ARTICLE 1767 41477, 1 which disposed as follows:
STATUTORY DEFINITION OF PARTNERSHIP WHEREFORE, [there being] no reversible error in the appealed
THIRD DIVISION
G.R. No. 136448 November 3, 1999
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to
borrow money to pursue a business and to divide the profits or losses
that may arise therefrom, even if it is shown that they have not
contributed any capital of their own to a "common fund." Their
contribution may be in the form of credit or industry, not necessarily
cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a
contract entered into on behalf of an unincorporated association or
ostensible corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim
assails the November 26, 1998 Decision of the Court of Appeals in
CA-GR CV
decision, the same is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC)
ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment
issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following
amounts, subject to the modifications as hereinafter made by reason
of the special and unique facts and circumstances and the
proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the
fishing nets covered by the Agreement plus P68,000.00 representing
the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices
and computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for
P385,377.80 dated February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No. 14413 for
P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing
1
P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage
charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal
obligation or for the unpaid price of nets and floats in the amount of
P532,045.00 and P68,000.00, respectively, or for the total amount
P600,045.00, this Court noted that these items were attached to
guarantee any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at
public auction for not less than P900,000.00 for which the plaintiff
was the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00
replaced the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership and
possession of the nets and floats awarded and delivered by the sheriff
to plaintiff as the highest bidder in the public auction sale. It has also
been noted that ownership of the nets [was] retained by the plaintiff
until full payment [was] made as stipulated in the invoices; hence, in
effect, the plaintiff attached its own properties. It [was] for this
reason also that this Court earlier ordered the attachment bond filed
by plaintiff to guaranty damages to defendants to be cancelled and
for the P900,000.00 cash bidded and paid for by plaintiff to serve as
its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever
judgment the plaintiff may be entitled to in this case will have to be
satisfied from the amount of P900,000.00 as this amount replaced the
attached nets and floats. Considering, however, that the total
judgment obligation as computed above would amount to only
P840,216.92, it would be inequitable, unfair and unjust to award the
excess to the defendants who are not entitled to damages and who
did not put up a single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the nets and floats.
For this reason, the defendants are hereby relieved from any and all
liabilities arising from the monetary judgment obligation enumerated
above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited
by it with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing
Gear Industries, Inc. (herein respondent). They claimed that they
were engaged in a business venture with Petitioner Lim Tong Lim,
who however was not a signatory to the agreement. The total price of
2
the nets amounted to P532,045. Four hundred pieces of floats worth
P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a
5 9
Certification from the Securities and Exchange Commission. On
September 20, 1990, the lower court issued a Writ of Preliminary
Attachment, which the sheriff enforced by attaching the fishing nets
on board F/B Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within which
to pay. He also turned over to respondent some of the nets which
were in his possession. Peter Yao filed an Answer, after which he
was deemed to have waived his right to cross-examine witnesses and
to present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an
Answer with Counterclaim and Crossclaim and moved for the lifting
of the Writ of Attachment. 6 The trial court maintained the Writ, and
upon motion of private respondent, ordered the sale of the fishing
nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of
P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling
that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao
existed based (1) on the testimonies of the witnesses presented and
(2) on a Compromise Agreement executed by the three in Civil
Case No. 1492-MN which Chua and Yao had brought against Lim in
the RTC of Malabon, Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an injunction and (e)
damages. 10 The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four
(4) vessels sold in the amount of P5,750,000.00 including the fishing
net. This P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong
Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher
price than P5,750,000.00 whatever will be the excess will be divided
into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than
P5,750,000.00 whatever the deficiency shall be shouldered and paid
3
to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; assailed Decision on the following grounds:
1/3 Peter Yao. 11 I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON
The trial court noted that the Compromise Agreement was silent as A COMPROMISE AGREEMENT THAT CHUA, YAO AND
to the nature of their obligations, but that joint liability could be PETITIONER LIM ENTERED INTO IN A SEPARATE CASE,
presumed from the equal distribution of the profit and loss. 21 THAT A PARTNERSHIP AGREEMENT EXISTED AMONG
Lim appealed to the Court of Appeals (CA) which, as already stated, THEM.
affirmed the RTC. II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT
Ruling of the Court of Appeals HE WAS ACTING FOR OCEAN QUEST FISHING
In affirming the trial court, the CA held that petitioner was a partner CORPORATION WHEN HE BOUGHT THE NETS FROM
of Chua and Yao in a fishing business and may thus be held liable as PHILIPPINE FISHING, THE COURT OF APPEALS WAS
a such for the fishing nets and floats purchased by and for the use of UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM
the partnership. The appellate court ruled: AS WELL.
The evidence establishes that all the defendants including herein III THE TRIAL COURT IMPROPERLY ORDERED THE
appellant Lim Tong Lim undertook a partnership for a specific SEIZURE AND ATTACHMENT OF PETITIONER LIM'S
undertaking, that is for commercial fishing . . . . Obviously, the GOODS.
ultimate undertaking of the defendants was to divide the profits In determining whether petitioner may be held liable for the fishing
among themselves which is what a partnership essentially is . . . . By nets and floats from respondent, the Court must resolve this key
a contract of partnership, two or more persons bind themselves to issue: whether by their acts, Lim, Chua and Yao could be deemed to
contribute money, property or industry to a common fund with the have entered into a partnership.
intention of dividing the profits among themselves (Article 1767, This Court's Ruling
New Civil Code). 13 The Petition is devoid of merit.
Hence, petitioner brought this recourse before this Court. 14 First and Second Issues:
The Issues Existence of a Partnership
In his Petition and Memorandum, Lim asks this Court to reverse the and Petitioner's Liability

4
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA finding
that a partnership existed between him, Peter Yao and Antonio Chua.
He asserts that the CA based its finding on the Compromise
Agreement alone. Furthermore, he disclaims any direct participation
in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues
that he was a lessor, not a partner, of Chua and Yao, for the
"Contract of Lease " dated February 1, 1990, showed that he had
merely leased to the two the main asset of the purported partnership
— the fishing boat F/B Lourdes. The lease was for six months, with
a monthly rental of P37,500 plus 25 percent of the gross catch of the
boat.
We are not persuaded by the arguments of petitioner. The facts as
found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of
the Civil Code which provides:
Art. 1767 — By the contract of partnership, two or more persons
bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves.
Specifically, both lower courts ruled that a partnership among the
three existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was
engaged in commercial fishing to join him, while Antonio Chua was
already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao
verbally agreed to acquire two fishing boats, the FB Lourdes and the
FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation,
which executed a Deed of Sale over these two (2) boats in favor of
Petitioner Lim Tong Lim only to serve as security for the loan
extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-
equipping, repairing, dry docking and other expenses for the boats
would be shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again
extended a loan to the partnership in the amount of P1 million
secured by a check, because of which, Yao and Chua entrusted the
ownership papers of two other boats, Chua's FB Lady Anne Mel and
Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and
Antonio Chua bought nets from Respondent Philippine Fishing Gear,
in behalf of "Ocean Quest Fishing Corporation," their purported
business name.
5
(8) That subsequently, Civil Case No. 1492-MN was filed in the
Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against
Lim Tong Lim for (a) declaration of nullity of commercial
documents; (b) reformation of contracts; (c) declaration of ownership
of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms of which
are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua,
Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioner's brother. In their
Compromise Agreement, they subsequently revealed their intention
to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed
money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be
an intangible like credit or industry. That the parties agreed that any
loss or profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed formed
a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat
but not in the acquisition of the aforesaid equipment, without which
the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present
case should involve only questions of law. Thus, the foregoing
factual findings of the RTC and the CA are binding on this Court,
absent any cogent proof that the present action is embraced by one of
16
the exceptions to the rule. In assailing the factual findings of the
two lower courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the
existence of a partnership was the Compromise Agreement. He also
claims that the settlement was entered into only to end the dispute
among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an
6
embodiment of the relationship extant among the parties prior to its
execution.
A proper adjudication of claimants' rights mandates that courts must
review and thoroughly appraise all relevant facts. Both lower courts
have done so and have found, correctly, a preexisting partnership
among the parties. In implying that the lower courts have decided on
the basis of one piece of document alone, petitioner fails to
appreciate that the CA and the RTC delved into the history of the
document and explored all the possible consequential combinations
in harmony with law, logic and fairness. Verily, the two lower courts'
factual findings mentioned above nullified petitioner's argument that
the existence of a partnership was based only on the Compromise
Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely
the lessor of the boats to Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in the Contract of
Lease and the registration papers showing that he was the owner of
the boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to
believe that he consented to the sale of his own boats to pay a debt of
Chua and Yao, with the excess of the proceeds to be divided among
the three of them. No lessor would do what petitioner did. Indeed, his
consent to the sale proved that there was a preexisting partnership
among all three.
Verily, as found by the lower courts, petitioner entered into a
business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the upgrading of
the vessels which would be used in their fishing business. The sale of
the boats, as well as the division among the three of the balance
remaining after the payment of their loans, proves beyond cavil that
F/B Lourdes, though registered in his name, was not his own
property but an asset of the partnership. It is not uncommon to
register the properties acquired from a loan in the name of the person
the lender trusts, who in this case is the petitioner himself. After all,
he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable — indeed, it is absurd — for
petitioner to sell his property to pay a debt he did not incur, if the
relationship among the three of them was merely that of lessor-
lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel,
liability can be imputed only to Chua and Yao, and not to him.
Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons who assume to act
as a corporation knowing it to be without authority to do so shall be
7
liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when
any such ostensible corporation is sued on any transaction entered by
it as a corporation or on any tort committed by it as such, it shall not
be allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes
of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority
and at their own risk. And as it is an elementary principle of law that
a person who acts as an agent without authority or without a
principal is himself regarded as the principal, possessed of all the
right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts
performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of
which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence
in a suit brought against the alleged corporation. In such case, all
those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the nets it sold. The only question
18
here is whether petitioner should be held jointly liable with Chua
and Yao. Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation should be held
liable. Since his name does not appear on any of the contracts and
since he never directly transacted with the respondent corporation,
ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found
8
inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the
nets, because the Writ has effectively stopped his use of the fishing
vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua
and Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting
on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of
the corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppel. We
reiterate the ruling of the Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one, more deeply
schooled and skilled in the subtle art of movement and position,
entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in
issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that
justice be done upon the merits. Lawsuits, unlike duels, are not to be
won by a rapier's thrust. Technicality, when it deserts its proper
office as an aid to justice and becomes its great hindrance and chief
enemy, deserves scant consideration from courts. There should be no
vested rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was
improperly issued against the nets. We agree with the Court of
Appeals that this issue is now moot and academic. As previously
discussed, F/B Lourdes was an asset of the partnership and that it
was placed in the name of petitioner, only to assure payment of the
debt he and his partners owed. The nets and the floats were
specifically manufactured and tailor-made according to their own
design, and were bought and used in the fishing venture they agreed
upon. Hence, the issuance of the Writ to assure the payment of the
price stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent
Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
9
VITUG, J., concurring opinion; course of the business of the partnership or with the authority of his
I share the views expressed in the ponencia of an esteemed co-partners, loss or injury is caused to any person, not being a
colleague, Mr. Justice Artemio V. Panganiban, particularly the partner in the partnership, or any penalty is incurred, the partnership
finding that Antonio Chua, Peter Yao and petitioner Lim Tong Lim is liable therefor to the same extent as the partner so acting or
have incurred the liabilities of general partners. I merely would wish omitting to act; (2) where one partner acting within the scope of his
to elucidate a bit, albeit briefly, the liability of partners in a general apparent authority receives money or property of a third person and
partnership. misapplies it; and (3) where the partnership in the course of its
When a person by his act or deed represents himself as a partner in business receives money or property of a third person and the money
an existing partnership or with one or more persons not actual or property so received is misapplied by any partner while it is in the
partners, he is deemed an agent of such persons consenting to such custody of the partnership 3
— consistently with the rules on the
representation and in the same manner, if he were a partner, with nature of civil liability in delicts and quasi-delicts.
1
respect to persons who rely upon the representation. The
association formed by Chua, Yao and Lim, should be, as it has been
deemed, a de facto partnership with all the consequent obligations EN BANC
for the purpose of enforcing the rights of third persons. The liability G.R. No. L-9996 October 15, 1957
of general partners (in a general partnership as so opposed to a EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
limited partnership) is laid down in Article 1816 2 which posits that FRANCISCA EVANGELISTA, petitioners,
all partners shall be liable pro rata beyond the partnership assets for vs.
all the contracts which may have been entered into in its name, under THE COLLECTOR OF INTERNAL REVENUE and THE
its signature, and by a person authorized to act for the partnership. COURT OF TAX APPEALS, respondents.
This rule is to be construed along with other provisions of the Civil Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of
Code which postulate that the partners can be held solidarily liable the Solicitor General Ambrosio Padilla, Assistant Solicitor General
with the partnership specifically in these instances — (1) where, by Esmeraldo Umali and Solicitor Felicisimo R. Rosete for
any wrongful act or omission of any partner acting in the ordinary Respondents.

10
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista
and Francisca Evangelista, for review of a decision of the Court of
Tax Appeals, the dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable
for the income tax, real estate dealer's tax and the residence tax for
the years 1945 to 1949, inclusive, in accordance with the
respondent's assessment for the same in the total amount of
P6,878.34, which is hereby affirmed and the petition for review filed
by petitioner is hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of
P59,1400.00 which amount together with their personal monies was
used by them for the purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina
Florentino a lot with an area of 3,713.40 sq. m. including
improvements thereon from the sum of P100,000.00; this property
has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21
parcels of land with an aggregate area of 3,718.40 sq. m. including
improvements thereon for P130,000.00; this property has an assessed
value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular
Investments Inc., a lot of 4,353 sq. m. including improvements
thereon for P108,825.00. This property has an assessed value of
P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a
lot of 8,371 sq. m. including improvements thereon for P237,234.34.
This property has an assessed value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their
brother Simeon Evangelista to 'manage their properties with full
power to lease; to collect and receive rents; to issue receipts therefor;
in default of such payment, to bring suits against the defaulting
tenants; to sign all letters, contracts, etc., for and in their behalf, and
to endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the
petitioners had the same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including
December, 1945, the total amount collected as rents on their real
properties was P9,599.00 while the expenses amounted to P3,650.00
thereby leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of
P24,786.30, out of which amount was deducted in the sum of
P16,288.27 for expenses thereby leaving them a net rental income of
P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00
out of the which amount was deducted the sum of P4,837.65 as
expenses, thereby leaving them a net rental income of P12,615.35.
11
It further appears that on September 24, 1954 respondent Collector Total including surcharge P193.75
of Internal Revenue demanded the payment of income tax on TOTAL TAXES DUE P6,878.34.
corporations, real estate dealer's fixed tax and corporation residence Said letter of demand and corresponding assessments were delivered
tax for the years 1945-1949, computed, according to assessment to petitioners on December 3, 1954, whereupon they instituted the
made by said officer, as follows: present case in the Court of Tax Appeals, with a prayer that "the
INCOME TAXES decision of the respondent contained in his letter of demand dated
1945 14.84 September 24, 1954" be reversed, and that they be absolved from the
1946 1,144.71 payment of the taxes in question, with costs against the respondent.
1947 10.34 After appropriate proceedings, the Court of Tax Appeals the above-
1948 1,912.30 mentioned decision for the respondent, and a petition for
1949 1,575.90 reconsideration and new trial having been subsequently denied, the
Total including surcharge and compromise P6,157.09 case is now before Us for review at the instance of the petitioners.
REAL ESTATE DEALER'S FIXED TAX The issue in this case whether petitioners are subject to the tax on
1946 P37.50 corporations provided for in section 24 of Commonwealth Act. No.
1947 150.00 466, otherwise known as the National Internal Revenue Code, as
1948 150.00 well as to the residence tax for corporations and the real estate
1949 150.00 dealers fixed tax. With respect to the tax on corporations, the issue
Total including penalty P527.00 hinges on the meaning of the terms "corporation" and "partnership,"
RESIDENCE TAXES OF CORPORATION as used in section 24 and 84 of said Code, the pertinent parts of
1945 P38.75 which read:
1946 38.75 SEC. 24. Rate of tax on corporations.—There shall be levied,
1947 38.75 assessed, collected, and paid annually upon the total net income
1948 38.75 received in the preceding taxable year from all sources by every
1949 38.75 corporation organized in, or existing under the laws of the

12
Philippines, no matter how created or organized but not including
duly registered general co-partnerships (compañias colectivas), a tax
upon such income equal to the sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations or insurance companies, but
does not include duly registered general copartnerships. (compañias
colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves
to contribute money, properly, or industry to a common fund, with
the intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are
two, namely: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits
among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence,
the issue narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances surrounding the case,
we are fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among
themselves, because:
1. Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso. They
created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.
2. They invested the same, not merely not merely in one transaction,
but in a series of transactions. On February 2, 1943, they bought a lot
for P100,000.00. On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number
of lots (24) acquired and transactions undertaken, as well as the brief
interregnum between each, particularly the last three purchases, is
strongly indicative of a pattern or common design that was not
limited to the conservation and preservation of the aforementioned
common fund or even of the property acquired by the petitioners in
February, 1943. In other words, one cannot but perceive a character
of habitually peculiar to business transactions engaged in the purpose
of gain.
3. The aforesaid lots were not devoted to residential purposes, or to
other personal uses, of petitioners herein. The properties were leased
separately to several persons, who, from 1945 to 1948 inclusive, paid
the total sum of P70,068.30 by way of rentals. Seemingly, the lots
are still being so let, for petitioners do not even suggest that there has
been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the
13
management of one person, namely Simeon Evangelista, with full
power to lease, to collect rents, to issue receipts, to bring suits, to
sign letters and contracts, and to indorse and deposit notes and
checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business and
enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10)
years, or, to be exact, over fifteen (15) years, since the first property
was acquired, and over twelve (12) years, since Simeon Evangelista
became the manager.
6. Petitioners have not testified or introduced any evidence, either on
their purpose in creating the set up already adverted to, or on the
causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence
of said intent in petitioners herein. Only one or two of the
aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not
copartners, for, in consequence of the acts performed by them, a
legal entity, with a personality independent of that of its members,
did not come into existence, and some of the characteristics of
partnerships are lacking in the case at bar. This pretense was
correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and different
from "partnerships". When our Internal Revenue Code includes
"partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of the
term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships which
constitute precisely one of the most typical forms of partnerships in
this jurisdiction. Likewise, as defined in section 84(b) of said Code,
"the term corporation includes partnerships, no matter how created
or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or
in conformity with the usual requirements of the law on partnerships,
in order that one could be deemed constituted for purposes of the tax
on corporations. Again, pursuant to said section 84(b), the term
"corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal
personality of its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded that personality
as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general
14
copartnerships" — which are possessed of the aforementioned
personality — have been expressly excluded by law (sections 24 and
84 [b] from the connotation of the term "corporation" It may not be
amiss to add that petitioners' allegation to the effect that their liability
in connection with the leasing of the lots above referred to, under the
management of one person — even if true, on which we express no
opinion — tends to increase the similarity between the nature of
their venture and that corporations, and is, therefore, an additional
argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States,
"corporations" are taxed differently from "partnerships". By specific
provisions of said laws, such "corporations" include "associations,
joint-stock companies and insurance companies." However, the term
"association" is not used in the aforementioned laws.
