2D 2H 2J 2K BUSORG ASSIGNMENT and Norberto Uy (Norberto), formed a partnership to engage in the trucking business.

I. Articles 1767 to 1809 Initially, with a contribution of ₱50,000.00 each, they purchased a truck to be used in the
II. Cases 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.
1. Heirs of Jose Lim vs Lim 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
614 SCRA 141 acquire properties using said funds.

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), 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)
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 ₱50,000.00 as the latter's capital in an
informal partnership with Jimmy and Norberto. When Elfledo and respondent got married
in 1981, the partnership only had one truck; but through the efforts of Elfledo, the
business flourished. Other than this trucking business, Elfledo, together with respondent,
engaged in other business ventures. Thus, they were able to buy real properties and to
put up their own car assembly and repair business. When Norberto was ambushed and
killed on July 16, 1993, the trucking business started to falter. When Elfledo died on May
18, 1995 due to a heart attack, respondent talked to Jimmy and to the heirs of Norberto,
as she could no longer run the business. Jimmy suggested that three out of the nine
trucks be given to him as his share, while the other three trucks be given to the heirs of
Norberto. However, Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus,
she sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased upon his demise. Respondent also
stressed that Jose left no properties that Elfledo could have held in trust. Respondent
maintained that all the properties involved in this case were purchased and acquired
through her and her 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, 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
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 opposition
thereto.13 Rule 133, Section 1 of the Rules of Court provides the guidelines in
determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the party having
burden of proof must establish his case by a preponderance of evidence. In determining
where the preponderance or superior weight of evidence on the issues involved lies, the
court may consider all the facts and circumstances of the case, the witnesses' manner of
testifying, their intelligence, their means and opportunity of knowing the facts to which
they are testifying, the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest, and also their personal
credibility so far as the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not necessarily with the
greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of 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;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made
by the use of the property;
 (3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest
in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business, but no such inference shall be
drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
Applying the legal provision to the facts of this case, the following circumstances tend to
prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified
that Jose gave Elfledo ₱50,000.00, as share in the partnership, on a date that coincided
with the payment of the initial capital in the partnership;15 (2) Elfledo ran the affairs of the
partnership, wielding absolute control, power and authority, without any intervention or
opposition whatsoever from any of petitioners herein;16 (3) all of the properties,
particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4)
Jimmy testified that Elfledo did not receive wages or salaries from the partnership,
indicating that what he actually received were shares of the profits of the business;17 and
(5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng
Kee,18 a demand for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and
personal properties acquired and registered in the names of Elfledo and respondent
formed part of the estate of Jose, having been derived from Jose's alleged partnership
with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo and
respondent engaged in other businesses. Edison even admitted that Elfledo also sold
Interwood lumber as a sideline.19 Petitioners could not offer any credible evidence other
than their bare assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight.20
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of the
partners in the trucking business, active and visible in the running of its affairs from day
one until this ceased operations upon his demise. The extent of his control,
administration and management of the partnership and its business, the fact that its
properties were placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only contributed in the initial
capital but had no say thereafter on how the business was ran. Evidently it was through
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.
Business Organization – Partnership, Agency, Trust – Partner – Periodic
Accounting – Profit Sharing
Facts: In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a
partnership agreement with Jimmy Yu and Norberto Uy. The three contributed
P50,000.00 each and used the funds to purchase a truck to start their trucking
business. A year later however, Jose Lim died. The eldest son of Jose Lim,
Elfledo Lim, took over the trucking business and under his management, the
trucking business prospered. Elfledo was able to but real properties in his name.
From one truck, he increased it to 9 trucks, all trucks were in his name however.
He also acquired other motor vehicles in his name.
In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack.
Elfledo’s wife, Juliet Lim, took over the properties but she intimated to Jimmy and
the heirs of Norberto that she could not go on with the business. So the
properties in the partnership were divided among them.
Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet to do
an accounting of all income, profits, and properties from the estate of Elfledo Lim
as they claimed that they are co-owners thereof. Juliet refused hence they sued
her.
The heirs of Jose Lim argued that Elfledo Lim acquired his properties from the
partnership that Jose Lim formed with Norberto and Jimmy. In court, Jimmy Yu
testified that Jose Lim was the partner and not Elfledo Lim. The heirs testified
that Elfledo was merely the driver of Jose Lim.
ISSUE: Who is the “partner” between Jose Lim and Elfledo Lim?
HELD: It is Elfledo Lim based on the evidence presented regardless of Jimmy
Yu’s testimony in court that Jose Lim was the partner. If Jose Lim was the
partner, then the partnership would have been dissolved upon his death (in fact,
though the SC did not say so, I believe it should have been dissolved upon
Norberto’s death in 1993). A partnership is dissolved upon the death of the
partner. Further, no evidence was presented as to the articles of partnership or
contract of partnership between Jose, Norberto and Jimmy. Unfortunately, there
is none in this case, because the alleged partnership was never formally
organized.
But at any rate, the Supreme Court noted that based on the functions performed
by Elfledo, he is the actual partner.
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;
2.) Elfledo ran the affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever from any of
petitioners herein;
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; and
5.) none of the heirs of Jose, the alleged partner, demanded periodic accounting
from Elfledo during his lifetime. As repeatedly stressed in the case of Heirs of Tan
Eng Kee, 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 Juliet
formed part of the estate of Jose, having been derived from Jose’s alleged
partnership with Jimmy and Norberto.
Elfledo was not just a hired help but one of the partners in the trucking business,
active and visible in the running of its affairs from day one until this ceased
operations upon his demise. The extent of his control, administration and
management of the partnership and its business, the fact that its properties were
placed in his name, and that he was not paid salary or other compensation by the
partners, are indicative of the fact that Elfledo was a partner and a controlling one
at that. It is apparent that the other partners only contributed in the initial capital
but had no say thereafter on how the business was ran. Evidently it was through On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco
Elfredo’s efforts and hard work that the partnership was able to acquire more Properties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for the
trucks and otherwise prosper. Even the appellant participated in the affairs of the construction and development of an office building on a land owned by Marsman
partnership by acting as the bookkeeper sans salary. Drysdale in Makati City.1

The JVA contained the following pertinent provisions:

SECTION 4. CAPITAL OF THE JV

2. Marsman Drysdale Land vs Phil Geonalytics It is the desire of the Parties herein to implement this Agreement by investing in the
PROJECT on a FIFTY (50%) PERCENT- FIFTY (50%) PERCENT basis.
622 SCRA 281
4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall contribute the
Property.

