Republic of the Philippines

SUPREME COURT
Manila

and void. The petitioners made this decision as the basis of their
action, alleging that the certificate of title covering the parcel of
land now in litigation having been derived from Original Certificate
of Title No. 735, it follows that these titles which were issued later
should also be declared null and void in the event the
aforementioned decision becomes final and executory, or the
same is affirmed by the Supreme Court.

EN BANC
G.R. No. L-25894 January 30, 1971

The petition merely prays for an Order to be published at the

expense of the herein petitioners to enjoin all and sundry from
disturbing the physical possession of petitioner Quirino Bolaos of
the parcel of land object of the petition and which is included in
the property covered by TCT Nos. 37677 and 37686. It is not
disputed that the petitioners were in possession of the parcel of
land object of this petition at the time that the civil action before
the Court of First Instance of Rizal, Quezon City, was instituted and
up to the present time (Exhibits "B-2" to "B-5").lwph1.t The
records show that the petition was published at the expense of the
petitioners in the Daily Mirror in its issues of May 22, 29, and June
5, 1965 (Exhibit "A"). The decision of the Supreme Court in the
aforementioned case was promulgated on May 28, 1954.
Notwithstanding the lapse of more than ten years, it appears that
said decision has not been executed and the defendant in said
case, Quirino Bolaos, who is one of the petitioners in the present
case, is still in possession of the parcel of land in question. In view
of the decisions in Civil Cases Nos. 3621, 3622, and 3623 of this
Court, Branch II, as already stated above, it would appear that the
position of the petitioner that their possession should not be
disturbed until said decision is reversed by the appellate court, is
tenable.

QUIRINO BOLAOS, EDILBERTO ALEJANDRINO and DIOSDADO DE LOS

REYES, petitioners-appellees,
vs.
J. M. TUASON & CO., INC. and PEOPLE'S HOMESITE and HOUSING
CORPORATION, respondents-appellants.
BARREDO, J.:
Appeal by J. M. Tuason & Co., Inc. and the People's Homesite and Housing
Corporation from the order dated September 9, 1965 of the Court of First Instance of
Rizal, Branch X, issued in LRC Rec. No. 7581, Quirino Bolaos, et als., petitioners,
versus J. M. Tuason & Co., Inc., et al., respondents, reading in full as follows:
In their urgent petition dated March 17, 1965, the petitioner
prayed that an order be published at the expense of the
petitioners and addressed to all to whom it may concern enjoining
all and sundry "pending the promulgation of the decision of the
Supreme Court on any appeal which may be taken from the
decision of this Honorable Court dated January 12, 1965" to desist
from disturbing the physical possession of petitioner Quirino
Bolaos of the parcel of land object of this case comprising
13.2619 hectares and included in the area covered by said TCT
Nos. 37677 and 37686 of the Registry of Deeds of Rizal.
It appears that in a case filed before the Court of First Instance of
Rizal, Quezon City Branch, entitled "J. M. Tuason & Co., Inc.,
represented by its managing partner, Gregorio Araneta, Inc. versus
Quirino Bolaos," the plaintiffs sought to recover possession of the
parcel of land object of the present action from the defendant
therein, and who is now one of the petitioners; that decision
having been rendered in favor of the plaintiff in said case and
against the defendant, defendant Quirino Bolaos appealed the
case to the Supreme Court (Exhibits "B," "B-1," to "B-7") which
rendered a decision (No. L-4935, May 28, 1954), affirming the
decision of the lower court.
In Civil Cases Nos. 3621, 3622, and 3623 of this Court, Branch II, a
decision was rendered on January 18, 1965, declaring Original
Certificate of Title No. 735 of the Registry of Deeds of Rizal as null

WHEREFORE, finding the petition to be well-taken, the same is

granted, and it is hereby ordered that the respondents, their
agents, and all persons acting for and in their behalf as well as all
others are hereby enjoined from disturbing the physical possession
of petitioner Quirino Bolaos of the parcel of land comprising
13.2619 hectares and included in the area covered by said TCT
Nos. 37677 and 37686, said notice having been published in a
newspaper of general circulation as already stated above.
SO ORDERED.
In their brief, appellants have assigned the following alleged errors of the lower
court:
I

THE LOWER COURT ERRED IN NOT HOLDING THAT PETITION IS

ALREADY BARRED BY THE JUDGMENT IN G.R. NO. L-4935 ENTITLED
J. M. TUASON & CO. INC., ET AL. VS. QUIRINO BOLAOS,
PROMULGATED ON 28 MAY 1954 (95 Phil. 106).
II
THE LOWER COURT ERRED IN PROCEEDING TO HEAR THE
PETITION NOTWITHSTANDING THE FACT THAT IT HAS NO
JURISDICTION OVER THE SUBJECT MATTER OF THE PETITION.
III
THE LOWER COURT ERRED IN ASSUMING THAT THE DECISION IN
G.R. NO. L-4935 HAS NOT YET BEEN EXECUTED AND THAT
PETITIONER BOLAOS IS STILL IN POSSESSION OF THE LAND IN
QUESTION.
IV
THE LOWER COURT ERRED IN ISSUING THE ORDER DATED 5
AUGUST 1965.
As can be gleaned from the above-quoted order, the relief sought by appellees in
their petition filed with the courta quo was virtually a general preliminary injunction
against the whole world not to disturb their alleged possession of the parcels of land
covered by Transfer Certificates of Title Nos. 37677 and 37686 of the Office of the
Register of Deeds of Rizal issued to appellant J. M. Tuason & Co., Inc. upon the
ground that in the three other civil cases Nos. 3621, 3622 and 3623 of the same
Court of First Instance of Rizal, the said court has rendered a decision, still pending
appeal, declaring Original Certificate of Title No. 735 from which the two abovementioned titles have been derived null and void, principally for want of jurisdiction
of the court that issued said original title on account of defects in the publication of
the notices of the proceedings for their registration, the injunction to last, per their
prayer, until the decision of this Court in the said three civil cases, albeit the
impugned order itself does not specify the period of its duration. Petitioners sought
such relief notwithstanding the admitted fact that in a previous case filed by
appellant Tuason against appellees for the recovery of the possession of said land,
that of Tuason vs. Bolaos, 93 Phil. 106, wherein appellees had alleged among their
defenses that appellant Tuason's titles were obtained "thru fraud or error and
without knowledge (of) or notice, either personal or thru publication to" said
appellees, this Court upheld the validity of the questioned titles and affirmed the
decision of the trial court "declaring defendant (now appellee Bolaos) to be without
any right to the land in question and ordering him to restore possession thereof to
plaintiff (now appellant) Tuason." In the said decision of this Court, it was held:

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 could the decree be
collaterally attached by any person claiming title to, or interest in,
the land prior to the registration proceedings. (Sorogon vs.
Makalintal, [90 Phil. 259] 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, [80 Phil. 415.]
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
prescribe. (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.
In these circumstances, the appealed order is entirely propless. Leaving aside all the
other issues raised in appellants' brief about res adjudicata, conclusiveness of
judgment and conclusiveness of the respondents-appellants' Torrens Titles, it is
obvious that the subject matter of appellee's petition was clearly beyond the
competence and jurisdiction of the trial court sitting as it did in this case as a land
registration court, this, even on the assumption, which is most doubtful, that such a
general against-the-whole world preliminary injunction could be sought in any court,
it being axiomatic that an auxiliary remedy cannot be secured unless there is a
principal remedy to which it pertains. Once a land registration proceeding is
terminated and a corresponding decree has been issued, the only matter of
possession of the land involved that remains within the jurisdiction of the Land
Registration Court is in regard to the issuance of the writ of possession, if one should
be needed. No provision of the Land Registration Act (Act 496) or any other law has
been cited by appellees and We know of none which authorizes the land registration
court to resolve issues of possession, in any of its aspects, after the original
registration proceedings have come to an end and a writ of possession has already
been issued and implemented. Section 112 of Act 496 which is the only provision in
the said law empowering the land registration court to issue post or afterregistration orders refers exclusively to amendments and alterations of the title
issued and has nothing to do with possession of the land at all.
The theory of appellees is not clear in their brief. Seemingly, they are of the belief
that since the above-mentioned Original Certificate of Title No. 735 which was
annulled was issued in the same LRC No. 7581 in which the present petition was
filed, it should follow that the court a quo may act on their petition. Appellees'
position is not correct. The mere fact that Original Certificate of Title No. 735 has
been voided in so far as the titles involved in Civil Cases Nos. 3621, 3622 and 3623,
derived from said original certificate of title, are concerned, does not mean that such
declaration of nullity affects also the other titles, also derived from it but issued in

the names of other persons who have neither been heard nor notified. This is
elementary under the due process principle. Although incidents regarding any title
derived from an original one are supposed to be filed in the same expediente or
record of the original proceeding, the incidents regarding each title so derived
constitute separate and distinct proceedings from those affecting the other titles
derived from the same original title, and are, accordingly, always treated as such.
Indeed, the very fact that ordinary civil actions had to be filed by the plaintiffs in
those three civil cases relied upon by appellees proves that the relief sought by
them in their petition in the court below may not be obtained in the form of a mere
incident in the original registration proceedings or expediente. Besides, as already
noted earlier, there is no showing that there is now pending in the lower court either
an action or any kind of proceeding in which appellees are asking that Transfer
Certificates of Title Nos. 37677 and 37686 of appellant Tuason should be annulled,
assuming without deciding that such a relief could still be available to appellees
inspite of Tuason vs. Bolaos, supra. Such being the case, the trial court placed the
cart before the horse in issuing its questioned order, for how could anyone be
enjoined from disturbing the possession of somebody whose right to such
possession has not even been alleged, much less established in an appropriate
proceeding?
Having come to this conclusion, We consider it unnecessary to resolve the other
issues raised by appellants.
WHEREFORE, the appealed order is declared to have been issued beyond the
jurisdiction of the court a quo and it is hereby declared null and void and set aside,
with costs against appellees.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Teehankee,
Villamor and Makasiar, JJ., concur.
Zaldivar, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and
CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
G.R. No. 75951 December 15, 1989

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

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.

(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:

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.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders can nominate only
six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be,
with cumulative voting to be allowed but without interference from ASI.

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, AC-G.R. SP No. 05617) were being voted cumulatively in
favor of Luciano E. Salazar. The Chairman, Baldwin Young,
nevertheless instructed the Secretary to cast all votes equally in
favor of the three ASI nominees, namely, Wolfgang Aurbach, John
Griffin and David Whittingham and the six originally nominated by
Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham
Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, Raul A. Boncan, Baldwin Young. The representative
of ASI then moved to recess the meeting which was duly

seconded. There was also a motion to adjourn (p. 28, Rollo, ACG.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.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in
its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED
ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD
OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO
ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM
EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE
NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS
PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE
NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
binding contractual agreements entered into by stockholders and
the replacement of the conditions of such agreements with terms
never contemplated by the stockholders but merely dictated by
the CA .
11.2. The Amended decision would likewise sanction the
deprivation of the property rights of stockholders without due
process of law in order that a favored group of stockholders may
be illegally benefitted and guaranteed a continuing monopoly of
the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE
RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE
DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.
II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT

PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS
MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture or a corporation
and (2) whether or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and
Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20
Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of
the parties hereto partners or joint venturers in respect of any
transaction hereunder. (At P. 66, 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 investors, on the
condition that the Agreement should contain provisions to protect
ASI as the minority.
An examination of the Agreement shows that certain provisions
were included to protect the interests of ASI as the minority. For
example, the vote of 7 out of 9 directors is required in certain
enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement].
ASI is contractually entitled to designate a member of the
Executive Committee and the vote of this member is required for
certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the
amendment of the articles and by-laws of Saniwares [Sec. 3 (a)
(iv) and (b) (iii)]. ASI is also given the right to designate the
president and plant manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be that which is
normally followed by ASI [Sec. 13 (a)] and that Saniwares should
not export "Standard" products otherwise than through ASI's
Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI
agreed to provide technology and know-how to Saniwares and the
latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement
requiring a 7 out of 9 votes of the board of directors for certain
actions, in effect gave ASI (which designates 3 directors under the
Agreement) an effective veto power. Furthermore, the grant to ASI
of the right to designate certain officers of the corporation; the
super-majority voting requirements for amendments of the articles
and by-laws; and most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9 directors and the
other stockholders shall designate the other 6, clearly indicate
that there are two distinct groups in Saniwares, namely ASI, which
owns 40% of the capital stock and the Philippine National
stockholders who own the balance of 60%, and that 2) ASI is given
certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there
are two groups of stockholders who established a corporation with

provisions for a special contractual relationship between the

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

Appellants contend that the above provision is included in the

Corporation Code's chapter on close corporations and Saniwares
cannot be a close corporation because it has 95 stockholders.
Firstly, although Saniwares had 95 stockholders at the time of the
disputed stockholders meeting, these 95 stockholders are not
separate from each other but are divisible into groups representing
a single Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The YoungYutivo
family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family
for 7 stockholders, etc. If the members of one family and/or
business or interest group are considered as one (which, it is
respectfully submitted, they should be for purposes of determining
how closely held Saniwares is there were as of 8 March 1983,
practically only 17 stockholders of Saniwares. (Please refer to
discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum
dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close
corporation because it has more than 20 stockholders, the
undeniable fact is that it is a 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.
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 AntiDummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI
is allowed to nominate more than three directors. (Rollo-75875,
pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the right to
cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:
And provided finally that the election of aliens as members of the
board of directors or governing body of corporations or
associations engaging in partially nationalized activities shall be
allowed in proportion to their allowable participation or share in
the capital of such entities. (amendments introduced by
Presidential Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has
no precise legal definition but it has been generally understood to
mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are
similar community of interest in the business, sharing of profits
and losses, and a mutual right of control. Blackner v. Mc Dermott,
176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043

[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P.

2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is
thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation
is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that
under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint
venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906
[1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167)
43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in the
process of determining who the group's nominees would be under Section 3 (a) (1)
of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to
the manner of nominating the members of the board of directors while Section 3 (a)
(1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting
within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to designate
under the Agreement, and may even be able to get a majority of

the board seats, a result which is clearly contrary to the

contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board
seats and the stockholder's right to cumulative voting. Moreover,
this ruling will also give due consideration to the issue raised by
the appellees on possible violation or circumvention of the AntiDummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI
is allowed to nominate more than three directors. (At p. 39, Rollo,
75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors. This is
the allowable participation of the ASI Group. Hence, in future dealings, this limitation
of six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties'
Agreement to protect the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees separately
and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)

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

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21906

December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the
order of May 21, 1956, all of the Court of First Instance of Davao, in civil case 629.
The basic action is for specific performance, and damages resulting from an alleged
breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in
the then Sitio of Malalag (now the Municipality of Malalag), Municipality of Padada,
Davao. No action was taken thereon by the authorities concerned. During the
Japanese occupation, he filed another fishpond application for the same area, but
because of the conditions then prevailing, it was not acted upon either. On
December 12, 1945 he filed a third fishpond application for the same area, which,
after a survey, was found to contain 178.76 hectares. Upon investigation conducted
by a representative of the Bureau of Forestry, it was discovered that the area
applied for was still needed for firewood production. Hence on May 13, 1946 this
third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the
district forester of Davao City that no further action would be taken on his motion,
unless he filed a new application for the area concerned. So he filed on May 27,
1947 his fishpond application 1717.
Meanwhile, several applications were submitted by other persons for portions of the
area covered by Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10
hectares of land found inside the area applied for by Casteel; he was later granted
fishpond permit F-289-C covering 9.3 hectares certified as available for fishpond
purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion
of the land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed
on December 26, 1946, was given due course on December 9, 1947 with the
issuance to him of fishpond permit F-539-C to develop 30 hectares of land
comprising a portion of the area applied for by Casteel, upon certification of the
Bureau of Forestry that the area was likewise available for fishpond purposes. On

November 17, 1948 Felipe Deluao filed his own fishpond application for the area
covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who entered
upon and spread themselves within the area, Casteel realized the urgent necessity
of expanding his occupation thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new squatters from usurping the land.
But lacking financial resources at that time, he sought financial aid from his uncle
Felipe Deluao who then extended loans totalling more or less P27,000 with which to
finance the needed improvements on the fishpond. Hence, a wide productive
fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed the corresponding protests.
Consequently, two administrative cases ensued involving the area in question, to
wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor
Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicantappellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717),
Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos,
Fp. Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative
cases that Casteel had already introduced improvements on portions of the area
applied for by him in the form of dikes, fishpond gates, clearings, etc., the Director
of Fisheries nevertheless rejected Casteel's application on October 25, 1949,
required him to remove all the improvements which he had introduced on the land,
and ordered that the land be leased through public auction. Failing to secure a
favorable resolution of his motion for reconsideration of the Director's order, Casteel
appealed to the Secretary of Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be
taken up in our discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first
part, and Nicanor Casteel as party of the second part, executed a contract
denominated a "contract of service" the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and
agreements made herein to the Party of the Second Part, hereby enter into
a contract of service, whereby the Party of the First Part hires and employs
the Party of the Second Part on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the
sum of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine
Currency, to the Party of the Second Part who renders only his services for
the construction and improvements of a fishpond at Barrio Malalag,
Municipality of Padada, Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all
the produce of the fish that will be produced from said fishpond;

That the Party of the First Part will be the administrator of the same she
having financed the construction and improvement of said fishpond;

that the defendants be ordered to pay jointly and severally to plaintiffs the sum of
P20,000 in damages.

That this contract was the result of a verbal agreement entered into
between the Parties sometime in the month of November, 1947, with all the
above-mentioned conditions enumerated; ...

On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a
preliminary injunction, praying among other things, that during the pendency of the
case and upon their filling the requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel from doing the acts complained
of, and that after trial the said injunction be made permanent. The lower court on
April 26, 1951 granted the motion, and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel, the dispositive portion of which reads as
follows:

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

POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el
demandado y todos usu abogados, agentes, mandatarios y demas
personas que obren en su ayuda, desista de impedir a la demandante
Inocencia R. Deluao que continue administrando personalmente la
pesqueria objeto de esta causa y que la misma continue recibiendo los
productos de la venta de los pescados provenientes de dicha pesqueria, y
que, asimismo, se prohibe a dicho demandado Nicanor Casteel a
desahuciar mediante fuerza al encargado de los demandantes llamado
Jesus Donesa de la pesqueria objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among
others, that he was the owner, lawful applicant and occupant of the fishpond in
question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by the
lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on
January 8, 1952, denying the material averments of the plaintiffs' complaint. A reply
to the defendants' amended answer was filed by the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to
him. On June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that
the plaintiffs' complaint failed to state a claim upon which relief may be granted. The
motion, opposed by the plaintiffs on October 12, 1951, was denied for lack of merit
by the lower court in its order of October 22, 1951. The defendants' motion for
reconsideration filed on October 31, 1951 suffered the same fate when it was
likewise denied by the lower court in its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A. Fernandez)
finally issued on March 21, 1956 an order in open court, reading as follows: .
Upon petition of plaintiffs, without any objection on the part of defendants,
the hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30
o'clock in the morning.
This case was filed on April 3, 1951 and under any circumstance this Court
will not entertain any other transfer of hearing of this case and if the
parties will not be ready on that day set for hearing, the court will take the

necessary steps for the final determination of this case. (emphasis

supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April
21, 1956, issued by the office of the Clerk of Court (thru the special deputy Clerk of
Court) of the Court of First Instance of Davao, setting the hearing of the case for May
2 and 3, 1956 before Judge Amador Gomez of Branch II. The defendants, thru
counsel, on April 26, 1956 filed a motion for postponement. Acting on this motion,
the lower court (Branch II, presided by Judge Gomez) issued an order dated April 27,
1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2
and 3, 1956. The motion is filed by the counsel for the defendants and has
the conformity of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was
initiated as early as April 1951 and that the same has been under
advisement of the Honorable Enrique A. Fernandez, Presiding Judge of
Branch No. I, since September 24, 1953, and that various incidents have
already been considered and resolved by Judge Fernandez on various
occasions. The last order issued by Judge Fernandez on this case was
issued on March 21, 1956, wherein he definitely states that the Court will
not entertain any further postponement of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the
consideration and termination of any incident referring to this case should
be referred back to Branch I, so that the same may be disposed of therein.
(emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4,
1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I,
with Judge Fernandez presiding), when informed about the defendants' motion for
postponement filed on April 26, 1956, issued an order reiterating its previous order
handed down in open court on March 21, 1956 and directing the plaintiffs to
introduce their evidence ex parte, there being no appearance on the part of the
defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was
rendered on May 4, 1956 the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y
en contra del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el
demandado;
(b) Ordena al demandado entregue la demandante la posesion y
administracion de la mitad () del "fishpond" en cuestion con todas las
mejoras existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00
mensualmente en concepto de danos a contar de la fecha de la expiracion

de los 30 dias de la promulgacion de esta decision hasta que entregue la

posesion y administracion de la porcion del "fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00
valor de los pescado beneficiados, mas los intereses legales de la fecha de
la incoacion de la demanda de autos hasta el completo pago de la
obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00,
por gastos incurridos por aquella durante la pendencia de esta causa;
(f) Condena al demandado a pagar a la demandante, en concepto de
honorarios, la suma de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de
pruebas, en tanto en cuanto se refiere al demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los demandados por
falta de pruebas;
(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision,
alleging, inter alia, lack of knowledge of the order of the court a quo setting the case
for trial. The petition, however, was denied by the lower court in its order of May 21,
1956, the pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether
the trial of this case has been transferred or not, but to inquire from the
presiding Judge, particularly because his motion asking the transfer of this
case was not set for hearing and was not also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956,
which reads as follows:
Upon petition of the plaintiff without any objection on the part of
the defendants, the hearing of this case is hereby transferred to
May 2 and 3, 1956, at 8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under any circumstance
this Court will not entertain any other transfer of the hearing of
this case, and if the parties will not be ready on the day set for
hearing, the Court will take necessary steps for the final
disposition of this case.
In view of the order above-quoted, the Court will not accede to any transfer
of this case and the duty of Atty. Ruiz is no other than to be present in the
Sala of this Court and to call the attention of the same to the existence of
his motion for transfer.

Petition for relief from judgment filed by Atty. Ruiz in behalf of the
defendant, not well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which
certified the case to us for final determination on the ground that it involves only
questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion when it
ordered reception of the appellees' evidence in the absence of the
appellant at the trial on May 2, 1956, thus depriving the appellant of his
day in court and of his property without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it
denied the verified petition for relief from judgment filed by the appellant
on May 11, 1956 in accordance with Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of a writ
of preliminary injunction against defendant-appellant, and in not dismissing
appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21,
1956, the lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock
in the morning and empathically stated that, since the case had been pending since
April 3, 1951, it would not entertain any further motion for transfer of the scheduled
hearing.
An order given in open court is presumed received by the parties on the very date
and time of promulgation,1 and amounts to a legal notification for all legal
purposes.2 The order of March 21, 1956, given in open court, was a valid notice to
the parties, and the notice of hearing dated April 21, 1956 or one month thereafter,
was a superfluity. Moreover, as between the order of March 21, 1956, duly
promulgated by the lower court, thru Judge Fernandez, and the notice of hearing
signed by a "special deputy clerk of court" setting the hearing in another branch of
the same court, the former's order was the one legally binding. This is because the
incidents of postponements and adjournments are controlled by the court and not by
the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of
Court.
Much less had the clerk of court the authority to interfere with the order of the court
or to transfer the cage from one sala to another without authority or order from the
court where the case originated and was being tried. He had neither the duty nor
prerogative to re-assign the trial of the case to a different branch of the same court.
His duty as such clerk of court, in so far as the incident in question was concerned,
was simply to prepare the trial calendar. And this duty devolved upon the clerk of
court and not upon the "special deputy clerk of court" who purportedly signed the
notice of hearing.

