was never intended as an unfettered license to
disregard the letter of the law or, for that matter, a convenient excuse to substitute
substantial compliance for regular adherence thereto. When it comes to compliance
with time rules, the Court cannot afford inexcusable delay.[52]
Even prescinding from the foregoing procedural considerations, we also find that the
HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for respondents
claims and theP10,000.00 administrative fine imposed pursuant to Section 20 in
relation to Section 38 of P.D. 957. By the express terms of the JVA, it appears that
petitioner not only retained ownership of the property pending completion of the
condominium project[53] but had also bound itself to answer liabilities proceeding
from contracts entered into by PPGI with third parties. Article VIII, Section 1 of the JVA
distinctly provides as follows:
Sec. 1. Rescission and damages. Non-performance by either party of
its obligations under this Agreement shall be excused when the
same is due to Force Majeure. In such cases, the defaulting party
must exercise due diligence to minimize the breach and to remedy
the same at the soonest possible time. In the event that either party
defaults or breaches any of the provisions of this Agreement other
than by reason of Force Majeure, the other party shall have the right
to terminate this Agreement by giving notice to the defaulting party,
without prejudice to the filing of a civil case for damages arising from
the breach of the defaulting party.
In the event that the Developer shall be rendered unable to
complete the Condominium Project, and such failure is directly and
solely attributable to the Developer, the Owner shall send written
notice to the Developer to cause the completion of the Condominium
Project. If the developer fails to comply within One Hundred Eighty
(180) days from such notice or, within such time, indicates its
incapacity to complete the Project, the Owner shall have the right to
take over the construction and cause the completion thereof. If the
Owner exercises its right to complete the Condominium Project
under these circumstances, this Agreement shall be automatically
rescinded upon written notice to the Developer and the latter shall
hold the former free and harmless from any and all liabilities to third

47

persons arising from such rescission. In any case, the Owner shall
respect and strictly comply with any covenant entered into by the
Developer and third parties with respect to any of its units in the
Condominium Project. To enable the owner to comply with this
contingent liability, the Developer shall furnish the Owner with a
copy of its contracts with the said buyers on a month-to-month
basis. Finally, in case the Owner would be constrained to assume the
obligations of the Developer to its own buyers, the Developer shall
lose its right to ask for indemnity for whatever it may have spent in
the Development of the Project.
Nevertheless, with respect to the buyers of the Developer for the
First Phase, the area intended for the Second Phase shall not be
bound and/or subjected to the said covenants and/or any other
liability incurred by the Developer in connection with the
development of the first phase. (Underscoring supplied)

The case was submitted for decision upon the following stipulation of facts:
Come now the parties to the above-mentioned case, through their respective
undersigned attorneys, and hereby agree to respectfully submit to this
Honorable Court the case upon the following statement of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and
that defendant is the Collector of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them to
purchase one sweepstakes ticket valued at two pesos (P2), subscribed and
paid therefor the amounts as follows:
1.
Jose
P0.18
Gatchalian ....................................................................................................

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid
liability by claiming that it was not in any way privy to the Contracts to Sell executed
by PPGI and respondents. As correctly argued by the latter, moreover, a joint venture
is considered in this jurisdiction as a form of partnership and is, accordingly, governed
by the law of partnerships.[54] Under Article 1824 of the Civil Code of the Philippines,
all partners are solidarily liable with the partnership for everything chargeable to the
partnership, including loss or injury caused to a third person or penalties incurred due
to any wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-partners.[55] Whether
innocent or guilty, all the partners are solidarily liable with the partnership itself.[56]

2.
Gregoria
.18
Cristobal ...............................................................................................

WHEREFORE, premises considered, the petition for review is DENIED for lack of
merit.SO ORDERED

6.
Jose
.07
Silva .............................................................................................................

3.
Saturnina
.08
Silva ....................................................................................................
4.
Guillermo
.13
Tapia ...................................................................................................
5.
Jesus
.15
Legaspi ......................................................................................................

7.
Tomasa
.08
Mercado ................................................................................................

14. Gatchalian v. Collector, 67 Phil 666 (1939)

G.R. No. L-45425
April 29, 1939
JOSE GATCHALIAN, ET AL., plaintiffs-appellants,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Guillermo B. Reyes for appellants.
Office of the Solicitor-General Tuason for appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of Internal
Revenue the sum of P1,863.44, with legal interest thereon, which they paid under
protest by way of income tax. They appealed from the decision rendered in the case
on October 23, 1936 by the Court of First Instance of the City of Manila, which
dismissed the action with the costs against them.

8.
Julio
.13
Gatchalian ...................................................................................................
9.
Emiliana
.13
Santiago ................................................................................................
10.
Maria
Legaspi ...............................................................................................

C.

.16

11.
Francisco
.13
Cabral ...............................................................................................
12.
Gonzalo
.14
Javier ....................................................................................................
13.
Maria
.17
Santiago ...................................................................................................
14.
Buenaventura
.13
Guzman ......................................................................................
15.
Mariano
.14
Santos .................................................................................................

48

Total ........................................................................................................