. . . in any narrow or technical sense. It includes any organization,
created for the transaction of designed affairs, or the attainment of
some object, which like a corporation, continues notwithstanding
that its members or participants change, and the affairs of which, like
corporate affairs, are conducted by a single individual, a committee,
a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a
declaration of trust, a statute, or otherwise. It includes a voluntary
association, a joint-stock corporation or company, a 'business' trusts
a 'Massachusetts' trust, a 'common law' trust, and 'investment' trust
(whether of the fixed or the management type), an interinsuarance
exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name
known) which is not, within the meaning of the Code, a trust or an
estate, or a partnership. (7A Mertens Law of Federal Income
Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term
'partnership 'it includes not only a partnership as known at common
law but, as well, a syndicate, group, pool, joint venture or other
unincorporated organizations which carries on any business
financial operation, or venture, and which is not, within the meaning
of the Code, a trust, estate, or a corporation. . . (7A Merten's Law of
Federal Income taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture
or other unincorporated organization, through or by means of which
any business, financial operation, or venture is carried on, . . .. ( 8
Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis
supplied.) .
For purposes of the tax on corporations, our National Internal
Revenue Code, includes these partnerships — with the exception
only of duly registered general copartnerships — within the purview
of the term "corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is
15
concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of
Commonwealth Act No. 465 provides in part:
Entities liable to residence tax.-Every corporation, no matter how
created or organized, whether domestic or resident foreign, engaged
in or doing business in the Philippines shall pay an annual residence
tax of five pesos and an annual additional tax which in no case, shall
exceed one thousand pesos, in accordance with the following
schedule: . . .
The term 'corporation' as used in this Act includes joint-stock
company, partnership, joint account (cuentas en participacion),
association or insurance company, no matter how created or
organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to
that of section 24 and 84 (b) of our National Internal Revenue Code
(commonwealth Act No. 466), and that the latter was approved on
June 15, 1939, the day immediately after the approval of said
Commonwealth Act No. 465 (June 14, 1939), it is apparent that the
terms "corporation" and "partnership" are used in both statutes with
substantially the same meaning. Consequently, petitioners are
subject, also, to the residence tax for corporations.
Lastly, the records show that petitioners have habitually engaged in
leasing the properties above mentioned for a period of over twelve
years, and that the yearly gross rentals of said properties from June
1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject
to the tax provided in section 193 (q) of our National Internal
Revenue Code, for "real estate dealers," inasmuch as, pursuant to
section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of
buying, selling, exchanging, leasing, or renting property or his own
account as principal and holding himself out as a full or part time
dealer in real estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of three thousand
pesos or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is
hereby affirmed with costs against the petitioners herein. It is so
ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and
Felix, JJ., concur.
BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually contributed
money to a common fund with express purpose of engaging in real
estate business for profit. The series of transactions which they had
undertaken attest to this. This appears in the following portion of the
decision:
2. They invested the same, not merely in one transaction, but in a
series of transactions. On February 2, 1943, they bought a lot for
16
P100,000. On April 3, 1944, they purchase 21 lots for P18,000. This
was soon followed on April 23, 1944, by the acquisition of another
real state for P108,825. Five (5) days later (April 28, 1944), they got
a fourth lot for P237,234.14. The number of lots (24) acquired and
transactions undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a
pattern or common design that was not limited to the conservation
and preservation of the aforementioned common fund or even of the
property acquired by the petitioner in February, 1943, In other
words, we cannot but perceive a character of habitually peculiar to
business transactions engaged in for purposes of gain.
I wish however to make to make the following observation:
Article 1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a partnership or a
co-ownership. Said article paragraphs 2 and 3, provides:
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish
partnership, whether or not the person sharing them have a joint or
common right or interest in any property from which the returns are
derived;
From the above it appears that the fact that those who agree to form a
co-ownership shared or do not share any profits made by the use of
property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself
establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of
other elements constituting partnership is necessary, such as the clear
intent to form a partnership, the existence of a judicial personality
different from that of the individual partners, and the freedom to
transfer or assign any interest in the property by one with the consent
of the others (Padilla, Civil Code of the Philippines Annotated, Vol.
I, 1953 ed., pp. 635- 636).
It is evident that an isolated transaction whereby two or more persons
contribute funds to buy certain real estate for profit in the absence of
other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise
and agree to share the gross returns of that enterprise in proportion to
their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no
common stock or capital, and no community of interest as principal
proprietors in the business itself which the proceeds derived.
(Elements of the law of Partnership by Floyd R. Mechem, 2n Ed.,
section 83, p. 74.)
A joint venture purchase of land, by two, does not constitute a
17
copartnership in respect thereto; nor does not agreement to share the
profits and loses on the sale of land create a partnership; the parties
are only tenants in common. (Clark vs. Sideway, 142 U.S. 682, 12 S
Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of
a single tract of reality, holding as tenants in common, and to divide
the profits of disposing of it, the brother and the other not being
entitled to share in plaintiff's commissions, no partnership existed as
between the parties, whatever relation may have been as to third
parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An
intent to form the same; (b) generally a participating in both profits
and losses; (c) and such a community of interest, as far as third
persons are concerned as enables each party to make contract,
manage the business, and dispose of the whole property. (Municipal
Paving Co. vs Herring, 150 P. 1067, 50 Ill. 470.)
The common ownership of property does not itself create a
partnership between the owners, though they may use it for purpose
of making gains; and they may, without becoming partners, agree
among themselves as to the management and use of such property
and the application of the proceeds therefrom. (Spurlock vs. Wilson,
142 S. W. 363, 160 No. App. 14.)
This is impliedly recognized in the following portion of the decision:
"Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances (referring to the series of transactions) such as to leave
no room for doubt on the existence of said intent in petitioners
herein."
THIRD DIVISION
G.R. No. 172690 March 3, 2010
HEIRS OF JOSE LIM, represented by ELENITO LIM,
Petitioners,
vs.
JULIET VILLA LIM, Respondent.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule
45 of the Rules of Civil Procedure, assailing the Court of Appeals
(CA) Decision2 dated June 29, 2005, which reversed and set aside
the decision3 of the Regional Trial Court (RTC) of Lucena City,
dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's
widow Cresencia Palad (Cresencia); and their children Elenito,
Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners),
18
represented by Elenito Lim (Elenito). They filed a Complaint4 for
Partition, Accounting and Damages against respondent Juliet Villa
Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was
the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood
Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose,
together with his friends Jimmy Yu (Jimmy) and Norberto Uy
(Norberto), formed a partnership to engage in the trucking business.
Initially, with a contribution of P50,000.00 each, they purchased a
truck to be used in the hauling and transport of lumber of the
sawmill. Jose managed the operations of this trucking business until
his death on August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business under the
management of Elfledo. The shares in the partnership profits and
income that formed part of the estate of Jose were held in trust by
Elfledo, with petitioners' authority for Elfledo to use, purchase or
acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh
commerce graduate serving as his father’s driver in the trucking
business. He was never a partner or an investor in the business and
merely supervised the purchase of additional trucks using the income
from the trucking business of the partners. By the time the
partnership ceased, it had nine trucks, which were all registered in
Elfledo's name. Petitioners asseverated that it was also through
Elfledo’s management of the partnership that he was able to
purchase numerous real properties by using the profits derived
therefrom, all of which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo also acquired five
other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole
surviving heir. Petitioners claimed that respondent took over the
administration of the aforementioned properties, which belonged to
the estate of Jose, without their consent and approval. Claiming that
they are co-owners of the properties, petitioners required respondent
to submit an accounting of all income, profits and rentals received
from the estate of Elfledo, and to surrender the administration
thereof. Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed that
Elfledo was himself a partner of Norberto and Jimmy. Respondent
also claimed that per testimony of Cresencia, sometime in 1980, Jose
gave Elfledo P50,000.00 as the latter's capital in an informal
partnership with Jimmy and Norberto. When Elfledo and respondent
got married in 1981, the partnership only had one truck; but through
the efforts of Elfledo, the business flourished. Other than this
trucking business, Elfledo, together with respondent, engaged in
other business ventures. Thus, they were able to buy real properties
and to put up their own car assembly and repair business. When
Norberto was ambushed and killed on July 16, 1993, the trucking
19
business started to falter. When Elfledo died on May 18, 1995 due to
a heart attack, respondent talked to Jimmy and to the heirs of
Norberto, as she could no longer run the business. Jimmy suggested
that three out of the nine trucks be given to him as his share, while
the other three trucks be given to the heirs of Norberto. However,
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus,
she sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no
known assets, and the partnership with Jimmy and Norberto ceased
upon his demise. Respondent also stressed that Jose left no properties
that Elfledo could have held in trust. Respondent maintained that all
the properties involved in this case were purchased and acquired
through her and her husband’s joint efforts and hard work, and
without any participation or contribution from petitioners or from
Jose. Respondent submitted that these are conjugal partnership
properties; and thus, she had the right to refuse to render an
accounting for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its
decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally
between the plaintiffs and heirs of Jose Lim and the defendant Juliet
Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes,
profits and rentals received by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted,
petitioners filed their Motion for Reconsideration,5 which the CA,
however, denied in its Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF
ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT
THAN THAT BY A FORMER PARTNER ON THE ISSUE OF
THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?7
In essence, petitioners argue that according to the testimony of
Jimmy, the sole surviving partner, Elfledo was not a partner; and that
he and Norberto entered into a partnership with Jose. Thus, the CA
erred in not giving that testimony greater weight than that of
Cresencia, who was merely the spouse of Jose and not a party to the
partnership.8
Respondent counters that the issue raised by petitioners is not proper
in a petition for review on certiorari under Rule 45 of the Rules of
Civil Procedure, as it would entail the review, evaluation, calibration,
and re-weighing of the factual findings of the CA. Moreover,
20
respondent invokes the rationale of the CA decision that, in light of
the admissions of Cresencia and Edison and the testimony of
respondent, the testimony of Jimmy was effectively refuted;
accordingly, the CA's reversal of the RTC's findings was fully
justified.9
We resolve first the procedural matter regarding the propriety of the
instant Petition.
Verily, the evaluation and calibration of the evidence necessarily
involves consideration of factual issues — an exercise that is not
appropriate for a petition for review on certiorari under Rule 45. This
rule provides that the parties may raise only questions of law,
because the Supreme Court is not a trier of facts. Generally, we are
not duty-bound to analyze again and weigh the evidence introduced
in and considered by the tribunals below.10 When supported by
substantial evidence, the findings of fact of the CA are conclusive
and binding on the parties and are not reviewable by this Court,
unless the case falls under any of the following recognized
exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or
impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond
the issues of the case and the same is contrary to the admissions of
both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of
specific evidence on which they are based;
(9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are premised
on the supposed absence of evidence and contradicted by the
evidence on record.11
We note, however, that the findings of fact of the RTC are contrary
to those of the CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of
merit.
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with
the understanding that there shall be a proportionate sharing of the
profits and losses among them. A contract of partnership is defined
by the Civil Code as one where two or more persons bind themselves
to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves.12
21
Undoubtedly, the best evidence would have been the contract of
partnership or the articles of partnership. Unfortunately, there is none
in this case, because the alleged partnership was never formally
organized. Nonetheless, we are asked to determine who between Jose
and Elfledo was the "partner" in the trucking business.
A careful review of the records persuades us to affirm the CA
decision. The evidence presented by petitioners falls short of the
quantum of proof required to establish that: (1) Jose was the partner
and not Elfledo; and (2) all the properties acquired by Elfledo and
respondent form part of the estate of Jose, having been derived from
the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is
just one piece of evidence against respondent. It must be considered
and weighed along with petitioners' other evidence vis-à-vis
respondent's contrary evidence. In civil cases, the party having the
burden of proof must establish his case by a preponderance of
evidence. "Preponderance of evidence" is the weight, credit, and
value of the aggregate evidence on either side and is usually
considered synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last analysis,
means probability of the truth. It is evidence that is more convincing
to the court as worthy of belief than that which is offered in b (2) Co-ownership or co-possession does not of itself establish a
6opposition thereto.13 Rule 133, Section 1 of the Rules of Court
provides the guidelines in determining preponderance of evidence,
thus:
SECTION I. Preponderance of evidence, how determined. In civil
cases, the party having burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance
or superior weight of evidence on the issues involved lies, the court
may consider all the facts and circumstances of the case, the
witnesses' manner of testifying, their intelligence, their means and
opportunity of knowing the facts to which they are testifying, the
nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest,
and also their personal credibility so far as the same may legitimately
appear upon the trial. The court may also consider the number of
witnesses, though the preponderance is not necessarily with the
greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of
Appeals14 is enlightening. Therein, we cited Article 1769 of the Civil
Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules
shall apply:
(1) Except as provided by Article 1825, persons who are not partners
as to each other are not partners as to third persons;
partnership, whether such co-owners or co-possessors do or do not
22
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived;
(4) The receipt by a person of a share of the profits of a business is a
prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with
the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner of
Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
P50,000.00, as share in the partnership, on a date that coincided with
the payment of the initial capital in the partnership;15 (2) Elfledo ran
the affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever from
16
any of petitioners herein; (3) all of the properties, particularly the
nine trucks of the partnership, were registered in the name of
Elfledo; (4) Jimmy testified that Elfledo did not receive wages or
salaries from the partnership, indicating that what he actually
received were shares of the profits of the business;17 and (5) none of
the petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. As repeatedly
stressed in Heirs of Tan Eng Kee,18 a demand for periodic accounting
is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that
the real and personal properties acquired and registered in the names
of Elfledo and respondent formed part of the estate of Jose, having
been derived from Jose's alleged partnership with Jimmy and
Norberto. They failed to refute respondent's claim that Elfledo and
respondent engaged in other businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a sideline.19 Petitioners could
not offer any credible evidence other than their bare assertions. Thus,
we apply the basic rule of evidence that between documentary and
oral evidence, the former carries more weight.20
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help
but one of the partners in the trucking business, active and visible in
the running of its affairs from day one until this ceased operations
upon his demise. The extent of his control, administration and
management of the partnership and its business, the fact that its
properties were placed in his name, and that he was not paid salary
23
or other compensation by the partners, are indicative of the fact that
Elfledo was a partner and a controlling one at that. It is apparent that
the other partners only contributed in the initial capital but had no
say thereafter on how the business was ran. Evidently it was through
Elfredo’s efforts and hard work that the partnership was able to
acquire more trucks and otherwise prosper. Even the appellant
participated in the affairs of the partnership by acting as the
bookkeeper sans salary.1avvphi1
It is notable too that Jose Lim died when the partnership was barely a
year old, and the partnership and its business not only continued but
also flourished. If it were true that it was Jose Lim and not Elfledo
who was the partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were
not done but instead its operation continued under the helm of
Elfledo and without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this
was through their own concerted efforts and hard work. Elfledo did
not limit himself to the business of their partnership but engaged in
other lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the
ruling of the CA as they are amply supported by the law and by the
evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court
of Appeals Decision dated June 29, 2005 is AFFIRMED. Costs
against petitioners.
SO ORDERED.
SECOND DIVISION
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-
appellants,
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
24
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
25
APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH
APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE
MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN
FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS
ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS
ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD
SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT
APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS.
LINA O. SEVILLA FROM THE A. MABINI OFFICE BY
TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT
.ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR
APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION
OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT
APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED
MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues
to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the
telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World
Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the
appellee Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness
venture was entered into by and between her and appellee TWS with
offices at the Ermita branch office and that she was not an employee
of the TWS to the end that her relationship with TWS was one of a
joint business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an
eminent eye, ear and nose specialist as well as a imediately
columnist had been in the travel business prior to the establishment
of the joint business venture with appellee Tourist World Service,
Inc. and appellee Eliseo Canilao, her compadre, she being the
godmother of one of his children, with her own clientele, coming
mostly from her own social circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated
19 October 1960 (Exh. 'A') covering the premises at A. Mabini St.,
she expressly warranting and holding [sic] herself 'solidarily' liable
with appellee Tourist World Service, Inc. for the prompt payment of
the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-
15, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee
26
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
4
such, she was bound by the acts of her employer. The respondent
5
Court of Appeal 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
27
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
"OFFERED TO WITHDRAW HER COMP PROVIDED THAT
ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH
APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN
FACT NOT PASSING AND RESOLVING-APPELLANT
SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19,
20 AND 21 OF THE CIVIL CODE ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
AND GRAVELY ABUSED ITS DISCRETION IN DENYING
APPEAL APPELLANT SEVILLA RELIEF YET NOT
RESOLVING HER CLAIM THAT SHE WAS IN JOINT
VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH
COULD NOT BE TERMINATED OR REVOKED
UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature
of the relation between Lina Sevilla and Tourist World Service, Inc.
The respondent Court of see fit to rule on the question, the crucial
issue, in its opinion being "whether or not the padlocking of the
premises by the Tourist World Service, Inc. without the knowledge
HAD 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
7
office of the appellee Tourist World Service, Inc. 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
28
Law enjoined Tourist World Service and Canilao from taking the
8
law into their own hands, 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
10
end." 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
The records will show that the petitioner, Lina Sevilla, was not
subject to control by the private respondent Tourist World Service,
Inc., either as to the result of the enterprise or as to the means used in
connection therewith. In the first place, under the contract of lease
covering the Tourist Worlds Ermita office, she had bound herself in
solidum as and for rental payments, an arrangement that would be
like claims of a master-servant relationship. True the respondent
Court would later minimize her participation in the lease as one of
12
mere guaranty, 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
13
for any fare brought in on the effort of Mrs. Lina Sevilla. 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
29
make her, ergo, Tourist World's employee. As we said, employment
is determined by the right-of-control test and certain economic
parameters. But titles are weak indicators.
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
14
operation of your branch office 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
15
contributed and where each party exercises equal rights in the
16
conduct of the business. furthermore, the parties did not hold
themselves out as partners, and the building itself was embellished
17
with the electric sign "Tourist World Service, Inc. in 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
19
agent and the principal. It appears that Lina Sevilla is a bona fide
travel agent herself, and as such, she had acquired an interest in the
business entrusted to her. Moreover, she had assumed a personal
obligation for the operation thereof, holding herself solidarily liable
for the payment of rentals. She continued the business, using her own
name, after Tourist World had stopped further operations. Her
interest, obviously, is not to the commissions she earned as a result
of her business transactions, but one that extends to the very subject
matter of the power of management delegated to her. It is an agency
that, as we said, cannot be revoked at the pleasure of the principal.
Accordingly, the revocation complained of should entitle the
30
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
20
office. Yet, what cannot be denied is the fact that Tourist World
Service, Inc. did not take pains to have them reconnected. Assuming,
therefore, that it had no hand in the disconnection now complained
of, it had clearly condoned it, and as owner of the telephone lines, it
must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with
respect to the padlocking incident. For the fact that Tourist World
Service, Inc. was the lessee named in the lease con-tract did not
accord it any authority to terminate that contract without notice to its
actual occupant, and to padlock the premises in such fashion. As this
Court has ruled, the petitioner, Lina Sevilla, had acquired a personal
stake in the business itself, and necessarily, in the equipment
pertaining thereto. Furthermore, Sevilla was not a stranger to that
contract having been explicitly named therein as a third party in
charge of rental payments (solidarily with Tourist World, Inc.). She
could not be ousted from possession as summarily as one would eject
an interloper.
