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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.

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
G.R. No. 172690 March 3, 2010 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
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,
asseverated that it was also through Elfledo’s management of the partnership that he
vs.
was able to purchase numerous real properties by using the profits derived therefrom, all
JULIET VILLA LIM, Respondent.
of which were registered in his name and that of respondent. In addition to the nine
trucks, Elfledo also acquired five other motor vehicles.
DECISION
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners
NACHURA, J.: 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
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of they are co-owners of the properties, petitioners required respondent to submit an
Civil Procedure, assailing the Court of Appeals (CA) Decision2 dated June 29, 2005, accounting of all income, profits and rentals received from the estate of Elfledo, and to
which reversed and set aside the decision3 of the Regional Trial Court (RTC) of Lucena surrender the administration thereof. Respondent refused; thus, the filing of this case.
City, dated April 12, 2004.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a
The facts of the case are as follows: 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
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia informal partnership with Jimmy and Norberto. When Elfledo and respondent got married
Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all in 1981, the partnership only had one truck; but through the efforts of Elfledo, the
surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They filed a business flourished. Other than this trucking business, Elfledo, together with respondent,
Complaint4 for Partition, Accounting and Damages against respondent Juliet Villa Lim engaged in other business ventures. Thus, they were able to buy real properties and to
(respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and put up their own car assembly and repair business. When Norberto was ambushed and
Cresencia. 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,
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, as she could no longer run the business. Jimmy suggested that three out of the nine
Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) 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, In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving
she sold the same to respondent, who paid for them in installments. 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
Respondent also alleged that when Jose died in 1981, he left no known assets, and the Cresencia, who was merely the spouse of Jose and not a party to the partnership.8
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 Respondent counters that the issue raised by petitioners is not proper in a petition for
maintained that all the properties involved in this case were purchased and acquired review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the
through her and her husband’s joint efforts and hard work, and without any participation review, evaluation, calibration, and re-weighing of the factual findings of the CA.
or contribution from petitioners or from Jose. Respondent submitted that these are Moreover, respondent invokes the rationale of the CA decision that, in light of the
conjugal partnership properties; and thus, she had the right to refuse to render an admissions of Cresencia and Edison and the testimony of respondent, the testimony of
accounting for the income or profits of their own business. Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's findings was
fully justified.9
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of
petitioners, thus: We resolve first the procedural matter regarding the propriety of the instant Petition.

WHEREFORE, premises considered, judgment is hereby rendered: 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
1) Ordering the partition of the above-mentioned properties equally between the certiorari under Rule 45. This rule provides that the parties may raise only questions of
plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-Lim; and 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
2) Ordering the defendant to submit an accounting of all incomes, profits and below.10 When supported by substantial evidence, the findings of fact of the CA are
rentals received by her from said properties. conclusive and binding on the parties and are not reviewable by this Court, unless the
case falls under any of the following recognized exceptions:
SO ORDERED.
(1) When the conclusion is a finding grounded entirely on speculation, surmises
and conjectures;
Aggrieved, respondent appealed to the CA.
(2) When the inference made is manifestly mistaken, absurd or impossible;
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. (3) Where there is a grave abuse of discretion;

Hence, this Petition, raising the sole question, viz.: (4) When the judgment is based on a misapprehension of facts;

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE (5) When the findings of fact are conflicting;
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
(6) When the Court of Appeals, in making its findings, went beyond the issues of Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of
the case and the same is contrary to the admissions of both appellant and evidence against respondent. It must be considered and weighed along with petitioners'
appellee; 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.
(7) When the findings are contrary to those of the trial court; "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
(8) When the findings of fact are conclusions without citation of specific evidence evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a
on which they are based; 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
(9) When the facts set forth in the petition as well as in the petitioners' main and
determining preponderance of evidence, thus:
reply briefs are not disputed by the respondents; and
SECTION I. Preponderance of evidence, how determined. In civil cases, the party having
(10) When the findings of fact of the Court of Appeals are premised on the
burden of proof must establish his case by a preponderance of evidence. In determining
supposed absence of evidence and contradicted by the evidence on record.11
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
We note, however, that the findings of fact of the RTC are contrary to those of the CA. testifying, their intelligence, their means and opportunity of knowing the facts to which
Thus, our review of such findings is warranted. 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
On the merits of the case, we find that the instant Petition is bereft of merit. 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
A partnership exists when two or more persons agree to place their money, effects, greater number.
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 At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals14 is enlightening.
partnership is defined by the Civil Code as one where two or more persons bind Therein, we cited Article 1769 of the Civil Code, which provides:
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.12 Art. 1769. In determining whether a partnership exists, these rules shall apply:

Undoubtedly, the best evidence would have been the contract of partnership or the (1) Except as provided by Article 1825, persons who are not partners as to each
articles of partnership. Unfortunately, there is none in this case, because the alleged other are not partners as to third persons;
partnership was never formally organized. Nonetheless, we are asked to determine who
between Jose and Elfledo was the "partner" in the trucking business.
(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
A careful review of the records persuades us to affirm the CA decision. The evidence by the use of the property;
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.
(3) The sharing of gross returns does not of itself establish a partnership, respondent engaged in other businesses. Edison even admitted that Elfledo also sold
whether or not the persons sharing them have a joint or common right or interest Interwood lumber as a sideline.19 Petitioners could not offer any credible evidence other
in any property from which the returns are derived; than their bare assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight.20
(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 Finally, we agree with the judicious findings of the CA, to wit:
drawn if such profits were received in payment:
The above testimonies prove that Elfledo was not just a hired help but one of the
(a) As a debt by installments or otherwise; 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,
(b) As wages of an employee or rent to a landlord; 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
(c) As an annuity to a widow or representative of a deceased partner; 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
(d) As interest on a loan, though the amount of payment vary with the
Elfredo’s efforts and hard work that the partnership was able to acquire more trucks and
profits of the business;
otherwise prosper. Even the appellant participated in the affairs of the partnership by
acting as the bookkeeper sans salary. 1avvphi1

(e) As the consideration for the sale of a goodwill of a business or other


property by installments or otherwise.
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
Applying the legal provision to the facts of this case, the following circumstances tend to was Jose Lim and not Elfledo who was the partner, then upon his death the partnership
prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified should have
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
been dissolved and its assets liquidated. On the contrary, these were not done but
partnership, wielding absolute control, power and authority, without any intervention or
instead its operation continued under the helm of Elfledo and without any participation
opposition whatsoever from any of petitioners herein;16 (3) all of the properties,
from the heirs of Jose Lim.
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 Whatever properties appellant and her husband had acquired, this was through their own
(5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic concerted efforts and hard work. Elfledo did not limit himself to the business of their
accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng partnership but engaged in other lines of businesses as well.
Kee,18 a demand for periodic accounting is evidence of a partnership.
In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they
Furthermore, petitioners failed to adduce any evidence to show that the real and are amply supported by the law and by the evidence on record.
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 WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision
with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo and dated June 29, 2005 is AFFIRMED. Costs against petitioners.
SO ORDERED. is none in this case, because the alleged partnership was never formally
organized.
Business Organization – Partnership, Agency, Trust – Partner – Periodic
But at any rate, the Supreme Court noted that based on the functions performed
Accounting – Profit Sharing
by Elfledo, he is the actual partner.
Facts: In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a
The following circumstances tend to prove that Elfledo was himself the partner of
partnership agreement with Jimmy Yu and Norberto Uy. The three contributed
Jimmy and Norberto:
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, 1.) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the
Elfledo Lim, took over the trucking business and under his management, the partnership, on a date that coincided with the payment of the initial capital in the
trucking business prospered. Elfledo was able to but real properties in his name. partnership;
From one truck, he increased it to 9 trucks, all trucks were in his name however. 2.) Elfledo ran the affairs of the partnership, wielding absolute control, power and
He also acquired other motor vehicles in his name. authority, without any intervention or opposition whatsoever from any of
In 1993, Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack. petitioners herein;
Elfledo’s wife, Juliet Lim, took over the properties but she intimated to Jimmy and 3.) all of the properties, particularly the nine trucks of the partnership, were
the heirs of Norberto that she could not go on with the business. So the registered in the name of Elfledo;
properties in the partnership were divided among them.
4.) Jimmy testified that Elfledo did not receive wages or salaries from the
Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet to do partnership, indicating that what he actually received were shares of the profits of
an accounting of all income, profits, and properties from the estate of Elfledo Lim the business; and
as they claimed that they are co-owners thereof. Juliet refused hence they sued
her. 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
The heirs of Jose Lim argued that Elfledo Lim acquired his properties from the Eng Kee, a demand for periodic accounting is evidence of a partnership.
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 Furthermore, petitioners failed to adduce any evidence to show that the real and
that Elfledo was merely the driver of Jose Lim. 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
ISSUE: Who is the “partner” between Jose Lim and Elfledo Lim? partnership with Jimmy and Norberto.
HELD: It is Elfledo Lim based on the evidence presented regardless of Jimmy Elfledo was not just a hired help but one of the partners in the trucking business,
Yu’s testimony in court that Jose Lim was the partner. If Jose Lim was the active and visible in the running of its affairs from day one until this ceased
partner, then the partnership would have been dissolved upon his death (in fact, operations upon his demise. The extent of his control, administration and
though the SC did not say so, I believe it should have been dissolved upon management of the partnership and its business, the fact that its properties were
Norberto’s death in 1993). A partnership is dissolved upon the death of the placed in his name, and that he was not paid salary or other compensation by the
partner. Further, no evidence was presented as to the articles of partnership or partners, are indicative of the fact that Elfledo was a partner and a controlling one
contract of partnership between Jose, Norberto and Jimmy. Unfortunately, there 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 however, able to drill only four of five boreholes needed to conduct its subsurface soil
balance, among other Project concerns. 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
4.3. Funding and Financing to be made.3 PGI was able to complete its seismic study though.

4.3.1 Construction funding for the Project shall be obtained from the cash contribution of PGI then billed the joint venture on November 24, 1997 for ₱284,553.50 representing the
[Gotesco]. cost of partial subsurface soil exploration; and on January 15, 1998 for ₱250,800
representing the cost of the completed seismic study.4
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] Despite repeated demands from PGI,5 the joint venture failed to pay its obligations.
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. Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut
short and the planned building project was eventually shelved.6
4.3.3 [Marsman Drysdale] shall not be obligated to fund the Project as its contribution is
limited to the Property. 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
4.3.4 If the cost of the Project exceeds the cash contribution of [Gotesco], the proceeds Drysdale and Gotesco.
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. 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
4.3.5 x x x x. monetary expenses of the project.7

4.3.6 x x x x. 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
4.3.7 x x x x. failed to clear the property of debris which prevented PGI from completing its work.8

4.3.8 All funds advanced by a Party (or by third parties in substitution for advances from By Decision of June 2, 2004,9 Branch 226 of the Quezon City RTC rendered judgment in
a Party) shall be repaid by the JV. favor of PGI, disposing as follows:

4.3.9 If any Party agrees to make an advance to the Project but fails to do so (in whole or WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of
in part) the other party may advance the shortfall and the Party in default shall indemnify plaintiff [PGI].
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) The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff, jointly:

Via Technical Services Contract (TSC) dated July 14, 1997,2 the joint venture engaged (1) the sum of P535,353.50 with legal interest from the date of this decision until
the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, fully paid;
laboratory testing, seismic study and geotechnical engineering for the project. PGI, was,
(2) the sum of P200,000.00 as exemplary damages; 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
(3) the sum of P200,000.00 as and for attorney’s fees; and 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
(4) costs of suit. 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
The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is hereby
GRANTED as follows: 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
a) Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman
consolidated the petitions.
Drysdale] in the amount of P535,353.[50] in accordance with the [JVA].
In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in
b) Defendant [Gotesco] is further ordered to pay co-defendant [Marsman
Drysdale] the sum of P100,000.00 as and for attorney’s fees.
A. …ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER
CONCEDING THAT [GOTESCO] SHOULD ULTIMATELY BE SOLELY LIABLE
SO ORDERED. (underscoring in the original; emphasis supplied)
TO [PGI].
Marsman Drysdale moved for partial reconsideration, contending that it should not have
B. …AWARDING ATTORNEY’S FEES IN FAVOR OF [PGI]…
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. 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
Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by
CONDITION SINE QUA NON TO COMPENSATION.
Decision of January 28, 2008,10affirmed with modification the decision of the trial court.
Thus the appellate court disposed:
D. …DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN
DRYSDALE’S] ENTITLEMENT TO AN AWARD OF ATTORNEY’S FEES.13
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 On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court
with MODIFICATION deleting the award of exemplary damages in favor of [PGI] and committed error when it
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 …ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK
[PGI], instead of the lump sum P535,353.00 awarded by the RTC. The rest of the PERFORMED BY [PGI] AND P100,000.00 [AS] ATTORNEY’S FEES …[AND] TO
Decision stands. REIMBURSE [MARSMAN DRYSDALE] 50% OF P535,353.50 AND PAY [MARSMAN
DRYSDALE] P100,000.00 AS ATTORNEY’S FEES. 14
SO ORDERED. (capitalization and emphasis in the original; underscoring supplied)
On the issue of whether PGI was indeed entitled to the payment of services it rendered, As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively
the Court sees no imperative to re-examine the congruent findings of the trial and read:
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, Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and
for it is well-settled that this Court is not a trier of facts. While this judicial tenet admits of the same obligation does not imply that each one of the former has a right to demand, or
exceptions, such as when the findings of facts of the appellate court are contrary to those that each one of the latter is bound to render, entire compliance with the
of the trial court’s, or when the judgment is based on a misapprehension of facts, or prestations. There is a solidary liability only when the obligation expressly so states, or
1avvphi1

when the findings of facts are contradicted by the evidence on record,15these extenuating when the law or nature of the obligation requires solidarity.
grounds find no application in the present petitions.
Art. 1208. If from the law, or the nature or the wording of the obligations to which the
At all events, the Court is convinced that PGI had more than sufficiently established its preceding article refers the contrary does not appear, the credit or debt shall
claims against the joint venture. In fact, Marsman Drysdale had long recognized PGI’s be presumed to be divided into as many equal shares as there are creditors or debtors,
contractual claims when it (PGI) received a Certificate of Payment16 from the joint the credits or debts being considered distinct from one another, subject to the Rules of
venture’s project manager17 which was endorsed to Gotesco for processing and Court governing the multiplicity of suits. (emphasis and underscoring supplied),
payment.18
presume that the obligation owing to PGI is joint between Marsman Drysdale and
The core issue to be resolved then is which between joint venturers Marsman Drysdale Gotesco.
and Gotesco bears the liability to pay PGI its unpaid claims.
The only time that the JVA may be made to apply in the present petitions is when the
To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the liability of the joint venturers to each other would set in.
project was to be obtained from Gotesco’s cash contribution, as its (Marsman
Drysdale’s) participation in the venture was limited to the land. 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:
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. 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 Court finds Marsman Drysdale and Gotesco jointly liable to PGI. the losses shall be in the same proportion.

PGI executed a technical service contract with the joint venture and was never a party to In the absence of stipulation, the share of each in the profits and losses shall be in
the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of proportion to what he may have contributed, but the industrial partner shall not be liable
Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing for the losses. As for the profits, the industrial partner shall receive such share as may be
mechanism for the project, the same cannot be used to defeat the lawful claim of PGI just and equitable under the circumstances. If besides his services he has contributed
against the two joint venturers-partners. capital, he shall also receive a share in the profits in proportion to his capital. (emphasis
and underscoring supplied)
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 In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of
as the client. 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 If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall
₱535,353.50 obligation-loss of the joint venture. 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.
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 Costs against petitioners Marsman Drysdale and Gotesco.
Drysdale for "50% of the aggregate sum due" to PGI.
SO ORDERED.
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 Facts: Marsman Drysdale, Inc. (Marsman) and Gotesco
Marsman Drysdale cross-claim against Gotesco was thus erroneous. Properties, Inc. (Gotesco) entered into a joint venture
Marsman Drysdale’s supplication for the award of attorney’s fees in its favor must be agreement for the construction and development of an office
denied. It cannot claim that it was compelled to litigate or that the civil action or building on a land owned by Marsman. They agreed on a 50-
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 50 ratio on the proceeds of the project, but did not agree on
how losses would be divided. The joint venture engaged the
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 services of Philippine Geoanalytics, Inc. (PGI) to provide
hardline insistence on Gotesco having sole responsibility to pay for the obligation, subsurface soil exploration, seismic study and geotechnical
despite the fact that PGI’s services redounded to the benefit of the joint venture, that
spawned the legal action against it and Gotesco. engineering. PGI completed its seismic study but failed to
complete its subsurface soil exploration because the area
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 where drilling was to be made had not been cleared. The
forbearance of money, conformably with this Court’s ruling in Eastern Shipping Lines, building project was subsequently shelved due to
Inc. v. Court of Appeals.24 Marsman Drysdale and Gotesco should bear legal interest on
their respective obligations. unfavorable economic conditions. PGI billed the joint
venture for work done, but was not paid despite its repeated
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
AFFIRMED with MODIFICATION in that the order for Gotesco to reimburse Marsman demands. PGI, thus, filed a collection case against Marsman
Drysdale is DELETED, and interest of 12% per annum on the respective obligations of and Gotesco. Marsman passed the obligation to Gotesco
Marsman Drysdale and Gotesco is imposed, computed from the last demand or on
January 5, 1999 up to the finality of the Decision. 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 The respondents, including petitioner herein, in their Answer,15 denied
owners of the capital of the businesses Manila Athletic Supply (712 having formed a partnership with Antonieta in 1946. They claimed that
Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) and she was in no position to do so as she was still in school at that time. In
Remotigue Trading (Cotabato City). In this same "Acknowledgement of fact, the proceeds of the lands they partitioned were devoted to her
Participating Capital," they stated the participating capital of their co- studies. They also averred that while she may have helped in the
owners as of the year 1952, with Antonieta Jarantilla’s stated as eight businesses that her older sister Conchita had formed with
thousand pesos (₱8,000.00) and Federico Jarantilla, Jr.’s as five Buenaventura Remotigue, she was paid her due salary. They did not
thousand pesos (₱5,000.00).12 deny the existence and validity of the "Acknowledgement of
Participating Capital" and in fact used this as evidence to support their
The present case stems from the amended complaint13 dated April 22, claim that Antonieta’s 8% share was limited to the businesses
1987 filed by Antonieta Jarantilla against Buenaventura Remotigue, enumerated therein. With regard to Antonieta’s claim in their other
Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and corporations and businesses, the respondents said these should also
Tomas Jarantilla, for the accounting of the assets and income of the co- be limited to the number of her shares as specified in the respective
ownership, for its partition and the delivery of her share corresponding articles of incorporation. The respondents denied using the
to eight percent (8%), and for damages. Antonieta claimed that in 1946, partnership’s income to purchase the subject real properties and said
she had entered into an agreement with Conchita and Buenaventura that the certificates of title should be binding on her.16
Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to
engage in business. Antonieta alleged that the initial contribution of During the course of the trial at the RTC, petitioner Federico Jarantilla,
property and money came from the heirs’ inheritance, and her Jr., who was one of the original defendants, entered into a compromise
subsequent annual investment of seven thousand five hundred pesos agreement17 with Antonieta Jarantilla wherein he supported Antonieta’s
(₱7,500.00) as additional capital came from the proceeds of her farm. claims and asserted that he too was entitled to six percent (6%) of the
Antonieta also alleged that from 1946-1969, she had helped in the supposed partnership in the same manner as Antonieta was. He prayed
management of the business they co-owned without receiving any for a favorable judgment in this wise:
salary. Her salary was supposedly rolled back into the business as
additional investments in her behalf. Antonieta further claimed co- Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for
ownership of certain properties14 (the subject real properties) in the an accounting from the other defendants, and the partition of the
name of the defendants since the only way the defendants could have properties of the co-ownership and the delivery to the plaintiff and to
purchased these properties were through the partnership as they had defendant Federico Jarantilla, Jr. of their rightful share of the assets
no other source of income. and properties in the co-ownership.18 1 avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint Both the petitioner and the respondents appealed this decision to the
Motion to Approve Compromise Agreement20and on December 18, Court of Appeals. The petitioner claimed that the RTC "erred in not
1992, decided in favor of Antonieta, to wit: rendering a complete judgment and ordering the partition of the co-
ownership and giving to [him] six per centum (6%) of the properties."22
WHEREFORE, premises above-considered, the Court renders
judgment in favor of the plaintiff Antonieta Jarantilla and against While the Court of Appeals agreed to some of the RTC’s factual
defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla findings, it also established that Antonieta Jarantilla was not part of the
ordering the latter: partnership formed in 1946, and that her 8% share was limited to the
businesses enumerated in the Acknowledgement of Participating
1. to deliver to the plaintiff her 8% share or its equivalent amount Capital. On July 30, 2002, the Court of Appeals rendered the herein
on the real properties covered by TCT Nos. 35655, 338398, challenged decision setting aside the RTC’s decision, as follows:
338399 & 335395, all of the Registry of Deeds of Quezon City;
TCT Nos. (18303)23341, 142882 & 490007(4615), all of the WHEREFORE, the decision of the trial court, dated 18 December 1992
Registry of Deeds of Rizal; and TCT No. T-6309 of the Registry is SET ASIDE and a new one is hereby entered ordering that:
of Deeds of Cotabato based on their present market value;
(1) after accounting, plaintiff Antonieta Jarantilla be given her
2. to deliver to the plaintiff her 8% share or its equivalent amount share of 8% in the assets and profits of Manila Athletic Supply,
on the Remotigue Agro-Industrial Corporation, Manila Athletic Remotigue Trading in Iloilo City and Remotigue Trading in
Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping Cotabato City;
Corporation based on the shares of stocks present book value;
(2) after accounting, defendant Federico Jarantilla, Jr. be given
3. to account for the assets and income of the co-ownership and his share of 6% of the assets and profits of the above-mentioned
deliver to plaintiff her rightful share thereof equivalent to 8%; enterprises; and, holding that

4. to pay plaintiff, jointly and severally, the sum of ₱50,000.00 as (3) plaintiff Antonieta Jarantilla is a stockholder in the following
moral damages; corporations to the extent stated in their Articles of Incorporation:

5. to pay, jointly and severally, the sum of ₱50,000.00 as (a) Rural Bank of Barotac Nuevo, Inc.;
attorney’s fees; and
(b) MAS Rubber Products, Inc.;
6. to pay, jointly and severally, the costs of the suit. 21
(c) Manila Athletic Supply, Inc.; and corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his
(d) B. Remotigue Agro-Industrial Development Corp. 6% share in the subject real properties. He is relying on the
Acknowledgement of Participating Capital, on his own testimony, and
(4) No costs.23 Antonieta Jarantilla’s testimony to support this contention.