2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs

purchased, in the ordinary course of business, from one of the duly authorized
agents of the National Charity Sweepstakes Office one ticket bearing No.
178637 for the sum of two pesos (P2) and that the said ticket was registered
in the name of Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15, 1934,
the above-mentioned ticket bearing No. 178637 won one of the third prizes in
the amount of P50,000 and that the corresponding check covering the abovementioned prize of P50,000 was drawn by the National Charity Sweepstakes
Office in favor of Jose Gatchalian & Company against the Philippine National
Bank, which check was cashed during the latter part of December, 1934 by
Jose Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was required by income tax
examiner Alfredo David to file the corresponding income tax return covering
the prize won by Jose Gatchalian & Company and that on December 29, 1934,
the said return was signed by Jose Gatchalian, a copy of which return is
enclosed as Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an assessment against Jose
Gatchalian & Company requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian &
Company until January 20, 1935 within which to pay the said amount of P1,499.94, a
copy of which letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant
a reply, a copy of which marked Exhibit C is attached and made a part hereof,
requesting exemption from payment of the income tax to which reply there were
enclosed fifteen (15) separate individual income tax returns filed separately by each
one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to
D-15, respectively, in order of their names listed in the caption of this case and
made parts hereof; a statement of sale signed by Jose Gatchalian showing the
amount put up by each of the plaintiffs to cover up the attached and marked as
Exhibit E and made a part hereof; and a copy of the affidavit signed by Jose
Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made
part thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of which marked
Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption
from the payment of tax and reiterated his demand for the payment of the sum of
P1,499.94 as income tax and gave plaintiffs until February 10, 1935 within which to
pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by
the defendant, notwithstanding subsequent demand made by defendant upon the
plaintiffs through their attorney on March 23, 1935, a copy of which marked Exhibit
H is enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy

against the property of the plaintiffs, a copy of which warrant marked Exhibit I is
enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the property of the
plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C.
Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of the tax
and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official
receipt No. 7454879 which is attached and marked Exhibit J and made a part hereof,
and requested defendant that plaintiffs be allowed to pay under protest the balance
of the tax and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was granted
by defendant subject to the condition that plaintiffs file the usual bond secured by
two solvent persons to guarantee prompt payment of each installments as it
becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is
enclosed and made a part hereof, to guarantee the payment of the balance of the
alleged tax liability by monthly installments at the rate of P118.70 a month, the first
payment under protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the payment
of the sum of P602.51, a copy of which protest is attached and marked Exhibit L, but
that defendant in his letter dated August 1, 1935 overruled the protest and denied
the request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in
accordance with the terms and conditions of bond filed by them, the defendant in
his letter dated July 23, 1935, copy of which is attached and marked Exhibit M,
ordered the municipal treasurer of Pulilan, Bulacan to execute within five days the
warrant of distraint and levy issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising from the levy of
their property, the plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo
Tapia, Maria Santiago and Emiliano Santiago, paid under protest to the municipal
treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the unpaid balance
of the income tax and penalties demanded by defendant as evidenced by income
tax receipt No. 35811 which is attached and marked Exhibit N and made a part
hereof; and that on September 3, 1936, the plaintiffs formally protested to the
defendant against the payment of said amount and requested the refund thereof,
copy of which is attached and marked Exhibit O and made part hereof; but that on
September 4, 1936, the defendant overruled the protest and denied the refund
thereof; copy of which is attached and marked Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one
thousand eight hundred and sixty three pesos and forty-four centavos (P1,863.44)
paid under protest by them but that defendant refused and still refuses to refund the
said amount notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and additional evidence if
necessary.

49

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

RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL

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

To whom it may concern:

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

Amount

Address

1. Mariano Santos ...........................................

P0.14

Pulilan, Bulacan.

2. Buenaventura Guzman ...............................

.13

- Do -

3. Maria Santiago ............................................

.17

- Do -

4. Gonzalo Javier ..............................................

.14

- Do -

5. Francisco Cabral ..........................................

.13

- Do -

6. Maria C. Legaspi ..........................................

.16

- Do -

7. Emiliana Santiago .........................................

.13

- Do -

8. Julio Gatchalian ............................................

.13

- Do -

9. Jose Silva ......................................................

.07

- Do -

10. Tomasa Mercado .......................................

.08

- Do -

11. Jesus Legaspi .............................................

.15

- Do -

12. Guillermo Tapia ...........................................

.13

- Do -

13. Saturnina Silva ............................................

.08

- Do -

14. Gregoria Cristobal .......................................

.18

- Do -

15. Jose Gatchalian ............................................

.18

- Do -

2.00

Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts
of whatever prize that might be won by said ticket.
Pulilan, Bulacan, P.I.
(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:

Purchas
e
Price

Price
Won

Expenses

Net
prize

1.
Jose
Gatchalian ............................ D-1
..............

P0.18

P4,42
5

P 480

3,94
5

2.
Gregoria
Cristobal ............................... D-2
.......

.18

4,575

2,000

2,57
5

3.
Saturnina
Silva ..................................... D-3
........

.08

1,875

360

1,51
5

4.
Guillermo
Tapia ..................................... D-4
.....

.13

3,325

360

2,96
5

5. Jesus Legaspi by Maria

D-5
Cristobal .........

.15

3,825

720

3,10
5

6.
Jose
Silva ..................................... D-6
...............

.08

1,875

360

1,51
5

7.
Tomasa
Mercado ............................... D-7
........

.07

1,875

360

1,51
5

8. Julio Gatchalian by Beatriz

D-8
Guzman .......