The Court is satisfied that from the chronicle of events, there was
indeed some malevolent design to put the petitioner, Lina Sevilla, in
a bad light following disclosures that she had worked for a rival firm.
To be sure, the respondent court speaks of alleged business losses to
justify the closure '21 but there is no clear showing that Tourist
World Ermita Branch had in fact sustained such reverses, let alone,
the fact that Sevilla had moonlit for another company. What the
evidence discloses, on the other hand, is that following such an
information (that Sevilla was working for another company), Tourist
World's board of directors adopted two resolutions abolishing the
office of 'manager" and authorizing the corporate secretary, the
respondent Eliseo Canilao, to effect the takeover of its branch office
properties. On January 3, 1962, the private respondents ended the
lease over the branch office premises, incidentally, without notice to
her.
It was only on June 4, 1962, and after office hours significantly, that
the Ermita office was padlocked, personally by the respondent
Canilao, on the pretext that it was necessary to Protect the interests
22
of the Tourist World Service. " 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
31
its business operations, and in the process, depriving Sevilla
anticipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a
sinister effort to punish Sevilla 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
23
defendant acted ... in bad faith.
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 willfully causes loss or injury to another
in a manner that is contrary to morals, good customs or public policy
24
shall compensate the latter for the damage.
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
25
damages,24 P10,000.00 as exemplary damages, and P5,000.00 as
26 27
nominal and/or temperate 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.
32
THIRD DIVISION
G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO
TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of
their acts. That the terms of a contract turn out to be financially
disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto
release the contracting partners from their respective obligations to
each other arising from acts executed in accordance with their
agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5,
1998 Decision 1 of the Court of Appeals 2
(CA) in CA-GR CV No.
42378 and its June 25, 1998 Resolution denying reconsideration. The
assailed Decision affirmed the ruling of the Regional Trial Court
(RTC) of Cebu City in Civil Case No. R-21208, which disposed as
follows:
WHEREFORE, for all the foregoing considerations, the Court,
finding for the defendant and against the plaintiffs, orders the
dismissal of the plaintiffs complaint. The counterclaims of the
defendant are likewise ordered dismissed. No pronouncement as to
costs. 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel
Torres for the development of a parcel of land into a subdivision.
Pursuant to the contract, they executed a Deed of Sale covering the
said parcel of land in favor of respondent, who then had it registered
in his name. By mortgaging the property, respondent obtained from
Equitable Bank a loan of P40,000 which, under the Joint Venture
4
Agreement, was to be used for the development of the subdivision.
All three of them also agreed to share the proceeds from the sale of
the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of "respondent's
lack of funds or means and skills." They add that respondent used the
loan not for the development of the subdivision, but in furtherance of
his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to
implement the Agreement. With the said amount, he was able to
effect the survey and the subdivision of the lots. He secured the Lapu
Lapu City Council's approval of the subdivision project which he
33
advertised in a local newspaper. He also caused the construction of
roads, curbs and gutters. Likewise, he entered into a contract with an
engineering firm for the building of sixty low-cost housing units and
actually even set up a model house on one of the subdivision lots. He
did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims, thereby
5
forcing him to give up on the project.
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted. Thereafter,
they filed the present civil case which, upon respondent's motion,
was later dismissed by the trial court in an Order dated September 6,
1982. On appeal, however, the appellate court remanded the case for
further proceedings. Thereafter, the RTC issued its assailed Decision,
which, as earlier stated, was affirmed by the CA.
6
Hence, this Petition.
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners
and respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership
in the same proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial court's pronouncement that losses
7
as well as profits in a joint venture should be distributed equally,
the CA invoked Article 1797 of the Civil Code which provides:
Art. 1797 — The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits
has been agreed upon, the share of each in the losses shall be in the
same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits
and losses shall be in proportion to what he may have contributed,
but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just
and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in
proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the transaction
. . . between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769,
and other related provisions of the Civil Code of the Philippines. 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
34
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of
Sale, both of which were the bases of the appellate court's finding of
a partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the
project. Because the agreement entitled them to receive 60 percent of
the proceeds from the sale of the subdivision lots, they pray that
respondent pay them damages equivalent to 60 percent of the value
9
of the property.
The pertinent portions of the Joint Venture Agreement read as
follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City,
Philippines, this 5th day of March, 1969, by and between MR.
MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS.
ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the
SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST
PARTY, this property located at Lapu-Lapu City, Island of Mactan,
under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the
sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and
development purposes;
NOW THEREFORE, for and in consideration of the above
covenants and promises herein contained the respective parties
hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale . .
. dated March 5, 1969, in the amount of TWENTY FIVE
THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS.
(P25,513.50) Philippine Currency, for 1,700 square meters at ONE
[PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not actually
receive the payment.
SECOND: That the SECOND PARTY, had received from the
FIRST PARTY, the necessary amount of TWENTY THOUSAND
(P20,000.00) pesos, Philippine currency, for their personal
obligations and this particular amount will serve as an advance
payment from the FIRST PARTY for the property mentioned to be
sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND
PARTY, the interest and the principal amount involving the amount
of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
35
Currency, until the sub-division project is terminated and ready for
sale to any interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency, will be
deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the
sub-division project should be paid by the FIRST PARTY,
exclusively and all the expenses will not be deducted from the sales
after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into
SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY
PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally
according to the . . . percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property
involved will start the work and all improvements upon the adjacent
lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option
to get back the property mentioned provided the amount of
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency,
borrowed by the SECOND PARTY, will be paid in full to the FIRST
PARTY, including all necessary improvements spent by the FIRST
PARTY, and-the FIRST PARTY will be given a grace period to
turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the
parties who executed same freely and voluntarily for the uses and
purposes therein stated. 10
A reading of the terms embodied in the Agreement indubitably
shows the existence of a partnership pursuant to Article 1767 of the
Civil Code, which provides:
Art. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute
property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in
addition to his industry, the amount needed for general expenses and
other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership. 11
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the
name of the respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which were used for
the survey and the subdivision of the land. As noted earlier, he
developed the roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the
property.
36
Respondent's actions clearly belie petitioners' contention that he
made no contribution to the partnership. Under Article 1767 of the
Civil Code, a partner may contribute not only money or property, but
also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not
only to what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.
It is undisputed that petitioners are educated and are thus presumed
to have understood the terms of the contract they voluntarily signed.
If it was not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations. They cannot now disavow
the relationship formed from such agreement due to their supposed
misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under
Article 1773 of the Civil Code, which provides:
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended primarily to protect
third persons. Thus, the eminent Arturo M. Tolentino states that
under the aforecited provision which is a complement of Article
12
1771, "The execution of a public instrument would be useless if
there is no inventory of the property contributed, because without its
designation and description, they cannot be subject to inscription in
the Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract with the
partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the
law when no such inventory is made." The case at bar does not
involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as
basis for their claim that respondent should pay them 60 percent of
37
 13
the value of the property. They cannot in one breath deny the
contract and in another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent positions in
regard to a contract and courts will not tolerate, much less approve,
such practice.
In short, the alleged nullity of the partnership will not prevent courts
from considering the Joint Venture Agreement an ordinary contract
from which the parties' rights and obligations to each other may be
inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void
under Article 1422 14 of the Civil Code, because it is the direct result
of an earlier illegal contract, which was for the sale of the land
without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states
that the consideration for the sale was the expectation of profits from
the subdivision project. Its first stipulation states that petitioners did
not actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated as cause, can
take different forms, such as the prestation or promise of a thing or
service by another. 15
In this case, the cause of the contract of sale consisted not in the
stated peso value of the land, but in the expectation of profits from
the subdivision project, for which the land was intended to be used.
As explained by the trial court, "the land was in effect given to the
partnership as [petitioner's] participation therein. . . . There was
therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would]
get sixty percent of the net profits."
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to
pay damages equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint Venture
Agreement.
We are not persuaded. True, the Court of Appeals held that
petitioners' acts were not the cause of the failure of the project. 16 But
17
it also ruled that neither was respondent responsible therefor. In
imputing the blame solely to him, petitioners failed to give any
reason why we should disregard the factual findings of the appellate
court relieving him of fault. Verily, factual issues cannot be resolved
in a petition for review under Rule 45, as in this case. Petitioners
have not alleged, not to say shown, that their Petition constitutes one
18
of the exceptions to this doctrine. Accordingly, we find no
reversible error in the CA's ruling that petitioners are not entitled to
damages.
WHEREFORE, the Perition is hereby DENIED and the challenged
38
Decision AFFIRMED. Costs against petitioners.
SO ORDERED
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
SECOND DIVISION
G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO,
respondents.
Y.G. Villaruz & Associates for petitioner.
Pelagio R. Lachica for private respondent.
REGALADO, J.:
The extensive discussion and exhaustive disquisition in the decision
1 of the respondent Court 2 should have written finis to this case
without further recourse to Us. The assignment of errors and
arguments raised in the respondent Court by herein private
respondent, as the petitioner therein, having been correctly and
justifiedly sustained by said court without any reversible error in its
conclusions, the present petition must fail.
The assailed decision details the facts and proceedings which
spawned the present controversy as follows:
Petitioner brought an action in the City Court of Dipolog for
collection of a sum of P5,217.25 based on promissory notes executed
by the herein private respondent Nobio Sardane in favor of the herein
petitioner. Petitioner bases his right to collect on Exhibits B, C, D, E,
F, and G executed on different dates and signed by private
respondent Nobio Sardane. Exhibit B is a printed promissory note
involving Pl,117.25 and dated May 13, 1972. Exhibit C is likewise a
printed promissory note and denotes on its face that the sum loaned
was Pl,400.00. Exhibit D is also a printed promissory note dated
May 31, 1977 involving an amount of P100.00. Exhibit E is what is
commonly known to the layman as 'vale' which reads: 'Good for: two
hundred pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the
following tenor: 'Received from Mr. Romeo Acojedo the sum Pesos:
Two Thousand Two Hundred (P2,200.00) ONLY, to be paid on or
before December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H
are both vales' involving the same amount of one hundred pesos, and
dated August 25, 1972 and September 12, 1972 respectively.
It has been established in the trial court that on many occasions, the
petitioner demanded the payment of the total amount of P5,217.25.
The failure of the private respondent to pay the said amount
prompted the petitioner to seek the services of lawyer who made a
letter (Exhibit 1) formally demanding the return of the sum loaned.
Because of the failure of the private respondent to heed the demands
extrajudicially made by the petitioner, the latter was constrained to
39
bring an action for collection of sum of money.
During the scheduled day for trial, private respondent failed to
appear and to file an answer. On motion by the petitioner, the City
Court of Dipolog issued an order dated May 18, 1976 declaring the
private respondent in default and allowed the petitioner to present his
evidence ex-parte. Based on petitioner's evidence, the City Court of
Dipolog rendered judgment by default in favor of the petitioner.
Private respondent filed a motion to lift the order of default which
was granted by the City Court in an order dated May 24, 1976,
taking into consideration that the answer was filed within two hours
after the hearing of the evidence presented ex-parte by the petitioner.
After the trial on the merits, the City Court of Dipolog rendered its
decision on September 14, 1976, the dispositive portion of which
reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in
favor of the plaintiff and against the defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five
Thousand Two Hundred Seventeen Pesos and Twenty-five centavos
(P5,217.25) plus legal interest to commence from April 23, 1976
when this case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as
attorney's fee and to pay the cost of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of
Zamboanga del Norte which reversed the decision of the lower court
by dismissing the complaint and ordered the plaintiff-appellee
Acojedo to pay said defendant-appellant P500.00 each for actual
damages, moral damages, exemplary damages and attorney's fees, as
well as the costs of suit. Plaintiff-appellee then sought the review of
said decision by petition to the respondent Court.
The assignment of errors in said petition for review can be
capsulized into two decisive issues, firstly, whether the oral
testimony for the therein private respondent Sardane that a
partnership existed between him and therein petitioner Acojedo are
admissible to vary the meaning of the abovementioned promissory
notes; and, secondly, whether because of the failure of therein
petitioner to cross-examine therein private respondent on his sur-
rebuttal testimony, there was a waiver of the presumption accorded
in favor of said petitioner by Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the
pleadings of the parties herein put in issue the imperfection or
ambiguity of the documents in question", hence "the appellant can
avail of the parol evidence rule to prove his side of the case, that is,
the said amount taken by him from appellee is or was not his
personal debt to appellee, but expenses of the partnership between
him and appellee."
Consequently, said trial court concluded that the promissory notes
involved were merely receipts for the contributions to said
partnership and, therefore, upheld the claim that there was ambiguity
40
in the promissory notes, hence parol evidence was allowable to vary
or contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.—When the terms of an
agreement have been reduced to writing, it is to be considered as
containing all such terms, and, therefore, there can be, between the
parties and their successors in interest, no evidence of the terms of
the agreement other than the contents of the writing except in the
following cases:
(a) Where a mistake or imperfection of the writing or its failure to
express the the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to
the rule do not apply in this case as there is no ambiguity in the
writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory notes
containing a promise to pay a sum certain in money, payable on
demand and the promise to bear the costs of litigation in the event of
the private respondent's failure to pay the amount loaned when
demanded extrajudicially. Likewise, the vales denote that the private
respondent is obliged to return the sum loaned to him by the
petitioner. On their face, nothing appears to be vague or ambigous,
for the terms of the promissory notes clearly show that it was
incumbent upon the private respondent to pay the amount involved
in the promissory notes if and when the petitioner demands the same.
It was clearly the intent of the parties to enter into a contract of loan
for how could an educated man like the private respondent be
deceived to sign a promissory note yet intending to make such a
writing to be mere receipts of the petitioner's supposed contribution
to the alleged partnership existing between the parties?
It has been established in the trial court that, the private respondent
has been engaged in business for quite a long period of time--as
owner of the Sardane Trucking Service, entering into contracts with
the government for the construction of wharfs and seawall; and a
member of the City Council of Dapitan (TSN, July 20, 1976, pp. 57-
58).<äre||anº•1àw> It indeed puzzles us how the private respondent
could have been misled into signing a document containing terms
which he did not mean them to be. ...
xxx xxx xxx
The private respondent admitted during the cross-examination made
by petitioner's counsel that he was the one who was responsible for
the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64).
How could he purportedly rely on such a flimsy pretext that the
promissory notes were receipts of the petitioner's contribution? 4
The Court of Appeals held, and We agree, that even if evidence
aliunde other than the promissory notes may be admitted to alter the
meaning conveyed thereby, still the evidence is insufficient to prove
41
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
42
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
43
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.
44
THIRD DIVISION
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ,
respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO,
GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG
and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES
CHAMSAY and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the
COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended
decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and
05617 which set aside the earlier decision dated June 5, 1986, of the
then Intermediate Appellate Court and directed that in all subsequent
elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more
than three (3) directors; that the Filipino stockholders shall not
interfere in ASI's choice of its three (3) nominees; that, on the other
hand, the Filipino stockholders can nominate only six (6) candidates
and in the event they cannot agree on the six (6) nominees, they shall
vote only among themselves to determine who the six (6) nominees
will be, with cumulative voting to be allowed but without
interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the
primary purpose of manufacturing and marketing sanitary wares.
One of the incorporators, Mr. Baldwin Young went abroad to look
45
for foreign partners, European or American who could help in its
expansion plans. On August 15, 1962, ASI, a foreign corporation
domiciled in Delaware, United States entered into an Agreement
with Saniwares and some Filipino investors whereby ASI and the
Filipino investors agreed to participate in the ownership of an
enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous
china and sanitary wares. The parties agreed that the business
operations in the Philippines shall be carried on by an incorporated
enterprise and that the name of the corporation shall initially be
"Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in
these cases on the nomination and election of the directors of the
corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be
substantially in the form annexed hereto as Exhibit A and, insofar as
permitted under Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of
Directors, which shall consist of nine individuals. As long as
American-Standard shall own at least 30% of the outstanding stock
of the Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the
other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed
to protect it as a minority group, including the grant of veto powers
over a number of corporate acts and the right to designate certain
officers, such as a member of the Executive Committee whose vote
was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the
capital stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino investors and
the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially
harmonious relations between the two groups. According to the
Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected
as it apparently had other subsidiaries of joint 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
46
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, AC-G.R. SP No. 05617).
This motion to adjourn was accepted by the Chairman, Baldwin
Young, who announced that the motion was carried and declared the
meeting adjourned. Protests against the adjournment were registered
and having been ignored, Mr. Jaqua the ASI representative, stated
that the meeting was not adjourned but only recessed and that the
47
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.
48
75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE
ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE
STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING
RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
SANIWARES, THUS DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR PROPERTY
RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND
READS PROVISIONS INTO THE AGREEMENT OF THE
PARTIES WHICH WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the
amended decision on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
binding contractual agreements entered into by stockholders and the
replacement of the conditions of such agreements with terms never
contemplated by the stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation
of the property rights of stockholders without due process of law in
order that a favored group of stockholders may be illegally benefitted
and guaranteed a continuing monopoly of the control of a
corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT,
WHILE RECOGNIZING THAT THE STOCKHOLDERS OF
SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT
AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY
RULE THAT PRIVATE PETITIONERS HEREIN WERE THE
DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983
ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P.
24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are
discussed jointly.
The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' meeting
held on March 8, 1983. To answer this question the following factors
should be determined: (1) the nature of the business established by
the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity
during elections of Saniwares' board of directors.
49
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
50
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).
51
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.
52
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
53
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,
54
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
55
not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three
directors it is allowed to designate under the Agreement, and may
even be able to get a majority of the board seats, a result which is
clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this
ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy
Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that
the ASI Group has the right to vote their additional equity pursuant
to Section 24 of the Corporation Code which gives the stockholders
of a corporation the right to cumulate their votes in electing
directors. Petitioner Salazar adds that this right if granted to the ASI
Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a
thereof which provides:
And provided finally that the election of aliens as members of the
board of directors or governing body of corporations or associations
engaging in partially nationalized activities shall be allowed in
proportion to their allowable participation or share in the capital of
such entities. (amendments introduced by Presidential Decree 715,
section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24
of the Corporation Code. The point of query, however, is whether or
not that provision is applicable to a joint venture with clearly defined
agreements:
The legal concept of ajoint venture is of common law origin. It has
no precise legal definition but it has been generally understood to
mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable
from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949];
Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v.
Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]).
The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business
with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary
nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have
56
for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a
form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it
may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases, Corporation Code
1981)
Moreover, the usual rules as regards the construction and operations
of contracts generally apply to a contract of joint venture. (O' Hara v.
Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the
resolution of the question of whether or not the ASI Group may vote
their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the
agreement of the parties as regards the allocation of director seats
under Section 5 (a) of the "Agreement," and the right of each group
of stockholders to cumulative voting in the process of determining
who the group's nominees would be under Section 3 (a) (1) of the
"Agreement." As pointed out by SEC, Section 5 (a) of the
Agreement relates to the manner of nominating the members of the
board of directors while Section 3 (a) (1) relates to the manner of
voting for these nominees.