The respondents, on August 20, 2002, filed a Motion for Partial The core issue is whether or not the partnership subject of the
Reconsideration but the Court of Appeals denied this in a Acknowledgement of Participating Capital funded the subject real
Resolution24 dated March 21, 2003. properties. In other words, what is the petitioner’s right over these real
properties?
Antonieta Jarantilla filed before this Court her own petition for review
on certiorari25 dated September 16, 2002, assailing the Court of It is a settled rule that in a petition for review on certiorari under Rule 45
Appeals’ decision on "similar grounds and similar assignments of errors of the Rules of Civil Procedure, only questions of law may be raised by
as this present case"26 but it was dismissed on November 20, 2002 for the parties and passed upon by this Court.29
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 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
Petitioner filed before us this petition for review on the sole ground that: 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
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN value of the evidence presented by the litigants or any of them. The
NOT RULING THAT PETITIONER FEDERICO JARANTILLA, JR. IS resolution of the issue must rest solely on what the law provides on the
ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE given set of circumstances. Once it is clear that the issue invites a
OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE review of the evidence presented, the question posed is one of fact.
OTHER DEFENDANTS USING COMMON FUNDS FROM THE Thus, the test of whether a question is one of law or of fact is not the
BUSINESSES WHERE HE HAD OWNED SUCH SHARE.28 appellation given to such question by the party raising the same; rather,
it is whether the appellate court can determine the issue raised without
Petitioner asserts that he was in a partnership with the Remotigue reviewing or evaluating the evidence, in which case, it is a question of
spouses, the Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, law; otherwise it is a question of fact.30
Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the Remotigue spouses Since the Court of Appeals did not fully adopt the factual findings of the
executed in 1957. He contends that from this partnership, several other 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 grounded entirely on speculations, surmises or conjectures; (4) when
their appreciation thereof. 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
The RTC found that an unregistered partnership existed since 1946 Appeals, in making its findings, went beyond the issues of the case and
which was affirmed in the 1957 document, the "Acknowledgement of the same is contrary to the admissions of both appellant and appellee;
Participating Capital." The RTC used this as its basis for giving (7) when the findings of the Court of Appeals are contrary to those of
Antonieta Jarantilla an 8% share in the three businesses listed therein the trial court; (8) when the findings of fact are conclusions without
and in the other businesses and real properties of the respondents as citation of specific evidence on which they are based; (9) when the
they had supposedly acquired these through funds from the Court of Appeals manifestly overlooked certain relevant facts not
partnership.31 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
The Court of Appeals, on the other hand, agreed with the RTC as to Appeals are premised on the absence of evidence and are contradicted
Antonieta’s 8% share in the business enumerated in the by the evidence on record.33
Acknowledgement of Participating Capital, but not as to her share in the
other corporations and real properties. The Court of Appeals ruled that In this case, we find no error in the ruling of the Court of Appeals.
Antonieta’s claim of 8% is based on the "Acknowledgement of
Participating Capital," a duly notarized document which was specific as Both the petitioner and Antonieta Jarantilla characterize their
to the subject of its coverage. Hence, there was no reason to pattern relationship with the respondents as a co-ownership, but in the same
her share in the other corporations from her share in the partnership’s breath, assert that a verbal partnership was formed in 1946 and was
businesses. The Court of Appeals also said that her claim in the affirmed in the 1957 Acknowledgement of Participating Capital.
respondents’ real properties was more "precarious" as these were all
covered by certificates of title which served as the best evidence as to There is a co-ownership when an undivided thing or right belongs to
all the matters contained therein.32 Since petitioner’s claim was different persons.34 It is a partnership when two or more persons bind
essentially the same as Antonieta’s, the Court of Appeals also ruled themselves to contribute money, property, or industry to a common
that petitioner be given his 6% share in the same businesses listed in fund, with the intention of dividing the profits among themselves.35 The
the Acknowledgement of Participating Capital. Court, in Pascual v. The Commissioner of Internal Revenue,36 quoted
the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v.
Factual findings of the trial court, when confirmed by the Court of The Collector of Internal Revenue37 to further elucidate on the
Appeals, are final and conclusive except in the following cases: (1) distinctions between a co-ownership and a partnership, to wit:
when the inference made is manifestly mistaken, absurd or impossible;
(2) when there is a grave abuse of discretion; (3) when the finding is
I wish however to make the following observation: Article 1769 of the Persons who contribute property or funds for a common enterprise and
new Civil Code lays down the rule for determining when a transaction agree to share the gross returns of that enterprise in proportion to their
should be deemed a partnership or a co-ownership. Said article contribution, but who severally retain the title to their respective
paragraphs 2 and 3, provides; contribution, are not thereby rendered partners. They have no common
stock or capital, and no community of interest as principal proprietors in
(2) Co-ownership or co-possession does not itself establish a the business itself which the proceeds derived.
partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property; 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
(3) The sharing of gross returns does not of itself establish a on the sale of land create a partnership; the parties are only tenants in
partnership, whether or not the persons sharing them have a joint common.
or common right or interest in any property from which the returns
are derived; 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
From the above it appears that the fact that those who agree to form a profits of disposing of it, the brother and the other not being entitled to
co- ownership share or do not share any profits made by the use of the share in plaintiff’s commission, no partnership existed as between the
property held in common does not convert their venture into a three parties, whatever their relation may have been as to third parties.
partnership. Or the sharing of the gross returns does not of itself
establish a partnership whether or not the persons sharing therein have In order to constitute a partnership inter sese there must be: (a) An
a joint or common right or interest in the property. This only means that, intent to form the same; (b) generally participating in both profits and
aside from the circumstance of profit, the presence of other elements losses; (c) and such a community of interest, as far as third persons are
constituting partnership is necessary, such as the clear intent to form a concerned as enables each party to make contract, manage the
partnership, the existence of a juridical personality different from that of business, and dispose of the whole property. x x x.
the individual partners, and the freedom to transfer or assign any
interest in the property by one with the consent of the others. The common ownership of property does not itself create a partnership
between the owners, though they may use it for the purpose of making
It is evident that an isolated transaction whereby two or more persons gains; and they may, without becoming partners, agree among
contribute funds to buy certain real estate for profit in the absence of themselves as to the management, and use of such property and the
other circumstances showing a contrary intention cannot be considered application of the proceeds therefrom.38 (Citations omitted.)
a partnership.
Under Article 1767 of the Civil Code, there are two essential elements Buenaventura Remotigue as the registered owner and are being
in a contract of partnership: (a) an agreement to contribute money, operated by them as such:
property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. The first element is undoubtedly That they are not the only owners of the capital of the three
present in the case at bar, for, admittedly, all the parties in this case establishments and their participation in the capital of the three
have agreed to, and did, contribute money and property to a common establishments together with the other co-owners as of the year 1952
fund. Hence, the issue narrows down to their intent in acting as they are stated as follows:
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 1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)₱25,000.00
profits. They have admitted this fact, agreed to its veracity, and even
submitted one common documentary evidence to prove such 2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)…
partnership - the Acknowledgement of Participating Capital. 25,000.00

As this case revolves around the legal effects of the Acknowledgement 3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00
of Participating Capital, it would be instructive to examine the pertinent
portions of this document: 4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00

ACKNOWLEDGEMENT OF 5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00


PARTICIPATING CAPITAL
6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00
KNOW ALL MEN BY THESE PRESENTS:
7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla
de Remotigue, both of legal age, Filipinos and residents of Loyola 8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00
Heights, Quezon City, P.I. hereby state:
That aside from the persons mentioned in the next preceding
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue paragraph, no other person has any interest in the above-mentioned
Trading of Calle Real, Iloilo City and the Remotigue Trading, Cotabato three establishments.
Branch, Cotabato, P.I., all dealing in athletic goods and equipments,
and general merchandise are recorded in their respective books with IN WITNESS WHEREOF, they sign this instrument in the City of
Manila, P.I., this 29th day of April, 1957.
[Sgd.] partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and
BUENAVENTURA REMOTIGUE Remotigue Trading in Cotabato City. Since there was a clear
agreement that the capital the partners contributed went to the three
[Sgd.] businesses, then there is no reason to deviate from such agreement
CONCHITA JARANTILLA DE REMOTIGUE40 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
The Acknowledgement of Participating Capital is a duly notarized businesses enumerated in the Acknowledgement of Participating
document voluntarily executed by Conchita Jarantilla-Remotigue and Capital.
Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the In Villareal v. Ramirez,41 the Court held that since a partnership is a
partnership. Article 1797 of the Civil Code provides: separate juridical entity, the shares to be paid out to the partners is
necessarily limited only to its total resources, to wit:
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 Since it is the partnership, as a separate and distinct entity, that must
agreed upon, the share of each in the losses shall be in the same refund the shares of the partners, the amount to be refunded is
proportion. 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,
In the absence of stipulation, the share of each partner in the profits before the partners can be paid their shares, the creditors of the
and losses shall be in proportion to what he may have contributed, but partnership must first be compensated. After all the creditors have been
the industrial partner shall not be liable for the losses. As for the profits, paid, whatever is left of the partnership assets becomes available for
the industrial partner shall receive such share as may be just and the payment of the partners’ shares.42
equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in There is no evidence that the subject real properties were assets of the
proportion to his capital. (Emphases supplied.) partnership referred to in the Acknowledgement of Participating Capital.

It is clear from the foregoing that a partner is entitled only to his share The petitioner further asserts that he is entitled to respondents’
as agreed upon, or in the absence of any such stipulations, then to his properties based on the concept of trust. He claims that since the
share in proportion to his contribution to the partnership. The petitioner subject real properties were purchased using funds of the partnership,
himself claims his share to be 6%, as stated in the Acknowledgement of wherein he has a 6% share, then "law and equity mandates that he
Participating Capital. However, petitioner fails to realize that this should be considered as a co-owner of those properties in such
document specifically enumerated the businesses covered by the
proportion."43 In Pigao v. Rabanillo,44 this Court explained the concept of The petitioner has failed to prove that there exists a trust over the
trusts, to wit: subject real properties. Aside from his bare allegations, he has failed to
show that the respondents used the partnership’s money to purchase
Express trusts are created by the intention of the trustor or of the the said properties. Even assuming arguendo that some partnership
parties, while implied trusts come into being by operation of law, either income was used to acquire these properties, the petitioner should
through implication of an intention to create a trust as a matter of law or have successfully shown that these funds came from his share in the
through the imposition of the trust irrespective of, and even contrary to, partnership profits. After all, by his own admission, and as stated in the
any such intention. In turn, implied trusts are either resulting or Acknowledgement of Participating Capital, he owned a mere 6% equity
constructive trusts. Resulting trusts are based on the equitable doctrine in the partnership.
that valuable consideration and not legal title determines the equitable
title or interest and are presumed always to have been contemplated by In essence, the petitioner is claiming his 6% share in the subject real
the parties. They arise from the nature or circumstances of the properties, by relying on his own self-serving testimony and the equally
consideration involved in a transaction whereby one person thereby biased testimony of Antonieta Jarantilla. Petitioner has not presented
becomes invested with legal title but is obligated in equity to hold his evidence, other than these unsubstantiated testimonies, to prove that
legal title for the benefit of another.45 the respondents did not have the means to fund their other businesses
and real properties without the partnership’s income. On the other
On proving the existence of a trust, this Court held that: hand, the respondents have not only, by testimonial evidence, proven
their case against the petitioner, but have also presented sufficient
Respondent has presented only bare assertions that a trust was documentary evidence to substantiate their claims, allegations and
created. Noting the need to prove the existence of a trust, this Court defenses. They presented preponderant proof on how they acquired
has held thus: and funded such properties in addition to tax receipts and tax
declarations.47 It has been held that "while tax declarations and realty
"As a rule, the burden of proving the existence of a trust is on the party tax receipts do not conclusively prove ownership, they may constitute
asserting its existence, and such proof must be clear and satisfactorily strong evidence of ownership when accompanied by possession for a
show the existence of the trust and its elements. While implied trusts period sufficient for prescription."48 Moreover, it is a rule in this
may be proved by oral evidence, the evidence must be trustworthy and jurisdiction that testimonial evidence cannot prevail over documentary
received by the courts with extreme caution, and should not be made to evidence.49 This Court had on several occasions, expressed our
rest on loose, equivocal or indefinite declarations. Trustworthy evidence disapproval on using mere self-serving testimonies to support one’s
is required because oral evidence can easily be fabricated." 46 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 under Section 48 of Presidential Decree No. 1529, the Property
sufficiently proved by their witnesses -- Luisa Ocampo-Llorin and Melita Registration Decree."55
Ocampo. We disagree. Their testimonies cannot prevail over the array
of documents presented by Belen. A claim of ownership cannot be SEC. 48. Certificate not subject to collateral attack. – A certificate of title
based simply on the testimonies of witnesses; much less on those of shall not be subject to collateral attack. It cannot be altered, modified, or
interested parties, self-serving as they are.51 cancelled except in a direct proceeding in accordance with law.