.13

3,150

240

2,91
0

9.
Emiliana
Santiago ............................... D-9
.......

.13

3,325

360

2,96
5

10.
Maria
C.
Legaspi ................................. D-10
.....

.16

4,100

960

3,14
0

11.
Francisco
Cabral ................................... D-11
...

.13

3,325

360

2,96
5

12.
Gonzalo
Javier .................................... D-12
......

.14

3,325

360

2,96
5

13.
Maria
Santiago ............................... D-13
...........

.17

4,350

360

3,99
0

Name

Exhibit
No.

50

14.
Buenaventura
D-14
Guzman ...........................

.13

3,325

360

2,96
5

15.
Mariano
Santos .................................. D-15
......

.14

3,325

360

2,96
5

2.00

50,00
0

<=""
td=""
style="font-size:
14px;
textdecoration: none;
color: rgb(0, 0,
128); font-family:
arial, verdana;">

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be
reduced to the two following: (1) Whether the plaintiffs formed a partnership, or
merely a community of property without a personality of its own; in the first case it is
admitted that the partnership thus formed is liable for the payment of income tax,
whereas if there was merely a community of property, they are exempt from such
payment; and (2) whether they should pay the tax collectively or whether the latter
should be prorated among them and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833,
as last amended by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding calendar year from all
sources by every corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association or insurance company, organized in the
Philippine Islands, no matter how created or organized, but not including duly
registered general copartnership (compaias colectivas), a tax of three per
centum upon such income; and a like tax shall be levied, assessed, collected,
and paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company organized, authorized, or
existing under the laws of any foreign country, including interest on bonds,
notes, or other interest-bearing obligations of residents, corporate or
otherwise: Provided, however, That nothing in this section shall be construed
as permitting the taxation of the income derived from dividends or net profits
on which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition by a
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company, or property, real, personal,
or mixed, shall be ascertained in accordance with subsections (c) and (d) of
section two of Act Numbered Two thousand eight hundred and thirty-three, as
amended by Act Numbered Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income received by every
taxable corporation, joint-stock company, partnership, joint account (cuenta
en participacion), association, or insurance company in the calendar year
nineteen hundred and twenty and in each year thereafter.

There is no doubt that if the plaintiffs merely formed a community of property the
latter is exempt from the payment of income tax under the law. But according to the
stipulation facts the plaintiffs organized a partnership of a civil nature because each of
them put up money to buy a sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win, as they did in fact in the amount of P50,000
(article 1665, Civil Code). The partnership was not only formed, but upon the
organization thereof and the winning of the prize, Jose Gatchalian personally appeared
in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as
such collection the prize, the office issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said partner, in the same capacity, collected the
said check. All these circumstances repel the idea that the plaintiffs organized and
formed a community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is the
one bound to pay the income tax which the defendant collected under the aforesaid
section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no
merit in plaintiff's contention that the tax should be prorated among them and paid
individually, resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this
instance to the plaintiffs appellants. So ordered.
Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ., concur.

15. Yulo v. Yang Chiao Seng, 106 Phil 110 (1959)

G.R. No. L-12541

August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants,

vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan,
Yabut,
Eusebio
&
Tiburcio
Augusto Francisco and Julian T. Ocampo for appellee.

for

appellants.

LABRADOR, J.:
Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A.
Tan, presiding, dismissing plaintiff's complaint as well as defendant's counterclaim. The
appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter
to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between
them to run and operate a theatre on the premises occupied by former Cine Oro at
Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1) that Yang Chiao
Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in
advance within the first 15 days of each quarter, (2) that the partnership shall be for a

51

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

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

52

by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a
"guaranteed participation" in the profits also belies the supposed existence of a
partnership between them. It. therefore, denied plaintiff's claim for damages or
supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use of the
supposed lobby of the theatre, the court after ocular inspection found that the said
lobby was very narrow space leading to the balcony of the theatre which could not be
used for business purposes under existing ordinances of the City of Manila because it
would constitute a hazard and danger to the patrons of the theatre. The court,
therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on
the ground that the defendant failed to present sufficient evidence to sustain the
same. It is against this decision that the appeal has been prosecuted by plaintiff to this
Court.
The first assignment of error imputed to the trial court is its order setting aside its
former decision and allowing a new trial. This assignment of error is without merit. As
that parties agreed to postpone the trial because of a probable amicable settlement,
the plaintiff could not take advantage of defendant's absence at the time fixed for the
hearing. The lower court, therefore, did not err in setting aside its former judgment.
The final result of the hearing shown by the decision indicates that the setting aside of
the previous decision was in the interest of justice.
In the second assignment of error plaintiff-appellant claims that the lower court erred
in not striking out the evidence offered by the defendant-appellee to prove that the
relation between him and the plaintiff is one of the sublease and not of partnership.
The action of the lower court in admitting evidence is justified by the express
allegation in the defendant's answer that the agreement set forth in the complaint was
one of lease and not of partnership, and that the partnership formed was adopted in
view of a prohibition contained in plaintiff's lease against a sublease of the property.
The most important issue raised in the appeal is that contained in the fourth
assignment of error, to the effect that the lower court erred in holding that the written
contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease and
not of partnership. We have gone over the evidence and we fully agree with the
conclusion of the trial court that the agreement was a sublease, not a partnership. The
following are the requisites of partnership: (1) two or more persons who bind
themselves to contribute money, property, or industry to a common fund; (2) intention
on the part of the partners to divide the profits among themselves. (Art. 1767, Civil
Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre.
In the third place, it does not appear that she has ever demanded from defendant any
accounting of the expenses and earnings of the business. Were she really a partner,
her first concern should have been to find out how the business was progressing,
whether the expenses were legitimate, whether the earnings were correct, etc. She
was absolutely silent with respect to any of the acts that a partner should have done;