The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY
G.R. No. 183374 June 29, 2010
MILLION (P420,000,000.00).
MARSMAN DRYSDALE LAND, INC., Petitioner,
For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable condition
vs.
within ninety (90) days from signing of this Agreement barring any unforeseen
PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES,
circumstances over which [Marsman Drysdale] has no control. Buildable condition shall
INC., Respondents.
mean that the old building/structure which stands on the Property is demolished and
taken to ground level.
x - - - - - - - - - - - - - - - - - - - - - - -x
4.2. Contribution of [Gotesco]- [Gotesco] shall contribute the amount of PESOS: FOUR
G.R. No. 183376 HUNDRED TWENTY MILLION (P420,000,000.00) in cash which shall be payable as
follows:
GOTESCO PROPERTIES, INC., Petitioner,
vs. 4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon signing of this
MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE GEOANALYTICS, Agreement.
INC., Respondents.
4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION
DECISION (P370,000,000.00) shall be paid based on progress billings, relative to the development
and construction of the Building, but shall in no case exceed ten (10) months from
CARPIO MORALES, J.: delivery of the Property in a Buildable condition as defined in section 4.1.
A joint account shall be opened and maintained by both Parties for handling of said
balance, among other Project concerns.
4.3. Funding and Financing
4.3.1 Construction funding for the Project shall be obtained from the cash contribution of
[Gotesco].
4.3.2 Subsequent funding shall be obtained from the pre-selling of units in the Building
or, when necessary, from loans from various banks or financial institutions. [Gotesco]
shall arrange the required funding from such banks or financial institutions, under such
terms and conditions which will provide financing rates favorable to the Parties.
4.3.3 [Marsman Drysdale] shall not be obligated to fund the Project as its contribution is
limited to the Property.
4.3.4 If the cost of the Project exceeds the cash contribution of [Gotesco], the proceeds
obtained from the pre-selling of units and proceeds from loans, the Parties shall agree on
other sources and terms of funding such excess as soon as practicable.
4.3.5 x x x x.
4.3.6 x x x x.
4.3.7 x x x x.
4.3.8 All funds advanced by a Party (or by third parties in substitution for advances from
a Party) shall be repaid by the JV.
4.3.9 If any Party agrees to make an advance to the Project but fails to do so (in whole or
in part) the other party may advance the shortfall and the Party in default shall indemnify
the Party making the substitute advance on demand for all of its losses, costs and
expenses incurred in so doing. (emphasis supplied; underscoring in the original)
Via Technical Services Contract (TSC) dated July 14, 1997,2 the joint venture engaged
the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration,
laboratory testing, seismic study and geotechnical engineering for the project. PGI, was,
however, able to drill only four of five boreholes needed to conduct its subsurface soil
exploration and laboratory testing, justifying its failure to drill the remaining borehole to
the failure on the part of the joint venture partners to clear the area where the drilling was
to be made.3 PGI was able to complete its seismic study though.
PGI then billed the joint venture on November 24, 1997 for ₱284,553.50 representing the
cost of partial subsurface soil exploration; and on January 15, 1998 for ₱250,800
representing the cost of the completed seismic study.4
Despite repeated demands from PGI,5 the joint venture failed to pay its obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut
short and the planned building project was eventually shelved.6
PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money
and damages at the Regional Trial Court (RTC) of Quezon City against Marsman
Drysdale and Gotesco.
In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the
responsibility of paying PGI to Gotesco which, under the JVA, was solely liable for the
monetary expenses of the project.7
Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI
had yet to complete the services enumerated in the contract; and that Marsman Drysdale
failed to clear the property of debris which prevented PGI from completing its work.8
By Decision of June 2, 2004,9 Branch 226 of the Quezon City RTC rendered judgment in
favor of PGI, disposing as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of
plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff, jointly:
(1) the sum of P535,353.50 with legal interest from the date of this decision until
fully paid;
 (2) the sum of P200,000.00 as exemplary damages;
(3) the sum of P200,000.00 as and for attorney’s fees; and
(4) costs of suit.
The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is hereby
GRANTED as follows:
a) Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman
Drysdale] in the amount of P535,353.[50] in accordance with the [JVA].
b) Defendant [Gotesco] is further ordered to pay co-defendant [Marsman
Drysdale] the sum of P100,000.00 as and for attorney’s fees.
SO ORDERED. (underscoring in the original; emphasis supplied)
Marsman Drysdale moved for partial reconsideration, contending that it should not have
been held jointly liable with Gotesco on PGI’s claim as well as on the awards of
exemplary damages and attorney’s fees. The motion was, by Resolution of October 28,
2005, denied.
Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by
Decision of January 28, 2008,10affirmed with modification the decision of the trial court.
Thus the appellate court disposed:
WHEREFORE, premises considered, the instant appeal is PARTLY GRANTED. The
assailed Decision dated June 2, 2004 and the Resolution dated October 28, 2005 of the
RTC of Quezon City, Branch 226, in Civil Case No. Q99-39248 are hereby AFFIRMED
with MODIFICATION deleting the award of exemplary damages in favor of [PGI] and
the P100,000.00 attorney’s fees in favor of [Marsman Drysdale] and ordering defendant-
appellant [Gotesco] to REIMBURSE [Marsman Drysdale] 50% of the aggregate sum due
[PGI], instead of the lump sum P535,353.00 awarded by the RTC. The rest of the
Decision stands.
SO ORDERED. (capitalization and emphasis in the original; underscoring supplied)
In partly affirming the trial court’s decision, the appellate court ratiocinated that
notwithstanding the terms of the JVA, the joint venture cannot avoid payment of PGI’s
claim since "[the JVA] could not affect third persons like [PGI] because of the basic civil
law principle of relativity of contracts which provides that contracts can only bind the
parties who entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof."11
Their motions for partial reconsideration having been denied,12 Marsman Drysdale and
Gotesco filed separate petitions for review with the Court which were docketed as G.R.
Nos. 183374 and 183376, respectively. By Resolution of September 8, 2008, the Court
consolidated the petitions.
In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in
A. …ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER
CONCEDING THAT [GOTESCO] SHOULD ULTIMATELY BE SOLELY LIABLE
TO [PGI].
B. …AWARDING ATTORNEY’S FEES IN FAVOR OF [PGI]…
C. …IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE
REQUIREMENT OF "SATISFACTORY PERFORMANCE" OF ITS PRESTATION
WHICH, PURSUANT TO THE TECHNICAL SERVICES CONTRACT, IS THE
CONDITION SINE QUA NON TO COMPENSATION.
D. …DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN
DRYSDALE’S] ENTITLEMENT TO AN AWARD OF ATTORNEY’S FEES.13
On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court
committed error when it
…ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK
PERFORMED BY [PGI] AND P100,000.00 [AS] ATTORNEY’S FEES …[AND] TO
REIMBURSE [MARSMAN DRYSDALE] 50% OF P535,353.50 AND PAY [MARSMAN
DRYSDALE] P100,000.00 AS ATTORNEY’S FEES. 14
On the issue of whether PGI was indeed entitled to the payment of services it rendered,
the Court sees no imperative to re-examine the congruent findings of the trial and
appellate courts thereon. Undoubtedly, the exercise involves an examination of facts
which is normally beyond the ambit of the Court’s functions under a petition for review,
for it is well-settled that this Court is not a trier of facts. While this judicial tenet admits of
exceptions, such as when the findings of facts of the appellate court are contrary to those
of the trial court’s, or when the judgment is based on a misapprehension of facts, or
when the findings of facts are contradicted by the evidence on record,15these extenuating
grounds find no application in the present petitions.
At all events, the Court is convinced that PGI had more than sufficiently established its
claims against the joint venture. In fact, Marsman Drysdale had long recognized PGI’s
contractual claims when it (PGI) received a Certificate of Payment16 from the joint
venture’s project manager17 which was endorsed to Gotesco for processing and
payment.18
The core issue to be resolved then is which between joint venturers Marsman Drysdale
and Gotesco bears the liability to pay PGI its unpaid claims.
To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the
project was to be obtained from Gotesco’s cash contribution, as its (Marsman
Drysdale’s) participation in the venture was limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since it was due to the
fault of Marsman Drysdale that PGI was unable to complete its undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
PGI executed a technical service contract with the joint venture and was never a party to
the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of
Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing
mechanism for the project, the same cannot be used to defeat the lawful claim of PGI
against the two joint venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the
beneficial owner of the project,19and all billing invoices indicated the consortium therein
as the client.
As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively
read:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and
the same obligation does not imply that each one of the former has a right to demand, or
that each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so states, or
1avvphi1
when the law or nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debt shall
be presumed to be divided into as many equal shares as there are creditors or debtors,
the credits or debts being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits. (emphasis and underscoring supplied),
presume that the obligation owing to PGI is joint between Marsman Drysdale and
Gotesco.
The only time that the JVA may be made to apply in the present petitions is when the
liability of the joint venturers to each other would set in.
A joint venture being a form of partnership, it is to be governed by the laws on
partnership.20 Article 1797 of the Civil Code 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.
In the absence of stipulation, the share of each 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. (emphasis
and underscoring supplied)
In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of
the project.21 They did not provide for the splitting of losses, however. Applying the
above-quoted provision of Article 1797 then, the same ratio applies in splitting the
₱535,353.50 obligation-loss of the joint venture.
The appellate court’s decision must be modified, however. Marsman Drysdale and
Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman
Drysdale for "50% of the aggregate sum due" to PGI.
Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only
be contrary to the law on partnership on division of losses but would partake of a clear
case of unjust enrichment at Gotesco’s expense. The grant by the lower courts of
Marsman Drysdale cross-claim against Gotesco was thus erroneous.
Marsman Drysdale’s supplication for the award of attorney’s fees in its favor must be
denied. It cannot claim that it was compelled to litigate or that the civil action or
proceeding against it was clearly unfounded, for the JVA provided that, in the event a
party advances funds for the project, the joint venture shall repay the advancing party. 22
Marsman Drysdale was thus not precluded from advancing funds to pay for PGI’s
contracted services to abate any legal action against the joint venture itself. It was in fact
hardline insistence on Gotesco having sole responsibility to pay for the obligation,
despite the fact that PGI’s services redounded to the benefit of the joint venture, that
spawned the legal action against it and Gotesco.
Finally, an interest of 12% per annum on the outstanding obligation must be imposed
from the time of demand23 as the delay in payment makes the obligation one of
forbearance of money, conformably with this Court’s ruling in Eastern Shipping Lines,
Inc. v. Court of Appeals.24 Marsman Drysdale and Gotesco should bear legal interest on
their respective obligations.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
AFFIRMED with MODIFICATION in that the order for Gotesco to reimburse Marsman
Drysdale is DELETED, and interest of 12% per annum on the respective obligations of
Marsman Drysdale and Gotesco is imposed, computed from the last demand or on
January 5, 1999 up to the finality of the Decision.
If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall
be 12% per annum computed from the time the judgment becomes final and executory
until it is fully satisfied. The appealed decision is, in all other respects, affirmed.
Costs against petitioners Marsman Drysdale and Gotesco.
SO ORDERED.
Facts: Marsman Drysdale, Inc. (Marsman) and Gotesco
Properties, Inc. (Gotesco) entered into a joint venture
agreement for the construction and development of an office
building on a land owned by Marsman. They agreed on a 50-
50 ratio on the proceeds of the project, but did not agree on
how losses would be divided. The joint venture engaged the
services of Philippine Geoanalytics, Inc. (PGI) to provide
subsurface soil exploration, seismic study and geotechnical
engineering. PGI completed its seismic study but failed to
complete its subsurface soil exploration because the area
where drilling was to be made had not been cleared. The
building project was subsequently shelved due to
unfavorable economic conditions. PGI billed the joint
venture for work done, but was not paid despite its repeated
demands. PGI, thus, filed a collection case against Marsman
and Gotesco. Marsman passed the obligation to Gotesco
because under the joint venture agreement, Gotesco was
solely liable for the monetary expenses of the project, and
Marsman’s participation was limited to the land. Gotesco, on
the other hand, asserted that PGI had no cause of action Marsman and Gotesco. A joint venture being a form of
against it as PGI had yet to complete the services in its partnership, it is to be governed by the laws on partnership.
contract, and it was Marsman’s failure to clear the property Under the laws on partnership, particularly Article 1797 of
of debris which prevented PGI from completing its work. the Civil Code, the losses and profits shall be distributed in
accordance with the agreement; if only the share of each
partner in the profits has been agreed upon, the share of
Issue: Who between Marsman and Gotesco was liable to pay
each in the losses shall be in the same proportion. In the
PGI its unpaid claims?
joint venture agreement, Marsman and Gotesco agreed on a
50-50 ratio on the proceeds of the project, but did not
Held: Marsman and Gotesco are jointly liable to PGI. PGI was provide for the splitting of losses. Applying Article 1797, the
never a party to the joint venture agreement. While the joint same ratio applies in splitting the obligation-loss of the joint
venture agreement clearly spelled out the capital venture to PGI.
contributions of Marsman (land) and Gotesco (cash) and the
funding mechanism, it cannot be used to defeat the lawful
claim of PGI against the two joint venturerspartners. PGI’s
contract clearly listed the joint venturers Marsman and
Gotesco as the beneficial owner of the project, and all billing
invoices indicated the consortium as the client. When there
are two or more debtors, the obligation is presumed to be
joint unless the law or the obligation expressly states that
the liability is solidary, or unless the nature of the obligation
requires solidary liability (Articles 1207 and 1208, Civil
Code). In this case, since solidary liability was not required
by law, or the contract, or by the nature of the obligation, the
obligation to PGI was presumed to be joint between
 Leda Jamili.5 Petitioner also has two other brothers: Doroteo and
Tomas Jarantilla.
3. Jarantilla Jr vs Jarantilla
636 SCRA 299 Petitioner was one of the defendants in the complaint before the RTC
while Antonieta Jarantilla, his aunt, was the plaintiff therein. His co-
respondents before he joined his aunt Antonieta in her complaint, were
his late aunt Conchita Jarantilla’s husband Buenaventura Remotigue,
G.R. No. 154486 December 1, 2010 who died during the pendency of the case, his cousin Cynthia
Remotigue, the adopted daughter of Conchita Jarantilla and
FEDERICO JARANTILLA, JR., Petitioner, Buenaventura Remotigue, and his brothers Doroteo and Tomas
vs. Jarantilla.6
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE,
substituted by CYNTHIA REMOTIGUE, DOROTEO JARANTILLA In 1948, the Jarantilla heirs extrajudicially partitioned amongst
and TOMAS JARANTILLA, Respondents. themselves the real properties of their deceased parents.7 With the
exception of the real property adjudicated to Pacita Jarantilla, the heirs
DECISION also agreed to allot the produce of the said real properties for the years
1947-1949 for the studies of Rafael and Antonieta Jarantilla.8
LEONARDO-DE CASTRO, J.:
In the same year, the spouses Rosita Jarantilla and Vivencio
This petition for review on certiorari seeks to modify the Decision of
1 2
Deocampo entered into an agreement with the spouses Buenaventura
the Court of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, Remotigue and Conchita Jarantilla to provide mutual assistance to each
which set aside the Decision3 dated December 18, 1992 of the Regional other by way of financial support to any commercial and agricultural
Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464. activity on a joint business arrangement. This business relationship
proved to be successful as they were able to establish a manufacturing
The pertinent facts are as follows: and trading business, acquire real properties, and construct buildings,
among other things.9 This partnership ended in 1973 when the parties,
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight in an "Agreement,"10 voluntarily agreed to completely dissolve their
children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael "joint business relationship/arrangement."11
and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the grandchild of the
late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife On April 29, 1957, the spouses Buenaventura and Conchita Remotigue
executed a document wherein they acknowledged that while registered
only in Buenaventura Remotigue’s name, they were not the only
owners of the capital of the businesses Manila Athletic Supply (712
Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) and
Remotigue Trading (Cotabato City). In this same "Acknowledgement of
Participating Capital," they stated the participating capital of their co-
owners as of the year 1952, with Antonieta Jarantilla’s stated as eight
thousand pesos (₱8,000.00) and Federico Jarantilla, Jr.’s as five
thousand pesos (₱5,000.00).12
The present case stems from the amended complaint13 dated April 22,
1987 filed by Antonieta Jarantilla against Buenaventura Remotigue,
Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and
Tomas Jarantilla, for the accounting of the assets and income of the co-
ownership, for its partition and the delivery of her share corresponding
to eight percent (8%), and for damages. Antonieta claimed that in 1946,
she had entered into an agreement with Conchita and Buenaventura
Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to
engage in business. Antonieta alleged that the initial contribution of
property and money came from the heirs’ inheritance, and her
subsequent annual investment of seven thousand five hundred pesos
(₱7,500.00) as additional capital came from the proceeds of her farm.
Antonieta also alleged that from 1946-1969, she had helped in the
management of the business they co-owned without receiving any
salary. Her salary was supposedly rolled back into the business as
additional investments in her behalf. Antonieta further claimed co-
ownership of certain properties14 (the subject real properties) in the
name of the defendants since the only way the defendants could have
purchased these properties were through the partnership as they had
no other source of income.
The respondents, including petitioner herein, in their Answer,15 denied
having formed a partnership with Antonieta in 1946. They claimed that
she was in no position to do so as she was still in school at that time. In