This is the proper interpretation of the Agreement of the parties as
regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect
even a Filipino director who would be beholden to them would
obliterate their minority status as agreed upon by the parties. As
aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting
within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board
seats, a result which is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this
ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy
Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the
parties is the consideration as regards the possible domination by the
foreign investors of the enterprise in violation of the nationalization
requirements enshrined in the Constitution and circumvention of the
57
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 y agreed upon and embodied in the parties' Agreement
to protect the interests arising from the minority status of the foreign
invesutors.
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
58
not be used as a device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the
majority status of the Filipino investors as well as to maintain the
minority status of the foreign investors group as earlier discussed.
They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No.
75875 are DISMISSED and the petition in G.R. No. 75951 is partly
GRANTED. The amended decision of the Court of Appeals is
MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George
F. Lee are declared as the duly elected directors of Saniwares at the
March 8,1983 annual stockholders' meeting. In all other respects, the
questioned decision is AFFIRMED. Costs against the petitioners in
G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.
FIRST DIVISION
G.R. No. 127405 September 20, 2001
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs.
COURT OF APPEALS and NENITA A. ANAY, respondent.
RESOLUTION
YNARES-SANTIAGO, J.:
The inherent powers of a Court to amend and control its processes
and orders so as to make them conformable to law and justice
includes the right to reverse itself, especially when in its honest
opinion it has committed an error or mistake in judgment, and that to
adhere to its decision will cause injustice to a party litigant.1
On November 14, 2001, petitioners Marjorie Tocao and William T.
Belo filed a Motion for Reconsideration `of our Decision dated
October 4, 2000. They maintain that there was no partnership
between petitioner Belo, on the one hand, and respondent Nenita A.
Anay, on the other hand; and that the latter being merely an
employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced
that, indeed, petitioner Belo acted merely as guarantor of Geminesse
Enterprise. This was categorically affirmed by respondent's own
witness, Elizabeth Bantilan, during her cross-examination.
Furthermore, Bantilan testified that it was Peter Lo who was the
59
company's financier. Thus:
Q - You mentioned a while ago the name William Belo. Now,
what is the role of William Belo with Geminesse Enterprise?
A - William Belo is the friend of Marjorie Tocao and he was the
guarantor of the company.
Q - What do you mean by guarantor?
A - He guarantees the stocks that she owes somebody who is
Peter Lo and he acts as guarantor for us. We can borrow money from
him.
Q - You mentioned a certain Peter Lo. Who is this Peter Lo?
A - Peter Lo is based in Singapore.
Q - What is the role of Peter Lo in the Geminesse Enterprise?
A - He is the one fixing our orders that open the L/C.
Q - You mean Peter Lo is the financier?
A - Yes, he is the financier.
Q - And the defendant William Belo is merely the guarantor of
Geminesse Enterprise, am I correct?
A - Yes, sir2
The foregoing was neither refuted nor contradicted by respondent's
evidence. It should be recalled that the business relationship created
between petitioner Tocao and respondent Anay was an informal
partnership, which was not even recorded with the Securities and
Exchange Commission. As such, it was understandable that Belo,
who was after all petitioner Tocao's good friend and confidante,
would occasionally participate in the affairs of the business, although
never in a formal or official capacity.3 Again, respondent's witness,
Elizabeth Bantilan, confirmed that petitioner Belo's presence in
Geminesse Enterprise's meetings was merely as guarantor of the
company and to help petitioner Tocao.4
Furthermore, no evidence was presented to show that petitioner Belo
participated in the profits of the business enterprise. Respondent
herself professed lack of knowledge that petitioner Belo received any
share in the net income of the partnership.5 On the other hand,
petitioner Tocao declared that petitioner Belo was not entitled to any
share in the profits of Geminesse Enterprise.6 With no participation
in the profits, petitioner Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in the profits and
losses.7
Consequently, inasmuch as petitioner Belo was not a partner in
Geminesse Enterprise, respondent had no cause of action against him
and her complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent
should be deemed in bad faith for failing to account for stocks of
Geminesse Enterprise amounting to P208,250.00 and that,
accordingly, her claim for damages should be barred to that extent.
We do not agree. Given the circumstances surrounding private
respondent's sudden ouster from the partnership by petitioner Tocao,
her act of withholding whatever stocks were in her possession and
60
control was justified, if only to serve as security for her claims
against the partnership. However, while we do not agree that the
same renders private respondent in bad faith and should bar her
claim for damages, we find that the said sum of P208,250.00 should
be deducted from whatever amount is finally adjudged in her favor
on the basis of the formal account of the partnership affairs to be
submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion
Reconsideration of petitioners is PARTIALLY GRANTED. The
Regional Trial Court of Makati is hereby ordered to DISMISS the
complaint, docketed as Civil Case No. 88-509, as against petitioner
William T. Belo only. The sum of P208,250.00 shall be deducted
from whatever amount petitioner Marjorie Tocao shall be held liable
to pay respondent after the normal accounting of the partnership
affairs.
SO ORDERED.
Davide, Jr., Kapunan, and Pardo; JJ., concur.
Puno, J., on official leave.
FIRST DIVISION
G.R. No. 127405 October 4, 2000
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.
DECISION
for YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals
in CA-G.R. CV No. 41616,1 affirming the Decision of the Regional
Trial Court of Makati, Branch 140, in Civil Case No. 88-509.2
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William
T. Belo, then the vice-president for operations of Ultra Clean Water
Purifier, through her former employer in Bangkok. Belo introduced
Anay to petitioner Marjorie Tocao, who conveyed her desire to enter
into a joint venture with her for the importation and local distribution
of kitchen cookwares. Belo volunteered to finance the joint venture
and assigned to Anay the job of marketing the product considering
her experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin, U.S.A.
Under the joint venture, Belo acted as capitalist, Tocao as president
and general manager, and Anay as head of the marketing department
and later, vice-president for sales. Anay organized the administrative
61
staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and
assigned them to different branches. The parties agreed that Belo’s
name should not appear in any documents relating to their
transactions with West Bend Company. Instead, they agreed to use
Anay’s name in securing distributorship of cookware from that
company. The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business; (2)
overriding commission of six percent (6%) of the overall weekly
production; (3) thirty percent (30%) of the sales she would make;
and (4) two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the strength of Belo’s
assurances that he was sincere, dependable and honest when it came
to financial commitments.
Anay having secured the distributorship of cookware products from
the West Bend Company and organized the administrative staff and
the sales force, the cookware business took off successfully. They
operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocao’s name, with office at
712 Rufino Building, Ayala Avenue, Makati City. Belo made good
his monetary commitments to Anay. Thereafter, Roger Muencheberg
of West Bend Company invited Anay to the distributor/dealer
meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987
and to the southwestern regional convention in Pismo Beach,
California, U.S.A., from July 25-26, 1987. Anay accepted the
invitation with the consent of Marjorie Tocao who, as president and
general manager of Geminesse Enterprise, even wrote a letter to the
Visa Section of the U.S. Embassy in Manila on July 13, 1987. A
portion of the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting
West Bend Co. for twenty (20) years now, acquired the
distributorship of Royal Queen cookware for Geminesse Enterprise,
is the Vice President Sales Marketing and a business partner of our
company, will attend in response to the invitation." (Italics
supplied.)3
Anay arrived from the U.S.A. in mid-August 1987, and immediately
undertook the task of saving the business on account of the
unsatisfactory sales record in the Makati and Cubao offices. On
August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao4 for her
excellent job performance. On October 7, 1987, in the presence of
Anay, Belo signed a memo5 entitling her to a thirty-seven percent
(37%) commission for her personal sales "up Dec 31/87." Belo
explained to her that said commission was apart from her ten percent
(10%) share in the profits. On October 9, 1987, Anay learned that
Marjorie Tocao had signed a letter6 addressed to the Cubao sales
office to the effect that she was no longer the vice-president of
Geminesse Enterprise. The following day, October 10, she received a
62
note from Lina T. Cruz, marketing manager, that Marjorie Tocao had
barred her from holding office and conducting demonstrations in
7
both Makati and Cubao offices. Anay attempted to contact Belo.
She wrote him twice to demand her overriding commission for the
period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits. When her letters
were not answered, Anay consulted her lawyer, who, in turn, wrote
Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up
to December 1987. The following year, 1988, she did not receive the
same commission although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a
complaint for sum of money with damages8 against Marjorie D.
Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her,
jointly and severally, the following: (1) P32,00.00 as unpaid
overriding commission from January 8, 1988 to February 5, 1988;
(2) P100,000.00 as moral damages, and (3) P100,000.00 as
exemplary damages. The plaintiff also prayed for an audit of the
finances of Geminesse Enterprise from the inception of its business
operation until she was "illegally dismissed" to determine her ten
percent (10%) share in the net profits. She further prayed that she be
paid the five percent (5%) "overriding commission" on the remaining
150 West Bend cookware sets before her "dismissal."
In their answer,9 Marjorie Tocao and Belo asserted that the "alleged
agreement" with Anay that was "neither reduced in writing, nor
ratified," was "either unenforceable or void or inexistent." As far as
Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay
herself admitted, Geminesse Enterprise was the sole proprietorship
of Marjorie Tocao. Because Anay merely acted as marketing
demonstrator of Geminesse Enterprise for an agreed remuneration,
and her complaint referred to either her compensation or dismissal,
such complaint should have been lodged with the Department of
Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the
complaint on account of "ill-will and resentment" because Marjorie
Tocao did not allow her to "lord it over in the Geminesse
Enterprise." Anay had acted like she owned the enterprise because of
her experience and expertise. Hence, petitioners were the ones who
suffered actual damages "including unreturned and unaccounted
stocks of Geminesse Enterprise," and "serious anxiety, besmirched
reputation in the business world, and various damages not less than
P500,000.00." They also alleged that, to "vindicate their names,"
they had to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or
63
not the plaintiff was an employee or partner of Marjorie Tocao and
Belo, and (b) whether or not the parties are entitled to damages.10
In their defense, Belo denied that Anay was supposed to receive a
share in the profit of the business. He, however, admitted that the
two had agreed that Anay would receive a three to four percent (3-
4%) share in the gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as he merely
served as a guarantor of Marjorie Tocao, who was new in the
business. He attended and/or presided over business meetings of the
venture in his capacity as a guarantor but he never participated in
decision-making. He claimed that he wrote the memo granting the
plaintiff thirty-seven percent (37%) commission upon her dismissal
from the business venture at the request of Tocao, because Anay had
no other income.
For her part, Marjorie Tocao denied having entered into an oral
partnership agreement with Anay. However, she admitted that Anay
was an expert in the cookware business and hence, they agreed to
grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on
product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%)
commission on the net profits. Marjorie claimed that she got the
capital for the business out of the sale of the sewing machines used
in her garments business and from Peter Lo, a Singaporean friend-
financier who loaned her the funds with interest. Because she treated
Anay as her "co-equal," Marjorie received the same amounts of
commissions as her. However, Anay failed to account for stocks
valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive
part of which is as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby
rendered:
1. Ordering defendants to submit to the Court a formal account as to
the partnership affairs for the years 1987 and 1988 pursuant to Art.
1809 of the Civil Code in order to determine the ten percent (10%)
share of plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding
commission for the one hundred and fifty (150) cookware sets
available for disposition when plaintiff was wrongfully excluded
from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the
total production which for the period covering January 8, 1988 to
February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and
P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorney’s fees and
P20,000.00 as costs of suit.
SO ORDERED."
64
The trial court held that there was indeed an "oral partnership
agreement between the plaintiff and the defendants," based on the
following: (a) there was an intention to create a partnership; (b) a
common fund was established through contributions consisting of
money and industry, and (c) there was a joint interest in the profits.
The testimony of Elizabeth Bantilan, Anay’s cousin and the
administrative officer of Geminesse Enterprise from August 21, 1986
until it was absorbed by Royal International, Inc., buttressed the fact
that a partnership existed between the parties. The letter of Roger
Muencheberg of West Bend Company stating that he awarded the
distributorship to Anay and Marjorie Tocao because he was
convinced that with Marjorie’s financial contribution and Anay’s
experience, the combination of the two would be invaluable to the
partnership, also supported that conclusion. Belo’s claim that he was
merely a "guarantor" has no basis since there was no written
evidence thereof as required by Article 2055 of the Civil Code.
Moreover, his acts of attending and/or presiding over meetings of
Geminesse Enterprise plus his issuance of a memo giving Anay 37%
commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice is
often resorted to in business circles as an impetus to bigger sales
volume. It did not matter that the agreement was not in writing
because Article 1771 of the Civil Code provides that a partnership
may be "constituted in any form." The fact that Geminesse
Enterprise was registered in Marjorie Tocao’s name is not
determinative of whether or not the business was managed and
operated by a sole proprietor or a partnership. What was registered
with the Bureau of Domestic Trade was merely the business name or
style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully
from a partnership is an innocent partner. Hence, the guilty partner
must give him his due upon the dissolution of the partnership as well
as damages or share in the profits "realized from the appropriation of
the partnership business and goodwill." An innocent partner thus
possesses "pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and assets at
the time he was wrongfully expelled."
Petitioners’ appeal to the Court of Appeals11 was dismissed, but the
amount of damages awarded by the trial court were reduced to
P50,000.00 for moral damages and P50,000.00 as exemplary
damages. Their Motion for Reconsideration was denied by the Court
of Appeals for lack of merit.12 Petitioners Belo and Marjorie Tocao
are now before this Court on a petition for review on certiorari,
asserting that there was no business partnership between them and
herein private respondent Nenita A. Anay who is, therefore, not
entitled to the damages awarded to her by the Court of Appeals.
65
Petitioners Tocao and Belo contend that the Court of Appeals
erroneously held that a partnership existed between them and private
respondent Anay because Geminesse Enterprise "came into being"
exactly a year before the "alleged partnership" was formed, and that
it was very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing, without
13
any "memorandum whatsoever regarding the alleged partnership."
The issue of whether or not a partnership exists is a factual matter
which are within the exclusive domain of both the trial and appellate
courts. This Court cannot set aside factual findings of such courts
absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.14 In this case, both the trial
court and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This Court
finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill
these requisites: (1) two or more persons bind themselves to
contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among
themselves.15 It may be constituted in any form; a public instrument
is necessary only where immovable property or real rights are
contributed thereto.16 This implies that since a contract of partnership
is consensual, an oral contract of partnership is as good as a written
one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a
partnership. The fact that there appears to be no record in the
Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the
Civil Code17 did not cause the nullification of the partnership. The
pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage
in the business of distributorship of cookware. Private respondent
contributed such expertise to the partnership and hence, under the
law, she was the industrial or managing partner. It was through her
reputation with the West Bend Company that the partnership was
able to open the business of distributorship of that company’s
cookware products; it was through the same efforts that the business
was propelled to financial success. Petitioner Tocao herself admitted
private respondent’s indispensable role in putting up the business
when, upon being asked if private respondent held the positions of
marketing manager and vice-president for sales, she testified thus:
"A: No, sir at the start she was the marketing manager because there
were no one to sell yet, it’s only me there then her and then two (2)
people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given
66
the designation of marketing managers of which definitely Nita as
superior to them would be the Vice President."18
By the set-up of the business, third persons were made to believe that
a partnership had indeed been forged between petitioners and private
respondents. Thus, the communication dated June 4, 1986 of Missy
Jagler of West Bend Company to Roger Muencheberg of the same
company states:
"Marge Tocao is president of Geminesse Enterprises. Geminesse will
finance the operations. Marge does not have cookware experience.
Nita Anay has started to gather former managers, Lina Torda and
Dory Vista. She has also gathered former demonstrators, Betty
Bantilan, Eloisa Lamela, Menchu Javier. They will continue to
gather other key people and build up the organization. All they need
is the finance and the products to sell."19
On the other hand, petitioner Belo’s denial that he financed the
partnership rings hollow in the face of the established fact that he
presided over meetings regarding matters affecting the operation of
the business. Moreover, his having authorized in writing on October
7, 1987, on a stationery of his own business firm, Wilcon Builders
Supply, that private respondent should receive thirty-seven (37%) of
the proceeds of her personal sales, could not be interpreted otherwise
than that he had a proprietary interest in the business. His claim that
he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a
guarantor of future debts of petitioner Tocao under Article 2053 of
the Civil Code,20 he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that
guaranty must be "express," Article 1403, the Statute of Frauds,
requires that "a special promise to answer for the debt, default or
miscarriage of another" be in writing.21
Petitioner Tocao, a former ramp model,22 was also a capitalist in the
partnership. She claimed that she herself financed the business. Her
and petitioner Belo’s roles as both capitalists to the partnership with
private respondent are buttressed by petitioner Tocao’s admissions
that petitioner Belo was her boyfriend and that the partnership was
not their only business venture together. They also established a firm
that they called "Wiji," the combination of petitioner Belo’s first
name, William, and her nickname, Jiji.23 The special relationship
between them dovetails with petitioner Belo’s claim that he was
acting in behalf of petitioner Tocao. Significantly, in the early stage
of the business operation, petitioners requested West Bend Company
to allow them to "utilize their banking and trading facilities in
Singapore" in the matter of importation and payment of the
cookware products.24 The inevitable conclusion, therefore, was that
petitioners merged their respective capital and infused the amount
into the partnership of distributing cookware with private respondent
as the managing partner.
The business venture operated under Geminesse Enterprise did not
67
result in an employer-employee relationship between petitioners and
private respondent. While it is true that the receipt of a percentage of
net profits constitutes only prima facie evidence that the recipient is
a partner in the business,25 the evidence in the case at bar controverts
an employer-employee relationship between the parties. In the first
place, private respondent had a voice in the management of the
affairs of the cookware distributorship, 26
including selection of
people who would constitute the administrative staff and the sales
force. Secondly, petitioner Tocao’s admissions militate against an
employer-employee relationship. She admitted that, like her who
27
owned Geminesse Enterprise, private respondent received only
commissions and transportation and representation allowances28 and
not a fixed salary.29 Petitioner Tocao testified:
"Q: Of course. Now, I am showing to you certain documents already
marked as Exhs. ‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is
denominated `Cubao overrides’ 8-21-87 with ending August 21,
1987, will you please go over this and tell the Honorable Court
whether you ever came across this document and know of your own
knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. That’s the one I am
telling you earlier a certain percentage for promotions, advertising,
incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure
here and words which I quote: ‘Overrides Marjorie Ann Tocao
P21,410.50’ this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as
one representing commission, representation, advertising and
promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote ‘Nita
D. Anay P21,410.50’, what is this?
A: That’s her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this
Honorable Court that there being the same P21,410.50 is merely by
coincidence?
A: No, sir, I made it a point that we were equal because the way I
look at her kasi, you know in a sense because of her expertise in the
business she is vital to my business. So, as part of the incentive I
offer her the same thing.
Q: So, in short you are saying that this you have shared together, I
mean having gotten from the company P21,140.50 is your way of
indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati
the other one is ---
68
A: That is the same thing, sir.