It is true that a certificate of title is merely an evidence of ownership or This Court has deemed an action or proceeding to be "an attack on a
title over the particular property described therein. Registration in the title when its objective is to nullify the title, thereby challenging the
Torrens system does not create or vest title as registration is not a judgment pursuant to which the title was decreed."56 In Aguilar v.
mode of acquiring ownership; hence, this cannot deprive an aggrieved Alfaro,57 this Court further distinguished between a direct and an indirect
party of a remedy in law.52 However, petitioner asserts ownership over or collateral attack, as follows:
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
A collateral attack transpires when, in another action to obtain a
Court in Republic of the Philippines v. Orfinada, Sr.53: 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
Indeed, a Torrens title is generally conclusive evidence of ownership of be distinguished from a direct attack against a judgment granting the
the land referred to therein, and a strong presumption exists that a title, through an action whose main objective is to annul, set aside, or
Torrens title was regularly issued and valid. A Torrens title is enjoin the enforcement of such judgment if not yet implemented, or to
incontrovertible against any informacion possessoria, of other title seek recovery if the property titled under the judgment had been
existing prior to the issuance thereof not annotated on the Torrens title. disposed of. x x x.
Moreover, persons dealing with property covered by a Torrens
certificate of title are not required to go beyond what appears on its Petitioner’s only piece of documentary evidence is the
face.54 Acknowledgement of Participating Capital, which as discussed above,
failed to prove that the real properties he is claiming co-ownership of
As we have settled that this action never really was for partition of a co- were acquired out of the proceeds of the businesses covered by such
ownership, to permit petitioner’s claim on these properties is to allow a document. Therefore, petitioner’s theory has no factual or legal leg to
collateral, indirect attack on respondents’ admitted titles. In the words of stand on.
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
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, ISSUE: Did the CA err in ruling that petitioners are not
for its partition and the delivery of her share corresponding entitled to profits over the businesses not listed in the
to eight percent (8%), and for damages. She alleged that Acknowledgement?
the initial contribution of property and money came from
the heirs inheritance, and her subsequent annual HELD: There is a co-ownership when an undivided thing or
investment of seven thousand five hundred pesos right belongs to different persons. It is a partnership when
(P7,500.00) as additional capital came from the proceeds of two or more persons bind themselves to contribute
her farm. money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Respondents denied having formed a partnership. They did
not deny the existence and validity of the The common ownership of property does not itself create a
"Acknowledgement of Participating Capital" and in fact partnership between the owners, though they may use it
used this as evidence to support their claim that Antonietas for the purpose of making gains; and they may, without
8% share was limited to the businesses enumerated becoming partners, agree among themselves as to the
therein. Petitioner Federico Jr joined his aunt Antonieta management, and use of such property and the application
and likewise asserted his share in the supposed of the proceeds therefrom.
partnership.
Under Article 1767 of the Civil Code, there are two essential
The RTC rendered judgment in favor of Antonieta and elements in a contract of partnership: (a) an agreement to
Federico. On appeal, the CA set the RTC Decision. Petitioner contribute money, property or industry to a common fund;
filed a petition for review to the SC. and (b) intent to divide the profits among the contracting
parties.
have contributed, but the industrial partner shall not be
It is not denied that all the parties in this case have agreed liable for the losses.
to contribute capital to a common fund to be able to later
on share its profits. They have admitted this fact, agreed to The petitioner himself claims his share to be 6%, as stated
its veracity, and even submitted one common documentary in the Acknowledgement of Participating Capital. However,
evidence to prove such partnership - the Acknowledgement petitioner fails to realize that this document specifically
of Participating Capital. enumerated the businesses covered by the partnership:
Manila Athletic Supply, Remotigue Trading in Iloilo City and
The Acknowledgement of Participating Capital is a duly Remotigue Trading in Cotabato City. Since there was a clear
notarized document voluntarily executed by Conchita agreement that the capital the partners contributed went
Jarantilla-Remotigue and Buenaventura Remotigue in 1957. to the three businesses, then there is no reason to deviate
Petitioner does not dispute its contents and is actually from such agreement and go beyond the stipulations in the
relying on it to prove his participation in the partnership. document. Therefore, the Court of Appeals did not err in
Article 1797 of the Civil Code provides: limiting petitioners share to the assets of the businesses
enumerated in the Acknowledgement of Participating
Art. 1797. The losses and profits shall be distributed in Capital.
conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of In Villareal v. Ramirez, the Court held that since a
each in the losses shall be in the same proportion. partnership is a separate juridical entity, the shares to be
paid out to the partners is necessarily limited only to its
In the absence of stipulation, the share of each partner in total resources.
the profits and losses shall be in proportion to what he may
*** allegations, he has failed to show that the respondents
used the partnerships money to purchase the said
The petitioner further asserts that he is entitled to properties. Even assuming arguendo that some partnership
respondents properties based on the concept of trust. He income was used to acquire these properties, the
claims that since the subject real properties were petitioner should have successfully shown that these funds
purchased using funds of the partnership, wherein he has a came from his share in the partnership profits. After all, by
6% share, then "law and equity mandates that he should be his own admission, and as stated in the Acknowledgement
considered as a co-owner of those properties in such of Participating Capital, he owned a mere 6% equity in the
proportion." 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 As long as American-Standard shall own at least 30% of
partners, European or American who could help in its expansion plans. the outstanding stock of the Corporation, three of the nine
On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, directors shall be designated by American-Standard, and
United States entered into an Agreement with Saniwares and some the other six shall be designated by the other stockholders
Filipino investors whereby ASI and the Filipino investors agreed to of the Corporation. (pp. 51 & 53, Rollo of 75875)
participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and selling At the request of ASI, the agreement contained provisions designed to
here and abroad vitreous china and sanitary wares. The parties agreed protect it as a minority group, including the grant of veto powers over a
that the business operations in the Philippines shall be carried on by an number of corporate acts and the right to designate certain officers,
incorporated enterprise and that the name of the corporation shall such as a member of the Executive Committee whose vote was
initially be "Sanitary Wares Manufacturing Corporation." required for important corporate transactions.

The Agreement has the following provisions relevant to the issues in Later, the 30% capital stock of ASI was increased to 40%. The
these cases on the nomination and election of the directors of the corporation was also registered with the Board of Investments for
corporation: availment of incentives with the condition that at least 60% of the capital
stock of the corporation shall be owned by Philippine nationals.
3. Articles of Incorporation
The joint enterprise thus entered into by the Filipino investors and the
(a) The Articles of Incorporation of the Corporation shall be American corporation prospered. Unfortunately, with the business
substantially in the form annexed hereto as Exhibit A and, successes, there came a deterioration of the initially harmonious
insofar as permitted under Philippine law, shall specifically relations between the two groups. According to the Filipino group, a
provide for basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had
(1) Cumulative voting for directors: other subsidiaries of joint joint venture groups in the countries where
Philippine exports were contemplated. On March 8, 1983, the annual
xxx xxx xxx stockholders' meeting was held. The meeting was presided by Baldwin
Young. The minutes were taken by the Secretary, Avelino Cruz. After
5. Management disposing of the preliminary items in the agenda, the stockholders then
proceeded to the election of the members of the board of directors. The
(a) The management of the Corporation shall be vested in ASI group nominated three persons namely; Wolfgang Aurbach, John
a Board of Directors, which shall consist of nine individuals. Griffin and David P. Whittingham. The Philippine investors nominated
six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Young, nevertheless instructed the Secretary to cast all
Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, votes equally in favor of the three ASI nominees, namely,
Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Wolfgang Aurbach, John Griffin and David Whittingham
Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two and the six originally nominated by Rogelio Vinluan,
nominations out of order on the basis of section 5 (a) of the Agreement, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
the consistent practice of the parties during the past annual Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
stockholders' meetings to nominate only nine persons as nominees for Baldwin Young. The Secretary then certified for the
the nine-member board of directors, and the legal advice of Saniwares' election of the following Wolfgang Aurbach, John Griffin,
legal counsel. The following events then, transpired: David Whittingham Ernesto Lagdameo, Sr., Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.
... There were protests against the action of the Chairman Boncan, Baldwin Young. The representative of ASI then
and heated arguments ensued. An appeal was made by moved to recess the meeting which was duly seconded.
the ASI representative to the body of stockholders present There was also a motion to adjourn (p. 28, Rollo, AC-G.R.
that a vote be taken on the ruling of the Chairman. The SP No. 05617). This motion to adjourn was accepted by
Chairman, Baldwin Young, declared the appeal out of order the Chairman, Baldwin Young, who announced that the
and no vote on the ruling was taken. The Chairman then motion was carried and declared the meeting adjourned.
instructed the Corporate Secretary to cast all the votes Protests against the adjournment were registered and
present and represented by proxy equally for the 6 having been ignored, Mr. Jaqua the ASI representative,
nominees of the Philippine Investors and the 3 nominees of stated that the meeting was not adjourned but only
ASI, thus effectively excluding the 2 additional persons recessed and that the meeting would be reconvened in the
nominated, namely, Luciano E. Salazar and Charles next room. The Chairman then threatened to have the
Chamsay. The ASI representative, Mr. Jaqua protested the stockholders who did not agree to the decision of the
decision of the Chairman and announced that all votes Chairman on the casting of votes bodily thrown out. The
accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, ASI Group, Luciano E. Salazar and other stockholders,
AC-G.R. SP No. 05617) were being cumulatively voted for allegedly representing 53 or 54% of the shares of
the three ASI nominees and Charles Chamsay, and Saniwares, decided to continue the meeting at the elevator
instructed the Secretary to so vote. Luciano E. Salazar and lobby of the American Standard Building. The continued
other proxy holders announced that all the votes owned by meeting was presided by Luciano E. Salazar, while Andres
and or represented by them 467,197 shares (p. 27, Rollo, Gatmaitan acted as Secretary. On the basis of the
AC-G.R. SP No. 05617) were being voted cumulatively in cumulative votes cast earlier in the meeting, the ASI Group
favor of Luciano E. Salazar. The Chairman, Baldwin nominated its four nominees; Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay. Luciano 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No.
E. Salazar voted for himself, thus the said five directors 05617). The petitions were consolidated and the appellate court in its
were certified as elected directors by the Acting Secretary, decision ordered the remand of the case to the Securities and
Andres Gatmaitan, with the explanation that there was a tie Exchange Commission with the directive that a new stockholders'
among the other six (6) nominees for the four (4) remaining meeting of Saniwares be ordered convoked as soon as possible, under
positions of directors and that the body decided not to the supervision of the Commission.
break the tie. (pp. 37-39, Rollo of 75975-76)
Upon a motion for reconsideration filed by the appellees Lagdameo
These incidents triggered off the filing of separate petitions by the Group) the appellate court (Court of Appeals) rendered the questioned
parties with the Securities and Exchange Commission (SEC). The first amended decision. Petitioners Wolfgang Aurbach, John Griffin, David
petition filed was for preliminary injunction by Saniwares, Emesto V. P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the
Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., following errors:
Enrique Lagdameo and George F. Lee against Luciano Salazar and
Charles Chamsay. The case was denominated as SEC Case No. 2417. I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE
The second petition was for quo warranto and application for ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
receivership by Wolfgang Aurbach, John Griffin, David Whittingham, MEMBERS OF THE BOARD OF DIRECTORS OF
Luciano E. Salazar and Charles Chamsay against the group of Young SANIWARES WHEN IN FACT THERE WAS NO
and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. ELECTION AT ALL.
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 II. THE COURT OF APPEALS PROHIBITS THE
the corporation. STOCKHOLDERS FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED BY THE NUMBER OF
The two petitions were consolidated and tried jointly by a hearing officer SHARES IN SANIWARES, THUS DEPRIVING
who rendered a decision upholding the election of the Lagdameo Group PETITIONERS AND THE CORPORATION THEY
and dismissing the quo warranto petition of Salazar and Chamsay. The REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
ASI Group and Salazar appealed the decision to the SEC en banc DUE PROCESS OF LAW.
which affirmed the hearing officer's decision.
III. THE COURT OF APPEALS IMPOSES CONDITIONS
The SEC decision led to the filing of two separate appeals with the AND READS PROVISIONS INTO THE AGREEMENT OF
Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David THE PARTIES WHICH WERE NOT THERE, WHICH
Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the HEREIN WERE THE DULY ELECTED DIRECTORS
amended decision on the following grounds: DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANTWARES. (P. 24,
11.1. Rollo-75951)
ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
binding contractual agreements entered into by The issues raised in the petitions are interrelated, hence, they are
stockholders and the replacement of the conditions of such discussed jointly.
agreements with terms never contemplated by the
stockholders but merely dictated by the CA . The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' meeting
11.2. The Amended decision would likewise sanction the held on March 8, 1983. To answer this question the following factors
deprivation of the property rights of stockholders without should be determined: (1) the nature of the business established by the
due process of law in order that a favored group of parties whether it was a joint venture or a corporation and (2) whether
stockholders may be illegally benefitted and guaranteed a or not the ASI Group may vote their additional 10% equity during
continuing monopoly of the control of a corporation. (pp. elections of Saniwares' board of directors.
14-15, Rollo-75975-76)
The rule is that whether the parties to a particular contract have thereby
On the other hand, the petitioners in G.R. No. 75951 contend that: established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance
I with the rules governing the interpretation and construction of contracts.
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp
THE AMENDED DECISION OF THE RESPONDENT 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd
COURT, WHILE RECOGNIZING THAT THE 751, 128 P 2nd 668)
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO
TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend
INTENT OF THE AGREEMENT AND THE LAW. 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
II parties' intention was to form a corporation and not a joint venture.