fact, the proceeds of the lands they partitioned were devoted to her
studies. They also averred that while she may have helped in the
businesses that her older sister Conchita had formed with
Buenaventura Remotigue, she was paid her due salary. They did not
deny the existence and validity of the "Acknowledgement of
Participating Capital" and in fact used this as evidence to support their
claim that Antonieta’s 8% share was limited to the businesses
enumerated therein. With regard to Antonieta’s claim in their other
corporations and businesses, the respondents said these should also
be limited to the number of her shares as specified in the respective
articles of incorporation. The respondents denied using the
partnership’s income to purchase the subject real properties and said
that the certificates of title should be binding on her.16
During the course of the trial at the RTC, petitioner Federico Jarantilla,
Jr., who was one of the original defendants, entered into a compromise
agreement17 with Antonieta Jarantilla wherein he supported Antonieta’s
claims and asserted that he too was entitled to six percent (6%) of the
supposed partnership in the same manner as Antonieta was. He prayed
for a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for
an accounting from the other defendants, and the partition of the
properties of the co-ownership and the delivery to the plaintiff and to
defendant Federico Jarantilla, Jr. of their rightful share of the assets
and properties in the co-ownership.18 1 avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint
Motion to Approve Compromise Agreement20and on December 18,
1992, decided in favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders
judgment in favor of the plaintiff Antonieta Jarantilla and against
defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla
ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount
on the real properties covered by TCT Nos. 35655, 338398,
338399 & 335395, all of the Registry of Deeds of Quezon City;
TCT Nos. (18303)23341, 142882 & 490007(4615), all of the
Registry of Deeds of Rizal; and TCT No. T-6309 of the Registry
of Deeds of Cotabato based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount
on the Remotigue Agro-Industrial Corporation, Manila Athletic
Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping
Corporation based on the shares of stocks present book value;
3. to account for the assets and income of the co-ownership and
deliver to plaintiff her rightful share thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of ₱50,000.00 as
moral damages;
5. to pay, jointly and severally, the sum of ₱50,000.00 as
attorney’s fees; and
6. to pay, jointly and severally, the costs of the suit. 21
Both the petitioner and the respondents appealed this decision to the
Court of Appeals. The petitioner claimed that the RTC "erred in not
rendering a complete judgment and ordering the partition of the co-
ownership and giving to [him] six per centum (6%) of the properties."22
While the Court of Appeals agreed to some of the RTC’s factual
findings, it also established that Antonieta Jarantilla was not part of the
partnership formed in 1946, and that her 8% share was limited to the
businesses enumerated in the Acknowledgement of Participating
Capital. On July 30, 2002, the Court of Appeals rendered the herein
challenged decision setting aside the RTC’s decision, as follows:
WHEREFORE, the decision of the trial court, dated 18 December 1992
is SET ASIDE and a new one is hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her
share of 8% in the assets and profits of Manila Athletic Supply,
Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given
his share of 6% of the assets and profits of the above-mentioned
enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the following
corporations to the extent stated in their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
 (c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial
Reconsideration but the Court of Appeals denied this in a
Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review
on certiorari25 dated September 16, 2002, assailing the Court of
Appeals’ decision on "similar grounds and similar assignments of errors
as this present case"26 but it was dismissed on November 20, 2002 for
failure to file the appeal within the reglementary period of fifteen (15)
days in accordance with Section 2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
NOT RULING THAT PETITIONER FEDERICO JARANTILLA, JR. IS
ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE
OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE
OTHER DEFENDANTS USING COMMON FUNDS FROM THE
BUSINESSES WHERE HE HAD OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the Remotigue
spouses, the Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla,
Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the Remotigue spouses
executed in 1957. He contends that from this partnership, several other
corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his
6% share in the subject real properties. He is relying on the
Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantilla’s testimony to support this contention.
The core issue is whether or not the partnership subject of the
Acknowledgement of Participating Capital funded the subject real
properties. In other words, what is the petitioner’s right over these real
properties?
It is a settled rule that in a petition for review on certiorari under Rule 45
of the Rules of Civil Procedure, only questions of law may be raised by
the parties and passed upon by this Court.29
A question of law arises when there is doubt as to what the law is on a
certain state of facts, while there is a question of fact when the doubt
arises as to the truth or falsity of the alleged facts. For a question to be
one of law, the same must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides on the
given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact.
Thus, the test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather,
it is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case, it is a question of
law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the
RTC, this Court, in resolving the questions of law that are now in issue,
shall look into the facts only in so far as the two courts a quo differed in
their appreciation thereof.
The RTC found that an unregistered partnership existed since 1946
which was affirmed in the 1957 document, the "Acknowledgement of
Participating Capital." The RTC used this as its basis for giving
Antonieta Jarantilla an 8% share in the three businesses listed therein
and in the other businesses and real properties of the respondents as
they had supposedly acquired these through funds from the
partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as to
Antonieta’s 8% share in the business enumerated in the
Acknowledgement of Participating Capital, but not as to her share in the
other corporations and real properties. The Court of Appeals ruled that
Antonieta’s claim of 8% is based on the "Acknowledgement of
Participating Capital," a duly notarized document which was specific as
to the subject of its coverage. Hence, there was no reason to pattern
her share in the other corporations from her share in the partnership’s
businesses. The Court of Appeals also said that her claim in the
respondents’ real properties was more "precarious" as these were all
covered by certificates of title which served as the best evidence as to
all the matters contained therein.32 Since petitioner’s claim was
essentially the same as Antonieta’s, the Court of Appeals also ruled
that petitioner be given his 6% share in the same businesses listed in
the Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of
Appeals, are final and conclusive except in the following cases: (1)
when the inference made is manifestly mistaken, absurd or impossible;
(2) when there is a grave abuse of discretion; (3) when the finding is
grounded entirely on speculations, surmises or conjectures; (4) when
the judgment of the Court of Appeals is based on 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 of the Court of Appeals 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
Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly considered, would justify a
different conclusion; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence and are contradicted
by the evidence on record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their
relationship with the respondents as a co-ownership, but in the same
breath, assert that a verbal partnership was formed in 1946 and was
affirmed in the 1957 Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or right belongs to
different persons.34 It is a partnership when two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.35 The
Court, in Pascual v. The Commissioner of Internal Revenue,36 quoted
the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v.
The Collector of Internal Revenue37 to further elucidate on the
distinctions between a co-ownership and a partnership, to wit:
I wish however to make the following observation: Article 1769 of the
new Civil Code lays down the rule for determining when a transaction
should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns
are derived;
From the above it appears that the fact that those who agree to form a
co- ownership share or do not share any profits made by the use of the
property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself
establish a partnership whether or not the persons sharing therein have
a joint or common right or interest in the property. This only means that,
aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a
partnership, the existence of a juridical personality different from that of
the individual partners, and the freedom to transfer or assign any
interest in the property by one with the consent of the others.
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.
A joint purchase of land, by two, does not constitute a co-partnership in
respect thereto; nor does an agreement to share the profits and losses
on the sale of land create a partnership; the parties are only tenants in
common.
Where plaintiff, his brother, and another agreed to become owners of a
single tract of realty, holding as tenants in common, and to divide the
profits of disposing of it, the brother and the other not being entitled to
share in plaintiff’s commission, no partnership existed as between the
three parties, whatever their relation may have been as to third parties.
In order to constitute a partnership inter sese there must be: (a) An
intent to form the same; (b) generally participating in both profits and
losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the
business, and dispose of the whole property. x x x.
The common ownership of property does not itself create a partnership
between the owners, though they may use it for the purpose of making
gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the
application of the proceeds therefrom.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential elements
in a contract of partnership: (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, all the parties in this case
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.39 It is not denied that all the parties in this case have agreed to
contribute capital to a common fund to be able to later on share its
profits. They have admitted this fact, agreed to its veracity, and even
submitted one common documentary evidence to prove such
partnership - the Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the Acknowledgement
of Participating Capital, it would be instructive to examine the pertinent
portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla
de Remotigue, both of legal age, Filipinos and residents of Loyola
Heights, Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue
Trading of Calle Real, Iloilo City and the Remotigue Trading, Cotabato
Branch, Cotabato, P.I., all dealing in athletic goods and equipments,
and general merchandise are recorded in their respective books with
Buenaventura Remotigue as the registered owner and are being
operated by them as such:
That they are not the only owners of the capital of the three
establishments and their participation in the capital of the three
establishments together with the other co-owners as of the year 1952
are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)₱25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)…
25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00
That aside from the persons mentioned in the next preceding
paragraph, no other person has any interest in the above-mentioned
three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of
Manila, P.I., this 29th day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized
document voluntarily executed by Conchita Jarantilla-Remotigue and
Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the
partnership. Article 1797 of the Civil Code 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.
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. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share
as agreed upon, or in the absence of any such stipulations, then to his
share in proportion to his contribution to the partnership. The petitioner
himself claims his share to be 6%, as stated in the Acknowledgement of
Participating Capital. However, petitioner fails to realize that this
document specifically enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City. Since there was a clear
agreement that the capital the partners contributed went to the three
businesses, then there is no reason to deviate from such agreement
and go beyond the stipulations in the document. Therefore, the Court of
Appeals did not err in limiting petitioner’s share to the assets of the
businesses enumerated in the Acknowledgement of Participating
Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is a
separate juridical entity, the shares to be paid out to the partners is
necessarily limited only to its total resources, to wit:
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. After all the creditors have been
paid, whatever is left of the partnership assets becomes available for
the payment of the partners’ shares.42
There is no evidence that the subject real properties were assets of the
partnership referred to in the Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents’
properties based on the concept of trust. He claims that since the
subject real properties were purchased using funds of the partnership,
wherein he has a 6% share, then "law and equity mandates that he
should be considered as a co-owner of those properties in such
proportion."43 In Pigao v. Rabanillo,44 this Court explained the concept of
trusts, to wit:
Express trusts are created by the intention of the trustor or of the
parties, while implied trusts come into being by operation of law, either
through implication of an intention to create a trust as a matter of law or
through the imposition of the trust irrespective of, and even contrary to,
any such intention. In turn, implied trusts are either resulting or
constructive trusts. Resulting trusts are based on the equitable doctrine
that valuable consideration and not legal title determines the equitable
title or interest and are presumed always to have been contemplated by
the parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in equity to hold his
legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was
created. Noting the need to prove the existence of a trust, this Court
has held thus:
"As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily
show the existence of the trust and its elements. While implied trusts
may be proved by oral evidence, the evidence must be trustworthy and
received by the courts with extreme caution, and should not be made to
rest on loose, equivocal or indefinite declarations. Trustworthy evidence
is required because oral evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the
subject real properties. Aside from his bare allegations, he has failed to
show that the respondents used the partnership’s money to purchase
the said properties. Even assuming arguendo that some partnership
income was used to acquire these properties, the petitioner should
have successfully shown that these funds came from his share in the
partnership profits. After all, by his own admission, and as stated in the
Acknowledgement of Participating Capital, he owned a mere 6% equity
in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real
properties, by relying on his own self-serving testimony and the equally
biased testimony of Antonieta Jarantilla. Petitioner has not presented
evidence, other than these unsubstantiated testimonies, to prove that
the respondents did not have the means to fund their other businesses
and real properties without the partnership’s income. On the other
hand, the respondents have not only, by testimonial evidence, proven
their case against the petitioner, but have also presented sufficient
documentary evidence to substantiate their claims, allegations and
defenses. They presented preponderant proof on how they acquired
and funded such properties in addition to tax receipts and tax
declarations.47 It has been held that "while tax declarations and realty
tax receipts do not conclusively prove ownership, they may constitute
strong evidence of ownership when accompanied by possession for a
period sufficient for prescription."48 Moreover, it is a rule in this
jurisdiction that testimonial evidence cannot prevail over documentary
evidence.49 This Court had on several occasions, expressed our
disapproval on using mere self-serving testimonies to support one’s
claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership,
we held that:
Petitioners assert that their claim of co-ownership of the property was
sufficiently proved by their witnesses -- Luisa Ocampo-Llorin and Melita
Ocampo. We disagree. Their testimonies cannot prevail over the array
of documents presented by Belen. A claim of ownership cannot be
based simply on the testimonies of witnesses; much less on those of
interested parties, self-serving as they are.51
It is true that a certificate of title is merely an evidence of ownership or
title over the particular property described therein. Registration in the
Torrens system does not create or vest title as registration is not a
mode of acquiring ownership; hence, this cannot deprive an aggrieved
party of a remedy in law.52 However, petitioner asserts ownership over
portions of the subject real properties on the strength of his own
admissions and on the testimony of Antonieta Jarantilla. As held by this
1avvphi1
Court in Republic of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of ownership of
the land referred to therein, and a strong presumption exists that a
Torrens title was regularly issued and valid. A Torrens title is
incontrovertible against any informacion possessoria, of other title
existing prior to the issuance thereof not annotated on the Torrens title.
Moreover, persons dealing with property covered by a Torrens
certificate of title are not required to go beyond what appears on its
face.54
As we have settled that this action never really was for partition of a co-
ownership, to permit petitioner’s claim on these properties is to allow a
collateral, indirect attack on respondents’ admitted titles. In the words of
the Court of Appeals, "such evidence cannot overpower the
conclusiveness of these certificates of title, more so since plaintiff’s
[petitioner’s] claims amount to a collateral attack, which is prohibited
under Section 48 of Presidential Decree No. 1529, the Property
Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. – A certificate of title
shall not be subject to collateral attack. It cannot be altered, modified, or
cancelled except in a direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a
title when its objective is to nullify the title, thereby challenging the
judgment pursuant to which the title was decreed."56 In Aguilar v.
Alfaro,57 this Court further distinguished between a direct and an indirect
or collateral attack, as follows:
A collateral attack transpires when, in another action to obtain a
different relief and as an incident to the present action, an attack is
made against the judgment granting the title. This manner of attack is to
be distinguished from a direct attack against a judgment granting the
title, through an action whose main objective is to annul, set aside, or
enjoin the enforcement of such judgment if not yet implemented, or to
seek recovery if the property titled under the judgment had been
disposed of. x x x.
Petitioner’s only piece of documentary evidence is the
Acknowledgement of Participating Capital, which as discussed above,
failed to prove that the real properties he is claiming co-ownership of
were acquired out of the proceeds of the businesses covered by such
document. Therefore, petitioner’s theory has no factual or legal leg to
stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the of the said real properties for the years 1947-1949 for the
Court of Appeals in CA-G.R. CV No. 40887, dated July 30, 2002
is AFFIRMED. studies of Rafael and AntonietaJarantilla.