It is of no moment that the motion for postponement had the conformity of the
appellees' counsel. The postponement of hearings does not depend upon agreement
of the parties, but upon the court's discretion.3
The record further discloses that Casteel was represented by a total of 12 lawyers,
none of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated
March 21, 1956 intransferably setting the case for hearing for May 2 and 3, 1956,
was sufficient notice to all the appellant's eleven other counsel of record. This is a
well-settled rule in our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the
appellant himself, to appear before Judge Fernandez on the scheduled dates of
hearing Parties and their lawyers have no right to presume that their motions for
postponement will be granted.5 For indeed, the appellant and his 12 lawyers cannot
pretend ignorance of the recorded fact that since September 24, 1953 until the trial
held on May 2, 1956, the case was under the advisement of Judge Fernandez who
presided over Branch I. There was, therefore, no necessity to "re-assign" the same to
Branch II because Judge Fernandez had exclusive control of said case, unless he was
legally inhibited to try the case and he was not.
There is truth in the appellant's contention that it is the duty of the clerk of court
not of the Court to prepare the trial calendar. But the assignment or
reassignment of cases already pending in one sala to another sala, and the setting
of the date of trial after the trial calendar has been prepared, fall within the
exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the
office of the clerk of court of the Court of First Instance of Davao was located directly
below Branch I. If the appellant and his counsel had exercised due diligence, there
was no impediment to their going upstairs to the second storey of the Court of First
Instance building in Davao on May 2, 1956 and checking if the case was scheduled
for hearing in the said sala. The appellant after all admits that on May 2, 1956 his
counsel went to the office of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice of
trial, is correct. But he was properly accorded this right. He was notified in open
court on March 21, 1956 that the case was definitely and intransferably set for
hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to the
doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the denial
of his motion for postponement. In the cited case the motion for postponement was
the first one filed by the defendant; in the case at bar, there had already been a
series of postponements. Unlike the case at bar, the Siochi case was not
intransferably set for hearing. Finally, whereas the cited case did not spend for a
long time, the case at bar was only finally and intransferably set for hearing on
March 21, 1956 after almost five years had elapsed from the filing of the
complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample
time to prepare for trial is unacceptable because between March 21, 1956 and May
2, 1956, they had one month and ten days to do so. In effect, the appellant had
waived his right to appear at the trial and therefore he cannot be heard to complain
that he has been deprived of his property without due process of law. 7 Verily, the
constitutional requirements of due process have been fulfilled in this case: the lower
court is a competent court; it lawfully acquired jurisdiction over the person of the

defendant (appellant) and the subject matter of the action; the defendant
(appellant) was given an opportunity to be heard; and judgment was rendered upon
lawful hearing.8
2. Finally, the appellant contends that the lower court incurred an error in ordering
the issuance ex parte of a writ of preliminary injunction against him, and in not
dismissing the appellee's complaint. We find this contention meritorious.
Apparently, the court a quo relied on exhibit A the so-called "contract of service"
and the appellees' contention that it created a contract of co-ownership and
partnership between Inocencia Deluao and the appellant over the fishpond in
question.
Too well-settled to require any citation of authority is the rule that everyone is
conclusively presumed to know the law. It must be assumed, conformably to such
rule, that the parties entered into the so-called "contract of service" cognizant of the
mandatory and prohibitory laws governing the filing of applications for fishpond
permits. And since they were aware of the said laws, it must likewise be assumed
in fairness to the parties that they did not intend to violate them. This view must
perforce negate the appellees' allegation that exhibit A created a contract of coownership between the parties over the disputed fishpond. Were we to admit the
establishment of a co-ownership violative of the prohibitory laws which will hereafter
be discussed, we shall be compelled to declare altogether the nullity of the contract.
This would certainly not serve the cause of equity and justice, considering that rights
and obligations have already arisen between the parties. We shall therefore construe
the contract as one of partnership, divided into two parts namely, a contract of
partnership to exploit the fishpond pending its award to either Felipe Deluao or
Nicanor Casteel, and a contract of partnership to divide the fishpond between them
after such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant entered
into the so-called "contract of service" on November 25, 1949, there were two
pending applications over the fishpond. One was Casteel's which was appealed by
him to the Secretary of Agriculture and Natural Resources after it was disallowed by
the Director of Fisheries on October 25, 1949. The other was Felipe Deluao's
application over the same area which was likewise rejected by the Director of
Fisheries on November 29, 1949, refiled by Deluao and later on withdrawn by him by
letter dated March 15, 1950 to the Secretary of Agriculture and Natural Resources.
Clearly, although the fishpond was then in the possession of Casteel, neither he nor,
Felipe Deluao was the holder of a fishpond permit over the area. But be that as it
may, they were not however precluded from exploiting the fishpond pending
resolution of Casteel's appeal or the approval of Deluao's application over the same
area whichever event happened first. No law, rule or regulation prohibited them
from doing so. Thus, rather than let the fishpond remain idle they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the
parties was not to form a co-ownership but to establish a partnership Inocencia
Deluao as capitalist partner and Casteel as industrial partner the ultimate
undertaking of which was to divide into two equal parts such portion of the fishpond
as might have been developed by the amount extended by the plaintiffs-appellees,
with the further provision that Casteel should reimburse the expenses incurred by
the appellees over one-half of the fishpond that would pertain to him. This can be
gleaned, among others, from the letter of Casteel to Felipe Deluao on November 15,
1949, which states, inter alia:

... [W]ith respect to your allowing me to use your money, same will redound
to your benefit because you are the ones interested in half of the work we
have done so far, besides I did not insist on our being partners in my
fishpond permit, but it was you "Tatay" Eping the one who wanted that we
be partners and it so happened that we became partners because I am
poor, but in the midst of my poverty it never occurred to me to be unfair to
you. Therefore so that each of us may be secured, let us have a document
prepared to the effect that we are partners in the fishpond that we caused
to be made here in Balasinon, but it does not mean that you will treat me
as one of your "Bantay" (caretaker) on wage basis but not earning wages
at all, while the truth is that we are partners. In the event that you are not
amenable to my proposition and consider me as "Bantay" (caretaker)
instead, do not blame me if I withdraw all my cases and be left without
even a little and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn
evidencing their partnership, the appellee Inocencia Deluao and the appellant
executed exhibit A which, although denominated a "contract of service," was
actually the memorandum of their partnership agreement. That it was not a contract
of the services of the appellant, was admitted by the appellees themselves in their
letter10 to Casteel dated December 19, 1949 wherein they stated that they did not
employ him in his (Casteel's) claim but because he used their money in developing
and improving the fishpond, his right must be divided between them. Of course,
although exhibit A did not specify any wage or share appertaining to the appellant
as industrial partner, he was so entitled this being one of the conditions he
specified for the execution of the document of partnership.11
Further exchanges of letters between the parties reveal the continuing intent to
divide the fishpond. In a letter,12dated March 24, 1950, the appellant suggested that
they divide the fishpond and the remaining capital, and offered to pay the Deluaos a
yearly installment of P3,000 presumably as reimbursement for the expenses of
the appellees for the development and improvement of the one-half that would
pertain to the appellant. Two days later, the appellee Felipe Deluao
replied,13expressing his concurrence in the appellant's suggestion and advising the
latter to ask for a reconsideration of the order of the Director of Fisheries
disapproving his (appellant's) application, so that if a favorable decision was
secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no
further need to maintain his petition for the reinvestigation of Casteel's application.
Thus by letter14 dated March 15, 1950 addressed to the Secretary of Agriculture and
Natural Resources, he withdrew his petition on the alleged ground that he was no
longer interested in the area, but stated however that he wanted his interest to be
protected and his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the
decisions both dated September 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This development,
by itself, brought about the dissolution of the partnership. Moreover, subsequent
events likewise reveal the intent of both parties to terminate the partnership
because each refused to share the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of
a partnership, "... any event which makes it unlawful for the business of the

partnership to be carried on or for the members to carry it on in partnership." The

approval of the appellant's fishpond application by the decisions in DANR Cases 353
and 353-B brought to the fore several provisions of law which made the continuation
of the partnership unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the
permittee) from transferring or subletting the fishpond granted to him, without the
previous consent or approval of the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3 of the fishpond permit which
states that "The permittee shall not transfer or sublet all or any area herein granted
or any rights acquired therein without the previous consent and approval of this
Office." Parenthetically, we must observe that in DANR Case 353-B, the permit
granted to one of the parties therein, Leoncio Aradillos, was cancelled not solely for
the reason that his permit covered a portion of the area included in the appellant's
prior fishpond application, but also because, upon investigation, it was ascertained
thru the admission of Aradillos himself that due to lack of capital, he allowed one
Lino Estepa to develop with the latter's capital the area covered by his fishpond
permit F-289-C with the understanding that he (Aradillos) would be given a share in
the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise
provides that
The lessee shall not assign, encumber, or sublet his rights without the
consent of the Secretary of Agriculture and Commerce, and the violation of
this condition shall avoid the contract; Provided, That assignment,
encumbrance, or subletting for purposes of speculation shall not be
permitted in any case:Provided, further, That nothing contained in this
section shall be understood or construed to permit the assignment,
encumbrance, or subletting of lands leased under this Act, or under any
previous Act, to persons, corporations, or associations which under this Act,
are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and
Natural Resources issued in August 1937, prohibits a transfer or sublease unless first
approved by the Director of Lands and under such terms and conditions as he may
prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed.
If the permittee or lessee had, unless otherwise specifically provided, held
the permit or lease and actually operated and made improvements on the
area for at least one year, he/she may request permission to sub-lease or
transfer the area and improvements under certain conditions.
(a) Transfer subject to approval. A sub-lease or transfer shall only be
valid when first approved by the Director under such terms and conditions
as may be prescribed, otherwise it shall be null and void. A transfer not
previously approved or reported shall be considered sufficient cause for the
cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as provided in
subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two equal parts of the
fishpond between the appellees and the appellant after it shall have been awarded

to the latter, and therefore it envisaged the unauthorized transfer of one-half thereof
to parties other than the applicant Casteel, it was dissolved by the approval of his
application and the award to him of the fishpond. The approval was an event which
made it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership.
The appellees, however, argue that in approving the appellant's application, the
Secretary of Agriculture and Natural Resources likewise recognized and/or confirmed
their property right to one-half of the fishpond by virtue of the contract of service,
exhibit A. But the untenability of this argument would readily surface if one were to
consider that the Secretary of Agriculture and Natural Resources did not do so for
the simple reason that he does not possess the authority to violate the
aforementioned prohibitory laws nor to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application,
coupled with the foregoing prohibitory laws, was not enough to cause the
dissolution ipso facto of their partnership, succeeding events reveal the intent of
both parties to terminate the partnership by refusing to share the fishpond with the
other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing
his desire to divide the fishpond so that he could administer his own share, such
division to be subject to the approval of the Secretary of Agriculture and Natural
Resources. By letter dated December 29, 1950, 18 the appellee Felipe Deluao
demurred to Casteel's proposition because there were allegedly no appropriate
grounds to support the same and, moreover, the conflict over the fishpond had not
been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao
wherein the former expressed his determination to administer the fishpond himself
because the decision of the Government was in his favor and the only reason why
administration had been granted to the Deluaos was because he was indebted to
them. In the same letter, the appellant forbade Felipe Deluao from sending the
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao
wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the
administration of the fishpond to the appellant, stating as a ground his belief "that
only the competent agencies of the government are in a better position to render
any equitable arrangement relative to the present case; hence, any action we may
privately take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their
respective resolutions not to share the fishpond with each other in direct violation
of the undertaking for which they have established their partnership each must
be deemed to have expressly withdrawn from the partnership, thereby causing its
dissolution pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that
dissolution is caused "by the express will of any partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses
executive and administrative powers with regard to the survey, classification, lease,
sale or any other form of concession or disposition and management of the lands of
the public domain, and, more specifically, with regard to the grant or withholding of
licenses, permits, leases and contracts over portions of the public domain to be
utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30,
1960), and reiterated in Ganitano vs. Secretary of Agriculture and Natural

Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce
(Natural Resources) by law regarding the disposition of public lands such as
granting of licenses, permits, leases, and contracts, or approving, rejecting,
reinstating, or cancelling applications, or deciding conflicting applications,
are all executive and administrative in nature. It is a well-recognized
principle that purely administrative and discretionary functions may not be
interfered with by the courts (Coloso v. Board of Accountancy, G.R. No. L5750, April 20, 1953). In general, courts have no supervising power over
the proceedings and action of the administrative departments of the
government. This is generally true with respect to acts involving the
exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558559) Findings of fact by an administrative board or official, following a
hearing, are binding upon the courts and will not be disturbed except where
the board or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to
his duty or with grave abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due
course to the appellant's fishpond application 1717 and awarded to him the
possession of the area in question. In view of the finality of the Secretary's decision
in DANR Cases 353 and 353-B, and considering the absence of any proof that the
said official exceeded his statutory authority, exercised unconstitutional powers, or
acted with arbitrariness and in disregard of his duty, or with grave abuse of
discretion, we can do no less than respect and maintain unfettered his official acts in
the premises. It is a salutary rule that the judicial department should not dictate to
the executive department what to do with regard to the administration and
disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the
land department and compel the latter to do an act which involves the exercise of
judgment and discretion.22
Therefore, with the view that we take of this case, and even assuming that the
injunction was properly issued because present all the requisite grounds for its
issuance, its continuation, and, worse, its declaration as permanent, was improper in
the face of the knowledge later acquired by the lower court that it was the
appellant's application over the fishpond which was given due course. After the
Secretary of Agriculture and Natural Resources approved the appellant's application,
he became to all intents and purposes the legal permittee of the area with the
corresponding right to possess, occupy and enjoy the same. Consequently, the lower
court erred in issuing the preliminary mandatory injunction. We cannot
overemphasize that an injunction should not be granted to take property out of the
possession and control of one party and place it in the hands of another whose title
has not been clearly established by law.23
However, pursuant to our holding that there was a partnership between the parties
for the exploitation of the fishpond before it was awarded to Casteel, this case
should be remanded to the lower court for the reception of evidence relative to an
accounting from November 25, 1949 to September 15, 1950, in order for the court
to determine (a) the profits realized by the partnership, (b) the share (in the profits)
of Casteel as industrial partner, (e) the share (in the profits) of Deluao as capitalist
partner, and (d) whether the amounts totalling about P27,000 advanced by Deluao
to Casteel for the development and improvement of the fishpond have already been

liquidated. Besides, since the appellee Inocencia Deluao continued in possession and
enjoyment of the fishpond even after it was awarded to Casteel, she did so no longer
in the concept of a capitalist partner but merely as creditor of the appellant, and
therefore, she must likewise submit in the lower court an accounting of the proceeds
of the sales of all the fishes harvested from the fishpond from September 16, 1950
until Casteel shall have been finally given the possession and enjoyment of the
same. In the event that the appellee Deluao has received more than her lawful
credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6%
interest thereon per annum, then she should reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is
hereby rendered: (1) dissolving the injunction issued against the appellant, (2)
placing the latter back in possession of the fishpond in litigation, and (3) remanding
this case to the court of origin for the reception of evidence relative to the
accounting that the parties must perforce render in the premises, at the termination
of which the court shall render judgment accordingly. The appellant's counterclaim is
dismissed. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando and
Capistrano, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 31057

September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,

vs.
VICENTE POLISTICO, ET AL., defendants-appellants.
VILLAMOR, J.:

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

4,569.45

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

1,891.00

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............................

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

97,263.70

6,196.55

P109,620.70

Expenses:

Premiums to
members.......................

68,146.25

Loans on realestate.......................

9,827.00

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

4,258.55

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

1,095.00

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

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.

1,686.10

85,012.90

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.

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

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,
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

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.
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
legal effect; and in that case, how can it give rise to an action in favor of
the partners to judicially demand from the manager or the administrator of
the partnership capital, each one's contribution?

The authors discuss this point at great length, but Ricci decides the matter
quite clearly, dispelling all doubts thereon. He holds that the partner who
limits himself to demanding only the amount contributed by him need not
resort to the partnership contract on which to base his action. And he adds
in explanation that the partner makes his contribution, which passes to the
managing partner for the purpose of carrying on the business or industry
which is the object of the partnership; or in other words, to breathe the
breath of life into a partnership contract with an objection forbidden by law.
And as said contrast does not exist in the eyes of the law, the purpose from
which the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what
belongs to others, without any consideration; for which reason he is not
bound to return it and he who has paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in the course of the
partnership, because they do not constitute or represent the partner's
contribution but are the result of the industry, business or speculation
which is the object of the partnership, and therefor, in order to demand the
proportional part of the said profits, the partner would have to base his
action on the contract which is null and void, since this partition or
distribution of the profits is one of the juridical effects thereof. Wherefore
considering this contract asnon-existent, by reason of its illicit object, it
cannot give rise to the necessary action, which must be the basis of the
judicial complaint. Furthermore, it would be immoral and unjust for the law
to permit a profit from an industry prohibited by it.
Hence the distinction made in the second paragraph of this article of this
Code, providing that the profits obtained by unlawful means shall not enrich
the partners, but shall upon the dissolution of the partnership, be given to
the charitable institutions of the domicile of the partnership, or, in default
of such, to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an
obvious deficiency of the former law, which did not describe the purpose to
which those profits denied the partners were to be applied, nor state what
to be done with them.
The profits are so applied, and not the contributions, because this would be
an excessive and unjust sanction for, as we have seen, there is no reason,
in such a case, for depriving the partner of the portion of the capital that he
contributed, the circumstances of the two cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be returned by the partners,
because it only deals with the disposition of the profits; but the fact that
said contributions are not included in the disposal prescribed profits, shows
that in consequences of said exclusion, the general law must be followed,
and hence the partners should reimburse the amount of their respective
contributions. Any other solution is immoral, and the law will not consent to
the latter remaining in the possession of the manager or administrator who
has refused to return them, by denying to the partners the action to
demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI,
pp. 262-264)

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

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 178782

September 21, 2011

JOSEFINA P. REALUBIT, Petitioner,

vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.
DECISION
PEREZ, J.:
The validity as well as the consequences of an assignment of rights in a joint
venture are at issue in this petition for review filed pursuant to Rule 45 of the 1997
Rules of Civil Procedure,1 assailing the 30 April 2007 Decision2rendered by the Court
of Appeals (CA) then Twelfth Division in CA-G.R. CV No. 73861, 3 the dispositive
portion of which states:
WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution
of the joint venture between defendant-appellant Josefina Realubit and Francis Eric
Amaury Biondo and the subsequent conduct of accounting, liquidation of assets and
division of shares of the joint venture business.
Let a copy hereof and the records of the case be remanded to the trial court for
appropriate proceedings.4

Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso
commenced the instant suit with the filing of their 3 August 1998 Complaint against
Josefina, her husband, Ike Realubit (Ike), and their alleged dummies, for specific
performance, accounting, examination, audit and inventory of assets and properties,
dissolution of the joint venture, appointment of a receiver and damages. Docketed
as Civil Case No. 98-0331 before respondent Branch 257 of the Regional Trial Court
(RTC) of Paraaque City, said complaint alleged, among other matters, that the
Spouses Realubit had no gainful occupation or business prior to their joint venture
with Biondo; that with the income of the business which earned not less
than P3,000.00 per day, they were, however, able to acquire the two-storey building
as well as the land on which the joint ventures ice plant stands, another building
which they used as their office and/or residence and six (6) delivery vans; and, that
aside from appropriating for themselves the income of the business, the Spouses
Realubit have fraudulently concealed the funds and assets thereof thru their
relatives, associates or dummies.8
Served with summons, the Spouses Realubit filed their Answer dated 21 October
1998, specifically denying the material allegations of the foregoing complaint.
Claiming that they have been engaged in the tube ice trading business under a
single proprietorship even before their dealings with Biondo, the Spouses Realubit, in
turn, averred that their said business partner had left the country in May 1997 and
could not have executed the Deed of Assignment which bears a signature markedly
different from that which he affixed on their Joint Venture Agreement; that they
refused the Spouses Jasos demand in view of the dubious circumstances
surrounding their acquisition of Biondos share in the business which was
established at Don Antonio Heights, Commonwealth Avenue, Quezon City; that said
business had already stopped operations on 13 January 1996 when its plant shut
down after its power supply was disconnected by MERALCO for non-payment of
utility bills; and, that it was their own tube ice trading business which had been
moved to 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City that the
Spouses Jaso mistook for the ice manufacturing business established in partnership
with Biondo.9

The Facts
On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture
Agreement with Francis Eric Amaury Biondo (Biondo), a French national, for the
operation of an ice manufacturing business. With Josefina as the industrial partner
and Biondo as the capitalist partner, the parties agreed that they would each receive
40% of the net profit, with the remaining 20% to be used for the payment of the ice
making machine which was purchased for the business.5 For and in consideration of
the sum of P500,000.00, however, Biondo subsequently executed a Deed of
Assignment dated 27 June 1997, transferring all his rights and interests in the
business in favor of respondent Eden Jaso (Eden), the wife of respondent Prosencio
Jaso.6 With Biondos eventual departure from the country, the Spouses Jaso caused
their lawyer to send Josefina a letter dated 19 February 1998, apprising her of their
acquisition of said Frenchmans share in the business and formally demanding an
accounting and inventory thereof as well as the remittance of their portion of its
profits.7

The issues thus joined and the mandatory pre-trial conference subsequently
terminated, the RTC went on to try the case on its merits and, thereafter, to render
its Decision dated 17 September 2001, discounting the existence of sufficient
evidence from which the income, assets and the supposed dissolution of the joint
venture can be adequately reckoned. Upon the finding, however, that the Spouses
Jaso had been nevertheless subrogated to Biondos rights in the business in view of
their valid acquisition of the latters share as capitalist partner, 10 the RTC disposed of
the case in the following wise:
WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting
and inventory of the assets and liabilities of the joint venture from its inception to
the present, to allow plaintiffs access to the books and accounting records of the
joint venture, to deliver to plaintiffs their share in the profits, if any, and to pay the
plaintiffs the amount of P20,000. for moral damages. The claims for exemplary
damages and attorneys fees are denied for lack of basis.11