all that she did was to receive her share of P3,000 a month, which can not be
interpreted in any manner than a payment for the use of the premises which she had
leased from the owners. Clearly, plaintiff had always acted in accordance with the
original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties
considered this offer as the real contract between them.
Plaintiff claims the sum of P41,000 as representing her share or participation in the
business from December, 1949. But the original letter of the defendant, Exh. "A",
expressly states that the agreement between the plaintiff and the defendant was to
end upon the termination of the right of the plaintiff to the lease. Plaintiff's right having
terminated in July, 1949 as found by the Court of Appeals, the partnership agreement
or the agreement for her to receive a participation of P3,000 automatically ceased as
of said date.
We find no error in the judgment of the court below and we affirm it in toto, with costs
against plaintiff-appellant.
Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.

16. Pioneer Insurance & Surety Corp. v. Court of Appeals, 175 SCRA
668 (1989)
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT,
INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S.
LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and
MODESTO CERVANTES and CONSTANCIO MAGLANA,respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:

53

The subject matter of these consolidated petitions is the decision of the Court of
Appeals in CA-G.R. CV No. 66195 which modified the decision of the then Court of First
Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R.
No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but
in all other respects the trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring
Lim to pay plaintiff the amount of P311,056.02, with interest at the rate of 12%
per annum compounded monthly; plus 15% of the amount awarded to plaintiff
as attorney's fees from July 2,1966, until full payment is made; plus
P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs incurred additional
miscellaneous expenses aside from Pl51,000.00,,making a total of
P184,878.74. Defendant Jacob S. Lim is further required to pay cross party
plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the
amount of Pl84,878.74 with interest from the filing of the cross-complaints until
the amount is fully paid; plus moral and exemplary damages in the amount of
P184,878.84 with interest from the filing of the cross-complaints until the
amount is fully paid; plus moral and exemplary damages in the amount of
P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the
Cervanteses, and another P20,000.00 to Constancio B. Maglana as attorney's
fees.
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against
defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is
dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco
and the Cervanteses the amount of P20,000.00 as attorney's fees and the
amount of P4,379.21, per year from 1966 with legal rate of interest up to the
time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount
of P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was
filed in good faith. The fact that the properties of the Bormaheco and the
Cervanteses were attached and that they were required to file a counterbond
in order to dissolve the attachment, is not an act of bad faith. When a man
tries to protect his rights, he should not be saddled with moral or exemplary
damages. Furthermore, the rights exercised were provided for in the Rules of
Court, and it was the court that ordered it, in the exercise of its discretion.

No damage is decided against Malayan Insurance Company, Inc., the thirdparty defendant, for it only secured the attachment prayed for by the plaintiff
Pioneer. If an insurance company would be liable for damages in performing an
act which is clearly within its power and which is the reason for its being, then
nobody would engage in the insurance business. No further claim or counterclaim for or against anybody is declared by this Court. (Rollo - G.R. No. 24197,
pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business
as owner-operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into
and executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A
Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US
$109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-718,
arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July
18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R.
No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor
of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare
parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents
in both petitions) contributed some funds used in the purchase of the above aircrafts
and spare parts. The funds were supposed to be their contributions to a new
corporation proposed by Lim to expand his airline business. They executed two (2)
separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed
by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements stipulated that the indemnitors principally
agree and bind themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind and nature which Pioneer may incur
in consequence of having become surety upon the bond/note and to pay, reimburse
and make good to Pioneer, its successors and assigns, all sums and amounts of money
which it or its representatives should or may pay or cause to be paid or become liable
to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in
favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in
favor of the former. It was stipulated therein that Lim transfer and convey to the surety
the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the
Register of Deeds of the City of Manila and with the Civil Aeronautics Administration
pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No.
776), respectively.

54

Lim defaulted on his subsequent installment payments prompting JDA to request

payments from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however,
filed a third party claim alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for
a writ of preliminary attachment against Lim and respondents, the Cervanteses,
Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against
Lim alleging that they were not privies to the contracts signed by Lim and, by way of
counterclaim, sought for damages for being exposed to litigation and for recovery of
the sums of money they advanced to Lim for the purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but
dismissed Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all other respects the
trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED
THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD
ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN
FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO
RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS
DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had
reinsured its risk of liability under the surety bond in favor of JDA and
subsequently collected the proceeds of such reinsurance in the sum of
P295,000.00. Defendants' alleged obligation to Pioneer amounts to P295,000.00,
hence, plaintiffs instant action for the recovery of the amount of P298,666.28
from defendants will no longer prosper. Plaintiff Pioneer is not the real party in
interest to institute the instant action as it does not stand to be benefited or
injured by the judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to recover the