SO ORDERED.
Sps. Rosita Jarantilla and Vivencio Deocampo entered into
an agreement with the spouses Buenaventura Remotigue
and ConchitaJarantilla to provide mutual assistance to each
CASE DIGEST: FEDERICO JARANTILLA, JR., Petitioner, v.
other by way of financial support to any commercial and
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE,
agricultural activity on a joint business arrangement. This
substituted by CYNTHIA REMOTIGUE, DOROTEO
proved to be successful as they were able to establish a
JARANTILLA and TOMAS JARANTILLA, Respondents.
manufacturing and trading business, acquire real
properties, and construct buildings, among other things.
FACTS: The spouses Andres Jarantilla and FelisaJaleco were
The same ended in 1973 upon their voluntary dissolution.
survived by eight children: Federico Sr., Delfin, Benjamin,
Conchita, Rosita, Pacita, Rafael and Antonieta. Petitioner
The spouses Buenaventura and ConchitaRemotigue
Federico Jarantilla, Jr. is the grandchild of the late Jarantilla
executed a document Acknowledgement of Participating
spouses by their son Federico Jarantilla, Sr. and his wife
Capital stating the participating capital of of their co-
Leda Jamili. Petitioner also has two other brothers: Doroteo
owners as of the year 1952, with AntonietaJarantillas
and Tomas Jarantilla.
stated as eight thousand pesos (P8,000.00) and Federico
Jarantilla, Jr.s as five thousand pesos (P5,000.00).
The Jarantilla heirs extrajudicially partitioned amongst
themselves the real properties of their deceased parents.
The controversy started when Antonieta filed a complaint
With the exception of the real property adjudicated to
against Buenaventura, Cynthia, Doroteo and Tomas, for the
PacitaJarantilla, the heirs also agreed to allot the produce
accounting of the assets and income of the co-ownership,
for its partition and the delivery of her share corresponding
to eight percent (8%), and for damages. She alleged that
the initial contribution of property and money came from
the heirs inheritance, and her subsequent annual
investment of seven thousand five hundred pesos
(P7,500.00) as additional capital came from the proceeds of
her farm.
Respondents denied having formed a partnership. They did
not deny the existence and validity of the
"Acknowledgement of Participating Capital" and in fact
used this as evidence to support their claim that Antonietas
8% share was limited to the businesses enumerated
therein. Petitioner Federico Jr joined his aunt Antonieta
and likewise asserted his share in the supposed
partnership.
The RTC rendered judgment in favor of Antonieta and
Federico. On appeal, the CA set the RTC Decision. Petitioner
filed a petition for review to the SC.
ISSUE: Did the CA err in ruling that petitioners are not
entitled to profits over the businesses not listed in the
Acknowledgement?
HELD: There is a co-ownership when an undivided thing or
right belongs to different persons. It is a partnership when
two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
The common ownership of property does not itself create a
partnership between the owners, though they may use it
for the purpose of making gains; and they may, without
becoming partners, agree among themselves as to the
management, and use of such property and the application
of the proceeds therefrom.
Under Article 1767 of the Civil Code, there are two essential
elements in a contract of partnership: (a) an agreement to
contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting
parties.