THE AMENDED DECISION DOES NOT They specifically mention number 16 under Miscellaneous
CATEGORICALLY RULE THAT PRIVATE PETITIONERS Provisions which states:
xxx xxx xxx Contrary to ASI Group's stand, the Lagdameo and Young Group
pleaded in their Reply and Answer to Counterclaim in SEC Case No.
c) nothing herein contained shall be construed to constitute 2417 that the Agreement failed to express the true intent of the parties,
any of the parties hereto partners or joint venturers in to wit:
respect of any transaction hereunder. (At P. 66, Rollo-GR
No. 75875) xxx xxx xxx

They object to the admission of other evidence which tends to show 4. While certain provisions of the Agreement would make it
that the parties' agreement was to establish a joint venture presented appear that the parties thereto disclaim being partners or
by the Lagdameo and Young Group on the ground that it contravenes joint venturers such disclaimer is directed at third parties
the parol evidence rule under section 7, Rule 130 of the Revised Rules and is not inconsistent with, and does not preclude, the
of Court. According to them, the Lagdameo and Young Group never existence of two distinct groups of stockholders in
pleaded in their pleading that the "Agreement" failed to express the true Saniwares one of which (the Philippine Investors) shall
intent of the parties. constitute the majority, and the other ASI shall constitute
the minority stockholder. In any event, the evident intention
The parol evidence Rule under Rule 130 provides: of the Philippine Investors and ASI in entering into the
Agreement is to enter into ajoint venture enterprise, and if
Evidence of written agreements-When the terms of an some words in the Agreement appear to be contrary to the
agreement have been reduced to writing, it is to be evident intention of the parties, the latter shall prevail over
considered as containing all such terms, and therefore, the former (Art. 1370, New Civil Code). The various
there can be, between the parties and their successors in stipulations of a contract shall be interpreted together
interest, no evidence of the terms of the agreement other attributing to the doubtful ones that sense which may result
than the contents of the writing, except in the following from all of them taken jointly (Art. 1374, New Civil Code).
cases: Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall
(a) Where a mistake or imperfection of the writing, or its be principally considered. (Art. 1371, New Civil Code).
failure to express the true intent and agreement of the (Part I, Original Records, SEC Case No. 2417)
parties or the validity of the agreement is put in issue by
the pleadings. It has been ruled:

(b) When there is an intrinsic ambiguity in the writing.


In an action at law, where there is evidence tending to vote of this member is required for certain transactions
prove that the parties joined their efforts in furtherance of [Sec. 3 (b) (i)].
an enterprise for their joint profit, the question whether they
intended by their agreement to create a joint adventure, or The Agreement also requires a 75% super-majority vote for
to assume some other relation is a question of fact for the the amendment of the articles and by-laws of Saniwares
jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to
Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. designate the president and plant manager [Sec. 5 (6)].
George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871) The Agreement further provides that the sales policy of
Saniwares shall be that which is normally followed by ASI
In the instant cases, our examination of important provisions of the [Sec. 13 (a)] and that Saniwares should not export
Agreement as well as the testimonial evidence presented by the "Standard" products otherwise than through ASI's Export
Lagdameo and Young Group shows that the parties agreed to establish Marketing Services [Sec. 13 (6)]. Under the Agreement,
a joint venture and not a corporation. The history of the organization of ASI agreed to provide technology and know-how to
Saniwares and the unusual arrangements which govern its policy Saniwares and the latter paid royalties for the same. (At p.
making body are all consistent with a joint venture and not with an 2).
ordinary corporation. As stated by the SEC:
xxx xxx xxx
According to the unrebutted testimony of Mr. Baldwin
Young, he negotiated the Agreement with ASI in behalf of It is pertinent to note that the provisions of the Agreement
the Philippine nationals. He testified that ASI agreed to requiring a 7 out of 9 votes of the board of directors for
accept the role of minority vis-a-vis the Philippine National certain actions, in effect gave ASI (which designates 3
group of investors, on the condition that the Agreement directors under the Agreement) an effective veto power.
should contain provisions to protect ASI as the minority. Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority voting
An examination of the Agreement shows that certain requirements for amendments of the articles and by-laws;
provisions were included to protect the interests of ASI as and most significantly to the issues of tms case, the
the minority. For example, the vote of 7 out of 9 directors is provision that ASI shall designate 3 out of the 9 directors
required in certain enumerated corporate acts [Sec. 3 (b) and the other stockholders shall designate the other 6,
(ii) (a) of the Agreement]. ASI is contractually entitled to clearly indicate that there are two distinct groups in
designate a member of the Executive Committee and the 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 joint venture arrangement to gain a foothold or test the Philippine
as the minority stockholder. waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the
Premises considered, we believe that under the Agreement foreign group undermines the local majority ownership and actively tries
there are two groups of stockholders who established a to completely or predominantly take over the entire company. This
corporation with provisions for a special contractual undermining of joint ventures is not consistent with fair dealing to say
relationship between the parties, i.e., ASI and the other the least. To the extent that such subversive actions can be lawfully
stockholders. (pp. 4-5) prevented, the courts should extend protection especially in industries
where constitutional and legal requirements reserve controlling
Section 5 (a) of the agreement uses the word "designated" and not ownership to Filipino citizens.
"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 The Lagdameo Group stated in their appellees' brief in the Court of
board. Appeal

Moreover, ASI in its communications referred to the enterprise as joint In fact, the Philippine Corporation Code itself recognizes
venture. Baldwin Young also testified that Section 16(c) of the the right of stockholders to enter into agreements regarding
Agreement that "Nothing herein contained shall be construed to the exercise of their voting rights.
constitute any of the parties hereto partners or joint venturers in respect
of any transaction hereunder" was merely to obviate the possibility of Sec. 100. Agreements by stockholders.-
the enterprise being treated as partnership for tax purposes and
liabilities to third parties. xxx xxx xxx

Quite often, Filipino entrepreneurs in their desire to develop the 2. An agreement between two or more stockholders, if in
industrial and manufacturing capacities of a local firm are constrained to writing and signed by the parties thereto, may provide that
seek the technology and marketing assistance of huge multinational in exercising any voting rights, the shares held by them
corporations of the developed world. Arrangements are formalized shall be voted as therein provided, or as they may agree,
where a foreign group becomes a minority owner of a firm in exchange or as determined in accordance with a procedure agreed
for its manufacturing expertise, use of its brand names, and other such upon by them.
assistance. However, there is always a danger from such
arrangements. The foreign group may, from the start, intend to Appellants contend that the above provision is included in
establish its own sole or monopolistic operations and merely uses the the Corporation Code's chapter on close corporations and
Saniwares cannot be a close corporation because it has 95 should be construed with less emphasis on the ordinary
stockholders. Firstly, although Saniwares had 95 rules of law usually applied to corporate entities and with
stockholders at the time of the disputed stockholders more consideration given to the nature of the agreement
meeting, these 95 stockholders are not separate from each between the joint venturers (Please see Wabash Ry v.
other but are divisible into groups representing a single American Refrigerator Transit Co., 7 F 2d 335; Chicago, M
Identifiable interest. For example, ASI, its nominees and & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US.
lawyers count for 13 of the 95 stockholders. The 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240
YoungYutivo family count for another 13 stockholders, the N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
Chamsay family for 8 stockholders, the Santos family for 9 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc.,
stockholders, the Dy family for 7 stockholders, etc. If the 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley,
members of one family and/or business or interest group 138 U.S. 262; "The Legal Status of Joint Venture
are considered as one (which, it is respectfully submitted, Corporations", 11 Vand Law Rev. p. 680,1958). These
they should be for purposes of determining how closely American cases dealt with legal questions as to the extent
held Saniwares is there were as of 8 March 1983, to which the requirements arising from the corporate form
practically only 17 stockholders of Saniwares. (Please refer of joint venture corporations should control, and the courts
to discussion in pp. 5 to 6 of appellees' Rejoinder ruled that substantial justice lay with those litigants who
Memorandum dated 11 December 1984 and Annex "A" relied on the joint venture agreement rather than the
thereof). litigants who relied on the orthodox principles of
corporation law.
Secondly, even assuming that Saniwares is technically not
a close corporation because it has more than 20 As correctly held by the SEC Hearing Officer:
stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim It is said that participants in a joint venture, in organizing
that Saniwares is a public issue or a widely held the joint venture deviate from the traditional pattern of
corporation. corporation management. A noted authority has pointed
out that just as in close corporations, shareholders'
In the United States, many courts have taken a realistic agreements in joint venture corporations often contain
approach to joint venture corporations and have not rigidly provisions which do one or more of the following: (1)
applied principles of corporation law designed primarily for require greater than majority vote for shareholder and
public issue corporations. These courts have indicated that director action; (2) give certain shareholders or groups of
express arrangements between corporate joint ventures shareholders power to select a specified number of
directors; (3) give to the shareholders control over the case, its stockholders should not be precluded from
selection and retention of employees; and (4) set up a entering into contracts like voting agreements if these are
procedure for the settlement of disputes by arbitration (See otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp.
15-16) (Decision of SEC Hearing Officer, P. 16) In short, even assuming that sec. 5(a) of the Agreement
relating to the designation or nomination of directors
Thirdly paragraph 2 of Sec. 100 of the Corporation Code restricts the right of the Agreement's signatories to vote for
does not necessarily imply that agreements regarding the directors, such contractual provision, as correctly held by
exercise of voting rights are allowed only in close the SEC, is valid and binding upon the signatories thereto,
corporations. As Campos and Lopez-Campos explain: which include appellants. (Rollo No. 75951, pp. 90-94)

Paragraph 2 refers to pooling and voting agreements in In regard to the question as to whether or not the ASI group may vote
particular. Does this provision necessarily imply that these their additional equity during elections of Saniwares' board of directors,
agreements can be valid only in close corporations as the Court of Appeals correctly stated:
defined by the Code? Suppose that a corporation has
twenty five stockholders, and therefore cannot qualify as a As in other joint venture companies, the extent of ASI's
close corporation under section 96, can some of them participation in the management of the corporation is
enter into an agreement to vote as a unit in the election of spelled out in the Agreement. Section 5(a) hereof says that
directors? It is submitted that there is no reason for denying three of the nine directors shall be designated by ASI and
stockholders of corporations other than close ones the right the remaining six by the other stockholders, i.e., the Filipino
to enter into not voting or pooling agreements to protect stockholders. This allocation of board seats is obviously in
their interests, as long as they do not intend to commit any consonance with the minority position of ASI.
wrong, or fraud on the other stockholders not parties to the
agreement. Of course, voting or pooling agreements are Having entered into a well-defined contractual relationship,
perhaps more useful and more often resorted to in close it is imperative that the parties should honor and adhere to
corporations. But they may also be found necessary even their respective rights and obligations thereunder.
in widely held corporations. Moreover, since the Code Appellants seem to contend that any allocation of board
limits the legal meaning of close corporations to those seats, even in joint venture corporations, are null and void
which comply with the requisites laid down by section 96, it to the extent that such may interfere with the stockholder's
is entirely possible that a corporation which is in fact a rights to cumulative voting as provided in Section 24 of the
close corporation will not come within the definition. In such Corporation Code. This Court should not be prepared to
hold that any agreement which curtails in any way the right of the stockholders within each group to
cumulative voting should be struck down, even if such cumulative voting in the process of determining who the
agreement has been freely entered into by experienced group's nominees would be. In practical terms, as
businessmen and do not prejudice those who are not suggested by appellant Luciano E. Salazar himself, this
parties thereto. It may well be that it would be more cogent means that if the Filipino stockholders cannot agree who
to hold, as the Securities and Exchange Commission has their six nominees will be, a vote would have to be taken
held in the decision appealed from, that cumulative voting among the Filipino stockholders only. During this voting,
rights may be voluntarily waived by stockholders who enter each Filipino stockholder can cumulate his votes. ASI,
into special relationships with each other to pursue and however, should not be allowed to interfere in the voting
implement specific purposes, as in joint venture within the Filipino group. Otherwise, ASI would be able to
relationships between foreign and local stockholders, so designate more than the three directors it is allowed to
long as such agreements do not adversely affect third designate under the Agreement, and may even be able to
parties. get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the 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 Such a ruling will give effect to both the allocation of the
needs to be done is to give life and effect to the particular board seats and the stockholder's right to cumulative
contractual rights and obligations which the parties have voting. Moreover, this ruling will also give due
assumed for themselves. consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law
On the one hand, the clearly established minority position (Com. Act No. 108, as amended) and the nationalization
of ASI and the contractual allocation of board seats Cannot requirements of the Constitution and the laws if ASI is
be disregarded. On the other hand, the rights of the allowed to nominate more than three directors. (Rollo-
stockholders to cumulative voting should also be protected. 75875, pp. 38-39)