On appeal before the CA, the foregoing decision was set aside in the herein assailed
Decision dated 30 April 2007, upon the following findings and conclusions: (a) the
Spouses Jaso validly acquired Biondos share in the business which had been
transferred to and continued its operations at 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City and not dissolved as claimed by the Spouses
Realubit; (b) absent showing of Josefinas knowledge and consent to the transfer of
Biondos share, Eden cannot be considered as a partner in the business, pursuant to
Article 1813 of the Civil Code of the Philippines; (c) while entitled to Biondos share
in the profits of the business, Eden cannot, however, interfere with the management
of the partnership, require information or account of its transactions and inspect its
books; (d) the partnership should first be dissolved before Eden can seek an
accounting of its transactions and demand Biondos share in the business; and, (e)
the evidence adduced before the RTC do not support the award of moral damages in
favor of the Spouses Jaso.12
The Spouses Realubits motion for reconsideration of the foregoing decision was
denied for lack of merit in the CAs 28 June 2007 Resolution, 13 hence, this petition.
The Issues
The Spouses Realubit urge the reversal of the assailed decision upon the negative of
the following issues, to wit:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE
JOINT VENTURE.
B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS
PARTNER IN THE JOINT VENTURE TO RENDER [A]N ACCOUNTING TO ONE
WHO IS NOT A PARTNER IN SAID JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN
THE JOINT VENTURE AND IN THE SEPARATE ICE BUSINESS OF
PETITIONER[S].14
The Courts Ruling
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA
inordinately gave premium to the notarization of the 27 June 1997 Deed of
Assignment executed by Biondo in favor of the Spouses Jaso. Calling attention to the
latters failure to present before the RTC said assignor or, at the very least, the
witnesses to said document, the Spouses Realubit maintain that the testimony of
Rolando Diaz, the Notary Public before whom the same was acknowledged, did not
suffice to establish its authenticity and/or validity. They insist that notarization did
not automatically and conclusively confer validity on said deed, since it is still
entirely possible that Biondo did not execute said deed or, for that matter, appear

before said notary public.15 The dearth of merit in the Spouses Realubits position is,
however, immediately evident from the settled rule that documents acknowledged
before notaries public are public documents which are admissible in evidence
without necessity of preliminary proof as to their authenticity and due execution. 16
It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo
executed in favor of Eden not only enjoys a presumption of regularity 17 but is also
considered prima facie evidence of the facts therein stated.18A party assailing the
authenticity and due execution of a notarized document is, consequently, required
to present evidence that is clear, convincing and more than merely
preponderant.19 In view of the Spouses Realubits failure to discharge this onus, we
find that both the RTC and the CA correctly upheld the authenticity and validity of
said Deed of Assignment upon the combined strength of the above-discussed
disputable presumptions and the testimonies elicited from Eden 20 and Notary Public
Rolando Diaz.21 As for the Spouses Realubits bare assertion that Biondos signature
on the same document appears to be forged, suffice it to say that, like
fraud,22 forgery is never presumed and must likewise be proved by clear and
convincing evidence by the party alleging the same. 23Aside from not being borne out
by a comparison of Biondos signatures on the Joint Venture Agreement 24 and the
Deed of Assignment,25 said forgery is, moreover debunked by Biondos duly
authenticated certification dated 17 November 1998, confirming the transfer of his
interest in the business in favor of Eden.26
Generally understood to mean an organization formed for some temporary purpose,
a joint venture is likened to a particular partnership or one which "has for its object
determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation."27 The rule is settled that joint ventures are governed by the
law on partnerships28 which are, in turn, based on mutual agency or delectus
personae.29 Insofar as a partners conveyance of the entirety of his interest in the
partnership is concerned, Article 1813 of the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership does
not itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to
interfere in the management or administration of the partnership business or affairs,
or to require any information or account of partnership transactions, or to inspect
the partnership books; but it merely entitles the assignee to receive in accordance
with his contracts the profits to which the assigning partners would otherwise be
entitled. However, in case of fraud in the management of the partnership, the
assignee may avail himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is entitled to receive his
assignors interest and may require an account from the date only of the last
account agreed to by all the partners.
From the foregoing provision, it is evident that "(t)he transfer by a partner of his
partnership interest does not make the assignee of such interest a partner of the
firm, nor entitle the assignee to interfere in the management of the partnership

business or to receive anything except the assignees profits. The assignment does
not purport to transfer an interest in the partnership, but only a future contingent
right to a portion of the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital." 30 Since a partners
interest in the partnership includes his share in the profits, 31 we find that the CA
committed no reversible error in ruling that the Spouses Jaso are entitled to Biondos
share in the profits, despite Juanitas lack of consent to the assignment of said
Frenchmans interest in the joint venture. Although Eden did not, moreover, become
a partner as a consequence of the assignment and/or acquire the right to require an
accounting of the partnership business, the CA correctly granted her prayer for
dissolution of the joint venture conformably with the right granted to the purchaser
of a partners interest under Article 1831 of the Civil Code.32 1wphi1
Considering that they involve questions of fact, neither are we inclined to hospitably
entertain the Spouses Realubits insistence on the supposed fact that Josefinas joint
venture with Biondo had already been dissolved and that the ice manufacturing
business at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was
merely a continuation of the same business they previously operated under a single
proprietorship. It is well-entrenched doctrine that questions of fact are not proper
subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of
appeal is confined to questions of law.33 Upon the principle that this Court is not a
trier of facts, we are not duty bound to examine the evidence introduced by the
parties below to determine if the trial and the appellate courts correctly assessed
and evaluated the evidence on record.34 Absent showing that the factual findings
complained of are devoid of support by the evidence on record or the assailed
judgment is based on misapprehension of facts, the Court will limit itself to
reviewing only errors of law.35
Based on the evidence on record, moreover, both the RTC 36 and the CA37 ruled out
the dissolution of the joint venture and concluded that the ice manufacturing
business at the aforesaid address was the same one established by Juanita and
Biondo. As a rule, findings of fact of the CA are binding and conclusive upon this
Court,38 and will not be reviewed or disturbed on appeal39 unless the case falls under
any of the following recognized exceptions: (1) when the conclusion is a finding
grounded entirely on speculation, surmises and conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse
of discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when the CA, 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 CA are premised on the supposed absence of
evidence and contradicted by the evidence on record.40 Unfortunately for the
Spouses Realubits cause, not one of the foregoing exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision
dated 30 April 2007 is, accordingly, AFFIRMED in toto.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167379

June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO

W. LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO
T. LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200
and its Resolution2 denying petitioners motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a
domestic corporation engaged in real estate development. Rafaelito W. Lopez is its
President and Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin
and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2)
adjoining parcels of land, with a combined area of 30,000 square meters, located in
Tagaytay City and covered by Transfer Certificate of Title (TCT) No. T-10848 4of the
Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity
as President, entered into a Joint Venture Agreement 5 (JVA) for the development of
the aforementioned property into a residential subdivision to be known as "Tagaytay
Garden Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute
the two parcels of land as their share in the joint venture. For its part, Primelink
undertook to contribute money, labor, personnel, machineries, equipment,
contractors pool, marketing activities, managerial expertise and other needed
resources to develop the property and construct therein the units for sale to the
public. Specifically, Primelink bound itself to accomplish the following, upon the
execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering
designs, structural and architectural plans, site development plans, and

such other need plans in accordance with existing laws and the rules and
regulations of appropriate government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for
the projects;
c.) Furnish all materials, equipment, labor and services for the development
of the land in preparation for the construction and sale of the different
types of units (single-detached, duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by
force majeure or fortuitous event or by competent authority, or other
unavoidable circumstances beyond the DEVELOPERS control, not to exceed
three years from the date of the signing of this Joint Venture Agreement,
except the installation of the electrical facilities which is solely MERALCOS
responsibility;
e.) Provide necessary manpower resources, like executive and managerial
officers, support personnel and marketing staff, to handle all services
related to land and housing development (administrative and construction)
and marketing (sales, advertising and promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the
LANDOWNER can draw allowances or make advances not exceeding a total
of twenty percent (20%) of the net revenue for that period, on the basis of
sixty percent (60%) for the DEVELOPER and forty percent (40%) for the
LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of
the net revenue for the first two years, in order to have sufficient reserves
or funds to protect and/or guarantee the construction and completion of the
different types of units mentioned above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled
to drawing allowances and/or advances equivalent to sixty percent (60%)
and forty percent (40%), respectively, of the total net revenue or income of
the sale of the units.7
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net
revenue or income of the Joint Venture project, after deducting all expenses
incurred in connection with the land development (such as administrative

management and construction expenses), and marketing (such as sales,

advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net
revenue or income of the Joint Venture project, after deducting all the
above-mentioned expenses.8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the
project:

TCP x 30% D/P

P 69,360,000

Balance = 70%

161,840,000

x .03069 x 48 =

P238,409,740

Total Amount (TCP + int. earn.)

less: A Building expenses

lawphil.net
COST PRICE

DIFFERENCE

B Commission (8% of TCP)

INCOME

CLUSTER:
A1 3,200,000

A2 1,260,000

P307,769,740.00

1,940,000 x 24 =

P 46,560,000.00

B2 960,000

1,540,000 x 24 =

36,960,000.00

C2 1,400,000

2,100,000 x 16 =

33,600,000.00

P 92,480,000.00
18,496,000.00

C Admin. & Mgmt. expenses (2% of TCP)

4,624,000.00

D Advertising & Promo exp. (2% of TCP)

4,624,000.00

E Building expenses for the open

spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms.

TWIN:
B1 2,500,000

238,409,740.00

EXPENSES:

SALES-INCOME-COST PROJECTION

SELLING PRICE

P 69,360,000.00

12,000,000.00

SINGLE:
C1 3,500,000

D2 700,000

P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES

ROW-TYPE TOWNHOMES:
D1 1,600,000

TOTAL EXPENSES (A+B+C+D+E)

900,000 x 24 =

21,600,000.00

Total Projected Income (incl. income from interest earn.)

less:

P307,769,740.00

132,224,000.00

P138,720,000.00
Total Expenses
(GROSS)

Total Cash Price (A1+B1+C1+D1)

Total Building Expense (A2+B2+C2+D2)

COMPUTATION OF ADDL. INCOME ON INTEREST

P175,545,740.009

P231,200,000.00
The parties agreed that any unsettled or unresolved misunderstanding or conflicting
92,480,000.00 opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
Voluntary Arbitration in accordance with the Arbitration Law. 10

The Lazatins agreed to subject the title over the subject property to an escrow
agreement. Conformably with the escrow agreement, the owners duplicate of the
title was deposited with the China Banking Corporation.11However, Primelink failed
to immediately secure a Development Permit from Tagaytay City, and applied the
permit only on August 30, 1995. On October 12, 1995, the City issued a
Development Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that
Primelink comply with its obligations under the JVA, otherwise the appropriate action
would be filed against it to protect their rights and interests. This impelled the
officers of Primelink to meet with the Lazatins and enabled the latter to review its
business records/papers. In another Letter 14 dated October 22, 1997, the Lazatins
informed Primelink that they had decided to rescind the JVA effective upon its receipt
of the said letter. The Lazatins demanded that Primelink cease and desist from
further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court
(RTC) of Tagaytay City, Branch 18, a complaint for rescission accounting and
damages, with prayer for temporary restraining order and/or preliminary injunction
against Primelink and Lopez. The case was docketed as Civil Case No. TG-1776.
Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from
the execution of the JVA and the delivery of the title and possession of the land to
defendants, the land development aspect of the project had not yet been
completed, and the construction of the housing units had not yet made any
headway, based on the following facts, namely: (a) of the 50 housing units
programmed for Phase I, only the following types of houses appear on the site in
these condition: (aa) single detached, one completed and two units uncompleted;
(bb) cluster houses, one unit nearing completion; (cc) duplex, two units completed
and two units unfinished; and (dd) row houses, two units, completed; (b) in Phase II
thereof, all that was done by the defendants was to grade the area; the units so far
constructed had been the object of numerous complaints by their owners/purchasers
for poor workmanship and the use of sub-standard materials in their construction,
thus, undermining the projects marketability. Plaintiffs also alleged that defendants
had, without justifiable reason, completely disregarded previously agreed accounting
and auditing procedures, checks and balances system installed for the mutual
protection of both parties, and the scheduled regular meetings were seldom held to
the detriment and disadvantage of plaintiffs. They averred that they sent a letter
through counsel, demanding compliance of what was agreed upon under the
agreement but defendants refused to heed said demand. After a succession of
letters with still no action from defendants, plaintiffs sent a letter on October 22,
1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and
submitted by defendants, they (plaintiffs) stood to receive the amount
of P70,218,296.00 as their net share in the joint venture project; to date, however,
after almost four (4) years and despite the undertaking in the JVA that plaintiffs shall
initially get 20% of the agreed net revenue during the first two (2) years (on the
basis of the 60%-40% sharing) and their full 40% share thereafter, defendants had

yet to deliver these shares to plaintiffs which by conservative estimates would

amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor,
thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary
restraining order be forthwith issued enjoining the defendants to immediately stop
their land development, construction and marketing of the housing units in the
aforesaid project; after due proceedings, to issue a writ of preliminary injunction
enjoining and prohibiting said land development, construction and marketing of
housing units, pending the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs
and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels
of land;
3. Ordering the defendants to render an accounting of all income generated
as well as expenses incurred and disbursement made in connection with
the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the
amount Forty Million Pesos (P40,000,000.00) in actual and/or compensatory
damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the
amount of Two Million Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the
amount equivalent to ten percent (10%) of the total amount due as and for
attorneys fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for. 16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground
that plaintiffs complaint was premature, due to their failure to refer their complaint
to a Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act

No. 876 before filing their complaint in the RTC. They prayed for the dismissal of the
complaint under Section 1(j), Rule 16 of the Rules of Court:

In the meantime, plaintiffs adduced ex parte their testimonial and documentary

evidence. On April 17, 2000, the RTC rendered a Decision, the dispositive part of
which reads:

WHEREFORE, it is respectfully prayed that an Order be issued:

a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the
aforecited Rules of Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the
demand to arbitrate, and then asking the parties to resolve their
controversies, pursuant to the Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the
completion of the arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary restraining
order or writ of preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for. 17
In the meantime, before the expiration of the reglementary period to answer the
complaint, defendants, invoking their counsels heavy workload, prayed for a 15-day
extension18 within which to file their answer. The additional time prayed for was
granted by the RTC.19 However, instead of filing their answer, defendants prayed for
a series of 15-day extensions in eight (8) successive motions for extensions on the
same justification.20 The RTC again granted the additional time prayed for, but in
granting the last extension, it warned against further extension. 21Despite the
admonition, defendants again moved for another 15-day extension,22 which, this
time, the RTC denied. No answer having been filed, plaintiffs moved to declare the
defendants in default,23 which the RTC granted in its Order24 dated June 24, 1998.

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of
filing of this complaint;
2. Ordering the defendants to return possession, including all
improvements therein, of the real estate property belonging to the plaintiffs
which is described in, and covered by Transfer Certificate of Title No. T10848 of the Register of Deeds of Tagaytay City, and located in Barangay
Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers
that have been executed, prepared and retained in connection with any
contract to sell or deed of sale of all lots/units sold during the effectivity of
the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26
representing their share of the net income of the P2,603,810.64 as of
September 30, 1995, as stipulated in the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in the
amount of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33

On June 25, 1998, defendants filed, via registered mail, their "Answer with
Counterclaim and Opposition to the Prayer for the Issuance of a Writ of Preliminary
Injunction."25 On July 8, 1998, defendants filed a Motion to Set Aside the Order of
Default.26 This was opposed by plaintiffs.27 In an Order28 dated July 14, 1998, the RTC
denied defendants motion to set aside the order of default and ordered the
reception of plaintiffs evidence ex parte. Defendants filed a motion for
reconsideration29 of the July 14, 1998 Order, which the RTC denied in its
Order30 dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring
them in default, as well as the Order denying their motion to set aside the order of
default, alleging that these were contrary to facts of the case, the law and
jurisprudence.31 On September 16, 1999, the appellate court issued a
Resolution32 dismissing the appeal on the ground that the Orders appealed from
were interlocutory in character and, therefore, not appealable. No motion for
reconsideration of the Order of the dismissal was filed by defendants.

The trial court anchored its decision on the following findings:

x x x Evidence on record have shown patent violations by the defendants of the
stipulations particularly paragraph II covering Developers (defendant) undertakings,
as well as paragraph III and paragraph V of the JVA. These violations are not limited
to those made against the plaintiffs alone as it appears that some of the unit buyers
themselves have their own separate gripes against the defendants as typified by the
letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs.
Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as
submarkings, pp. 60 to 62, TSN August 6, 1998) this court has observed, and is thus

convinced, that a pattern of what appears to be a scheme or plot to reduce and

eventually blot out the net income generated from sales of housing units by
defendants, has been established. Exhibit "P-2" is explicit in declaring that, as of
September 30, 1995, the joint venture project earned a net income of
aboutP2,603,810.64. This amount, however, was drastically reduced in a subsequent
financial report submitted by the defendants to P1,954,216.39. Shortly thereafter,
and to the dismay of the plaintiffs, the defendants submitted an income statement
and a balance sheet (Exhibits "R" and "R-1") indicating a net loss of P5,122,906.39
as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should
have received the sum ofP1,041,524.26 representing their 40% share under
paragraph II and V of the JVA. But this was not to be so. Even before the plaintiffs
could get hold of their share as indicated above, the defendants closed the chance
altogether by declaring a net loss. The court perceives this to be one calculated
coup-de-grace that would put to thin air plaintiffs hope of getting their share in the
profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way
the defendants treated the JVA and the manner by which they handled the project
itself vis--vis their partners, the plaintiffs herein, there is bound to be certain
conflict as the latter repeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some
other recourse but to file the present action to enforce their rights. x x x 34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging
defendants dilatory tactics for its allowance. This was opposed by defendants. 36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor
of plaintiffs.37 Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution
pending appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE
COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE
MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE
AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION
V. MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II

THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN
IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE,
AND DESPITE PRIMELINKS STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO QUASH
THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR
RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO
RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT
ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS
SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE APPELLEES FAILURE TO
PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO
TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE
EXISTING IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID
RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS
PROVEN DURING THE EX PARTE HEARING, AND EVEN WITHOUT ORDERING
APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE
BETWEEN THE MARKET VALUE OF APPELLEES RAW, UNDEVELOPED AND
UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR
LESS FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE HORIZONTAL
AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES TO
UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF PRIMELINK. 39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with
modification, the appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial
Court of Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No.
TG-1776, is hereby AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848
held for safekeeping by Chinabank pursuant to the Escrow Agreement is ordered
released for return to the plaintiffs-appellees and conformably with the affirmed
decision, the cancellation by the Register of Deeds of Tagaytay City of whatever
annotation in TCT No. 10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40

Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing

Corporation,41 the appellate court ruled that, under Philippine law, a joint venture is
a form of partnership and is to be governed by the laws of partnership. The
aggrieved parties filed a motion for reconsideration,42 which the CA denied in its
Resolution43dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND
REVERSIBLE LEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION IN
ORDERING THE RETURN TO THE RESPONDENTS OF THE PROPERTY WITH
ALL IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING THE
RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES
INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE
ORIGINAL VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS
FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE
AND UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN
RELATIONS AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON
JUDICIAL NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF
CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL
APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which unconditionally
awards to respondents "all improvements" on the project without requiring them to
pay the value thereof or to reimburse Primelink for all expenses incurred therefore is
inherently and essentially illegal and confiscatory, oppressive and unconscionable,
contrary to the tenets of good human relations, and will allow respondents to
unjustly enrich themselves at Primelinks expense. At the time respondents
contributed the two parcels of land, consisting of 30,000 square meters to the joint
venture project when the JVA was signed on March 10, 1994, the said properties
were worth not more than P500.00 per square meter, the "price tag" agreed upon
the parties for the purpose of the JVA. Moreover, before respondents rescinded the
JVA sometime in October/November 1997, the property had already been
substantially developed as improvements had already been introduced thereon;
petitioners had likewise incurred administrative and marketing expenses, among
others, amounting to more or less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be
declared the owners and entitled to the possession of the improvements made by
petitioner Primelink on the property; neither did they adduce evidence to prove their
entitlement to said improvements. It follows, petitioners argue, that respondents
were not entitled to the improvements although petitioner Primelink was declared in
default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be
only to the extent necessary to cover the damages caused and that, under Article

1385 of the same Code, rescission creates the obligation to return the things which
were not object of the contract, together with their fruits, and the price with its
interest; consequently, it can be effected only when respondents can return
whatever they may be obliged to return. Respondents who sought the rescission of
the JVA must place petitioner Primelink in the status quo. They insist that
respondents cannot rescind and, at the same time, retain the consideration, or part
of the consideration received under the JVA. They cannot have the benefits of
rescission without assuming its burden. All parties must be restored to their original
positions as nearly as possible upon the rescission of a contract. In the event that
restoration to the status quo is impossible, rescission may be granted if the Court
can balance the equities and fashion an appropriate remedy that would be equitable
to both parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their
claim for reimbursement because "[w]hat matters is that the improvements exist
and they cannot be denied."46 Moreover, they point out, the ruling of this Court in
Aurbach v. Sanitary Wares Manufacturing Corporation47 cited by the CA is not in
point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below)
did not specifically pray for their takeover of the property and for the possession of
the improvements on the parcels of land, nevertheless, respondents were entitled to
said relief as a necessary consequence of the ruling of the trial court ordering the
rescission of the JVA. The appellate court cited the ruling of this Court in the Aurbach
case and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general
principles of partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code
deal with rescissible contracts. What applies is Article 1191 of the New Civil Code,
which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage
Law.

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) (Emphasis Supplied)

They insist that petitioners are not entitled to rescission for the improvements
because, as found by the RTC and the CA, it was petitioner Primelink that enriched
itself at the expense of respondents. Respondents reiterate the ruling of the CA, and
argue as follows:

The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the
words of the court a quo, was a pattern of what appears to be a scheme or plot to
reduce and eventually blot out the net incomes generated from sales of housing
units by the defendants. Under Article 1838 of the Civil Code, where the partnership
contract is rescinded on the ground of the fraud or misrepresentation of one of the
parties thereto, the party entitled to rescind is, without prejudice to any other right
is entitled to a lien on, or right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to third persons for any sum of
money paid by him for the purchase of an interest in the partnership and for any
capital or advance contributed by him. In the instant case, the joint venture still has
outstanding liabilities to third parties or the buyers of the property.

PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove
and did not pray that they are and should be entitled to take over the development
of the project, and that the improvements and existing structures which were
introduced by PRIMELINK after spending more or less Forty Million Pesos be
awarded to them. They merely asked in the complaint that the joint venture
agreement be rescinded, and that the parcels of land they contributed to the project
be returned to them.
PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return
possession of the real estate property belonging to the LAZATINs including all
improvements thereon was not a judgment that was different in kind than what was
prayed for by the LAZATINs. The order to return the property with all the
improvements thereon is just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general
principles of partnership may be resorted to. In Aurbach v. Sanitary Wares
Manufacturing Corporation, the Supreme Court discussed the following points
regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact,
hardly distinguishable from the partnership, since elements are similar community
of interest in the business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95
P.2d 1043 [1939]; Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242
[1955]) The main distinction cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single transaction,
and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d 500
[1931]; Harmon v. Martin, 395 III. 595, 71 N.E.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 laws of partnership. 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

It is not amiss to state that title to the land or TCT No. T-10848 which is now held by
Chinabank for safekeeping pursuant to the Escrow Agreement executed between
Primelink Properties and Development Corporation and Ma. Clara T. Lazatin-Magat
should also be returned to the LAZATINs as a necessary consequence of the order of
rescission of contract. The reason for the existence of the Escrow Agreement has
ceased to exist when the joint venture agreement was rescinded. 49
Respondents stress that petitioners must bear any damages or losses they may
have suffered. They likewise stress that they did not enrich themselves at the
expense of petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain
the improvements even if their share in the P1,041,524.26 of the net income of the
property and the sale of the land were to be deducted from the value of the
improvements, plus administrative and marketing expenses in the total amount
ofP40,000,000.00. Petitioners will still be entitled to an accounting from
respondents. Respondents cannot deny the existence and nature of said
improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the
possession of the parcels of land covered by the JVA and the improvements thereon
introduced by petitioners as their contribution to the JVA; (2) whether petitioners are
entitled to reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically
pray in their complaint below that possession of the improvements on the parcels of
land which they contributed to the JVA be transferred to them. Respondents made a
specific prayer in their complaint that, upon the rescission of the JVA, they be placed
in possession of the parcels of land subject of the agreement, and for other "reliefs
and such other remedies as are just and equitable in the premises." However, the

trial court was not precluded from awarding possession of the improvements on the
parcels of land to respondents in its decision. Section 2(c), Rule 7 of the Rules of
Court provides that a pleading shall specify the relief sought but it may add as
general prayer for such further or other relief as may be deemed just and equitable.
Even without the prayer for a specific remedy, proper relief may be granted by the
court if the facts alleged in the complaint and the evidence introduced so
warrant.50 The court shall grant relief warranted by the allegations and the proof
even if no such relief is prayed for.51 The prayer in the complaint for other reliefs
equitable and just in the premises justifies the grant of a relief not otherwise
specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the
parcels of land and the improvements on the said parcels of land. It bears stressing
that the parcels of land, as well as the improvements made thereon, were
contributed by the parties to the joint venture under the JVA, hence, formed part of
the assets of the joint venture.53 The trial court declared that respondents were
entitled to the possession not only of the parcels of land but also of the
improvements thereon as a consequence of its finding that petitioners breached
their agreement and defrauded respondents of the net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA which, under the
Courts ruling in Aurbach, is a form of partnership, and as such is to be governed by
the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence
on record that petitioners willfully and persistently committed a breach of the JVA,
the court thereby dissolved/cancelled the partnership.54With the rescission of the JVA
on account of petitioners fraudulent acts, all authority of any partner to act for the
partnership is terminated except so far as may be necessary to wind up the
partnership affairs or to complete transactions begun but not yet finished. 55 On
dissolution, the partnership is not terminated but continues until the winding up of
partnership affairs is completed.56 Winding up means the administration of the
assets of the partnership for the purpose of terminating the business and
discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon
to respondents was only for a specific purpose: the winding up of partnership affairs,
and the partition and distribution of the net partnership assets as provided by
law.57 After all, Article 1836 of the New Civil Code provides that unless otherwise
agreed by the parties in their JVA, respondents have the right to wind up the
partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved
the partnership or the legal representative of the last surviving partner, not
insolvent, has the right to wind up the partnership affairs, provided, however, that
any partner, his legal representative or his assignee, upon cause shown, may obtain
winding up by the court.