It is not denied that all the parties in this case have agreed
to contribute capital to a common fund to be able to later
on share its profits. They have admitted this fact, agreed to
its veracity, and even submitted one common documentary
evidence to prove such partnership - the Acknowledgement
of Participating Capital.
The Acknowledgement of Participating Capital is a duly
notarized document voluntarily executed by Conchita
Jarantilla-Remotigue and Buenaventura Remotigue in 1957.
Petitioner does not dispute its contents and is actually
relying on it to prove his participation in the partnership.
Article 1797 of the Civil Code 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.
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.
The petitioner himself claims his share to be 6%, as stated
in the Acknowledgement of Participating Capital. However,
petitioner fails to realize that this document specifically
enumerated the businesses covered by the partnership:
Manila Athletic Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City. Since there was a clear
agreement that the capital the partners contributed went
to the three businesses, then there is no reason to deviate
from such agreement and go beyond the stipulations in the
document. Therefore, the Court of Appeals did not err in
limiting petitioners share to the assets of the businesses
enumerated in the Acknowledgement of Participating
Capital.
In Villareal v. Ramirez, the Court held that since a
partnership is a separate juridical entity, the shares to be
paid out to the partners is necessarily limited only to its
total resources.
***
The petitioner further asserts that he is entitled to
respondents properties based on the concept of trust. He
claims that since the subject real properties were
purchased using funds of the partnership, wherein he has a
6% share, then "law and equity mandates that he should be
considered as a co-owner of those properties in such
proportion."
allegations, he has failed to show that the respondents
used the partnerships money to purchase the said
properties. Even assuming arguendo that some partnership
income was used to acquire these properties, the
petitioner should have successfully shown that these funds
came from his share in the partnership profits. After all, by
his own admission, and as stated in the Acknowledgement
of Participating Capital, he owned a mere 6% equity in the
partnership.

As a rule, the burden of proving the existence of a trust is DENIED

on the party asserting its existence, and such proof must be
clear and satisfactorily show the existence of the trust and
its elements. While implied trusts may be proved by oral
evidence, the evidence must be trustworthy and received
by the courts with extreme caution, and should not be
made to rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral evidence can
easily be fabricated.

The petitioner has failed to prove that there exists a trust

over the subject real properties. Aside from his bare
 SANITARY WARES MANUFACTURING CORPORATION, ERNESTO
V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
4. Aurback vs Sanitary Wares LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN
YOUNG, AVELINO V. CRUZ and the COURT OF
180 SCRA 130 APPEALS, respondents.

Belo, Abiera & Associates for petitioners in 75875.