In our decision sought to be reconsidered, we opted to The ASI Group and petitioner Salazar, now reiterate their theory that
uphold the second over the first. Upon further reflection, we the ASI Group has the right to vote their additional equity pursuant to
feel that the proper and just solution to give due Section 24 of the Corporation Code which gives the stockholders of a
consideration to both factors suggests itself quite clearly. corporation the right to cumulate their votes in electing directors.
This Court should recognize and uphold the division of the Petitioner Salazar adds that this right if granted to the ASI Group would
stockholders into two groups, and at the same time uphold not necessarily mean a violation of the Anti-Dummy Act
(Commonwealth Act 108, as amended). He cites section 2-a thereof temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
which provides: 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d.
74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
And provided finally that the election of aliens as members observation is not entirely accurate in this jurisdiction, since
of the board of directors or governing body of corporations under the Civil Code, a partnership may be particular or
or associations engaging in partially nationalized activities universal, and a particular partnership may have for its
shall be allowed in proportion to their allowable object a specific undertaking. (Art. 1783, Civil Code). It
participation or share in the capital of such entities. would seem therefore that under Philippine law, a joint
(amendments introduced by Presidential Decree 715, venture is a form of partnership and should thus be
section 1, promulgated May 28, 1975) governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two
The ASI Group's argument is correct within the context of Section 24 of business forms, and has held that although a corporation
the Corporation Code. The point of query, however, is whether or not cannot enter into a partnership contract, it may however
that provision is applicable to a joint venture with clearly defined engage in a joint venture with others. (At p. 12, Tuazon v.
agreements: Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code
The legal concept of ajoint venture is of common law origin. 1981)
It has no precise legal definition but it has been generally
understood to mean an organization formed for some Moreover, the usual rules as regards the construction and operations of
temporary purpose. (Gates v. Megargel, 266 Fed. 811 contracts generally apply to a contract of joint venture. (O' Hara v.
[1920]) It is in fact hardly distinguishable from the Harman 14 App. Dev. (167) 43 NYS 556).
partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a Bearing these principles in mind, the correct view would be that the
mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. resolution of the question of whether or not the ASI Group may vote
498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 their additional equity lies in the agreement of the parties.
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d.
12 289 P. 2d. 242 [1955]). The main distinction cited by Necessarily, the appellate court was correct in upholding the agreement
most opinions in common law jurisdictions is that the of the parties as regards the allocation of director seats under Section 5
partnership contemplates a general business with some (a) of the "Agreement," and the right of each group of stockholders to
degree of continuity, while the joint venture is formed for cumulative voting in the process of determining who the group's
the execution of a single transaction, and is thus of a 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 foreign investors of the enterprise in violation of the nationalization
manner of nominating the members of the board of directors while requirements enshrined in the Constitution and circumvention of the
Section 3 (a) (1) relates to the manner of voting for these nominees. 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
This is the proper interpretation of the Agreement of the parties as proportion to their share in the capital of the entity. It is to be noted,
regards the election of members of the board of directors. however, that the same law also limits the election of aliens as
members of the board of directors in proportion to their allowance
To allow the ASI Group to vote their additional equity to help elect even participation of said entity. In the instant case, the foreign Group ASI
a Filipino director who would be beholden to them would obliterate their was limited to designate three directors. This is the allowable
minority status as agreed upon by the parties. As aptly stated by the participation of the ASI Group. Hence, in future dealings, this limitation
appellate court: 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
... ASI, however, should not be allowed to interfere in the in the 9-man board of directors there are provisions already agreed
voting within the Filipino group. Otherwise, ASI would be upon and embodied in the parties' Agreement to protect the interests
able to designate more than the three directors it is allowed arising from the minority status of the foreign investors.
to designate under the Agreement, and may even be able
to get a majority of the board seats, a result which is clearly With these findings, we the decisions of the SEC Hearing Officer and
contrary to the contractual intent of the parties. SEC which were impliedly affirmed by the appellate court declaring
Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto
Such a ruling will give effect to both the allocation of the V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo,
board seats and the stockholder's right to cumulative Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors
voting. Moreover, this ruling will also give due of Saniwares at the March 8,1983 annual stockholders' meeting.
consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law On the other hand, the Lagdameo and Young Group (petitioners in G.R.
(Com. Act No. 108, as amended) and the nationalization No. 75951) object to a cumulative voting during the election of the
requirements of the Constitution and the laws if ASI is board of directors of the enterprise as ruled by the appellate court and
allowed to nominate more than three directors. (At p. 39, submits that the six (6) directors allotted the Filipino stockholders
Rollo, 75875) should be selected by consensus pursuant to section 5 (a) of the
Agreement which uses the word "designate" meaning "nominate,
Equally important as the consideration of the contractual intent of the delegate or appoint."
parties is the consideration as regards the possible domination by the
They also stress the possibility that the ASI Group might take control of MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
the enterprise if the Filipino stockholders are allowed to select their Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan,
nominees separately and not as a common slot determined by the Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
majority of their group. declared as the duly elected directors of Saniwares at the March 8,1983
annual stockholders' meeting. In all other respects, the questioned
Section 5 (a) of the Agreement which uses the word designates in the decision is AFFIRMED. Costs against the petitioners in G.R. Nos.
allocation of board directors should not be interpreted in isolation. This 75975-76 and G.R. No. 75875.
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 SO ORDERED.
these nominees which is cumulative voting while section 5(a) relates to
the manner of nominating the members of the board of directors. The G.R. No. 75875 December 15, 1989 WOLRGANG AURBACH,
petitioners in G.R. No. 75951 agreed to this procedure, hence, they JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
cannot now impugn its legality. CHAMSAY, petitioners, vs. SANITARY WARES
MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO,
The insinuation that the ASI Group may be able to control the ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
enterprise under the cumulative voting procedure cannot, however, be
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and
ignored. The validity of the cumulative voting procedure is dependent
AVELINO V. CRUZ, respondents. (Consolidated petition) ponente:
on the directors thus elected being genuine members of the Filipino
group, not voters whose interest is to increase the ASI share in the GUTIERREZ, JR., J.:
management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company Characters: 1. Petitioners w/ LUCIANO E. SALAZAR questions
exists under its original agreement. Cumulative voting may not be used the election of directors for the Sanitary Wares Manufatucring
as a device to enable ASI to achieve stealthily or indirectly what they
Corporation. 2. Respondents were the elected directors of the
cannot accomplish openly. There are substantial safeguards in the
said corporation
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.
Facts: In 1961, Saniwares, a domestic corporation was
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. incorporated for the primary purpose of manufacturing and
75875 are DISMISSED and the petition in G.R. No. 75951 is partly marketing sanitary wares. One of the incorporators, Mr. Baldwin
GRANTED. The amended decision of the Court of Appeals is Young went abroad to look for foreign partners, European or
American who could help in its expansion plans. On August 15, Ruling: In the instant cases, our examination of important
1962, ASI, a foreign corporation domiciled in Delaware, United provisions of the Agreement as well as the testimonial evidence
States entered into an Agreement with Saniwares and some presented by the Lagdameo and Young Group shows that the
Filipino investors whereby ASI and the Filipino investors agreed to parties agreed to establish a joint venture and not a corporation.
participate in the ownership of an enterprise which would engage The history of the organization of Saniwares and the unusual
primarily in the business of manufacturing in the Philippines and arrangements which govern its policy making body are all
selling here and abroad vitreous china and sanitary wares. The consistent with a joint venture and not with an ordinary
parties agreed that the business operations in the Philippines shall corporation. Equally important as the consideration of the
be carried on by an incorporated enterprise and that the name of contractual intent of the parties is the consideration as regards the
the corporation shall initially be Sanitary Wares Manufacturing possible domination by the foreign investors of the enterprise in
Corporation. In their agreement, the management of the violation of the nationalization requirements enshrined in the
corporation will be vested in a Board of directors consisting of 9 Constitution and circumvention of the Anti-Dummy Act. In this
members, ASI is to be given 3 seats in the board of the directors regard, petitioner Salazar's position is that the Anti-Dummy Act
as long as they maintain 30% equity while the remaining 6 seats allows the ASI group to elect board directors in proportion to their
will be allotted for the Filipino owners. In the duration of their share in the capital of the entity. It is to be noted, however, that the
operation, ASI increased its holdings from 30% to 40%. In an same law also limits the election of aliens as members of the
election held, respondents were elected as board of directors. The board of directors in proportion to their allowance participation of
result of the election was questioned by petitioners on the ground said entity. In the instant case, the foreign Group ASI was limited
that there should be an additional seat for ASI by reason of their to designate three directors. This is the allowable participation of
increased equity and sought the election of Chamsay and Salazar. the ASI Group. Hence, in future dealings, this limitation of six to
The case was file in the SEC. SEC dismissed the case and was three board seats should always be maintained as long as the joint
brought to the IAC for appeal. The IAC overturned the decision of venture agreement exists considering that in limiting 3 board seats
tge SEC but was overturned upon the motion for reconsideration in the 9-man board of directors there are provisions already
to CA. Thus this petition. agreed upon and embodied in the parties' Agreement to protect
the interests arising from the minority status of the foreign
investors.
Issue: Whether or not the Sanitary Wares Manufacturing is a
corporation.?NO Was the election valid.? YES
GUTIERREZ, JR., J.:

5. Pioneer Insurance vs CA 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
175 SCRA 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
G.R. No. 84197 July 28, 1989 defendants (respondents in G.R. No. 84197) was dismissed but in all
other respects the trial court's decision was affirmed.
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs. The dispositive portion of the trial court's decision reads as follows:
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA WHEREFORE, judgment is rendered against defendant
and JACOB S. LIM, respondents. Jacob S. Lim requiring Lim to pay plaintiff the amount of
P311,056.02, with interest at the rate of 12% per annum
G.R. No. 84157 July 28, 1989 compounded monthly; plus 15% of the amount awarded to
plaintiff as attorney's fees from July 2,1966, until full
JACOB S. LIM, petitioner,
payment is made; plus P70,000.00 moral and exemplary
vs.
damages.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT It is found in the records that the cross party plaintiffs
CO., INC,, FRANCISCO and MODESTO CERVANTES and incurred additional miscellaneous expenses aside from
CONSTANCIO MAGLANA, respondents. Pl51,000.00,,making a total of P184,878.74. Defendant
Jacob S. Lim is further required to pay cross party plaintiff,
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Bormaheco, the Cervanteses one-half and Maglana the
other half, the amount of Pl84,878.74 with interest from the
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
filing of the cross-complaints until the amount is fully paid;
Renato J. Robles for BORMAHECO, Inc. and Cervanteses. plus moral and exemplary damages in the amount of
P184,878.84 with interest from the filing of the cross-
Leonardo B. Lucena for Constancio Maglana. 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 No damage is decided against Malayan Insurance
Bormaheco and the Cervanteses, and another P20,000.00 Company, Inc., the third-party defendant, for it only
to Constancio B. Maglana as attorney's fees. secured the attachment prayed for by the plaintiff Pioneer.
If an insurance company would be liable for damages in
xxx xxx xxx performing an act which is clearly within its power and
which is the reason for its being, then nobody would
WHEREFORE, in view of all above, the complaint of engage in the insurance business. No further claim or
plaintiff Pioneer against defendants Bormaheco, the counter-claim for or against anybody is declared by this
Cervanteses and Constancio B. Maglana, is dismissed. Court. (Rollo - G.R. No. 24197, pp. 15-16)
Instead, plaintiff is required to indemnify the defendants
Bormaheco and the Cervanteses the amount of In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in
P20,000.00 as attorney's fees and the amount of the airline business as owner-operator of Southern Air Lines (SAL) a
P4,379.21, per year from 1966 with legal rate of interest up single proprietorship.
to the time it is paid.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and
Furthermore, the plaintiff is required to pay Constancio B. Lim entered into and executed a sales contract (Exhibit A) for the sale
Maglana the amount of P20,000.00 as attorney's fees and and purchase of two (2) DC-3A Type aircrafts and one (1) set of
costs. 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,
No moral or exemplary damages is awarded against arrived in Manila on June 7,1965 while the other aircraft, arrived in
plaintiff for this action was filed in good faith. The fact that Manila on July 18,1965.
the properties of the Bormaheco and the Cervanteses were
attached and that they were required to file a counterbond On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer,
in order to dissolve the attachment, is not an act of bad petitioner in G.R. No. 84197) as surety executed and issued its Surety
faith. When a man tries to protect his rights, he should not Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim,
be saddled with moral or exemplary damages. for the balance price of the aircrafts and spare parts.
Furthermore, the rights exercised were provided for in the
Rules of Court, and it was the court that ordered it, in the It appears that Border Machinery and Heavy Equipment Company, Inc.
exercise of its discretion. (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 Maglana, however, filed a third party claim alleging that they are co-
proposed by Lim to expand his airline business. They executed two (2) owners of the aircrafts,
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 On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
SAL, Bormaheco and the Cervanteses. The indemnity agreements application for a writ of preliminary attachment against Lim and
stipulated that the indemnitors principally agree and bind themselves respondents, the Cervanteses, Bormaheco and Maglana.
jointly and severally to indemnify and hold and save harmless Pioneer
from and against any/all damages, losses, costs, damages, taxes, In their Answers, Maglana, Bormaheco and the Cervanteses filed
penalties, charges and expenses of whatever kind and nature which cross-claims against Lim alleging that they were not privies to the
Pioneer may incur in consequence of having become surety upon the contracts signed by Lim and, by way of counterclaim, sought for
bond/note and to pay, reimburse and make good to Pioneer, its damages for being exposed to litigation and for recovery of the sums of
successors and assigns, all sums and amounts of money which it or its money they advanced to Lim for the purchase of the aircrafts in
representatives should or may pay or cause to be paid or become liable question.
to pay on them of whatever kind and nature.
After trial on the merits, a decision was rendered holding Lim liable to
On June 10, 1965, Lim doing business under the name and style of pay Pioneer but dismissed Pioneer's complaint against all other
SAL executed in favor of Pioneer as deed of chattel mortgage as defendants.
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 As stated earlier, the appellate court modified the trial court's decision in
deed (Exhibit D) was duly registered with the Office of the Register of that the plaintiffs complaint against all the defendants was dismissed. In
Deeds of the City of Manila and with the Civil Aeronautics all other respects the trial court's decision was affirmed.
Administration pursuant to the Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776), respectively. We first resolve G.R. No. 84197.