Q: With ending August 21, words and figure ‘Overrides Marjorie
Ann Tocao P15,314.25’ the amount there you will acknowledge you
have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25
that is also an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that
these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Italics supplied.)30
If indeed petitioner Tocao was private respondent’s employer, it is
difficult to believe that they shall receive the same income in the
business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be
liable for the losses.31 As an industrial partner, private respondent
had the right to demand for a formal accounting of the business and
to receive her share in the net profit.32
The fact that the cookware distributorship was operated under the
name of Geminesse Enterprise, a sole proprietorship, is of no
moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise.33 While it is
true that in her undated application for renewal of registration of that
firm name, petitioner Tocao indicated that it would be engaged in
retail of "kitchenwares, cookwares, utensils, skillet,"34 she also
admitted that the enterprise was only "60% to 70% for the cookware
business," while 20% to 30% of its business activity was devoted to
the sale of water sterilizer or purifier.35 Indubitably then, the business
name Geminesse Enterprise was used only for practical reasons - it
was utilized as the common name for petitioner Tocao’s various
business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not
return the "unaccounted and unremitted stocks of Geminesse
Enterprise amounting to P208,250.00."36 Obviously a ploy to offset
the damages awarded to private respondent, that claim, more than
anything else, proves the existence of a partnership between them. In
Idos v. Court of Appeals, this Court said:
"The best evidence of the existence of the partnership, which was not
yet terminated (though in the winding up stage), were the unsold
goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner
and private complainant remained as co-partners. x x x."37
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she
69
still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private
respondent from the partnership to reap for herself and/or for
petitioner Belo financial gains resulting from private respondent’s
efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert
herself to the extent that she would even shout at private respondent
in front of other people.38 Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the
business operation,39 and resulted in a falling out between the two.
However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization.40 The
partnership exists until dissolved under the law. Since the partnership
created by petitioners and private respondent has no fixed term and is
therefore a partnership at will predicated on their mutual desire and
consent, it may be dissolved by the will of a partner. Thus:
"x x x. The right to choose with whom a person wishes to associate
himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner’s capability to give it, and
the absence of cause for dissolution provided by the law itself.
Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good
faith, not that the attendance of bad faith can prevent the dissolution
of the partnership but that it can result in a liability for damages."41
An unjustified dissolution by a partner can subject him to action for
damages because by the mutual agency that arises in a partnership,
the doctrine of delectus personae allows the partners to have the
power, although not necessarily the right to dissolve the
partnership.42
In this case, petitioner Tocao’s unilateral exclusion of private
respondent from the partnership is shown by her memo to the Cubao
office plainly stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of Geminesse
Enterprise.43 By that memo, petitioner Tocao effected her own
withdrawal from the partnership and considered herself as having
ceased to be associated with the partnership in the carrying on of the
business. Nevertheless, the partnership was not terminated thereby; it
continues until the winding up of the business.44
The winding up of partnership affairs has not yet been undertaken by
the partnership.1âwphi1 This is manifest in petitioners’ claim for
stocks that had been entrusted to private respondent in the pursuit of
the partnership business.
The determination of the amount of damages commensurate with the
factual findings upon which it is based is primarily the task of the
trial court.45 The Court of Appeals may modify that amount only
70
when its factual findings are diametrically opposed to that of the profits of the partnership;
lower court,46 or the award is palpably or scandalously and 2. Petitioners are ordered, jointly and severally, to pay private
47
unreasonably excessive. However, exemplary damages that are respondent five percent (5%) overriding commission for the one
awarded "by way of example or correction for the public good," 48 hundred and fifty (150) cookware sets available for disposition since
should be reduced to P50,000.00, the amount correctly awarded by the time private respondent was wrongfully excluded from the
the Court of Appeals. Concomitantly, the award of moral damages of partnership by petitioners;
P100,000.00 was excessive and should be likewise reduced to 3. Petitioners are ordered, jointly and severally, to pay private
P50,000.00. Similarly, attorney’s fees that should be granted on respondent overriding commission on the total production which, for
account of the award of exemplary damages and petitioners’ evident the period covering January 8, 1988 to February 5, 1988, amounted
bad faith in refusing to satisfy private respondent’s plainly valid, just to P32,000.00;
49
and demandable claims, appear to have been excessively granted 4. Petitioners are ordered, jointly and severally, to pay private
by the trial court and should therefore be reduced to P25,000.00. respondent moral damages in the amount of P50,000.00, exemplary
WHEREFORE, the instant petition for review on certiorari is damages in the amount of P50,000.00 and attorney’s fees in the
DENIED. The partnership among petitioners and private respondent amount of P25,000.00.
is ordered dissolved, and the parties are ordered to effect the winding SO ORDERED.
up and liquidation of the partnership pursuant to the pertinent
provisions of the Civil Code. This case is remanded to the Regional
Trial Court for proper proceedings relative to said dissolution. The
appealed decisions of the Regional Trial Court and the Court of
Appeals are AFFIRMED with MODIFICATIONS, as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a
formal account of the partnership affairs for the years 1987 and
1988, pursuant to Article 1809 of the Civil Code, in order to
determine private respondent’s ten percent (10%) share in the net

71
 ARTICLE 1768
PARTNERSHIP AS A JURIDICAL PERSON
THIRD DIVISION
G.R. No. 143340 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).
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
72
inventories, balance sheets and net worth of Shellite from 1977 to
1989, respondent however suspected that the amount indicated in
these documents were understated and undervalued by Jacinto and
Josephine for their own selfish reasons and for tax avoidance.
Upon 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.
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.
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,
73
Prohibition and Mandamus with the Court of Appeals docketed as
CA-G.R. SP No. 32499 questioning the denial of the motion to
dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion
to Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to suspend
pre-trial conference.
On November 15, 1994, the Court of Appeals denied the petition for
lack of merit.
On January 16, 1995, this Court denied the petition for review on
certiorari filed by petitioner, "as petitioners failed to show that a
reversible error was committed by the appellate court."2
On February 20, 1995, entry of judgment was made by the Clerk of
Court and the case was remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial
conference and set the hearing of the case 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.
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 ½ shares
and interest of the plaintiff in the partnership of the listed properties,
assets and good will (sic) in schedules A, B and C, on pages 4-5 of
the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived
income and profits from the partnership from 1988 to May 30, 1992,
when the plaintiff learned of the closure of the store the sum of
P35,000.00 per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and
terminate its business activities pursuant to law, after delivering to
the plaintiff all the ½ interest, shares, participation and equity in the
partnership, or the value thereof in money or money's worth, if the
74
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 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."
75
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
76
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
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
16
se, without more, does not affect the credibility of witnesses.
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
77
respondents three (3) years after Jacinto's death was well within the
prescribed period. The Civil Code provides that an action to enforce
20
an oral contract prescribes in six (6) years 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
22
partner results in the dissolution of the partnership , 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.1âwphi1.nêt
Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.
THIRD DIVISION
G.R. No. 144214 July 14, 2003
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and
CARMELITO JOSE, petitioners,
vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G.
RAMIREZ JR. and CARMELITA C. RAMIREZ, respondents.
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of
78
the latter's dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March
23, 2000 Decision1 and the July 26, 2000 Resolution2 of the Court of
Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision
disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision dated
July 21, 1992 rendered by the Regional Trial Court, Branch 148,
Makati City is hereby SET ASIDE and NULLIFIED and in lieu
thereof a new decision is rendered ordering the [petitioners] jointly
and severally to pay and reimburse to respondents the amount of
P253,114.00. No pronouncement as to costs."4
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus
Jose formed a partnership with a capital of P750,000 for the
operation of a restaurant and catering business under the name
"Aquarius Food House and Catering Services."5 Villareal was
appointed general manager and Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the
business on September 5, 1984. His capital contribution of P250,000
was paid by his parents, Respondents Cesar and Carmelita Ramirez.6
After Jesus Jose withdrew from the partnership in January 1987, his
capital contribution of P250,000 was refunded to him in cash by
agreement of the partners.7
In the same month, without prior knowledge of respondents,
petitioners closed down the restaurant, allegedly because of
increased rental. The restaurant furniture and equipment were
deposited in the respondents' house for storage.8
On March 1, 1987, respondent spouses wrote petitioners, saying that
they were no longer interested in continuing their partnership or in
reopening the restaurant, and that they were accepting the latter's
offer to return their capital contribution.9
On October 13, 1987, Carmelita Ramirez wrote another letter
informing petitioners of the deterioration of the restaurant furniture
and equipment stored in their house. She also reiterated the request
for the return of their one-third share in the equity of the partnership.
The repeated oral and written requests were, however, left
unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59,
respondents subsequently filed a Complaint11 dated November 10,
1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had
expressed a desire to withdraw from the partnership and had called
for its dissolution under Articles 1830 and 1831 of the Civil Code;
that respondents had been paid, upon the turnover to them of
furniture and equipment worth over P400,000; and that the latter had
no right to demand a return of their equity because their share,
79
together with the rest of the capital of the partnership, had been spent
as a result of irreversible business losses.12
In their Reply, respondents alleged that they did not know of any
loan encumbrance on the restaurant. According to them, if such
allegation were true, then the loans incurred by petitioners should be
regarded as purely personal and, as such, not chargeable to the
partnership. The former further averred that they had not received
any regular report or accounting from the latter, who had solely
managed the business. Respondents also alleged that they expected
the equipment and the furniture stored in their house to be removed
by petitioners as soon as the latter found a better location for the
restaurant.13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise
Dispose of Restaurant Furniture and Equipment14 on July 8, 1988.
The furniture and the equipment stored in their house were
inventoried and appraised at P29,000.15 The display freezer was sold
for P5,000 and the proceeds were paid to them.16
After trial, the RTC 17 ruled that the parties had voluntarily entered
into a partnership, which could be dissolved at any time. Petitioners
clearly intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held
there liable as follows:18
"WHEREFORE, judgment is hereby rendered in favor of
respondents and against the petitioners ordering the petitioners to pay
jointly and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand the
return of their capital contribution, the partnership was nonetheless
dissolved when petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and
because no sufficient evidence was presented to show financial
losses, the CA. computed their liability as follows:
"Consequently, since what has been proven is only the outstanding
obligation of the partnership in the amount of P240,658.00, although
contracted by the partnership before respondents have joined the
partnership but in accordance with Article 1826 of the New Civil
Code, they are liable which must have to be deducted from the
remaining capitalization of the said partnership which is in the
amount of P1,000,000.00 resulting in the amount of P759,342.00,
and in order to get the share of respondents this amount of
P759,342.00 must be divided into three (3) shares or in the amount
of P253,114.00 for each share and which is the only amount which
petitioner will return to respondents' representing the contribution to
the partnership minus the outstanding debt thereof."19
80
Hence, this Petition.20
Issues
21
In their Memorandum, petitioners submit the following issues for
our consideration:
"9.1. Whether the Honorable Court of Appeals' decision ordering the
distribution of the capital contribution, instead of the net capital after
the dissolution and liquidation of a partnership, thereby treating the
capital contribution like a loan, is in accordance with law and
jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the
petitioners to jointly and severally pay and reimburse the amount of
P 253,114.00 is supported by the evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in making
no pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1) whether petitioners
are liable to respondents for the latter's share in the partnership; (2)
whether the CA's computation of P253,114 as respondents' share is
correct; and (3) whether the CA was likewise correct in not assessing
costs.
This Court's Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had
indeed existed, and that it was dissolved on March 1, 1987. They
found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the former's
dissatisfaction with, and loss of trust in, the latter's management of
the partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from
petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners
the return of their equity share. Except as managers of the
partnership, petitioners did not personally hold its equity or assets.
"The partnership has a juridical personality separate and distinct
from that of each of the partners."23 Since the capital was contributed
to the partnership, not to petitioners, it is the partnership that must
refund the equity of the retiring partners.24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must
refund the shares of the partners, the amount to be refunded is
necessarily limited to its total resources. In other words, it can only
pay out what it has in its coffers, which consists of all its assets.
However, before the partners can be paid their shares, the creditors
of the partnership must first be compensated.25 After all the creditors
have been paid, whatever is left of the partnership assets becomes
available for the payment of the partners' shares.
81
Evidently, in the present case, the exact amount of refund equivalent
to respondents' one-third share in the partnership cannot be
determined until all the partnership assets will have been liquidated
— in other words, sold and converted to cash — and all partnership
creditors, if any, paid. The CA's computation of the amount to be
refunded to respondents as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension
that the total capital contribution was equivalent to the gross assets to
be distributed to the partners at the time of the dissolution of the
partnership. We cannot sustain the underlying idea that the capital
contribution at the beginning of the partnership remains intact,
unimpaired and available for distribution or return to the partners.
Such idea is speculative, conjectural and totally without factual or
legal support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does
not remain static and unaffected by the changing fortunes of the
business. In the present case, the financial statements presented
before the trial court showed that the business had made meager
profits.26 However, notable therefrom is the omission of any
provision for the depreciation27 of the furniture and the equipment.
The amortization of the goodwill28 (initially valued at P500,000) is
not reflected either. Properly taking these non-cash items into
account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of the
partnership. Both the trial and the appellate courts in fact recognized
the decrease of the partnership assets to almost nil, but the latter
failed to recognize the consequent corresponding decrease of the
capital.
Second, the CA's finding that the partnership had an outstanding
obligation in the amount of P240,658 was not supported by evidence.
We sustain the contrary finding of the RTC, which had rejected the
contention that the obligation belonged to the partnership for the
following reason:
"x x x Evidence on record failed to show the exact loan owed by the
partnership to its creditors. The balance sheet (Exh. '4') does not
reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an
outstanding obligation of P240,055.00 which the partnership owes to
different creditors, while the Certification issued by Mercator
Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party
defendant in the instant case, who obtained a loan of P355,000.00 on
Oct. 1983, when the original partnership was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000, which
was the amount paid by the partnership to Jesus Jose when he
withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital
was actually reduced. When petitioners and respondents ventured
82
into business together, they should have prepared for the fact that
their investment would either grow or shrink. In the present case, the
investment of respondents substantially dwindled. The original
amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at
the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties
from the effects of unwise, foolish or disastrous contracts they have
entered into with all the required formalities and with full awareness
of what they were doing. Courts have no power to relieve them from
obligations they have voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments.29
Petitioners further argue that respondents acted negligently by
permitting the partnership assets in their custody to deteriorate to the
point of being almost worthless. Supposedly, the latter should have
liquidated these sole tangible assets of the partnership and considered
the proceeds as payment of their net capital. Hence, petitioners argue
that the turnover of the remaining partnership assets to respondents
was precisely the manner of liquidating the partnership and fully
settling the latter's share in the partnership.
We disagree. The delivery of the store furniture and equipment to
private respondents was for the purpose of storage. They were
unaware that the restaurant would no longer be reopened by
petitioners. Hence, the former cannot be faulted for not disposing of
the stored items to recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. — Unless
otherwise provided in these rules, costs shall be allowed to the
prevailing party as a matter of course, but the court shall have power,
for special reasons, to adjudge that either party shall pay the costs of
an action, or that the same be divided, as may be equitable. No costs
shall be allowed against the Republic of the Philippines unless
otherwise provided by law."
Although, as a rule, costs are adjudged against the losing party,
courts have discretion, "for special reasons," to decree otherwise.
When a lower court is reversed, the higher court normally does not
award costs, because the losing party relied on the lower court's
judgment which is presumed to have been issued in good faith, even
if found later on to be erroneous. Unless shown to be patently
capricious, the award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision
and Resolution SET ASIDE. This disposition is without prejudice to
proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any. No
pronouncement as to costs.
SO ORDERED.
83
Puno, Corona and Carpio-Morales, JJ ., concur.
Sandoval-Gutierrez, J ., on official leave.
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.:
1
This is a petition for review on certiorari of the decision 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
84
the said property;
(5) With the execution of the deed of absolute sale, the FIRST
PARTY warrants her ownership of the property and shall defend the
rights of the SECOND PARTY against any party whom may have
any interests over the property;
(6) All expenses for documentation and other incidental expenses
shall be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of
the property to the SECOND PARTY after the expiration of the 15-
day grace period given in paragraph 3 above, the FIRST PARTY
shall pay an amount equivalent to Five Percent of the principal
amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per
month of delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to
repurchase the property within ninety (90) days period above-
mentioned, this memorandum of agreement shall be deemed
cancelled and the Deed of Absolute Sale, executed by the parties
shall be the final contract considered as entered between the parties
and the SECOND PARTY shall proceed to transfer ownership of the
property above described to its name free from lines and
encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a
3
deed of absolute sale, 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
85
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
86
is unusually inadequate. The property is a two hundred forty (240)
sq. m. lot. On said lot, the residential house of plaintiff-appellant
stands. The property is inside a subdivision/village. The property is
situated in Marikina which is already part of Metro Manila. The
alleged sale took place in 1991 when the value of the land had
considerably increased.
For this property, defendant-appellee pays only a measly
P200,000.00 or P833.33 per square meter for both the land and for
the house.
Second: The disputed Memorandum of Agreement specifically
provides that plaintiff-appellant is obliged to deliver peacefully the
possession of the property to the SECOND PARTY within fifteen
(15) days after the expiration of the said ninety (90) day grace
period. Otherwise stated, plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property "sold"
as if they were still the absolute owners. There was no provision for
maintenance or expenses, much less for payment of rent.
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
87
Code reads:
Art. 2088. The creditor cannot appropriate the things given by way
of pledge or mortgage, or dispose of them. Any stipulation to the
contrary is null and void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or mortgage
wherein a property is pledged or mortgaged by way of security for
the payment of principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing
pledged and mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00
loan to plaintiff-appellant secured by a mortgage on the property of
plaintiff-appellant. The loan was payable within ninety (90) days, the
period within which plaintiff-appellant can repurchase the property.
Plaintiff-appellant will pay P230,000.00 and not P200,000.00, the
P30,000.00 excess is the interest for the loan extended. Failure 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
88
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
7
who is entitled to the avails of the suit. 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
8
in the case cannot be executed. 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
10
purposes. 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
11
result in the dismissal of the complaint. 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.
ARTICLE 1769
RULES TO DETERMINE THE EXISTENCE OF
PARTNERSHIP
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.
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
89
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
3
19, 1990. The complaint, 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
4
petitioners filed an amended complaint 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.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered
judgment6 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;
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;
90
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.
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
91
THE HONORABLE COURT OF APPEALS ERRED IN RELYING
SOLELY ON THE SELF-SERVING TESTIMONY
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE
WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE FOLLOWING FACTS WHICH WERE DULY
SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP
DULY RECORDED BEFORE THE SECURITIES
EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG
LAY WERE ALL LIVING AT THE BENGUET LUMBER
COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
COMMANDING THE EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE
SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE
ONES DETERMINING THE PRICES OF STOCKS TO BE SOLD
TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE
ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18,
OF 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).
AND 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,
92
does not include review of factual issues. Thus:
Filing of petition with Supreme Court. — A party desiring to appeal
by certiorari from a judgment or final order or resolution of the Court
of Appeals, the Sandiganbayan, the Regional Trial Court or other
courts whenever authorized by law, may file with the Supreme Court
a verified petition for review on certiorari. The petition shall raise
11
only questions of law which must be distinctly set forth. [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.
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 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
93
and Kee pooled the proceeds of their individual businesses earned
from buying and selling military supplies, so that the common fund
would be enough to form a partnership, both in the lumber and
hardware business. That Lay and Kee actually established the
Benguet Lumber in Baguio City, was even testified to by witnesses.
Because of the pooling of resources, the post-war Benguet Lumber
was eventually established. That the father of the plaintiffs and Lay
were partners, is obvious from the fact that: (1) they conducted the
affairs of the business during 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
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 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.