amount from defendants, hence, it instituted the action is utterly devoid of merit.
Plaintiff did not even present any evidence that it is the attorney-in-fact of the
reinsurance company, authorized to institute an action for and in behalf of the
latter. To qualify a person to be a real party in interest in whose name an action
must be prosecuted, he must appear to be the present real owner of the right
sought to be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed.,
p. 155). It has been held that the real party in interest is the party who would be
benefited or injured by the judgment or the party entitled to the avails of the suit
(Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest
is meant a present substantial interest as distinguished from a mere expectancy
or a future, contingent, subordinate or consequential interest (Garcia v. David, 67
Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414;
Flowers v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669,
quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the
real party in interest as it has already been paid by the reinsurer the sum of
P295,000.00 the bulk of defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer
from its reinsurer, the former was able to foreclose extra-judicially one of the
subject airplanes and its spare engine, realizing the total amount of P37,050.00
from the sale of the mortgaged chattels. Adding the sum of P37,050.00, to the
proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff
has been overpaid in the amount of P33,383.72 considering that the total
amount it had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer to
recover from defendants the amount in excess of P298,666.28 would be
tantamount to unjust enrichment as it has already been paid by the reinsurance
company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-avis defendant Lim's liability to JDA. Well settled is the rule that no person should
unjustly enrich himself at the expense of another (Article 22, New Civil Code).
(Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding
that petitioner was paid by its reinsurer in the aforesaid amount, as this matter has
never been raised by any of the parties herein both in their answers in the court below
and in their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming
hypothetically that it was paid by its reinsurer, still none of the respondents had any
interest in the matter since the reinsurance is strictly between the petitioner and the
re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not applicable considering that
whatever amount he would recover from the co-indemnitor will be paid to the
reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance money
was never raised by the parties.

55

A cursory reading of the trial court's lengthy decision shows that two of the issues
threshed out were:

and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and

Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San
Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.

xxx xxx xxx

1. Has Pioneer a cause of action against defendants with respect to so much
of its obligations to JDA as has been paid with reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still
any claim against defendants, considering the amount it has realized from
the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of
G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond it
had executed in favor of JDA, collected the proceeds of such reinsurance in
the sum of P295,000, and paid with the said amount the bulk of its alleged
liability to JDA under the said surety bond, it is plain that on this score it no
longer has any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is
suing defendants for the amount paid to it by the reinsurers, notwithstanding
that the cause of action pertains to the latter, Pioneer says: The reinsurers
opted instead that the Pioneer Insurance & Surety Corporation shall pursue
alone the case.. . . . Pioneer Insurance & Surety Corporation is representing
the reinsurers to recover the amount.' In other words, insofar as the amount
paid to it by the reinsurers Pioneer is suing defendants as their attorney-infact.
But in the first place, there is not the slightest indication in the complaint that
Pioneer is suing as attorney-in- fact of the reinsurers for any amount. Lastly,
and most important of all, Pioneer has no right to institute and maintain in its
own name an action for the benefit of the reinsurers. It is well-settled that an
action brought by an attorney-in-fact in his own name instead of that of the
principal will not prosper, and this is so even where the name of the principal
is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every
action must be prosecuted in the name of the real party in
interest.' This provision is mandatory. The real party in interest is
the party who would be benefitted or injured by the judgment or
is the party entitled to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is
not a real party in interest, that there is no law permitting an
action to be brought by an attorney-in-fact. Arroyo v. Granada

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has
collected P295,000.00 from the reinsurers, the uninsured portion of what it
paid to JDA is the difference between the two amounts, or P3,666.28. This is
the amount for which Pioneer may sue defendants, assuming that the
indemnity agreement is still valid and effective. But since the amount realized
from the sale of the mortgaged chattels are P35,000.00 for one of the
airplanes and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer
is still overpaid by P33,383.72. Therefore, Pioneer has no more claim against
defendants. (Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the
appellate court. Considering this admitted payment, the only issue that cropped up
was the effect of payment made by the reinsurers to the petitioner. Therefore, the
petitioner's argument that the respondents had no interest in the reinsurance contract
as this is strictly between the petitioner as insured and the reinsuring company
pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires the same rights
by subrogation as are acquired in similar cases where the original
insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A.
La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in
general applicable to actions or contracts of reinsurance. (Delaware,
Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann.
Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald
Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila
Mahogany Manufacturing Corporation v. Court of Appeals(154 SCRA 650 [1987]):