It must be stressed, too, that although respondents acquired possession of the lands
and the improvements thereon, the said lands and improvements remained
partnership property, subject to the rights and obligations of the parties, inter se, of
the creditors and of third parties under Articles 1837 and 1838 of the New Civil
Code, and subject to the outcome of the settlement of the accounts between the
parties as provided in Article 1839 of the New Civil Code, absent any agreement of
the parties in their JVA to the contrary.58 Until the partnership accounts are
determined, it cannot be ascertained how much any of the parties is entitled to, if at
all.
It was thus premature for petitioner Primelink to be demanding that it be
indemnified for the value of the improvements on the parcels of land owned by the
joint venture/partnership. Notably, the JVA of the parties does not contain any
provision designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when
dissolution is caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all
desire to continue the business in the same name either by themselves or
jointly with others, may do so, during the agreed term for the partnership
and for that purpose may possess the partnership property, provided they
secure the payment by bond approved by the court, or pay to any partner
who has caused the dissolution wrongfully, the value of his interest in the
partnership at the dissolution, less any damages recoverable under the
second paragraph, No. 1(b) of this article, and in like manner indemnify him
against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the
second paragraph, No. 2, all the rights of a partner under the first
paragraph, subject to liability for damages in the second
paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2,
of this article, the right as against his co-partners and all claiming
through them in respect of their interests in the partnership, to
have the value of his interest in the partnership, less any damage
caused to his co-partners by the dissolution, ascertained and paid

to him in cash, or the payment secured by a bond approved by the

court, and to be released from all existing liabilities of the
partnership; but in ascertaining the value of the partners interest
the value of the good-will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is,
without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to third persons for any
sum of money paid by him for the purchase of an interest in the partnership
and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the
place of the creditors of the partnership for any payments made by him in
respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the
representation against all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in
Article 1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following
rules shall be observed, subject to any agreement to the contrary:

(3) The assets shall be applied in the order of their declaration in No. 1 of
this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount
necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the
court shall have the right to enforce the contributions specified in the
preceding number.
(6) Any partner or his legal representative shall have the right to enforce
the contributions specified in No. 4, to the extent of the amount which he
has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners
are in possession of a court for distribution, partnership creditors shall have
priority on partnership property and separate creditors on individual
property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the
claims against his separate property shall rank in the following order:
(a) Those owing to separate creditors;

(1) The assets of the partnership are:

(b) Those owing to partnership creditors;
(a) The partnership property,
(c) Those owing to partners by way of contribution.
(b) The contributions of the partners necessary for the payment of
all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as
follows:

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as
they conform to this Decision of the Court.
Costs against petitioners.

(a) Those owing to creditors other than partners,

SO ORDERED.
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.

Republic of the Philippines

SUPREME COURT
SECOND DIVISION
G.R. No. 126881

October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY,respondents.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April
12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a
particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership;

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the
Decision1 dated March 13, 1996 of the former Fifth Division2 of the Court of Appeals
in CA-G.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside,
and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined by their children Teresita, Nena, Clarita,
Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN
ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19,
1990. The complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court
of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On
March 18, 1991, the petitioners filed an amended complaint 4 impleading private
respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The
amended complaint was admitted by the trial court in its Order dated May 3, 1991. 5
The amended complaint principally alleged that after the second World War, Tan Eng
Kee and Tan Eng Lay, pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of the alleged partners. However,
they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the
partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company."
The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business. Petitioners prayed for
accounting of the partnership assets, and the dissolution, winding up and liquidation
thereof, and the equal division of the net assets of Benguet Lumber.

c) Declaring that the assets of Benguet Lumber are the same assets turned
over to Benguet Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to share in
said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint
adventurer and/or as partner in a particular partnership have descended to
the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General
Manager of Benguet Lumber Company Inc. to render an accounting of all
the assets of Benguet Lumber Company, Inc. so the plaintiffs know their
proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the
assets of Benguet Lumber Company, Inc. until such time that said
corporation is finally liquidated are directed to submit the name of any
person they want to be appointed as receiver failing in which this Court will
appoint the Branch Clerk of Court or another one who is qualified to act as
such.
g) Denying the award of damages to the plaintiffs for lack of proof except
the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13,
1996, rendered the assailed decision reversing the judgment of the trial court.
Petitioners' motion for reconsideration7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.

Hence, the present petition.

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING
THE EMPLOYEES THEREIN;

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against
Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial
proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the
defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee
was a mere employee of Benguet Lumber, were fake, based on the discrepancy in
the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan,
for alleged falsification of commercial documents by a private individual. On March
20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges
were filed, rendered judgment9 dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN
ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO
FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO
CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO
PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE
DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE
SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET
LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY
AN EMPLOYEE THEREOF.

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE
PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING
ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE:
ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS
BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS
STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN
ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER
IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A
PUBLIC INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE
AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE
17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if such are supported by the evidence. 10 Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:

III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH
PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED
BEFORE THE SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE
ALL LIVING AT THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
COMMANDING THE EMPLOYEES OF BENGUET LUMBER;

Filing of petition with Supreme Court. A party desiring to appeal by

certiorari from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel
us to analyze the evidentiary basis on which the lower court rendered judgment.
Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or

conjectures;
(3) when the inference made by the Court of Appeals from its findings of
fact is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues
of the case, and such findings are contrary to the admissions of both
appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence but such findings are contradicted by the evidence on
record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the
plaintiffs mentioned only the existence of a partnership, the Court in turn
went beyond that by justifying the existence of a joint venture.

common fund would be enough to form a partnership, both in the lumber

and hardware business. That Lay and Kee actually established the Benguet
Lumber in Baguio City, was even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber was eventually
established. That the father of the plaintiffs and Lay were partners, is
obvious from the fact that: (1) they conducted the affairs of the business
during Kee's lifetime, jointly, (2) they were the ones giving orders to the
employees, (3) they were the ones preparing orders from the suppliers, (4)
their families stayed together at the Benguet Lumber compound, and (5) all
their children were employed in the business in different capacities.
xxx

xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a partner of
the Benguet Lumber before the war. The appellees however argued that
(Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks
of the pre-war Benguet Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of capital to start a lumber
and hardware business, Lay and Kee pooled the proceeds of their individual
businesses earned from buying and selling military supplies, so that the

xxx

It is obvious that there was no partnership whatsoever. Except for a firm

name, there was no firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no agreement as to profits and
losses, and no time fixed for the duration of the partnership. There was
even no attempt to submit an accounting corresponding to the period after
the war until Kee's death in 1984. It had no business book, no written
account nor any memorandum for that matter and no license mentioning
the existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The
certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay
as the only registered owner of the Benguet Lumber and Hardware. His
application for registration, effective 1954, in fact mentioned that his
business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the Benguet
Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit
"3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to
1983, Kee was similarly listed only as an employee; precisely, he was on
the payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned
also as the proprietor.
xxx

When mention is made of a joint venture, it would presuppose parity of

standing between the parties, equal proprietary interest and the exercise
by the parties equally of the conduct of the business, thus:

xxx

xxx

xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may
be constituted in any form, but when an immovable is constituted, the
execution of a public instrument becomes necessary. This is equally true if
the capitalization exceeds P3,000.00, in which case a public instrument is
also necessary, and which is to be recorded with the Securities and
Exchange Commission. In this case at bar, we can easily assume that the
business establishment, which from the language of the appellees,
prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in
addition to the accumulation of real properties and to the fact that it is now
a compound. The execution of a public instrument, on the other hand, was
never established by the appellees.

And then in 1981, the business was incorporated and the incorporators
were only Lay and the members of his family. There is no proof either that
the capital assets of the partnership, assuming them to be in existence,
were maliciously assigned or transferred by Lay, supposedly to the
corporation and since then have been treated as a part of the latter's
capital assets, contrary to the allegations in pars. 6, 7 and 8 of the
complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and
then in a room in the bunk house in Trinidad, but within the compound of
the lumber establishment, as testified to by Tandoc; 2) that both Lay and
Kee were seated on a table and were "commanding people" as testified to
by the son, Elpidio Tan; 3) that both were supervising the laborers, as
testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly
being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were
added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a
contract, either oral or written. However, if it involves real property or
where the capital is P3,000.00 or more, the execution of a contract is
necessary; 2) the capacity of the parties to execute the contract; 3) money
property or industry contribution; 4) community of funds and interest,
mentioning equality of the partners or one having a proportionate share in
the benefits; and 5) intention to divide the profits, being the true test of the
partnership. The intention to join in the business venture for the purpose of
obtaining profits thereafter to be divided, must be established. We cannot
see these elements from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which
had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint
venture. In this connection, we have held that whether a partnership exists is a
factual matter; consequently, since the appeal is brought to us under Rule 45, we
cannot entertain inquiries relative to the correctness of the assessment of the
evidence by the court a quo.13 Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the record to
determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a
profession.14

Thus, in order to constitute a partnership, it must be established that (1)

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

partnership may be particular or universal, and a particular partnership

may have for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into
a partnership contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected Cases, Corporation Code
1981).
Undoubtedly, the best evidence would have been the contract of partnership itself,
or the articles of partnership but there is none. The alleged partnership, though, was
never formally organized. In addition, petitioners point out that the New Civil Code
was not yet in effect when the partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing prevented the parties from
complying with the provisions of the New Civil Code when it took effect on August
30, 1950. But all that is in the past. The net effect, however, is that we are asked to
determine whether a partnership existed based purely on circumstantial evidence. A
review of the record persuades us that the Court of Appeals correctly reversed the
decision of the trial court. The evidence presented by petitioners falls short of the
quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan
Eng Lay, could have expounded on the precise nature of the business relationship
between them. In the absence of evidence, we cannot accept as an established fact
that Tan Eng Kee allegedly contributed his resources to a common fund for the
purpose of establishing a partnership. The testimonies to that effect of petitioners'
witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not
with the number of witnesses wherein preponderance lies; 24 the quality of their
testimonies is to be considered. None of petitioners' witnesses could suitably
account for the beginnings of Benguet Lumber Company, except perhaps for
Dionisio Peralta whose deceased wife was related to Matilde Abubo. 25 He stated that
when he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.26Tan Eng Lay, however, denied knowledge of this meeting or of the
conversation between Peralta and his brother.27 Tan Eng Lay consistently testified
that he had his business and his brother had his, that it was only later on that his
said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or
co-possession (specifically here, of the G.I. sheets) is not an indicium of the
existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan Eng Kee never asked for an accounting.
The essence of a partnership is that the partners share in the profits and
losses.29 Each has the right to demand an accounting as long as the partnership
exists.30 We have allowed a scenario wherein "[i]f excellent relations exist among the
partners at the start of the business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a deferment of sharing in

the profits is perfectly plausible." 31 But in the situation in the case at bar, the
deferment, if any, had gone on too long to be plausible. A person is presumed to
take ordinary care of his concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital.
In the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she
has even demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have
done; all that she did was to receive her share of P3,000.00 a month, which
cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had
always acted in accordance with the original letter of defendant of June 17,
1945 (Exh. "A"), which shows that both parties considered this offer as the
real contract between them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership. 34 During his lifetime,
Tan Eng Kee appeared never to have made any such demand for accounting from his
brother, Tang Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee
of Benguet Lumber, as it was then called. The authenticity of these documents was
questioned by petitioners, to the extent that they filed criminal charges against Tan
Eng Lay and his wife and children. As aforesaid, the criminal cases were dismissed
for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng Kee
received sums as wages of an employee. In connection therewith, Article 1769 of the
Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is 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 installment 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.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was
only an employee, not a partner. Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to speak, since they did not present
and offer evidence that would show that Tan Eng Kee received amounts of money
allegedly representing his share in the profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee, received, if any, as his share in the profits
of Benguet Lumber Company for any particular period. Hence, they failed to prove
that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business
between themselves, which is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence
of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee
were commanding the employees; that both were supervising the employees; that
both were the ones who determined the price at which the stocks were to be sold;
and that both placed orders to the suppliers of the Benguet Lumber Company. They
also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at
the Benguet Lumber Company compound, a privilege not extended to its ordinary
employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above
enumerated powers and privileges granted in favor of Tan Eng Kee, were
indicative of his being a partner in Benguet Lumber for the following
reasons:
(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's
position is higher in rank, it is not unusual that he orders around those
lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is

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

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO
S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.
SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this
appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2
for the appellees) entered into on Oct. 19, 1960 by and between
Mrs. Segundina Noguera, party of the first part; the Tourist World
Service, Inc., represented by Mr. Eliseo Canilao as party of the
second part, and hereinafter referred to as appellants, the Tourist
World Service, Inc. leased the premises belonging to the party of
the first part at Mabini St., Manila for the former-s use as a branch
office. In the said contract the party of the third part held herself
solidarily liable with the party of the part for the prompt payment
of the monthly rental agreed on. When the branch office was
opened, the same was run by the herein appellant Una 0. Sevilla
payable to Tourist World Service Inc. by any airline for any fare
brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina
Sevilla and 3% was to be withheld by the Tourist World Service,
Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World
Service, Inc. appears to have been informed that Lina Sevilla was
connected with a rival firm, the Philippine Travel Bureau, and,
since the branch office was anyhow losing, the Tourist World
Service considered closing down its office. This was firmed up by
two resolutions of the board of directors of Tourist World Service,
Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing
the office of the manager and vice-president of the Tourist World
Service, Inc., Ermita Branch, and the second,authorizing the
corporate secretary to receive the properties of the Tourist World
Service then located at the said branch office. It further appears

that on Jan. 3, 1962, the contract with the appellees for the use of
the Branch Office premises was terminated and while the
effectivity thereof was Jan. 31, 1962, the appellees no longer used
it. As a matter of fact appellants used it since Nov. 1961. Because
of this, and to comply with the mandate of the Tourist World
Service, the corporate secretary Gabino Canilao went over to the
branch office, and, finding the premises locked, and, being unable
to contact Lina Sevilla, he padlocked the premises on June 4, 1962
to protect the interests of the Tourist World Service. When neither
the appellant Lina Sevilla nor any of her employees could enter
the locked premises, a complaint wall filed by the herein
appellants against the appellees with a prayer for the issuance of
mandatory preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein,
the trial court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the
order dismissing her counterclaim which the court a quo, in an
order dated June 8, 1963, granted permitting her to present
evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the
herein appellees and after the issues were joined, the reinstated
counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the court
a quo ordered both cases dismiss for lack of merit, on the basis of
which was elevated the instant appeal on the following
assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE
OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS.
LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD
SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE
RELATION AND IN FAILING TO HOLD THAT THE SAID
ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFFAPPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING
THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES
HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM
THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN
HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL

APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O.
SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT
APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR
FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved
are:
1. Whether the appellee Tourist World Service unilaterally disco the
telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World
Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to
the appellee Noguera was appellees TWS or TWS and the
appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness
venture was entered into by and between her and appellee TWS
with offices at the Ermita branch office and that she was not an
employee of the TWS to the end that her relationship with TWS
was one of a joint business venture appellant made declarations
showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent
figure and wife of an eminent eye, ear and nose
specialist as well as a imediately columnist had
been in the travel business prior to the
establishment of the joint business venture with
appellee Tourist World Service, Inc. and appellee
Eliseo Canilao, her compadre, she being the
godmother of one of his children, with her own
clientele, coming mostly from her own social
circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease
agreement dated 19 October 1960 (Exh. 'A')
covering the premises at A. Mabini St., she
expressly warranting and holding [sic] herself
'solidarily' liable with appellee Tourist World
Service, Inc. for the prompt payment of the
monthly rentals thereof to other appellee Mrs.
Noguera (pp. 14-15, tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any

salary from appellee Tourist World Service, Inc.,
which had its own, separate office located at the
Trade & Commerce Building; nor was she an
employee thereof, having no participation in nor
connection with said business at the Trade &
Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for
her own passengers, her own bookings her own
business (and not for any of the business of
appellee Tourist World Service, Inc.) obtained
from the airline companies. She shared the 7%
commissions given by the airline companies
giving appellee Tourist World Service, Lic. 3%
thereof aid retaining 4% for herself (pp. 18
tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the
expenses of maintaining the A. Mabini St. office,
paying for the salary of an office secretary, Miss
Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some
of fice furnishings (pp. 15,18 tsn. April 6,1965),
appellee Tourist World Service, Inc. shouldering
the rental and other expenses in consideration
for the 3% split in the co procured by appellant
Mrs. Sevilla (p. 35 tsn Feb. 16,1965).
6. It was the understanding between them that
appellant Mrs. Sevilla would be given the title of
branch manager for appearance's sake only (p.
31 tsn. Id.), appellee Eliseo Canilao admit that it
was just a title for dignity (p. 36 tsn. June 18,
1965- testimony of appellee Eliseo Canilao pp.
38-39 tsn April 61965-testimony of corporate
secretary Gabino Canilao (pp- 2-5, Appellants'
Reply Brief)
Upon the other hand, appellee TWS contend that the appellant
was an employee of the appellee Tourist World Service, Inc. and as
such was designated manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on the premise that the private
respondent, Tourist World Service, Inc., being the true lessee, it was within its
prerogative to terminate the lease and padlock the premises. 3 It likewise found the

petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and
as such, she was bound by the acts of her employer. 4 The respondent Court of
Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court,
erred. Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST
WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT
LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER
EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA),
WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH
THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE
PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE
THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD
SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX
"A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES
TO THE RULE OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED
TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS
LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

padlocking of the premises by the Tourist World Service, Inc. without the knowledge
and consent of the appellant Lina Sevilla entitled the latter to the relief of damages
prayed for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and without the
consent of the appellant disconnected the telephone lines of the Ermita branch
office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists,
on the other hand, that Lina SEVILLA was a mere employee, being "branch
manager" of its Ermita "branch" office and that inferentially, she had no say on the
lease executed with the private respondent, Segundina Noguera. The petitioners
contend, however, that relation between the between parties was one of joint
venture, but concede that "whatever might have been the true relationship between
Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service
and Canilao from taking the law into their own hands, 8 in reference to the
padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent,
Tourist World Service, Inc., maintains, that the relation between the parties was in
the character of employer and employee, the courts would have been without
jurisdiction to try the case, labor disputes being the exclusive domain of the Court of
Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then
in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an
employer-employee relation. In general, we have relied on the so-called right of
control test, "where the person for whom the services are performed reserves a right
to control not only the end to be achieved but also the means to be used in reaching
such end." 10 Subsequently, however, we have considered, in addition to the
standard of right-of control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship. 11

III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT
SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL
CODE ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING
HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC.
OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE
TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation
between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit
to rule on the question, the crucial issue, in its opinion being "whether or not the

The records will show that the petitioner, Lina Sevilla, was not subject to control by
the private respondent Tourist World Service, Inc., either as to the result of the
enterprise or as to the means used in connection therewith. In the first place, under
the contract of lease covering the Tourist Worlds Ermita office, she had bound herself
insolidum as and for rental payments, an arrangement that would be like claims of a
master-servant relationship. True the respondent Court would later minimize her
participation in the lease as one of mere guaranty, 12 that does not make her an
employee of Tourist World, since in any case, a true employee cannot be made to
part with his own money in pursuance of his employer's business, or otherwise,
assume any liability thereof. In that event, the parties must be bound by some other
relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office
was opened, the same was run by the herein appellant Lina O. Sevilla payable to
Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs.
Lina Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under
the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing
the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts,
she retained 4% in commissions from airline bookings, the remaining 3% going to
Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned
compensation in fluctuating amounts depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her,
ergo, Tourist World's employee. As we said, employment is determined by the rightof-control test and certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a
consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on
a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not
recognize the existence of such a relation. In her letter of November 28, 1961, she
expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of
your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the
manner in which the business was run. A joint venture, including a partnership,
presupposes generally a of standing between the joint co-venturers or partners, in
which each party has an equal proprietary interest in the capital or property
contributed 15 and where each party exercises equal rights in the conduct of the
business. 16 furthermore, the parties did not hold themselves out as partners, and
the building itself was embellished with the electric sign "Tourist World Service,
Inc. 17in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to
(wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must
have done so pursuant to a contract of agency. It is the essence of this contract that
the agent renders services "in representation or on behalf of another. 18 In the case
at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal,
Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the
concept of commissions. And as we said, Sevilla herself based on her letter of
November 28, 1961, pre-assumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and from the
respondent Court's recital of facts, that the ties had contemplated a principal agent
relationship, rather than a joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare
to be compatible with the intent of the parties, cannot be revoked at will. The reason
is that it is one coupled with an interest, the agency having been created for mutual
interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona
fidetravel agent herself, and as such, she had acquired an interest in the business
entrusted to her. Moreover, she had assumed a personal obligation for the operation
thereof, holding herself solidarily liable for the payment of rentals. She continued
the business, using her own name, after Tourist World had stopped further
operations. Her interest, obviously, is not to the commissions she earned as a result
of her business transactions, but one that extends to the very subject matter of the
power of management delegated to her. It is an agency that, as we said, cannot be
revoked at the pleasure of the principal. Accordingly, the revocation complained of
should entitle the petitioner, Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the
telephone disconnection and padlocking incidents. Anent the disconnection issue, it
is the holding of the Court of Appeals that there is 'no evidence showing that the
Tourist World Service, Inc. disconnected the telephone lines at the branch
office. 20Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not
take pains to have them reconnected. Assuming, therefore, that it had no hand in
the disconnection now complained of, it had clearly condoned it, and as owner of the
telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the
padlocking incident. For the fact that Tourist World Service, Inc. was the lessee
named in the lease con-tract did not accord it any authority to terminate that
contract without notice to its actual occupant, and to padlock the premises in such
fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal
stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly
named therein as a third party in charge of rental payments (solidarily with Tourist
World, Inc.). She could not be ousted from possession as summarily as one would
eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some
malevolent design to put the petitioner, Lina Sevilla, in a bad light following
disclosures that she had worked for a rival firm. To be sure, the respondent court
speaks of alleged business losses to justify the closure '21 but there is no clear
showing that Tourist World Ermita Branch had in fact sustained such reverses, let
alone, the fact that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information (that Sevilla was
working for another company), Tourist World's board of directors adopted two
resolutions abolishing the office of 'manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office
properties. On January 3, 1962, the private respondents ended the lease over the
branch office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office
was padlocked, personally by the respondent Canilao, on the pretext that it was
necessary to Protect the interests of the Tourist World Service. " 22 It is strange
indeed that Tourist World Service, Inc. did not find such a need when it cancelled the
lease five months earlier. While Tourist World Service, Inc. would not pretend that it
sought to locate Sevilla to inform her of the closure, but surely, it was aware that
after office hours, she could not have been anywhere near the premises. Capping
these series of "offensives," it cut the office's telephone lines, paralyzing completely
its business operations, and in the process, depriving Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to
punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any
event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the
private respondent, Tourist World Service, Inc., should be sentenced to pay
damages. Under the Civil Code, moral damages may be awarded for "breaches of
contract where the defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the
moral injury done to Lina Sevilla from its brazen conduct subsequent to the
cancellation of the power of attorney granted to her on the authority of Article 21 of
the Civil Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage. 24
ART. 2219. Moral damages 25 may be recovered in the following
and analogous cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32,
34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to
respond for the same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no
evidence has been shown that she had connived with Tourist World Service, Inc. in
the disconnection and padlocking incidents. She cannot therefore be held liable as a
cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24
P10,000.00 as exemplary damages,25 and P5,000.00 as nominal 26 and/or
temperate 27 damages, to be just, fair, and reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the
Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby
REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and
Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina
Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as
and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or
temperate damages.
Costs against said private respondents.
SO ORDERED.

Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

The question thus raised is, therefore, purely one of law and reduces itself to
determining the real legal nature of the participation which the appellants had in LoChim-Lim's lumber yard, and consequently their liability toward the plaintiff, in
connection with the transaction which gave rise to the present suit.

EN BANC
G.R. No. L-2880 December 4, 1906
FRANK S. BOURNS, plaintiff-appellee,
vs.
D. M. CARMAN, ET AL., defendants-appellants.
MAPA, J.:
The plaintiff in this action seeks to recover the sum of $437.50, United Stated
currency, balance due on a contract for the sawing of lumber for the lumber yard of
Lo-Chim-Lim. the contract relating to the said work was entered into by the said LoChim-Lim, acting as in his own name with the plaintiff, and it appears that the said
Lo-Chim-Lim personally agreed to pay for the work himself. The plaintiff, however,
has brought this action against Lo-Chim-Lim and his codefendants jointly, alleging
that, at the time the contract was made, they were the joint proprietors and
operators of the said lumber yard engaged in the purchase and sale of lumber under
the name and style of Lo-Chim-Lim. Apparently the plaintiff tries to show by the
words above italicized that the other defendants were the partners of Lo-Chim-Lim in
the said lumber-yard business.lawphil.net
The court below dismissed the action as to the defendants D. M. Carman and
Fulgencio Tan-Tongco on the ground that they were not the partners of Lo-Chim-Lim,
and rendered judgment against the other defendants for the amount claimed in the
complaint with the costs of proceedings. Vicente Palanca and Go-Tauco only
excepted to the said judgment, moved for a new trial, and have brought the case to
this court by bill of exceptions.

It seems that the alleged partnership between Lo-Chim-Lim and the appellants was
formed by verbal agreement only. At least there is no evidence tending to show that
the said agreement was reduced to writing, or that it was ever recorded in a public
instrument.
Moreover, that partnership had no corporate name. The plaintiff himself alleges in
his complaint that the partnership was engaged in business under the name and
style of Lo-Chim-Lim only, which according to the evidence was the name of one of
the defendants. On the other hand, and this is very important, it does not appear
that there was any mutual agreement, between the parties, and if there were any, it
has not been shown what the agreement was. As far as the evidence shows it seems
that the business was conducted by Lo-Chim-Lim in his own name, although he gave
to the appellants a share was has been shown with certainty. The contracts made
with the plaintiff were made by Lo-Chim-Lim individually in his own name, and there
is no evidence that the partnership over contracted in any other form. Under such
circumstances we find nothing upon which to consider this partnership other than as
a partnership of cuentas en participacion. It may be that, as a matter of fact, it is
something different, but a simple business and scant evidence introduced by the
partnership We see nothing, according to the evidence, but a simple business
conducted by Lo-Chim-Lim exclusively, in his own name, the names of other persons
interested in the profits and losses of the business nowhere appearing. A partnership
constituted in such a manner, the existence of which was only known to those who
had an interest in the same, being no mutual agreements between the partners and
without a corporate name indicating to the public in some way that there were other
people besides the one who ostensibly managed and conducted the business, is
exactly the accidental partnership of cuentas en participacion defined in article 239
of the Code of Commerce.

The evidence of record shows, according to the judgment of the court, "That LoChim-Lim had a certain lumber yard in Calle Lemery of the city of Manila, and that
he was the manager of the same, having ordered the plaintiff to do some work for
him at his sawmill in the city of Manila; and that Vicente Palanca was his partner,
and had an interest in the said business as well as in the profits and losses thereof . .
.," and that Go-Tuaco received part of the earnings of the lumber yard in the
management of which he was interested.

Those who contract with the person under whose name the business of such
partnership of cuentas en participacion is conducted, shall have only a right of
action against such person and not against the other persons interested, and the
latter, on the other hand, shall have no right of action against the third person who
contracted with the manager unless such manager formally transfers his right to
them. (Art 242 of the code Of Commerce.) It follows, therefore that the plaintiff has
no right to demand from the appellants the payment of the amount claimed in the
complaint, as Lo-Chim-Lim was the only one who contracted with him. the action of
the plaintiff lacks, therefore, a legal foundation and should be accordingly dismissed.

The court below accordingly found that "Lo-Chim-Lim, Vicente Palanca, Go-Tuaco had
a lumber yard in Calle Lemmery of the city of Manila in the year 1904, and
participated in the profits and losses of business and that Lo-Chim-Lim was
managing partner of the said lumber yard." In other words, coparticipants with the
said Lo-Chim-Lim in the business in question.

The judgment appealed from this hereby reversed and the appellants are absolved
of the complaint without express provisions as to the costs of both instances. After
the expiration of twenty days let judgment be entered in accordance herewith, and
ten days thereafter the cause be remanded to the court below for execution. So
ordered.

Although the evidence upon this point as stated by the by the however, that is
plainly and manifestly in conflict with the above finding of that court. Such finding
should therefore be sustained. lawphil.net

Arellano, C.J., Torres, Johnson, Carson, Willard and Tracey, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-6252

January 28, 1911

GEORGE O. DIETRICH, plaintiff-appellee,

vs.
O.K. FREEMAN, JAMES L. PIERCE, and BURTON WHITCOMB, defendants.
BURTON WHITCOMB, appellant.
TRENT, J.:
This action was brought against O.K. Freeman, James L. Pierce, and Burton
Whitcomb, as owners and operators of the Manila Steam Laundry, to recover the
sum of P952 alleged to be the balance due the plaintiff for services performed
during the period from January 9, 1907, to December 31, 1908. Judgment was
rendered in favor of the plaintiff and against Freeman and Whitcomb, jointly and
severally, for the sum of P752, with interest at the rate of 6 per cent per annum from
the 27th day of August, 1909, and the costs of the cause. The complaint as to Pierce
was dismissed, Whitcomb alone appealing.
When the plaintiff was first employed on the 9th of January, 1907, this steam
laundry was owned and operated by Freeman and Pierce. Pierce, on the 18th of
January, 1907, sold all of his right, title, and interest in the said laundry to
Whitcomb, who, together with Freeman, then became the owners of this laundry and
continued to operate the same as long as the plaintiff was employed.
The trial court found that the balance due the plaintiff for services performed
amounted to the sum of P752. This finding is fully supported by the evidence of
record.
Counsel for the appellant Whitcomb now insists
1. That the court erred in giving, jointly and severally, a judgment against Freeman
and Whitcomb for any sum whatever; and
2. That the court erred in holding the appellant Whitcomb liable.
It appears from the record that Whitcomb never knew the plaintiff, never had
anything to do with personally, and that the plaintiff's contract was with Freeman,
the managing partner of the laundry. It further appears from the record that Pierce,
after he sold his interest in this laundry to Whitcomb, continued to look after
Whitcomb's interest by authority of the latter.

Articles 17 and 119 of the Code of Commerce provide:

Art. 17. The record in the commercial registry shall be optional for private
merchants and compulsory for associations established in accordance with
this code or with special laws, and for vessels.
Art. 119 Every commercial association before beginning business shall be
obliged to record its establishment, agreements, and conditions in a public
instrument, which shall be presented for record in the commercial registry,
in accordance with the provisions of article 17.
Additional instrument which modify or alter in any manner whatsoever the
original contracts of the association are subject to the same formalities, in
accordance with the provisions of article 25.
Partners can not make private agreements, but all must appear in the
articles of copartnership.
In the organization of this partnership by Freeman and Whitcomb the above
provisions of law were not complied with; that is, no formal partnership was ever
entered into by them, notwithstanding the fact that they were engaged in the
operation of this laundry.
The purpose for which this partnership was entered into by Freeman and Whitcomb
show clearly that such partnership was not a commercial one; hence the provisions
of the Civil Code and not the Code of Commerce must govern in determining the
liability of the partners. (Manresa, vol. 1, p. 184; Aramburo, Civil Capacity, 407, 432;
Prautch vs. Hernandez, 1 Phil. Rep., 705; and Co Pitco vs. Yulo, 8 Phil. Rep., 544.)
In support of the second assignment of error our attention has been called to the
cases of Hung-Man-Yoc vs. Kieng-Chiong-Seng (6 Phil. Rep., 498); Ang Quian Cieg vs.
Te Chico (12 Phil. Rep., 533); Bourns vs. Carman (7 Phil. Rep., 117). In the first of
these cases the partnership was a mercantile one, as it was engaged in the
importation of goods for sale at a profit. This was also true in the second case. In
neither of these cases were the provisions of articles 17 and 119 of the Code of
Commerce complied with. Those partnerships, although commercial, were not
organized in accordance with the provisions of the Code of Commerce as expressed
in those articles. In determining the liability of the partners in these cases the court,
after making the finding of facts, was governed by the provisions of article 120 of
the Commercial Code. In the last case cited the partnership was one of cuentas en
participacion. "A partnership," quoting from the syllabus in this case, "constituted in
such a manner that its existence was only known to those who had an interest in the
same, there being no mutual agreement between the partners, and without a
corporate name indicating to the public in some way that there were other people
besides the one who ostensibly managed and conducted the business, is exactly the
accidental partnership of cuentas en participacion defined in article 239 of the Code
of Commerce."

In a partnership of cuentas en participacion, under the provisions of article 242 of

the Code of Commerce, those who contract with the person in whose name the
business of such a partnership was conducted shall have only the right of action
against such person and not against other persons interested. So this case is easily
distinguished from the case at bar, in that the one did not have the corporate name
while the other was known as the Manila Steam Laundry.
The plaintiff was employed by and performed services for the Manila Steam Laundry
and was not employed by nor did he perform services for Freeman alone. The public
did not deal with Freeman and Whitcomb personally, but with the Manila Steam
Laundry. These two partners were doing business under this name and, as we have
said, it was not a commercial partnership. Therefore, by the express provisions of
articles 1698 and 1137 of the Civil Code the partners are not liable individually for
the entire amount due the plaintiff. The liability is pro rata and in this case the
appellant is responsible to the plaintiff for only one-half of the debt.
For these reasons the judgment of the court below is reversed and judgment entered
in favor of the plaintiff and against the defendant Whitcomb for the sum of P376,
with interest as fixed by the court below. No costs will be allowed either party in this
court.
A motion was filed on the 22nd of August, 1910, by O'Brien and De Witt, asking this
court to strike from the record certain allegations in the printed brief of counsel for
the appellee. These allegations are as follows: "Does the receipt bear the earmarks
of newly discovered evidence? Or of newly manufactured evidence?" These
questions were directed against O'Brien, one of the counsel for appellant in this
case, and were intended to have the court believe that O'Brien had manufactured
the receipt referred to. There is nothing in this record which shows that O'Brien did
falsify or manufacture the receipt. These questions are clearly impertinent. It is our
duty to keep our records clean and free from such unwarranted statements. It is,
therefore, ordered that the same be stricken from the record. So ordered.
Arellano, C. J., Mapa, Carson and Moreland, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9965

August 29, 1960

LUCINA BIGLANGAWA and LUCIA ESPIRITU, petitioners-appellees,

vs.
PASTOR B. CONSTANTINO, respondent-appellant.
BARRERA, J.:
The only issue, which is of law, involved in this appeal, is the legality of the
annotation of lis pendens predicated on the complaint of respondent-appellant
Pastor B. Constantino.
On June 25, 1953, respondent Pastor B. Constantino filed with the Court of First
Instance of Rizal an amended complaint (docketed as Civil Case No. 2138) against
petitioners Lucina Biglangawa and Lucia Espiritu, as follows:
AMENDED COMPLAINT
Plaintiff, by his undersigned counsel, alleges:
As First Cause of Action
1. Plaintiff and defendants are residents of Malabon, Rizal.
2. Defendants Lucina Biglangawa and Lucia Espiritu were or have been the
owners of a parcel of land in Marulas, Polo, Bulacan, more particularly
described in "Transfer Certificate of Title No. 5459 as follows: . . . .
3. On January 14, 1950, defendant Lucina Biglangawa, with the consent of
her co-owner Lucia Espiritu, appointed plaintiff their exclusive agent to
develop the area described in paragraph 2 into subdivision lots and to sell
them to prospective homeowners; and as compensation for his services,
defendants promised to pay him a commission of 20% on the gross sales
and a fee of 10% on the collections made by him payable from "the first
collections received from the purchasers in respect to each lot sold . . . .
4. The power thus conferred by Lucina Biglangawa to plaintiff was
confirmed in a notarial document executed on March 3, 1950 by her and
her co-defendants, who are husband and wife, with the added stipulation

that they could not revoke the contract of agency without plaintiff's
consent. . . .
5. Advancing all the expenses incurred in the development and
administration of the project, plaintiff caused the subdivision of said
property into 203 lots and advertised them for sale under the name "BBB
MARULAS SUBDIVISION No. 3'; and up to October, 1951 plaintiff had
disposed of more than half of the entire area at P10.00 and P12.00 per
square meter.
6. Although under the express terms of the contract of January 14, 1950
(Exhibit "A") the commissions of plaintiff for making 37 3 those sales and
his collection fees of 10% were to be paid to him "from the first collections
received from the purchasers in respect to each lot sold", defendants, in
contravention of that agreement, oppressively and in bad faith adopted the
practice of paying the latter's compensation out of 30% only of the gross
monthly collections from the sales, such that, as of October 15, 1951 when
a liquidation was made, there was still a balance on plaintiff's commissions
in the amount of P48,899.20.
7. Later, in October, 1951, defendants wantonly, oppressively, and in
evident bad faith terminated the agency contracts Exhibits "A" and "B"
depriving plaintiff of his rights to commission fees of 20% on the sale of the
remaining lots and 10% fee on the cash receipts of the business every
month.
8. Defendants nevertheless, expressly acknowledge their liability to plaintiff
in the sum of P48,899.20 for unpaid commissions as of October 16, 1951;
and they promised to pay indebtedness to plaintiff in successive monthly
installments beginning November, 1951, as follows: . . . .
9. Plaintiff consented to the settlement of the balance of his commission in
monthly installments after the termination of the agency in consideration of
defendant's promises that they would compute and faithfully pay the
percentage of monthly installments on the basis of their monthly gross
collections from the operation of "BBB MARULAS SUBDIVISION No. 3", as
stipulated in Exhibit "C", and shall follow that procedure until their total
indebtedness is fully settled.
10. From October 16, 1951 to March 31, 1953, defendants made a total
monthly gross collection of around P52,849.63 from the business, and out
of these receipts plaintiff was entitled to minimum payments of P8,711.13
pursuant to Exhibit "C"; but again defendant wantonly, fraudulently,
oppressively, and in evident bad faith paid plaintiff only the sum of
P6,204.13 or P2,507.00 short of what plaintiff should have received during
the period.

11. Upon gaining information of the breach of the contract by defendants

about the end of March, 1953 and verifying the existence of such breach,
plaintiff immediately demanded of defendants the difference between the
amounts due to him under the contract Exhibit "C" and those actually paid
by them, but defendants wantonly, fraudulently, and without cause refused
to make necessary settlement.
xxx

xxx

xxx

13. The balance of plaintiff's commissions remaining unpaid as of the filing

of this complaint, excluding the underpayments from November, 1951 to
March, 1953, is P39,534.62.
As to Second Cause of Action
1. Plaintiff reproduces paragraphs 1 to 13 of the first cause 3n 3 of action.
2. For defendants' gross and evident bad faith in refusing plaintiff's valid,
just, and demandable claim against them, plaintiff was forced to prosecute
the present case against them, and became liable for attorney's fees in the
sum of P7,000.00.

Please make of record the pendency of a complaint involving, among other

things, rights and interests and claims for services and damages on the
following described property, which has been converted into a subdivision
as shown by the plan Psd-29964, situated in Marulas, Polo, Bulacan, to wit:
(Technical description of the real property mentioned in the complaint)
which property is more particularly described in Transfer Certificate of Title
No. 5459 of the Register of Deeds of Bulacan. A copy of the complaint and
amended complaint, marked Appendices A and A-1, are attached hereto
and made integral part hereof.
On April 6, 1955, the Register of Deeds of Bulacan requested petitioners to
surrender their owner's copy of Transfer Certificate of Title No. 5459 for annotation
of said notice of lis pendens, but petitioners refused to do so. However, on May 17,
1955, when petitioners registered the absolute deed of sale in favor of Carmelita L.
Santos covering some of the lots of the subdivision, said official without their
knowledge and consent, made the annotation of the lis pendens on petitioners'
aforementioned title, as well as on the title issued to Carmelita L. Santos.
Petitioners, therefore, on June 11, 1955, filed with the Court of First Instance of
Bulacan, a petition praying for the cancellation of said notice of lis pendens. To this
petition, respondent filed his answer on June 17, 1955, to which, petitioners filed
their reply on June 23, 1955. On June 24, 1955, respondent filed a rejoinder to said
reply.

WHEREFORE, plaintiff prays for judgment

Acting on said petition, the court issued an order on July 19, 1955, which reads:
(a) Ordering defendants to pay plaintiff the sum of P2,507.00 which is
defendants' underpayments from November, 1951 to March, 1953, with
interest at the legal rate;
(b) Declaring defendants to have lost the right to pay plaintiff in monthly
installments and requiring them to pay plaintiff at once the balance of his
commissions and fees in the amount of P89,543.62, with interest at the
legal rate from the filing of this complaint;
(c) Ordering defendants to pay plaintiff moral damages in the sum of
P40,000.00, exemplary damages in the sum of P30,000.00, and attorney's
fees in the sum of P7,000.00.
(d) Granting costs and such other reliefs as this court may deem just and
equitable in the premises.
To this complaint, petitioners filed their answer on August 25, 1953.
While said Civil Case No. 2138 was pending in said court, respondent, on April 5,
1955, filed with the Office of the Register of deeds of Bulacan, the following notice
of lis pendens:

"ORDER
Upon consideration of the petition filed by Lucina Biglangawa and Lucia
Espiritu dated June 11, 1955 and the answer thereto, and it appearing from
the amended complaint of Pastor B. Constantino, plaintiff in Civil Case No.
2138 of the Court of First Instance of Rizal (respondent herein) that said
action is purely and clearly a claim for money judgment which does not
affect the title or the right of possession of real property covered by
Transfer Certificate of Title No. T-5459 and it being a settled rule in this
jurisdiction that a notice of lis pendens may be invoked as a remedy in
cases where the very lis mota of the pending litigation concerns directly the
possession of, or title to a specific real property;
Wherefore, as prayed for, the Register of Deeds of Bulacan is hereby
ordered to cancel Entry No. 28176 for lis pendens on Transfer Certificate of
Title No. T-5459 of the petitioners as well as the annotation of the same on
Transfer Certificate of Title No. T-014480 of Carmelita L. Santos.
So ordered.

Respondent, on August 8, 1955, filed a motion for reconsideration of the above

order, but the same was denied by the court on September 30, 1955. Hence, this
appeal.
Respondent-appellant claims that the lower court erred in holding that his pending
action (Civil Case No. 2138) in the Court of First Instance of Rizal, is purely a claim
for money judgment which does not affect the title or right of possession of
petitioners' real property, covered by Transfer Certificate of Title No. T-5459. Instead,
he contends that the agreement whereby he was to be paid a commission of 20% on
the gross sales and a fee of 10% on the collections made by him, converted him into
a partner and gave him 1/5 participation in the property itself. Hence, he argues, his
suit is one for the settlement and adjustment of partnership interest or a partition
action or proceeding.
Appellant's theory is neither supported by the allegations of his complaint, nor borne
out by the purpose of his action. There is no word or expression in the various
paragraphs of his amended complaint that suggests any idea of partnership. On the
contrary, appellant expressly averred that petitioners "appointed plaintiff (appellant)
their exclusive agent to develop the area described in paragraph 2 into subdivision
lots and to sell them to prospective homeowners; and as compensation for his
services defendants (appellees) promised to pay him acommission of 20% on the
gross sales and a fee of 10% on the collections made by him. . . ." (See paragraph 3
of amended complaint.) Categorically, appellant referred to himself as an agent, not
a partner; entitled to compensation, not participation, in the form of commission or
fee, not a share.
It is true that in paragraph 5 of the amended complaint (supra) appellant claims to
have made advances for the expenses incurred in the development and
administration of the property. But again he never considered these
ascontributions to the business as to make him a partner; otherwise, he would have
so stated it in his complaint. In fact, after a liquidation of these advances and the
commissions due to appellant at the time of the termination of the agency, the
whole balance was considered as appellees' indebtedness which appellant
consented to be settled in monthly installments (see paragraphs 6, 8, and 9 of the
amended complaint).
While it is true again that the prayer in a complaint does not determine the nature of
the action, it not being a material part of the cause of action, still it logically
indicates, as it does in this case, the purpose of the actor. The four paragraphs of
the prayer seeks the recovery of fixed amounts of underpayments and commissions
and fees; not liquidation or accounting or partition as now insisted upon by
appellant.
Appellants's amended complaint, not being "an action affecting the title or the right
of possession of real property",1 nor one "to recover possession of real estate, or to
quiet title thereto, or to remove clouds upon the title thereof, or for partition or other
proceeding of any kind in court affecting the title to real estate or the use or

occupation thereof or the buildings thereon . . .", 2 the same can not be the basis for
annotating a notice of lis pendens on the title of the petitioners-appellees.
Having reached the above conclusion, this Court finds it unnecessary to decide the
incidental matters raised by the parties during the pendency of this appeal.
Wherefore, finding no error in the appealed order of the court a quo, the same is
hereby affirmed, with costs against the respondent-appellant. So ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L. and Gutierrez
David, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

amount of P50,000.00, more or less. This amount was not divided

among them but was used in the rehabilitation of properties
owned by them in common (t.s.n., p. 46). Of the ten parcels of
land aforementioned, two were acquired after the death of the
decedent with money borrowed from the Philippine Trust Company
in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR
rec.).