94
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
95
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
21
transactions of a certain kind.
A joint venture "presupposes generally a parity of standing between
the joint co-ventures or partners, in which each party has an equal
proprietary interest in the capital or property contributed, and where
each party exercises equal rights in the conduct of the business."22
Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing
Corporation, et. al.,23 we expressed the view that a joint 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.
96
(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. Bolaños, 95 Phil. 906 [1954]) (Campos
and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of
partnership itself, or the articles of partnership but there is none. The
alleged partnership, though, was never formally organized. In
addition, petitioners point out that the New Civil Code was not yet in
effect when the partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing prevented the
parties from complying with the provisions of the New Civil Code
when it took effect on August 30, 1950. But all that is in the past.
The net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A
review of the record persuades us that the Court of Appeals correctly
reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a
partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only
he, aside from Tan Eng Lay, could have expounded on the precise
nature of the business relationship between them. In the absence of
evidence, we cannot accept as an established fact that Tan Eng Kee
allegedly contributed his resources to a common fund for the purpose
of establishing a partnership. The testimonies to that effect of
petitioners' witnesses is directly controverted by Tan Eng Lay. It
should be noted that it is not with the number of witnesses wherein
preponderance lies;24 the quality of their testimonies is to be
considered. None of petitioners' witnesses could suitably account for
the beginnings of Benguet Lumber Company, except perhaps for
Dionisio Peralta whose deceased wife was related to Matilde
Abubo.25 He stated that when he met Tan Eng Kee after the
liberation, the latter asked the former to accompany him to get 80
pieces of G.I. sheets supposedly owned by both brothers.26 Tan Eng
Lay, however, denied knowledge of this meeting or of the
conversation between Peralta and his brother.27 Tan Eng Lay
consistently testified that he had his business and his brother had his,
that it was only later on that his said brother, Tan Eng Kee, came to
work for him. Be that as it may, co-ownership or 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
97
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;
98
(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
99
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 hereby AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.
EN BANC
G.R. No. L-19342 May 25, 1972
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely:
RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B. OÑA,
VIRGINIA B. OÑA and LORENZO B. OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE,
respondent.
Orlando Velasco for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor

100
General Felicisimo R. Rosete, and Special Attorney Purificacion
Ureta for respondent.
BARREDO, J.:p
Petition for review of the decision of the Court of Tax Appeals in
CTA Case No. 617, similarly entitled as above, holding that
petitioners have constituted an unregistered partnership and are,
therefore, subject to the payment of the deficiency corporate income
taxes assessed against them by respondent Commissioner of Internal
Revenue for the years 1955 and 1956 in the total sum of P21,891.00,
plus 5% surcharge and 1% monthly interest from December 15,
1958, subject to the provisions of Section 51 (e) (2) of the Internal
Revenue Code, as amended by Section 8 of Republic Act No. 2343
1
and the costs of the suit, as well as the resolution of said court
denying petitioners' motion for reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buñales died on March 23, 1944, leaving as heirs her surviving
spouse, Lorenzo T. Oña 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. Oña 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 Oña, were still minors
when the project of partition was approved, Lorenzo T. Oña, their
father and administrator of the estate, filed a petition in Civil Case
No. 9637 of the Court of First Instance of Manila for appointment as
guardian of said minors. On November 14, 1949, the Court
appointed him guardian of the persons and property of the
aforenamed minors (See p. 3, BIR rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.)
shows that the heirs have undivided one-half (1/2) interest in ten
parcels of land with a total assessed value of P87,860.00, six houses
with a total assessed value of P17,590.00 and an undetermined
amount to be collected from the War Damage Commission. Later,
they received from said Commission the amount of P50,000.00,
more or less. This amount was not divided among them but was used
in the rehabilitation of properties owned by them in common (t.s.n.,
p. 46). Of the ten parcels of land aforementioned, two were acquired
after the death of the decedent with money borrowed from the
Philippine Trust Company in the amount of P72,173.00 (t.s.n., p. 24;
Exhibit 3, pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally with
Lorenzo T. Oña, the administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by the latter with the
approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
Although the project of partition was approved by the Court on May
101
16, 1949, no attempt was made to divide the properties therein listed. corresponding shares of the petitioners in the net income for the year
Instead, the properties remained under the management of Lorenzo are also known. Every year, petitioners returned for income tax
T. Oña who used said properties in business by leasing or selling purposes their shares in the net income derived from said properties
them and investing the income derived therefrom and the proceeds and securities and/or from transactions involving them (Exhibit 3,
from the sales thereof in real properties and securities. As a result, supra; t.s.n., pp. 25-26). However, petitioners did not actually
petitioners' properties and investments gradually increased from receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98,
P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from 100). The income was always left in the hands of Lorenzo T. Oña
the following year-end balances: who, as heretofore pointed out, invested them in real properties and
Year Investment Land securities. (See Exhibit
Building
3, t.s.n., pp. 50, 102-104).
Account Account On the basis of the
Account
foregoing facts, respondent (Commissioner of
1949 — P87,860.00 Internal Revenue)P17,590.00
decided that petitioners formed an unregistered
1950 P24,657.65 128,566.72 partnership and therefore,
96,076.26 subject to the corporate income tax,
1951 51,301.31 120,349.28 pursuant to Section110,605.11
24, in relation to Section 84(b), of the Tax Code.
1952 67,927.52 87,065.28 Accordingly, he assessed
152,674.39
against the petitioners the amounts of
1953 61,258.27 84,925.68 P8,092.00 and P13,899.00
161,463.83
as corporate income taxes for 1955 and
1954 63,623.37 99,001.20 1956, respectively.167,962.04
(See Exhibit 5, amended by Exhibit 17, pp. 50
1955 100,786.00 120,249.78 and 86, BIR rec.).169,262.52
Petitioners protested against the assessment and
1956 175,028.68 135,714.68 asked for reconsideration
169,262.52
of the ruling of respondent that they have
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104) formed an unregistered partnership. Finding no merit in petitioners'
From said investments and properties petitioners derived such request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See
incomes as profits from installment sales of subdivided lots, profits pp. 1-4, Memorandum for Respondent, June 12, 1961).
from sales of stocks, dividends, rentals and interests (see p. 3 of The original assessment was as follows:
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are 1955
recorded in the books of account kept by Lorenzo T. Oña where the Net income as per investigation ................ P40,209.89


102
Income tax due thereon ............................... 8,042.00 THE PETITIONERS FORMED AN UNREGISTERED
25% surcharge .............................................. 2,010.50 PARTNERSHIP;
Compromise for non-filing .......................... 50.00 II.
Total ............................................................... P10,102.50 THE COURT OF TAX APPEALS ERRED IN NOT HOLDING
1956 THAT THE PETITIONERS WERE CO-OWNERS OF THE
Net income as per investigation ................ P69,245.23 PROPERTIES INHERITED AND (THE) PROFITS DERIVED
Income tax due thereon ............................... 13,849.00 FROM TRANSACTIONS THEREFROM (sic);
25% surcharge .............................................. 3,462.25 III.
Compromise for non-filing .......................... 50.00 THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
Total ............................................................... P17,361.25 PETITIONERS WERE LIABLE FOR CORPORATE INCOME
(See Exhibit 13, page 50, BIR records) TAXES FOR 1955 AND 1956 AS AN UNREGISTERED
Upon further consideration of the case, the 25% surcharge was PARTNERSHIP;
eliminated in line with the ruling of the Supreme Court in Collector IV.
v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so ON THE ASSUMPTION THAT THE PETITIONERS
that the questioned assessment refers solely to the income tax proper CONSTITUTED AN UNREGISTERED PARTNERSHIP, THE
for the years 1955 and 1956 and the "Compromise for non-filing," COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT
the latter item obviously referring to the compromise in lieu of the THE PETITIONERS WERE AN UNREGISTERED
criminal liability for failure of petitioners to file the corporate PARTNERSHIP TO THE EXTENT ONLY THAT THEY
income tax returns for said years. (See Exh. 17, page 86, BIR INVESTED THE PROFITS FROM THE PROPERTIES OWNED
records). (Pp. 1-3, Annex C to Petition) IN COMMON AND THE LOANS RECEIVED USING THE
Petitioners have assigned the following as alleged errors of the Tax INHERITED PROPERTIES AS COLLATERALS;
Court: V.
I. ON THE ASSUMPTION THAT THERE WAS AN
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT UNREGISTERED PARTNERSHIP, THE COURT OF TAX

103
APPEALS ERRED IN NOT DEDUCTING THE VARIOUS
AMOUNTS PAID BY THE PETITIONERS AS INDIVIDUAL
INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN
COMMON, FROM THE DEFICIENCY TAX OF THE
UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following
questions: (1) Under the facts found by the Court of Tax Appeals,
should petitioners be considered as co-owners of the properties
inherited by them from the deceased Julia Buñales 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. Oña, the assessment in question refers to the later years
1955 and 1956. We believe this point to be important because,
apparently, at the start, or in the years 1944 to 1954, the respondent
Commissioner of Internal Revenue did treat petitioners as co-owners,
not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At
least, there is nothing in the record indicating that an earlier
assessment had already been made. Such being the case, and We see
no reason how it could be otherwise, it is easily understandable why
petitioners' position that they are 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.
104
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. Oña 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. Oña 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. Oña.
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. Oña, 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. Oña 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
105
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 co-ownership of inherited properties is automatically
converted into an unregistered partnership the moment the said
common properties and/or the incomes derived therefrom are used as
a common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as determined
in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or
intestate proceeding. The reason for this is simple. From the moment
of such partition, the heirs are entitled already to their respective
definite shares of the estate and the incomes thereof, for each of them
to manage and dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly he becomes liable
individually for all taxes in connection therewith. If after such
partition, he allows his share to be held in common with his co-heirs
under a single management to be used with the intent of making
profit thereby in proportion to his share, there can be no doubt that,
even if no document or instrument were executed for the purpose, for
tax purposes, at least, an unregistered partnership is formed. This is
exactly what happened to petitioners in this case.
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
106
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:
107
In connection with the second ground, it is alleged that, if there was
an unregistered partnership, the holding should be limited to the
business engaged in apart from the properties inherited by
petitioners. In other words, the taxable income of the partnership
should be limited to the income derived from the acquisition and sale
of real properties and corporate securities and should not include the
income derived from the inherited properties. It is admitted that the
inherited properties and the income derived therefrom were used in
the business of buying and selling other real properties and corporate
securities. Accordingly, the partnership income must include not
only the income derived from the purchase and sale of other
properties but also the income of the inherited properties.
Besides, as already observed earlier, the income derived from
inherited properties may be considered as individual income of the
respective heirs only so long as the inheritance or estate is not
distributed or, at least, partitioned, but the moment their respective
known shares are used as part of the common assets of the heirs to be
used in making profits, it is but proper that the income of such shares
should be considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have been
adequately resolved by the Tax Court in the aforementioned
resolution denying petitioners' motion for reconsideration of the
decision of said court. Pertinently, the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honorable Court that
the herein petitioners have formed an unregistered partnership and,
therefore, have to be taxed as such, it might be recalled that the
petitioners in their individual income tax returns reported their shares
of the profits of the unregistered partnership. We think it only fair
and equitable that the various amounts paid by the individual
petitioners as income tax on their respective shares of the
unregistered partnership should be deducted from the deficiency
income tax found by this Honorable Court against the unregistered
partnership. (page 7, Memorandum for the Petitioner in Support of
Their Motion for Reconsideration, Oct. 28, 1961.)
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.
108
Petitioners insist that it was error for the Tax Court to so rule that
whatever excess they might have paid as individual income tax
cannot be credited as part payment of the taxes herein in question. It
is argued that to sanction the view of the Tax Court is to oblige
petitioners to pay double income tax on the same income, and,
worse, considering the time that has lapsed since they paid their
individual income taxes, they may already be barred by prescription
from recovering their overpayments in a separate action. We do not
agree. As We see it, the case of petitioners as regards the point under
discussion is simply that of a taxpayer who has paid the wrong tax,
assuming that the failure to pay the corporate taxes in question was
not deliberate. Of course, such taxpayer has the right to be
reimbursed what he has erroneously paid, but the law is very clear
that the claim and action for such reimbursement are subject to the
bar of prescription. And since the period for the recovery of the
excess income taxes in the case of herein petitioners has already
lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is precisely
because the taxpayers failed to make the proper return and payment
of the corporate taxes legally due from them. In principle, it is but
proper not to allow any relaxation of the tax laws in favor of persons
who are not exactly above suspicion in their conduct vis-a-vis their
tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of
Tax Appeals appealed from is affirm with costs against petitioners.
Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur.
Reyes, J.B.L. and Teehankee, JJ., concur in the result.
Castro, J., took no part.
Concepcion, C.J., is on leave.
SECOND DIVISION
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P.
OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters,
petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT
OF TAX APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.
AQUINO, J.:
This case is about the income tax liability of four brothers and sisters
who sold two parcels of land which they had acquired from their
father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas &
Co., Ltd. on two lots with areas of 1,124 and 963 square meters
located at Greenhills, San Juan, Rizal. The next day he transferred
109
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 ½ is taxable) and required them to pay
deficiency income taxes aggregating P56,707.20 including the 50%
fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income
taxes and penalties totalling P127,781.76 on their profit of P134,336,
in addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or joint venture within the
meaning of sections 24(a) and 84(b) of the Tax Code (Collector of
Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax
Court sustained the same. Judge Roaquin dissented. Hence, the
instant appeal.
We hold that it is error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the
same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the
dictum that the power to tax involves the power to destroy. That
eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They
were co-owners pure and simple. To consider them as partners would
obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of
that isolated transaction.
Their original purpose was to divide the lots for residential purposes.
If later on they found it not feasible to build their residences on the
110
lots because of the high cost of construction, then they had no choice
but to resell the same to dissolve the co-ownership. The division of
the profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state. It had
to be terminated sooner or later. Castan Tobeñas 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 señala 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 Oña 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 question pro-
indiviso from their deceased parents; they did not contribute or invest
additional ' capital to increase or expand the inherited properties;
they merely continued dedicating the property to the use to which it
had been put by their forebears; they individually reported in their
tax returns their corresponding shares in the income and expenses of
the 'hacienda', and they continued for many years the status of co-
ownership in order, as conceded by respondent, 'to preserve its (the
111
'hacienda') value and to continue the existing contractual relations
with the Central Azucarera de Bais for milling purposes. Longa vs.
Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.—Co-
Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership,
or a corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all 
co-ownerships of
inherited properties to the tax on corporations, inasmuch as if a
property does not produce an income at all, it is not subject to any
kind of income tax, whether the income tax on individuals or the
income tax on corporation. (De Leon vs. CI R, CTA Case No. 738,
September 11, 1961, cited in Arañas, 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.
ARTICLE 1770
OBJECT OR PURPOSE OF PARTNERSHIP
EN BANC
G.R. No. L-21906 December 24, 1968
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-
appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
112
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir
plaintiffs-appellees.
Ruiz Law Offices for 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
113
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,
applicant-appellant"; 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
114
fishpond;
That this contract was the result of a verbal agreement entered into
between the Parties sometime in the month of November, 1947, with
all the above-mentioned conditions enumerated; ...
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
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administering the said fishpond and collecting the proceeds from the
sale of the fishes caught from time to time; and (b) that the
defendants be ordered to pay jointly and severally to plaintiffs the
sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the
issuance of a preliminary injunction, praying among other things,
that during the pendency of the case and upon their 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:
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
116
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 (½) del "fishpond" en cuestion con todas
117
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
118
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
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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
4
well-settled rule in our jurisdiction.
It was the duty of Atty. Ruiz, or of the other lawyers of record, not
excluding the appellant himself, to appear before Judge Fernandez
on the scheduled dates of hearing Parties and their lawyers have no
right to presume that their motions for postponement will be
granted.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
120
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
8
hearing.
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 co-ownership between
the parties over the disputed fishpond. Were we to admit the
establishment of a co-ownership violative of the prohibitory laws
which will hereafter be discussed, we shall be compelled to declare
altogether the nullity of the contract. This would certainly not serve
the cause of equity and justice, considering that rights and
obligations have already arisen between the parties. We shall
therefore construe the contract as one of partnership, divided into
two parts — namely, a contract of partnership to exploit the fishpond
pending its award to either Felipe Deluao or Nicanor Casteel, and a
contract of partnership to divide the fishpond between them after
such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the
appellant entered into the so-called "contract of service" on
November 25, 1949, there were two pending applications over the
fishpond. One was 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
121
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,12 dated March 24, 1950, the
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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
123
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
124
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
125
... [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. L-5750, 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. 558-559) Findings of fact by an administrative
board or official, following a hearing, are binding upon the courts
and will not be disturbed except where the board or official has gone
beyond his statutory authority, exercised unconstitutional powers or
clearly acted arbitrarily and without regard to his duty or with grave
abuse of discretion... (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
126
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.
ARTICLE 1773
CONTRIBUTION OF IMMOVABLE PROPERTY IN
CONTRACT OF PARTNERSHIP
EN BANC
G.R. No. L-24193 June 28, 1968
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY,
defendants-appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio
S. Advincula for defendants-appellees.
CONCEPCION, C.J.:
127
In this appeal, taken by plaintiff Mauricio Agad, from an order of
dismissal of the Court of First Instance of Davao, we are called upon
to determine the applicability of Article 1773 of our Civil Code to
the contract of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are — pursuant to a
public instrument dated August 29, 1952, copy of which is attached
to the complaint as Annex "A" — partners in a fishpond business, to
the capital of which Agad contributed P1,000, with the right to
receive 50% of the profits; that from 1952 up to and including 1956,
Mabato who handled the partnership funds, had yearly rendered
accounts of the operations of the partnership; and that, despite
repeated demands, Mabato had failed and refused to render accounts
for the years 1957 to 1963, Agad prayed in his complaint against
Mabato and Mabato & Agad Company, filed on June 9, 1964, that
judgment be rendered sentencing Mabato to pay him (Agad) the sum
of P14,000, as his share in the profits of the partnership for the
period from 1957 to 1963, in addition to P1,000 as attorney's fees,
and ordering the dissolution of the partnership, as well as the
winding up of its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the
complaint and denied the existence of said partnership, upon the
ground that the contract therefor had not been perfected, despite the
execution of Annex "A", because Agad had allegedly failed to give
his P1,000 contribution to the partnership capital. Mabato prayed,
therefore, that the complaint be dismissed; that Annex "A" be
declared void ab initio; and that Agad be sentenced to pay actual,
moral and exemplary damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground
that the complaint states no cause of action and that the lower court
had no jurisdiction over the subject matter of the case, because it
involves principally the determination of rights over public lands.
After due hearing, the court issued the order appealed from, granting
the motion to dismiss the complaint for failure to state a cause of
action. This conclusion was predicated upon the theory that the
contract of partnership, Annex "A", is null and void, pursuant to Art.