56

Note that if a property is insured and the owner receives the indemnity from
the insurer, it is provided in said article that the insurer is deemed subrogated
to the rights of the insured against the wrongdoer and if the amount paid by
the insurer does not fully cover the loss, then the aggrieved party is the one
entitled to recover the deficiency. Evidently, under this legal provision, the
real party in interest with regard to the portion of the indemnity paid is the
insurer and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorneyin-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the
petitioner's complaint as against the respondents for the reason that the petitioner
was not the real party in interest in the complaint and, therefore, has no cause of
action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors
should not have been dismissed on the premise that the evidence on record shows
that it is entitled to recover from the counter indemnitors. It does not, however, cite
any grounds except its allegation that respondent "Maglanas defense and evidence are
certainly incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the matter replete with
evidence to substantiate its finding that the counter-indemnitors are not liable to the
petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be
valid and effective after the execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts
involved, agreed to issue the bond provided that the same would be
mortgaged to it, but this was not possible because the planes were still in
Japan and could not be mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would be mortgaged to Pioneer
Insurance to cover the bond, and this indemnity agreement would be
cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged properties have
impaired and rendered insufficient the security under the chattel
mortgage and there is thus no other sufficient security for the claim
sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no other
security for the claim sought to be enforced by this action, which necessarily
means that the indemnity agreement had ceased to have any force and effect
at the time this action was instituted. Sec 2, Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage
on the planes and spare parts, no longer has any further action against the
defendants as indemnitors to recover any unpaid balance of the price. The
indemnity agreement was ipso jure extinguished upon the foreclosure of the
chattel mortgage. These defendants, as indemnitors, would be entitled to be
subrogated to the right of Pioneer should they make payments to the latter.
Articles 2067 and 2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of
foreclosure precludes any further action to recover any unpaid balance of the
price.
SAL or Lim, having failed to pay the second to the eight and last installments to
JDA and Pioneer as surety having made of the payments to JDA, the alternative
remedies open to Pioneer were as provided in Article 1484 of the New Civil Code,
known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by
extrajudicial foreclosure and the instant suit. Such being the case, as provided by
the aforementioned provisions, Pioneer shall have no further action against the
purchaser to recover any unpaid balance and any agreement to the contrary is
void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May
27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the
contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is
actually exercising the rights of JDA as vendor, having subrogated it in such
rights. Nor may the application of the provision be validly opposed on the ground
that these defendants and defendant Maglana are not the vendee but
indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862,
Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their
maturity dates discharged these defendants from any liability as alleged
indemnitors. The change of the maturity dates of the obligations of Lim, or SAL
extinguish the original obligations thru novations thus discharging the
indemnitors.
The principal hereof shall be paid in eight equal successive three
months interval installments, the first of which shall be due and
payable 25 August 1965, the remainder of which ... shall be due and

57

payable on the 26th day x x x of each succeeding three months and

the last of which shall be due and payable 26th May 1967.

Therefore, Pioneer is not entitled to exact reimbursement from these

defendants thru the indemnity.

However, at the trial of this case, Pioneer produced a memorandum executed by

SAL or Lim and JDA, modifying the maturity dates of the obligations, as follows:

Art. 1318. Payment by a solidary debtor shall not entitle him to

reimbursement from his co-debtors if such payment is made after
the obligation has prescribed or became illegal.

The principal hereof shall be paid in eight equal successive three

month interval installments the first of which shall be due and
payable 4 September 1965, the remainder of which ... shall be due
and payable on the 4th day ... of each succeeding months and the
last of which shall be due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported promissory notes bearing
maturity dates different from that fixed in the aforesaid memorandum; the due
date of the first installment appears as October 15, 1965, and those of the rest of
the installments, the 15th of each succeeding three months, that of the last
installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates,
effected twice, were done without the knowledge, much less, would have it
believed that these defendants Maglana (sic). Pioneer's official Numeriano
Carbonel would have it believed that these defendants and defendant
Maglana knew of and consented to the modification of the obligations. But if
that were so, there would have been the corresponding documents in the
form of a written notice to as well as written conformity of these defendants,
and there are no such document. The consequence of this was the
extinguishment of the obligations and of the surety bond secured by the
indemnity agreement which was thereby also extinguished. Applicable by
analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar
Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v.
Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor
without the consent of the guarantor extinguishes the guaranty The
mere failure on the part of the creditor to demand payment after
the debt has become due does not of itself constitute any extension
time referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson &
Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid
the same. Consequently, Pioneer has no more cause of action to recover from
these defendants, as supposed indemnitors, what it has paid to JDA. By virtue
of an express stipulation in the surety bond, the failure of JDA to present its
claim to Pioneer within ten days from default of Lim or SAL on every
installment, released Pioneer from liability from the claim.

These defendants are entitled to recover damages and attorney's fees from
Pioneer and its surety by reason of the filing of the instant case against them
and the attachment and garnishment of their properties. The instant action is
clearly unfounded insofar as plaintiff drags these defendants and defendant
Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to invest? How are the losses
to be treated in situations where their contributions to the intended
'corporation' were invested not through the corporate form? This Petition
presents these fundamental questions which we believe were resolved
erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure
of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner
Lim to incorporate, a de facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or gains of the
venture in proportion to their contribution. The petitioner, therefore, questions the
appellate court's findings ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' crossclaims in the total amount of P184,878.74 as correctly found by the trial court,
with interest from the filing of the cross-complaints until the amount is fully paid.
Defendant Lim should pay one-half of the said amount to Bormaheco and the
Cervanteses and the other one-half to defendant Maglana. It is established in the
records that defendant Lim had duly received the amount of Pl51,000.00 from
defendants Bormaheco and Maglana representing the latter's participation in the
ownership of the subject airplanes and spare parts (Exhibit 58). In addition, the
cross-party plaintiffs incurred additional expenses, hence, the total sum of P
184,878.74.

58

We first state the principles.