EN BANC
G.R. No. L-19342 May 25, 1972

The project of partition also shows that the estate shares equally
with Lorenzo T. Oa, the administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by the latter with the
approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).

LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA,

MARIANO B. OA, LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA,
JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Although the project of partition was approved by the Court on

May 16, 1949, no attempt was made to divide the properties
therein listed. Instead, the properties remained under the
management of Lorenzo T. Oa who used said properties in
business by leasing or selling them and investing the income
derived therefrom and the proceeds from the sales thereof in real
properties and securities. As a result, petitioners' properties and
investments gradually increased from P105,450.00 in 1949 to
P480,005.20 in 1956 as can be gleaned from the following yearend balances:

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

Y
e
a
r

Invest
ment

Lan
d

Buil
ding

Accou
nt

Acc
oun
t

Acc
oun
t

P87,860.00

P17,590.00

P24,657.65

128,566.72

96,076.26

51,301.31

120,349.28

110,605.11

52

53

Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for
Respondent, June 12, 1961).
67,927.52

87,065.28

152,674.39
The original assessment was as follows:
1955

61,258.27

84,925.68

161,463.83
Net income as per investigation ................ P40,209.89

54

63,623.37

99,001.20

167,962.04

55

100,786.00

120,249.78

169,262.52

56

Income tax due thereon ............................... 8,042.00

25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956
Net income as per investigation ................ P69,245.23

175,028.68

135,714.68

169,262.52

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
From said investments and properties petitioners derived such
incomes as profits from installment sales of subdivided lots, profits
from sales of stocks, dividends, rentals and interests (see p. 3 of
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are
recorded in the books of account kept by Lorenzo T. Oa where the
corresponding shares of the petitioners in the net income for the
year are also known. Every year, petitioners returned for income
tax purposes their shares in the net income derived from said
properties and securities and/or from transactions involving them
(Exhibit 3, supra; t.s.n., pp. 25-26). However, petitioners did not
actually receive their shares in the yearly income. (t.s.n., pp. 2526, 40, 98, 100). The income was always left in the hands of
Lorenzo T. Oa who, as heretofore pointed out, invested them in
real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102104).
On the basis of the foregoing facts, respondent (Commissioner of
Internal Revenue) decided that petitioners formed an unregistered
partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax
Code. Accordingly, he assessed against the petitioners the
amounts of P8,092.00 and P13,899.00 as corporate income taxes
for 1955 and 1956, respectively. (See Exhibit 5, amended by
Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested against
the assessment and asked for reconsideration of the ruling of
respondent that they have formed an unregistered partnership.
Finding no merit in petitioners' request, respondent denied it (See

Income tax due thereon ............................... 13,849.00

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

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT

PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES FOR
1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;

petitioners' position that they are co-owners and not unregistered co-partners, for
the purposes of the impugned assessment, cannot be upheld. Truth to tell,
petitioners should find comfort in the fact that they were not similarly assessed
earlier by the Bureau of Internal Revenue.

IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN
UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED
IN NOT HOLDING THAT THE PETITIONERS WERE AN
UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY
INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN
COMMON AND THE LOANS RECEIVED USING THE INHERITED
PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS
INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON,
FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1) Under
the facts found by the Court of Tax Appeals, should petitioners be considered as coowners of the properties inherited by them from the deceased Julia Buales and the
profits derived from transactions involving the same, or, must they be deemed to
have formed an unregistered partnership subject to tax under Sections 24 and 84(b)
of the National Internal Revenue Code? (2) Assuming they have formed an
unregistered partnership, should this not be only in the sense that they invested as
a common fund the profits earned by the properties owned by them in common and
the loans granted to them upon the security of the said properties, with the result
that as far as their respective shares in the inheritance are concerned, the total
income thereof should be considered as that of co-owners and not of the
unregistered partnership? And (3) assuming again that they are taxable as an
unregistered partnership, should not the various amounts already paid by them for
the same years 1955 and 1956 as individual income taxes on their respective shares
of the profits accruing from the properties they owned in common be deducted from
the deficiency corporate taxes, herein involved, assessed against such unregistered
partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is that
whereas petitioners' predecessor in interest died way back on March 23, 1944 and
the project of partition of her estate was judicially approved as early as May 16,
1949, and presumably petitioners have been holding their respective shares in their
inheritance since those dates admittedly under the administration or management
of the head of the family, the widower and father Lorenzo T. Oa, the assessment in
question refers to the later years 1955 and 1956. We believe this point to be
important because, apparently, at the start, or in the years 1944 to 1954, the
respondent Commissioner of Internal Revenue did treat petitioners as co-owners, not
liable to corporate tax, and it was only from 1955 that he considered them as having
formed an unregistered partnership. At least, there is nothing in the record
indicating that an earlier assessment had already been made. Such being the case,
and We see no reason how it could be otherwise, it is easily understandable why

The Tax Court found that instead of actually distributing the estate of the deceased
among themselves pursuant to the project of partition approved in 1949, "the
properties remained under the management of Lorenzo T. Oa who used said
properties in business by leasing or selling them and investing the income derived
therefrom and the proceed from the sales thereof in real properties and securities,"
as a result of which said properties and investments steadily increased yearly from
P87,860.00 in "land account" and P17,590.00 in "building account" in 1949 to
P175,028.68 in "investment account," P135.714.68 in "land account" and
P169,262.52 in "building account" in 1956. And all these became possible because,
admittedly, petitioners never actually received any share of the income or profits
from Lorenzo T. Oa and instead, they allowed him to continue using said shares as
part of the common fund for their ventures, even as they paid the corresponding
income taxes on the basis of their respective shares of the profits of their common
business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention,
merely limit themselves to holding the properties inherited by them. Indeed, it is
admitted that during the material years herein involved, some of the said properties
were sold at considerable profit, and that with said profit, petitioners engaged, thru
Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise
admitted that all the profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in the inheritance. In
these circumstances, it is Our considered view that from the moment petitioners
allowed not only the incomes from their respective shares of the inheritance but
even the inherited properties themselves to be used by Lorenzo T. Oa as a common
fund in undertaking several transactions or in business, with the intention of deriving
profit to be shared by them proportionally, such act was tantamonut to actually
contributing such incomes to a common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the above-mentioned provisions of
the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs
can be considered as co-owners rather than unregistered co-partners within the
contemplation of our corporate tax laws aforementioned. Before the partition and
distribution of the estate of the deceased, all the income thereof does belong
commonly to all the heirs, obviously, without them becoming thereby unregistered
co-partners, but it does not necessarily follow that such status as co-owners
continues until the inheritance is actually and physically distributed among the
heirs, for it is easily conceivable that after knowing their respective shares in the
partition, they might decide to continue holding said shares under the common
management of the administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be allowed, it would be the
easiest thing for heirs in any inheritance to circumvent and render meaningless
Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the
reasons for holding the appellants therein to be unregistered co-partners for tax
purposes, that their common fund "was not something they found already in
existence" and that "it was not a property inherited by them pro indiviso," but it is
certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in

all instances where an inheritance is not actually divided, there can be no

unregistered co-partnership. As already indicated, for tax purposes, the coownership of inherited properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as determined in a project
partition either duly executed in an extrajudicial settlement or approved by the court
in the corresponding testate or intestate proceeding. The reason for this is simple.
From the moment of such partition, the heirs are entitled already to their respective
definite shares of the estate and the incomes thereof, for each of them to manage
and dispose of as exclusively his own without the intervention of the other heirs,
and, accordingly he becomes liable individually for all taxes in connection therewith.
If after such partition, he allows his share to be held in common with his co-heirs
under a single management to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even if no document or
instrument were executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed. This is exactly what happened to petitioners in
this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil
Code, providing that: "The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right
or interest in any property from which the returns are derived," and, for that matter,
on any other provision of said code on partnerships is unavailing.
In Evangelista, supra, this Court clearly differentiated the concept of partnerships
under the Civil Code from that of unregistered partnerships which are considered as
"corporations" under Sections 24 and 84(b) of the National Internal Revenue Code.
Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus:
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and different
from "partnerships". When our Internal Revenue Code includes
"partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of
the term. Thus, for instance, section 24 of said Code exempts from
the aforementioned tax "duly registered general partnerships,"
which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in confirmity with the
usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on
corporation. Again, pursuant to said section 84(b),the term
"corporation" includes, among others, "joint accounts,(cuentas en
participacion)" and "associations", none of which has a legal
personality of its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded that
personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly
registered general co-partnerships" which are possessed of the
aforementioned personality have been expressly excluded by
law (sections 24 and 84[b]) from the connotation of the term
"corporation." ....

xxx xxx xxx

Similarly, the American Law
... provides its own concept of a partnership.
Under the term "partnership" it includes not only
a partnership as known in common law but, as
well, a syndicate, group, pool, joint venture, or
other unincorporated organization which carries
on any business, financial operation, or venture,
and which is not, within the meaning of the
Code, a trust, estate, or a corporation. ... . (7A
Merten's Law of Federal Income Taxation, p. 789;
emphasis ours.)
The term "partnership" includes a syndicate,
group, pool, joint venture or other
unincorporated organization, through or by
means of which any business, financial
operation, or venture is carried on. ... . (8
Merten's Law of Federal Income Taxation, p. 562
Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal
Revenue Code includes these partnerships with the exception
only of duly registered general copartnerships within the
purview of the term "corporation." It is, therefore, clear to our
mind that petitioners herein constitute a partnership, insofar as
said Code is concerned, and are subject to the income tax for
corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of
Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the
Court ruled against a theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the
purposes of the corporate taxes in question, of their inherited properties from those
acquired by them subsequently, We consider as justified the following ratiocination
of the Tax Court in denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there
was an unregistered partnership, the holding should be limited to
the business engaged in apart from the properties inherited by
petitioners. In other words, the taxable income of the partnership
should be limited to the income derived from the acquisition and
sale of real properties and corporate securities and should not
include the income derived from the inherited properties. It is
admitted that the inherited properties and the income derived
therefrom were used in the business of buying and selling other
real properties and corporate securities. Accordingly, the
partnership income must include not only the income derived from
the purchase and sale of other properties but also the income of
the inherited properties.

Besides, as already observed earlier, the income derived from inherited properties
may be considered as individual income of the respective heirs only so long as the
inheritance or estate is not distributed or, at least, partitioned, but the moment their
respective known shares are used as part of the common assets of the heirs to be
used in making profits, it is but proper that the income of such shares should be
considered as the part of the taxable income of an unregistered partnership. This,
We hold, is the clear intent of the law.

subject to the bar of prescription. And since the period for the recovery of the excess
income taxes in the case of herein petitioners has already lapsed, it would not seem
right to virtually disregard prescription merely upon the ground that the reason for
the delay is precisely because the taxpayers failed to make the proper return and
payment of the corporate taxes legally due from them. In principle, it is but proper
not to allow any relaxation of the tax laws in favor of persons who are not exactly
above suspicion in their conduct vis-a-vis their tax obligation to the State.

Likewise, the third question of petitioners appears to have been adequately resolved
by the Tax Court in the aforementioned resolution denying petitioners' motion for
reconsideration of the decision of said court. Pertinently, the court ruled this wise:

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed
from is affirm with costs against petitioners.
Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur.

In support of the third ground, counsel for petitioners alleges:

Even if we were to yield to the decision of this
Honorable Court that the herein petitioners have
formed an unregistered partnership and,
therefore, have to be taxed as such, it might be
recalled that the petitioners in their individual
income tax returns reported their shares of the
profits of the unregistered partnership. We think
it only fair and equitable that the various
amounts paid by the individual petitioners as
income tax on their respective shares of the
unregistered partnership should be deducted
from the deficiency income tax found by this
Honorable Court against the unregistered
partnership. (page 7, Memorandum for the
Petitioner in Support of Their Motion for
Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable
income of the partnership must be reduced by the amounts of
income tax paid by each petitioner on his share of partnership
profits. This is not correct; rather, it should be the other way
around. The partnership profits distributable to the partners
(petitioners herein) should be reduced by the amounts of income
tax assessed against the partnership. Consequently, each of the
petitioners in his individual capacity overpaid his income tax for
the years in question, but the income tax due from the partnership
has been correctly assessed. Since the individual income tax
liabilities of petitioners are not in issue in this proceeding, it is not
proper for the Court to pass upon the same.
Petitioners insist that it was error for the Tax Court to so rule that whatever excess
they might have paid as individual income tax cannot be credited as part payment
of the taxes herein in question. It is argued that to sanction the view of the Tax Court
is to oblige petitioners to pay double income tax on the same income, and, worse,
considering the time that has lapsed since they paid their individual income taxes,
they may already be barred by prescription from recovering their overpayments in a
separate action. We do not agree. As We see it, the case of petitioners as regards
the point under discussion is simply that of a taxpayer who has paid the wrong tax,
assuming that the failure to pay the corporate taxes in question was not deliberate.
Of course, such taxpayer has the right to be reimbursed what he has erroneously
paid, but the law is very clear that the claim and action for such reimbursement are

Reyes, J.B.L. and Teehankee, JJ., concur in the result.

Castro, J., took no part.
Concepcion, C.J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-24020-21

July 29, 1968

FLORENCIO REYES and ANGEL REYES, petitioners,

vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX
APPEALS, respondents.
FERNANDO, J.:
Petitioners in this case were assessed by respondent Commissioner of Internal
Revenue the sum of P46,647.00 as income tax, surcharge and compromise for the
years 1951 to 1954, an assessment subsequently reduced to P37,528.00. This
assessment sought to be reconsidered unsuccessfully was the subject of an appeal
to respondent Court of Tax Appeals. Thereafter, another assessment was made
against petitioners, this time for back income taxes plus surcharge and compromise
in the total sum of P25,973.75, covering the years 1955 and 1956. There being a
failure on their part to have such assessments reconsidered, the matter was likewise
taken to the respondent Court of Tax Appeals. The two cases 1 involving as they did
identical issues and ultimately traceable to facts similar in character were heard
jointly with only one decision being rendered.
In that joint decision of respondent Court of Tax Appeals, the tax liability for the
years 1951 to 1954 was reduced to P37,128.00 and for the years 1955 and 1956, to
P20,619.00 as income tax due "from the partnership formed" by petitioners. 2 The
reduction was due to the elimination of surcharge, the failure to file the income tax
return being accepted as due to petitioners honest belief that no such liability was
incurred as well as the compromise penalties for such failure to file. 3 A
reconsideration of the aforesaid decision was sought and denied by respondent
Court of Tax Appeals. Hence this petition for review.
The facts as found by respondent Court of Tax Appeals, which being supported by
substantial evidence, must be respected 4 follow: "On October 31, 1950, petitioners,
father and son, purchased a lot and building, known as the Gibbs Building, situated
at 671 Dasmarias Street, Manila, for P835,000.00, of which they paid the sum of
P375,000.00, leaving a balance of P460,000.00, representing the mortgage
obligation of the vendors with the China Banking Corporation, which mortgage
obligations were assumed by the vendees. The initial payment of P375,000.00 was
shared equally by petitioners. At the time of the purchase, the building was leased
to various tenants, whose rights under the lease contracts with the original owners,
the purchasers, petitioners herein, agreed to respect. The administration of the
building was entrusted to an administrator who collected the rents; kept its books
and records and rendered statements of accounts to the owners; negotiated leases;

made necessary repairs and disbursed payments, whenever necessary, after

approval by the owners; and performed such other functions necessary for the
conservation and preservation of the building. Petitioners divided equally the income
of operation and maintenance. The gross income from rentals of the building
amounted to about P90,000.00 annually." 5
From the above facts, the respondent Court of Tax Appeals applying the appropriate
provisions of the National Internal Revenue Code, the first of which imposes an
income tax on corporations "organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (companias colectivas), ...," 6 a term, which according to the
second provision cited, includes partnerships "no matter how created or
organized, ...,"7 and applying the leading case of Evangelista v. Collector of Internal
Revenue,8 sustained the action of respondent Commissioner of Internal Revenue, but
reduced the tax liability of petitioners, as previously noted.
Petitioners maintain the view that the Evangelista ruling does not apply; for them,
the situation is dissimilar.1wph1.tConsequently they allege that the reliance by
respondent Court of Tax Appeals was unwarranted and the decision should be set
aside. If their interpretation of the authoritative doctrine therein set forth commands
assent, then clearly what respondent Court of Tax Appeals did fails to find shelter in
the law. That is the crux of the matter. A perusal of the Evangelista decision is
therefore unavoidable.
As noted in the opinion of the Court, penned by the present Chief Justice, the issue
was whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code, ..."9 After referring to another section of the National Internal
Revenue Code, which explicitly provides that the term corporation "includes
partnerships" and then to Article 1767 of the Civil Code of the Philippines, defining
what a contract of partnership is, the opinion goes on to state that "the essential
elements of a partnership are two, namely: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in the case at bar,
for, admittedly, petitioners have agreed to and did, contribute money and property
to a common fund. Hence, the issue narrows down to their intent in acting as they
did. Upon consideration of all the facts and circumstances surrounding the case, we
are fully satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves, ..." 10
In support of the above conclusion, reference was made to the following
circumstances, namely, the common fund being created purposely not something
already found in existence, the investment of the same not merely in one
transaction but in a series of transactions; the lots thus acquired not being devoted
to residential purposes or to other personal uses of petitioners in that case; such
properties having been under the management of one person with full power to
lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts
and to endorse notes and checks; the above conditions having existed for more than
10 years since the acquisition of the above properties; and no testimony having

been introduced as to the purpose "in creating the set up already adverted to, or on
the causes for its continued existence."11 The conclusion that emerged had all the
imprint of inevitability. Thus: "Although, taken singly, they might not suffice to
establish the intent necessary to constitute a partnership, the collective effect of
these circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein."12
It may be said that there could be a differentiation made between the circumstances
above detailed and those existing in the present case. It does not suffice though to
preclude the applicability of the Evangelista decision. Petitioners could harp on these
being only one transaction. They could stress that an affidavit of one of them found
in the Bureau of Internal Revenue records would indicate that their intention was to
house in the building acquired by them the respective enterprises, coupled with a
plan of effecting a division in 10 years. It is a little surprising then that while the
purchase was made on October 31, 1950 and their brief as petitioners filed on
October 20, 1965, almost 15 years later, there was no allegation that such division
as between them was in fact made. Moreover, the facts as found and as submitted
in the brief made clear that the building in question continued to be leased by other
parties with petitioners dividing "equally the income ... after deducting the expenses
of operation and maintenance ..." 13 Differences of such slight significance do not call
for a different ruling.
It is obvious that petitioners' effort to avoid the controlling force of the Evangelista
ruling cannot be deemed successful. Respondent Court of Tax Appeals acted
correctly. It yielded to the command of an authoritative decision; it recognized its
binding character. There is clearly no merit to the second error assigned by
petitioners, who would deny its applicability to their situation.
The first alleged error committed by respondent Court of Tax Appeals in holding that
petitioners, in acquiring the Gibbs Building, established a partnership subject to
income tax as a corporation under the National Internal Revenue Code is likewise
untenable. In their discussion in their brief of this alleged error, stress is laid on their
being co-owners and not partners. Such an allegation was likewise made in the
Evangelista case.
This is the way it was disposed of in the opinion of the present Chief Justice: "This
pretense was correctly rejected by the Court of Tax Appeals." 14 Then came the
explanation why: "To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and different from
"partnerships". When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense of the
term. Thus, for instance, section 24 of said Code exempts from the aforementioned
tax "duly registered general partnerships", which constitute precisely one of the
most typical forms of partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standard forms, or in conformity with
the usual requirements of the law on partnerships, in order that one could be

deemed constituted for purposes of the tax on corporations. Again, pursuant to said
section 84(b), the term "corporation" includes, among others, "joint accounts,
(cuentas en participacion)" and "associations", none of which has a legal personality
of its own, independent of that of its members. Accordingly, the lawmaker could not
have regarded that personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly registered general
copartnerships" which are possessed of the aforementioned personality - have
been expressly excluded by law (sections 24 and 84[b]) from the connotation of the
term "corporation"."15 The opinion went on to summarize the matter aptly: "For
purposes of the tax on corporations,our National Internal Revenue Code, include
these partnerships with the exception only of duly registered general 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." 16
In the light of the above, it cannot be said that the respondent Court of Tax Appeals
decided the matter incorrectly. There is no warrant for the assertion that it failed to
apply the settled law to uncontroverted facts. Its decision cannot be successfully
assailed. Moreover, an observation made in Alhambra Cigar & Cigarette
Manufacturing Co. v. Commissioner of Internal Revenue, 17 is well-worth recalling.
Thus: "Nor as a matter of principle is it advisable for this Court to set aside the
conclusion reached by an agency such as the Court of Tax Appeals which is, by the
very nature of its functions, dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an expertise on the subject, unless, as
did not happen here, there has been an abuse or improvident exercise of its
authority."
WHEREFORE, the decision of the respondent Court of Tax Appeals ordering
petitioners "to pay the sums of P37,128.00 as income tax due from the partnership
formed by herein petitioners for the years 1951 to 1954 and P20,619.00 for the
years 1955 and 1956 within thirty days from the date this decision becomes final,
plus the corresponding surcharge and interest in case of delinquency," is affirmed.
With costs against petitioners.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and
Angeles, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and
84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102
Phil. 822).

SECOND DIVISION
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS
P. OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who sold two
parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two
lots with areas of 1,124 and 963 square meters located at Greenhills, San Juan,
Rizal. The next day he transferred his rights to his four children, the petitioners, to
enable them to build their residences. The company sold the two lots to petitioners
for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens
titles issued to them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold
them to the Walled City Securities Corporation and Olga Cruz Canda for the total
sum of P313,050 (Exh. C and D). They derived from the sale a total profit of
P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain
and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period,
the Commissioner of Internal Revenue required the four petitioners to pay corporate
income tax on the total profit of P134,336 in addition to individual income tax on
their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50%
fraud surcharge and P15,547.56 as 42% accumulated interest, or a total
of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum of
P33,584 as a " taxable in full (not a mere capital gain of which is taxable) and
required them to pay deficiency income taxes aggregating P56,707.20 including the
50% fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and penalties
totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital
gains already paid by them.