1773 of our Civil Code, because an inventory of the fishpond
referred in said instrument had not been attached thereto. A
reconsideration of this order having been denied, Agad brought the
matter to us for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if inventory of said property is not
made, signed by the parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or
real rights" have been contributed to the partnership under
128
consideration. Mabato alleged and the lower court held that the appellee, Severino Mabato. It is so ordered.
answer should be in the affirmative, because "it is really Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles
inconceivable how a partnership engaged in the fishpond business and Fernando, JJ., concur.
could exist without said fishpond property (being) contributed to the
partnership." It should be noted, however, that, as stated in Annex
"A" the partnership was established "to operate a fishpond", not to THIRD DIVISION
"engage in a fishpond business". Moreover, none of the partners G.R. No. 101847 May 27, 1993
contributed either a fishpond or a real right to any fishpond. Their LOURDES NAVARRO AND MENARDO NAVARRO,
contributions were limited to the sum of P1,000 each. Indeed, petitioners,
Paragraph 4 of Annex "A" provides: vs.
That the capital of the said partnership is Two Thousand (P2,000.00) COURT OF APPEALS, JUDGE BETHEL KATALBAS-
Pesos Philippine Currency, of which One Thousand (P1,000.00) MOSCARDON, Presiding Judge, Regional Trial Court of
pesos has been contributed by Severino Mabato and One Thousand Bacolod City, Branch 52, Sixth Judicial Region and Spouses
(P1,000.00) Pesos has been contributed by Mauricio Agad. OLIVIA V. YANSON AND RICARDO B. YANSON,
xxx xxx xxx respondents.
The operation of the fishpond mentioned in Annex "A" was the George L. Howard Law Office for petitioners
purpose of the partnership. Neither said fishpond nor a real right Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for
thereto was contributed to the partnership or became part of the private respondents.
capital thereof, even if a fishpond or a real right thereto could
become part of its assets. MELO, J.:
WHEREFORE, we find that said Article 1773 of the Civil Code is Assailed and sought to be set aside by the petition before us is the
not in point and that, the order appealed from should be, as it is Resolution of the Court of Appeals dated June 20, 1991 which
hereby set aside and the case remanded to the lower court for further dismissed the petition for annulment of judgment filed by the
proceedings, with the costs of this instance against defendant- Spouses Lourdes and Menardo Navarro, thusly:

129
The instant petition for annulment of decision is DISMISSED.
1. Judgments may be annulled only on the ground of extrinsic or
collateral fraud, as distinguished from intrinsic fraud (Canlas vs.
Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in
the petition.
2. Even if the judgment rendered by the respondent Court were
erroneous, it is not necessarily void (Chereau vs. Fuentebella, 43
Phil. 216). Hence, it cannot be annulled by the proceeding sought to
be commenced by the petitioners.
3. The petitioners' remedy against the judgment enforcement of
which is sought to be stopped should have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows:
On July 23, 1976, herein private respondent Olivia V. Yanson filed a
complaint against petitioner Lourdes Navarro for "Delivery of
Personal Properties With Damages". The complaint incorporated an
application for a writ of replevin. The complaint was later docketed
as Civil Case No. 716 (12562) of the then Court of First Instance of
Bacolod (Branch 55) and was subsequently amended to include
private respondent's husband, Ricardo B. Yanson, as co-plaintiff, and
petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to
be promoted and to retire as Presiding Justice of the Court of
Appeals) approved private respondents' application for a writ of
replevin. The Sheriff's Return of Service dated March 3, 1978
affirmed receipt by private respondents of all pieces of personal
property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon
rendered a decision, disposing as follows :
Accordingly, in the light of the aforegoing findings, all chattels
already recovered by plaintiff by virtue of the Writ of Replevin and
as listed in the complaint are hereby sustained to belong to plaintiff
being the owner of these properties; the motor vehicle, particularly
that Ford Fiera Jeep registered in and which had remain in the
possession of the defendant is likewise declared to belong to her,
however, said defendant is hereby ordered to reimburse plaintiff the
sum of P6,500.00 representing the amount advanced to pay part of
the price therefor; and said defendant is likewise hereby ordered to
return to plaintiff such other equipment[s] as were brought by the
latter to and during the operation of their business as were listed in
the complaint and not recovered as yet by virtue of the previous Writ
of Replevin. (p. 12, Rollo.)
Petitioner received a copy of the decision on January 10, 1991
(almost 9 months after its rendition) and filed on January 16, 1991 a
"Motion for Extension of Time To File a Motion for
Reconsideration". This was granted on January 18, 1991. Private
respondents filed their opposition, citing the ruling in the case of
Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986])
130
proscribing the filing of any motion for extension of time to file a
motion for a new trial or reconsideration. The trial judge vacated the
order dated January 18, 1991 and declared the decision of April 30,
1990 as final and executory. (Petitioners' motion for reconsideration
was subsequently filed on February 1, 1991 or 22 days after the
receipt of the decision).
On February 4, 1991, the trial court issued a writ of execution
(Annex "5", p. 79, Rollo). The Sheriff's Return of Service (Annex
"6", p. 82, Rollo) declared that the writ was "duly served and
satisfied". A receipt for the amount of P6,500.00 issued by Mrs.
Lourdes Yanson, co-petitioner in this case, was likewise submitted
by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent court a petition
for annulment of the trial court's decision, claiming that the trial
judge erred in declaring the non-existence of a partnership, contrary
to the evidence on record.
The appellate court, as aforesaid, outrightly dismissed the petition
due to absence of extrinsic or collateral fraud, observing further that
an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored
evidence that would show that the parties "clearly intended to form,
and (in fact) actually formed a verbal partnership engaged in the
business of Air Freight Service Agency in Bacolod"; and that the
decision sustaining the writ of replevin is void since the properties
belonging to the partnership do not actually belong to any of the
parties until the final disposition and winding up of the partnership"
(p. 15, Rollo). These issues, however, were extensively discussed by
the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this case has become
final. In fact a writ of execution had been issued and was promptly
satisfied by the payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to annulment
proceedings to justify a belated judicial review of their case. This
was, however, correctly thrown out by the Court of Appeals because
petitioners failed to cite extrinsic or collateral fraud to warrant the
setting aside of the trial court's decision. We respect the appellate
court's finding in this regard.
Petitioners have come to us in a petition for review. However, the
petition is focused solely on factual issues which can no longer be
entertained. Petitioners' arguments are all directed against the
decision of the regional trial court; not a word is said in regard to the
appellate's court disposition of their petition for annulment of
judgment. Verily, petitioners keeps on pressing that the idea of a
partnership exists on account of the so-called admissions in judicio.
But the factual premises of the trial court were more than enough to
suppress and negate petitioners submissions along this line:
To be resolved by this Court factually involved in the issue of
whether there was a partnership that existed between the parties
131
based on their verbal contention; whether the properties that were
commonly used in the operation of Allied Air Freight belonged to
the alleged partnership business; and the status of the parties in this
transaction of alleged partnership. On the other hand, the legal issues
revolves on the dissolution and winding up in case a partnership so
existed as well as the issue of ownership over the properties subject
matter of recovery.
As a premise, Article 1767 of the New Civil Code defines the
contract of partnership to quote:
Art. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining whether a
partnership exist as so provided under Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771 and 1772 that
while a partnership may be constituted in any form, a public
instrument is necessary where immovables or any rights is
constituted. Likewise, if the partnership involves a capitalization of
P3,000.00 or more in money or property, the same must appear in a
public instrument which must be recorded in the Office of the
Securities and Exchange Commission. Failure to comply with these
requirements shall only affect liability of the partners to third
persons.
In consideration of the above, it is undeniable that both the plaintiff
and the defendant-wife made admission to have entered into an
agreement of operating this Allied Air Freight Agency of which the
plaintiff personally constituted with the Manila Office in a sense that
the plaintiff did supply the necessary equipments and money while
her brother Atty. Rodolfo Villaflores was the Manager and the
defendant the Cashier. It was also admitted that part of this
agreement was an equal sharing of whatever proceeds realized.
Consequently, the plaintiff brought into this transaction certain
chattels in compliance with her obligation. The same has been done
by the herein brother and the herein defendant who started to work in
the business. A cursory examination of the evidences presented no
proof that a partnership, whether oral or written had been constituted
at the inception of this transaction. True it is that even up to the filing
of this complaint those movables brought by the plaintiff for the use
in the operation of the business remain registered in her name.
While there may have been co-ownership or co-possession of some
items and/or any sharing of proceeds by way of advances received by
both plaintiff and the defendant, these are not indicative and
supportive of the existence of any partnership between them. Article
1769 of the New Civil Code is explicit. Even the books and records
retrieved by the Commissioner appointed by the Court did not show
proof of the existence of a partnership as conceptualized by law.
132
Such that if assuming that there were profits realized in 1975 after
the two-year deficits were compensated, this could only be subject to
an equal sharing consonant to the agreement to equally divide any
profit realized. However, this Court cannot overlook the fact that the
Audit Report of the appointed Commissioner was not highly reliable
in the sense that it was more of his personal estimate of what is
available on hand. Besides, the alleged profits was a difference found
after valuating the assets and not arising from the real operation of
the business. In accounting procedures, strictly, this could not be
profit but a net worth.
In view of the above factual findings of the Court it follows
inevitably therefore that there being no partnership that existed, any
dissolution, liquidation or winding up is beside the point. The
plaintiff himself had summarily ceased from her contract of agency
and it is a personal prerogative to desist. On the other hand, the
assumption by the defendant in negotiating for herself the
continuance of the Agency with the principal in Manila is
comparable to plaintiff's. Any account of plaintiff with the principal
as alleged, bore no evidence as no collection was ever demanded of
from her. The alleged P20,000.00 assumption specifically, as would
have been testified to by the defendant's husband remain a mere
allegation.
As to the properties sought to be recovered, the Court sustains the
possession by plaintiff of all equipments and chattels recovered by
virtue of the Writ of Replevin. Considering the other vehicle which
appeared registered in the name of the defendant, and to which even
she admitted that part of the purchase price came from the business
claimed mutually operated, although the Court have not as much
considered all entries in the Audit Report as totally reliable to be
sustained insofar as the operation of the business is concerned,
nevertheless, with this admission of the defendant and the fact that as
borne out in said Report there has been disbursed and paid for in this
vehicle out of the business funds in the total sum of P6,500.00, it is
only fitting and proper that validity of these disbursements must be
sustained as true (Exhs. M-1 to M-3, p. 180, Records). In this
connection and taking into account the earlier agreement that only
profits were to be shared equally, the plaintiff must be reimbursed of
this cost if only to allow the defendant continuous possession of the
vehicle in question. It is a fundamental moral, moral and civil
injunction that no one shall enrich himself at the expense of another.
(pp. 71-75, Rollo.)
Withal, the appellate court acted properly in dismissing the petition
for annulment of judgment, the issue raised therein having been
directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the
Court of Appeals dated June 20, 1991 is AFFIRMED in all respects.
No special pronouncement is made as to costs.
SO ORDERED.
133
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.
THIRD DIVISION
G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO
TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of
their acts. That the terms of a contract turn out to be financially
disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto
release the contracting partners from their respective obligations to
each other arising from acts executed in accordance with their
agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5,
1998 Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No.
42378 and its June 25, 1998 Resolution denying reconsideration. The
assailed Decision affirmed the ruling of the Regional Trial Court
(RTC) of Cebu City in Civil Case No. R-21208, which disposed as
follows:
WHEREFORE, for all the foregoing considerations, the Court,
finding for the defendant and against the plaintiffs, orders the
dismissal of the plaintiffs complaint. The counterclaims of the
defendant are likewise ordered dismissed. No pronouncement as to
costs. 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel
Torres for the development of a parcel of land into a subdivision.
Pursuant to the contract, they executed a Deed of Sale covering the
said parcel of land in favor of respondent, who then had it registered
in his name. By mortgaging the property, respondent obtained from
Equitable Bank a loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of the subdivision. 4
All three of them also agreed to share the proceeds from the sale of
the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of "respondent's
lack of funds or means and skills." They add that respondent used the
loan not for the development of the subdivision, but in furtherance of
his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to
134
implement the Agreement. With the said amount, he was able to
effect the survey and the subdivision of the lots. He secured the Lapu
Lapu City Council's approval of the subdivision project which he
advertised in a local newspaper. He also caused the construction of
roads, curbs and gutters. Likewise, he entered into a contract with an
engineering firm for the building of sixty low-cost housing units and
actually even set up a model house on one of the subdivision lots. He
did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims, thereby
forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted. Thereafter,
they filed the present civil case which, upon respondent's motion,
was later dismissed by the trial court in an Order dated September 6,
1982. On appeal, however, the appellate court remanded the case for
further proceedings. Thereafter, the RTC issued its assailed Decision,
which, as earlier stated, was affirmed by the CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners
and respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership
in the same proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial court's pronouncement that losses
7
as well as profits in a joint venture should be distributed equally,
the CA invoked Article 1797 of the Civil Code which provides:
Art. 1797 — The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits
has been agreed upon, the share of each in the losses shall be in the
same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits
and losses shall be in proportion to what he may have contributed,
but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just
and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in
proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the transaction
. . . between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769,
and other related provisions of the Civil Code of the Philippines. 8
135
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of
Sale, both of which were the bases of the appellate court's finding of
a partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the
project. Because the agreement entitled them to receive 60 percent of
the proceeds from the sale of the subdivision lots, they pray that
respondent pay them damages equivalent to 60 percent of the value
of the property. 9
The pertinent portions of the Joint Venture Agreement read as
follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City,
Philippines, this 5th day of March, 1969, by and between MR.
MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS.
ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the
SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST
PARTY, this property located at Lapu-Lapu City, Island of Mactan,
under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the
sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and
development purposes;
NOW THEREFORE, for and in consideration of the above
covenants and promises herein contained the respective parties
hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale . .
. dated March 5, 1969, in the amount of TWENTY FIVE
THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS.
(P25,513.50) Philippine Currency, for 1,700 square meters at ONE
[PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not actually
receive the payment.
SECOND: That the SECOND PARTY, had received from the
FIRST PARTY, the necessary amount of TWENTY THOUSAND
(P20,000.00) pesos, Philippine currency, for their personal
obligations and this particular amount will serve as an advance
payment from the FIRST PARTY for the property mentioned to be
sub-divided and to be deducted from the sales.
136
THIRD: That the FIRST PARTY, will not collect from the SECOND
PARTY, the interest and the principal amount involving the amount
of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, until the sub-division project is terminated and ready for
sale to any interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency, will be
deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the
sub-division project should be paid by the FIRST PARTY,
exclusively and all the expenses will not be deducted from the sales
after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into
SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY
PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally
according to the . . . percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property
involved will start the work and all improvements upon the adjacent
lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option
to get back the property mentioned provided the amount of
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency,
borrowed by the SECOND PARTY, will be paid in full to the FIRST
PARTY, including all necessary improvements spent by the FIRST
PARTY, and-the FIRST PARTY will be given a grace period to
turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the
parties who executed same freely and voluntarily for the uses and
purposes therein stated. 10
A reading of the terms embodied in the Agreement indubitably
shows the existence of a partnership pursuant to Article 1767 of the
Civil Code, which provides:
Art. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute
property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in
addition to his industry, the amount needed for general expenses and
other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership. 11
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the
name of the respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which were used for
the survey and the subdivision of the land. As noted earlier, he
137
developed the roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the
property.
Respondent's actions clearly belie petitioners' contention that he
made no contribution to the partnership. Under Article 1767 of the
Civil Code, a partner may contribute not only money or property, but
also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not
only to what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.
It is undisputed that petitioners are educated and are thus presumed
to have understood the terms of the contract they voluntarily signed.
If it was not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations. They cannot now disavow
the relationship formed from such agreement due to their supposed
misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under
Article 1773 of the Civil Code, which provides:
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended primarily to protect
third persons. Thus, the eminent Arturo M. Tolentino states that
under the aforecited provision which is a complement of Article
12
1771, "The execution of a public instrument would be useless if
there is no inventory of the property contributed, because without its
designation and description, they cannot be subject to inscription in
the Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract with the
partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the
law when no such inventory is made." The case at bar does not
138
involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as
basis for their claim that respondent should pay them 60 percent of
13
the value of the property. They cannot in one breath deny the
contract and in another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent positions in
regard to a contract and courts will not tolerate, much less approve,
such practice.
In short, the alleged nullity of the partnership will not prevent courts
from considering the Joint Venture Agreement an ordinary contract
from which the parties' rights and obligations to each other may be
inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void
under Article 1422 14 of the Civil Code, because it is the direct result
of an earlier illegal contract, which was for the sale of the land
without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states
that the consideration for the sale was the expectation of profits from
the subdivision project. Its first stipulation states that petitioners did
not actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated as cause, can
take different forms, such as the prestation or promise of a thing or
service by another. 15
In this case, the cause of the contract of sale consisted not in the
stated peso value of the land, but in the expectation of profits from
the subdivision project, for which the land was intended to be used.
As explained by the trial court, "the land was in effect given to the
partnership as [petitioner's] participation therein. . . . There was
therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would]
get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to
pay damages equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint Venture
Agreement.
We are not persuaded. True, the Court of Appeals held that
petitioners' acts were not the cause of the failure of the project. 16 But
17
it also ruled that neither was respondent responsible therefor. In
imputing the blame solely to him, petitioners failed to give any
reason why we should disregard the factual findings of the appellate
court relieving him of fault. Verily, factual issues cannot be resolved
in a petition for review under Rule 45, as in this case. Petitioners
have not alleged, not to say shown, that their Petition constitutes one
18
of the exceptions to this doctrine. Accordingly, we find no
139
reversible error in the CA's ruling that petitioners are not entitled to
damages.
WHEREFORE, the Perition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.
SO ORDERED
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
FIRST DIVISION
G.R. No. 142612. July 29, 2005
OSCAR ANGELES and EMERITA ANGELES, Petitioners,
vs.
THE HON. SECRETARY OF JUSTICE and FELINO
MERCADO, Respondents.
DECISION
CARPIO, J.:
The Case
1 2
This is a petition for certiorari to annul the letter-resolution dated 1
February 2000 of the Secretary of Justice in Resolution No. 155.3
The Secretary of Justice affirmed the resolution4 in I.S. No. 96-939
dated 28 February 1997 rendered by the Provincial Prosecution
Office of the Department of Justice in Santa Cruz, Laguna
("Provincial Prosecution Office"). The Provincial Prosecution Office
resolved to dismiss the complaint for estafa filed by petitioners Oscar
and Emerita Angeles ("Angeles spouses") against respondent Felino
Mercado ("Mercado").
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal
complaint for estafa under Article 315 of the Revised Penal Code
against Mercado before the Provincial Prosecution Office. Mercado
is the brother-in-law of the Angeles spouses, being married to
Emerita Angeles’ sister Laura.
In their affidavits, the Angeles spouses claimed that in November
1992, Mercado convinced them to enter into a contract of
antichresis,5 colloquially known as sanglaang-perde, covering eight
parcels of land ("subject land") planted with fruit-bearing lanzones
trees located in Nagcarlan, Laguna and owned by Juana Suazo. The
contract of antichresis was to last for five years with P210,000 as
consideration. As the Angeles spouses stay in Manila during
weekdays and go to Laguna only on weekends, the parties agreed
that Mercado would administer the lands and complete the necessary
paperwork.6
After three years, the Angeles spouses asked for an accounting from
Mercado. Mercado explained that the subject land earned P46,210 in
1993, which he used to buy more lanzones trees. Mercado also
reported that the trees bore no fruit in 1994. Mercado gave no
accounting for 1995. The Angeles spouses claim that only after this
140
demand for an accounting did they discover that Mercado had put the
contract of sanglaang-perde over the subject land under Mercado
and his spouse’s names. The relevant portions of the contract of
7
sanglaang-perde, signed by Juana Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG
LIBONG PISO (P210,000), salaping gastahin, na aking tinanggap sa
mag[-]asawa nila G. AT GNG. FELINO MERCADO, mga nasa
hustong gulang, Filipino, tumitira at may pahatirang sulat sa Bgy.
Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay aking
ipinagbili, iniliwat at isinalin sa naulit na halaga, sa nabanggit na
mag[-] asawa nila G. AT GNG. FELINO MERCADO[,] sa kanila ay
magmamana, kahalili at ibang dapat pagliwatan ng kanilang
karapatan, ang lahat na ibubunga ng lahat na puno ng lanzones, hindi
kasama ang ibang halaman na napapalooban nito, ng nabanggit na
WALONG (8) Lagay na Lupang Cocal-Lanzonal, sa takdang LIMA
(5) NA [sic] TAON, magpapasimula sa taong 1993, at magtatapos sa
taong 1997, kaya’t pagkatapos ng lansonesan sa taong 1997, ang
pamomosision at pakikinabang sa lahat na puno ng lanzones sa
nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal ay
manunumbalik sa akin, sa akin ay magmamana, kahalili at ibang
dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na
ano pa mang halaga, sa mag[-] asawa nila G. AT GNG. FELINO
MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO
ay nagkasundo na ako ay bibigyan nila ng LIMA (5) na [sic] kaing
na lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng aming
kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO
ay nagkasundo na silang mag[-]asawa nila G. AT GNG. FELINO
MERCADO ang magpapaalis ng dapo sa puno ng lansones taon-taon
[sic] sa loob ng LIMA (5) [sic] taonng [sic] aming kasunduang ito.8
In his counter-affidavit, Mercado denied the Angeles spouses’
allegations. Mercado claimed that there exists an industrial
partnership, colloquially known as sosyo industrial, between him and
his spouse as industrial partners and the Angeles spouses as the
financiers. This industrial partnership had existed since 1991, before
the contract of antichresis over the subject land. As the years passed,
Mercado used his and his spouse’s earnings as part of the capital in
the business transactions which he entered into in behalf of the
Angeles spouses. It was their practice to enter into business
transactions with other people under the name of Mercado because
the Angeles spouses did not want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of
Emerita Angeles and contracts under his name for the Angeles
spouses. Mercado also attached the minutes of the barangay
conciliation proceedings held on 7 September 1996. During the
barangay conciliation proceedings, Oscar Angeles stated that there
141
was a written sosyo industrial agreement: capital would come from
the Angeles spouses while the profit would be divided evenly
9
between Mercado and the Angeles spouses.
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a
resolution recommending the filing of criminal information for estafa
against Mercado. This resolution, however, was issued without
Mercado’s counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997.
On receiving the 3 January 1997 resolution, Mercado moved for its
reconsideration. Hence, on 26 February 1997, the Provincial
Prosecution Office issued an amended resolution dismissing the
Angeles spouses’ complaint for estafa against Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The
partnership was initially unsaddled [with] problems. Management
became the source of misunderstanding including the accounting of
profits, which led to further misunderstanding until it was revealed
that the contract with the orchard owner was only with the name of
the respondent, without the names of the complainants.
The accusation of "estafa" here lacks enough credible evidentiary
support to sustain a prima facie finding.
Premises considered, it is respectfully recommended that the
complaint for estafa be dismissed.
RESPECTFULLY SUBMITTED.10
The Angeles spouses filed a motion for reconsideration, which the
Provincial Prosecution Office denied in a resolution dated 4 August
1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses
emphasized that the document evidencing the contract of sanglaang-
perde with Juana Suazo was executed in the name of the Mercado
spouses, instead of the Angeles spouses. The Angeles spouses allege
that this document alone proves Mercado’s misappropriation of their
P210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the
indictment of [Mercado] for the crime of estafa cannot be sustained.
[The Angeles spouses] failed to show sufficient proof that [Mercado]
deliberately deceived them in the "sanglaang perde" transaction. The
document alone, which was in the name of [Mercado and his
spouse], failed to convince us that there was deceit or false
representation on the part of [Mercado] that induced the [Angeles
spouses] to part with their money. [Mercado] satisfactorily explained
that the [Angeles spouses] do not want to be revealed as the
financiers. Indeed, it is difficult to believe that the [Angeles spouses]
would readily part with their money without holding on to some
document to evidence the receipt of money, or at least to inspect the
142
document involved in the said transaction. Under the circumstances,
we are inclined to believe that [the Angeles spouses] knew from the
very start that the questioned document was not really in their names.
In addition, we are convinced that a partnership truly existed
between the [Angeles spouses] and [Mercado]. The formation of a
partnership was clear from the fact that they contributed money to a
common fund and divided the profits among themselves. Records
would show that [Mercado] was able to make deposits for the
account of the [Angeles spouses]. These deposits represented their
share in the profits of their business venture. Although the [Angeles
spouses] deny the existence of a partnership, they, however, never
disputed that the deposits made by [Mercado] were indeed for their
account.
The transcript of notes on the dialogue between the [Angeles
spouses] and [Mercado] during the hearing of their barangay
conciliation case reveals that the [Angeles spouses] acknowledged
their joint business ventures with [Mercado] although they assailed
the manner by which [Mercado] conducted the business and handled
and distributed the funds. The veracity of this transcript was not
raised in issued [sic] by [the Angeles spouses]. Although the legal
formalities for the formation of a partnership were not adhered to,
the partnership relationship of the [Angeles spouses] and [Mercado]
is evident in this case. Consequently, there is no estafa where money
is delivered by a partner to his co-partner on the latter’s
representation that the amount shall be applied to the business of
their partnership. In case of misapplication or conversion of the
money received, the co-partner’s liability is civil in nature (People v.
Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.11
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of
discretion amounting to lack of jurisdiction in dismissing the appeal
of the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and
Mercado even without any documentary proof to sustain its
existence;
3. Assuming that there was a partnership, whether there was
misappropriation by Mercado of the proceeds of the lanzones after
the Angeles spouses demanded an accounting from him of the
income at the office of the barangay authorities on 7 September
1996, and Mercado failed to do so and also failed to deliver the
proceeds to the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the
information for estafa against Mercado.12
The Ruling of the Court
The petition has no merit.
143
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion
when the same is performed in a capricious or whimsical exercise of
judgment amounting to lack of jurisdiction. The abuse of discretion
must be so patent and gross as to amount to an evasion of positive
duty, or to a virtual refusal to perform a duty enjoined by law, as
where the power is exercised in an arbitrary and despotic manner
because of passion or personal hostility.13
The Angeles spouses fail to convince us that the Secretary of Justice
committed grave abuse of discretion when he dismissed their appeal.
Moreover, the Angeles spouses committed an error in procedure
when they failed to file a motion for reconsideration of the Secretary
of Justice’s resolution. A previous motion for reconsideration before
the filing of a petition for certiorari is necessary unless: (1) the issue
raised is one purely of law; (2) public interest is involved; (3) there is
urgency; (4) a question of jurisdiction is squarely raised before and
decided by the lower court; and (5) the order is a patent nullity.14 The
Angeles spouses failed to show that their case falls under any of the
exceptions. In fact, this present petition for certiorari is dismissible
for this reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with
Mercado. The Angeles spouses rely on Articles 1771 to 1773 of the
Civil Code, which state that:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph
shall not affect the liability of the partnership and the members
thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
The Angeles spouses’ position that there is no partnership because of
the lack of a public instrument indicating the same and a lack of
registration with the Securities and Exchange Commission ("SEC")
holds no water. First, the Angeles spouses contributed money to the
partnership and not immovable property. Second, mere failure to
register the contract of partnership with the SEC does not invalidate
a contract that has the essential requisites of a partnership. The
purpose of registration of the contract of partnership is to give notice
to third parties. Failure to register the contract of partnership does
144
not affect the liability of the partnership and of the partners to third financiers of said contracts, they might be kidnapped by the New
persons. Neither does such failure to register affect the partnership’s People’s Army or their business deals be questioned by the Bureau
juridical personality. A partnership may exist even if the partners do of Internal Revenue or worse, their assets and unexplained income be
not use the words "partner" or "partnership." sequestered, as xxx Oscar Angeles was then working with the
Indeed, the Angeles spouses admit to facts that prove the existence government.16
of a partnership: a contract showing a sosyo industrial or industrial Furthermore, accounting of the proceeds is not a proper subject for
partnership, contribution of money and industry to a common fund, the present case.
and division of profits between the Angeles spouses and Mercado. For these reasons, we hold that the Secretary of Justice did not abuse
Whether there was his discretion in dismissing the appeal of the Angeles spouses.
Misappropriation by Mercado WHEREFORE, we AFFIRM the decision of the Secretary of
The Secretary of Justice adequately explained the alleged Justice. The present petition for certiorari is DISMISSED.
misappropriation by Mercado: "The document alone, which was in SO ORDERED.
the name of [Mercado and his spouse], failed to convince us that Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and
there was deceit or false representation on the part of [Mercado] that Azcuna, JJ., concur.
induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be
revealed as the financiers."15 THIRD DIVISION
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna G.R. NOS. 166299-300 December 13, 2005
which decided the civil case for damages, injunction and restraining AURELIO K. LITONJUA, JR., Petitioner,
order filed by the Angeles spouses against Mercado and Leo vs.
Cerayban, stated: EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO
xxx [I]t was the practice to have all the contracts of antichresis of PHILS. MARITIME, INC., CINEPLEX, INC., DDM
their partnership secured in [Mercado’s] name as [the Angeles GARMENTS, INC., EDDIE K. LITONJUA SHIPPING
spouses] are apprehensive that, if they come out into the open as AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC.,

145
LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E & L
INT’L 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.
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court,
petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside the
Decision of the Court of Appeals (CA) dated March 31, 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
petitioner’s 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 petitioner’s and Eduardo’s partner in
their Odeon Theater investment.5 The same complaint also contained
the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a
joint venture/partnership for the continuation of their family business
and common family funds ….
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and
other relatives. Copy of this memorandum is attached hereto and
made an integral part as Annex "A" and the portion referring to
[Aurelio] submarked as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio’s] retaining his share in the remaining
146
family businesses (mostly, movie theaters, shipping and land
development) and contributing his industry to the continued
operation of these businesses, [Aurelio] will be given P1 Million or
10% equity in all these businesses and those to be subsequently
acquired by them whichever is greater. . . .
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28
years, [Aurelio] and Eduardo had accumulated in their joint
venture/partnership various assets including but not limited to the
corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership … had also
acquired [various other assets], but Eduardo caused to be registered
in the names of other parties….
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants
consist of real properties …. A list of some of these real properties is
attached hereto and made an integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo
became sour so that [Aurelio] requested for an accounting and
liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that
Eduardo and/or the corporate defendants as well as Bobby [Yang],
are transferring . . . various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud of
[Aurelio]. In consequence, [Aurelio] is therefore causing at this time
the annotation on the titles of these real properties… a notice of lis
pendens …. (Emphasis in the original; underscoring and words in
bracket added.)
For ease of reference, Annex "A-1" of the complaint, which
petitioner asserts to have been meant for him by his brother Eduardo,
pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. ….
I am trying my best to mold you the way I work so you can follow
the pattern …. You will be the only one left with the company,
among us brothers and I will ask you to stay as I want you to run this
office every time I am away. I want you to run it the way I am trying
to run it because I will be all alone and I will depend entirely to you
(sic). My sons will not be ready to help me yet until about maybe
15/20 years from now. Whatever is left in the corporation, I will
make sure that you get ONE MILLION PESOS (P1,000,000.00) or
ten percent (10%) equity, whichever is greater. We two will gamble
the whole thing of what I have and what you are entitled to. …. It
will be you and me alone on this. If ever I pass away, I want you to
take care of all of this. You keep my share for my two sons are ready
take over but give them the chance to run the company which I have
147
built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first
ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or
asset, like Lt. Artiaga so you can live better there. The rest I will give
you in form of stocks which you can keep. This stock I assure you is
good and saleable. I will also gladly give you the share of Wack-
Wack …and Valley Golf … because you have been good. The rest
will be in stocks from all the corporations which I repeat, ten percent
(10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as
defendants a quo, filed a joint ANSWER With Compulsory
Counterclaim denying under oath the material allegations of the
complaint, more particularly that portion thereof depicting petitioner
and Eduardo as having entered into a contract of partnership. As
affirmative defenses, Eduardo, et al., apart from raising a
jurisdictional matter, alleged that the complaint states no cause of
action, since no cause of action may be derived from the actionable
document, i.e., Annex "A-1", being void under the terms of Article
1767 in relation to Article 1773 of the Civil Code, infra. It is further
alleged that whatever undertaking Eduardo agreed to do, if any,
under Annex "A-1", are unenforceable under the provisions of the
Statute of Frauds.7
For his part, Yang - who was served with summons long after the
other defendants submitted their answer – moved to dismiss on the
ground, inter alia, that, as to him, petitioner has no cause of action
and the complaint does not state any.8 Petitioner opposed this motion
to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve
Affirmative Defenses.9 To this motion, petitioner interposed an
Opposition with ex-Parte Motion to Set the Case for Pre-trial.10
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 Yang’s
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
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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 court’s 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 CA’s 14th Division
ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP
No. 76987.
Following the submission by the parties of their respective
Memoranda of Authorities, the appellate court came out with the
herein assailed Decision dated March 31, 2004, finding for Eduardo
and Yang, as lead petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of
the writ of certiorari in these consolidated cases annulling, reversing
and setting aside the assailed orders of the court a quo dated March
5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by
private respondent [now petitioner Aurelio] against all the petitioners
[now herein respondents Eduardo, et al.] with the court a quo is
hereby dismissed.
SO ORDERED. 17
(Emphasis in the original; words in bracket
added.)
Explaining its case disposition, the appellate court stated, inter alia,
that the alleged partnership, as evidenced by the actionable
documents, Annex "A" and "A-1" attached to the complaint, and
upon which petitioner solely predicates his right/s allegedly violated
by Eduardo, Yang and the corporate defendants a quo is "void or
legally inexistent".
In time, petitioner moved for reconsideration but his motion was
denied by the CA in its equally assailed Resolution of December 7,
2004.18 .
Hence, petitioner’s present recourse, on the contention that the CA
erred:
A. When it ruled that there was no partnership created by the
actionable document because this was not a public instrument and
immovable properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against
[respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal
when all that Petitioner had done was to support his pleaded cause of
action by another legal perspective/argument.
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion of his
complaint in the trial court, is for delivery or payment to him, as
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Eduardo’s and Yang’s partner, of his partnership/joint venture share,
after an accounting has been duly conducted of what he deems to be
19
partnership/joint venture property.
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
20
profits and losses between them. 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
22
governed by the law on partnership.
The underlying issue that necessarily comes to mind in this
proceedings is whether or not petitioner and respondent Eduardo are
partners in the theatre, shipping and realty business, as one claims
but which the other denies. And the issue bearing on the first
assigned error relates to the question of what legal provision is
applicable under the premises, petitioner seeking, as it were, to
enforce the actionable document - Annex "A-1" - which he depicts in
his complaint to be the contract of partnership/joint venture between
himself and Eduardo. Clearly, then, a look at the legal provisions
determinative of the existence, or defining the formal requisites, of a
partnership is indicated. Foremost of these are the following
provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph
shall not affect the liability of the partnership and the members
thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in
tone, but is unsigned and undated. As an unsigned document, there
can be no quibbling that Annex "A-1" does not meet the public
instrumentation requirements exacted under Article 1771 of the Civil
Code. Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or property,
Annex "A-1" cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as
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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
petitioner’s contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that
petitioner’s contribution consisted of immovables and real rights.
Wrote that court:
A further examination of the allegations in the complaint would
show that [petitioner’s] 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 court’s 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. Petitioner’s assertion in his motion
for reconsideration24 of the CA’s decision, that "what was to be
contributed to the business [of the partnership] was [petitioner’s]
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 petitioner’s 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
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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,
[petitioner’s] 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 CA’s equally assailed Resolution of December 7, 200427 denying
petitioner’s 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
[petitioner’s] 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 petitioner’s posture that Annex
"A-1", assuming its inefficacy or nullity as a partnership document,
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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 petitioner’s dubious
stratagem of altering his theory of joint venture/partnership to an
innominate contract. For, at bottom, the appellate court’s 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. Petitioner’s 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
[petitioner’s] 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
[petitioner’s] 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, petitioner’s 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, petitioner’s
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:
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xxx You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this office
everytime I am away. I want you to run it the way I am trying to run
it because I will be alone and I will depend entirely to you, My sons
will not be ready to help me yet until about maybe 15/20 years from
now. Whatever is left in the corporation, I will make sure that you
get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%)
equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon
himself under the above passage, if he indeed wrote Annex "A-1", is
a promise which is not to be performed within one year from
"contract" execution on June 22, 1973. Accordingly, the agreement
embodied in Annex "A-1" is covered by the Statute of Frauds and
ergo unenforceable for non-compliance therewith.30 By force of the
statute of frauds, an agreement that by its terms is not to be
performed within a year from the making thereof shall be
unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party
charged. Corollarily, no action can be proved unless the requirement
exacted by the statute of frauds is complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1
Million or 10% equity of the family businesses supposedly promised
by Eduardo to give in the near future. Any suggestion that the stated
amount or the equity component of the promise was intended to go
to a common fund would be to read something not written in Annex
"A-1". Thus, even this angle alone argues against the very idea of a
partnership, the creation of which requires two or more contracting
minds mutually agreeing to contribute money, property or industry to
a common fund with the intention of dividing the profits between or
among themselves.32
In sum then, the Court rules, as did the CA, that petitioner’s
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
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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 Eduardo’s 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, [petitioner’s] 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
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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
petitioner’s 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 petitioner’s statement in
par. #8 of his motion for reconsideration of the CA’s 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 complainant’s 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 petitioner’s innominate contract
theory on the basis of the foregoing basic reasons.
Petitioner’s 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 CA’s decision virtually
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relegates partnership as a fall-back theory. Two paragraphs later, in the undated and unsigned Annex "A-1". A void Annex "A-1", as an
the same notion, petitioner faults the appellate court for reading, with actionable document of partnership, would strip petitioner of a cause
myopic eyes, the actionable document solely as establishing a of action under the premises. A complaint for delivery and
partnership/joint venture. Verily, the cited paragraphs are a study of accounting of partnership property based on such void or legally
a party hedging on whether or not to pursue the original cause of non-existent actionable document is dismissible for failure to state of
action or altogether abandoning the same, thus: action. So, in gist, said the Court of Appeals. The Court agrees.
12. Incidentally, assuming that the actionable document created a WHEREFORE, the instant petition is DENIED and the impugned
partnership between [respondent] Eduardo, Sr. and [petitioner], no Decision and Resolution of the Court of Appeals AFFIRMED.
immovables were contributed to this partnership. xxx Cost against the petitioner.
14. All told, the Decision takes off from a false premise that the SO ORDERED.
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 Court’s 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, petitioner’s 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

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