While it has been held that as between themselves the rights of the stockholders
in a defectively incorporated association should be governed by the supposed
charter and the laws of the state relating thereto and not by the rules governing
partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it
is ordinarily held that persons who attempt, but fail, to form a corporation and
who carry on business under the corporate name occupy the position of partners
inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus,
where persons associate themselves together under articles to purchase property
to carry on a business, and their organization is so defective as to come short of
creating a corporation within the statute, they become in legal effect partners
inter se, and their rights as members of the company to the property acquired by
the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A.
268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons
associated themselves as a corporation for the development of land for irrigation
purposes, and each conveyed land to the corporation, and two of them contracted
to pay a third the difference in the proportionate value of the land conveyed by
him, and no stock was ever issued in the corporation, it was treated as a trustee
for the associates in an action between them for an accounting, and its capital
stock was treated as partnership assets, sold, and the proceeds distributed among
them in proportion to the value of the property contributed by each (Shorb v.
Beaudry, 56 Cal. 446). However, such a relation does not necessarily exist, for
ordinarily persons cannot be made to assume the relation of partners, as between
themselves, when their purpose is that no partnership shall exist (London Assur.
Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it
should be implied only when necessary to do justice between the parties; thus,
one who takes no part except to subscribe for stock in a proposed corporation
which is never legally formed does not become a partner with other subscribers
who engage in business under the name of the pretended corporation, so as to be
liable as such in an action for settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between
certain stockholders and other stockholders, who were also directors, will not be
implied in the absence of an agreement, so as to make the former liable to
contribute for payment of debts illegally contracted by the latter (Heald v. Owen,
44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics
supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his
failure to appear during the pretrial despite notification. In his answer, the petitioner
denied having received any amount from respondents Bormaheco, the Cervanteses
and Maglana. The trial court and the appellate court, however, found through Exhibit
58, that the petitioner received the amount of P151,000.00 representing the
participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the
subject airplanes and spare parts. The record shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru the Cervanteses.

cross-claims of the respondents to the effect that they were induced and lured by the
petitioner to make contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement. Maglana alleged in his crossclaim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and
Maglana to expand his airline business. Lim was to procure two DC-3's from
Japan and secure the necessary certificates of public convenience and necessity
as well as the required permits for the operation thereof. Maglana sometime in
May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which
Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise,
delivered his share of the undertaking. Lim in an undertaking sometime on or
about August 9,1965, promised to incorporate his airline in accordance with their
agreement and proceeded to acquire the planes on his own account. Since then
up to the filing of this answer, Lim has refused, failed and still refuses to set up
the corporation or return the money of Maglana. (Record on Appeal, pp. 337338).
while respondents Bormaheco and the Cervanteses alleged in their answer,
counterclaim, cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering
defendants to purchase two airplanes and spare parts from Japan which the latter
considered as their lawful contribution and participation in the proposed
corporation to be known as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were advanced by defendants
Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to
the agreement among the defendants, defendant Lim in connivance with the
plaintiff, signed and executed the alleged chattel mortgage and surety bond
agreement in his personal capacity as the alleged proprietor of the SAL. The
answering defendants learned for the first time of this trickery and
misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel
mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to file
an adverse claim in the form of third party claim. Notwithstanding repeated oral
demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to
surrender the possession of the two planes and their accessories and or return
the amount advanced by the former amounting to an aggregate sum of P
178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted
and refused to comply with them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which would
entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was acting on his own and not in
behalf of his other would-be incorporators in transacting the sale of the airplanes and
spare parts.

It is therefore clear that the petitioner never had the intention to form a corporation
with the respondents despite his representations to them. This gives credence to the

59

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the
Court of Appeals is AFFIRMED.
SO ORDERED.

17. Yu v. National Labor Relations Commission, 224 SCRA 75 (1993)

G.R. No. 97212 June 30, 1993
BENJAMIN
YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS
COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU
SHIAN JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm
name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The
partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora
Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens
of the Republic of China (Taiwan), as limited partners. The partnership business
consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and
Guillerma Cruz, situated in Bulacan Province, under a Memorandum Agreement dated
26 June 1984 with the Cruz spouses. 1 The partnership had its main office in Makati,
Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as
Assistant General Manager with a monthly salary of P4,000.00. According to petitioner
Yu, however, he actually received only half of his stipulated monthly salary, since he
had accepted the promise of the partners that the balance would be paid when the

firm shall have secured additional operating funds from abroad. Benjamin Yu actually
managed the operations and finances of the business; he had overall supervision of
the workers at the marble quarry in Bulacan and took charge of the preparation of
papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea
Bendal and Rhodora Bendal sold and transferred their interests in the partnership to
private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the partnership to Willy Co. Between
Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great
bulk of the partnership interest. The partnership now constituted solely by Willy Co and
Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they
moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A
Supplement to the Memorandum Agreement relating to the operation of the marble
quarry was entered into with the Cruz spouses in February of 1988. 2 The actual
operations of the business enterprise continued as before. All the employees of the
partnership continued working in the business, all, save petitioner Benjamin Yu as it
turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from
Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for
work and there met private respondent Willy Co for the first time. Petitioner was
informed by Willy Co that the latter had bought the business from the original partners
and that it was for him to decide whether or not he was responsible for the obligations
of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not
allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries
remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery
of unpaid salaries accruing from November 1984 to October 1988, moral and
exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the
other private respondents. The partnership and Willy Co denied petitioner's charges,
contending in the main that Benjamin Yu was never hired as an employee by the
present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement
and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of
the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29
November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and
Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new
partnership had not retained petitioner Yu in his original position as Assistant General
Manager, and that there was no law requiring the new partnership to absorb the
employees of the old partnership. Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply declined to retain him in his
former managerial position or any other position. Finally, the NLRC held that Benjamin