The petitioners contested the assessments. Two Judges of the Tax Court sustained
the same. Judge Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a partnership
under article 1767 of the Civil Code simply because they allegedly contributed
P178,708.12 to buy the two lots, resold the same and divided the profit among
themselves.
To regard the petitioners as having formed a taxable unregistered partnership would
result in oppressive taxation and confirm the dictum that the power to tax involves
the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners
pure and simple. To consider them as partners would obliterate the distinction
between a co-ownership and a partnership. The petitioners were not engaged in any
joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they
found it not feasible to build their residences on the lots because of the high cost of
construction, then they had no choice but to resell the same to dissolve the coownership. The division of the profit was merely incidental to the dissolution of the
co-ownership which was in the nature of things a temporary state. It had to be
terminated sooner or later. Castan Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o
copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta: por
razon del origen, en que la sociedad presupone necesariamente la
convencion, mentras que la comunidad puede existir y existe
ordinariamente sin ela; y por razon del fin objecto, en que el
objeto de la sociedad es obtener lucro, mientras que el de la
indivision es solo mantener en su integridad la cosa comun y
favorecer su conservacion.
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940,
en la que se dice que si en nuestro Derecho positive se ofrecen a
veces dificultades al tratar de fijar la linea divisoria entre
comunidad de bienes y contrato de sociedad, la moderna
orientacion de la doctrina cientifica seala como nota fundamental
de diferenciacion aparte del origen de fuente de que surgen, no
siempre uniforme, la finalidad perseguida por los

interesados: lucro comun partible en la sociedad, y mera

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

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

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.

who made a letter (Exhibit 1) formally demanding the return of the

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

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

Private respondent filed a motion to lift the order of default which

was granted by the City Court in an order dated May 24, 1976,
taking into consideration that the answer was filed within two
hours after the hearing of the evidence presented ex-parte by the
petitioner.
After the trial on the merits, the City Court of Dipolog rendered its
decision on September 14, 1976, the dispositive portion of which
reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
of the plaintiff and against the defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five
Thousand Two Hundred Seventeen Pesos and Twenty-five centavos
(P5,217.25) plus legal interest to commence from April 23, 1976
when this case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00
as attorney's fee and to pay the cost of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del
Norte which reversed the decision of the lower court by dismissing the complaint
and ordered the plaintiff-appellee Acojedo to pay said defendant-appellant P500.00
each for actual damages, moral damages, exemplary damages and attorney's fees,
as well as the costs of suit. Plaintiff-appellee then sought the review of said decision
by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two
decisive issues, firstly, whether the oral testimony for the therein private respondent
Sardane that a partnership existed between him and therein petitioner Acojedo are
admissible to vary the meaning of the abovementioned promissory notes; and,
secondly, whether because of the failure of therein petitioner to cross-examine

therein private respondent on his sur-rebuttal testimony, there was a waiver of the
presumption accorded in favor of said petitioner by Section 8, Rule 8 of the Rules of
Court.

note yet intending to make such a writing to be mere receipts of

the petitioner's supposed contribution to the alleged partnership
existing between the parties?

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

It has been established in the trial court that, the private

respondent has been engaged in business for quite a long period
of time--as owner of the Sardane Trucking Service, entering into
contracts with the government for the construction of wharfs and
seawall; and a member of the City Council of Dapitan (TSN, July
20, 1976, pp. 57-58).<re||an1w> It indeed puzzles us how the
private respondent could have been misled into signing a
document containing terms which he did not mean them to be. ...

Consequently, said trial court concluded that the promissory notes involved were
merely receipts for the contributions to said partnership and, therefore, upheld the
claim that there was ambiguity in the promissory notes, hence parol evidence was
allowable to vary or contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.When the terms of an
agreement have been reduced to writing, it is to be considered as
containing all such terms, and, therefore, there can be, between
the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing
except in the following cases:
(a) Where a mistake or imperfection of the writing or its failure to
express the the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to the rule do not
apply in this case as there is no ambiguity in the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory
notes containing a promise to pay a sum certain in money,
payable on demand and the promise to bear the costs of litigation
in the event of the private respondent's failure to pay the amount
loaned when demanded extrajudicially. Likewise, the vales denote
that the private respondent is obliged to return the sum loaned to
him by the petitioner. On their face, nothing appears to be vague
or ambigous, for the terms of the promissory notes clearly show
that it was incumbent upon the private respondent to pay the
amount involved in the promissory notes if and when the
petitioner demands the same. It was clearly the intent of the
parties to enter into a contract of loan for how could an educated
man like the private respondent be deceived to sign a promissory

xxx xxx xxx

The private respondent admitted during the cross-examination
made by petitioner's counsel that he was the one who was
responsible for the printing of Exhibits B, C, and D (TSN, July 28,
1976, p. 64). How could he purportedly rely on such a flimsy
pretext that the promissory notes were receipts of the petitioner's
contribution? 4
The Court of Appeals held, and We agree, that even if evidence aliunde other than
the promissory notes may be admitted to alter the meaning conveyed thereby, still
the evidence is insufficient to prove that a partnership existed between the private
parties hereto.
As manager of the basnig Sarcado naturally some degree of control over the
operations and maintenance thereof had to be exercised by herein petitioner. The
fact that he had received 50% of the net profits does not conclusively establish that
he was a partner of the private respondent herein. Article 1769(4) of the Civil Code
is explicit that while the receipt by a person of a share of the profits of a business
is prima facie evidence that he is a partner in the business, no such inference shall
be drawn if such profits were received in payment as wages of an employee.
Furthermore, herein petitioner had no voice in the management of the affairs of
the basnig. Under similar facts, this Court in the early case of Fortis vs. Gutierrez
Hermanos, 5 in denying the claim of the plaintiff therein that he was a partner in the
business of the defendant, declared:
This contention cannot be sustained. It was a mere contract of
employment. The plaintiff had no voice nor vote in the
management of the affairs of the company. The fact that the
compensation received by him was to be determined with
reference to the profits made by the defendant in their business
did not in any sense make him a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved
the same factual and legal milieu.

There are other considerations noted by respondent Court which negate herein
petitioner's pretension that he was a partner and not a mere employee indebted to
the present private respondent. Thus, in an action for damages filed by herein
private respondent against the North Zamboanga Timber Co., Inc. arising from the
operations of the business, herein petitioner did not ask to be joined as a party
plaintiff. Also, although he contends that herein private respondent is the treasurer
of the alleged partnership, yet it is the latter who is demanding an accounting. The
advertence of the Court of First Instance to the fact that the casco bears the name of
herein petitioner disregards the finding of the respondent Court that it was just a
concession since it was he who obtained the engine used in the Sardaco from the
Department of Local Government and Community Development. Further, the use by
the parties of the pronoun "our" in referring to "our basnig, our catch", "our deposit",
or "our boseros" was merely indicative of the camaraderie and not evidentiary of a
partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid
promissory notes do not express the true intent and agreement of the parties, are
binding on Us since there is no showing that they fall within the exceptions to the
rule limiting the scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready
reference, reads:
Sec. 8. How to contest genuineness of such documents.When an
action or defense is founded upon a written instrument, copied in
or attached to the corresponding pleading as provided in the
preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party,
under oath, specifically denies them, and sets forth what he claims
to be the facts; but this provision does not apply when the adverse
party does not appear to be a party to the instrument or when
compliance with an order for the inspection of the original
instrument is refused.
The record shows that herein petitioner did not deny under oath in his answer the
authenticity and due execution of the promissory notes which had been duly
pleaded and attached to the complaint, thereby admitting their genuineness and
due execution. Even in the trial court, he did not at all question the fact that he
signed said promissory notes and that the same were genuine. Instead, he
presented parol evidence to vary the import of the promissory notes by alleging that
they were mere receipts of his contribution to the alleged partnership.
His arguments on this score reflect a misapprehension of the rule on parol evidence
as distinguished from the rule on actionable documents. As the respondent Court
correctly explained to herein petitioner, what he presented in the trial Court was
testimonial evidence that the promissory notes were receipts of his supposed
contributions to the alleged partnership which testimony, in the light of Section 7,
Rule 130, could not be admitted to vary or alter the explicit meaning conveyed by

said promissory notes. On the other hand, the presumed genuineness and due
execution of said promissory notes were not affected, pursuant to the provisions of
Section 8, Rule 8, since such aspects were not at all questioned but, on the contrary,
were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which was
reiterated in Central Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does not
sustain his thesis that the herein private respondent had "waived the mantle of
protection given him by Rule 8, Sec. 8". It is true that such implied admission of
genuineness and due execution may be waived by a party but only if he acts in a
manner indicative of either an express or tacit waiver thereof. Petitioner, however,
either overlooked or ignored the fact that, as held in Yu Chuck, and the same is true
in other cases of Identical factual settings, such a finding of waiver is proper where a
case has been tried in complete disregard of the rule and the plaintiff having
pleaded a document by copy, presents oral evidence to prove the due execution of
the document and no objections are made to the defendant's evidence in refutation.
This situation does not obtain in the present case hence said doctrine is obviously
inapplicable.
Neither did the failure of herein private respondent to cross-examine herein
petitioner on the latter's sur-rebuttal testimony constitute a waiver of the aforesaid
implied admission. As found by the respondent Court, said sur-rebuttal testimony
consisted solely of the denial of the testimony of herein private respondent and no
new or additional matter was introduced in that sur-rebuttal testimony to exonerate
herein petitioner from his obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the respondent Court correctly
reversed and set aside the appealed decision of the Court of First Instance of
Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog
City in Civil Case No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court,
herein petitioner, as the private respondent therein, raised a third unresolved issue
that the petition for review therein should have been dismissed for lack of
jurisdiction since the lower Court's decision did not affirm in full the judgment of the
City Court of Dipolog, and which he claimed was a sine qua non for such a petition
under the law then in force. He raises the same point in his present appeal and We
will waive the procedural technicalities in order to put this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative
relief from the respondent Court praying that it sustain the decision of the trial
Court, thereby invoking and submitting to its jurisdiction which he would now assail.
Furthermore, the objection that he raises is actually not one of jurisdiction but of
procedure.9
At any rate, it will be noted that petitioner anchors his said objection on the
provisions of Section 29, Republic Act 296 as amended by Republic Act 5433
effective September 9, 1968. Subsequently, the procedure for appeal to the Court of

Appeals from decisions of the then courts of first instance in the exercise of their
appellate jurisdiction over cases originating from the municipal courts was provided
for by Republic Act 6031, amending Section 45 of the Judiciary Act effective August
4, 1969. The requirement for affirmance in full of the inferior court's decision was
not adopted or reproduced in Republic Act 6031. Also, since Republic Act 6031 failed
to provide for the procedure or mode of appeal in the cases therein contemplated,
the Court of Appeals en banc provided thereof in its Resolution of August 12, 1971,
by requiring a petition for review but which also did not require for its availability
that the judgment of the court of first instance had affirmed in full that of the lower
court. Said mode of appeal and the procedural requirements thereof governed the
appeal taken in this case from the aforesaid Court of First Instance to the Court of
Appeals in 1977. 10 Herein petitioner's plaint on this issue is, therefore, devoid of
merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with
costs against herein petitioner.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

Republic of the Philippines

SUPREME COURT

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 .

THIRD DIVISION
G.R. NOS. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR., Petitioner,
vs.
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.

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
asAnnex "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.

DECISION
xxx xxx xxx
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, 20041 in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R.
SP. No 78774 and its Resolution dated December 07, 2004, 2 denying petitioners
motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua,
Sr. (Eduardo) are brothers. The legal dispute between them started when, on
December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit
against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting. In his complaint, 3 docketed as
Civil Case No. 69235 and eventually raffled to Branch 68 of the court, 4 Aurelio
alleged that, since June 1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among
other corporations. Yang is described in the complaint as petitioners and Eduardos
partner in their Odeon Theater investment.5 The same complaint also contained the
following material averments:

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 ANSWERWith 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 "A1", are unenforceable under the provisions of the Statute of Frauds.7
For his part, Yang - who was served with summons long after the other defendants
submitted their answer moved to dismiss on the ground, inter alia, that, as to him,
petitioner has no cause of action and the complaint does not state any. 8 Petitioner
opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative
Defenses.9 To this motion, petitioner interposed an Opposition with ex-Parte Motion
to Set the Case for Pre-trial.10

Acting on the separate motions immediately adverted to above, the trial court, in an
Omnibus Order dated March 5, 2003, denied the affirmative defenses and, except
for Yang, set the case for 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 reconsideration12 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 dismiss13 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 "A1" 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 assailedResolution of December 7, 2004.18 .

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:

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

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.

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.

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.

B. When it ruled that the actionable document did not create a demandable right in
favor of petitioner.

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.

C. When it ruled that the complaint stated no cause of action against [respondent]
Robert Yang; and

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.

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

Annex "A-1", on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that
Annex "A-1" does not meet the public instrumentation requirements exacted under
Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or property, Annex "A1" 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 reconsideration24 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
Decision26 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, 200427 denying petitioners motion for
reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint
as well as the actionable document attached thereto (Rollo, p. 191), the [trial] court
did not appreciate and apply the legal provisions which were brought to its attention
by herein [respondents] in the their pleadings. In our evaluation of [petitioners]
complaint, the latter alleged inter alia to have contributed immovable properties to
the alleged partnership but the actionable document is not a public document and
there was no inventory of immovable properties signed by the parties. Both the
allegations in the complaint and the actionable documents considered, it is crystal
clear that [petitioner] has no valid or legal right which could be violated by
[respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioners posture that Annex "A-1",
assuming its inefficacy or nullity as a partnership document, nevertheless created
demandable rights in his favor. As petitioner succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions,
established an actionable contract even though it may not be a partnership. This
actionable contract is what is known as an innominate contract (Civil Code, Article
1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the
contract does create rights and obligations of the parties and which rights and
obligations may be enforceable and demandable. Just because the relationship
created by the agreement cannot be specifically labeled or pigeonholed into a
category of nominate contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and
earlier on the CA after he experienced a reversal of fortune thereat - as an
afterthought. The appellate court, however, cannot really be faulted for not yielding
to petitioners dubious stratagem of altering his theory of joint venture/partnership
to an innominate contract. For, at bottom, the appellate courts certiorari jurisdiction
was circumscribed by what was alleged to have been the order/s issued by the trial
court in grave abuse of discretion. As respondent Yang pointedly observed, 28 since
the parties basic position had been well-defined, that of petitioner being that the
actionable document established a partnership/joint venture, it is on those positions
that the appellate court exercised its certiorari jurisdiction. Petitioners act of
changing his original theory is an impermissible practice and constitutes, as the CA
aptly declared, an admission of the untenability of such theory in the first place.

[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
andergo unenforceable for non-compliance therewith.30 By force of the statute of
frauds, an agreement that by its terms is not to be performed within a year from the
making thereof shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party charged. Corollarily,
no action can be proved unless the requirement exacted by the statute of frauds is
complied with.31

Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10%

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

enough, petitioner refers to the corporate respondents as "progeny" of the Odeon

Theatre business.34
Needless to stress, petitioner has not sufficiently established in his complaint the
legal vinculum whence he sourced his right to drag Yang into the fray. The Court of
Appeals, in its assailed decision, captured and formulated the legal situation in the
following wise:
[Respondent] Yang, is impleaded because, as alleged in the complaint, he is a
"partner" of [Eduardo] and the [petitioner] in the Odeon Theater Investment which
expanded through reinvestments of profits and direct investments in several
corporations, thus:
xxx xxx xxx
Clearly, [petitioners] claim against Yang arose from his alleged partnership with
petitioner and the respondent. However, there was NO allegation in the complaint
which directly alleged how the supposed contractual relation was created between
[petitioner] and Yang. More importantly, however, the foregoing ruling of this Court
that the purported partnership between [Eduardo] is void and legally inexistent
directly affects said claim against Yang. Since [petitioner] is trying to establish his
claim against Yang by linking him to the legally inexistent partnership . . . such
attempt had become futile because there was NOTHING that would contractually
connect [petitioner] and Yang. To establish a valid cause of action, the complaint
should have a statement of fact upon which to connect [respondent] Yang to the
alleged partnership between [petitioner] and respondent [Eduardo], including their
alleged investment in the Odeon Theater. A statement of facts on those matters is
pivotal to the complaint as they would constitute the ultimate facts necessary to
establish the elements of a cause of action against Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioners motion for
reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document attached to the
complaint that is controlling. Suffice it to state, We have not ignored the actionable
document As a matter of fact, We emphasized in our decision that insofar as
[Yang] is concerned, he is not even mentioned in the said actionable document. We
are therefore puzzled how a person not mentioned in a document purporting to
establish a partnership could be considered a partner.36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his theory
of the case, as peremptorily determined by the CA, has been discussed at length
earlier and need not detain us long. Suffice it to say that after the CA has ruled that
the alleged partnership is inexistent, petitioner took a different tack. Thus, from a
joint venture/partnership theory which he adopted and consistently pursued in his
complaint, petitioner embraced the innominate contract theory. Illustrative of this
shift is petitioners statement in par. #8 of his motion for reconsideration of the CAs
decision combined with what he said in par. # 43 of this petition, as follows:

8. Whether or not the actionable document creates a partnership, joint venture, or

whatever, is a legal matter. What is determinative for purposes of sufficiency of the
complainants allegations, is whether the actionable document bears out an
actionable contract be it a partnership, a joint venture or whatever or some
innominate contract It may be noted that one kind of innominate contract is what
is known as du ut facias (I give that you may do).37
43. Contrariwise, this actionable document, especially its above-quoted provisions,
established an actionable contract even though it may not be a partnership. This
actionable contract is what is known as an innominate contract (Civil Code, Article
1307).38
Springing surprises on the opposing party is offensive to the sporting idea of fair
play, justice and due process; hence, the proscription against a party shifting from
one theory at the trial court to a new and different theory in the appellate
court.39 On the same rationale, an issue which was neither averred in the complaint
cannot be raised for the first time on appeal.40 It is not difficult, therefore, to agree
with the CA when it made short shrift of petitioners innominate contract theory on
the basis of the foregoing basic reasons.
Petitioners protestation that his act of introducing the concept of innominate
contract was not a case of changing theories but of supporting his pleaded cause of
action that of the existence of a partnership - by another legal
perspective/argument, strikes the Court as a strained attempt to rationalize an
untenable position. Paragraph 12 of his motion for reconsideration of the CAs
decision virtually relegates partnership as a fall-back theory. Two paragraphs later, in
the same notion, petitioner faults the appellate court for reading, with myopic eyes,
the actionable document solely as establishing a partnership/joint venture. Verily,
the cited paragraphs are a study of a party hedging on whether or not to pursue the
original cause of action or altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a partnership
between [respondent] Eduardo, Sr. and [petitioner], no immovables were
contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable document
attached to the complaint does not establish a contractual relationship between
[petitioner] and Eduardo, Sr. and Roberto T Yang simply because his document
does not create a partnership or a joint venture. This is a myopic reading of the
actionable document.
Per the Courts own count, petitioner used in his complaint the mixed words "joint
venture/partnership" nineteen (19) times and the term "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 "A1", as an actionable document of partnership, would strip petitioner of a cause of
action under the premises. A complaint for delivery and accounting of partnership
property based on such void or legally non-existent actionable document is
dismissible for failure to state of action. So, in gist, said the Court of Appeals. The
Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and
Resolution of the Court of AppealsAFFIRMED.
Cost against the petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals,
dated November 29, 1990, which reversed the decision of the Regional Trial Court,
Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed
the petition for declaration of nullity of a deed of sale filed by private respondent
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in
lending activities. Private respondent and her late husband, Ruben M. Abrogar, were
the registered owners of a house and lot, covered by Transfer Certificate of Title No.
195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner,
entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the
above-described property from the FIRST PARTY [Felicidad S. Vda.
de Abrogar], and pursuant to this agreement, a Deed of Absolute
Sale shall be executed by the FIRST PARTY conveying the property
to the SECOND PARTY for and in consideration of the sum of Two
Hundred Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the
option to repurchase the said property within a period of ninety
(90) days from the execution of this memorandum of agreement
effective April 18, 1991, for the amount of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00);

(3) In the event that the FIRST PARTY fail to exercise her option to
repurchase the said property within a period of ninety (90) days,
the FIRST PARTY is obliged to deliver peacefully the possession of
the property to the SECOND PARTY within fifteen (15) days after
the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself
not to file any lis pendens or whatever claims on the property nor
shall be cause the annotation of say claim at the back of the title
to the said property;
(5) With the execution of the deed of absolute sale, the FIRST
PARTY warrants her ownership of the property and shall defend the
rights of the SECOND PARTY against any party whom may have
any interests over the property;
(6) All expenses for documentation and other incidental expenses
shall be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of
the property to the SECOND PARTY after the expiration of the 15day grace period given in paragraph 3 above, the FIRST PARTY
shall pay an amount equivalent to Five Percent of the principal
amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per
month of delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to
repurchase the property within ninety (90) days period abovementioned, this memorandum of agreement shall be deemed
cancelled and the Deed of Absolute Sale, executed by the parties
shall be the final contract considered as entered between the
parties and the SECOND PARTY shall proceed to transfer ownership
of the property above described to its name free from lines and
encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale, 3 dated June 11, 1991, wherein private respondent, with the consent of her late
husband, sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000,00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the cancellation of TCT
No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject property as provided in
the Memorandum of Agreement. 4
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special power of
attorney mentioned above, petitioner caused the cancellation of TCT No. 195101

and the issuance of a new certificate of title in the name of A.C. Aguila and Sons,
Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto
C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the
premises within 15 days after receipt of the letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the
appropriate action in court. 6
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch
76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan Trial
Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private respondent
did not redeem the subject property before the expiration of the 90-day period
provided in the Memorandum of Agreement. Private respondent appealed first to the
Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of Appeals,
and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale
with the Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4,
1993. She alleged that the signature of her husband on the deed of sale was a
forgery because he was already dead when the deed was supposed to have been
executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon City which
was dismissed in a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a
forgery because they could not personally appear before Notary
Public Lamberto C. Nanquil on June 11, 1991 because her
husband, Ruben Abrogar, died on May 8, 1991 or one month and 2
days before the execution of the Deed of Absolute Sale, while the
plaintiff was still in the Quezon City Medical Center recuperating
from wounds which she suffered at the same vehicular accident on
May 8, 1991, cannot be sustained. The Court is convinced that the
three required documents, to wit: the Memorandum of Agreement,
the Special Power of Attorney, and the Deed of Absolute Sale were
all signed by the parties on the same date on April 18, 1991. It is a
common and accepted business practice of those engaged in
money lending to prepare an undated absolute deed of sale in
loans of money secured by real estate for various reasons,
foremost of which is the evasion of taxes and surcharges. The
plaintiff never questioned receiving the sum of P200,000.00
representing her loan from the defendant. Common sense dictates
that an established lending and realty firm like the Aguila & Sons,

Co. would not part with P200,000.00 to the Abrogar spouses, who
are virtual strangers to it, without the simultaneous
accomplishment and signing of all the required documents, more
particularly the Deed of Absolute Sale, to protect its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption is
hereby ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between
plaintiff-appellant and defendant-appellee is indubitably an
equitable mortgage. Article 1602 of the New Civil Code finds
strong application in the case at bar in the light of the following
circumstances.
First: The purchase price for the alleged sale with right to
repurchase is unusually inadequate. The property is a two hundred
forty (240) sq. m. lot. On said lot, the residential house of plaintiffappellant stands. The property is inside a subdivision/village. The
property is situated in Marikina which is already part of Metro
Manila. The alleged sale took place in 1991 when the value of the
land had considerably increased.
For this property, defendant-appellee pays only a measly
P200,000.00 or P833.33 per square meter for both the land and for
the house.
Second: The disputed Memorandum of Agreement specifically
provides that plaintiff-appellant is obliged to deliver peacefully the
possession of the property to the SECOND PARTY within fifteen
(15) days after the expiration of the said ninety (90) day grace
period. Otherwise stated, plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property
"sold" as if they were still the absolute owners. There was no
provision for maintenance or expenses, much less for payment of
rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to
pay taxes on the property "sold". It is well-known that payment of
taxes accompanied by actual possession of the land covered by
the tax declaration, constitute evidence of great weight that a

person under whose name the real taxes were declared has a
claim of right over the land.
It is well-settled that the presence of even one of the
circumstances in Article 1602 of the New Civil Code is sufficient to
declare a contract of sale with right to repurchase an equitable
mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price
which is unusually inadequate, has retained possession of the
subject property and has continued paying the realty taxes over
the subject property, (circumstances mentioned in par. (1) (2) and
(5) of Article 1602 of the New Civil Code), it must be conclusively
presumed that the transaction the parties actually entered into is
an equitable mortgage, not a sale with right to repurchase. The
factors cited are in support to the finding that the Deed of
Sale/Memorandum of Agreement with right to repurchase is in
actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of
repurchase was executed by reason of the loan extended by
defendant-appellee to plaintiff-appellant. The amount of loan
being the same with the amount of the purchase price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of
debt, now deemed to be repurchase price: the transaction shall
then be considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in
the nature of a pactum commissorium which is clearly prohibited
by Article 2088 of the New Civil Code. Article 2088 of the New Civil
Code reads:
Art. 2088. The creditor cannot appropriate the
things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary
is null and void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or
mortgage wherein a property is pledged or mortgaged by way of
security for the payment of principal obligation; and (2) that there
should be a stipulation for an automatic appropriation by the
creditor of the thing pledged and mortgaged in the event of nonpayment of the principal obligation within the stipulated period.