Lim defaulted on his subsequent installment payments prompting JDA Petitioner Pioneer Insurance and Surety Corporation avers that:
to request payments from the surety. Pioneer paid a total sum of
P298,626.12. RESPONDENT COURT OF APPEALS GRIEVOUSLY
ERRED WHEN IT DISMISSED THE APPEAL OF
Pioneer then filed a petition for the extrajudicial foreclosure of the said PETITIONER ON THE SOLE GROUND THAT
chattel mortgage before the Sheriff of Davao City. The Cervanteses and PETITIONER HAD ALREADY COLLECTED THE
PROCEEDS OF THE REINSURANCE ON ITS BOND IN
FAVOR OF THE JDA AND THAT IT CANNOT the avails of the suit (Salonga v. Warner Barnes & Co.,
REPRESENT A REINSURER TO RECOVER THE Ltd., 88 Phil. 125, 131). By real party in interest is meant a
AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS present substantial interest as distinguished from a mere
DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. expectancy or a future, contingent, subordinate or
84197, p. 10) consequential interest (Garcia v. David, 67 Phil. 27;
Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385
The petitioner questions the following findings of the appellate court: III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City
of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
We find no merit in plaintiffs appeal. It is undisputed that
plaintiff Pioneer had reinsured its risk of liability under the Based on the foregoing premises, plaintiff Pioneer cannot
surety bond in favor of JDA and subsequently collected the be considered as the real party in interest as it has already
proceeds of such reinsurance in the sum of P295,000.00. been paid by the reinsurer the sum of P295,000.00 — the
Defendants' alleged obligation to Pioneer amounts to bulk of defendants' alleged obligation to Pioneer.
P295,000.00, hence, plaintiffs instant action for the
recovery of the amount of P298,666.28 from defendants In addition to the said proceeds of the reinsurance received
will no longer prosper. Plaintiff Pioneer is not the real party by plaintiff Pioneer from its reinsurer, the former was able
in interest to institute the instant action as it does not stand to foreclose extra-judicially one of the subject airplanes and
to be benefited or injured by the judgment. its spare engine, realizing the total amount of P37,050.00
from the sale of the mortgaged chattels. Adding the sum of
Plaintiff Pioneer's contention that it is representing the P37,050.00, to the proceeds of the reinsurance amounting
reinsurer to recover the amount from defendants, hence, it to P295,000.00, it is patent that plaintiff has been overpaid
instituted the action is utterly devoid of merit. Plaintiff did in the amount of P33,383.72 considering that the total
not even present any evidence that it is the attorney-in-fact amount it had paid to JDA totals to only P298,666.28. To
of the reinsurance company, authorized to institute an allow plaintiff Pioneer to recover from defendants the
action for and in behalf of the latter. To qualify a person to amount in excess of P298,666.28 would be tantamount to
be a real party in interest in whose name an action must be unjust enrichment as it has already been paid by the
prosecuted, he must appear to be the present real owner of reinsurance company of the amount plaintiff has paid to
the right sought to be enforced (Moran, Vol. I, Comments JDA as surety of defendant Lim vis-a-vis defendant Lim's
on the Rules of Court, 1979 ed., p. 155). It has been held liability to JDA. Well settled is the rule that no person
that the real party in interest is the party who would be should unjustly enrich himself at the expense of another
benefited or injured by the judgment or the party entitled to (Article 22, New Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court In resolving these issues, the trial court made the following findings:
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 It appearing that Pioneer reinsured its risk of liability under
herein both in their answers in the court below and in their respective the surety bond it had executed in favor of JDA, collected
briefs with respondent court; (Rollo, p. 11) (2) even assuming the proceeds of such reinsurance in the sum of P295,000,
hypothetically that it was paid by its reinsurer, still none of the and paid with the said amount the bulk of its alleged liability
respondents had any interest in the matter since the reinsurance is to JDA under the said surety bond, it is plain that on this
strictly between the petitioner and the re-insurer pursuant to section 91 score it no longer has any right to collect to the extent of
of the Insurance Code; (3) pursuant to the indemnity agreements, the the said amount.
petitioner is entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not applicable On the question of why it is Pioneer, instead of the
considering that whatever amount he would recover from the co- reinsurance (sic), that is suing defendants for the amount
indemnitor will be paid to the reinsurer. paid to it by the reinsurers, notwithstanding that the cause
of action pertains to the latter, Pioneer says: The reinsurers
The records belie the petitioner's contention that the issue on the opted instead that the Pioneer Insurance & Surety
reinsurance money was never raised by the parties. Corporation shall pursue alone the case.. . . . Pioneer
Insurance & Surety Corporation is representing the
A cursory reading of the trial court's lengthy decision shows that two of reinsurers to recover the amount.' In other words, insofar
the issues threshed out were: as the amount paid to it by the reinsurers Pioneer is suing
defendants as their attorney-in-fact.
xxx xxx xxx
But in the first place, there is not the slightest indication in
1. Has Pioneer a cause of action against defendants with the complaint that Pioneer is suing as attorney-in- fact of
respect to so much of its obligations to JDA as has been the reinsurers for any amount. Lastly, and most important
paid with reinsurance money? of all, Pioneer has no right to institute and maintain in its
own name an action for the benefit of the reinsurers. It is
2. If the answer to the preceding question is in the well-settled that an action brought by an attorney-in-fact in
negative, has Pioneer still any claim against defendants, his own name instead of that of the principal will not
considering the amount it has realized from the sale of the prosper, and this is so even where the name of the
mortgaged properties? (Record on Appeal, p. 359, Annex principal is disclosed in the complaint.
B of G.R. No. 84157).
Section 2 of Rule 3 of the Old Rules of Court The payment to the petitioner made by the reinsurers was not disputed
provides that 'Every action must be prosecuted in the appellate court. Considering this admitted payment, the only
in the name of the real party in interest.' This issue that cropped up was the effect of payment made by the reinsurers
provision is mandatory. The real party in to the petitioner. Therefore, the petitioner's argument that the
interest is the party who would be benefitted or respondents had no interest in the reinsurance contract as this is strictly
injured by the judgment or is the party entitled between the petitioner as insured and the reinsuring company pursuant
to the avails of the suit. to Section 91 (should be Section 98) of the Insurance Code has no
basis.
This Court has held in various cases that an
attorney-in-fact is not a real party in interest, In general a reinsurer, on payment of a loss acquires the
that there is no law permitting an action to be same rights by subrogation as are acquired in similar cases
brought by an attorney-in-fact. Arroyo v. where the original insurer pays a loss (Universal Ins. Co. v.
Granada and Gentero, 18 Phil. Rep. 484; Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
Luchauco v. Limjuco and Gonzalo, 19 Phil.
Rep. 12; Filipinos Industrial Corporation v. San The rules of practice in actions on original insurance
Diego G.R. No. L- 22347,1968, 23 SCRA 706, policies are in general applicable to actions or contracts of
710-714. reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins.
Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
The total amount paid by Pioneer to JDA is P299,666.29.
Since Pioneer has collected P295,000.00 from the Hence the applicable law is Article 2207 of the new Civil Code, to wit:
reinsurers, the uninsured portion of what it paid to JDA is
the difference between the two amounts, or P3,666.28. Art. 2207. If the plaintiffs property has been insured, and he
This is the amount for which Pioneer may sue defendants, has received indemnity from the insurance company for the
assuming that the indemnity agreement is still valid and injury or loss arising out of the wrong or breach of contract
effective. But since the amount realized from the sale of the complained of, the insurance company shall be subrogated
mortgaged chattels are P35,000.00 for one of the airplanes to the rights of the insured against the wrongdoer or the
and P2,050.00 for a spare engine, or a total of P37,050.00, person who has violated the contract. If the amount paid by
Pioneer is still overpaid by P33,383.72. Therefore, Pioneer the insurance company does not fully cover the injury or
has no more claim against defendants. (Record on Appeal, loss, the aggrieved party shall be entitled to recover the
pp. 360-363). deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air On the other hand, we find the trial court's findings on the matter replete
Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we with evidence to substantiate its finding that the counter-indemnitors are
subsequently applied in Manila Mahogany Manufacturing Corporation v. not liable to the petitioner. The trial court stated:
Court of Appeals (154 SCRA 650 [1987]):
Apart from the foregoing proposition, the indemnity
Note that if a property is insured and the owner receives agreement ceased to be valid and effective after the
the indemnity from the insurer, it is provided in said article execution of the chattel mortgage.
that the insurer is deemed subrogated to the rights of the
insured against the wrongdoer and if the amount paid by Testimonies of defendants Francisco Cervantes and
the insurer does not fully cover the loss, then the aggrieved Modesto Cervantes.
party is the one entitled to recover the
deficiency. Evidently, under this legal provision, the real Pioneer Insurance, knowing the value of the aircrafts and
party in interest with regard to the portion of the indemnity the spare parts involved, agreed to issue the bond provided
paid is the insurer and not the insured. (Emphasis that the same would be mortgaged to it, but this was not
supplied). possible because the planes were still in Japan and could
not be mortgaged here in the Philippines. As soon as the
It is clear from the records that Pioneer sued in its own name and not aircrafts were brought to the Philippines, they would be
as an attorney-in-fact of the reinsurer. mortgaged to Pioneer Insurance to cover the bond, and
this indemnity agreement would be cancelled.
Accordingly, the appellate court did not commit a reversible error in
dismissing the petitioner's complaint as against the respondents for the The following is averred under oath by Pioneer in the
reason that the petitioner was not the real party in interest in the original complaint:
complaint and, therefore, has no cause of action against the
respondents. The various conflicting claims over the
mortgaged properties have impaired and
Nevertheless, the petitioner argues that the appeal as regards the rendered insufficient the security under the
counter indemnitors should not have been dismissed on the premise chattel mortgage and there is thus no other
that the evidence on record shows that it is entitled to recover from the sufficient security for the claim sought to be
counter indemnitors. It does not, however, cite any grounds except its enforced by this action.
allegation that respondent "Maglanas defense and evidence are
certainly incredible" (p. 12, Rollo) to back up its contention.
This is judicial admission and aside from the chattel aforementioned provisions, Pioneer shall have no further
mortgage there is no other security for the claim sought to action against the purchaser to recover any unpaid balance
be enforced by this action, which necessarily means that and any agreement to the contrary is void.' Cruz, et al. v.
the indemnity agreement had ceased to have any force Filipinas Investment & Finance Corp. No. L- 24772, May
and effect at the time this action was instituted. Sec 2, Rule 27,1968, 23 SCRA 791, 795-6.
129, Revised Rules of Court.
The operation of the foregoing provision cannot be
Prescinding from the foregoing, Pioneer, having foreclosed escaped from through the contention that Pioneer is not the
the chattel mortgage on the planes and spare parts, no vendor but JDA. The reason is that Pioneer is actually
longer has any further action against the defendants as exercising the rights of JDA as vendor, having subrogated
indemnitors to recover any unpaid balance of the price. it in such rights. Nor may the application of the provision be
The indemnity agreement was ipso jure extinguished upon validly opposed on the ground that these defendants and
the foreclosure of the chattel mortgage. These defendants, defendant Maglana are not the vendee but indemnitors.
as indemnitors, would be entitled to be subrogated to the Pascual, et al. v. Universal Motors Corporation, G.R. No. L-
right of Pioneer should they make payments to the latter. 27862, Nov. 20,1974, 61 SCRA 124.
Articles 2067 and 2080 of the New Civil Code of the
Philippines. The restructuring of the obligations of SAL or Lim, thru the
change of their maturity dates discharged these defendants
Independently of the preceding proposition Pioneer's from any liability as alleged indemnitors. The change of the
election of the remedy of foreclosure precludes any further maturity dates of the obligations of Lim, or SAL extinguish
action to recover any unpaid balance of the price. the original obligations thru novations thus discharging the
indemnitors.
SAL or Lim, having failed to pay the second to the eight
and last installments to JDA and Pioneer as surety having The principal hereof shall be paid in eight
made of the payments to JDA, the alternative remedies equal successive three months interval
open to Pioneer were as provided in Article 1484 of the installments, the first of which shall be due and
New Civil Code, known as the Recto Law. payable 25 August 1965, the remainder of
which ... shall be due and payable on the 26th
Pioneer exercised the remedy of foreclosure of the chattel day x x x of each succeeding three months
mortgage both by extrajudicial foreclosure and the instant and the last of which shall be due and payable
suit. Such being the case, as provided by the 26th May 1967.
However, at the trial of this case, Pioneer produced a consequence of this was the extinguishment of the
memorandum executed by SAL or Lim and JDA, modifying obligations and of the surety bond secured by the
the maturity dates of the obligations, as follows: indemnity agreement which was thereby also extinguished.
Applicable by analogy are the rulings of the Supreme Court
The principal hereof shall be paid in eight in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil.
equal successive three month interval 553, 563, and the case of Asiatic Petroleum Co. v. Hizon
installments the first of which shall be due and David, 45 Phil. 532, 538.
payable 4 September 1965, the remainder of
which ... shall be due and payable on the 4th Art. 2079. An extension granted to the debtor
day ... of each succeeding months and the last by the creditor without the consent of the
of which shall be due and payable 4th June guarantor extinguishes the guaranty The mere
1967. failure on the part of the creditor to demand
payment after the debt has become due does
Not only that, Pioneer also produced eight purported not of itself constitute any extension time
promissory notes bearing maturity dates different from that referred to herein, (New Civil Code).'
fixed in the aforesaid memorandum; the due date of the
first installment appears as October 15, 1965, and those of Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-
the rest of the installments, the 15th of each succeeding 563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.)
three months, that of the last installment being July 15, 36 O.G. 1571.
1967.
Pioneer's liability as surety to JDA had already prescribed
These restructuring of the obligations with regard to their when Pioneer paid the same. Consequently, Pioneer has
maturity dates, effected twice, were done without the no more cause of action to recover from these defendants,
knowledge, much less, would have it believed that these as supposed indemnitors, what it has paid to JDA. By
defendants Maglana (sic). Pioneer's official Numeriano virtue of an express stipulation in the surety bond, the
Carbonel would have it believed that these defendants and failure of JDA to present its claim to Pioneer within ten
defendant Maglana knew of and consented to the days from default of Lim or SAL on every installment,
modification of the obligations. But if that were so, there released Pioneer from liability from the claim.
would have been the corresponding documents in the form
of a written notice to as well as written conformity of these Therefore, Pioneer is not entitled to exact reimbursement
defendants, and there are no such document. The from these defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall These questions are premised on the petitioner's theory that as a result
not entitle him to reimbursement from his co- of the failure of respondents Bormaheco, Spouses Cervantes,
debtors if such payment is made after the Constancio Maglana and petitioner Lim to incorporate, a de
obligation has prescribed or became illegal. 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
These defendants are entitled to recover damages and venture in proportion to their contribution. The petitioner, therefore,
attorney's fees from Pioneer and its surety by reason of the questions the appellate court's findings ordering him to reimburse
filing of the instant case against them and the attachment certain amounts given by the respondents to the petitioner as their
and garnishment of their properties. The instant action is contributions to the intended corporation, to wit:
clearly unfounded insofar as plaintiff drags these
defendants and defendant Maglana.' (Record on Appeal, However, defendant Lim should be held liable to pay his
pp. 363-369, Rollo of G.R. No. 84157). co-defendants' cross-claims in the total amount of
P184,878.74 as correctly found by the trial court, with
We find no cogent reason to reverse or modify these findings. interest from the filing of the cross-complaints until the
amount is fully paid. Defendant Lim should pay one-half of
Hence, it is our conclusion that the petition in G.R. No. 84197 is not the said amount to Bormaheco and the Cervanteses and
meritorious. the other one-half to defendant Maglana. It is established in
the records that defendant Lim had duly received the
We now discuss the merits of G.R. No. 84157. amount of Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the
Petitioner Jacob S. Lim poses the following issues: ownership of the subject airplanes and spare parts (Exhibit
58). In addition, the cross-party plaintiffs incurred additional
l. What legal rules govern the relationship among co- expenses, hence, the total sum of P 184,878.74.
investors whose agreement was to do business through
the corporate vehicle but who failed to incorporate the We first state the principles.
entity in which they had chosen to invest? How are the
losses to be treated in situations where their contributions While it has been held that as between themselves the
to the intended 'corporation' were invested not through the rights of the stockholders in a defectively incorporated
corporate form? This Petition presents these fundamental association should be governed by the supposed charter
questions which we believe were resolved erroneously by and the laws of the state relating thereto and not by the
the Court of Appeals ('CA'). (Rollo, p. 6). rules governing partners (Cannon v. Brush Electric Co., 54
A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held takes no part except to subscribe for stock in a proposed
that persons who attempt, but fail, to form a corporation corporation which is never legally formed does not become
and who carry on business under the corporate name a partner with other subscribers who engage in business
occupy the position of partners inter se (Lynch v. under the name of the pretended corporation, so as to be
Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A liable as such in an action for settlement of the alleged
1065). Thus, where persons associate themselves together partnership and contribution (Ward v. Brigham, 127 Mass.
under articles to purchase property to carry on a business, 24). A partnership relation between certain stockholders
and their organization is so defective as to come short of and other stockholders, who were also directors, will not be
creating a corporation within the statute, they become in implied in the absence of an agreement, so as to make the
legal effect partners inter se, and their rights as members former liable to contribute for payment of debts illegally
of the company to the property acquired by the company contracted by the latter (Heald v. Owen, 44 N.W. 210, 79
will be recognized (Smith v. Schoodoc Pond Packing Co., Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics
84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). supplied).
So, where certain persons associated themselves as a
corporation for the development of land for irrigation In the instant case, it is to be noted that the petitioner was declared
purposes, and each conveyed land to the corporation, and non-suited for his failure to appear during the pretrial despite
two of them contracted to pay a third the difference in the notification. In his answer, the petitioner denied having received any
proportionate value of the land conveyed by him, and no amount from respondents Bormaheco, the Cervanteses and Maglana.
stock was ever issued in the corporation, it was treated as The trial court and the appellate court, however, found through Exhibit
a trustee for the associates in an action between them for 58, that the petitioner received the amount of P151,000.00 representing
an accounting, and its capital stock was treated as the participation of Bormaheco and Atty. Constancio B. Maglana in the
partnership assets, sold, and the proceeds distributed ownership of the subject airplanes and spare parts. The record shows
among them in proportion to the value of the property that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru
contributed by each (Shorb v. Beaudry, 56 Cal. the Cervanteses.
446). However, such a relation does not necessarily exist,
for ordinarily persons cannot be made to assume the It is therefore clear that the petitioner never had the intention to form a
relation of partners, as between themselves, when their corporation with the respondents despite his representations to them.
purpose is that no partnership shall exist (London Assur. This gives credence to the cross-claims of the respondents to the effect
Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, that they were induced and lured by the petitioner to make contributions
29 L.Ed. 688), and it should be implied only when to a proposed corporation which was never formed because the
necessary to do justice between the parties; thus, one who
petitioner reneged on their agreement. Maglana alleged in his cross- Contrary to the agreement among the defendants,
claim: defendant Lim in connivance with the plaintiff, signed and
executed the alleged chattel mortgage and surety bond
... that sometime in early 1965, Jacob Lim proposed to agreement in his personal capacity as the alleged
Francisco Cervantes and Maglana to expand his airline proprietor of the SAL. The answering defendants learned
business. Lim was to procure two DC-3's from Japan and for the first time of this trickery and misrepresentation of the
secure the necessary certificates of public convenience other, Jacob Lim, when the herein plaintiff chattel mortgage
and necessity as well as the required permits for the (sic) allegedly executed by defendant Lim, thereby forcing
operation thereof. Maglana sometime in May 1965, gave them to file an adverse claim in the form of third party
Cervantes his share of P75,000.00 for delivery to Lim claim. Notwithstanding repeated oral demands made by
which Cervantes did and Lim acknowledged receipt defendants Bormaheco and Cervanteses, to defendant
thereof. Cervantes, likewise, delivered his share of the Lim, to surrender the possession of the two planes and
undertaking. Lim in an undertaking sometime on or about their accessories and or return the amount advanced by
August 9,1965, promised to incorporate his airline in the former amounting to an aggregate sum of P 178,997.14
accordance with their agreement and proceeded to acquire as evidenced by a statement of accounts, the latter
the planes on his own account. Since then up to the filing ignored, omitted and refused to comply with them. (Record
of this answer, Lim has refused, failed and still refuses to on Appeal, pp. 341-342).
set up the corporation or return the money of Maglana.
(Record on Appeal, pp. 337-338). Applying therefore the principles of law earlier cited to the facts of the
case, necessarily, no de facto partnership was created among the
while respondents Bormaheco and the Cervanteses alleged in their parties which would entitle the petitioner to a reimbursement of the
answer, counterclaim, cross-claim and third party complaint: supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other
Sometime in April 1965, defendant Lim lured and induced would-be incorporators in transacting the sale of the airplanes and
the answering defendants to purchase two airplanes and spare parts.
spare parts from Japan which the latter considered as their
lawful contribution and participation in the proposed WHEREFORE, the instant petitions are DISMISSED. The questioned
corporation to be known as SAL. Arrangements and decision of the Court of Appeals is AFFIRMED.
negotiations were undertaken by defendant Lim. Down
payments were advanced by defendants Bormaheco and SO ORDERED.
the Cervanteses and Constancio Maglana (Exh. E- 1).
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