G.R. No. 75875 December 15, 1989
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM
and CHARLES CHAMSAY, petitioners,
vs.
GUTIERREZ, JR., J.:
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO
V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. These consolidated petitions seek the review of the amended decision
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set
YOUNG and AVELINO V. CRUZ, respondents. aside the earlier decision dated June 5, 1986, of the then Intermediate
Appellate Court and directed that in all subsequent elections for
G.R. No. 75951 December 15, 1989
directors of Sanitary Wares Manufacturing Corporation (Saniwares),
American Standard Inc. (ASI) cannot nominate more than three (3)
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO
directors; that the Filipino stockholders shall not interfere in ASI's choice
R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL
of its three (3) nominees; that, on the other hand, the Filipino
A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
stockholders can nominate only six (6) candidates and in the event they
vs.
cannot agree on the six (6) nominees, they shall vote only among
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN
themselves to determine who the six (6) nominees will be, with
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and
cumulative voting to be allowed but without interference from ASI.
LUCIANO SALAZAR, respondents.
The antecedent facts can be summarized as follows:
G.R. Nos. 75975-76 December 15, 1989
In 1961, Saniwares, a domestic corporation was incorporated for the
LUCIANO E. SALAZAR, petitioner,
primary purpose of manufacturing and marketing sanitary wares. One
vs.
of the incorporators, Mr. Baldwin Young went abroad to look for foreign
partners, European or American who could help in its expansion plans.
On August 15, 1962, ASI, a foreign corporation domiciled in Delaware,
United States entered into an Agreement with Saniwares and some
Filipino investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and selling
here and abroad vitreous china and sanitary wares. The parties agreed
that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in
these cases on the nomination and election of the directors of the
corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be
substantially in the form annexed hereto as Exhibit A and,
insofar as permitted under Philippine law, shall specifically
provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in
a Board of Directors, which shall consist of nine individuals.
As long as American-Standard shall own at least 30% of
the outstanding stock of the Corporation, three of the nine
directors shall be designated by American-Standard, and
the other six shall be designated by the other stockholders
of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to
protect it as a minority group, including the grant of veto powers over a
number of corporate acts and the right to designate certain officers,
such as a member of the Executive Committee whose vote was
required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the capital
stock of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the
American corporation prospered. Unfortunately, with the business
successes, there came a deterioration of the initially harmonious
relations between the two groups. According to the Filipino group, a
basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had
other subsidiaries of joint joint venture groups in the countries where
Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin
Young. The minutes were taken by the Secretary, Avelino Cruz. After
disposing of the preliminary items in the agenda, the stockholders then
proceeded to the election of the members of the board of directors. The
ASI group nominated three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine investors nominated
six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R.
Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R,
Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated
Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two
nominations out of order on the basis of section 5 (a) of the Agreement,
the consistent practice of the parties during the past annual
stockholders' meetings to nominate only nine persons as nominees for
the nine-member board of directors, and the legal advice of Saniwares'
legal counsel. The following events then, transpired:
... There were protests against the action of the Chairman
and heated arguments ensued. An appeal was made by
the ASI representative to the body of stockholders present
that a vote be taken on the ruling of the Chairman. The
Chairman, Baldwin Young, declared the appeal out of order
and no vote on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the votes
present and represented by proxy equally for the 6
nominees of the Philippine Investors and the 3 nominees of
ASI, thus effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and Charles
Chamsay. The ASI representative, Mr. Jaqua protested the
decision of the Chairman and announced that all votes
accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo,
AC-G.R. SP No. 05617) were being cumulatively voted for
the three ASI nominees and Charles Chamsay, and
instructed the Secretary to so vote. Luciano E. Salazar and
other proxy holders announced that all the votes owned by
and or represented by them 467,197 shares (p. 27, Rollo,
AC-G.R. SP No. 05617) were being voted cumulatively in
favor of Luciano E. Salazar. The Chairman, Baldwin
Young, nevertheless instructed the Secretary to cast all
votes equally in favor of the three ASI nominees, namely,
Wolfgang Aurbach, John Griffin and David Whittingham
and the six originally nominated by Rogelio Vinluan,
namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the
election of the following Wolfgang Aurbach, John Griffin,
David Whittingham Ernesto Lagdameo, Sr., Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.
Boncan, Baldwin Young. The representative of ASI then
moved to recess the meeting which was duly seconded.
There was also a motion to adjourn (p. 28, Rollo, AC-G.R.
SP No. 05617). This motion to adjourn was accepted by
the Chairman, Baldwin Young, who announced that the
motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and
having been ignored, Mr. Jaqua the ASI representative,
stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the
next room. The Chairman then threatened to have the
stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The
ASI Group, Luciano E. Salazar and other stockholders,
allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator
lobby of the American Standard Building. The continued
meeting was presided by Luciano E. Salazar, while Andres
Gatmaitan acted as Secretary. On the basis of the
cumulative votes cast earlier in the meeting, the ASI Group
nominated its four nominees; Wolfgang Aurbach, John
 Griffin, David Whittingham and Charles Chamsay. Luciano
E. Salazar voted for himself, thus the said five directors
were certified as elected directors by the Acting Secretary,
Andres Gatmaitan, with the explanation that there was a tie
among the other six (6) nominees for the four (4) remaining
positions of directors and that the body decided not to
break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the
parties with the Securities and Exchange Commission (SEC). The first
petition filed was for preliminary injunction by Saniwares, Emesto V.
Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr.,
Enrique Lagdameo and George F. Lee against Luciano Salazar and
Charles Chamsay. The case was denominated as SEC Case No. 2417.
The second petition was for quo warranto and application for
receivership by Wolfgang Aurbach, John Griffin, David Whittingham,
Luciano E. Salazar and Charles Chamsay against the group of Young
and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F.
Cruz. The case was docketed as SEC Case No. 2718. Both sets of
parties except for Avelino Cruz claimed to be the legitimate directors of
the corporation.
The two petitions were consolidated and tried jointly by a hearing officer
who rendered a decision upholding the election of the Lagdameo Group
and dismissing the quo warranto petition of Salazar and Chamsay. The
ASI Group and Salazar appealed the decision to the SEC en banc
which affirmed the hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the
Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay (docketed as AC-G.R. SP No.
05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No.
05617). The petitions were consolidated and the appellate court in its
decision ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders'
meeting of Saniwares be ordered convoked as soon as possible, under
the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo
Group) the appellate court (Court of Appeals) rendered the questioned
amended decision. Petitioners Wolfgang Aurbach, John Griffin, David
P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the
following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE
ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF
SANIWARES WHEN IN FACT THERE WAS NO
ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE
STOCKHOLDERS FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED BY THE NUMBER OF
SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS
AND READS PROVISIONS INTO THE AGREEMENT OF
THE PARTIES WHICH WERE NOT THERE, WHICH
ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the
amended decision on the following grounds:
11.1.
ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
binding contractual agreements entered into by
stockholders and the replacement of the conditions of such
agreements with terms never contemplated by the
stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the
deprivation of the property rights of stockholders without
due process of law in order that a favored group of
stockholders may be illegally benefitted and guaranteed a
continuing monopoly of the control of a corporation. (pp.
14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I with the rules governing the interpretation and construction of contracts.
THE AMENDED DECISION OF THE RESPONDENT
COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO
TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT
CATEGORICALLY RULE THAT PRIVATE PETITIONERS
HEREIN WERE THE DULY ELECTED DIRECTORS
DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANTWARES. (P. 24,
Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are
discussed jointly.
The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' meeting
held on March 8, 1983. To answer this question the following factors
should be determined: (1) the nature of the business established by the
parties whether it was a joint venture or a corporation and (2) whether
or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp
678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd
751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend
that the actual intention of the parties should be viewed strictly on the
"Agreement" dated August 15,1962 wherein it is clearly stated that the
parties' intention was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous
Provisions which states:
 xxx xxx xxx
c) nothing herein contained shall be construed to constitute
any of the parties hereto partners or joint venturers in
respect of any transaction hereunder. (At P. 66, Rollo-GR
No. 75875)
They object to the admission of other evidence which tends to show
that the parties' agreement was to establish a joint venture presented
by the Lagdameo and Young Group on the ground that it contravenes
the parol evidence rule under section 7, Rule 130 of the Revised Rules
of Court. According to them, the Lagdameo and Young Group never
pleaded in their pleading that the "Agreement" failed to express the true
intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an
agreement have been reduced to writing, it is to be
considered as containing all such terms, and therefore,
there can be, between the parties and their successors in
interest, no evidence of the terms of the agreement other
than the contents of the writing, except in the following
cases:
(a) Where a mistake or imperfection of the writing, or its
failure to express the true intent and agreement of the
parties or the validity of the agreement is put in issue by
the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group
pleaded in their Reply and Answer to Counterclaim in SEC Case No.
2417 that the Agreement failed to express the true intent of the parties,
to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it
appear that the parties thereto disclaim being partners or
joint venturers such disclaimer is directed at third parties
and is not inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors) shall
constitute the majority, and the other ASI shall constitute
the minority stockholder. In any event, the evident intention
of the Philippine Investors and ASI in entering into the
Agreement is to enter into ajoint venture enterprise, and if
some words in the Agreement appear to be contrary to the
evident intention of the parties, the latter shall prevail over
the former (Art. 1370, New Civil Code). The various
stipulations of a contract shall be interpreted together
attributing to the doubtful ones that sense which may result
from all of them taken jointly (Art. 1374, New Civil Code).
Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall
be principally considered. (Art. 1371, New Civil Code).
(Part I, Original Records, SEC Case No. 2417)
It has been ruled:
 In an action at law, where there is evidence tending to
prove that the parties joined their efforts in furtherance of
an enterprise for their joint profit, the question whether they
intended by their agreement to create a joint adventure, or
to assume some other relation is a question of fact for the
jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653;
Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v.
George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the
Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish
a joint venture and not a corporation. The history of the organization of
Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin
Young, he negotiated the Agreement with ASI in behalf of
the Philippine nationals. He testified that ASI agreed to
accept the role of minority vis-a-vis the Philippine National
group of investors, on the condition that the Agreement
should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain
provisions were included to protect the interests of ASI as
the minority. For example, the vote of 7 out of 9 directors is
required in certain enumerated corporate acts [Sec. 3 (b)
(ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the
vote of this member is required for certain transactions
[Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for
the amendment of the articles and by-laws of Saniwares
[Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to
designate the president and plant manager [Sec. 5 (6)].
The Agreement further provides that the sales policy of
Saniwares shall be that which is normally followed by ASI
[Sec. 13 (a)] and that Saniwares should not export
"Standard" products otherwise than through ASI's Export
Marketing Services [Sec. 13 (6)]. Under the Agreement,
ASI agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same. (At p.
2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement
requiring a 7 out of 9 votes of the board of directors for
certain actions, in effect gave ASI (which designates 3
directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws;
and most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9 directors
and the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in
Saniwares, namely ASI, which owns 40% of the capital
stock and the Philippine National stockholders who own the
 balance of 60%, and that 2) ASI is given certain protections
as the minority stockholder.
Premises considered, we believe that under the Agreement
there are two groups of stockholders who established a
corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other
stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not
"nominated" or "elected" in the selection of the nine directors on a six to
three ratio. Each group is assured of a fixed number of directors in the
board.
Moreover, ASI in its communications referred to the enterprise as joint
venture. Baldwin Young also testified that Section 16(c) of the
Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers in respect
of any transaction hereunder" was merely to obviate the possibility of
the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the
industrial and manufacturing capacities of a local firm are constrained to
seek the technology and marketing assistance of huge multinational
corporations of the developed world. Arrangements are formalized
where a foreign group becomes a minority owner of a firm in exchange
for its manufacturing expertise, use of its brand names, and other such
assistance. However, there is always a danger from such
arrangements. The foreign group may, from the start, intend to
establish its own sole or monopolistic operations and merely uses the
joint venture arrangement to gain a foothold or test the Philippine
waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the
foreign group undermines the local majority ownership and actively tries
to completely or predominantly take over the entire company. This
undermining of joint ventures is not consistent with fair dealing to say
the least. To the extent that such subversive actions can be lawfully
prevented, the courts should extend protection especially in industries