In this case, defendant-appellee in reality extended a P200,000.00

loan to plaintiff-appellant secured by a mortgage on the property
of plaintiff-appellant. The loan was payable within ninety (90)
days, the period within which plaintiff-appellant can repurchase
the property. Plaintiff-appellant will pay P230,000.00 and not
P200,000.00, the P30,000.00 excess is the interest for the loan
extended. Failure of plaintiff-appellee to pay the P230,000.00
within the ninety (90) days period, the property shall automatically
belong to defendant-appellee by virtue of the deed of sale
executed.
Clearly, the agreement entered into by the parties is in the nature
of pactum commissorium. Therefore, the deed of sale should be
declared void as we hereby so declare to be invalid, for being
violative of law.
xxx xxx xxx
WHEREFORE, foregoing considered, the appealed decision is
hereby REVERSED and SET ASIDE. The questioned Deed of Sale
and the cancellation of the TCT No. 195101 issued in favor of
plaintiff-appellant and the issuance of TCT No. 267073 issued in
favor of defendant-appellee pursuant to the questioned Deed of
Sale is hereby declared VOID and is hereby ANNULLED. Transfer
Certificate of Title No. 195101 of the Registry of Marikina is hereby
ordered REINSTATED. The loan in the amount of P230,000.00 shall
be paid within ninety (90) days from the finality of this decision. In
case of failure to pay the amount of P230,000.00 from the period
therein stated, the property shall be sold at public auction to
satisfy the mortgage debt and costs and if there is an excess, the
same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila &
Co., against which this case should have been brought; (2) the judgment in the
ejectment case is a bar to the filing of the complaint for declaration of nullity of a
deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale and not an equitable mortgage as held
by the appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was
filed, provided that "every action must be prosecuted and defended in the name of
the real party in interest." A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of the suit. 7 This ruling is
now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case

cannot be executed. 8 Hence, a complaint filed against such a person should be

dismissed for failure to state a cause of action. 9
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate
and distinct from that of each of the partners." The partners cannot be held liable for
the obligations of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair, or illegal
purposes. 10 In this case, private respondent has not shown that A.C. Aguila & Sons,
Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila &
Sons, Co. and the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint. 11 We
cannot understand why both the Regional Trial Court and the Court of Appeals
sidestepped this issue when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this
action should be prosecuted makes it unnecessary to discuss the other issues raised
by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the
complaint against petitioner is DISMISSED.
SO ORDERED.
Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

G.R. No. 143340

Republic of the Philippines

SUPREME COURT
Manila

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.

THIRD DIVISION

Upon Jacinto's 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 respondent's consent.
Despite respondent's 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.

August 15, 2001

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,

vs.
LAMBERTO T. CHUA, respondent.
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of
the Decision1 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 and Cecilia Sunga (hereafter collectively referred to as petitioners).

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the
alibis and reasons to evade respondent's 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 latter's 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.

The pertinent facts of this case are as follows:

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against
Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter
petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga
(hereafter Jacinto), for "Winding Up of Partnership Affairs, Accounting, Appraisal and
Recovery of Shares and Damages with Writ of Preliminary Attachment" with the
Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto
in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to register the business name
of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under
the name of Jacinto as a sole proprietorship. Respondent allegedly delivered his
initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced
P100,000.00 as his counterpart contribution, with the intention that the profits would
be equally divided between them. The partnership allegedly had Jacinto as manager,
assisted by Josephine Sy (hereafter Josephine), a sister of the wife respondent,
Erlinda Sy. As compensation, Jacinto would receive a manager's 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 and was profitable. Respondent claimed that he could
attest to 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

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
Zamboanga 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 from and
substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims,
contending that they are not liable for partnership shares, unreceived
income/profits, interests, damages and attorney's 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 attorney's 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 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 Pretrial 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 of January 17, 1996. Respondent presented his evidence
while petitioners were considered to have waived their right to present evidence for
their failure to attend the scheduled date for reception of evidence despite notice.

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 money's 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 attorney's (sic) and P25,000.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED."3

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The
dispositive of the Decision reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form
under accounting procedures and standards of the properties,
assets, income and profits of the Shellite Gas Appliance Center
Since the time of death of Jacinto L. Sunga, from whom they
continued the business operations including all businesses derived
from Shellite Gas Appliance Center, submit an inventory, and
appraisal of all these properties, assets, income, profits etc. to the
Court and to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any
and all properties, assets, income and profits they misapplied and
converted to their own use and advantage the 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

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court,
appealing the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive
portion of the Decision reads:
"WHEREFORE, the instant appeal is dismissed. The appealed decision is
AFFIRMED in all respects."4
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed
by petitioner.
Hence, this petition wherein petitioner relies upon 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 latter'' 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
Jacinto's death. In the absence of any written document to show such partnership
between respondent and Jacinto, petitioners argues that these courts were
proscribes from hearing the testimonies of respondent and his witness, Josephine, to
prove the alleged partnership three years after Jacinto's death. To support this
argument, petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under
Section 23, Rule 130 of the Rules of Court that provides:
"SEC. 23. Disqualification by reason of death or insanity of adverse party.
Parties or assignors of parties to a case, or persons in whose behalf a case
is prosecuted, against an executor or administrator or other representative
of a deceased person, or against a person of unsound mind, upon a claim
or demand against the estate of such deceased person, or against such
person of unsound mind, cannot testify as to any matter of fact occurring
before the death of such deceased person or before such person became of
unsound mind."
Petitioners thus implore this Court to rule that the testimonies of respondent and his
alter ego, Josephine, should not have been admitted to prove certain claims against
a deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property of
real rights are contributed thereto, in which case a public instrument shall
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 profits that must be proven to 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 the 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 to whether or not the "Dead Man's Statute" applies to
this case so as to render inadmissible respondent's testimony and that of his
witness, Josephine.

The "Dead Man's 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 case or persons in whose
behalf a case in 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 of 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 Man's Statute" to this case.
First, petitioners filed a compulsory counterclaim11 against respondents 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 Man's
Statute".12 Well entrenched is the rule that when it is the executor or administrator
or representatives of the estates 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 facts 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 Man's 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 Josephine's testimony lacks
probative value because she was allegedly coerced 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 Josephine's 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 Man's Statute" to defeat respondent's 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 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 respondent's claim, we agree with the trial court and the Court of
Appeals that the action for accounting filed by respondents three (3) years after
Jacinto's 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 partner's interest as against the person continuing the
business accrues at the date of dissolution, in the absence of any contrary
agreement.21 Considering that the death of a partner results in the dissolution of the
partnership22, in this case, it was Jacinto's death that respondent as the surviving
partner had the right to an account of his interest as against petitioners. It bears
stressing that while Jacinto's death dissolved the partnership, the dissolution did not
immediately terminate the partnership. The Civil Code23 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 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 Code25 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

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18703

August 28, 1922

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

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

The trial court denied the petition on the ground that it was not proven, nor alleged,
that the members of the aforesaid firm were insolvent at the time the application
was filed; and that was said partners are personally and solidarily liable for the
consequence of the transactions of the partnership, it cannot be adjudged insolvent
so long as the partners are not alleged and proven to be insolvent. From this
judgment the petitioners appeal to this court, on the ground that this finding of the
lower court is erroneous.
The fundamental question that presents itself for decision is whether or not a limited
partnership, such as the appellee, which has failed to pay its obligation with three
creditors for more than thirty days, may be held to have committed an act of
insolvency, and thereby be adjudged insolvent against its will.
Unlike the common law, the Philippine statutes consider a limited partnership as a
juridical entity for all intents and purposes, which personality is recognized in all its
acts and contracts (art. 116, Code of Commerce). This being so and the juridical
personality of a limited partnership being different from that of its members, it must,
on general principle, answer for, and suffer, the consequence of its acts as such an
entity capable of being the subject of rights and obligations. If, as in the instant
case, the limited partnership of Campos Rueda & Co. Failed to pay its obligations
with three creditors for a period of more than thirty days, which failure constitutes,
under our Insolvency Law, one of the acts of bankruptcy upon which an adjudication
of involuntary insolvency can be predicated, this partnership must suffer the
consequences of such a failure, and must be adjudged insolvent. We are not
unmindful of the fact that some courts of the United States have held that a
partnership may not be adjudged insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others have maintained a contrary
view. But it must be borne in mind that under the American common law,
partnerships have no juridical personality independent from that of its members;
and if now they have such personality for the purpose of the insolvency law, it is
only by virtue of general law enacted by the Congress of the United States on July 1,
1898, section 5, paragraph (h), of which reads thus:
In the event of one or more but not all of the members of a partnership
being adjudged bankrupt, the partnership property shall not be
administered in bankruptcy, unless by consent of the partner or partners
not adjudged bankrupt; but such partner or partners not adjudged bankrupt
shall settle the partnership business as expeditiously as its nature will
permit, and account for the interest of the partner or partners adjudged
bankrupt.
The general consideration that these partnership had no juridical personality and the
limitations prescribed in subsection (h) above set forth gave rise to the conflict
noted in American decisions, as stated in the case of In reSamuels (215 Fed., 845),
which mentions the two apparently conflicting doctrines, citing one from In
reBertenshaw (157 Fed., 363), and the other from Francis vs. McNeal (186 Fed.,
481).

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

Republic of the Philippines

SUPREME COURT
Manila

(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

EN BANC
G.R. No. L-25532

February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and
Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed,
respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1
October 1947, the limited partnership was registered with the Securities and
Exchange Commission. The firm engaged, among other activities, in the importation,
marketing, distribution and operation of automatic phonographs, radios, television
sets and amusement machines, their parts and accessories. It had an office and held
itself out as a limited partnership, handling and carrying merchandise, using
invoices, bills and letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the
partnership to Suter and his wife. The sale was duly recorded with the Securities and
Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation,
without objection by the herein petitioner, Commissioner of Internal Revenue, until
in 1959 when the latter, in an assessment, consolidated the income of the firm and
the individual incomes of the 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.
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:

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

marriage of partners necessarily brings about the dissolution of a preexisting 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
corporations involved therein are not applicable to the present case. In the cited
cases, the corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so would exempt the
limited partnership from income taxation but would throw the tax burden upon the
partners-spouses in their individual capacities. The corporations, in the cases cited,
merely served as business conduits or alter egos of the stockholders, a factor that
justified a disregard of their corporate personalities for tax purposes. This is not true
in the present case. Here, the limited partnership is not a mere business conduit of
the partner-spouses; it was organized for legitimate business purposes; it conducted
its own dealings with its customers prior to appellee's marriage, and had been filing
its own income tax returns as such independent entity. The change in its
membership, brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the partnership from
the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as
the records show, the partners did not enter into matrimony and thereafter buy the
interests of the remaining partner with the premeditated scheme or design to use
the partnership as a business conduit to dodge the tax laws. Regularity, not
otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require
that income to be included in the individual tax return of respondent Suter is to
overstretch the letter and intent of the law. In fact, it would even conflict with what it
specifically provides in its Section 24: for the appellant Commissioner's stand results
in equal treatment, tax wise, of a general copartnership (compaia colectiva) and a
limited partnership, when the code plainly differentiates the two. Thus, the code
taxes the latter on its income, but not the former, because it is in the case
of compaias colectivas that the members, and not the firm, are taxable in their
individual capacities for any dividend or share of the profit derived from the duly
registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
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.
Barredo, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 109289 October 3, 1994

Article III, Section 1 No person shall be deprived of . . . property

without due process of law, nor shall any person be denied the
equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93,
argue that public respondents have exceeded their rule-making authority in applying
SNIT to general professional partnerships.

RUFINO R. TAN, petitioner,

vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as
COMMISSIONER OF INTERNAL REVENUE, respondents.

The Solicitor General espouses the position taken by public respondents.

G.R. No. 109446 October 3, 1994

G.R. No. 109289

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG,

MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A.
SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and
JOSE U. ONG, in his capacity as COMMISSIONER OF INTERNAL
REVENUE, respondents.

Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act
No. 7496, is a misnomer or, at least, deficient for being merely entitled, "Simplified
Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No.
109289).

VITUG, J.:
These two consolidated special civil actions for prohibition challenge, in G.R. No.
109289, the constitutionality of Republic Act No. 7496, also commonly known as the
Simplified Net Income Taxation Scheme ("SNIT"), amending certain provisions of the
National Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93,
promulgated by public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued
implementation of the amendatory legislation.
In G.R. No. 109289, it is asserted that the enactment of Republic Act
No. 7496 violates the following provisions of the Constitution:
Article VI, Section 26(1) Every bill passed by the Congress shall
embrace only one subject which shall be expressed in the title
thereof.
Article VI, Section 28(1) The rule of taxation shall be uniform
and equitable. The Congress shall evolve a progressive system of
taxation.

The Court has given due course to both petitions. The parties, in compliance with
the Court's directive, have filed their respective memoranda.

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For
The Self-Employed and Professionals Engaged In The Practice of
Their Profession, Amending Sections 21 and 29 of the National
Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National
Internal Revenue Code, as now amended, provide:
Sec. 21. Tax on citizens or residents.
xxx xxx xxx
(f) Simplified Net Income Tax for the Self-Employed and/or
Professionals Engaged in the Practice of Profession. A tax is
hereby imposed upon the taxable net income as determined in
Section 27 received during each taxable year from all sources,
other than income covered by paragraphs (b), (c), (d) and (e) of
this section by every individual whether
a citizen of the Philippines or an alien residing in the Philippines
who is self-employed or practices his profession herein,
determined in accordance with the following schedule:
Not over P10,000 3%

Over P10,000 P300 + 9%

but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of excess over P30,000
Over P120,000 P15,600 + 20%
but not over P350,000 of excess over P120,000
Over P350,000 P61,600 + 30%
of excess over P350,000
Sec. 29. Deductions from gross income. In computing taxable
income subject to tax under Sections 21(a), 24(a), (b) and (c); and
25 (a)(1), there shall be allowed as deductions the items specified
in paragraphs (a) to (i) of this section: Provided, however, That in
computing taxable income subject to tax under Section 21 (f) in
the case of individuals engaged in business or practice of
profession, only the following direct costs shall be allowed as
deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the
course of or pursuant to the business or practice of their
profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief
organizations for the rehabilitation of calamity stricken areas
declared by the President; and
(g) Interest paid or accrued within a taxable year on loans
contracted from accredited financial institutions which must be
proven to have been incurred in connection with the conduct of a
taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are
difficult to determine, a maximum of forty per cent (40%) of their
gross receipts shall be allowed as deductions to answer for
business or professional expenses as the case may be.

On the basis of the above language of the law, it would be difficult to accept
petitioner's view that the amendatory law should be considered as having now
adopted a gross income, instead of as having still retained the netincome, taxation
scheme. The allowance for deductible items, it is true, may have significantly been
reduced by the questioned law in comparison with that which has prevailed prior to
the amendment; limiting, however, allowable deductions from gross income is
neither discordant with, nor opposed to, the net income tax concept. The fact of the
matter is still that various deductions, which are by no means inconsequential,
continue to be well provided under the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent
log-rolling legislation intended to unite the members of the legislature who favor any
one of unrelated subjects in support of the whole act, (b) to avoid surprises or even
fraud upon the legislature, and (c) to fairly apprise the people, through such
publications of its proceedings as are usually made, of the subjects of
legislation. 1 The above objectives of the fundamental law appear to us to have been
sufficiently met. Anything else would be to require a virtual compendium of the law
which could not have been the intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional
requirement that taxation "shall be uniform and equitable" in that the law would now
attempt to tax single proprietorships and professionals differently from the manner it
imposes the tax on corporations and partnerships. The contention clearly forgets,
however, that such a system of income taxation has long been the prevailing rule
even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires
that all subjects or objects of taxation, similarly situated, are to be treated alike both
in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371).
Uniformity does not forfend classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all things being equal, to both
present and future conditions, and (4) the classification applies equally well to all
those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco
vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the
legislative intent to increasingly shift the income tax system towards the schedular
approach 2 in the income taxation of individual taxpayers and to maintain, by and
large, the present global treatment 3 on taxable corporations. We certainly do not
view this classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in
the process, what he believes to be an imbalance between the tax liabilities of those
covered by the amendatory law and those who are not. With the legislature primarily
lies the discretion to determine the nature (kind), object (purpose), extent (rate),
coverage (subjects) and situs (place) of taxation. This court cannot freely delve into
those matters which, by constitutional fiat, rightly rest on legislative judgment. Of

course, where a tax measure becomes so unconscionable and unjust as to amount

to confiscation of property, courts will not hesitate to strike it down, for, despite all
its plenitude, the power to tax cannot override constitutional proscriptions. This
stage, however, has not been demonstrated to have been reached within any
appreciable distance in this controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the law declared
unconstitutional for being violative of due process must perforce fail. The due
process clause may correctly be invoked only when there is a clear contravention of
inherent or constitutional limitations in the exercise of the tax power. No such
transgression is so evident to us.

(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.;

Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the
Gentleman from Batangas say that this bill is
intended to increase collections as far as
individuals are concerned and to make collection
of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.

G.R. No. 109446

The several propositions advanced by petitioners revolve around the question of
whether or not public respondents have exceeded their authority in promulgating
Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership The general
professional partnership (GPP) and the partners comprising the
GPP are covered by R. A. No. 7496. Thus, in determining the net
profit of the partnership, only the direct costs mentioned in said
law are to be deducted from partnership income. Also, the
expenses paid or incurred by partners in their individual capacities
in the practice of their profession which are not reimbursed or paid
by the partnership but are not considered as direct cost, are not
deductible from his gross income.
The real objection of petitioners is focused on the administrative interpretation of
public respondents that would apply SNIT to partners in general professional
partnerships. Petitioners cite the pertinent deliberations in Congress during its
enactment of Republic Act No. 7496, also quoted by the Honorable Hernando B.
Perez, minority floor leader of the House of Representatives, in the latter's privilege
speech by way of commenting on the questioned implementing regulation of public
respondents following the effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to
get the correct impression of this bill. Do we
speak here of individuals who are earning, I
mean, who earn through business enterprises
and therefore, should file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This
does not apply to corporations. It applies only to
individuals.

(Id. at 6:40 P.M.; Emphasis ours).

In fact, in the sponsorship speech of Senator Mamintal Tamano on
the Senate version of the SNITS, it is categorically stated, thus:
This bill, Mr. President, is not applicable to
business corporations or to partnerships; it is
only with respect to individuals and
professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent misconception that general
professional partnerships are subject to the payment of income tax or that there is a
difference in the tax treatment between individuals engaged in business or in the
practice of their respective professions and partners in general professional
partnerships. The fact of the matter is that a general professional partnership, unlike
an ordinary business partnership (which is treated as a corporation for income tax
purposes and so subject to the corporate income tax), is not itself an income
taxpayer. The income tax is imposed not on the professional partnership, which is
tax exempt, but on the partners themselves in their individual capacity computed on
their distributive shares of partnership profits. Section 23 of the Tax Code, which has
not been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional
partnerships. (a) Persons exercising a common profession in
general partnership shall be liable for income tax only in their
individual capacity, and the share in the net profits of the general
professional partnership to which any taxable partner would be
entitled whether distributed or otherwise, shall be returned for
taxation and the tax paid in accordance with the provisions of this
Title.
(b) In determining his distributive share in the net income of the
partnership, each partner

(1) Shall take into account separately his

distributive share of the partnership's income,
gain, loss, deduction, or credit to the extent
provided by the pertinent provisions of this
Code, and
(2) Shall be deemed to have elected the
itemized deductions, unless he declares his
distributive share of the gross income
undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability between a person who
practices his profession alone or individually and one who does it through
partnership (whether registered or not) with others in the exercise of a common
profession. Indeed, outside of the gross compensation income tax and the final tax
on passive investment income, under the present income tax system all individuals
deriving income from any source whatsoever are treated in almost invariably the
same manner and under a common set of rules.
We can well appreciate the concern taken by petitioners if perhaps we were to
consider Republic Act No. 7496 as an entirely independent, not merely as an
amendatory, piece of legislation. The view can easily become myopic, however,
when the law is understood, as it should be, as only forming part of, and subject to,
the whole income tax concept and precepts long obtaining under the National
Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all
embracing term used in the Tax Code, and it practically covers all persons who
derive taxable income. The law, in levying the tax, adopts the most comprehensive
tax situs of nationality and residence of the taxpayer (that renders citizens,
regardless of residence, and resident aliens subject to income tax liability on their
income from all sources) and of the generally accepted and internationally
recognized income taxable base (that can subject non-resident aliens and foreign
corporations to income tax on their income from Philippine sources). In the process,
the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2)
Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts
(irrevocable both as to corpusand as to income).
Partnerships are, under the Code, either "taxable partnerships" or "exempt
partnerships." Ordinarily, partnerships, no matter how created or organized, are
subject to income tax (and thus alluded to as "taxable partnerships") which, for
purposes of the above categorization, are by law assimilated to be within the
context of, and so legally contemplated as, corporations. Except for few variances,
such as in the application of the "constructive receipt rule" in the derivation of
income, the income tax approach is alike to both juridical persons. Obviously, SNIT is
not intended or envisioned, as so correctly pointed out in the discussions in
Congress during its deliberations on Republic Act 7496, aforequoted, to cover
corporations and partnerships which are independently subject to the payment of
income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as
corporations nor even considered as independent taxable entities for income tax
purposes. A general professional partnership is such an example. 4Here, the partners
themselves, not the partnership (although it is still obligated to file an income tax
return [mainly for administration and data]), are liable for the payment of income
tax in their individual capacity computed on their respective and distributive shares
of profits. In the determination of the tax liability, a partner does so as an individual,
and there is no choice on the matter. In fine, under the Tax Code on income taxation,
the general professional partnership is deemed to be no more than a mere
mechanism or a flow-through entity in the generation of income by, and the ultimate
distribution of such income to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the
above standing rule as now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all individual
income taxpayers on their non-compensation income. There is no evident intention
of the law, either before or after the amendatory legislation, to place in an unequal
footing or in significant variance the income tax treatment of professionals who
practice their respective professions individually and of those who do it through a
general professional partnership.
WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo,
Quiason, Puno, Kapunan and Mendoza, JJ., concur.
Padilla and Bidin, JJ., are on leave.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA,respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in
toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and
quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted
with the Securities and Exchange Commission on 4 August 1948. The SEC
records show that there were several subsequent amendments to the
articles of partnership on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH,
SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO,
MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December
1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondentsappellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin
Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees
a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa
and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make
the proper liquidation of my participation in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another

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

premises but in no case less than ten (10%) per cent of

the value of the shares of petitioner or P100,000.00;

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).

"5. Order the respondents to pay petitioner moral

damages with the amount of P500,000.00 and exemplary
damages in the amount of P200,000.00.

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the prayer.

"Petitioner likewise prayed for such other and further

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

The Court of Appeals, finding no reversible error on the part of respondent

Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such withdrawal was
not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the
manner stipulated in the partnership agreement; (d) that the case should be
remanded to the SEC Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such danger of being lost, removed
or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless of his
good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can
get a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not

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

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

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

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