60

Yu's claim for unpaid wages should be asserted against the original members of the
preceding partnership, but these though impleaded had, apparently, not been served
with summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to
set aside and annul the Resolution of the NLRC as a product of grave abuse of
discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a
partnership has a juridical personality separate and distinct from that of each of its
members. Such independent legal personality subsists, petitioner claims,
notwithstanding changes in the identities of the partners. Consequently, the
employment contract between Benjamin Yu and the partnership Jade Mountain could
not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1)
whether the partnership which had hired petitioner Yu as Assistant General Manager
had been extinguished and replaced by a new partnerships composed of Willy Co and
Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence,
whether petitioner Yu could nonetheless assert his rights under his employment
contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that
the legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired petitioner in 1984 and the
emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is
found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil
Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up of
the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no
definite term or particular undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the
original partnership interest. The acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the partners who had originally
owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal
personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership
persists for the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, it is important to underscore the fact that the business
of the old partnership was simply continued by the new partners, without the old
partnership undergoing the procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceeding partnership, and continued using the old name of
Jade Mountain Products Company Limited, without winding up the business affairs of
the old partnership, paying off its debts, liquidating and distributing its net assets, and
then re-assembling the said assets or most of them and opening a new business
enterprise. There were, no doubt, powerful tax considerations which underlay such an
informal approach to business on the part of the retiring and the incoming partners. It
is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described
situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new
partnership itself which continued the business of the old, dissolved, one, are liable for
the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et
al, 8 the Court held that under facts very similar to those in the case at bar, a
withdrawing partner remains liable to a third party creditor of the old
partnership. 9 The liability of the new partnership, upon the other hand, in the set of
circumstances obtaining in the case at bar, is established in Article 1840 of the Civil
Code which reads as follows:

61

Art. 1840. In the following cases creditors of the dissolved partnership

are also creditors of the person or partnership continuing the business:

Nothing in this article shall be held to modify any right of creditors to set
assignment on the ground of fraud.

(1) When any new partner is admitted into an existing partnership, or when any
partner retires and assigns (or the representative of the deceased partner
assigns) his rights in partnership property to two or more of the partners, or to
one or more of the partners and one or more third persons, if the business is
continued without liquidation of the partnership affairs;

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the
new Jade Mountain which continued the business of the old one without liquidation of
the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner
Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-visany
claim of any retired or previous partner insofar as such retired partner's interest in the
dissolved partnership is concerned. It is not necessary for the Court to determine
under which one or mare of the above six (6) paragraphs, the case at bar would fall, if
only because the facts on record are not detailed with sufficient precision to permit
such determination. It is, however, clear to the Court that under Article 1840 above,
Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims
relating to his employment with the previous partnership, against the new Jade
Mountain.

(2) When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the remaining
partner, who continues the business without liquidation of partnership affairs,
either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article, with the
consent of the retired partners or the representative of the deceased partner,
but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay the debts
and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners
continue the businessunder the provisions of article 1837, second paragraph,
No. 2, either alone or with others, andwithout liquidation of the partnership
affairs;
(6) When a partner is expelled and the remaining partners continue the
business either alone or with others without liquidation of the partnership
affairs;
The liability of a third person becoming a partner in the partnership continuing
the business, under this article, to the creditors of the dissolved partnership
shall be satisfied out of the partnership property only, unless there is a
stipulation to the contrary.
When the business of a partnership after dissolution is continued under any
conditions set forth in this article the creditors of the retiring or deceased
partner or the representative of the deceased partner, have a prior right to any
claim of the retired partner or the representative of the deceased partner
against the person or partnership continuing the business on account of the
retired or deceased partner's interest in the dissolved partnership or on account
of any consideration promised for such interest or for his right in partnership
property.

It is at the same time also evident to the Court that the new partnership was entitled
to appoint and hire a new general or assistant general manager to run the affairs of
the business enterprise take over. An assistant general manager belongs to the most
senior ranks of management and a new partnership is entitled to appoint a top
manager of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful termination, or
termination without just or authorized cause. We think that the precise authorized
cause for termination in the case at bar was redundancy. 10 The new partnership had
its own new General Manager, apparently Mr. Willy Co, the principal new owner
himself, who personally ran the business of Jade Mountain. Benjamin Yu's old position
as Assistant General Manager thus became superfluous or redundant. 11 It follows
that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay
for each year of service that he had rendered to the old partnership, a fraction of at
least six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in
its employ, we consider that Benjamin Yu was very shabbily treated by the new
partnership. The old partnership certainly benefitted from the services of Benjamin Yu
who, as noted, previously ran the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business itself and therefore, the
new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of
note that the new partnership did not try to suggest that there was any cause
consisting of some blameworthy act or omission on the part of Mr. Yu which compelled
the new partnership to terminate his services. Nonetheless, the new Jade Mountain did
not notify him of the change in ownership of the business, the relocation of the main
office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy
Co of control of operations. The treatment (including the refusal to honor his claim for
unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary
and cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade
Mountain may legitimately be required to respond by paying moral damages. This
Court, exercising its discretion and in view of all the circumstances of this case,
believes that an indemnity for moral damages in the amount of P20,000.00 is proper
and reasonable.

62

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal

rate of six percent (6%) per annum on the amount of unpaid wages, and of his
separation pay, computed from the date of promulgation of the award of the Labor
Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to
litigation to protect his rights in the premises, he is entitled to attorney's fees in the
amount of ten percent (10%) of the total amount due from private respondent Jade
Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE,
the Comment filed by private respondents is treated as their Answer to the Petition
for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby
NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private
respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu
the following amounts:

(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by
three (3) years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
commencing on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private
respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.

(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the
rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to
December 1987) in the total amount of P72,000.00;

63