where constitutional and legal requirements reserve controlling
ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of
Appeal
In fact, the Philippine Corporation Code itself recognizes
the right of stockholders to enter into agreements regarding
the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in
writing and signed by the parties thereto, may provide that
in exercising any voting rights, the shares held by them
shall be voted as therein provided, or as they may agree,
or as determined in accordance with a procedure agreed
upon by them.
Appellants contend that the above provision is included in
the Corporation Code's chapter on close corporations and
Saniwares cannot be a close corporation because it has 95
stockholders. Firstly, although Saniwares had 95
stockholders at the time of the disputed stockholders
meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the
Chamsay family for 8 stockholders, the Santos family for 9
stockholders, the Dy family for 7 stockholders, etc. If the
members of one family and/or business or interest group
are considered as one (which, it is respectfully submitted,
they should be for purposes of determining how closely
held Saniwares is there were as of 8 March 1983,
practically only 17 stockholders of Saniwares. (Please refer
to discussion in pp. 5 to 6 of appellees' Rejoinder
Memorandum dated 11 December 1984 and Annex "A"
thereof).
Secondly, even assuming that Saniwares is technically not
a close corporation because it has more than 20
stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim
that Saniwares is a public issue or a widely held
corporation.
In the United States, many courts have taken a realistic
approach to joint venture corporations and have not rigidly
applied principles of corporation law designed primarily for
public issue corporations. These courts have indicated that
express arrangements between corporate joint ventures
should be construed with less emphasis on the ordinary
rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement
between the joint venturers (Please see Wabash Ry v.
American Refrigerator Transit Co., 7 F 2d 335; Chicago, M
& St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US.
490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240
N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc.,
296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley,
138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These
American cases dealt with legal questions as to the extent
to which the requirements arising from the corporate form
of joint venture corporations should control, and the courts
ruled that substantial justice lay with those litigants who
relied on the joint venture agreement rather than the
litigants who relied on the orthodox principles of
corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing
the joint venture deviate from the traditional pattern of
corporation management. A noted authority has pointed
out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain
provisions which do one or more of the following: (1)
require greater than majority vote for shareholder and
director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of
directors; (3) give to the shareholders control over the
selection and retention of employees; and (4) set up a
procedure for the settlement of disputes by arbitration (See
I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp.
15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code
does not necessarily imply that agreements regarding the
exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in
particular. Does this provision necessarily imply that these
agreements can be valid only in close corporations as
defined by the Code? Suppose that a corporation has
twenty five stockholders, and therefore cannot qualify as a
close corporation under section 96, can some of them
enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying
stockholders of corporations other than close ones the right
to enter into not voting or pooling agreements to protect
their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the
agreement. Of course, voting or pooling agreements are
perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even
in widely held corporations. Moreover, since the Code
limits the legal meaning of close corporations to those
which comply with the requisites laid down by section 96, it
is entirely possible that a corporation which is in fact a
close corporation will not come within the definition. In such
case, its stockholders should not be precluded from
entering into contracts like voting agreements if these are
otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement
relating to the designation or nomination of directors
restricts the right of the Agreement's signatories to vote for
directors, such contractual provision, as correctly held by
the SEC, is valid and binding upon the signatories thereto,
which include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote
their additional equity during elections of Saniwares' board of directors,
the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's
participation in the management of the corporation is
spelled out in the Agreement. Section 5(a) hereof says that
three of the nine directors shall be designated by ASI and
the remaining six by the other stockholders, i.e., the Filipino
stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship,
it is imperative that the parties should honor and adhere to
their respective rights and obligations thereunder.
Appellants seem to contend that any allocation of board
seats, even in joint venture corporations, are null and void
to the extent that such may interfere with the stockholder's
rights to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to
hold that any agreement which curtails in any way
cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced
businessmen and do not prejudice those who are not
parties thereto. It may well be that it would be more cogent
to hold, as the Securities and Exchange Commission has
held in the decision appealed from, that cumulative voting
rights may be voluntarily waived by stockholders who enter
into special relationships with each other to pursue and
implement specific purposes, as in joint venture
relationships between foreign and local stockholders, so
long as such agreements do not adversely affect third
parties.
In any event, it is believed that we are not here called upon
to make a general rule on this question. Rather, all that
needs to be done is to give life and effect to the particular
contractual rights and obligations which the parties have
assumed for themselves.
On the one hand, the clearly established minority position
of ASI and the contractual allocation of board seats Cannot
be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to
uphold the second over the first. Upon further reflection, we
feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly.
This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold
the right of the stockholders within each group to
cumulative voting in the process of determining who the
group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this
means that if the Filipino stockholders cannot agree who
their six nominees will be, a vote would have to be taken
among the Filipino stockholders only. During this voting,
each Filipino stockholder can cumulate his votes. ASI,
however, should not be allowed to interfere in the voting
within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to
designate under the Agreement, and may even be able to
get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the
board seats and the stockholder's right to cumulative
voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law
(Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is
allowed to nominate more than three directors. (Rollo-
75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that
the ASI Group has the right to vote their additional equity pursuant to
Section 24 of the Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in electing directors.
Petitioner Salazar adds that this right if granted to the ASI Group would
not necessarily mean a violation of the Anti-Dummy Act
(Commonwealth Act 108, as amended). He cites section 2-a thereof
which provides:
And provided finally that the election of aliens as members
of the board of directors or governing body of corporations
or associations engaging in partially nationalized activities
shall be allowed in proportion to their allowable
participation or share in the capital of such entities.
(amendments introduced by Presidential Decree 715,
section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of
the Corporation Code. The point of query, however, is whether or not
that provision is applicable to a joint venture with clearly defined
agreements:
The legal concept of ajoint venture is of common law origin.
It has no precise legal definition but it has been generally
understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811
[1920]) It is in fact hardly distinguishable from the
partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a
mutual right of control. Blackner v. Mc Dermott, 176 F. 2d.
498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d.
12 289 P. 2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdictions is that the
partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d.
74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint
venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two
business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code
1981)
Moreover, the usual rules as regards the construction and operations of
contracts generally apply to a contract of joint venture. (O' Hara v.
Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the
resolution of the question of whether or not the ASI Group may vote
their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement
of the parties as regards the allocation of director seats under Section 5
(a) of the "Agreement," and the right of each group of stockholders to
cumulative voting in the process of determining who the group's
nominees would be under Section 3 (a) (1) of the "Agreement." As
pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while
Section 3 (a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as
regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even
a Filipino director who would be beholden to them would obliterate their
minority status as agreed upon by the parties. As aptly stated by the
appellate court:
... ASI, however, should not be allowed to interfere in the
voting within the Filipino group. Otherwise, ASI would be
able to designate more than the three directors it is allowed
to designate under the Agreement, and may even be able
to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the
board seats and the stockholder's right to cumulative
voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law
(Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is
allowed to nominate more than three directors. (At p. 39,
Rollo, 75875)
Equally important as the consideration of the contractual intent of the
parties is the consideration as regards the possible domination by the
foreign investors of the enterprise in violation of the nationalization
requirements enshrined in the Constitution and circumvention of the
Anti-Dummy Act. In this regard, petitioner Salazar's position is that the
Anti-Dummy Act allows the ASI group to elect board directors in
proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as
members of the board of directors in proportion to their allowance
participation of said entity. In the instant case, the foreign Group ASI
was limited to designate three directors. This is the allowable
participation of the ASI Group. Hence, in future dealings, this limitation
of six to three board seats should always be maintained as long as the
joint venture agreement exists considering that in limiting 3 board seats
in the 9-man board of directors there are provisions already agreed
upon and embodied in the parties' Agreement to protect the interests
arising from the minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and
SEC which were impliedly affirmed by the appellate court declaring
Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto
V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo,
Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors
of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R.
No. 75951) object to a cumulative voting during the election of the
board of directors of the enterprise as ruled by the appellate court and
submits that the six (6) directors allotted the Filipino stockholders
should be selected by consensus pursuant to section 5 (a) of the
Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."
They also stress the possibility that the ASI Group might take control of
the enterprise if the Filipino stockholders are allowed to select their
nominees separately and not as a common slot determined by the
majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the
allocation of board directors should not be interpreted in isolation. This
should be construed in relation to section 3 (a) (1) of the Agreement. As
we stated earlier, section 3(a) (1) relates to the manner of voting for
these nominees which is cumulative voting while section 5(a) relates to
the manner of nominating the members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the
enterprise under the cumulative voting procedure cannot, however, be
ignored. The validity of the cumulative voting procedure is dependent
on the directors thus elected being genuine members of the Filipino
group, not voters whose interest is to increase the ASI share in the
management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company
exists under its original agreement. Cumulative voting may not be used
as a device to enable ASI to achieve stealthily or indirectly what they
cannot accomplish openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority status of the
Filipino investors as well as to maintain the minority status of the foreign
investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No.
75875 are DISMISSED and the petition in G.R. No. 75951 is partly
GRANTED. The amended decision of the Court of Appeals is
MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan,
Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8,1983
annual stockholders' meeting. In all other respects, the questioned
decision is AFFIRMED. Costs against the petitioners in G.R. Nos.
75975-76 and G.R. No. 75875.
SO ORDERED.
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. (Consolidated petition) ponente:
GUTIERREZ, JR., J.:
Characters: 1. Petitioners w/ LUCIANO E. SALAZAR questions
the election of directors for the Sanitary Wares Manufatucring
Corporation. 2. Respondents were the elected directors of the
said corporation
Facts: In 1961, Saniwares, a domestic corporation was
incorporated for the primary purpose of manufacturing and
marketing sanitary wares. One of the incorporators, Mr. Baldwin
Young went abroad to look for foreign partners, European or
American who could help in its expansion plans. On August 15,
1962, ASI, a foreign corporation domiciled in Delaware, United
States entered into an Agreement with Saniwares and some
Filipino investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and
selling here and abroad vitreous china and sanitary wares. The
parties agreed that the business operations in the Philippines shall
be carried on by an incorporated enterprise and that the name of
the corporation shall initially be Sanitary Wares Manufacturing
Corporation. In their agreement, the management of the
corporation will be vested in a Board of directors consisting of 9
members, ASI is to be given 3 seats in the board of the directors
as long as they maintain 30% equity while the remaining 6 seats
will be allotted for the Filipino owners. In the duration of their
operation, ASI increased its holdings from 30% to 40%. In an
election held, respondents were elected as board of directors. The
result of the election was questioned by petitioners on the ground
that there should be an additional seat for ASI by reason of their
increased equity and sought the election of Chamsay and Salazar.
The case was file in the SEC. SEC dismissed the case and was
brought to the IAC for appeal. The IAC overturned the decision of
tge SEC but was overturned upon the motion for reconsideration
to CA. Thus this petition.
Issue: Whether or not the Sanitary Wares Manufacturing is a
corporation.?NO Was the election valid.? YES
Ruling: 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. Equally important as the consideration of the
contractual intent of the parties is the consideration as regards the
possible domination by the foreign investors of the enterprise in
violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this
regard, petitioner Salazar's position is that the Anti-Dummy Act
allows the ASI group to elect board directors in proportion to their
share in the capital of the entity. It is to be noted, however, that the
same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of
said entity. In the instant case, the foreign Group ASI was limited
to designate three directors. This is the allowable participation of
the ASI Group. Hence, in future dealings, this limitation of six to
three board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board seats
in the 9-man board of directors there are provisions already
agreed upon and embodied in the parties' Agreement to protect
the interests arising from the minority status of the foreign
investors.

5. Pioneer Insurance vs CA
175 SCRA
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA
and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT
CO., INC,, FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of the
Court of Appeals in CA-G.R. CV No. 66195 which modified the decision
of the then Court of First Instance of Manila in Civil Case No. 66135.
The plaintiffs complaint (petitioner in G.R. No. 84197) against all
defendants (respondents in G.R. No. 84197) was dismissed but in all
other respects the trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant
Jacob S. Lim requiring Lim to pay plaintiff the amount of
P311,056.02, with interest at the rate of 12% per annum
compounded monthly; plus 15% of the amount awarded to
plaintiff as attorney's fees from July 2,1966, until full
payment is made; plus P70,000.00 moral and exemplary
damages.
It is found in the records that the cross party plaintiffs
incurred additional miscellaneous expenses aside from
Pl51,000.00,,making a total of P184,878.74. Defendant
Jacob S. Lim is further required to pay cross party plaintiff,
Bormaheco, the Cervanteses one-half and Maglana the
other half, the amount of Pl84,878.74 with interest from the
filing of the cross-complaints until the amount is fully paid;
plus moral and exemplary damages in the amount of
P184,878.84 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral and
exemplary damages in the amount of P50,000.00 for each
of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to
Bormaheco and the Cervanteses, and another P20,000.00
to Constancio B. Maglana as attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of
plaintiff Pioneer against defendants Bormaheco, the
Cervanteses and Constancio B. Maglana, is dismissed.
Instead, plaintiff is required to indemnify the defendants
Bormaheco and the Cervanteses the amount of
P20,000.00 as attorney's fees and the amount of
P4,379.21, per year from 1966 with legal rate of interest up
to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B.
Maglana the amount of P20,000.00 as attorney's fees and
costs.
No moral or exemplary damages is awarded against
plaintiff for this action was filed in good faith. The fact that
the properties of the Bormaheco and the Cervanteses were
attached and that they were required to file a counterbond
in order to dissolve the attachment, is not an act of bad
faith. When a man tries to protect his rights, he should not
be saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for in the
Rules of Court, and it was the court that ordered it, in the
exercise of its discretion.
No damage is decided against Malayan Insurance
Company, Inc., the third-party defendant, for it only
secured the attachment prayed for by the plaintiff Pioneer.
If an insurance company would be liable for damages in
performing an act which is clearly within its power and
which is the reason for its being, then nobody would
engage in the insurance business. No further claim or
counter-claim for or against anybody is declared by this
Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in
the airline business as owner-operator of Southern Air Lines (SAL) a
single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and
Lim entered into and executed a sales contract (Exhibit A) for the sale
and purchase of two (2) DC-3A Type aircrafts and one (1) set of
necessary spare parts for the total agreed price of US $109,000.00 to
be paid in installments. One DC-3 Aircraft with Registry No. PIC-718,
arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer,
petitioner in G.R. No. 84197) as surety executed and issued its Surety
Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim,
for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and
Constancio Maglana (respondents in both petitions) contributed some
funds used in the purchase of the above aircrafts and spare parts. The
funds were supposed to be their contributions to a new corporation
proposed by Lim to expand his airline business. They executed two (2)
separate indemnity agreements (Exhibits D-1 and D-2) in favor of
Pioneer, one signed by Maglana and the other jointly signed by Lim for
SAL, Bormaheco and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and bind themselves
jointly and severally to indemnify and hold and save harmless Pioneer
from and against any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind and nature which
Pioneer may incur in consequence of having become surety upon the
bond/note and to pay, reimburse and make good to Pioneer, its
successors and assigns, all sums and amounts of money which it or its
representatives should or may pay or cause to be paid or become liable
to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of
SAL executed in favor of Pioneer as deed of chattel mortgage as
security for the latter's suretyship in favor of the former. It was stipulated
therein that Lim transfer and convey to the surety the two aircrafts. The
deed (Exhibit D) was duly registered with the Office of the Register of
Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA
to request payments from the surety. Pioneer paid a total sum of
P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said
chattel mortgage before the Sheriff of Davao City. The Cervanteses and
Maglana, however, filed a third party claim alleging that they are co-
owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed
cross-claims against Lim alleging that they were not privies to the
contracts signed by Lim and, by way of counterclaim, sought for
damages for being exposed to litigation and for recovery of the sums of
money they advanced to Lim for the purchase of the aircrafts in
question.
After trial on the merits, a decision was rendered holding Lim liable to
pay Pioneer but dismissed Pioneer's complaint against all other
defendants.
As stated earlier, the appellate court modified the trial court's decision in
that the plaintiffs complaint against all the defendants was dismissed. In
all other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY
ERRED WHEN IT DISMISSED THE APPEAL OF
PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE
PROCEEDS OF THE REINSURANCE ON ITS BOND IN
 FAVOR OF THE JDA AND THAT IT CANNOT
REPRESENT A REINSURER TO RECOVER THE
AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS
DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No.
84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that
plaintiff Pioneer had reinsured its risk of liability under the
surety bond in favor of JDA and subsequently collected the
proceeds of such reinsurance in the sum of P295,000.00.
Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the
recovery of the amount of P298,666.28 from defendants
will no longer prosper. Plaintiff Pioneer is not the real party
in interest to institute the instant action as it does not stand
to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the
reinsurer to recover the amount from defendants, hence, it
instituted the action is utterly devoid of merit. Plaintiff did
not even present any evidence that it is the attorney-in-fact
of the reinsurance company, authorized to institute an
action for and in behalf of the latter. To qualify a person to
be a real party in interest in whose name an action must be
prosecuted, he must appear to be the present real owner of
the right sought to be enforced (Moran, Vol. I, Comments
on the Rules of Court, 1979 ed., p. 155). It has been held
that the real party in interest is the party who would be
benefited or injured by the judgment or the party entitled to
the avails of the suit (Salonga v. Warner Barnes & Co.,
Ltd., 88 Phil. 125, 131). By real party in interest is meant a
present substantial interest as distinguished from a mere
expectancy or a future, contingent, subordinate or
consequential interest (Garcia v. David, 67 Phil. 27;
Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385
III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City
of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot
be considered as the real party in interest as it has already
been paid by the reinsurer the sum of P295,000.00 — the
bulk of defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received
by plaintiff Pioneer from its reinsurer, the former was able
to foreclose extra-judicially one of the subject airplanes and
its spare engine, realizing the total amount of P37,050.00
from the sale of the mortgaged chattels. Adding the sum of
P37,050.00, to the proceeds of the reinsurance amounting
to P295,000.00, it is patent that plaintiff has been overpaid
in the amount of P33,383.72 considering that the total
amount it had paid to JDA totals to only P298,666.28. To
allow plaintiff Pioneer to recover from defendants the
amount in excess of P298,666.28 would be tantamount to
unjust enrichment as it has already been paid by the
reinsurance company of the amount plaintiff has paid to
JDA as surety of defendant Lim vis-a-vis defendant Lim's
liability to JDA. Well settled is the rule that no person
should unjustly enrich himself at the expense of another
(Article 22, New Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court
based its finding that petitioner was paid by its reinsurer in the aforesaid
amount, as this matter has never been raised by any of the parties
herein both in their answers in the court below and in their respective
briefs with respondent court; (Rollo, p. 11) (2) even assuming
hypothetically that it was paid by its reinsurer, still none of the
respondents had any interest in the matter since the reinsurance is
strictly between the petitioner and the re-insurer pursuant to section 91
of the Insurance Code; (3) pursuant to the indemnity agreements, the
petitioner is entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not applicable
considering that whatever amount he would recover from the co-
indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the
reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of
the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with
respect to so much of its obligations to JDA as has been
paid with reinsurance money?
2. If the answer to the preceding question is in the
negative, has Pioneer still any claim against defendants,
considering the amount it has realized from the sale of the
mortgaged properties? (Record on Appeal, p. 359, Annex
B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under
the surety bond it had executed in favor of JDA, collected
the proceeds of such reinsurance in the sum of P295,000,
and paid with the said amount the bulk of its alleged liability
to JDA under the said surety bond, it is plain that on this
score it no longer has any right to collect to the extent of
the said amount.
On the question of why it is Pioneer, instead of the
reinsurance (sic), that is suing defendants for the amount
paid to it by the reinsurers, notwithstanding that the cause
of action pertains to the latter, Pioneer says: The reinsurers
opted instead that the Pioneer Insurance & Surety
Corporation shall pursue alone the case.. . . . Pioneer
Insurance & Surety Corporation is representing the
reinsurers to recover the amount.' In other words, insofar
as the amount paid to it by the reinsurers Pioneer is suing
defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in
the complaint that Pioneer is suing as attorney-in- fact of
the reinsurers for any amount. Lastly, and most important
of all, Pioneer has no right to institute and maintain in its
own name an action for the benefit of the reinsurers. It is
well-settled that an action brought by an attorney-in-fact in
his own name instead of that of the principal will not
prosper, and this is so even where the name of the
principal is disclosed in the complaint.
 Section 2 of Rule 3 of the Old Rules of Court
provides that 'Every action must be prosecuted
in the name of the real party in interest.' This
provision is mandatory. The real party in
interest is the party who would be benefitted or
injured by the judgment or is the party entitled
to the avails of the suit.
This Court has held in various cases that an
attorney-in-fact is not a real party in interest,
that there is no law permitting an action to be
brought by an attorney-in-fact. Arroyo v.
Granada and Gentero, 18 Phil. Rep. 484;
Luchauco v. Limjuco and Gonzalo, 19 Phil.
Rep. 12; Filipinos Industrial Corporation v. San
Diego G.R. No. L- 22347,1968, 23 SCRA 706,
710-714.
The total amount paid by Pioneer to JDA is P299,666.29.
Since Pioneer has collected P295,000.00 from the
reinsurers, the uninsured portion of what it paid to JDA is
the difference between the two amounts, or P3,666.28.
This is the amount for which Pioneer may sue defendants,
assuming that the indemnity agreement is still valid and
effective. But since the amount realized from the sale of the
mortgaged chattels are P35,000.00 for one of the airplanes
and P2,050.00 for a spare engine, or a total of P37,050.00,
Pioneer is still overpaid by P33,383.72. Therefore, Pioneer
has no more claim against defendants. (Record on Appeal,
pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed
in the appellate court. Considering this admitted payment, the only
issue that cropped up was the effect of payment made by the reinsurers
to the petitioner. Therefore, the petitioner's argument that the
respondents had no interest in the reinsurance contract as this is strictly
between the petitioner as insured and the reinsuring company pursuant
to Section 91 (should be Section 98) of the Insurance Code has no
basis.
In general a reinsurer, on payment of a loss acquires the
same rights by subrogation as are acquired in similar cases
where the original insurer pays a loss (Universal Ins. Co. v.
Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance
policies are in general applicable to actions or contracts of
reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins.
Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he
has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated
to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air
Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we
subsequently applied in Manila Mahogany Manufacturing Corporation v.
Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives
the indemnity from the insurer, it is provided in said article
that the insurer is deemed subrogated to the rights of the
insured against the wrongdoer and if the amount paid by
the insurer does not fully cover the loss, then the aggrieved
party is the one entitled to recover the
deficiency. Evidently, under this legal provision, the real
party in interest with regard to the portion of the indemnity
paid is the insurer and not the insured. (Emphasis
supplied).
It is clear from the records that Pioneer sued in its own name and not
as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in
dismissing the petitioner's complaint as against the respondents for the
reason that the petitioner was not the real party in interest in the
complaint and, therefore, has no cause of action against the
respondents.
Nevertheless, the petitioner argues that the appeal as regards the
counter indemnitors should not have been dismissed on the premise
that the evidence on record shows that it is entitled to recover from the
counter indemnitors. It does not, however, cite any grounds except its
allegation that respondent "Maglanas defense and evidence are
certainly incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the matter replete
with evidence to substantiate its finding that the counter-indemnitors are
not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity
agreement ceased to be valid and effective after the
execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and
Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and
the spare parts involved, agreed to issue the bond provided
that the same would be mortgaged to it, but this was not
possible because the planes were still in Japan and could
not be mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would be
mortgaged to Pioneer Insurance to cover the bond, and
this indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the
original complaint:
The various conflicting claims over the
mortgaged properties have impaired and
rendered insufficient the security under the
chattel mortgage and there is thus no other
sufficient security for the claim sought to be
enforced by this action.
This is judicial admission and aside from the chattel
mortgage there is no other security for the claim sought to
be enforced by this action, which necessarily means that
the indemnity agreement had ceased to have any force
and effect at the time this action was instituted. Sec 2, Rule
129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed
the chattel mortgage on the planes and spare parts, no
longer has any further action against the defendants as
indemnitors to recover any unpaid balance of the price.
The indemnity agreement was ipso jure extinguished upon
the foreclosure of the chattel mortgage. These defendants,
as indemnitors, would be entitled to be subrogated to the
right of Pioneer should they make payments to the latter.
Articles 2067 and 2080 of the New Civil Code of the
Philippines.
Independently of the preceding proposition Pioneer's
election of the remedy of foreclosure precludes any further
action to recover any unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight
and last installments to JDA and Pioneer as surety having
made of the payments to JDA, the alternative remedies
open to Pioneer were as provided in Article 1484 of the
New Civil Code, known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel
mortgage both by extrajudicial foreclosure and the instant
suit. Such being the case, as provided by the
aforementioned provisions, Pioneer shall have no further
action against the purchaser to recover any unpaid balance
and any agreement to the contrary is void.' Cruz, et al. v.
Filipinas Investment & Finance Corp. No. L- 24772, May
27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be
escaped from through the contention that Pioneer is not the
vendor but JDA. The reason is that Pioneer is actually
exercising the rights of JDA as vendor, having subrogated
it in such rights. Nor may the application of the provision be
validly opposed on the ground that these defendants and
defendant Maglana are not the vendee but indemnitors.
Pascual, et al. v. Universal Motors Corporation, G.R. No. L-
27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the
change of their maturity dates discharged these defendants
from any liability as alleged indemnitors. The change of the
maturity dates of the obligations of Lim, or SAL extinguish
the original obligations thru novations thus discharging the
indemnitors.
The principal hereof shall be paid in eight
equal successive three months interval
installments, the first of which shall be due and
payable 25 August 1965, the remainder of
which ... shall be due and payable on the 26th
day x x x of each succeeding three months
and the last of which shall be due and payable
26th May 1967.
However, at the trial of this case, Pioneer produced a
memorandum executed by SAL or Lim and JDA, modifying
the maturity dates of the obligations, as follows:
The principal hereof shall be paid in eight
equal successive three month interval
installments the first of which shall be due and
payable 4 September 1965, the remainder of
which ... shall be due and payable on the 4th
day ... of each succeeding months and the last
of which shall be due and payable 4th June
1967.
Not only that, Pioneer also produced eight purported
promissory notes bearing maturity dates different from that
fixed in the aforesaid memorandum; the due date of the
first installment appears as October 15, 1965, and those of
the rest of the installments, the 15th of each succeeding
three months, that of the last installment being July 15,
1967.
These restructuring of the obligations with regard to their
maturity dates, effected twice, were done without the
knowledge, much less, would have it believed that these
defendants Maglana (sic). Pioneer's official Numeriano
Carbonel would have it believed that these defendants and
defendant Maglana knew of and consented to the
modification of the obligations. But if that were so, there
would have been the corresponding documents in the form
of a written notice to as well as written conformity of these
defendants, and there are no such document. The
consequence of this was the extinguishment of the
obligations and of the surety bond secured by the
indemnity agreement which was thereby also extinguished.
Applicable by analogy are the rulings of the Supreme Court
in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil.
553, 563, and the case of Asiatic Petroleum Co. v. Hizon
David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor
by the creditor without the consent of the
guarantor extinguishes the guaranty The mere
failure on the part of the creditor to demand
payment after the debt has become due does
not of itself constitute any extension time
referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-
563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.)
36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed
when Pioneer paid the same. Consequently, Pioneer has
no more cause of action to recover from these defendants,
as supposed indemnitors, what it has paid to JDA. By
virtue of an express stipulation in the surety bond, the
failure of JDA to present its claim to Pioneer within ten
days from default of Lim or SAL on every installment,
released Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement
from these defendants thru the indemnity.
 Art. 1318. Payment by a solidary debtor shall
not entitle him to reimbursement from his co-
debtors if such payment is made after the
obligation has prescribed or became illegal.
These defendants are entitled to recover damages and
attorney's fees from Pioneer and its surety by reason of the
filing of the instant case against them and the attachment
and garnishment of their properties. The instant action is
clearly unfounded insofar as plaintiff drags these
defendants and defendant Maglana.' (Record on Appeal,
pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not
meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-
investors whose agreement was to do business through
the corporate vehicle but who failed to incorporate the
entity in which they had chosen to invest? How are the
losses to be treated in situations where their contributions
to the intended 'corporation' were invested not through the
corporate form? This Petition presents these fundamental
questions which we believe were resolved erroneously by
the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result
of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a consequence
of such relationship all must share in the losses and/or gains of the
venture in proportion to their contribution. The petitioner, therefore,
questions the appellate court's findings ordering him to reimburse
certain amounts given by the respondents to the petitioner as their
contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his
co-defendants' cross-claims in the total amount of
P184,878.74 as correctly found by the trial court, with
interest from the filing of the cross-complaints until the
amount is fully paid. Defendant Lim should pay one-half of
the said amount to Bormaheco and the Cervanteses and
the other one-half to defendant Maglana. It is established in
the records that defendant Lim had duly received the
amount of Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the
ownership of the subject airplanes and spare parts (Exhibit
58). In addition, the cross-party plaintiffs incurred additional
expenses, hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the
rights of the stockholders in a defectively incorporated
association should be governed by the supposed charter
and the laws of the state relating thereto and not by the
rules governing partners (Cannon v. Brush Electric Co., 54
A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held
that persons who attempt, but fail, to form a corporation
and who carry on business under the corporate name
occupy the position of partners inter se (Lynch v.
Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A
1065). Thus, where persons associate themselves together
under articles to purchase property to carry on a business,
and their organization is so defective as to come short of
creating a corporation within the statute, they become in
legal effect partners inter se, and their rights as members
of the company to the property acquired by the company
will be recognized (Smith v. Schoodoc Pond Packing Co.,
84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369).
So, where certain persons associated themselves as a
corporation for the development of land for irrigation
purposes, and each conveyed land to the corporation, and
two of them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no
stock was ever issued in the corporation, it was treated as
a trustee for the associates in an action between them for
an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed
among them in proportion to the value of the property
contributed by each (Shorb v. Beaudry, 56 Cal.
446). However, such a relation does not necessarily exist,
for ordinarily persons cannot be made to assume the
relation of partners, as between themselves, when their
purpose is that no partnership shall exist (London Assur.
Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472,
29 L.Ed. 688), and it should be implied only when
necessary to do justice between the parties; thus, one who
takes no part except to subscribe for stock in a proposed
corporation which is never legally formed does not become
a partner with other subscribers who engage in business
under the name of the pretended corporation, so as to be
liable as such in an action for settlement of the alleged
partnership and contribution (Ward v. Brigham, 127 Mass.
24). A partnership relation between certain stockholders
and other stockholders, who were also directors, will not be
implied in the absence of an agreement, so as to make the
former liable to contribute for payment of debts illegally
contracted by the latter (Heald v. Owen, 44 N.W. 210, 79
Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics
supplied).
In the instant case, it is to be noted that the petitioner was declared
non-suited for his failure to appear during the pretrial despite
notification. In his answer, the petitioner denied having received any
amount from respondents Bormaheco, the Cervanteses and Maglana.
The trial court and the appellate court, however, found through Exhibit
58, that the petitioner received the amount of P151,000.00 representing
the participation of Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts. The record shows
that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru
the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them.
This gives credence to the cross-claims of the respondents to the effect
that they were induced and lured by the petitioner to make contributions
to a proposed corporation which was never formed because the
petitioner reneged on their agreement. Maglana alleged in his cross-
claim:
... that sometime in early 1965, Jacob Lim proposed to
Francisco Cervantes and Maglana to expand his airline
business. Lim was to procure two DC-3's from Japan and
secure the necessary certificates of public convenience
and necessity as well as the required permits for the
operation thereof. Maglana sometime in May 1965, gave
Cervantes his share of P75,000.00 for delivery to Lim
which Cervantes did and Lim acknowledged receipt
thereof. Cervantes, likewise, delivered his share of the
undertaking. Lim in an undertaking sometime on or about
August 9,1965, promised to incorporate his airline in
accordance with their agreement and proceeded to acquire
the planes on his own account. Since then up to the filing
of this answer, Lim has refused, failed and still refuses to
set up the corporation or return the money of Maglana.
(Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their
answer, counterclaim, cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced
the answering defendants to purchase two airplanes and
spare parts from Japan which the latter considered as their
lawful contribution and participation in the proposed
corporation to be known as SAL. Arrangements and
negotiations were undertaken by defendant Lim. Down
payments were advanced by defendants Bormaheco and
the Cervanteses and Constancio Maglana (Exh. E- 1).
Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and
executed the alleged chattel mortgage and surety bond
agreement in his personal capacity as the alleged
proprietor of the SAL. The answering defendants learned
for the first time of this trickery and misrepresentation of the
other, Jacob Lim, when the herein plaintiff chattel mortgage
(sic) allegedly executed by defendant Lim, thereby forcing
them to file an adverse claim in the form of third party
claim. Notwithstanding repeated oral demands made by
defendants Bormaheco and Cervanteses, to defendant
Lim, to surrender the possession of the two planes and
their accessories and or return the amount advanced by
the former amounting to an aggregate sum of P 178,997.14
as evidenced by a statement of accounts, the latter
ignored, omitted and refused to comply with them. (Record
on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the
case, necessarily, no de facto partnership was created among the
parties which would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other
would-be incorporators in transacting the sale of the airplanes and
spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
 175 SCRA 668 –Business Organization – Corporation Law – with Maglana et al. This can be inferred from acts of unilaterally
When De Facto Partnership Does Not Exist taking out a surety from Pioneer Insurance and not using the funds
he got from Maglana et al. The record shows that Lim was acting
Jacob Lim was the owner of Southern Air Lines, a single
on his own and not in behalf of his other would-be incorporators in
proprietorship. In 1965, Lim convinced Constancio Maglana,
transacting the sale of the airplanes and spare parts.
Modesto Cervantes, Francisco Cervantes, and Border Machinery
and Heavy Equipment Company (BORMAHECO) to contribute
funds and to buy two aircrafts which would form part a corporation
which will be the expansion of Southern Air Lines. Maglana et al
then contributed and delivered money to Lim.
But instead of using the money given to him to pay in full the
aircrafts, Lim, without the knowledge of Maglana et al, made an
agreement with Pioneer Insurance for the latter to insure the two
aircrafts which were brought in installment from Japan Domestic
Airlines (JDA) using said aircrafts as security. So when Lim
defaulted from paying JDA, the two aircrafts were foreclosed by
Pioneer Insurance.
It was established that no corporation was formally formed
between Lim and Maglana et al.
ISSUE: Whether or not Maglana et al must share in the loss as
general partners.
HELD: No. There was no de facto partnership. Ordinarily, when
co-investors agreed to do business through a corporation but
failed to incorporate, a de facto partnership would have been
formed, and as such, all must share in the losses and/or gains of
the venture in proportion to their contribution. But in this case, it
was shown that Lim did not have the intent to form a corporation